Jul 13

Today’s News July 13, 2015

  • America – We Have A Problem

    If “everything is awesome’… and 70% of the US economy is personal consumption… and Q1 weakness was all weather and port related? Then why are these charts doing this…

     

    Retail sales growth has fallen and can’t get back up…

     

    And Wholesale sales have collapsed…

     

    Perhaps, just perhaps, it really is all a big con and all the Fed really has is “confidence trickery” as a policy tool (and a horde of group-thinking, status-quo-beholden talking heads to ‘confirm’ anecdotes).

  • Dow Futures 'Rally' 150 Points Off Opening Lows Into Positive Territory On Greek Makeshift "Deal" Chatter

    We have detailed just what a total farce of a day this has been in Brussels, but even more farcical is the reaction in equity markets in the last few minutes…

     

     

    Because it wouldn’t be a stock market if buying the dip didn’t work…

  • China Stocks Mixed After Regulators "Bust Illicit Stock Sellers" And Unhalt Over 400 Securities

    A modestly positive open in China quickly turned negative as regulators un-halted 408 more stocks, reducing the number suspended to just 36% of all stocks. Along with disappointing trade data (and expectations of “extreme pressure in the next 2-3 months”) and regulators cracking down on investors with multiple illegally-obtained margin trading accounts, early strength has faded (for now). Unsurprisingly, the three regions with the most exposure to the crash in stocks are Shanghai, Shenzhen, and Guangdong and, as Bloomberg notes, Chinese police have found their scapegoat some trading companies may have manipulated stock futures (lower we assume, as manipulating a price higher appears to be policy). Stocks are mixed with high beta ChiNext and Shenzhen higher and Shanghai and the CSI-300 lower (the latter having gone nowhere for the last 2 days).

     

    The 24% explosion off the lows is stalling…

     

    Shanghai, Shenzhen, and Guangdong dominate the nation’s equity maket exposure

    Source: @KangHexin

     

    Scapegoats are being lined up… (as Bloomberg reports)

    China police investigation team led by Vice Minister of Public Security Meng Qingfeng found signs some trading cos. may have manipulated stock futures, Xinhua reported, without saying where it got the information.

     

    The team visited China Securities Regulatory Commission head office Thursday morning to investigate what it called “malicious short-selling of stocks and stock indices”: Xinhua

     

    The team arrived in Shanghai Friday to continue the probe

    And regulators are attempting to manage the multiple margin accounts problems (as Xinhua reports)…

    China’s securities watchdog announced on Sunday that it will crack down on illicit securities trading so that the market can recover steadily.

     

    “Some institutional or individual investors hold ‘virtual’ securities accounts or trade with borrowed accounts. As real-name registration is required by the law, this illicit conduct may damage other investors’ legitimate interests,” said the China Securities Regulatory Commission (CSRC).

     

    The commission asked local authorities to verify the authenticity of securities accounts and be more strict when supervising them.

     

    Institutional and individual investors will be prohibited from lending their accounts to each other.

     

    The CSRC said it will clamp down on any illicit conduct in accordance with the law, and will transfer violators to the police.

    “Free” markets…

    • *NUMBER OF CHINA TRADING HALTS DROPS TO 36% OF OVERALL LISTINGS
    • *NUMBER OF CHINA TRADING HALTS DROPS BY 408 TO 1,045 VS FRIDAY

    Trade data suggests extremely weak foreign and domestic demand…

    • *CHINA 1H EXPORTS RISE 0.9% Y/Y IN YUAN
    • *CHINA 1H IMPORTS FALL 15.5% Y/Y IN YUAN
    • *CHINA 1H TRADE SURPLUS 1.61T YUAN
    • *PRESSURE ON EXPORTS RELATIVELY SEVERE IN NEXT 2-3 MOS: HUANG

    And perhaps hints of what is  to come…

    • *NOT EASY FOR CHINA EXPORTS TO KEEP RISING AS YUAN STRONG: HUANG

    QE?

    *  *  *

  • Why NATO Fears 'Grexit'

    Originally posted at SputnikNews.com,

    With Greece tottering on the brink of leaving the Eurozone, experts of all stripes have been debating Grexit's security implications, including Athens' relationship with NATO. While naysayers argue that the geopolitics behind Grexit "are actually pretty boring," others warn that the implications for the bloc could be far more serious.

    Over the past couple of weeks, US and European media have been busy pondering the implications of the Grexit for European security, particularly as it relates to the NATO alliance. Following an initial outburst of panic and alarm about NATO standing to lose its Mediterranean outpost to Moscow before being flooded by immigrants, NATO Secretary General Jeans Stoltenberg urged for calm, noting that the Greeks "have not linked the problems within the European Union and the euro with their strong commitment to NATO," and adding that Athens will remain "a close partner."

    Influential US news and geopolitical analysis publication Foreign Policy echoed Stoltenberg's tone, brushing off security fears with a recent headline reading "The Geopolitics of a Grexit Are Actually Pretty Boring." The piece, written by former European Council on Foreign Relations Senior Policy Fellow Dimitar Bechev, argues that "those fretting that a Greek departure from the Eurozone will unleash a flood of migrants and send Athens into the arms of a waiting Putin should calm down," noting that "none of this is going to happen."

    Bechev states out that the "alarmist" arguments over Greece have turned the country, a "peripheral member of the West that accounts for a mere 3 percent of the eurozone's GDP, into a pivotal country."

    Moreover, dismissing arguments about the country's 'dangerous' "flirtation with Russia," Bechev posits that in actuality, the "Russian gambit," aimed at providing the Syriza-led coalition with "some space to maneuver" in relation to Brussels and Berlin, has "failed to pay off."

    As far as Greece's geopolitical importance is concerned, Bechev notes that geopolitical considerations have not really given the country "much mileage in the debt talks," adding that "even if Athens wanted to foment trouble –and there are few signs that it does –it has little power to actually do so."

    Ultimately, according to the analyst, Greece is and will remain unlikely to rock the boat on any of Europe's major security and foreign affairs issues, from anti-Russian sanctions, to the US-EU trade pact, to immigration controls.

    Trojan Horse, or Weakest Link?

    But Bechev's calm and level-headed analysis is contradicted by other experts, no less dispassionate and rational than he is, including fellow FP contributor and former NATO commander James Stavridis, who noted in a piece preceding Bechev's that even if the "angry, disaffected and battered nation" remains a NATO member, it could nonetheless become an obstructive one. This, in Stavridis's view, would be a very serious problem for what is ostensibly a consensus-driven organization.

    According to the former Navy commander, this obstructionism could come to a head when it comes time for the organization to make decisions against perceived threats, including Russia. It could also lead to thorny issues over the use of Greek bases in the Mediterranean, or Athens' participation in NATO military missions.

    Politico Europe echoes Stavridis's analysis, noting in a recent article that with NATO "rely[ing] on unanimous approval from all 28 members for all major decisions, Greece, especially one shored up with economic reprieve from Russia, could prove to be a major headache for future Alliance maneuvers" to counter Moscow. Furthermore, the publication notes that "NATO's unanimity clause applies not only to deploying military forces, but also to essential day-to-day functions of the Alliance such as arms sales and major political decisions such as invoking Article 4 or 5 of the Washington Treaty to consult and defend fellow allies."

    Challenging Bechev's argument that Greece could not put a crimp in NATO's plans 'even if it wanted to', numerous analysts have cited Athens' history of obstructing NATO decisions when necessary, from the country's outright withdrawal from the organization's military command structure in the 1970s, following Turkey's invasion of Cyprus, to its condemnation of NATO's 1999 bombing campaign of Yugoslavia, to recent efforts to block NATO-EU cooperation over the Turkey-Cyprus dispute.

    Moreover, even if Stoltenberg is correct, and an Athens left to its economic fate continues to be NATO's "close partner," its impoverished status would likely leave it NATO's weakest link. As recently noted by The Guardian's John Hooper, while Greece is presently one of the few NATO members which abides by the requirement to spend at least 2 percent of its GDP on defense, the country's economic collapse would not only cripple the country's participation in NATO missions; it would also signal the weakening of the organization's south-eastern flank, while sparking fears of a Russia looking to take military advantage of the situation.

    Economic Ripple Effects

    Even if the naysayers are correct, and Moscow shows that it does not have the political will or the financial wherewithal to attempt to pry Greece from NATO's warm embrace, analysts note that the Greek crisis has had, and is likely to continue to have, a knock-on economic effect on European economies.

    In a recent op-ed for Indian Express, University of Cambridge lecturer and Greek Public Policy Forum member Nikitas Konstantinidis argued that "the chain set off by Grexit" could be "even more painful than events following the Lehman Brothers bankruptcy" in 2008. As a result, Politico Europe notes that if the recession-treading members of the EU were to face further economic shocks resulting from Grexit, this will not "augur well for NATO militaries," shifting "NATO members' focus further away from defense spending."

    Security Issues Surrounding the Migrant Crisis

    With Greece turning into one of the main points of entry for tens of thousands of African and Middle Eastern refugees fleeing war and instability across the Mediterranean, analysts warn that Grexit is likely to have a negative impact on this pressing issue as well. And While Bechev's argument that Greece is unlikely to "use migration controls as a weapon in a guerilla war against Europe" stands to reason, this does not mean that economic collapse and the ensuing political and social fallout will have a positive impact on the country's ability to control the flood of immigrants.

    As Politico Europe points out, the worsened economic situation following Grexit will severely "undercut badly needed funding for Greece's ability to track refugees and retain border security" which in turn "poses a very real danger to NATO members' security, especially as reports begin to filter in of Islamic State fighters slipping into Europe in the wave of refugees.

    300 Spartans

    Ultimately, while some analysts now attempt to downplay Greece's importance in the political, economic and security geography of Europe, others, including Konstantinidis, maintain that the country remains "a core member of some of the world's largest regional blocs." Therefore, "the ramifications of a potential Grexit" are likely to be highly "disproportionate to the country's economic size and geopolitical clout."

    As far as transatlantic security is concerned, the danger posed by the Grexit is not confined to the questions it raises over Greece's NATO membership, or the security ripple effects caused by the Greek economy's collapse. Grexit's danger lies in the fact that it serves as a symbol of the reversal of transatlantic institutions' fortunes in their attempts to build and maintain a hegemonic political, economic and military order in Europe.

  • GMO's Montier Shifts To 50% Cash, Sees 3 "Hellish" Scenarios For Markets

    "This is definitely the most difficult time to be an asset allocator," warns GMO's James Montier, telling conference attendees in Munich that he hasn't been this risk-averse since 2008. Having warned six months ago that "stocks are hideously expensive…in a central bank sponsored bubble," Montier sees three different "hellish" scenarios and as CityWire reports, warns investors, "I think it's best to stand a bit and hold onto some dry powder," despite the groupthink idolatry being practiced around the world.

     

    As CityWire reports,

    "This is definitely the most difficult time to be an asset allocator. It’s very hard to find value," Montier told Citywire at the Value Intelligence Conference in Munich, an event hosted by Value Intelligence Advisors (VIA).

     

    The fund manager recently cut his equity exposure to US 'quality' names and, as such, has upped cash in his Global Real Return fund. He currently holds 20% in liquid assets, i.e. cash and derivatives, while a further 30% is invested in fixed income.

     

    "2007 and 2008 we had about 80% of the fund in non-risky assets. This has been the first time since that we have had over 50% in very liquid assets," he said.

    And various levels of hell are on their way…

    Montier said he is currently breaking up his market view into three different 'hellish' situations.

     

    Firstly, there is a kind of 'stable' hell, for Montier this is the worst and least likely situation, where rates stay low over a long period and volatility and as such entry opportunities are minimal.

     

    Then he describes something near to purgatory, which, Montier said, is the most helpful environment for investors. This is where he sees the market still moving between a low interest rate and a rising interest rate scenario.

     

    The final of the three scenarios is an ‘unstable’ hell, where the market goes in one direction but keeps getting back off of course.

     

    "I can't tell you exactly how it is going to work. We may see US rates rise in the autumn but I wouldn’t take it for a given."

    So where to invest?

    His recent cut in US equities included exiting stocks such as Proctor & Gamble and Microsoft, which he sold on valuation grounds.

     

    "We still see these names as a relatively good option for equity investors but as we are value investors, we decided to cut them back a bit as they were getting expensive and so we’d rather hold cash."

     

    One area where Montier thinks there is still opportunity to select find value is in the emerging market space. Here he has added to names such as Russian oil and gas major Lukoil and Korean telecoms group Samsung.

    But ultimately, Montier has strong words for investors…

    "Investors are constantly asking me how long I’m going to keep the cash position and what is going to be the ultimate trigger for reducing. I can’t say that, it does worry me if we are in this stable hell environment but at the moment, I think it’s best to stand a bit and hold onto some dry powder."
     

  • Immigration Policy Must Be Decentralized

    Submitted by Ryan McMaken via The Mises Institute,

    Last month, the United States Supreme Court declined to take up a case involving Arizona’s and Kansas’s attempts to require proof of citizenship to vote in federal elections. The two states sought SCOTUS review in an attempt to overturn a prohibition imposed by lower federal courts. Had the two states been allowed to impose more stringent citizenship requirements, the effect on the voting population would have likely been small, but the overall legal effect of the court’s decision is significant.

    The refusal of the Supreme Court to hear the case yet again sends a message to state and local governments that the federal government shall continue to centrally direct election and immigration law. As noted in The Hill:

    “This is a very big deal,” Rick Hasen, a University of California Irvine law professor, wrote on his election law blog. “Kobach had the potential to shift more power away from the federal government in administering elections toward the states.”

    Centrally Planning Immigration Policy

    The Arizona and Kansas voting restrictions had been efforts to affect national immigration policy via state laws. But, as has been the trend over the past century, the federal government has repeatedly asserted itself as the last word in policymaking in citizenship and immigration matters.

    Indeed, the Federal Courts explicitly declared the states powerless to attempt to control immigration within their own borders when Federal Judge Mariana Pfaelzer struck down California’s voter-approved Proposition 187 in 1994 and wrote:

    California is powerless to enact its own legislative scheme to regulate immigration. It is likewise powerless to enact its own legislative scheme to regulate alien access to public benefits.

    Naturally, this decision sent the message nationwide that states should not bother to limit access to taxpayer-funded amenities (with public education being a central issue) because the federal government will simply declare such efforts illegal.

    Thus, through these cases, federal courts have made it clear that no state (or anyone other than the feds) can meaningfully prevent participation by non-citizens in political activities such as elections, nor can the states limit the ways in which immigrants can access government benefits, even when those benefits are locally-funded. 

    The net effect is an imposition of a migrant subsidy scheme across all states regardless of the local economic and demographic realities, while ignoring the fact that residents of certain states bear a greater tax burden in subsidizing migrants.

    The Answer Is Not More Government Intervention

    At this point, it is important to note that the antidote to government subsidies (i.e., government intervention) is not more intervention. If the federal government insists that the taxpayers subsidize the immigrant population, then the proper response is to simply eliminate the subsidy. This is exactly what voters had attempted to do with Proposition 187 (and Arizona Proposition 200).

    This correct approach is to be contrasted with the draconian methods employed by other states which have centered on punishing employers and landlords (and the immigrants themselves, of course) for engaging in private contracts and non-violent market transactions.

    Such efforts only expand the size and scope of government, and they ultimately involve federal agents raiding private establishments and combing through lease agreements and payroll documentation to make sure that workers and renters bear an arbitrarily-assigned status as “legal” immigrants.

    When states turn to these methods, we end up with the worst of both worlds, since not surprisingly, federal courts have been relatively tolerant of state and local efforts to punish local businesses and employers while at the same time remaining steadfast in opposition to efforts to limit the scope of government programs.

    The Answer Is Decentralization and Smaller Government

    Thus, while states and local government are given a small space to act around the edges of immigration policy, all regions and states are tethered to a single national policy on citizenship and immigration. However, we can guess that, if they were given greater leeway to do so, states would offer a very diverse array of immigration-related policies.

    In research conducted by Huyen Pham and Pham Hoang Van, the authors attempt to measure the legal “climate” for immigrants for all fifty states by evaluating state and local legislative and legal efforts to limit (or encourage) immigrant activity in each state. The authors unfortunately do not distinguish between efforts that restrict private property (i.e., employment restrictions) and efforts that restrict government growth (i.e., limiting health care benefits). In the following chart, we find Pham’s and Van’s rankings:

    Immigrant Index

    Source: Immigrant Climate Index from “Measuring the Climate for Immigrants: A State by State Analysis,” by Huyen Pham and Pham Hoang Van

     

    The legislative and legal climates differ broadly, and this suggests that ideology, economics, and demographics produce some areas (i.e., California and Illinois) that tend to favor and subsidize immigration while other areas (i.e., Arizona and Virginia) would thoroughly limit subsidies.

    If we took this a step further and gave states and localities the power to determine all eligibility to both state and federal benefits, such measures by themselves (assuming benefits were not transferrable across state lines) would serve to place the burdens of subsidized immigration onto the states that mandate it.

    And, of course, there’s nothing to say that the state level is the optimal level of decentralization. As with any truly laissez-faire proposal, the ultimate goal is complete privatization of immigration policy. That is, the ability of immigrants to relocate to a community would be dependent on the dispersed and individual decisions of employers and other property owners who can decide on their own to employ or house migrants in the community. This is, of course, the democracy of the marketplace described by Mises in which individual persons — by making decisions about whom to employ or sell property to — collectively determine who is a member of each community. Any employer who wished to fully staff his operation with so-called illegal immigrants would be legally free to do so, and his decision would be subject to approval or veto by his customers, not by arbitrary government fiat.

    But even in the absence of this ideal, movement toward more locally-focused immigration policy gives existing residents greater choice in where to reside and place their property. Without decentralization, the taxpayers (many of whom will want to live in jurisdictions with laissez-faire attitudes toward conducting business with migrants) are powerless to make meaningful choices in this matter without completely uprooting his life and leaving the country.

    The Problem with Imposing Top-Down Policy

    The goal of laissez-faire immigration policy is to both diminish the availability to taxpayer-funded programs for immigrants (on the way to eliminating these programs overall) while also avoiding anti-private-property regulations that prohibit owners from freely contracting with immigrants in general.

    As we have seen, there is no technological or practical barrier to decentralizing this effort immediately. As is so often the case, however, there is significant ideological and legal opposition.

    Among those who insist on a single nationwide policy are those who assert that the best way to ensure the protection of property rights (for both property owners and migrants) is to impose it from above.

    Unfortunately, we’ve seen this movie before on other issues ranging from eminent domain to drug policy. In each case, however, the more practical, enduring, and least-risky solutions come from decentralization.

    Following the Supreme Court’s Kelo decision in 2005, for example, many advocates for free markets condemned the court for not issuing a top-down prohibition on certain types of eminent domain. As Lew Rockwell pointed out, however, Kelo was one of the few cases in which the court was actually correct in deferring to local control. Even when the central government agrees with us, political decentralization remains the prudent choice:

    We are … opposed to top-down political control over wide geographic regions, even when they are instituted in the name of liberty.

     

    Hence it would be no victory for your liberty if, for example, the Chinese government assumed jurisdiction over your downtown streets in order to liberate them from zoning ordinances. Zoning violates property rights, but imperialism violates the right of a people to govern themselves. The Chinese government lacks both jurisdiction and moral standing to intervene. What goes for the Chinese government goes for any distant government that presumes control over government closer to home …

     

    There are several reasons for [this position].

     

    First, under decentralization, jurisdictions must compete for residents and capital, which provides some incentive for greater degrees of freedom, if only because local despotism is neither popular nor productive. If despots insist on ruling anyway, people and capital will find a way to leave. If there is only one will and one actor, you cannot escape …

    This is certainly true in the case of immigration policy. Those states that turn to raiding employers and fining landlords as “solutions” to perceived problems with immigrants will lose their most productive citizens and property owners to states that shy away from such interventionism. Moreover, those states that choose to heavily subsidize immigration will also suffer the loss of many of their taxpayers.

    In such a system, would some states still indulge in massive redistribution schemes and other unsustainable public policies? There is no doubt that would occur, but it’s best to limit the damage to a handful of states than to impose the same fate on everyone nationwide.

     

  • The Depressing Similarity Between The US and Iran

    The share of Americans living on more than $50-a-day dropped from 58% in 2001 to just 56% in Pew Research Center's latest report. The dubious disctinction of this depressing reality is 'exceptional' America is the only developed nation to see its standard of living drop… a narrative not even Greece suffered (but Iran did!!)

     

     

    As Bloomberg reports,

     The retreat in the U.S.'s share puts the world's largest economy in the same league as Iran, the pariah state with whom it's trying to broker a nuclear deal,  and a handful of other countries: Nicaragua, the Philippines, Dominican Republic, El Salvador, Bulgaria and Serbia.

     

    Even Greece saw its share more than double to 23 percent in 2011 (although this improvement will almost certainly be less impressive if the data stretched out to more recent years, given the continued contractions in Greece's economy).

     

    So what happened?

     

    The report says: "The lack of movement up the income ladder in the U.S. is the result of two recessions over the period of 2001 to 2011 —the first in 2001 and the second from 2007 to 2009. The median annual household income in the U.S. fell from $53,646 in 2001 to $50,054 in 2011."

    *  *  *

  • The Latest Out Of Europe: "Pretty Steady Level Of Shittiness"

    Moments ago, after yet another weekend in which Europe was said to have given Greece yet another “absolutely final” deadline in which to agree to deal terms, terms which now Europe can’t agree on, when after five years of recovery we found out that the Greek economy is so bad it will have to put in escrow some €50 billion in assets to preserve the ECB’s financial lifeline of its banks which just in October of 2014 passed the same ECB’s “stress test” with flying colors, we had a revelation:

    Turns out, we weren’t too far off. This is how Sky News’ Ed Conway summarized the events to date:

    So for those who still care, where do we stand now? Before answer that, here is a rather florid visual of what happened just last night, when Germany’s Schauble, seemingly pushed into a demonic fit of existential rage with Greece, decided to unilaterally tear apart the Eurozone just to teach Athens a lesson.

    According to Reuters, what happened during last night’s Eurogroup finmin meeting which concluded without a deal, is that in a “tough, even violent” atmosphere, in the words of one participant, after an overnight break the German and French finance chiefs, Wolfgang Schaeuble and Michel Sapin, sat down to clear the air between them before resuming on Sunday.

    Schaeuble also crossed swords with ECB governor Mario Draghi, snapping at the Italian central banker “I’m not stupid!”

     

    “It was crazy, a kindergarten,” said a source describing the overall course of nine hours of talks on Saturday among weary ministers attending their sixth emergency Eurogroup in three weeks. “Bad emotions have completely taken over.”

     

    Schaeuble and others seemed to favour a “Grexit”, another participant said. The European Central Bank’s Draghi seemed “the strongest European” in the room, most opposed to the risky experiment of cutting Greece loose and braving Schaeuble’s ire by interrupting him during a discussion on Athens’ debt burden.

    The new Greek finmin was calm, appearing resigned to whatever his country’s fate would be:

    By contrast, Greek Finance Euclid Tsakalotos, appointed last week in place of the often provocative Yanis Varoufakis, seemed calm and expressed a willingness to take steps to convince creditors Athens could be trusted to implement budget and economic reform measures to unlock tens of billions of euros.

     

    At one point a fellow minister turned to Tsakalotos and told him to ignore the rows raging around him: “Don’t worry Euclid,” he said. “It’s not your problem any more, it’s theirs.”

    But while the future of Greece is now open-ended, with emotions overruling logic and certainly financial interests, the one things that will be the legacy of this weekend’s European summit is that the fissure right across the center of Europe is now plain for all to see:

    “Schaeuble’s positions are irresponsible and can bring disaster,” said Gianni Pittella, an ally of Italian Prime Minister Matteo Renzi. Leader of the centre-left bloc in the European Parliament, Pittella spoke at a meeting in Brussels.

    That reflects something of a left-right split across Europe.

     

    French President Francois Hollande’s Socialist party issued a comradely appeal to Sigmar Gabriel, the German Social Democrat leader who sits as deputy to conservative Chancellor Angela Merkel in a coalition. It said: “The peoples of Europe do not understand the increasingly hardline position taken by Germany.”

     

    Gabriel, also in Brussels, said he aimed to keep Greece in the euro and stressed that France and Germany, traditionally the twin motors of European integration, would work together.

     

    In Berlin and Paris, officials have played down differences in tone on Greece, stressing that Merkel and Hollande must sell their decisions to different national constituencies.

    Of course, all of this is meaningless: in Europe it has always been, and always will be, Germany’s way or the autobahn. Don’t like it, don’t let the door hit you on the way out, especially since it still appears confusing to all but Germany that the biggest beneficiary of the Eurozone was the German export sector.

    As for almost everyone else, well… ask the Greeks.

    Anyway, that was last night. Where are we now, as the European summit of leaders is currently entering 2am in the morning?

    Well, some good news: outright talk of Grexit, and a 5 year “time out” appear to have dropped out of the draft.

    Which may help Greece but it still doesn’t explain how Tsipras will pass into law the Draconian measures demanded of Greece especially since there are purely logistical hurdles which can’t be forced:

    But “time out” or not, that “other” demand for a Greek €50 billion escrow pre-privatization fund appears to remain. And the biggest irony: now it is the IMF itself which is spraying doubts Greece can ever deliver on this…

    … the same IMF which in 2011 came up with the same privatization target, only to be severely disappointed:

     

    As for the biggest question of the night, namely where will Greece obtain the funding assuming Tsipras can pass through parliament the latest and harshest Eurogroup term sheet yet, at this point it is better not to ask too many questions, because while the Greek program envisions €86 billion in funding needs over 3 years, it also projects a whopping €22 billion in August alone!

    Greece needs an infusion of 22 billion euros ($25 billion) to pay its bills through the end of August, Maltese Finance Minister Edward Scicluna said.

     

    This figure includes 7 billion euros by July 20, when Greece owes about 3.5 billion euros to the European Central Bank, Scicluna said in an interview. It includes 10 billion euros for banks and 5 billion euros for other needs. He spoke on the sidelines of Sunday’s euro-area summit after finance chiefs concluded their session.

    As Zero Hedge first noted even with the full Third Bailout paid in full, an amount of debt that would bring its total debt/GDP over 200%, Greece will likely be at the same bargaining table in a few months, only this time with its prized assets already pledged as secured collateral to a loan which will, drumroll, be used to repay the Troika, and with virtually nothing left over for the Greek people. This is about as close to an example of aggravated asset-stripping of a bankrupt debtor without the debtor of even having the benefit of being in default, as one can find in real life.

    Some have suggested a combination of EFSF funding, others have said French bilateral loans (subsequently denied), but the reality is that this is irrelevant: if new money comes it will be secured from day one with Greek assets. In other words, any new money coming to Greece will be in the form of a DIP loan, secured with liens on tangible assets and when (not if) Greece is unable to repay, the creditors – who have created paper out of thin air – will be first to collect all too real Greek assets held in escrow in a Luxembourg subsidiary.

    So what happens next? Well, Tsipras may finally be granted permission to go back to Athens and try to sell this disastrous “deal” to his people, but not for a few hours more.

    We expect some resolution around first light this morning, and while another Greek can kicking and some last-moment “hope” is surely in the cards, we know two things: Greece is officially finished – there is no way the Tsipras or any other government can politicall recover after such a humiliating spectacle when half of Europe made a mockery of the Greek people; and perhaps better, we finally have seen the true face of Europe: visible only when things are finally falling apart.

    It is a very ugly face as Greece, where the #ThisIsACoup hashtag is now trending, have finally realized.

    And somehow we doubt, if asked or otherwise, they will want to be a part of it ever again…. and not just Greece but every other country in Europe as well.

  • How Fascist Capitalism Functions: The Case Of Greece

    Authored by Eric Zeusse,

    There is democratic capitalism, and there is fascist capitalism. What we have today is fascist capitalism; and the following will explain how it works, using as an example the case of Greece.

    Mark Whitehouse at Bloomberg headlined on 27 June 2015, “If Greece Defaults, Europe’s Taxpayers Lose,” and presented his ‘news’ report, which simply assumed that, perhaps someday, Greece will be able to get out of debt without defaulting on it. Other than his unfounded assumption there (which assumption is even in his headline), his report was accurate. Here is what he reported that’s accurate:

    He presented two graphs, the first of which shows Greece’s governmental debt to private investors (bondholders) as of, first, December 2009; and, then, five years later, December 2014. This graph shows that, in almost all countries, private investors either eliminated or steeply reduced their holdings of Greek government bonds during that 5-year period. (Overall, it was reduced by 83%; but, in countries such as France, Portugal, Ireland, Austria, and Belgium, it was reduced closer to 100% — all of it.) In other words: by the time of December 2009, word was out, amongst the aristocracy, that only suckers would want to buy it from them, so they needed suckers and took advantage of the system that the aristocracy had set up for governments to buy aristocrats’ bad bets — for governments to be suckers when private individuals won’t. Not all of it was sold directly to governments; much of it went instead indirectly, to agencies that the aristocracy has set up as basically transfer-agencies for passing junk to governments; in other words, as middlemen, to transfer unpayable debt-obligations to various governments’ taxpayers. Whitehouse presented no indication as to whom those investors sold that debt to, but almost all of it was sold, either directly or indirectly, to Western governments, via those middlemen-agencies, so that, when Greece will default (which it inevitably will), the taxpayers of those Western governments will suffer the losses. The aristocracy will already have wrung what they could out of it.

    Who were these governments and middlemen-agencies? As of January 2015, they were: 62% Euro-member governments (including the European Financial Stability Facility); 10% International Monetyary Fund (IMF), and 8% European Central Bank; then, 17% still remained with private investors; and 3% was owned by “other.”

    Whitehouse says: “Ever since the region's sovereign-debt crisis first flared in 2010, European nations have been stepping in for Greece's private creditors — largely German and French banks — by lending the country [Greece] the money to pay them off. Thanks to this bailout [of ‘largely German and French banks’], banks and [other private] investors have much less at stake than before.”

    So: what got bailed-out was private investors, not ‘the Greek people’ (such as the ‘news’ media assert, or try to suggest). For example, a reader’s comment to Whitehouse’s article says: “A reasonable assumption is that a large part of the Greek debt to the Germans was the result of Greek consumption of German goods and services bought with the German provided credit. In that case, the Germans have lost the Greek goods and services that could have potentially been bought with the money that is owed to them.” But this is entirely false: that “consumption” was by the aristocracy, not by the public, anywhere or at any time. After all: It’s the aristocracy that get bailed-out — not the public, anywhere. (The same thing is happening now in Ukraine.)

    The assumption that the aristocratically-owned press want to convey is, like the sucker there said: consumers, and not bondholders, receive these bailouts from taxpayers. They actually receive none of it. They didn’t receive the loans, and they certainly aren’t receiving any of the bailouts. In fact, the contrary: Greek consumers have been getting hit so hard by the aristocracy’s system (dictatorial capitalism, otherwise known as fascism), that they’re suffering an enormous depression — this is even a condition, a requirement, of such “bailouts.” It’s called “austerity,” and it’s imposed by the IMF. And yet, millions of suckers go for the inference that the aristocrats’ ‘news’ media convey. After all: would people such as Mark Whitehouse have been hired or keep their jobs at major ‘news’ media such as Bloomberg ‘News’ if they didn’t convey this false impression? He’s just doing his job; he’s doing what he’s paid to do. It’s enormously profitable for his employer and for “the investment community” worldwide.

    The whole system is a money-funnel, from the public, to the aristocracy.

    The independent economics-writer, Charles Hugh Smith — who was one of only 29 economists worldwide who predicted the 2008 crash in advance and who explained accurately how and why it was going to occur — has provided a more honest description of the sources of Greece’s depression:

    1. Goldman Sachs conspired with [actually: were hired by] Greece’s corrupt kleptocracy to conjure up an illusion of solvency and fiscal prudence so Greece could join the Eurozone [despite Greek aristocrats’ massive tax-evasion, which created the original problem].

     

    2. Vested interests and insiders gorged on the credit being offered by German and French [and other] banks, enriching themselves to the tune of tens of billions of euros, which were transferred to private accounts in Switzerland at the first whiff of trouble. When informed of this, Greek authorities took no action; after all, why track down your cronies and force them to pay taxes when tax evasion is the status quo for financial elites?

     

    3. If Greece had defaulted in 2010 when its debt was around 110 billion euros, the losses would have fallen on the banks that had foolishly lent the money without proper due diligence or risk management. This is what should have happened in a market economy: those who foolishly lent extraordinary sums to poor credit risks take the resulting (and entirely predictable) losses.

    The Greek Government currently owes 323 billion euros — almost three times as much. The debt rose 213 billion euros, during 5 years of IMF-imposed “austerity” — the Greek depression.

    What even Smith fails to recognize is that this money was not ‘foolishly lent.’ (No more, for example, than the Wall Street banks that had tanked the U.S. economy but grew even larger by doing so, had ‘foolishly lent’ it.) The foreign lenders were deceived by lies from the Greek aristocrats’ agent, Goldman Sachs, but, even so, were ultimately able to sell their garbage to Eurozone taxpayers, not always at a loss as compared to what they had originally paid for those bonds; and the original owners of those bonds were receiving interest from those bonds, throughout. Even Smith has been somewhat duped by the aristocracy’s blame-the-victim basic message, that the people who walked off with this money were the Greek public — not Greek aristocrats.

    Another well-informed economics-writer, Peter Schiff, likewise is suckered by that false message from aristocrats. He writes: “It's hard to feel sorry for the [Greek] people standing in lines at the ATMs when they knew this was coming every day for the last four years.” As if they necessarily did. But, even though some did, the accusation that those people are to blame is still off-base. Schiff, a libertarian, goes on to say: “When you borrow more than you can pay back and your creditors have cut you off there are no good options. Your life tomorrow is going to be worse than it is today; it is just a question of how you want to take the pain.” He’ too, implicitly cast blame at the public, not at the aristocrats, who actually have been bailed-out by the public.

    In way of contrast, democratic capitalism is bailing out only the public, when times go bad, just like FDR did during the Great Depression, and like socialist countries (Norway, Sweden, Denmark, and Finland, being examples) still do. The aristocracy have managed to fool the public to equate aristocrats’ fascism with ‘capitalism,’ and to equate democracy with ‘socialism’ (meaning, to them and their suckers, communism, or even fascism itself), so that the public will falsely think that what we now have is ‘the free market’ — something that cannot even possibly exist, anywhere, because every economy (every market) is based upon laws that determine who owns what, and who owes what, and under what circumstances, in accord with what laws and economic regulations, all of it being subject to the police power of the State. This ‘free market’ is all a big aristocratic con. It’s just as big as the con that the present Greek government — which had promised, and whose voters a few days ago reaffirmed with a 61% to 39% vote for no more “austerity” — are now delivering, to their victims.

    This is not democratic capitalism. It is not socialism. It is, instead, fascism. It is dictatorial capitalism. We have it in the United States. And it predominates also in the Eurozone.

    In fact, it predominates around the world. And its grip gets tighter every year now in the United States.

    *  *  *

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

     

  • Russia Readies Fuel Deliveries To Athens, Will Support Greek "Economic Revival"

    Russia and Greece have a “special relationship of spiritual kinship and religious and historical affinity,” Vladimir Putin said yesterday, following the BRICS summit in Ulfa. 

    Over the course of the unfolding crisis in Greece, Athens has at various times gone out of its way to remind Angela Merkel that allowing the country to crash out of the currency bloc may force the Greeks to turn to their other international “friends” (to use Nigel Farage’s words) for assistance. Facing economic sanctions from the EU in connection with its alleged role in destabilizing Ukraine not to mention a spiteful anti-trust suit against Gazprom, the Kremlin has been more than happy to use the rising tensions between Athens and Brussels to its geopolitical advantage. 

    So far, discussions between Russia and Greece have revolved primarily around energy, and several months back, when negotiations between Athens and creditors began to deteriorate in earnest, reports began to surface that Moscow may consider advancing Greece some €5 billion against the future proceeds from the Greek portion of the proposed Turkish Stream natural gas pipeline.

    Although the loan never materialized, the agreement on the pipeline did, and it was held up last week as proof that Greece is “no one’s hostage.”

    Now, that contention will be put to the test as Greece faces the prospect of a “swift time-out” from the eurozone if PM Alexis Tsipras can’t convince parliament to agree to a new term sheet from creditors which seeks the implementation of a number of draconian measures in exchange for a third bailout. Of course, as we noted earlier today, a “time-out” is a polite way of saying “get the hell out,” and in the event of a messy exit and forced redenomination, an acute cash and credit crunch will likely mean a shortage of critical imports and, in short order, a humanitarian crisis.

    Given the mood in Brussels over the weekend, Greece could be forgiven for not putting much faith in Jean Claude-Juncker’s “humanitarian plan”, but that’s ok because as AFP reports, Russia is ready to help: 

    Russia is considering direct deliveries of fuel to Greece to help prop up its economy, Energy Minister Alexander Novak said Sunday, quoted by Russian news agencies.

     

    “Russia intends to support the revival of Greece’s economy by broadening cooperation in the energy sector,” Novak told journalists, quoted by RIA Novosti news agency.

     

    “Accordingly we are studying the possibility of organising direct deliveries of energy resources to Greece, starting shortly.”

     

    Novak said that the energy ministry expected “to come to an agreement within a few weeks,” but did not specify what type of fuel Russia would supply.

     

    Greece’s left-wing leadership has made a show of drawing closer to Moscow in recent months as the spat with its international creditors has grown more ugly.

     

    In June, Greek Prime Minister Alexis Tsipras during a visit to Russia sealed a preliminary agreement for Russia to build a 2-billion-euro ($2.2 billion) gas pipeline through Greece, extending the TurkStream project, which is intended to supply Russian gas to Turkey.

    And so it begins. Angela Merkel has long known that one consequence of a Grexit would be a stepped up role for the Kremlin in the Greek economy and Greek politics.

    This effecitvely gives Moscow a foothold in Europe just as Russia’s deteriorating relationship with the West threatens to plunge the world into a new Cold War (a situation that’s been made immeasurably worse by recent NATO war games and sabre rattling). 

    Or, summarized visually (because this never gets old):

  • The Greek "Choice": Hand Over Sovereignty Or Take Five Year Euro "Time Out"

    For those who missed today’s festivities in Brussels, here is the 30,000 foot summary: Europe has given Greece a “choice”: hand over sovereignty to Germany Europe or undergo a 5 year Grexit “time out”, which is a polite euphemism for get the hell out.

    As noted earlier, here are the 12 conditions laid out as a result of the latest Eurogroup meeting, which are far more draconian than anything presented to Greece yet and which effectively require that Greece cede sovereignty to Europe, this time even without the implementation of a technocratic government.

    1. Streamlining VAT
    2. Broadening the tax base
    3. Sustainability of pension system
    4. Adopt a code of civil procedure
    5. Safeguarding of legal independence for Greece ELSTAT – the statistics office
    6. Full implementation of autmatic spending cuts
    7. Meet bank recovery and resolution directive
    8. Privatize electricity transmission grid
    9. Take decisive action on non-performing loans
    10. Ensure independence of privatization body TAIPED
    11. De-Politicize the Greek administration
    12. Return of the Troika to Athens (the paper calls them the institutions… for now)

    One alternative, generously presented to Greece, is for the country to put some €50 billion of assets – the best ones – in escrow to creditors. A more polite was of putting would be a Greek secured loan. This is how the Luxembourg FinMin Pierre Gramegna laid it out:

    “A few new ideas were added to the table, especially one which is very important for some member states, which is that Greece would put a portion of its assets into a company that would be more independent from Greece.”

    “More independent” from Greece and “more dependent” to Berlin.

    Greece would place about €50 billion of state assets into an independent company. Those assets could serve as collateral against aid loans, Gramegna says. “It would act as a kind of guarantee. There is great hesitation from the Greek side and now the heads of state and government have to choose.”

    “It would be a company structure based in Luxembourg, which would be managed from Greece with supervision by the European Commission and by the European Investment Bank. It would remain in Greek hands but it would create more assurances if it was known that a lot of assets were in this company.”

    “If one knows that the third bailout package would cost more than EU80B, one understands that countries are urging for some guarantees from Greece.”

    In other words, Greece is told to set aside a quarter of its GDP for Europe to do as it sees fit, and which can be “seized” if Greece is seen as veering away from its third bailout promises again.

    And since Greece has no option but to promise everything and the moon, it will surely comply hoping that it is once again allowed to promptly forget all the promises as soon as it pockets some of that €86 billion in new bailout funds just to unlock the €120 billion in deposits held hostage in Greek banks by the ECB, even if the resulting debt will push Greek debt/GDP well above 200%.

    Why?

    Because the alternative is, and we quote…

    “In case no agreement could be reached, Greece should be offered swift negotiations on a time-out from the euro area, with possibly debt restructuring.”

    … from the Eurogroup document:

    No wonder Tsipras looks like this at the moment:

    Somehow we think that if the only “alternative” is ceding sovereignty to Merkel and the rest of the northern European state, the vast majority of the population – which now clearly understands there is little further upside from remaining in Europe – may just opt for the aptly named “time out” from the most destructive experiment in Greek history. And even beg to make it permanent.

  • The Crony Capitalist Pretense Behind Warren Buffett's Banking Buys

    Submitted by Alhambra Investment Partners' Jeffrey Snider via RealClearMarkets.com,

    When Warren Buffet put $5 billion in Berkshire Hathaway funds into Goldman Sachs the week after Lehman failed, amidst total turmoil and panic, it appeared from the outside a high risk bet. Buffet had long tried to portray himself as a folksy engine of traditional stability, investing only in things he could understand, so jumping into a wholesale run of chained liabilities may have seemed more than slightly out of character. Some of that was explained later via Buffet's apparent hands on TARP, particularly version 1, but also later investments in Wells Fargo and US Bancorp.

    I have no particular issue with Buffet making those investments, only the pretense of intentional mysticism that surrounds them. The reason the criticism of crony-capitalism sticks is because this was not Buffet's first intervention to "save" a famed institution on Wall Street. If Buffet's convention is to stick with "things you know" then he has been right there through the whole of the full-scale wholesale/eurodollar revolution.

    On August 21, 1991, Calpers announced that it was cutting ties with Salomon Brothers, explicit in its condemnation, saying it was "outraged and disappointed" that the investment house would knowingly try to circumvent securities rules. There was a Congressional investigation and SEC threats, even criminal beyond the typical slappish fines that are used now. It was so outrageous that even Treasury Secretary Nicholas Brady, purportedly with Alan Greenspan on board, considered yanking Salomon's primary dealer privilege – which would have meant the end of Salomon right then and there.

    With almost a quarter century having passed, Solly, as the firm used to be known, has faded from memory in its more detailed contributions. It was the Wall Street firm that epitomized the 1980's far more than any others, being famously written up in Michael Lewis' Liar's Poker and Tom Wolfe's The Bonfire of the Vanities and giving rise to the colloquialism Masters of the Universe (and another, far less family-friendly description). Gordon Gekko may have been a corporate raider in the movie version of Wall Street, but it was the bond traders who made bank (and still do).

    The heart of Solly's business was arbitrage, an unusual term as in pure English the word's definition suggests something like no risk. You find a couple of related securities that aren't what they "should" be and trade into that gap until prices converge to where they were supposed to be in the first place. That meant, of course, you had to find out what "shouldn't" be before anyone else, which further meant being right about prices before, during and after. What set Salomon apart during the 1980's was their high-level willingness to bring on the finance professors, the early quants that were so sure they could find the "right" prices and thus identify the fattest, and cleanest, arb spreads.

    What happened in late 1990 and 1991 is still a matter of conjecture, even on the government side. What is not in doubt is that Solly's chief government securities trader, Paul Mozer, was openly flaunting US Treasury rules about the federal government's debt auctions. Treasury had never restricted how much any particular dealer could bid for debt at auction, but would from time to time make individual and ad hoc efforts to ensure orderly and "fair" operation. During the December 27, 1990, treasury auction, Mozer via Salomon's own account bid for $2.975 billion of the $8.5 billion total four-year note, or 35%, and also what would later be uncovered as an unauthorized use of a customer account for an additional $1 billion bid.

    In April 1991, Salomon bid for $3 billion of a $9 billion five-year note auction, being awarded that full allotment plus an overbid on a customer account which was not again authorized (Mozer placed $2.5 billion in bids for a customer that claimed it only approved $1.5 billion, which placed $600 million into Salomon's account and thus more than 35%). But it was the May 22, 1991, auction that went not just too far, causing more than a little consternation and attention. All told, Salomon placed bids for its accounts and those of customers, plus an undisclosed existing long position, for more than 100% of available two-year notes. Further, these bids were highly aggressive, priced a full 2 bps through the when-issued price.

    What was most egregious about all of this was that only months before these auctions (and a few others that were uncovered) a 35% limitation on bid amounts was put in place specifically to stop Paul Mozer. Deputy Assistant Treasury Secretary Michael Bansham had called Mozer in June of 1990 after Salomon had bid more than 100% for $8 billion notes auctioned then. Bansham later testified that he told Mozer not to do it again during that call, but just a week later Mozer did (along with another, undisclosed dealer). That led to the 35% restriction being adopted as a rule by Treasury, which carried the name Mozer-Bansham Rule!

    For Salomon's part as the offending firm, Treasury was incensed that management, including CEO John Gutfreund, found out after that May 1991 auction but told no one about it, even after several official contacts between the government and Salomon. For several weeks, the firm kept mostly silent while Treasury, the Fed and the SEC all went about investigating. That led to, on August 18, Treasury announcing (to whom is not clear) that it would suspend Salomon from its auctions, again a virtual death penalty for the bank – until Buffet intervened that afternoon personally with Secretary Brady. He even testified before both houses of Congress that the bank was completely contrite and reflective, the guilty parties included management had been expunged from the operations, and that there would be no more absurdity going forward. He went so far as to publish a two-page letter to shareholders that October in the Wall Street Journal, Washington Post, New York Times and even the Financial Times of London.

    Buffet had already been a large shareholder in the firm, dating back to 1987 (and leading to, coincidentally, Salomon shutting down its muni desk just one week before the crash, but that is a whole other story) and his friendship with John Gutfreund. When Treasury came to shut down Solly in the middle of 1991, Buffet promised to clean house and take over himself in order to save the firm; Treasury modified its ruling to allow Salomon to continue operating as a dealer in treasury auctions but only for its own account. More firings soon followed, including, obviously (then, as different from now), Paul Mozer.

    There is a lot more here than just one bank looking to circumvent what may seem arbitrary rules and restrictions. The government has an indisputable duty to ensure good function of its debt issuance processes, but what few people then could understand was why Mozer was going to all the trouble. From the outside, convention saw very little, if any, upside to these activities and actions. Instead, it was largely left as a matter of ego, the Masters of the Universe simply flexing their muscles in a game of power.

    Contemporarily, that was how it was described, as the LA Times wrote in an extensive article only a few months after that hot summer:

    "Investigations are continuing, but findings so far indicate that the crisis escalated far out of proportion to the money involved. Mozer's inept little scam had netted the firm only a pittance, between $3.3 million and $4.6 million, and cost taxpayers nothing in interest. Contrasted with the billion-dollar looting of the stock market by convicted felons Ivan F. Boesky and Michael Milken, Mozer's crime was small potatoes–but it was enough to bring his swaggering company to the brink of ruin."

    To the unfamiliar, it did seem an "inept little scam" that brought minimal actual profit – at least as far as what could be easily seen. Repo markets were, sadly, largely unknown and unexplored at that time, but already the bedrock of Salomon and then its competitors as the 1990's dawned. The term "corner the market" had been around for as long as Wall Street had, a conceptual strategy carried out time and again. The Hunt brothers had endeavored something very similar in 1979 in silver, but it was beyond comprehension in 1990 and 1991 how that might apply in treasury notes.

    Even the official Treasury Department report on the affair, which runs to 197 pages http://www.treasury.gov/resource-center/fin-mkts/Documents/gsr92rpt.pdf, is non-committal. However, they make it quite clear, implicitly, as to why they believe Mozer was acting infelicitously; the section immediately following the factual descriptions of Salomon's actions was all about short squeezes. Even Section B-1, beginning Section B, which goes into great detail about how the auction process works, was a narrative of the short squeeze process.

    Though they never put the two directly together, it isn't much left apart either. The report states clearly in describing the May 1991 auction, "Even before the May two-year notes were settled on May 31, 1991, rumors began to surface of a short squeeze in the market for those notes. On May 29, 1991, Treasury staff called the SEC's Divisions of Market Regulation and Enforcement to notify them of possible problems stemming from the auction."

    As troubling as all that might have been what becomes clear was this was not a rogue operation, either. What has been left buried under decade's old history is another part of that Treasury Report that quietly uncovered what I think is a pivotal turning point in monetary evolution. Not only was Solly likely after repo collateral, controlling the supply and thus rates and downstream "liquidity" through other mathematical factors, this extended deep into agency debt. Through its investigation into Paul Mozer's actions at treasury auctions, the Department also found widespread and often serious over-bidding in GSE issuance (GSE debt was not issued via auction, it was subscribed via an allotment process of what would now seem to be dinosaur technology – phone calls between GSE handlers and dealers).

    "As described below, a number of selling group members reported to GSEs inaccurate information concerning customer orders during the pre-allocation period and nearly all selling group members reported inaccurate information concerning their sales of the securities after settlement. In providing such inaccurate information, selling group members prepared and maintained books and records reflecting the inaccurate information."

    In total, the joint investigation, which included the SEC and Treasury, but also OCC, FRBNY, the NYSE and NASD, found ninety-eight dealers, again, nearly all that were investigated were involved in flagrantly overbidding for agency securities.

    "Some traders added random amounts to their actual customer orders. Others increased the number and amount of customer orders reported to the GSEs to include "anticipated" or "historic" sales, i.e., an amount that the trader believed, based on past experience, the selling group member would be able to sell after the GSE announced the price. Even in those instances where a selling group member had identifiable customers for the number and amount of the customer orders reported to the GSEs, the trader would not indicate to the GSEs that many of the orders were subject to significant conditions."

    It is easier today to see this with much greater clarity, as the wholesale banking system is now fully revealed (to those that want to make even slight inquiry), but the contemporary haze should not excuse lack of appreciation then. There is great significance of government and agency debt at auction and issuance, as it is on-the-run securities that control the repo environment. A bond, note or bill just auctioned is the most liquid because it contains the most direct and quantifiable characteristics; once a security is replaced by the next auction in the series, that security becomes highly liquid OTR and the previous fades into trading obscurity (off-the-run). In short, the frenzy over OTR is repo at a time when collateral wasn't as widely available and the limited OTR's were quite limited (a shortage the bubbles, greater sovereign issuance and securitizations would eventually but temporarily overcome).

    Banking was still believed to be of the S&L model at that moment, but even they, or a good many of them as Resolution Trust and the FDIC would describe, had already transformed into the shadow visions that presaged everything that has come after. In other words, it was only being closed-minded about what was taking place in "money" that hid what Mozer and so many others were up to – collateral had become currency, maybe even at that early date the currency, and had thus attained "value" far beyond what was thought to be an "inept little scam." Rehypothecation and leverage, and the legal and accounting structures surrounding and abiding them, made that so.

    Salomon Brothers, for its part, didn't last the decade. By the middle 1990's, the math professors were all over Wall Street and the firm had lost whatever "informational" advantage it used to rule the 80's. By 1997, the bank was taken over by Travelers and folded into Smith Barney, thus largely lost to further experience of it even if we still feel its evolutionary reverberations throughout this eurodollar age.

    What Solly had pioneered, in the end, was not just expanding the envelope of financial processes and engineering, but how this wholesale system could obliterate that envelope altogether. In other words, the prior restraints that acted upon banking were no longer restraints, and that what lay ahead, if you could get there, was an entirely new framework of money and currency that was to be written as they went. That dream was realized fully by 1995 when JP Morgan ended the last vestiges of traditional banking as a marginal experience, fusing math with money and currency into traded liabilities of all kinds.

    By the late 1990's, Wall Street was using derivatives, funded by repo as well as treasury and agency collateral, to "engineer" trades that were previously far, far out of reach. JP Morgan, for example, "helped" in 1996 Italy get its official budget numbers in line with a currency swap. More infamous than that, now, Goldman Sachs in 2000 and 2001 arranged swaps with Greece to ensure that country could remain within the euro and the EU's Maastricht restrictions on deficits.

    Aeolos was the legal entity that pushed "debt", loosely defined, off balance sheet as that entity swapped airport landing fees for initial cash payments. That was preceded by Ariadne in 2000 where the national government in Greece gave up a significant portion of national lottery proceeds in exchange for, again, up-front cash. Greece could not have cared less about where that cash came from or even what exactly it was, since all that mattered was a positive number on a bank balance sheet in its name; the balancing liability was and remained the bank's problem. Though these were infusions of cash-like assets to be paid back over time from specific cash streams, all of which sound indistinguishable from debt or loans, it wasn't specifically treated that way because doors previously closed were now opened as money and banking left behind actual money and banking.

    It was Margaret Thatcher in a TV interview in 1976 who now famously said, "…and Socialist governments traditionally do make a financial mess. They always run out of other people's money." And that was true, except insofar as it pertained to what I have called the second age of economic socialism, dominated by general government redistribution and taxation. The distinction with the third age, which was just coming into view and finding itself, was exactly what Thatcher had described as intent, though I doubt she could have conceived how restraint would no longer be true. Socialists had indeed run out of "other people's money", but the eurodollar/wholesale system that was to follow simply removed those ideas of money in the first place.

    If a socialist impulse and intention could not tax toward what goals it wanted to achieve, the wholesale banking system would instead simply ignore money and conjure liabilities that functioned equivalently. Any socialist government could then never run out of "money" so long as there was a wholesale bank willing to trade. Even interest costs were no longer much impediment, as balance sheet expansion and incestuous Basel thinking ensured interest rates would always (so it was thought) be on the "whatever you want" side. It was more than symbioses between especially wholesale banks and government bonds, as Salomon was just starting to show, it was the operational union of banking and government deficits.

    In short, wholesale banking evolution "financed" the next socialist age, and not just in Europe. Profligacy was no longer a negative factor, indeed it was a signal of an engaging counterparty. An entire strain of "economics" roared back to life from the dead, the disastrous results of the same efforts put to real monetary limits in the Great Inflation; the very same that Mrs. Thatcher was correctly railing against at the very same moment the eurodollar system was starting, if very slowly at first, to bring it all back to life.

    Officially, none of the socialists ever seemed to care about how, exactly, all this magic worked. This included Alan Greenspan and all those setting out to control economic direction through "stimulating" debt. It was one episode after another where the FOMC, in particular, demonstrated time and again their unconditional un-interest in what was actually occurring at these banks. Not only was there Solly's rigging toward repo, which followed closely the S&L disaster, there was Orange County in 1994, LTCM in 1997, the entire dot-com mania and, the big finale, Greenspan's "conundrum" of the housing bubble catastrophe. Through it all, these same economists that had convinced themselves they could run the global economy viewed money and banking as if it were still 1929.

    It was, after all, Milton Friedman's intellectual framework that they were following. He had viewed the great crash and then the Great Depression as being of limited money expansion, but in that case real currency. That has never been questioned seriously by orthodox treatment of any smaller variety, just accepted. Whether or not that explanation is even valid is no longer really relevant, as the banking system no longer uses money and currency. It has instead moved to traded liabilities and wholesale leverage (and more dimensions of leverage ) which call into question not just Friedman's explanation for the depression, but whether anything Friedman suggested about how a "free" market might work even applies now.

    It left open the interdependence by which banking and government could eventually combine, to conspire of common interests in control and power. Real money is anathema to central control because it allows an exogenous removal, a very real open door for the people to withdraw in total from the exercise of debasing power. The wholesale model does not, especially when government sanction is really traded for bank-funded "liquidity."

    Maybe that was the point upon which Warren Buffet could maintain his timely investment in Goldman Sachs as consistent with his stated mantra of invest in what you understand. I cannot speak for the man as to his familiarity with wholesale banking, but all that the rest of the regulatory framework knew was that at that moment government and banking were inseparable; and thus the former would not fail without blowing apart the latter. Wall Street was not bailed out specifically to save the economy, but rather to save the economy as it would continue to be under the socialist and elitist doctrine.

    What is most relevant about what we are seeing in Greece now is, contrary to "expert" opinion, there are actually limits upon wholesale evolution; that there does exist restraint long thought absent. I call it innate value, but whatever it is it really suggests that what happened in the past few decades was indeed inflation, not just in prices, mostly assets, but in redefinition of all of finance and money. That "fooled" value but only for a time, and that the more organic, human characteristics that lay dormant trying to comprehend all the vast changes and misdirections has finally, inevitably re-emerged to deny much further. These redefinitions and true inflation, though far beyond what was imaginable in 1991, let alone 1976, are now just as flawed stagnation as they were once thought flawless advance. In other words, the "world" may not have quite grasped where money is absent, but has awoken sufficiently to finally notice the discrepancy and how that is, contra economics, fatally misguided.

    We have reached the outlines of another Thatcher moment, where socialism still makes quite the financial mess, this time, though, not running out of other people's money but rather finding an end to the total deference by which inflationary redefinition and redistribution can operate.

  • This Better Be A Mistake…

    …or else a rather blatant Fox News error may be about to start a revolution…

     

     

    Source: @FoxBusiness

    *  *  *

    Seemingly confirmed by this…


     

    Then minutes later…

    Followed shortly after by another Cable TV news provider…

    * * *

    Update – as expected, it was a mistake:

  • "Efficient" US Equity Market 'Prices In' Grexit

    Presented with no comment whatsoever…

     

     

    Oh ok… some comments…

    So The Dow rallies over 300 points on the heels of a watered-down proposal that we already knew was not enough to satisfy EU leaders and when they turn around and say “nein nein nein” and demand a “time out Grexit” – the worst-case scenario from last week – it gives back just 100 points.

    “Efficient” markets indeed.

    With Sinn clearly in charge – believing in hope as a strategy is simply a fool’s game now; but then again, it’s been a greater fool’s game for a long time.

  • Tsipras Responds To Eurogroup Proposal, Demands Changes

    Facing abject humiliation at the hands of the German finance ministry, Alexis Tsipras arrived at Sunday’s Eurosummit a broken man. 

    Having gambled his country’s future in the eurozone on a referendum he might well have expected to lose, the Greek PM found himself in a completely untenable position last Monday. Greeks had overwhelming rejected Europe’s latest proposal, sending the country’s economy into a veritable tailspin and leaving Tsipras to contemplate how he might salvage Greece’s place in the EU without betraying Syriza’s constituency. 

    It was an impossible task. 

    On Thursday, Tspiras submitted a “revised” version of the proposal Greeks had rejected at the ballot box. The revisions were insignificant to the point of meaninglessness, leaving voters with a feeling of betrayal. The silver lining was supposed to be that by the end of the weekend, Greece place in the eurozone would be secure, a new bailout program would be in place, and Greek banks would be on their way to reopening by mid-week. But Germany had other plans. Indignant at Tsipras’ brazen referendum call and incredulous at the prospect of putting German taxpayers on the hook for a recap of Greece’s banks, German finance minister Wolfgang Schaeuble (with the implicit blessing of Chancellor Angela Merkel) did not accept Tsipras’ surrender and instead rallied his fellow finance ministers around a new term sheet that outlined a set of draconian measures which Tsipras must now pass through the Greek parliament and enshrine into law by Wednesday or else face a five-year “time-out” (i.e. Grexit) from the EMU. 

    Likely realizing that Greece faces a euro exit or political upheaval as early as Thursday, Tsipras did his best to fight the good fight on Sunday evening (via Bloomberg):

    Greek Prime Minister Alexis Tsipras and German Chancellor Angela Merkel aired differences during meeting they held in Brussels on Sunday on a possible new aid program, Greek government official said.

     

    Tsipras and Merkel were at odds over issues including the treatment of Greece’s debt and the role of the International Monetary Fund in a possible third rescue package, the official told reporters on the condition of anonymity during a meeting of euro-area leaders

     

    French President Francois Hollande, who also attended the meeting with Tsipras and Merkel, took positions more supportive of the Greek government, according to the official.

     

    European Central Bank President Mario Draghi has played a very supportive role with regard to Greece’s lenders during aid discussions, the official said.

     

    A battle is taking place over a document sent to the euro- area leaders on the basis of talks earlier among the region’s finance ministers.

    But EU leaders now appear to be just as divided as their respective finance ministers with “Ireland, Italy, France, and Cyprus in favour of reaching a deal with Greece today while others such as Portugal have shifted from negative to neutral,” MNI says.

    Meanwhile, there are questions about what the new timeline means for Greek banks which were supposed to be cut off from their liquidity lifeline on Monday morning.

    As MNI reports, “Germany and its countries of influence want Greece to legislate a series of measures and reforms by Wednesday and then begin discussions for a new lending agreement [but] that would deprive Greece from the European Central Bank’s Emergency Liquidity Assistance support.” Draghi is apparently still supportive, but has “asked the leaders for a ‘clear political commitment for progress of the discussions in order to continue’ ELA.” In other words, “a strong signal must be given to the ECB on Monday in order to maintain the Emergency Liquidity Assistance,” MNI adds. 

    Tsipras’ move to begin purging Syriza of those who are likely to oppose the passage of the new term sheet indicates the PM intends to get the measures through parliament even it means selling his soul and leaving the Greek people in a perpetual state of apathetic disbelief. But Greece has run out of time financially if not yet politically, which means some manner of stopgap measures will be necessary to see the country through the next few weeks. “The total amount of funds available for Greece is an issue. There could be a transition period with a small amount under the existing laws of ESM and funds that were transferred from the EFSF to the ESM when the Greek programme ended on June 30,” MNI quotes an unnamed official as saying, adding that “another option speaks of a funding of a few weeks so that the ECB and IMF obligations which total E9 billion including interest payments until the end of August, will be paid and Greece would avoid a default.”

    In short, Tsipras now faces a political and economic nightmare which will either see him morph into his predecessors marking a tragic abandonment of his party’s mandate and complete betrayal of everything Syriza stands for or else simply do as we suggested earlier today and resign. 


  • Why Greece Is The Precursor To The Next Global Debt Crisis

    Submitted by Charles Hugh-Smith via PeakProsperity.com,

    The one undeniable truth about the debt drama in Greece is that each of the conventional narratives—financial, political and historical—has some claim of legitimacy.

    For example, spendthrift Greeks shunned fiscal discipline: here’s an account from 2011 that lays out the gory details: The Big Fat Greek Gravy Train: A special investigation into the EU-funded culture of greed, tax evasion and scandalous waste.

    Or how about: Greek reformers want to fix the core structural problems but are being stymied by tyrannical European Union/Troika leaders: The Greek Debt Crisis and Crashing Markets.

    Rather than get entangled in the arguments over which of the conventional narratives is the core narrative—a hopeless misadventure, given that each narrative has some validity—let’s start with the facts that are supported by data or public records.

    The Greek Economy Is Small and Imbalanced

    Here are the basics of Greece’s economy, via the CIA’s World Factbook:

    Greece's population is 10.8 million and its GDP (gross domestic product) is about $200 billion (This source states the GDP is 182 billion euros or about $200 billion). Note that the euro fell sharply from $1.40 in 2014 to $1.10 currently, so any Eurozone GDP data stated in dollars has to be downsized accordingly. Many sources state Greek GDP was $240 billion in 2013; adjusted for the 20% decline in the euro, this is about $200 billion at today’s exchange rate.

    Los Angeles County, with slightly more than 10 million residents, has a GDP of $554 billion, more than double that of Greece.

    The European Union has over 500 million residents. Greece's population represents 2.2% of the EU populace.

    External debt (public and private debt owed to lenders outside Greece):

    $568.7 billion (30 September 2013 est.)

    National debt:

    339 billion euros, $375 billion

    Central Government Budget:

    revenues: $119.5 billion

    expenditures: $127.9 billion (2014 est.)

    Budget surplus (+) or deficit (-):

    -3.4% of GDP (2014 est.)

    Public debt:

    174.5% of GDP (2014 est.)

    Labor force:

    3.91 million (2013 est.)

    GDP – per capita (Purchasing Power Parity):

    $25,800 (2014 est.)

    Unemployment rate:

    26.8% (2014 est.)

    Exports:

    $35.8 billion (2014 est.)

    Imports:

    $62.8 billion (2014 est.)

    Imports – partners:

    Russia 14.1%, Germany 9.8%, Italy 8.1%, Iraq 7.8%, France 4.7%, Netherlands 4.7%, China 4.6% (2013)

    Reserves of foreign exchange and gold:

    $6.433 billion (February 2015 est.)

    By 2013 the economy had contracted 26%, compared with the pre-crisis level of 2007. Tourism provides 18% of GDP.

    What can we conclude from this data?

    1. Greece’s central government is roughly half of its GDP (by some measures, it’s 59%), meaning that the national economy is heavily dependent on state revenues and spending.  For context, U.S. government spending is about 20% of U.S. GDP. As a rule of thumb, the private sector must generate the wealth that pays taxes and supports state spending. This leaves a relatively small private sector with the task of generating enough wealth to support state spending, pay interest on the national debt and pay down the principal.
    2. Greece runs a trade deficit, i.e. a current account deficit of almost $30 billion annually.  In the 14 years that Greece has been an EU member, this adds up to roughly $400 billion—a staggering sum for a nation with a GDP of around $200 billion.
    3. Austerity and a reduction in borrowing/spending have devastated the Greek economy, as GDP has shrunk 26% while unemployment has soared to 26%.
    4. While public debt is pegged at 175% of GDP, external debt is roughly 285% of GDP—a much larger sum. By all accounts, a significant portion of the Greek economy is off-the-books (cash); even if this is counted, the debt load on the private sector is extremely high.
    5. Foreign exchange reserves and gold holdings are a tiny percentage of government spending and GDP.

    This data reflects an imbalanced, heavily indebted, heavily state-centric economy with major systemic headwinds.

    The Problem with Not Having a National Currency

    The problem with not having a national currency is that there is no mechanism to rebalance trade (current account) imbalances.

    Ideally, a nation’s exports and imports balance, but in the real world, nations generally run trade surpluses or deficits. A trade deficit is a negative balance of trade incurred when a country's imports exceed its exports. A trade deficit is settled by an outflow of domestic currency to foreign markets.

    Countries with trade surpluses end up with cash from their trading partners, while countries with trade deficits must pay the difference between their exports and imports.

    Trade must balance: every nation cannot run a trade surplus. The problem for nations with current account deficits is: where do they get the money to settle their negative balance of trade?

    Nations with their own currencies can simply create the money out of thin air. This is in essence how the U.S. supports its massive trade deficits: the U.S. imports goods and services and exports U.S. dollars in exchange for the goods and services.

    This works as long as the country running trade deficits doesn’t print its currency with abandon.  If a nation prints its currency in excess, the currency loses value, and imports become more costly to residents.  As imports rise in cost (priced in the local currency), people can’t afford as many imports as they once could, and imports decline, reducing the trade deficit.

    On the other side of the trade ledger, the exports of the nation that is depreciating its currency becomes cheaper in other currencies. This makes the nation’s exports a relative bargain, and this tends to increase exports as global buyers take advantage of the cheaper goods and services.

    In this way, national currencies provide a mechanism for rebalancing trade deficits. By eliminating national currencies, the Eurozone also eliminated the only market mechanism for rebalancing trade imbalances.

    With no currency mechanism left, nations borrow money to fund their trade deficit.  This is the engine of Greek debt since that nation adopted the euro in 2001.

    If Greece had kept its national currency, trade deficits would have declined as the Greek currency depreciated and the cost of imports soared. Lenders would not have based their loans on the illusory guarantee of Eurozone membership.

    For nations running large structural trade deficits, membership in the Eurozone was a guarantee of financial disaster, as the way to fund the deficit within the Eurozone was to borrow more money.

    There is no way for Greece to fix its debt problem if it keeps the euro as its currency.  Every purported solution that doesn’t address the core cause of the debt is mere theater.

    The Subprime Template

    In the subprime mortgage bubble of the mid-2000s, people with modest incomes were able to buy costly McMansions under false pretenses by exaggerating their income (via “stated income” or liar loans). The mortgage originators issued the mortgage under equally false pretenses—that there was proper risk assessment/due diligence and a fair appraisal value for the property.

    These false pretenses enabled unqualified buyers to borrow enormous sums—for example, someone with an actual annual income of $25,000 borrowed $500,000 with no down payment and very low initial rate of interest. While the borrower bought into the dream of get-rich-quick “house flipping,” the real money was made by the originator and the lender.

    It is widely accepted that Greece was admitted to the Eurozone under false pretenses—national debts were masked or understated, reportedly with the assistance of Goldman Sachs.

    That a few at the top of the political/financial heap gained from Greece’s entry into the Eurozone is demonstrated by the “Lagarde List” of 2,000 individuals who transferred 50 billion euros out of Greece to Swiss banks in 2010, when the debt crisis was first making headlines. These are clearly not middle-class households getting their assets out of risky Greek banks; these are oligarchs and the top .1%. (Source)

    Since these transfers do not include money that fled Greece into the shadow banking system or hard assets, we can estimate the total sum taken out of Greece by the top 2,000 is more on the order of 100 billion euros—roughly half the nation’s GDP.

    In the U.S. economy, this would translate to 60,000 households taking $8.5 trillion out of the U.S.

    It is also widely accepted that at best 10% of the bailout funds trickled down to the Greek people—the vast majority bailed out private banks and other lenders. (Source)

    These charts demonstrate how private loans to Greece have been transferred wholesale to the public ledger, i.e. taxpayers:

    This is roughly the same template the too big to fail banks followed in the subprime mortgage crisis: after skimming vast profits from originating the loans, the banks faced insolvency as the phantom collateral of subprime mortgages evaporated.  To rescue the financial markets, the federal government bailed out the banks.

    Faced with the prospect of a Greek default bringing down their overleveraged banking sector (i.e. the European equivalent of a “Lehman Moment”), the EU leadership opted to bail out their own too big to fail banks on the backs of their taxpayers.

    Two Conclusions

    There are two conclusions to be drawn from all this, and they have nothing to do with who is demonizing whom or the political theater currently being staged:

    1. Greece can never escape the cycle of increasing debt until it exits the euro and returns to a national currency.
    2. The debt is so outsized compared to Greece’s private sector that it must be written off. What cannot be paid will not be paid.

    These facts matter not only because contagion from Greek debt defaults may ripple in dangerous ways through the financial system, but because they are also true for many other members of the Eurozone. As I predicted in my first article for Peak Prosperity four years ago, the Euro is a fatally-flawed monetary concept and what we now seeing playing out was eminently predictable from the start.

    In Part 2: More Sovereign Defaults Are Coming – Prepare Ahead Of The Turmoil, we look at structural causes of the global debt crisis that are not limited to Greece. Many other countries are teetering on the same brink Greece is now falling off of. When they fail, the ripple effect their debt defaults will debilitate their creditor nations, causing a massive shrinking of the world economy. 

    The key takeaway is this: even if the countries we live in can't live sensibly and within their means, we as individuals have the power to do so. But we need to seize that power now, before the next crisis arrives, for it to matter.

    Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

     

  • The Purge Begins: Tsipras To Expel Hard Core Left Wingers, Including Energy And Deputy Labor Ministers

    In the first sellside reaction to the latest Greek tragicomedy, moments ago Citi’s Richard Cochinos, in a note titled “72 hours for Greece” said what our readers have already known for about 6 hours: namely that “Greece will have 72 hours to implement the changes” and goes straight to the bottom line: “If they are unable to get the package through parliament, then this ends the dialogue and the government collapses.

    He adds that “the issue that Greece faces is it might not be possible – cracks in Syriza appeared already over the proposal sent to Brussels, what is coming back is even more stringent than the rejected referendum. There is a decent chance the Greek government will reshuffle next week, possibly fold on reforms. Domestically they can’t afford 3-4 weeks for new elections. The Economic Minister has suggested capital controls will remain in place for the next two-months (though they may be lightened). During the tourist season this is proving to be a death touch to the economy. RyanAir announced last week it is discounting flights to Greece by 30% due to low volumes.”

    We had a more directed view: in light of his “mental waterboarding“, Tsipras who has already lost all his credibility with both his people and the Troika, should do the only possible thing he can at this point: preserve some integrity with his voters, and resign… 

    … knowing full well that it is very likely that Syriza would be re-elected in the next elections, but meanwhile throwing the ball in Europe’s court for the final time, forcing the Eurozone to make the Grexit decision instead of, as Merkel has done passive-aggressively, letting Greece to pick its own poison. Also, in doing so, the blame for the collapse of the Eurozone would fall on Germany, something Merkel’s ego would hardly be able to withstand.

    And as if reading the collective’s mind, Tsipras did already begin the governmental reshuffling, only instead of quitting he has started the purge of the hard-core leftwingers still defending the anti-bailout platform, who are certain to make life a living hell for the premier once he returns to Athens from Brussels and has to explain his actions to both his party and to the population.

    As Reuters reports, the first targets of Tsipras purge of “party rebels opposed to an austerity package that will have to go through parliament within days” include the most prominent rebels, Energy Minister Panagiotis Lafazanis, leader of the so-called “Left Platform” within Syriza and Deputy Labour Minister Dimitris Stratoulis, a former unionist and a fierce opponent of pension cuts.

    Under a Syriza party agreement, deputies are supposed to resign their seats if they publicly disagree with government policy although there is nothing to stop them refusing to stand down and holding on to their seats as independents.

     

    Terence Quick, a member of the rightwing Independent Greeks, the junior coalition partner in the government, said that any deputies who voted against the government should resign.

     

    “I don’t think abstaining or being absent shows you are responsible or honorable in these particular circumstances. You either go in and say a forceful no and you leave or you say ‘Yes’ and you continue to fight,” he said

    The next scalp Tsipras would love to have is that of the “uncompromising speaker of parliament, Zoe Constantopoulou, who also defied Tsipras and abstained from the vote” although she would require a no confidence vote to be replaced “but the other rebels would be expected to resign their seats, the same people say.”

    And if not resign they will simply be among the first group of party leaders sacked, with many more to come as Tsipras effectively morphs into his predecessor Samaras.

    According to Reuters, the 40-year-old prime minister “can not afford to wait”  because “a mini-rebellion of lawmakers on Friday laid bare tensions in the ruling Syriza party. The revolt saw 17 deputies from the government benches withhold support in a vote to authorise bailout negotiations, leaving Tsipras reliant on opposition parties to pass the measure.”

    Dealing with the consequences of that revolt will provide a clear signal of how determined Tsipras will be in pushing through the reforms European partners are demanding.

     

    Whether cooperation with opposition parties leads to a full-scale national unity government, with seats in the cabinet is still unclear but the change has left the future of the radical leftwing government in doubt. The government has 162 seats in the 300 seat parliament.

    Then again after Friday’s vote, and following this weekend’s crushing blow by the Troika, it is almost certain that many Syriza loyalists will exit the party, either voluntarily or otherwise, leaving the ruling coalition with a minority vote, which in turn will likely result in a few round of government elections within 2-3 months.

    However, the purge will be only the first of many hurdles now facing the morally and financially bankrupt government:

    Clearing out the leftwingers still defending the anti-bailout platform on which Syriza won power in January would underline how seriously the situation has worsened for Greece in the past six months.

     

    With the financial system on the brink of collapse and shuttered banks running short of cash, the six-year Greek crisis has escalated dangerously, forcing Tsipras to change course only a week after voters resoundingly rejected a milder package of bailout terms in a referendum.

     

    There are also questions about how stable any such government would prove, given the deep ideological differences between Syriza and the centre-right New Democracy or Socialist Pasok parties.

    But the biggest hurdle is not what Tsipras will do to the government, but rather what, if anything, the Greek people will do to Tsipras. If they have had enough, they may just shift from the “radical left” to the “radical right” as the only remaining political party that hasn’t promised the sun, moon and stars, or been terminally discredited.

    Unless, of course, the population, so disenchanted by the endless game of political thrones, becomes the first social manifestation of “learned helplessness” and simply refuses to care, instead opting to go gentle into that good night and with it taking what was once the world’s oldest democracy.

  • Is It Time To Panic Yet?

    The world’s ‘teacup’ runneth over with ‘storms’…

     

    Source: Townhall.com

    Perhaps that is why NYSE ‘broke’ this week…

    Source: @MattGoldstein26

  • 'Greek' Finance In America: Pensions, Medicaid, & Entitlements Will Bankrupt State And Local Governments

    Submitted by Charles Hugh-Smith of OfTwoMinds blog,

    The template of over-indebtedness as a response to soaring obligations is scale-invariant, and it always ends the same way: default.

    When you can't pay your bills, you can either cut expenses, borrow money or if you're extraordinarily privileged, print money. If you borrow money without cutting expenses, the interest on the borrowed money piles up and you can't pay that, either. Then not only do you have a spending crisis, you have a debt crisis, and so do those who lent you the money.

    Because the funny thing about borrowed money is it's a debt to you but an asset to the lender.

    Not only is your debt listed as an asset on the lender's books–it's collateral that supports whatever financial leverage the lender might engage in.

    If you default on the debt, not only is the lender's assets impaired–all his leveraged bets built on the collateral of your debt are suddenly impaired, too.

    The preferred solution nowadays to a spending/debt crisis is to borrow your way out of the crisis: if you can't pay the interest and debt that's due, just borrow more to cover the interest payments and roll the old debt into new loans.

    In a variation that we can call The Japanese Solution, the lender decides not to list your defaulted loan as impaired–he places your loan in a special zombie debt column–it's neither a performing loan nor a defaulted loan; it is a zombie loan.

    The other solution (again from Japan) is to roll the defaulted debt into new loans at near-zero rates of interest that allow the borrower to pay a nominal sum every month, just to maintain the illusion of solvency. If you owe the bank $10 million, the bank loans you $11 million at .01% rate of interest and you promise to pay $100 a month.

    There–problem solved! The loan is now performing because the borrower is once again making payments. But is either the borrower or lender actually solvent? Of course not.

    Another trick is to guarantee the borrower is solvent. It's all smoke and mirrors, of course, but the empty guarantee is enough to smooth things over and maintain the illusion of solvency right up to the moment when the house of cards collapses.

    Debt and all these tricks to mask insolvency are scale-invariant, meaning they work the same on household debt, corporate debt and national debt. Many of these scams were used to mask the subprime mortgage debacle, and they are being routinely applied to private and public debt.

    Why? To avoid the consequences of losses being forced on overleveraged private banks and other lenders. Were those losses to be taken, those entities would be insolvent: their assets would be auctioned off, their shareholders, bond holders and creditors would receive pennies on the dollar (if that) and the lender would close their doors.

    The losses to the Financial Aristocracy, pension funds, etc. would be immense. So rather than deal with the realities of an insolvent, overleveraged, over-indebted and intrinsically corrupt financial system, everyone plays shadow games to maintain the illusion of solvency.

    If you can't print money or slash expenses, you have to borrow more money. The more you borrow, the greater the odds that in the next downturn, you won't be able to pay your bills, the interest on the debt, and roll over debt coming due into new loans.

    That's the template not just for Greece, but for many state and local governments in the U.S. As Gordon Long and I discuss in GREECE: A US State & Local Template?, state and local governments share key characteristics with Greece: they have soaring pension, Medicaid and employee healthcare obligations, but their tax revenues are either stagnant or prone to boom and bust cycles–and the current boom cycle is now entering the inevitable bust phase, when tax revenues plummet but the obligations just keep piling up.

    The template of over-indebtedness as a response to soaring obligations is scale-invariant, and it always ends the same way: default, more financial tricks to mask the default, and eventually, insolvency, bankruptcy and massive losses being distributed to everyone foolish enough to choose financial trickery over dealing with reality back when the pain would have been bearable.

    As for printing your way out of a spending/debt crisis: that's just another form of financial trickery that keeps the illusion alive for a few more years.

    GREECE: A US State & Local Template? (27:46 video, with Gordon T. Long)

Digest powered by RSS Digest

Jul 12

Today’s News July 12, 2015

  • The Great FreedomFest Debate Was Like Watching Tom and Jerry

    by Keith Weiner

     

    With apologies to his fans, Jerry is an evil little mouse who constantly pesters Tom the Cat. Tom tries and tries, but cannot seem to overpower someone who is a fraction of his size and strength.

    Watching Stephen Moore attempt to debate Paul Krugman was like that.

    The “economics” of Krugman is Keynesian economics. It consists of central planning your life by force, because market failure. And Krugman repeated this phrase “market failure” several times. Of course the solution was always government intervention.

    Here is an interesting endorsement about one of Keynes’ books.

    “Fascism entirely agrees with Mr. Maynard Keynes, despite the latter’s prominent position as a Liberal. In fact, Mr. Keynes’ excellent little book, The End of Laissez-Faire (l926) might,
    so far as it goes, serve as a useful introduction to fascist economics. There is scarcely anything to object to in it and there is much to applaud.”

    This was said by someone who knows all about fascism, Benito Mussolini. Fascism is a corporatist system. Although it has private ownership in name, it’s all under government control. Krugman is a real economic lightweight who proposed fascism for nearly everything that came up. His debate tactics consisted of context-dropping, asserting simple fallacies, and cherry-picking data.

    In the TV cartoon, Jerry would steal something and run into his mouse hole. Tom would be left whacking at the hole with a broom, in vain. At FredomFest, Krugman would say that the government must spend more to get the economy out of recession. Moore disagreed, and Krugman displayed a chart showing government spending and GDP growth rates for many countries around the world. Government spending and growth correlated very well.

    Instead of flailing away with a blunt instrument, I would have said “Seriously, Paul? What a simple fallacy. The definition of GDP includes government spending. You haven’t proven anything. It’s a tautology that if government spending goes up, GDP goes up. This is the flaw in GDP. Sometimes, rising GDP means the people are being impoverished.”

    Next, Krugman moved on to one of the central fallacies of Keynesianism. In Krugman’s words, “You just gave the logic for government deficit spending. Your spending is my income. Where is the income supposed to come from, if everyone cuts spending? Government has to make up the difference.”

    I would have said, “Seriously Paul. Again?! This is like the Broken Window fallacy [which Krugman said in 2011 “ceased to be a fallacy”]. Not all spending is consumer spending. Investment spending is important. When people slow consumption, it doesn’t mean they hoard dollar bills. They increase their bank deposits. Banks lend to promising companies. You know, that next new product or lifesaving technology? Except you don’t know it, because government spending has crowded them out.”

    In an economic downturn, people go on fewer gambling and drinking binges to Las Vegas. Krugman is basically saying that the government has to take up the slack, and go on gambling binges. Because demand shortfall.

    Shortly after telling Moore that one cannot cherry-pick one’s data, Krugman showed a graph comparing Jerry Brown’s California to Sam Brownback’s Kansas. For one year. I felt embarrassed for him, as there were sounds of amused laughter from the audience.

    Why did it come to Kansas vs. California for the year 2014 (I didn’t write the year in my notes)? It’s because Moore was defending free markets by appeal to aggregate statistics. Moore used red states as examples of freer markets, and blue for less free markets. He showed a few charts in which red states fared better than blue.

    Krugman’s cherry-picking got him safely back to his mouse hole, with Moore stuck outside, banging with a floor cleaning tool.

    You cannot defend freedom using statistics, as you cannot get a mouse out of the wallboards with a broom.

    Both Krugman and Moore were nervous speakers. Krugman was hunched a bit in on himself (though to be fair, he was in hostile territory and he knew it). Both spoke too rapidly and with a jittery character to their voices. Each has a nervous tell, with Moore incessantly taking little sips from his iced tea and Krugman playing with his fingers.

    Krugman took the lead on each issue. Moore often respond with a long caveat, which conceded the point to Krugman. For example, Krugman said that some kids are born disadvantaged, so we need to give them each $8,000 to $10,000 (per year, I assume) in free money. He actually said they “choose the wrong parents.”

    Someone please tell him that this is only possible by robbing the taxpayers. Maybe add that it will just accelerate America’s collapse into bankruptcy. Trillions in welfare spending do not fix anyone’s problems, and are actually the cause of the disadvantage Krugman discusses.

    Moore said he supports a social safety net, because America is rich, we can afford it, and it’s morally right. When the broom failed to defeat the mouse, not even Tom tried singing to Jerry.

    The topic moved to healthcare. Moore noted that government involvement has caused costs to spiral. Krugman offered another whopper. It’s because innovation.

    This is absurd, and even Krugman knows it. In computers, there’s been decades of both rapid innovation and falling prices.

    Krugman moved on to his shining moment, in the Ellsworth Toohey sense of shine. He unshrunk from his hunch, and his voice rang with moral clarity. “Obamacare is a life saver!”

    The audience booed.

    “I know someone whose life was saved by Obamacare. If you don’t know anyone like that, then I’m sorry for your narrow little world.”

    This is a faux-apology and a presumption. Who the heck is this guy to apologize to me for my life not conforming to his ideology? Not to mention, Krugman glosses over the people harmed by it. There ain’t no such thing as a free lunch, even if handout beneficiaries think there is.

    Worse yet Krugman implies that, to be moral, you must sacrifice yourself. He is cashing in on the guilt many people feel, at their own success. He’s learned that all he has to do is raise the specter that someone else is suffering, and they will concede him anything he demands.

    This being FreedomFest, and not the People’s Workers’ Party, a large majority of the audience supported Moore. However, moderator Mark Skousen asked a very clever question, “If you did not enter this room in agreement with Paul Krugman, did you change your mind as a result of what he said today?” I estimate about 50 people clapped or cheered.

    Krugman won because he appealed to people’s sense of right and wrong. Morality trumps economics any day of the week. Moore didn’t even respond to Krugman’s economic errors, much less smack down his phony judgmentalism.

  • What is a Market?

     

    By EconMatters

     

    Market Definition

    The Merriam-Webster definition for Market is the following:  

    1.  A meeting together of people for the purpose of trade by private purchase and sale and usually not by auction 
    2. The people assembled at such a meeting. This just gives a starting point for this important discussion given the philosophical crossroads that financial markets are facing in today`s evolution of economic theory with regard to social and governmental policy decisions juxtaposed against the backdrop of the underlying nature of basic financial principles.

     

    Global Volatility

    The past week saw the Chinese government take drastic measures to keep their financial market from falling further, the market has become as artificial as can be envisioned with sellers facing outright arrest for their actions.



    This really has brought to culmination the ever-trending debate of what role central banks, governments and centralized control have for financial markets. And what is the very nature of markets in general, what is their purpose, their structure, and ultimate sustainability going forward as entities.

     

    Slippery Slope of Market Evolution

    The US Central Bank has influenced market prices by lowering interest rates to zero, flooding the financial markets with massive liquidity, and outright asset purchases like treasury bonds. Japan has gone one step further in addition to buying bonds has expanded their Central Bank purchases to other financial assets like equity indexes. Many Central Banks like for example the Swiss National Bank holds shares in US equities like Apple Inc., Exxon Mobil Corp. and Johnson & Johnson to name a few of their holdings.

     

    The Role of Central Planning

    China which has long been a centrally planned government structure for economic initiatives who was trying to implement more free market reforms recently has reverted back to its fundamental nature and strategies and tried to completely control its stock market. Basically taking over every aspect of the market, forcing firms to buy stocks, closing stocks from trading, and arresting parties who wish to sell assets in the financial market.


     

    The best face to put on this behavior is that panic and irrational selling has taken over the market, and that the Chinese government is just putting in a giant trading curb in the market to give participants a chance to recover, take a deep breath, and reflect more rationally on the market. The other take on these measures in that they only make things worse, and in a sense have completely broken the market, it no longer exists.

     

    Social Engineering Outcomes & Financial Markets

    But the Chinese example is just the latest and final culmination in my mind of the slippery slope of governmental and central bank intervention in financial markets. The rub is this if central banks and governments view financial markets as Wealth Creation and Social Policy Initiatives, as Bernanke himself seemed to imply with his comments on the Russell 2000 during his tenure at the helm of the Federal Reserve, then the culmination of this rabbit hole journey is that central banks and governments have to intervene forever. A consistent forever, i.e., markets have to go up at a right angle forever, every year has to be higher than the previous year. If this is modern market theory than you have to commit forever, there is no stop and start commitment! It is like debt monetization theory and utilizing inflation to monetize an ever increasing debt over time by expanding the money supply.

     

    If markets are no longer vehicles for price discovery, valuation metrics for business prospects and growth projections, or capital allocation vehicles reflecting sound business decisions by management; but rather proxy vehicles and conduits for Social Wealth Creation Policies then is doesn`t really matter if Enron is solvent or not, or a Chinese construction company is bankrupt as long as the government can make these shares appreciate each year in perpetuity. In other words to be a forever appreciating asset, and not a valuation or price discovery mechanism.

     

    Sustainable Commitment

    Therefore, two questions emerge can central banks and governments stomach or sustain this kind of commitment forever for financial markets, and will it work even if they do? And probably more importantly is this the best outcome for financial markets, i.e., would markets and financial markets in general and the overall economy be better off as a result of a different approach by central banks and government authorities over the long run?

     

    These are some of the questions that all central banks and governmental policy leaders need to think hard about right now given the trend that has been emerging lately with policy decisions in regards to financial markets.

     

    Call it whatever you want, but it isn`t a market!

    My belief is that markets are markets for a reason, whether they are financial markets, the oil market, the housing market, the local farmer`s market or the illegal drug market, that fundamental economic and financial principles of price discovery and valuation metrics determining ultimate value lie beneath what it means to actually constitute a market.

     

    What we have today are not markets, you can call a financial market a market, but they are no longer actually markets in the traditional sense of what it means to be a market. It is also my belief that ultimately the underlying financial and economic principles of market behavior and forces will prevail over central bank and governmental interventions. In the end it is just a matter of time! Markets can be influenced for a while, they can even be changed, but ultimately the core essence of what it means to be a market reasserts itself at often the least opportune moment in time.

     

    Ultimately the assets in a marketplace represent valuation instruments, price discovery vehicles over time, and any approach that tries to circumvent this process is doomed to fail over the long haul as witnessed by how many companies no longer exist on a global basis over the last 50 years. Financial Markets are not socially engineering mechanisms for wealth creation strategies by central banks or governments, they are price discovery and valuation vehicles that are ultimately beholden to the underlying laws of economics and finance. So again I ask what does it mean to be a Market?

     

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

  • Guest Post: A Coming Era Of Civil Disobedience?

    Submitted by Patrick Buchanan via Buchanan.org,

    The Oklahoma Supreme Court, in a 7-2 decision, has ordered a monument of the Ten Commandments removed from the Capitol.

    Calling the Commandments “religious in nature and an integral part of the Jewish and Christian faiths,” the court said the monument must go.

    Gov. Mary Fallin has refused. And Oklahoma lawmakers instead have filed legislation to let voters cut out of their constitution the specific article the justices invoked. Some legislators want the justices impeached.

    Fallin’s action seems a harbinger of what is to come in America — an era of civil disobedience like the 1960s, where court orders are defied and laws ignored in the name of conscience and a higher law.

    Only this time, the rebellion is likely to arise from the right.

    Certainly, Americans are no strangers to lawbreaking. What else was our revolution but a rebellion to overthrow the centuries-old rule and law of king and Parliament, and establish our own?

    U.S. Supreme Court decisions have been defied, and those who defied them lionized by modernity. Thomas Jefferson freed all imprisoned under the sedition act, including those convicted in court trials presided over by Supreme Court justices. Jefferson then declared the law dead.

    Some Americans want to replace Andrew Jackson on the $20 bill with Harriet Tubman, who, defying the Dred Scott decision and fugitive slave acts, led slaves to freedom on the Underground Railroad.

    New England abolitionists backed the anti-slavery fanatic John Brown, who conducted the raid on Harpers Ferry that got him hanged but helped to precipitate a Civil War. That war was fought over whether 11 Southern states had the same right to break free of Mr. Lincoln’s Union as the 13 colonies did to break free of George III’s England.

    Millions of Americans, with untroubled consciences, defied the Volstead Act, imbibed alcohol and brought an end to Prohibition.

    In the civil rights era, defying laws mandating segregation and ignoring court orders banning demonstrations became badges of honor.

