Today’s News 12th January 2016

• Open Letter to the Banks

  Jamie Dimon, JP Morgan Chase
  Brian T. Moynihan, Bank of America
  Michael Corbat, Citigroup

  Gentlemen:

  On Friday, I attended a digital money summit at the Consumer Electronics Show. I am writing to you to warn you about the disruption that is about to occur in banking. There are many startups (and larger companies too) that are gunning for you. Perhaps you have watched what Uber has done to the taxi business? Well, these guys are planning the same thing for the banking business.

  Banks used to allow even a child with a $10 deposit to spread his risk across a large portfolio of loans. At the same time, banks made it possible for a corporate borrower to raise $10,000,000 from a large group of depositors. In short, the banking business is investment aggregation and risk management.

  That business cannot be disrupted. The bigger it gets, the more difficult to displace. It’s like eBay, all the depositors come to the bank because that’s where they can earn interest. All the borrowers come, because that’s where they can get the money they need. The bigger the bank gets, at least in a free market under the gold standard, the safer it is for depositors.

  Today, however, you are quite vulnerable to disruption. That’s because you are not really in the banking business any more.

  Over three decades, you have worked with the Federal Reserve to eliminate interest. The end result is that you now offer depositors a return-free risk. Depositors cannot earn interest in a bank account (yes, I know that in the US the yield is technically not zero yet, but it’s getting there). However, a growing number are aware of the risks. For example, you have incalculable exposure to derivatives. You own sovereign debt which the world now knows is not risk-free. In fact, you have a large staff and churn through a lot of activity in order to deliver scant yield to your depositors.

  I can tell you what I observed in the digital money program. People, especially Millennials, now think of banking in terms of features like ATMs, payment clearing, fraud prevention, and point of sale solutions. However, these are just add-on services, not the core of banking. You have abandoned that core, and only the add-ons remain.

  Startups can take these businesses. They have lower costs. They are more focused. They have hip new brands, untainted by the financial crisis and the bailouts. They have developed an array of new technologies. And, of course, they are less regulated (before you think to lobby to impose more regulation on them, think about that taint to your brand).

  You’re in a tight spot. After decades of smoking the drug known as falling interest, you’re now dependent on it. The thought of a return to a 5% yield on the 10-year Treasury is not pleasant. Nevertheless, I urge you to think about it. The alternative is to let the fintech disruptors carve up your retail business.

  Sincerely,
  Keith Weiner, PhD
  The Gold Standard Institute

  

  

  

  

• US Equities Tumble As PBOC "Stamps Out" Short Yuan Speculators With "Murderous" Liquidity Squeeze

  China/Hong Kong Money Market stress remains extreme – O/N implied rates spike to 82%, 1w to 38%…

  A jump in the overnight cost for borrowing yuan in Hong Kong is "reflecting further PBOC efforts to stamp out speculation," according to Michael Every, head of financial markets research at Rabobank Group. Hong Kong-based Every told Bloomberg in an interview, following a massive spike in overnight borrowing rates for Offshore Yuan that "a 66% rate is murderous for others being swept up in this who are not speculating."

   

  PBOC advisor Han earlier warned that short selling the yuan "will not succeed," adding that "it is pure imagination that the Chinese yuan will act like a wild horse without any rein." But as Every notes, the unintended consequences could be a problem, "imagine you needed access to CNH for other purposes for a few days," concluding ominously that "in other EM crises we see that central banks usually win a round like this, but lose in the end."

  This move sent CNH ripping higher (as shorts were forced to cover) all the way to parity with CNY…

  

   

  But once that was complete, Offshore Yuan selling recommenced and that is dragging US equities lower…

  

   

  As we explaiend earlier, it is now extremely expensive to short the Offshore Yuan – which is exactly what The PBOC appears to have wanted – “It is pure imagination that the Chinese yuan will act like a wild horse without any rein,” said Han, adding that short selling the yuan “will not succeed.”

   

  

   

  As the gap between spot (squeeze) and forwards widens…

  

  • *CNH-CNY SPREAD NARROWS BELOW 100 PIPS FOR 1ST TIME SINCE NOV.

  Reuters reports that the offshore yuan (CNH) implied overnight deposit rate has hit a record high at 82%. This is squeezing CNH shorts… big time.

  As a result, the CNY-CNH spread has narrowed

  

   

  • *OFFSHORE YUAN STRENGTHENS 0.6% TO TRADE AT PARITY WITH ONSHORE

  to patirty

  Despite all the flatness and stability, Chinese stocks are extending losses… *SHANGHAI COMPOSITE FALLS 0.8% TO BELOW 3,000 LEVEL

  

   

  

   

  As we detailed earlier, with Chinese equities tumbling in the face of PBOC's liquidity withdrawal (record spike in o/n HIBOR) and short-squeeze of CNH shorts (and carry traders), the sell-side is as confused as a CNBC anhcor at what is good and what is bad. UBS urges investors not to sell while JPM fears a structured-product-driven vicious cycle between EM and Chinese equities. Following a record-breaking surge in offshore Yuan against the USD (12 handles top to bottom) during the US session, selling has resumed into the fix. "Expectations the yuan will depreciate sharply should be seen as ridiculous and humorous," warned one Chinese official (who obviously did not get the memo of the last 3 weeks) as The PBOC injected CNY80bn and decided for the 3rd day in a row to hold the Yuan fix unchanged.

   

  As we begin tonight's "trading", Chinese equities are deep in the red YTD:

  • *SHANGHAI MARGIN DEBT BALANCE DECLINES MOST IN FOUR MONTHS

  

   

  "Expectations the yuan will depreciate sharply should be seen as ridiculous and humorous," warned one Chinese official (who obviously did not get the memo of the last 3 weeks)…

  • *PBOC TO INJECT 80B YUAN WITH 7-DAY REVERSE REPOS: TRADER
  • *CHINA KEEPS YUAN FIXING LITTLE CHANGED FOR THIRD DAY
  • *SHANGHAI MARGIN DEBT BALANCE DECLINES MOST IN FOUR MONTHS

  

   

  Offshore Yuan is selling back down a little after an epic day of squeezing…

  

   

  Meanwhile, away from the actual dynamics of tonight's early moves, mixed messages from a desperate sell-side tonight with UBS proclaiming:

  • INVESTORS SHOULDN'T SELL CHINESE STOCKS AT THESE LEVELS: UBS

  And JPMorgan warning of a vicous cycle of selling between China and EM equities:

  Events in Chinese equity markets feel uncomfortably close to the June-August sell-off.

   

  The Shanghai and Shenzhen indices are down 15% and 20%, respectively, in the first six trading days of 2016. MSCI China, EM and World are down 11%, 9% and 7%, respectively. Onshore investors’ confidence in the local policy is weak. Shorting of H-share futures increased when A-share circuit breakers kicked in. If HSCEI moves below 8000 (spot 8505) then we approach structured product strikes leading to H-share futures selling. To add to the discomfort, the CNH overnight rate spiked to 23% as aggressive PBoC intervention results in a shortage of offshore renminbi. Finally, the market was disappointed that post the record decline in FX reserves, there was no RRR cut.

   

  Simply the market is unsure on policy and is technically weak, driving EM toward our bear case end 2016 target of 720.

  Wondering why we care about China? Here's one reason… US and Chinese stocks are extremely correlated since The Fed slowed and then stopped its money-printing… (and that correlation has increased since August and The Fed's September "fold")

  

   

  The jawboning started early

  • *YUAN FALL TO STIMULATE CHINA'S EXPORTS: SECURITIES JOURNAL

  which is entirely incorrect…

  

  And then this:

  • *EXCHANGE RATE NOT DETERMINING FACTOR FOR EXPORTS: SEC. JOURNAL

  Confused?

  And finallyu there is this:

  • *PBOC'S ZHOU ATTENDS BIS MEETING

  In other words – they are starting to coordinate!! Against The Speculators? Or The Fed?

  

  

  

  

  

• The State Of The Nation: A Dictatorship Without Tears

  Submitted by John Whitehead via The Rutherford Institute,

  “There will be, in the next generation or so, a pharmacological method of making people love their servitude, and producing dictatorship without tears, so to speak, producing a kind of painless concentration camp for entire societies, so that people will in fact have their liberties taken away from them, but will rather enjoy it, because they will be distracted from any desire to rebel by propaganda or brainwashing, or brainwashing enhanced by pharmacological methods. And this seems to be the final revolution.” – Aldous Huxley

  There’s a man who contacts me several times a week to disagree with my assessments of the American police state. According to this self-avowed Pollyanna who is tired of hearing “bad news,” the country is doing just fine, the government’s intentions are honorable, anyone in authority should be blindly obeyed, those individuals who are being arrested, shot and imprisoned must have done something to deserve such treatment, and if you have nothing to hide, you shouldn’t care whether the government is spying on you.

  In other words, this man trusts the government with his life, his loved ones and his property, and anyone who doesn’t feel the same should move elsewhere.

  It’s tempting to write this man off as dangerously deluded, treacherously naïve, and clueless to the point of civic incompetence. However, he is not alone in his goose-stepping, comfort-loving, TV-watching, insulated-from-reality devotion to the alternate universe constructed for us by the Corporate State with its government propaganda, pseudo-patriotism and contrived political divisions.

  While only 1 in 5 Americans claim to trust the government to do what is right, the majority of the people are not quite ready to ditch the American experiment in liberty. Or at least they’re not quite ready to ditch the government with which they have been saddled.

