Oct 13

Today’s News 13th October 2017

  • China Launches Yuan-Ruble Payment System

    The monetary regimes of China and Russia, two of the world’s most resource-rich nations, are drawing closer with every passing day.

    In the latest push for convergence, China has established a payment versus payment (PVP) system for Chinese yuan and Russian ruble transactions in a move to reduce risks and improve the efficiency of its foreign exchange transactions. The PVP system for yuan and ruble transactions, designed to streamline commerce and curency transactions between the two nations, was launched on Monday after receiving approval from China’s central bank, according to a statement by the country’s foreign exchange trading system.

    It marks the first time a PVP system has been established for trading the yuan and foreign currencies, said the statement, which was posted on Wednesday on the website of the China Foreign Exchange Trade System (CFETS). PVP systems allow simultaneous settlement of transactions in two different currencies.

    According to CFETS, the system would reduce settlement risk as well as the risk of transactions taking place in different time zones, and improve foreign exchange market efficiency. Of course, if the two countries had a blockchain-based settlement system, they would already have all this and much more.

    CFETS said it plans to introduce PVP systems for yuan transactions with other currencies based on China’s Belt and Road initiative, and complying with the process of renminbi internationalization. Russia, however, is a top priority: the world’s biggest oil producer recently became the largest source of oil for China, the world’s top energy consumer.

    To be sure, the monetary convergence between Beijing and Moscow is hardly new. The most notable recent development took place in April, when the Russian central bank opened its first overseas office in Beijing on March 14, marking a step forward in forging a Beijing-Moscow alliance to bypass the US dollar in the global monetary system, and to phase-in a gold-backed standard of trade. As the South China Morning Post reported at the time, the new office was part of agreements made between the two neighbours “to seek stronger economic ties” since the West brought in sanctions against Russia over the Ukraine crisis and the oil-price slump hit the Russian economy.

    At the time, Vladimir Shapovalov, a senior official at the Russian central bank, said the two central banks were drafting a memorandum of understanding to solve technical issues around China’s gold imports from Russia, and that details would be released soon, to which we said that If Russia – the world’s fourth largest gold producer after China, Japan and the US – is indeed set to become a major supplier of gold to China, the probability of a scenario hinted by many over the years, namely that Beijing is preparing to eventually unroll a gold-backed currency, increases by orders of magnitude.

    Furthermore, also around the same time, as the Russian central bank was getting closer to China, China was responding in kind with the establishment of a clearing bank in Moscow for handling transactions in Chinese yuan. The Industrial and Commercial Bank of China (ICBC) officially started operating as a Chinese renminbi clearing bank in Russia on Wednesday this past Wednesday

    “The financial regulatory authorities of China and Russia have signed a series of major agreements, which marks a new level of financial cooperation,” Dmitry Skobelkin, the abovementioned deputy head of the Russian Central Bank, said. “The launching of renminbi clearing services in Russia will further expand local settlement business and promote financial cooperation between the two countries,” he added according to.

    Irina Rogova, a Russian financial analyst told the Russian magazine Expert that the clearing center could become a large financial hub for countries in the Eurasian Economic Union.

    * * *

    The creation of the clearing center, and the launch of PVP systems enables the two countries to further increase bilateral trade and investment while decreasing their dependence on the US dollar. It will create a pool of yuan liquidity in Russia that enables transactions for trade and financial operations to run smoothly. In expanding the use of national currencies for transactions, it could also potentially reduce the volatility of yuan and ruble exchange rates. The clearing center is one of a range of measures the People’s Bank of China and the Russian Central Bank have been looking at to deepen their co-operation, Sputnik reported.

    But one of the most significant measures under consideration is the previously reported push for joint organization of trade in gold.

    In recent years, China and Russia have been the world’s most active buyers of the precious metal. On a visit to China last year, the deputy head of the Russian Central Bank Sergey Shvetsov said that the two countries want to facilitate more transactions in gold between the two countries.

    “We discussed the question of trade in gold. BRICS countries are large economies with large reserves of gold and an impressive volume of production and consumption of this precious metal. In China, the gold trade is conducted in Shanghai, in Russia it is in Moscow. Our idea is to create a link between the two cities in order to increase trade between the two markets,” First Deputy Governor of the Russian Central Bank Sergey Shvetsov told Russia’s TASS news agency.