    Rosa Parks is a heroine because she refused to give up her seat on a Birmingham bus, despite the laws segregating public transit that relegated blacks to the “back of the bus.”

    In “Letter from Birmingham Jail,” Dr. King, defending civil disobedience, cited Augustine — “an unjust law is no law at all” — and Aquinas who defined an unjust law as “a human law that is not rooted in eternal law and natural law.”

    Said King, “one has a moral responsibility to disobey unjust laws.”

    But who decides what is an “unjust law”?

    If, for example, one believes that abortion is the killing of an unborn child and same-sex marriage is an abomination that violates “eternal law and natural law,” do those who believe this not have a moral right if not a “moral responsibility to disobey such laws”?

    Rosa Parks is celebrated.

    But the pizza lady who said her Christian beliefs would not permit her to cater a same-sex wedding was declared a bigot. And the LGBT crowd, crowing over its Supreme Court triumph, is writing legislation to make it a violation of federal civil rights law for that lady to refuse to cater that wedding.

    But are people who celebrate the Stonewall riots in Greenwich Village as the Mount Sinai moment of their movement really standing on solid ground to demand that we all respect the Obergefell decision as holy writ?

    And if cities, states or Congress enact laws that make it a crime not to rent to homosexuals, or to refuse services at celebrations of their unions, would not dissenting Christians stand on the same moral ground as Dr. King if they disobeyed those laws?

    Already, some businesses have refused to comply with the Obamacare mandate to provide contraceptives and abortion-inducing drugs to their employees. Priests and pastors are going to refuse to perform same-sex marriages. Churches and chapels will refuse to host them. Christian colleges and universities will deny married-couple facilities to homosexuals.

    Laws will be passed to outlaw such practices as discrimination, and those laws, which the Christians believe violate eternal law and natural law, will, as Dr. King instructed, be disobeyed.

    And the removal of tax exemptions will then be on the table.

    If a family disagreed as broadly as we Americans do on issues so fundamental as right and wrong, good and evil, the family would fall apart, the couple would divorce, and the children would go their separate ways.

    Something like that is happening in the country.

    A secession of the heart has already taken place in America, and a secession, not of states, but of people from one another, caused by divisions on social, moral, cultural, and political views and values, is taking place.

    America is disuniting, Arthur Schlesinger Jr. wrote 25 years ago.

    And for those who, when young, rejected the views, values and laws of Eisenhower’s America, what makes them think that dissenting Americans in this post-Christian and anti-Christian era will accept their laws, beliefs, values?

    Why should they?

  • Schauble Proposes "5 Year Grexit With Humanitarian Support"

    As we await the verdict on whether Greece will be in or out, here are the earlier comments from the Eurozone finance ministers and others attending the Eurogroup meeting, via Reuters:
     
    GERMAN FINANCE MINISTER WOLFGANG SCHAEUBLE

    • “We will have exceptionally difficult negotiations.”
    • “The problem is that that there was a situation at the end of the year that was very hopeful, despite all the scepticism of previous years, and that this was destroyed in an incredible way in the last months and hours.
    • “We are dealing with financing gaps which exceed everything we have dealt with in the past.”
    • “We are talking about a completely new three-year programme.”

     
    LUXEMBOURG FINANCE MINISTER PIERRE GRAMEGNA

    • “We, as Luxembourg, because we hold the EU presidency right now, are definitely ready to discuss debt restructuring, finalising is another issue.”

     
    SLOVAKIAN FINANCE MINISTER PETER KAZIMIR

    • “I see a huge problem with DSA (debt sustainability analysis), so long-term sustainability of the Greek debt. So now we will see what the institutions will bring on the table, what kind of finances and we have to assess it… This package would be appropriate for the completion of the second programme, but I’m afraid this is not enough for the third programme, for the ESM programme.”

     
    EUROGROUP CHAIRMAN AND DUTCH FINANCE MINISTER JEROEN DIJSSELBLOEM

    • “We are still far away. It looks quite complicated. On both content and the more complicated question of trust, even if it’s all good on paper the question is whether it will get off the ground and will it happen. So I think we are facing a difficult negotiation.”
    • Will you talk about debt relief?
    • “I don’t know we will get to that.”
    • “There is still a lot of criticism on the proposal, reform side, fiscal side, and there is of course a major issue of trust. Can the Greek government be trusted to do what they are promising, to actually implement in coming weeks, months and years. I think those are the key issues that will be addressed today.”
    • (For Greeks to regain trust) “Well, they will have to listen to the ministers and the institutions first and see what improvements are needed. And they will have to show very very strong commitments to rebuild that trust.”

     
    FRENCH FINANCE MINISTER MICHEL SAPIN

    • “Confidence has been ruined by every Greek government over many years which have sometimes made promises without making good on them at all. Today we need to have confidence again, to have certainty that decisions which are spoken of are decisions which are actually taken by the Greek government.
    • On debt restructuring: “France has always said there is no taboo about the debt. We have the right to talk about the debt.”
    • We don’t want there to be reduction in the nominal value of the debt because that is a red line for many of the member states in the Eurogroup.
    • “France … is a link, and we will play this linking role to the very end.”

     
    ITALIAN ECONOMY AND FINANCE PIER CARLO PADOAN

    • “I expect a long finance ministers meeting on Greece. It is not very easy but we will do all we can.”
    • “The purpose of this meeting is to kick off negotiations on ESM which is a medium-term, very demanding programme and we are all here with open minds to reach an OK, a green light to start negotiations. The government, the Greek Parliament and the Greek people are positive towards starting what is the beginning of a negotiation. It is not about striking a deal tonight.”

     
    MALTESE FINANCE MINISTER EDWARD SCICLUNA

    • “This (Greek issue) has to be solved today because it is a question of coming up with this framework which gives assurance to the finance ministers.”

     
    IRISH FINANCE MINISTER MICHAEL NOONAN

    • “The Greek paper was silent on banking. Obviously the Greek banks are in difficulty now and it’s going to be hard to put them back on an even keel, so we need a full briefing on that. Secondly I said we needed a medium term sustainable programme. Sustainability depends a lot on whether the programme is sufficient to cause the Greek economy to grow and to create jobs… It is very hard to stimulate an economy when on the demand you are doing corrective work so they need more supply side initiatives which effectively means a lot of reform which doesn’t seem to be built into the programme.”
    • “I think the trust is now being rebuilt in the relationship with Greece. I would hope that trust would continue to be rebuilt today. That’s pretty important also.”

     
    EUROPEAN COMMISSION VICE-PRESIDENT VALDIS DOMBROVSKIS

    • “It must be said that we are clearly making progress and the Greek government’s proposal actually is pretty much along the lines of what the institutions’ proposal was before the referendum. So clearly we see there is a willingness of the Greek to reach an agreement and also the vote in parliament showed that there is a parliamentary majority to move ahead with this programme.”
    • “What we should be discussing today is basically about giving a mandate to the European Commission in liaison with the ECB and in close cooperation with the IMF to start negotiations about this ESM programme.”

     
    AUSTRIAN FINANCE MINISTER HANS JOERG SCHELLING

    • Asked about whether he was positive on a deal: “Yes and no. Of course it is a step ahead that Greece has finally delivered, surprisingly what was already agreed before and surprisingly after the referendum. What is missing are the details. The biggest item we have to talk about is what guarantees Greece can give to implement what has been agreed. We have seen for five years now that such lists are sent, but the implementing measures never happen.”

    DUTCH JUNIOR FINANCE MINISTER ERIC WIEBES

    • “The Greeks have clearly made a step forward but at the same time we see that the institutions are critical of the plan, the missing specificities and they see that the plan is weaker in some areas than it should be. It is their suggestion to only start negotiations when these conditions are further filled in.
    • At the same time, many governments, mine too, have serious concerns about the commitment of the Greek government and also the power of the implementation. That has been the weak point because after all, we are discussing a proposal from the Greek government that was fiercely rejected a week ago, and that is a serious concern.
    • (On what the Greeks can do further) we have to discuss that. Clearly there has to be made a step that enables trust with all the financing parties. (What happens if there is no agreement tonight) That is basically up to the Greek government.”

     
    IMF MANAGING DIRECTOR CHRISTINE LAGARDE

    • “I think we are here to make a lot more progress.”

     
    EUROPEAN ECONOMIC AFFAIRS COMMISSIONER PIERRE MOSCOVICI

    “Since the start, the European Commission had the objective, that of the integrity of the euro. It was to keep a reformed Greece in the euro zone.”
    “I note that the Greek government has made significant gestures.”
    “We (the creditors) have said the Greek reform programme could constitute a basis for a new programme.”
    “Our general sentiment is that there need to be reforms, solid reforms, reforms appropriate to the Greek authorities and reforms that are implemented as soon as possible.”

    * * *

    And here are the punchlines:

    First the Finns:

    • Finnish Parliament Committee Opposes Greek Aid Talks
    • Greek proposals don’t warrant negotiations on new bailout, public broadcaster YLE says, citing unnamed sources.
    • Finnish parliament’s Grand Committee adopted position regarding Greek bailout request on Saturday; stance won’t be published ahead of Eurogroup debate in Brussels, state secretary Olli-Pekka Heinonen told local media
    • MP Paavo Arhinmaki, head of Left Alliance, told Helsingin Sanomat newspaper he left dissenting opinion at Grand Committee meeting; said Greek govt proposals “could be basis to start talks”

    And now, Greek nemesis #1, Schauble via Bloomberg:

    • SCHAEUBLE PROPOSES TIME-LIMITED `GREXIT’: FAZ.
    • SCHAEUBLE SUGGESTS 5-YR GREXIT, HUMANITARIAN SUPPORT: FAZ

    More from German Focus, google translated:

    The German Finance Ministry has communicated its negative assessment of the Greek proposals to other Euro countries on Saturday. “These proposals are missing centrally important areas of reform to modernize the country and to advance on the long term economic growth and sustainable development,” it said in the one-sided position paper, which was present at the Frankfurter Allgemeine Sonntagszeitung (FAS). Therefore they could “not be the basis for a completely new, three-year ESM program”.

     

    Instead, the Treasury took two paths in the eye that remained.

     

    One way: Greece improved its proposals quickly and comprehensively, with the full support of Parliament. The Ministry suggested among other things that Greece shall transfer assets amounting to 50 billion euros to a trust fund, which it sells and thus removes debt.

     

    Way two: With Athens is negotiating a “time out”. It leaves the euro zone for at least five years and restructures its debt. However, it remains the EU Member and receives further “growth-enhancing, humanitarian and technical assistance,” says the “FAS”.

    And here’s Reuters:

    Germany’s Finance Ministry believes Greece’s latest reform proposals do not go far enough and has suggested two alternative courses for Athens including a “timeout” from the euro zone, the Frankfurter Allgemeine Sonntagszeitung (FAS) reported.

     

    “These proposals miss out important central reform areas to modernise the country and to bring economic growth and sustainable development over the long term,” the FAS quoted the ministry as writing in a position paper.

     

    Instead, the ministry set out two alternative courses for Greece. Under the first, Athens would improve its proposals quickly and transfer assets worth 50 billion euros ($56 billion) to a fund in order to pay down its debt.

     

    Under the second scenario, Greece would take a “timeout” from the euro zone of at least five years and restructure its debt, while remaining a member of the European Union.

    In other words, Germany just said kick Greece out, conditionally, for 5 years (it is not quite clear what Greece would use for currency in the meantime), quarantine it, and treat it as a third-world country until 2020. Somehow we doubt global stocks expected this outcome when they soared on Friday.

    As expected, Greece quickly denied this:

    • GREEK GOVT OFFICIAL SAYS GREXIT PLAN NOT DISCUSSED IN EUROGROUP

    And at least one member of the anti-German/austerity axis chimed in as well:

    • The idea of giving Greece a sabbatical from the euro area cannot be taken seriously, an EU official says in Brussels.
    • It is legally not feasible, makes no economic sense and is not in line with political reality, official says
    • It is time now for a serious discussion and solutions, not for reactivating academic, non-practical ideas, official says
    • Official says euro suspension is old idea floated by German academic Hans-Werner Sinn

    But with Germany making its semi-officially position known, and with the reality that Greece would essentially have to abdicate sovereignty to assure Europe that it will comply with any additional bailout conditions and further spending cut demands (of which there will be plenty), just what is the other “serious solution” alternative here?

  • Artist's Impression Of The Next Greek Bailout

    One way or another, this is what happens…

     

     

    h/t @RudyHavenstein

  • "There Is Going To Be A Taper Tantrum In Latin America… It Is Inescapable"

    Authored by Patrick Gillespie via CNNMoney.com,

    Greece needs a bailout and China’s stock market is in meltdown mode. But the global economy has another rising red flag: Latin America.

    Every major Latin American economy is slowing down or shrinking. The World Bank predicts this will be Latin America’s worst year of growth since the financial crisis. As if that’s not dire enough, the world’s two worst performing stock markets are in the region as well.

    And things could get even uglier later this year for Latin America, a region which is double the economic size of India.

    “The weakness in Latin America is reflecting the weaker global outlook,” says Win Thin, senior economist at Brown Brothers Harriman.

    The ‘most vulnerable’: After years of checkered progress, Latin America is the “most vulnerable” region to China’s sputtering economy and market meltdown, experts say. It’s become a trade battleground area between the United States and China.

    China is the biggest trade partner to many Latin countries, but the U.S. has tried to reassert its presence in recent months. Still, China’s sluggish growth is pulling Latin America down with it.

    “We’re expecting very, very weak growth,” says Eugenio Aleman, senior economist at Wells Fargo Securities. “Brazil is in bad shape. Argentina isn’t much better. Chile has slowed down to a trickle…Peru is slowing down considerably.”

    That’s just the beginning. Venezuela is arguably the world’s worst economy with sky-high inflation. Next door, Colombia has the world’s worst stock market this year. Its index is down 13% so far this year. The second worst is Peru, down 12.5%. By comparison, America’s S&P 500 is flat this year. (Argentina has the world’s best stock market, but that’s more a reflection of politics than economics).

    While many are focused on Greece right now, “a deeper downturn in China remains the key external risk for Latin America,” says Neil Shearing, chief emerging market economist at Capital Economics.

     

    The big problem: The three “C’s” are weighing down Latin America: China, commodities, and currency.

    The region boomed last decade when its commodities, like iron, copper and food, were in high demand.

    But China drove that demand. Now Chinese construction companies are pumping the brakes while the government tries to stop its bleeding stock market. That means less Chinese cash is coming to Latin American countries. Oil’s tanking prices have hurt the region too.

    And then comes currency. The U.S. dollar’s strong rise this year has helped it gain a lot of ground on Latin American currencies. That makes it more expensive for Latin Americans to buy imports and, for some companies, more expensive to pay debt that’s in U.S. dollars.

    Colombia’s currency has lost 13% of its value this year against the dollar. Brazil’s real has lost 21% and Mexico’s peso continues to slide too.

    There’s likely one more punch to Latin America from the U.S. this year: the Federal Reserve’s long-awaited rate hike.

    Taper Tantrum deja vu?: Two years ago, Latin American stocks tanked when then Fed Chair Ben Bernanke announced that the Fed would end its stimulus program. After the financial crisis, the Fed put interest rates at zero, and investors went overseas to get better returns on bonds than U.S. bonds, which still give back little. A Fed rate hike could change that scenario.

    Latin America is better positioned now to weather a Fed rate hike than past ones. But there could still be an exodus of cash, experts say.

    “There is going to be a taper tantrum in Latin America,” says Aleman. “It is inescapable.”

  • TRoiKaN HoMeBoY…

    .

     

     

    .

    .

    I can’t describe, these words are hardly uttered

     

    You’re faker than a german hot-dog with no mustard,

     

    Give journal blisters, activist spitters, from the  Aryan brothers to the sisters,

     

    Glocks, that’s a german invention, riding with Troikan killers

     

    I walk around with a Euro crucifix upward

     

    You’re faker than a german hot-dog with no mustard,

     

    Spit heat through my teeth, smoking green for the grief,

     

    So bailout gods of rap, think i’m an ancient greek

     

    Or even more like pythagoras if we are taking it to greece,

     

    Cheeko c will make you looking back at your shoulder,because i leave

     

    But my mind is big, monetary creations are forming

     

    In greece i’d pilot a EURO chariot thru austerity skies at morning

     

    Euro river leap stream another triple  bailed Queen

     

    And when you knock knock on the door tryin to get at me mane,

     

    All you EURO niggas just trynaa say austerity  grace

     

    So many kings of EURO, you know me as the ace

     

    Im a Troik rapper that is non fiction, i got better diction than an IMF tit

     

    Now money is a service, but it’s worthless, there’s no purpose, shit,

     

    Dude Tsipras he never fit in, always faking sick

     

    Suckin my dick, writing with confidence , callin me a prick

     

    A stressed beseecher with quest for decimation and Med features.

     

    And confidence is descending, just like our Euro leaders

     

    And when you knock knock on the door tryin to get at me mane,

     

    All you EURO niggas just trynaa say austerity  grace

     

    So many kings of EURO, you know me as the ace

  • The FDIC's Plan to Raid Bank Accounts During the Next Crisis

     As we've noted previously, one of the biggest problems for the Central Banks is actual physical cash.

     

    The financial system is predominantly comprised of digital money. Actual physical Dollars bills and coins only amount to $1.36 trillion. This is only a little over 10% of the $10 trillion sitting in bank accounts. And it’s a tiny fraction of the $20 trillion in stocks, $38 trillion in bonds and $58 trillion in credit instruments floating around the system.

     

    Suffice to say, if a significant percentage of people ever actually moved their money into physical cash, it could very quickly become a systemic problem.

     

    Indeed, this is precisely what caused the 2008 meltdown, when nearly 24% of the assets in Money Market funds were liquidated in the course of four weeks. The ensuing liquidity crush nearly imploded the system.

     

    Because of this, Central Banks and the regulators have declared a War on Cash in an effort to stop people trying to get their money out of the system.

     

    One policy they are considering is to put a carry tax on physical cash meaning that your Dollar bills would gradually depreciate once they were taken out of the bank. Another idea is to do away with actual physical cash completely.

     

    Perhaps the most concerning is the fact that should a “systemically important” financial entity go bust, any deposits above $250,000 located therein could be converted to equity… at which point if the company’s shares, your wealth evaporates.

     

    Indeed, the FDIC published a paper proposing precisely this back in December 2012. Below are some excerpts worth your attention:

     

    This paper focuses on the application of “top-down” resolution strategies that involve a single resolution authority applying its powers to the top of a financial group, that is, at the parent company level. The paper discusses how such a top-down strategy could be implemented for a U.S. or a U.K. financial group in a cross-border context…

     

    These strategies have been designed to enable large and complex cross- border firms to be resolved without threatening financial stability and without putting public funds at risk…

     

     

    An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company into equity. In the U.S., the new equity would become capital in one or more newly formed operating entities. …

     

    …Insured depositors themselves would remain unaffected. Uninsured deposits would be treated in line with other similarly ranked liabilities in the resolution process, with the expectation that they might be written down.

     

    http://www.fdic.gov/about/srac/2012/gsifi.pdf

     

     

    In other words… any liability at the bank is in danger of being written-down should the bank fail. And guess what? Deposits are considered liabilities according to US Banking Law. In this legal framework, depositors are creditors.

     

    So… if a large bank fails in the US, your deposits at this bank would either be “written-down” (read: disappear) or converted into equity or stock shares in the company. And once they are converted to equity you are a shareholder not a depositor… so you are no longer insured by the FDIC.

     

    So if the bank then fails (meaning its shares fall)… so does your deposit.

     

    Let’s run through this.

     

    Let’s say ABC bank fails in the US. ABC bank is too big for the FDIC to make hold. So…

     

    1)   The FDIC takes over the bank.

    2)   The bank’s managers are forced out.

    3)   The bank’s debts and liabilities are converted into equity or the bank’s stock. And yes, your deposits are considered a “liability” for the bank.

    4)   Whatever happens to the bank’s stock, affects your wealth. If the bank’s stock falls at this point because everyone has figured out the bank is in major trouble… your wealth falls too.

     

    This is precisely what has happened in Spain during the 2012 banking crisis over there. And it is perfectly legal in the US courtesy of a clause in the Dodd-Frank bill.

     

    This is just the start of a much larger strategy of declaring War on Cash.  The goal is to stop people from being able to move their money into physical cash and to keep their wealth in the financial system at all costs.

     

    Indeed, we've uncovered a secret document outlining how the Fed plans to incinerate savings to force investors away from cash and into riskier assets.

     

    We detail this paper and outline three investment strategies you can implement right now to protect your capital from the Fed's sinister plan in our Special Report Survive the Fed's War on Cash.

     

    We are making 1,000 copies available for FREE the general public.

     

    To pick up yours, swing by….

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

     

    Best Regards

    Phoenix Capital Research

     

     

     

  • Putin's Latest Thoughts On Greece And A Greek Exit From The Euro

    Earlier today we showed one, less than official, interpretation of what may be going on in the Kremlin at this moment. And since a Grexit, despite Friday’s relief rally, suddenly seems all too real (even if it is a “temporary” one, which by the way was first suggested by Hans-Werner Sinn back in 2012 which means that the “hard money” is now running the show in Europe) the topic of just what Putin thinks about Greece in European limbo (or rather its naval bases) becomes pertinent all over again.

    Luckily, we know precisely how Putin feels about Greece and a potential Grexit, because it was just yesterday following the BRICS and Shanghai Cooperation Organisation summits in Ufa, the among many other things, Putin talked about precisely this issue. Here is the excerpt from the official transcript.

    Question: Darya Stanislavets, RIA Novosti, Prime. Greece is going through a serious crisis. It has not yet reached an agreement with its creditors. You met with Mr Tsipras [Greek Prime Minister Alexis Tsipras] in St Petersburg and spoke to him on the telephone after the referendum. Did Athens ask Russia for financial assistance? Did Russia promise such assistance? Is Russia able and willing to provide such assistance given its own economic difficulties? Could such assistance be provided, for example, by the New Development Bank?

     

    Also, what do you personally think about the Greek creditors’ proposals? If you were in Mr Tsipras’s shoes, would you accept or reject them?

    Vladimir Putin: Russia of course can provide assistance to its partners no matter what. Despite Russia’s economic difficulties, the fundamentals of our economic situation today are such that we are in a position to do this. What’s more, we do provide it to certain countries.

     

    Regarding Greece, we have a special relationship of spiritual kinship and religious and historical affinity with it. However, Greece is an EU country, and within the bounds of its obligations, it is conducting rather complicated negotiations with its partners in united Europe. Mr Tsipras has not asked us for any assistance. This is only natural, because the figures are too high.

     

    We know what is on the table, and fundamental decisions have to be taken. This is not even a matter of money. It is a matter of economic development principles and the principles of resolving these problems with their partners in the foreseeable future. We have already said – I have said it in public – that of course the Greeks can be blamed for everything but if they committed violations, where was the European Commission? Why did it not correct the activity of previous Greek governments? Why did they grant bonuses and loans? Why did they allow it to keep such a low profile on taxation in certain sectors of the economy? Why were there such big subsidies for the islands? And so on and so forth. Where were they earlier? So, there is something to discuss, and the Greek government has something to argue about.

     

    Furthermore, when one powerful currency is used in a number of countries with different levels of economic development, then the country is unable to regulate either its finances or its economic situation via currency mechanisms. Greece cannot devalue the euro, can it? It’s impossible.

     

    It does not have this tool or the possibility of drawing more tourists, while tourism is one of Greece’s principal industries – in the context of its obligations within the Schengen zone. It has to limit its agricultural production because it has to stay within the quotas set by Brussels, and it has to limit fishing and many other things. In other words, there are limitations but there are also advantages in EU membership, related to soft loans, bonuses and so on. This, however, is the sovereign choice of the Greek leadership and the Greek people. This does not directly affect us but indirectly, of course, it affects all of Europe and Russia, despite the fact that we are not an EU member, because we have extensive trade and economic ties with Europe, while Europe is our number one trade and economic partner. Naturally, we are watching this very closely and with a certain measure of anxiety, but we still hope that the crisis will be resolved in the very near future.

    Is most certainly will be, and as Putin will admit, Greece can export much more to Russia if its currency was far weaker. Say, for example, this one.

  • Meanwhile In Washington…

  • Economic Sanctions Cause War, Not Peace: Some Lessons From FDR's Embargo Against Japan

    Submitted by Roberts Higgs of The indepedent Institute via Contra Corner blog,

    Ask a typical American how the United States got into World War II, and he will almost certainly tell you that the Japanese attacked Pearl Harbor and the Americans fought back. Ask him why the Japanese attacked Pearl Harbor, and he will probably need some time to gather his thoughts. He might say that the Japanese were aggressive militarists who wanted to take over the world, or at least the Asia-Pacific part of it. Ask him what the United States did to provoke the Japanese, and he will probably say that the Americans did nothing: we were just minding our own business when the crazy Japanese, completely without justification, mounted a sneak attack on us, catching us totally by surprise in Hawaii on December 7, 1941.

    You can’t blame him much. For more than 60 years such beliefs have constituted the generally accepted view among Americans, the one taught in schools and depicted in movies—what “every schoolboy knows.” Unfortunately, this orthodox view is a tissue of misconceptions. Don’t bother to ask the typical American what U.S. economic warfare had to do with provoking the Japanese to mount their attack, because he won’t know. Indeed, he will have no idea what you are talking about.

    In the late nineteenth century, Japan’s economy began to grow and to industrialize rapidly. Because Japan has few natural resources, many of the burgeoning industries had to rely on imported raw materials, such as coal, iron ore or steel scrap, tin, copper, bauxite, rubber, and petroleum. Without access to such imports, many of which came from the United States or from European colonies in southeast Asia, Japan’s industrial economy would have ground to a halt. By engaging in international trade, however, the Japanese had built a moderately advanced industrial economy by 1941.

    At the same time, they also built a military-industrial complex to support an increasingly powerful army and navy. These armed forces allowed Japan to project its power into various places in the Pacific and east Asia, including Korea and northern China, much as the United States used its growing industrial might to equip armed forces that projected U.S. power into the Caribbean and Latin America, and even as far away as the Philippine Islands.

    When Franklin D. Roosevelt became president in 1933, the U.S. government fell under the control of a man who disliked the Japanese and harbored a romantic affection for the Chinese because, some writers have speculated, Roosevelt’s ancestors had made money in the China trade. Roosevelt also disliked the Germans (and of course Adolf Hitler), and he tended to favor the British in his personal relations and in world affairs. He did not pay much attention to foreign policy, however, until his New Deal began to peter out in 1937. Afterward, he relied heavily on foreign policy to fulfill his political ambitions, including his desire for reelection to an unprecedented third term.

    When Germany began to rearm and to seek Lebensraum aggressively in the late 1930s, the Roosevelt administration cooperated closely with the British and the French in measures to oppose German expansion. After World War II commenced in 1939, this U.S. assistance grew ever greater and included such measures as the so-called destroyer deal and the deceptively named Lend-Lease program. In anticipation of U.S. entry into the war, British and U.S. military staffs secretly formulated plans for joint operations. U.S. forces sought to create a war-justifying incident by cooperating with the British navy in attacks on German U-boats in the north Atlantic, but Hitler refused to take the bait, thus denying Roosevelt the pretext he craved for making the United States a full-fledged, declared belligerent—an end that the great majority of Americans opposed.

    In June 1940, Henry L. Stimson, who had been secretary of war under Taft and secretary of state under Hoover, became secretary of war again. Stimson was a lion of the Anglophile, northeastern upper crust and no friend of the Japanese. In support of the so-called Open Door Policy for China, Stimson favored the use of economic sanctions to obstruct Japan’s advance in Asia. Treasury Secretary Henry Morgenthau and Interior Secretary Harold Ickes vigorously endorsed this policy. Roosevelt hoped that such sanctions would goad the Japanese into making a rash mistake by launching a war against the United States, which would bring in Germany because Japan and Germany were allied.

    Accordingly, the Roosevelt administration, while curtly dismissing Japanese diplomatic overtures to harmonize relations, imposed a series of increasingly stringent economic sanctions on Japan. In 1939 the United States terminated the 1911 commercial treaty with Japan. “On July 2, 1940, Roosevelt signed the Export Control Act, authorizing the President to license or prohibit the export of essential defense materials.” Under this authority, “[o]n July 31, exports of aviation motor fuels and lubricants and No. 1 heavy melting iron and steel scrap were restricted.” Next, in a move aimed at Japan, Roosevelt slapped an embargo, effective October 16, “on all exports of scrap iron and steel to destinations other than Britain and the nations of the Western Hemisphere.” Finally, on July 26, 1941, Roosevelt “froze Japanese assets in the United States, thus bringing commercial relations between the nations to an effective end. One week later Roosevelt embargoed the export of such grades of oil as still were in commercial flow to Japan.” The British and the Dutch followed suit, embargoing exports to Japan from their colonies in southeast Asia.

    An Untenable Position

    Roosevelt and his subordinates knew they were putting Japan in an untenable position and that the Japanese government might well try to escape the stranglehold by going to war. Having broken the Japanese diplomatic code, the Americans knew, among many other things, what Foreign Minister Teijiro Toyoda had communicated to Ambassador Kichisaburo Nomura on July 31: “Commercial and economic relations between Japan and third countries, led by England and the United States, are gradually becoming so horribly strained that we cannot endure it much longer. Consequently, our Empire, to save its very life, must take measures to secure the raw materials of the South Seas.”

    Because American cryptographers had also broken the Japanese naval code, the leaders in Washington knew as well that Japan’s “measures” would include an attack on Pearl Harbor. Yet they withheld this critical information from the commanders in Hawaii, who might have headed off the attack or prepared themselves to defend against it. That Roosevelt and his chieftains did not ring the tocsin makes perfect sense: after all, the impending attack constituted precisely what they had been seeking for a long time. As Stimson confided to his diary after a meeting of the war cabinet on November 25, “The question was how we should maneuver them [the Japanese] into firing the first shot without allowing too much danger to ourselves.” After the attack, Stimson confessed that “my first feeling was of relief … that a crisis had come in a way which would unite all our people."

  • Meanwhile, In The Kremlin…

    “Things over in Europe sure are making me hungry”

  • Eurogroup Meeting Ends Without Agreement: "Huge Problems", "Issue Of Greek Trust Very Difficult"

    Equity markets roared higher Thursday and Friday as they ‘knew’ a deal was imminent in Greece because Tsipras appeared to backpedal. However, after someone told Merkel the truth, and “everyone knows you can’t believe” the Greeks, The Eurorgoup Meeting ends with zero agreement after 9 hours of rumor-mongering and escalating tensions. Local reporters noted the leaders could not even agree on what to disagree about as an increasing number of EU member states pushed for either a Grexit or considerably tougher sanctions austerity on the Greeks. 

     

    From the man himself…

    • *DIJSSELBLOEM SAYS TALKS ARE STILL VERY DIFFICULT
    • *DIJSSELBLOEM SAYS ISSUE OF GREEK TRUST VERY DIFFICULT
    • *DIJSSELBLOEM: `WE DON’T HAVE A SOLUTION YET’
    • *DIJSSELBLOEM SAYS `HUGE PROBLEMS’ REMAIN IN GREEK TALKS
    • *DIJSSELBLOEM: `FOR SURE IT WAS A DIFFICULT MEEETING’

    Summing up the meeting perfectly…

    As Reuters reports (rather more hopefully than many),

    Euro zone finance ministers were trying to draft a joint statement on Saturday listing further measures they want Greece to take in order to launch negotiations on a bailout Athens has requested, an EU source said.

     

    The Greek government has put forward a set of reform plans to meet conditions for a three-year loan from euro zone partners but finance ministers said they did not go far enough and several sources said the other 18 euro zone states want Athens to offer additional actions and guarantees of implementation.

    *  *  *

    Don’t worry though:

    • *MOSCOVICI SAYS THERE’S `ALWAYS HOPE’ AND TALKS RESUME SUNDAY

    Do these look like faces of hope?

    There is no press conference and the meeting will resume tomorrow at 11am… shortly before FX markets open.

  • Someone Told Merkel…

    Earlier today, we reported that according to Frankfurter Allgemeine Sonntagszeitung, the German finance ministry had begun circulating a document which outlined two possible courses of action for dealing with the Greek ‘problem.’

    After reviewing the “new” proposal (and by “new” we actually mean the old proposal that 61% of Greeks voted against, plus a few cosmetic changes) submitted by Greek PM Alexis Tsipras on Thursday evening, the German finance ministry said the plan was “missing centrally important areas of reform to modernize the country and to advance on the long term economic growth and sustainable development.” 

    Yes, Tsipras’ offer is “missing” important reforms, but more importantly, it seemed also to be “missing” the small detail that in addition to the €53 billion the country needs for a third sovereign bailout, Greece will also need another €10-20 billion to recapitalize the banks, something we warned about (and outlined in quite a bit of detail) on Friday in “Don’t Tell Merkel: Greek Banks Need An Additional €10-14 Billion Bailout.” Here’s what we said yesterday:

    We’re sorry to break it to Mr. Michelbach, Frau Merkel, and the German taxpayer, but that €53 billion Greece is asking for will be just the start of things and we don’t mean in the sense that Athens will one day in the not-so-distant future be back in Brussels looking for a fourth bailout (which they probably will), we mean in the sense that Greece’s beleaguered banking sector is insolvent and will need to be recapitalized one way or another with some (or all) of the funds coming directly out of the pockets of the very same EU taxpayers that are now set to fund the third Greek sovereign bailout. 

    While an extra €10-14 billion would have been bad enough, it turns out that Greek banks will actually need more along the lines of €25 billion. Here’s Reuters: 

    Euro zone finance ministers were told on Saturday that some 25 billion euros (18 billion pounds) of any bailout loan to Greece would be needed to recapitalise banks that are on the verge of collapse, sources close to the discussions said.

     

    That is more than double the amount that Athens forfeited in financial stability funds at the end of June when it walked away from talks on completing a previous bailout programme.

     

    The extra capital is needed because of the damage wrought by massive deposit withdrawals before a two-week bank holiday that was ordered on June 29, when Greece imposed capital controls to stop savers and businesses emptying their accounts.

     

    Prime Minister Alexis Tsipras applied this week for a three-year loan from the European Stability Mechanism of 53.5 billion euros. EU and IMF experts who analysed Greece’s funding needs concluded it would need some 74 billion euros, the sources said.

     

    Within that sum, sources said that about 25 billion would need to be used to bolster the balance sheets of banks ravaged by a renewed economic slump and fears that Greece would drop out of the euro single currency area.

    And indeed, it appears as though someone did tell Merkel the bad news, because as WSJ reports, and as we predicted over 24 hours ago, the extra funds for the bank recap were simply too much for Germany to bear: 

    The document, which was first reported by German weekly Frankfurter Allgemeine Sonntagszeitung, became public after the three institutions that oversee eurozone bailouts estimated the country would need an extra €74 billion ($82.55 billion) in rescue loans over the coming three years. That high figure, which includes €25 billion to recapitalize Greek banks, drew consternation from many finance ministers during Saturday’s meeting, according to two European officials.

     


     

    “The mood [is] bad,” said one person describing the atmosphere in the room.

     

    In the document, dated July 10, Germany takes a tough line on spending cuts and policy overhauls Greece submitted to its international creditors, the other eurozone countries and the International Monetary Fund late Thursday.

    So it appears as though the German finance ministry had already prepared the document and upon hearing the €25 billion bank recap figure, seized upon the collective shock among EU finance ministers to distribute its ‘commentary’ on the Greek proposal. Here’s the text of the document:

    Source:@ethevessen

    The €50 billion asset transfer suggested in the document was viewed by some EU officials as proof of Yanis Varoufakis’ contention that Germany is now simply trying its best to push Greece out of the euro. Once again, from WSJ:

    The people familiar with the document questioned the likelihood of either of the two options working. There is no process for a temporary exit from the eurozone and it is unclear where the country would get €50 billion in assets to secure the loan.


    “The 50 billion [euros] are so unrealistic that it is clear that they want the Greeks out,” one of the people said.

    As noted earlier, the Germans are not alone in their opposition to the Greek proposal and arguments discussions in Brussels have ended with no agreement. With the bailout figure now projected at €74 billion, and some rumors circulating that the final tally could be considerably higher, we’ll leave you with the following table which should tell you something about how difficult it will be to secure across-the-board support for an ESM package of that size:

  • When Money Dies

    Submitted by Paul-Martin Foss via The Carl Menger Center,

    “When Money Dies” is the title of a 1975 book by Adam Fergusson, in which he describes the downfall of the Reichsmark in Weimar Germany. A fascinating look at that period of history, one can glean quite a few useful pieces of advice on how to survive a currency crisis. But “when money dies” could also describe the current currency crisis in Greece, in which many Greeks seem to have taken those lessons from Fergusson’s account of the Weimar hyperinflation to heart.

    Even though the Greek currency crisis isn’t a traditional hyperinflationary crisis, many Greeks are trying to get their hands on, and then spend, cash. One of the fears is that bank depositors will be forced to take losses on their accounts, the so-called “haircut”. This happened in Cyprus to some larger depositors, but the fear in Greece is that people with even just a few thousand euros in their accounts might be forced to take losses of 30-50% or more. Just imagine that you have $10,000 in your bank account and overnight the government says, “Sorry, your account balance is now $5,000.” Overnight, the purchasing power of your bank account has been cut in half.

    So even though the government isn’t printing more money (yet!), the fear of a 50% devaluation of the purchasing power of bank accounts is causing Greeks to line up at ATMs to withdraw money. And because there is the additional fear that Greece may exit the euro, with unknown consequences, many people seek to convert their euros into tangible goods. Shoes, handbags, refrigerators, gold, jewelry, anything that can maintain value and be resold or bartered is fair game for those desperate not to lose all of their hard-earned savings.

    The important thing to remember here is that capital and goods are wealth, not money. You can print as much money as you want, but if it can’t buy you anything then holding or using large amounts of it cannot make you wealthy.

    During currency crises, those who have the most tangible goods are the wealthiest. When you read about the Weimar hyperinflation in Fergusson’s book, who were those who survived and thrived and who were those who suffered the most? Those who suffered were savers and retirees on fixed incomes. Once their money was completely devalued they were forced to start selling and bartering their limited possessions in order to get enough food to eat. Those who prospered were those who had gold, silver, foreign currency, and who had plenty of possessions. The more physical, tangible items you have to barter or sell, the stronger your position will be when money “dies.”

    The Greek people understand that, hence the rush to get their hands on cash and to use that cash to stock up on physical goods now. It’s almost like a perverse game of musical chairs. No one wants to be left with huge cash balances or bank account balances at the end of the game, because he with the most money will be the one who stands to lose the most.

  • Risky Loans Are 'Driving' US Auto Sales: 3 Charts

    To be sure, we’ve made no secret of our views on the state of the US auto market. 

    This year, we’ve written extensively about the proliferation of subprime lending, worrisome trends in average loan terms, and, most recently, we noted the astounding fact that in Q4 2014, the average LTV for used vehicles hit 137%.

    We presented what perhaps marked our most unequivocal statement to date on why the market looks dangerously frothy in “Auto Sales Reach 10 Year Highs On Record Credit, Record Loan Terms, & Record Ignorance.” In that post, the absurdities plaguing the US auto market were laid bare for all to see. Here’s a recap: 

    • Average loan term for new cars is now 67 months — a record.
    • Average loan term for used cars is now 62 months — a record.
    • Loans with terms from 74 to 84 months made up 30%  of all new vehicle financing — a record.
    • Loans with terms from 74 to 84 months made up 16% of all used vehicle financing — a record.
    • The average amount financed for a new vehicle was $28,711 — a record.
    • The average payment for new vehicles was $488 — a record.
    • The percentage of all new vehicles financed accounted for by leases was 31.46% — a record.

    It’s against this backdrop that we bring you the following three charts from BofAML’s H1 review of trends in the ABS market. As you’ll see, below, the move towards riskier lending is quite clear. 

    First, note that auto ABS issuance is set to hit record highs in 2015.

    Next, consider that the percentage of prime loans backing new supply is now at an all-time low. 

    Finally, here’s a look at the percentage of new financing extended to non-prime borrowers. As BofAML observes, the prime segements are losing share.

  • Conspiracy Fact: How The Government Conducted 239 Secret Bioweapon Experiments On The American People

    Submitted by Mike Krieger via Liberty Blitzkrieg blog,

    It all began in late September of 1950, when over a few days, a Navy vessel used giant hoses to spray a fog of two kinds of bacteria, Serratia marcescens and Bacillus globigii — both believed at the time to be harmless — out into the fog, where they disappeared and spread over the city.

     

    The unsuspecting residents of San Francisco certainly could not consent to the military’s germ warfare test, and there’s good evidence that it could have caused the death of at least one resident of the city, Edward Nevin, and hospitalized 10 others.

     

    Over the next 20 years, the military would conduct 239 “germ warfare” tests over populated areas, according to news reports from the 1970s.

     

    These tests included the large-scale releases of bacteria in the New York City subway system, on the Pennsylvania Turnpike, and in National Airport just outside Washington, D.C.

     

    – From the MSN article: ‘One of the Largest Human Experiments in History’ was Conducted on the Unsuspecting Residents of San Francisco

    Regular readers of this site will be well aware of various conspiracy facts concerning a multitude of shady activities by the U.S. government, both past and present. But did you know that beginning in 1950, the U.S. government conducted a series of secret bioweapon experiments on an unsuspecting American public? Didn’t think so.

    We now learn that :

     One fact many may not know about San Francisco’s fog is that in 1950, the US military conducted a test to see whether it could be used to help spread a biological weapon in a “simulated germ warfare attack.” This was just the start of many such tests around the country that would go on in secret for years.

     

    The test was a success, as Rebecca Kreston explains over at Discover Magazine, and also “one of the largest human experiments in history.” But as she writes, it was also “one of the largest offenses of the Nuremberg Code since its inception.” The code stipulates that “voluntary, informed consent” is required for research participants, and that experiments that might lead to death or disabling injury are unacceptable.

    So it only took five years after the end of World War II for the U.S. to break the Nuremberg code. Can you even begin to imagine what it is willing to do in 2015 with the current crop of mindbogglingly unethical, corrupt politicians in power?

    The unsuspecting residents of San Francisco certainly could not consent to the military’s germ warfare test, and there’s good evidence that it could have caused the death of at least one resident of the city, Edward Nevin, and hospitalized 10 others.

     

    This is a crazy story, one that seems like it must be a conspiracy theory. An internet search will reveal plenty of misinformation and unbelievable conjecture about these experiments. But the core of this incredible tale is documented and true.

     

    It all began in late September of 1950, when over a few days, a Navy vessel used giant hoses to spray a fog of two kinds of bacteria, Serratia marcescens and Bacillus globigii — both believed at the time to be harmless — out into the fog, where they disappeared and spread over the city.

     

    “It was noted that a successful BW [biological warfare] attack on this area can be launched from the sea, and that effective dosages can be produced over relatively large areas,” concluded a later-declassified military report, cited by the Wall Street Journal.

     

    Over the next 20 years, the military would conduct 239 “germ warfare” tests over populated areas, according to news reports from the 1970s (after the secret tests had been revealed) in The New York Times, Washington Post, Associated Press and other publications (via Lexis-Nexis), and also detailed in congressional testimony from the 1970s.

     

    These tests included the large-scale releases of bacteria in the New York City subway system, on the Pennsylvania Turnpike, and in National Airport just outside Washington, D.C.

     

    In a 1994 congressional testimony, Cole said that none of this had been revealed to the public until a 1976 newspaper story revealed the story of a few of the first experiments — though at least a Senate subcommittee had heard testimony about experiments in New York City in 1975, according to a 1995 Newsday report.

     

    In 1950, the first Edward Nevin had been recovering from a prostate surgery when he suddenly fell ill with a severe urinary tract infection containing Serratia marcescens, that theoretically harmless bacteria that’s known for turning bread red in color. The bacteria had reportedly never been found in the hospital before and was rare in the Bay Area (and in California in general).

     

    The bacteria spread to Nevin’s heart and he died a few weeks later.

    Now here’s where it gets downright terrifying. The government claims it is immune from deaths related to any secret government tests on the public. Freedom.

    Nevin’s grandson tried to sue the government for wrongful death, but the court held that the government was immune to a lawsuit for negligence and that they were justified in conducting tests without subjects’ knowledge. According to the Wall Street Journal, the Army stated that infections must have occurred inside the hospital and the US Attorney argued that they had to conduct tests in a populated area to see how a biological agent would affect that area.

    Take a step back and imagine if you were alive in 1950. Five years after the Allies’ glorious victory in World War II, and someone told you the U.S. government was conducting bioweapon experiments on the American public in secret. Not only would you not believe it, you’d think this person was a complete and total lunatic. Now try to imagine what they are undoubtably doing right now.

  • Finland Echoes Germany, Wants Greece Out; Five Other Nations Back Grexit

    Initially it was just an unconfirmed report circulating in the German FAS media that the local FinMin had proposed a “temporary Grexit” option. Then it got some more traction when a ZDF journalist reported that it was much more than just speculation…

    It now appears that this was not only not a rumor, but Schauble’s sentiment is contagious: moments ago Finnish broadcaster MTV reported that first Finland, and then the Eurozone’s smaller, if somewhat more solvent nations, Estonia, Lithuania, Slovakia, Slovenia and even the Netherlands, support the German position on temporarily suspending Greece’ Euro membership.

    But… Schauble may just be following Merkel’s orders, as the two are mmerely playing good cop, bad cop.

    Finnish Kauppalehti confirms that the Finns party leader Timo Soini just said no to more Greek bailouts:

    Minister for Foreign Affairs Timo Soini According to the Finnish Government does not allow for supporting the Greek. “The starting point is of course the fact that Finland’s responsibilities do not grow. It is a government program entry,” Foreign Minister Timo Soini commented on a possible third rescue package for Greece to Ilta-Sanomat.

    In which case one can forget Grexit: at this point of total diplomatic failure, one should be worried how long before all the other insolvent, if actively pretending to be doing ok, PIIGS have before the wrath of “Northern Europe” turns their way. As for Greece, it now appears just a matter of time.

  • Border Insecurity (In 1 Cartoon)

    Presented with no comment.

    Source: Investors.com

Digest powered by RSS Digest

Jul 11

Today’s News July 11, 2015

  • Pentagon Concludes America Not Safe Unless It Conquers The World

    Submitted by Paul Craig Roberts,

    The Pentagon has released its “National Military Strategy of the United States of America 2015,” June 2015.

    The document announces a shift in focus from terrorists to “state actors” that “are challenging international norms.” It is important to understand what these words mean. Governments that challenge international norms are sovereign countries that pursue policies independently of Washington’s policies. These “revisionist states” are threats, not because they plan to attack the US, which the Pentagon admits neither Russia nor China intend, but because they are independent. In other words, the norm is dependence on Washington.

    Be sure to grasp the point: The threat is the existence of sovereign states, whose independence of action makes them “revisionist states.” In other words, their independence is out of step with the neoconservative Uni-power doctrine that declares independence to be the right of Washington alone. Washington’s History-given hegemony precludes any other country being independent in its actions.

    The Pentagon’s report defines the foremost “revisionist states” as Russia, China, North Korea, and Iran. The focus is primarily on Russia. Washington hopes to co-op China, despite the “tension to the Asia-Pacific region” that China’s defense of its sphere of influence, a defense “inconsistent with international law” (this from Washington, the great violator of international law), by turning over what remains of the American consumer market to China. It is not yet certain that Iran has escaped the fate that Washington imposed on Iraq, Afghanistan, Libya, Syria, Somalia, Yemen, Pakistan, Ukraine, and by complicity Palestine.

    The Pentagon report is sufficiently audacious in its hypocrisy, as all statements from Washington are, to declare that Washington and its vassals “support the established institutions and processes dedicated to preventing conflict, respecting sovereignty, and furthering human rights.” This from the military of a government that has invaded, bombed, and overthrown 11 governments since the Clinton regime and is currently working to overthrow governments in Armenia, Kyrgyzstan, Ecuador, Venezuela, Bolivia, Brazil, and Argentina.

    In the Pentagon document, Russia is under fire for not acting “in accordance with international norms,” which means Russia is not following Washington’s leadership.

    In other words, this is a bullshit report written by neocons in order to foment war with Russia.

    Nothing else can be said about the Pentagon report, which justifies war and more war. Without war and conquests, Americans are not safe.

    Washington’s view toward Russia is the same as Cato the Elder’s view toward Carthage. Cato the Elder finished his every speech on any subject in the Roman Senate with the statement “Carthage must be destroyed.”

    This report tells us that war with Russia is our future unless Russia agrees to become a vassal state like every country in Europe, and Canada, Australia, Ukraine, and Japan. Otherwise, the neoconservatives have decided that it is impossible for Americans to tolerate living with a country that makes decisions independently of Washington. If America cannot be The Uni-Power dictating to the world, better that we are all dead. At least that will show the Russians.

  • The Chart That Keeps Angela Merkel Up At Night

    There is one thing that keeps Angela Merkel awake at night. It’s not the cries of despair from Greek pensioners; it’s not the stomach rumbles of starving Portuguese; it’s not the penniless Cypriots… it’s the rise of the euroskeptic and the possibility that her empire will be forced to wage not financial war but another type of conflict…

     

     

    With elections looming, Merkel’s bullying tactics – that her creditor demands trump any sovereign growth ambitions another nation may have – mean if nations want more Europe, they really mean more Germany.

  • Over To You Merkel: Greek Govt Approves Bill The Greek People Soundly Rejected

    The Greek parliament has approved the proposal Alexis Tsipras submitted to creditors on Thursday. The ball is now in Europe’s court with a Eurogroup meeting scheduled for Saturday. 

    • GREEK LAWMAKERS APPROVE GOVERNMENT’S BAILOUT PROPOSAL: TALLY

    As expected, Energy Minister and Left Platform leader Panagiotis Lafazanis voted against the proposal as did Parliament speaker Zoi Konstantopoulou and Deputy Minister of Social Security Dimitris Stratoulis.

    If new FinMin Euclid Tsakalotos can secure the support of his EU counterparts tomorrow, the path will be cleared for Greece to remain in the EU under a new program.

    • GREEK PM TSIPRAS SAYS GOVT AVERTING A POLITICAL GREXIT
    • GREEK PM TSIPRAS SAYS PEOPLE DIDN’T GIVE GOVT RUPTURE MANDATE
    • TSIPRAS: AGREEMENT WITH CREDITORS ISN’T CERTAIN, JUST POSSIBLE
    • CREDITORS MAKE POSITIVE EVALUATION OF GREEK DEBT PROPOSALS: AP
    • TSIPRAS: GREECE WILL MANAGE TO STAY IN EU, AS EQUAL PARTNER
    • GREECE BAILOUT TO BE 74B EUROS BASED ON CREDITORS’ EVAL: AFP

    It remains to be seen how Greeks will respond to the decision. Given the similarities between the “new” proposal and the proposal that 61% of Greeks voted against last Sunday, there may well be pushback from voters and a generalized sense of betrayal among Syriza’s core constituency. 

    Underscoring the contentious nature of the vote is the following from Bloomberg:

    Fifteen governing Syriza party lawmakers who voted “yes” in parliament vote on Greek govt’s bailout proposals to creditors say they oppose the plan, according to statement distributed to journalists.

     

    Lawmakers say proposal shouldn’t have been approved by Greek parliament; they backed it only because they didn’t want the govt’s parliamentary majority to be put into question.

     

     

    Lawmakers say their “yes” vote shouldn’t be interpreted as acceptance of implementation of austerity measures.

  • The Financial Attack On Greece: Where Do We Go From Here?

    Submitted by Michael Hudson via CounterPunch,

    The major financial problem tearing economies apart over the past century has stemmed more from official inter-governmental debt than with private-sector debt. That is why the global economy today faces a similar breakdown to the Depression years of 1929-31, when it became apparent that the volume of official inter-government debts could not be paid. The Versailles Treaty had imposed impossibly high reparations demands on Germany, and the United States imposed equally destructive requirements on the Allies to use their reparations receipts to pay back World War I arms debts to the U.S. Government.

    Legal procedures are well established to cope with corporate and personal bankruptcy. Courts write down personal and business debts either under “debtor in control” procedures or foreclosure, and creditors take a loss on loans that go bad. Personal bankruptcy permits individuals to make a fresh start with a Clean Slate.

    It is much harder to write down debts owed to or guaranteed by governments. U.S. student loan debt cannot be written off, but remains a lingering burden to prevent graduates from earning enough take-home pay (after debt service and FICA Social Security tax withholding is taken out of their paychecks) to get married, start families and buy homes of their own. Only the banks get bailed out, now that they have become in effect the economy’s central planners.

    Most of all, there is no legal framework for writing down debts owed to the IMF, the European Central Bank (ECB), or to European and American creditor governments. Since the 1960s entire nations have been subjected to austerity and economic shrinkage that makes it less and less possible to extricate themselves from debt. Governments are unforgiving, and the IMF and ECB act on behalf of banks and bondholders – and are ideologically captured by anti-labor, anti-government financial warriors.

    The result is not the “free market economy” it pretends to be, nor is it the rule of economically rational law. A genuine market economy would recognize financial reality and write down debts in keeping with their ability to be paid. But inter-government debt overrides markets and refuses to acknowledge the need for a Clean Slate. Today’s guiding theory – backed by monetarist junk economics – is that debts of any size can be paid, simply by reducing labor’s wages and living standards, plus by selling off a nation’s public domain – its land, oil and gas reserves, minerals and water distribution, roads and transport systems, power plants and sewage systems, and public infrastructure of all forms.

    Imposed by the monopoly of inter-governmental financial institutions – the IMF, ECB, U.S. Treasury, and so forth – creditor financial leverage has become the 21st century’s new mode of warfare. It is as devastating as military war in its effect on population: rising suicide rates, shorter lifespans, and emigration of the age-cohort that always have been the major casualties of war, young adults. Instead of being drafted into the army to fight foreign foes, they are driven from their homes to find work abroad. What used to be a rural exodus from the land to the cities from the 17th century onward is now a “debtor exodus” from countries whose governments owe unpayably high sums to creditor governments and to the banks and bondholders on whose behalf they impose their policy.

    While pushing the world economy into a state of war internationally, high finance also is waging a class war against labor – and ultimately against governments and thus against democracy. The ECB’s policy has been brutal toward Greece this year: “If you do not re-elect a right-wing party or coalition, we will destroy your banking system. If you do not sell off your public domain to buyers we will make life even harder for you.”

    No wonder Greece’s former Finance Minister Janis Varoufakis called the Troika’s negotiating position “financial terrorism.” Their idea of “negotiation” is surrender. They are unyielding. Official creditor institutions threaten to isolate, sanction and destroy entire economies, including their industry as well as labor. It transforms the 19th-century class war into a purely destructive meltdown.

    That is the great difference between today and 1929-31. Then, the world’s leading governments finally recognized that debts could not be paid and suspended German reparations and Inter-Ally debts. Today’s the unpayability of debts is used as leverage in class war.

    The immediate political aim of this financial warfare in Greece is to replace its elected government (supported by a remarkable July 5 referendum vote of 61 to 39) with foreign creditor control by “technocrats,” that is, bank lobbyists, factotums and former Goldman Sachs managers. The long-term aim is to impose a war against labor – in the form of austerity – and against the power of governments to determine their own tax policy, financial policy and public regulatory policy.

    Fortunately, there is an alternative. Here is what is needed. (I outlined my proposals in a presentation before the Brussels Parliament on July 3, following an earlier advocacy at The Delphi Initiative in Greece, convened by Left Syriza the preceding week.)

    A declaration reaffirming the rights of sovereign nations

    Sovereign nations have a right to put their own growth ahead of foreign creditors. No nation should be obliged to impose chronic depression and unemployment or polarize the distribution of wealth and income in order to pay debts.

    Every nation has the right to the basic criteria of nationhood: the right to issue its own money, to levy taxes, and to write its laws, including those governing relations between creditors and debtors, especially the terms of bankruptcy and debt forgiveness.

    Economic logic dictates what was recognized by the end of the 1920s: When debts reach the level that they disturb basic economic balance and derange society, they should be annulled. Another way of saying this is that the volume of debt – and its carrying charges – must be brought within the reasonable ability to pay.

    Rejecting the “hard money” (really a “hard creditor”) position of anti-German, anti-labor economists Bertil Ohlin and Jacques Rueff, Keynes argued that creditors had an obligation to explain to Germany just how they would enable it to pay its reparations. At that time, Keynes meant specifically that France, Britain and other recipients of reparations should specify just what German exports they would agree to buy. But today, creditors define a nation’s ability to pay not in terms of how it can earn the money to pay down the debt, but rather what public domain assets it can sell off in what is essentially a national bankruptcy proceeding. Debtor countries are compelled to let their public infrastructure be sold off to rent-extractors to create a neofeudal tollbooth economy.

    Under international law, no nation is legally obliged to do this. And under the moral definition of nationhood, they should not be forced to do so. Their right to resist this form of debt blackmail is what makes them sovereign, after all.

    It is true that the principle of the European Union was that individual nations would cede their rights to a larger entity. The union itself was to exercise the rights of nationhood, democratically on the basis of a pan-European constituency.

    But this is not what has happened. The EU has no common ability to tax and spend; those powers remain local. The one area where it does govern taxes is dysfunctional: EU ideologues insist on taxing consumers (via the Value Added Tax, VAT) and labor via pension set-asides.

    More fatally, the eurozone has no ability – or at least, no willingness – to create money to fund deficit spending. What it calls a “central bank” is only designed to provide money to domestic banks and, even worse, to lobby for the interest of private bankers against the principle of public central bank money creation.

    The EU does not even have a meaningful legal system empowered to fight fraud and financial crime, prosecute or clean up insider dealing and corrupt oligarchies. In the case of Greece, where the ECB at least insisted on the need to clean up such behavior, it was only to “free” more revenue for foreign investors from public agencies scheduled to be privatized to pay debts to the ECB and its crony institutions for the money they had paid private bondholders and banks in the face of economies shrinking from a combination of debt deflation and fiscal deflation.

    Taken together, these defects mean that the Eurozone and EU were malstructured from the start. Control was placed so firmly in the hands of bankers and anti-labor ideologues that it may not be reformable – in which case a new start must be made.

    In any event, here are the institutional reforms that are urgently needed. In view of the financial sector’s control of the main institutions, these reforms require entirely new institutions not governed by the pro-rentier logic that has deformed the eurozone. The most pressing needs are for the following institutions.

    An international forum to adjudicate the ability (or inability) to pay debts

    What is needed to put this basic principle into practice is creation of a new international forum to adjudicate how much debt can reasonably be paid – and how much should be annulled. In 1929 the Young Plan (which replaced the Dawes Plan to deal more rationally with German reparations) called for creation of such an institution – what became the Bank for International Settlements (BIS) in 1931 to stop the economic destruction of Germany by bringing its reparations back within the ability to pay.

    The BIS no longer can play such a role, because it has become the main meeting place for the world’s central banks, and as such has adopted the hardline “all debts must be paid” position that it originally was intended to oppose.

    Likewise the IMF no longer can play this position. It is hopelessly politicized. Despite its technical staff ruling in 2010-11 that Greece’s foreign debts could not be paid and hence needed to be written off, its heads – first Dominique Strauss-Kahn and then Christine Lagarde – acted in blatant conflict of interest to support the French bankers demands for payment in full, and U.S. demands by President Obama and Wall Street lobbyist Tim Geithner to insist that there be no writedown at all. That was the price for French bank support for Strauss-Kahn’s intended bid for the French presidency, and more recently backing for Lagarde’s rise to power at IMF. Given the U.S. veto power by Wall Street and the insistence that right-wing anti-labor ideologues (usually French) be appointed head of the IMF, a new organization representing the kind of economic logic outlined by Keynes, Harold Moulton and others in the 1920s is necessary.

    Creation of such an institution should be a leading plank of Euro-left politics.

    A Law of Fraudulent Conveyance, applicable to governments

    The private sector has long had laws that prevent money-lenders from lending a borrower more funds than the debtor can reasonably be expected to pay back in the normal course of business. If a lender advances, say, $10,000 as a mortgage loan against a house worth more (say, $100,000), and then insists that the debtor pay or lose his home, the courts may assume that the loan was made with this aim in mind, and annul the debt.

    Likewise, if a company is raided by borrowers who load it down with high-interest junk bonds, and then seize its pension funds and sell off assets to pay their debts, the company under attack can sue under fraudulent conveyance rules. They did so in the 1980s.

    This lend-to-foreclose ploy is the very game that the Troika have played with Greece. They lent its government money that the IMF economists explained quite clearly in 2010-11 (and reaffirmed this year just before the Greek referendum) could not be paid. But the ECB then swooped in and said: Sell off your infrastructure, sell your ports, your gas rights in the Aegean, and entire islands, to get the money to pay what the IMF and ECB have paid French, German and other bondholders on your behalf (while saving U.S. investment banks and hedge funds from losing their bets that Greek debts would indeed be paid).

    Application of this principle requires an international court to rule on the point at which debt service becomes intrusive, and write down debts accordingly.

    No such set of institutions exists today.

    Creation of Treasuries as national central banks to monetize deficit spending

    Central banks today only lend money to banks, for the purpose of loading economies down with debt. The irrational demand by bankers to prevent a public option from creating credit on its own computer keyboards (the same way that banks create loans and deposits) is designed simply to create a private monopoly to extract economic rent n the form of interest, fees, and finally to foreclose on defaulting creditors – all guaranteed by “taxpayers.”

    The European Central Bank is not suited for this duty. First of all, it is based on the ideology that public money creation is inflationary. The reality is that central bank money creation has just financed the greatest inflation of modern history – asset price inflation of the real estate market by junk mortgages, inflation of stock prices by junk bond issues, and central bank Quantitative Easing to create the fastest and largest bond market rally in history. The post-1980 experience with central banks has removed any moral or economic logic in their behavior as lobbyists for commercial banks, defenders of their special privileges, deregulator of financial crime, and extremist right-wing blockers of a public option in banking to bring basic services in line with actual costs. In short, if commercial banking systems in nearly every country have become de-industrialized and perverse, their enablers have been the central banks.

    The remedy is to replace these central banks with what preceded them: national Treasuries, whose proper function is to monetize government spending into the economy. The basic principle at work should be that any economy’s monetary and credit needs should be met by public spending and monetization, not by commercial banks creating interest-bearing credit to finance the transfer of assets (e.g., real estate mortgages, corporate buyouts and raids, arbitrage and casino-capitalist gambles).

    Summary

    Every nation has a right to defend itself against attack – financial attack just as overt military attack. That is an essential element in the principle of self-determination.

    Greece, Spain, Portugal, Italy and other debtor countries have been under the same mode of attack that was waged by the IMF and its austerity doctrine that bankrupted Latin America from the 1970s onward. International law needs to be updated to recognize that finance has become the modern-day mode of warfare. Its objectives are the same: acquisition of land, raw materials and monopolies.

    A byproduct of this warfare has been to make today’s financial network so dysfunctional that nations need a financial Clean Slate. The most successful one in modern times was Germany’s Economic Miracle – the post-World War II Allied Monetary Reform. All domestic German debts were annulled, except employer wage debts to their labor force, and basic working balances. Later, in 1953, its international debts were written down. The logic prompting both these acts needs to be re-applied today.

    With specific regard to Greece, Syriza’s leaders have said that they want to save Europe. First of all, from the eurozone’s destructive economic irrationality in not having a real central bank. This defect was deliberately built into the eurozone, to enforce a monopoly of commercial banks and bondholders powerful enough to gain control of governments, overruling democratic politics and referendums.

    Current eurozone rules – the Maastricht and Lisbon treaties – aim to block governments from running budget deficits in a way that spend money into the economy to revive employment. The new goal is only to rescue bondholders and banks from making bad loans and even fraudulent loans, bailing them out at public expense. Economies are obliged to turn to commercial banks for loans to obtain the money that any economy needs to grow. This principle needs to be rejected on grounds that it violates a basic sovereign right of governments and economic democracy.

    Once an economy is fiscally crippled by (1) not having a central bank to finance government spending, and (2) by limiting government budget deficits to just 3% of GDP, the economy must shrink. A shrinking economy will mean fewer tax revenues, and hence deeper government budget deficits and rising government debt.

    The ultimate killer is for the ECB, IMF and EC to demand that governments pay their debts by privatizing public infrastructure, natural resources, land and other assets in the public domain. To compound this demand, the Troika have blocked Greece from selling to the highest bidder, if that turns out to be Gazprom or another Russian company. Financial politics thus has become militarized as part of NATO’s New Cold War politics. Debtor economies are directed to sell to euro-kleptocrats – on terms financed by banks, so that interest charges on the deal absorb all the profits, leaving governments without much income tax.

  • Free Willy: FCA Drops Case Against London Whale

    Once upon a time, at JP Morgan’s London-based internal hedge fund CIO unit, a legend was born. 

    Bruno Iksil — better known as “The London Whale” or “Voldemort” or “He Who Must Not Be Named” — carved out his place in the annals of CDX trading history when a tail hedge gone wrong effectively forced him to sell massive amounts of protection on IG.9 back in Q1 of 2012.

    Long story (and it is a very long story) short, Iksil’s footprint in the market became so large that he was eventually picked off (or perhaps “harpooned” is more appropriate) by Boaz Weinstein (a legend in his own right) among others. One epic Jamie Dimon public relations blunder and several billion dollars later, and the world had learned a valuable lesson about what it means when a bulge bracket bank says it is “investing” excess deposits. 

    Needless to say, some people were curious to know who knew what and when (and who might have tried to cover up the mounting losses) in London and the legal proceedings with various former members of the team are ongoing, but given what we know about the generalized reluctance to prosecute white collar crime mistakes, it shouldn’t come as any surprise that Iksil, who is already off the hook in the US after going to UBS route, has been cleared in the UK. FT has the story:

    The UK financial watchdog has dropped its investigation of Bruno Iksil, the former JPMorgan trader known as the “London Whale” whose trades led to $6.2bn in losses, clearing him in the three-year probe.

     

    The Financial Conduct Authority’s enforcement division sought to bring a civil action against Mr Iksil for failing to prevent or detect mismarking within JPMorgan’s chief investment office.

     

    But its internal panel of independent experts, the Regulatory Decisions Committee, ruled that the watchdog did not have a strong enough case to proceed.

     

    “We can confirm that the FCA will not be taking any further action,” the authority said.

     

    Mr Iksil, who lives in France, has already avoided criminal charges in the US by striking an immunity deal with prosecutors there in exchange for his co-operation.

     

    His lawyer, Michael Potts, at Byrne and Partners, said: ??“It is rare for the RDC to dismiss an FCA enforcement case at this very initial stage of the disciplinary process. Mr Iksil has fully co-operated throughout the FCA investigation and will continue to co-operate as a witness in the ongoing criminal and civil proceedings in the USA.”?

     

    Julien Grout, a junior derivatives trader on the desk, and Mr Iksil’s former boss, Javier Martin-Artajo, who was a managing director at the bank, are both being prosecuted in the US for their roles in the affair. They deny wrongdoing. The FCA is not seeking to bring a case against either man.

     

    The only person still being investigated by UK authorities in connection with the 2011 losses is Achilles Macris, who ran the London office of the bank’s chief investment office and oversaw its synthetic credit portfolio team. It was in that division where trades in credit derivatives ultimately led to the trading losses in 2012.

     

    London-based executives in the CIO “deliberately misled” regulators examining the derivatives positions, “deliberately reassuring” officials that they were “simply” adjusting a hedging position while internally admitting to being “in crisis mode” over mounting losses, the regulators found.

    And so, another episode of Wall Street’s Costliest Gambles ends with the following familiar disclaimer: “No human traders were jailed or otherwise harmed in the making of this program.“

    But before you get angry just remember, it’s only a “tempest in a teapot”…

     

  • Peter Schiff On The Big Picture: The Party's Ending

    Submitted by Peter Schiff via Euro Pacific Capital,

    The past four years or so have been extremely frustrating for investors like me who have structured their portfolios around the belief that the current experiments in central bank stimulus, the anti-business drift in Washington, and America's  mediocre economy and unresolved debt issues would push down the value of the dollar, push up commodity prices, and favor assets in economies with relatively low debt levels and higher GDP growth. But since the beginning of 2011, the Dow Jones Industrial Average has rallied 67% while the rest of the world has been largely stuck in the mud. This dominance is reminiscent of the four years from the end of 1996 to the end of 2000, when the Dow rallied 54% while overseas markets languished. Although past performance is no guarantee of future results, a casual look back at how the U.S. out-performance trend played out the last time it had occurred should give investors much to think about.
     
    The late 1990s was the original "Goldilocks" era of U.S. economic history, one in which all the inputs seemed to offer investors the best of all possible worlds. The Clinton Administration and the first Republican-controlled Congress in a generation had implemented policies that lowered taxes, eased business conditions, and encouraged business investment. But, more importantly, the Federal Reserve was led by Alan Greenspan, whose efforts to orchestrate smooth sailing on Wall Street led many to dub Mr. Greenspan "The Maestro."
     
    Towards the end of the 1990's, Greenspan worked hard to insulate the markets from some of the more negative developments in global finance. These included the Asian Debt Crisis of 1997 and the Russian debt default of 1998. But the most telling policy move of the Greenspan Fed in the late 1990's was its response to the rapid demise of hedge fund Long term Capital Management (LTCM), whose strategy of heavily leveraged arbitrage backfired spectacularly in 1998. Greenspan engineered a $3.6 billion bailout and forced sale of LTCM to a consortium of Wall Street firms. The intervention was an enormous relief to LTCM shareholders but, more importantly, it provided a precedent that the Fed had Wall Street's back.
     
    Not surprisingly, the 1990s became one of the longest sustained bull markets on record. But in the latter part of the decade the markets really started to climb in an unprecedented trajectory.  As the bubble began inflating in earnest Greenspan was reluctant to follow the dictum that the Fed's job was to remove the punch bowl before the party got out of hand. Instead he argued that the Fed shouldn't prevent bubbles from forming, but simply to clean up the mess after they burst.
     
    But while U.S. markets were taking off, the rest of the world was languishing, or worse:

     
    Created by EPC using data from Bloomberg
    All returns are currency-adjusted
     
    But then a very funny thing happened. In March 2000, the music stopped and the dotcom bubble finally burst, sending the Nasdaq down nearly 50% by the end of the year, and a staggering 70% by September 2001.  When investors got back into the market their values had changed. They now favored low valuations, real revenue growth, understandable business models, high dividends, and low debt. They came to find those features in the non-dollar investments that they had been avoiding.
     
    Over the seven years that began at the end of 2000 and lasted until the end of 2007 the S&P 500 inched upwards by just 11%, for an average annual return of only 1.6%. But over that time frame the world index (which includes everything except the U.S.) was up 72%. The emerging markets, which had suffered the most during the four prior years, were up a staggering 273%. See table below:

     
    Created by EPC using data from Bloomberg
    All returns are currency-adjusted
     
    Not surprisingly, the markets and asset classes that had been decimated by the Asian debt and currency crises, delivered stunning results. South Korea, which was only up 10% in the four years prior, was up 312% from 2001-2007. Brazil, which had fallen by 4%, notched a 407% return, and Indonesia, which had fallen by 50%, skyrocketed by 745%.
     
    The period was also a great time for gold and gold stocks. The earlier four years had offered nothing but misery for investors like me who had been convinced that the Greenspan policies would undermine the dollar, shake confidence in fiat currency, and drive investors into gold. Instead, gold fell 26% (to a 20-year low), and shares of gold mining companies fell a stunning 65%.
     
    But when the gold market turned in 2001, it turned hard. From 2001 – 2007, the dollar retreated by nearly 18% (FRED, FRB St. Louis), while gold shot up by 206%, and shares of gold miners surged 512%. As it turned out, we weren't wrong about the impact of the Fed's easy money, just too early.
     
    2010 – 2014
                                         
    In recent years, investors who have looked to avoid the dollar and the high-debt developed economies have encountered many of the same frustrations that they encountered in the late 1990s. Foreign markets, energy, commodities and gold have gone nowhere while the dollar and U.S. markets have surged as they did in 1997-2000.

     
    Created by EPC using data from Bloomberg
    All returns are currency-adjusted
     
    It is said history may not repeat, but it often rhymes. If so, there may be a financial sonnet brewing. There are reasons to believe that relative returns globally will turn around now much as they did back in 2000. Perhaps even more decisively.
     
    Just as they had back in the late 1990's, investors appear to be ignoring flashing red flags. In its Business and Finance Outlook 2015, the Organization for Economic Cooperation and Development (OECD), a body that could not be characterized as a harbinger of doom, highlighted some of the issues that should be concerning the markets. Reuters provides this summary of the report's conclusions:

    • Encouraged by years of central bank easing, investors are plowing too much cash into unproductive and increasingly speculative investments while shunning businesses building economic growth.
    • There is a growing divergence between investors rushing into ever riskier assets while companies remain too risk-averse to make investments.
    • Investors are rewarding corporate managers focused on share-buybacks, dividends, mergers and acquisitions rather than those CEOS betting on long-term investment in research and development.
    While these trends have been occurring around the world, they have become most pronounced in the U.S., making valuations disproportionately high relative to other markets. As we mentioned in a prior newsletter, looking at current valuations through a long term lens provides needed perspective. One of the best ways to do that is with the Cyclically-Adjusted-Price-to-Earnings (CAPE) ratio, which is also known as the Shiller Ratio (named after its developer, the Nobel prize-winning economist Robert Shiller).Using 2014 year-end CAPE ratios that average earnings over a trailing 10-year period, the global valuation imbalances become evident:
     
     
    As of the end of 2014, the S&P 500 had a CAPE ratio of well over 27, at least 75% higher than the MSCI World Index of around 15. (High valuations are also on evidence in Japan, where similar monetary stimulus programs are underway). On a country by country basis, the U.S. has a CAPE that is at least 40% higher than Canada, 58% higher than Germany, 68% higher than Australia, 90% higher than New Zealand, Finland and Singapore, and well over 100% higher than South Korea and Norway. Yet these markets, despite the strong domestic economic fundamentals that we feel exist, are rarely mentioned as priority investment targets by the mainstream asset management firms. 

     
    In addition, U.S. stocks currently offer some of the lowest dividend yields to compensate investors for the higher valuations (see chart above). The current estimated 1.87% annual dividend yield for the S&P 500 is far below the current annual dividend yields of Australia, New Zealand, Finland and Norway.
     
    If a dramatic shock occurs as it did in 2000, will investors again turn away from high leverage and high valuations to seek more modestly valued investments? Then, as now, we believe those types of assets can more readily be found in non-dollar markets.
     
    Another similarity between then and now is the propensity to confuse an asset bubble for genuine economic growth. The dotcom craze of the 1990s painted a false picture of prosperity that was doomed to end badly once market forces corrected for the mal-investments. When that did occur, and stock prices fell sharply, the Fed responded by blowing up an even bigger bubble in real estate. When that larger bubble burst in 2008, the result was not just recession, but the largest financial crisis since the Great Depression.
     
    But once again investors have mistaken a bubble for a recovery, only this time the bubble is much larger and the "recovery" much smaller. The middling 2% GDP growth we are currently experiencing is approximately half of what we saw in the late 1990s. In reality, the Fed has prevented market forces from solving acute structural problems while producing the mother of all bubbles in stocks, bonds, and real estate. A return to monetary normalcy is impossible without pricking those bubbles. Soon the markets will be faced with the unpleasant reality that the U.S. economy may now be so addicted to monetary heroine that another round of quantitative easing will be necessary to keep the bubble from deflating.
     
    The current rally in U.S. stocks has gone on for nearly four full years without a 10% correction. Given that high asset prices are one of the pillars that support this weak economy, it is likely that the Fed will unleash another round of QE as soon as the market starts to fall in earnest. The realization that the markets are dependent on Fed life support should seal the dollar's fate. Once the dollar turns, a process that in my opinion began in April of this year, so too should the fortunes of U.S. markets relative to foreign markets. If I am right, we may be about to embark on what could become the single most substantial period of out-performance of foreign verses domestic markets.
     
    While the party in the 1990s ended badly, the festivities currently underway may end in outright disaster. The party-goers may not just awaken with hangovers, but with missing teeth, no memories, and Mike Tyson's tiger in their hotel room.

     

  • How The World Works – The Santelligram

    Rick Santelli recently unleashed his own brand of truthiness on an unsuspecting CNBC audience, that, just like in China, “the central planners are in control” in Japan, Europe, and most of all America. As part of the 3 minutes of lack-of-free-market despair, Santelli drew what we called “the chart of the year.” By popular request, it is reproduced below…

     

    The world has change through time…

    Source: @Not_Jim_Cramer

    As one bright trader (@Chart_Gazer) noted:

    1. Capitalism

     

    2. Socialism

     

    3. Communism

    So the next time someone throws the “free-market capitalism” bull$hit around, show them this chart and ask them how the US (and European, and Japanese, and Chinese) markets are any different from (3).

  • Violent Crime Is Surging In Major U.S. Cities And The Economy Is Not Even Crashing Yet

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

    Don’t let anyone tell you that crime is going down in America.  All over the United States, rates of violent crime in our major cities are increasing by double digit percentages.  Murders are way up, shootings are way up and rapes are way up.  So what is behind this sudden spike in crime?  In Baltimore, authorities are pointing to the racial tensions that were stirred up by the riots that erupted in protest to the death of Freddie Gray.  But what about the rest of the country?  From coast to coast, we are witnessing a dramatic increase in violent crime, and the economy is not even crashing yet.  So what is going to happen when the next great economic crisis hits us, unemployment skyrockets, and people really start hurting?

    When I was surveying the news today, I was very surprised to learn that the murder rate in Milwaukee, Wisconsin has more than doubled so far this year…

    Milwaukee, which had one of its lowest annual homicide totals in city history last year, has recorded 84 murders so far this year, more than double the 41 it tallied at the same point last year.

    And of course Milwaukee is far from alone.  All over the U.S., violent crime is jumping dramatically.  Here is more from USA Today…

    Baltimore, New Orleans and St. Louis have also seen the number of murders jump 33% or more in 2015. Meanwhile, Chicago, the nation’s third-largest city, has seen the homicide toll climb by 19% and the number of shooting incidents increase in the city by 21% during the first half of the year.

     

    In all the cities, the increased violence is disproportionately impacting poor and predominantly African-American and Latino neighborhoods. In parts of Milwaukee, the sound of gunfire has become so expected that about 80% of gunfire detected by ShotSpotter sensors aren’t even called into police by residents, Flynn said.

    The crimes seem to be getting more brutal as well.  Just the other day, I was stunned by one particular incident that happened in Baltimore…

    Gunmen got out of two vans and began firing at a group gathered on a corner Tuesday night, fatally shooting three people, police said.

     

    The two gunmen shot a total of four people — one who was in stable condition — a few blocks from the urban campus of the University of Maryland, Baltimore, according to police.

     

    The three deaths bring the homicide total for Baltimore for the year to at least 154, according to police news releases. That’s an increase of more than 40 percent compared with the same time last year. Shootings have increased more than 80 percent. The city has seen a spike in violence since the April death of Freddie Gray after his arrest. The incident received widespread national attention and sparked unrest across Baltimore.

    To me, that almost sounds like a scene out of some really violent mobster movie.

    What would cause people to behave like that?

    Things are also getting crazy out on the west coast.  According to Los Angeles Mayor Eric Garcetti, overall crime in the city is up by more than 12 percent so far in 2015…

    For the first time in more than a decade, overall crime is up in Los Angeles through the first six months of the year, rising by more than 12%, according to figures released Wednesday.

     

    The increase has continued despite the city’s efforts to stem the crime surge, which followed consecutive declines since 2003.

     

    “This is bad news,” Mayor Eric Garcetti told reporters Wednesday. “Let me be clear: Any uptick in crime is unacceptable.”

    And some of the crimes that are being committed out there absolutely defy explanation.  For instance, just the other day someone walked up to a 30-year-old white woman as she was strolling with her boyfriend and fired a shotgun into the back of her head for apparently no good reason whatsoever…

    Sunday night in Los Angeles as a 30 year-old white woman walked with her boyfriend near Sunset Boulevard in Hollywood, a mysterious black man walked up behind the couple and without saying a word fired a shotgun blast to the back of the woman’s head, according to police.

     

    The killer was seen carrying the shotgun as he ran to a car and drove away.

     

    The search for the killer continues.

    But it isn’t just murder rates that are surging.  Sex crime rates are also on the rise all over America.  The following is an excerpt from a recent New York Post article entitled “Sex crimes are soaring in NYC“…

    Sex crimes are soaring in the city, with an especially frightening spike taking place during the past few weeks, The Post has learned.

     

    Misdemeanor sexual assaults as of Sunday night this year increased by 20 percent over the same period in 2014, from 1,003 to 1,203.

     

    But they shot up 75 percent for the week ending Sunday compared to the same week last year — from 45 to 79.

    I believe that we have reached a turning point.

    I believe that we have entered a period of time when violent crime in the United States is going to start skyrocketing – especially once the next major economic downturn arrives.

    Meanwhile, budget cuts are forcing police forces to cut back all over the nation.  For example, the number of patrol officers in the city of Detroit has been reduced by 37 percent in the last three years alone…

    There are currently fewer officers patrolling the city than at any time since the 1920s. At one point, the Detroit police force was over 5,000. Today, the force is just 1,590 officers strong — and not all of those are on the street.

     

    The city has lost nearly half its patrol officers since 2000 and ranks have shrunk by 37 percent in the past three years alone, according to the Detroit News. It’s so bad that precincts are reportedly left with only one squad car at times.

    But at least the police in the area have still maintained their sense of humor.  Just recently, someone stole 28,000 pounds of packaged nuts from a location in suburban Detroit…

    Police in suburban Detroit are having a little fun while asking for help from the public in figuring out who swiped roughly 28,000 pounds of packaged nuts.

     

    The Shelby Township Police Department says a truck and trailer packed with 18 pallets of walnuts and other snack nuts were taken the weekend of June 27. Police say the truck and trailer were found July 1 in Detroit, but the nuts worth more than $128,000 were gone.

    This is the photo of the suspect that was actually released by the police…

    Squirrel Mug Shot - Facebook - Shelby Township Police Department

    Do you know this suspect?  If so, please contact the authorities right away.

  • Mapping The World's "Grey Swans"

    As H2 2015 begins, Goldman looks at so-called “grey swans” – known market risks that could prove particularly disruptive. From China credit risks to Russia and from rate volatility to Russia with Middle East tensions, cyber threats, and illiquidity-induced ‘flash-crashes’, the known-but-not-priced-in risks are rising… because – simply put – central bank omnipotence remains the narrative (for now).

    Russia is fading as a risk quickly (much to Washington’s chagrin) as China risk accelerates rapidly…

     

    And over time…

     

    And so while Janet keeps trying to talk down any rate hikes as ‘priced-in’ or not an issue, the market (and Goldman) clearly thinks differently as sees interest rate volatility as the biggest “grey swan” currently… and when the costs of capital vary dramatically, CFOs will tamp down their debt-financed buybacks…

     

    Source: Goldman Sachs

  • Organized Plunder, a.k.a. The State

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

    Whose Side Are You On?

    On one side: the Fed… the NSA… the CIA… Fannie Mae… Freddie Mac… the trade unions… Wall Street… the dollar… Obamacare… New York’s taxi system… QE… the wars on terror, poverty, illiteracy, and drugs… Dodd-Frank… the TSA… the ATF… millions of retirees and disability scammers… General Motors… Hillary Clinton… and many, many others…

     

     

    Statism

    A widely held and quite erroneous belief …

    On the other: Airbnb… Uber… cryptocurrencies… “Main Street”… businesses… families… gold… young people… savers… Freemasons… Ron Paul… truck drivers… the Episcopal Church… Elks… entrepreneurs… free markets… and millions of honest people who make their livings and live their lives as best they can without holding a gun to anyone else’s head.

    Yes, dear reader, maybe it was too much alcohol or too little food. But in the night, a vision came to us. It revealed the big picture in a way we hadn’t seen it. Zombies, you’ll recall, are people and institutions that live at the expense of others. How?

    Some are freelance criminals. But most depend on government to get the flesh they need. People don’t give up their own blood readily. They run. They hide. They try to protect themselves. But government maintains a territorial monopoly on the one thing that does the trick – violence.

    So today, we stoop to admire the institution of government. What a beautiful racket! It typically takes 20% to 50% of an economy’s output. It makes the rules. It sets the pace. And woe to anybody or anything that gets in its way…

    murray_rothbard_poster-rf988ce7ae6e04a73bd0086fe28baac98_wvo_8byvr_324

    Murray Rothbard’s concise definition of the State

     

    Everybody Is a Customer

    You can divide an economy into three estates: households, businesses, and government. Of the three, government is in the best position by far. Everybody is a customer of the government, whether he wants to be or not. And when you have control of the government, you set the terms of the deals with the other estates. And you can change the terms whenever you want.

    That’s why there is so much money in politics – because you can get so much money from politics! A person can go into government with nothing; he comes out with a fortune.

    Dick Cheney, for example, huffed and puffed almost his entire career in politics, except for a brief stint with a crony defense contractor. Now, he’s said to be worth $80 million.

     

    DICK-CHENEY-NET-WORTH

    Dick Cheney – from nada to $80 million – a political career can be quite remunerative.

    Photo via politicususa.com

     

    Or Hillary Clinton. She has never had a job in the productive economy. She is said to be worth $21 million. Successful politicians get the best parking places… the best offices… and other perks and privileges that no one else gets

     

    clintonh0113-as-1

    Hillary Clinton: never produced anything consumers would voluntarily acquire, and yet, is said to be worth $21 million.

    Photo credit: Pablo Martinez Monsivais / Associated Press

     

    Members of Congress also routinely exclude themselves from the rules and regulations they’ve made for others. For example, it is illegal for U.S. companies to misstate their financial positions; for government it is business as usual. In the private sector, fraud is a crime; in government it is “just politics.”

    As to the business community, government has a mixed relationship. Every business is a source of funds. In addition to the money it gets from taxation, confiscations, and other predations, government also gets bribes in various forms.

    A retired Congressman, for example, can look forward to a career as a lobbyist for the industries he promoted while in office. Or he can make money by giving dull speeches to industry groups. He may choose to do a little consulting, too, or haunt the board of directors.

     

    Tax-quote-from-Bastiat

    “Where we are right now”, a public service message sent by Bastiat

     

    Businesses usually begin as productive enterprises. But almost all have zombie tendencies. Once they reach a certain size, they recognize that the best investment they can make is in politics. They hire lobbyists. They pay crony politicians.

    In return, government enacts rules and regulations to stifle competition. But as with so many of its activities, government succeeds when it fails. As a new industry arises, the money still flows from the cronies, while the feds get a piece of action from the new enterprises, too.

    And households? They grouse and groan. But the masses usually love government. They think business people are greedy SOBs. But they often hold the fellows who run the government racket in the same exalted category as saints, TV stars, and sports heroes. Don’t believe it?

    At a recent reception in Baltimore, we noticed people gathered around a familiar face. It wasn’t Baltimore Ravens owner Art Modell; it was former senator Paul Sarbanes. Just look around Washington… or any major city for that matter. Do you find statues of Henry Ford? Where is the marble bust of Alexander Fleming, discoverer of penicillin? Where is the pile honoring Sam Walton?

    Instead, you find plenty of granite spent to honor scalawags and scoundrels – Lincoln, Wilson, and FDR, to name just a few. And who’s next?

     

    Scoundrels

    A collection of past scoundrels and scalawags hewn in granite and cast in bronze …

     

    Hillary Is a Terrible Candidate – but is Brain-fog any Better?

    In politics, as in markets, nobody knows anything. But we were seated at dinner last night next to a seasoned political analyst…

    “Hillary won’t win the White House,” he confided. “She might not even win the nomination.”

    We recall that much of what he said was off record, but we can’t remember which parts. So, we will leave his name out of the Diary; he may have spoken more candidly than he had wished.

    “The trouble with Hillary is that she’s a Clinton without Bill’s charm. And she’s yesterday’s news. She couldn’t even beat Obama. And he’s a terrible politician.

    “Obama only got elected because of a unique set of circumstances – Hillary and George W. Bush. People were sick of Bush. Hillary is a weak candidate.

    “So now we’re seeing other candidates come out. Bernie Sanders is showing us how vulnerable she is. Others will be encouraged. One of them will probably get some traction.

    “Jim Webb is not getting any money from the establishment. But he has real appeal to the voters.

    “As for the Republicans… Hard to say. I’ve met them all. Rand Paul is smart. But he doesn’t have the funding. Or the political network. He’s too much of an outsider and a maverick to be acceptable.

    “The trouble with Ted Cruz is that he is inflexible. He’s very smart and right about a lot of things. But you have to be fairly flexible to get elected president.

    “The one I really like is Rick Perry. I know, he sounds like an idiot. But he’s not. They just caught him at a bad moment, when he was on painkillers from dental surgery, or something.

    “You remember – he couldn’t recall which department he would abolish if he were elected. It was just a case of brain fog. But it happens to everyone.

    “He’s actually very smart… and a good campaigner.”

    We’ve never met Rick Perry, so we can’t say either way…

     

    Hard choices and brainfog

    Modern Zombies: Ms. “Hard Choices” and Mr. Brain-fog… we actually think we would be quite happy with never hearing about either of them again for the rest of our life…

  • Greek Businesses Accept Lira, Lev As Grexit Looms

    With the Greek drama headed into its final act and Alexis Tsipras stuck between an obstinate Germany and a recalcitrant Left Platform, many wonder if the introduction of an alternative currency in Greece is now a foregone conclusion.

    Even if Athens and Brussels manage to strike a deal over the weekend, the country still faces an acute cash shortage and a severe credit crunch that threatens to create a scarcity of critical imported goods. 

    Amid the chaos, the Greek Drachma has made two mysterious appearances this week (see here and here), suggesting that the EU is on the verge of forcing the Greek economy into the adoption of a parallel currency and while this week’s Drachma “sightings” might properly be called anecdotal, a report from Kathimerini and comments from deposed FinMin Yanis Varoufakis suggest redenomination rumors are not entirely unfounded. 

    Now, with the ECB set to cut Greek banks off from the ELA lifeline on Monday morning in the absence of a deal, some businesses are mitigating the liquidity shortage by accepting foreign currency. FT has more:

    Like many Bulgarians, Kostadin Dobrev, is a regular visitor to the beaches and bars of northern Greece. But this week, the holidaying firefighter immediately noticed things were different. First, the shops were half-empty. Then, even more surprising, he found Greek hotels and restaurants were happy to accept the Bulgarian lev.

     

    As Europe’s politicians prepare for a weekend summit to decide whether Greece can stay in the eurozone, Mr Dobrev’s experience highlights how the old certainties are collapsing. By early next week Greeks could be preparing for life outside the euro and a possible return to the drachma.

     

    Many Greeks in the retail and leisure industry say it makes increasing sense to accept Bulgarian and Turkish money at a time when tourism, the country’s economic lifeblood, is under threat. The tourism confederation said last-minute bookings plummeted 30-40 per cent, compared with the same period in 2014, after Greece imposed capital controls last week.

     

    Athanasos Kritsinis, who runs the Krita chain of supermarkets, said Bulgarians visiting his shops in the northern cities of Xanthi and Komotini were paying in leva.

     

    “There is nothing bad in accepting Bulgarian leva because it is stable and pegged to the euro so why not accept to do business with it? It is legal. There is no reason not to accept,” he said. 

    Yes, “no reason not to accept.” There are however, quite a few reasons for Germany “not to accept” Tsipras’ latest proposal and for Greeks “not to accept” a deal that flies in the face of a referendum outcome that’s not even a week old. 

    And so as we kick off yet another weekend where all eyes turn nervously to Brussels on Saturday and to Athens on Sunday, the million dollar question seems to be this: what will the preferred payment method be in Greece this time next week? Lira, lev, drachma, or euro?

  • 5 Things To Ponder: "China Rising" Or Not?