  As The Washington Post concludes, “Americans hate government, but they like what it does.” Indeed, kvetching aside, Americans want the government to keep providing institutionalized comforts such as Social Security, public schools, and unemployment benefits, fighting alleged terrorists and illegal immigrants, defending the nation from domestic and foreign threats, and maintaining the national infrastructure. And it doesn’t matter that the government has shown itself to be corrupt, abusive, hostile to citizens who disagree, wasteful and unconcerned about the plight of the average American.

  For the moment, Americans are continuing to play by the government’s rules. Indeed, Americans may not approve the jobs being done by their elected leaders, and they may have little to no access to those same representatives, but they remain committed to the political process, so much so that they are working themselves into a frenzy over the upcoming presidential election, with contributions to the various candidates nearing $500 million.

  Yet as Barack Obama’s tenure in the White House shows, no matter how much hope and change were promised, what we’ve ended up with is not only more of the same, but something worse: an invasive, authoritarian surveillance state armed and ready to eliminate any opposition.

  The state of our nation under Obama has become more bureaucratic, more debt-ridden, more violent, more militarized, more fascist, more lawless, more invasive, more corrupt, more untrustworthy, more mired in war, and more unresponsive to the wishes and needs of the electorate. Most of all, the government, already diabolical and manipulative to the nth degree, has mastered the art of “do what I say and not what I do” hypocrisy.

  For example, the government’s arsenal is growing. While the Obama administration is working to limit the public’s access to guns by pushing for greater gun control, it’s doing little to scale back on the federal government’s growing arsenal of firepower and militarized equipment.

  In fact, it’s not just the Department of Defense that’s in the business of waging war. Government agencies focused largely on domestic matters continue to spend tens of millions of taxpayer dollars to purchase SWAT and military-style equipment such as body armor, riot helmets and shields, cannon launchers and police firearms and ammunition. The Department of Veterans Affairs spent nearly $2 million on riot helmets, defender shields, body armor, a “milo return fire cannon system,” armored mobile shields, Kevlar blankets, tactical gear and equipment for crowd control. The Food and Drug Administration purchased “ballistic vests and carriers.” The Environmental Protection Agency shelled out $200,000 for body armor. And the Smithsonian Institution procured $28,000 worth of body armor for its “zoo police and security officers.”

  The national debt is growing. In fact, it’s almost doubled during Obama’s time in office to nearly $20 trillion. Much of this debt is owed to foreign countries such as China, which have come to exert an undue degree of influence on various aspects of the American economy.

  Meanwhile, almost half of Americans are struggling to save for emergencies and retirement, 43% can’t afford to go more than one month without a paycheck, and 24% have less than $250 in their bank accounts preceding payday.

  On any given night, over half a million people in the U.S. are homeless, and half of them are elderly. In fact, studies indicate that the homeless are aging faster than the general population in the U.S.

  While the U.S. spends more on education than almost any other country, American schools rank 28^th in the world, below much poorer countries such as the Czech Republic and Vietnam.

  The American police state’s payroll is expanding. Despite the fact that violent crime is at a 40-year-low, there are more than 1.1 million persons employed on a full-time basis by state and local law enforcement in this country. That doesn’t include the more than 120,000 full-time officers on the federal payroll.

  While crime is falling, the number of laws creating new crimes is growing at an alarming rate. Congress creates, on average, more than 50 new criminal laws each year. This adds up to more than 4,500 federal criminal laws and an even greater number of state laws.

  The prison population is growing at an alarming rate. Owing largely to overcriminalization, the nation’s prison population has quadrupled since 1980 to 2.4 million, which breaks down to more than one out of every 100 American adults behind bars. According to The Washington Post, it costs $21,000 a year to keep someone in a minimum-security federal prison and $33,000 a year for a maximum-security federal prison. Those costs are expected to increase 30 percent by 2020. Translation: while the American taxpayer will be forced to shell out more money for its growing prison population, the private prison industry will be making a hefty profit.

  The nation’s infrastructure—railroads, water pipelines, ports, dams, bridges, airports and roads—is rapidly deteriorating. An estimated $1.7 trillion will be needed by 2020 to improve surface transportation, but with vital funds being siphoned off by the military industrial complex, there’s little relief in sight.

  The expense of those endless wars in Afghanistan and Iraq will cost taxpayers $4 trillion to $6 trillion. That does not include the cost of military occupations and exercises elsewhere around the globe. Unfortunately, that’s money that is not being invested in America, nor is it being used to improve the lives of Americans.

  Government incompetence, corruption and lack of accountability continue to result in the loss of vast amounts of money and weapons. A Reuters investigation revealed $8.5 trillion in “taxpayer money doled out by Congress to the Pentagon since 1996 that has never been accounted for.” Then there was the $500 million in Pentagon weapons, aircraft and equipment (small arms, ammunition, night-vision goggles, patrol boats, vehicles and other supplies) that the U.S. military somehow lost track of.

  Rounding out the bad news, many Americans know little to nothing about their rights and the government. Only 31% can name all three branches of the U.S. government, while one in three says that the Bill of Rights guarantees the right to own your own home, while one in four thinks that it guarantees “equal pay for equal work.” One in 10 Americans (12%) says the Bill of Rights includes the right to own a pet.

  If this brief catalogue of our national woes proves anything at all, it is that the American experiment in liberty has failed, and as political economist Lawrence Hunter warns, it is only a matter of time before people realize it. Writing for Forbes, Hunter notes:

  The greatest fear of America’s Founding Fathers has been realized: The U.S. Constitution has been unable to thwart the corrosive dynamics of majority-rule democracy, which in turn has mangled the Constitution beyond recognition. The real conclusion of the American Experiment is that democracy ultimately undermines liberty and leads to tyranny and oppression by elected leaders and judges, their cronies and unelected bureaucrats.  All of this is done in the name of “the people” and the “general welfare,” of course.  But in fact, democracy oppresses the very demos in whose name it operates, benefiting string-pullers within the Establishment and rewarding the political constituencies they manage by paying off special interests with everyone else’s money forcibly extracted through taxation. The Founding Fathers (especially Washington, Jefferson, Franklin, Adams, Madison, and James Monroe), as well as outside observers of the American Experiment such as Alexis de Tocqueville all feared democracy and dreaded this outcome.  But, they let hope and faith in their ingenious constitutional engineering overcome their fear of the democratic state, only to discover they had replaced one tyranny with another.

  So are there any real, workable solutions to the emerging American police state?

  A second American Revolution will not work. In the first revolution, the colonists were able to dispatch the military occupation and take over the running of the country. However, the Orwellian state is here and it is so pervasive that government agents are watching, curtailing and putting down any resistance before it can get started.

  A violent overthrow of the government will not work. Government agents are armed to the teeth and will easily blow away any insurgency when and if necessary.

  Politics will not help things along. As history has made clear, the new boss is invariably the same as or worse than the old boss—all controlled by a monied, oligarchic elite.

  As I make clear in my book Battlefield America: The War on the American People, there is only one feasible solution left to us short of fleeing the country for parts unknown: grassroots activism that strives to reform the government locally and trickles up.

  Unfortunately, such a solution requires activism, engagement, vigilance, sacrifice, individualism, community-building, nullification and a communal willingness to reject the federal government’s handouts and, when needed, respond with what Martin Luther King Jr. referred to as “militant nonviolent resistance.”

  That means forgoing Monday night football in order to actively voice your concerns at city council meetings, turning off the television and spending an hour reading your local newspaper (if you still have one that reports local news) from front to back, showing your displeasure by picketing in front of government offices, risking your reputation by speaking up and disagreeing with the majority when necessary, refusing to meekly accept whatever the government dictates, reminding government officials—including law enforcement—that they work for you, and working together with your neighbors to present a united front against an overreaching government.

  Unfortunately, we now live in a ubiquitous Orwellian society with all the trappings of Huxley’s A Brave New World. We have become a society of watchers rather than activists who are distracted by even the clumsiest government attempts at sleight-of-hand.

  There are too many Americans who are reasonably content with the status quo and too few Americans willing to tolerate the discomfort of a smaller, more manageable government and a way of life that is less convenient, less entertaining, and less comfortable.

  It well may be that Huxley was right, and that the final revolution is behind us. Certainly, most Americans seem to have learned to love their prison walls and take comfort in a dictatorship without tears.

  

  

  

  

  

• In "Very Unusual" Move, Avenue Capital's Junk Bond Fund Stops Reporting Asset Levels

  A month after we first noted the major redemptions at Avenue Capital Group's credit fund (note this is a different fund from Third Avenue), and just one trading day after CEO Marc Lasry strolled arrogantly on to CNBC and told the public that "I don't think it's a time to panic, I think it's actually a time where you've got opportunities out there," Morningstar reports the Avenue Credit Strategies Fund has failed to report asset levels since about mid-December.

  As we noted first in mid-December…

  What is just as surprising is that among its investments, Lasry does have a mutual fund, in fact two of them – the Avenue Credit Strategies Funds, an open- and close-ended fund, which as we first showed last Friday using the following Morningstar table, are not only among the worst performers year to date, but have tumbled by a whopping 9% in the past three months.

   

  

   

   

  Fast forward to last night when according to Reuters, Avenue's founder, billionaire Marc Lasry, was forced on Monday to back the junk bond mutual fund hemorrhaging assets at his Avenue Capital Group "as jittery investors exit high-yield bonds amid a market rout."As a result, the size of the fund has been cut by more than half, sliding from $2 billion to just $884 million according to Lipper, roughly the same size where Third Avenue's own high yield fund was when it announced it would liquidate and gate investors.