    In other words, China and Russia are continuing to shift away from dollar-based trade, to commerce which will eventually be backstopped by gold, or what is gradually emerging as an Eastern gold standard, one shared between Russia and China, and which may day backstop their respective currencies.

    Meanwhile, the price of gold continues to reflect none of these potentially tectonic strategic shifts, just as China – which has been the biggest accumulator of gold in recent years – likes it.

  • "It Is Time To Return To Sanity" Gorbachev Urges Trump And Putin To Save Crucial Cold-War Arms Pact

    Former Soviet Leader Mikhail Gorbachev the last Soviet leader, is urging Russian President Vladimir Putin and US President Donald Trump to meet face to face to resolve their differences as each side accuses the other of violating a Cold War-era arms-control treaty that Gorbachev believes is essential to maintaining peace between the two world powers.

    The Intermediate-Range Nuclear Forces Treaty, a landmark arms control treaty signed in 1987 by Gorbachev and former US President Ronald Reagan, helped end the Cold War by requiring both countries to eliminate all nuclear ground-launched ballistic and cruise missiles with a range of 500 to 5,500 kilometers.

    But recently, both sides have called for the treaty to be scrapped as perceived encroachment by NATO “missile-defense” systems in South Korea and Europe has unnerved Putin, while Russia’s efforts to influence the US presidential election with a “sophisticated” propaganda campaign

    In an essay that was published in a local newspaper, and re-published by the Washington Post, Gorbachev explains why preserving the treaty – which he sees as the most vulnerable link in the system of limiting and reducing weapons of mass destruction – is imperative to maintaining the Russia-US relationship.

    In the essay, Gorbachev argues that the US-Russia relationship is “in a severe crisis” and only a dialogue based on “mutual respect” can help repair it – if only the two leaders could scrounge up the political will to make it happen.

    So what is happening, what is the problem, and what needs to be done?

     

    Both sides have raised issues of compliance, accusing the other of violating or circumventing the treaty’s key provisions. From the sidelines, lacking fuller information, it is difficult to evaluate those accusations. But one thing is clear:

     

    The problem has a political as well as a technical aspect. It is up to the political leaders to take action.

     

    Therefore I am making an appeal to the presidents of Russia and the United States.

     

    Relations between the two nations are in a severe crisis. A way out must be sought, and there is one well-tested means available for accomplishing this: a dialogue based on mutual respect.

     

    It will not be easy to cut through the logjam of issues on both sides. But neither was our dialogue easy three decades ago. It had its critics and detractors, who tried to derail it.

     

    In the final analysis, it was the political will of the two nations’ leaders that proved decisive. And that is what’s needed now. This is what our two countries’ citizens and people everywhere expect from the presidents of Russia and the United States.

    If Trump and Putin could agree to preserve the agreement, it would encourage the generals and diplomats responsible for implementing and monitoring the terms to fall in line, Gorbachev said.

    I am confident that preparing a joint presidential statement on the two nations’ commitment to the INF Treaty is a realistic goal. Simultaneously, the technical issues could be resolved; for this purpose, the joint control commission under the INF Treaty could resume its work. I am convinced that, with an impetus from the two presidents, the generals and diplomats would be able to reach agreement.

     

    We are living in a troubled world. It is particularly disturbing that relations between the major nuclear powers, Russia and the United States, have become a serious source of tensions and a hostage to domestic politics. It is time to return to sanity. I am sure that even inveterate opponents of normalizing U.S.-Russian relations will not dare object to the two presidents. These critics have no arguments on their side, for the very fact that the INF Treaty has been in effect for 30 years proves that it serves the security interests of our two countries and of the world.

    Unfortunately, the INF isn’t the only important treaty in danger of collapse. As we reported last month, US officials are preparing restrictions for Russian military flights over American territory permitted by the 2002 Treaty on Open Skies after accusing the country of concealing movements of personnel and military equipment near its western enclave of Kaliningrad as Russia prepared to stage its “Zapad-2017” drills, its biggest display of military power since the end of the Cold War.

    In another sign of mounting tensions, the US suspended joint military exercises with its Gulf allies after a historic Russia-Saudi Arabia summit.

    Gorbachev led the Soviet Union from 1985 until its dissolution in 1991.