    Submitted by Lance Roberts via STA Wealth Management,

    Things have certainly changed since I was a child. When I was growing up my father would come outside to give the traditional "dinner whistle." As was often the case, the common response was "Can we play for five more minutes? Please?"

    Times have certainly changed. Today, my "dinner whistle" is often met with:

    "Coming, just let me get to save point."

    My kids are huge fans of the Electronic Arts "Battlefield" series of multiplayer military warfare games. The other night, one of the downloadable content (DLC) maps on which they were playing caught my attention. It was entitled "China Rising."

    Had it not been for the recent headlines of the Shanghai index, it would have likely gone unnoticed. However, given the collapse in the index of nearly 30% over the last month, and the potential implications for domestic economy and markets, I thought it was most apropos.

    China Rising? Well, it was. And this last week, we saw what the perils of a leveraged market can be when things go "inevitably wrong."

    "The perils of margin debt should not be readily dismissed. For a real time example of financial market leverage and consequences, one needs to look no further than the Shangai Index in China. That market is in a complete collapse as plunging prices are forcing investors to sell shares. While the Chinese government has injected liquidity, suspended trading in almost half of the listed equities and encouraged pension funds to buy securities, these actions have done little to stem the decline as investors "panic sell" in a rush to safety. That collapse, if history is any guide, is likely not done as shown in the chart below."

    China-Index-070815

    "Also, notice the correlation between peaks in the Shanghai Index and the S&P 500. According to a recent Bloomberg article, margin debt in China reached $264 Billion in April of this year. After adjusting for the size of the two markets, is about double that of the roughly $500 billion in margin debt in the U.S.

     

    This difference in relative size was given as a prime example about how margin debt is not a problem for the U.S. However, the relative size of margin debt in the past has not been a "safety net" that investors should rely on. As shown, the level of real (inflation adjusted) margin debt as a percentage of real GDP has reached levels only witnessed at the peaks of the last two financial bubble peaks in the U.S."

    Margin-Debt-GDP-070815

    "While no single indicator should be relied upon as a measure to manage a portfolio, it should be well understood by now that leverage is a "double-edged sword." While rising margin debt levels provide the additional liquidity to drive stock prices higher on the way up, it also cuts deeply as prices fall."

    This weekend's reading list is a collection of analysis as to the potential impact of the deflating of the Chinese bubble. Will the interventions by the Chinese government stem the tide of selling or only postpone it? More importantly, is history set to repeat itself. "China Rising" may have been the sound of the "sound of the bell" being rung for the bull market that begin in 2009. While it is too early to know for certain, at least things are getting a bit more interesting. Let's just try and get to a "save point" first.

    1) The Greek Crisis Is Nothing Compared To China by Paul La Monica via CNN Money

    "Why does this matter to people outside of China? A rapidly sinking stock market is often a sign of an economy in turmoil. Remember 2008? And 2000?

     

    Since China is the second largest trading partner for both Europe and the United States, it goes without saying that a healthy Chinese economy is good news for the developed world. All that talk about the possibility of Greek contagion if it is forced to drop the euro and bring back the drachma? That seems overdone too.

     

    Economists at the Royal Bank of Scotland tweeted out a chart last week that showed that U.S. banks have nearly ten times as much exposure to China than Greece."

    China-Stocks-Greece-070915

    Read Also: Goldman Sachs Says There's No China Stock Bubble by Cindy Wang via Bloomberg Business

    2) Why Beijing Cannot Let Its Bull Market Die by Craig Stephen via MarketWatch

    "So this takes us to the current point where controlling the market has been elevated to a test of strength for Beijing and its state-led model.

     

    In China, it shouldn't be too much of a stretch to believe that the government has the ability to control stock prices through force of will. Beijing has a long history of being able to bend market forces to meet its ends — from interest rates, currency values and the movement of capital in its captive financial system.

     

    But as shares continue to slide regardless of government action, investors are increasingly not buying the government line and, more ominously for President Xi Jinping, they are less willing to believe that he and the party are indeed all-powerful.

     

    To get a sense of what the wider fallout from a correction could be, it helps to compare China now to its previous equity boom-and-bust in 2007."

    Read Also: Why This Chinese Bubble Is Different by John Authers via FT

    Read Also: 5 Reasons Why China Really Matters by Mohammed El-Erian via Bloomberg

    3) China's Big Misquided Gamble On Its Stock Market by Minxin Pei via Fortune

    "In real market economies, stock crashes of such magnitude may cause heartburn but unlikely precipitate frenzied government efforts to prop up equity prices. But China is, as we know, not exactly a market economy and has a government that acts differently. In response to the latest crash, instead of allowing market forces to self-correct, Beijing is rolling out aggressive measures to keep the bubble from popping completely.

     

    Beijing should be building social safety nets and recapitalizing its banks, not betting the house on a stock market bubble."

    Read Also: China And The Delusion Of Control by David Keohane via FT

    China-Margin-Risk-070915

    4) China Or Grexit? What's Driving Markets by Bryce Coward via GaveKal Capital

    "While some of the post Greferendum moves in financial markets could have been and were predicted by the financial punditry – lower euro, lower stocks, lower US bond yields, higher gold – the real moves have appeared elsewhere. Indeed, as of this writing the euro is only lower against the USD by less than .5%, the MSCI World Index is barely off by 1%, bonds are bid, but not emphatically, and gold is only marginally higher.

     

    The real moves have been in oil (WTI down 6.3% and Brent down 5%) and copper (down 3.9%). While at first glance this may strike one as odd, there could be something larger at work. Perhaps the more important catalyst for asset price changes of late is Chinese economic slowing rather than fears of Grexit?"

    Gave-Kal-China-070915

    Read Also: US Stocks: Last Man Standing by Meb Faber via Faber Research

    5) China's Stock Market Crash Is Just Beginning by Howard Gold via MarketWatch

    "As I've written many times, China, Brazil, Russia and other emerging markets are suffering through secular bear markets that will last years. Since Chinese stocks represent more than 20% of some emerging-markets ETFs, the pain will likely continue well into this decade.

     

    Secular bear markets feature sudden, violent rallies and mini–bull markets that fool people into thinking they're the genuine article. In real bull markets, indexes repeatedly top their previous highs; in bear markets, they never do."

    Read Also:  Chinese Stocks: What's Behind The Great Market Tumble? by Knowledge@Wharton

    Other Interesting Reads

    Why Momentum Investing Works by Ben Carlson via Wealth Of Common Sense

    Cyclical Bull, Structural Bear Still by Eric Bush via GaveKal Capital

    Old Economic Thinking Is The Problem, Says BIS by Yves Smith via Naked Capitalism

    "????(nan dé hú tu) – Where ignorance is bliss, it's folly to be wise." – old Chinese proverb.

    Have a great weekend.

  • Varoufakis' Stunning Accusation: Schauble Wants A Grexit "To Put The Fear Of God" Into The French

    Earlier we reported that Yanis Varoufakis, seemingly detained by “family reasons” would be unable to join his fellow parliamentarians and personally vote in what is likely the most important vote of Syriza’s administration: the one in which he and his party capitulate to the Troika and vote “Yes” to the proposal he and Tsipras urged everyone to reject just one week ago.

    Subsequently, it was made clear what these family reasons are:

    The self-described “erratic Marxist” will be on the nearby holiday island of … Aegina. In fact, he Tweeted that he reason for his absence is “family reasons”. Nevertheless, two hours before his Tweet was posted, the once obscure academic was spotted on the ferry boat “Phivos”, headed for Aegina, where his wife owns a stylish vacation home.

     

    The author of the “global Minotaur” nevertheless sent a letter to the Parliament president saying he would vote “yes” for the proposal, although the letter will not be counted, given that Parliament regulations stipulate that only deputies on official Parliament business are allowed to cast votes via correspondence.

     

    Judgment aside about his decision to take a holiday from a vote that his strategy guided Greece into, it was clear that he has Wifi on the ferry because this afternoon, While V-Fak may well have been in transit, the Guardian released an Op-Ed penned by Varoufakis titled “Germany won’t spare Greek pain – it has an interest in breaking us.” Readers can read it in its entirety here but here is the punchline:

    This weekend brings the climax of the talks as Euclid Tsakalotos, my successor, strives, again, to put the horse before the cart – to convince a hostile Eurogroup that debt restructuring is a prerequisite of success for reforming Greece, not an ex-post reward for it. Why is this so hard to get across? I see three reasons.

     

    One is that institutional inertia is hard to beat. A second, that unsustainable debt gives creditors immense power over debtors – and power, as we know, corrupts even the finest. But it is the third which seems to me more pertinent and, indeed, more interesting.

     

    The euro is a hybrid of a fixed exchange-rate regime, like the 1980s ERM, or the 1930s gold standard, and a state currency. The former relies on the fear of expulsion to hold together, while state money involves mechanisms for recycling surpluses between member states (for instance, a federal budget, common bonds). The eurozone falls between these stools – it is more than an exchange-rate regime and less than a state.

     

    And there’s the rub. After the crisis of 2008/9, Europe didn’t know how to respond. Should it prepare the ground for at least one expulsion (that is, Grexit) to strengthen discipline? Or move to a federation? So far it has done neither, its existentialist angst forever rising. Schäuble is convinced that as things stand, he needs a Grexit to clear the air, one way or another. Suddenly, a permanently unsustainable Greek public debt, without which the risk of Grexit would fade, has acquired a new usefulness for Schauble.

     

    What do I mean by that? Based on months of negotiation, my conviction is that the German finance minister wants Greece to be pushed out of the single currency to put the fear of God into the French and have them accept his model of a disciplinarian eurozone.

    He does have a point: Recall “Forget Grexit, “Madame Frexit” Says France Is Next: French Presidential Frontrunner Wants Out Of “Failed” Euro.” So perhaps making an example of the social collapse that would result from a Eurozone exit, would be seen a good lesson for French voters ahead of the 2017 French presidential elections in Schauble’s mind

    But is Varoufakis right? Perhaps … but also recall this from the FT in 2014 recalling Europe’s first formulation of Plan Z:

    To the astonishment of almost everyone in the room, Angela Merkel began to cry.

     

    “Das ist nicht fair.” That is not fair, the German chancellor said angrily, tears welling in her eyes. “Ich bringe mich nicht selbst um.” I am not going to commit suicide.

     

    For those who witnessed the breakdown in a small conference room in the French seaside resort of Cannes, it was shocking enough to watch Europe’s most powerful and emotionally controlled leader brought to tears.

     

    But the scene was even more remarkable, those present said, for the two objects of her ire: the man sitting next to her, French President Nicolas Sarkozy, and the other across the table, US President Barack Obama.

     

    Greece was imploding politically; Italy, a country too big to bail out, appeared just days away from being cut off from global financial markets; and Ms Merkel, try as Mr Sarkozy and Mr Obama might, could not be convinced to increase German contributions to the eurozone’s “firewall” – the “big bazooka” or “wall of money” they believed had to grow dramatically to fend off attacks by panicking bond traders.

     

    Instead, a cornered Ms Merkel threw the French and American criticism back in their faces. If Mr Sarkozy or Mr Obama did not like the way her government ran, they had only themselves to blame. After all, it was their allied militaries that had “imposed” the German constitution on a defeated wartime foe six decades earlier.

     

    “It was the point where clearly the eurozone as we know it could have exploded,” said a member of the French delegation at Cannes. “It was the feeling [that with] the contagion, at this point, you were on the brink of explosion.”

    Will this time Merkel risk the explosion of the Eurozone with her own actions: her biggest historic legacy? Probably not, and while Schauble has much sway, it is still Merkel’s word over his.

    No, Varoufakis may be right about Greece being made an example of (unless he is merely trying to deflect blame from himself for putting Greece in this position and for conspicuously avoiding voting for a plan he himself derided untilt the end), but the one person who will decide the future of Greece in the Eurozone is neither Schauble nor Merkel but Mario Draghi, also known as Goldman Sachs. Because if Goldman wants more Q€, it will get more Q€.

  • Dramamine Required: Stocks End Week Unchanged Despite Nausea-Inducing Wild Ride

    Despite the rampacious surge in stocks, some context on the week… Nasdaq & S&P 500 End Red, Small Caps and Trannies squeezed to death…

     

    Seems to be summed up thus…

     

    Perhaps the week in futures shows the violence of the swings more impressively…

     

    A Double Squeeze…

     

    From last night's cash close, stocks never looked back as they saw the Tsipras proposal as a done-deal…

     

    Cash gapped open at the open… (Note, before it slipped, this was the biggest day for the Nasdaq since January!!), and never went anywhere from the initial squeeze..

     

    Before we move on – it is worth noting that The S&P 500 is still below 2,100, The Dow is still below 18,000, and The Nasdaq is still below 5,000.

    Quite a week in China A-Shares ETF…

     

    VIX was crushed today…

     

    There was only one thing keeping the dream alive in stocks… The BoJ!!

     

    Some context across assets – Since "OXI!" Vote…

     

    And Since "Greferendum" announcement…

     

    Treasuries were smacked with an ugly stick in the last 2 days, dragging yields positive for the week…

     

    This is the worst 2 day rip in yields since the Taper Tantrum over 2 years ago…

     

    The USDollar dropped early on EUR strength then rallied as US opened…

     

    But the real story of the day was JPY (and in particular EURJPY) – the biggest jump in EURJPY since April 2013 – even more than the day QE3 died and QQE2 was unleashed…

     

    Commodities were mixed today, crude fell on further rig count increases, copper slipped and PMs were flat…

     

    This is WTI's worst 2 week run since Dec 2014…

     

    Gold has been peculiarly quiet the last 2 days…Since China took control – someone wanted gold under control…

    Charts: Bloomberg

    Bonus Chart: "Yes, we are all different!"

     

  • The One Common Feature In Every Financial Crisis

    Submitted by Simon Black via Sovereign Man blog,

    Spontaneous combustion.

    Alien invasion.

    Zombie apocalypse.

    What do these have in common? Their likelihood is next to impossible. So why worry?

    This is how people tend to think about the financial system.

    Mentioning even the possibility, for example, that the US could default on its debt is met with so much scorn and contempt it would be safer to stand on the street corner warning about an alien invasion.

    The same goes for the imposition of capital controls. Or a collapse in the banking system. Or a currency crisis.

    No one, from the average guy on the street to a Nobel Prize-winning economist, wants to acknowledge that these possibilities exist.

    And yet the most casual glance at the headlines proves that these events not only can happen, they do happen.

    The Greek government is broke. This didn’t happen overnight. It’s not like Greece has always been a picture of financial health and just recently fell on tough times.

    Greece has been broke for ages. As has the Greek banking system– overstuffed with government IOUs and bad loans that have no hope of being repaid.

    And that’s why we’re seeing everything unfold in the headlines. Bank runs. Capital controls. Default.

    It all starts with debt. Whenever a country gets too deep into debt, it’s going to get into trouble. History is very clear on this point.

    Debt almost always leads to negative consequences, most notably default.

    They’ll either default on their private creditors, i.e. the poor souls who loaned them money to begin with.

    Or they’ll default on foreign governments, creating destructive trade wars and currency crises.

    Mostly, though, they’ll default on their obligations to their citizens– suspending pension payments, imposing capital controls, raising taxes, destroying the value of the currency, and bailing in the banks with customer deposits.

    Debt kills. And sooner or later, if history is any guide, nearly every heavily indebted nation will resort to this very limited playbook.

    Just look at Greece: the government has established tight restrictions over bank withdrawals and is even preventing people from accessing safety deposit boxes.

    This highlights yet again that banks are merely an extension of their governments– stooges that will turn against you in a heartbeat and comply with every order their bankrupt master gives them.

    It’s foolish to hold one’s life savings within the banking system of a heavily-indebted nation.

    And doing something about it need not be complicated.

    It’s 2015. You can move savings to an offshore bank account (i.e. a stable foreign bank with very strong fundamentals) without having to leave town.

    Or in some cases, without leaving your living room.

    It’s also easy to hold real assets like gold and silver in a fully insured, non-bank safety deposit box overseas.

    This is sound advice for anyone living in a heavily-indebted nation.

    It’s not some wild assertion or conspiracy theory to acknowledge that there’s risk in the system. The publicly-available data is very clear: almost every western nation is insolvent and far past the point of no return.

    These are real risks not to be assumed away. They’re uncomfortable and unpopular to think about. But they are not negligible.

    And in the face of such clear data, rational, thinking people ought to have a Plan B.

  • Someone Pull The Plug Or This Will End In War

    Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

    I was going to write up on the uselessness of Angela Merkel, given that she said on this week that “giving in to Greece could ‘blow apart’ the euro”, and it’s the 180º other way around; it’s the consistent refusal to allow any leniency towards the Greeks that is blowing the currency union to smithereens.

    Merkel’s been such an abject failure, the fullblown lack of leadership, the addiction to her right wing backbenchers, no opinion that seems to be remotely her own. But I don’t think the topic by itself makes much sense anymore for an article. It’s high time to take a step back and oversee the entire failing euro and EU system.

    Greece is stuck in Germany’s own internal squabbles, and that more than anything illustrates how broken the system is. It was never supposed to be like that. No European leader in their right mind would ever have signed up for that.

    Reading up on daily events, and perhaps on the verge of an actual Greece deal, increasingly I’m thinking this has got to stop, guys, there is no basis for this. It makes no sense and it is no use. The mold is broken. The EU as a concept, as a model, has failed and is already a thing of the past.

    It’s over. And anything that’s done from here on in will only serve to make things worse. We should learn to recognize such transitions, and act on them. Instead of clinging on to what we think might have been long after it no longer is.

    Whatever anyone does now, it’ll all come back again. That’s guaranteed. So just don’t do it. Or rather, do the one thing that still makes any sense: Call a halt to the whole charade.

    As for Greece: Just stop playing the game. It’s the only way for you not to lose it.

    There’s no reason why European countries couldn’t live together, work together, but the EU structure makes it impossible for them to do just that, to do the very thing it was supposed to be designed for.

    Germany runs insane surpluses with the rest of the EU, and it sees that as a sign of how great a country it is. But in the present structure, if one country runs such surpluses, others will need to run equally insane deficits.

    Cue Greece. And Italy, Spain et al. William Hague for once was right about something when he said this week that the euro could only possibly have ended up as a burning building with no exits. This is going to lead to war.

    Simple as that. It may take a while, and the present ‘leadership’ may be gone by then, but it will. Unless more people wake up than just the OXI voters here in Greece.

    And the only reason for it to happen is if the present flock of petty little minds in Berlin, Paris, London and Brussels try to make it last as long as they can, and call for even more integration and centralization and all that stuff. The leaders are useless, the structure is painfully faulty, and the outcome is fully predictable.

    Europe has no leadership, it has a varied but eerily similar bunch of people who crave the power they’ve been given, but lack the moral sturctures to deal with that power. Sociopaths. That’s what Brussels selects for.

    And Brussels is by no means the only place in Europe that does that. What about people like Schäuble and Dijsselbloem, who see the misery in Greece and loudly bang the drum for more misery? What does that say about a man? And what does it say about the structure that allows them to do it? At times I feel like the Grapes of Wrath is being replayed here.

    It’s nice and all to claim you’re right about something, but if your being right produces utter misery for millions of others, you’re still wrong.

    Greece is not an abstract exercise in some textbook, and it’s not a computer game either. Greece is about real people getting hurt. And if you refuse to act to alleviate that hurt, that defines you as a sociopath.

    Germany now, and it took ‘only’ 5 months, says Greece needs debt relief but it also says, through Schäuble: “There cannot be a haircut because it would infringe the system of the European Union.” That’s exactly my point. That’s silly. And looking around me here in Athens for the past few weeks, it’s criminally silly. You acknowledge what needs to be done, and at the same time you acknowledge the system doesn’t allow for what needs to be done. Time to change that system then. Or blow it up.

    I don’t care what people like Merkel and Schäuble think or say, once people in a union go hungry and have no healthcare, you have to change the system, not hammer it down their throats even more. If you refuse to stand together, you can be sure you’ll fall apart.

    Get a life. Greece should just default on the whole thing, and let Merkel and Hollande figure out the alleged Greek debt with their own domestic banking sectors. They’re the ones who received all the money that Greece is now trying to figure out a payback schedule for.

    Problem with that is of course that very banking sector. They call the shots. The vested interests have far too much power on all levels. That’s the crux. But that’s also the purpose for which a shoddy construct like the EU exists in the first place. The more centralized politics are, the easier the whole thing is to manipulate and control. The more loopholes and cracks in the system, the more power there is for vested interests.

    Steve Keen just sent a link to an article at Australia’s MacroBusiness, that goes through the entire list of new proposals from the Syriza government, and ends like this:

    Tsipras Has Just Destroyed Greece

    This is basically the same proposal as that was just rejected by the Greek people in the referendum. There are some headlines floating around about proposed debt restructuring as well but I can’t find them. This makes absolutely no sense. The Tsipras Government has just:

    • renegotiated itself into the same position it was in two months ago;
    • set massively false expectations with the Greek public;
    • destroyed the Greek banking system, and
    • destroyed what was left of Greek political capital in EU.

     

    If this deal gets through the Greek Parliament, and it could given everyone other than the ruling party and Golden Dawn are in favour of austerity, then Greece has just destroyed itself to no purpose. Markets are drawing comfort from the roll over but how Tsipras can return home without being lynched by a mob is beyond me. And that raises the prospect of any deal being held immediately hostage to violence.

    Yes, it’s still entirely possible that Tsipras submitted this last set of proposals knowing full well they won’t be accepted. But he’s already gone way too far in his concessions. This is an exercise in futility.

    It’s time to acknowledge this is a road to nowhere. From where I’m sitting, Yanis Varoufakis has been the sole sane voice in this whole 5 month long B-movie. I think Yanis also conceded that it was no use trying to negotiate anything with the troika, and that that’s to a large extent why he left.

    Yanis will be badly, badly needed for Greece going forward. They need someone to figure out where to go from here.

    Just like Europe needs someone to figure out how to deconstruct Brussels without the use of heavy explosives. Because there are just two options here: either the EU will -more or less- peacefully fall apart, or it will violently blow apart.

  • China's Margin Debt Is "Easily The Highest In The History Of Global Equity Markets"

    Back in March, when not many outside of China had actually noticed the ridiculous Chinese asset bubble, and when the PBOC had yet to announce the arrest of malicious stock buyers (come to think of it, it still hasn’t), we posted “That Ain’t No Margin Debt: THIS Is Margin Debt” in which showed the catalyst behind China’s unprecedented stock market move higher: a gargantuan increase in margin debt (a reorientation of shadow banking whose conventional conduits were closed since late-2014) which allowed every local illiterate tom, dick, farmer and grandma to participate in the great wealth transfer from the lower and middle classes to corporations and insider sellers.

    But so what: the NYSE margin debt at half a trillion is greater, some say and indeed, in isolation China’s stock market leverage was not a very useful indicator. So here it is in some truly sensation context thanks by Goldman Sachs:

    The explosion in margin financing behind the recent astonishing run-up in Chinese A shares is a new twist on China credit concerns, a long-standing grey swan for Chinese and global growth. As of the beginning of June, the balance of margin financing outstanding was RMB2.2tn, an estimated 12% of the free float market cap of marginable stocks and 3.5% of GDP—easily the highest in the history of global equity markets. And these estimates do not take into account “hidden” leverage from other types of borrowing (i.e., consumer loans and trust products) where proceeds were used to invest in stocks, which we estimate at RMB 1tn to RMB 1.5tn, assuming effective system-wide leverage of 2.2x.

     

    We estimate that a significant portion of the hidden leverage has now been unwound and the reported official margin balance has dropped to RMB1.5tn. This unwinding has contributed to a dramatic correction in Chinese equity markets, erasing a sizable portion—though not all—of the stock gains this year. While a range of market-supporting policies (banning of selling from large stakeholders for a period of six months, suspending IPOs, relaxing the forced selling requirement of underwater margin positions, among others) finally halted the sell-off on July 9, questions remain about whether the equity market turmoil could threaten other Chinese assets, economic growth and broader financial market stability.

    And here it is visually:

     

    In other words, there is a lot more margin debt unwinding yet to come which also explains the unprecedented panic by Chinese authorities to step in and prevent the ongoing market crash at all costs…

     

    … even if it means filling up China’s prisons with malicious sellers who refuse to see how this epic, Frankenstein experiment in central-planning ends and, daring to break the law, sell.

  • How The SEC Engineered Every Stock Market Bubble Since 1982

    Submitted by Daniel Drew via Dark-Bid.com,

    Many Americans have discovered that those entrusted to protect us often become the most dangerous threats. Whether it's corrupt cops, bogus journalists, or even Ponzi-scheming church elders, it's not difficult to understand why trusting authorities has seemed like a risky proposition. Now, another institution deserves extra scrutiny. A closer look at the Securities and Exchange Commission reveals a single moment in time when the future of the country was transferred from the middle class to the uber-rich.

    The story of the SEC begins with power and corruption. Joseph Kennedy became the first chairman of the SEC in 1934. Before joining the SEC, he was a manager at Hayden, Stone and Company. Kennedy left the company to trade his own account and made his fortune by manipulating the stock market. After becoming SEC chairman, he outlawed the manipulative tactics that made him rich.

    Joseph Kennedy

    In 1981, President Ronald Reagan appointed John Shad chairman of the SEC. He was the first Wall Street executive to lead the SEC since Joseph Kennedy. Previously, he was vice chairman at E. F. Hutton & Company.

    John Shad

    John Shad was the father of stock buybacks. William Lazonick, a professor of economics at the University of Massachusetts, explained this pivotal moment in financial history,

    Shad, like the Chicago economists who influenced him, believed that a deregulated stock market was good for the economy. In November 1982 the very government agency that is supposed to regulate the stock market adopted Rule 10b-18, which instead encourages corporations to manipulate stock prices through open-market repurchases.

    Instead of reinvesting profits in their businesses, management uses stock buybacks to inflate their earnings per share so they can reap windfalls with their stock options. Rather than invest in real innovation, they choose to loot the company for their own benefit, underpay their workers, and deprive consumers of true value. Recently, buybacks even exceeded operating income, which means CEOs are pillaging reserves to pay themselves. This is pirate capitalism at its finest.

    We previously discussed how the stock market is disappearing in one giant leveraged buyout, but many readers were skeptical. How could the entire stock market disappear? Mathematically, it is possible, especially at the current rate of stock repurchases. In Economics 101, we are all taught that the stock market is a capital-fundraising mechanism for businesses. We assume this to be true, even in the absence of evidence. However, this hasn't been true since the SEC rigged the market in 1982.

    Lazonick explains,

    Since the mid-1980s, in aggregate, corporations have funded the stock market rather than vice versa (as is conventionally assumed). Over the decade 2005-2014 net equity issues of nonfinancial corporations averaged minus $399 billion per year.

    Stock Buybacks

    Net Equity Issues

    One glance at the S&P 500 Buyback Index shows how manipulated the market really is. The index contains 100 stocks in the S&P 500 that have the highest buyback ratios, which is buybacks divided by the market capitalization. The Buyback Index, which is accessible via ETF, trounced the S&P 500.

    S&P 500 Buyback Index

    Since 1982, the entire market has been nothing but one massive slow-motion leveraged buyout. This places the SEC right up there with the Federal Reserve in market manipulation credentials.

    Lazonick said buybacks are a disaster for the economy,

    Buybacks bear a considerable part of the responsibility for a damaged U.S. economy. This mode of resource allocation serves to concentrate income and wealth at the top of the distribution and comes at the expense of investment in the types of stable, remunerative career employment opportunities that support a broad-based middle class. When the most profitable corporations are in a downsize-and-distribute mode, sustainable prosperity in the U.S. economy becomes an impossible goal.

    As the market goes higher in the manipulated buyback frenzy, workers continue to be left in the dust.

    Wages As Percentage of GDP

    And you can always count on the manipulators to bail out at the last minute. After igniting a buyback-fueled bubble, John Shad left the SEC just four months before the 1987 stock market crash to become Ambassador to the Netherlands. Two years later, the Justice Department asked him to become chairman of Drexel Burnham Lambert. The revolving door is open for business.

  • Bitcoin Soars By 10%: Does Someone Know Something?

    Despite the exuberance in US and European equity markets, it appears Bitcoin is sending a different (avoid the looming capital controls) message… Does someone know something?

     

    Bitcoin is soaring on heavy volume...

     

    This is the highest level in 4 months…

     

    Source: Bitcoinwisdom

Digest powered by RSS Digest

Jul 10

Today’s News July 10, 2015

  • The Global War On Pensions Gets Personal – Scenes From A Dying Nation

    We have been warning about the 'global war on pensioners' for a while (most recently here, here, and here) but the soul-destroying images of Greek pensioners' hopes being crushed bring that central-bank-driven repression front-and-center…

    As The Wall Street Journal reports, fear is growing in Greece as the decisive hour nears for the nation…

    Greek banks will likely run out of cash by the end of the week, two senior Greek bankers said.

     

    “Not all banks will run out of cash at once,” one of the bankers said, “but they’ll all be out within hours of each other.”

     

    …

     

    Shortages of medications are beginning to bite, compounding distress especially among older Greeks.

     

    Parents of babies and young children are stocking up on formula and other basic medications, pharmacists say.

     

    “In some cases, we have shortages because people are freaking out panic-buying. We’re trying to advise them against that,” said Mando Nikolopoulou, a pharmacist.

     

    “We’re seeing significant shortages in heart and blood-pressure medications, but I’m less worried about that because there are Greek-made generics that people can turn to when the branded ones run out for good,” she said. “But insulin, that’s critical—diabetics need it to survive, and we’re really low on stocks.”

     

    …

     

    Yiannis Konstantinidis, a 74-year-old grandfather to two little girls, refused to join the queue, even though he could have done with an extra €60 ($66)—the maximum daily withdrawal amount under capital-control rules.

     

    “I brought the kids to have a bit of fun, to buy them ice cream,” he said as 6-year-old Chryssa pulled on his hand. “They may be young but they know something’s wrong. The television is playing at home all day, there are people lining up at the banks, they’re asking me ‘what’s happening, Grandpa?’”

     

    “I just want Tsipras to get a deal, any deal, but it looks like the Europeans are fed up with us now,” Mr. Konstantinidis said, adding he had voted with the minority of Greeks who backed the creditors’ proposals, which he believed would secure the country’s euro membership despite hitting pensioners like himself hard.

    Scenes from a dying nation…

    As Martin Armstrong adds,

    All mainstream news is painting the Greeks as the bad guys and the Troika as the savior of Europe. Quite frankly, it is really disgusting. Pictures of an elderly Greek pensioner have gone viral depicting what the Troika is deliberately doing to the Greek people trying to punish them for their own failed design of the Euro in a system that is just economically unsustainable.

     

    [The images above] expose the core of the issue of how ordinary Greeks are being tormented by EU politicians who pretend to care about people. This is not a Greek debt crisis, this is a Euro Crisis and they refuse to admit that what they designed was solely for the takeover of Europe at the cost of the future of everyone from pensioners to the youth.

     

    This is just the tip of the iceberg. We are facing terrible times ahead because socialism is completely collapsing. Government employees have lined their pockets and this is precisely the end game how Rome collapsed. It was not the barbarians at the gate. It was the the Roman army was not paid and they began hailing their various generals as emperor and the attacked cities who did not support their choice sacking their own people. Only after weakening themselves, then the barbarians came in for easy pickings. If Russia really wants to take Europe, all they have to do is be patient. They will self-destruct for the Troika cannot see any change in thinking for that means they must admit that they were wrong from the outset.

    *  *  *

  • Chinese Police Officially Launch Crackdown On Stock Sellers & Rumor Spreaders

    Not only has the Chinese regulator specifically asked all listed companies to submit reports, within the next two days, on the measures they will take to prop up their shares, according to the 21st Centruy Business Herald; but, as we warned yesterday, Chinese police have begun a “nationwide action plan” to work with stock regulator CSRC to crack down on now ‘illegal’ stock and futures trading. As SCMP reports, police are checking who sold off Ping An and PetroChina stocks in last 30 minutes of trading July 8 while Government was buying to boost index… Who needs QE? This is worse, much worse…

     

    * * *

    Which explains this…

     

    *  *   *

    And here is what Rabobank thinks…

    “China managed to stage an impressive equity rebound yesterday. One could call it a dead cat bounce, but we don’t even have an entire cat, so it was more parts of a dead cat bouncing, aided by news that anyone caught selling short would be arrested.

     

    To say that doesn’t look sustainable is an understatement, especially with PPI (Producer Price Index) slipping to -4.8 per cent (Year-on-Year), and CPI (Consumer Price Index) edging up to 1.4 per cent only on vegetable prices.”

  • Are Big Banks Using Derivatives To Suppress Bullion Prices?

    Submitted by Paul Craig Roberts and Dave Kranzler via PaulCraigRoberts.org,

    We have explained on a number of occasions how the Federal Reserves’ agents, the bullion banks (principally JPMorganChase, HSBC, and Scotia) sell uncovered shorts (“naked shorts”) on the Comex (gold futures market) in order to drive down an otherwise rising price of gold. By dumping so many uncovered short contracts into the futures market, an artificial increase in “paper gold” is created, and this increase in supply drives down the price.

    This manipulation works because the hedge funds, the main purchasers of the short contracts, do not intend to take delivery of the gold represented by the contracts, settling instead in cash. This means that the banks who sold the uncovered contracts are never at risk from their inability to cover contracts in gold. At any given time, the amount of gold represented by the paper gold contracts (“open interest’) can exceed the actual amount of physical gold available for delivery, a situation that does not occur in other futures markets.

    In other words, the gold and silver futures markets are not a place where people buy and sell gold and silver. These markets are places where people speculate on price direction and where hedge funds use gold futures to hedge other bets according to the various mathematical formulas that they use. The fact that bullion prices are determined in this paper, speculative market, and not in real physical markets where people sell and acquire physical bullion, is the reason the bullion banks can drive down the price of gold and silver even though the demand for the physical metal is rising.

    For example last Tuesday the US Mint announced that it was sold out of the American Eagle one ounce silver coin. It is a contradiction of the law of supply and demand that demand is high, supply is low, and the price is falling. Such an economic anomaly can only be explained by manipulation of prices in a market where supply can be created by printing paper contracts.

    Obviously fraud and price manipulation is at work, but no heads roll. The Federal Reserve and US Treasury support this fraud and manipulation, because the suppression of precious metal prices protects the value and status of the US dollar as the world’s reserve currency and prevents gold and silver from fulfilling their role as the transmission mechanism that warns of developing financial and economic troubles. The suppression of the rising gold price suppresses the warning signal and permits the continuation of financial market bubbles and Washington’s ability to impose sanctions on other world powers that are disadvantaged by not being a reserve currency.

    It has come to our attention that over-the-counter (OTC) derivatives also play a role in price suppression and simultaneously serve to provide long positions for the bullion banks that disguise their manipulation of prices in the futures market.

    OTC derivatives are privately structured contracts created by the secretive large banks. They are a paper, or derivative, form of an underlying financial instrument or commodity. Little is known about them. Brooksley Born, the head of the Commodity Futures Trading Corporation (CFTC) during the Clinton regime said, correctly, that the derivatives needed to be regulated. However, Federal Reserve Chairman Alan Greenspan, Treasury Secretary and Deputy Secretary Robert Rubin and Lawrence Summers, and Securities and Exchange Commission (SEC) chairman Arthur Levitt, all de facto agents of the big banks, convinced Congress to prevent the CFTC from regulating OTC derivatives.

    The absence of regulation means that information is not available that would indicate the purposes for which the banks use these derivatives. When JPMorgan was investigated for its short silver position on Comex, the bank convinced the CFTC that its short position on Comex was a hedge against a long position via OTC derivatives. In other words, JPMorgan used its OTC derivatives to shield its attack on the silver price in the futures market.

    During 2015 the attack on bullion prices has intensified, driving the prices lower than they have been for years. During the first quarter of this year there was a huge upward spike in the quantity of precious metal derivatives.

    If these were long positions hedging the banks’ Comex shorts, why did the price of gold and silver decline?

    More evidence of manipulation comes from the continuing fall in the prices of gold and silver as set in paper future markets, although demand for the physical metals continues to rise even to the point that the US Mint has run out of silver coins to sell. Uncertainties arising from the Greek No vote increase systemic uncertainty. The normal response would be rising, not falling, bullion prices.

    The circumstantial evidence is that the unregulated OTC derivatives in gold and silver are not really hedges to short positions in Comex but are themselves structured as an additional attack on precious metal prices.

    If this supposition is correct, it indicates that seven years of bailing out the big banks that control the Federal Reserve and US Treasury at the expense of the US economy has threatened the US dollar to the extent that the dollar must be protected at all cost, including US regulatory tolerance of illegal activity to suppress gold and silver prices.

  • For The First Time Since It Was Mexico, California Now Has More Latinos Than Whites

    Two weeks ago, we highlighted a statistic that reflects the rapid demographic shift taking place in America. Non-Hispanic whites, Bloomberg reported, citing the Census Bureau, are no longer the majority in Americans under 5 years old. 

    Why does this matter or, perhaps more to the point, why do we mention it here? Because demographic shifts often have far-reaching consequences for the economy. Here’s what we said last month:

    Shifting demographics are affecting everything from the labor market, to homeownership, to race relations in America. 

     

    In “The ‘Illegal Immigrant’ Recovery” for instance, we documented the stunning fact that the US has added 2.3 million “foreign-born” workers, offset by just 727K “native-born” since December 2007. Because the “foreign-born” category includes both legal and illegal immigrants, it may well be that the surprise answer why America’s labor productivity has plummeted in recent years and certainly months, and why wage growth has gone precisely nowhere, is because the vast majority of all jobs since December 2007, or 75% to be specific, have gone to foreign-born workers. 

     

    As for the housing market, we recently cited data from the Urban Institute which shows that because the vast majority of new households in the next decade will be formed by minorities, and because minority groups tend to have lower homeownership rates, the overall homeownership rate in America — which has already retraced twenty years’ worth of gains — will likely slide further in the coming years.

    These are but two examples of how much demographic shifts matter. Against this backdrop we present the following chart and brief commentary from the LA Times with no further comment:

     

    The shift shouldn’t come as a surprise. State demographers had previously expected the change to occur sometime in 2013, but slow population growth pushed back projections. In January 2014, the state Department of Finance estimated the shift would take place at some point in March.

     

    Either way, the moment has officially arrived.

     

    “This is sort of the official statistical recognition of something that has been underway for almost an entire generation,” said Roberto Suro, director of the Tomás Rivera Policy Institute at USC.

     

    California is now the first large state and the third overall — after Hawaii and New Mexico — without a white plurality, according to state officials.

     

    “Where L.A. goes is where the rest of the state goes and where the rest of the country goes,” he said. “We announce, demographically speaking, the future for the rest of the country.”

  • China's Annotated Collapse Into Centrally-Planned Market Hell

    By now it is clear to everyone, even the most hardened neoliberals, that what is going on in China is nothing short of the complete collapse of a centrally-planned market into sheer chaos, a bubble which while punctuated by the occasional dead cat bounce, is now finished and it is only a matter of time before all the “nouveau riche” farmers and grandparents see all their paper profits wiped out and hopefully go silently into that good night without starting mass riots or a revolution.

    Since by some counts there are anywhere between 20 and 40 million of them, it could be a close call, one which the Politburo would dread to see to its fruition and as such the Chinese government together with the People’s Bank of China have engaged in the most desperate and unprecedented series of market bailouts, one which puts good ‘ole plain vanilla QE in the “quaint” category.

    But most curiously, it wasn’t until China literally threatened short (or any other for that matter) sellers with arrest last night, that the market finally staged a furious rebound.

    Will that rebound hold, or like every other dead cat bounce in history, fade quickly if not quietly into memory, we shall see over the next several days.

    In the meantime, for those curious what it looks like when a centrally-planned market devolves into complete chaotic hell despite the relentless intervention of the local authorities and central planners, look no further than the chart below…

     

    And while it may seem that China has literally thrown the kitchen sink at its “maliciously” crashing stock market (odd how there were no complaints about malicious buying on the way up…), the reality is that China still has quite a few tricks up its sleeve, starting with a plain vanilla rate cut, proceeding to expanded stock buybacks, a complete short-selling bank, and finally culminating with that inevitably Hail Mary of every central bank: “outright share purchasing.”

     

    The good news is that what China is doing should be a lesson to all other global markets, which to a lesser or greater extent, are all as manipulated, rigged and centrally-planned as China’s. Seen in this light, China is merely a harbinger of what is coming to a banana market near you…

  • 10 Very Strange Things That Have Happened In Just The Past Few Weeks

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

    Have you noticed that events have begun to accelerate?  Over the past few weeks, things have officially started to get very weird.  Chinese stocks are crashing, the Greek debt crisis is spiraling out of control, the New York Stock Exchange was down for about four hours on Wednesday thanks to a “technical glitch”, and global politicians have been acting very strangely.  After several years of relative calm, could it be possible that the second half of 2015 will usher in a time of chaos and confusion on a worldwide scale?  Personally, I have never been more concerned about a period of time as I am about the last six months of 2015.  And if I am right, what we have seen so far is just the tip of the iceberg.  The following are 10 very strange things that have happened in just the past few weeks…

    #1 On Wednesday, the New York Stock Exchange, United Airlines and the Wall Street Journal were all taken down by unexpected “technical glitches“.  Authorities are assuring us that hackers were not responsible for any of this.

    #2 In China, a full-blown stock market crash is unfolding.  The Shanghai Composite Index has plummeted more than 30 percent in less than a month, and the Chinese version of the NASDAQ has dropped by more than 40 percent.  The amount of “paper wealth” that has been lost in China is 15 times greater than the GDP of Greece.

    #3 Just the other day, hackers were able to hack into a German surface-to-air missile battery…

    Well, this is absolutely terrifying. According to The Local, hackers attacked a German Patriot surface-to-air missile battery, like the one shown above, stationed along the Turkish-Syria border. The cyber attack caused the battery to carryout “unexplained” orders.

     

    It’s believed that cyber attackers managed to exploit the Patriot battery in two different ways. The first exploit was through the Sensor-Shooter-Interoperability, which controls interactions between the actual, physical missile launcher and its control system, while the other was on the guidance chip. These weaknesses could have allowed the hackers to steal data or, more worryingly, actually take control of the battery.

    #4 Earlier this week, Barack Obama told reports that “we’re speeding up training of ISIL forces“…

    #5 Just a few days ago, the U.S. Mint announced that they were sold out of American Eagle silver coins on the exact same day that the price of silver hit a new low for 2015.  How does that make any sense?

    #6 On June 30th, an unexpected blood moon was seen over a significant portion of the United States.  The following is an excerpt from a recent article by Caiden Cowger…

    On June 30, 2015, a surprise blood moon appeared in the sky, that was only seen in the United States.

     

    According to the National Weather Service, large wildfires in Canada have been burning. Due to extremely high winds, smoke from these fires have traveled into the United States.

     

    According to NBC-Chattanooga, “the smoke should remain in the higher atmosphere and not affect air quality, it gives the moon and sun a rosy glow.

     

    Here’s what causes the effect:

     

    As light from the moon or sun enters the atmosphere it gets scattered by particles like water, aerosols, and in this case smoke. Green, blue, and purple colors are sent in all directions but colors with longer wavelengths like red, orange and yellow continue through the atmosphere and remain visible to the human eye.”

    #7 Even though NASA recently stated that they know of “no asteroid or comet currently on a collision course with Earth” and that “no large object is likely to strike the Earth any time in the next several hundred years“,  NASA has teamed up with the National Nuclear Security Administration to try to figure out a way to use nuclear weapons to destroy asteroids that are threatening our planet.  If there is no threat, why spend so much time and energy on this?

    #8 A couple of weeks ago, we learned that Barack Obama has issued 19 “secret directives“.  What is Obama planning, and why won’t he let the general public know about it?

    #9 This week, Pope Francis called for the creation of “a new economic and ecological world order where the goods of the Earth are shared by everyone, not just exploited by the rich.”  So exactly what would such a “world order” look like?

    #10 The Greek people just overwhelmingly voted to reject austerity, so EU officials have responded by giving the Greek government a one week deadline to come to an agreement that will include even more austerity for the Greek people.  If the Greek government does not submit, EU officials are threatening them with bankruptcy, the collapse of their banking system and expulsion from the euro.

    Things promise to only get stranger from here.  One week from today, on July 15th, a massive military exercise known as “Jade Helm” begins.  More than 1,000 members of the U.S. military will be taking part in drills that will be conducted in the states of Texas, Colorado, New Mexico, Arizona, Nevada, Utah, California, Mississippi and Florida.

    Then in September comes the end of the Shemitah year, the fourth blood moon of this tetrad, the launch of a radical new sustainable development agenda at the United Nations that is being endorsed by the Pope, and a vote on a UN Security Council resolution that would formally establish a Palestinian state.

    And that is just the stuff that we know about.

  • Chinese 'Dead Cat Bounce' Fades, "Hostile Sellers" Appear As Goldman Warns "Not Yet Fully Purged"
    • *CHINA'S SHANGHAI COMPOSITE INDEX FALLS 0.6% TO 3,687.36 AT OPEN
    • *FTSE CHINA A50 INDEX FALLS 2%

    Amid the highest level Typhoon warnings, China's stock market continues to storm as only 49% of Chinese stocks are halted (down from 54%) as local analysts fear yesterday's bounce (just like last week's) was nothing but a dead cat bounce: "bounces like today prolong the timeframe to get that final bottom in place." For the 14th day in a row margin balances declined with the pace accelerating (down 10.9% yesterday alone) for a total over 36% decline so far. Seemingly on pain of death, someone is selling Chinese stocks as CSI-300 futures opened a mere 0.2% higher then sold off – no follow through for now. Goldman warned to expect another 30% decline margin balance and concludes, China "hasn't yet fully purged."

    In case you're wondering why we bounced yesterday (aside from the death threats to shorts)… It was a very technical bounce off the 200DMA…

     

    and for now there's no follow-through…

     

    Stroms are gathering…

    • *CHINA ISSUES HIGHEST-LEVEL ALERT ON TYPHOON CHAN-HOM

    As more companies limp out from nehind the curtain of invincibility…

    • *NUMBER OF CHINESE COS HALTED FROM TRADING FALLS TO 1,422
    • *A TOTAL OF 49% OF CHINESE STOCKS ARE HALTED FROM TRADING (down from 54%)

    Goldman noted the suspensions of shares are "really the key issue…"

    With a number of stocks suspended – we've had 32 percent of the market cap being suspended – we haven't really had a clearing of price that's fully taken place and the deleveraging which has been going on hasn't yet fully purged

     

    That's really what we're looking for for a sign of a market bottom."

    Margin balances continue to plunge in accelerating manner… now down 36% from the highs…

     

    Where is all the margin concentrated (via SCMP)

    Goldman also noted margin balances still have a long way to go…

    "We think the rough equilibrium level would probably be about a trillion

     

    That would be where the margin balance relative to free float market cap would be commensurate with the level that we've got here in the U.S."

     

    Another 30% reduction in margin balances could happen in the next five days to two weeks

    And finally for some context on the week…

     

    Are you going to buy this dip?

     

    *  *  *

    And for those think it's over… it's not…

     

    And for China to get back to 'norms' there is considerably more left…

     

    As one local analyst warned…

    "Unfortunately, with bounces like today, this emotional and high-volume trading capitulation doesn't come to fruition. Then add to the mix the fact that half the stocks in China are halted and this bottom becomes harder to achieve," said Brett McGonegal, chief executive of Reorient Group, a Hong Kong-listed investment firm.

     

    "We were almost at the bottom and bounces like today prolong the timeframe to get that bottom in place."

     

    Charts: Bloomberg

  • New Greek Proposal Backtracks To Pre-Referendum Draft, Does Not Request Debt Haircut – Full Text

    There is nothing incrementally new or different to what we revealed earlier in the leaked Greek proposal (i.e., no actionable pension cuts, no debt "reprofiling") and as Bloomberg makes it all too clear in flashing red headlines:

    • GREEK GOVT PROPOSAL SIMILAR TO EU COMMISSION'S JUNE 26 PROPOSAL

    … or the one which 61% of the Greek people said no to.

    What's worse, the proposal will be promptly deemed as insufficient because as Merkel made clear in the past four days, the old proposal is no longer valid due to the collapse in the Greek economy since capital controls were imposed and will, ironically, have be far harsher to offset the slowdown in the economy. To make things worse, the proposed indirect (no direct ones) pension cuts, and lack of a request for debt relief will be certain to infuriate the Greek population.

    The broad strokes: a 3 year, €53.5 billion bailout program, including €35 billion of growth measures, lasting through June 30, 2018 requesting funds from the ESM, seeking to finally put the IMF off to the side.

    The program is heavy on revenue promises and lite on actual spending cuts. Greece hopes to achieve a 1% primary budget surplus in 2015, rising to 2%, 3%, and 3.5% by 2018, all of which are now impossible due to the total collapse of the economy in the past week.

    Among the tax reform will be a modest increase in corporate tax from 26% to 28%.

    The changes to the VAT system are as noted previously, keeping the VAT on hotels at 13% but raising it to 23% for restaurants; Greece also promises to eliminate discounts on islands, starting with the islands with higher incomes and which are the most popular tourist destinations.

    However, it is the pension side where the issues remain, and it is here that once again there is little actual direct reductions. Among the promises, most are the generic fluff previously agreed on:

    create strong disincentives to early retirement, incur penalties for early withdrawals, make all supplementary pension funds financed by own contributions; and so on.

    The good news for the Troika is that Greece will seek to "gradually phase out the solidarity grant (EKAS) for all pensioners by end-December 2019" – who will be impacted and when: "the top 20% of beneficiaries in March 2016." In other words another 9 months of non real action. The bad news for the Troika is that Greece will also "freeze monthly guaranteed contributory pension limits in nominal terms until 2021."

    More in the full proposal, but the truth is that while making some concessions, the Greek proposal may still be insufficient for Merkel, and certainly won't be sufficient for the IMF due to the lack of real pension cuts.

    Worse, Syriza will have to vote on this proposal tomorrow and explain to the people why nearly two thirds of them just voted No to a deal which the government itself is now hoping will pass.

    But worst of all, nowhere in the draft sent to creditors is there anything requesting or even hinting about Greek debt haircut, relief or even reprofiling.

    And all of this will happen as a massive Oxi demonstration takes place in front of government, so be on the lookout for a repeat appearance by the riotcam.

    * * *

    Full text below (via Amna)

    10/ 07/ 2015
    The full proposal submitted by the Greek government to the Eurogroup earlier on Thursday is the following:
     
    "Greece: Prior Actions
       
     
    Policy Commitments and Actions to be taken in consultation with EC/ECB/IMF staff:
     
    1. 2015 supplementary budget and 2016-19 MTFS
     
    Adopt effective as of July 1, 2015 a supplementary 2015 budget and a 2016–19 medium-term fiscal strategy, supported by a sizable and credible package of measures. The new fiscal path is premised on a primary surplus target of (1, 2, 3), and 3.5 percent of GDP in 2015, 2016, 2017 and 2018. The package includes VAT reforms (¶2), other tax policy measures (¶3), pension reforms (¶4), public administration reforms (¶5), reforms addressing shortfalls in tax collection enforcement (¶6), and other parametric measures as specified below.
     
    2. VAT reform
     
    Adopt legislation to reform the VAT system that will be effective as of July 1, 2015. The reform will target a net revenue gain of 1 percent of GDP on an annual basis from parametric changes. The new VAT system will: (i) unify the rates at a standard 23 percent rate, which will include restaurants and catering, and a reduced 13 percent rate for basic food, energy, hotels, and water (excluding sewage), and a super-reduced rate of 6 percent for pharmaceuticals, books, and theater; (ii) streamline exemptions to broaden the base and raise the tax on insurance; and (iii) Eliminate discounts on islands, starting with the islands with higher incomes and which are the most popular tourist destinations, except the most remote ones. This will be completed by end-2016, as appropriate and targeted fiscally neutral measures to compensate those inhabitants that are most in need are determined. The new VAT rates on hotels and islands will be implemented from October 2015.
     
    The increase of the VAT rate described above may be reviewed at the end of 2016, provided that equivalent additional revenues are collected through measures taken against tax evasion and to improve collectability of VAT. Any decision to review and revise shall take place in consultation with the institutions.
     
    3. Fiscal structural measures
     
    Adopt legislation to:

    • close possibilities for income tax avoidance (e.g., tighten the definition of farmers), take measures to increase the corporate income tax in 2015 and require 100 percent advance payments for corporate income and gradually for individual business income tax by 2017; phase out the preferential tax treatment of farmers in the income tax code by 2017; raise the solidarity surcharge;
    • abolish  subsidies for excise on diesel oil for farmers and better target eligibility to halve heating oil subsidies expenditure in the budget 2016;
    • in view of any revision of the zonal property values, adjust the property tax rates if necessary to safeguard the 2015 and 2016 property tax revenues at €2.65 billion and adjust the alternative minimum personal income taxation.
    • eliminate the cross-border withholding tax introduced by the installments act (law XXXX/2015) and reverse the recent amendments to the ITC in the public administration act (law XXXX/2015), including the special treatment of agricultural income.
    • adopt outstanding reforms on the codes on income tax, and tax procedures: introduce a new Criminal Law on Tax Evasion and Fraud to amend the Special Penal Law 2523/1997 and any other relevant legislation, and replace Article 55, ¶s 1 and 2, of the TPC, with a view, inter alia, to modernize and broaden the definition of tax fraud and evasion to all taxes; abolish all Code of Book and Records fines, including those levied under law 2523/1997 develop the tax framework for collective investment vehicles and their participants consistently with the ITC and in line with best practices in the EU.
    • adopt legislation to upgrade the organic budget law to: (i) introduce a framework for independent agencies; (ii) phase out ex-ante audits of the Hellenic Court of Auditors and account officers (ypologos); (iii) give GDFSs exclusive financial service capacity and GAO powers to oversee public sector finances; and (iv) phase out fiscal audit offices by January 2017.
    • increase the rate of the tonnage tax and phase out special tax treatments of the shipping industry.

    By September 2015, (i) simplify the personal income tax credit schedule; (ii) re-design and integrate into the ITC the solidarity surcharge for income of 2016 to more effectively achieve progressivity in the income tax system; (iii) issue a circular on fines to ensure the comprehensive and consistent application of the TPC; (iv) and other remaining reforms as specified in ¶9 of the IMF Country Report No. 14/151.
     
    On health care, effective as of July 1, 2015, (i) re-establish full INN prescription, without exceptions, (ii) reduce as a first step the price of all off-patent drugs to 50 percent and all generics to 32.5 percent of the patent price, by repealing the grandfathering clause for medicines already in the market in 2012, and (iii)) review and limit the prices of diagnostic tests to bring structural spending in line with claw back targets; and (iv) collect in the full the 2014 clawback for private clinics, diagnostics and pharmaceuticals, and extend their 2015 clawback ceilings to 2016.
     
    Launch the Social Welfare Review under the agreed terms of reference with the technical assistance of the World Bank to target savings of ½ percent of GDP which can help finance a fiscally neutral gradual roll-out of the GMI in January 2016.
     
    Adopt legislation to:

    • reduce the expenditure ceiling for military spending by €100 million in 2015 and by €200 million in 2016 with a targeted set of actions, including a reduction in headcount and procurement;   
    • introduce reform of the income tax code, [inter alia covering capital taxation], investment vehicles, farmers and the self- employed, etc.;
    • raise the corporate tax rate from 26% to 28%;
    • introduce tax on television advertisements;
    • announce international public tender for the acquisition of television licenses and usage related fees of relevant frequencies; and
    • extend implementation of luxury tax on recreational vessels in excess of 5 meters and increase the rate from 10% to 13%, coming into effect from the collection of 2014 income taxes and beyond;
    • extend Gross Gaming Revenues (GGR) taxation of 30% on VLT games expected to be installed at second half of 2015 and 2016;
    • generate revenues through the issuance of 4G and 5G licenses.
    • We will consider some compensating measures, in case of fiscal shortfalls: (i) Increase the tax rate to income for rents, for annual incomes below €12,000 to 15% (from 11%) with an additional revenue of €160 million and for annual incomes above €12,000 to 35% (from 33%) with an additional revenue of €40 million; (ii)  the corporate income tax will increase by an additional percentage point (i.e. from 28% to 29%) that will result in additional revenues of €130 million.

    4. Pension reform
     
    The Authorities recognise that the pension system is unsustainable and needs fundamental reforms. This is why they will implement in full the 2010 pension reform law (3863/2010), and implement in full or replace/adjust the sustainability factors for supplementary and lump-sum pensions from the 2012 reform as a part of the new pension reform in October 2015 to achieve equivalent savings and take further steps to improve the pension system.
     
    Effective from July 1, 2015 the authorities will phase-in reforms that would deliver estimated permanent savings of ¼-½ percent of GDP in 2015 and 1 percent of GDP on a full year basis in 2016 and thereafter by adopting legislation to:
     

    • create strong disincentives to early retirement, including the adjustment of early retirement penalties, and through a gradual elimination of grandfathering to statutory retirement age and early retirement pathways progressively adapting to the limit of statutory retirement age of 67 years, or 62 and 40 years of contributions by 2022, applicable for all those retiring (except arduous professions, and mothers with children with disability) with immediate application;
    • adopt legislation so that withdrawals from the Social Insurance Fund will incur an annual penalty, for those affected by the extension of the retirement age period, equivalent to 10 percent on top of the current penalty of 6 percent;
    • integrate into ETEA all supplementary pension funds and ensure that, starting January 1, 2015, all supplementary pension funds are only financed by own contributions;
    • better target social pensions by increasing OGA uninsured pension;
    • Gradually phase out the solidarity grant (EKAS) for all pensioners by end-December 2019. This shall be legislated immediately and shall start as regards the top 20% of beneficiaries in March 2016 with the modalities of the phase out to be agreed with the institutions;
    • freeze monthly guaranteed contributory pension limits in nominal terms until 2021;
    • provide to people retiring after 30 June 2015 the basic, guaranteed contributory, and means tested pensions only at the attainment of the statutory normal retirement age of currently 67 years;
    • increase the health contributions for pensioners from 4% to 6% on average and extend it to supplementary pensions;
    • phase out all state-financed exemptions and harmonize contribution rules for all pension funds with the structure of contributions to IKA from 1 July 2015;

    Moreover, in order to restore the sustainability of the pension system, the authorities will by 31 October 2015, legislate further reforms to take effect from 1 January  2016; (i) specific design and parametric improvements to establish a closer link between contributions and benefits; (ii) broaden and modernize the contribution and pension base for all self-employed, including by switching from notional to actual income, subject to minimum required contribution rules; (iii) revise and rationalize all different systems of basic, guaranteed contributory and means tested pension components, taking into account incentives to work and contribute; (iv) the main elements of a comprehensive SSFs consolidation, including any remaining harmonization of contribution and benefit payment rules and procedures across all funds; (v) abolish all nuisance charges financing pensions and offset by reducing benefits or increasing contributions in specific funds to take effect from 31 October 2015; and (vi) harmonize pension benefit rules of the agricultural fund (OGA) with the rest of the pension system in a pro rata manner, unless OGA is merged into other funds. The consolidation of social insurance funds will take place by end 2017. In 2015, the process will be activated through legislation to consolidate the social insurance funds under a single entity and the operational consolidation will have been completed by 31 December 2016. Further reductions in the operating costs and a more effective management of fund resources including improved balancing of needs between better-off and poorer-off funds will be actively encouraged.
     
    The authorities will adopt legislation to fully offset the fiscal effects of the implementation of court rulings on the 2012 pension reform.
     
    In parallel to the reform of the pension system, a Social Welfare Review will be carried out to ensure fairness of the various reforms.
     
    The institutions are prepared to take into account other parametric measures within the pension system of equivalent effect to replace some of the measures mentioned above, taking into account their impact on growth, and provided that such measures are presented to the institutions during the design phase and are sufficiently concrete and quantifiable, and in the absence of this the default option is what is specified above.
     
     
    5. Public Administration, Justice and Anti Corruption
     
    Adopt legislation to:

    • reform the unified wage grid, effective 1 January, 2016, setting the key parameters in a fiscally neutral manner and consistent with the agreed wage bill targets and with comprehensive application across the public sector, including decompressing the wage distribution across the wage spectrumin connection with the skill, performance and responsibility of staff. (The authorities will also adopt legislation to rationalise the specialised wage grids, by end-November 2015);
    • align non-wage benefits such as leave arrangements, per diems, travel allowances and perks, with best practices in the EU, effective 1 January 2016;
    • establish within the new MTFS ceilings for the wage bill and the level of public employment consistent with achieving the fiscal targets and ensuring a declining path of the wage bill relative to GDP until 2019;
    • hire managers and assess performance of all employees (with the aim to complete the hiring of new managers by 31 December 2015 subsequent to a review process)
    • introduce a new permanent mobility scheme applied by Q4 2015. The scheme will promote the use of job description and will be linked with an online database that will include all current vacancies. Final decision on employee mobility will be taken by each service concerned. This will rationalize the allocation of resources as well as the staffing across the General Government.
    • reform the Civil Procedure Code, in line with previous agreements;  introduce measures to reduce the backlog of cases in administrative courts; work closely with European institutions and technical assistance on e-justice, mediation and judicial statistics
    • strengthen the governance of ELSTAT. It shall cover (i) the role and structure of the Advisory bodies of the Hellenic Statistical System, including the recasting of the Council of ELSS to an advisory Committee of the ELSS, and the role of the Good Practice Advisory Committee (GPAC); (ii) the recruitment procedure for the President of ELSTAT, to ensure that a President of the highest professional calibre is recruited, following transparent procedures and selection criteria; (iii) the involvement of ELSTAT as appropriate in any legislative or other legal proposal pertaining to any statistical matter; (iv) other issues that impact the independence of ELSTAT, including financial autonomy, the empowerment of ELSTAT to reallocate existing permanent posts and to hire staff where it is needed and to hire specialised scientific personnel, and the classification of the institution as a fiscal policy body in the recent law 4270/2014; role and powers of Bank of Greece in statistics in line with European legislation.
    • Publish a revised Strategic Plan against Corruption by 31 July 2015. Amend and implement the legal framework for the declaration of assets and financing of the political parties and adopt legislation insulating financial crime and anti-corruption investigations from political intervention in individual cases.

     
    Moreover, in collaboration with the OECD, the Authorities will:

    • Strengthen controls in public entities and especially SOEs. Empower the Line Ministries to perform robust audit and control inspections to supervised entities including SOEs.
    • Strengthen controls and internal audit processes in high spending Local Government Institutions and their supervised legal entities.
    • Strengthen controls in public and private investment cases funded either by national or co-funded by other sources, public works and public procurement (e.g. in health sector, SDIT).
    • Strengthen transparency and control processes and skills in tax and customs authorities.
    • Assess major risks in the public procurement cycle, taking in consideration the recent developments (Central Purchasing and e-Procurement: KHMDHS and ESHDHS) and the need to have a clear governance framework. Develop strategy according to the assessment(Q4 2015)
    • Implement strategy to mitigate public procurement risks.(Q1 2016)
    • Assess 2 specific sectors, Health and Public Works in order to understand the existing constrains related to corruption and waste risks and propose measures to address them. Develop and implement strategy. (Q4 2015)

     
    6. Tax administration
     
    Take the following actions to:

    • Adopt legislation to establish an autonomous revenue agency, that specifies: (i) the agency’s legal form, organization, status, and scope; (ii) the powers and functions of the CEO and the independent Board of Governors; (iii) the relationship to the Minister of Finance and other government entities; (iv) the agency’s human resource flexibility and relationship to the civil service; (v) budget autonomy, with own GDFS and a new funding formula to align incentives with revenue collection and guarantee budget predictability and flexibility; (vi) reporting to the government and parliament; and (vii) the immediate transfer of all tax- and customs-related capacities and duties and all tax- and customs-related staff in SDOE and other entities to the agency.
    • on garnishments, adopt legislation to eliminate the 25 percent ceiling on wages and pensions and lower all thresholds of €1,500 while ensuring in all cases reasonable living conditions; accelerate procurement of IT infrastructure to automatize e-garnishment; improve tax debt write-off rules; remove tax officers’ personal liabilities for not pursuing old debt; remove restrictions on conducting audits of tax returns from 2012 subject to the external tax certificate scheme; and enforce if legally possible upfront payment collection in tax disputes.
    • amend (i) the 2014–15 tax and SSC debt instalment schemes to exclude those who fail to pay current obligations and introduce a requirement for the tax and social security administrations to shorten the duration for those with the capacity to pay earlier and introduce market-based interest rates; the LDU and KEAO will assess by September 2015 the large debtors with tax and SSC debt exceeding €1 million (e.g. verify their capacity to pay and take corrective action) and (ii) the basic instalment scheme/TPC to adjust the market-based interest rates and suspend until end-2017 third-party verification and bank guarantee requirements.
    • adopt legislation to accelerate de-registration procedures and limit VAT re-registration to protect VAT revenues and accelerate procurement of network analysis software; and provide the Presidential Decree needed for the significantly strengthening the reorganisation of the VAT enforcement section in order to strengthen VAT enforcement and combat VAT carousel fraud. The authorities will submit an application to the EU VAT Committee and prepare an assessment of the implication of an increase in the VAT threshold to €25.000.
    • combat fuel smuggling, via legislative measures for locating storage tanks (fixed or mobile);
    • Produce a comprehensive plan with technical assistance for combating tax evasion which includes (i) identification of undeclared deposits by checking bank transactions in banking institutions in Greece or abroad, (ii) introduction of  a voluntary disclosure program with appropriate sanctions, incentives and verification procedures, consistent with international best practice, and without any amnesty provisions (iii) request from EU member states to provide data on asset ownership and acquisition by Greek citizens, (iv) renew the request for technical assistance in tax administration and make full use of the resource in capacity building, (v) establish a wealth registry to improve monitoring.
    • develop a costed plan for the promotion of the use of electronic payments, making use of the EU Structural and Investment Fund;
    • Create a time series database to monitor the balance sheets of parent-subsisdiary companies to improve risk analysis criteria for transfer pricing

     
    7. Financial sector
     
    Adopt: (i) amendments to the corporate and household insolvency laws including to cover all debtors and bring the corporate insolvency law in line with the OCW law; (ii) amendments to the household insolvency law to introduce a mechanism to separate strategic defaulters from good faith debtors as well as simplify and strengthen the procedures and introduce measures to address the large backlog of cases; (iii) amendments to improve immediately the judicial framework for corporate and household insolvency matters; (iv) legislation to establish a regulated profession of insolvency administrators, not restricted to any specific profession and in line with good cross-country experience; (v) a comprehensive strategy for the financial system: this strategy will build on the strategy document from 2013, taking into account the new environment and conditions of the financial system and with a view of returning the banks in private ownership by attracting international strategic investors and to achieve a sustainable funding model over the medium term; and (vi) a holistic NPL resolution strategy, prepared with the help of a strategic consultant.
     
    8. Labour market
     
    Launch a consultation process to review the whole range of existing labour market arrangements, taking into account best practices elsewhere in Europe. Further input to the consultation process described above will be provided by international organisations, including the ILO. The organization and timelines shall be drawn up in consultation with the institutions. In this context, legislation on a new system of collective bargaining should be ready by Q4 2015. The authorities will take actions to fight undeclared work in order to strengthen the competitiveness of legal companies and protect workers as well as tax and social security revenues.
     
     
    9. Product market
     
    Adopt legislation to:
     

    • implement  all pending recommendations of the OECD competition toolkit I, except OTC pharmaceutical products,  starting with: tourist buses, truck licenses, code of conduct for traditional foodstuff, eurocodes on building materials, and all the OECD toolkit II recommendations on beverages and petroleum products;
    • In order to foster competition and increase consumer welfare immediately launch a new competition assessment, in collaboration and with the technical support of the OECD, on wholesale trade, construction, e-commerce and media. The assessment will be concluded by Q1 2016.The recommendations will be adopted by Q2 2016.
    • open the restricted professions of engineers, notaries, actuaries, and bailiffs and liberalize the market for tourist rentals ;
    • eliminate non-reciprocal nuisance charges and align the reciprocal nuisance charges to the services provided;
    • reduce red tape, including on horizontal licensing requirements of investments and on low-risk activities as recommended by the World Bank, and administrative burden of companies based on the OECD recommendations, and (ii) establish a committee for the inter-ministerial preparation of legislation. Technical assistance of the World Bank will be sought to implement the easing of licensing requirements.
    • design electronic one-stop shops for businesses through analysing information obligations businesses have to comply with, structuring them accordingly and helping to design a project on developing the necessary ICT tools and infrastructure (Q3 2015). Setting up the institutional & co-ordination structure, identification of the business life events to be included, identification and mapping of information obligations & administrative procedures and training of officials (Q4 2015). Launch (Q1 2016)
    • adopt the reform of the gas market and its specific roadmap, and implementation should follow suit.
    • take irreversible steps (including announcement of date for submission of binding offers) to privatize the electricity transmission company, ADMIE, or provide by October 2015 an alternative scheme, with equivalent results in terms of competition, in line with the best European practices to provide full ownership unbundling from PPC, while ensuring independence. 

     
    On electricity markets, the authorities will reform the capacity payments system and other electricity market rules to avoid that some plants are forced to operate below their variable cost, and to prevent the netting of the arrears between PPC and market operator; set PPC tariffs based on costs, including replacement of the 20% discount for HV users with cost based tariffs; and notify NOME products to the European Commission. The authorities will also continue the implementation of the roadmap to the EU target model prepare a new framework for the support of renewable energies and for the implementation of energy efficiency and review energy taxation; the authorities will strengthen the electricity regulator’s financial and operational independence;
     
     
    10. Privatization

    • The Board of Directors of the Hellenic Republic Asset Development Fund will approve its Asset Development Plan which will include for privatisation all the assets under HRDAF as of 31/12/2014; and the Cabinet will endorse the plan.
    • To facilitate the completion of the tenders, the authorities will complete all government pending actions including those needed for the regional airports, TRAINOSE, Egnatia, the ports of Pireaus and Thessaloniki and Hellinikon (precise list in Technical Memorandum). This list of actions is updated regularly and the Government will ensure that all pending actions are timely implemented.
    • The government and HRADF will announce binding bid dates for Piraeus and Thessaloniki ports of no later than end-October 2015, and for TRAINOSE ROSCO, with no material changes in the terms of the tenders.
    • The government will transfer the state's shares in OTE to the HRADF.
    • Take irreversible steps for the sale of the regional airports at the current terms with the winning bidder already selected."

    *  *  *

    And the market being incapable of comprehending that this will never be passed by either The Troika or The Greek government explodes higher…

  • Jade Helm Alert: Military Denies Media Requests To Cover "Texas Takeover"

    Between Greece’s tragic, Berlin-mandated descent into the Third World and the epic meltdown in China’s equity markets, it would be easy to forget that the US government is (re)annexing Texas next week. 

    For those unaware (or for anyone who might have lost track of the US Spec Ops schedule), the military is set to kick off Jade Helm 15 next Wednesday, which means the Lonestar lockdown is less than one week away. If you’re unfamiliar with the operation, here are the barebones basics:

    Jade Helm is an eight-week joint military and Interagency Unconventional Warfare exercise conducted throughout Texas, New Mexico, Arizona, California, Nevada, Utah and Colorado. Essentially, from July 15 to September 15 some military personnel are going to take a trip out west and pretend like they are conducting covert operations overseas. 

    On the surface, that doesn’t sound too exciting, but thanks to some very unfortunate wording in an official US military slide deck and an even more unfortunate map which designates Texas as “hostile” territory (of course the same map also identifies San Diego as harboring a militant insurgency, so the US Spec Ops Command probably assumed it wouldn’t be taken literally) quite a few Texans came to believe that the federal government was up to no good with Jade Helm. 

    The situation quickly spiraled out of control and became a veritable media circus after Texas governor Greg Abbott called up the state guard and “Texas Ranger” Chuck Norris pledged to defend the state from a Navy SEAL incursion. Topping it off was former Texas lawmaker Todd Smith — a 16-year veteran of the Texas House of Representatives and self-proclaimed Last of the Fact-Based Republican Mohicans — who, in a letter to Abbott, suggested that anyone who was suspicious of the federal government’s intentions in the state was a “hysterical idiot.” 

    With just six days to go until the government begins the exercise, expect the rumor mill to come alive because as The Washington Post reports, the media will be given no access to the drills. Here’s more: 

    Jade Helm 15, the controversial Special Operations exercise that spawned a wave of conspiracy theories about a government takeover, will open next week without any media allowed to observe it, a military spokesman said.

     

    Embedded reporters won’t be permitted at any point during the exercise, in which military officials say that secretive Special Operations troops will maneuver through private and publicly owned land in several southern states. Lt. Col. Mark Lastoria, a spokesman for Army Special Operations Command, said his organization is considering allowing a small number of journalists to view selected portions of the exercise later this summer, but nothing is finalized.

     

    “All requests from the media for interviews and coverage of U.S. Army Special Operations Command personnel, organizations and events are assessed for feasibility and granted when and where possible,” Lastoria said in a statement released Wednesday to The Washington Post. “We are dedicated to communicating with the public, while balancing that against the application of operations security and other factors.”

     

    The exercise is scheduled for July 15 through September 15 and is expected to include more than 1,200 troops. Army Special Operations Command announced the exercise in March, saying its size and scope would set it apart from most training exercises. For months, some protesters have said Jade Helm is setting the stage for future martial law. 

     

    The Washington Post has several times requested access to observe the exercise, making the case to the military that first-hand media coverage would help explain the mission. Lastoria said it is not possible to allow a journalist to travel with Special Operations forces in the field, citing the isolated nature of the mission and the need to protect the identity of the forces involved.

     

    The military has granted access to Special Operations in the past, however. In one recent example, a journalist observed the exercise Robin Sage in North Carolina, writing a profile for Our State, a magazine. The exercise is considered a final test for Green Beret soldiers in training and calls for them to work through a scenario in which they organize a guerrilla force to overthrow the government of the fictional nation of Pineland.

    Got that? Basically, WaPo reasons that because one Kevin Maurer (reporting for OurState.com) was allowed to observe the imaginary overthrow of a made-up country called “Pineland” two and a half years ago in “backyard theaters of war across central North Carolina”, the paper should be allowed to observe whatever is or isn’t going on in Texas. 

    In any event, it’s clear that the military is intent on keeping prying eyes away from Jade Helm. We’ll leave it to readers to decide what that says about government accountability and transparency. 

    And to the US Spec Ops Command we say this: just because you’ve kept the media out, doesn’t mean no one is watching…

  • Baltimore Mayor Who Cracked Down On Excessive Force Fires Police Chief For Being Too Soft On Crime

    Two competing theories have emerged as to what effect the deaths of Michael Brown, Eric Garner, Walter Scott, and Freddie Gray have had on policing in America. 

    One theory, dubbed the “Ferguson Effect,” says that police officers are now more reluctant to use force to counter illegal activity for fear of prosecution or, more poignantly, for fear of finding themselves cast as the villain that catalyzes widespread civil unrest. This effect, some say, has led to a dramatic increase in violent crime throughout the country.

    Others argue that the numbers simply do not support the idea that police have become “gun shy” so to speak. The Washington Post, for instance, cites data which shows that fatal police shootings have doubled compared to historical trends, with law enforcement now killing more than two people every day in the US. 

    While it’s possible to debate which theory more closely approximates prevailing conditions across the country, what’s not up for debate is the fact that crime has spiked in Baltimore in the months since the riots.

    Some attribute this to a dynamic similar to the Ferguson Effect, while some say it is the inevitable result of an increased supply of prescription painkillers which flooded the streets after pharmacies were looted during the city’s “purge,” but whatever the cause, Baltimore Mayor Stephanie Rawlings-Blake has had enough. Here’s more from NBC:

    Baltimore Mayor Stephanie Rawlings-Blake replaced the city’s police commissioner on Wednesday, saying the city needed to be more focused on suppressing a spike in violence in the months since the death of a man in police custody.

     

    Rawlings-Blake said the police department under Commissioner Anthony Batts had become too preoccupied with internal politics and not enough with stemming a surge in shootings and killings.

     

    “This was not an easy decision, but it is one that is in the best interest of Baltimore,” the mayor said in a late afternoon news conference. “The people of Baltimore deserve better. The brave men and women of our department who put their lives on the line to make our cities deserve better.”

     

    Baltimore, historically one of America’s most violent cities, has stumbled particularly hard, ending the first six months of the year with a 48 percent increase in homicides over the same period in 2014. That trend continued into July, with 10 killings in one week, including the shooting of three people Tuesday near the city’s University of Maryland campus.

     

    Since Gray’s death, the relationship between police and the city’s high-crime communities has suffered, making it harder for cops to patrol streets and investigate cases, officials say. Arrests have plummeted, sparking accusations of a deliberate police slowdown.

     

    From April 19 to the end of June, there were 80 homicides in Baltimore, nearly double the 42 committed during the same period last year, according to an NBC News analysis of city crime data through the first half of the year. By comparison, there were 53 homicides during that period in 2013, 48 in 2012, and 45 in 2011.

     

    The firing came a day after the police union that criticized Batts’ leadership during the riots, and Batts’ own announcement of an independent review of the riot response.

     

    “It is clear that the focus has been too much on the leadership of the department and not enough on the crime fighting,” the mayor said.

     

    Rawlings-Blake introduced Deputy Police Commissioner Kevin Davis as his temporary replacement.

     

    “This is a time of refocusing and re-energizing and going after the folks who are harming this community,” Davis said.

    The irony here, of course, is that if there’s any truth at all to the “Ferguson effect” theory (and in Baltimore there probably is) law enforcement officials might be forgiven for being a bit confused as to what exactly it is they’re supposed to be doing. 

    Obviously no one is saying that police officers should simply stop doing their jobs every time an instance of alleged misconduct serves to put law enforcement under a microscope. That said, something seems a bit odd about instructing police to stand down in the middle of a riot one day and then firing the police commissioner for being too passive barely two months later. 

  • When The Going Gets Tough, The Feds Take Your Money

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

    Cash is King

    LONDON, England – “Cash is king.”

    So sayeth the Wall Street Journal, reporting on the situation in Greece. The use of cash for everyday transactions has increased 44% in the last two months.

    A brief update: The Greeks spoke on Sunday. “No,” they said. “We don’t want the government-spending cuts our creditors are demanding.”

     

    CashIsKing_1

     

     

    Then the finance minister resigned, riding off on a motorcycle. Today, the Financial Times reports that the Greeks are to be given one “last chance to avoid crashing out of single currency.”

    Greek output is plunging. The banks are running out of money. And Greeks are lining up at ATMs. The government won’t let them take out more than a lousy €60 ($65) a day.

     

    greece-gdp-growth

    Greece: aborted recovery

     

    greece-corruption-index

    The only data point that is in an upward trend again since the change in government is the corruption index.

     

    An Important Breakthrough

    A fascinating article recently described how ride-sharing app Uber had “solved the major problem of capitalism.” What is the problem?

    “Trust.”

    There are millions of cars on the road. Most of them have four seats, but only one of the seats is usually occupied. And many of these private drivers would be happy to take you where you want to go, for less than what a taxi would charge.

    But you don’t get into those cars. You were told as a child never to get into a stranger’s car. You don’t know which of them you can trust to take you where you want to go.

    London’s black cabs solve the trust problem with a distinctive design and regulation. Drivers must pass the city’s legendary training course, “The Knowledge,” to get their license. When you get into a London cab, you have a high level of confidence that you will get where you are going in a professional manner.

    Uber solves the problem of trust in a different way – with an Internet-based rating system. Riders rate drivers out of five stars. Drivers rate passengers the same way. Both avoid folks with poor ratings.

     

    uber_screen_caps

    Uber app screen capture: riders are invited to rate drivers, using a 5 star system. Drivers with a rating of less than 4.6 are at risk of deactivation. The vast majority of Uber drivers has ratings between 4.7 to 4.8

     

    But capitalism made a much bigger breakthrough on the trust front thousands of years ago: It invented cash. Before modern money, transactions weren’t based on barter, as most people believe. Instead, they were based on a system of rudimentary credit.

    Without cash, you could trade only in a small group. And you had to rely on memory to recall who owed what to whom. With the advent of coinage you could trade with people you didn’t know. You gave up something. You got something – cash – in return. You could then use this cash to trade for something else later.

    This invention – money, usually based on gold or silver – was such a breakthrough, it made today’s elaborate market economies possible.

     

    silver stater

    One of the oldest coins in the world: a silver stater from the Kingdom of Lydia, led by the legendary King Croesus.

     

    Trust Is Disappearing

    But it’s only cash if you can put your hands on it. As the Greeks have just discovered, money in the bank is not cash. Cash is what you need when trust breaks down. With cash, you get optionality, as The Black Swan author Nassim Taleb puts it.

    With cash in your pocket, you can buy a gallon of gasoline or a share in a public company. It’s yours. You can do what you want with it. But cash in the bank?

    You don’t know. You have to trust that the system works… that the bank is solvent… and that it will give you back your money when you want it. Trust is rapidly disappearing in Greece. The Germans don’t trust the Greeks. The Greeks don’t trust the banks. Almost nobody trusts the government.

    What a great show! And very instructive.

    Cash is king in China, too. Chinese stocks paused yesterday after a three-week crash.  The government is doing all it can, say the state-run newspapers. But investors are wondering: Can they trust the Chinese feds to stem the bleeding?

    A Hong Kong-based fund manager is quoted as saying: “I believe the Communist party still has the final say over the stock market, even nowadays.”

    But wait, if government could stop market corrections, why do we ever have them? We don’t know. But there are times to trust… and times to distrust. There are times to own financial assets. And there is a time to own cash.

    This seems like a good time for cash …

     

    greek-greece-bank-atm-line-queue-6

    The time of deflationary confiscation is coming closer for the remaining Greek bank depositors. Those who kept their cash in safe deposit boxes at banks are out of luck too: the government has decreed they may not take it out. This is something one needs to keep in mind – if one wants to keep cash outside the banking system, one cannot leave it in a bank safe deposit box either. The government will confiscate it when push comes to shove and the banks need to be rescued.

    Photo credit: Reuters

  • Even The Economist Is Now Mocking Central Planning

    Buying stocks “is buying the Chinese Dream,” proclaimed a top brokerage after officials ‘promised’ a centrally-planned bull market for the on-the-verge-of-social-unrest-after-real-estate-collapse population… but instead they have lured them into a bear trap.

     

    Even The Economist sees the irony… as yet another centrally-planned market economy scars a generation of investors…

     

    Source: The Economist

  • Free Trade Is Quantitative Easing For The Heroin Market

    Submitted by Daniel Drew via Dark-Bid.com,

    The CDC just released a grim report about heroin abuse trends in the United States. The chart looks like the Federal Reserve's balance sheet. The report states, "During 2002-2013, heroin overdose death rates nearly quadrupled in the United States, from 0.7 deaths to 2.7 deaths per 100,000 population, with a near doubling of the rates from 2011-2013."

    Heroin Abuse

    As with any data point, there is usually a key subset group that drives the trend. The CDC elaborates,

    During 2002-2011, rates of heroin initiation were reported to be highest among males, persons aged 18-25 years, non-Hispanic whites, those with an annual household income below $20,000, and those residing in the Northeast.

    So the growing heroin epidemic is being driven by poor white millennial men living in the northeast, an area that includes the rust belt, where a once thriving manufacturing industry was decimated by free trade policies like NAFTA.

    Manufacturing Employees

    And it's not just a manufacturing industry issue. There simply are not enough jobs to go around.

    Job Shortage

    Meanwhile, Jeb Bush is making $500,000 from healthcare investments while criticizing the government policies that made those profits possible. This all seems like good investment strategy: Convince everyone that "free trade" is good, take their jobs, make them desperate enough to become heroin addicts, and then take the last bit of their money by profiting from their drug-related healthcare expenses. For some reason, the average person always seems to come out on the wrong side of quantitative easing.

  • Chart Of The Day: Bulls Better Hope It's Different This Time

    If earnings are the mother’s milk of stock bull markets, then the endless supply of talking heads bloviating on the next leg of the stock market rally being driven by a post Q1 renaissance in earnings growth (ever ready to pull out their hockey-stick forecasts) may want to look away from the following chart…

     

     

    Despite 22 years of correlations (and obvious causations), asset-gatherers and commission-takers still think this time is different and channel-stuffing and ‘if we build it, they will come’ inventory overbuilds will be bought away in a swarm of freshfaced crappy creditworthiness consumers… not this time – as peak debt is now upon us.

  • A Union Divided: "More Europe" Means "More Germany"

    The tense division in Europe's union are becoming increasingly evident. Between Greece's "no" vote, yesterday's EU Parliament outbursts, and today's German parliament commentary it is clear that, as Bloomberg reports, the centerpiece of Merkel’s cure for Europe – fiscal retrenchment – has catalyzed her in the eyes of many as despite her calm but firm entreaties, an economic bully. “The lesson of this crisis is more Europe, not less Europe,” Angela Merkel said in 2012 as the integrity of the region’s monetary union was threatened by financial instability, but many, like Greece, have come to understand "more Europe" means something different: "more Germany."

     

    As Bloomberg reports,

    “The lesson of this crisis is more Europe, not less Europe,” Angela Merkel said in 2012 as the integrity of the region’s monetary union was threatened by financial instability, touched off by Greek debt, that was spreading through the euro zone’s weaker economies. By “more Europe,” the German chancellor meant a deepening of the continent’s noble mission—peaceful integration to ensure prosperity and democracy—of which the common currency, the euro, is the ultimate symbol.

     

    In the intervening three years, Greeks have come to understand “more Europe” as something different: “more Germany.” That was one of the few clear messages sent in a referendum on July 5 that had everything to do with Greek voters’ views on how Merkel had imposed her vision of Europe on the zone and if their troubled nation would be better served as part of its grand project, or not.

    The centerpiece of Merkel’s cure for Europe was fiscal retrenchment.

    It was an almost maniacal drive for reduced budget deficits and debt levels—the targets for which were already enshrined in euro zone agreements—combined with reforms to labor markets and welfare programs. Merkel believed that such policies would strengthen the euro zone’s financial position and competitiveness. The medicine may be bitter, but in the end, like an ailing patient, Europe would rise from its sickbed with renewed vigor.

    The result has been stagnation.

    Merkel’s insistence on a hard line isn’t masochism, just politics. One poll released in early July showed that 85 percent of Germans surveyed opposed making concessions to Greece. Merkel has faced resistance to a softer line from within her ruling coalition. Amid the recent bailout negotiations, one lawmaker from Merkel’s Christian Democratic Union derided the euro zone’s policy toward Greece as a “financial carousel.” Her hard-nosed finance minister, Wolfgang Schaüble, once said that Greece “cannot be a bottomless pit.” Such attitudes are fostered by a widespread perception among Germans that Greece is unworthy of their aid. “NEIN,” blasted a headline in the tabloid Bild earlier this year. “No more billions for greedy Greeks!” it insisted. Even the referendum results produced little sympathy. Shortly after the vote, Georg Fahrenschon, head of the association of German savings banks, said “the Greek people have spoken out against the foundations and rules of the single currency bloc.”

     

    Such sentiments have hindered efforts to tackle the crisis from the start.

    That German view—the euro zone’s problems aren’t of Germany’s making—has dictated Berlin’s approach toward the crisis. Merkel has played the unrelenting taskmaster, treating her beleaguered neighbors not as partners, but as spoiled children who could be set right only by the rod.

    Last year, French President François Hollande and Italian Prime Minister Matteo Renzi advocated greater flexibility in the austerity program to promote job creation. “If everyone does austerity, we’ll have even slower growth,” Hollande groused in October. Merkel would have none of it. “We have had times in Europe with very high deficits and yet no growth, so we must learn from the past,” she said. When some European leaders proposed “eurobonds,” instruments backed by the zone to ease financing costs on individual states, Merkel rejected the idea.

     

    Even the IMF, in a June report on Greece’s finances, deemed the country’s debt load “unsustainable” and recommended relief. Merkel accepted only minor concessions to bailout demands, insisting that the Greeks impose further tax hikes and public spending cuts. She labeled her offer “generous.”

    Is it any wonder, then, that the Greeks said no?

    They may be only the first. Joblessness and recession have persuaded other voters in Europe to seek a new course. Gaining popularity in Spain, where unemployment is 22.5 percent, is the leftist political movement Podemos, which also seeks a fairer deal from the rest of Europe. “The problem isn’t Greece, the problem is Europe,” Podemos’s chief, Pablo Iglesias, said in late June. In Italy, Beppe Grillo, leader of the anti-establishment Five Star Movement, called for a referendum to decide if Italy should remain in the monetary union.

    Europe’s leaders characterized a no verdict in the Greek referendum as a vote against the idea of Europe. In fact, the resounding no was a vote against the existing harsh reality of membership in present-day Europe.

    As Bloomberg concludes, unless Europeans act as partners in their grand quest for solidarity, they will end up with less Europe, not more.

     

  • 3 Things: Correction, Interest Rates & Oil Prices

    Submitted by Lance Roberts via STA Wealth Management,

    Stocks: Is It Over Yet?

    While yesterday's suspension of trading on the New York Stock Exchange drew attention to the plunge in equity prices, the reality is that stocks have been in a correction since the all-time highs posted back in May. Of course, until yesterday's headlines, you may not have realized that the correction was in process as it has been "as slow as a turtle running in peanut butter."

    As Michael Kahn wrote at Barron's yesterday:

    "After months of sideways action and false moves, the Standard & Poor's 500 finally scored a true technical breakdown. It moved below the pattern that had held it in check since February, taken out the May low, and now dipped below the more important 200-day moving average for the second day in a row.

     

    In technical circles, the positive reversal of fortune left sizable 'hammers' on Japanese candlestick charts. In candle-speak, the market is hammering out a bottom and after a two-month slide it did look that it was time for a rebound. But as with many chart patterns, confirmation in the form of upside follow-through was needed to prove that the market had found a floor. That was not to be"

    The first chart is a DAILY chart of the S&P 500 index. The black dashed line is the 150-day moving average that has acted as primary support for the bull market advance (with the exception of the post QE3 end tantrum in October) since December, 2012. Importantly, after the markets failed to maintain its bullish consolidation (rising red dashed line) that began earlier this year, the subsequent breakdown found support at the long-term bullish trend. Unfortunately, the oversold bounce failed at the previous bullish consolidation support line, turned down and broke through the long-term bullish trend.

    Unlike the break of the long-term bullish trend in October of last year, which quickly recovered and scored new highs, that has not been the case as late. Each attempt to break back above the long-term bullish trend has failed so far.

    SP500-Daily-TechnicalAnalysis-070915

    If we slow the price volatility down by looking at a WEEKLY chart, a very similar pattern emerges. The bullish market consolidation, long-term supports, and the recent breakdown are all evident. It is also worth noting that a majority of indicators are registering a "sell signal" which suggests that, at least in the near term, prices are likely headed lower.

    SP500-Weekly-TechnicalAnalysis-070915

    As shown in both charts above, the 2040 level is currently acting as critical support for the market. If the bull market cycle is to continue, the market must hold that level and move to new highs very soon. Another failure at lower highs, as in June, will confirm the current downtrend and suggest lower price levels in the not so distant future. Michael makes a good point on this:

    "In the past, any time the Fed assured the market it would not rush to raise rates, stocks benefited. Banks are telling us now that may not be true anymore. Weak fundamentals, rather than low interest rates, may be the driver over the coming months.

     

    The question for investors is whether this is a correction or the end of the cyclical bull market that began in 2009. Unfortunately, the answer is still not known although it is very likely that cash should be an important part of any portfolio at this time."

    I agree with that statement. I am not suggesting that investors become overly defensive in portfolio allocations currently. The market is getting oversold on both a short and intermediate term basis which provides the "fuel" for a reflexive bounce. That rally should likely be used to rebalance portfolio allocations, reduce aggressive "risk" postures and raise some cash to hedge against further turmoil until markets provide a more stable investment environment.

    At least things are starting to get interesting.