   

  Despite his defensive posture, Lasry hardly sounded too enthusiastic about the pace of outflows: "I think overall redemptions at some point are going to slow down across the market," Lasry said. "I'm not sure if that will be tomorrow or next week, but people are going to start putting money back into the market at some point."

  And then just last Friday, CEO Lasry ventures on to CNBC to calm the panic and claim all is well as his fund was imploding…

  …despite recent worries, Lasry struck a cautiously optimistic tone on the U.S. economy.

   

   

  "I don't think we're going into a recession, I think it's whether we're growing at 1 or 2 percent," he said. "So the fact that you've got lower GDP, that's fine, but at the end of the day the U.S. economy is doing fine."

   

  In fact, the hedge fund manager said, there are good openings for discerning investors.

   

  "I don't think it's a time to panic, I think it's actually a time where you've got opportunities out there. Invest in solid companies and you'll end up doing pretty well," Lasry said.

   

  The expert investor said he sees "a ton of opportunities" in the energy sector — but not in equities. Instead he said his firm is buying debt that sees a coupon of about 12 percent "while you're getting paid to wait."

   

  He projected that, in the next two to five years, "you're either going to get paid off, or you'll end up owning these companies" as debt is converted into equity.

  We were not the only one to notice Lasry's hypocrisy…

  So Lasry – a big HY mutual fund holder – sees no big problem in HY market… Surprise!

  — Tim Backshall (@credittrader) January 8, 2016

   

  And now, as Reuters reports, in what is clear evidence of a run on his fund,

  A junk bond fund run by billionaire Marc Lasry's Avenue Capital Management, which has experienced heavy investment losses and investor withdrawals, has stopped voluntarily reporting daily asset figures to the mutual fund industry's top two tracking firms.

   

  Research chiefs for Morningstar and Lipper said on Monday they had not received daily asset under management figures from the Avenue Credit Strategies Fund since about mid-December. The fund is not required to report the figures, but not doing so is "very unusual," said Jeff Tjornehoj, head of Americas research for Lipper, a Thomson Reuters unit.

   

  People familiar with the situation said outflows from the Avenue Capital fund had become a distraction after an unrelated junk bond fund in early December imploded. Junk bond investors already were on edge, pulling $3.6 billion from high-yield funds in November, according to Morningstar data.

   

  The Avenue Credit Strategies Fund has lost about 40 percent of its $1.2 billion in assets since the end of October. The fund currently has about $650 million to $700 million in assets, with about 15 percent in cash holdings and less than 5 percent in illiquid investments, according to people familiar with the situation. Avenue Capital was not immediately available to comment.

  And so another one bites the dust and the forced expulsion of assets into an already illqiuid market continues (unless, like Third Avenue, the SEC grants them exemption from providing liquidity to their clients – the moms-and-pops of America – who were forced by Fed repression into these risky assets, only to eat the losses on the way out)

  The only question is whether Lasry, who is a close personal friend of the Clintons – recall Chelsea Clinton launched her "career' by working as an "analyst" at the very same Avenue Capital in the mid-2000s – and who was slated to become US ambassador to France until his ties to a shady poker ring were exposed in 2013, will use his executive privilege and request special treatment by the former, and soon future, first family. 

  

  If so, that will be the first case of a hedge fund bailout by the presidential family in history, and will make the political farce that are US capital markets even more comical.

  

  

  

  

  

• Record Numbers Of Retired Americans Are Working Part-Time Jobs

  Every other aspect of the US economy may be going to hell in a handbasket, with an acute manufacturing recession starting to spill over into the services sector, but at least the US jobs number is “stellar”, right?

  Wrong.

  We showed one way how the BLS fudges the number higher, when we reported on Friday that of the surge in December jobholders, a whopping 324,000 of these new “jobs” were by multiple jobholders, as in 1 person = 2 (or more) jobs, effectively cutting the job gain in half (or worse). Worse, the total number of jobholders surged to 7.738 million, just shy of an all time high, and the highest since August 2008.

  

   

  And then there is this.

  According to a Bloomberg report, a record number Americans who are retired (or are collecting Social Security) worked part-time last month.

  In December, a record 2.6 million workers had either reached full retirement or restricted themselves to work-weeks of 34 hours or less due to Social Security income limitations. Individuals can collect Social Security and work with no limit on earnings once they reach full retirement age. However, if they receive Social Security before full retirement age they will lose some of their benefit if they exceed the annual earnings limit. For 2016, this cap is $15,720. The penalty is a $1 deduction in Social Security for every $2 earned above the limit.

  

   

  What is most disturbing, is that this is the “data” the Fed uses to justify to the world that its decision to hike rates was the right one. Meanwhile, anyone who is not an economist will take on look at the above charts and realize why 7 years ino the “recovery” there has been no wage growth, and why the Fed is shooting itself both in the leg and in the head by hiking at this point.

  

  

  

  

  

• "Neo-Nazis" Attack German Muslim Businesses As Ghost Of 1939 Beckons

  On Saturday, some 1,700 people turned out for a PEGIDA rally in Cologne, where demonstrators protested Chancellor Angela Merkel’s open-door migrant policy in the wake of the sexual assaults that occurred on New Year’s Eve in the city center.

  Ultimately, riot police were called in to disperse the crowds who held signs calling for the expulsion of “Rapefugees” and the ouster of Merkel.

  Subsequently, reports indicated that gangs of “bikers, hooligans, and bouncers” used Facebook to coordinate a migrant “manhunt” that led directly to attacks on a group of Pakistanis in Cologne.

  All of this points to the rapid disintegration of German society in the face of a refugee influx that numbers some 3,000 new asylum seekers per day.

  On Monday, the backlash against Mid-East refugees continued as thousands gathered in Leipzig to protest for and against the city’s local PEGIDA chapter. Here’s Deutsche Welle:

  LEGIDA members took to the streets on Monday to commemorate the first anniversary of the founding of their chapter, as well as to protest against the recent New Year’s Eve sexual assaults in Cologne.

   

  “We are the people” “Resistance!” and “Deport them!” chanted the sign and flag-toting LEGIDA crowd. “Refugees not welcome!” read one sign, showing a silhouette of three men armed with knives pursuing a woman, while another declared “Islam = terror”.

   

  In another area of the city, riots broke out when around hundreds of soccer “hooligans” started rioting in the district of Connewitz. The neighborhood is considered to be the stronghold of the leftist scene in Leipzig.

   

  Rioters allegedly set of pyrotechnics and threw rocks at display windows.

   

  In a tweet following the riot, police reported: “We have arrested around 250 people from the ‘right-wing clientele’ after the riots. The situation is under control.”

  Lutz Bachmann – who nearly Plaxico’d his own cause last year by posting a picture of himself dressed as Hitler on Facebook – reportedly attended the rally. “Well over 2,000 anti-Muslim LEGIDA protestors took to the streets, their ranks swelled by anger over the Cologne attacks,” Reuters writes. “They yelled ‘Merkel needs to go!’ and one carried a sign featuring Merkel wearing a hijab and the words: ‘Merkel, take your Muslims with you and get lost'”. Here are some images from the chaos:

  As #Legida marched, tens of ‘Neo-Nazi football hooligans’ went on a rampage in #Connewitz, #Leipzig. pic.twitter.com/VT0yaVZT4M

  — Harry Fear (@harryfear) January 11, 2016

  Police say around 30 Neo-Nazis were encircled, identified and arrested. Businesses inc. a Kebab shop were targeted. pic.twitter.com/xngdGpRJyI

  — Harry Fear (@harryfear) January 11, 2016

  VIDEO: Inside of kebab shop attacked in Neo-Nazi trail of destruction in #Connewitz. Looks like a drone has struck. pic.twitter.com/hoGb8uU7HM

  — Harry Fear (@harryfear) January 11, 2016

  

  

  

  As Deutsche Welle goes on to note, “anti-LEGIDA protesters formed a ‘chain of lights’ which stretched for 3.5 kilometers (2.2 miles) around the city center [where] ip to 2,800 people took part in the protest against the xenophobic group.”

  “We have to take to the streets so long as people continue to make racist arguments,” Leipzig’s Mayor Burkhard Jung said.

  So once again we see that German society is splintered and the nationalist, right-wing PEGIDA movement is gathering strength. As surreal as it may sound, it now appears that there is a very real chance that Berlin’s open-door migrant policy may actually be the spark that reignites the Reich in Germany. 

  That means that for Merkel, there’s much more at stake here than the political reputation of Europe’s most important politican. The clock is ticking. Dear Iron Chancellor: save your country before 1939 rears its ugly head.

  

  

  

  

  

• "Unprecedented Demand" – US Mint Sells Nearly As Much Gold On First Day Of 2016 As All Of January 2015

  While Chinese residents were lining up in front of banks and currency exchange kiosks, desperate to convert as many of their Yuan into dollars as the government will permit, Americans were likewise busy exchanging their own paper currency, so greatly in demand in China, into gold and silver.

  As Reuters reports, American Eagle silver coin sales jumped on Monday after the U.S. Mint said it set the first weekly allocation of 2016 at 4 million ounces, roughly four times the amount rationed in the last five months of 2015, after a surge in demand. It will not be enough.

  According to the Mint, more than half of the week’s allocation of silver sold on Monday, the first day of 2016 sales, a sign that demand entering 2016 is literally off the charts.

  Putting the silver demand in context, the 2.76 million ounces of silver bullion coins sold today is exactly half of the 5.53 million ounces that sold in all of January 2015.