  • 'Shocker' Of The Day: 'Tech' Company That Buys Movie Tickets For $10 And Sells Them For $0.33 May Not Survive

    Over the past 4 weeks, the stock of a tiny New York based “IT service management” company, Helios & Matheson Analytics, Inc., has surged just over 1,300% after announcing plans to purchase a majority stake of an “innovative and disruptive technology company” called MoviePass at a $210 million valuation.

    So how exactly does MoviePass, the “innovative” and “disruptive” tech powerhouse that it is, plan to change the entertainment world forever, you ask?  Well, apparently by paying movie theaters $10 a pop for movie tickets and then re-selling them to their own monthly subscribers for a small 97% discount, or roughly $0.33 each (in the worst case scenario). Per Bloomberg:

    The company sells a monthly subscription that gives moviegoers a daily pass to movie theaters for $10 a month – though MoviePass is paying theaters full price for tickets, which can cost $10 apiece or more.

    Genius plan, right? 

    MoviePass

    And while the company planned to supplement its top line with advertising revenue and deals with theater chains to share in concession sales, at least according to Bloomberg, a problem developed when its subscriber base ballooned from nearly nothing to 400,000 in a matter of weeks.  Unfortunately, at least when you’re business model is dependent upon selling your primary product at a 97% loss, the more ‘successful’ you are the more money you lose.

    And while the ending of this particular movie seemed obvious from the start, it apparently eluded Helios investors until today when the company announced that the business they just purchased 4 weeks ago may not survive…all of which sent their stock plunging by 40%. 

    Helios & Matheson Analytics Inc., the backer of the controversial $10 MoviePass subscription, fell as much as 21 percent after warning the money-losing cinema service may not make it.

     

    Helios boosted its support for MoviePass to $11.5 million from $5 million as part of an August deal to acquire a majority stake, according to a regulatory filing. At the same time, Helios said MoviePass’s auditors are expected to warn of substantial doubt about its ability to continue as a going concern.

    Who knew that massive cash losses could be considered detrimental for a tech company?

    MoviePass

    Just to put this problem in perspective, lets apply some math to this case study on how not to run a business.  Lets assume that each of MoviePass’s 400,000 subscribers decide to see 2 movies each week (they’re entitled to one movie pass a day…but lets just assume they only use 2 per week) at a cost of $10…that’s a total cost of $32 million each month.  Now, each of those subscribers are paying $10 per month for their service which means MoviePass is collecting $4 million in revenue and burning $28 million every single month or $336mm per year…and that doesn’t even count their staff and other overhead expenses which we’re sure are considerable.  Does that sound like a business plan that might be of interest to you?

    Meanwhile, even AMC, undoubtedly one of the biggest beneficiaries of the bizarre MoviePass business model, said that the company was “unsustainable.”

    MoviePass sparked an outcry in the movie business after cutting the price of its movie subscription plan to just under $10 from $30. That led to a flood of sign-ups that the company struggled to keep up with. The biggest movie-theater chain in the world, AMC Entertainment Holdings Inc., has said the plan is unsustainable — because MoviePass is paying exhibitors full price for tickets — and was looking to block the deal.

    Sorry guys, only Bezos and Musk are able to sell products at a massive loss, in perpetuity, without investor backlash…

  • Andy Xie Warns "The Bubble Economy Is Set To Burst" As Political Tension Soars

    Authored by Andy Xie via The South China Morning Post,

    Central banks continue to focus on consumption inflation, not asset inflation, in their decisions. Their attitude has supported one bubble after another. These bubbles have led to rising ­inequality and made mass consumer inflation less likely.

    Since the 2008 financial crisis, asset inflation has fully recovered, and then some. The US household net worth is 34 per cent above the peak in 2007, versus 30 per cent for nominal GDP. China’s property ­value may have surpassed the total in the rest of the world combined. The world is stuck in a vicious cycle of asset bubbles, low consumer ­inflation, stagnant productivity and low wage growth.

    The US Federal Reserve has indicated that it will begin to ­unwind its QE (quantitative easing) assets this month and raise the ­interest rate by another 25 basis points to 1.5 per cent. China has been clipping the debt wings of grey rhinos and pouring cold water on property speculation. They are ­worried about asset bubbles.