    Like I Said, Rates Aren't Going Anywhere

    I have consistently pushed back against the mainstream notion that longer-term interest rates were going to rise simply because the economic underpinnings do not support higher rates. To wit:

    "With economic growth running at exceptionally low rates, along with inflationary pressures and monetary velocity, interest rates will remain range-bound at low levels for quite some time. This is simply because interest rates are a reflection of the demand for credit over time, in weak economic environment higher rates cannot be sustained."

    Interest-Rates-050815

    "Therefore, the recent uptick, as recommended in last weekend’s newsletter, is now a buying opportunity for bonds."

    What perplexes me about the mainstream media is that while they focus on every facet of trading the market in stocks, they give little notice to the investing side of fixed income.

    As investors, we buy stocks because we think that the overall market is going to rise. This is why we benchmark our portfolio to some nebulous index that has absolutely nothing to do with our specific risk tolerances, goals and, most importantly, time horizons. However, just as the stock market index is used to gauge levels of "risk" exposure in stocks, interest rates provide exactly the same analysis for fixed income.

    The chart below, which I often discuss in the free weekly e-newsletter, shows the technical trading model for fixed income in portfolios.

    InterestRates-Weekly-TechnicalAnalysis-070915

    The circles highlight periods when interest rates have become extremely overbought or oversold. Unlike the stock market, interest rates have an inverse relationship to bond prices (as interest rates rise, bond prices fall) therefore, when rates are overbought, bonds are oversold and should be bought.

    Note: This analysis is less important if you are buying individual bonds and holding them until maturity. However, for the majority of investors that are using bond funds and bond ETF's, this analysis becomes critically important especially in navigating a long-term sideways trading range for rates going forward. (Read this for reasoning why rates are stuck over the next decade.)

    As shown above, the recent move higher in interest rates was simply a bounce from the extremely oversold levels witnessed at the beginning of this year when rates fell to 1.7%. However, despite the media's ongoing calls that the "great bond bull" was dead, the reality is that rates completed a very traditional 61.8% retracement of decline from April of last year.

    Given the current weakness in economic data, the overbought condition in rates currently, and the rising issues in China, it is highly likely that rates will potentially retest their lows by the end of this year. Regardless, investors need to start paying attention to the developing trading range of interest rates in the future.

    Oil Prices & Energy Stocks

    Besides interest rates, I also cover oil and energy prices on a regular basis in the weekly e-newsletter. Two week's ago I stated the following:

    "There are very few signs that the drop in oil prices, and subsequent pain to energy-related investments is over. As shown in the chart below, there is still a significant divergence between energy-related investments and the underlying commodity price. These two will likely reconnect at some point in the future as oil prices drop towards the high 40's potentially later this summer.

     

    Secondly, energy related investments have experienced the first of most likely several 'dead cat' bounces that will plague energy investments into the near future. There is still WAY too much exuberance due to "recency bias" to make energy a viable investment opportunity longer term. More pain in the sector will be required to flush out speculators before longer term investments can be made. There will be a good opportunity in the future, it most likely isn't now."

    The chart below shows the previous high correlation, as would be expected, between energy stocks and oil prices. The divergence in early 2014 is what prompted my call then to begin reducing exposure to energy stocks. While energy stocks are attempting to complete a 61.8% retracement and hold some level of support, the gap between oil prices and energy-related investments has yet to be filled.

    Oil-Weekly-TechnicalAnalysis-070915

    There is still a significant amount of unwinding left in the energy space as production is still far outstripping demand. If the collapse in China continues, it is possible that oil prices could drop into the low $40's putting additional pressure on energy company related earnings.

    Furthermore, exuberance is still high. Great buying opportunities come when the markets become convinced that oil prices and energy companies are "eternally dead." We are not there just yet.

  • Nobel Prize-Winning Economist Demands US Taxpayers "Show Humanity & Save Greece"

    When the going gets tough, the taxed get going and that is what Nobel Prize winning economist Joseph Stiglitz thinks should happen. In a Time op-ed, Stiglitz warns (likely correctly) that if Greece continues with austerity, it would be depression without end; and so his solution is simple… "The U.S. was generous with Germany as we defeated it. Now, it is time for the U.S. to be generous with our friends in Greece in their time of need, as they have been crushed for the second time in a century by Germany, this time with the support of the troika." Strawman much?

     

    Via Time.com,

     If Greece continues with austerity, it would be depression without end

     

     

    As the Greek saga continues, many have marveled at Germany’s chutzpah. It received, in real terms, one of the largest bailout and debt reduction in history and unconditional aid from the U.S. in the Marshall Plan. And yet it refuses even to discuss debt relief. Many, too, have marveled at how Germany has done so well in the propaganda game, selling an image of a long-failed state that refuses to go along with the minimal conditions demanded in return for generous aid.

     

    The facts prove otherwise: From the mid-90’s to the beginning of the crisis, the Greek economy was growing at a faster rate than the EU average (3.9% vs 2.4%). The Greeks took austerity to heart, slashing expenditures and increasing taxes. They even achieved a primary surplus (that is, tax revenues exceeded expenditures excluding interest payments), and their fiscal position would have been truly impressive had they not gone into depression. Their depression—25% decline in GDP and 25% unemployment, with youth unemployment twice that—is because they did what was demanded of them, not because of their failure to do so. It was the predictable and predicted response to the austerity.

     

    The question now is: What’s next, assuming (as seems ever more likely) they are effectively thrown out of the euro? It’s likely that the European Central Bank will refuse to do its job—as the Central Bank for Greece, it should do what every central bank is supposed to do, act as a lender of last resort. And if it refuses to do that, Greece will have no option but to create a parallel currency. The ECB has already begun tightening the screws, making access to funds more and more difficult.

     

    This is not the end of the world: Currencies come and go. The euro is just a 16-year-old experiment, poorly designed and engineered not to work—in a crisis money flows from the weak country’s banks to the strong, leading to divergence. GDP today is more than 17% below where it would have been had the relatively modest growth trajectory of Europe before the euro just continued. I believe the euro has much to do with this disappointing performance.

     

    Managing the transition from the euro to the Greek euro may not be easy, but Argentina and others have shown how it can be done. The government would recapitalize the banks in the new currency, continue with capital controls, restrict bank withdrawals, and facilitate the transfer of money within the banking system from one party to another. The money inside the banking system would be slightly discounted (i.e. worth slightly less than cash—in the case of Argentina, the discount was a few percentage points for ordinary transactions). Pensioners would need to get special treatment.

     

    Meanwhile, Greece would begin the process of debt restructuring: Even the IMF says that it’s absolutely necessary. The Greeks might take a page from Argentina, exchanging current bonds for GDP-linked bonds, where payments increase with Greece’s prosperity. Such bonds align the incentives of debtors and creditors (unlike the current system, where Germany benefits from the weaknesses in Greece).

     

    Greece can easily survive without the funds from the IMF and the eurozone. Greece has done such a good job of adjusting its economy that, apart from what it’s paying to service the debt, it has a surplus. It isn’t even dependent on the IMF and the eurozone for foreign exchange: At least before the most recent stranglehold that Greece’s creditors had imposed, it was running a current account surplus of 1%—5% if we exclude oil exports. (What it was buying abroad in imports was 1% less than what it was selling in exports.) Especially if oil prices remain low, and if its lower “new” exchange rate attracts more tourists and encourages exports, it can weather the storm.

     

    After Argentina restructured its debt and devalued, it grew rapidly—the fastest rate of growth around the world except for China—from its crisis until the global financial crisis of 2008. Every country is different. Economists debate about how responsive exports and imports are to changes in exchange rates. Argentina benefited from a large increase in exports as a result of the commodity boom. There are, however, some striking similarities: Both countries were being strangled by austerity. Both countries under the IMF programs saw rising unemployment, poverty, and immense suffering. Had Argentina continued with austerity, there would have just been more of the same. The Argentina people rose up and said no. So, too, for Greece: If Greece continues with austerity, it would be depression without end.

     

    The U.S. was generous with Germany as we defeated it. Now, it is time for the U.S. to be generous with our friends in Greece in their time of need, as they have been crushed for the second time in a century by Germany, this time with the support of the troika. At a technical level, the Federal Reserve needs to create a swap line with Greece’s central bank, which—as a result of the default of the ECB in fulfilling its responsibilities—will have to take on once again the role of lender of last resort. Greece needs unconditional humanitarian aid; it needs Americans to buy its products, take vacations there, and show a solidarity with Greece and a humanity that its European partners were not able to display.

    *  *  *

    How long before this strawman becomes policy? What we have been told is a storm in a teacup by every asset manager under the sun now appears to be paniccing policymakers on both sides of the pond.

    • *U.S. WANTS TO SEE GREECE WORK ISSUES OUT WITH CREDITORS: KIRBY
    • *U.S. WANTS TO SEE DEBT SUSTAINABILITY IN GREECE: KIRBY
    • *LEW SAYS GREECE'S DEBT IS NOT SUSTAINABLE
    • *LEW: THERE IS STILL SOLUTION AVAILABLE IN GREECE

     

  • Bonds Thumped, Stocks Pump-n-Dump'd As Grexit Fear Tops China Cheer

    Today summed up…

    What started out so well… ended not so well… Some Malicious People Sold!!!

     

    Because today's rally was predicated on this!!!!

    Cash indices opened at the highs of the day and never looked back as the algos lifted The Dow green for the week for a few seconds of stop running… CNBC's Kelly Evans seriously said "We are finishing off the hghs today"…!!

     

    On the week, Nasdaq is worst…

     

    It's called Central Planning for a reason – crucially every attempt was made to keep S&P above 2055.93 (200DMA) and Dow above 17695 (200DMA) – IT FAILED!!!

     

    AAPL appeared to mini flash crash late on with very heavy volume (maybe China weakness and iWatch disaster is weighing?)… and had an ugly day… AAPL is nearing its 200DMA at 118.72

     

     

    Greek stock ETFs ramped today as did European stocks (thanks to SNB's helping hand) but Greek bonds traded for the first time in 2 weeks and it was ugkly…

     

    Something snapped at the US Open – The dollar rallied and US Stocks and Bonds were dumped…

     

    Treasuries were sold from the close last night and the dumping accelerated as US opened and once again after the weak 30Y auction… This was the 2nd worst day for 30Y yields since Nov 2013…+13bps

     

    The USDollar flatlined through Asia then dipped and ripped on Europe's open…

     

    As yet again SNB smashed swissy lower, buying USDs and enabling the ramp…

     

    Despite the dollar strength, commodities all gained on the day…

     

    Charts: Bloomberg

    Bonus Chart: It's different for now…

  • What Happens Next In Greece (In 2 Simple Charts)

    Over the course of six painful months, negotiations between Athens and Brussels have produced innumerable “deadlines”, “ultimatums”, and “last chance” summits, none of which have produced a lasting deal or a Grexit. In fact, until the deposit outflows started to accelerate and Greek PM Alexis Tsipras took the dramatic step of putting creditors’ proposal to a popular vote, many observers were beginning to lose interest, perhaps believing that the farce might just continue indefinitely. 

    This Sunday however, is being billed as the day; the deadline to end all deadlines and the very last chance for Athens to remain in the EMU. Meanwhile, pressure on Tsipras — who, according to The Telegraph, likely thought he would be drinking beer with Varoufakis over quiet lunches by now — is building from both sides, with far-left Energy Minister Panagiotis Lafazanis swearing that the “referendum ‘no’ vote is not going to become a humiliating ‘yes'”, and Germany showing few signs of weakness. The intractable nature of the situation was brought into sharp relief earlier when MNI described Tsipras’ “new” proposal which, by all appearances, looks as though it will be unacceptable to Germany and to the harlinders within Syriza.

    In an effort to help cut through the confusion, we you bring you the following two graphics which shed some light on what lies ahead regardless of what transpires between now and Monday.

    From Deutsche Bank:

    From Bloomberg:

Digest powered by RSS Digest

Jul 09

Today’s News July 9, 2015

  • Utter Desperation: Chinese Police Vow To Arrest "Malicious Short Sellers"

    In what can only be described as total and utter desperation, China's Public Security Ministry and China Securities Regulatory Commission are discussing a plan to take action against "hostile short sellers"… (via Google Translate)

    [ Ministry of Public Security in conjunction with the recent Commission investigation of malicious short stock and stock index clues ] correspondent was informed on the 9th morning , Vice Minister of Public Security Meng Qingfeng led to the Commission , in conjunction with the recent Commission investigation of malicious short stock and stock index clues show regulatory authorities to the operation of heavy combat illegal activities .

    Which in English means…

    However, it appears thety are going to need to do more…

    *  *  *

    Just one question: Will the police also arrest the brokers who allowed their clients to lever up to extremes with no awareness of risk, encouraged by the government, buying the stocks of companies that make plastic umbrellas at x-thousand P/E multiples?

    *  *  *

     

     

    As we detailed earlier, China is a $hitshow again…

    With more than half of Chinese stocks halted or suspended, traders are scrambling to hedge the potential vacuum under prices when (or if) they ever open again. With options limited to non-existent in China, ETFs around the world are under pressure (with significant discounts to NAV everywhere). The cost of protecting against significant downside is now at its highest on record and the skew (difference between optimists and pessimists) has never been higher… This 'protection' has seemingly relieved some of the vicious cycle selling as yet another round of financing to backfill liquidity holes in broker balance sheets, but Chinese stock futures are trading 2-3% lower in the pre-open (less than might be expected as much driven by margin hike forced unwinds as much as sentiment).

    • *CHINA'S CSI 300 STOCK-INDEX FUTURES FALL 2.9% TO 3,363
    • *CHINA'S SHANGHAI COMPOSITE INDEX SET TO OPEN 2.1% LOWER

     

    Pushing CSI-300 Index into the red for 2015…

     

     

    *  *  *

    But have no fear…

    Another day, another round of liquidity poured into the leverage black hole…

    • *CHINA SEC. FINANCE AIMS TO OFFER LIQUIDITY TO FUND COS.: CSRC
    • *PBOC TO INJECT 35B YUAN WITH 7-DAY REVERSE REPOS: TRADER

    And the politburo is getting serious!!

    • *CHINA CBRC SUPPORTS BANKS TO COOPERATION WITH CHINA SEC FIN
    • *CBRC ENCOURAGES BANKS TO COOPERATE WITH CHINA SEC. FINANCE
    • *CBRC ENCOURAGES BANKS TO OFFER FINANCING TO CHINA SEC. FINANCE
    • *CHINA CBRC TO SUPPORT STABLE STOCK MARKET DEVELOPMENT
    • *CBRC ENCOURAGES BANKS TO ADJUST LOANS TERMS WITH STK COLLATERAL
    • *CHINA CBRC ENCOURAGES BANKS TO HELP FINANCE STK REPURCHASES

    Next come the orders on pain of death!!??

    And then there's this…

    • *HAITONG SECURITIES SLUMPS 16.6% IN H.K. AFTER SHR BUYBACK PLAN

    That's not what is supposed to happen!!!

    But traders have been extremely active in their hedging…

    Crash risk has never been more expensive…

     

    While At-the-Money Vol has spiked to 4-year highs…

     

    Overnight saw Flash Crash come to China…

    Selling pressure is heavy on the ETFs with all major China ETFs trading well below their NAV (ASHR 4.6% below!!)

    And if you thought it was time to BTFD… consider this…

    Chinese stocks are still extremely rich relative to the rest of the world.

    *  *  *

    We have one simple question.

    How do say "unleash the Bullard" in Chinese?

    Charts: Bloomberg

  • Preparedness Critics Are History's Cannon Fodder

    Submitted by Brandon Smith via Alt-Market.com,

    The world is entering a kind of no man’s land, in between the realms of insane denial and utterly obvious crisis. Europe is now destabilizing amid the Greek soap opera (an event that I predicted in January would occur in 2015); China’s stock market bubble is bursting; and the U.S. dollar’s world reserve status is about to be decimated by the global shift toward the International Monetary Fund’s basket currency reserve system. I’m afraid I’m going to have to say this because I don’t know if anyone else will admit it: Alternative economic analysts were right, and the mainstream choir was either terribly wrong or disgustingly dishonest. However, as most of us in the liberty movement are well aware, being right is not necessarily a solution to disaster.

    At the forefront of alternative economics and constitutional vigilance are the people doing the real work in the movement: the preppers. These are the activists taking concrete action in the tangible world (as opposed to the ethereal laziness of the intellectual world) first to make themselves as independent as possible from the mainstream grid, thereby removing themselves as a potential refugee or looter in the event of national crisis. Second, they are the people mastering valuable and necessary skills that will allow them to rebuild any collapsed social and financial system. Third, they are the people most capable of defending our inherent freedoms and the principles of our founding culture, and they are the only people organizing locally for mutual aid and security. The fact of the matter is preppers are free, and almost everyone else is a slave — a slave to dependency, a slave to doubt, a slave to ignorance, a slave to fear and, thus, a slave to petty establishment authority.

    During the Great Depression, the vast majority of American citizens were rural, farm-oriented people with survival skills far beyond the modern American. “Prepping” in those days was ingrained in our society, rather than marginalized and labeled “fringe.” Today, the numbers are reversed, with a dwindling number of farm-experienced Americans and a vast wasteland of urban and suburban citizens — many with few, if any, legitimate skill sets. During the Great Depression, millions of people died of starvation and general poverty, despite the incredible number of people with rural survival knowledge. What do you think would happen to our effeminate; metrosexual; iPhone-addicted; lisping; limp-wristed; self-obsessed; Twitter-, texting-, video game-addled; La-Z-Boy-riding; overgrown-child culture in the event that another economic crisis even remotely similar were to occur? Yes, most of them would die, probably in a horrible fashion.

    Think about it for a moment. An incredible subsection of Americans do not know how to feed themselves; they do not know how to hunt; they do not know how to grow crops; they do not know how to repair any necessary items used for subsistence; they do not know how to build anything useful; they do not know how to shoot; they do not know how to defend themselves; they don’t even know how to cook a pot of rice properly. Their only skills involve parroting snarky remarks from their favorite lowest-common-denominator television and Web shows, building ample karma points on Reddit, and avoiding any stance contrary to what they perceive to be the majority opinion (which they also derive from mainstream media and websites).

    It is decidedly ironic given the uselessness of such people that it is often the worst subsections of the blind, deaf and dumb that choose to “critique” the prepper lifestyle as “disturbed” or “dangerous.”

    In my view, they are absolutely damned pathetic and should be looked down upon with utter contempt as the most concentrated example of slithering human misery ever to smear across the pages of history.

    But, hey, that doesn’t mean I wish them harm.

    People who are unaware and unprepared are not necessarily our enemies. At one time or another, we all were unaware of the underlying truths to our system and our future, until we woke up one day. On the other hand, there are some people who have truly evolved from the sickly and bitter bile scraped from the lower intestine of the grotesquely ignorant. These people are the anti-preppers.

    Anti-preppers are well aware of the philosophies and fact-based arguments of prepper activism; but rather than ignoring or dismissing us outright and moving on with their vapid lives, they instead seek to destroy preppers and the prepping ideal. Why? To understand that, you have to understand the nature of statists and collectivists because that it where these people root themselves and their twisted worldview.

    I recently read an article by Joshua Krause over at The Daily Sheeple in which he countered a mainstream hit piece article against preppers titled “Be prepared For preppers.” The article is itself an immensely disturbed display, first using typical and unimaginative ad hominem arguments to marginalize preppers, then mutating into a treatise on why preppers should all be exterminated.

    Krause did a fine job of dismantling the substandard and journalistically challenged propaganda essay, but I would like to go beyond the typical arguments of anti-preppers and into the mindset that drives them. I recommend you read “Be prepared for preppers” for good measure, being that it is a perfect example of the psychopathic nature of the common statist. Then, I would like to perform a little brain surgery here and peel away some layers of psyche so that you can understand why these people hate us so much.

    The Prepper Stereotype

    The sad reality is most anti-preppers I’ve dealt with in person have never even talked to a prepper face to face until they had met me. They tend to enter into an immediate debate posture with multiple assumptions in terms of what a prepper believes and how a prepper lives. This posture begins with an incredulous and sarcastic demeanor. And as they begin to realize that the prepper they are dealing with is smarter than they are, their attitude devolves into conditioned talking points and generally indignant frothing.

    Anti-preppers do not know or associate with real preppers. Rather, they derive their opinions of us from popular media, which is in most cases openly biased; episodes of “Doomsday Preppers” and other shows designed to make us look ridiculous; and Southern Poverty Law Center-influenced news articles loaded with carefully crafted slander. They rarely, if ever, confront a prepper or preppers on neutral ground and address facts or figures honestly.

    The bulk of what makes up the prepper stereotype is utter nonsense. But it reinforces the anti-prepper’s hateful inclinations, so they eat it up without question.

    They Hate Us Because Of Our Freedom

    Are anti-preppers “terrorists?” Yes, they are. It might sound harsh, but consider the attitude of the anti-prepper for a moment. He hates you because you have chosen a lifestyle that is independent from the system and ideology of which he chooses to remain a part. He hates you because you have a measure of freedom he does not have, but could have if only he had the guts to do something about it. He hates you because you do not want to participate in the meaningless game of collectivism he has spent his whole life attempting to master. He hates you because you are walking away from his system and doing your own thing. How dare you do your own thing!

    Many of us who appreciate libertarian-oriented ideals are proponents of the “non-aggression principle,” which, to summarize, states that respect for individual freedom is the paramount value of any society that seeks to sustain itself peacefully and indefinitely. Human society is not a nexus; it is not a hive. Society, if it is anything at all, is a collection of individual minds and souls acting voluntarily for the advancement the community, but never at the cost of personal liberty. Contrary to popular mainstream belief, the individual does NOT owe society a thing.

    Non-aggression requires that society will not violate personal liberty for arbitrary collective gain and that individuals will not use violence or coercion to forcefully mandate the participation of others. That is to say, you leave me to my dream and I leave you to yours. But if you try to deliberately trample my dream in order to enrich your own, I am then within my rights to bring a mighty friggin' hammer down on your skull until you leave me alone. Anti-preppers have no capacity to grasp this concept. To them, each human being is property of the larger group and defiance of the state is blasphemy.

    Such collectivists are also predictably devout followers of the religion of resource management, and often argue that preppers are in fact "horders" of resources.  Under this ideology, resources do not belong to the people who actually worked to earn them.  Rather, resources somehow belong to EVERYONE no matter how lazy they are, and must be constantly redistributed so that all people (common people, not elites) have the same exact amount.  They can never seem to define what exactly a "fair share" actually is, and I believe this is because as long as a "fair share" remains ambiguously up to them, they retain the ultimate power to take what they want whenever they want always under the rationale that yesterday you and I had enough, but today we again have too much.  The anti-prepper argument that "hording" is harmful to the collective and that all resources, even your food storage, should be managed by the group (the state), is THE propaganda model of the future.  Do not forget this because you will be seeing this propaganda take center stage very soon.

    Anti-preppers are often the kinds of social justice circus clowns that preach unerring tolerance and claim disdain for any form of discrimination, yet they are at the same time violently discriminatory against anyone who will not preach their particular collectivist gospel. The social collectivist model is by every definition a form of cultism, and in most cases the god of this cult is the state. It treats the state as an infallible omnipotent presence: mother and father, caretaker and disciplinarian.

    To refuse participation is to deny the collectivist god, and the kinds of horrors we read about of the religious zealotry of medieval Christian inquisitions pale in comparison to the death and destruction dealt by modern collectivists.

    Their worship of the state is energized by their love of its collective power – the state is the ultimate weapon to those who think they can successfully wield it.  The state has the ability to "legally" imprison and/or kill, and it has the ability to threaten such consequences against anyone who refuses to conform to the ideological whims of the people who exploit it.  Unless, that is, the victims of the state become revolutionaries.  This is the great fear of collectivists in terms of the prepper movement; they see us as potential revolutionaries that could conceivably extinguish their mechanism of control, and they don't like that one bit.

    The Psychotic Zealotry Of Anti-Preppers

    Many anti-preppers are not content only to attack the character of the prepper movement — at least, not anymore. You see, despite the rabid attempts to undermine the validity of prepping and dissuade the growth of the movement, preppers are now legion, with millions of active participants and effective alternative media experts who are dominating Web traffic and crushing traditional media into archaic bone meal. We have made the mainstream media a mainstream joke, and this does not sit well in the minds of statist adherents who once had the power to bottleneck all discussion. If we are so desperately fringe, there would be no need to write unprovoked hit pieces against us to begin with. Who are they trying to convince?

    Since they now know they cannot win the war of information, they increasingly foster fantasies of genocide. This quote (in reference to methods for solving the “prepper problem”) from the article linked above truly says it all:

    "Furthermore, consumed with the heady lust of their own unexpected survival (see any episode of The Walking Dead), and with only expired condoms at their disposal (not even Doom and Bloom stocks birth-control pills) these mouth-breathers will doubtless multiply rapidly, and, ergo, must be stopped before such an advent. That can mean only one thing: key preparation in any disaster for the rest of us (other than a map to all of Wal-Mart’s distribution warehouses) is this: be prepared to neuter preppers by any means available.

    … Not only will such noblesse oblige ensure a stronger gene pool going forward, but hey — those bastards have all the gear and food and fish antibiotics you’ll ever need."

    And there you have it: the comic book delusion of the anti-prepper, so desperate to stop us from stockpiling food and essentials, so disturbed by our local organization and ability to defend ourselves, that they would prefer to see us all “neutered,” i.e., killed. Note also the obsession with the sterilization of the gene pool as socialists in their psychotic fury often harken back to their fascist and communist forefathers.

    It is perhaps not coincidental that the people most in love with the state are often the first ones to be annihilated by it.  Avid lower echelon and middlemen agents of tyranny are in many cases exterminated by the very system they helped to dominance. If they do not meet their demise at the hands of the establishment, then they invariably meet their demise at the hands of those fighting against the establishment.

    The problem for anti-preppers is that most of them are weaklings and cowards who are incapable of carrying out their vision of a final program. They have always needed a warrior class mandated by the state to implement the killing they desire. Hilariously, this particular anti-prepper spends 80% of his article shoveling poorly written character assassinations like so much manure as if our concerns of crisis are inconsequential, then goes on to describe his idea of wiping out all preppers and stealing our supplies in the event that the system does collapse. If we are all such “kooks” and paranoid hillbillies, then why even entertain the notion of having us snuffed out so that our stores can be redistributed? Surely, such a collapse will never occur in the midst of our invincible American economy; and, thus, preppers are nothing more than harmless eccentrics wasting our money on boxes of food we won’t touch for another 20 years. Right?

    History does not support the assumptions of anti-preppers. And throughout history, anti-preparedness people tend to be the first to meet an early demise in the wake of fiscal and social collapse because they have no utility and because, frankly, no one really likes them. They also aren’t the brightest bulbs around (the guy actually thinks he’s going to find food at a Wal-Mart distribution center after a breakdown in civil order).

    Anti-preppers today are promoting violent action against preparedness culture because in the far reaches of their sickly subconscious, they know we are right and that we will not be controlled when the system breaks. These people accuse us of lusting after collapse, when it is in fact they who salivate over mass die-off scenarios in which they fantasize that they will somehow be the survivors despite the fact that they are born victims. They imagine a time when, after the “gene pool has been cleansed,” they will rebuild society as a perfect socialist utopia in which every ideology contrary to their own has been erased from all memory, leaving their ultimate prize: a blank slate world to do with as they wish.

    The goal behind the prepper movement is simple, not sinister; we seek to defuse crisis before it occurs by providing our own necessities without the need for a mainstream grid that could easily malfunction and a government that is corrupt beyond repair. If your neighbor is a prepper, be thankful, for you have one less person on your street to worry about as a potential looter during an emergency. If your neighbor is an anti-prepper, beware, for this person sees you as a potential source of supply and thinks you owe him merely because you have something he does not. The bottom line is if the world were full of preppers, there would be no such thing as crisis because there would be no lack of necessity or individual ingenuity. In the land of preppers, disaster vanishes. When was the last time an anti-prepper did anything to improve anything for anyone other than himself? Ask yourself which you would rather be in the end: ready for anything or ready for nothing?

  • The "Historic NYSE Halt" Post-Mortem: The Shock And Awe When It All Went Down

    What began as a glitch in pre-market trading turned into the NYSE’s longest trading halt since Hurrican Sandy battered the East Coast. The ever-increasing complexity of US equity markets combined with an ever-decreasing pool of greater fools leaves windows open on down days (for it appears these ‘glitches’ only ever occur on down days) for markets to break. While NYSE traders defended the very market structure they have abhorred in the past as evidence that today was “not a failure,” we can’t help but find CNBC’s Scott Wapner’s amusing remark that “if retail investors want low cost liquid trading they are going to have learn to live with it” the perfect post-mortem for a rigged system brimming with confident insiders ever excited to take mom-and-pop’s money.

    As Bloomberg reported, “What began Wednesday morning with a seemingly workaday software glitch soon escalated into one of the most startling computer outages in Wall Street history — and, for the Big Board, a race against the clock.”

    At the 9:30 a.m. opening bell, traders’ orders for some stocks weren’t reaching the proper destinations for processing. Techies were frantic to fix the problem. At about 9:32 a.m., they succeeded.

     

    Two hours later, boom.

     

    One floor trader started shouting, “My handheld’s down! My handheld’s not working!” He and other traders hurried over to a ramp on the trading floor where NYSE executives usually meet with them to explain any problems. Not today. Three hours later, still nothing. Everyone was just standing around.

     

    “The order flow wasn’t being entered into the display books on the trading floor,” said Pete Costa, president of Empire Executions Inc. who’s worked at the exchange in downtown Manhattan for 34 years. “As soon as that happened, the exchange shut down to understand what was going on.”

     

    Every computer screen “went this pukey, canary yellow color,” Costa said. “That means the stock has stopped trading.”

    NYSE BREAK #1 Occurred shortly before the market open as the SNB-driven rebound from overnight weakness was beginning to fade…

    Stocks rallied into the open while the NYSE was broken.

    The issues were resolved shortly after the market opened… and stocks then plunged:

     

    The tumbling stock market meant there was only one option:

    NYSE BREAK #2 Occurred shortly before the European close…

     

    And once again… stocks ripped higher and the world rejoiced that Greece and China didn’t matter after all.

     

    But then, once that problem was resolved, stocks plunged again, which left only one option for the PPT which learned its lesson from China where if there is selling, just halt the stocks being sold.

    NYSE BREAK #3 – The Big One started shortly after the European close with stocks near the lows of the day…

    CNBC went into full “turmoil” mode:

     

    And this happened:

     

    The NYSE CEO told CNBC that he “didn’t know” if the early halts and glitches were related to the catastrophe that halted the entire exchange for almost 4 hours. Well as a help for him, here is a simple chart from Nanex that shows the last group of trades before the NYSE Blackout were in the same stocks they reported an issue with earlier in the day…

     

    Simply put – they were related.

    Why does the market break? Here’s why: an ever increasing level of complexity in the market structure (as machines game each other to death)…

     

    … Meets an ever-decreasing pool of greater fools:

    But why 4 hours?

    RUHLE:  Why not roll over to your fail system, your backup? 

     

    FARLEY:  We chose the least disruptive option for customers.  So if we had moved to our Disaster Recovery Center, which was an option, customers would have had to do a good deal of work to be able connect to that new Disaster Recovery Center. 

     

    Contrast that with what we chose to do, which was root out the problem, put a plan in place to fix it, fix it, reopen the New York Stock Exchange, and there was no work for the customers to do to connect to the New York Stock Exchange.

    So, to summarize, the NYSE has a disaster recovery center which… they choose not to use because it is an inconvenience to clients who would rather be unable to trade!

    Maybe there was a different angle altogether: with China crashing and halting 70% of the market, the US had just one response:

    Here is the “official” reason according to the NYSE CEO:

    RUHLE:  And do you attribute this to a system upgrade? 

     

    FARLEY:  I’m not 100 percent certain, because as I said, most of the day I spent with customers and staff.  There was a configuration problem in our system.  It likely had to do with an upgrade, but that is premature, and it’s something that will come about as part of a full analysis of the situation.

    Of course it’s not the first time NYSE has been halted (as MotherJones reports)

    It’s not the first time a random event has interrupted the 223-year-old stock exchange. Most memorably, the NYSE closed following V-J Day, when troops returned at the end of World War II, and for three full days after the terrorist attacks of September 11, 2001. But the NYSE has closed for everything from the funerals of major world figures—such as Queen Victoria of England (1901), Rev. Martin Luther King, Jr. (1968), and Richard Nixon (1994)—to extreme heat (August 4, 1917).

     

    Here is a brief history of events that halted trading at the New York Stock Exchange.

     

    September 1873: The collapse of the Jay Cooke & Company, a major financial institution, caused the New York Stock Exchange’s first closure, for 10 days, due to market calamity.

     

    July 1914: The start of World War I in Europe shuttered the exchange for four months, the longest closure on record.

     

    May 25, 1946: The NYSE shut down due to a railroad strike, part of one of the largest waves of strikes in US history.

     

    1967 – 1996: Over this span of 29 years, eight ferocious blizzards either delayed the opening bell or closed the exchange early.

     

    February 10, 1969: A snowstorm dubbed the “Lindsay Storm” shuttered the stock exchange for a day and a half amid 15.3 inches of snow.

     

    July 21, 1969: This closure was planned, to celebrate the Apollo 11 moon landing.

     

    July 14, 1977: The NYSE closed due to a major blackout across New York City.

     

    October 27, 1997: A failsafe instantaneously stopped all trading for 30 minutes after the Dow Jones Industrial Average plunged 350 points.

     

    May 6, 2010: The same circuit breaker that closed the NYSE in 1997 halted trading after a “flash crash” caused by automated high-frequency trading.

     

    September 11, 2001: Terrorist attacks closed the exchange through September 14. The exchange also closed exactly a year later to mark the anniversary of the attacks.

     

    October 29 – 30, 2012: The NYSE shut down while Hurricane Sandy battered the Eastern Seaboard. It was the first time a weather event closed the market for two full days in 124 years, after a snowstorm that dumped more than 40 feet of snow closed the exchange in 1888.

    And won’t be the last: as we wrote last year, the entire market is now like the infamous “social-network” stock CYNK that never existed: it too was pumped up to ridiculous valuations on no volume, not to mention no revenues, no profit and no employees … and then when the selling began it was quietly halted.

    Permanently.

  • Japanese Investors Lose Faith In Draghi – Dump The Most Foreign Bonds In History

    Did the narrative just change? With the world’s investors having entirely lost faith in China’s ability to control its markets, it appears the omnipotence of global central banks is under scrutiny. First the so-called “contained” risks from Greek contagion are non-existent as despite the best efforts of The SNB (and ECB), European stocks and peripheral bonds have tumbled; and now Japanese investors have dumped over JPY 4 trillion foreign bonds in June – the most ever.

     

     

    One can’t help but wonder why, if Draghi’s QE was successful, why are foreigners not piling into risk assets en masse… but instead selling the most ever as apparently Greece matters after all.

     

    Charts: Bloomberg

  • Why Grexit Is The Most Likely Outcome

    Submitted by Pieter Cleppe, initially published on the European Leadership Network

    Why Grexit is the most likely outcome

    Ahead of Greece’s referendum on a bailout plan in early July, EU decision makers, including Eurogroup Chairman Jeroen Dijsselbloem, warned a “no” vote might lead to Greece’s exit from the Euro. After Greece’s overwhelming “no”, and Eurozone leaders’ latest ultimatums, there are a number of factors that indicate that “Grexit” may indeed be the most likely outcome.

    1. Greece is already in default to the IMF

    Last week, Greece defaulted on its obligations to the IMF, even if we technically would need to say it was put in “arrears”. Greece is the first developed country to do so. Currently, the Greek banking system is dependent on the ECB allowing the Greek Central Bank to issue loans to Greek banks through a scheme called Emergency Liquidity Assistance (ELA). As the name suggests, this funding can only be provided to deal with liquidity problems, so it cannot prop up insolvent banks. Greek banks are intimately linked with the insolvent Greek state, meaning they are insolvent themselves, meaning in turn that the ECB would need to cut off funding.

    The necessary two thirds majority needed within the ECB Governing Council to block the Greek Central Bank from creating euros to lend to Greek banks under ELA hasn’t been reached so far. As a result, the ECB has had to come up with all kinds of excuses, the latest being that it will only cut off ELA funding for Greek banks in case there is “no prospect of a deal”. The ECB’s excuses are likely to run out soon, especially if the Greek government defaults on payments to the ECB on 20 July. This week, the ECB restrained ELA a little more, but it’s expected to provide ELA funding at least until Sunday. Political cover would be needed for any further actions though.

    Greek pensioners are meanwhile standing at the gates. A logical outcome would be for the Greek government to pay them in “IOUs” or in a parallel currency, which could be used to pay for government services, for example health care, something which the outgoing Greek Finance Minister already suggested.

    Another problem is that Greek banks will be running out of actual physical bank notes, possibly by the end of this week. Closing banks is bad enough, but closing ATMs is a recipe for chaos. It would force the Greek government to print Drachmas, while uncertainty would reign during the transition period.

    2. Greece and the rest of the Eurozone are further apart than ever

    Given that Greece’s finance gap will only have grown bigger as a result of the economic damage inflicted by capital controls, Greek politicians likely will need to accept even more “austerity” than was on offer before the talks with creditors broke down. German Chancellor Merkel stressed earlier this week that Greek measures will have to “go beyond” what was demanded by the creditors before the referendum. How likely is this to happen in the face of the massive “no” vote? Costas Lapavitsas, the leader of the radical wing of Syriza, already warned that “the referendum has its own dynamic. People will revolt if [Tsipras] comes back from Brussels with a shoddy compromise.” Some Greek analysts think Tsipras doesn’t actually want a deal.

    It must be said that the so-called “austerity” was always more a synonym for monstrous tax hikes than for actual spending cuts. One of the recent Greek government’s proposals, for example, was to unleash 2.69 billion euro in tax hikes on the Greek private sector this year – perhaps hoping the money wouldn’t be raised anyway – while only cutting spending on “pensions” (which more than often seems to mean the pension administration, not actual pension payouts)– by 60 million euro.

    There is still a chance that Greece will back down completely in the next few days, giving up its demand for debt restructuring, which Merkel has called “out of the question”. The result of this would be that Greece would enter a new European Stability Mechanism (ESM) programme. So far however, it looks like the Greek government hasn’t come up with detailed proposals, apart from a general request for ESM support.

    It’s therefore more likely that the EU Summit this Sunday decides to exclude the country from the Eurozone and provide funds to make the transition to Drachma through the so-called “Balance of Payments” facility for non-euro states which has been used for Romania, Hungary and Latvia. The invitation of all EU member states to this Summit is already a sign that Grexit is likely, given that they would be needed to sign off on this scenario. In any case, whatever happens next, the fact that EU Commission President Juncker declared that “We have a Grexit scenario, prepared in detail” proves for the first time that the euro adoption is not irreversible.

    3. Capital controls are notoriously hard to unwind

    According to official Greek data , there was still almost 130 million euro deposited in Greek banks before capital controls were announced. If Greek banks were to reopen, few might trust they wouldn’t close again soon, potentially causing a run. As the ECB is unlikely to provide enough ELA funding for banks to open without a deal, and a deal itself still seemingly unlikely, the government in Athens will have to seriously consider printing its own currency should it ever want to open its banks again.

    4. The “no” vote protects the Eurozone’s politicians from looking like they pushed Greece out

    In the event of a Grexit, prepare for more blame games between Greece and the rest of the Eurozone. Now that the Greek people have sent a powerful signal that they desire a full-blown “transfer-union”, which is not on offer, it will be much harder to blame Eurozone politicians for refusing more transfers than the ones already conducted, through the ECB and bailout loans with low interest rates.

    How might Grexit playout?

    Eurozone countries could fly in periodical shipments of euro bank notes until the end of summer, in order to avoid a risk of social breakdown. This special “transition bailout” – possibly financed by future cuts to EU subsidies for Greece – could be decided, as a means of raising hopes for an orderly transition to the Drachma. There is also an alternative scenario in which Greece – after having defaulted and restructured its banks – uses the euro but doesn’t enjoy the cheap money from the ECB, like Montenegro.

    This would give Greece an incentive to stay in the EU – and NATO – and to play along when it is legally relegated to the “euro derogation” (the status of Bulgaria, Sweden and Poland) i.e. obliged to join the eurozone in the future. The fact that German Finance Minister Schäuble mentioned ahead of the referendum that a Greek “no” may lead to a “temporary” Grexit may refer to this potential scenario. The IMF and European Parliament President Schulz have been making noises about “IMF assistance” and “humanitarian aid”.

    It looks like this is finally it.

  • BRICS Bank Officially Launches As Sun Sets On US Hegemony

    Before the Asian Infrastructure Investment Bank and, to a lesser extent, the Silk Road Fund became international symbols for the end of Western economic hegemony, there was the BRICS Bank.

    Or at least there was the idea of the BRICS bank. 

    The supranational lender imagined by Russia, China, Brazil, India, and South Africa is, like the AIIB, largely a response to the failure of US-dominated multilateral institutions to meet the needs of modernity and offer representation that’s commensurate with the economic clout of their members. As Bloomberg points out, the countries’ combined economic output is now roughly equal to that of the US. “Back in 2007, the U.S. economy was double the BRICS,” Bloomberg notes.

    As a refresher, here’s how the Washington Post described the bank’s structure and purpose on the heels of last summer’s BRICS summit in Fortaleza:

    The NDB has been given $50 billion in initial capital. As with similar initiatives in other regions, the BRICS bank appears to work on an equal-share voting basis, with each of the five signatories contributing $10 billion. The capital base is to be used to finance infrastructure and “sustainable development” projects in the BRICS countries initially, but other low- and middle-income countries will be able buy in and apply for funding. BRICS countries have also created a $100 billion Contingency Reserve Arrangement (CRA), meant to provide additional liquidity protection to member countries during balance of payments problems. The CRA—unlike the pool of contributed capital to the BRICS bank, which is equally shared—is being funded 41 percent by China, 18 percent from Brazil, India, and Russia, and 5 percent from South Africa.

    On Tuesday, ahead of this year’s summit in Ulfa, the BRICS countries officially launched the new bank along with the reserve currency pool. Here’s WSJ:

    The group of five major emerging economies known as Brics launched a development bank on Tuesday ahead of a summit in the Russian industrial city of Ufa, where Russia seeks to demonstrate it hasn’t been isolated by Western sanctions.

     

    The long-planned development bank, aimed at financing projects mainly in member countries Brazil, Russia, India, China and South Africa, will select its first projects to finance by the end of the year, Russian Finance Minister Anton Siluanov said on Tuesday. The countries’ national banks also signed a deal Tuesday to create a $100 billion reserve fund by the end of July that can be tapped in financial emergencies.

     

    The Bank of Russia said it signed an “operational agreement” with Brics counterparts to create a $100 billion pool of mutual reserves. The group agreed to create the fund in 2013 as an alternative to the International Monetary Fund, after seeing investors pull money away from emerging economies, causing their currencies to weaken.

     

    The currency pool would be drawn on by the central banks of Brics states whenever they suffered a shortage of dollar liquidity, helping them maintain financial stability, Russia’s central bank said.

     

    China will contribute $41 billion to the currency pool. Brazil, India and Russia will each provide $18 billion, while the remaining $5 billion will come from South Africa.

    The BRICS nations will also look to begin settling more trade in national currencies, a shift we highlighted recently in “The PetroYuan Is Born: Gazprom Now Settling All Crude Sales To China In Renminbi”, “PetroYuan Proliferation: Russia, China To Settle “Holy Grail” Pipeline Sales In Renminbi,” and “De-Dollarization Du Jour: Russia Backs BRICS Alternative To SWIFT.” This comes at a convenient time for Russia, which is attempting to diversify away from the dollar amid Western economic sanctions (recently extended into next year) imposed on Moscow in retaliation for the Kremlin’s perceived involvement in Ukraine. RT has more:

    BRICS countries will definitely start using their local currencies for mutual settlements quite soon, the head of Russia’s VTB bank Andrey Kostin told RT Wednesday at the BRICS summit in Ufa.

     

    “We definitely see a growing interest from the countries to make settlements in local currencies,” the CEO of Russia’s second biggest bank said. 40-50 percent of all the mutual settlements among the BRICS countries can be performed in domestic currencies, Kostin estimated, RIA reported.

     

    The Chinese yuan as the leading currency can be used in settlements among BRICS member states, Kostin said, adding that the Russian ruble can be used for that as well.

     

    He says there will be a growing interest from leading Russian exporters to the process of switching to national currencies.

     


    And of course no story about the BRICS bank (or the AIIB for that matter) would be complete these days without some mention of Greece and the possibility that Athens may be forced to look elsewhere for help in the event it’s driven out of the euro and Jean Claude-Juncker’s “humanitarian” plan B proves inadequate to keep the country out of the Third World after Berlin digitally bombs its citizens back to barter status. For today’s Russian/Chinese pivot allusion, we go to IBTimes: 

    Greece could get financing from the New Development Bank operated by Brazil, Russia, India, China and South Africa (BRICS) if it buys a few shares of the institution to become a member. The bank, which is set to begin operations next April, is seen an alternative to Western financing.

     

    Deputy Russian Finance Minister Sergey Storchak said becoming a part of the bank would require Greek officials to make a political decision.

     

    “We do not have any co-relation between a contribution and an amount of funding,” Russian news agency Tass quoted Storchak as saying. “There is general agreement that the system of the countries’ assets will be balanced.”

     

    Russian Finance Minister Anton Siluanov said Tuesday it is necessary for the new bank to “carve out a niche” since competition among international banks is intense.

    Yes, the bank must “carve out a niche”, and preferably one which takes every opportunity to undercut the influence of the US-dominated multilateral institutions that have defined the post-war world and served to underwrite six decades of dollar dominance. 

    So we suppose it’s not all bad news for China these days. Beijing may have a decelerating economy and a stock market collapse on its hands, but at the end of the day, the country now controls not one (AIIB), not two (Silk Road Fund), but three (BRICS bank) development banks, which gives Xi Jinping quite a few options when it comes to embedding the yuan in global investment and trade which, in the long-run, is far more important than where the SHCOMP closes on Thursday. 

  • Hong Kong Hammered As China Crash Contagion Continues

    Submitted by Pater Tenebrarum via Acting-Man.com,

    Efforts of Potent Directors Ignored

    When we first commented on the emerging problems with China’s market bubble, we warned that although a bounce from oversold levels was the most likely outcome, it wasn’t set in stone. It appeared to us that Chinese investors were especially prone to falling for the “potent directors fallacy” (a term coined by Robert Prechter of EWI many years ago) – the belief that powerful decision makers, in this case the central bank and the government – would be willing and able support the market no matter what.  Willing they have been – able, less so.

     

    Oops

    Chinese retail investors are shell-shocked

    Photo credit: EPA

    For a long time it has been the general impression that due to its tight control over the banking system and other sectors in the economy, China’s leadership could just “order the markets around”. Investors who were aware of China’s enormous debt problems and its insanely overvalued real estate markets were regularly baffled by the fact that China’s mandarins were apparently capable of  arresting any decline in prices or any emerging credit blow-ups with the flick of a finger. Faith in their abilities is currently being shaken to its core. This is highly relevant to the asset bubbles currently underway in other countries, even though what happens in China has little direct effect due to the country’s closed capital account.

     

    SSEC

    China’s stock market crash just keeps going – the index has now reached an important lateral support level. It will probably bounce from there, but for a variety of reasons this is actually somewhat less certain than it would otherwise be – click to enlarge.

     

    The latest gambit of China’s central planners has been to replace the increasingly wobbly looking real estate bubble with a stock market bubble. The plan, as far as we can tell, was to enable state-owned companies to raise a lot of equity at favorable prices, so as to lessen the relative importance of their debt load, resp. enable them to deleverage by putting the proceeds of stock offerings toward paying down debt. However, the stock market bubble rested on an extremely shaky foundation: inexperienced retail investors and just as inexperienced fund managers were the main buyers, and they used plenty of margin to do so. Now they are in an unmitigated panic.

    How to Shoot Oneself in the Foot

    In their desperate effort to halt the decline in stock prices, China’s authorities have tried every trick in the book and then some. The latest gambit was initiated by listed companies, and may well have been the equivalent of shooting oneself in the foot: In order to stop stocks from declining further, many were simply suspended from trading. Some of those are suspended because they keep trading “limit down”, but in many cases the trading halts were requested by the companies themselves (the exchange must give its placet to such trading halt requests).

    As a result, some 27% of listed companies are currently no longer trading, representing approx. $1.4 trillion in market cap. This is reminiscent of the futile attempts to halt stock market declines in the US and Europe by banning short sales in 2008 (as well as on other occasions, e.g. in early 1932, a short selling ban that was followed by a 69% plunge in stock prices).

    As Bloomberg reports:

    “Chinese companies have found a guaranteed way to prevent investors from selling their shares: suspend trading.

     

    Almost 200 stocks halted trading after the close on Monday, bringing the total number of suspensions to 745, or 26 percent of listed firms on mainland exchanges, according to data compiled by Bloomberg. Most of the halts are by companies listed in Shenzhen, which is dominated by smaller businesses.

     

    The suspensions have locked up $1.4 trillion of shares, or 21 percent of China’s market capitalization, and are becoming increasingly popular as equity prices tumble. If not for the halts, a 28 percent plunge in the Shanghai Composite Index from its June 12 peak would probably be even deeper.

     

    “Their main objective is to prevent share prices from slumping further amid a selling stampede,” said Chen Jiahe, a strategist at Cinda Securities Co.”

     

    Later, the number of halts requested increased to more than 1,200, the 21st Century Business Herald said, citing exchange data. The Shenzhen Stock Exchange will reject unjustifiable applications for suspensions, QQ.com reported, citing an unidentified person familiar with the matter.

    As an aside, the assertion that the stock market rout has “erased at least $3.2 trillion in value” as most financial media are reporting is a rather unfortunate way of putting it. What has changed are merely stock prices. In a way, the previous “values” were largely fictional. They reflected the fact that many in China felt they had discovered a get-rich-quick scheme and were piling in. The “wealth” this has created was phantom wealth – nothing has changed about the underlying businesses just because their stock prices have soared, nor has any money been destroyed because they plunged – it has merely changed hands.

    Why are trading halts counterproductive? For one thing, as most of the suspensions concern small caps, investors are now trying to rescue themselves by selling big caps. For another thing, it deters new buying, because investors must fear that they will be locked out again from trading their shares at some point in the future – this has lowered the potential for a significant bounce. Also, while the decline has superficially slowed due to trading halts, the potential for an even bigger decline is now hanging over the market, as those holding suspended shares are likely to sell as soon as it is possible again.

    Another effect was that the spillover to the Hong Kong Stock Exchange has worsened considerably. The HSI has crashed by almost 2,100 points or 8.37% overnight:

     

    HSI

    The HSI in Hong Kong begins to crash as well – click to enlarge.

     

    Why Are the Authorities Helpless?

    There is actually a good reason why China’s authorities have been unable to stop the crash so far, in spite of their otherwise well-known ability to influence markets and the economy. China is beginning to feel the lagged effect of the massive slowdown in money supply growth over recent years. This increasingly unmasks capital malinvestment in China and makes it more difficult to keep asset bubbles supported.

     

    M1 and M2 China-growth rates

    The year-on-year growth rates of the monetary aggregates M1 and M2 in China have collapsed to the lowest level in more than 15 years – click to enlarge.

     

    China’s authorities are now finding out that one cannot have everything at once. If a credit bubble is to be deflated, asset prices cannot grow to the sky at the same time. Rising stock and real estate prices require “fuel” in the form of money supply inflation, and a slowdown in credit extension automatically brings about a slowdown in money supply growth in the modern-day fractionally reserved fiat money system.

    As a result, even if the market should begin to bounce from here, it will very likely remain a “sell” until money supply growth has accelerated again for a while. This is however unlikely to happen anytime soon, as China’s banks are increasingly reluctant to add to their burgeoning credit problems (these don’t exist officially, but everybody knows they are simply masked by accounting tricks).

    Prime minister Li Keqiang wants to reform China’s economy and is also unlikely to order banks to massively increase their lending again. He may of course eventually well be outvoted by others in the politburo, but at the moment, he remains in charge of economic policy.  Note in this context that stock prices fell again on Monday after Li Keqiang failed to mention the stock market crisis in an official statement on the economy.

    Conclusion

    No bubble can remain aloft without a heavy dose of monetary inflation. The fact that China’s authorities, including its central bank, have been unable to stem the decline stands as a stark warning to the many Western investors who seemingly believe that central banks are nigh omnipotent entities run by magicians. This is not the case. Once an asset bubble begins to burst, there there is nothing central bankers can do to stop it – and we have plenty of bubbles awaiting their turn in the barrel.

     

    Li_Keqiang_(cropped)

    China’s premier Li Keqiang: Apparently not sympathetic toward stock market speculators.

  • China Makes Selling For Big Investors Illegal

    With another bloody session in the books for China’s bursting equity bubble, it’s now abundantly clear that Beijing and the PBoC have lost control not only of the market but of the narrative as well, despite dozens of attempts to steer both in the “right direction.” 

    Having corralled selling by the National Social Security fund earlier this week and after discouraging local reporters from mentioning selling in the press, China has now made it illegal for big investors to dump shares over the next six months. Here are the details via Bloomberg: 

    China’s securities regulator banned major shareholders, corporate executives and directors from selling any of their stakes for six months, the latest effort to stop a $3.5 trillion rout in the nation’s equity market.

     

    Controlling shareholders and investors holding more than a 5 percent stake in a company will be prevented from cutting their holdings over that time period, the China Securities Regulatory Commission said in a statement.

    And here’s the official word from the CSCR (Google translated):

    Recently, the stock market fell irrational, for the maintenance of the capital market, and earnestly safeguard the legitimate rights and interests of investors, is now on the relevant matters are announced as follows: First, from now on within six months, the controlling shareholders of listed companies and shareholders holding more than 5% (hereinafter, saying large shareholders) and its directors, supervisors and senior management personnel shall not reduce shares held by the secondary market. Second, the major shareholders of listed companies and the directors, supervisors and senior management personnel who fails to reduce shareholdings in the Company, the China Securities Regulatory Commission will be given serious treatment. Third, the major shareholders of listed companies and the directors, supervisors and senior management personnel in the six months after the reduction of shares from shareholders with specific measures, separately.

    Yes, the stock market “fell irrational” lately. And by “irrational” the CSCR apparently means that temperament that tends to fall over people once they realize they’ve helped to faciliate a completely “irrational”, debt-fueled mania that’s sent valuations on many listings into the stratosphere and lured in millions of farmers and hairdressers who are now collectively leveraged to gills. 

    In any event, this, like every other move in China’s rapidly expanding plunge protection playbook, will fail miserably, meaning Beijing with ultimately be left with no choice but to “halt” whatever shares are still trading by the end of the week. 

    We can now add one more desperation measure to the annotated history of Chinese market intervention:

     

  • Two Things the US Government Got Right

    By Chris at www.CapitalistExploits.at

    In a shocking and uncharacteristic display of common sense, the US government has recently managed to pass two laws which are an absolutely fabulous idea.

    The legalization of marijuana in the US is the first one.

    I say this not because I’m a closet pot smoker; I don’t even reside in the US, but because Government’s involvement in deciding and having control over what we do and don’t put in our bodies is the height of absurdity.

    The leading cause of death in the Western world is not giggling stoners stumbling into oncoming traffic, it’s actually heart disease. We may as well ban deep fried food and TV…

    The second law they passed was the JOBS act, which, in a nutshell, allows everyday people to invest in private business while at the same time allowing private business to solicit capital from everyday people.

    Combining the two would certainly produce some interesting investment choices, especially if marijuana precedes the investment choice. Then again, this would be akin to drinking alcohol and gambling, which is about as American as apple pie. Let’s face it, without alcohol and gambling Vegas would consist of a single motel and gas station run by a guy with a lazy eye named Chuck.

    I bring this up since I recently received an email from a friend where he discussed both crowdfunding and marijuana.

    He had been debating whether the marijuana crowdfunding platforms are an “industry to watch.” Legislature changes often provide accelerant to glowing embers and the legalization of marijuana is no different.

    We all remember how crazy pot stocks got a few months back. In fact, we detailed this in a January edition of a private alert we put out on select trades we’re placing our personal capital into.

    At the time we determined that due to the asymmetry available we just HAD to short one which stood out. Specifically, a useless pump and dump candidate one of our editors of the alert service brought to our attention. The company in question was General Cannabis Corp (CANN).

    Easy pickings – find a company with little substance that is being run up on a deadly combination of BS and stupidity and you have yourself a candidate. What could possibly go wrong?

    What indeed?

    Investors who went long CANN as we went short in mid-January lost their shirts but no matter, they may have kept their underwear as it hasn’t completely disappeared. Rest assured, however, that we’ll get another series of amusing debacles before we all go in a box.

    Equity crowdfunding, like the now legalized marijuana industry, is relatively new so the question as to whether marijuana crowdfunding platforms are a sector to watch really isn’t a silly one.

    We’ve been very close followers of equity crowdfunding since its emergence, and are very well connected into the ecosystem so I thought I’d offer some insight into the industry as I see it.

    Before I proceed a caveat is in order. Seraph, the company Mark and I founded, are, together with our members, investors in a company that keeps a pulse on the equity crowdfunding marketplace and we’re vetting a number of candidates continuously in this space. We do therefore have a bias towards the industry as we have placed capital and are looking to do so again.

    It seems obvious to me that the vast majority of the crowdfunding platforms out there, while being run by well intentioned entrepreneurs, will absolutely never make any profits. And when the venture capital that is currently keeping them alive dries up they will simply disappear like a fading sunset over the horizon.

    Now, I’ve been accused of being too harsh on many of the platforms who are looking to raise money so I’m going to choose my words carefully. Here goes: most are crap and will die!

    Don’t get me wrong. I’m incredibly excited about crowdfunding in general and believe that the growth will continue. In part, because the financial architecture that has been built ensconcing Wall Street, brokers, various other “intermediaries” and political interests provide little value in our world today. People are fed up with them and increasingly distrusting of the financial institutions which we are told are “safe”.

    Quarter over quarter, investment via equity crowdfunding is experiencing tremendous growth, and as more laws and regulations are relaxed and people become aware of investment opportunities, we certainly hope – and expect – this growth to continue. There is a movement of capital globally from public to private and crowdfunding is but one conduit for these capital flows.

    Equity crowdfunding is a great experiment in the sense that for the first time since the Great Depression, non-accredited retail investors have access to privately listed investment opportunities.

    The United States and the United Kingdom acted nearly simultaneously in 2012, allowing equity-based crowdfunding in the US via the JOBS Act and in the UK through new regulations put in place through their Financial Conduct Authority (FCA).

    While American accredited investors have been able to crowdfund for several years now, the American government finally implemented rules legalizing equity crowdfunding for non-accredited investors a few weeks ago. Government efficiency at its finest…

    The reason why, for the first time in almost 100 years, non-accredited retail investors suddenly became allowed to become angel investors is better answered by the guys who were instrumental in drafting the legislation and bringing about the concept itself. We discussed this some time ago with our colleagues Jason Best and Woodie Neiss and you can listen to their story here and here.

    Since 2012, the UK, US, and other markets have seen literally hundreds of equity crowdfunding platforms listing thousands of investment opportunities – with varying models.

    In a very general sense, four models of equity crowdfunding platforms have emerged:

    1) Platforms for Everyone

    Take any trip on the London tube today and – unless you’re blindfolded – you’ll not miss the advertisements from Crowdcube, which boasts nearly £90,000,000 in investments and nearly 190,000 people registered on their site. They continue to be a leading platform in this space. Crowdfunder and Seedrs are two other well-known platforms.

    These platforms accept investment in increments as little as £10, though the average investment is actually well over £1,500. They focus on the retail investor who I imagine would often be mom and pop investors. While there are tech and other startup-type businesses listed, investments can also be made into more established consumer goods and retail-type businesses.

    2) Platforms Geared Towards Sophisticated Investors

    Sites focused on accredited investors require much higher thresholds for investment. Jerusalem-based OurCrowd, has been very successful through a focus on Israel’s hi-tech scene. It has also been expanding listings outside of Israel as well. In the United States, CircleUp is another that comes to mind.

    3) Real Estate Crowdfunding

    People are claiming that the future of commercial real estate is in crowdfunding. Washington, DC-based Fundrise is the first and among the most notable.

    4) Niche markets

    There are also a host of specialty crowdfunding platforms. Some focus on agriculture and yes, others focus on growing other products… like marijuana.

    Buyer Beware

    At the end of the day, equity crowdfunding – like all forms of angel investing – is inherently very risky. You have to accept that you will lose more times than you’ll win but hope that your wins are many times bigger than your losses.

    Over the last 30 years early stage venture capital has outperformed stocks and bonds by a large margin, returning an average of 21.29%. This while, as I mentioned last week, up to 3/4 of early stage deals will fail.

    Investing in private early stage deals is extremely time consuming and difficult. It takes skill and lots of experience. I learn something new every day and I’m almost completely surrounded by veterans and due diligence from the moment I wake till late at night when I typically pen these articles to you. It’s not a part time thing! There are a few key ingredients that I think are worth pointing out to those interested in getting their feet wet.

    Do the Obvious

    I am no longer surprised by people losing money in private deals. Occasionally someone will bring me a deal saying it looks really good. I’ll hit them with some simple questions which any investor should have considered before wasting their or my time on.

    1. Have you done a background search on the people involved?
    2. Due diligence: have you asked for their financials, and if it’s a start-up with none to show, have they been in business before? If so, ask for the financials of that business. What competition do they have? This question the founders need to have done extensive work on. Have you called the company, bought their product, tested their service? You can learn a lot from finding out how they’re servicing clients right now.
    3. What terms are being offered? In early stage deals terms are way more important than valuation!

    Still interested in crowdfunding?

    We for sure are! Crowdfunding is a phenomenon that is changing the way that capital is being allocated. It is fundamentally better for individuals to make their own choices with their capital than it is for Governments or incestuous corporates tied to the government to do this for us.

    What I do think, however, is likely to happen is that there will be an entire host of investors getting burned, just like they do at Vegas or Macau. Many will believe that they’ll see the next Uber or Apple get listed on a crowdfunding site, and at the same time will be able to identify the deal.

    Furthermore, even if they identify the deal they will have no idea about the structure of the terms and can easily be wiped out by VCs funding the company in a Series B or C round where investor protections were never put in place.

    While it’s possible I’ve yet to see the early stage deals from close networks that cross our desks being posted onto any platforms, certainly in the early stages. I don’t see this changing.

    Small networks of industry professionals will continue to share deals with those closest to them before taking in capital from any outside sources. Human nature isn’t about to change and humans are social creatures.

    When Seraph gets a great deal we share it with those closest to us. Why would we do anything else? That’s human nature….

    Furthermore, founders are typically in search of smart capital that can help them build their business. This means connected money with skills and knowledge is always going to be at a premium. If you’re an entrepreneur raising capital and looking to grow your business obtaining that from a crowdfunding platform is much more difficult.

    The most promising investment opportunities will continue to be shared in tight, close-knit circles. They will, however, find their way onto crowdfunding platforms when they reach later stage financing rounds. When a company has in place the smart money and is just looking for expansion capital then I think the crowfunding sites are a sweet spot.

    Lastly, back to the original question that my friend was discussing – marijuana crowdfunded deals. I don’t see them as any different from a backed beans crowdfunded deal. Crowdfunding is merely a conduit.

    – Chris

     

    “An investment in knowledge pays the best interest.” – Benjamin Franklin

  • Caught On Tape: The Other Crisis Happening In Greece

    With all eyes firmly focused on pensioners at the gate and ATM lines, there is another – just as cruel and unusual – crisis occurring in Greece. Europe's immigration 'problem' is front-and-center on the island of Lesvos, as KeepTalkingGreece reports, unbelievable scenes as refugees try to raid a food truck. No, this is not Somalia…

     

     

    The incident took place when nearly 2,500 migrants hosted in the camp of Lesvos (Mytilene) municipality in Kara Tepe saw the catering truck approaching. They started to run for a plate with food.

    Reason fro the panic to be left hungry without food was a rumor claiming that catering service for refugees had stopped on the island of Samos due to debts.

    With hundreds of refugees and undocumented migrants arrive daily to Greece from Turkey, the situation has gone out of control.

    ?????? ??????????

    On Tuesday, another boat carrying people to Greece sank, more than 10 people went missing.

    Next to the Greek humanitarian and economic crisis and the country on the brink of collapse, there is also the Refugees Crisis. Europe is keeping eyes and ears closed, while Eurocrats like European Commission President Jean-Claude Juncker are making ‘nice promises’ for aid and relocation to other EU countries.

    On the islands in Eastern Greece where the refugees arrive per boat and in other cities, many citizens have been set volunteers’ initiatives to help  refugees. The initiatives are been supported by local business that do whatever they can amid the worst financial crisis since 2010.

    skaomrasn2

    Source: KeepTalkingGreece.com

  • There's No Hope For A Deal "Priced In" Greek Bank Bonds

    With equity markets jumping vertically on every possible ‘hope’ of a deal – no matter what the consequence – we look to the asset class that is a) not driven by headline-reading algos and HFT, and b) is by far the most sensitive to reality – Greek Bank Bonds… and they are carnaging!!

     

     

    This is the asset to watch to judge ‘hope’ in Greece… not the S&P 500!!

     

    Charts: Bloomberg

  • What Greece, Cyprus, And Puerto Rico Have In Common

    Submitted by Gail Tverberg via Our Finite World blog,

    We all know one thing that Greece, Cyprus, and Puerto Rico have in common – severe financial problems. There is something else that they have in common – a high proportion of their energy use is from oil. Figure 1 shows the ratio of oil use to energy use for selected European countries in 2006.

    Figure 1. Oil as a percentage of total energy consumption in 20006, based on June 2015 Energy Information data.

    Figure 1. Oil as a percentage of total energy consumption in 2006, based on June 2015 Energy Information data.

    Greece and Cyprus are at the bottom of this chart. The other “PIIGS” countries (Ireland, Spain, Italy, and Portugal) are immediately above Greece. Puerto Rico is not European so is not on Figure 1, but it if were shown on this chart, it would between Greece and Cyprus–its oil as a percentage of its energy consumption was 98.4% in 2006. The year 2006 was chosen because it was before the big crash of 2008. The percentages are bit lower now, but the relationship is very similar now.

    Why would high oil consumption as a percentage of total energy be a problem for countries? The issue, as I see it, is competitiveness (or lack thereof) in the world marketplace. Years ago, say back in the early 1900s, when countries built up their infrastructure, oil price was much lower than today–less than $20 a barrel (even in inflation-adjusted dollars). Between 1985 and 2000 there was another period when prices were below $40 barrel. Back then, the price of oil was not too different from the price of other types of energy, so an energy mix slanted toward oil was not a problem.

    Figure 2. Historical World Energy Price in 2014$, from BP Statistical Review of World History 2015.

    Figure 2. Historical World Energy Price in 2014$, from BP Statistical Review of World History 2015.

    Oil prices are now in the $60 barrel range. This is still high by historical standards. Furthermore, much of the financial difficulty countries have gotten into has occurred in the recent past, when oil prices were in the $100 per barrel range.

    While countries with a large share of oil in their energy mix tend to fare poorly, at least some countries with a preponderance of cheap energy fuels in their energy mix have tended to do very well. For example, China’s economy has grown rapidly in recent years. In 2006, its share of oil in its energy mix was only 23.0%, putting it below Norway but above Poland, if it were included in Figure 1.

    Let’s look a little at what it takes for an economy to produce economic growth, and what goes wrong in countries with high energy costs. I should mention that high energy costs can occur for any number of reasons, not just because a country’s energy mix includes a large proportion of oil. Other causes might include a high percentage of high-priced renewables or high-priced liquefied natural gas (LNG) in a country’s energy mix. The reason doesn’t really matter–high price is a problem, whatever its cause.

    What Is Needed for an Economy to Grow

    The following reflects my view regarding what is needed for an economy to grow:

    1. A growing supply of energy products, either internally produced or purchased on the world market, is needed for an economy to grow.

    The reason why a growing supply of these energy products is needed is because it takes energy (human energy plus supplemental energy) to make goods and services.

    The availability of today’s jobs is also tied to the use of supplemental energy. High-paying jobs such as operating a bull-dozer, producing large quantities of food on a farm using modern equipment, or operating a computer, require supplemental energy in addition to human energy.  While jobs can be created that use little supplemental energy to leverage human energy (for example, manual accounting without electricity or computers, growing food without modern equipment, or digging ditches with shovels), these jobs tend to pay very poorly because output per hour worked tends to be low.

    To obtain growth in the number of jobs available to workers, a growing supply of energy products to leverage human energy is needed. Looking at the world economy, we can see that historically, growth in energy consumption is highly correlated with economic growth.

    Figure 3. World GDP in 2010$ compared (from USDA) compared to World Consumption of Energy (from BP Statistical Review of World Energy 2014).

    Figure 3. World GDP in 2010$ compared (from USDA) compared to World Consumption of Energy (from BP Statistical Review of World Energy 2014).

    In fact, we tend to need an increasing percentage growth in energy supply to produce a given percentage growth of GDP because the y intercept of the fitted line is -17.394, rather than 0.000. Back in 1969, 1.0% growth in the consumption of energy products produced 2.2% GDP growth. The fitted line implies that recently, the amount of GDP growth associated with one percentage growth in energy consumption is only 1.2% of GDP. This poor result is taking place, despite all of our efforts toward increased efficiency. Thus, as time goes on, we need more and more energy growth to produce the same level of GDP growth. This is a rather unfortunate situation that world leaders don’t mention. They tend to focus instead on the fact that the growth in GDP tends to be at least a little higher than the growth in energy use.

    2.  This growing energy supply must be inexpensive, in order to be able to create goods that are competitive in the world market. 

    Human energy is by its nature expensive energy. Humans require food, water, clothing, and housing to support their biological needs–we are not adapted to eating entirely uncooked food, or to living in climates that get very cold in winter, unless we have protection from the elements. Thus, wages must be high enough to cover these costs.

    Cheap supplemental energy provides a great deal more leveraging power than expensive supplemental energy. If we can leverage human energy with cheap energy such as wood or fossil fuels, it is easy to bring down the average cost of energy. (This calculation is made on a Calorie or Btu basis, for the sum of the energy provided by human labor plus that provided by supplemental energy.) If we are dealing with supplemental energy that is by itself high-cost, it is very difficult to bring down this weighted average cost. This is why high-cost oil, or for that matter high-cost supplemental energy of any kind, is a problem.

    If human energy can be leveraged with increasing amounts of cheap energy, it can produce an increasing amount of goods and services, ever more cheaply. In fact, this seems to be where economic growth comes from. These goods and services can be shared with many parts of the economy, including government funding, wages for elite workers, wages for non-elite workers, payback of loans with interest, and dividends to stockholders. If there are enough goods and services produced thanks to this increased leverage, all of the various parts of the economy can get a reasonable share, and all can adequately prosper.

    If there is not enough to go around, then there are likely be shortfalls in many parts of the economy at once. It is likely to be hard to find good paying jobs, for ordinary “non-elite” workers. Governments are likely to find it difficult to collect enough taxes. Governments may lower interest rates, or may take other steps to make it easier for businesses to continue their operations. Even with lower interest rates, debt defaults may become a problem. See my post, Why We Have an Oversupply of Almost Everything. The entire economy tends to do poorly.

    Ayres and Warr provide an illustration of how an increasingly inexpensive supply of energy can lead to greater consumption of that energy–in this case electricity–in their paper Accounting for Growth: The Role of Physical Role of Physical Work.

    Figure 4. Ayres and Warr Electricity Prices and Electricity Demand, from "Accounting for growth: the role of physical work."

    Figure 4. Ayres and Warr Electricity Prices and Electricity Demand, from “Accounting for growth: the role of physical work.”

    There is a logical reason why falling energy prices would lead to rising use of an energy product. If a person can afford to buy, say, $100 worth of energy and the cost is $1 per unit, the person can afford to buy 100 units. If the cost is $5 per unit, the person can afford to buy 20 units of energy. If it is the energy itself that aids growth in economic output (by moving a truck farther, or operating a machine longer), then lower energy prices lead to more energy consumed. This higher amount of energy consumed in turn leads to more economic output. This greater economic output is frequently shared with workers in the form of higher wages because of the workers’ “higher productivity” (thanks to the leveraging of cheap supplemental energy).

    When it comes to the cost of energy production, there are “tugs” in two different directions. In one direction, there is the savings in costs that technology can provide. In the other, there is the trend toward higher extraction costs because companies tend to extract the cheapest resource of a given type first. As the inexpensive-to-extract resources are exhausted, the cost of resource extraction tends to rise. We can see from Figure 2 that oil prices first began to spike in the 1970s. After some temporary “fixes” (shifting much electrical production away from oil to cheaper fuels, shifting home heating from oil to other fuels, and starting new extraction in Alaska, Mexico, and the North Sea), the problem was more or less solved for a while. The problem came back in the early 2000s, and hasn’t really been solved. Thus, most of the tug now is in the direction of higher costs of production.1

    Once oil prices rose, Greece and other countries that continued to use a high percentage of oil in their energy mix were handicapped because their products tended to become too high-priced for customers. Wages of customers did not rise correspondingly. Potential tourists could not afford the high cost of airline tickets and cruise ship tickets, because these prices depended on the price of oil. Even when oil prices dropped recently, airline companies have not reduced airline ticket prices to reflect their savings.

    Because of the high-cost energy structure, manufacturing costs have tended to be high as well. With fewer tourism jobs and few possibilities for making goods for exports, the number of good-paying jobs has tended to shrink. Without enough good-paying jobs, Greek demand for fuel products of all kinds dropped rapidly. (Demand reflects the amount of goods a person wants and can afford. Young people without jobs live with their parents, and thus do not buy new homes or cars, lowering consumption.)

    Figure 5. Greece's energy consumption by fuel, based on BP Statistical Review of World Energy, 2015 data.

    Figure 5. Greece’s energy consumption by fuel, based on BP Statistical Review of World Energy, 2015 data.

    Other countries that were positioned to add huge amounts of inexpensive energy were able to continue to continue to grow. The country that did this best was China. It was able to cheaply and rapidly ramp up its coal supply, once it entered the World Trade Organization in 2001. If Greece now adds production of goods, it needs to be able to compete in price with China and other goods-producers.

    Figure 6. China's energy consumption by fuel, based on data of BP Statistical Review of World Energy 2015.

    Figure 6. China’s energy consumption by fuel, based on data of BP Statistical Review of World Energy 2015.

    3. If the energy supply that a country plans to use is cheap, it doesn’t matter whether the energy supply is locally produced or not.

    If the energy supply that a country is locked into using is expensive, then using locally produced high-priced energy is “less bad” than using imported energy, but there is still a problem.

    If a growing supply of cheap energy is available, this can be used to leverage local human labor to produce inexpensive goods. This works well, regardless of whether the fuel is imported or not. Because imported energy “works” in such a situation, many island nations (including Cyprus and Puerto Rico) were able to develop their economies using oil as the energy base. These island nations typically did not have natural gas available, unless they imported expensive LNG. Coal and nuclear were also difficult to use, because power plants of these types are built on too a large scale to be suitable for on an island. But oil generally worked well, even if imported.

    Greece includes 227 inhabited islands, and thus is faced with many of the problems of an island nation. Back when oil was cheap, oil was an easy solution. It could be used for electricity and for many processes that require heat, such as baking bread, dying cloth, making bricks, and recycling metals.

    If a county is using imported oil, once oil becomes high-priced, there is essentially nothing that can be done to fix the problem. Devaluing the currency doesn’t work, because then oil becomes higher-priced in the new devalued currency. As a result, it still is prohibitively expensive to make goods, even after the devaluation. In fact, devaluing the currency also tends to make other imported energy products, such as LNG and solar PV panels, more expensive as well.

    With respect to previously purchased renewables, the ongoing cost is typically the debt payments for the devices used to generate this energy. How devaluation will affect these payments depend on the currency the debt is in. If these debt payments are in the country’s own currency, then devaluing the currency will not affect the payments (so devaluation won’t help reduce costs). If debt payments for renewables are in another currency (such as the dollar or Euros), then devaluing the currency will increase the cost, making the loans more difficult to repay.

    Even for an oil exporter like Saudi Arabia, high-priced oil is a problem, for a number of reasons:

    1. If the oil exporter uses some of its oil itself, the revenue that would have been gained by selling this oil abroad is lost. The government may be able to purchase the oil for essentially the cost of extraction, but it loses the extra revenue that it would gain by selling the oil abroad. This revenue could be used to fund government programs and new oil investment.
    2. The countries that import this high-priced oil tend to find their economies depressed, leading to less use of the oil. Thus, oil exports tend to become depressed.
    3. The price of oil may fall (and in fact has fallen, and may fall more), because of low demand. With low prices, it becomes difficult for exporters to collect enough revenue for government projects and investment in new supply.

    The reason why locally produced high-priced oil is “less bad” than imported oil is because jobs related to producing the oil tend to stay in the country. This is a plus, in itself. If there is a currency devaluation, wage costs and other local costs will be lower, making the energy product less expensive to produce. Unfortunately, production costs (including taxes needed to support government services) may still be above the market price, because of depressed demand.

    4. Debt helps increase demand for goods. But to make the debt repayable, these goods need to be made with low-priced energy products. 

    Ramping up debt for a country helps, but only if, with this debt, the country is able to profitably sell more goods and services in the world marketplace. Greece seems to have added debt, but wasn’t able to use this debt to create goods and services that could be sold cheaply enough that their prices would be competitive in the world market.

    China clearly has been willing to add huge amounts of debt to support all of its new industry and new homes it has built with the coal it has been extracting. There is no doubt that the growth in China’s debt has played a major role in extracting growing quantities of coal. Now China’s coal consumption is slowing for a number of reasons including overbuilding of factories, too much pollution, and higher cost of coal production. China’s slowdown in energy consumption is leading to a slow-down in economic growth, and may even lead to a hard crash.

    Greece has added a lot of debt in recent years, but this debt has not been used for ramping up the use of a new cheap supply of energy. Much of Greece’s debt seems to be for purposes such as bailing out banks. This doesn’t really tell us what is/was wrong with the economy to begin with. I would argue that high-priced fuel tends to make it difficult to make any kind of goods or services inexpensively enough to compete in the world market, and this is at least part of the problem. The result of this is that companies, no matter what they invest debt in, have a difficult time being profitable.

    The Greek government tries to cover up the country’s problems with programs that are funded by debt. Hidden subsidies may be occurring in several government-owned energy-related firms: Public Power Corporation of Greece (Greece’s largest electric utility), Hellenic Petroleum, DEPA Natural Gas, and ADMIE Grid Operating Company. There have been proposals to privatize these companies because they are poorly run. Whether or not they are poorly run, I expect that it will be very difficult to run them profitably, simply because of the inherent high-cost nature of the products they produce and workers’ lack of disposable income. This problem reflects the high cost of the underlying products they are producing.

    There have been some proposals to try to get energy costs down, including a proposal to install a new lignite coal-fired electric power plant. There is also a plan to connect four of the islands to the electric grid, so that the islands won’t have to depend on oil-fired electricity. Even if these changes are made, it is not clear that Greece’s energy costs will be low enough to produce goods that are competitive in the world market. For one thing, airplanes and cruise ships operate using oil, not electricity produced by lignite, so will not be affected by additional inexpensive lignite electricity production.

    From everything I can see, Greece’s debt needs to be written off. There is no way that the country can change its system to repay it. Greece can perhaps repay a little new debt, if it is channeled to support low-cost energy production to substitute for current high-cost energy.

    Conclusion

    Most people don’t understand that our world economy runs on cheap energy. High-priced energy is not an adequate substitute, even if the high-priced energy is “low carbon” or claims to have a reasonably high EROEI (Energy Return on Energy Invested) ratio. Our world economy is sensitive to prices and costs, even if the current “politically correct” discussion ignores these matters.

    Economies that are part of our current system can’t get along without energy supplies, either. Humans have used supplemental energy since our hunter-gatherer days, when we learned to control fire. In fact, the use of large amounts of supplemental energy seems to be the way we are now able to support a world population of 7+ billion people.

    Given that the world economy runs on “cheap” energy, adding expensive energy production, no matter how “green” it may appear to be, does not solve a country’s financial problems. In fact, it likely tends to make its financial problems worse. There is no way that high-priced energy will produce goods and services that are competitive in the world market. In fact, it is doubtful that high-priced energy will return a high enough “profit” to pay its own way, in terms of having the ability to pay suitable taxes to support required government services, such as schools and roads. High-priced energy is instead likely to need government subsidies, both for initially building the devices and for helping citizens pay the ongoing cost of electricity.

    Greece clearly has a lot of problems besides its high-energy cost, including excessive pensions and inefficiently operated state-owned companies. To some extent, I expect that these other problems reflect the difficulty of creating goods that can compete profitably in the world economy. If there is no way businesses can successfully compete in the world economy, I can see why leaders would do whatever they could to keep the system operating. This might mean adding more debt, keeping staffing at government-operated companies at higher levels than needed, and providing overly generous pension programs.

    The thing that Greece has going for it is a relatively warm climate and a history of doing well with relatively little supplemental energy. Ancient Greece was known for its philosophy, literature and theatre, music and dance, science and technology, and art and architecture. Northern Europe, because of its cold climate, was not able to do very much until it added peat moss and coal as supplemental energy. Once these cheap supplemental energies were added, Northern Europe was able to industrialize, while Southern Europe lagged behind. If we are running into obstacles now with respect to fossil fuels, perhaps the advantage will again go back to people who live in warm enough climates that they can mostly live without supplemental energy.

  • Crisis Investing Visualized

    History does not repeat itself, but it often rhymes. This could not be truer for crisis investing. Between China’s stock market and the debt troubles of Greece and Puerto Rico, it is clear that we could be entering a time of potential financial crisis. Every situation is unique, but generally the types of asset classes that protect investors in times of crisis are not necessarily the same as those during a bull run. Therefore, it’s worth taking a look at five previous periods of distress to see the returns of conventional and alternative asset classes.

     

     

  • Click Here for a 5 Minute Vacation

    There is nothing even remotely helpful in this post regarding investing, finance, economics, or politics.  This is merely a 5-minute SFW vacation for your eyes.

    By way of background, the family and I recently traveled through France for 12 days.   (If you want to know where any picture was taken, just ask in the comments section).

    Click any image for larger version …

           
    River 
         
    Garden 
    River2   
    Paris 
    Monet 
           
        
            @   
    Castle                   
     
     
        
    Fr 4 

     
    Paris French Art 204 
    French Art 095 
    IMG_7745 
    French Art 126 image French Art 010 French Art 061 French Art 004 French Art 006 French Art 042 
    French Art 043 French Art 047 
    Jesus 
    French Art 032 French Art 034 French Art 038 
    French Art 037 
    French Art 046 French Art 045 
    French Art 024French Art 066 
    IMG_7706-0.JPG 
    French Art 029 
    French Art 031 French Art 064 
    French Art 009  French Art 039 French Art 079 
    IMG_7746 
    IMG_7747 
    French Art 076  French Art 049  French Art 050  French Art 052  French Art 053 French Art 084 
    France 2 France 3 France 1 BW 
    Fr 13 Fr 8 Fr 9 
    Fr 7 
    Fr 6 
    French Art 019 
    Fr 5 
    French Art 057  French Art 059  French Art 069  French Art 070  French Art 071  French Art 072  French Art 073  French Art 075  French Art 063  French Art 068French Art 100 
    French Art 094  French Art 099 
    French Art 017  French Art 091 French Art 114

     

    Copyright © 2015. Washington’s Blog. All Rights Reserved.

     

  • Chinese Media Blames Soros, "Hostile" Foreigners For Stock Bloodbath

    Sinister forces are at work in China’s stock market, according to at least one “non-biased” Hong Kong newspaper. 

    To be sure, one might well be tempted to suspect that the inevitable unwind of a completely unsustainable (and by many measures, entirely insane) margin mania is to blame for the brutal selling that has, over the course of just three weeks, cost Chinese shares some $3.5 trillion in market value. But you’d be wrong, according to Ming Pao.

    Instead, the paper says, the same nefarious speculator who famously broke the BOE now has his sights set on bankrupting illiterate Chinese farmers. 

    Here’s more (Google translated for your amusement):

    George Soros sold short A-share stock market decline to stick to the mainland

     

    Failure to stick to the mainland stock market, the People’s Bank’s foreign hostile newspapers are suggesting that the initiator of short selling, the market rumors about George Soros and other short-selling A shares participate more rampant. In this round of decline in the futures market short is particularly evident, leaving the market to target the foreign capital. So foreign is really caused by the collapse of the culprit it?

     

    Soros have taken rumored sell A shares

    This isn’t the first time the recent collapse of China’s stock market has been blamed on “hostile”, short-selling foreigners. In fact, just four days ago, the pro-China, Taiwan-based China Times suggested that Morgan Stanley (whose “don’t buy this dip” call late last month didn’t do the SHCOMP any favors), Credit Suisse, and Bill Gross may be using “massive funds” to precipitate a sell-off. 

    Via China Times:

    Suspected hostile short-selling behind sell-off in China markets

     

    In a report on the Chinese news site ifeng.com, an analyst said the sell-off was similar to what took place in Hong Kong in 1997, when the territory’s benchmark Hang Seng Index plunged 60% after peaking at 16,673 points.

     

    The steep drop in share prices in Hong Kong in 1997 was caused by financier George Soros, who shorted both the Hong Kong dollar and the Hang Seng Index futures, the analyst said, adding that similar practices were observed in the last two trading sessions in China.

     

    According to the analyst, massive funds entered the futures market, building a short position and leading

    to declines in the stock markets. The size of the funds and the sophisticated trading methods are beyond the ability of Chinese institutional investors, the analyst said.

     

    In fact, Bill Gross of Janus Capital, a co-founder of global investment firm PIMCO, said in early June that the Shenzhen Stock Exchange’s Component Index presented perfect short-selling opportunities.

     

    At the time, the index was at a seven-year high but plummeted 30% on Gross’s comments. Morgan Stanley and Credit Suisse have also been bearish on Chinese shares recently.

     

     

    The problem for China, as we’ve pointed out on several occasions this week, is that Beijing has lost all control of the narrative, which puts the Politburo in unfamiliar territory. Rhetoric intended to calm the millions of newly-minted day traders who flooded into the market in Q1 and the beginning of Q2 has largely failed to stop the rush to the exits. China’s highly leveraged retail masses are now ready to sell every rip in an effort to break even, a mentality that contrasts markedly with the BTFD bonanza that prevailed on Chinese exchanges right up until June.

    Now, each new policy maneuver only serves to make Beijing appear more desperate, which in turn inflicts further damage on investors’ fragile psyche, leading to still more selling and still more margin calls in a vicious cycle that has by no means run its course considering the hundreds of billions in margin debt investors have accumulated through backdoor channels such as umbrealla trusts and structured funds.

    Whether George Soros is capitalizing (in a very tax efficient way we’re sure) from the carnage we can’t say, but what we do know is that Soros, Gross, Morgan Stanley, and Credit Suisse are likely the least of China’s short-term problems.

  • HiSToRY RHYMeS…

    HISTORY RHYMES

  • 108 Greeks Executed For Abusing The Welfare System

    Submitted by Simon Black via Sovereign Man blog,

    Thousands of years ago in Ancient Greece, it was a commonly held belief that the gods walked the earth among us humans.

    And that perhaps even Zeus himself might show up at your doorstep disguised as a vagabond.

    From this sprang the legendary sense of Greek hospitality, known as ‘xenia’.

    It meant that a complete stranger could walk into your home unannounced, and you had an obligation as the host to take care of him.

    To feed him. To house him. To bathe him. To let him freeload for as long as he needed.

    And since no Greek was willing to risk the wrath of the gods by being a bad host, xenia was one of their most important customs.

    Homer tells us of one famous instance of xenia in his epic poem The Odyssey.

    You’ll probably remember it from high school– the never-ending saga of Odysseus, King of Ithaca, as he makes his way home from the Trojan War.

    The war lasted ten years. Then Odysseus’ journey home lasted another ten years.

    And I think it’s the perfect analogy to the situation Greece finds itself in now.

    After the war, Odysseus’ fleet is blown off course by a massive storm during the voyage home, resulting in one misadventure after another.

    They’re captured by a savage Cyclops from whom they narrowly escape after blinding him with a wooden stake to the eye.

    His men become enchanted by magic fruit, causing them to completely lose their senses.

    Later they encounter cannibals who destroy nearly the entire fleet.

    Then the witch-goddess Circe turns half of his men into swine, and reverses her spell only when Odysseus agrees to be her sex slave.

    They pass by dangerous sirens, narrowly avoiding disaster by strapping their captain to the mast and stuffing their ears with beeswax.

    They barely fend off the six-headed monster Scylla, and then nearly all die at the whirlpool Charybdis, after which Odysseus is taken prisoner once again.

    He ultimately escapes, then almost dies (again) in a terrible storm (again) and gets shipwrecked (again), this time on the island of Scherie.

    It’s always something with this guy.

    I mean… seriously. Odysseus goes from one disaster to the next. Just like Greece today.

    Greece is in a never-ending crisis, going one misadventure to another.

    And right before they collapse, someone always comes to the rescue. The IMF writes a temporary bailout check, and Greece just barely escapes disaster… only to fall into another disaster.

    It happens over and over like a never-ending odyssey. Except that eventually it does end. And rather poorly.

    When Odysseus finally makes it back home to Ithaca after two decades away, he finds that he’s completely broke because 108 Greek men had been staying at his house and mooching off the estate.

    And as was Greek custom at the time, his wife Penelope had an obligation to take care of these men, all of whom abused the xenia tradition for their personal benefit.

    Modern Greece is legendary for its absurd public benefits.

    Hairdressers get to retire with full benefits on a taxpayer-funded public pension at age 50; dead people receive welfare benefits.

    This modern-day version of ‘xenia’ is an insane, easily abused system that’s brought Greece to bankruptcy.

    Odysseus responded by killing every one of 108 men who milked the system.

    The Greek government is certainly set on doing the same. But since they can’t identify any single perpetrator, they’re going after the entire nation.

    The capital controls the Greek government has implemented are punitive to nearly every man, woman, and child in the country. People can’t even access bank safety deposit boxes.

    And there’s clearly more punishment to come.

    This theme is not new. For thousands of years, nations have gone bankrupt from their own stupidity.

    And on the way down, they impose an escalating series of controls designed to keep the party going for just a little bit longer.

    Wage controls. Price controls. Capital controls. People controls.

    Greece is once again in this position, along with nearly every government in the West.

    Even the US has been narrowly escaping collapse for years. Government shutdowns are narrowly averted by some last-minute magic trick. Temporary emergency measures bail out the banking system. Etc.

    It’s an odyssey. But it too shall come to an end… rather poorly for those involved.

  • Bill Gross Misses His Own Big Short Call – Again

    Back in April, Bill Gross bet against Bill Gross — and lost. 

    After watching the yield on the 10-year German Bund crater to just 5bps in the wake of ECB QE, the (former) Bond King took to Twitter, calling Bunds the “short of a lifetime.” 

    The problem: he didn’t follow his own advice. 

    Instead, Gross bet that Bunds would remain range-bound over the short-term (perhaps believing that Mario Draghi’s bazooka would be enough to prevent a dramatic sell-off), a move that by the end of March, left him short puts that had risen by as much as 11,000% in the case of one contract, and 6,000% in the case of another, according to Bloomberg.

    “Gross — like the ECB — assumed the bursting of the Bund bubble would unfold over a longer period of time and in a measured fashion and so, he figured that in the interim he would take advantage of elevated premiums by selling puts. Unfortunately, his ‘short of a lifetime’ call sparked panic selling into a structurally thin market. That is, he made the right call but made the mistake of assuming the market is still to some degree efficient,” we remarked at the time. 