  

  Needless to say, if the demand from the first day of the month continues through the end of January, the first month of 2016 will set an all time record in silver sales.

  And gold.

  First-day sales of American Eagle gold bullion coins was also unprecedented, with the 60,000 ounces sold equal to roughly 75% of the 81,000 that sold in the entire month of January 2015.

  

  As reported previously, the mint ran out of American Eagle silver coins in July because of a “significant” increase in demand as spot silver prices fell to a six-year low. Inventory was replenished in August and sales resumed. But the coins were on weekly allocations of roughly 1 million ounces for the rest of the year because of low supplies.

  This dramatic surge in demand, we noted out at the time, was a shock and a paradox to equity investors and momentum stock chasers, who seek to dump an asset the cheaper it gets, contrary to what has happened with physical metals for the 4th year in a row. It is amazing that at least some investors still act according to the fundamental laws of supply and demand.

  It wasn’t just the US: the unexpected surge in demand put the global silver-coin market in an unprecedented supply squeeze, forcing other mints around the world to ration sales, while U.S. buyers had to look abroad for supplies.

  Should the epic demand for precious metals from the first day of sales persist, we are confident that the Mint will run out of gold and silver within a few days.

  

  

  

  

  

• "Fasten Your Seatbelts" – UBS Warns Of "Record Spikes In Volatility" If This Level Breaks

  Having warned earlier in the week of the potential for a significant crash in US equities and the appeal of owning gold, UBS goes one further in their recent report warning of "record spikes" in volatility should the following levels break…

  Generally, the late September bottom in equities has an absolutely pivotal character for a lot of markets. In Europe, the September low represents the 2009 bull trend. In the Russell-2000 or the MSCI World, it is the neckline of a huge head & shoulder formation and in the S&P-500 it is an obvious double bottom, which would be negated as well as breaking the 32-month moving average.

  

  Analytically, this moving average has a very good track record in signaling whether the US market is still in a bull market or not. Even the 1987 crash was just a pullback and mean reversion to this moving average, whereas in 2001 and 2008 the break of the 32-month average was confirmation that a real bear market had started.

  So regardless of when we get this signal, a break of the late September low at 1867 in the S&P-500 would be the ultimate confirmation that the US market is also in a real bear market and in this case we would recommend to fasten your seatbelts.

  

  If we look into the macro world we are obviously living in a world of extremes. We have record debt in the Emerging Market complex, in Europe, in Japan and in the US; with margin debt in the US at record levels, M&A hitting record levels, record ETF holdings in corporate bonds, record auto loans in the US, and the list continues.

  We would be surprised that in this highly leveraged world, in combination with a structural decline in market liquidity, a 7-year cycle decline would just be mild. We think it’s actually just the other way around and in this context we see last year’s rise in volatility as just the start of a period with exceptionally high volatility where we wouldn’t be surprised to see record spikes in volatility over the next 12 to 17 months. So another key call we have for the next 12 to 15 months is to be long volatility.

   

  

  Particularly with regards to the ongoing bear market in high yields, we think that volatility in equities is too low and this will be one of the key charts for 2016. 

  Last year we argued that we generally see all these divergences as a leading indicator for an important top in global equities. 12 months later we are in the next phase of the global rolling over process, where we see more and more markets having already fallen into a bear market, and where on the other hand we can clearly say that without a new momentum impulse coming from the fundamental world the air for the remaining outperformer markets will get increasingly thin.

  Source: UBS

  

  

  

  

  

• Chicago Schools In "Dramatic Trouble": "They're Looking At A Disaster," Illinois Governor Warns

  Back in September, we noted that Chicago’s schools are in trouble. Deep trouble.

  Amid Illinois’ intractable budget crisis, the city’s public school system opened with a budget shortfall of nearly a half billion dollars.

  Borrowing and trimming the proverbial fat helped close some of the $1.1 billion hole but once the board reached the point where “further cuts would reach deep into the classroom” (to quote system chief Forrest Claypool), the schools asked Springfield to make up the difference which amounts to $480 million.

  The Chicago Public School (CPS) system has nearly 400,000 students and more than 20,000 teachers. Around 1,400 jobs were eliminated in an effort to save money and more layoffs may be just around the corner if Springfield – which is mired in budget gridlock – doesn’t step in.

  One problem is the CPS pension liability. As WSJ noted four months ago, “the district’s pension costs have more than doubled in recent years after the board took a partial ‘holiday’ for three years from paying the amount needed to put the retirement system on a path to long-term solvency.”

  “It is like the board is a desperate gambler at the end of their run,” remarked Jesse Sharkey, vice president of the Chicago Teachers Union.

  Governor Bruce Rauner wants nothing to do with bailing this “desperate” bunch of “gamblers” out. “Let’s be clear Chicago Public Schools are in dramatic trouble,” he said last week. “They’re looking at a disaster somewhere in the next nine months in the Chicago public schools.” As Bloomberg reminds us, “CPS is the only state district that pays for its teachers pensions.”

  Rauner went on to predict that Springfield would be blamed if (or perhaps “when” is the better word) disaster finally strikes: “For them to say ‘hey you owe it to us, it’s Springfield’s fault, pick up our pension liability and let us kick the can in the rest of our pension liability, no, no, not happening.”

  “No, no, no,” and that means it’s back to the bond market for CPS, where investors are set to punish the board for their abysmal financial predicament.

  As Bloomberg goes on to note, the system’s GO debt is trading near its lowest levels since September and the Chicago Tribune’s editorial board isn’t happy about it. “While Springfield yawns, CPS borrows money it shouldn’t, at rates that it (read: that taxpayers) can’t afford,” the Tribune lamented, in a piece written late last week. “The cost of that borrowing now is nosebleed steep: CPS recently agreed to shell out 10 times the interest rate that a healthy district would typically pay its lenders. Ten. Times.”

  

  Here’s more:

  But CPS won’t stop. The district plans to sell as much as $1.2 billion of debt later this month. The rate CPS pays again will be punishing.

   

  Punishing, that is, to nearly 400,000 school children. Every dollar CPS spends on debt service cannot be spent on classrooms, teachers, books — education.

   

  That is, every dollar that pays back this astonishing level of borrowing, for years on end, won’t go to teaching kids.

   

  The ephemeral Springfield bailout? Prospects for that are as grim as ever.

   

  Gov. Bruce Rauner says he will help CPS if Democrats in the legislature grant some of his demands for political and government reforms that public employees unions oppose.

   

  In the last week, a frustrated Emanuel has accused Rauner of using Chicago schoolchildren as pawns “in a political game in Springfield to get an agenda done that people don’t agree with.”

   

  Chicagoans have heard this accusation from Democratic politicians for months now. But Rauner (you, unlike Madigan and Cullerton, may recall that he won the 2014 election for governor of Illinois) evidently won’t be bullied or bought off. The Democrats in Springfield and, yes, Chicago will have to deal with his demands. They will have to compromise. To the extent any pol uses those children as pawns, everyone in this tragicomedy uses them as pawns. None more, none less.

   

  CPS officials said Friday that layoff notices for central office staffers should start going out by mid-January.

   

  CPS bonds are rated as junk. More downgrades seem likely. Even higher interest rates loom.

   

  Claypool told us last month that he expects “at some point” lenders would stop lending to CPS. “You build such a deep amount of cash debt that you can’t ever pay it back.”

  Right. Which means a taxpayer bailout here is inevitable whether it’s through an outright cash injection from Springfield, higher taxes, or both. As a reminder, Chicagoans are already the most-taxed residents in Illinois.

  

  “Politicians in City Hall arrogantly assume that Chicagoans will stomach more and more tax hikes,” Illinois Policy writes. “The expectation of higher property taxes to bail out the city’s other pension funds and the nearly bankrupt state of Chicago Public Schools will only make out-migration worse.”

  In other words, Springfield doesn’t want to help (and even if they did, the budget boondoggle would probably constrain Rauner’s ability to help) and taxpayers in Chicago are already grossly overburdened. Meanwhile, CPS is on the brink of being priced out of the bond market.

  With no viable options, the base case is now that described by Chicago Democrat John Cullerton last year: the system will lose 3,000 teachers and will be forced to shorten the academic year. 

  

  

  

  

  

• Rand Paul Rages "The Fed Is Crippling America"

  Authored by Senator Rand Paul and Mark Spitznagel, originally posted at Time.com,

  The country deserves to understand the extent of its balance sheet

  On Jan. 12, Congress is scheduled to vote on the “Audit the Fed” legislation (H.R. 24/S. 264), which, if passed, would bring to an end to the Federal Reserve’s unchecked—and even arguably unconstitutional—power in the financial markets and the economy.

  We aren’t the first to be wary of the powers of central banks. Founding Father Thomas Jefferson viewed the powers of central banks as being contrary to the protections of the Constitution. As Jefferson wrote:

  “I sincerely believe that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”

  In a similar vein, the great Austrian economist Ludwig von Mises also recognized that limiting government power in the realm of money was a matter of liberty, not merely economics. Mises explained that

  “the idea of sound money … was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights.”

  How far we have come as a country that these words from Jefferson and Mises sound so foreign today. Perhaps we have all been blinded by the credit and equity bubbles that surround us. But what better wake-up call to rally support for legislation that would shine a bright light on the government institution that today has created these bubbles, subsidizes small subsets of the population (thus amplifying wealth inequality), and enables endless government debt?

  The Fed was intended to be an apolitical body, a concession to placate the naysayers. But today, the Fed isn’t even shy about entering the political fray: witness Federal Reserve Chair Janet Yellen’s income inequality speech riddled with Democratic talking points during the 2014 elections.