    But, if recent history is any guide, when asset markets begin to tumble, they will reverse their actions and ­encourage debt binges again.

    Recently, some central bankers have been puzzled by the breakdown of the Philipps Curve: that falling unemployment rates would lead to wage inflation first and consumer price inflation next. This shows how some of the most powerful people in the world operate on flimsy ­assumptions.

    Despite low unemployment and widespread labour shortages, wage increases and inflation in Japan have been around zero for a quarter of a century. Western central bankers assumed that the same wouldn’t happen to them without understanding the underlying reasons.

    The loss of competitiveness changes how macro policy works. Japan has been losing competitiveness against its Asian neighbours. As its population is small, relative to the regional total, lower wages in the region have exerted gravity on its ­labour market. This is the fundamental reason for the decoupling between the unemployment rate and wage trend.

    The mistaken stimulus has the unintended consequences of dissipating real wealth and increasing inequality. American household net worth is at an all-time high of five times GDP, significantly higher than the bubble peaks of 4.1 times in 2000 and 4.7 in 2007, and far higher than the historical norm of three times GDP. On the ­other hand, US capital formation has stagnated for decades. The outlandish paper wealth is just the same asset at ever higher prices.

    The inflation of paper wealth has a serious impact on inequality. The top 1 per cent in the US owns one-third of the wealth and the top 10 per cent owns three-quarters . Half of the people don’t even own stocks. Asset inflation will increase inequality by definition. Moreover, 90 per cent of the income growth since 2008 has gone to the top 1 per cent, partly due to their ability to cash out in the ­inflated asset market. An economy that depends on asset inflation always disproportionately benefits the asset-rich top 1 per cent.

    There have been so many theories on why inequality has risen. The misguided monetary policy may be the culprit. Germany and Japan do not have significant asset bubbles. Their inequality is far less than in the Anglo-Saxon economies that have succumbed to the allure of financial speculation.

    While Western central bankers can stop making things worse, only China can restore stability in the global economy. Consider that 800 million Chinese workers have ­become as productive as their Western counterparts, but are not even close in terms of consumption. This is the fundamental reason for the global imbalance.

    China’s model is to subsidise ­investment. The resulting overcapacity inevitably devalues whatever its workers produce. That slows down wage rises and prolongs the ­deflationary pull. This is the reason that the Chinese currency has had a tendency to depreciate during its four decades of rapid growth, while other East Asian economies experienced currency appreciation during a similar period.

    Overinvestment means destroying capital. The model can only be sustained through taxing the household sector to fill the gap. In addition to taking nearly half of the business labour outlay, China has invented the unique model of taxing the household sector through asset bubbles. The stock market was started with the explicit intention to subsidise state-owned enterprises. The most important asset bubble is the property market. It redistributes about 10 per cent of GDP to the government sector from the household sector.

    The levies for subsidising investment keep consumption down and make the economy more dependent on investment and export. The government finds an ever-increasing need to raise levies and, hence, make the property bubble bigger. In tier-one cities, property costs are likely to be between 50 and 100 years of household income. At the peak of Japan’s property bubble, it was about 20 in Tokyo. China’s residential property value may have surpassed the total in the rest of the world combined.

    How is this all going to end? Rising interest rates are usually the trigger. But we know the current bubble economy tends to keep inflation low through suppressing mass consumption and increasing overcapacity. It gives central bankers the excuse to keep the printing press on.

    In 1929, Joseph Kennedy thought that, when a shoeshine boy was giving stock tips, the market had run out of fools. Today, that shoeshine boy would be a genius. In today’s bubble, central bankers and governments are fools. They can mobilise more resources to become bigger fools.

    In 2000, the dotcom bubble burst because some firms were caught making up numbers. Today, you don’t need to make up numbers. What one needs is stories.

    Hot stocks or property are sold like Hollywood stars. Rumour and ­innuendo will do the job. Nothing real is necessary.

    In 2007, structured mortgage products exposed cash-short borrowers. The defaults snowballed. But, in China, leverage is always rolled over. Default is usually considered a political act. And it never snowballs: the government makes sure of it. In the US, the leverage is mostly in the government. It won’t default, because it can print money.