    Around six weeks after the Bund call, Gross made another prediction via the official Janus Twitter account:

    Shortly thereafter, this happened: 

    For anyone wondering whether the missed Bund opportunity taught Bill Gross a thing or two about the perils of betting against Bill Gross, the answer, according to Bloomberg, is “no” (or, “Oxi” for our Greek readers). Here’s more:

    Bill Gross, who recommended shorting the Chinese stock market last month before it plunged, didn’t actually do the trade.

     

    The Shenzhen Composite Index has fallen 38 percent since the famed Janus Capital Group Inc. money manager recommended shorting it last month. Gross chose instead to wager against both the Standard & Poor’s 500 Index and emerging market currencies that would be affected by falling stocks in China.

     

    “I was trying to stick to my knitting, and China wasn’t really my knitting,” he said in a telephone interview Wednesday.

     


    On the bright side for Gross, we suppose his name will now disappear from China’s short list of “hostile foreigners” suspected of conspiring to facilitate the bursting of the country’s margin-fueled equity bubble.

  • Stocks Slammed On Belligerent Merkel, Broken Markets, & Bearish Minutes

    Summing today up perfectly…

    *  *  *

     

    Shit Broke…

     

    The Dow and S&P both close back below their 200DMA…

     

    Stocks plunged and eviscerated all of the v-shaped recovery gains from yesterday…

     

    Cash markets remain notably lower post the "OXI" vote…

     

    Post-FOMC Minutes today… Bonds outperform and gold and stocks leaked lower…

     

    VIX surged back above 19.5…

     

    Treasury yields fell post minutes ending near the week's lows so far…

     

    The US Dollar leaked lower all day as early efforts by The SNB to stabilize Europe sent EURUSD higher…

     

    USDJPY plunged by the most in over 2 years…

     

    Commodities were once again very noisy. Copper, Silver, and Gold surged as stocks opened and crude slipped after DOE data…

     

    Crude gave up all of yesterday's "Iran deal is off" gains…

     

    Charts: Bloomberg

    Bonus Chart: The 1962-1966 S&P Analog (via @TheChartMeister )

Digest powered by RSS Digest

Jul 08

Today’s News July 8, 2015

  • Meanwhile, In "Success Story" Portugal

    Somehow, with over 33% of young people unemployed, Portugal is held up to be a ‘success story’ for Merkel’s Europe’s grand plan. With their stock market tumbling and bond yields (and spreads) soaring…

     

     

    Perhaps it’s time to realize nothing is fixed at all… as this image exposes all too clearly…

    Source: @sturdyAlex

    No, this is not a line at an Athens ATM; it is a soup kitchen in Porto, Portugal.

  • Moron Madness

    Submitted by Jim Quinn via The Burning Platform blog,

    photo shore062_zpsacce4164.jpg photo shore068_zps66097cb5.jpg

    We’re back from our vacation in Wildwood. I hoped for more relaxation, but it wasn’t to be. I rode my bike most mornings. I walked miles on the boardwalk with my wife and kids. We played the Cape May par 3 golf course. I went deep sea fishing with my youngest son. I made it to the beach twice. We made it to the Shamrock a few times, but we had more fun on the outdoor deck at Westy’s Pub. Watching an 85 year old couple who were barely 4 feet tall dancing like they did in the 1950’s to current pop hits was worth the price of admission. The scene brought a smile to the faces of anyone in the vicinity.

    I ate more pieces of white pizza from Mack’s than I can remember.

    photo shore075_zps4e49ea6d.jpg

    How I resisted getting more than one cup of peanut butter ice cream with chocolate jimmies at Kohr’s, I’ll never know.

    photo shore051_zpsb5395ffe.jpg

    We saw two outstanding displays of fireworks while we were there. The weekly fireworks are launched on the beach at my street, so we just need to go to the top deck or stand in the street to see the colorful display. The wind was blowing from the ocean, so the debris and ash floated onto our deck.

     

    photo shore036_zps55b8f38e.jpg

    photo shore034_zpsfa6d7c2e.jpg

    photo shore033_zpsafae6504.jpg

    I always have mixed feelings about Wildwood. I love sitting on the deck early in the morning drinking my coffee and listening to the seagulls squawking. It is peaceful and relaxing sometimes. The weekends tend to be loud, with obnoxious day trippers invading. The paintball game on the boardwalk a block from my house perfectly describes the sights on the Wildwood boardwalk. Moron Madness (you shoot at a guy dressed up as Osama bin Laden) is an apt description for the Wildwood boardwalk.

    photo shore050_zps39b40191.jpg

    It is tough to generalize about the thousands upon thousands of people walking/waddling on the Wildwood boardwalk. In the early morning hours, before 9:00 am, you see joggers, bikers, and mostly in-shape people on the boardwalk. This is the time when I find the boardwalk to be enjoyable. It’s quiet. The sun is coming up over the ocean. The dozens of tattoo parlors haven’t opened for business yet, and the freaks are at a minimum.

    photo shore058_zpsc3319e00.jpg photo shore067_zps4aa9e59a.jpg

    By 11:00 am the obese, tattooed, pierced, XXXL bathing suit wearing land whales have disconnected from their CPAP machines to hunt for donuts, soda and breakfast sandwiches.

    No one is safe as the thundering herd shuffles along, blocking bikers and joggers, as they grapple for position in front of the Dunkin Donuts on the boardwalk at my block. As they breathlessly anticipate the enjoyment of inhaling a dozen chocolate donuts with sprinkles, the incessant Mr. Softee music from next door is whispering to them – come buy a triple fudge sundae for lunch. It’s only $3.49. How can you pass up that deal?

    photo shore076_zpsbe77db1c.jpg

    This is just the beginning of temptation for the thousands of morbidly obese blobs straining the wooden structure known as the Wildwood boardwalk. The boardwalk is a veritable smorgasbord of funnel cake, fried oreos, fried cheesecake, tornado fries, lemonade, curly fries, corn dogs, zeppolis, fudge, cotton candy, salt water taffy, ice cream waffles, churros, pizza topped with cheese fries, triple fudge sundaes, and of course a large diet coke. How can 300 pound women in bikinis pass up the opportunity to do some carbohydrate binging?

    photo shore060_zps8e30e103.jpg photo shore066_zps77c5d3b1.jpg

    photo shore077_zps6115a60f.jpg

    The funniest “upscale” purveyor of toxic junk food is Wildwood’s only French establishment – La Bakerie. Where else could you find a Nutella Crepe, S’mores Crepe, Fried Snickers, Fried Twix, or Fried Nutter Butter? It’s like you’re actually in Paris.

    photo shore070_zps5b0afff3.jpg

    photo shore071_zps19ecf1dd.jpg

    I can’t help it that I’m an observer. I observe businesses, vehicles, street signs, clothing choices, and the people wandering the vast swaths of ‘Murrica. Liberals, progressives, Obama lovers, and control freaks have a problem with my observations because they don’t believe any behavior, clothing choice, or life choice should be judged, scorned or ridiculed. What we have here is a failure to communicate. I see ignorant, stupid, obese people who make bad life choices every day. They reveal themselves by their actions and their appearance. They stand out like a sore obese thumb in Wildwood. As I’ve noted earlier, there are many normal people in Wildwood, but it appears abnormalcy is winning. The dichotomy is most apparent on the weekends and holidays.

    The reason for this is quite simple. It costs $1,500 to $2,500 to rent a condo for a week in Wildwood. Only families with one or two working parents can afford to spend a week in Wildwood. This virtually eliminates black people. First off, there are few black two parent families. Secondly, there are even fewer black families with parents that work for a living. Therefore, you only see middle aged white parents and their kids strolling the streets and boardwalk during the week. When the weekend arrives Wildwood is inundated by day tripper white and black trash. Wildwood is the only free beach below Atlantic City. Stone Harbor, Sea Isle, Avalon, and Ocean City charge $5 or $6 per day per person to access their beaches. The Free Shit Army doesn’t like to pay, so they gravitate to Wildwood. Luckily, SNAP cards are not accepted at the food joints on the boardwalk, or Wildwood would look like West Philly.

    I actually enjoy taking a jaunt on the boards during the weekend to make note of the freaks, land whales, rapper wannabes, and the ignorant unemployable tattooed masses. I don’t have to exaggerate one iota regarding the sights that threatened to burn my corneas. My wife and kids can confirm all of my observations. Why do 250 pound girls think they can pull off wearing a bikini? Is there no shame? You shouldn’t be banned from the beach because you’ve eaten yourself to the size of a hippo, but for christ sake wear a one piece bathing suit and a moo moo. Why are so many poor people so fat? The number of waddling morbidly obese  unmarried women and their uncontrollable horde of bastard children is mind boggling. And why do these people find it amusing to feed seagulls on the boardwalk creating havoc and a bird shit attack on innocent bystanders? Do they have no sense of decorum or civility? Anyone who feeds a seagull on the boardwalk is an outright idiot.

    Idiots abound during the weekends in Wildwood. Moron madness sums it up nicely. The proliferation of tattoos amongst the ignorant is astounding. I certainly can understand soldiers getting a tattoo on their arm representing their unit or service as a form of comradeship. I understand motorcycle club members identifying themselves by a distinct common tattoo. But young girls with multiple tattoos on their legs, arms, necks, and backs is revolting and stupid. We saw an attractive young girl at the Shamrock bar with a full leg tattoo. When my wife saw it close up while in the restroom, she noticed it was faces of ghouls and vampires. What happened in her childhood to lead her to deform herself in such a manner? It reminds me of cattle being branded by farmers, except the cattle are human beings being herded and corralled by their government keepers and they brand themselves.

    I’m baffled as to why so many people feel the need to mutilate their bodies. These are lower class people with limited financial resources. Some of them have thousands of dollars worth of ink deforming their bodies. The combination of ignorance, illiteracy, mathematical incompetence, and no self respect is a toxic mixture destined to keep these people trapped in poverty and unemployable. I have a theory about why the poor feel the need to tattoo themselves. We live in an egocentric facebook culture where everyone is competing to be noticed. People are desperate for attention. The rich don’t get tattoos. They drive BMWs. They wear Rolex watches. They wear Armani suits. They live in McMansions. The poor can’t afford bling, real estate, or luxury cars. But they can finance tattoos with their credit card. The easily led, ignorant, lemming like masses are just following the lead of the other ignorant masses. You can’t teach stupid.

    The funniest aspect of the boardwalk is the tramcar – I hear “watch the tramcar please” in my sleep. After wolfing down a few fried oreos, washed down by a 32 oz lemonade, the tattooed masses hail down the tramcar to drive them the ten blocks to their motel rooms. They are too ignorant to understand the irony of being transported on something called the Boardwalk. 

    photo shore082_zps6fea32be.jpg

    There is nothing particularly wrong with the people enjoying themselves on the Wildwood boardwalk. They aren’t bad people. They aren’t committing crimes. They are spending money and keeping the economy going. But, I can pretty much guarantee you that not one of these people has ever visited The Burning Platform or would even understand the issues we debate every day. They are willfully ignorant. They don’t want to think about hard stuff. They have been dumbed down by our public education system. They have become obese by eating the toxic frankenfood peddled by mega-corporations. I noticed one heifer with one of those ugly Apple iWatches on her immense wrist. Where do these supposedly poor people find $500 to waste on an egocentric useless bauble. Ignorant Americans are addicted to status symbols because their lives are so shallow and their intellects are deficient. True self worth comes from within, not from what you wear, drive, or paint on your body.

    They have been brainwashed by their government with decades worth of propaganda that has sedated them, made them fearful of phantom terrorists, and supportive of blowing up people in foreign countries without a declaration of war. They actually believe the armed police forces roaming our streets kept us safe from a terrorist attack on the 4th of July. Their pea sized brains are unable to process the fact that more people have died in bathtub accidents since 9/11 then have died at the hands of terrorists. They don’t question, think or care about future generations. They don’t understand the long term financial implications of a country with $200 trillion of unfunded liabilities. They don’t even understand the term liability. It’s almost enough to make a man go to the Boardwalk Chapel and pray for the souls of the ignorant masses.

    photo shore064_zps71260681.jpg

    At least the merchants on the boardwalk are creative and retain a sense of humor. I’m sure some progressive politician from Washington D.C. would be offended by being told to grab a wiener. Or maybe in our new gay America, this joint would be celebrated by the LGBT community.

    photo shore057_zpsf225edce.jpg

    Coincidence or not? You decide.

    photo shore056_zps72282481.jpg

    Some boardwalk stores actually provide some hope. Teaching the masses on the boardwalk to disobey might take more than a shirt. I would estimate that 75% of the people strolling along the Wildwood boardwalk have never heard of Edward Snowden, let alone what he did. And of those who have heard of him, most buy the government storyline that he is a traitor. But 99.9% of these morons know the courageous story of Bruce Jenner’s transformation into a freak called Caitlyn. They are oblivious to the military industrial surveillance state they occupy. The militarization of local police forces doesn’t reach their radar screens. Miley Cyrus twerking videos are more important.

    They have no worries about the fact that Obama and the captured corrupt politician snakes slithering around the halls of Congress have added $7.6 trillion to the national debt since 2009, a 75% increase in six years. They care not that their president uses drones to murder people in foreign countries. They think having troops in Afghanistan, Iraq, Syria, Libya, and dozens of other countries around the world is keeping them safe. They are happily unaware that the American empire overthrows governments on a regular basis if they don’t do what we tell them to do.

    It seems that everyone on the Wildwood boardwalk embraces the surveillance state. They all have tracking devices attached to their hands. Vacation used to mean leaving the office, disconnecting, relaxing, and recharging your batteries. With the proliferation of iGadgets, the masses have been trained by the Bernaysian propagandists to have the attention span of gnats. Rather than enjoying themselves on vacation, they have to prove to the world they are having fun. They “need” to check-in on Facebook. They must post selfies from the bar. They have to take a picture of their meal and tweet it to the world. The vacuous multitude are gloriously distracted from reality by their technological chains. The State is ecstatic, as the plebs wallow in bread and circuses (funnel cake & roller-coaster rides), and provide an electronic tracking signal for the NSA to exploit when necessary. The willfully ignorant masses will not disobey en-mass until they are no longer getting monthly government transfers, ATM machines stop spitting out $20 bills, and their credit cards come back declined.

    photo shore069_zps64b78553.jpg

    After observing for too long, I needed a break. We had one particularly enjoyable walk that we captured in a few pictures. As you walk down the boardwalk towards North Wildwood the rides and games fade into the distance. It gets quieter and less congested. When we reached the end of the boardwalk we decided to keep going for another 15 blocks to The Rocks at 2nd & JFK Boulevard. There was no one on the path with us. It became quiet and peaceful. The moon was full and reflecting on the rippling waves of the Atlantic Ocean.

    photo image_zpshc3h8jrx.jpg

    The sun was setting in the West providing an orange glow over the lighthouse and the bay in the distance.

    photo image_zpsoudmmuv8.jpg

    The scene couldn’t have been more breathtaking. No people. No technological distractions. No noise pollution. Just the sea, the wildlife, the sand dunes, and a shining orb in the sky.

    photo image_zpspg3cq9bs.jpg

    But then we had to walk back to reality. That is the dichotomy you experience in Wildwood. There is much to enjoy and savor, but it is overwhelmed by moron madness. I’ve come to believe that Aldous Huxley’s fears have been manifested on the boardwalk of Wildwood and across our entire nation. The masses don’t read books. We are inundated with so much useless information, we have been reduced to passivity and egotism. The truth is buried in a sea of irrelevance and our culture is based upon triviality. Our almost infinite desire for distractions and pleasure have produced a profoundly abnormal society. The ignorant masses are acting normally only in the context of living in a sick, demented, abnormal society.

    “The real hopeless victims of mental illness are to be found among those who appear to be most normal. “Many of them are normal because they are so well adjusted to our mode of existence, because their human voice has been silenced so early in their lives, that they do not even struggle or suffer or develop symptoms as the neurotic does.” They are normal not in what may be called the absolute sense of the word; they are normal only in relation to a profoundly abnormal society. Their perfect adjustment to that abnormal society is a measure of their mental sickness. These millions of abnormally normal people, living without fuss in a society to which, if they were fully human beings, they ought not to be adjusted.” ? Aldous Huxley, Brave New World Revisited

  • The Obama Jobs Recovery Spin (Explained In 1 Cartoon)

    We explained this in words (here and here), but here are the pictures…

     

     

    Source: Investors.com

  • Europe's Spiralling Game Of Chicken – Politics Always Trumps Economics

    Submitted by Ben Hunt via Salient Partners' Epsilon Theory blog,

    There are decades where nothing happens; and there are weeks where decades happen.
    – Vladimir Lenin (1870 – 1924)

    In 1914, Europe had arrived at a point in which every country except Germany was afraid of the present, and Germany was afraid of the future.
    – Sir Edward Grey (1862 – 1933)

    Last week’s email, “1914 is the New Black”, was the most widely read Epsilon Theory note to date, and given the weekend ’s events it bears repeating, as the echoes of 1914 are growing louder and louder. We are, I think, likely embarked on the death spiral phase of a game of Chicken, just as in the summer of 1914. The stakes are, for now at least, not nearly as cataclysmic today as they were a century ago, but the social and political dynamics are eerily alike.

    I’m often asked how to get a better take on a historical event like the lead-up to World War I, and the answer is that there’s no substitute for immersing yourself in what people were actually saying and writing at the time the events transpired. If you’re lucky, perhaps you’ll pick a period that also attracted the attention of a gifted historian like a Robert Caro or a David McCullough. Second best, I’ve found, is to find a gifted editor or anthologist to smooth the path a bit. One such anthologist is Peter Vansittart, who collected a wide range of original texts in his classic books, “Voices: 1870 – 1914” and “Voices from the Great War”. I’ve taken some of those texts and appended them below. They speak for themselves, I hope, to illustrate the defining characteristic of a spiraling game of Chicken – all sides begin to speak in terms of “having no choice” but to take aggressive actions to defend their own interests.

    Before the quotes, though, three other historical observations:

    1. The Austrian ultimatum to Serbia – long seen as the proximate cause of World War I – was accepted by the Serbian government almost in its entirety. Unfortunately, that “almost” part made all the difference. An important anecdote to remember the next time someone calls your attention to Tsipras’s acceptance of 90% of the Eurogroup reform ultimatum.
    2. Anti-establishment voters are always underrepresented in establishment polls. Noted segregationist and Alabama governor George Wallace won the 1972 Democratic Party primary in Michigan despite showing third in polls. Daniel Ortega and his Sandinista regime lost the 1990 Nicaraguan election by 10 percentage points to Violeta Chamorro despite leading by more than 10 points in every pre-election poll. The Syriza NO landslide was no surprise here, and this is an important phenomenon to keep in mind when you start to see opinion polls from Italy and France published over the next few days.
    3. Politics always trumps economics. My favorite 1914 quote in this regard is from Lord Cunliffe, governor of the Bank of England from 1913 – 1918, who famously declared that war was impossible because “The Germans haven’t the credits.” So what if Greek banks run out of euros? The Greek government will make their own, or maybe issue California-style IOUs and dare the Eurogroup to boot them out of the currency. If you think that an ECB squeeze can put this political genie back in the bottle, you’re making the same classic error as Walter Cunliffe did.

    And now the quotes.

    I held a council at 10:45 to declare war with Germany. It is a terrible catastrophe but it is not our fault. An enormous crowd collected outside the palace; we went on the balcony both before and after dinner. When they learned that war had been declared, the excitement increased and May and I with David went on to the balcony; the cheering was terrific.
    – King George V (1865 – 1936)

    England alone carries the responsibility for peace or war, no longer us.
    – Kaiser Wilhelm II (1859 – 1941)

    In this most serious moment I appeal to you to help me. An ignoble war has been declared to a weak country. The indignation in Russia shared fully by me is enormous. I foresee that very soon I shall be overwhelmed by the pressure brought upon me and be forced to take extreme measures which will lead to war. To try and avoid such a calamity as a European war, I beg you in the name of our old friendship to do what you can to stop your allies from going too far. — Nicky
    – Tsar “Nicky” Nicholas II (1868 – 1918) in a letter to his cousin, Kaiser “Willy” Wilhelm II

    Now Tsarism has attacked Germany, now we have no choice, now there is no looking back.
    – Kurt Eisner (1867 – 1919)

    Necessity knows no law; we must hack our way through.
    – Theobald von Bethmann-Hollweg (1856 – 1921) in a speech to German Reichstag

    The few neutral states are not sympathetic toward us. Germany has not a friend in the world, she stands utterly alone and has only herself to depend on. … How different it all was a few weeks ago, when we launched so brilliant a campaign – now a bitter disillusionment is setting in. And how much we shall have to pay for all that is being destroyed!
    – Helmuth von Moltke the Younger (1848 – 1916) in a letter to his wife

    In this war it is a question … of German civilization against barbarous Slavdom.
    – Helmuth von Moltke the Younger (1848 – 1916)

    The year 1914 in America seemed the crest of a wave of passionate idealism among young people, and of passionate selfishness among middle-aged people.
    – John Cowper Powys (1872 – 1963)

    July 25: Unbelievably large crowds are waiting outside the newspaper offices. News arrives in the evening that Serbia is rejecting the ultimatum. General excitement and enthusiasm, and all eyes turn towards Russia – is she going to support Serbia? The days pass from 25 to 31 July. Incredibly exciting; the whole world is agog to see whether Germany is now going to mobilize.

    July 31: Try as I may I simply can’t convey the splendid spirit and wild enthusiasm that has come over us all. We feel we’ve been attacked, and the idea that we have to defend ourselves gives us unbelievable strength … You still can’t imagine what it’s going to be like. Is it all real, or just a dream?
    – diary of Herbert Sulzbach, “With the German Guns” (1935)

     

  • China Crashes Most Since 2007 Amid "Panic Sentiment"; Over Half Stocks Suspended, PBOC Promises "Liquidity Support"

    Some context…

    For a record 12th day in a row, Chinese margin debt balances have dropped with today's 8.5% collapse the largest in history. As of last night, there were around 570/1694 Shenzhen stocks halted/suspended and hundreds more on the Shanghai bourse leaving more than 54% of all Chinese stocks frozen ($2.6 trillion or 40% of value). China continues to try to manage leverage down (raising margin requirements on stock futures) while encouraging speculation (easing rules for insurers to buy blue chips and financing the purchase of smaller company shares directly) and CYNK'ing the entire market – if it's not open, you can't sell it and the price cannot fall! It's not working as CSI-300 futures are now down 7.9% in the preopen.

    • *CHINA TRADING HALTS FREEZE $2.6 TRILLION, 40% OF TOTAL VALUE

    China appears to be trying to manage leverage…

    • *CHINA RAISES MARGIN REQUIREMENT FOR CSI 500 INDEX FUTURES
    • *SHANGHAI MARGIN DEBT FALLS 8.5%, BIGGEST ONE-DAY DROP ON RECORD

     

    The problem is the collateral value is falling faster than the margin debt leaving "leverage" still at record highs…

    While encouraging speculation…

    • *CHINA EASES RULES FOR INSURERS TO INVEST IN BLUE CHIPS: XINHUA
    • *CHINA SECURITIES FINANCE TO BUY MORE SMALLER COS. SHRS: CSRC

    China news is domninated by dozens of pages of this…

    • *CHINA TRADING HALTS LEAVE 43% OF ENTIRE STOCK MARKET FROZEN
    • *1,249 CHINESE COMPANIES HAVE HALTED TRADING IN SHARES
    • UPDATE: Trading halts have left 1544 companies, equivalent of 54.7% of the Shanghai Composite and Shenzhen Composite, suspended today. (@GregorHunter)

    With what we estimate is around 850-900 Shenzhen Composite stocks suspended (over half of the 1694 stocks in the index) and almost 25% of Shanghai Composite stocks, it appears China has resorted to the endgame in managing a collapse…

    if it's not open, you can't sell it and the price cannot fall!

    In other words – the whole Chinese market just got CYNK'd

    * * *

    It's not working…

    • *CSI 300 JULY FUTURES PLUNGE 7.9% IN SHANGHAI
    • *CHINA'S SHANGHAI COMPOSITE INDEX SET TO OPEN 7% LOWER

     

    It looks like today could see China go red for the year…

    *  *  *

    China weakness and European rhetoric wearing S&P futures lower (down 11 points from cash close)…

    *  *  *

    Another day another attemnpt to stabilize…

     

    Just add this to the list of interventions…

    Perhaps if you just stare at it long enough, it will rise…

     

    Just remember this crash is telling us somethinmg about China…

    The stock market knows more than any individual investor, and China's is no exception.

    As NYU Professors Jennfier Carpenter and Robert Whitelaw told CNBC in January…

    This optimism should be taken seriously. This run-up is not a bubble, and so investors should not fear another crash.

     

    Our research shows that after a rocky first decade, which earned China's stock market a reputation as a casino, stock prices in China predict future profits as well as they do in the U.S. Moreover, this predictive power is highly correlated with China's corporate investment efficiency, suggesting that stock prices are teaching corporate managers important lessons as well. However, capital in China is still allocated almost entirely by its massive banking sector. It is time to untie the hand of the stock market, reform listing standards, streamline the IPO approval process now holding up over 600 firms seeking equity capital, and let the stock market allocate capital, too.

    Shut Up!!!

    As we detailed earlier – none of this was real or indicative of any real economic growth – it was all speculative ponzi and will not end well…

    Exhibit 1 – Based on 'fundamentals', The Shanghai Composite has a long way to go…

     

    Exhibit 2 – If Dr. Copper is right about the state of the world, The Shanghai Composite won't find support until it has fallen another 60%…

     

    Exhibit 3 – Judging by historical analogs, The Shanghai Composite will need to destroy all gains in the last 2 years before 'value' is once again seen…

     

    Chinese investor psychology has shifted. Period. The more the government intervenes to lift stock prices explicitly, the more local and professsional leveraged investors will use any strength to unwind their positions (profitably or unprofitably).

  • China Now Risks "Financial Crisis"; Loses Could Be "In The Trillions" BofA Says

    “Regarding the deleveraging process in the market, in our view the government started too late & without adequate preparation for the potential downside. We suspect because it didn’t know the true extent of shadow margin financing activities.” 

    That’s BofAML’s take on why Beijing is now throwing the kitchen sink at a Chinese equity market that’s sold off to the tune of 30% in the space of just three weeks, vaporizing $3 trillion in market value in the process.

    Zero Hedge readers are by now well versed in the relatively brief history of unofficial, backdoor Chinese margin lending. This shadowy world, which includes umbrella trusts, structured funds, and P2P lending, has served to funnel somewhere in the neighborhood of CNY1 trillion into Chinese equities.

    Apparently, the powers that be in China — who are quite adept at monitoring “threats” to the Party line and are quick to remove all traces of “objectionable” material from the internet — completely missed the giant margin bubble that was allowed to inflate outside of brokers’ books. A far more realistic explanation of course is that Beijing was well aware of what was going on but let it continue due to the fact that China’s world-beating equity rally was the only thing distracting the country from flatlining economic growth and a bursting real estate bubble.

    Whatever the case may be, the margin mania unwind is upon us and as noted earlier today, nothing seems to be able to stop it. Not suspending compulsory liquidation for unmet margin calls, not billions in committed market support from brokerages, not a PBoC backstop for the CFSC, and not even a ban on selling by the Social Security Council (we’ll see when the SHCOMP opens on Wednesday morning if banning bearish language has any effect). 

    As Chinese stocks climbed ever higher earlier this year, some commentators began to ask if a stock market collapse would have implications for the broader Chinese economy. In short, just about the last thing the country needs amid slumping global (not to mention domestic) demand is for a crisis of confidence in local equity markets to spill over into the real economy and derail consumer spending just as Beijing attempts to transition the country away from a smokestack model and towards an economic future characterized by services and consumption.

    Generally speaking, the consensus was that any fallout from the bursting of the equity bubble would largely be confined to the financial markets. Now, analysts are very quietly starting to suggest that if the sell-off doesn’t end soon, it could metastasize and spread “far beyond the stock market.”

    *  *  *

    From BofAML:

    The A-share correction: The damage could spread far beyond the stock market

    A dent to market’s faith in government role

    We believe that the biggest damage caused by the A-share market’s roller-coaster ride since the middle of last year has been to investors’ faith in the government’s ability to manage asset prices (stock, RMB, debt and even property) reasonably smoothly. The difficulty the government has faced to stabilize the stock market has demonstrated the downside of that faith. As a result, we expect many of these assets to be re-priced lower going forward. Also,the ripple effect from the market correction has yet to show up – we expect slower growth, poorer corporate earnings, and a higher risk of a financial crisis.

    Many assets in China may get re-priced lower

    We question the implementation of government policy in urging people to buy stocks. Regarding the deleveraging process in the market, in our view the government started too late & without adequate preparation for the potential downside (we suspect because it didn’t know the true extent of shadow margin financing activities) and it resorted to administrative control when the market turned down. So far, government measures have appeared to us to be behind the curve. As a result, we expect investors to assign less value to various perceived government “puts” going forward. The fall in the stock market could also make the government even more cautious towards QE and potentially using the property market or debt market to hold up growth, in our view – a burst of any of these bubbles, if fully developed, will be far more difficult to deal with than what’s happening in the stock market.

    Real economy & corporate earnings will suffer

    The net result of this volatile market is a transfer of wealth from the people on the street to the wealthy, including many major shareholders, who cashed out. We expect this will likely hurt consumption down the road. More critical is a potential distortion to credit flows due to the impairment to financial institutions’ balance sheets – as experience with Japanese banks shows, even if they don’t have to mark to market and book losses, their lending attitude may turn more cautious. Of course, the impact of a full-blown financial crisis in China, if it materializes, on the economy would likely be severe. On corporate earnings, other than the drag from slower growth, many companies may have to book stock-market related losses over the next few quarters by our assessment.

    A possible trigger for a financial crisis in China

    If the market continues to fall sharply, stock lending related losses could run into Rmb trillions, of which, banks and brokers may have to bear a meaningful share. These potential losses can be especially dangerous to brokers whose capital base is less than Rmb1tr. Even more important, the opaqueness of China’s financial system and the lack of clear definition of risk responsibility mean that contagion risk is high, similar to the subprime crisis. We had always considered the risk of a financial crisis in China as high. What has happened in the stock market has likely increased the risks considerably and also brought forward the timeline by our assessment – the leverage is much higher now and economic growth rate, potentially lower.

    *  *  *

    We’ll leave you with following chart from Morgan Stanley which should be enough to dispel the notion that the deleveraging in China might have run its course:

  • Merkel Mocks Greece And The Referendum: There Is Money, But The Deal Is Much Harsher Now (And No Debt Haircut)

    Another day came and went with no breakthrough in negotiations between Athens and Brussels as new Greek FinMin Euclid Tsakalotos reportedly showed up to Tuesday’s Eurogroup with nothing to discuss. 

    With the ECB tightening the screws on Greek banks and the German finance ministry as well as German lawmakers tightening the screws on Angela Merkel, the Chancellor is drawing a hard line toward the Greeks in the face of calls for debt writedowns from the IMF, Greek PM Alexis Tsipras and the Greek people. 

    • MERKEL SAYS IF GREEK REFORM PROPOSALS ARE SATISFACTORY AND PRIOR  ACTIONS TAKEN, SHORT-TERM FINANCE CAN BE PROVIDED: RTRS
    • MERKEL SAYS SHORT-TERM GREEK FIX HINGES ON LONG-TERM PROPOSALS
    • MERKEL SAYS GREECE NEEDS MULTI-YEAR PROGRAM 
    • MERKEL: GREEK PROPOSALS HAVE TO GO BEYOND WHAT BAILOUT INSTITUTIONS DEMANDED BEFORE REFERENDUM
    • MERKEL SAYS GREECE WILL NEED STRONGER MEASURES TO PLUG FINANCING GAP BECAUSE OF ECONOMIC DETERIORATION
    • MERKEL: EU TO DEAL WITH GREEK DEBT BURDEN AT END OF PROCESS
    • MERKEL SAYS EURO LEADERS DIDN’T DISCUSS AID PACKAGE SIZE
    • MERKEL SAYS SHE ISN’T ‘ESPECIALLY OPTIMISTIC’ ABOUT GREECE
    • MERKEL RULES OUT DEBT ‘HAIRCUT’
    • MERKEL SAYS ECB BRIEFING SIGNALED GREECE NEEDS SUNDAY DECISION

    More from Reuters: 

    German Chancellor Angela Merkel said on Tuesday she hoped to have sufficient reform proposals from Greece this week to be able to ask the German parliament to approve negotiations on a new long-term aid programme for Athens.

     

    She said all 28 European Union leaders would meet next Sunday to discuss support for Greece provided Prime Minister Alexis Tsipras put forward detailed reform proposals along with a loan request by Thursday that were considered satisfactory.

     

    If the reform list was adequate and Greece took some prior actions to enact first measures, Merkel said she was sure that short-term finance could be provided to help Athens over its immediate funding needs.

    In other words, Merkel just told the Greeks yes, there is some money, but forget debt haircut, and the new deal is far harsher than what was on the table because the Greek economy is now imploding. Also, the deal will be 2-3 years at least to start, so even more austerity is on the table. So to all those who voted “Oxi”, if you want your deposits unlocked well… tough.

    The headlines keep coming hot and heavy, in which we find that Europe now thinks it is Greece’s god:

    • MALTA’S MUSCAT SAYS `SUNDAY IS JUDGMENT DAY’

    As Bloomberg reports, “Sunday now looms as the climax of a five-year battle to contain Greece’s debts, potentially splintering a currency that was meant to be irreversible and throwing more than a half-century of economic and political integration into reverse. “We have a Grexit scenario prepared in detail,” European Commission President Jean-Claude Juncker said, using the shorthand for expulsion from the now 19-nation currency area.

    And just so it is clear who is calling the shots, here is Juncker explaining:

    • JUNCKER: LAST MOMENT FOR GREEK GOVT WILL BE MONDAY MORNING

    What happens then?

    “Our inability to find agreement may lead to the bankruptcy of Greece and the insolvency of its banking system,” European Union President Donald Tusk said. “If someone has any illusions that it will not be so, they are naive.”

    And just in case Greece decides to disobey, Europe is ready to treat Greece as an African nation:

    • JUNCKER: EU COMMISSION HAS HUMANITARIAN PLAN FOR GREECE IF NEED

    The only good news for Greece, which was just clearly reduced to a vassal nation state of Europe, is that Merkel did not demand Tsipras’ head on a silver platter. Then again, if he does indeed fold, it may be the Greek people themselves who ask for it instead…

  • Cronyism Pays: Eric Holder Triumphantly Returns To Law Firm That Lobbies For Banks

    Submitted by Mike Krieger via Liberty Blitzkrieg blog,

    Trying to determine Barack Obama’s most corrupt, crony appointee presents a virtually impossible task. Every single person he’s appointed to a position of power over the course of his unfathomably shady, violent and unconstitutional presidency, has been little more than a gatekeeper for powerful vested interests. Obama’s job was to talk like a marxist, but act like a robber baron. In this regard, his reign has been an unprecedented success.

    All that said, if anyone is a top contender for the worst of the worst of the Obama Administration, it’s Eric Holder. As head of the Department of Justice, he was the one man who could’ve played an enormously positive role in American society, by punishing those responsible for creating the financial crisis that destroyed tens of millions of lives globally. Instead, he chose to actively protect the financial oligarchs and ushered in a tragic new era for these United States. One in which the world suddenly realized that the U.S. is little more than a glorified oligarchy. Essentially an aggressive Banana Republic armed with nuclear weapons and the swagger of a third world dictator.

    Holder’s list of failures and evidence shameless cronyism are virtually endless. I’ve covered many of them on this site. Here are just a few:

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

    Eric Holder Announces Task Force to Focus on “Domestic Terrorists”

    Eric Holder and the DOJ Have Spent Millions of Taxpayer Dollars on Unreported Personal Travel

    Elizabeth Warren Confronts Eric Holder, Ben Bernanke and Mary Jo White on Bankster Immunity

    Even Washington D.C. Insiders Admit Eric Holder is a Bankster Puppet

    Eric Holder Claims Emails Using Words ‘Fast and Furious’ Don’t Refer to Operation Fast and Furious

    For all his hard work protecting and coddling criminal financial oligarchs, Eric Holder was always going to be paid handsomely once he left office. That time has come. From the Intercept:

    After failing to criminally prosecute any of the financial firms responsible for the market collapse in 2008, former Attorney General Eric Holder is returning to Covington & Burling, a corporate law firm known for serving Wall Street clients.

     

    The move completes one of the more troubling trips through the revolving door for a cabinet secretary. Holder worked at Covington from 2001 right up to being sworn in as attorney general in Feburary 2009. And Covington literally kept an office empty for him, awaiting his return.

     

    The Covington & Burling client list has included four of the largest banks, including Bank of America, Citigroup, JPMorgan Chase and Wells Fargo.

     

    Covington was also deeply involved with a company known as MERS, which was later responsible for falsifying mortgage documents on an industrial scale. “Court records show that Covington, in the late 1990s, provided legal opinion letters needed to create MERS on behalf of Fannie Mae, Freddie Mac, Bank of America, JPMorgan Chase and several other large banks,” according to an investigation by Reuters.

     

    The Department of Justice under Holder not only failed to pursue criminal prosecutions of the banks responsible for the mortage meltdown, but in fact de-prioritized investigations of mortgage fraud, making it the “lowest-ranked criminal threat,” according to an inspector general report.

     

    When the firm moved to a new building last year, it kept an 11th-story corner office reserved for Holder.

    For all intents and purposes, he never really left Covington. He just took a sabbatical to protect the banksters for a few years.

    Holder is set to become among the highest-earning partners at the firm, with compensation in the seven or eight figures.

    Of course, Mr. Holder is not the only shameless crony to join Covington. It seems the firm almost makes a point to hire the most compromised, Washington D.C. parasites they can find. As the New York Times noted:

    Covington already employs a number of former Justice Department officials, including Lanny Breuer, the former assistant attorney general for the department’s criminal division under Mr. Holder; Mr. Breuer’s successor, Mythili Raman; and Michael Chertoff, a former assistant attorney general and secretary of Homeland Security.

     

    History shows that Breuer wouldn’t challenge bankers if they threw his own mother out on the street. Meanwhile, Chertoff is famous for trying to make a fortune by scaremongering the American taxpayer into buying his worthless Rapiscan naked body scanners.

    Moving along, let’s try to look on the bright side. With Holder gone, his replacement couldn’t possibly be worse, right? Wrong.

    Recall: Meet Loretta Lynch – Obama’s Attorney General Nominee Who Might be Even Worse than Eric Holder

    Now I’d like to say farewell to Eric Holder the only way I know how…

  • Presenting China's Plunge Protection Playbook

    Earlier today we were amused (but not at all surprised) to learn that Beijing’s latest strategy in the fight to rescue collapsing Chinese stock prices involves forbidding local media from using terms like “rescue the market” and “equity disaster”. Here’s a concise recap of the situation: 

    Officials in Beijing are in the throes of Politburo panic after watching some $3 trillion in market value disappear into thin (and probably polluted) air over the last three weeks. Amid the turmoil, China has resorted to an eye-watering array of policy maneuvers, pronouncements, and plunge protection schemes aimed at arresting the slide. 

     

    Nothing has worked; not suspending compulsory liquidation for unmet margin calls, not billions in committed market support from brokerages, not a PBoC backstop for the CFSC, not even a ban on selling by the Social Security Council. And when banning selling doesn’t work, you have to ban talking about selling.

     


    Indeed, it’s truly amazing to consider the lengths China has gone to over such a short period of time in a futile attempt to resurrect the margin-fueled equity bubble that has served as a convenient distraction for a country that might otherwise be focused on decelerating economic growth and a collapsing real estate bubble. 

    Because there’s still a long way to go before the panicked deleveraging in backdoor margin lending channels runs its course, we expect to see Beijing resort to still more desperate measures to arrest the slide. Meanwhile, Morgan Stanley — whose “don’t buy this dip” call might well have been the straw that broke the dragon’s back so to speak — is out with a detailed history of China’s plunge protection playbook. Below is a visual representation followed by the detailed breakdown.

    From Morgan Stanley:

    Taking action to stabilize the A-share market

    June 27: RRR cut and rate cut

    The People’s Bank of China (PBOC) announced cuts in the benchmark 1-year lending rate of 25bps to 4.85% and the 1-year deposit rate of 25bps to 2.00%, effective June 28, 2015. Meanwhile, the central bank also cut the RRR applied on qualified financial institutions with a focus on rural and/or SMEs loans by 50bps, and that on finance companies by 300bps. This is the first combined interest rate and RRR cut taken during this round of policy easing. Morgan Stanley expects the move to release around Rmb230bn of liquidity into the system.

    June 29: Up to 30% of US$570bn pension fund likely to be invested in stock market

    “Basic Rules of Pension Insurance Fund Investment Management ” has started to solicit feedback from the public. According to the preliminary draft, up to 30% of the fund could be invested in equities and equity-related investment products.

    June 30: 13 major private fund managers jointly voiced bullish views on A shares

    Thirteen major China private fund managers jointly announced that the core foundation for the A-share rally has not changed – stable monetary policy, structural reform, asset reallocation by Chinese households. The risk-return profile has improved after the recent correction and provided good investment opportunities for mature, rational investors. The joint announcement was organized by China Asset Management Association.

    June 30: Easing of regulations/rules on margin financing

    1. On existing margin financing through unofficial channels: CSRC announced that total underground margin financing is estimated to be Rmb500bn. The total amount of mandatory position closing during the previous two weeks was only Rmb15bn.

    2. On regulations/rules regarding margin financing through unofficial channels: CSRC announced that brokerage firms are allowed to provide data feed connection to web-based securities services operated by qualified third parties.

    Service providers that have been involved in rule-violating activities will need to go through reforms and rectifications. During this period, the service provider can continue providing service for the existing margin balance, but not grow any new business.

    3. On regulations/rules regarding margin financing through brokers: One major Chinese broker, Guo Tai Jun An, announced on its website that it had decided to adjust up the collateral conversion ratio for selective CSI 300 Index constituent companies (equity holdings that could be used as collateral for margin financing) and adjust down margin maintenance requirement, effective starting from July 1.

    July 1: Easing of regulations and rules on margin financing

    1. CSRC announced new rules on margin financing through a new version of “Brokerage Firm Margin Financing Business Management Rules”.

    a) Removes the requirement of margin calls with two business days when investor’s collateral market value falls below 130%, and that total value of collateral (existing + additional) needs to be above 150% of the financing amount.

    b) Allows brokerage firms and their clients to decide between themselves the requirement for the deadline and amount for margin calls.

    c) Allows more flexibility for brokers to treat investors’ collateral – forced liquidation is not mandatory any more.

    d) Brokerage firms are allowed to roll over existing margin financing contracts that are not longer than six months.

    2. The Shanghai Stock Exchange announced that real estate and equity ownership can be used as additional collateral if margin calls get triggered.

    July 1: Increase of shareholding by listed companies

    1. Increase of shareholding by major shareholders: Between June 15 and July 4, major shareholders of 182 A-share listed companies have increased their shareholding through secondary market purchase. There were more 20 listed companies announcing shareholding increases on July 3.

    2. Shares repurchase by A-share listed companies: China Vanke A (000002.SZ), TCL Corporation (000100.SH), Media Group (000333.SZ), BOE Technology (000725.SH), Bright Oceans Inter-Telecom Co Ltd (600289.SH)

    July 2: Reduction of equity trading transaction fee

    The Shanghai Stock Exchange, Shenzhen Stock Exchange, and China Securities Depository and Clearing Corporation Ltd announced reductions to A-share trading transaction fees: from 0.03% of transaction face value to 0.002% for Shanghai Stock Exchange, from 0.00255% to 0.002% for Shenzhen Stock Exchange, effective from August 1.

    July 3: China Securities Finance Corp Ltd (CSFC) capital increase and share expansion

    CSRC announced that CSFC will expand its registered capital from Rmb24bn to Rmb100bn. CSFC will raise funding from multiple channels in addition to stabilize capital market.

    * CSFC was founded in 2011 under the context of beginning of margin financing business in China. It is the only investment business entity in China that has been approved to practice margin refinancing. Its business is mainly focuses on: 1) raise financing to lend to brokers for their margin financing business; 2) provide a platform for insurance companies, mutual funds, strategic shareholders of listed companies to lend out their equity holdings.

    CSFC’s major shareholders include: Shanghai and Shenzhen stock exchanges, China clearing, CFFEX, Dalian Commodity Exchange and Zhengzhou Commodity Exchange. Besides the refinancing business, it also tracks and monitors the overall margin financing business in China, analyzes market and credit risks, etc.

    July 3: Reduction of IPOs in terms of both numbers and the amount of capital raised

    CSRC announced at its press conference that the number of IPOs and the amount of capital to be raised through IPOs will be significantly reduced subsequently.

    July 4: 28 approved IPOs got suspended

    Twenty-eight approved IPOs that have been scheduled for subscription in July will be suspended. Subscription fund is returned to investors’ investment accounts on July 6.

    July 4: 21 major Chinese brokerage firms to invest Rmb120bn in blue chip ETFs

    Twenty-one major brokers announced that they will jointly offer minimum Rmb120bn to buy blue chip ETFs. These companies promised not to sell their positions as long as the SH Composite Index is below 4500.

    July 4: 25 major Chinese mutual funds to invest in equity funds managed by themselves

    Twenty-five mutual funds jointly announced:

    1) Chairmen and general managers of these funds promised to actively purchase equity funds managed by their own companies and hold shares for at least one year.

    2) Re-open funds whose subscription has been closed to offer investors more investment options

    3) Expedite equity funds’ application and distribution, and build positions with newly raised funds according to the funds’ mandates.

    * China Asset Management Association announced that by July 6 2015 57 mutual funds are reported to have committed Rmb2.2bn to equity funds managed by themselves. in total 62 mutual funds (including the 25 ones mentioned above) have made public announcements supporting the 25 mutual funds’ proposal.

    July 5: China HUIJIN’s investment in A-share ETFs

    China Central HUIJIN Investment Company announced on its website that it has been purchasing open-end A-share ETF index funds on the secondary market, and that it will continue relevant market operations.

    July 5th : CSRC announcement of tighter measures against market manipulation and rumor distribution activities

    CSRC announced at its press conference that:

    1. Plans for upcoming IPOs: There will be no new IPOs in the near term after the 28 approval IPOs got postponed. Processing of new IPOs will not stop; however, the number of new IPOs and the capital to be raised through these IPOs will be reduced significantly.

    2. Actions against shorting index future: CFFEX (China Financial Futures Exchange Inc) has restricted opening positions on CSI500 Index future contracts for some investment accounts. CSRC has required CFFEX to strengthen its inspection actions and coverage to collaborate with CSRC on illegal transactions and market manipulating trading activities.

    3. Actions against rumors: CSRC has initiated securities law targeted law enforcement actions against creating and distributing stock market rumors.

    July 5: China Securities Finance Corp Ltd (CSFC) to stabilize the market with liquidity support from PBOC

    CSRC announced that China Securities Finance Corp Ltd (CSFC) will raise funding through multiple channels and play an active role trying to stabilizing the market. PBOC will provide liquidity support for this purpose.

    * There is no specific limit attached to the liquidity support mentioned in CSRC’s announcement.

    July 6: CSI500 Index Future to have trading limit of 1200 lots

    China Financial Futures Exchange (CFFEX) announced a daily trading limit for CSI 500 index future (IC500), effective on July 7 2015. Investors can only buy up to 1,200 lots of CSI 500 index future contract for either long or short positions.

  • Financial Nonsense Overload

    Submitted by Dmitry Orlov via Club Orlov blog,

    “Those whom the gods wish to destroy they first make mad” goes a quote wrongly attributed to Euripides. It seems to describe the current state of affairs with regard to the unfolding Greek imbroglio. It is a Greek tragedy all right: we have the various Eurocrats—elected, unelected, and soon-to-be-unelected—stumbling about the stage spewing forth fanciful nonsense, and we have the choir of the Greek electorate loudly announcing to the world what fanciful nonsense this is by means of a referendum.

    As most of you probably know, Greece is saddled with more debt than it can possibly hope to ever repay. Documents recently released by the International Monetary Fund conceded this point. A lot of this bad debt was incurred in order to pay back German and French banks for previous bad debt. The debt was bad to begin with, because it was made based on very faulty projections of Greece's potential for economic growth. The lenders behaved irresponsibly in offering the loans in the first place, and they deserve to lose their money.

    However, Greece's creditors refuse to consider declaring all of this bad debt null and void—not because of anything having to do with Greece, which is small enough to be forgiven much of its bad debt without causing major damage, but because of Spain, Italy and others, which, if similarly forgiven, would blow up the finances of the entire European Union. Thus, it is rather obvious that Greece is being punished to keep other countries in line. Collective punishment of a country—in the form of extracting payments for onerous debt incurred under false pretenses—is bad enough; but collective punishment of one country to have it serve as a warning to others is beyond the pale.

    Add to this a double-helping of double standards. The IMF won't lend to Greece because it requires some assurance of repayment; but it will continue to lend to the Ukraine, which is in default and collapsing rapidly, without any such assurances because, you see, the decision is a political one. The European Central Bank no longer accepts Greek bonds as collateral because, you see, it considers them to be junk; but it will continue to suck in all sorts of other financial garbage and use it to spew forth Euros without comment, keeping other European countries on financial life support simply because they aren't Greece. The German government insists on Greek repayment, considering this stance to be highly moral, ignoring the fact that Germany is the defaultiest country in all of Europe. If Germany were not repeatedly forgiven its debt it would be much poorer, and in much worse shape, than Greece.

    The brazen hypocrisy of all this cannot but have a destabilizing effect on Europe's politics, with the political center cratering and being replaced with radical left-right coalitions. Note how quickly France's right-wing presidential front-runner Marine Le Pen applauded the result of the Greek referendum organized by Greece's left-wing government. The disgust with officialdom that pervades the European Union is beginning to transcend political boundaries, making for strange bedfellows.

    In the end, finance—at any level—has to be about rules and numbers, or it becomes about nonsense. Break enough of your own rules, and your money turns to garbage, because in a world where money is debt and debt is garbage, money is garbage. But there is a proven method for solving this problem and moving on: it's called national bankruptcy. Greece is bankrupt; if its resolution brings on the bankruptcy of Spain, Italy and others, and if that in turn bankrupts the entire Eurozone, then that's exactly what must happen.

    But something else might happen instead. The Eurocrats are already appalled by the Greek show of democracy, and will work hard to derail any such democratic effort in the future using all of the means of political and economic manipulation at their disposal—all simply to muddle along for a bit longer, making the end-game, when it finally comes, all the more painful. I am sure that the Eurocrats plan to follow model of the British Civil Service, which reached its maximum staffing level right when the British Empire ceased to exist. Let's look for ways to not help them do this.

  • Just One Chart

    Brace yourselves…

     

     

    Chart: Bloomberg

  • VaRouFaKiS vs THe SQuiD…

  • Surprise! CEOs Are Getting Rich By Buying Back Stock

    By now, there should be no doubt about who to thank for the record highs US stocks have put in this year. Investors should direct their appreciation first to the FOMC and second to corporate management teams, who stepped in to provide the all important “flow” once the Fed began to scale back its asset purchases. 

    Of course the Fed has been a powerful enabler when it comes to corporate buybacks. Ultra low rates have sent investors searching far and wide for yield, which in turn makes corporate credit an attractive option in a world where risk free assets often yield an inflation-adjusted zero or worse, have a negative carry. The strong demand for corporate issuance coupled with investors’ Fed-induced “beggars can’t be choosers” mentality means companies have been able to issue debt at rock-bottom rates.

    The proceeds from debt sales have been funneled into buybacks and dividends as myopic (not to mention price insensitive) corporate management teams have focused squarely on artificially boosting the bottom line and of course, on boosting their own equity-linked compensation. 

    We’ve recounted this narrative ad nauseam this year and we’ve also gone to great lengths to explain how this dynamic serves to undermine top line growth by curtailing capex and thus ensures that if a real, demand-driven recovery ever does actually materialize, companies will be ill-prepared to capitalize on it. 

    But again, that’s just fine for corporate management teams because it’s all about instant gratification these days and if you needed further proof that US equity markets have become the preferred channel for transferring debt sale proceeds directly into the pockets of top management, Bloomberg has all the evidence you need. Here’s more:

    Buybacks and dividends are rising to records in the U.S., and for many chief executives, that means a fatter pay check — even if sales aren’t growing.

     

    Eleven of the 15 non-financial U.S. companies that spent the most on buybacks last year base part of CEO pay on earnings per share or total shareholder return, or both, according to data compiled by Bloomberg. These metrics get a boost when businesses return cash to investors, giving companies like International Business Machines Corp. and Cisco Systems Inc. added incentive to dole out cash to stockholders.

     

     

    Linking compensation to buybacks and dividends can encourage managers to sacrifice funds that could be used for long-term investments, economist William Lazonick said. It also raises the prospect that executives are being paid for short-term returns rather than running a business well.

     

    Tying pay to performance has long been considered a shareholder-friendly move that gives executives an incentive to ensure that the company is on solid footing. Investors such as Warren Buffett have applauded payouts when they consider shares to be undervalued. Large pension funds have welcomed pay incentives, like when Walt Disney Co. in 2013 changed the way it calculates CEO Bob Iger’s stock awards.

     

    Yet dividends and buybacks can prop up per-share earnings and total shareholder return — lifting CEO pay as a result — even in cases where sales are falling.

     

    The focus on shareholder value has “led to this really corrosive feedback loop between executive compensation and corporate behavior,” said Nick Hanauer, co-founder of venture capital firm Second Avenue Partners LLC. “When everyone around a board room can justify essentially any behavior to generate a higher stock price, no stone shall go unturned.”

     


     

    Average CEO compensation for the top 350 U.S. firms by revenue has climbed to $16.3 million last year, according to data from the Economic Policy Institute. That’s up from $15.7 million in 2013.

     

    Overall in 2014, non-financial companies returned almost $1 trillion in share repurchases and dividends. As a percentage of gross domestic product, that’s among the largest payouts on record.

     

    Not all investors are applauding the bonanza.

     

    Amid a bull market, shareholders may not be as concerned as they should about the potential boost that buybacks and dividends can give to CEO pay, said Robert Barbetti, head of compensation advisory for J.P. Morgan Private Bank in New York.


    “Boards and compensation committees should be thinking very carefully about the incentive plans and objectives that work long term.” 

    Yes, maybe they should, but when the Elio Leonis of the world are setting the standard by raking in $1.8 million without ever having to work a day (or an hour for that matter), expecting executives to think beyond next week may be asking far too much.

  • The Greferendum Shocker: Tsipras "Intended To Lose" And Is Now "Trapped By His Success"

    Call it game theory gone horribly chaos theory.

    It all started with a report by the Telegraph’s Ambrose Evans-Pritchard, whose release of on the record comments by Yanis Varoufakis (which we noted was rather surprising) that Greece was contemplating a parallel currency and potentially nationalizing Greek banks over the weekend, was supposedly the catalyst that got the Greek finmin fired. As a reminder, this is what Varoufakis told AEP on Sunday night: “If necessary… issue parallel liquidity and California-style IOU’s, in an electronic form. We should have done it a week ago.” And this is what the WSJ said on Monday morning:

    … the premier decided to act after Mr. Varoufakis told a U.K. newspaper late Sunday that Greece might introduce a parallel currency and electronic IOUs similar to those issued previously in California. Mr. Varoufakis quickly backtracked on his comments to the Daily Telegraph, but his prime minister had had enough, the people familiar with the matter say.

    That was the first indication that the wheels had officially come off the Greek wagon.

    Moments ago, we got confirmation of just that, when in another surprising twist it was again the Telegraph’s Evans-Pritchard who reported that the Greek prime minister who decisively and unexpectedly pushed for a referendum on the last weekend of June, “never expected to win Sunday’s referendum on EMU bail-out terms, let alone to preside over a blazing national revolt against foreign control.”

    He got just that, and in a landslide vote at that even though “he called the snap vote with the expectation – and intention – of losing it.”

    Also according to the Telegraph, “the plan was to put up a good fight, accept honourable defeat, and hand over the keys of the Maximos Mansion, leaving it to others to implement the June 25th “ultimatum” and suffer the opprobrium.”

    He had good reason: according to another Varoufakis quote provided by AEP, “[the Troika] just didn’t want us to sign. They had already decided to push us out.”  In other words, as we speculated in mid-June, the only question was who gets stuck with the blame, and when Tsipras called the referendum, he made it quite easy for Europe; it was even easier when Greece collectively voted “Oxi” to a referendum spun in Europe as one whether or not to remain in the Eurozone.

    There is more: with Tsipras having already checked out it was a case of “after me, the flood”

    This ultimatum came as shock to the Greek cabinet. They thought they were on the cusp of a deal, bad though it was. Mr Tsipras had already made the decision to acquiesce to austerity demands, recognizing that Syriza had failed to bring about a debtors’ cartel of southern EMU states and had seriously misjudged the mood across the eurozone.

    But it is what happened next that took everyone by surprise: “Syriza called the referendum. To their consternation, they won, igniting the great Greek revolt of 2015, the moment when the people finally issued a primal scream, daubed their war paint, and formed the hoplite phalanx.”

    Suddenly the stakes are even higher for Tsipras, who is “now trapped by his success.” According to Costas Lapavitsas, a Syriza MP, “the referendum has its own dynamic. People will revolt if he comes back from Brussels with a shoddy compromise.”

    Ironically, that is precisely why the market soared today after it tumbled early in the morning, because it appeared that the Greek finmin was doing just: accepting a shoddy compromise. Of course, it wouldn’t be the first time: the Greeks had come home with “compromise” deals on many previous occasions only to have Syriza tear them apart. And this time the stakes are higher not only for Tsipras but the entire party, which realizes it faces a mutiny by the people, mostly the young ones, those with little to lose, if some 60% of them voted against a deal “at any cost” just to see the government fall back to just such an outcome.

    The Syriza MP Lapavitsas is correct when he says that  “Tsipras doesn’t want to take the path of Grexit, but I think he realizes that this is now what lies straight ahead of him.”

    In some ways Tsipras tried to backtrack: “The prime minister was reportedly told that the time had come to choose, either he should seize on the momentum of the 61pc landslide vote, and take the fight to the Eurogroup, or yield to the creditor demands – and give up the volatile Mr Varoufakis in the process as a token of good faith.”

    What would happen if Tsipras did decide to stick it to Europe, launch a parallel currency, sack the legacy central banker and nationalize the insolvent banks? We already laid out the key points previously but here it is again:

    They would “requisition” the Bank of Greece and sack the governor under emergency national laws. The estimated €17bn of reserves still stashed away in various branches of the central bank would be seized.

     

    They would issue parallel liquidity and California-style IOUs denominated in euros to keep the banking system afloat, backed by an appeal to the European Court of Justice to throw the other side off balance, all the while asserting Greece’s full legal rights as a member of the eurozone. If the creditors forced Grexit, they – not Greece – would be acting illegally, with implications for tort contracts in London, New York, and even Frankfurt.

     

    They would impose a haircut on €27bn of Greek bonds held by the ECB, and deemed ‘odious debt’ by some since the original purchases were undertaken by the ECB to save French and German banks, forestalling a market debt restructuring that would otherwise have have happened.

    None of that happened, instead Greece is now in full chaos mode.

    Events are now spinning out of control. The banks remain shut. The ECB has maintained its liquidity freeze, and through its inaction is asphyxiating the banking system.

     

    Factories are shutting down across the country as stocks of raw materials run out and containers full of vitally-needed imports clog up Greek ports. Companies cannot pay their suppliers because external transfers are blocked. Private scrip currencies are starting to appear as firms retreat to semi-barter outside the banking system.

    However, it is not just Greece which is sliding into total chaos – so is Europe itself, where the splits are becoming so obvious none other than the head of the German Institute for Economic Research said “What Is Happening Now Is A Defeat For Germany.”

    The entire leadership of the eurozone warned before the referendum that a ‘No’ vote would lead to ejection from the euro, never supposing that they might have to face exactly this. Jean-Claude Juncker, the European Commission’s chief, had the wit to make light of his retreat. “We have to put our little egos, in my case a very large ego, away, and deal with situation we face,” he said.

     

    France’s prime minister Manuel Valls said Grexit and the rupture of monetary union must be prevented as the highest strategic imperative. “We cannot let Greece leave the eurozone. Nobody can say today what the political consequences would be, what would be the reaction of the Greek people,” he said.

     

    French leaders are working in concert with the White House. Washington is bringing its immense diplomatic power to bear, calling openly on the EU to put “Greece on a path toward debt sustainability” and sort out the festering problem once and for all.

     

    The Franco-American push is backed by Italy’s Matteo Renzi, who said the eurozone has to go back to the drawing board and rethink its whole austerity doctrine after the democratic revolt in Greece. He too now backs debt relief for Greece.

    However, as if oblivious to these terminal developments within her own union, Merkel is already pushing onward and discussing plans for humanitarian aide and balance of payments support for the drachma: if there was any clearer indication that the Eurozone has been an abject failure, it would be the treatment of one of its member states as a 3rd world African banana republic even before it formally withdrew from its quasi-prison.

    Some within Syriza realize that it is all coming to an end, no matter if the can is kicked one more time (which it increasingly looks like it may be despite the referendum’s landslide vote):

    Mr Lapavitsas said Europe’s own survival as civilisational force in the world is what is really at stake. “Europe has not show much wisdom over the last century. It launched two world wars and had to be saved by the Americans,” he said

     

    “Now with the creation of monetary union it has acted with such foolishness, and created such a disaster, that it is putting the very union in doubt, and this time there will be no saviour. It is the last throw of the dice for Europe,” he said.

    … and yet, in the very end, the Greek prime minister who bluffed and unexpectedly won, now appears willing to concede just about everything to Merkel. Because even if the Telegraph’s entire article is based purely on speculation, it doesn’t explain the easy with which Tsipras seems to have folded not only on implementing reform as part of the harsher deal proposed by Merkel, but his admission that further debt relief now appears unlikely:

    • TSIPRAS PLEDGES GREEK REFORMS AS PART OF ANY AID DEAL
    • TSIPRAS SAYS GREECE SUBMITTED PROPOSALS TODAY
    • TSIPRAS SAID MORE RESTRAINED IN REQUESTING DEBT RELIEF

    And from the president of the European Council:

    Because in the end money talks, in this case €120 billion in hijacked unsecured liabilities known “deposits” and politicians walk. As for those millions of Greeks who gave Europe the symbolic middle finger on Sunday, their reaction when they just find out they were sold down the river once again will be all that matters.

    Yet in the end, Varoufakis’ line may again be the most important one: “they had already decided to push us out.” If true, then as Juncker threatened earlier not only will the last day for the Greek government be Monday, but so will the last day for Greece in the Eurozone.

  • Why GM Is Back Below Its IPO Price – Pictures From GM's China "Parking Lot"

    Despite broad and deep price cuts introduced earlier in the year, GM's sales in China were roughly flat in June continuing the streak of weakness since March (when GM changed its reporting to retail sales from wholesale delivery). This is the weakest start to a year for China auto sales since 2012 and GM's share price is now back notably below its 2012 IPO price. Judging by the massive volume of cars 'parked' in GM's Shenyang Liaoning lots, it is clear that automakers learned nothing from the last "if we build it, they will come" channel-stuffing inventory surging dysphoria that, among other things, led to their last bankruptcy… if only Chinese buyers would take up the credit terms like Americans.

    GM's stock is back below its IPO price…

     

    As sales in China slump… (as Reuters reports)

    General Motors Co vehicle sales in China were roughly flat for June as broad price cuts introduced earlier in the year failed to boost demand.

     

    GM and its Chinese joint-venture partners sold 246,066 cars in June, virtually unchanged from the same month a year ago, the U.S. automaker said in a statement on Monday.

     

    That compares with a 4 percent year-on-year drop in May sales and a 0.4 percent dip in April, when the automaker switched to reporting retail sales rather than wholesale data for China.

     

    GM has largely failed to counteract sluggish auto sales so far despite slashing prices on 40 models in May by up to 20 percent, as China's economy grows at its slowest rate in 25 years. The automaker also faces rapidly shifting tastes among Chinese consumers, now showing a pronounced preference for small, affordable sport-utility vehicles.

    As it appears there just is no more room to stuff inventories in its Shenyang, Lianing province parking lots  (as China has become the new car graveyard over the last 3 years)

    *  *  *

    And with allthis inventory, sales are a problem…

    For the market overall, sales for January to May rose only 2.1 percent from a year earlier, giving 2015 the slowest start since 2012, according to the most recent statistics available from the China Association of Automobile Manufacturers (CAAM).

    And finally, there is an even bigger probelm…

    • *CHINA PASSENGER CAR SALES HIT BY STOCK-MARKET ROUT, CUI SAYS
    • *CHINESE CANCELLING CAR PURCHASES ON STOCKS ROUT, PCA'S CUI SAYS

  • Disorderly Collapse – The Endgame Of The Fed's Artificial Suppression Of Defaults

    Submitted by Jeffrey Snider via Alhambra Investment Partners,

    The Federal Reserve under Alan Greenspan and then Ben Bernanke has escaped, largely, responsibility for the panic in 2008 mostly because there is no direct link between monetary policy and the housing bubble. The most stinging criticism that comes out of the era is Greenspan’s “ultra-low” interest rate setting for federal funds, but there is no smoking gun in the form of the “printing press” or bank “reserves.” In fact, bank reserves remain, somehow, the central focus of monetary policy even today when they should be taken for how big a mess the Fed created of the prior bubbles.

    There is no printing press in the basement of the Marriner Eccles building or even at the Open Market Desk of FRBNY in NYC. That does not mean, however, that monetary policy is absolved from the center of the biblical expansion of “dollar” reach and debasement (in both definition and scale). When you look at bank reserves, the immediate reaction, often more visceral than cerebral, is that there should be an enormous bout of inflation by now; that was, in fact, the first public and expressed criticisms of the QE’s.

    That view of “reserves” conflates what they actually represent. In the operational format alone, reserves are only what the Open Market Desk is doing of monetary policy at that time. In terms of the serial asset bubbles, they represent the onboarding of immense “money dealing” that took place in the latter 1990’s and early and middle 2000’s under the implicit but never-tested promises of monetary policy. In other words, the rise in reserves now was only to make explicit, in arrears, what was expected from bank balance sheets during the bubbles themselves.

    ABOOK July 2015 Fed Bubble Reserves

    In that respect, the increase in reserves post-crisis was not to unleash new inflation, consumer or asset, but rather to enumerate, and only partially, what it took to get past inflation going and maintaining. The Fed was only, through the QE’s, taking belated ownership of that which it implicitly aided of past “dollar” existence. Linking monetary policy to that inflation was not just the federal funds rate, but how that “communication” (as Janet Yellen tells it) was used in actual “money supply” circumstances.

    In March 2007, Richard Claiden, CFO of Primus Guaranty, delivered a presentation at the Richmond Fed’s Credit Markets Symposium that showed this monetary linkage in unequivocal detail. Credit spreads on the Dow Jones OTR 5-year CDX had fallen from near 80 bps in early 2003, at the bottom of the dot-com “cycle”, to almost 30 bps by early 2007.

    ABOOK July 2015 Fed Bubble DJ CDX

    The reason for that massive compression was what is familiar to any financial observer of the post-QE3 environment. Not only did Mr. Claiden refer to a “reach for yield” in March 2007 he also quantified what is perhaps the least appreciated aspect of wholesale monetary influence: clustering defaults.

    ABOOK July 2015 Fed Bubble Fed

    In the attempt to diminish the influence of the business cycle, the Fed uses monetary policy to influence bank and bond investors with regard to liquidity and risk. One of the major expressions of that is to artificially induce default clusters; there was a massive default wave in the nascent wholesale finance industry out of the dot-coms but then a serious absence of persisting defaults despite a relatively weak recovery thereafter. That disparity is covered by monetary policy influence which, in addition to “reach for yield” via rate repression, keeps many weaker businesses afloat long past the point at which they “should” fail. That isn’t, however, a permanent reduction of what orthodox economics perceives of a negative factor (when in fact it might rather be recognized, rightfully, as necessary creative destruction) only a temporary assuagement of defaults that instead cluster into the next cycle – which happened to be, not by coincidence, much, much bigger.

    Mr. Claiden and Primus were no outside observers to this problem, and his firm was expecting an uptick in spreads as mortgage problems grew somewhat more acute. The founder of Primus was the man who practically invented the swap, or at least the standardized version of it that became the bedrock of the entire derivatives industry. In May 2007, Tom Jasper, the CEO who in 1985 launched and became the first co-chairman of ISDA, was “toasting” to wider credit spreads and a much fatter return for Primus. The mortgage problems, he figured, would be grand for Primus’ main business which was writing credit protection.

    Because spreads were so thin and had grown thinner throughout Greenspan’s “conundrum”, Primus was forced (in their profit models) to lever up significantly. At the end of 2005, the company, which was a publicly-traded and listed stock, reported a total swaps portfolio of single name entities of $13.4 billion, a 28% increase over the end of 2004. That $13.4 billion came upon a base of just $69 million in cash and $560 million in available-for-sale securities. That was 21x leverage.

    By the time Bear Stearns had failed, Primus had $24.3 billion in swaps and just $774 million in cash and assets; or 31x leverage. Since Primus only sold protection on “high quality” companies, in other words those with the highest ratings, there was little perceived risk even with spreads thought to be rising in 2007. In fact, a good proportion of the protection was written against financial firms, meaning the largest banks including Lehman. As you would expect, the firm nearly went bankrupt by October 2008 and the panic, but survived long enough to be finally and fully unwound last year (again, models and math that were no match for reality). Mr. Jasper left the firm in 2010.

    While the current state of Primus’ liquidation gives us another anecdote about the eurodollar decay post-crisis, it was its buildup that turned monetary policy into actual money supply as it is/was understood and used in the eurodollar/wholesale model. Those credit default swaps that Primus was supplying at dirt cheap spreads allowed, artificially and mistakenly, other financial firms and banks to reduce risk in their credit portfolios – at least that was the way it was calculated in their models which translated directly into real financial power or what passes for money these days. That meant those firms, through the “supply” of risk absorption provided by Primus and others, could invest, warehouse and hold much more in terms of par and notional credit for a given “capital” base – the math became the means by which credit expanded so precipitously, traded as exchanged liabilities often in the form of derivative contracts.

    ABOOK June 2015 BIS Gross Notional CDS

    Without that supply, including and especially during the panic, the Fed has been forced to take over money dealing more directly, turning out numerical bank reserves in place of what was before just unspecified and held off-balance sheet, but very real, balance sheet capacity. The more the Fed suppressed via its interest rate measure, the more leverage firms like Primus had to supply to be profitable (or as profitable as their models demanded) – at the end of 2005, that 28% increase in the swap portfolio was how the firm increased ROE to 15%. If spreads had been more in line with actual economic reality, Primus may not have “needed” to use as much leverage and the “supply” of risk absorption capacity may have instead been itself reduced, halting even somewhat the massive expansion of subprime and others (since Primus was offering a great deal of swaps on financial firms, especially the bigger banks, those CDS were likely used as hedges against credit structures, including subprime, that were offered/sponsored by those very same firms; in other words, there is a great likelihood that Primus risk capacity was directly related to the subprime mortgage blowout, both up and then down).

    Nobody apparently learned much from the whole bubble-bust affair as banks and financial firms are at it again, this time in corporate debt. The artificial suppression of default, in no small part to perceptions of those bank reserves under QE (just like perceptions of balance sheet capacity pre-crisis), has turned junk debt into the vehicle of choice for yet another cycle of “reach for yield.” The supply, this time, is far less of the eurodollar variety and more through mutual funds – less banking, more personal sector. That may sound somewhat more comforting except that it is the weakened, perhaps fatally, eurodollar state that is, in the end, expected to support the whole corporate morass when the default cycle inevitably runs its course and the artificial cluster reappears. As retail investors might likely flee against expectations they never apparently conceived but should have given recent history, there won’t be much, if any, balance sheet capacity to boost appetites toward an orderly transition.

    In the past two bubble cycles, we see how monetary policy creates the conditions for them but also in parallel for their disorderly closure. It isn’t money that the FOMC directs but rather unrealistic, to the extreme, expectations and extrapolations. Once those become encoded in financial equations, the illusion becomes real supply. In that way, it appears as if central banks hold great power but little responsibility. The pathology, however, is there and apparent to any and all inquiry. All that is required is a contemporary frame of reference, including what and where the printing press is and resides.

  • When Does The Chinese Carnage Stop? (In 3 Charts)

    Chinese investor psychology has shifted. Period. The more the government intervenes to lift stock prices explicitly, the more local and professsional leveraged investors will use any strength to unwind their positions (profitably or unprofitably). The question is – when does this carnage stop?

     

    Exhibit 1 – Based on ‘fundamentals’, The Shanghai Composite has a long way to go…

     

    Exhibit 2 – If Dr. Copper is right about the state of the world, The Shanghai Composite won’t find support until it has fallen another 60%…

     

    Exhibit 3 – Judging by historical analogs, The Shanghai Composite will need to destroy all gains in the last 2 years before ‘value’ is once again seen…

     

    But apart from that, this must be a buying opportunity, right?

     

    Because if you don’t buy the dip, you’re a f##king idiot…

  • Thoughts On Greece … From Zimbabwe

    Late last month, after Greek PM Alexis Tsipras’ announcement that a referendum would be held on the terms of the country’s bailout, we noted that sadly, the supermarkets in Greece were beginning to resemble those of Venezuela as Greeks, anticipating an impending shortage of imported goods, stocked up on food staples:

    Many of the visuals and stories that emanate from Venezuela are to be expected, and are generally in line with the transformation of any normal nation to a socialist utopia. None however, are more poignant than the images of supermarkets and grocery stores that have been ransacked empty as a result of the collapsing currency, devastated supply chains and soaring inflation (supermarkets which have since imposed fingerprint scanners in what is no longer capital but food controls). We are sad to announce that what was once a Venezuela trademark has now transitioned to a country that until recently was among the most developed nations in the west: Greece. In clear rejection of Tsipras’ plea for calm, the Greek population stormed (now empty) ATMs, grocery stores and gas stations as they scrambled to obtain, or convert, paper currency into tangible products. 

     


    Now, with a depositor bail-in looking more likely by the day, and with redenomination risk rising materially, Greece is drawing unflattering comparisons to another country which knows the depths of economic despair all too well: Zimbabwe. 

    Presented below is a letter from writer, blogger, and Zimbabwean Cathy Buckle.

    *  *  *

    Dear Family and Friends,

    Seeing pictures of hundreds of people crowded around banks in Greece desperate to withdraw their own money from the banks has sent cold but sympathetic shivers down our spines here in Zimbabwe. Greek banks closed for a week, cash withdrawals from ATM’s restricted to a limited amount per person per day is all too familiar to Zimbabweans. We know exactly how this feels: the fear, anger, despair and disbelief that goes with watching your life savings evaporating and knowing there’s nothing you can do to save it.  How well we remember standing for hours at the banks and then only being able to draw out enough money to buy a single bar of soap.

    Zimbabwe has the dubious honour of being able to say “been there, done that” to almost every bad governance and economic crisis you can think of.  It’s been six years since Zimbabwe discontinued using the Zim dollar and began trading in the US dollar  and a few other international currencies but for the last few weeks we’ve been doing all the sums again, counting the zeroes and seeing if there’s anything we can salvage from our lost life savings.  

    When an announcement came in June that the old Zimbabwe dollar was to be demonetized there was a frenzy of rumours that this meant a new Zimbabwe dollar was going to be introduced. A return to the Zim dollar, old or new, is still probably the biggest fear of all Zimbabweans. As bad as things are for people now, at least we have an internationally accepted currency in our pockets and not a worthless currency which isn’t backed by gold reserves, which can be printed at will by an unaccountable government. 

    People outside of Zimbabwe have never really understood how we woke up one morning in February 2009 and found that all our bank balances had been reduced to zero. Regardless of whether we had millions, billions, trillions,  septillions or even octillions of Zim dollars in our accounts, it had all gone. Suddenly our bank balance was just ZERO and we were told to reactivate our accounts by depositing US dollars. Exactly the same thing applied to the huge piles of Zim dollars we had in boxes and bags in our homes : it had all become valueless paper, eroded to almost nothing by super-hyper-inflation and then suddenly worth ZERO.

    It’s taken six years for the government of Zimbabwe to put a value on the money that turned to ZERO in 2009 and frankly for most people, who had become paupers through hyperinflation anyway, it’s a pointless exercise. The Central bank announced that bank accounts with balances up to 175 quadrillion Zimbabwe dollars will be paid a flat amount of five US dollars; yes, just five US dollars. Bank balances of over 175 quadrillion will be paid at what we are told is the UN exchange rate of US$1 for every 35 quadrillion Zim dollars. (That’s US$1 ; Z$1,000,000,000,000,000 ) Cash customers can apparently walk into banks with their old Zim dollar notes and will, with “no questions asked,”  get US$1 for Zim$250 trillion.  For most of us the cost of the taking old notes to the bank will be more than the US cents we get back in our pockets.

    There is a “demonetization window” from the 15th June to the 30th September to exchange every 35 quadrillion Zim dollars we have into one US dollar and after that the Zim dollar will be officially dead, no longer legal tender.

    The Central Bank announcement says : “Demonitization is not compensation for the loss of value of the Zim $ due to hyper inflation, it is an exchange process.”  Compensation is a dirty word in Zimbabwe’s governance system  and it doesn’t apply at any level from farm seizures to compulsory 51% indigenization shareholdings to loss of life savings and pensions in hyper inflation.

    Looking at the conversion chart and seeing that I can get 0.04 US cents for every 10 trillion dollar note that I have, leaves my head swirling as lines of zeroes mount up on the page.  Is that a trillion, quadrillion or octillion I ask myself? I decide I’d rather keep the old bank notes in the cupboard so that I never forget what my government reduced me to after they’d stolen my farm and declared my Title Deeds null and void. So that I’d never forget what bad governance could do to a nation of  ten million people or how many thousands died needlessly while trying to survive Zimbabwe’s collapse.

    Until next time, thanks for reading, love cathy. 

  • Dow Swings 670 Points In V-Shaped-Hope-Recovery Despite Commodity Carnage

    Dude….

    *  *  *

    This happened… Remember Greece doesn't matter…

     

    The Dow dropped 350 points from its overnight highs to stop almost perfectly at the close of Europe (1130ET) and then abruptly rallied a stunning 320 points back…

     

    The S&P tested Sunday night's lows and the 200DMA before exploding higher…

     

    Who could have seen that coming?

     

    On the day, cash indices reversed perfectly on Europe's close…

     

    Leaving stocks mixed on the week, with Nasdaq underperforming…

     

    It appears that Oil was the momo igniter for stocks…

     

    And VIX briefly hit a 15 handle – well below Thursday's closing levels…

     

    Bear in mind that Greek stocks did not partake in the idiocy… but once US stocks astrted to roll, Greece caught up (so now we are seeing US equities lead Greek stocks fundamentally higher!!!)

     

    As US Stocks ramp was all EURJPY-driven once again (just like yesterday)

     

    Note that post-Tsipras' "Greferendum" announcement, Bonds remain the big winners…

     

    Treasury yields plunged early as shorts squeezed and safety was bid but once Europe closed… sell sell sell…

     

    The US Dollar collapsed into the close as EURUSD surged (for now good reason) and as we noted above EURJPY was running stocks today…

     

    It's pretty clear what (or who) was helping things along…

     

    Commodity prices plunged early on (led by crude and silver)

    Oil prices carnaged early on, then bounced after EIA data suggested higher demand and chatter that the Irtan deal talks were falling apart (and Europe's close)…

     

    As a reminder, shale stocks have been collapsing since Einhorn tried to bury PXD… (but they all v-shape recovered today)

     

     

    Charts: Bloomberg

Digest powered by RSS Digest

Jul 07

Today’s News July 7, 2015

  • THERE’S Your Hyperinflation!

    by Keith Weiner

     

    Hyperinflation is commonly defined as rapidly rising prices which get out of control. For example, the Wikipedia entry begins, “In economics, hyperinflation occurs when a country experiences very high and usually accelerating rates of inflation, rapidly eroding the real value of the local currency…” Let’s restate this in terms of purchasing power. In hyperinflation, the purchasing power of the currency collapses. Before the
    onset, suppose one collapsar buys ten loaves of bread. Soon, it buys only one loaf. Shortly thereafter, it buys only one slice. Next, it can only purchase a saltine cracker. Pretty soon the collapsar won’t buy any bread at all. Stick a fork in it, it’s done.

    kids playing with hyperinflated currency

    For example, the price of crude oil was cut almost in half (so far). There’s little to see if one looks at the purchasing power of the dollar, euro, Swiss franc, etc. Purchasing power, as conventionally understood, is doing just fine.

    Fed apologists are happily cooing about this. Last month, Nobel Prize winning economist Paul Krugman said, “This is actually wonderful.” Last year, he was gloating, comparing people who predict runaway inflation to “true believers whose faith in a predicted apocalypse persists even after it fails to materialize.”

    And yet, all is not well in the realm of the central banks. Krugman may be right about prices, but nothing is wonderful. The economic downturn, which began in 2008, has been so bad that central banks persist in their unprecedented monetary policies. So if purchasing power isn’t collapsing, where can one find evidence of the problem?

    Yield Purchasing Power (YPP) shows how much you can buy, not with a dollar of cash, but with the earnings on a dollar of productive capital. No one wants to spend their life savings or inheritance. People are happy to spend their income, but not their savings.

    To come back to the analogy of the family farm, people should think in terms of how much food it can grow, not how much food they can buy by selling the farm. The tractor
    is good for producing food, not to be exchanged for it. Why, then, do people think of the purchasing power of their life savings, in terms of its liquidation value?

    If they want to live long and prosper, they should think of their yield purchasing power. Their hard-earned assets should provide income. And it is here, that hyperinflation has set in.

    Previously, I compared two archetypal retirees. Clarence retired with $100,000 in 1979, and Larry retired with $1,000,000 in 2014. Clarence was able to earn 2/3 of the median income in interest on his savings. Larry was nowhere near that. He would need over $100 million to do the same. In 35 years, the YPP of a 3-month CD fell more than 1,000-fold.

    The collapse in YPP suggests an analogy to hyperinflation. Look at how much capital you need to support a middle class lifestyle. Measured in dollars, the dollar price of this capital is skyrocketing.

    This skyrocketing price of capital has the same effect as hyperinflation: it undermines savings and causes people to eat themselves out of house and home.

    What does this mean for anyone with less than what they need to support themselves—$100M and rising? They must liquidate their capital, and live by consuming their savings. It’s terrifying to anyone in that position—which means anyone in the middle class.

    This problem is not well understood, because it masquerades as rising asset prices. The first tractor to go to the block fetched $1,000. The second went for $2,000. The farmland may fetch a few million. Everyone loves rising asset prices, and so in their greed and euphoria they miss the point.

     

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

  • Chinese Stocks Plunge Again, "VIX" Hits Record, "Nasdaq" Down 40% From Highs

    Despite all the hopes and prayers of illiterate farmers everywhere, Chinese stocks refuse to hold a bid and down 3-4% at the open amid suspension of around 160 individual securities. In the pre-open to open, Shanghai Composite is down 3.2%, Shenzhen is off 3.5%, and China's Nasdaq – ChiNext is down 3.8%. This leaves ChiNext down over 40% from its highs as the cost of insuring downside in Chinese stocks explodes to record highs. As China goes through the 1929 playbook to save its 'market', it appears "momentum" has shifted.

    • *SHANGHAI MARGIN DEBT BALANCE DECLINES FOR RECORD ELEVENTH DAY
    • *HKEX DROPS AS MUCH AS 4.2%, FALLING FOR 8TH STRAIGHT SESSION

    Not a good start to the day…

     

    And the morning session ends NOT OFF THE LOWS…

     

    Some context for the moves…

     

    As we noted prerviously – psychology has shifted… every government-driven ramp is sold into by as many retail locals and foreign professionals as possible… and remember the local professionals are now stuck with losses as they are not allowed to sell.

    Which explains why downside vol costs explode… (if you're not allowed to sell stocks… what's your next move?)

     

    As Blomberg reports,

    The cost of options protecting against a 10 percent drop in the ETF was 11.5 points more than calls betting on a 10 percent increase on Monday, according to three-month data compiled by Bloomberg. The price relationship known as skew climbed to 11.8 points last week, the highest since the ETF started in November 2013.

     

    For Aberdeen Asset Management’s Nicholas Yeo, China needs to let fundamentals govern its stock market, not state directives.

     

    “International investors are skeptical that all the government measures are short-term, cosmetic,” said Yeo, the Hong Kong-based head of Chinese equities at Aberdeen Asset, which oversees about $491 billion worldwide. “If you want it to be a proper market, there should be less interference.”

    1929 Deja vu all over again…

     

    “The more resources authorities commit to propping up the stock market, the more they ratchet up the potential fall-out risks should the market continue to collapse,” said Andrew Wood, an analyst at BMI Research. “This could give rise to a crisis of confidence in the authorities’ ability to support both the stock market and the real economy.”

    And with 888 stocks down and only 29 up – PBOC is gonna need a bigger boat fund

    *  *  *

    On the bright side – though we are not sure of that – it seems the twice burned Chinese are greatly rotating their newly lost equity wealth back into real estate…Via ForexLive:

    Preliminary results from the China Household Finance Survey

    • 31.5% of respondents plan to reduce their stock holdings
    • 12.3% said they plan to increase their stock holdings
    • Remaining saying they do not plan to change their holdings
    • For Q2 4.8% of stock investors bought homes, compared with 2.3% recorded in Q1
    • Of those who bought property, 70% came from households that have made money in the stock market.

    The China Household Finance Survey is a quarterly survey carried out by researchers at Southwestern University of Finance and Economics in Chengdu.

    *  *  *

    Will they never learn?

  • Jade Helm, Terrorist Attacks, Surveillance & Other Fairy Tales For A Gullible Nation

    Submitted by John Whitehead via The Rutherford Institute,

    “Strange how paranoia can link up with reality now and then.” – Philip K. Dick, A Scanner Darkly

    Once upon a time, there was a nation of people who believed everything they were told by their government.

    When terrorists attacked the country, and government officials claimed to have been caught by surprise, the people believed them. And when the government passed massive laws aimed at locking down the nation and opening the door to total government surveillance, the people believed it was done merely to keep them safe. The few who disagreed were labeled traitors.

    When the government waged costly preemptive wars on foreign countries, insisting it was necessary to protect the nation, the citizens believed it. And when the government brought the weapons and tactics of war home to use against the populace, claiming it was just a way to recycle old equipment, the people believed that too. The few who disagreed were labeled unpatriotic.

    When the government spied on its own citizens, claiming they were looking for terrorists hiding among them, the people believed it. And when the government began tracking the citizenry’s movements, monitoring their spending, snooping on their social media, and surveying their habits—supposedly in an effort to make their lives more efficient—the people believed that, too. The few who disagreed were labeled paranoid.

    When the government let private companies take over the prison industry and agreed to keep the jails full, justifying it as a cost-saving measure, the people believed them. And when the government started arresting and jailing people for minor infractions, claiming the only way to keep communities safe was to be tough on crime, the people believed that too. The few who disagreed were labeled soft on crime.

    When the government hired crisis actors to take part in disaster drills, never alerting the public to which “disasters” were staged, the people genuinely believed they were under attack. And when the government insisted it needed greater powers to prevent such attacks from happening again, the people believed that too. The few who disagreed were told to shut up or leave the country.

    Finally, the government started carrying out covert military drills around the country, insisting they were necessary to train the troops for foreign combat, and most of the people believed them. The few who disagreed, warning that perhaps all was not what it seemed, were dismissed as conspiracy theorists and quacks.

    By the time the government locked down the nation, using local police and the military to impose martial law, there was no one left in doubt of the government’s true motives—total control and domination—but there was also no one left to fight back.

    Now every fable has a moral, and the moral of this story is to beware of anyone who urges you to ignore your better instincts and trust the government.

    In other words, if it looks like trouble and it smells like trouble, you can bet there’s trouble afoot.

    For instance, while there is certainly no shortage of foul-smelling government activities taking place right now, the one giving off the greatest stench is Jade Helm 15. This covert, multi-agency, multi-state, eight-week military training exercise is set to take place from July 15 through Sept. 15 in states across the American Southwest.

    According to official government sources, “Jade Helm: Mastering the Human Domain” is a planned military exercise that will test and practice unconventional warfare including, but not limited to, guerrilla warfare, subversion, sabotage, intelligence activities, and unconventional assisted recovery. The training exercise will take place in seven different southwestern states: California, New Mexico, Colorado, Arizona, Texas, Utah and Nevada.

    U.S. Army Special Operations Command will primarily lead this interagency training program but the Navy Seals, Air Force Special Operations, Marine Special Operations Command, Marine Expeditionary Units, 82nd Airborne Division, and other interagency partners will also be involved. Approximately 1,200 troops are expected to participate in these exercises.

    The training is known as Realistic Military Training because it will be conducted outside of federal property. The exercises are going to be carried out on both public and private land, with the military reportedly asking permission of local authorities and landowners prior to land usage. The military map listing the locations that will host the exercise shows Texas, Utah, and the southern part of California as “hostile territory.” According to U.S. officials, these three areas are marked as hostile to simulate environments where American troops are viewed as the enemy. The other areas on the map are marked as permissive, uncertain (leaning friendly), or uncertain (leaning hostile).

    Military officials claim that the southwestern states were chosen because this exercise requires large areas of undeveloped land as well as access to towns and population hubs. These states purportedly also provide a climate and terrain that is similar to that of potential areas of combat for the United States, particularly Iraq, Iran and Syria.

    Now the mainstream media has happily regurgitated the government’s official explanation about Jade Helm. However, there is a growing concern among those who are not overly worried about being labeled conspiratorialists or paranoid that the government is using Jade Helm as a cover to institute martial law, bring about total population control, or carry out greater surveillance on the citizenry.

    In the first camp are those who fear that Jade Helm will usher in martial law. These individuals believe that by designating the two traditionally conservative and Republican-dominated states, Utah and Texas, as hostile territory, while more Democratic states like Colorado and California are marked as friendly, the military plans to infiltrate the states with large numbers of gun owners and attempt to disarm them.

    Adding fuel to the fire is the mysterious and sudden temporary closures of five Walmart stores in Texas, California, Oklahoma and Florida, two of which are located near Jade Helm training sites. Those in this camp contend that the military is planning to use the Walmart stores as processing facilities for Americans once martial law is enacted.

    Pointing to the mission’s official title, “Jade Helm: Mastering the Human Domain,” there is a second camp that fears that the military exercises are merely a means to an end—namely total population control—by allowing the military to discern between friendly civilians and hostiles. This concern is reinforced by military documents stating that a major portion of Jade Helm training will be about blending in with civilians, understanding how to work with civilians, using these civilians to find enemy combatants, and then neutralizing the target.

    In this way, the United States military is effectively using psychological warfare to learn how people function and how to control them.

    As a study written by military personnel states, mastering the human domain, also known as identity processes, means “use of enhanced capabilities to identify and classify the human domain; to determine whether they are adversarial, friendly, neutral, or unknown.” The study later states that identity processes can be used to “manage local populations during major combat, stability, and humanitarian assistance and/or disaster relief operations.”

    While the military has promised that the work they are doing is aimed for use overseas, we have seen first-hand how quickly the military’s weapons and tactics used overseas are brought home to be used against the populace. In fact, some of the nation’s evolutionary psychologists, demographers, sociologists, historians and anthropologists have been working with the Department of Defense’s Minerva Initiative to master the human domain. This security research includes “Understanding the Origin, Characteristics, and Implications of Mass Political Movements” at the University of Washington and “Who Does Not Become a Terrorist and Why?” at the Naval Academy Post Graduate School. Both studies focus on Americans and the different movements and patterns that the government can track to ensure “safety and security.”