  The Fed is, indeed, a political, oligarchic force, and a key part of what looks and functions like a banking cartel. During the 2007-08 financial crisis, the Fed’s true nature was clear to anyone paying attention. As the Treasury began bailing out the investment banks from the consequences of their profligate risk-taking (and in some cases fraudulent schemes), the Fed moved in tandem, further purchasing the underwater assets of these institutions, as well as actually paying interest to the commercial banks (hemorrhaging from risky loans) for reserves they kept parked at the Fed.

  To be sure, Fed officials came up with opaque jargon to describe such operations, but the stark reality is that the Fed was treating risky assets as good collateral, and in the fall of 2008 began literally paying banks to not make loans to their customers.

  Even today, the recent policy announcement has doubled the rate of this massive implicit taxpayer subsidy to the banks – what they call “interest on reserves.” In the textbook rate-hike case, the Fed sells off assets (or slows the rate of purchases) in order to reduce the supply of reserves. Then, the equilibrium price of borrowing reserves (i.e., fed funds rate) rises. In contrast, now and for the foreseeable future, as indicated by the Fed’s guidance statements, the Fed is raising rates by increasing interest on reserves.

  As of Dec. 17, the Fed is paying 50 basis points on both required and excess reserves. So the Fed, itself, is increasing how much it will pay to “borrow” reserves from the commercial banks. Given the estimated $2.6 trillion in excess reserves, at 50 basis points that means the Fed will be paying commercial banks some $13 billion in annual income. Right now, the Fed is paying the same on required and excess reserves, though that in principle could differ.

  As the Fed keeps raising interest rates through this same mechanism, the amount paid to commercial banks will only mushroom. You can forgive analysts for not discussing this; it was not even mentioned in the Fed’s Dec. 16 announcement.

  As the Fed pays commercial bankers more in interest payments, there is dollar-for-dollar less for the Treasury; in other words, for a given level of federal expenditures, the deficit is that much higher. Therefore, the U.S. taxpayer is subsidizing commercial banks to not make loans to their customers—or rather bribing them to charge their customers higher interest rates on loans. And, the U.S. taxpayer is going deeper into debt to provide this bank subsidy.

  This is but one aspect of the farce that is today’s Fed policy. In addition, we actually don’t know the full extent of or the precise recipients of the Fed’s asset purchases and bailouts as its balance sheet exploded from about $900 billion in August 2008 to almost $4.5 trillion today.

  Now, the Fed has painted itself into a corner. It can’t sell off its bloated balance sheet for fear of crashing the mortgage-backed securities market—and, indirectly, real estate—and it can’t sell off its treasury holdings because that would push up treasury yields and increase the servicing cost of U.S. debt. This is partly the reason the Fed has chosen to raise rates by paying bankers more.

  If treasury yields rise, then the market value of existing treasury securities goes down. The Fed currently holds about $2.5 trillion (all maturities) of treasuries. At the same time, the Fed’s capital is at most $67 billion or so. Given that the Fed is levered to the hilt, if treasury yields go up too much, Fed is bankrupt in an accounting sense.

  Most dangerous of all, global credit and equity markets have been manipulated by central bank policies to levels that are unsustainable and highly crash-prone.

  Clearly, the country needs to understand fully the extent of the Fed’s balance sheet: what it holds and from whom it was acquired, as well as all of the Fed’s other activities and conceivably even more dangerous shenanigans afoot.

  We can’t really know what we don’t know until we look. We owe it to the “swindled futurity” of the next generation to take a long, hard look through a full and independent audit of the Fed.

  

  

  

  

  

• The Cost Of China's "Neutron Bomb" Exploding: $7.7 Trillion And Higher

  On Friday we presented Kyle Bass’ latest interview in which the Texas hedge fund manager explained the reasoning why he thought shorting the Yuan is the “greatest investment opportunity right now.” The crux behind the argument was well-known to Zero Hedge readers, namely China’s peaking credit cycle driven by soaring bad, or non-performing, loans which have so far been swept away, but which courtesy of a $35 trillion financial system are nothing short of a “neutron bomb“, as we first dubbed the embedded risk, waiting to go off. Here is Bass:

  What I think the narrative will swing to by the end of this year if not sooner, is the real issue in China is not simply that profits have peaked. The real issue is the size of their banking system. Do you remember the reason the European countries ended up falling like dominoes during the European crisis was their banking systems became many multiples of their GDP and therefore many, many multiples of their central government revenue. In China, in dollar terms their banking system is almost $35 trillion against a GDP of $10 and their banking system has grown 400% in 8 years with non-performing loans being nonexistent. So what we are going to see next is a credit cycle, and in a credit cycle you see some losses, but if China’s banking system loses 10%, you are going to see them lose $3.5 trillion.

  Today, months after we first covered the breadth of this most disturbing for Chinese bulls topic, the FT caught up with this critical, for China’s financial system, issue and reports that “the downturn in China’s fortunes — particularly across its heartland heavy industry — is already hitting the banks. Annual non-performing loan rates have been doubling annually since 2012. China Merchants Bank, China Everbright and ICBC are seen as among the most troubled.”

  That’s based on official data, which is grotesquely low and completely fabricated. The true NPLs data is well-hidden by everyone from the lowliest bank teller to the Politburo in Beijing, who all know that merely the recognition of the problem would be sufficient to spark if not a full-blown panic then certainly accelerate capital outflows form the nation to an unstoppable degree, especially if the latest estimate which we presented last November from Fitch’s Charlene Chu, of 21% in non-performing loans, is accurate.

  Back to the FT which notes that “China bulls point to the still low level of NPLs — barely 1 per cent at the big lenders, and 1.8 per cent at mid-tier banks this year, according to analyst forecasts. As a gauge, NPLs in Greece have risen to between 30 and 40 per cent amid that country’s crisis” but then adds that “China experts at independent research house Autonomous suggest investors are underestimating a spiralling problem. Across the board, loan losses will rise by $845bn this year, Autonomous predicts. That, they think, will be enough to shrink profits by 6 per cent at big banks.”

  Actually if Fitch is right, the problem is in the trillions, but let’s assume a more modest figure. Here is what the FT says next:

  Some policymakers are privately worried about yet another underestimated issue — whether loan losses, when they materialise, will be recoverable. In western banking markets, so-called loss given default rates can typically range between 30 and 70 per cent. In China, where property accounts for the bulk of collateral used to back loans, LGDs may be far higher. Even if inflated property values do not collapse, collateral values may prove far too optimistic. In China’s nascent property ownership culture, the land on which developments are built is typically state-owned, limiting recovery values.

  Considering that one of the biggest scandals in China in 2014 was the realization (as many had warned previously) that millions of tons of commodities were rehypothecated countless times, and thus “pledged” as collateral to numerous counterparties, and that as a result these same counterparties were unable to make sense of who owns what at one of China’s largest ports, Qingdao, it is probably quite safe to assume that LGDs in China are if not 100% (or more, which is impossible in theoretical terms but in practice is quite possibe, as another curious side effect of unlimited collateral rehypothecation), then as close to it as possible.

  So putting all that together, and using a conservative estimate for NPLs, orders of magnitude below the 21% proposed by Fitch, what is the FT’s estimate of China’s “conservative case” neutron bomb going off in financial terms? Just about $7.7 trillion.

  Investors in China’s banks may well recognise that the lenders cannot be compared with institutions that operate along western lines and will expect hazier disclosures and readier state interference. They are also likely to think that China will not allow its banks to fail. But if analysts, like those at Autonomous are to be believed, China’s banks could require up to $7.7tn of new capital and funding over the next three years. State bailouts could send the government debt to GDP ratio spiralling from 22 per cent to 122 per cent. That kind of shock would be a challenge for any country, even one of China’s vast might.

  Again, this is the conservative NPL case. Now assume 21% NPLs.

  

  

  

  

  

• Meet Manifa (And Other Giant Oil Projects) That Will Add To The Global Oil Glut

  Via GEFIRA,

  World oil consumption is more than 90 million barrels a day. Between 2009 and 2014 oil was traded for about 110 dollars a barrel; now oil is changing hands for 32 dollars a barrel. Roughly a 7-billion-dollar cash flow a day is vanishing from the global market.

  Norway’s sovereign wealth fund that has accumulated a stake of 4.5 billion dollars in Apple over the past years, will turn from an Apple buyer into an Apple seller.

  The China Development Bank (a Chinese policy bank) has poured nearly 50 billion dollars into Venezuela in return for oil, with the country now collapsing under the Chinese debt, having no other choice but to drill for more oil.

  These are just some of the challenges the world is facing in 2016 as oil prices are heading towards 20 dollars a barrel.

  Speculators and manipulators were able to manipulate the oil price to more than 120 dollars a barrel,  with the production cost being roughly between 20 and 80 dollars. With a huge profit margin the world was digging for more and more liquid gold.

  *  *  *

  Kashagan: The $50 Billion Oil Development That Doesn’t Work

  Shell, Total S.A., Exxon Mobil and China National Petroleum Corporation are now stuck with a 50-billion-worth project in the Caspian Sea, called Kashagan. The project is full of problems and delays, but is expected to add 300.000 barrels of oil a day to the global oil glut the coming year.

  The field is developed by the international consortium under the North Caspian Sea Production Sharing Agreement. The Agreement is made up of 7 companies consisting of Eni (16.81%), Royal Dutch Shell (16.81%), Total S.A. (16.81%), ExxonMobil (16.81%), KazMunayGas (16.81%), China National Petroleum Corporation (8.4%), Inpex (7.56%). The initial production is expected to be 90,000 barrels per day (14,000 m3/d). It should reach a production rate of 370,000 barrels per day (59,000 m3/d) Source Wikipedia

   

  Prelude

  2016 will also be the inauguration of Shells Prelude, the world’s first floating liquefied natural gas platform as well as the largest offshore facility ever constructed. We expect the media to give limited coverage to its inauguration.

   

  Prelude FLNG is the world’s first floating liquefied natural gas platform as well as the largest offshore facility ever constructed. Prelude FLNG was approved for funding by Shell in 2011. Analyst estimates in 2013 for the cost of the vessel were between US$10.8 to 12.6 billion. Pressures from an increase in the long-term production capabilities of North American gas fields and increasing Russian export capabilities may reduce the actual profitability of the venture from what was anticipated in 2011. Source Wikipedia

   

  Manifa

  While the media attention was directed to the shale oil boom in the US, the Saudis created a giant offshore oil project called Manifa. With one single project Manifa added 1 million barrels a day to the world oil glut. Manifa will expand its capacity the coming year, adding a further 500 million barrels a day to world markets.

   

  The project is part of the development of the Saudi oilfields, which are expected to see an increase in production to over 12.5 million barrels a day from 11 million barrels a day. The first phase of the project began production in April 2013. The field produced 500,000bpd by July 2013. It will produce 900,000bpd of crude oil once fully completed by the end of 2014. Additionally, there will also be production of 90 million standard cubic feet per day of sour gas, 65,000bpd of gas condensate, and water. Source Offshore Technology

  There are plans to extend the project with a further 500 barrels a day capacity.

  *  *  *

  ZH: With global storage levels at their limit, these massive projects (and their sunk-cost desperation for cash-flow) will add already extreme pressure an over-supplied market in which, as Morgan Stanley notes, "oil has no intrinsic value."

  

  

  

  

  

  

• Why The Powerball Jackpot Is Nothing But Another Tax On America's Poor

  Now that the Powerball Jackpot has just hit a record $1.4 billion, people, mostly those in the lower and middle classes, are coming out in droves and buying lottery tickets with hopes of striking it rich.

  

  After all, with $1.4 billion one can even afford enough shares of Apple stock to become a bigger holder than the Swiss National Bank (alterantively, one can buy a whole lot of VXX).

  

  Naturally, we wish the lucky winner all the (non-diluted) best. There is, however, a small problem here when one steps back from the trees. As ConvergEx’ Nicholas Colas previously explained, “Lotteries essentially target and encourage lower-income individuals into a cycle that directly prevents them from improving their financial status and leverages their desire to escape poverty.  Yes, that’s a bit harsh, and yes, people have the right to make their own decisions.  Even bad ones…  Also, many people tend to significantly overestimate the odds of winning because we tend to assess the likelihood of an event occurring based on how frequently we hear about it happening.  The technical name for this is the Availability Heuristic, which means the more we hear about big winners in the press, the less uncommon a big payday begins to seem.” Call it that, or call it what one wishes, the end result is that the lottery is nothing but society’s perfectly efficient way of, to use a term from the vernacular, keeping the poor man down while dangling hopes and dreams of escaping into the world of the loathsome and oh so very detested “1% ers”. Alas, the probability of the latter happening to “you” is virtually non-existant.

  Full explanation from Convergex’ Nick Colas on how and why Americans are lining up in lines around the block to… pay more taxes.

  What Seems To Be Is Always Better than Nothing

  Summary: American adults spent an average of $251 on lottery tickets.  With a return of 53 cents on the dollar, this means the average person threw away $118 on unsuccessful lotto tickets – not a great investment.  So why are we spending so much?  Well, lotteries are a fun, cheap opportunity to daydream about the possibility of becoming an overnight millionaire (or in this case billionaire), but on the flip side people tend to overestimate the odds of winning.  Lower-income demographics spend a much greater portion of their annual earnings on lottery tickets than do wealthier ones. 

  Since lotteries are state-run, that effectively means that the less affluent pay more in taxes (albeit by choice) than broadly appreciated.  And even winning the lottery doesn’t guarantee financial success.  More than 5% of lottery winners declare bankruptcy within 5 years of taking home the jackpot.  Despite their drawbacks, though, lotteries are no doubt here for the long haul – in states that have lotteries, an average of 11% of their total revenues come from lottery ticket sales, and the number is even as high as 36% in 2 states (West Virginia and Michigan).
   
  Consider the following credit-card-advertisement style sequence of statistics:

  • Lottery ticket sales in the US in 2010:  $59 billion
  • Average spending per person:  $191
  • Average spending per adult:  $251
  • Chance at hitting the jackpot:  (Apparently) priceless.

  I have never bought a lottery ticket and honestly don’t even know how.  And as far as I’m aware, I don’t know anyone who spends north of 200 bucks a year playing the lotto.  The only lottery my friends play is the NYC marathon lottery, where they’re gambling for maybe a 1 in 13 chance to fork over $255 for the privilege of slugging out 26 miles through the city’s streets.  Not quite hitting the jackpot in most people’s minds. 
   
  But someone, somewhere is buying all those tickets.  In Massachusetts, where the lottery is more popular than in any other state, people spend an average of $634 a year on Mega Millions, Powerball and the like.  Delaware comes in at number 2 with $504 spent per person, while Rhode Island ($469), West Virginia ($388) and New York ($357) round out the top 5.  North Dakota brings up the rear with per capita lottery spending of $34.  You can see the full list in the table following the text. 
   
  It’s difficult to pinpoint exactly who is investing so much money in a product that provides poor returns, but numerous studies show that lower-income people spend a much greater proportion of their earnings on lotteries than do wealthier people.  One figure suggests that households making less than $13,000 a year spend a full 9 percent of their income on lotteries.  This of course makes no sense – poor people should be the least willing to waste their hard-earned cash on games with such terrible odds of winning. (http://www.dailyfinance.com/2010/05/31/poor-people-spend-9-of-income-on-…).
   
  Why bother?  Well, one answer is obvious enough and applies to just about everyone who plays.  For a buck (now $2 for Powerball) we have a cheap opportunity to daydream what could happen if we suddenly won millions of dollars.  But lotteries return 53 cents to the dollar.  So why are poor people irrationally buying tickets when the probability of winning is so slim?  One study by a team of Carnegie Mellon University behavioral economists (Haisley, Mostafa and Loewenstein) suggests it isn’t being poor but rather feeling poor that compels people to purchase lotto tickets.
   
  By influencing participants’ perceptions of their relative wealth, the researchers found that people who felt poor bought almost two times as many lottery tickets as those who were made to feel more affluent.  Here’s how they did it:

  • Participants were asked to complete a survey that included an item on annual income.  One group was asked to provide its income on a scale that began at “less than $100,000” and went up from there in increments of $100,000.  It was designed so that most respondents would be in the lowest category and therefore feel poor. 
  • The other group, made to feel subjectively wealthier, was asked to report income on a scale that began with “less than $10,000” and increased in $10,000 increments.  Therefore most participants were in a middle or upper tier.
  • All participants were paid $5 for participating in the survey and given the chance to buy up to 5 $1 scratch-off lottery tickets.  The group who felt wealthier bought 0.67 tickets on average, compared with 1.27 tickets for the group who felt poor.

  Lotteries essentially target and encourage lower-income individuals into a cycle that directly prevents them from improving their financial status and leverages their desire to escape poverty.  Yes, that’s a bit harsh, and yes, people have the right to make their own decisions.  Even bad ones…  Also, many people tend to significantly overestimate the odds of winning because we tend to assess the likelihood of an event occurring based on how frequently we hear about it happening.  The technical name for this is the Availability Heuristic, which means the more we hear about big winners in the press, the less uncommon a big payday begins to seem.   
   
  Not that hitting the jackpot is guaranteed to substantially improve the winner’s life.  Economists at the University of Kentucky, University of Pittsburgh and Vanderbilt University collected data from 35,000 lottery winners of up to $150,000 in Florida’s Fantasy 5 lottery from 1993 to 2002.  Their findings are as follows:

  • More than 1,900 winners declared bankruptcy within 5 years, implying that 1% of Florida lottery players (both winners and losers) go bankrupt in any given year, which is about twice the rate for the broader population.
  • “Big” lottery winners, those awarded between $50,000 and $150,000 were half as likely as smaller winners to go bankrupt within 2 years of their win, however equally likely to go bankrupt 3 to 5 years after.
  • 5.5% of lottery winners declared bankruptcy within 5 years of bringing home the jackpot.
  • The average award for the big winners was $65,000 – more than enough to pay off the $49,000 in unsecured debt of the most financially distressed winners.

  Lottery players tend to have below-average incomes, so they are probably less accustomed to budgeting when they receive a windfall.  There’s also a psychological term called Mental Accounting that explains how people might treat their winnings less cautiously than money they’ve worked for.  Money has come into their possession through luck, which similar to bonus payments, often induces an urge to purchase unnecessary items.
   
  But whether you think state lotteries are awful or great, there’s another word for them: essential.  In both West Virginia and Michigan, for example, lottery sales accounted for 36% of total state revenues in fiscal year 2010, and on average state with lotteries take in 11% of total revenues in the form of lotto ticket sales.  We’ve included the full list in a table following the text.  There are still 7 states that don’t have their own lottery systems, so the national average would be lower. 
   