    The Department of Homeland Security (DHS) is also working to infiltrate churches across the country to establish a Christian Emergency Network, carry out emergency training exercises to prevent and prepare for disasters (active shooter drills and natural disaster preparedness), and foster two-way information sharing, while at the same time instituting a media blackout of their activities. As the DHS continues to establish itself within churches, a growing number of churches are adopting facial recognition systems to survey their congregations, identify and track who attends their events, and target individuals for financial contributions or further monitoring. As the partnership between churches and the DHS grows, their facial recognition databases may be shared with the federal government, if that is not already happening.

    Finally, there is the third camp which fears that Jade Helm is merely the first of many exercises to be incorporated into regular American life so that the government can watch, study, and better understand how to control the masses. Certainly, psychological control techniques could be used in the future to halt protests and ensure that the nation runs “smoothly.”

    It remains to be seen whether Jade Helm 15 proves to be a thinly veiled military plot to take over the country (one lifted straight out of director John Frankenheimer’s 1964 political thriller Seven Days in May), turn the population into automatons and psychological experiments, or is merely a “routine” exercise for troops, albeit a blatantly intimidating flexing of the military’s muscles.

    However, as I point out in my book Battlefield America: The War on the American People, the problem arises when you add Jade Helm to the list of other troubling developments that have taken place over the past 30 years or more: the expansion of the military industrial complex and its influence in Washington DC, the rampant surveillance, the corporate-funded elections and revolving door between lobbyists and elected officials, the militarized police, the loss of our freedoms, the injustice of the courts, the privatized prisons, the school lockdowns, the roadside strip searches, the military drills on domestic soil, the fusion centers and the simultaneous fusing of every branch of law enforcement (federal, state and local), the stockpiling of ammunition by various government agencies, the active shooter drills that are indistinguishable from actual crises, the economy flirting with near collapse, the growing social unrest, the socio-psychological experiments being carried out by government agencies, etc.

    Suddenly, the overall picture seems that much more sinister. Clearly, there’s a larger agenda at work here, and it’s one the American people had better clue into before it’s too late to do anything about it.

    Call me paranoid, but I think we’d better take James Madison’s advice and “take alarm at the first experiment on our liberties."

  • Russia Celebrates Independence Day By Flying Strategic Bombers 200 Miles Off California Coast

    As Americans stared heavenwards at the sound and fury of incendiary devices lighting the dark to celebrate their independence from an over-taxing monarchy, there were other fireworks going off in the skies above Alaska and California. As Fox News reports, two pairs of Russian bombers flew off the coast of California and Alaska – forcing the Air Force to scramble fighter jets to intercept both flights, according to two senior defense officials who did not confirm if the bombers were armed. As Free Beacon adds, it was the second time Moscow dispatched nuclear-capable bombers into the 200-mile zone surrounding U.S. territory in the past two weeks.

     

    Watch the latest video at video.foxnews.com

     

    As Fox News reports,

    While the United States celebrated Independence Day, two pairs of Russian bombers flew off the coast of California and Alaska — forcing the Air Force to scramble fighter jets to intercept both flights, two senior defense officials tell Fox News.

    The first incident occurred at 10:30 a.m. ET on July 4 off the coast of Alaska, Fox News is told. Two U.S. Air Force F-22 jets were scrambled from their base in Alaska to intercept two Tupolev Tu-95 long-range strategic bombers, capable of carrying nuclear weapons.

    The second incident occurred at 11:00 a.m. ET also on July 4, off the central coast of California. Two F-15s from an undisclosed location were scrambled to intercept another pair of Tu-95 Bear bombers.

    A spokesman for NORAD would not confirm if either pair of bombers was armed.

    As FreeBeacon.com further adds,

    A defense official said the Pacific coast intrusion came close to the U.S. coast but did not enter the 12-mile area that the U.S. military considers sovereign airspace.

     

    The bomber flights near the Pacific and earlier flights near Alaska appear to be signs Moscow is practicing the targeting of its long-range air-launched cruise missiles on two strategic missile defense sites, one at Fort Greely, Alaska and a second site at Vandenberg Air Force Base, Calif.

     

    In May, Russian Gen. Nikolai Makarov, the chief of the Russian General Staff, said during a Moscow conference that because missile defense systems are destabilizing, “A decision on pre-emptive use of the attack weapons available will be made when the situation worsens.” The comments highlighted Russian opposition to planned deployments of U.S. missile defense interceptors and sensors in Europe.

     

    The U.S. defense official called the latest Bear H incident near the U.S. West Coast “Putin’s Fourth of July Bear greeting to Obama.”

     

    Retired Air Force Lt. Gen. Thomas McInerney, a former Alaska commander for the North American Aerospace Defense Command, said the latest Bear H intrusion appears to be Russian military testing.

     

    “It’s becoming very obvious that Putin is testing Obama and his national security team,” McInerney told the Free Beacon. “These long-range aviation excursions are duplicating exercises I experienced during the height of the Cold War when I commanded the Alaska NORAD region.

     

    …

     

    “These are not good indications of future U.S. Russian relations.”

     

    Pentagon spokesman Capt. John Kirby said the incident occurred July 4. He said the “out-of-area patrol by two Russian long range bombers … entered the outer [Air Defense Identification Zone]” and the bombers “were visually identified by NORAD fighters.”

     

    Kirby said the bombers did not enter “sovereign airspace.” He declined to identify the specific distance the aircraft flew from the United States due to operational security concerns. He also declined to identify the types of aircraft used to intercept the bombers.

     

    In last month’s intercept of two Russian Tu-95 bombers, U.S. F-15s and Canadian CF-18s were used.

    *  *  *

    As Adm. Bill Gortney, the general at the head of North American Aerospace Defense Command (NORAD), told reporters in April,

    Russia was using its long-range bomber fleet to "message" the US about Moscow's international military capabilities.

     

    "They are messaging us. They are messaging us that they are a global power," Gortney said, while noting that the US does "the same sort of thing" to Russia in Europe.

  • The Biggest Winner From The Greek Tragedy

    Long after Greece has left the Eurozone and Germany is using the Deutsche Mark as its currency, the people of the two nations, antagonized to a level unseen since World War II, will be accusing each other of benefiting more from the brief but tumultuous period of the common currency.

    In reality, nobody had put a gun to Greece’s head and told it to lever up, enriching local oligarchs and corrupt politicians, taking advantage of credit that was artificially cheap only due to the common currency and an implicit monetary, if not fiscal, union.

    Germany, whose exports account for nearly 50% of GDP, on the other hand experienced an unprecedented exporting golden age, made possible only due to an artificial currency, the Euro, that was by definition created to be weaker than the Deutsche Mark and benefitted from any bout of weakness in Europe’s periphery, such as the past 5 years.

    The truth is, when things were good nobody second-guessed any decisions for a second, and since the rising economic tide lifted all boats, nobody cared.

    And then the tide rolled out, displaced by trillions in bad loans and gargantuan mountains of sovereign and financial debt, which ultimately would lead to the first, then second, then third and then an all-out cascade of sovereign defaults.

    Sadly, the losers – regardless of the propaganda and jingoist rhetoric – are the ordinary, common, taxpaying people of Germany and Greece (and every other European nation), who enjoyed a few brief years of artificial prosperity, which in retrospect was entirely due to debt, masked well by the “currency swaps” and other financial engineering concocted by banks such as Goldman Sachs, in clear violation of the Maastricht treaty which is now a long-forgotten memory of the founding ideals behind the Eurozone.

    For every loser there is a winner, and in the case of Greece and its tragedy, just as millions are about to lose everything, a few not only made billions but quietly, under the guise of “sovereign bailouts” transferred their entire risk onto the taxpaying public.

    They are shown in the chart below.

     

    It is that transfer of private-to-public risk, which is also the main reason why the public debt of so many European countries, not only Greece, whose debt is record high despite a default to its private creditors in 2012 and where only 10% of bailout proceeds ever made it to the actual economy…

     

    … but the entire periphery has soared in the last few years.

     

    Inevitably, there will be many angry people, because what is about to come to Europe will be hardship unlike anything seen in generations. Our suggestion: before neighbor takes it out on neighbor, study the following map closely because just like Libor was an impossible conspiracy theory until it was a proven fact, what is happening in Europe was propagated and effectuated by one bank more than any other.

    This one:

     

    Or, one can ignore this as merely yet another conspiracy theory. And that’s fine.

    But there is one critical, factual loose end that has to be investigated.

    Back in June 2012, the ECB, whose head was the recently crowned Mario Draghi who had less than a decade ago worked at none other than Goldman Sachs, was sued by Bloomberg’s legendary Mark Pittman under Freedom of Information rules demanding access to two internal papers drafted for the central bank’s six-member Executive Board. They show how Greece used swaps to hide its borrowings, according to a March 3, 2010, note attached to the papers and obtained by Bloomberg News. The first document is entitled “The impact on government deficit and debt from off-market swaps: the Greek case.” The second reviews Titlos Plc, a securitization that allowed National Bank of Greece SA, the country’s biggest lender, to exchange swaps on Greek government debt for funding from the ECB, the Executive Board said in the cover note. From Bloomberg:

    In the largest derivative transaction disclosed so far, Greece borrowed 2.8 billion euros from Goldman Sachs Group Inc. in 2001 through a derivative that swapped dollar- and yen-denominated debt issued by the nation for euros using a historical exchange rate, a move that generated an implied reduction in total borrowings.

     

    “The Greek authorities had never informed Eurostat about this complex issue, and no opinion on the accounting treatment had been requested,” Eurostat, the Luxembourg-based statistics agency, said in a statement. The watchdog had only “general” discussions with financial institutions over its debt and deficit guidelines when the swap was executed in 2001.

     

    “It is possible that Goldman Sachs asked us for general clarifications,” Eurostat said, declining to elaborate further.

    The ECB’s response: “the European Central Bank said it can’t release files showing how Greece may have used derivatives to hide its borrowings because disclosure could still inflame the crisis threatening the future of the single currency.“

    Considering the crisis of the (not so) single currency is very much “inflamed” right now as it is about to be proven it was never “irreversible”, perhaps it is time for at least one aspiring, true journalist, unafraid of disturbing the status quo of wealthy oligarchs and central planners, to at least bring some closure to the Greek people as they are swept out of the Eurozone which has so greatly benefited the very same Goldman Sachs whose former lackey is currently deciding the immediate fate of over €100 billion in Greek savings.

    Because something tells us the reason why Mario Draghi personally blocked Bloomberg’s FOIA into the circumstances surrounding Goldman’s structuring, and hiding, of Greek debt that allowed not only Goldman to receive a substantial fee on the transaction, but permitted Greece to enter the Eurozone when it should never have been allowed there in the first place, is that the person who oversaw and personally endorsed the perpetuation of the Greek lie is none other than Goldman’s Vice Chairman and Managing Director at Goldman Sachs International from 2002 to 2005. The man who is also now in charge of the ECB.

    Mario Draghi.

  • What It Really Takes For a US-Iran Deal

    Authored by Pepe Escobar, Op-Ed via RT.com,

    Forget the mad spinning. Here it is, in a nutshell, what it really takes for Iran and the P5+1 to clinch a game-changing nuclear deal before the new July 7 deadline.

    Iran and the P5+1 agreed in Lausanne on a “comprehensive plan of action,” taking into account delicate constitutional considerations in both the US and Iran. A crucial part of the plan is the mechanism to get rid of sanctions. Lausanne – and now Vienna – is not a treaty; it’s an action plan. There will be a declaration when a deal is reached. But there won’t be a signing ceremony.

    The next important step is what happens at the UN Security Council (UNSC). All the concerned parties at the UNSC will endorse a declaration, and a resolution – which is still being negotiated – will render null and void all previous sanctions resolutions.

    As it stands, all the parties – except the US government – want to go to the UNSC as soon as possible. Washington remains, at best, reticent.

    Iranian negotiators have made it very clear at the table that Tehran will start implementing its nuclear restriction commitments – removal of a number of centrifuges, removal of the core of Arak’s reactor, disposal of uranium stock, etc. – immediately. The IAEA will be constantly checking Iran has complied with an extensive list.

    But it has to be a parallel process; the US and the EU must for their part and “take physical action”, tackling the complex mechanism of lifting all economic sanctions. Once again; a UNSC signature instantly erases all previous sanctions.

    And here is something crucial; all of this has been agreed in Lausanne. The work must be simultaneous, as stressed, in tandem, by Iranian Foreign Minister Mohammad Javad Zarif and EU representative Federica Mogherini.

    Those fateful parameters

    Meanwhile, we have the media centrifuges spinning like mad, as I described here. On the negotiating table, there are still skirmishes related to the US desire in trying to “prove a negative” – as in the “possible military dimensions” (PMD) of Iran’s nuclear program.Logically, you don't need to be a neo-Wittgenstein to see that’s impossible.

    The deadline extension from June 30 to July 7 is mostly about finding – rather, finding again – a “reasonable common narrative” inbuilt in the Lausanne framework, and even before.

    This means Washington should make the political decision to tone down repeated attempts to introduce new demands. Iranian officials admit, “we may have had disagreements on how we do simultaneous work,” but that’s part of Lausanne. New demands are not.

    In Lausanne, US Secretary of State John Kerry and Foreign Minister Zarif agreed on a “set of parameters” – after excruciating nine hours of debate.They also agreed, crucially, that both sides would refrain from humiliating one another publicly.

    The recent record shows that’s been the case – as far as negotiators and diplomats are concerned. On the other hand, US corporate media predictably has been wreaking the proverbial havoc.

    Which brings us to the clincher; Iranian negotiators have yet to detect a readiness of the US government to really change the “culture of sanctions” in the UNSC. And here a diplomatic consensus emerges, involving, very significantly, Russia and Germany; this agreement will be made – or broken – on one crucial point; whether the Obama administration wants to lift the sanctions or keep them.

    Watch the BRICS front

    The least one can say about what’s really happening in the Palais Coburg since this past weekend is that the Obama administration’s position is oscillating wildly. There seems to be – finally – some movement on the American side in the sense they feel a strategic interest in changing the situation.

    That will depend, of course, on the Obama administration’s evaluation of all factions operating in the Beltway establishment. Diplomats in Vienna agree Kerry is personally involved in trying to change the equation. So this means the ball is really in the US court.

    But all’s still murky; even oscillating wildly; the Americans continue to entertain what an Iranian official described to me as “buyer’s remorse” regarding what they agreed on Lausanne in the first place.

    Serious, key sticking points remain. The duration of the sanctions; confidentiality issues – as in the US, especially, respecting terms of access to Iranian military installations; and what’s defined as “managed access” under certain conditions.

    Also very crucial is the BRICS front at the P5+1. Neither China nor Russia wants to see any exacerbation of tensions, in Southwest Asia and beyond, because a deal is not clinched. The bottom line; with their eye in the Big Picture – as in Eurasia integration – both are committed to facilitate a deal.

    Until tomorrow, all remains in play. Obama has been spinning he doesn’t want a “bad deal”. That’s not the issue. The issue is Obama himself making the fateful political decision of abandoning the weapon of choice of US foreign policy; sanctions. Has he got what it takes to pull it off?

  • Are You Ready For The e-PATRIOT Act?

    Submitted by Mark Nestmann via nestmann.com,

    Earlier this month, news emerged that the US government had suffered its worst cyberattack ever.

    On June 4, the Office of Personnel Management (OPM) revealed that hackers had penetrated its networks, possibly for many months. The data thieves stole personal information of up to 18 million current and former federal government applicants and employees.

    There’s a good chance the attack is even worse than what you’ve read about. The OPM hack included a database holding security clearance information on hundreds of thousands of federal employees and contractors. This database contains details of applicants’ financial and investment records, family members, and even names of neighbors and close friends.

    Another database that may have been breached includes criminal history, psychological records, and information about past drug use. The hackers might even have acquired detailed personal and sexual profiles obtained through lie detector tests.

    With all the talk of Edward Snowden and the supposed “irreparable” damage he did to US interests, this theft is a lot worse. While OPM doesn’t hold personnel records for the CIA, it does for other US intelligence agencies. The hackers now know the identity of hundreds of thousands of federal employees with security clearances. Not only that, they also have sensitive background information on each of them, which they could easily use for blackmail.

    Oh, and get this – the breach wasn’t actually discovered by the OPM. It was only uncovered during a sales demonstration by a security company named CyTech Services.

    So what does the Obama administration want to do to solve the problem?

    For starters, it’s proposed “economic sanctions” against China, which it holds responsible for the attack. We’ve seen how effective those were against Russia after the US imposed them last year in the wake of its takeover of Crimea. There’s no reason to think that sanctions against China will be any more effective.

    Obama administration officials, led by the FBI, also want to force US companies to insert “back doors” into their encryption products that the government can unlock with the appropriate key. That’s a horrible idea, because strong encryption is really the only certain way to protect sensitive databases from this type of attack. And of course, there’s a very real prospect that hackers might discover the back door. That’s happened on numerous occasions in the past.

    And Obama wants Congress to pass a bill to strengthen federal cybersecurity legislation. In April, the House passed its version of the bill and sent it to the Senate. Only a few days after the OPM hack, Senate leaders tacked on the Cybersecurity Information Sharing Act (CISA) to a defense bill to avoid debate on the measure. It didn’t work – the Senate failed to advance the legislation.

    It’s no wonder they didn’t want a debate. CISA provides liability protection for businesses that voluntarily share “cyberthreat” data with the government. But it also creates a back-door channel for government agencies to retrieve, analyze, and store enormous volumes of personal data. And since information sharing would be voluntary, the government would be able to obtain all of this information without a warrant. Think of it as an “e-PATRIOT Act.”

    Is there a better way? Yes.

    The biggest change needed is that both private companies and the feds should encrypt all data – everything. And they should use strong, peer-reviewed encryption protocols – not the watered-down variety with back doors that the Obama administration wants them to adopt.

    Sure, this will make life more difficult for the likes of the NSA and other spy agencies to carry out domestic surveillance. But investigators can still seize domestic phone records, email header data, and much more, without a warrant. Encrypting everything won’t affect access to this data.

    In the meantime, what can you do to protect your own data from cybersecurity breaches? As is often the case, some of the best solutions are outside the politically charged atmosphere of the US.

    First, subscribe to a robust virtual private network (VPN) to encrypt the data stream on your smartphone and your PC. I use one called “Cryptohippie.” The company’s only US presence is to authenticate connections to Cryptohippie servers in other countries. None of Cryptohippie’s servers are in the United States.

    Second, use an email program that facilitates transmission of encrypted messages. My personal choice is Thunderbird, along with a free plug-in called Enigmail. Once you exchange encryption keys with the people you correspond with, Enigmail automatically encrypts and decrypts your messages.

    Third, if you use webmail services, ditch US providers such as Gmail and the online version of Microsoft Outlook (formerly Hotmail). Use a non-US service that is serious about security and encryption. I use a company called Century Media, which has its servers in Switzerland, for this purpose, but there are many other choices.

    A good time to begin securing your electronic life would be today. The US government certainly isn’t going to do it for you.

  • Can China Keep Miami's Condo Bubble From Bursting?

    After Xi Jinping’s anti-corruption campaign emptied the VIP baccarat tables in Macau causing gaming revenue to plunge 40% month after painful month, China’s stock market miracle might well have functioned as a convenient outlet for the gambling propensities of the country’s ultra rich.

    That all came to a rather unceremonious end three weeks ago when the unwind of as much as CNY1 trillion in backdoor margin lending triggered a terrifying 30% collapse in Chinese equities. 

    Fortunately for China’s ultra rich, dollar strength has served to completely eliminate the South American bid from Miami’s once-booming condo market. As a reminder, here is the situation in South Florida:

    As you can see, price increases leveled off in H1. The reason (according to Kevin Maloney, founder and principal of Property Markets Group who spoke to Bloomberg last month): “A very strong shift in the last year in the dollar … has literally pushed whole countries out of the marketplace.”

    Yes, whole Latin American countries (and maybe a few Russian oligarchs), but certainly not China, and what better way to shore up a market in which price appreciation has recently flatlined after three consecutive years of 15%+ gains than to lure in Chinese buyers who, having helped send Manhattan condo prices to nosebleed levels and who are perhaps now looking for less volatile places to park their fortunes having watched their domestic stock market take a nosedive, may now be looking for a fourth, fifth, or sixth home away from home. WSJ has more: 

    Wealthy buyers from Brazil, Venezuela and Argentina have fueled a real-estate frenzy in Miami in recent years, sending luxury-condo prices soaring. Now, Miami developers and real-estate agents are setting their sights on a more distant part of the world: China.

     

    In April, representatives for several Miami condo buildings made the 8,000-mile-trip to the Beijing Luxury Property Show, a trade show that attracted more than 5,200 wealthy Chinese to look at international properties. Sales agents for the Fendi Chateau Residences, a luxury development going up near Florida’s Bal Harbour, handed out brochures in Mandarin for condos priced from $5 million to $22 million. Nearby was Lauren Marks, the marketing coordinator for two luxury-condo buildings: Palazzo Del Sol and the forthcoming Palazzo Della Luna, on Miami’s Fisher Island.

     

    “I’m here on a fact-finding mission,” said Ms. Marks. “I’m trying to decide if this is the right place for us to facilitate a meaningful relationship with Chinese buyers.”

     

    Executives of the Miami Association of Realtors, the largest local group of the National Association of Realtors, were there, too, handing out Miami market data and gold palm-tree pins attached to a card with the tagline, written in Chinese, “Enjoy the unique taste of life.”

     

    Part of the reason for their journey: South American buyers, who comprise the largest foreign buying group in Miami, aren’t buying as rapidly anymore. A recent study by the Miami Downtown Development Authority found that sales of new condo units still under construction have slowed, in part because South American investors have less buying power, due to the increase of the U.S. dollar compared with South American currencies.

     

    Meanwhile, Chinese buyers are beginning to take a closer look at the city. “The Chinese are coming along very strong,” said Simon Henry, co-founder of Juwai.com, a China-based website that connects wealthy Chinese with overseas properties. “Miami looks relatively cheap compared with some of the big cities like San Francisco and New York.” Juwai says the average budget for Chinese buyers shopping for overseas properties on its site is $2.3 million.

     


     

    Currently, only 2% of international buyers in Miami come from China, according to the Miami Association of Realtors. But potential changes in Chinese investment policies, and the relatively strong Chinese yuan, are making the Chinese look like a good bet to Miami developers. The Chinese government is expected to begin raising annual limits on how much an individual can invest overseas from the current $50,000 cap—a rule often skirted.

     

    And Chinese buyers have become an increasingly dominant force in U.S. real estate overall. According to the National Association of Realtors, Chinese buyers recently surpassed Canadians as the top foreign buyers of homes in the U.S., purchasing $28.6 billion of properties in the 12-month period ending in March.

    There it is. The reason why Carlos Rosso, president of Related Group of Florida so confidently told Bloomberg last month that this time is “different” and that the current deceleration in condo price appreciation will not soon turn into a rout.

    In short, Miami condo developers are depending on the China bid to rescue the market from overbuilding much as the entire world depended on China to absorb oversupply in the lead up to the financial crisis. We’ll check back next quarter to see if an influx of Chinese buyers was enough to stop prices from posting their first Y/Y decline in seven years.

  • Russia Is Taking Full Advantage Of Greek Crisis

    Submitted by Nick Cunningham via OilPrice.com,

    With Greece’s debt situation spiraling downwards, the European project is showing some cracks. The July 5 referendum could amount to a vote on whether or not Greece stays in the euro.

    In the meantime, the turmoil offers an opportunity for Russia to advance its interests. Of course, the EU is an absolutely critical trading partner for Russia, so if the bloc starts to fray at the seams, that presents financial risks to an already struggling Russian economy. Russia’s central bank governor Elvira Nabiulllina warned in June of the brewing threat that a Greek default would have on Russia. “We do consider that scenario as one of possible risks which would increase turbulence in the financial markets in the European market, bearing in mind the fact the European Union is one of major trading partners, and we are definitely worried by it,” she said in an interview with CNBC.

    With the economic fallout in mind, Russia does see strategic opportunities in growing discord within Europe. First, Russia is pushing its Turkish Stream Pipeline, a natural gas pipeline that it has proposed that would run from Russia through Turkey and link up in Greece. From there, Russian gas would travel on to the rest of Europe. Russia is vying against a separate pipeline project that would send natural gas from the Caspian Sea through Turkey and on to Europe.

    In mid-June, Alexis Tsipras met with Russian President Vladimir Putin at the St. Petersburg International Economic Forum. Russia and Greece signed a memorandum following the meeting to push the project forward. Russia’s energy minister Alexander Novak emphasized that Gazprom would not own the section of the pipeline on Greek territory, a crucial fact that avoids heavy antitrust scrutiny from EU regulators.

    With an eye on the looming default, Russia agreed to finance the project, and Greek officials portrayed the project as economic assistance amidst its ongoing debt crisis.

    The pipeline remains in limbo. Despite Russian insistence that construction could begin in 2016 and be completed by 2019, the 2 billion euro project does not have firm commitments from Turkey, and it also still faces opposition within Europe, which is trying to wean itself off of Russian gas.

    But with Greece’s debt crisis hitting new lows, there remains the possibility that Russia could come to Greece’s aid if the latter starts to pull away from Europe. And Greece has tried to use a potential turn towards Russia as leverage in talks with Europe.

    To be sure, a Russian bailout for Greece is probably not in the cards, given Russia’s own financial troubles. And both Russian and Greek officials stressed that they did not discuss direct financial assistance when they met in June. Still, there are mutual benefits for both Russia and Greece in highlighting their relationship.

    Another way that Russia may be benefitting from the unravelling of Greece is the fact that the attention of European officials and the media have been diverted away from Gazprom’s latest maneuver in Ukraine. The Russian company cut off gas supplies to Ukraine, citing a pricing dispute. Gazprom slashed the discount that it provided to Ukraine for importing its gas, and without prepayment upfront from Ukraine, the Russian company has stated it will not supply gas.

    That is not the first instance in which Russia has turned off the taps, having done so in 2006 and 2008 as well. Russia cited pricing disputes in those cases as well. But those prior events also took place during a brutally cold winter, leaving parts of Eastern Europe to freeze. The message was clear: fall in line, or we will cut off your energy supplies.

    Of course, that sparked outrage in European capitals, leading to calls for greater European energy security. But after years of little progress, the conflict in Ukraine in 2014 kicked of a new era of icy relations between Russia and Europe, and renewed calls for energy independence from Russia.

    One would think that Russia once again cutting of gas flows to Ukraine would certainly raise howls across Europe, but the Greek crisis is sucking all of the air out of the room and crowding out media attention. The fact that the latest incident took place during summer and not winter helped damp down a European reaction, and Russia was careful to insist that Europe would not be affected. But the incident has passed with much less of a reaction than one might have thought.

    There are huge financial risks to Russia from chaos in the Eurozone, and the longer the crisis drags out the more likely there could be economic fallout for Russia. But Putin no doubt sees a silver lining in collapsing European unity.

  • In China, Hairdresser Bull Call Goes Horribly Wrong, Broker IPO Crashes 31%

    Around two weeks ago, Wang Weidong, who WSJ describes as “one of China’s top fund managers,” drew a crowd so large at the Grand Hyatt in Lujiazui that the building’s air conditioning unit was, much like the SHCOMP’s volume tracking software in April, overwhelmed by the sheer number of aspiring Chinese day traders in attendance.

    The message was clear: buy Chinese stocks.

    “The 4000 level was only the beginning of the bull market,” Wang said, implicitly suggesting that the greater fool theory of investing is the way to go if you’re trading on the SHCOMP or the Shenzhen. Wang even went so far as to suggest that anyone who chose to take a vacation instead of spending their holidays day trading was making a big mistake. “They say the world is too big and I need to go and take a look. I would say, the stock market is hot, so how can I leave it behind?” he asked.

    Anyone who took that advice — and you can bet quite a few of the 600 attendees did — was in for a rude awakening.

    Chinese stocks have suffered a brutal sell-off over the past three weeks as a massive unwind in the shadowy world of backdoor margin lending has overwhelmed official efforts to stop the bleeding and indeed, even a weekend move by the PBoC to pledge central bank support for increased margin lending (and yes, that is as ludicrous as it sounds) wasn’t enough to stabilize the market as evidenced by the SHCOMP’s wild ride on Monday.

    Here’s WSJ with more on why your hairdresser won’t always be right when it comes to identifying attractive entry points.

    On a hot, humid Sunday afternoon in mid-June, around 600 eager stock investors packed the largest ballroom at the Grand Hyatt in Lujiazui, Shanghai’s equivalent of Wall Street.

     

    With Chinese stocks at a seven-year high, the investors had gathered to listen to a talk by one of China’s top fund managers, Wang Weidong, of Adding Investment. The crowd was so large, the air conditioning couldn’t keep up and hotel staffers brought in chairs and bottled water for the sweaty participants.

     

    Today the Shanghai index and smaller, more-volatile indexes in Shenzhen are off more than a quarter from highs reached in June.

     

    Even after the peak, new investors opened millions of brokerage accounts so they could play the rally. Sophie Wang, a 32-year-old college art teacher in Nanjing, said in a recent interview that she opened her first stock trading account two weeks ago and bought some shares on “the advice of my hairdresser.”

     


     

    Ms. Wang said her holdings are down 32%. “I don’t really follow news on stocks that closely. My hairdresser said it was still a bull market and I needed to get in,” she said. 

     

    She said she didn’t know what to do when the market started falling and she is still holding her shares.

     

    The government has shown increasing concern about the selloff, but its efforts, including an interest-rate cut, have failed to stem the slide. On Saturday, Beijing took its most-decisive action yet, suspending initial public offerings and establishing a market-stabilization fund to spur stock purchases. The Chinese central bank also pledged to provide funding to support brokerages’ margin finance operations that allow investors to borrow cash to buy stocks.

     

    China has suspended IPOs before in hopes of boosting the market by way of cutting supply. This time, the stakes are higher because an estimated four trillion yuan ($645 billion) worth of IPOs was in the works, and Beijing had hoped to use a buoyant stock market to help heavily indebted companies raise cash.

    Speaking of IPOs, it appears as though brokers are just as ineffective at propping up their own shares as they are at providing plunge protection for the broader market, because as the following from Bloomberg makes clear, Guolian Securities’ debut did not go as planned. 

    Chinese brokerage Guolian Securities Co.’s shares tumbled in the worst major Hong Kong trading debut since 2011, even after China rolled out emergency measures to stabilize the nation’s stock market.

     

    Guolian closed 31 percent lower than its offer price at HK$5.51. 

     

    Guolian’s debut was the worst since 2011 for any Hong Kong initial share sale of at least $100 million, Bloomberg-compiled data show. While the securities firm’s shares were in part catching up with market declines since the stock was priced on June 26, investors are concerned that the Chinese slump isn’t over, Castor Pang, head of research at Core Pacific Yamaichi in Hong Kong, said by phone.

    Where we go from here is anyone’s guess because as we noted on Sunday evening, retail investor psychology has now suffered irreparable damage, meaning panicked hairdressers and banana vendors looking to sell the rips will be battling the PBoC for control of an insanely volatile market.

    In short, expect the wild swings investors have seen over the course of the last two months to continue and indeed to become even more exaggerated as the battle between Politburo plunge protection and frantic farmer selling heats up.

  • There is Only One Way Out For Greece

    Submitted by Martin Armstrong via ArmstrongEconomics.com,

    Brussels has been dead wrong. The stupid idea that the euro will bring stability and peace, as it was sold from the outset, has migrated to European domination as if this were “Game of Thrones”. Those in power have misread history, almost at every possible level. The assumption that the D-marks’ strength was a good thing that would transfer to the euro has failed because they failed to comprehend the backdrop to the D-mark.

    LongBranchNJ-DepressionScrip

    Germany moved opposite of the USA toward extreme austerity and conservative economics because of its experience with hyperinflation. The USA moved toward stimulation because of the austerity policies that created the Great Depression, which led to a shortage of money, and many cities had to issue their own currency just to function. The federal government thought, like Brussels today, that they had to up the confidence in the bond market and that called for raising taxes and cutting spending at the expense of the people. The same thinking process has played out numerous times throughout history. Our problem is that no one ever asks – Hey, did someone try this before? Did it work? This is why history repeats – we do ZERO research when it comes to economics. It is all hype and self-interest.

     

    1000 drachma

     

    Greece should immediately begin to print drachma. By no means has the introduction of a new currency been a walk in the park. There is always a learning curve, as in the case of East Germany’s adoption of the Deutsche mark, the Czech-Slovak divorce of 1993, and the creation of the euro itself . However, the bulk of transactions today are electronic, meaning we are dealing with an accounting issue more than anything. The euro existed electronically BEFORE it became printed money; Greece should do the same right now.

     

    ExecutiveOrder-Gold-Confiscation

     

    The difference concerning East Germany and others was the fact that there was no history. This is more akin to the 1933 devaluation of the dollar by FDR whereby an executive order reneged on promises to pay prior debt in gold. This would be similar. The new drachma should be issued at two-per euro, only because the people will think the drachma should be worth less than a euro based on pride. If the new drachma is issued at par, the speculators will sell, assuming it will decline. Issue it at 50% and you will eventually see the opposite trend emerge once people see the contagion begin to spread.

    Brussels already cut off the banks in Greece. All accounts in Greece should be electronically switched to drachmas. Begin to issue printed drachma for small change. The umbilical cord to Brussels must be cut immediately for Greece to stand on its own. You cannot negotiate with people who will not change their view of the world, for their own self-interest will cloud their perspective.

    All EXTERNAL debt should be suspended. Any future resolution of debt should be reduced by 50% to account for the overvaluation of prior debt, thanks to the euro, and any interest previously paid should be deducted from the total loan.

    All income tax should be abolished and the only taxation should be indirect. A close examination of the cost of government should be carried out and as many aspects of government as possible should be privatized and put out for bid. For example, motor vehicle and police agencies can privatize, eliminating pensions paid by the government. The size of government must be addressed, or Greece will risk civil war between government workers and private citizens.

    Eliminating the income tax is critical and desperately needed for job creation. Small business must be profitable to begin to creating jobs and those who had to leave, whom are the nations’ brightest, will return. Bring your best talent home and build an economy.

    London Agreement signed Aug 1953

    Eliminating the debt is critical. Some 20 nations forgave all debt for Germany after World War II. The London Agreement on German External Debts, also known as the London Debt Agreement, was a debt relief treaty between the Federal Republic of Germany and its creditor nations that concluded August 8, 1953.

    London Agreement 1953

    The London Debt Agreement covered a number of different types of German debt, both public and private, from before and after World War II. Some of them arose directly out of the efforts to finance the reparations system, while others reflect extensive lending, mostly by U.S. investors to German firms and governments. Those who forgave German debt: Belgium, Canada, Denmark, France, Great Britain, Greece, Iran, Ireland, Italy, Liechtenstein, Luxembourg, Norway, Pakistan, Spain, Sweden, Switzerland, South Africa, the United States, Yugoslavia, and others. The total amount under negotiation was 16 billion marks of debt, a result of the Treaty of Versailles after World War I, a debt that went unpaid during the 1930s that Germany decided to repay to restore its reputation. This was money owed to government and private banks in the U.S., France, and Britain. Another 16 billion marks represented postwar loans by the USA. Under the London Debts Agreement of 1953, the repayable amount was reduced by 50% to about 15 billion marks and stretched out over 30 years, and compared to the fast-growing German economy were of minor impact.

    Therefore, what enabled Germany to rise from the ashes is a successful model. Greece too must be debt free. End federal borrowing, suspend all debt, and do not accept any more bailouts from Brussels.

  • This Is How Much It Cost To Keep The Shanghai Composite Green For A Day

    Over the weekend, as China scrambled to put together a coherent plan to combat the vicious equity sell-off that has pruned nearly 30% off the market’s world-beating rally, we remarked that the entire effort looked quite similar to what took place in the wake of Black Thursday some eight and a half decades ago: 

    “The move by the broker consortium is reminiscent of an ill-fated 1929 effort by JP Morgan and others to support the US market after Black Thursday and is, according to some, doomed to fail because i) it is a laughably small effort compared to daily turnover in China, and ii) it targets the wrong kind of stocks.”

    The “consortium” refers to the 21 brokers who came together on Saturday and pledged 15% of their net assets to support the flagging Chinese stock market. The PBoC later (on Sunday) announced it would channel funds to the China Securities Finance Corp which will in turn use the cash to help brokerages expand their businesses and reinvigorate stocks. 

    The message was clear: stocks absolutely could not open red on Monday morning.

    Consider the following from BofAML which shows just how imperative it was for the SHCOMP to open green: “We suspect that the initial PBoC loans to CSFC will be used on Monday morning to fund the MSF until brokers’ funds arrive (by 11am on Monday as ordered by the CSRC).”

    In other words, the $20 billion or so in committed broker funds needed to be in place the second the market opened and not a minute later and if that meant the central bank had to front the money while the CSFC waited on the broker cash to clear then so be it. Here’s Bloomberg:

    21 Chinese brokerages had transferred at least 128b yuan to China Securities Finance Corp. as of 11am Monday, Shanghai Securities News reports on Weibo, citing Wang Min, deputy head of Securities Association of China.

    That explains the opening 8% ramp on the SHCOMP. Of course by the end of the session, whatever boost stocks received from early buying had almost entirely worn off, supporting the contention that, to quote one Bocom equity strategist who spoke to Bloomberg over the weekend, “that CNY120 billion won’t last for an hour in this market.” 


    With all of the above in mind, we bring you the following chart which, by way of comparison with the above-mentioned JP Morgan Black Thursday plunge protection team, shows you how effective China’s effort is likely to be.

  • Greece Fallout: Italy & Spain Have Funded A Massive Backdoor Bailout Of French Banks

    Submitted by Benn Steil and Dinah Walker via The Council on Foreign Relations,

    In March 2010, two months before the announcement of the first Greek bailout, European banks had €134 billion worth of claims on Greece.  French banks, as shown in the right-hand figure below, had by far the largest exposure: €52 billion – this was 1.6 times that of Germany, eleven times that of Italy, and sixty-two times that of Spain.

     

    The €110 billion of loans provided to Greece by the IMF and Eurozone in May 2010 enabled Greece to avoid default on its obligations to these banks.  In the absence of such loans, France would have been forced into a massive bailout of its banking system.  Instead, French banks were able virtually to eliminate their exposure to Greece by selling bonds, allowing bonds to mature, and taking partial write-offs in 2012.  The bailout effectively mutualized much of their exposure within the Eurozone.

    The impact of this backdoor bailout of French banks is being felt now, with Greece on the precipice of an historic default.  Whereas in March 2010 about 40% of total European lending to Greece was via French banks, today only 0.6% is.  Governments have filled the breach, but not in proportion to their banks’ exposure in 2010.  Rather, it is in proportion to their paid-up capital at the ECB – which in France’s case is only 20%.

    In consequence, France has actually managed to reduce its total Greek exposure – sovereign and bank – by €8 billion, as seen in the main figure above.  In contrast, Italy, which had virtually no exposure to Greece in 2010 now has a massive one: €39 billion.  Total German exposure is up by a similar amount – €35 billion.  Spain has also seen its exposure rocket from nearly nothing in 2009 to €25 billion today.

    In short, France has managed to use the Greek bailout to offload €8 billion in junk debt onto its neighbors and burden them with tens of billions more in debt they could have avoided had Greece simply been allowed to default in 2010.  The upshot is that Italy and Spain are much closer to financial crisis today than they should be.

  • Obamacare Sticker Shock Arrives: Insurance Premiums To Soar 20-40%

    Two months ago, we outlined why the CPI-boosting Affordable Care Act is on the verge of bankrupting that all important driver of the US economic growth engine — the American consumer.

    Put simply, inflation in medical care services costs hadn’t yet reared its ugly head because many insurers were as yet unable to gauge the full base-effect impact of Obamacare on their P&L. That, we said, was about to change: “After finally digesting the true cost of Obamacare, any recent insurance prime hikes will seem like a walk in the park compared to what is coming.

     

    Sure enough, insurers have now taken a close look at exactly how much socialized medicine is costing them.

    Not surprisingly, the picture isn’t pretty.

    In some cases, forecasters grossly underestimated the number of claims they would likely receive, and indeed, even a PhD economist can tell you that when the amount going out for claims is greater than the amount coming in via premiums, there’s a problem with the model and because staunching the outflow is effectively now forbidden, something has to give on the receivables side of the equation which means dramatically higher premiums.

    NY Times has the story:

    Health insurance companies around the country are seeking rate increases of 20 percent to 40 percent or more, saying their new customers under the Affordable Care Act turned out to be sicker than expected. Federal officials say they are determined to see that the requests are scaled back.

     

    Blue Cross and Blue Shield plans — market leaders in many states — are seeking rate increases that average 23 percent in Illinois, 25 percent in North Carolina, 31 percent in Oklahoma, 36 percent in Tennessee and 54 percent in Minnesota, according to documents posted online by the federal government and state insurance commissioners and interviews with insurance executives.

     

     

    The Oregon insurance commissioner, Laura N. Cali, has just approved 2016 rate increases for companies that cover more than 220,000 people. Moda Health Plan, which has the largest enrollment in the state, received a 25 percent increase, and the second-largest plan, LifeWise, received a 33 percent increase.

     

    Jesse Ellis O’Brien, a health advocate at the Oregon State Public Interest Research Group, said: “Rate increases will be bigger in 2016 than they have been for years and years and will have a profound effect on consumers here. Some may start wondering if insurance is affordable or if it’s worth the money.”

     

    The rate requests, from some of the more popular health plans, suggest that insurance markets are still adjusting to shock waves set off by the Affordable Care Act.

     

    Blue Cross and Blue Shield of New Mexico has requested rate increases averaging 51 percent for its 33,000 members. The proposal elicited tart online comments from consumers.

    “This rate increase is ridiculous,” one subscriber wrote on the website of the New Mexico insurance superintendent.

     

    In their submissions to federal and state regulators, insurers cite several reasons for big rate increases. These include the needs of consumers, some of whom were previously uninsured; the high cost of specialty drugs; and a policy adopted by the Obama administration in late 2013 that allowed some people to keep insurance that did not meet new federal standards.

     

    “Our enrollees generated 24 percent more claims than we thought they would when we set our 2014 rates,” said Nathan T. Johns, the chief financial officer of Arches Health Plan, which covers about one-fourth of the people who bought insurance through the federal exchange in Utah. As a result, the company said, it collected premiums of $39.7 million and had claims of $56.3 million in 2014. It has requested rate increases averaging 45 percent for 2016.

     

    The rate requests are the first to reflect a full year of experience with the new insurance exchanges and federal standards that require insurers to accept all applicants, without charging higher prices because of a person’s illness or disability.

    There you go. Precisely as we said, the ACA and of course the ballooning cost of new drugs proxied by Janet Yellen’s “stretched” biotech sector mean manidtorily insured Americans will now be charged more. Much more.

    But do not despair because where there’s an Obama there’s always “hope”. And on that note, we’ll leave you with the following, from the President:

    If insurance regulators “do their job, my expectation is that [rates hikes] will come in significantly lower than what’s being requested.”

  • Is It Slowing China Or Grexit That Is Driving Financial Market Price Changes?

    Submitted by Bryce Coward via Gavekal Capital blog,

    While some of the post Greferendum moves in financial markets could have been and were predicted by the financial punditry – lower euro, lower stocks, lower US bond yields, higher gold – the real moves have appeared elsewhere.

    Indeed, as of this writing the euro is only lower against the USD by less than .5%, the MSCI World Index is barely off by 1%, bonds are bid, but not emphatically, and gold is only marginally higher.

    The real moves have been in oil (WTI down 6.3% and Brent down 5%) and copper (down 3.9%).

    While at first glance this may strike one as odd, there could be something larger at work.

    Perhaps the more important catalyst for asset price changes of late is Chinese economic slowing rather than fears of Grexit?

     

    picture 2 picture 1

     

    As the charts above show, Chinese industrial output is closely related to oil and copper prices. Or said differently, oil and copper prices are closely related to Chinese economic activity and the slowing of which is having a direct impact on these growth sensitive commodities.

  • "Greece Is Coming To Your Neighborhood" Marc Faber Warns

    “Wake up people of the world and investors. Greece will come to your neighborhood very soon, maybe not this year, but next year or whenever it is, because the world is over infected. And defaults will follow, or they will have to create very high inflation rates.”

    That’s Marc Faber’s message to all of those who may still think that Greece doesn’t matter in the grand scheme of things. In an interview with Bloomberg TV, Faber talks Greece, China, and of course the Fed.

    On Greece:

    And everybody knows in the world that Greece cannot pay its debt at the current size. So what will happen, in my view, is either Greece will leave the EU and will suffer very badly for a few months, maybe even longer. There will be a cash shortage. Or the EU, and the ECB and the IMF will have to cut a significant haircut. And Tsipras proposed a haircut of something like 30 percent. I don’t think that’s enough. I think they will need a haircut of at least 50 percent.

     

    I think the likelihood of contagion is very high. And I have to say when you have a borrower, you also have a lender. And it’s actually, in my view, amazing how the EU kept on pumping money into Greece, partly also to bail out their own banks. And suddenly now the debt is no longer manageable.

     

    And I would say, wake up people of the world and investors. Greece will come to your neighborhood very soon, maybe not this year, but next year or whenever it is, because the world is over infected. And defaults will follow, or they will have to create very high inflation rates. 

    On China:

    Well my view was that after this 100 percent increase in Chinese stocks and huge speculation, and huge speculation on margin, margin index in China, the percent of the economy, was almost twice as large as in the U.S. So it was very large. And my view was that the market would fall from the peak by at least 40 percent.

     

    And I still maintain that — that the market will move lower before it starts to move up again. But I don’t think we’ll see a new high in China for some time.

     

    I think the economy is very weak by Chinese growth standards. And we’ve seen that also in industrial commodity prices. I think lots of sectors in China are no longer growing. 

    On ‘liftoff’:

    Well, as you know, the majority of Fed’s governors that are voting are those that always they will use any excuse to essentially delay a rate increase. 

    Full interview:

    BPlayer(null, {“id”:”Ed5yYhWnQLanMIebos_hNg”,”htmlChildId”:”bbg-video-player-Ed5yYhWnQLanMIebos_hNg”,”serverUrl”:”http://www.bloomberg.com/api/embed”,”idType”:”BMMR”,”autoplay”:false,”video_autoplay_on_page”:false,”log_debug”:false,”ui_controls_popout”:false,”use_js_ads”:true,”ad_code_prefix”:””,”ad_tag_gpt_preroll”:true,”ad_tag_gpt_midroll”:true,”ad_tag_sz_preroll”:”1×7″,”ad_tag_sz_midroll”:”1×7″,”ad_tag_sz_overlay”:”1×7″,”ad_network_id_preroll”:”5262″,”ad_network_id_midroll”:”5262″,”ad_network_id_overlay”:”5262″,”ad_tag_cust_params_preroll”:””,”ads_vast_timeout”:10000,”ads_playback_timeout”:10000,”wmode”:”opaque”,”use_comscore”:true,”comscore_ns_site”:”bloomberg”,”comscore_page_level_tags”:{“bb_brand”:”bbiz”,”bss_cont_play”:0,”bb_region”:”US”},”use_chartbeat”:true,”chartbeat_uid”:”15087″,”chartbeat_domain”:”bloomberg.com”,”use_share_overlay”:true,”share_metadata”:{“canonical_url”:”http://bloom.bg/1NISTTr”},”vertical”:”business”,”ad_tag_overlay”:”business/videooverlay”,”zone”:”video”,”source”:”BBIZweb”,”module_conviva_insights”:”enabled”,”conviva_account”:”c3.Bloomberg”,”width”:640,”height”:360,”ad_tag”:””,”ad_tag_midroll”:””,”offsite_embed”:true});

  • Meanwhile, Back In Obama Legacy-Land

    Problems… “solved”

     

     

    Source: Townhall.com

  • Why Greece Matters A Lot: The Case Of Europe's Falling Dominoes

    Over the weekend, we showed why contrary to unfounded speculation that Greece is entirely contained, there are still extensive linkages when it comes to the fallout a Grexit would reap if not directly on private commercial banks which over the years managed to offload their Greek exposure to the Europe’s taxpayers….

    … but on the sovereign economies of the Eurozone as well as the ECB, at first via the EFSF, then also via the SMP, the MRO, Target 2 and so on.

    Overnight, Barclays took this analysis and also showed the absolute national euro exposure to Greece broken down by bailout program and also as a % of respective host nation’s GDP. What it found is the following:

    And here is what it looks like when we redo our prior chart showing just European Grexit exposure via EFSF, to total sovereign exposure as a % of GDP. The total amount in question: €341 billion, or just about 3.4% of the €10 trillion in notional European GDP.

     

    But wait, rules-based Europe has “firewalls” now, all laid out and proper, so there can’t possibly be contagion.

    Only that’s not true: for example, two years after introducing the OMT, the ECB still does not even have a regular term sheet laying out the rules of what the purpose of the OMT is aside to be some massive, amorphous “whatever it takes” bazooka. And as for the ECB’s QE, it is all downhill from here as net issuance in Europe trickle to a halt, and the ECB risks crushing an already illiquid bond market by monetizing even more of it. Of course, it could engage in outright stock monetization but that would be the signal that the end of the current system is truly near.

    As for “rules-based”, we’ll just leave that to the ECB which just hiked Greek bank collateral effectively admitting the banks are insolvent, but not too insolvent, because now the ECB is officially and without doubt a political entity whose only purpose is to further political agenda.

    But that’s just the beginning, and as Barclays cautions investors have largely taken the view that even if the worst case scenario did unfold, the impact on portfolios would be manageable. At this point Barclays warns that it is perfectly plausible that this Sunday’s “no” vote may not follow the benign narrative that markets have largely adopted.

    Below are some of the scenarios where the contagion will be worse than any algo, not to mention central banker, expects:

    The backstops are not entirely infallible

     

    Some of the backstops, if needed, are either untested or incomplete. One example might be the new banking union. At present, the €55bn resolution fund is still 95% unfunded, deposit guarantee schemes are still mostly ex-post funded and there is still no pan-European deposit insurance. More importantly, holdings of peripheral debt on domestic bank balance sheets are rising substantially in recent years. In Italy and Spain, for instance, domestic government bonds as a percent of total bank assets have risen from 1.5% and 2.3% respectively in 2009, to 6.5% and 7.8% at end 2014 and February 2015 respectively. Any period of prolonged, significant peripheral stress would almost surely lead to some, perhaps significant, widening in bank credit spreads.

     

    As for the ECB’s OMT programme, it has never been tested and it is not quite the pure “lender of last resort” backstop many in the market have come to believe it to be. To start, ECB OMT purchases come with significant conditionality. Any country seeking this assistance must apply for a programme, which would almost surely come with fiscal and structural reform prescriptions.

     

    Greek exit and an official sector default would be new precedents

     

    The biggest risk for contagion, in our view, is that the Greek “no” vote would most likely set in motion two precedents – an exit and default of official sector debt – that have never really been stress tested in the euro zone, either technically, or perhaps more importantly, politically.

     

    Greek default would have a non-negligible effect on EA balance sheets… 

     

    As we have said in the past, a default on official sector debt would be large, but technically manageable, at about EUR195bn in bilateral loans and EFSF/ESM loans. In addition, SMP bonds held by the ECB amount to EUR27.7bn and Intra Eurosystem liabilities (mainly Target 2) amount to EUR118bn. Altogether, the official exposure to Greece amounts to about EUR340bn, nearly 3.5% of EA’s GDP, sizeable but probably manageable [ZH: and enough to push the Eurozone into a depression if the entire liability is written off].

     

    … while a default opens up a host of political risks that remain unanswered

     

    A default on the European loans could create considerable political backlash in EA countries against further support for periphery economies. Right-wing parties, such as AfD in Germany, Front National in France, Party of Freedom in the Netherlands, and True Finns in Finland, have repeatedly opposed bail-outs to periphery countries, especially to Greece. But even more moderate parties may question the bail-out mechanisms as the Greek default of 2012 was meant to be a one-off. Smaller countries are also unlikely to take it lightly as; as a percentage of their country GDPs, these countries would bear a larger share of the burden (eg, the Baltic countries).

    All of this puts into perspective today’s ECB decision to raise Greek haircuts, because as Goldman noted two weeks ago, it appears to have ultimately been the ECB’s intention to launch a controlled Grexit contagion, one where Europe will see a steep but not too dramatic drop in its GDP, and perhaps a triple-dip recession can be avoided once more with some new changes in the definition of what GDP is, all so Mario can pull a Kuroda from October 31, 2014 and increase the ECB’s QE just so European stocks rise higher, and just as importantly, the EUR slides even more (some 7 figures according to Goldman) toward parity which make both Europe’s – really Goldman’s – bankers delighted when gettting their year end bonus, and keep Germany’s exporters happy.

    As for the collateral damage, i.e., millions of broke Greeks who just lost everything, you know what they say about making a QE omelette.

    Curiously, the German government hasn’t published estimates of how much it could lose in case of a default, arguing that this scenario could unfold in too many different ways. However, as the WSJ reports, according to the Munich-based Ifo economic institute, total German exposure to Greece, including the loans and a host of other liabilities, at €88 billion while S&P estimates it at €91 billion. This is in line with the estimate shown above.

    According to Jens Boysen-Hogrefe, economist with Kiel-based institute Ifo, the hit “would hardly be noticeable for Germans.” He may be right, but where he is wrong is looking at Greece as an isolated case: since Europe is, or rather was, a union, one has to evaluate the combined impact of a third of a trillion in impaired assets across the Eurozone. For the vast majority of European nations, the effect of a “write-off” of 3-4% of GDP would be sufficient to launch a depression, which would then promptly drag Germany lower as well, adverse impact (and thus quite welcome to Germany) on the EUR notwithstanding.

    We just hope that the ECB has done its math right and what it believes will be the contained demolition of Greece does not spiral out into an out of control tumble of dominoes, because not even a hollow “whatever it takes” threat from Draghi would offset that, especially if and when the deposit run moves from Greece to Italy, Spain and the rest of the Europe.

  • "Greece Is Contained" Except In Crude, Copper, FX, US & EU Stocks, & Peripheral Bonds

    Seemed appropos…

    "Greece is contained" was the clear message desperately trying to be provided to the masses today as PPTs from all around the world lifted FX (and equities directly in some regions) in an effort to keep the dream alive… It didn't work!

     

    It started in China… and failed…

     

    Then Europe… and failed… (in stocks)

     

    With Spain, Portugal, and Italy dumped…

     

    and bonds…

     

    Then US… and failed…

     

    Don't get too excited about the bounce – we've seen it all before…

     

    Broken markets and VIXnado'd…

     

    FX markets turmoiled but it appears The ECB and BoJ had an 'understanding'…

     

    Here's how EURJPY was used to ingite carry trade-spewed momos into lifting stocks higher…

     

    Treasuries well well bid out of the gate as investors sought safety… then sold off into the European close… then yields ripped to the lows of the day…

     

    Commodities mixed…

     

    Crude clubbed like a baby seal…

     

    Some context for Crude today… Carnage!!

     

    Copper crashed…

     

    And finally – gold and silver! Makes perfect sense as all hell breaks loose for the precious metals to trot along the flatline ignoring all the noise as if some external factor was crushing the life-giving volatility out of the status-quo-meme-destroying prices…

     

    But apart from all that – Greece is priced in, Greece is contained, and Greece doesn't matter

    Charts: Bloomberg

    Bonus Chart: How do you say "Deja Vu All Over Again" in Chinese?

Digest powered by RSS Digest

Jul 06

Today’s News July 6, 2015

  • Silver Market Change Report 5 July, 2015

    The prices of the metals drooped further this shortened week (Friday was a holiday in the US, as the Fourth of July, Independence Day, occurred on Saturday). The S&P 500 index also fell this week, as did crude oil.

    Markets all over the world are beginning to feel shocks from Greece. As we write this, on Sunday evening Arizona time, the Greeks voted “No” to the terms of the bailouts offered them. The simple fact is that Greece cannot pay. What they cannot pay, they will not. What they don’t pay, has to be written off by whomever holds it as an asset. Some of these write-offs will obligate European governments to pay in more euros to recapitalize the now-insolvent entities. For example, countries like Spain that need bailouts themselves will have to contribute to the European Central Bank.

    A Greek default is not about the size of its GDP, but about the size of the holes blown out of various balance sheets, where Greek debts used to be marked as their assets. We don’t know precisely how much the Greek government, Greek central bank, Greek commercial banks, and other Greek debtors owe. According to Demonocracy, the total is €360 billion (and they have a very cool infographic to illustrate it). We suspect that, at the end of the day, the number turns out to be greater than that.

    The Greek default is a forcible contraction of credit (Keith’s definition of deflation), and bound to be negative for the prices of ordinary assets. That said, something extraordinary has occurred in the silver market this week.

    Read on, for the only accurate picture of the supply and demand conditions in the gold and silver markets, based on the basis and cobasis.

    First, here is the graph of the metals’ prices.

           The Prices of Gold and Silver
    Prices of gold and silver

    We are interested in the changing equilibrium created when some market participants are accumulating hoards and others are dishoarding. Of course, what makes it exciting is that speculators can (temporarily) exaggerate or fight against the trend. The speculators are often acting on rumors, technical analysis, or partial data about flows into or out of one corner of the market. That kind of information can’t tell them whether the globe, on net, is hoarding or dishoarding.

    One could point out that gold does not, on net, go into or out of anything. Yes, that is true. But it can come out of hoards and into carry trades. That is what we study. The gold basis tells us about this dynamic.

    Conventional techniques for analyzing supply and demand are inapplicable to gold and silver, because the monetary metals have such high inventories. In normal commodities, inventories divided by annual production (stocks to flows) can be measured in months. The world just does not keep much inventory in wheat or oil.

    With gold and silver, stocks to flows is measured in decades. Every ounce of those massive stockpiles is potential supply. Everyone on the planet is potential demand. At the right price, and under the right conditions. Looking at incremental changes in mine output or electronic manufacturing is not helpful to predict the future prices of the metals. For an introduction and guide to our concepts and theory, click here.

    Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. It ended unchanged this week.

    The Ratio of the Gold Price to the Silver Price
    Gold to silver ratio

    For each metal, we will look at a graph of the basis and cobasis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide brief commentary. The dollar will be represented in green, the basis in blue and cobasis in red.

    Here is the gold graph.

           The Gold Basis and Cobasis and the Dollar Price
    Dollar price and gold basis

    The dollar rose (i.e. the price of gold, measured in dollars, fell). Scarcity (i.e. the cobasis, the red line) rose with the move. This is the pattern that repeats time and again. When speculators buy futures contracts, the price of the dollar falls and the scarcity of gold falls with it. This week, speculators sold gold, driving up the price of the dollar (to 26.67mg) and the scarcity of gold rose as well.

    The fundamental price of gold did not change at all. It’s still 30 bucks over the market price.

    Now let’s look at silver.

    The Silver Basis and Cobasis and the Dollar Price
    Dollar price and silver basis

    Last week, we said:

    “The fundamental price of silver rose a nickel this week. It’s $17.39. [thanks to a reader who caught the typo—the correct number was $15.39.]”

    And the price this week dipped several times to about $15.46. That is pretty darned close, and closer than it had gotten in years.

    In the big picture, the price did not move much on the week. However, look at that red cobasis line go. It was a mere 7 basis points last Friday. It ended this week at 100 bps. The cobasis of farther-out contracts also rose proportionally.

    Suddenly, the silver market is firm.

    Think like an arbitrager for a minute. It’s possible to earn 1% annualized, on a simple trade with no risk (as conventionally understood). Just sell a bar of silver and buy a contract for
    September delivery—called     decarrying the metal. The trade matures in no more than 3 months, and you end where you started (plus the free 1% profit). Show us any other investment that pays so much for so little duration, and it will have “risk” written all over it.

    And yet, that trade is now offered in silver.

    We can name two reasons why the cobasis might skyrocket. One is that there is a risk. If your counterparty defaults, then you don’t get your metal back. You may get dollars. The exchange will insist the dollars are equivalent to the metal, but that’s small consolation.

    We do not believe this is the main problem now, because it’s not occurring in gold. If the banks were in imminent danger, the gold basis would not be quiescent.

    The other possible reason is that there’s a growing shortage of silver. Of course, in order to decarry silver, you have to have the metal. If it’s not available, you can just wistfully watch the rising cobasis.

    So now, for the first time in about two years, the fundamental price of silver is above the market price, about $0.35 over.

    We’re reminded of a dancing bear. It’s not a particular good dancer. What’s interesting is that it’s a bear. And it’s dancing. This is not a particularly big fundamental price premium over market. What’s interesting is that the fundamental price of silver is above the market.

    Unless you really like to trade the bleeding edge of a signal change, you may not want to jump in here. Silver’s newfound scarcity could disappear as rapidly as it appeared. And even if it’s stable, it does not mean that the fundamental price must necessarily skyrocket.

    We would recommend waiting to see what the markets bring us, not to mention the near-term fallout from Greece this week.

     

    Keith is speaking at FreedomFest this week in Las Vegas.

     

    © 2015 Monetary Metals

  • EuRo ACHiLLeS…

  • Volatility, Confusion Reign As PBoC Intervenes: Chinese Stocks Surge Then Tumble

    “Rainbows always appear after rains,” China’s state media said over the weekend, in a blatant attempt to create the conditions for a self-fulfilling prophecy when the country’s battered equity markets opened for trading on Monday. 

    China’s brokers and mutual funds each took steps on Saturday to help stabilize the market which has collapsed 30% in just three weeks, thanks in part to a massive unwind in the shadowy world of backdoor margin lending.

    On Sunday, the China Securities Regulatory Commission announced that China’s central bank is set to inject capital into China Securities Finance Corp which will in turn use the funds to help brokerages expand their businesses and reinvigorate stocks. Translation: China’s central bank is now underwriting brokers’ margin lending businesses. 

    Now, the trading week is officially underway and the above-cited “rainbow” thesis is being put to the test early and often as panicked housewives and banana vendors looking to sell the rips battle the PBoC for control of an insanely volatile market.

    As we noted earlier, it may now be too late to resurrect the bubble because the psychology has changed irreparably: “I didn’t sell at the peak because people all say the market will rise beyond 6,000 points,” Shao Qinglong, a public service worker who has already lost over a quarter of his capital investing in stocks, told Reuters, adding that all he is waiting for is for the market to recover enough for him to break even. “I’m now waiting for the market to rebound so that I can get out.”

    True to form, the SHCOMP opened sharply higher in a bout of post-PBoC euphoria before diving just seconds later, stabilizing, and then proceeding to crash anew, erasing most of the opening gains in a matter of minutes.

    One might have expected this. After all, the fact that the central bank was effectively forced to intervene over the weekend is precisely the opposite of something that would inspires confidence: a simple fact that not one central bank has grasped in the past 7 years.

    After all, the more backstops and interventions are required, the more fragile and less “fundamental” any given market is.

    Of course, the fact that throwing the kitchen sink at the problem has so far resulted in only a feeble rebound, one which most are taking as an opportunity to sell into, will hardly help. And keep in mind, even if stocks closed green today, there is a long way to go to recover the recent bubble highs, highs which everyone now knows are well, bubbly.

    With millions of shell-shocked, over-leveraged retail investors looking to cut their losses just as the PBoC funnels money to brokers to ramp up margin trading, expect the wild swings investors have seen over the course of the last two months to continue and indeed to become even more exaggerated as the battle between Politburo plunge protection and frantic farmer selling heats up.

  • Greferendum Caption Contest: Two For The Price Of One

    We were conflicted about today’s choice of a caption contest to summarize what was the most surreal day in modern European history: a day in which one nation voluntarily made the choice to take steps toward a severance of its ties with some 18 other nations through what was recently seen as an “irreversible” currency.

    So here are the two choices for today’s caption contest: we leave it up to readers to decide which is more appropriate.

     

    And:

  • Hillary Ropes Off "Everyday" Reporters, Creates Media Spectacle

    In case anyone forgot, Hillary Clinton — whose demands for a keynote speech appearance include a quarter of a million dollars, a private jet (“a Gulfstream 450 or larger), and $1,000 for a stenographer — is running for “everyday Americans.” 

    Presumably, these are the “folks” who make up the 83% of American workers classified by the BLS as “non supervisory” and probably include those whose job it is to report the news, which is why we were surprised (not really) to see that when it comes to “everyday” reporters, covering a Clinton rally means being herded along like cattle inside a moving rope pen which looks to have been designed to separate the former First Lady from ‘the rest of us’:

    *  *  *

    The media has predictably had a field day with the images. It’s not yet clear what impact the debacle will have on Clinton’s ability to “rope in” voters so to speak.

  • IOUs It Is: Why Greece May Have A Problem Printing "Rogue" Euro Banknotes

    Previously we reported that in a heretofore unknown exchange, Varoufakis told Telegraph’s Evans-Pritchard that “if necessary we will issue parallel liquidity and California-style IOU’s, in an electronic form. We should have done it a week ago.” Shortly thereafter, SocGen released a note in which it confirmed largely what the Greek finmin may have said, namely that “Greece is likely to issue a form of parallel currency.”

    Here is SocGen’s argument:

    Greece is likely to issue a form of parallel currency:

    • Indeed, the Greek government is already running a primary budget deficit and no other form of funding will be available in the coming weeks. It is worth noting that if the ECB was to decide to reduce or stop allowing Greek banks to roll-over Greek TBills, the issuance of IOUs would become even more crucial for the government.
    • On top of that, we believe that the IOUs may also be used to help alleviate the financial stresses on Greek banks, such as the issuance of promissory notes in IOU terms in return for the redenomination in IOUs of part of banks’ liabilities (including time deposits above a specified amount). In this case, the IOUs would most likely end up as the new Greek currency. Indeed, living with closed banks and frozen deposits cannot last long. The government would eventually offer (with a discount) the chance to convert blocked time-deposits in euros into cash deposits in IOUs. The government would just have to print new banknotes and coins to allow free deposit withdrawals.

    The idea of a parallel currency is not uncommon. In particular, IOUs have been used during periods of financial and economic stress, with extreme examples as some US states and Argentina (the latter eventually ending up with a massive devaluation of the peso).

     

    The academic literature presents several forms of parallel currency, with some creating a new form of securities, backed by the government’s ability to pay back its debt (e.g. California in 2009) and others backed by future taxes (similar to a tax credit).

     

    Unlike the former, the second category would have the advantage of not increasing the amount of debt owed by the Greek government. For example, the Greek government could pay part (let’s say 30%) of civil servant wages, benefits and pensioners in IOUs and part in euros. The IOUs could become a sought after asset if they offered a discount on tax payments (let’s say 5%). The IOU would be used in the Greek territory only. It could be used to trade basic needs (food, health, education, public services). However, the implementation and legal risks implied by the introduction of IOUs are elevated:

    • The logistical organisation needs to be put in place swiftly and smoothly while social order needs to be maintained;
    • As seen in Argentina, introducing IOUs could risk backfiring into full force devaluation. In the case of Greece, creating a parallel currency could be seen as a first step to Grexit (even with a Yes vote) and not as a temporary solution as in California. Conversely, if the IOUs introduced fail to be seen as a credible means of exchange or do not offer attractive characteristics, they would rapidly disappear in the private sector (as was the case in the Canadian province of Alberta in 1936-37).
    • The IOUs would be at risk of breaching the EU Treaty. Indeed, Article 128 states that “the banknotes issues by the ECB and the NCBs shall be the only such notes to have the status of legal tender within the Union”. As long as Greece remains within the EU, the IOUs could be used as a medium of exchange but would not have the privilege of a legal currency (Regulation 974/98).

    In this light, Greek IOUs now seem almost inevitable, especially since the other, “more nuclear” option, going rogue and printing Euro banknotes without the ECB’s approval, appears quite limited even if purely logisically.

    This is what the ECB says on the topic:

    Since 2002, euro banknotes have been produced jointly by the national central banks (NCBs) of the euro area. Each NCB is responsible for, and bears the costs of, a proportion of the total annual production in one or more denominations.

    The annual production of euro banknotes needs to be sufficient to meet expected increases in demand, such as seasonal peaks, and to replace unfit banknotes. It also has to be able to cope with unexpected surges in demand. Production volumes for the years ahead are calculated on the basis of forecasts provided by the NCBs and a central forecast made by the ECB, thus combining national expertise with a euro area-wide perspective. The figures calculated need to be approved by the Governing Council of the ECB.

    And here is the biggest reason why if Greece relied on this plan it may have serious problems: per the ECB, the only dispensation the Greek currency printer has is for €10 bills.

    Sadly, filling up holes worth tens of billions with “rogue” €10 bills would be problematic logistically, and we believe, Greece would run out of printing supplies long before it got to printing anywhere close to the required and desired amount, leaving aside all other questions of propriety and legality.

    So IOUs it is. The only question is how these shall be named. Last time we checked (in June 2012), the New Drachma (aka XGD) was briefly taken…

    … but after the summer of 2012 when the ECB was doing “whatever it takes” to show that the EUR is “irreversible” (only to prove three years later just how reversible it truly is) the XGD is once again available. Go for it Greece.

  • China "Crosses Rubicon" With Stock Bailout; BofA Says PBoC Risks "Hurting Its Credibility"

    Earlier today in “Panic: China Central Bank Steps In To Bailout Stocks As Underwater Traders Pray For A Rebound,” we noted (without much surprise) that the PBoC has officially taken the plunge. Late on Sunday, the China Securities Regulatory Commission announced that China’s central bank is set to inject capital into China Securities Finance Corp which will in turn use the funds to help brokerages expand their businesses and reinvigorate stocks. Translation: China’s central bank is now underwriting brokers’ margin lending businesses. 

    Although Beijing will surely contend that this does not amount to Chinese QE because the central bank isn’t actually adding equities to its balance sheet (or at least as far as we know), it certainly sounds as though the PBoC is now set to directly fund leveraged stock purchases by retail clients and if that doesn’t count as using the central bank’s balance sheet to monetize risk assets then we don’t know what does. 

    The move came after a consortium of brokers agreed on Saturday to commit 15% of their collective net assets to propping up China’s flagging stock market. The amount of support sums to just $19 billion and will be allocated to blue chip stocks, meaning, in no uncertain terms, that the initiative will be woefully inadequate to combat the rapid unwind of hundreds of billions of off-the-books margin trading. 

    And so, the fate of the market now lies squarely in the hands of the PBoC who, as BofAML notes, may have just “crossed the Rubicon.” 

    As we argued before, the A-share market may not bottom until the government, possibly via the PBoC, becomes the buyer of the last resort. It seems that the government might have just taken the first step in that direction on Sunday night with PBoC’s promise to provide liquidity support to stabilize the market. We expect the A-share market to rebound somewhat in coming days, especially large cap names. If that happens, we suggest investors sell into the rally, especially brokers. Fundamentally, with SHCOMP ex. banks trading at 31x trailing 12-month earnings, the market appears very expensive to us. We assess that there is still a fairly high chance that market may fall sharply again at certain point over the next few months, unless the PBoC makes an open-ended commitment to support the market. 

     

    What the government did over the weekend 

    Among the many things announced over the weekend to support the market, three are meaningful, in our view: 1) a de facto suspension of IPOs in the A-share market; 2) the set-up of an Rmb120bn market stabilization fund (MSF) by 21 major domestic securities houses, coordinated by the CSRC; and 3) the

    PBoC’s promise to provide liquidity support to China Securities Finance Corporation (CSFC). CSFC is the clearing house for margin financing and stock lending businesses in China and it’s also the sole provider of margin financing loan services to securities houses. Among the three measures, the third is by far the most important in terms of potential impact on market psychology by our assessment – we doubt that the first two alone would be able to stop a potential market rout on Monday. 

     

    Has PBoC crossed the Rubicon? 

    CSRC’s announcement on the liquidity support does not spell out how the liquidity will be used by CSFC, nor does it say anything about the size of the potential support. We suspect that the initial PBoC loans to CSFC will be used on Monday morning to fund the MSF until brokers’ funds arrive (by 11am on Monday as ordered by the CSRC). Local media reported that CSRC is confident of Rmb1tr inflows into the A-share market in short order. So it’s also possible that PBoC might have committed to provide a few hundreds of billions of Rmb for the time being by our assessment, with the balance of the inflows potentially coming from pension funds, insurers etc. At this stage, it doesn’t appear to us that PBoC is prepared to buy stocks itself or make its commitment to provide support open-ended. 

    While we would certainly agree that the PBoC has indeed “taken the first step in the direction” of becoming the buyer of last resort, we’re not so sure the distinction between the central bank “buying stocks itself” and providing the funds for brokers to facilitate margin trading is very meaningful.

    The central bank is effectively monetizing risk assets — the fact that the buyers are one degree removed from the PBoC is largely just a matter of optics. Also, we’re not at all sure that the central bank will not move very quickly to make its support “open-ended” — as discussed here on any number of occasions, Beijing simply cannot afford a stock market crash and thus will not go down without a fight.

    All of that said, the market’s reaction to what the PBoC probably thought would be a potent one-two punch (the simultaneous cut to both the benchmark lending rate and the RRR rate) was met with still more selling, which is of course just another example of central banks losing control (see Sweden for further evidence). On that note, we’ll close with the following warning from BofAML:

     If PBoC becomes the main source of market-supporting liquidity, we expect the central bank’s credibility to be hurt.

  • More Sellside Reactions To The Greek Referendum

    Today, Greeks sent a resounding message to Brussels, Frankfurt, and Berlin that they are not willing to acquiesce to further humiliation at the hands of creditors and that, even if it means braving the economic abyss in the short-term, the country is determined to salvage a better tomorrow from what, after today’s referendum, are the smoldering ashes of Greece’s second bailout program.

    Now, a stunned sellside — which had, over the past three months, very carefully tweaked their base cases to reflect the growing risk of Grexit — is scrambling to explain to nervous clients what happens next.

    Having heard from JPM earlier, we bring you the latest from Barclays, Deutsche Bank, and RBC.

    * * *

    From Barclays:

    A “no” vote means EMU exit, most likely

    We argue that an EMU exit would become the more likely scenario, even if Greece remaining in the euro area cannot be ruled out. Agreeing on a programme with the current Greek government would be extremely difficult for EA leaders, given the Greek rejection of the last deal offered. EA leaders accepting all Greek proposals would be a difficult sell at home, especially at the Bundestag or in Spain ahead of the general elections.

    How will the crisis play out? The bank liquidity crisis is likely to turn into a solvency crisis once the ECB shuts down ELA, probably no later than 20 July (when a EUR4.2bn payment to the ECB becomes due). Fiscal problems would become more acute; the government may be forced to issue IOUs, which effectively become a parallel currency to the euro. A new currency by the central bank of Greece is likely to eventually become necessary to inject both liquidity and recapitalise banks. At this stage, we would expect IOUs to be converted into the new Greek drachma (NGD).

    The NGD would likely depreciate significantly and hence many local companies (clearly those in the non-tradable sector) and households would need to default on their foreign currency debt, now including euro-denominated liabilities. Many of the domestic contracts that are now denominated in euros would also become unviable and need to be restructured. Non-performing loans would surge because of: 1) the negative balance sheet effects for firms and households; and 2) the local currency needed to pay euro debts would increase with the devaluation, exceeding the increase in local currency revenue. Likewise, the government would also be forced to default on its euro-denominated liabilities.

    Redenomination away from the euro would also cause massive transfers between agents, adding to the above-mentioned transfers between debtors and creditors. A majority of households with local accounts and savings will suffer substantial losses while cash rich agents with accounts abroad will be the big winners and could take advantage of the chaos to seize capital and production capacities. Given the weak state of the government, these redistributions would likely benefit the already oversized unofficial sector.

    In short, the existing contracting framework and financial infrastructure would be broken and need to be rebuilt. Inflationary finance would likely be used, to some extent at least, to replace the official finance that now supports Greece. Politically difficult fiscal and structural reforms would still be required to make the country more competitive, and promote economic growth.

    * * *

    From RBC:

    In a normal referendum the next steps would be binary––something happens or it doesn’t. But this is no ordinary referendum.

    We argued last week that the next steps for a ‘no’ or a ‘yes’ vote look superficially similar. The government and creditors will have to start negotiations on a third programme (since the second one expired on Tuesday). Both sides indicated they were willing to do so even in the event of a ‘no’.

    What happens on Monday?

    Various European-level meetings are expected to take place. These include a EuroWorking Group meeting (i.e. top-level officials from euro area finance ministries). This may then be followed by a eurogroup teleconference (i.e. finance ministers-level) to take stock of the situation. At the Leaders’ level, German Chancellor Merkel will meet French President Hollande for a bilateral in Paris, with both calling for a European Council summit to follow on Tuesday. Separate from the political proceedings, the ECB’s Governing Council is also expected to meet to discuss Emergency Liquidity Assistance (ELA) for the Greek banking sector, though this meeting has not yet been confirmed.

    The first thing to watch is how Syriza responds

    On Thursday, Greek Prime Minister Tsipras claimed in the event of a ‘no’ outcome, he would be in Brussels within 48 hours signing a deal. In practice that is almost impossible––any new deal will need a lot of technical work so at best is a few weeks away. But in the first 48 hours there should be some sign of what willingness there is to compromise on both sides. If Tsipras takes a defiant tone (citing the democratic choice of the Greek people) we expect Europeans leaders to respond that they are also democratically elected (as they did after the January election). In that case we would expect the market reaction to worsen.

    The second thing to watch is how the ECB responds

    The Governing Council is expected to meet on Monday to take stock of the situation. A Greek government spokesperson revealed that the Central Bank of Greece would submit a request to the ECB for a further increase to the ELA facility limit, which currently stands at €89.4bn. This follows from various press reports, including Bloomberg, indicating that Greek banks were struggling to cope with deposit withdrawals even with the capital controls already in place. Note that prior to the weekend, the head of Greece’s banking association, Louka Katseli, said that ‘liquidity is assured until Monday, thereafter it will depend on the ECB decision.” She added that the liquidity cushion banks currently had stood at about EUR 1bn.

    We nevertheless consider there to be limited prospect of further extension to ELA at this stage, with the risks instead skewed towards the Governing Council restricting access to the facility, including by increasing collateral requirements further. An increase to the ELA limit was not a ‘given’ even if the referendum had yielded a ‘yes’ outcome, and as such a ‘no’ vote makes that decision even more difficult, in our view. Recall that ELA lending requires banks to post “adequate collateral”, and may only be provided to “illiquid but solvent” institutions. In the current environment, whether such conditions are satisfied is predicated in part on a judgment about the likelihood of a new financial assistance programme being agreed for the Greek sovereign.

    Does this mean euro exit?

    A ‘no’ outcome certainly increases the risk. This is particularly the case if the Greek government believes that it will have substantially more bargaining power with the institutions and brings more ‘red lines’ to the negotiating table. Much will depend on the tenor of discussions when they begin next week.

    *  *  *

    From Deutsche Bank

    There are three near-term implications of the results.

    First, the vote marks a big political victory for PM Tsipras. Today’s vote will allow the PM to maintain the political initiative within Greece, re-enforcing his leadership within the party as well as the government. It will be perceived by the government as a strong backing around its tough negotiating strategy.

    Second, the poll masks a deeply divided electoral body. The win to the “no” vote was decisive. But opinion polls over the last few days have continued to show an overwhelming support for euro membership. How this can be reconciled with the “no” vote and rising economic costs remains to be seen in coming days. Either way, the referendum process itself and the outcome has increased polarization in Greece. Political tension both within parliament and in potential political demonstrations will be ongoing and unpredictable.

    Third, the referendum result now requires Europe to more formally adopt a position on Greece, particularly given the size of the “no”. The European message on whether rejection is equivalent to Eurozone exit has not been consistent, with both Merkel and Schauble in particular not adopting this interpretation. A more clear reaction from Eurozone members should now be expected.

    Next steps

    In coming hours, the focus will shift back to the European response.

    Most imminently, Greek bank ELA liquidity is likely to be fully exhausted over the next few days, leading to an exhaustion of ATM cash reserves as well as an inability to finance imported goods via outgoing payments. The hit to the economy will be big. The Bank of Greece is holding a conference call with the Greek banks this evening to discuss the liquidity situation.

    The ECB is scheduled to meet tomorrow morning to decide on ELA policy. An outright suspension would effectively put the banking system into immediate resolution and would be a step closer to Eurozone exit. All outstanding Greek bank ELA liquidity (and hence deposits) would become immediately due and payable to the Bank of Greece. The maintenance of ELA at the existing level is the most likely outcome, at least until the European political reaction has materialized. This will in any case materially increase the pressure on the economy in coming days.

    On the political front, focus will now shift to whether the damaged relationship between Greece and Europe’s creditors can be repaired and the immediate prospect of a resumption in negotiations. PM Tsipras last week officially applied for a 3rd ESM program, but the application was rejected pending the outcome of the referendum..

    The risk is that relationships between Europe and Greece have been damaged to such an extent, that additional conditions are set before negotiations around an ESM program can be initiated. The overall ESM process will in any case take time. An ESM program requires prior ECB/IMF assessment of financing needs/debt sustainability as well as Bundestag parliamentary approval before talks around a staff-level agreement can begin.

    In the meantime, political developments within Greece will be just as important. The PM’s commitment to re-start negotiations will be tested tonight and tomorrow morning..

    The opposition, in the meantime, has been weakened. Influential New Democracy party member Bakoyiannis is reported this evening to have asked for former PM Samaras’ resignation to allow the party to re-group. The prospect of ongoing and unpredictable shifts in politics cannot be ruled out over the course of the next few weeks given rising pressure on the economy.

  • Greferendum Results In Landslide "No" Victory

    Update 2: with virtually all polling completed, the final result is 61.3% No, 38.7% Yes – a whopping rejection of Troika hegemony which may also be the final nail in any negotiations between Greece and the Eurogroup.

    Update: The Greek interior ministry vendor Singular Logic projects that “No” vote will prevail with over 61% of vote in Greek referendum.

    It would seem that the Troika’s fearmongering campaign backfired:

     

    And:

    Earlier:

    It seems the early forecasts showing the No vote in the lead were right: according to the Ministry of the Interior, with over 90% of the vote counted, the “No’s” have it with well over 61% of the vote.

    Keep track of the votes as they come in live at the following page:

    Source: ekloges

  • S&P Futures Tumble 1.5% At Open: ES Down 33, Brent Under $60

    The number everyone’s been waiting for all afternoon is finally here: moments ago ES opened for trading after the holiday weekend and it’s not pretty, down 1.5% to 2035 in early illiquid trading. Expect many wild gyrations especially if China, which is set to open in three hours, is unable to halt its market crash having now thrown everything and the kitchen sink at the relentless selling.

     

    The SNB is already in place, ready to sell CHF and buy every EUR it can get its hands on to avoid another embarrassing incident:

     

    And here is Brent, sliding under $60 for the first time since April:

    We hope the NY Fed and its less than arms length Citadel ES spoofing relationship, or at least the SNB, will be up to the task of pushing futures higher as the overnight session progresses to preserve the artificial sense that “all is well” in a world that may never be the same again.

  • Eurogroup In Shock: Finance Ministers "Would Not Know What To Discuss" After Greferendum Stunner

    Just out from Reuters:

    • FINANCE MINISTERS “WOULD NOT KNOW WHAT TO DISCUSS” AFTER EMERGING GREEK ‘NO’ VOTE-EURO ZONE OFFICIAL

    More:

    There are no plans for an emergency meeting of euro zone finance ministers on Greece on Monday after Greeks voted overwhelmingly to reject the terms of a bailout deal with international creditors, a euro zone official said on Sunday.

     

    Asked whether a meeting of the Eurogroup was planned for Monday, the official, speaking on condition of anonymity, told Reuters: “No way. (The ministers) would not know what to discuss.”

    May we suggest containing the fallout, whether in capital markets or in the resurgent mood in the other PIIGS, as a primary topic?

    And meanwhile, while we symptahize with the Greeks officially telling the Troika to “fuck off”, they may have other liquidity problems of their own.

    Greeks cannot withdraw cash left in safe deposit boxes at Greek banks as long as capital restrictions remain in place, a deputy finance minister told Greek television on Sunday.

     

    Greece’s government shut banks and imposed capital controls a week ago to prevent the country’s banks from collapsing under the weight of mass withdrawals.

     

    Deputy Finance Minister Nadia Valavani told Alpha TV that, as part of those measures, the government and banks had agreed at the time that people would also not be allowed to withdraw cash from safe deposit boxes.

    Surely the Greeks bought enough gold and/or bittcoin ahead of this outcome. Surely

  • Greece Contemplates Nuclear Options: May Print Euros, Launch Parallel Currency, Nationalize Banks

    As we said earlier today, following today’s dramatic referendum result the Greeks may have burned all symbolic bridges with the Eurozone. However, there still is one key link: the insolvent Greek banks’ reliance on the ECB’s goodwill via the ELA. While we have explained countless times that even a modest ELA collateral haircut would lead to prompt depositor bail-ins, here is DB’s George Saravelos with a simplified version of the potential worst case for Greece in the coming days:

    The ECB is scheduled to meet tomorrow morning to decide on ELA policy. An outright suspension would effectively put the banking system into immediate resolution and would be a step closer to Eurozone exit. All outstanding Greek bank ELA liquidity (and hence deposits) would become immediately due and payable to the Bank of Greece. The maintenance of ELA at the existing level is the most likely outcome, at least until the European political reaction has materialized. This will in any case materially increase the pressure on the economy in coming days.

    All of which of course, is meant to suggest that there is no formal way to expel Greece from the Euro and only a slow (or not so slow) economic and financial collapse of Greece is what the Troika and ECB have left as a negotiating card.

    However, this cuts both ways, because while Greece and the ECB may be on the verge of a terminal fall out, Greece still has something of great value: a Euro printing press.

    It may not get to there: according to Telegraph’s Ambrose Evans Pritchard who quotes what appears to be a direct quote to him from Yanis Varoufakis, Greece will, “If necessary… issue parallel liquidity and California-style IOU’s, in an electronic form. We should have done it a week ago.“

    California issued temporary coupons to pay bills to contractors when liquidity seized up after the Lehman crisis in 2008. Mr Varoufakis insists that this is not be a prelude to Grexit but a legal action within the inviolable sanctity of monetary union.

    In other words: part of the Eurozone… but not really using the Euro.

    That’s not all, because depending just how aggressively the ECB escalates events with Athens, Greece may take it two even more “nuclear” steps further, first in the form of nationalizing the banks and second, by engaging in the terminal taboo of “irreversibility” printing the currency of which it is no longer a member!

    Syriza sources say the Greek ministry of finance is examining options to take direct control of the banking system if need be rather than accept a draconian seizure of depositor savings – reportedly a ‘bail-in’ above a threshhold of €8,000 – and to prevent any banks being shut down on the orders of the ECB.

     

    Government officials recognize that this would lead to an unprecedented rift with the EU authorities. But Syriza’s attitude at this stage is that their only defence against a hegemonic power is to fight guerrilla warfare.

     

    Hardliners within the party – though not Mr Varoufakis – are demanding the head of governor Stournaras, a holdover appointee from the past conservative government.

     

    They want a new team installed, one that is willing to draw on the central bank’s secret reserves, and to take the provocative step in extremis of creating euros.

     

    “The first thing we must do is take away the keys to his office. We have to restore stability to the system, with or without the help of the ECB. We have the capacity to print €20 notes,” said one.

     

    Such action would require invoking national emergency powers – by decree – and “requisitioning” the Bank of Greece for several months. Officials say these steps would have to be accompanied by an appeal to the European Court: both to assert legality under crisis provisions of the Lisbon Treaty, and to sue the ECB for alleged “dereliction” of its treaty duty to maintain financial stability.

    And who “unwittingly” unleashed all of this?

     Mr Tsakalotos told the Telegraph that the creditors will find themselves be in a morally indefensible position if they refuse to listen to the voice of the Greek people, especially since the International Monetary Fund last week validated Syriza’s core claim that Greece’s debt cannot be repaid.

    Recall last week we asked “Did The IMF Just Open Pandora’s Box?” We just got the answer. Our advice to Mme Lagarde: avoid stays at the Sofitel NYC for the next few weeks.

    As for Europe: welcome to your own personal Lehman weekend. We hope you too enjoy making it all up as you go along, because you have officially entered the heart of monetary darkness.

  • The "Nightmare Of The Euro-Architects" Is Coming True: JPM Now Sees Grexit, Eurogroup "Split In Coming Days"

    Perhaps the best summary – or epitaph, some would say – of the shocking events that took place in Greece this afternoon, and the resultant falling dominoes that are about to be unleashed, was given by Slovakia’s finance minister Peter Kazimir, who summarized events as follows:

    He followed it up with a Dylan Thomas quote:

    We assume the next lines goes as follows:

    “Rage, rage against the dying of the “irreversible” currency”

    And while we laid out what Deutsche Bank’s 4 possible scenarios are in the case of the now confirmed “No” vote, here is JPM’s Malcom Barr with the bank’s latest take on Greece which is that at this point, a Grexit is JPM’s “base case”… and it only
    goes downhill from there.

    After the “big no”, euro exit is our base case

    • After the “big no” it is now a race between two forces: political pressure for a deal, versus the impact of banking dysfunction within Greece
    • Although the situation is fluid, at this point Greek exit from the euro appears more likely than not

    Early indications of the official result suggest the result is a “No” by a comfortable margin. What happens next?

    First, it will be important to see the tone of the immediate political responses both within Greece and outside. We would expect the tone to be somewhat more conciliatory on both sides. Hollande and Merkel are to meet tomorrow night to discuss the issue, and as we understand it, the Eurogroup is scheduled to meet on Tuesday. We expect that a split is likely to emerge in the coming days.  The Commission and France (and possibly others) will argue that negotiations should resume immediately with an aim of finding agreement. Others will find it more difficult to return to negotiations with a newly emboldened Tsipras in short order.

    In the German case, for example, the Bundestag has to be consulted before Mr Schauble can enter into discussions about a new program for Greece (as requested on 30th June). However, the Bundestag has just broken for summer recess, so any such vote will require a recall. We have seen reports that talks at a technical level between Greece and the creditors may restart tomorrow (Monday), but we can imagine that the Bundestag will express its displeasure if it feels those discussions are in-progress without their express consent.

    Second, there are reports of an emergency meeting between the ECB, Bank of Greece and Finance Ministry tonight, and at the latest the ECB will likely have to take a decision about ELA support tomorrow (if not tonight). Our base case is that the ELA total will simply be rolled on a day-to-day basis for now. It is extremely difficult for the ECB to justify increasing the region’s exposure to Greece at this point. That effectively means that the Greek banks are likely to run increasingly short of cash, and the acceptability of electronic forms of payments will diminish rapidly.

    The Bank of Greece and Finance Ministry has a joint committee working to prioritize payments out of Greece for essential imports. There are reports, however, that suggest the logistical problems arising from these procedures are biting. Importers are facing delays in seeing their requests to make purchases processed. And Greek exporters are finding it hard to get payment in euros from those they sell to, as their customers do not want to hold any euro balances within the Greek banking system. It is difficult to get a sense of the scale of these issues at this point. But our best guess is that these issues will multiply in the days ahead.

    This suggests that what we see next will be a race between two forces: political pressure to move toward an agreement despite resistance from a number of northern European parliaments, versus the increasingly unpleasant implications of a dysfunctional banking system on the other. This latter force is unpredictable: it may manifest itself in pressure on the government to stand down, or it may generate a more unified “siege mentality” within Greece. The July 20th payment of €3.5bn to the ECB as Greek bonds mature creates one possibly fixed point as we look forward, but our sense is that could be dealt with via a number of mechanisms if political talks are progressing (transfer of SMP profits, short-term ESM loan, for example).

    Our base case is that the pressures coming from a dysfunctional banking system in Greece will shorten the time horizon to negotiate a deal to a handful of weeks. As that pressure builds, there is likely to be a temptation to call a referendum in Greece on euro membership, and for the state to begin issuing I-O-Us or similar and giving these some status as legal tender. To the extent that pensioners and public sector employees find themselves being paid with such instruments, it takes the banks further away from solvency (they have liabilities in euros, but will have loans to individuals being paid or receiving “i-o-u” s which will be worth a lot less). Meanwhile, we expect at least some countries in the rest of the region (not least Germany) will not hurry over the design of a new program, and will find it difficult to get parliamentary assent for any such program.  