  A couple of closing thoughts on what this all means:

  • Don’t make investment decisions when you are feeling poor.  The study we cited earlier clearly shows that you are likely to buy more “lottery tickets” (think of that as a metaphor for any long shot investment) when you feel less affluent than those around you.
  • Lower income individuals likely pay more in “Taxes” than most economic commentators realize.  Assuming that the 80/20 rule applies to lottery participation, the bulk of that $59 billion in annual receipts likely comes from 20-25 million less affluent households.  That would be about $47 billion from this demographic, or roughly $2,400 per household.  Yes, I get the notion that this money is handed over in the hope of a payoff.  An ill-advised and mathematically unlikely hope, as it turns out.  But does that mean it doesn’t count as a societal contribution?
  • Maybe the U.S. needs a national lottery.  Yes, these games don’t necessarily encourage the best financial planning among the less affluent.  But there is no denying that playing the lottery is entirely voluntary.  There are probably some anti-gaming factions in government who wouldn’t like this approach, to be sure.  But there’s also no doubt that the Federal budget could use the money.  And, hey, you never know…

  

  

  

  

  

  

• The (Uncensored) 2016 State Of The Union

  Submitted by Lance Roberts via RealInvestmentAdvice.com,

  Tomorrow night, the President Obama will deliver his final annual “State Of The Union” address. Just recently, the President gave a preview of his upcoming speech from the White House.

  While Obama promises to frame his speech around the “things we need to do over the years to come,” he will use his bully pulpit to focus on his record of achievements (especially those related to the environment and trade) and push for further restrictions on gun ownership.

  With the 2016 Presidential Election fast approaching, this is one of the final chances the White House will have to give a boost to the Democratic voters following the beating they took in the 2012 mid-term elections. The message sent then, even by traditionally Democratic states which elected conservative representatives, was of a broad loss of faith in “hope and change.”

  For the Democratic party, it is imperative to regain those votes. It is from this priority that the President will paint a decisively positive economic picture during his upcoming speech. He hopes that by pointing to a falling unemployment rates, economic growth and higher confidence levels; it will give voters a sense of confidence in the President’s accomplishments.

  The question is whether the majority of the voting public will agree with the President’s message?

  Before the President takes to the podium with his bullish optimism, he might want to consider the following charts.

  ---

  Government Debt

  Since 2009, Government debt has surged by $7.75 Trillion and by the end of the next budget cycle will approach $20 Trillion in total. The problem is that during the current Presidential term, real economic growth has risen by just $2.08 Trillion. However, even this number is inaccurate as the current government debt levels do not include other liabilities of the government such as social security and other social welfare programs.

  

  The following chart quantifies it a bit better when you look at cumulative increases in debt and real, inflation adjusted, GDP.

  

  Yes, the economy is growing, however, that growth has come at a huge cost of a debt burden that will be amplified if borrowing costs rise with increases in interest rates. Furthermore, considering that President Obama admonished the previous administration’s increase in debt, the explosion in the amount of debt required to generate economic growth (currently $3.71) is unsustainable longer term.

   

  Employment

  The President will address the recent employment report and point to a 5.0% unemployment rate as evidence that the economy “is back.” While the current Bureau of Labor Statistics employment reports do currently show the unemployment rate at 5.0%, that number is obfuscated by the more than 93 million workers that are currently not counted as part of the labor force.

  As I have discussed many times previously, when it comes to economic strength it is full-time labor that leads to household formation and higher consumption.

  Furthermore, the rate of employment must be faster than the rate of population growth, otherwise, you are just treading water. The chart below shows the amount of full-time labor as a ratio of the working age population.

  

  Currently, 49.23% of the population is employed full-time which is a rate lower than when the President entered office. Furthermore, as noted above, the employment ratios are deceiving when you realize that the population has grown faster than employment leaving a rising number of individuals no longer counted as part of the labor force.

  

  

  Importantly, when the employment-to-population ratio or the labor-force participation rate is discussed, the plunging levels in these ratios are often dismissed simply as a function of the “baby boomers” heading into retirement. However, if we factor out those individuals by only looking at the employee-to-population ratio of 16-54 aged individuals as a percent of that age group the picture fails to improve.

  

  While the unemployment rate has certainly plunged to just 5.0%, one would be hard pressed to find 95.0% of the population that “wants to work,” actually working.

  Personal Incomes

  The annual rate of change in personal incomes has been on a decline since the turn of the century.  This is a function of both the structural shift in employment (higher productivity = less employment and lower wage growth) and the drive to increase corporate profitability in the midst of weaker consumption.

  The chart below shows the disparity between corporate profits and employment and wages.

  

  While corporate profitability has surged since the financial crisis, those profits have come at the expense of employees. Since 2009, wages for “non-supervisory employees,” which is roughly 80% of the current workforce has been on a steady decline.

  

  The problem with this, of course, is that the real cost of living continues to rise.

  Government Assistance

  Of course, the issue of declining incomes and rising “income inequality” is really best shown by the level of social benefits as a percentage of disposable incomes today. Today, roughly 1-in-3 households receive some form of government assistance.

  

  It is here that the President will be most challenged in presenting his “economic” story. While he will point to rising asset prices, improved headline employment numbers and economic growth as reasons to be “optimistic,” with almost 80% of the country living roughly paycheck-to-paycheck it will be a hard argument to win.

  Housing

  When it comes to the economy, it is home ownership that is the reflection of economic well-being. Since 2009, the government has poured trillions of taxpayer dollars into the housing market to try and increase activity. The effect of those injections has been marginal to say the least.

  

  However, as I stated above, it is ultimately household formation that leads to higher levels of consumption and stronger economic growth. The current recovery, as shown by the chart below, was NOT driven by individuals buying homes to live in, but rather speculators buying homes, primarily for cash, and turning them into rentals. With homeownership currently near its lowest levels since the early 1980’s, it does not suggest a resurgent economy is in the making.

  

  Economic Prosperity

  However, it is the economic prosperity of an individual that truly determines how they will vote at the polls. A recent Fed Reserve survey of consumer finances shows the real disconnect between Wall Street and Main Street economics.

  

  With net worth, incomes, financial assets and business equity ownership at levels substantially below where they were when the President took office, it is not surprising that the Administration is focused on trying to justify their record.

  While the data, as reported by government agencies, has been massaged, tweaked, and recalibrated to provide more optimistic output, it is hard to fudge the economic standards by which the majority of the country lives with. Like a game of “Civilization,” the recent mid-term elections sent a pretty clear message that the “serfs” are not happy in the “kingdom.”

  Defining The State Of The Union

  While the President will do his best to put a positive spin on the current economic environment, and the success of his policies, when he gives his “State of the Union” address, it would be worth remembering whom he is actually addressing.

  It is also worth considering that much of this is likely the reason that Donald Trump is surging in Conservative polling.

  As with all things – it is the lens from which you view the world that defines what you see. For Wall Street, things could not be better. For Main Street, most everything could be better. The President has a lot of “convincing” to do if he expects to change voter’s attitudes between now and the 2016 Presidential election.

  

  

  

  

  

• What Makes The World Go Around (In 2 Uncomfortably Truthful Charts)

  It’s not the economy (or fundamentals), stupid – It’s The Fed!

   

  So we had a rate-hike, and…surprise – markets puked

  

  Source: NorthmanTrader.com

  
  

  Still think anything other than The Fed matters?

  The S&P 500 has just caught back down almost perfectly to The Fed’s balance-sheet-implied level…

  

   

  With 2016 rate-hike odds collapsing, how long before rate-cut odds start to soar? Or will The Fed do the ultimate to destroy credibility – hike rates (strong growth) at the same time as QE4 (support bonds at the long-end… what a joke)?

  Bonus Chart: What did you think would happen?

  

  Source: @Not_Jim_Cramer

  

  

  

  

  

• The China Syndrome: The Coming Global Financial Meltdown

  Submitted by Charles Hugh-Smith via OfTwoMinds blog,

  All the phantom wealth piled up in China's boost phase is now melting down, and the China Syndrome will trigger a meltdown in global phantom assets.

  
  The 1979 film The China Syndrome took its name from the darkly humorous notion that a nuclear reactor meltdown in the U.S. would burn straight through the Earth to China.
  (wikipedia: The China Syndrome)

  In today's world, the financial meltdown in China has burned straight through the global financial system to the U.S. financial markets. The mainstream financial media is delighted to promote the many links between the U.S. and Chinese economies when the two economies are feeding each other's expansion in a tightly coupled virtuous cycle.

  But once China's slowdown starts impacting the American economy, the mainstream financial media trundles out the usual pundit suspects to declare that the U.S. and Chinese economies are decoupled, so a meltdown in China will have little impact on America–and vice versa.

  The rationalizations for this decoupling are many–and specious. Exports are actually only 10% of China's economy, we're assured, so any slowdown in China will be modest and of little relevance to the U.S. economy.

  Various experts also assure us that China's vast stash of foreign reserves and U.S. Treasuries will enable it to quickly smooth over any spot of bother in its currency (RMB/yuan) resulting from capital flight out of China.

  None of these rationalizations change the fact that China is integral to the global financial markets, and so its slowdown and capital flight are toppling carry trade and other risk-off financial dominoes.

  China is tightly coupled to the U.S. and global economies via capital flows and supply/demand. It's important to understand that demand drives profits on the margins: of ten sales, the first nine sales just cover production and overhead costs; only the last sale generates substantial profits.

  China has provided marginal demand in everything from iron to oil to machine tools. Now that China's demand is faltering, global demand is weakening and profits are collapsing because China provided the critical marginal demand that fueled immense profits.