    This is a path that suggests to us that there is now a high likelihood of Greek exit from the euro, and possibly under chaotic circumstances. Perhaps the rest of the region will agree to a reasonably quick deal, or the ECB will raise ELA enough to retain minimal viability in the payments system. Perhaps the pressures of dysfunctional banks will force Mr Tsipras to stand down, and a deal is subsequently made. But for now, we would view a Greek exit from the euro as more likely than not.

  • Wall Street's Next Bonanza: Subprime Marriage-Backed Securities

    Submitted by Daniel Drew via Dark-Bid.com,


    The last crash was caused by reckless investments in subprime mortgage-backed securities, an ingenious way to repackage and redistribute staggering amounts of credit risk to unsuspecting investors. After losing their house and their money, some investors may take comfort in their enduring marital relationships. Unfortunately, marriage is one of the riskiest bets of all, which makes it a prime, or should I say “subprime” target for Wall Street’s masters of innovation.

    After watching oil titan Harold Hamm pay his ex-wife $1 billion, I couldn’t help but wonder where he went wrong in the relationship department. Then again, he’s not exactly a shining example of risk management; he lost $10 billion in the oil price collapse, or the equivalent of 10 ex-wives. Most Americans can’t afford to pay their spouse $1 billion or even $15,000, which is the average cost of a contested divorce. Where there’s risk, Wall Street is not far away.

    One of the remarkable features of modern society is the seemingly endless amount of ways to repackage risk and distribute it to those who have a demand for it. The wacky world of the insurance industry seems to know no bounds. From vanilla products like car insurance to the ultra-weird like Troy Polamalu’s $1 million hair insurance, you never really know what you’re going to see next. While there are certainly notable individual examples of insurance oddities, nothing has the potential to create widespread effects like marriage insurance.

    Provided by Safeguard Guaranty, marriage insurance is sold in units for $15.99 per month, which covers $1,250 in potential divorce costs. That’s $192 per year for one “unit,” which gives the insurance company a break-even point of 6.5 years, not including overhead. They even have a divorce probability calculator that is based on over 20,000 interviews. Supposedly, it has an accuracy rate of 87%. They don’t elaborate on their formula, but you can get an idea of their inputs by answering some of the questions.

    If marriage insurance sales take off, it’s only a matter of time before Wall Street repackages it and sells it to investors via subprime marriage-backed securities. A boom in marriage speculation would ensue. Did you see your neighbor with his mistress last night? Buy some MBS credit default swaps on him and tell his wife what you saw. Is your other neighbor away from home a lot? Buy some MBS insurance on his wife, seduce her, and when they get divorced, you can cash in. Consider it “inside her” trading. Does it sound preposterous? It’s not any crazier than buying credit default swaps on poor people’s mortgages and making $15 billion when they become homeless. Remember, everything is fair in the “free market.”

  • Marine Le Pen, Anti Euro French Presidential Frontrunner, Applauds Greek Victory Over "EU Oligarchy"

    Ten days ago, before Varoufakis even announced his stunning break of negotiations with the Troika and proceeded to engage in a referendum which perhaps more symbolically than anything else just said a resounding “No” to the status quo, we said to Forget Grexit, “Madame Frexit” Says France Is Next: French Presidential Frontrunner Wants Out Of “Failed” Euro.

    Because while the ECB could at least in theory contain the Grexit fallout with a few hundred billion in bond (and stock, since Europe is pretty much fresh out of bonds it can monetize) purchases, it will not be able to halt the contagion once it spreads to Italy, Spain and Portugal. But once it reaches France, and Marine Le Pen engages in the same type of negotiations with the Troika as Greece just did, it’s all over.

    Unfortunately for the ECB, that’s precisely where it is headed because as Reuters just reported, “French far-right leader Marine Le Pen welcomed the early results of the Greek referendum on terms for a bailout from Europe as initial tallies showed the ‘No’ camp leading with results still being counted.”

    Le Pen, the leader of the anti-immigration, anti-euro National Front party, said in a statement that the anticipated result was a victory against “the oligarchy of the European Union”.

    “This ‘No’ from the Greek people must pave the way for a healthy new approach,” said Le Pen.

    “European countries should take advantage of this event to gather around the negotiating table, take stock of the failure of the euro and austerity, and organize the dissolution of the single currency system, which is needed to get back to real growth, employment and debt reduction.”

    Here is why we suggest the ECB panic: Le Pen’s star has been on the rise in France and in Europe in the past year since her National Front party performed well in European parliamentary and French regional elections. Surveys suggest she could make the second-round run-off in the 2017 presidential election, if not win outright.

    She has sought to capitalize on discontent over Socialist President Francois Hollande’s handling of the economy and rising unemployment, and has made Europe’s management of the Greek crisis a particular target for critique.

    As a reminder, a recent Wikileaks NSA data dump showed that the French economy is in “Dire Straits”, and is “Worse Than Anyone Can Imagine” which just happens to be music to Le Pen’s ears.

    Finally, Le Pen’s platform supports the end of the common currency zone and a return to more national-based policies on everything from immigration to the economy.

    Greece just made it that much easier for Le Pen to achieve her goal.

  • Risk Off: FX Carry Trades Tumble, Euro Opens Under 1.10; USDJPY Under 121

    With nearly 60% of the Greek refrendum vote counted, and the No’s leading by a landslide 61%, it is clear that the Troika’s gambit failed, unless as Goldman wrote and we first noted, it was the ECB’s intention to force a Grexit all along, thus permitting the ECB to engage in more QE: QE which would in Goldman’s estimation, push the EURUSD down 7 big figures and further toward parity, sending global stocks soaring in one last central bank-inspired hurrah.

    For now, however, while the carry trades are in risk off mode, the drop is not nearly as dramatic, and the EURUSD is trading under 1.10…

     

    … while the USDJPY opened under 122.

    Should there be no official statement by the Eurozone fin mins or any support from the ECB, we anticipate the risk off mode will only accelerate overnight, especially if the PBOC fails to support Chinese markets tonight, which – with all due respect to Greece – is the far bigger catalyst to what happens in global stock markets tomorrow, because if the Chinese central banks has lost the market’s confidence all bets are off.

  • Greeks Flood Syntagma Square To Celebrate "No" Vote

    The Greek people have spoken and they said “OXI“! 

    So congratulations Greece: for the first time you had the chance to tell the Troika, the unelected eurocrats, and the entire status quo establishment, not to mention all the banks, how you really felt and based on the most recent results, some 61% of you told it to go fuck itself.

    Now, on the eve of a new era for Europe and what will likely be a turbulent stretch for financial markets across the globe, Greeks are celebrating in the streets of Athens. Here are the visuals:

    Broadcast live streaming video on Ustream

  • Greek PM Calls Emergency Meeting For Bank Liquidity: MNI

    Congratulations Greece: for the first time you had the chance to tell the Troika, the unelected eurocrats, and the entire status quo establishment, not to mention all the banks, how you really felt and based on the most recent results, some 61% of you told it to go fuck itself.

    Now comes the hard part.

    Because at this point, with Greek banks all of them effectively insolvent, it is all up to the ECB: should Mario Draghi now announce an increase in the ELA haircut or pull it altogether as the ECB did with Cyprus, then a Greek deposit haircut bloodbath ensues. And judging by the latest news out of Market News, this is precisely what Tsipras is focusing on.

    According to MNI, Greece’s Prime Minister, Alexis Tsipras has called an emergency meeting for Sunday evening, after the referendum vote result will be announced, to assess the situation in the banking sector and the liquidity shortage, a senior Greek official told MNI Sunday. 

    The source said that so far Tsipras has not had any communication with other EU leaders “but that could change in the coming hours.” Finance Minister Yiannis Varoufakis is currently meeting with the representatives of the Greek banking union to mull whether the banking holiday ,which expires Monday evening, should be prolonged and until when. 

     

    Greece’s government spokesman, Gavriel Sakellarides told Antenna TV that the Central Bank of Greece will submit Sunday evening a request to the European Central Bank for further Emergency Liquidity Assistance saying “there is no reason why we cannot get ELA” adding that “negotiations should start as soon as today with reasonable demands.” 

     

    The Greek source who spoke with MNI said that, according to his estimations, the No vote would be even higher than what the preliminary polls showed earlier. 

     

    The source also said that the EuroWorking Group, the aides of the Eurozone Finance Ministers, are expected to convene Monday and that the Eurogroup might also convene via teleconference to assess the situation. 

     

    A Banking source has told MNI that even when banks reopen capital controls are expected to be readjusted and imposed for a long period of time, until trust is restored and a deal with the creditors is being reached.

    The ball is now in the ECB’s court: will it let Greece keep the Greek ELA (or perhaps even raise it) to prevent an all out banking panic and allow Greek bank to reopen as Varoufakis promised, or will it cut the haircut or yank it altogether, starting the Greek depositor haircut as well as the falling dominoes we described yesterday…

     

    … Because as much as the ECB wants to deny it, the Euroarea is on the hook for more than 3% of its gross GDP, and perhaps far more once all the off balance sheet liabilities emerge…

    In other words, an uncontrolled Grexit at this point would surely lead to a Eurozone depression, one that not even an increase in the ECB’s massive bond (and perhaps stocks) buying would stem. Which, of course, was Varoufakis’ gamble all along.

  • The Central Bankers Dilemma: The Pendulum’s Back Swing

    Submitted by Mark St. Cyr

    The Central Bankers Dilemma: The Pendulum’s Back Swing

    Today, July 5th, a referendum is to be voted on in Greece as to whether they should vote “Yes” for the austerity measures demanded by the bankers of the Euro Zone (EZ.) Or, vote “No” against such demands. Where a “no” vote will in effect all but ensure an exit from it (whether voluntarily or not.) How this vote will come down no one knows. For when a populace is scared, many times they’ll vote blindly for what they perceive in the present as the lesser of two evils, and let longer term consequences be damned.

    On the other hand, when a populace is both scared and mad – what was at first thought to be implausible (i.e., against what many outsiders may perceive as in their best interest) within the confines and privacy of the voting booth. Anger, as well as a disgust for the present can over-rule. Where it’s the consequences of the moment that will be damned. Where an overwhelming affinity for the possible future suddenly reins supreme. Whether realistic or not.

    It is this latter point that catches most (i.e., outsiders looking in) flat-footed. Especially those that tend to think everything is based only in numbers, models, or rationality, and it’s ultimately controllable. This form of thinking implies: If you control the numbers, and can interpret the models – you can control the rationale, as well as an outcome.

    Not only is line of thinking rampant throughout academia. It is followed with a near religious zeal. However, there’s the inherent problem: Yes you can – till you can’t. And that’s where the most critical issue fails within Ivory Tower thinking. For they don’t ever contemplate, or anticipate the “till you can’t” part. For them it shouldn’t exist. Therefore – it mustn’t.

    Yet, anyone with just a modicum of business acumen knows all too well: More often than not what you’re convinced won’t happen; is exactly what will. Usually – at the most inopportune of times.

    Here is where we find many of the Central Bankers today. Suddenly their implied omnipotence is being turned on its head from “omnipotent” to “oppressive.” From “rescuer” of an economy to “destroyer.” And the distaste as well as grumblings against this Central authority is growing. Why? As I stated before: Central Banks are now perceived as “the body politic.” No-matter how much they rail against the inclusion. And the vitriol (as well as the impending implications) are just getting started in my opinion.

    Over the last week the IMF dropped what was for all intents and purposes a bombshell of a revelation. It stated (I’m paraphrasing) that Greece was indeed in need of a debt reduction (i.e., write-offs) just as much as it was in need of restructuring of those said debts. Otherwise, it would all be for naught because Greece would never be able to surmount them.

    This singular point has been at the heart of all Greece’s arguments. However, what has been argued back to Greece by the Troika has been nothing less than “Tough – deal with it. That’s your problem – not ours.” Well, it seems that’s not so much the case anymore. Regardless of which way the vote goes, it is the Troika itself that may find the problems are just beginning. And those problems are theirs.

    In a previous post I drew an analogy from the Iron Man 2 movie. The premise was: If one can make the gods bleed, no matter how small, people will not only will lose faith, but will turn on them. It seems Greece did in fact strike the first in what might be a mortal blow. Not so much with the degree of the initial cut, but with the ever-growing infectious nature to follow.  Even if Greece votes “yes” this Sunday – the damage has already been done to the EZ as well as the central banks within. While quite possibly to Central Banks everywhere.

    The revelation that the IMF concurred in secret with what Greece was proclaiming all along; while demanding the opposite; siding with the more austerity demands by their fellow members; as not only the people suffered but as the politicians themselves (i.e., ridiculed or voted out) will not be lost on Italy, Spain, Portugal, ____________ (fill in the blank.)

    Yet, as damaging as it is to have one of the three parts (e.g., Troika) acknowledging what Greece has been insisting was needed all along via a leaked document. To now have it leaked that all three were of the same conclusion yet: wouldn’t budge or acknowledge it? This is quite another, and will be used by any and all as an excuse (whether rightly or wrongly) to demand new terms. Or worse, like Greece – just refuse to pay until the bargaining table is reopened.

    Suddenly it’s not the borrowers that have a problem. Rather; it’s the other way around. And it’s only been days since these revelations. Yet, there’s now “blood” in this ever-growing pool. And that’s a problem no “bazooka” or “printing press” may be able to overcome. However, this is just Europe…

    In China the financial markets are tumbling faster than any other time in history since 2007. What many forget (and what the main stream financial media will not speak of) is that right before the financial crisis took hold here in the U.S., It was none other than China’s Shanghai Composite Index that was the harbinger of what lay ahead as it tumbled from that meteoric rise in ’07 to within a year – it would go on to lose some two-thirds of its value.

    Right before the crash the Chinese markets were assumed “unstoppable” (sound familiar?) as they went parabolic to near vertical assent when viewed on a chart. Then: they fell in spectacular fashion entering “bear market” statistical valuations in mere weeks (i.e., losing 20%.) This had never been seen since. That is – until now.

    Suddenly there are reports of extraordinary measures being allocated behind the scenes by China’s central banking authorities. The problem? So far, by all accounts – it ain’t working. The index continues to fall. Many of the components (I would like to say businesses however, there are far too many reports these “businesses” are in name only) that make up these composites are opening up daily to “limit down” selling pressures with no relief in sight.

    So much so it has been reported the only way for this rout to be reeled in is for the PBoC to directly “buy the market” in one form or another. Yet, the rout is so wide-spread, and so fierce (imagine 10’s of millions of first time traders all heading for the one and only exit door – all at the same time) that it is being openly questioned if the PBoC itself has the monetary firepower to overcome it. And just for perspective, China’s market isn’t some backwards market in size or scope those in the “general public” might think of when they first hear. For those not familiar: China’s market is number 2 in the world, right behind the U.S. And last time such a thing happened the contagion effects were here seemingly overnight – and the great financial meltdown of the U.S. markets were upon us.

    Is “this time it’s different?” Who knows, but one thing is for sure: The general public today is still enamored with the main stream media’s push that what ever “bad” happens in the world or markets: “The Fed. has their back,” or “The ECB” or “China’s growth will solve our malaise” or ______________(fill in the blank.)

    Today one thing is more certain than any other time before. With the Federal Reserve’s unwillingness to allow the markets to stand on their own feet, and not be so dependent on their interventionism with QE for years, and Zero interest rates for the same – the tool box may in fact be empty – at the most inopportune time.

    So here we are, once again, waiting or watching for what could possibly be the start of another contagion effect to ripple through the markets that has the potential of resembling 2008, or worse.  And the only thing to stand in its way will be the faith and/or belief in their omnipotence. For it seems – that’s all they have left. All while we watch the same crumble in the eyes of others across the waters as their Central Banks are being perceived daily more as villains or worse – inept.

    I’ve stated many times in what I’ve coined “the pendulum rule.” It’s not the first swing that can ruin you. It’s when you get up thinking you’ve dodged a one time fatal blow and act as if it can’t happen again. You don’t prepare. You don’t harden your resources. You act as if it were a one time only thing. And just when you’re at your most vulnerable – the back swing is what takes you out.

    It would seem the pendulum is indeed still swinging. What transpires from here once again – is anyone’s guess.

Digest powered by RSS Digest

Jul 05

Today’s News July 5, 2015

  • MaRaTHoN MeNSCH-auBLe

  • They Want To Use "Hate Speech Laws" To Destroy Freedom Of Speech In America

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

    Hate speech laws are going in all around the world, and progressive activists in the United States want to use these kinds of laws to destroy free speech in America.  You see, the truth is that these hate speech laws that are being implemented all over the planet are not just about preventing speech that promotes violence or genocide against a particular group of people.  Instead, these laws are written in such a way that anyone that says something that “offends” or “insults” someone else is guilty of “hate speech”.  Even if you never intended to offend anyone and you had no idea that your words were insulting, in some countries you can be detained without bail and sentenced to years in prison for such speech.  Today, there are highly restrictive hate speech laws in Canada, in Mexico and in virtually every single European nation.  The United States is still an exception, but the truth is that our liberties and freedoms are being eroded every single day, and it is only a matter of time until “hate speech laws” are used to take away our freedom of speech too.

    If you don’t think that this could ever happen in America, you should consider what the American Bar Association has to say on the matter.  This is the national organization that represents all of our lawyers, judges, etc.  So when the ABA speaks on legal matters, it carries a significant amount of weight.  The following is how the American Bar Association defines “hate speech”…

    Hate speech is speech that offends, threatens, or insults groups, based on race, color, religion, national origin, sexual orientation, disability, or other traits.

    Did you catch that?

    If I say something that offends or insults you, there is a very good chance that I have just committed “hate speech” according to the ABA.

    And support for these kinds of laws is growing.  In fact, one survey found that 51 percent of all Democrats now support hate speech laws.  It is only a matter of time before progressives start pushing for them in a big way.

    Sadly, many of these progressives don’t even understand that our Constitution protects free speech.  Just consider what CNN anchor Chris Cuomo recently had to say about this…

    Hate speech is not the same thing as free speech, wrote CNN anchor Chris Cuomo on the ultimate forum for public discourse: Twitter.

     

    Amid debate about free speech after a shooting at an anti-Muslim protest in Texas , a user tweeted at Cuomo: “Too many people are trying to say hate speech (doesn’t equal) free speech.”

     

    In response, Cuomo, who has a law degree, said, “It doesn’t. Hate speech is excluded from protection. Don’t just say you love the Constitution … read it.”

    No, I think that it is Cuomo that needs to read the Constitution.  The fact that he gets to deliver “the news” to millions upon millions of Americans is absolutely frightening.

    But without a doubt, we do need to have a conversation about “hate speech” in the United States.  If I offend or insult you, that does not mean that I “hate” you.  And if I disagree with you, that does not mean that I “hate” you either.

    Some of the things that are considered to be “offensive speech” these days are absolutely ridiculous.  For example, just consider the following excerpt from a recent article by Paul Joseph Watson…

    Here’s an actual list of things that according to the University of Wisconsin are racist:

    – Asking someone where they are from or where they were born.

    – Telling someone they speak good English.

    – Telling someone that you have several black friends.

    – Saying that you’re not a racist.

    – Complimenting an Asian person by telling them they are very articulate.

    – Asking an Asian person for help with science or math.

    – Uttering the phrase “There is only one race, the human race.”

    – Saying that you think America is a melting pot and that when you look at someone you don’t see race.

    – Believing that the most qualified person, regardless of race, should get the job.

    – Thinking that every person, regardless of race, can succeed in society if they work hard enough.

    – Telling a black person who is being too loud to be quiet.

    – Telling an Asian or Latino person who is too quiet to speak up.

    – Mistaking a person of color for a staff member when you’re in a store.

    – Calling something “gay”.

    – Doing an impression of someone’s dialect or accent.

    Could you imagine going to prison for any of those “offenses”?

    But this is where our country is heading if we don’t stand up for our rights.

    Right now, the progressives are on a roll.  In the wake of the recent Supreme Court decision on same sex marriage, some progressives are already talking about going after the tax exemptions of churches that oppose it.  In fact, the New York Times recently published an article entitled “Now’s the Time To End Tax Exemptions for Religious Institutions“.

    But of course the ultimate goal is far more insidious.  In the end, they want to shut down all speech that offends them in any way…

    The American Unity Fund is a heavily funded new super-PAC looking to blanket the country with LGBT anti-discrimination laws. In effect, those laws aim to wipe out any alternative voice to the LGBT agenda. The effort is being spearheaded by billionaire hedge fund manager Paul Singer and another wealthy hedge fund manager, Tim Gill.

     

    Gill’s operations—the Gill Foundation and Gill Action—have been dedicated to “nonpartisan” gains for the LGBT lobby on the legislative and judicial fronts.

    Those that do not believe that this could ever possibly happen in “the land of the free” should consider what has already happened in our neighbor to the north…

    Anyone who is offended by something you have said or written can make a complaint to the Human Rights Commissions and Tribunals. In Canada, these organizations police speech, penalizing citizens for any expression deemed in opposition to particular sexual behaviors or protected groups identified under ‘sexual orientation.’ It takes only one complaint against a person to be brought before the tribunal, costing the defendant tens of thousands of dollars in legal fees. The commissions have the power to enter private residences and remove all items pertinent to their investigations, checking for hate speech.

    Of course the same kind of thing is already happening over in Europe as well.  For instance, one Christian pastor in Northern Ireland is being prosecuted for calling Islam “a doctrine spawned in hell”…

    An evangelical pastor in Northern Ireland is under fire and will be prosecuted after calling Islam “satanic” and claiming that its doctrine was “spawned in hell” during a controversial 2014 sermon that streamed over the Internet.

     

    Pastor James McConnell, 78, of Whitewell Metropolitan Tabernacle in Belfast, Northern Ireland, made his comments — which included calling Islam “heathen” — in a sermon delivered last May, the BBC reported.

     

    “The Muslim religion was created many hundreds of years after Christ. Muhammad, the Islam Prophet, was born around the year A.D. 570, but Muslims believe that Islam is the true religion,” he preached. “Now, people say there are good Muslims in Britain. That may be so, but I don’t trust them.”

     

    McConnell continued, “Islam’s ideas about God, about humanity, about salvation are vastly different from the teaching of the holy scriptures. Islam is heathen. Islam is satanic. Islam is a doctrine spawned in hell.”

    Once such laws are in place in the United States, it won’t be difficult for the government to find you if you are committing “hate speech”.  As I have written about repeatedly, the U.S. government already monitors virtually everything that is said and done on the Internet.  The following is an excerpt from an article that was recently authored by Micah Lee, Glenn Greenwald, and Morgan Marquis-Boire…

    The sheer quantity of communications that XKEYSCORE processes, filters and queries is stunning. Around the world, when a person gets online to do anything — write an email, post to a social network, browse the web or play a video game — there’s a decent chance that the Internet traffic her device sends and receives is getting collected and processed by one of XKEYSCORE’s hundreds of servers scattered across the globe.

     

    In order to make sense of such a massive and steady flow of information, analysts working for the National Security Agency, as well as partner spy agencies, have written thousands of snippets of code to detect different types of traffic and extract useful information from each type, according to documents dating up to 2013. For example, the system automatically detects if a given piece of traffic is an email. If it is, the system tags if it’s from Yahoo or Gmail, if it contains an airline itinerary, if it’s encrypted with PGP, or if the sender’s language is set to Arabic, along with myriad other details.

    And as I wrote about yesterday, western governments are already using paid trolls to identify and combat “extremists” on social media websites such as YouTube, Facebook and Twitter.

    We are rapidly becoming a “Big Brother” society, and if we don’t stand up for our freedoms and liberties now, it is inevitable that we will eventually lose just about all of them.

    Unfortunately, most of the population is absolutely clueless about all of this.  In fact, as Mark Dice demonstrated the other day, many Americans don’t even know what we are celebrating on the 4th of July.  As a society, we have become extremely “dumbed down”, and we have lost connection to the values and principles that this country was founded upon.

  • This Is Why The Euro Is Finished

    Submitted by Raúl Ilargi Meijer of The Automatic Earth

    This Is Why The Euro Is Finished

    The IMF Debt Sustainability Analysis report on Greece that came out this week has caused a big stir. We now know that the Fund’s analysts confirm what Syriza has been saying ever since they came to power 5 months ago: Greece needs debt relief, lots of it, and fast.

    We also know that Europe tried to silence the report. But what’s most interesting is that this has been going on for months, as per Reuters. Ergo, the IMF has known about the -preliminary- analysis for months, and kept silent, while at the same time ‘negotiating’ with Greece on austerity and bailouts.

    And if you dig a bit deeper still, there’s no avoiding the fact that the IMF hasn’t merely known this for months, it’s known it for years. The Greek Parliamentary Debt Committee reported three weeks ago that it has in its possession an IMF document from 2010(!) that confirms the Fund knew even at that point in time.

    That is to say, it already knew back then that the bailout executed in 2010 would push Greece even further into debt. Which is the exact opposite of what the bailout was supposed to do.

    The 2010 bailout was the one that allowed private French, Dutch and German banks to transfer their liabilities to the Greek public sector, and indirectly to the entire eurozone‘s public sector. There was no debt restructuring in that deal.

    Reuters yesterday reported that “Publication of the draft Debt Sustainability Analysis laid bare a dispute between Brussels and [the IMF] that has been simmering behind closed doors for months.

    But that’s not the whole story. Evidently, there was a major dispute inside the IMF as well. The decision to release the report was apparently taken without even a vote, because it was obvious the Fund’s board members wanted the release. The US played a substantial role in that decision. Why the timing? Hard to tell.

    The big question that arises from this is: what has been Christine Lagarde’s role in this charade? If she has been instrumental is keeping the analysis under wraps, she has done the IMF a lot of reputational damage, and it’s getting hard to see how she could possibly stay on as IMF chief. She has seen to it that the Fund has lost an immense amount of trust in the world. And without trust, the IMF is useless.

    And while we’re at it, ECB chief Mario Draghi, who is also a major Troika negotiator, made a huge mistake this week in -all but- shutting down the Greek banking system, a decision that remains hard to believe to this day. The function of a central bank is to make sure banks are liquid, not to consciously and willingly strangle them.

    How Draghi, after this, could stay on as ECB head is as hard to see as it is to do that for Lagarde’s position. And we should also question the actions and motives of people like Jean-Claude Juncker and Jeroen Dijsselbloem.

    They must also have known about the IMF’s assessment, and still have insisted there be no debt relief on the negotiating table, although the analysis says there cannot be a viable deal without it.

    One can only imagine Varoufakis’ frustration at finding the door shut in his face every single time he has brought up the subject. Because you don’t really need an IMF analysis to see what’s obvious.

    Which is exactly why there is a referendum tomorrow: Alexis Tsipras refused to sign a deal that did not include debt restructuring. It would be comedy if it weren’t so tragic, most of all for the people of Greece. Here’s from Reuters yesterday:

    Europeans Tried To Block IMF Debt Report On Greece

     

    Euro zone countries tried in vain to stop the IMF publishing a gloomy analysis of Greece’s debt burden which the leftist government says vindicates its call to voters to reject bailout terms, sources familiar with the situation said on Friday. The document released in Washington on Thursday said Greece’s public finances will not be sustainable without substantial debt relief, possibly including write-offs by European partners of loans guaranteed by taxpayers. It also said Greece will need at least €50 billion in additional aid over the next three years to keep itself afloat. Publication of the draft Debt Sustainability Analysis laid bare a dispute between Brussels and the IMF that has been simmering behind closed doors for months.

     

    Greek Prime Minister Alexis Tsipras cited the report in a televised appeal to voters on Friday to say ‘No’ to the proposed austerity terms, which have anyway expired since talks broke down and Athens defaulted on an IMF loan this week. It was not clear whether an arcane IMF document would influence a cliffhanger poll in which Greece’s future in the euro zone is at stake with banks closed, cash withdrawals rationed and commerce seizing up. “Yesterday an event of major political importance happened,” Tsipras said. “The IMF published a report on Greece’s economy which is a great vindication for the Greek government as it confirms the obvious – that Greek debt is not sustainable.”

     

    At a meeting on the IMF’s board on Wednesday, European members questioned the timing of the report which IMF management proposed at short notice releasing three days before Sunday’s crucial referendum that may determine the country’s future in the euro zone, the sources said. There was no vote but the Europeans were heavily outnumbered and the United States, the strongest voice in the IMF, was in favor of publication, the sources said.

    The reason why all Troika negotiators should face very serious scrutiny is that they have willingly kept information behind that should have been crucial in any negotiation with Greece. The reason is obvious: it would have cost Europe’s taxpayers many billions of euros.

    But that should never be a reason to cheat and lie. Because once you do that, you’re tarnished for life. So in an even slightly ideal world, they should all resign. Everybody who’s been at that table for the Troika side.

    And I can’t see how Angela Merkel would escape the hatchet either. She, too, must have known what the IMF analysts knew. And decided to waterboard the Greek population rather than be forced to explain at home that her earlier decisions (2010) failed so dramatically that her voters would now have to pay the price for them. No, Angela likes to be in power. More than she likes for the Greeks to have proper healthcare.

    Understandable, perhaps, but unforgivable as well. Someone should take this entire circus of liars and cheaters and schemers to court. They’re very close to killing the entire EU with their machinations. Not that I mind, the sooner it dies the better, but the people involved should still be held accountable. It’s not even the EU itself which is at fault, or which is a bad idea, it’s these people.

    But fear not, there’s no tragedy that doesn’t also have a humorous side. And I don’t mean that to take anything away from the Greek people’s suffering.

    Brett Arends at MarketWatch wrote a great analysis of his own, and get this, also based on IMF numbers. Turns out, the biggest mistake for Greece and Syriza is to want to stay inside the eurozone. The euro has been such a financial and economic disaster, it’s hard to fathom that nobody has pointed this out before. Stay inside, and there’s no way you can win.

    I find this a hilarious read in face of what I see going on here in Greece. It makes everything even more tragic.

    Stop Lying To The Greeks — Life Without The Euro Is Great

     

    Will the euro-fanatics please stop lying to the people of Greece? And while they’re at it, will they please stop lying to the rest of us as well? Can they stop pretending that life outside the euro — for the Greeks or any other European country — would be a fate worse than death? Can they stop claiming that if the Greeks go back to the drachma, they will be condemned to a miserable existence on the dark backwaters of European life, a small, forgotten and isolated country with no factories, no inward investment and no hope? Those dishonest threats are being leveled this week at the people of Greece, as they gear up for the weekend’s big referendum on more austerity.

     

    The bully boys of Brussels, Frankfurt and elsewhere are warning the Greek people that if they don’t do as they’re told, and submit to yet more economic leeches, they may end up outside the euro … at which point, of course, life would stop. Bah.

     

    Take a look at the chart. It compares the economic performance of Greece inside the euro with European rivals that don’t use the euro. Those other countries cover a wide range of situations, of course – from rich and stable Denmark, to former Soviet Union countries, to Greece’s neighbor Turkey, which isn’t even in the EU. But they all have one thing in common.

     

     

    During the past 15 years, while Greece has been enjoying the “benefits” of having Brussels run their monetary policies, those poor suckers have all been stuck running their own affairs and managing their own currencies (if you can imagine). And you can see just how badly they’ve suffered as a result.

     

    They’ve crushed it. Romania, Turkey, Poland, Sweden, Croatia — you name it, they’ve all posted vastly better growth rates than Greece. The data come from the IMF itself. It measures growth in gross domestic product, per person, in constant prices (in other words, with price inflation stripped out). Greece adopted the euro in 2001.

     

    And after 14 years in the same club as the big boys, they are back right where they started. Real per-person economic growth over that time: Zero. Meanwhile Romania, with the leu, has only … er … doubled. Everyone else is up. The Icelanders, who suffered the worst financial catastrophe on the planet in 2008, have nonetheless managed to grow.

     

    Yes, all data points have caveats. Each country has its own story and its own advantages and disadvantages. But the overall picture is clear: The euro has either caused Greece’s disastrous economic performance, or at least failed to prevent it.

     

    What I find amazing about the euro-fanatics is that they just don’t seem to care about facts at all. They carry on repeating the same claims about the alleged miracle cure of their currency, no matter what happens. You can hit them over the head with the latest IMF World Economic Outlook and they carry on droning, unfazed.

     

    I was in England during the 1990s when those people were warning that if the Brits didn’t give up the pound sterling and join the euro, they were doomed as well. For a laugh, I just went through news archives on Factiva and refreshed my memory.

     

    Britain without the euro would be an “orphan country,” petted, humored but ignored, warned one leading figure. Britain would lose all influence and status. It would become a marginal country outside the mainstream of Europe. It would lose “a million jobs.” Factories would close. The car industry would collapse. Foreign investors would walk away because of Britain’s isolation.

     

    Exports would plummet because of exchange-rate fluctuations. The City of London, Britain’s financial district, would lose out to Frankfurt. The London Stock Exchange would be reduced to a local backwater. Tumbleweeds would blow in the streets. (OK, I made that one up.)

     

    And here we are today. Since 1992, when the single currency project began taxiing for takeoff, the countries on board have seen total economic growth of 40%, says the IMF. Poor old Great Britain, stuck back at the departure lounge with its miserable pound sterling? Just 67%. Bah.

    This currency that Greece is fighting so hard to be part of is in fact strangling it. The reason for this lies in the structure of the EMU. Which makes it impossible for individual countries to adapt to changing circumstances. And circumstances always change. As a country, you need flexibility, you need to be able to adapt to world events.

    You need to be able to devalue, you need a central bank to be your lender of last resort. Mario Draghi has refused to be Greece’s lender of last resort. That can’t be, that’s impossible. there is no valid economic reason for such an action, it’s criminal behavior. But the eurozone structure allows for such behavior.

    In ‘real life’, where a country has its own central bank, the only reason for it to refuse to be lender of last resort would be political. And it is the same thing here. It’s about power. That’s why Greece’s grandmas can’t get to their meagre pensions. There is no economic reason for that.

    In the eurozone, there’s only one nation that counts in the end: Germany. The eurozone has effectively made it possible for Angela Merkel to save her domestic banks from losses by unloading them upon the Greeks. This would not have been possible had Greece not been a member of the eurozone.

    That this took, and still takes, scheming and cheating, is obvious. But that is at the same time the reason why either all Troika negotiators must be replaced, and by people who don’t stoop to these levels, or, and I think that’s the much wiser move, countries should leave the eurozone.

    Look, it’s simple, the euro is finished. It won’t survive the unmitigated scandal that Greece has become. Greece is not the victim of its own profligacy, it’s the victim of a structure that makes it possible to unload the losses of the big countries’ failing financial systems onto the shoulders of the smaller. There’s no way Greece could win.

    The damned lies and liars and statistics that come with all this are merely the cherry on the euro cake. It’s done. Stick a fork in it.

    The smaller, poorer, countries in the eurozone need to get out while they can, and as fast as they can, or they will find themselves saddled with ever more losses of the richer nations as the euro falls apart. The structure guarantees it.

  • "The US Needs War Every 4 Years To Maintain Economic Growth"

    “This is not a secret,” explains Kris Roman, director of geopolitical research center Euro-Rus, “The whole [US] economy is built on the military theme: to maintain its economic growth, the United States needs a war every 4 years, otherwise the economic growth slows down.” The Belgian expert believes that with the collapse of the USSR, NATO should have stopped existing, but somehow the alliance “has grown to the size of the Universe because the motto ‘The Russians are coming!’ is relevant again.”

    In the 25 years since the collapse of the Soviet Union, NATO has not forgotten even for a moment about the idea of an attack on Russia, Belgian political scientist and director of geopolitical research center Euro-Rus Kris Roman tells Sputnik News…

    “But they had no pretext. Now, due to the chaos in Ukraine, this opportunity appeared and it is actively developed. The older generation, which had been brought up on the propaganda against the Soviet Union, has already accepted the idea of ??an inevitable conflict with Russia,” Roman said.

     

    …

     

    Roman said that when the Belgian defense minister had announced that 1,000 Belgian soldiers would be sent to the Baltic states in the event of a “potential Russian attack.”

    The United States has repeatedly criticized Europe for small contributions to the NATO budget, saying that the EU tries to save money at the expense of its military budget.

    “For America, this is unacceptable, because the whole economy of this country is built on the military theme — to maintain its economic growth, the United States needs a war every 4 years, otherwise the economic growth slows down, it’s not a secret. But the United States cannot fight alone, they need puppet-allies, but NATO members, which are suffering a crisis, cannot increase the budget allocations to the military budget, so Europe is under pressure,” Kris Roman said.

    Russophobia Reminds a Disease

    The Belgian expert noted that Russophobia is like a disease as “once infected, you become incurable.”

     

    The European analyst also commented on the information war aimed against Russia noting that it had been previously used with regard to Iraq and Libya.

     

    “It is no longer possible to lie and not be punished. Our media simply prefers to remain silent in order not to be caught lying. What they can say? That the Russians were right? That the Russian army is not there [fighting in Donbass], while the Ukrainian army is at war with its own people? They cannot say such things. The official motto is to blame Russia.”

     

    “Remember the downed Malaysian Boeing [MH17 that crashed near Donetsk in July 2014]? Our media began screaming that it is Russia’s fault when it was still falling. Now there are facts that the Russians did not do it, and, as a result, we no longer hear about the investigation. Silence says that the truth is not on the side of Belgian and European media. If they ever had something [regarding Russia’s involvement in the crash], they would have shouted it from morning to evening,” he concluded.

    *  *  *
    As Americans rest and celebrate their independence from the actions of an oppressively taxing monarchy, perhaps it is worth reflecting on the current oligarchy’s actions, reactions, and proactions.

  • Greece, China, & Russia – A Plan B For Tsipras

    Via Golem XIV,

    If the Greeks were to vote ‘No’ what would happen next?  Well no one can say. But here is a quick thought on what I hope the Greek government might have been exploring if they are excluded from the euro. It’s just food for thought nothing more.

    They have to be prepared to have a currency that does not depend on Europe supplying Euros. So they will need another currency – hopefully their own.  I think we can be sure no western company has been printing them. There are few such companies and there is, I think, no possibility that they would be able to keep secret a contract from Greece.  But both Russia and China can print notes. So would it not have been prudent to ask Putin to print up plane loads of Drachma and be prepared to fly them in?

    Who would back this currency?  Greece is not Great Britain with a long established reasonably trusted currency backed by a big slice of global financial trade. So I do not think they could launch an orphan currency which the drachma would be if it did not have some relation to a major clearing or reserve currency.

    For all Obama has, apparently, lobbied the EU to be more conciliatory towards Greece I am not sure he would leap at the chance to help Greece with its debt. He might of course. A chance to reenforce US power in that part of the world. But he already has power there so I doubt he would be willing to ‘pay’ much. Russia and China, however would gain much more by having Greece as a beach head in to the EU and, more importantly, into Nato.

    Russia  has already signed a large gas pipeline deal with Greece. The deal will make Greece the European terminal for the  so-called TurkStream which would be a southern counterpart for the NordStream which runs under the Baltic and has its European terminal in Germany. This pipeline would bring Russian gas to Europe cutting out Ukraine. A nice end run around the Western puppet government/influence in Ukraine (you decide which one you prefer).  It will also bring closer Russian ability to pipe gas from further east and from Iran. Which would also be an end run round the southern front of the Great Gas War being fought in Syria.

    Earlier this year Russian also signed a deal with Cyprus to give Russian ships access to Cypriot ports.

    So It would make sense to me that Russia might see advantage in helping Greece in the event of a ‘No’ vote.  But I do not think Russia is in much of a position to help financially. Their help can be practical and trade in gas and their reward is military. Greece and Cyprus together could perhaps get themselves a chip in the big game by being the key to allowing Russia to project military power in to Nato.

    Which raises the intriguing possibility that Russia might ask Greece is they could station some military hardware in Greece. Not something Greece would lightly say yes to. BUT if there was a ‘no’ vote and then Europe tried to get really vindictive or even started sabre rattling about ‘radical’ possibly ‘illegitimate’ leftist governments (AKA Syriza) might Syriza gain some advantage by letting it be known they might consider letting Russia dock missile carrying warships in their ports, or allow certain early warning systems on their territory? Or if  the Great Gas War, which is surely the new Cold War, where Ukraine is the new Germany divided East and West (all we need now is a wall somewhere), heats up and the US does deploy missile systems there, would Russia think it advantageous to befriend Greece so they could ask an indebted Greek government to allow Russia to retaliate with missiles right in the heart of Europe?  

    I realise this is pure speculation but it’s fun and I think it’s good to think the unthinkable now and again. Our leaders regularly do the unthinkable. We should at least think it.

    Anyway, I can see reasons why Russia would think it to their advantage to help Greece and have favours to call in.

    Then there is China.  China is too far away for military pretensions in the Med. Better to leave that to Russia. What China has is money. Just yesterday the director of the Quantitative Finance Department at China’s Institute of Quantitative and Technical Economics, Mr Fan Mingtao, said in an interview,

    “I believe there are two ways to give Greece Chinese aid. First, within the framework of the international aid through EU countries. Second, China could aid Greece directly. Especially considering the Silk Road Economic Belt and the Asian Infrastructure Investment Bank. China has this ability,”

    I don’t know if this is pure kite flying but it’s interesting. The Asian Infrastructure Investment Bank (AIIB) is a China led rival to the US led World Bank. America was very against it and hugely put out when various European and other countries defied America and merrily joined it. Led by Britain which is a founder member. This is a major step in China’s policy of projecting power abroad but also a major step in its campaign to either have the Yuan as a new reserve currency or position a new currency in which China and the Yuan are constituent backers.

    Again this is all speculation. But China is sick of America excluding it from governance of the World Bank and the IMF. Plus China will soon need – not just want – but need the Yuan to be at the very least a much more widely used settlement currency if not a full blown reserve currency. The reason I suggest this, is because of China’s ballooning domestic debt problem.  Back in 2011 I wrote about the way regional governments were largely outside of direct and effective central control particularly their issuance of debt (Making the New Sub Prime – Backdoor to China) and how that debt was going bad (China – 10.7 trillion Yuan of debt going bad).

    That analysis is, I think, now vindicated. That regional debt has now blown up and is on the point of taking many of China’s banks down with it. The central chinese government now has, I think, little choice but to backstop all that regional debt.  The hope is that this will  save their regional governments from defaulting and also bail out all the banks that are holding that debt and would be bankrupted by such a default. Essentially this is a colossal bank bail out much like they were obliged to do back in the 90′s and we did a decade later. I am not alone in thinking this is the dynamic at play. As reported in the Wall Street Journal and ZeroHedge,

    “The debt swap is effectively a debt restructuring for banks,” said Zhu Haibin, J.P. Morgan Chase & Co.’s chief China economist.

    How big might this bail out get?

    Because the central government is ultimately responsible for guaranteeing local government debt, and because yields on the new muni bonds are so close to those on treasurys, the newly issued local government bonds are really just treasury bonds, meaning that, in essence, the supply of Chinese government bonds is set to jump by CNY2 trillion in the coming months. If all of the local government debt ends up being refinanced, the end result will be the equivalent on CNY20 trillion in additional treasury supply.

    What I foresee is that China’s new regional debt and bank bail out is forcing it in to what is essentially QE. The flow of Yuan is going to be vastly increased. A good idea would be to have lots of people ‘need’ these yuan and be keen to soak them up. That is what would happen if the Yuan becomes a new reserve currency or, failing that, if there is at least a greater use of the Yuan as a settlement currency for major international trades.

    Which brings me to my speculation about Greece and the report quoted above about China helping Greece via the new AIIB.  Might it not suit China, with its coming flood of new Yuan, to offer Greece a hand with a few Yuan. Greece might offer to conduct all its foreign trade in Yuan rather than dollars or Euros. Greece would benefit because it would not be beholden to America or Europe for a flow of their currencies. It could look to China instead. Russian would be happy with this because it has a settlement agreement with China. Any gas pipeline work could be financed in Yuan with chinese government backed Yuan loans. The AIIB could help Greece out with a loan to allow it to operate. Such a loan would not be blockable from Europe or America. Greece could default and still have operating money. China could spin it as almost humanitarian aid: The Chinese people reaching out to the desperate, impoverished but brave Greeks when the wicked capitalist Europeans would not.

    Greece would survive, have new powerful friends, have bargaining chips that neither Europe nor America could ignore , China would have projected the use of the Yuan right in to Europe and Russia would have more than a toe-hold for military power right inside NATO.

    If I was Tsipras or Varoufakis I would be on the phone right now.

  • A 21-Year-Old Greek Unloads: "I Am Terrified Of Tomorrow…It Feels Like An End"

    A letter to The FT… Presented with no comment…

    Sir,

    Memory. No memory of life before the financial crisis; politics has dominated it ever since. But now I can hardly remember life before Friday night. Fear. I am terrified of tomorrow, all I now see is black. Uncertainty, leading us through our days, every remainder of hope for a brighter future being destroyed by the minute. I look at my three-year-old niece, I envy her ignorance, I envy her age. I am 21 years old and the past few days I feel tired by life. A referendum that supposedly gives me the right to define my future, seems to have taken it away.

    There are hundreds of people queueing at the ATMs and petrol stations, there is silence in the streets, people’s faces are frozen. This is the reality since Friday night. There are, and have been for a long time, people literally starving. However, it seems that instead of their situation improving, the rest of us will have no different a fate.

    Families and friends divide in Yes and No camps. We are called to exercise our democratic right by voting on a referendum while having no tangible explanation of what will follow each decision. I see everyone I know ready to take this huge responsibility without even being prepared to do so. I notice us, arguing endlessly, everyone supporting their stance fervently, ego dominating minds and words, while having no clue as to what is really at stake.

    We all want the crisis to end, we all crave growth and happiness. I do not remember my parents being free of stress and anxiety in the past years. I do not remember not noticing shops closing every month, or the rapid increase of beggars in the streets. People that, before the financial crisis, never had to beg for anything. However, the past five days have been worse than all that has been so far. They say that all we hear is propaganda; but we have lost our trust in all sides, now everything seems to be lies.

    It feels like an end. The end of our lives as we knew them. Yes, the lives that, before Friday, we already thought could be better; now we realise they were better then. The only thing we truly wish for is that the worst is not yet to come.

    Iliana Magra

    Thessaloniki, Greece

  • Nomi Prins: In A World Of Artificial Liquidity – Cash Is King

    Submitted by Nomi Prins via PeakProsperity.com,

    Global central banks are afraid. Before Greece tried to stand up to the Troika, they were merely worried. Now it’s clear that no matter what they tell themselves and the world about the necessity or even righteousness of their monetary policies, liquidity can still disappear in an instant. Or at least, that’s what they should be thinking.

    The Federal Reserve and US government led policy of injecting liquidity into the US and then into the worldwide financial system has resulted in the issuance of trillions of dollars of debt, recycling it through the largest private banks, and driving rates to 0% — or below. The combined book of debt that the Fed and European Central Bank (ECB) hold is $7 trillion. None of that has gone remotely into fixing the real global economy. Nor have the banks that have ben aided by this cheap money increased lending to the real economy. Instead, they have hoarded their bounty of cash. It’s not so much whether this game can continue for the near future on an international scale. It can. It is. The bigger problem is that central banks have no plan B in the event of a massive liquidity event.  

    Some central bank entity leaders have admitted this. IMF chief, Christine Lagarde for instance, warned Federal Reserve Chair, Janet Yellen that potential US rate hikes implemented too soon, would incite greater systemic calamity. She’s not wrong. That’s what we’ve come to: a financial system reliant on external stimulus to survive.

    These “emergency” measures were supposed to have healed the problems that caused the financial crisis of 2008 — the excessive leverage, the toxic assets wrapped in complex derivatives, the resultant credit and liquidity crunch that occurred when banks lost faith in each other. Meanwhile, the infusion of cheap money and liquidity into banks gave a select few of them more power over a greater pool of capital than ever. Stock and bond markets skyrocketed as a result of this unprecedented central bank support.

    QE-infinity isn’t a solution — it’s a deflection. It’s a form of financial subterfuge that causes extra problems. These range from asset bubbles to the inability of pension and life insurance funds to source longer term less risky long-term assets like government bonds, that pay enough interest for them to meet liabilities. They are thus at risk of rapid future deterioration and more shortfalls precisely because they have nothing to invest in besides more risky stock and lower-rated bond markets.

    Even the latest Bank of International Settlement (BIS) 85th Annual Report revealed the extent to which global entities supervising the banking system are worried. They harbor growing fears about greater repercussions from this illusion of market health (echoing concerns I and others have been writing about for the past seven years.)

    The BIS, or bank for the central banks was established during the global Great Depression in 1930 in Basel, Switzerland, when bank runs on people’s deposits were the norm. The body no longer buys into zero-interest rate policy as an economic cure-all. In their words, “Globally, interest rates have been extraordinarily low for an exceptionally long time, in nominal and inflation-adjusted terms, against any benchmark. Such low rates are the remarkable symptom of a broader malaise in the global economy.”

    They go on to note the obvious, “The economic expansion is unbalanced, debt burdens and financial risks are still too high, productive growth too low, and the room for maneuvering in macroeconomic policy too limited. The unthinkable risks becoming routine and being perceived as the new normal.”

    These are troubling words coming from an organization that would have much preferred to deem central bank policies a success. Yet the BIS also states, “Global financial markets remain dependent on central banks.” Dependent is a strong word. How quickly the idea of free markets has been turned on its head.

    Further, the BIS says, “Central bank balance sheets remain at unprecedented high levels; and they grew even larger in several jurisdictions where the ultra low policy rate environments were reinforced with large purchases of domestic and foreign assets.”

    Central banks are not yet there, but rising volatility is indicative of the accelerating approach to the nowhere left to go mark from a monetary policy perspective. This, after seven years of a reckless Anti-Main Street, inequality and instability inducing, policy.

    Not only have the major banks been the main recipient of manufactured liquidity, they have also received consolidated access to our deposits, which they can use like hostages to negotiate future bailout situations. Elite bankers moan about the extra regulations they have had to endure in the wake of the financial crisis, while scooping up cash dispersed under the guise of stimulating the general economy.

    Central banks seek fresh ways to keep the party going as countries like Greece shut down banks to contain capital flight, and places like Puerto Rico and multiple states and municipalities face economic ruin. But they are clueless as to what to do.

    In this cauldron of instability and lack of leadership, cash is the one remaining financial possession that Main Street can translate into goods, services and security. That’s why private banks want more control over it.

    Banks Want Your Cash For Their Latent Emergencies

    One of the most inane reasons cited for restricting cash withdrawals for normal people is that they all might turn out to be drug dealers or terrorists. Meanwhile, drug-dealing-money-laundering terrorists tend to get away with it anyway, by sheer ability to use a plethora of banks and off shore havens to diffuse cash around the globe.

    Every so often, years after the fact, some bank perpetrators receive money-laundering fines.  For average depositors though, these are excuses for a bureaucracy built upon limiting access to cash whether from an ATM (many have $500 per day limits, some have less) or an account (withdrawals above a certain level get reported to the IRS).

    As Charles Hugh Smith wrote at Peak Prosperity recently, there’s a difference between physical cash (the kind you can touch and use immediately) and the electronic kind, associated with your bank balance or credit card cash advance limit.  If you hold it, you have it – even if keeping it in a bank means it’s probably slammed with various fees.

    Banks, on the other hand, can leverage your deposits or cash, even while complying with various capital reserve requirements. That’s not new. But the expanding debates about how much of your cash you get to withdraw at any given moment, is.

    The notion of a bail-in, or recourse to people’s deposits, is related to the idea of restricting the movement, or existence, of physical cash. Bail-ins, like any cash limitations, imply that if a bank needs emergency liquidity, your deposits are the place to find it, which has negative repercussion on your own solvency. This is exactly what the Glass-Steagall Act of 1933, coupled with the creation of the FDIC sought to avoid – banks confiscating your money at the worst possible times.

    The ‘war on cash’ is thus really a war on the difference between the money you can hold on to and the money the banks can take away from you. The existence of this cash debate underscores the need for a personal policy of cash extraction from the big banks. Do you have one?

    In Part 2: They're Coming For Your Cash we detail out the growing threats to the liquidity that sustains the modern global banking system, and why it's more crucial than ever for people to consider extracting a portion of cash from their bank accounts. As existing liquidity streams dry up (as they are beginning to around the world), increasingly desperate banks will turn to the largest and most convenient source they know of: the collective cash savings we have on deposit with them.

    Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

     

  • The Greek Bluff In All Its Glory: Presenting The Grexit "Falling Dominoes"

    Earlier today, Yanis Varoufakis reiterated his core thesis driving the entire Greek approach from day 1 of its negotiations with the Eurogroup: “Europe [stands] to lose as much as Athens if the country is forced from the euro after a referendum on Sunday on bailout terms.”

    This is merely a recap of what we said 4 years ago when in July of 2011 we explained “How Euro Bailout #2 Could Cost Up To 56% Of German GDP“, recall:

    the bottom line is that for an enlarged EFSF (which is what its blank check expansion today provided) to be effective, it will need to cover Italy and Belgium. As AB says, “its firepower would have to rise to €1.45trn backed by a total of €1.7trn guarantees.” And here is where the whole premise breaks down, if not from a financial standpoint, then certainly from a political one: “As the guarantees of the periphery including Italy are worthless, the Guarantee Germany would have to provide rises to €790bn or 32% of GDP.” That’s right: by not monetizing European debt on its books, the ECB has effectively left Germany holding the bag to the entire European bailout via the blank check SPV. The cost if things go wrong: a third of the country economic output, and the worst case scenario: a depression the likes of which Germany has not seen since the 1920-30s. Oh, and if France gets downgraded, Germany’s pro rata share of funding the EFSF jumps to a mindboggling €1.385 trillion, or 56% of German GDP!

    Several years later, in anticipation of precisely the predicament Europe finds itself today, the ECB did begin to monetize European debt, which has since become the biggest European risk-shock absorber of all, and the one which the ECB is literally betting the bank on: just count the number of times the ECB has sworn it has the tools and can offset any Greek risk contagion simply by buying bonds.

    Unfortunately, it is not that simple.

    The reason is precisely in the contagion threat inherent in Europe’s alphabet soup of bailout mechanism as we explained four years ago in the post above, and as Carl Weinberg of High-Frequency Economics did hours ago in today’s edition of Barrons. Here is how the Greek contagion would spread, laid out in all its simplicity, should there be a Grexit, an outcome which the ECB could catalyze as soon as Monday in case of a “No” vote by raising ELA collateral haircuts:

    The [Greek] government appears ready to renege on its debt obligations. So Greece’s creditors are going to lose money—a lot of money. Since these creditors are public entities, the losses will be borne, initially, by the public.

     

    This crisis is about managing the resolution of bad Greek assets in a way that inconveniences creditor governments the least, forcing the least net new public borrowing, and minimizing financial system risks. The best way to do that is to avert a hard default, even if it means kicking the can down the road.

    That, once again, is the Varoufakis all-in gamble, a gamble which assumes the ECB will be rational enough (in a game theory context) to appreciate the fallout of a Grexit on Europe’s creditors. Here is a qualitative determination:

    Consider the ESM, Greece’s biggest creditor. Under its previous name, the European Financial Stability Facility, it loaned Greece €145 billion. If Greece defaults, the ESM, a Luxembourg corporation owned by the 19 European Monetary Union governments, will have to declare loans to Greece as nonperforming within 120 days. Accounting rules and regulators insist that financial institutions write off nonperforming assets in full, charging losses against reserves and hitting capital.

     

    Here’s the rub: The ESM has no loan-loss contingency reserves. Its only assets—other than loans to Greece—are loans to Ireland and Portugal. Its liabilities are triple A-rated bonds sold to the public. How do you get a triple-A rating on a bond backed entirely by loans to junk-rated sovereign borrowers? Well, the governments guarantee the bonds, and because they are unfunded off-balance-sheet liabilities, they aren’t counted in their debt burdens—unless borrowers default.

     

    If Greece defaults hard, governments will be on the hook for €145 billion in guarantees on those loans to the ESM. We expect credit-rating agencies to insist that these unfunded guarantees be funded. After all, unfunded guarantees are worthless guarantees.

    And the punchline:

    The strength of these guarantees is untested. Would the German Bundestag vote tomorrow to raise €35 billion by selling Bunds, the government debt, to cover Germany’s share of ESM losses on Greek bonds? That seems improbable. Bund sales of that scale, if they did occur, would flood the market, raising yields and depressing prices. If, instead, the Bundestag refused to cover its guarantees, then we would see a legal dust-up on a grand scale. With the presumption of valid guarantees, credit raters would have no choice but to downgrade ESM paper. Then losses would be borne by bondholders, and the ESM—the euro zone’s safety net and backstop—couldn’t raise money in the capital markets.

    In other words, Grexit would usher in a pandemonium of unheard proportions because when the ESM, EFSF and countless other bailout mechanism were postulated, none even for a minute evaluated the scenario that is being flouted with ease, and, paradoxically, by the ECB itself most of all: an ECB which stands to lose the most…

    A hard default would produce other losses to be covered. The ECB would have to be recapitalized after it writes off the €89 billion it has loaned the Greek banks to keep them liquid. The ECB would need to call for a capital contribution from its shareholders—the governments.

    … not to mention any last shred of confidence it may have had.

    But wait, there’s more:

    And don’t forget that Greek banks owe the Target2 bank clearinghouse, a key link in the interbank payment system, an estimated €100 billion. The governments are on the hook to make good that shortfall, too. The cash required to cover these contingencies would have to be funded with new bond sales.

    The conclusion is incidentally, identical to what Zero Hedge said back in the summer of 2011: “the ultimate loser in a Greek default would be the euro-zone sovereign-bond market, which is already vulnerable. ” The only difference is that this time, yields are near all-time lows, and durations are high. Ironically, even the smallest fluctuations in yield mean a volatile response in prices, and an immediate crippling of the bond market. Perhaps most ironic is that Europe’s bond market is far less prepared to deal with Greek contagion now than when Italian bonds were blowing out and trading at 7%, just because everyone has double down and gone all-in that the ECB can contain the contagion. If it can’t, it’s very much game over.

    This is what Varoufakis’ likewise all-in gamble on the future of Greece boils down to.

    And just so we have numbers to work with, here courtesy of Bawerk’s fantastic summary, is a way to quantify what a Grexit and the resultant falling dominoes would look like for Europe:

     

    Simplistic representation of falling dominos not enough? Then here is the full breakdown of implicit exposure every Euro Area country has toward a Greek exit, because it is not just the EFSF dominoes, it is also SMP, MRO, ELA, Target2, and oh my…

    And tying it all together, here is some more from “Eugen von Böhm-Bawerk“:

    The Germans, French and IMF alike reluctantly admit so much, but they cannot give the Greeks any debt relief because as soon as Greece starts to default on their obligations on the off-balance sheet guarantees extended by the euro countries the whole system could fall like dominoes. 

    The problem, however, is that the IMF already did admit that Greece does need at least a 30% haircut, implying that at least one member of the grand status quo, under pressure form the US, already got the tap on the shoulder and has been told to prepare for more falling dominoes. Which leads to even more questions:

    What would happen if Italy suddenly got an extra funding requirement of more than €60bn? Every euro apologist point to Italy’s primary surplus, but what good does that do when your debt is over 130 per cent of GDP and rising? The interest payment on that gargantuan debt load means Italy must cough up more than €75bn a year just to service liabilities already incurred. A primary surplus is a useless concept in a situation like the one Italy finds itself in. Adding another €60bn to Italy’s balance sheet could very well be the straw that breaks the Italian camel.

     

    The French would be on the hook for around €70bn just when they have agreed with the European Commission to “slash” spending to get within the Maastricht goal of 3 per cent, in 2017!

     

    Imagine the German peoples wrath when they learn that Merkel defied their sacrosanct constitution; a constitution that clearly state that the German people, through its Bundestag, is the sole arbiter of any act that have fiscal implications regarding the German people. The Bundestag did not approve the €42bn of ECB programs that have funded the Greek states excessive consumption.

    All this is purely theoretical. For the practical implications of the above “falling domino” chain, we go back to Carl Weinberg:

    What if a downgrade of ESM paper causes a hedge fund to fail, which triggers the demise of the bank that handles its trades? The costs of fixing failed institutions will also, of course, fall on governments. The ultimate cost of Greece’s default is yet to be seen, but it is surely larger than it seems.

    Contained? We think not. And neither does Varoufakis, which is why he is willing to bet the fate of the Greek people on that most critical of assumptions. The only outstanding question is what does Mario Draghi, and thus Goldman Sachs, believe, and even more importantly, whether the Greek people have enough faith in Varoufakis to pull it off…

  • Whole Foods, Half Lies

    Submitted by Salil Mehta via Statistical Ideas blog,

    Whole Foods has just been caught ripping-off customers, above and beyond their typical rip-off prices.  Whenever I shop at Whole Foods, up and down the Northeast, I observe that more than 2/3 of customers pay with bank cards.  Part of the issue with this payment method is that few customers then do what they should be doing.  Being a math guy for example, I always add up the prices of anything I am about to buy, before I get to the payment cashier.  It's not that hard! 

    And every couple of weeks, at all sorts of global merchants (from stores, to restaurants, to service companies), I come across price discrepancies.  I always feel obligated on behalf of all fellow consumers to notify the business staff (whose only incentive at the counter is to pump you for a loyalty discount card in exchange for your valuable personal data), and most of the time the "mistake" is in their favor.  Certainly not in anyone else's.  The "mistake" comes down to corporate heedlessness at best, and an obvious lack of respect for their customer's finances.  Many times I actually get a dirty look (like I am the jerk for catching their own error!), and only some of the time do I notice businesses promptly take the corrective actions so that no one else would be impacted.  If one mindlessly just throws over their bank card and personal data with every purchase, then (as we'll see below) they will often be overcharged.

    This particular news is happening with a company that already has a high-profile and checkered track record of doing good.  Just before the global financial crisis, CEO Mackey thought it was better to ignore his customers and mask his online identity with the alias "Rahodeb".  Squandering his time instead by falsely denigrating Wild Oats, and simultaneously falsely promoting Whole Foods.  In a similar playbook as they have today, this insulting set of affairs only came to an abrupt end when Whole Foods was busted.

    Also this news is happening with a company that is now suffering intense competition from better-priced competitors.  The organic marketplace is well-overdue for price reform.  As even billionaire investor Warren Buffett quipped recently "I don't see smiles on the faces of people at Whole Foods."  Though on a tangent, we don't see smiles on the faces of his Berkshire stockholders in recent years either (here, here).  Particularly if they then shop at Whole Foods afterwards, only to get served a second beat down.

    So what does Whole Foods' leadership finally do about the recent pricing scandal?  Create a feel-good advertisement!  No staff changes nor any attempt at financial regress for the systematic and ongoing misconduct.  They've already double bagged and taken home those ill-gains.  Here we see Walter Robb, and Rahodeb confusingly justify the "rigorous science" surrounding pricing a fruit in the 21th century:

    Straight up, uhhh, we made some mistakes.  We want to own that, and tell you what we are going to do about it … We know they are unintentional because the mistakes are both in the customer's favor and sometimes not in the customer's favor.  It's understandable that sometimes mistakes are made.  They are inadvertent.  They do happen.

    They also fictitiously blurt out to anyone mathematically illiterate, that in a "very, very small percentage" of times that errors occurred.  What's missing is that really in a "very, very, very small percentage" did this ever work in their customer's favor.  That's three "very's" using the thumbed-on Whole Foods scale.  Which is why eventually they were busted.

    This brings us to statistics on our blog, because it would be informative to show people the number of different ways Whole Foods -or similar merchants- can systematically cheat consumers, and still later hole up behind the lawyered company comments above.  We'll go through examples, each time merely using two hypothetical products for illustration.  We expose in each variation, how even the most fair mis-pricing will generally be "straight up" not fair.

  • With 6 Hours Until The Greek Vote, This Is Where We Stand

    With just hours to go until Greeks head to the ballot box to decide the country’s fate in the eurozone, the latest polls show a nation divided with only a half percentage point separating the “no” votes from the “yes” votes.

    Underscoring the ‘dead heat’ preliminary poll results, the yes’s and the no’s staged dueling protests in the streets of Athens on Friday night. All told, as many as 50,000 people participated in the competing demonstrations with PM Alexis Tsipras making an appearance at the “No” rally.

    As a reminder, this is the schedule for the referendum:

    WHEN ARE RESULTS DUE

    • Polling stations will be open from 7am to 7pm local time and the result may be known before midnight
    • Pollsters haven’t confirmed if there will be exit polls; if there are any, they will come immediately after the polls close
    • Software distributor SinglularLogic, which has been hired to run the vote counting and data processing, should be able to provide an estimation of the winner a few hours after polls close
    • JPMorgan expects ~90% of votes will have been counted by midnight, based on past general elections in Greece; vote counting could be even faster this time as it’s a yes or no question

    And this is where things stand:

    *  *  *

    As noted earlier today, Athenians are restless and we can’t help but wonder what the scene will be in the streets of Athens on Sunday evening once the results are tallied and one of these two dueling groups is forced to acquiesce to the other’s vision of Greece’s future.

  • 5 Things To Ponder: Independence Day Reading

    Submitted by Lance Roberts via STA Wealth Management,

    This weekend's reading list is a smattering of articles to enjoy between your favorite beverage, grilled meat and really fattening desert. Just remember to go back to the gym on Monday.

    1) Grantham: Stocks Will Continue Upward Until The Election by Justin Kermond via Advisor Perspectives

    "Jeremy Grantham says equity valuations are heading toward the "two-sigma" level that is the requisite threshold for a true bubble. At some point – which is not imminent – he said a "trigger" will precipitate the reversion back to mean levels. The market will continue to deliver positive returns until the next election, according to Grantham.

     

    Grantham cited two major causes for the looming bubble: post-Bernanke U.S. Federal Reserve policy and a "stock-option culture" that has both elevated corporate margins and stifled normal levels of capital expenditure investment required to grow the economy."

     

    Read Also: The Last Crisis May Cause The Next One by Robert Samuelson via Real Clear Markets

     

    2) Why This Chinese Bubble Is Different by John Authers via FT

    "Whatever else, the incident demonstrated that China's market remains dominated by liquidity. It also showed how badly the authorities want an overextended stock market. So, to adapt an old market saw, perhaps everyone should buy A-shares on the basis of "don't fight the PBoC".

     

    Bulls, led by GaveKal Dragonomics, say for global investors, keeping out of China is "the world's most crowded trade". Ever since metals prices turned down four years ago, suggesting slower Chinese growth, western institutions have been wary. They missed out on last year's boom, explaining their reluctance to see A-shares suddenly appear in their benchmarks."

    Read Also: Putting The China Drop Into Perspective by Malcolm Scott via Bloomberg Business

    Read Also: Maybe It's Not So Different by Streettalklive.com

    China-SP500-Index-063015

     

    3) Private Equity Is "Cashing Out" by Leslie Picker and Ruth David via Bloomberg

    "When financier Leon Black said his Apollo Global Management LLC was exiting "everything that's not nailed down" amid rising valuations, he made headlines. Two years later, other private-equity firms are following suit — dumping stakes into the markets at a record clip.

     

    Firms including Blackstone Group LP and TPG Capital Management have been capitalizing on record stock markets around the world to sell shares, mostly in their companies that have already gone public. Globally, buyout firms conducted 97 stock offerings in the second quarter, more than in any other three-month period, according to data compiled by Bloomberg."

    Read Also: Smart Money Is Cashing Out, What About You? by Tyler Durden via ZeroHedge

    ZeroHedge-smartmoney-070215

     

    4) 15 Problems With Real World Portfolios by Ben Carlson via A Wealth Of Common Sense

    "Investment strategies have a tendency to look beautiful on paper and in marketing pitch books. You get to see return numbers, risk-adjusted results and pretty looking graphs that show how great things were in the past. I've yet to come across a strategy that couldn't be dressed up and made to look appealing by a skilled sales team or portfolio manager.

     

    While there's nothing wrong with trying to present your investment process so it stands out from the crowd, investors have to remember that the markets are never quite as easy as they look on paper or with the benefit of hindsight. Here are 15 reasons portfolios are always harder in the real world than what you'll see in a marketing pitch or back-test:"

    Read Also: When Market Returns Are Reliant On A Single Word by Jeff Erber via Real Clear Markets

     

    5) The Roseanne Roseannadanna Market by Dr. John Hussman via Hussman Funds

    "Much of the investment world seems to view present conditions as a "Goldilocks market" where economic growth is positive enough to avoid recession, but not fast enough to provoke the Federal Reserve to hike interest rates. Even if these views on economic growth and Federal Reserve policy are correct, it hardly follows that stock prices will advance. S&P 500 returns are only weakly correlated with year-over-year GDP growth and have near-zero correlation with year-over-year changes in earnings. Likewise, the stance of the Federal Reserve has much less power to distinguish investment outcomes than investors seem to believe, which they might realize even by remembering that the Fed was easing aggressively and persistently throughout the 2000-2002 and 2007-2009 market collapses.

     

    In contrast, we find profound differences in market outcomes across history depending on the combined status of valuations, market internals, and broader measures of market action (which include, for example, overvalued, overbought, overbullish syndromes)."

    hussman-070215

    Read Also:  The Single Most Important Element To Successful Investing by Jesse Felder via The Felder Report

    Have Another Slice Of Pie

    6 Conditions For A Global Bond Crisis by Bill Gross via Janus Funds

    A Compendium Of Tweeted Research by Meb Faber via Meb Faber Research

    The Current Oil Price Slump Is Far From Over by Arthur Berman via OilPrice.com

    The Whole Story Of Factors + Asset Classes by Jason Hsu via Research Affiliates

    "Perhaps it's fate that today is the Fourth of July, and you will once again be fighting for our freedom… Not from tyranny, oppression, or persecution…but from annihilation. We are fighting for our right to live. To exist. And should we win the day, the Fourth of July will no longer be known as an American holiday, but as the day the world declared in one voice: 'We will not go quietly into the night!' We will not vanish without a fight! We're going to live on! We're going to survive! Today we celebrate our Independence Day!" – Pres. Thomas Whitmore, Independence Day

    Have a great 4th of July holiday.

  • The Template for the End Game: Lies and Fraud Followed by Bail-Ins

     

    The Cyprus bank bail-in committed of early 2013 may seem like small deal to most US investors.

     

    After all, most Americans probably couldn’t even find Cyprus on a globe. And with the mainstream media spreading the narrative that the Cyprus bail-in was a one-time event that was meant to support the bank while punishing tax-dodging crooks, 99% of folks won’t think twice about the situation.

     

    However, the reality of what happened in Cyprus is a far different matter. And the reason that this reality has not been featured as headline news is because doing so would reveal the following:

     

    1)   European politicians are both corrupt and incompetent.

    2)   Those meant to assess the risk of any financial institutions don’t know what they’re talking about.

    3)   The average citizen will be screwed while politically connected insiders will be given the means to circumvent the law.

     

    Let’s assess these issues one by one.

     

    First off, the Cyprus bank “bail-in” was not some sudden event. The country first asked for a bail-out in JUNE 2012. Here’s the timeline.

     

    ·      June 25, 2012: Cyprus formally requests a bailout from the EU.

    ·      November 24, 2012: Cyprus announces it has reached an agreement with the EU the bailout process once Cyprus banks are examined by EU officials (ballpark estimate of capital needed is €17.5 billion).

     

    During the period of late June 2012 until November 2012, Cyprus’s problems were allegedly being assessed and nothing more. Throughout this period, NO ONE in a position of significant political or financial power suggested to Cypriots or anyone else who had money in the Cyprus banks that their money would be STOLEN.

     

    Instead, numerous bureaucrats came out to assure the public that this situation was under control and that the risks to the Cyprus banks would be carefully assessed.

     

    Then, in the span of a single week, a bank holiday was declared, bank accounts were frozen, and deposits were stolen.

     

    Here’s the specific sequence of events:

     

    ·      March 16 2013: Cyprus announces the terms of its bail-in: a 6.75% confiscation of accounts under €100,000 and 9.9% for accounts larger than €100,000… a bank holiday is announced.

    ·      March 17 2013: emergency session of Parliament to vote on bailout/bail-in is postponed.

    ·      March 18 2013: Bank holiday extended until March 21 2013.

    ·      March 19 2013: Cyprus parliament rejects bail-in bill.

    ·      March 20 2013: Bank holiday extended until March 26 2013.

    ·      March 24 2013: Cash limits of €100 in withdrawals begin for largest banks in Cyprus.

    ·      March 25 2013: Bail-in deal agreed upon. Those depositors with over €100,000 either lose 40% of their money (Bank of Cyprus) or lose 60% (Laiki).

     

    The most critical item to note about this timeline is that while the general public was assured that all was well, politically connected insiders were warned to get their money OUT OF THE BANKS

     

    One hundred and thirty-two companies reportedly had inside knowledge of Cyprus’ impending levy tax as they withdrew deposits worth US$916 million in the run-up to the bailout deal.

     

    The companies withdrew their savings in the two week period (between March 1 to March 15) leading up to the rescue deal that enforced heavy losses on wealthy depositors in Cypriot banks, according to Greek newspaper Proto Thema.

     

    Shortly after this the EU ministers and the IMF hammered out a 10-billion-euro (US$13 billion) bailout agreement with Cyprus, which included a one-time tax on deposits held in Cypriot banks.

     

    In the meantime all banks in Cyprus temporarily froze the amounts required to pay the tax on their clients’ deposits and stopped all transactions while the government negotiated the details of the agreement.

     

    The companies on the list withdrew their deposits in euro, USD, GBP and Russian rubles and later transferred to banks outside of Cyprus. The total amount withdrawn comes to US$916 million.

     

    http://rt.com/news/cyprus-companies-withdraw-money-218/

     

    So, nearly $1 billion worth of insider money escaped the Cyprus confiscation scheme. NONE of it was retiree savings. Ordinary individuals got screwed while politically connected insiders were able to get out scot-free.

     

    Now what’s truly amazing is that the Cyprus bank that collapsed was actually AWARDED BEST BANK for Private Banking by EUROMONEY Magazine. What was hailed as the BEST bank for private banking ended up being totally insolvent with 47% of deposits above €100,000 being converted into bank equity.

     

    Bank of Cyprus has been named as the Best Bank for Private Banking in Cyprus, by the internationally acclaimed magazine EUROMONEY

     

    Bank of Cyprus Private Banking ranked first among Cypriot, Greek and other international financial institutions operating in Cyprus in the Private Banking sector. This accolade classifies the Bank among the leading financial institutions offering Private Banking services and is yet another important international distinction for the Bank of Cyprus Group…

     

    This recognition by EUROMONEY is ever more important in today’s macroeconomic environment as it reaffirms the Bank’s ability to safely and successfully respond to its clients’ financial needs and emphasizes its clients’ loyalty and trust.

     

    http://www.bankofcyprus.com.cy/en-GB/Cyprus/News-Archive/Best-Bank-for-Private-Banking/

     

    Now, the political and financial elite in Cyprus and the EU will argue that bank deposits were not STOLEN because they were converted into equity in the bank at a rate of €1 per share. But being forced to change cold hard cash for equity in an insolvent bank is hardly cause for excitement.

     

    Indeed, the market, now well aware that the Bank of Cyprus is insolvent, has been dumping shares. So those depositors whose deposits were converted into equity are watching their savings evaporate as shares dive.

     

    Moreover, it’s not as though they were given the means to get their other deposits out of the bank:

     

    Last year, thousands of customers with money in Bank of Cyprus, including many British and Russians, became unwilling shareholders in the lender when their deposits were turned into equity as part of a controversial €10bn emergency rescue.

     

    Depositors saw 47.5 per cent of their money above a €100,000 threshold turned into equity.

     

    More than a third of their cash was then locked into six, nine and 12-month accounts. Shares in Bank of Cyprus have been suspended on the Athens and Nicosia stock exchanges since early 2013 and only one of the fixed term cash accounts has released all of the money due to customers.

     

    Éxito’s Ben Rosenberger and Michele Del Bo, who have previously arranged the sale of Lehman Brothers and Icelandic bank distressed debt, said that sellers had so far been mostly international clients who wanted to extract their money from the island by selling their deposits and shares to distressed debt funds.

     

    http://www.ft.com/intl/cms/s/0/89351ec8-f223-11e3-9015-00144feabdc0.html#axzz38Iy371O0

     

    So when the bank wants to raise capital, which would dilute the equity holdings for former depositors. What were savings are now not only subject to the whims of the market, but can be actively diluted by capital raises.

     

    Again, we refer to the list we began this article with:

     

    1)   European politicians are both corrupt and incompetent.

    2)   Those meant to assess the risk of any financial institutions don’t know what they’re talking about.

    3)   The average citizen will be screwed while politically connected insiders will be given the means to circumvent the law.

     

    Cyprus matters because while countries may differ in specific cultural components, the monetary system in place is by and large the same around the world. And what happened in Cyprus should be seen as a template for what can happen elsewhere.

     

    Indeed, this is now playing out in Greece today.

     

    Greece’s current leadership was elected back in January. Since that time the country has been in an ongoing negotiation concerning its debt issues. Everyone knew Greece was broke, but again the process was dragged out.

     

    Then in the span of a single weekend, a bank holiday was declared… and now suggestions of a 30% haircut on deposits are being floated. And once again, it’s ordinary citizens who are being screwed.

     

    This process will be spreading throughout the globe going forward. Indeed, the FDIC has proposed precisely the same “bail-in” program if a “systematically important financial institution” were to go belly-up in the US.

     

    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 made 1,000 copies available for FREE the general public.

     

    As we write this, there are less than 50 left.

     

    To pick up yours, swing by….

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

     

    Best Regards

     

    Phoenix Capital Research

     

     

     

     

     

     

     

  • Will Greek Depositors Under €100,000 Be Spared In Case Of A "Bail-In"

    One week ago, we first explained that as the Cyprus bail-in “blueprint” scenario unfolds, the one final, and most important, remaining variable in the ongoing Greek drama, soon to devolve to tragedy, is how big the ECB’s ELA haircuts would be in the case of a No vote, which would be the first catalyst of a depositor haircut.

     

    Then, overnight, in a report since denied by both the Greek finance ministry and by the European Banking Authority Plan, the pro-Europe FT did yet another hit piece on Greece desperate to push those Greek voters on the fence ahead of tomorrow’s referendum to vote “Yes” (just think of the lost advertising revenue if say Deutsche Bank were to go under).

    Greek banks are preparing contingency plans for a possible “bail-in” of depositors amid fears the country is heading for financial collapse, bankers and businesspeople with knowledge of the measures said on Friday.

     

    The plans, which call for a “haircut” of at least 30 per cent on deposits above €8,000, sketch out an increasingly likely scenario for at least one bank, the sources said.

    Ignoring whether the FT is now merely a venue used by conflicted parties to publish pro-Europe, anti-Syriza hit piecestthat benefit “bankers and businesspeople with knowledge of the measures” and are promptly refuted, the article does bring up a relevant point: if the ECB does escalate the ELA collateral haircuts, something we analyzed in our own piece last week, what kind of haircut scenarios are possible, and will “insured” deposits under €100,000 be indeed made whole, or will the bail-in affect, as the FT suggested, everyone with over €8,000 in savings?

    Regarding the first part of the question, what are the possible scenarios, JPM had this to say yesterday when evaluating the history of bail-ins in Europe in recent years:

    If the deterioration in asset quality means there is no sufficient collateral to cover ELA claims, either the ECB (via its ELA residual claim) or domestic depositors will have to suffer a loss. Our understanding is that there are no clear rules on whether this ELA residual claim will be ranked above depositors or not. In fact EU policymakers adopted different and inconsistent approaches in the past when faced with bank insolvencies:

    1. In the case of Cypriot banks, depositors were hit while senior bond holders were spared, so seniority was not respected. ELA claims were also protected.
    2. Deposits of foreign branches were protected in the case of Cyprus while deposits of domestic branches were hit. This is the opposite of what happened to Iceland.
    3. In the case of Ireland, which also had a big banking system relative to the size of its economy, only sub debt holders, accounting for a very small portion of total creditors, were hit. No depositors were hit, in either domestic or foreign branches.
    4. In the case of SNS, sub debt holders were wiped out and reports suggest that the Dutch government came close to imposing losses on senior bond holders and was only prevented from doing so because of unsecured intergroup loans between SNS bank and Reaal insurance that would be subjected to the same losses as senior bond holders.

    In other words, Europe will do what it always does: make it up as it goes alone. However, one notable difference between Cyprus and Greece is that the former held the deposits of a number of wealthy Russian oligarchs, which skewed the deposit distribution a la the 80/20 rule, and permitted smaller depositors to be saved while the Russians took the bulk of the hits (an outcome which according to some led to the suicide of Russian billionaire in exile, Boris Berezovsky).

    Unlike Cyprus, Greece does not have the luxury of several massive depositors. In fact, according to JPM, the distribution of deposits appears to be relatively flat. JPM continues:

    … under a stress scenario of prolonged impasse, Greek depositors will be likely hit while ELA claims are protected. There is currently €120bn of deposits with Greek banks. A haircut increase on ELA collateral assets from our currently estimated level of 43% to 60%, for example, would require a €26bn deposit haircut or 20% of outstanding bank deposits assuming for simplicity no available buffer from shareholders or bond holders. A bigger increase in the collateral haircut, for example to 75%, would require a €50bn deposit haircut or 40% of outstanding bank deposits.

    Whereas we disagree with JPM’s calculation due to our baseline assumption that the current haircut level is more in the 48% region, we do agree with the directionality.  As a reminder, this was our own math as laid out last week:

     

    But what does this mean for ordinary Greeks, those who have negligible amounts still held by Greek banks despite our recurring pleas to withdraw their funds ahead of just this eventuality? Sadly, nothing good. Here is JPM’s conclusion:

    Could deposits below €100k be protected as it happened in Cyprus? The answer depends on the total amount of deposits above €100k. If there are enough of these large deposits above €100k, then most likely any required deposit haircut will be inflicted on these depositors only. There are no recent data on how big this universe of large deposits is. The most recent data from the European Commission suggest that at the end of 2012, covered (i.e. those below €100k) represented 75% of eligible Greek deposits. We suspect this number is now significantly higher leaving little room for depositors with less than €100k to be spared. And the reserves that the Greek state has to back its bank deposit guarantee are miniscule, likely not more than a couple of billions euros.

    Which means that unlike Cyprus, which was mostly a targeted punitive bail-in aimed almost entirely at Russian oligarchs, should the ECB indeed enact ELA haircuts which it may have to do as soon as Monday in the case of a No vote, it will be the ordinary Greeks who will see their already meager savings get haircut even more, anywhere between 30%, potentially up to 100% if the ECB were to announce the entire ELA no longer legal, pulls all funding and locks up Greek bank collateral.

    Will the ECB do that? We don’t know, however Varoufakis’ gambit is simple: should the ECB engage the full Greek haircut it will incite an immediate panic and risks a run on other peripheral banks and the true spread of Greek contagion to Italy, Spain, Portugal and all other economically crushed countries where an anti-austerity politician is a frontrunner for the next leadership position. Such as France.

  • The Surprising Demise of Reddit

    Well, it seems Ellen Pao managed to step in yet another bucket of syrup.

    This is going to require a bit of back-story……….

    Some people on the Internet really go for quantity. On their Twitter account, they follow hundreds of people. On Facebook, they connect with thousands of “friends.” And in their browser, they visit dozens of web sites each day.

    I tend to be a minimalist. I have precisely 100 friends on Facebook. If I decide I really want someone to be a friend, well, someone else is going to get the boot. On Twitter, even though I have over 13,000 followers, I follow only 8. And as for web sites, there are only three sites I visit repeatedly each day: Slope of Hope, ZeroHedge, and Reddit.

    In case you’ve been hiding in a cave somewhere, Reddit is one of the most frequently-visited sites on the web, and it was recently valued at half a billion dollars. It consists of myriad “subreddits” which focus on particular topics of interest, each of which is managed by unpaid (and evidently very dedicated) moderators. Readers can upvote and downvote tidbits of the web, bringing to the front page of reddit itself, or any particular subreddit, the most interesting articles and curiosities.

    There isn’t a day that goes by where I’m not entertained and better-informed thanks to reddit and the millions of people who make it possible. Similar to Wikipedia, it’s one of those delightful free gems on the web which isn’t slathered with advertising and is made possible mostly by the heart and hard work of its community. Slope of Hope, in a miniscule way, is very much like that.

    None of this would be especially interesting were it not for the shitstorm taking place at this very moment in the usually placid world of Reddit. To wit:

    0704-redditnews

    As you’ve gathered from the above, a woman named Victoria Taylor was fired for reasons that have not been explained, and Redditors are absolutely freaking out about it.

    Victoria, pictured here, was the director of communications for the past couple of years. It strikes me as odd that the firing of one individual would cause such a revolt, but I don’t consider myself a “deep” Redditor at all. I have a parasitic relationship with the site, similar to “lurkers” on any site (including Slope). I contribute nothing to it. I don’t even upvote/downvote stuff. I just go there to read. So I don’t pretend to “get” the subculture there at all.

    But for some of the folks there, I’m sure this weekend is one they’ll remember on their deathbed. The Reddit community has never been particularly keen on the company’s Interim (and everyone emphasizes Interim) CEO, Ellen Pao, about whom I wrote a number of articles here on Slope regarding her widely-publicized sex discrimination lawsuit. In fact, they really, really, really hate her.

    It would be sort of like if every Sloper really couldn’t stand me, but they tolerated me only because my friend Dutch did such a great job – – – and then I fired Dutch. That’s sort of what’s going on.

    Now keep in mind Reddit isn’t some weird, edgy, nobody-ever-heard-of-it site like Slope. It’s a big, big site (which is why the likes of Time magazine are writing about what’s going on right now). The Reddit community is upvoting anything they can that has to do with (a) other companies that pissed off their customer base and lived to regret it (b) getting rid of Pao (c) general castigation of Pao.

    0704-top

    Want to know the real shame of this? A missed opportunity. And as a former Internet entrepreneur myself, I can’t help but shake my head at this one……….

    About a year ago, a couple of guys put together a site that does exactly the same thing as Reddit called Voat. The thing with communities is – – – once a community has a home, it stays there. Reddit is ranked as the 32nd most popular web site in the world. Want to know Voat’s rank? 20,100.

    So there’s no way Voat would have ever amounted to anything, because there’s no reason for anyone to leave reddit and go to Voat…………until this weekend. Suddenly everyone agitated to basically jump ship and make Voat the new Reddit. And while it’s virtually out of the question that this would have happened, Voat had an amazing opportunity to capture a meaningful chunk of those users. Even if it was only 5%, that would have make Voat a real business.

    But what folks are getting instead when they try to go to Voat is this:

    0704-voat

    Thus, one of the top links on Reddit is this:

     

     

    The sad thing for Voat’s founders is that once they’ve finally got their infrastructure act together and can actually handle the traffic coming their way, this whole Reddit thing will have blown over. So they’ll have invested in a bunch of equipment and bandwidth, only to see themselves vault from 20,100th place to 19,900th. It’s a damned shame, and frankly, they’ve blown the opportunity of a lifetime.

    The most amusing subreddit of all right now is PaoYongYang. (Someone even made a painstaking claymation of Ellen Pao singing “Why Don’t You Go Over to Voat?”) Here’s what it looks like; you, uhhh, can kind of get the idea:

    0704-pao

    There’s even a petition going around to dump Ellen Pao from Reddit which has garnered 100,000 signatures as of this writing. (“A vast majority of the Reddit community believes that Pao, “a manipulative individual who will sue her way to the top”, has overstepped her boundaries and fears that she will run Reddit into the ground”) Again, the community really, really hates her. Partly because of her sketchy husband. Partly because of the Kleiner lawsuit. But mostly because of the perception of how she treats the community.

    And that, frankly, is the principal point of this post (I’m not looking for excuses to put up pictures of Pao’s peculiar countenance). Community matters. Indeed, in this hyper-interconnected world in which we live, it matters more than ever. If you’re involved in any kind of Internet business, the relationship not only with your users but between your users is the glue that holds your enterprise together.

    The thing is, humans are a tribal lot, and they will gladly band together and turn against the people or institutions they feel have wronged them. On this day (I’m writing this on July 4), look no further than these lines from a document you may have heard about:

    ….all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.

    Personally, I found Ms. Pao singularly unlikeable, based on everything I’ve read, and just as I hope our friends in Greece throw off the EU shackles with a resounding “Oxi!” vote on Sunday, I hope the Redditors succeed in their quest to kick Pao to the curb and send her back to Buddy Fletcher, where husband and wife can romantically contemplate whom they’d like to sue next.

  • Fed's Full Normalization Will Crush The Casino

    Submitted by Adam Hamilton via GoldSeek.com,

    The US Federal Reserve has been universally lauded for the apparent success of its extreme monetary policy of recent years.  With key world stock markets near record highs, traders universally love the Fed’s zero-interest-rate and quantitative-easing campaigns.  But this celebration is terribly premature.  The full impact of these wildly-unprecedented policies won’t become apparent until they are fully normalized.

    Back in late 2008, the US stock markets suffered their first full-blown panic in 101 years.  Technically a panic is a 20% stock-market selloff in a couple weeks, far faster than the normal bear-market pace.  In just 10 trading days climaxing in early October 2008, the US’s flagship S&P 500 stock index plummeted a gut-wrenching 25.9%!  It felt apocalyptic, the most extreme stock-market event we’ll witness in our lifetimes.

    This once-in-a-century fear superstorm terrified the Fed’s elite policymakers on its Federal Open Market Committee.  As economists, they are well aware of the stock markets’ powerful wealth effect.  With equities cratering, Americans could dramatically slash their spending in response to that devastating loss of wealth and the crippling fear it spawned.  And that could very well snowball into a full-blown depression.

    Consumer spending drives over two-thirds of all US economic activity, it is far beyond critical.  So the Fed felt compelled to do something.  But like all central banks, it really only has two powers.  It can either print money, or talk about printing money.  The legendary newsletter guru Franklin Sanders humorously labels these “liquidity and blarney”.  With stock markets burning down in late 2008, the Fed panicked too.

    Led by uber-inflationist Ben Bernanke, the Fed embarked on the most extreme money printing of its entire 95-year history to that point.  The FOMC cut its benchmark Federal Funds Rate by 50 basis points at an emergency unscheduled meeting on October 8th.  It lopped off another 50bp a few weeks later on October 29th.  And then on December 16th, it slashed away the remaining 100bp to take the FFR to zero.

    The federal-funds market is where banks trade their own capital held at the Fed overnight.  It’s that supply and demand that determines the actual FFR, so the Fed can’t set it directly by decree.  Instead the Fed defines an FFR target, and then uses open-market operations to boost funds supplies enough to force the FFR down near its target.  The Fed creates new money out of thin air to oversupply that market.

    When central banks force their benchmark rates to zero through money printing, economists call it a zero-interest-rate policy.  Once ZIRP is implemented, a central bank’s conventional monetary-policy tools are exhausted.  Once zero-bound, central banks can’t really manipulate short-term interest rates any lower.  So they continue printing money, but use it to purchase bonds to force long-term interest rates lower as well.

    Historically this was called monetizing debt, and was only seen in small countries that were economic basket cases.  Expanding the money supply so rapidly to buy government bonds naturally led to ruinous inflation.  But today this exact-same practice is euphemistically known as quantitative easing.  QE is truly the last resort of central banks once they succumb to ZIRP, the treacherous final frontier of money printing.

    The Fed formally launched QE for the first time ever on November 25th, 2008.  That was several weeks before ZIRP was born.  Because of intense political opposition to direct monetization of US government debt, the Fed initially started with mortgage-backed bonds.  But what later became known as QE1 was expanded to include US Treasuries in mid-March 2009.  This marked a watershed event in Fed history.

    By conjuring money out of thin air to buy up US Treasuries, the Fed was directly subsidizing the Obama Administration’s record deficit spending.  As it purchased Treasuries and transferred brand-new dollars to Washington, the federal government spent this money almost immediately.  That injected this vast new monetary inflation directly into the underlying US economy, creating tremendous market distortions.

    Nowhere was this more pronounced than in the US stock markets.  As the Fed expanded the money supply to buy bonds, its holdings rapidly accumulated which ballooned its balance sheet dramatically.  Even though this new inflation was flowing into the bond markets, it had a dramatic impact on the stock markets.  Since mid-2009, the S&P 500’s powerful bull market has perfectly mirrored the Fed’s balance sheet!

    Whenever one of the Fed’s three QE campaigns was in full swing, the stock markets rose in lockstep with bond purchases.  But whenever the Fed’s debt monetizations slowed or stopped, the stock markets consolidated or corrected.  This tight relationship between stock-market levels and the Fed’s balance sheet is incredibly important for investors and speculators to understand, as it has serious implications.

    In the coming years, the Fed is going to have to normalize both ZIRP and QE.  If the Fed drags its feet too long, the global bond markets will force it to act.  Normalizing ZIRP means dramatically hiking the Federal Funds Rate, and normalizing QE means selling trillions of dollars of bonds.  And only after both interest rates and the Fed’s balance sheet return to normal levels will ZIRP’s and QE’s impact become apparent.

    Today’s euphoric and complacent stock traders assume that the first measly quarter-point rate hike will end ZIRP, and that QE concluded in late October 2014 when the FOMC ended its QE3 campaign.  But nothing could be farther from the truth!  We are only at half-time for the most extreme experiment in US monetary policy in the Fed’s entire history.  The fat lady won’t have sung until ZIRP and QE are fully unwound.

    This full normalization is epic in scope, and will take the Fed years to accomplish.  Stock traders don’t appreciate how extremely anomalous both interest rates and the Fed’s balance sheet are today.  This chart reveals the scary truth.  It looks at the Federal Funds Rate and yields on 1-year and 10-year US Treasuries over the past 35 years or so.  And the Fed’s balance sheet since it was first published in 1991.

    The inflection points in interest rates and money supplies driven by the advent of ZIRP and QE are just massive beyond belief.  Short rates totally collapsed near zero, and the Fed’s balance sheet skyrocketed into the stratosphere.  The most extreme monetary policies in US history aren’t going to normalize easily.  And this process is going to cause great financial pain as stock and bond markets are forced to mean revert lower.

    Through its overnight Federal Funds Rate, the Fed utterly dominates the short end of the yield curve.  Note above how yields on 1-year US Treasuries track the FFR nearly flawlessly.  So just like during past Fed rate-hike cycles, the rising FFR is going to push up the entire spectrum of short-term interest rates.  And this normalization process will require a long series of rate hikes, not just today’s popular “one and done” fantasy.

    The very word normalization denotes something manipulated away from norms returning back to those very norms.  So defining “normal” FFR levels is important to get an idea of how high the Fed is going to have to hike.  Since late 2008’s stock panic scared the Fed into going full-on ZIRP for the first time ever, everything since is definitely not normal.  Nor were the super-high rates of the early 1980s, the opposite extreme.

    But between those two FFR anomalies was a 25-year window running from 1983 to 2007.  This quarter-century span is the best measure of normal we can get in modern history.  It encompasses all kinds of economic and stock-market conditions, including multiple severe crises.  Throughout all of it, the Federal Funds Rate averaged 5.5% on a weekly basis.  That is normal, where the Fed will eventually have to return.

    While today’s hyper-complacent stock traders are fixated on the Fed’s first rate hike in 9 years, that’s only 25 basis points.  The Fed needs to do a full 550bp of hikes!  At a mere quarter-point at a time, a full normalization would take 22 hikes!  And that’s probably how it will play out, as the Fed is too scared of roiling stock traders to hike faster.  The last Fed rate hike exceeding 25bp happened way back in May 2000.

    The Fed’s policy-deciding Federal Open Market Committee meets 8 times a year, and only raises rates at those scheduled meetings to minimize the risk of shocking the markets.  So the 22 quarter-point rate hikes required for full normalization would take nearly 3 years without any interruptions!  That’s an awfully-long time for higher rates and the resulting bearish psychology to weigh heavily on lofty stock markets.

    Despite the one-and-done hopes of stock traders today, it’s really risky for the Fed to start and stop rate hikes in an erratic fashion.  The more unpredictable any tightening cycle is, the more damage it will do to stock-market sentiment.  So this coming rate-hike cycle is likely to play out like the last one between June 2004 to June 2006.  Over that 2-year span the Fed hiked 17 times more than quintupling the FFR to 5.25%!

    While slashing the FFR to zero manipulated the short end of the yield curve, the Fed’s utterly-monstrous purchases of US Treasuries actively manipulated the long end.  The FOMC was very open about this mission, including a sentence about QE in its meeting statements that read “these actions should maintain downward pressure on longer-term interest rates”.  Excess bond demand forces long rates lower.

    Since the dawn of the ZIRP and QE era in early 2009, the yield on benchmark US 10-year Treasuries has averaged just 2.6%.  This rate is exceedingly important to US economic activity, as it determines the pricing of mortgages.  Artificially-low long rates have led to artificially-low mortgage rates, which fueled a boom in housing-related activity just as the Fed intended.  A full normalization will totally wipe this out.

    In that quarter-century span between the early 1980s rate spikes and the 2008 stock panic’s introduction of ZIRP, yields on 10-year Treasuries averaged 6.9%.  That is fully 2.6x higher than today’s manipulated levels!  As the Fed normalizes its balance sheet by letting its QE-purchased bonds mature and roll off, long rates will absolutely return to normal levels.  And the market and economic impacts will be adverse and vast.

    In mid-June, 30-year fixed-rate mortgage pricing climbed back over 4.0% as 10-year Treasury yields regained 2.4%.  That’s a 1.6% premium over what the US government can borrow for.  So when 10-year Treasury yields are fully normalized in the coming years, 30-year mortgage rates will likely soar to at least 8.5%!  That’s certainly not unprecedented, these rates averaged 8.1% throughout the entire 1990s.

    That wealth effect the Fed fears slowing consumer spending applies to housing prices even more so than stock-market levels, since far more Americans have most of their wealth in houses than in stocks.  Mortgage prices more than doubling would have a drastic impact on house prices, since people could only afford to borrow much less.  So the debt-fueled real-estate boom is going to collapse as rates normalize.

    Bond prices will crater too.  Regardless of the yields bonds were originally issued at, they’re bought and sold in the marketplace until their coupon yields equal prevailing rate levels.  So traders will dump bonds aggressively as rates mean revert higher, leading to steep losses in principal for the great majority of bonds that are not held to maturity.  And the Fed’s selling as it normalizes its balance sheet will exacerbate this.

    As the chart above shows, the Fed’s balance sheet naturally rises over time as this central bank inflates the supply of US dollars.  But its pre-QE trajectory was well-defined and relatively mild.  Once the Fed reached ZIRP and could cut no more, it launched QE which led to a balance-sheet explosion.  This too will have to mean revert dramatically lower in the Fed’s full normalization, with terrifying bond-market implications.

    In the first 8 months of 2008 before that once-in-a-century stock panic, the Fed’s balance sheet was averaging $849b.  At its recent peak level in mid-February 2015, all those years of QE bond buying had mushroomed it to $4474b!  That’s a 5.3x increase in just 6.5 years.  The great majority of that has to be unwound, or that vast deluge of new dollars will eventually lead to massive and devastating inflation.

    If the normal trajectory of the Fed’s balance sheet before the stock panic is extended to today, it suggests a normal balance-sheet level of around $1100b.  To return to there from today’s incredibly-high QE-bloated levels would require a staggering $3329b of bond selling from the Fed!  Even though it will take years for this to unfold, $3.3t of central-bank bond selling will force bond prices much lower.  And thus rates higher!

    Higher rates won’t just decimate the bond markets, but also wreak havoc in today’s super-overvalued and radically-overextended stock markets.  Higher rates hit stocks on multiple fronts.  They make shifting capital out of stocks into higher-yielding bonds more attractive, leading to capital outflows from the stock markets.  The higher debt-servicing expenses also directly erode corporate profits, leaving stocks more overvalued.

    But today’s main stock-market threat from rising rates is their impact on corporate buybacks.  These are the primary reason why the S&P 500 level so perfectly mirrored the ballooning Fed balance sheet of recent years.  American companies took advantage of the artificially-low interest rates to borrow vast sums of money not to invest in growing their businesses, but to use to buy back and manipulate their stock prices.

    Last year for example, stock repurchases by the elite S&P 500 companies ran a staggering $553b!  That was their highest level since the last cyclical bull market was peaking in 2007.  Since these buybacks are largely financed by cheap money courtesy of ZIRP and QE, the Fed’s normalization is going to just garrote buybacks.  And they are the overwhelmingly-dominant source of capital chasing these lofty stock markets.

    So the massive coming normalization of interest rates and the Fed’s bond holdings are very bearish for stocks as well as bonds.  That’s one reason why traders are so pathologically fixated on the next rate-hike cycle.  The smart ones know full well that it will end this Fed-conjured market fiction and lead to enormous mean reversions lower in both stock and bond prices.  Full normalization will spawn a bear market.

    Ironically the asset class that will benefit most from rate hikes is the one traders least expect, gold.  The conventional wisdom today believes gold is going to get wrecked by rising rates since it has no yield.  But just the opposite has proven true historically!  Gold is an alternative asset, and demand for these critical portfolio diversifiers soars when conventional stocks and bonds are struggling.  Like during rate hikes.

    During the Fed’s last rate-hike cycle between June 2004 and June 2006 where the Federal Funds Rate was more than quintupled to 5.25%, gold actually soared 50% higher!  And in the 1970s when the Fed catapulted its FFR from 3.5% in early 1971 to a crazy 20.0% by early 1980, gold skyrocketed an astounding 24.3x higher!  Higher rates really hurt stocks and bonds, rekindling investment demand for alternatives.

    The Fed’s inevitable coming full normalization of ZIRP and QE is going to be vastly more impactful than traders today appreciate.  When interest rates rise and the Fed’s bond holdings fall, there’s no way that stock and bond prices are going to remain anywhere near today’s lofty artificial central-bank-goosed levels.  The full normalization is going to greatly alter the global investing landscape, creating a minefield.

    The bottom line is the Fed’s post-stock-panic policies have been extreme beyond belief.  They have led to epic distortions in the global markets.  These markets are going to force the Fed to fully normalize the wildly-anomalous conditions it created with ZIRP and QE.  And with interest rates and the Fed’s balance sheet at such extreme levels today, the coming normalization will be very treacherous and take years to unfold.

    Today’s euphoric stock traders believe ZIRP and QE have been huge successes, but the jury is still out until they’ve run their courses and been fully unwound.  The most-extreme monetary experiment by far in US history is just at half-time now, the fat lady hasn’t even taken the stage.  The full normalization of ZIRP and QE is likely to be as negative for stock and bond prices as its ramping up proved positive for them.

  • A Pledge Of Allegiance For The New Normal America

    For the new normal America…

    I pledge allegiance to no flag, but to truth and morality…

     

    …which doesn’t seem to exist in the Divided States of America.

     

    And to no republic, for it stands for nothing; One nation, under surveillance,

     

    completely divided

     

    with Liberty and Justice destroyed

     

    and inalienable rights taken from us all.

    Source: ArmstrongEconomics.com

    *  *  *

    However, there should be hope… As STA Wealth Management's Lance Roberts notes, as you celebrate the 4th of July with your family and friends, it is vitally important to remember exactly what we are supposed to celebrating. The following excerpts are from the Independence Day speech given by John Fitzgerald Kennedy (then just a candidate for Congress) on July 4, 1946. I encourage you to read the speech in its entirety.

    On The Religious Element

    "The informing spirit of the American character has always been a deep religious sense.

    Our government was founded on the essential religious idea of integrity of the individual. It was this religious sense which inspired the authors of the Declaration of Independence: 'We hold these truths to be self-evident: that all men are created equal; that they are endowed by their Creator with certain inalienable rights.'

    Our earliest legislation was inspired by this deep religious sense: 'Congress shall make no law prohibiting the free exercise of religion.'

    Today these basic religious ideas are challenged by atheism and materialism: at home in the cynical philosophy of many of our intellectuals, abroad in the doctrine of collectivism, which sets up the twin pillars of atheism and materialism as the official philosophical establishment of the State.

    Inspired by a deeply religious sense, this country, which has ever been devoted to the dignity of man, which has ever fostered the growth of the human spirit, has always met and hurled back the challenge of those deathly philosophies of hate and despair. We have defeated them in the past; we will always defeat them.

    On The Idealistic Element

    "In recent years, the existence of this element in the American character has been challenged by those who seek to give an economic interpretation to American history. They seek to destroy our faith in our past so that they may guide our future. These cynics are wrong, for, while there may be some truth in their interpretation, it does remain a fact, and a most important one, that the motivating force of the American people has been their belief that they have always stood at the barricades by the side of God.

    It is now in the postwar world that this idealism–this devotion to principle–this belief in the natural law–this deep religious conviction that this is truly God's country and we are truly God's people–will meet its greatest trial.

    Our American idealism finds itself faced by the old-world doctrine of power politics. It is meeting with successive rebuffs, and all this may result in a new and even more bitter disillusionment, in another ignominious retreat from our world destiny.

    But, if we remain faithful to the American tradition, our idealism will be a steadfast thing, a constant flame, a torch held aloft for the guidance of other nations.

    It will take great faith."

    On The Patriotic Element

    "From the birth of the nation to the present day, from the Heights of Dorchester to the broad meadows of Virginia, from Bunker Hill to the batteries of Saratoga, from Bergen's Neck, where Wayne and Maylan's troops achieved such martial wonders, to Yorktown, where Britain's troops surrendered, Americans have heroically embraced the soldier's alternative of victory or the grave. American patriotism was shown at the Halls of Montezuma. It was shown with Meade at Gettysburg, with Sheridan at Winchester, with Phil Carney at Fair Oaks, with Longstreet in the Wilderness, and it was shown by the flower of the Virginia Army when Pickett charged at Gettysburg. It was shown by Captain Rowan, who plunged into the jungles of Cuba and delivered the famous message to Garcia, symbol now of tenacity and determination. It was shown by the Fifth and Sixth Marines at Belleau Wood, by the Yankee Division at Verdun, by Captain Leahy, whose last order as he lay dying was "The command is forward." And in recent years it was shown by those who stood at Bataan with Wainwright, by those who fought at Wake Island with Devereaux, who flew in the air with Don Gentile. It was shown by those who jumped with Gavin, by those who stormed the bloody beaches at Salerno with Commando Kelly; it was shown by the First Division at Omaha Beach, by the Second Ranger Battalion as it crossed the Purple Heart Valley, by the 101st as it stood at Bastogne; it was shown at the Bulge, at the Rhine, and at victory.

    Wherever freedom has been in danger, Americans with a deep sense of patriotism have ever been willing to stand at Armageddon and strike a blow for liberty and the Lord."

    On The Individualistic Element

    "The American Constitution has set down for all men to see the essentially Christian and American principle that there are certain rights held by every man which no government and no majority, however powerful, can deny.

    Conceived in Grecian thought, strengthened by Christian morality, and stamped indelibly into American political philosophy, the right of the individual against the State is the keystone of our Constitution. Each man is free.

    • He is free in thought.
    • He is free in expression.
    • He is free in worship.

    To us, who have been reared in the American tradition, these rights have become part of our very being. They have become so much a part of our being that most of us are prone to feel that they are rights universally recognized and universally exercised. But the sad fact is that this is not true. They were dearly won for us only a few short centuries ago and they were dearly preserved for us in the days just past. And there are large sections of the world today where these rights are denied as a matter of philosophy and as a matter of government.

    We cannot assume that the struggle is ended. It is never-ending.

    Eternal vigilance is the price of liberty. It was the price yesterday. It is the price today, and it will ever be the price.

    May God grant that, at some distant date, on this day, and on this platform, the orator may be able to say that these are still the great qualities of the American character and that they have prevailed."

    May you have a happy, safe and blessed "Independence Day."

  • Athenian Democracy vs. Neoliberal Gods

    Authored by Pepe Escobar, originally posted at SputnikNews.com,

    Prime Minister Alexis Tsipras allows the Greek people to decide their own fate via a democratic referendum. That’s enough to send the troika – the European Central Bank (ECB), the European Commission (EC), and the International Monetary Fund (IMF) – into a paroxysm of rage. Here, in a nutshell, is everything one needs to know about the EU “dream”.

    Tsipras is, of course, right; he had to call a referendum because the troika had delivered “an ultimatum towards Greek democracy and the Greek people.” Indeed, “an ultimatum at odds with the founding principles and values of Europe.”

    But why? Because the apparently so sophisticated politico-economic web of European “institutions” – the EC, the Eurogroup, the ECB – had to come up with a serious political decision; and due, essentially, to their nasty mix of greed and incompetence, they were incapable of making it. At least EU citizens now start to get the picture on who their enemy is: the non-transparent “institutions” who supposedly represent them.  

    The – so far — 240 billion euro bailout of Greece (which featured Greece being used to launder bailouts of French and German banks) has yielded a whole national economy shrinking by over 25%; widespread unemployment; and poverty soaring to unprecedented levels. And for the EU “institutions” – plus the IMF – there was never any Plan B; it was the euro-austerity way – a sort of economic Shock and Awe — or the (desperation) highway. The pretext was to “save the euro”. What makes it even more absurd is that Germany simply couldn’t care less if Greece defaults and a Grexit is inevitable.

    And even though the EU operates in practice as a clumsy, reactionary behemoth, the puzzling spectacle remains of otherwise reputable intellectuals, such as Jurgen Habermas, denouncing the Syriza party as “nationalistic” and praising former Goldman Sachs golden boy, ECB president Mario Draghi.

    Waiting for Diogenes

    The July 5 referendum goes way beyond Greeks responding whether they accept or reject more humongous tax hikes and pension cuts (affecting many that are already below the official poverty line); that’s the sine qua non by the troika — qualified as “barbaric measures” by many a Greek minister — to unblock yet another bailout.

    A case can be made that a more pertinent referendum on July 5 would be posing this question: “What is the red line for Greece to remain part of the euro?” 

    Prime Minister Tsipras and Finance Minister Varoufakis turned upside down insistent rumors that they would accept any humiliation to remain in the eurozone. That only served to radicalize even more the German politico-economic elite – from Iron Lady Merkel to Finance Minister Schauble. Their not so hidden “secret” is that they want Greece out of the euro now.

    And that is leading quite a few Greeks — who still believed in the benefits of a supposedly common financial house – to slowly start accepting a Grexit. With their heads held high.

    The ECB has not gone totally nuclear – yet, crashing the whole Greek banking sector. But by de facto capping the Emergency Liquidity Assistance (ELA) this past weekend, all hell will break loose if millions of Greeks decide to withdraw all their savings early this week, ahead of the referendum.

    The Bank of Greece, “as a member of the Eurosystem”, as a communiqué stressed, “will take all measures necessary to ensure financial stability for Greek citizens in these difficult circumstances.” This implies serious limits on bank withdrawals – thus allowing Greece to survive until referendum day.

    Still, no one knows what happens after July 5. Grexit remains a distinct possibility. Projecting further, and taking a leaf from Wagner’s Ring, it also seems clear that the euro “institutions” themselves have been adding fuel to the fire that may eventually consume the eurozone – a direct consequence of their zeal to immolate the Greeks just like Brunnhilde.

    What Greece – the cradle of Western civilization — has already shown the world should make their citizens proud; nothing like a shot of democracy to make the Gods of Neoliberalism go berserk.

    One may be tempted to invoke a post-modern Diogenes, the first homeless philosopher, with a lantern, looking for an honest man (in Brussels? Berlin? Frankfurt?) and never finding one. But instead of meeting the greatest celebrity of the day – Alexander the Great — let’s imagine another encounter as our post-mod Diogenes suns himself in an outdoor court in Athens.

    “I am Wolfgang Schauble, the Lord of German finance.”

     

    “I am Diogenes the Cynic.”

     

    “Is there any favor that I may bestow upon you?”

     

    “Yes. Stand out of my light.” 

  • Citigroup Just Cornered The "Precious Metals" Derivatives Market

    One week ago, when we scoured through the latest OCC quarterly derivative report (in which we find that the top FDIC insured 4 US banks continue to account for over 90%, or $185.5 trillion of all outstanding derivatives which as of March 31 amounted to $203 trillion; nothing new here), we found something fascinating: based on the OCC’s derivative update, JPM had literally cornered the commodity derivatives complex, when from “just” $226 billion in total Commodity exposure, JPM’s notional soared by 1,690% in one quarter to $4 trillion, or about 96% of total.

     

    Some, without even bothering to read the article, did what they always do when reacting to Zero Hedge articles: accused it of writing a “wrong” post first and asking questions later and coming up with some utterly incorrect response to show just how wrong Zero Hedge was because, guess what, the Office of the US Currency Comptroller had clearly “fat fingered” trillions in critical data which is far more logical.

    As usually happens in these situations, Zero Hedge was right (there was some tongue in cheek apology but hey, at least someone got to boost their traffic briefly by namedropping this web site; incidentally apology accepted), which could have been checked simply just by looking at bank call reports, in this case the quarterly Regulatory Capital report, schedule RC-R, which made it very clear that indeed JPM’s OTC commodity derivatives had exploded to $4 trillion.

    For those too lazy to check before tweeting, here is the number of OTC cleared “Other” commodity derivatives for JPM before, as of December 31:

     

    And after, as of March 31:

     

    Furthermore, while we await the OCC to respond to our inquiry (we aren’t holding our breath), nobody has disputed our claim (because it is purely factual) that as of Q1 the OCC decided to exclude Gold as a separate commodity category (see call reports above) and lump it in with Foreign Exchange for some still unexplained reason. It would appear that gold is money after all…

    So to summarize: as we reported first (and we would be delighted if other so called financial experts dedicated as much effort to digging through the primary data as they have to desperately try to disprove our article), JPM has indeed cornered the OTC commodity market, with its $4 trillion in “Other” commodity derivatives which amount to 96% of total. We don’t expect anyone to ask Jamie Dimon about this on the quarterly earnings call because this is one of those things one doesn’t want an answer to if one wishes to be invited to the next conference call.

    However, another big question remains: just what is Citigroup – not, not JPMorgan – with the Precious Metals category.

    Here is the chart showing Citigroup’s Precious Metals (mostly silver now that gold is lumped in with FX), exposure over the past 4 years. Of note: the 1260% increase in Precious Metals derivative holdings in the past quarter, from just $3.9 billion to $53 billion!

     

    For those of a skeptical bent the proof can be found in Citi’s own call report, which can be seen here as of March 31, 2015 vs December 31, 2014.

    Another way of showing what Citi just did with the “Precious Metals” derivative category, is the following chart which shows Citi’s total PM derivative exposure as a percentage of total.

     

    Soaring from just 17.4% to over 70%, there is just one word for what Citigroup has done to what the Precious Metals ex Gold (i.e., almost exclusively silver) derivatives market.

    Cornering.

    So, the question then is: just what is Citigroup doing with its soaring Precious Metals (excluding gold) exposure, and why is such a dramatic place taking place at precisely the time when not only JPM is cornering the entire “Other” Commodity derivatives market in the form of a whopping $4 trillion in derivatives notional, but in the quarter after none other than Citigroup itself was responsible for drafting the swaps push-out language in the Omnibus bill.

    Screen Shot 2014-12-05 at 3.32.12 PM

    And also: how is it legal that JPM is solely accountable for 96% of all commodity derivatives while Citigroup is singlehandedly responsible for over 70% of all “precious metals” derivatives? Surely even by the most lax standards this is illegal, but what makes the farce even greater is that all of this taking place out of FDIC-insured entities!

    The final question, which we are absolutely certain will remain unanswered, is whether any of these dramatic surges have anything to do with the recent move in precious metals prices, or rather the complete lack thereof, even as Europe is on the verge of its first member officially exiting the Eurozone, and China’s stock market is suffering its worst market crash since 2008. Oh, and we almost forgot: with both JPM and Citi now well over 50% of the derivatives market in two critical categories, who is the counterparty!?

    We have inquired with the OCC about both the derivative moves of both JPM’s “commodity” and Citi “precious metals” surges, both rising by over 1000% in the past quarter. We will promptly inform readers if we hear back, which we won’t.

  • Happy Independence Day, Brought To You By The Chinese

    Home of the sugar babies and the land of free trade, happy Independence Day America…brought to you by the Chinese.

    Foreign Holders US Treasuries

    Global Net Trade

     

    Source: Daniel Drew’s Dark-Bid.com

Digest powered by RSS Digest

Jul 04

Today’s News July 4, 2015

  • The Superpower Conundrum – The Rise and Fall of Just About Everything

    Submitted by Tom Engelhardt via TomDispatch.com,

    The rise and fall of great powers and their imperial domains has been a central fact of history for centuries.  It’s been a sensible, repeatedly validated framework for thinking about the fate of the planet.  So it’s hardly surprising, when faced with a country once regularly labeled the “sole superpower,” “the last superpower,” or even the global “hyperpower” and now, curiously, called nothing whatsoever, that the “decline” question should come up.  Is the U.S. or isn’t it?  Might it or might it not now be on the downhill side of imperial greatness?

    Take a slow train — that is, any train — anywhere in America, as I did recently in the northeast, and then take a high-speed train anywhere else on Earth, as I also did recently, and it’s not hard to imagine the U.S. in decline.  The greatest power in history, the “unipolar power,” can’t build a single mile of high-speed rail?  Really?  And its Congress is now mired in an argument about whether funds can even be raised to keep America’s highways more or less pothole-free.

    Sometimes, I imagine myself talking to my long-dead parents because I know how such things would have astonished two people who lived through the Great Depression, World War II, and a can-do post-war era in which the staggering wealth and power of this country were indisputable.  What if I could tell them how the crucial infrastructure of such a still-wealthy nation — bridges, pipelines, roads, and the like — is now grossly underfunded, in an increasing state of disrepair, and beginning to crumble?  That would definitely shock them.

    And what would they think upon learning that, with the Soviet Union a quarter-century in the trash bin of history, the U.S., alone in triumph, has been incapable of applying its overwhelming military and economic power effectively?  I’m sure they would be dumbstruck to discover that, since the moment the Soviet Union imploded, the U.S. has been at war continuously with another country (three conflicts and endless strife); that I was talking about, of all places, Iraq; and that the mission there was never faintly accomplished.  How improbable is that?  And what would they think if I mentioned that the other great conflicts of the post-Cold-War era were with Afghanistan (two wars with a decade off in-between) and the relatively small groups of non-state actors we now call terrorists?  And how would they react on discovering that the results were: failure in Iraq, failure in Afghanistan, and the proliferation of terror groups across much of the Greater Middle East (including the establishment of an actual terror caliphate) and increasing parts of Africa?

    They would, I think, conclude that the U.S. was over the hill and set on the sort of decline that, sooner or later, has been the fate of every great power. And what if I told them that, in this new century, not a single action of the military that U.S. presidents now call “the finest fighting force the world has ever known” has, in the end, been anything but a dismal failure?  Or that presidents, presidential candidates, and politicians in Washington are required to insist on something no one would have had to say in their day: that the United States is both an “exceptional” and an “indispensible” nation? Or that they would also have to endlessly thank our troops (as would the citizenry) for… well… never success, but just being there and getting maimed, physically or mentally, or dying while we went about our lives? Or that those soldiers must always be referred to as “heroes.”

    In their day, when the obligation to serve in a citizens' army was a given, none of this would have made much sense, while the endless defensive insistence on American greatness would have stood out like a sore thumb. Today, its repetitive presence marks the moment of doubt. Are we really so “exceptional”? Is this country truly “indispensible” to the rest of the planet and if so, in what way exactly? Are those troops genuinely our heroes and if so, just what was it they did that we’re so darn proud of?

    Return my amazed parents to their graves, put all of this together, and you have the beginnings of a description of a uniquely great power in decline. It’s a classic vision, but one with a problem.

    A God-Like Power to Destroy

    Who today recalls the ads from my 1950s childhood for, if I remember correctly, drawing lessons, which always had a tagline that went something like: What’s wrong with this picture?  (You were supposed to notice the five-legged cows floating through the clouds.)  So what’s wrong with this picture of the obvious signs of decline: the greatest power in history, with hundreds of garrisons scattered across the planet, can’t seem to apply its power effectively no matter where it sends its military or bring countries like Iran or a weakened post-Soviet Russia to heel by a full range of threats, sanctions, and the like, or suppress a modestly armed terror-movement-cum-state in the Middle East?

    For one thing, look around and tell me that the United States doesn’t still seem like a unipolar power.  I mean, where exactly are its rivals?  Since the fifteenth or sixteenth centuries, when the first wooden ships mounted with cannons broke out of their European backwater and began to gobble up the globe, there have always been rival great powers — three, four, five, or more.  And what of today?  The other three candidates of the moment would assumedly be the European Union (EU), Russia, and China.

    Economically, the EU is indeed a powerhouse, but in any other way it’s a second-rate conglomeration of states that still slavishly follow the U.S. and an entity threatening to come apart at the seams.  Russia looms ever larger in Washington these days, but remains a rickety power in search of greatness in its former imperial borderlands.  It’s a country almost as dependent on its energy industry as Saudi Arabia and nothing like a potential future superpower.  As for China, it’s obviously the rising power of the moment and now officially has the number one economy on Planet Earth.  Still, it remains in many ways a poor country whose leaders fear any kind of future economic implosion (which could happen).  Like the Russians, like any aspiring great power, it wants to make its weight felt in its neighborhood — at the moment the East and South China Seas.  And like Vladimir Putin’s Russia, the Chinese leadership is indeed upgrading its military.  But the urge in both cases is to emerge as a regional power to contend with, not a superpower or a genuine rival of the U.S.

    Whatever may be happening to American power, there really are no potential rivals to shoulder the blame.  Yet, uniquely unrivaled, the U.S. has proven curiously incapable of translating its unipolar power and a military that, on paper, trumps every other one on the planet into its desires.  This was not the normal experience of past reigning great powers.  Or put another way, whether or not the U.S. is in decline, the rise-and-fall narrative seems, half-a-millennium later, to have reached some kind of largely uncommented upon and unexamined dead end.

    In looking for an explanation, consider a related narrative involving military power.  Why, in this new century, does the U.S. seem so incapable of achieving victory or transforming crucial regions into places that can at least be controlled?  Military power is by definition destructive, but in the past such force often cleared the ground for the building of local, regional, or even global structures, however grim or oppressive they might have been.  If force always was meant to break things, it sometimes achieved other ends as well.  Now, it seems as if breaking is all it can do, or how to explain the fact that, in this century, the planet’s sole superpower has specialized — see Iraq, Yemen, Libya, Afghanistan, and elsewhere — in fracturing, not building nations.

    Empires may have risen and fallen in those 500 years, but weaponry only rose. Over those centuries in which so many rivals engaged each other, carved out their imperial domains, fought their wars, and sooner or later fell, the destructive power of the weaponry they were wielding only ratcheted up exponentially: from the crossbow to the musket, the cannon, the Colt revolver, the repeating rifle, the Gatling gun, the machine gun, the dreadnaught, modern artillery, the tank, poison gas, the zeppelin, the plane, the bomb, the aircraft carrier, the missile, and at the end of the line, the “victory weapon” of World War II, the nuclear bomb that would turn the rulers of the greatest powers, and later even lesser powers, into the equivalent of gods.

    For the first time, representatives of humanity had in their hands the power to destroy anything on the planet in a fashion once imagined possible only by some deity or set of deities.  It was now possible to create our own end times.  And yet here was the odd thing: the weaponry that brought the power of the gods down to Earth somehow offered no practical power at all to national leaders.  In the post-Hiroshima-Nagasaki world, those nuclear weapons would prove unusable.  Once they were loosed on the planet, there would be no more rises, no more falls.  (Today, we know that even a limited nuclear exchange among lesser powers could, thanks to the nuclear-winter effect, devastate the planet.)

    Weapons Development in an Era of Limited War

    In a sense, World War II could be considered the ultimate moment for both the narratives of empire and the weapon.  It would be the last “great” war in which major powers could bring all the weaponry available to them to bear in search of ultimate victory and the ultimate shaping of the globe.  It resulted in unprecedented destruction across vast swathes of the planet, the killing of tens of millions, the turning of great cities into rubble and of countless people into refugees, the creation of an industrial structure for genocide, and finally the building of those weapons of ultimate destruction and of the first missiles that would someday be their crucial delivery systems.  And out of that war came the final rivals of the modern age — and then there were two — the “superpowers.”

    That very word, superpower, had much of the end of the story embedded in it.  Think of it as a marker for a new age, for the fact that the world of the “great powers” had been left for something almost inexpressible.  Everyone sensed it.  We were now in the realm of “great” squared or force raised in some exponential fashion, of “super” (as in, say, “superhuman”) power.  What made those powers truly super was obvious enough: the nuclear arsenals of the United States and the Soviet Union — their potential ability, that is, to destroy in a fashion that had no precedent and from which there might be no coming back.  It wasn’t a happenstance that the scientists creating the H-bomb sometimes referred to it in awestruck terms as a “super bomb,” or simply “the super.”

    The unimaginable had happened.  It turned out that there was such a thing as too much power.  What in World War II came to be called “total war,” the full application of the power of a great state to the destruction of others, was no longer conceivable.  The Cold War gained its name for a reason.  A hot war between the U.S. and the USSR could not be fought, nor could another global war, a reality driven home by the Cuban missile crisis.  Their power could only be expressed “in the shadows” or in localized conflicts on the “peripheries.”  Power now found itself unexpectedly bound hand and foot.

    This would soon be reflected in the terminology of American warfare.  In the wake of the frustrating stalemate that was Korea (1950-1953), a war in which the U.S. found itself unable to use its greatest weapon, Washington took a new language into Vietnam. The conflict there was to be a “limited war.”  And that meant one thing: nuclear power would be taken off the table.

    For the first time, it seemed, the world was facing some kind of power glut.  It’s at least reasonable to assume that, in the years after the Cold War standoff ended, that reality somehow seeped from the nuclear arena into the rest of warfare.  In the process, great power war would be limited in new ways, while somehow being reduced only to its destructive aspect and nothing more.  It suddenly seemed to hold no other possibilities within it — or so the evidence of the sole superpower in these years suggests.

    War and conflict are hardly at an end in the twenty-first century, but something has removed war's normal efficacy.  Weapons development has hardly ceased either, but the newest highest-tech weapons of our age are proving strangely ineffective as well.  In this context, the urge in our time to produce “precision weaponry” — no longer the carpet-bombing of the B-52, but the “surgical” strike capacity of a joint direct attack munition, or JDAM — should be thought of as the arrival of “limited war” in the world of weapons development.

    The drone, one of those precision weapons, is a striking example.  Despite its penchant for producing “collateral damage,” it is not a World War II-style weapon of indiscriminate slaughter.  It has, in fact, been used relatively effectively to play whack-a-mole with the leadership of terrorist groups, killing off one leader or lieutenant after another.  And yet all of the movements it has been directed against have only proliferated, gaining strength (and brutality) in these same years.  It has, in other words, proven an effective weapon of bloodlust and revenge, but not of policy.  If war is, in fact, politics by other means (as Carl von Clausewitz claimed), revenge is not.  No one should then be surprised that the drone has produced not an effective war on terror, but a war that seems to promote terror.

    One other factor should be added in here: that global power glut has grown exponentially in another fashion as well.  In these years, the destructive power of the gods has descended on humanity a second time as well — via the seemingly most peaceable of activities, the burning of fossil fuels.  Climate change now promises a slow-motion version of nuclear Armageddon, increasing both the pressure on and the fragmentation of societies, while introducing a new form of destruction to our lives.

    Can I make sense of all this?  Hardly.  I’m just doing my best to report on the obvious: that military power no longer seems to act as it once did on Planet Earth.  Under distinctly apocalyptic pressures, something seems to be breaking down, something seems to be fragmenting, and with that the familiar stories, familiar frameworks, for thinking about how our world works are losing their efficacy.

    Decline may be in the American future, but on a planet pushed to extremes, don’t count on it taking place within the usual tale of the rise and fall of great powers or even superpowers. Something else is happening on Planet Earth. Be prepared.

  • Greeks Turn To Bitcoin To Dodge Capital Controls

    There is at least one legal way to get your euros out of Greece these days, to guard against the prospect that they might be devalued into drachmas: convert them into bitcoin. As Reuters reports, although absolute figures are hard to come by, Greek interest has surged in the online "cryptocurrency", as new customers depositing at least 50 euros with BTCGreece, the only Greece-based bitcoin exchange, open only to Greeks, rose by 400% between May and June.

    As Reuters reports,

    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."

    *  *   *

    With Bitcoin having surged from $238 to $268 in the last few days since Greek PM Tsipras announced Greferendum, it is clear it's not just the Greeks that are losing faith in faith-based fiat currencies.

     

    Ironically, on June 20, Greece got its first bitcoin "ATM", in a family-run bookstore in Acharnes on the outskirts of Athens.

  • FBI Admits 11 Attacks Against Internet, Power Grid Lines In California This Year

    Submitted by Joshua Krause via SHTFPlan.com,

    On Tuesday, someone broke into an underground vault in Sacramento, and cut several high-capacity internet cables. Nobody knows who this person is or why they did it, but since that time the FBI has revealed that it was not an isolated incident. They’ve been investigating 10 other recent attacks on the internet infrastructure of California, and they seem to be deeply troubled by the vulnerability of these cables.

    The FBI is investigating at least 11 physical attacks on high-capacity Internet cables in California’s San Francisco Bay Area dating back a year, including one early Tuesday morning.

     

    Agents confirm the latest attack disrupted Internet service for businesses and residential customers in and around Sacramento, the state’s capital.

     

    FBI agents declined to specify how significantly the attack affected customers, citing the ongoing investigation. In Tuesday’s attack, someone broke into an underground vault and cut three fiber-optic cables belonging to Colorado-based service providers Level 3 and Zayo.

     

    The attacks date back to at least July 6, 2014, said FBI Special Agent Greg Wuthrich.

     

    “When it affects multiple companies and cities, it does become disturbing,” Wuthrich said. “We definitely need the public’s assistance.”

    A security professional who was interviewed for that article, also suggested something that should perk the ears of any American that hears it.

    “When it’s situations that are scattered all in one geography, that raises the possibility that they are testing out capabilities, response times and impact,” Thompson said. “That is a security person’s nightmare.”

    The article goes on to compare these incidents to similar attacks that happened in Arizona last year, as well as California in 2009. However, they may be missing the bigger picture. This whole situation reminds me of an article I wrote just over a year ago about several attacks that were carried out against the power grid, which again, occurred in California and Arizona (weird right?). This included the very unsettling attack against a power station in San Jose, which wasn’t revealed until 10 months after the fact, and to date, there has been no explanation for the incident.

    Rather than a bomb, the San Jose attack turned out to be a frighteningly coordinated shooting. It’s estimated that 6 individuals approached the facility late at night armed with AK-47’s, and opened fire, but not before sneaking onto the property and disabling the alarm system. The attackers managed to disrupt a total of 10 transformers, and escaped just before police arrived. Investigators would later find more evidence of just how professional the attack was:

     

    “After walking the site with PG&E officials and FBI agents, Mr. Wellinghoff said, the military experts told him it looked like a professional job. In addition to fingerprint-free shell casings, they pointed out small piles of rocks, which they said could have been left by an advance scout to tell the attackers where to get the best shots.”

    It should be abundantly clear now that some organization out there is quietly coordinating small-scale attacks against America’s power grid and internet lines. In my previous article, I suggested that they’re probing our infrastructure for weaknesses, and gauging reaction times and security. I still think that may be the case.

    It’s possible that these attacks are all unrelated, but it sure doesn’t look like it to me. I won’t suggest who may be doing it since it’s impossible to know for sure, but it definitely looks like there is an organized effort of some kind to disable the electricity and communications of Arizona and California. We probably won’t know who it is until they get around to a full-scale attack, which given the vulnerability of America’s power grid, may be absolutely devastating.

  • The $100 Trillion Bond Bubble Just Burst

    The big story in the world is the bond bubble.

     

    For over 30 years, sovereign nations, particularly in the West have been buying votes by offering social payments in the form of welfare, Medicare, social security, and the like.

     

    The ridiculousness of this should not be lost on anyone. Politicians, in order to be elected, promise to allocate taxpayer funds on social programs that will benefit said taxpayers down the road (we’re simply talking about social spending, not infrastructure or other costs.

     

    The concept that taxpayers might simply just keep the money to begin with never enters the equation. And because everyone believes that they are somehow spending someone else’s money, they play along.

     

    When you believe that you are spending someone else’s money, it’s very easy to write a blank check, which is precisely what Western nations have been doing for years, promising everyone a safe and secure retirement without ever bothering to see where the money would come from.

     

    When actual bills came due to fund this stuff, Governments quickly discovered that current tax revenues couldn’t cover it… so they issued sovereign debt to make up the difference.

     

    And so the bond bubble was created.

     

    The large banks, that have a monopoly on managing sovereign debt auctions, were only too happy to play along with this. The reasons are as follows:

     

    1)   They can use these alleged “risk-free” assets as collateral to backstop tens of trillions worth of derivatives trades. A $1 million investment in your typical US Treasury can backstop over $15 million worth of derivatives if not more. The profits from the derivatives markets remains a primary source of revenue for the banks.

     

    2)   Sovereign Governments are only too happy to bail out the big banks if the stuff ever hits the fan on the trades that are backstopped by the sovereign debt (see 2006 onwards). Since the banks are the ones holding the sovereign debt, they can always threaten to dump bonds, which would render the whole social welfare Ponzi bankrupt (see what happened in Europe when sovereign bonds collapsed in 2011-2012).

     

    3)   In a debt-based financial system such as the current one, sovereign bonds are the senior most assets in the system. Those who own these in bulk are at the top of the financial food chain in terms of financial, economic, and political clout.

     

    Since it was rarely if ever a problem to issue sovereign debt, Governments kept promising future payments that they didn’t have until we reach today: the point at which most Western nations are sporting Debt to GDP ratios well north of 300% when you consider unfunded liabilities (the social spending programs mentioned earlier).

     

    Now, cutting social spending is usually considered political suicide (after all, the voters put you in office in the first place based on you promising to pay them welfare payments down the road). So rather than default on the social contract made with voters, the political class will simply push to issue MORE debt to finance old debt that is coming due.

     

    The US did precisely this in the fourth quarter of 2014, issuing over $1 trillion in new debt simply to pay back old debt that was coming due.

     

    This is how the bond market becomes a bubble. Between 2000 and today, the global bond market has nearly TRIPLED in size. Today, it’s north of $100 trillion in size. And it’s backstopping over $555 trillion in derivatives trades.

     

    There is literally no easy fix to any of this. The pain will be severe. And so everyone in charge of the important decisions (the political elite, the big banks, and the Central Banks) will push this as far as it can possibly go before taking the inevitable hit.

     

    Greece just took a hit… and once again it’s depositors that will take it on the chin. But this process is only just begun. Similar Crises will be spreading throughout the globe in  the coming months.

     

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

     

    You can pick up a FREE copy at:

     

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

     

     

    Best Regards

     

    Phoenix Capital Research

     

     

     

     

  • BofA's Dire Prediction: Only Direct Government Buying Can Save China Stocks Now

    Even after this somewhat catastrophic drop, BofAML warns the Chinese market looks expensive. Deleveraging is likely far from over, they add, concluding that the market is a “falling knife” and only direct buying by the government will mark the bottom.

     

     

     

    Via BofAML,

    Bottom likely when govt becomes buyer of last resort

     

    After reaching a peak of 5,166 on Jun 12, SHCOMP declined sharply by almost 30% to 3,687 within three weeks. The ferociousness of the sell-off even took us by surprise – although we have a 3,600 target for the index, we thought it would take another six months to get there. Given the momentum, the market bottom is highly unpredictable. As a result, we suggest investors stay on the sidelines for the time being. A few points worth highlighting:

     

    The market is now a “falling knife”: even after all the government directed marketsupporting measures since last Saturday, including comb rate/RRR cuts, CSRC’s loosening of margin lending control & its cracking down on shorting activities, and organized commentaries from high profile local fund managers, the market still dropped sharply on four of the last five trading days and fell decisively through the psychologically important 4,000 level for SHCOMP. The market has clearly lost its nerve and many investors appear to be rushing to exit.

     

    Drastic times calls for drastic measures: the government still has a few policies up its sleeve: it may get affiliated funds such as Huijin and the pension fund to buy, CSRC may suspend IPOs, insurance companies may be encouraged to enter into the market, MoF may cut stamp duty on stock transactions, and PBoC may announce more easing measures, among other possibilities. However, whether or when these policies can stabilize market sentiment is highly uncertain in our view – margin call pressure from unauthorized margin facilities appears enormous; even for those investors not under any immediate margin call pressure, they need to be convinced that the market will go up meaningfully for their leveraged positions to break even (due to high funding costs).

     

    Deleveraging in the market is likely far from over: margin outstanding only declined moderately from the peak of Rmb2.3tr on June 18 to Rmb2.1tr by July 2. Deleveraging from unregulated margin channels is likely to be more substantial. Nevertheless, looking at the relatively subdued turnover in recent days, we doubt a significant portion of the positions had been unwound. The 10% limit-down rule is delaying a market clearance.

     

    The government to become the buyer of the last resort? All the potential measures mentioned above will largely work on sentiment as direct inflows from these government affiliated entities will likely be moderate by our estimate. If the government fails to turn around sentiment quickly, it may have no choice but to become the buyer of the last resort in the market, similar to what HKMA did in 1998. Even then, things can be complicated: much of the unauthorized margins were used to buy small cap stocks. So the authority, with or without PBoC’s direct involvement, may have to buy stocks on a very large & very broad scale. If and when this happens, it will mark the true market bottom in the short term, in our view.

     

    Even after the fall, the market looks expensive: some short term technical bounces aside after things stabilize, we suspect that the A-share market may enter into a multiyear bear market. The large losses could hurt current investors’ psychology severely and it may be years before the pain fades and/or a new generation of investors with no such bad memory emerges. Meanwhile, SHCOMP is still trading at 17x trailing 12M PER (31x ex. banks), with economic growth stalling and market earnings rapidly decelerating.

    *  *  *

    As Deutsche adds,

    “so large are the losses for the 20 million accounts
    opened from mid-April to mid-June that in aggregate no money has been
    made for 2 years.”

    Now who could have seen that coming?

     

    Now it makes all the sense in the world that China stopped publishing data as we were the only ones who noticed.

  • Sugar Daddies Are Paying Their Share Of The $1.3 Trillion Student Loan Balance

    Submitted by Daniel Drew via Dark-Bid.com,

    As noted previously, we are in a new dark age where college does not pay. At $1.3 trillion, the student debt balance is not getting any smaller. Facing a lifetime of debt slavery, the millennial generation is doing whatever they can to avoid homelessness. Whether it's stripping or working at Rent A Gent, all options are on the table. Now, they are flocking to Seeking Arrangement to prostitute themselves so they can pay for school. Since 2009, the number of student sugar babies has increased by 1,200%!

    The labor force participation rate for college graduates has been on a relentless downtrend.

    Bachelor Degree Labor Force Participation

    It is getting even more expensive to go to school. Even after adjusting for inflation, college costs have gone up more than 400% in the last 30 years.

    College Tuition

    The student loan balance has nearly tripled in the last decade.

    Student Loans

    Many young people don't see any good alternatives to going to school, so they jump in head first. Facing enormous bills, they turn to sites like Seeking Arrangement for help. These aren't just women either. 15% of student sugar babies are men, and plenty of sugar mommas are on the site too.

    Here are the numbers.

    Seeking Arrangement Stats

    And here are the sugar babies by major.

    Top Sugar Baby Majors

    The abundance of nurses on Seeking Arrangement shouldn't be surprising for regular readers. Personal care aides and nurses are the fastest growing jobs in America.

    Most New Jobs

    Here are the perks of Seeking Arrangement.

    Sugar Baby Perks

    And here are the sugar babies.

    Sugar Babies

    Previously, it was common for students to take food and service jobs, but soon, you will hear college students casually sharing their day with their sugar daddy. Welcome to the modern hooker economy.

  • Artist's Impression Of A Greek ATM

    It’s what goes unsaid that matters…

     


    Source: Cagle.com

  • Arctic Drilling Future Now Rests On One Well

    Submitted by Charles Kennedy via OilPrice.com,

    Royal Dutch Shell is nearing a start to drilling in the Arctic, but has run into some hiccups.

    The U.S. government decided that Shell cannot actually drill both of its wells in the Chukchi Sea as planned. The Interior Department said that doing so would run afoul of its rules that protect marine life. According to those regulations, which were issued in 2013, exploration companies cannot drill two wells within 15 miles of each other. Shell had planned to drill two wells in the Burger prospect within a 9 mile range.

    Environmental groups hoped that the Interior Department would throw out Shell’s drilling plan altogether, owing to the fact that the environmental assessment the agency conducted was based on the two-well drilling plan, according to Jennifer Dlouhy of Fuel Fix. Environmental groups argued that since the Interior Department didn’t actually conduct an assessment of a drilling plan consisting of just one well, the entire drilling program should be scrapped.

    Interior didn’t buy these arguments, but still ruled that Shell can only drill one well this summer. Shell reiterated that it would move forward with drilling the lone well in the Arctic this year, having committed around $1 billion for the program.

    Shell announced that it expects to be able to begin drilling by the third week in July after sea ice has melted sufficiently. Shell is still awaiting one last federal permit before it can begin drilling, and it is also awaiting the arrival of its second drilling rig in Alaska.

    Separately, several oil companies recently announced that they were putting their Arctic plans on ice. A joint venture between Imperial Oil, ExxonMobil, and BP decided to shelve plans for exploration in the Canadian Arctic. They had permits that will expire in 2019 and 2020, and the group says that they will not be able to drill before then. More research is needed and since the companies are running out of time, they have decided to suspend work and lobby the Canadian government for an extension.

    Last year Chevron decided to suspend its plans to drill in the Beaufort Sea after the collapse in oil prices made doing so unattractive. The move by Imperial and its partners likely puts any significant drilling in the Canadian Arctic on hold indefinitely.

    As such, Arctic drilling in North America will come down to Shell’s one well in the Chukchi Sea.

  • Gold Bullion Dealer Unexpectedly "Suspends Operations" Due To "Significant Transactional Delays"

    What makes the current sovereign default episode different from previous ones is the uncanny stability and lack of buying of “fiat remote” assets such as gold and silver, and to a lesser extent, digital currency such as bitcoin. Indeed, all throughout the Greek pre-default escalation and ultimately, sovereign bankruptcy to the IMF, it seemed as if there was an absolute aversion to the peak of Exter’s inverted pyramid.

    What is even more surprising about the lack of any gold price upside is that it is not due to lack of demand. Quite the contrary, because as Bloomberg wrote last week, “European investors are increasing purchases of gold as Greece’s turmoil boosts the appeal for an alternative to the euro.”

    Demand from Greek customers for Sovereign gold coins was double the five-month average in June, the U.K. Royal Mint said in an e-mailed statement. CoinInvest.com, an online retailer, said sales on Saturday and Sunday were the highest since Cyprus limited cash withdrawals in 2013, driven by a jump in German, French and Greek buyers.

     

    Investors are searching for a safe haven after Greece imposed capital controls, closed banks and stopped selling gold coins to the public until at least July 6. Chancellor Angela Merkel on Monday said Germany is still open to negotiations if Greece wants.

     

    “Most of our common gold coins are sold out,” Daniel Marburger, a director of Frankfurt-based CoinInvest.com, said by phone. “When people learned that the Greek banks will be closed, they started to think that it may not be such a bad idea to have some money in gold.”

    The bullion dealers themselves are enjoying a jump in sales to retail customers:

    GoldCore Ltd., which buys and sells bullion, reported coin and bar demand rose “significantly” on Monday. Sales to U.K. and Ireland today are about three times the average for the past three Mondays, the Dublin-based firm said in an e-mailed statement.

     

    The U.S. Mint has sold 61,500 ounces of American Eagle gold coins this month, the most since January.

     

    BullionVault, which says it operates the largest online physical gold trading platform, reported a jump in sales during the first half of this year, a sign of a broader increase.

    However, it is the “paper” gold market where things were most perplexing in recent months. Recall that, as Zero Hedge broke and first reported, in the first quarter of the year, or the same time the Syriza government took power, something very dramatic took place in the US derivatives market, where first JPM saw an absolute explosion of its commodity derivative holdings (a broad umbrella which is not broken down further):

     

    … coupled wih Citi’s surge in “precious metals” derivatives which soared from $3.9 billion to $42 billion.

     

    But what is most confusing is how even as physical metal demand clearly rose across Europe in the past few months and the price of paper gold actually declined, perhaps facilitated by some “hedged” derivative positions on the short side of precious metals, some bullion dealers have actually found it impossible to survive, and in the last few days at least one major gold bullion dealer, Bullion Direct, greeted customers with the following notice on its website:

    Bullion Direct has experienced significant transactional delays. To avoid further inconvenience or other adverse consequences to our customers, Bullion Direct is suspending its operations as it attempts to resolve those issues. We intend to keep you informed at this website. Thank you for your patience.

     

    Just what are “significant transactional delays” and how bad is the physical gold supply-chain if it can put at least one dealer out of business. Another question: is this a solitary failure by gold vendor due to a one-off problem with working capital, or is something more systemic about to be revealed in the gold bullion sales industry?

    We look forward to finding out, but in the meantime our advice to buyers of physical precious metals is the same as always: if you purchased it and you can’t hold it in your hand, it isn’t yours.

  • While the World Watches Greece THIS is Happening

    By Chris at www.CapitalistExploits.at

    Watching the ongoing Greek saga unfold is enough to make a blind man grimace. Capital controls which could be seen coming down the track like a freight train are but one more notch on the disaster stick called European Monetary Union.

    Why talk of Greek debt negotiations is even taking place at all is the height of absurdity. It’s akin to discussing how large an area of the desert should be dedicated to growing lettuces. The answer which no Eurocrat is prepared to acknowledge is, “Who cares? Nobody should be so daft as to grow lettuces in the desert”.

    Let’s all be honest, shall we. What we’re talking about here is foreign aid. It’s not about debt repayments. Nobody is getting repaid. Anyone still clinging to that hope is simultaneously still waiting for Santa to come down the chimney, the Easter bunny to show up and for “liberating” forces to find weapons of mass destruction in Iraq.

    Let’s just table debt talks, call them what they are, which is foreign aid, and move this thing along. The problem with acknowledging the ugly truth is that German banks would then have to write down those “assets” on their balance sheets: “Jeez, it’d just be so much easier if we could keep them at par value and ensure we pick up that bonus at year end. And so we must endure more saga and carry on this game of pretense”.

    While I could spend time on Greece, what I’m more interested in is what few are paying attention to while this Greek saga unfolds.

    That is what is going on with the Chinese yuan.

    We’ve recently made the argument for a weakening yuan. My friend Brad and I both went up against the yuan late last year and Brad detailed his thinking in October of last year, then again in December, where he delved into the Chinese banking system, and once again in March of this year.

    That, ladies and gentlemen, is our current bias. We’re currently short. It’s important to establish one’s bias early on in order to attempt to understand any argument, so now you have ours. Often fund managers are selling a product which leads them into making decisions which have more to do with an agenda than with sufficient critical thought.

    Let me say therefore that we have an opinion right now. But since we are not selling any product, hopefully we can keep our minds open.

    Let’s see where we get to and then I’m going to show you why we have a decent crack at making money without having an opinion either way.

    By many accounts the yuan is one of (if not THE) most overvalued currencies in the world right now. But there are just as many well thought arguments arguing the opposite saying that it is indeed undervalued.

    Both sides have credible and well thought out ideas so let me attempt to summarise the most credible I’ve found.

    Why the Yuan will Rise

    Chinese policy makers are unlikely to let anything take place which rocks the yuan exchange rate boat.

    The yuan fell to 6.28 in early March of this year before the PBOC stepped in and threw $33 billion at the “problem”, reversing the decline and sending it back up to where it trades today around 6.21. They have around $4 trillion in reserves so if, like us, you’re a speculator looking at firepower this is well worth looking at. Clearly the monetary authority is prepared to dip into their vast currency reserves to offset capital outflows and stabilize the yuan.

    The IMF discussions around including the yuan into the SDR basket of reserve currencies (currently the dollar, euro, yen and pound) is something which China has long been courting. Right now, the yuan has posted it’s biggest monthly advance since December 2011, on the heels of or in anticipation of inclusion in the SDR basket by the IMF.

    Amongst other things, what is required is for the yuan to be “fairly valued”. Wild swings in the yuan –  whether up or down – would kill their chances of joining the hallowed ground of the other terrible units of payment.

    In order to meet their criteria it’s essential that the yuan remain stable. Another IMF criteria is that the currency is “freely usable”. In other words, free floating. I’ll come back to this in a minute as I think it’s something overlooked by many observers.

    Why the Yuan will Fall

    On the other side of this argument is the fact that China’s economy is slowing and is facing increased competition from regional players, such as Japan, who are playing the currency card, devaluing their currencies and sucking up export market share.

    A weaker exchange rate would help boost exports and while China is certainly moving towards a domestic consumer supported economy, they are not there yet and manufacturing and exporting to the developed world is still their “bread and butter”.

    Remember I mentioned that part of the IMF criteria is that the currency float freely?

    Well, many believe – and perhaps correctly – that when (or if) the yuan is added and floats freely there will be an almighty rush INTO the yuan. I’ve seen few who believe that this wouldn’t at least in the short-term allow the opposite to happen.

    Consider for a moment that most Chinese have been going to great lengths to get OUT of the yuan. Does it not make sense that when they are allowed to do so there will not be a decent amount of them quite excited with the prospect of moving out of yuan?

    In the simplest of terms the question boils down to the following…

    Upon inclusion into the IMF and a subsequent floating of the yuan, does capital flow into the yuan or out of it?

    The problem with China is that nobody knows the real numbers. Nobody!

    What are the insiders doing? They’re shoveling their money out of the country so fast it’s going to catch fire from the friction. This is what the insiders are doing. That doesn’t mean that suckers won’t come in the other way and we get a strong yuan rally. It’s certainly possible and maybe it’s even probable.

    Fortunately, the market is gifting us an opportunity right now and we don’t have to make that decision.

    I just got off the phone with Brad who told me about me the below pricing of an at the money call option on the yuan (or the offshore yuan, to be more specific). Currently, you’re paying 2.5% premium for a 12-month call option.

    USDCNH Call

    Now, take a look at the below chart. You’ll see that buying a 12-month at the money put we’re paying just 0.3%. You can buy 100,000 USD/CNH puts for 12 months at the money and it’ll cost you a mere $300!

    USDCNH Put

    To break even on the first trade we need the currency pair to move by 2.5% in our favour within 12 months and on the second trade we need the pair to move by just 0.3% to break even. Pardon me for saying so but that is almost as insane as the Eurocrats discussing Greek debt.

    Buying both is what traders term a “straddle” but don’t get hung up on terminology. The point is that for a 2.8% premium (2.5% + 0.3%) we can hold both positions. We don’t much care which way it moves but simply that it MOVES!

    What could make it move? Well, inclusion at the hallowed table of disreputable currencies currently making up SDRs or of course non-inclusion.

    Either of these events have the potential to create capital flows one way or the other causing the USD/CNH pair to move substantially more than a mere 2.8%.

    Or any of the reasons we delved into in our USD Bull Market report where we detailed why we are short the yuan.

    I’d suggest we’re likely to see MORE not LESS volatility over the next 12 months and the current lack of volatility being priced into the market is just the sort of golden gift which Brad looks for.

    – Chris

     

    “Eppur si muove (And yet it moves).” – Galielo Galilei

  • Egypt Is On The Edge Of Full Blown Civil War

    Via GEFIRA,

    In the last few days there were dozens of separate attacks in Egypt from the Sinai up to Cairo. Probably more than 60 people died while the Egyptian army used F16 attack plains to protect itself against it disgruntled population. It is clear that the Egyptian rulers will not be able to contain the current situation, today could be marked as the start of Egypt’s civil war.

    Democratic elected governments were violently overthrown, in Algeria, Egypt and  Palestinian territories. In Algeria the FIS  had won the first held elections with a convincing majority in 1990 and 1992. It has been removed from power in 1992 by a coup d’etat that was highly approved by the West. Probably 150.000 people died in the civil war that followed these events up.

    HAMAS winning the 2006 elections in the Palestinian territories resulted in a war among Palestinians and ended up with a split of Gaza and the West Bank

    In 2011 Morsi, leader of the Muslim Brotherhood won the first free elections in Egypt.

    In 2013 the first elected president of Egypt was removed by the army. There are clear signs that anti-democratic forces were deliberately destabilizing Egypt before the coup d’etat in 2013. In the running up of the July 3th coup by General Sisi an artificial oil shortages was created that contributed to the mass protest against the elected president of Egypt.

    The new army coup was financially supported by the Saudi rulers while the West was mute, the only vocalized opposition came from Turkey’s ruler MrErdo?an.

    Washington was silent about Egypt’s coup and even resumed the delivery of military hardware to the Egyptian rulers, at the same moment Morsi received the dead penalty during a mock process.  The situation in Egypt will be much worse than the situation that we saw in Algeria in 1992.

    Libya has been split in 3 parts, the by the West installed and recognized government in Tobruk could be seen as a supporter of the rulers in Cairo. The government in Tripoli is allied with the Muslim Brotherhood party and sees the government in Cairo as a threat to its existence. Both Governments do not rule Libya completely, big parts of Libya are under control of ISIS and other unregulated Islamist groups.

    The war that is coming to Egypt will not be limited to Egypt and will be an extend to Libya’s war, for the sole reason that a lot of fighters and weapons will come over from Lybia.

    The substantial amount of impoverished Egyptians are lacking any perspective and have nothing to lose. It is their party that has been removed from power in 2013.

    The Egyptian army is heavenly weaponized by the USA, there will not be any doubt that those weapons will end up in the hands of Islamist groups. The Egyptian conscript army will be a huge risk for the country’s leaders as army units might switch loyalty.

    Experienced fighters from Syria and Iraq will actively support their brothers in Egypt.

    The new generation of Islamist’s will utilize the internet in their advantage. They will use it to mobilize their supporters and build their case against the Egyptian army and their backers in Riyadh and Washington.

    The Internet will also be used for advanced communications and “crowd reconnaissance”. In Ukraine we have already seen how YouTube and mobile phones were used to pass on enemy’s positions. Modern professional armies are not prepared for new agile tactics that will be utilized by a new Islamic internet generation.

    As the Muslim Brotherhood is enjoying massive amounts of support we are expecting that the situation in Egypt will deteriorate at the same pace as we have seen in Syria.

    The Egyptian rulers will not be able to contain the current situation, today could easily be recorded as the start of Egypt’s big civil war.

    *  *  *

    Sources:

    Algerian Civil War Source Wikipedia
    Bouteflika said in 1999 that 100,000 people had died by that time and in a speech on 25 February 2005, spoke of a round figure of 150,000 people killed in the war.[5] Fouad Ajami argues the toll could be as high as 200,000, and that it is in the government’s interest to minimize casualties

    Egypt’s Gas Shortage Fuels June 30 Protests Al Monitor June 2013
    The latest gas crisis falls prior to the highly anticipated June 30 protests called by the Tamarrud movement demanding that Morsi step down for his failure to achieve any of the revolution’s goals

    Libya supreme court rules anti-Islamist parliament unlawful Source The Guardian 6 November 2014
    In a blow to anti-Islamist factions, Libya’s highest court has ruled that general elections held in June were unconstitutional and that the parliament and government which resulted from that vote should be dissolved.

    Mohammed Morsi death sentence upheld by Egypt court Source BBC 16 June 2015
    The sentence was initially passed in May, but was confirmed after consultation with Egypt’s highest religious figure, the Grand Mufti. The death sentences of five other leading members of the Muslim Brotherhood, including its supreme guide Mohammed Badie, were also upheld.

    Egypt Officially Announces ‘State Of War’ Source Egyptian Streets 1 July 2013
    In an official statement released by the Egyptian Armed Forces, 17 Egyptian soldiers were reported killed, in addition to 13 more who were injured. The statement added that 100 militants have been killed, in addition to destroying 20 of the militants’ vehicles.

    Sheikh Zuweid Death Toll: Egyptian Police Kill 9 In Cairo Suburb Raid As Assault On Sinai Town Comes To An End Source International Business Times 1 July 2015
    Egyptian police raided a home in a western suburb of Cairo on Wednesday, killing nine men who they said were armed and plotting a terrorist attack. The killings happened the same day an ISIS-affiliated group launched a major assault on Sheikh Zuweid, an Egyptian city in the Sinai Peninsula, resulting in at least 100 casualties. The assault ended Wednesday evening.

    Two Bomb Explosions Resonate Through Cairo Source Egyptian Streets 30 June 2015
    In an official statement, the Director of Civil Protection in Cairo, Magdy al-Shalaqany has confirmed that two bombs have detonated in Cairo’s 6th of October city, with a five minutes gap between the two explosions, reported AMAY.

    Islamist Blitz in Sinai Kills 64 as Egypt Sends Fighter Jets. Source Bloomberg 1 July 2015
    Egypt’s army struck at militants with fighter jets and attack helicopters after 64 security personnel were killed in Sinai on the bloodiest day of the country’s escalating war with Islamist insurgents.

  • Greece Has Spent A Half-Century In Default Or Restructuring

    On Thursday, we highlighted the pitiable plight of Greek businesses which, facing an acute cash crunch and suppliers unwilling to provide credit ahead of the country’s weekend referendum, are being forced to close the doors.

    The country’s banks are set to run out of physical banknotes “in a matter of days” according to a “person familiar with the situation” who spoke to WSJ and Constantine Michalos, the president of the Athens Chamber of Commerce, fears the country’s stock of imported goods will only last for two or three more weeks. 

    Meanwhile, Greeks have resorted to scavenging for food and picking through dustbins for scrap metal and as we noted on Wednesday, this is hardly a recent development in Greece. High unemployment has plagued the country for years , becoming endemic and relegating many Greeks to a life of perpetual and severe economic hardship.

    Indeed, as BofAML notes, a look back at the country’s history shows that Athens has been in default or some manner of debt rescheduling for nearly a quarter of the past two centuries. 

    The bank goes on to make a rather unflattering comparison between the implied market cap of Greek stocks on Monday and a certain US-based bath towel supplier: “The announcement of a bank holiday & capital controls caused a 20% drop in the local equity market (as implied by ETFs), putting the market cap of MSCI Greece on a par with that of Bed, Bath & Beyond.” 

    But Athenians are in no mood for backhanded humor, because as one 83-year old told WSJ this week, “Tsipras has turned this country into North Korea.” 

  • Greek Banks Considering 30% Haircut On Deposits Over €8,000: FT

    Last week in “For Greeks, The Nightmare Is Just Beginning: Here Come The Depositor Haircuts,” we warned that a Cyprus-style bail-in of Greek depositors may be imminent given the acute cash crunch that has brought the Greek banking sector to its knees and forced the Greek government to implement capital controls in a futile attempt to stem the flow.

    The depositor “haircut” would be a function of the staggered ELA haircut that the ECB could impose to escalate the rhetoric between the two sides, and could take place with as little as a 10% increase in the ELA collateral haircut from its current 50% level.

    Unfortunately for Greeks, the ECB has frozen the ELA cap, meaning that as of last Sunday, Greek banks were no longer able to meet deposit outflows by tapping emergency liquidity from the Bank of Greece. 

    Now, with ATM liquidity expected to run out by Monday and with the country’s future in the Eurozone still undecided, it appears as though Alexis Tsipras’ promise that “deposits are safe” may be proven wrong.

    According to FT, Greek banks are considering a depositor bail-in that could see deposits above €8,000 haircut by “at least” 30%. 

    Via FT: 

    Greek banks are preparing contingency plans for a possible “bail-in” of depositors amid fears

     

    The plans, which call for a “haircut” of at least 30 per cent on deposits above €8,000, sketch out an increasingly likely scenario for at least one bank, the sources said.

     

    A Greek bail-in could resemble the rescue plan agreed by Cyprus in 2013, when customers’ funds were seized to shore up the banks, with a haircut imposed on uninsured deposits over €100,000.

     

    It would be implemented as part of a recapitalisation of Greek banks that would be agreed with the country’s creditors — the European Commission, International Monetary Fund and European Central Bank.

     

    “It [the haircut] would take place in the context of an overall restructuring of the bank sector once Greece is back in a bailout programme,” said one person following the issue. “This is not something that is going to happen immediately.”

     

    Greek deposits are guaranteed up to €100,000, in line with EU banking directives, but the country’s deposit insurance fund amounts to only €3bn, which would not be enough to cover demand in case of a bank collapse.

     

    With few deposits over €100,000 left in the banks after six months of capital flight, “it makes sense for the banks to consider imposing a haircut on small depositors as part of a recapitalisation. . . It could even be flagged as a one-off tax,” said one analyst.

     

    Earlier, via Bloomberg:

    Liquidity for Greek bank ATMs after Monday will depend on the ECB decision, National Bank of Greece Chair Louka Katseli tells reporters in Athens.

    Meanwhile, Yanis Varoufakis swears this is nothing but a “malicious rumor”:

    And moments ago Bloomberg reported that according to an emailed statement by the Greek finance ministry, the “FT report on deposits bail in is outright lie, provocative, and targets undermining July 5 referendum” and as a resultt the “finance ministry demands Financial Tines to retract report.“

  • Barack Obama Tells Another Whopper – He Did Not Create 12.8 Million Jobs

    Submitted by David Stockman via Contra Corner blog,

    America is better off when President Obama is out on the stump bloviating and boasting rather than in Washington actively doing harm. But the whoppers he just told the students at the University of Wisconsin are beyond the pale. Said our spinmeister-in-chief:

     And the unemployment rate is now down to 5.3 percent. (Applause.) Keep in mind, when I came into office it was hovering around 10 percent. All told, we’ve now seen 64 straight months of private sector job growth, which is a new record — (applause) — new record — 12.8 million new jobs all told.

    That’s a pack of context-free factoids. There is still such a thing as the business cycle, and only economically illiterate hacks—-like those who work on the White House speech writing staff—-would measure anything from the deep V-shaped but momentary bottom that happened to occur during Obama’s second year in office. What counts is not that we’ve had a bounce after a terrible bust, but where we are now on a trend basis.

    The answer is absolutely nowhere!

    We are now 29 quarters from the pre-crisis peak and total non-farm labor hours utilized by the US economy are no higher than they were in Q4 2007. In other words, if you use a common unit of measure—–labor hours rather than job slots which treat coal-miners and part-time pizza delivery boys alike—–there have been no new units of employment at all. Our teleprompter reading President is actually tooting his own horn about recycled hours and “born again”  jobs and doesn’t even know it.

    And, no, he can’t take credit for digging us out of the hole created by the Great Recession, either. The long, slow climb back to square one shown in the chart above was due to the natural resilience of our capitalist economy—notwithstanding the tax, regulatory and massive debt hurdles that Washington policies have thrown at it.

    The truth of the matter is that America’s employment machine has been failing for this entire century. As shown below, the number of non-farm labor hours utilized during the most recent quarter was only 1% higher than in the spring of 2000—-way back when Bill Clinton still had his hands on things in the Oval Office.

    In short, we have gone through two business cycles and have essentially added zero new employment inputs to the US economy.  And that marks a sharp and devastating reversal of previous trends. In fact, the BLS’ own data convey an out-and-out crisis that the President should have been lamenting, not a cherry-picked simulacrum of growth based on born-again, apples-and-oranges jobs slots.

    Thus, during the comparable 29 quarters after the 1990 business cycle peak (Q2 1990 to Q3 1997) non-farm labor hours had increased by 12% and during the same period of time after the 1981 peak (Q3 1981 to Q4 1988) labor hours expanded by 17 percent.  That’s what employment growth used to look like, and absolutely nothing like that has happened on Obama’s watch.

    When you get right down to it, however, even labor hours do not fully capture the actual jobs disaster happening in America. That’s because we keep shedding high productivity hours in the full-time  jobs sector in favor of low-skill, low-pay gigs in bars, restaurants, Wal-Marts and temp agencies.

    So notwithstanding another month of 200,000 plus headline job gains, here’s where we actually are. The number of breadwinner jobs—–full-time positions in energy and mining, construction, manufacturing, the white collar professions, business management and services, information technology, transportation/distribution and finance, insurance and real estate—-is still 1.7 million below the level of December 2007; in fact, it is still lower than it was at the turn of the century.

    Breadwinner Jobs- Click to enlarge

    Breadwinner Jobs- Click to enlarge

    There is no mystery as to how the White House and Wall Street celebrate year after year of “jobs growth” when the long-term trend of full-time, family-supporting employment levels is heading south. Its called “trickle-down economics”, and not of the good kind, either.

    What is happening is that the Keynesian money printers at the Fed are fueling serial financial bubbles. This generates a temporary lift in the discretionary incomes of the top 10% of households, which own 85% of the financial assets, and the next 10-20% which feed off the their winnings. Accordingly, the leisure and hospitality sectors boom, creating a lot of job slots for bar tenders, waiters, bellhops, etc.

    I call this the “bread and circuses economy”, but it has two problems. Most of these slots generate only about 26 hours per week and $14 per hour. That’s about $19,000 on an annual basis, and means these slots constitute 40% jobs compared to the breadwinner category at about $50,000 per year. Besides that, a soon as the financial bubble goes bust, these jobs quickly disappear.

    Bread and Circuses Jobs - Click to enlarge

    Bread and Circuses Jobs – Click to enlarge

    This is reason enough for Obama to pipe down on the boasting, but he actually went in the opposite direction claiming a big recovery in manufacturing jobs.

    And after a decade of decline, thanks to some of the steps we took…….we’ve added nearly 900,000 new manufacturing jobs. Manufacturing is actually growing faster than the rest of the economy. (Applause.)

    But that one is not even a whopper; its a bald-faced lie. There has not been one “new” manufacturing job created during Obama’s term in office; and, in fact, the 12.3 million manufacturing jobs reported for June was still 10% below the level of December 2007, and nearly 30% lower than the 17.3 million manufacturing jobs reported in January 2000.

    So the actual facts are not evidence of a trend reversal; they’re an exercise in political hogwash.

    Indeed, if you take the entire high-productivity, high-pay goods production sector—-energy, mining, manufacturing and construction—the trend is even worse. As shown below, the 19.6 million goods producing jobs in June was 5 million lower than in January 2000. Is there any wonder that the median real household income has declined by 7% over the last 15 years?

    Goods Producing Jobs - Click to enlarge

    Goods Producing Jobs – Click to enlarge

    Here’s the real truth beneath the bloviation issuing from stumping politicians and Wall Street stock touts alike. The June BLS report showed that the HES Complex (health, education and social services) generated another 48,000 jobs in June. This figure is nearly dead on the 42,000 monthly average for this sector since the turn of the century.

    The minor problem with that trend is these jobs pay on average only $35,000 per year—–a level that does not remotely support a middle class standard of living, especially after payroll and income taxes are extracted from this gross pay figure.

    The much bigger skunk in the woodpile, however, is that these jobs are almost entirely “fiscally dependent”. Yet the public sector in America is broke, and the total public debt just keeps on climbing higher.

    To wit, the 32.2 million jobs in the HES Complex are funded by $1.5 trillion annually of Medicare, Medicaid and other health and social services entitlements. On top of that there is also about $1 trillion of public sector education funding, $200 billion per year of government guaranteed student loans and $250 billion annually in tax subsidies for employer provided and individual health insurance plans and Obamacare tax credits.

    HES Complex Jobs - Click to enlarge

    HES Complex Jobs – Click to enlarge

    In effect, the public sector borrows and taxes to create low productivity jobs within the nation’s highly inefficient, wasteful and monopolistic health and education cartels—- but in the process squeezes everything else. In fact, there have been virtually no new jobs—even on a headcount basis—–outside of the HES Complex during the entirety of the 21st Century to date!

    Nonfarm Payrolls Less HES Complex Jobs - Click to enlarge

    Nonfarm Payrolls Less HES Complex Jobs – Click to enlarge

    One of these days the public sector is going to exhaust its capacity to tax and borrow, and to thereby finance job growth even in the HES Complex. Needless to say, Washington and Wall Street will be as clueless then as they are now.

    Meanwhile, the White House whoppers will keep on coming.

  • Fearing Spillover, ECB Moves To Shield Neighboring Banks From Greek Meltdown

    On Monday, in “Beggar Thy Neighbor? Greece’s Battered Banks Beget Balkan Jitters,” we took an in depth look at the potential for the Greek banking crisis to infect Bulgaria, Romania, and Serbia, where Greek banks control a substantial percentage of total banking assets. 

    We noted that yields on the country’s bonds had spiked in the wake of capital controls in Greece and the ensuing ATM run, a reflection of souring investor sentiment despite assurances from local banking officials that there was no risk of similar measures being implemented outside of Greece.  

    “Any action by the Greek government and the central bank to impose measures in the Greek financial system have no legal force in Bulgaria and can in no way affect the smooth functioning and stability of the Bulgarian banking system,” Bulgaria’s central bank said, in a statement. 

    Still, as Morgan Stanley pointed out nearly two months ago, “the risk is that depositors who have their money in Greek subsidiaries in Bulgaria, Romania and Serbia could suffer a confidence crisis and seek to withdraw their deposits. Although well capitalised and liquid, Greek subsidiaries in the SEE region may see difficulties providing enough cash if withdrawals are intense and become problematic. In case of a liquidity shortage, Greek subsidiaries in Bulgaria, Romania and Serbia would probably create the need for local authorities to step in. Local central banks and governments would most probably provide additional liquidity, but if panic behaviour develops it would mean that certain banks would either have to find a buyer or be nationalised. In this case, the national deposit guarantee schemes will have to repay guaranteed deposits and, in case of insufficient funds, the government will have to provide them.”

    Now, with Greece’s future in the EMU hanging in the balance, Bloomberg says the ECB has stepped up its efforts to shield Bulgaria from any fallout. Here’s more:

    The European Central Bank is set to extend a backstop facility to Bulgaria and is ready to assist other nations in the region to ward off contagion from Greece, according to people familiar with the situation.

     

    The ECB would provide access to its refinancing operations, offering euros to the banking system against eligible collateral, the people said, asking to remain anonymous because the matter is confidential. The ECB and the Bulgarian central bank declined to comment.

     

    Eastern Europe is at risk of tremors from Greece via ties ranging from trade to finance, with lenders from the debt-ridden country owning almost a third of banking assets in Bulgaria. The possibility of Greece abandoning the euro after shutting banks and imposing capital controls has left eastern European currencies among this week’s worst emerging-market performers.

     

    “The threat of ‘Grexit’ has understandably cast a dark cloud over the outlook,” for the region, London-based Capital Economics said last week in a note. “Ties with Greece are sizable in a few places, including Bulgaria and Romania.”

     

    Bulgaria and its banks have been a main focus of concern for European Union officials looking at potential fallout from the Greek crisis in the region, according to people familiar with their thinking. The yield on euro-denominated Bulgarian government debt due 2024 has jumped 25 basis points this week to 2.61 percent.

    It certainly appears as though the whole “Greece is contained” line is yet another example of a vacuous attempt to calm a panicked public by issuing hollow assurances from on high and compelling the media to parrot them to the masses in order to obscure the real risks — a strategy which works until the soup line photos start showing up on social media.

  • What It All Comes Down To On Sunday

    As expected (and as tipped here on Thursday immediately after news broke that an IMF study conducted prior to the imposition of capital controls in Greece suggests debt relief for Athens is necessary if anyone hopes to create some semblance of sustainability), Greek PM Alexis Tsipras is now leaning hard on voters to carefully consider the fact that one-third of the troika has effectively validated the Greek government’s position on creditor writedowns. 

    “This position was never proposed to the Greek government over the five months of negotiations, wasn’t included in final offer tabled by creditor institutions, on which people are going to vote on July 5,” Tsipras said in a televised address, making it clear to Greeks that the proposals they are voting on effectively do not reflect the views of the institution that is perhaps the country’s most influential creditor. 

    “This IMF report justifies our choice not to accept an agreement which ignores the fundamental issue of debt,” he added, driving the point home. 

    Clearly, this puts Europe, and especially Germany, in a rather unpalatable position. Many EU officials have for months insisted that IMF participation is critical if the Greeks hope to secure a third bailout. The IMF meanwhile, has stuck to a position first adopted years ago (something we’ve noted in these pages multiple times of late); namely that official sector writedowns will ultimately be necessary if Brussels hopes to finally put the Greek tragicomedy to bed. This means Brussels (and Berlin) will now be forced to choose between IMF involvement (which the EU says is a precondition for a deal) and haircuts (which the EU says aren’t possible).

    Here’s Barclays – a major investment bank – with its own confirmation that the IMF may have assured a No vote over the weekend.

    The document basically argues that OSI is a necessary condition in order to secure sovereign solvency with a high probability. This means that before the IMF re-engages in any lending activities with Greece, OSI will be required in the form of NPV debt relief.

     

    The timing of the publication of this report it is very important. Debt relief is something that the Greek authorities have repeatedly demanded; therefore, in a way this report can be interpreted as the IMF backing the Greek government’s demands. By extension, it could also be interpreted as supportive of a ‘No’ vote, which is what the Greek government is campaigning for. 

     

    We agree broadly with the analytical content of the report and the need for further OSI. This is in fact hardly new news. Europe has recognized since November 2012 that Greece needs further OSI to make debt dynamics sustainable with high probability. The IMF advice of an NPV haircut via a debt maturity extension (to 40 years) is in line with expectations.

     

    However, the critical point is that the IMF now requires debt-relief before it engages in a new programme, which confronts Europeans with a tough political decision. Many in Europe, including Germany, considered OSI as a future carrot in exchange for reforms today following good programme execution. Debt relief was conceived as a part of a third programme to be negotiated possibly with a new Greek government.

     

    At the same time, Germany has been adamant about the importance of IMF involvement in any financial support programme for Greece. Thus, Germany will now be confronted with a tough choice: to deliver on the IMF’s demand, ie to engage in OSI negotiations in the form of NPV debt relief, or give up on IMF involvement. We believe that there is mounting support across other member states for the OSI discussion, therefore, we believe that Germany may not be able to resist such discussions any longer.

    “I am guessing that this is a negotiating tactic ahead of the negotiations for a new programme for Greece. The IMF very well knows that a debt write-off is out of the question,” one unnamed EU official told MNI. 

    “The numbers are quite high, not in line with our assessment and our baseline scenario. We are examining different scenarios for the day after the referendum and provided the vote is Yes, we are ready to come up with solutions. But it is not going to be easy to agree. Certainly this report does not make it any easier,” another source said.

    It’s easy to see why Europe is reluctant to accept the IMF’s assessment. As discussed at length on Thursday, were Europe to go down the OMI road, Brussels would be opening Pandora’s Box. Here’s why:

    By now it should be clear to all that the only reason why Germany has been so steadfast in its negotiating stance with Greece is because it knows very well that if it concedes to a public debt reduction (as opposed to haircut on debt held mostly by private entities such as hedge funds which already happened in 2012), then the rest of the PIIGS will come pouring in: first Italy, then Spain, then Portugal, then Ireland.

     

    The problem is that while it took Europe some 5 years to transfer a little over €200 billion in Greek private debt exposure to the public balance sheet (by way of the ECB, EFSF, ESM and countless other ad hoc acronyms) at a cost of countless summits and endless negotiations, which may or may not result with the first casualty of the common currency which may prove to be reversible as soon as next week, nobody in Europe harbors any doubt that the same exercise can be repeated with Italy, or Spain, or even Portugal. They are just too big (and their nonperforming loans are in the hundreds of billions).

     


    As for the IMF’s position, Barclays notes that a permanent default by Greece would not be a trivial event, thus providing further incentive for the Fund to push for EU writedowns:

    With the IMF’s total resources being roughly USD760bn – USD420bn of which are considered the ‘forward commitment capacity’ – the IMF has the firepower to ‘survive’ a permanent default of Greece while maintaining sufficient resources to be able to lend out fresh credit for countries in need. However, it would make a significant dent in the ongoing IMF finances – eg, the interest paid on IMF loans is used to cover IMF’s operational cost – and would very likely create intense debate about Europe’s relationship with the IMF and the balance of power between DM and EM members. One question could also be whether or not the euro area IMF members should not in some way be liable for the outstanding Greek debts. In turn, this would also intensify a debate about the sharing of liabilities/solidarity within the euro area and the EU.

     

     

    So, thanks to a well-timed IMF report, Tsipras can now frame Sunday’s plebiscite as a simple Yes/No vote on Greece’s debt pile, which makes it far easier to vote “no.” 

    “Do you think Europe should forgive your debt, check box ‘Yes’ or ‘No’.” 

    That should be an easy choice, although it depends upon the Greek public understanding the significance of the IMF’s position which, as indicated above, Tsipras is doing his very best to facilitate. The bottom line: Sunday’s vote is about whether Greece will agree to remain a debt colony of Germany, pardon Europe, even as the IMF (and, paradoxically, Germany) agrees with Athens that the country’s debt is unsustainable.

    “No” means a lot of pain now and recovery later.

    “Yes” means less pain now but no hope of recovery ever. 

    *  *  *

    Choose wisely…

  • US Pushed For IMF Greek Haircut Study Release After Euro 'Allies' Tried To Block

    The timing of the release of The IMF’s ‘Greece needs a debt haircut no matter what’ report this week was odd to say the least. Being as it confirmed everything the Greek government has been saying and provided the perfect ammunition for Tsipras to spin Sunday’s Greferendum as a Yes/No to debt haircuts – something everyone can understand (and get behind). It is understandable then that, as Reuters reports, Greece’s eurozone allies tried to block the release of the damning report this week but the Europeans were heavily outnumbered and the United States, the strongest voice in the IMF, was in favor of publication, sources said. While The IMF concluded, “Facts are stubborn. You can’t hide the facts because they may be exploited,” one wonders if this move merely reinforces Goldman’s concpiracy theory.

    Euro zone countries tried in vain to stop the IMF publishing a gloomy analysis of Greece’s debt burden which the leftist government says vindicates its call to voters to reject bailout terms, sources familiar with the situation said on Friday. As Reuters reports, publication of the draft Debt Sustainability Analysis laid bare a dispute between Brussels and the Washington-based global lender that has been simmering behind closed doors for months.

    At a meeting on the International Monetary Fund’s board on Wednesday, European members questioned the timing of the report which IMF management proposed at short notice releasing three days before Sunday’s crucial referendum that may determine the country’s future in the euro zone, the sources said.

     

    There was no vote but the Europeans were heavily outnumbered and the United States, the strongest voice in the IMF, was in favor of publication, the sources said.

     

    The Europeans were also concerned that the report could distract attention from a view they share with the IMF that the Tsipras government, in the five months since it was elected, has wrecked a fragile economy that was just starting to recover.

     

    “It wasn’t an easy decision,” an IMF source involved in the debate over publication said. “We are not living in an ivory tower here. But the EU has to understand that not everything can be decided based on their own imperatives.”

     

    The board had considered all arguments, including the risk that the document would be politicized, but the prevailing view was that all the evidence and figures should be laid out transparently before the referendum.

     

    “Facts are stubborn. You can’t hide the facts because they may be exploited,” the IMF source said.

    *  *  *

    Quite simply this should be horrifying to not just The Greeks (who just discovered their supposed ‘allies’ tried to hide the truth from them and in fact negotiated in bad faith) but to all Europeans who by now must realize the union is not for them, it is for the few ruling elite and their corporate and banking overlords.

    Isn’t it time to Just Say No, if not to anything else than to being controlled by an unelected cabal of oligarchs whose only interest is making sure the wealthy get wealthier?

    Of course, taking a step back from the table, it is clear that a forced decision by Washington against the interests of its European allies – that is likely to engender more chaos and strengthen Greece’s ability to destabilize Europe – must have been done for ‘another reason’. Perhaps after all is said and done, the powers that be need chaos, need instability, need panic in order to ensure the public gratefully accept the all-in QE-fest that they want.

  • Do Share Buybacks Create Value? (Spoiler Alert: No)

    Submitted by Omid Malekan via OmidMalekan.com,

    Stock buybacks have been in the news lately, as their growing size has lead to criticism, especially from politicians who believe they contribute to economic inequality. But the simplest critique of the practice of buybacks can be made on economic grounds, in terms of value created or destroyed.

    If you ask a seasoned investor to boil success down to one sentence, they’ll probably say “buy low and sell high.” Ask them to simplify even more, and they’ll say “buy value” – which usually correlates with buying something when its cheap. If we flip these maxims around then the worst kind of investing is to buy high. Expensive things do occasionally become more expensive –  but with greater risk.

    I have always been weary of buybacks, going all the way back to the last buyback boom before the financial crisis. My concern then was that by purchasing shares management was making a declaration, that this is a good time to buy our stock, as opposed to the past or the future. But if management knows that then it knows how to time the market, and if management knows how to time the market, then it’s better off running a hedge fund. Since management is instead running a company, it should focus on what it was hired to do and leave the stock market alone.

    Taking the practice to a more extreme measure, many large companies today are tapping the debt markets, borrowing money at record low rates and using the proceeds for buybacks. The practice is popular among blue chip companies like Apple and Microsoft, who despite their cash heavy balance sheets prefer the tax efficiency of financing buybacks with debt. The old me would find such a practice even more unwise, as it entails timing two markets at once, a feat even a seasoned hedge fund manager would have trouble pulling off. But the old me didn’t understand how buybacks really work.

    To call an action market timing is to imply participants care about price. They are buying today because today offers a good price whereas tomorrow might not. But executives doing buybacks don’t care about price. We know this because new buybacks are not announced with any limitations on share price. We are going to buy back $2 Billion worth of shares in the next quarter. What happens if share prices rises drastically beforehand? Management doesn’t care.

    We also know this because currently, with the stock market at all time highs, new buyback announcements have gone parabolic to amounts never seen before. The current level of buying recently surpassed that of 2007, at the previous peak of the market.

     

    But the buying has not been continuous, as companies took an extended break during the financial crisis while stock prices fell drastically. If you chart buybacks versus the overall stock market in the past 10 years you’ll find a neat correlation.

    For over a decade now corporate management has been doing the exact opposite of what constitutes good investing. If you include the fact that some of the companies buying back shares before the crisis were selling shares to raise capital during the crisis, and are now buyers again, then management has been buying high to sell low to buy high again.

    If you acted similarly in any other walk of life you would be the subject of ridicule and featured in finance books on what not to do. Imagine walking into a dealership and saying “I am going to buy this car, regardless of what price you quote me.” Then imagine selling that car at half the price, only to eventually buy it back at a premium.

    On Wall Street however such behavior is now the norm. Take the example of Royal Dutch Shell, which recently announced the acquisition of BG Group. The deal is mostly financed by Shell issuing new shares. It’s said to be accretive next year, as in increasing the company’s earnings and presumably its stock value. It also comes with a plan by Shell to buy back millions of its own shares in 2 years. So the company has promised to sell something today, drive up its value tomorrow and then buy it back next week.

    All of this would be laughable if not for the consequences. The net amount of buybacks executed in recent years has now surpassed $2 trillion. That’s $2 trillion in capital spent on an activity that at best creates no value and historically has destroyed it. As our business leaders continue to speculate on why the current recovery refuses to kick into high gear, they should look at wasteful buybacks as one possible impediment.

  • Massive "No" Demonstration Floods Athens' Syntagma Square As Tsipras Speaks – Live Webcast

    Shortly before Greek PM Tsipras spoke at today’s huge “No” rally on Syntagma square, scuffles in the crowds of protesters broke out and police have resorted to stun grenades and tear gas.

    As Reuters reported, “Greek police threw stun grenades and scuffled with protesters in central Athens on Friday, as a rally got under way in support of a ‘No’ vote in a Sunday referendum on whether to endorse an aid deal with creditors. The scuffles involved a few dozen people, many dressed in black and wearing helmets but quickly appeared to calm.”

    Luckily, the violence was scattered and promptly dissipated.

     

    Instead it has been replaced with one of the biggest people gatherings on Syntagma square in history:

    Live Feed:

Digest powered by RSS Digest