  This decline in marginal demand is crushing commodity-based economies and triggering recessions as profits, sales and wages all decline.

  The tidal wave of cash flooding out of China has provided marginal demand for high-priced real estate in Europe and the U.S. From London flats to Chateaux in France to single family homes in Vancouver B.C. and Southern California, trillions of yuan have escaped China and flowed into pricey real estate, pushing prices into the stratosphere.

  Now that trillions of yuan of phantom wealth are disappearing in China, those immense capital flows into Western assets are drying up. A staggering percentage of China's household wealth is tied up in illiquid and overvalued real estate. The wealth that is yet to be lost as China's markets transmit the reality that the fuel of financialization has been consumed and the resulting losses will be in the trillions of dollars, not yuan.

  The fundamental context is that China's economy has traced out an S-Curve–as have previous fast-developing nations such as Japan and South Korea.

  The S-Curve can be likened to a rocket's trajectory: first, there's an ignition phase, as the fuel of financialization and untapped productive capacity is ignited.

  The boost phase may last for several decades as credit-fueled production and consumption expand:

  In the boost phase, investors and leaders can do no wrong. The high growth rate of credit and production overwhelms all other factors, as the virtuous cycle of expanding profits and production increases wages which then support further expansion of credit and consumption which then supports more production, and so on.

  But then the fuel of financialization is consumed, and the previously fast-growing economy coasts on momentum. Depending on how much leverage, corruption and wealth has piled up in the boost phase, this phase may last a few years. This is the top of the S-Curve.

  As the economy weakens, the momentum is to the downside. Everything that worked in the boost phase–every investor and leader was a genius and could do no wrong–reverses: nothing works any more. Investors lose every bet and leaders' efforts to reverse the decline are ham-handed failures.

  This decline is inevitable in fast-expanding economies that play fast and loose with credit/debt and leverage. All the phantom wealth piled up in China's boost phase is now melting down, and the China Syndrome will trigger a meltdown in global phantom assets.

  

  

  

  

  

• "Panic Is Building" BofA Admits; Asks "How Bad Could This Get?"

  Just one month ago, Bank of America’s equity strategist Savita Subramanian told Barrons to stay the course and to expect a 2,200 year end target on the S&P based on a year end 125 EPS forecast and an implied 17.6x forward multiple. Incidentally her 2015 year end S&P500 forecast was an identical 2,200.

  It appears that much has changed with the market’s “fundamentals” in the month that followed, because in a note released earlier today, the same Savita, when commenting on the “Worst start ever” to a new year by equity markets, is far less concerned with market upside as she is with analyzing the worst case scenarios.

  Here is her take on “How bad could this get?“

  The risk of a full-blown bear market remains low without a recession, which our economists continue to see as unlikely. The S&P identifies 13 bear markets since 1928, of which 10 have coincided with US recessions. The exceptions were 1961, 1966 and 1987, which (precisely because they did not occur alongside recessions) were relatively short-lived, followed by swift recoveries. In fact, the average 12-month returns from these peaks was -12%, suggesting we would only be a few percentage lower by spring. We advise against panic-selling, and still believe that we have yet to see the highs for this cycle. Our signal checklist (page 2) provides a framework for how the S&P 500 looks today relative to prior market peaks.

   

  

  While Savita forgets to mention that in none of the prior historical occasions was the Fed “half-pregnant” with a $4.5 trillion balance sheet at a time of tightening conditions, she does correctly note that the current environment is hardly a “supportive backdrop for profits.” Specifically she notes that the weak stock market performance comes in the context of:

  • slowing US and global economic growth (US 4Q GDP tracking 1%)
  • collapsing commodity prices (oil prices averaged -42% y/y in 4Q)
  • renewed fears about China (Shanghai Composite -38% since last June)
  • heightened geopolitical tensions (Middle East, North Korea, etc.)
  • the first transition to Fed policy tightening in a decade.

  Her conclusion is that “these factors have created a difficult backdrop for corporate profitability, and we forecast 4Q EPS growth of -1% y/y (consensus: -4%).”

  Actually, according to Factset, Q4 EPS consensus has now tumbled to -5.3% and dropping by about 1% every 2 or so weeks. More on that in a later post.

  So is BofA’s conclusion to ignore JPM’s “sell any rally” call and BTFD? Not anymore, although while BofA does admit that “panic is building” (suggesting this “sets the stage for a rally”), it also says there is one key ingredient missing: growth.

  Near-term caution is warranted, but don’t panic sell

   

  In our framework, there are three key drivers of stock returns: valuation, sentiment and growth. But in the near term, sentiment and growth matter most. Panic is building, most likely setting the stage for a rally, but the missing ingredient here is growth. With analysts cutting estimates at an accelerating rate, increasing China risks and no apparent floor for oil prices, we remain cautious on our near term outlook for stocks.

  But not cautious enough to change the year end target of 2,200?

  

  

  

  

  

• In Latest Escalation, Oregon Militia Tears Down Government Fence, Demands Freedom For Ranchers

  Last week, Ammon Bundy met Harney County Sheriff David Ward on the side of Lava Bed Road near Highway 78.

  

  Ward was attempting to negotiate a peaceful end to the protracted standoff that began two Saturdays ago when Bundy and a handful of armed militiamen “seized” a remote bird sanctuary in Oregon.

  Bundy and his followers decided to occupy the federal building as a show of solidarity with Dwight Hammond and his son Steven who were sent back to jail last week in connection with fires they set back in 2001 and 2006.

  Bundy’s militia – who now call themselves the “Citizens for Constitutional Freedom” – say they are standing up for state’s rights in a kind of ad hoc, haphazard rekindling of the Sagebrush Rebellion.

  Following the meeting with Ward, Bundy said he felt like the group’s demands were being ignored. The Sheriff agreed. “I don’t feel like they think they’re getting enough attention yet,” Ward remarked.

  Subsequently, armed members of the Pacific Patriots Network showed up at the refuge before being asked to leave by Bundy. That visit prompted a meeting between the group and the FBI.

  Now, in the latest escalation, Bundy is tearing down a government fence and replacing it with a gate in a move the group says will give local ranchers access to federal land. Here’s the incredibly dramatic footage:

  Happening now: Bundy breaking down fence on refuge pic.twitter.com/MH6wSoSfoR

  — Wanda Moore (@WandaKTVZ) January 11, 2016

  Earlier today, Bundy insisted that the men will not be leaving the federal building until the Hammonds are set free.

  At daily presser, Bundy focuses on the Hammonds and talks about the cattle fence they plan to take down. https://t.co/zbB6E9yEpr

  — Amanda Peacher (@amandapeacher) January 11, 2016

  So, there you have it. The first federal property has been destroyed and Bundy has doubled down on the Hammond freedom demands. 

  Perhaps this latest publicity stunt will prompt authorities to end the 10-day siege although we imagine Bundy will soon be forced to do something a bit more dramatic if he wants to recapture the interest of an American public whose attention span is two days at best.

  

  

  

  

  

• Despite TurmOIL Stocks Stage Furious Last-Hour Comeback

  The Fed's apparent new communication policy (as the rest of the world's markets and policy-makers try to force its hand)…

   

  This has never happened before (even with the panic buying)… The S&P 500 is down 6.5% year-to-date – that is officially the worst start to a year ever…

  

   

  The gaping truth of The Fed policy error is now being exposed in tumbling rate-hike odds… March odds down to 36.8% (from over 55% a week ago)

  

   

  As Bonds & Bullion dramatically outperform stocks post-FOMC…

  

  *  *  *

  On the day, it was ridiculous – here are futures to show the swings…

  

   

  And in cash – the panic-buying melt-up faded into the very last few minutes…

  

   

  Dow screams 200 points higher in minutes… just because…

  

   

  All Yen all the time… (as stocks decoupled from oil)

  

   

  It appears Stocks (algos) were playing catch up to the China-selling-based higher Treasury yields…

  

  NOTE: This could have been a disaster for Risk-Parity funds (Bonds and Stocks down hard) – beware the "bullishness" of China selling Treasuries

   

  Before the epic melt-up buying panic, The Nasdaq is down 8 days in a row – has not had one green day in 2016 – this is the longest losing streak since May 2012…

  

   

  Credit wasn't buying the ramp…

  

   

  Plenty of momentum stocks have been crushed in recent days but Gunmakers appear to be suffering as The Obama administration admits its done all it can…

  

   

  Financial stocks have collapsed (the worst start to a year ever for XLF) – just as we said they would – to their less exuberant credit market levels…

  

   

  Most worrying is the spike in the TED Spread – a topic we have been warning about for 2 months – and its implications of systemic risk concerns….

  

   

  As Citi and Goldman are seeing their credit risk surge the most…

  

   

  Treasury yields rose on the day – as China selling to support Yuan trumped any safety bid from carry unwinds…

  

   

  FX markets were very active overnight in Asia and even the majors were swinging violkently as The USD Index rose 0.4% on the day… CAD plunged to new lows as crude tumbled…

  

   

  With Offshore Yuan surging by the most on record…

  

   

  With the CNH-CNY almost inverted…

  

   

   

  Commodites were all lower as Yuan and USD rallied (but crude and copper were worst)

  

   

  With WTI Crude collapsing to a $30 handle – its lowest in 12 years following weak China data and MS report…

  

   

  And Copper crushed back under $2 as hopes for further China stimulus are rebuked…

  

   

  Charts: Bloomberg

  Bonus Chart: Oddly causative correlation of the day… (why oil dumped, and Yuan pumped)…

  

  

  

  

  

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