    The most likely cause for the bubble to burst would be the rising political tension in the West. The bubble economy keeps squeezing the middle class, with more debt and less wages. The festering political tension could boil over. Radical politicians aiming for class struggle may rise to the top. The US midterm elections in 2018 and presidential election in 2020 are the events that could upend the applecart.

  • Bitcoin Tops $5800 – Up Over 20% Today Amid China Rumors

    Update: Bitcoin has now topped $5800 amid unconfirmed rumors that China will restore cryptocurrency trading (perhaps in a more regulated environment) following the forthcoming National Congress.

    As it seems the rest of the crypto space is being sold to fun BTC buying…

     

    *  *  *

    Having smashed through the old record high this morning, Bitcoin has blasted above $5600 as the Asian session begins. The cryptocurrency is now up 30% since the Chinese returned from their Golden Week holiday…

     

    Bitcoin is now 16% above its previous record high…

     

    As a reminder, Mike Novogratz recently suggested Bitcoin could reach $10,000 within the next year.

    In an interview with CNBC's Fast Money, Novogratz called the emerging landscape a "revolution," stating:

    "I never thought I'd come out of retirement but the space is so exciting right now I decided to build a business, hire a whole bunch of smart guys, and we're gonna to raise a fund … and hopefully take advantage of what I see as a revolution, actually. A decentralised revolution."

    As a store of value, Novogratz likened bitcoin to digital gold, and said the technology is beginning to make "more and more sense" as we move increasingly into the digital.

    Novogratz continued to say that, while bitcoin is a bubble, the mania is justified, because it is a technological advancement that promises to fundamentally alter our lives.

    "I can hear the herd coming" Novogratz said.

    And bubble or not, Novogratz concluded eloquently on the extreme nature of cryptocurrencies' potential…

    “Remember, bubbles happen around things that fundamentally change the way we live,” he said.

     

    “The railroad bubble. Railroads really fundamentally changed the way we lived. The internet bubble changed the way we live. When I look forward five, 10 years, the possibilities really get your animal spirits going.”

    Bitcoin is set to become "the biggest bubble of our time," he added, and could reach $10,000 very soon due to fast-building interest.

     

     

  • Trump To Scrap Crucial Obamacare Insurer Subsidy

    Just hours after signing an executive order that implicitly begins unwinding ObamaCare, Politco reports, citing two people familiar with the matter, that President Trump plans to cut off critical subsidy payments to insurers selling Obamacare coverage.

    Earlier today, Trump signed an executive order expanding access to more loosely regulated insurance options with low premiums, a move that could undermine the ACA insurance markets.

    “We’ve been hearing about the disaster of Obamacare for so long,” Trump said in signing the order at a White House ceremony. “For a long time, I’ve been hearing repeal, replace, repeal, replace.”

     

    He then said that the order is "starting that process" to repeal ObamaCare.

     

    It will be the "first steps to providing millions of Americans with ObamaCare relief."

    And now, as Politico reports, the process appears to accelerating as Trump's decision to end the payments, estimated at $7 billion this year, marks the president's most aggressive move yet to dismantle Obamacare after months of failed GOP repeal efforts on Capitol Hill.

    As Reuters notes, Trump has repeatedly threatened to stop the payments, which are made directly to insurance companies to help cover out-of-pocket medical expenses for low-income Americans enrolled in individual healthcare plans under Obamacare.

    The move is likely to draw lawsuits and may put pressure on Congress to appropriate funding for the subsidies.

    This latest move is likely to throw healthcare markets into chaos, and will infuriate Democrats – effectively closing the 'Chuck and Nancy' channel of communications – leaving a deal to avert government shutdown on or after Dec 8th (when the currenct extension deal runs out) increasingly doubtful.

  • Robert Gore's "Hard Core Doom Porn"

    Authored by Robert Gore via Straight Line Logic blog,

    It will be a crash like we’ve never seen before.

    SLL has been accused of trafficking in “doom porn.” Guilty as charged. If you don’t like doom porn, don’t read this article, it’s hard core. If you prefer feel good and heartwarming, there are plenty of Wall Street research reports and mainstream media stories about the economy available. Enjoy!

    In 1971, President Nixon closed the “gold window,” which allowed foreign governments to exchange their dollars for gold. This severed the last link between any government and central bank-created debt and the real economy. Debt could be conjured at whim, and governments and central banks have done so for the last 46 years.

    Not surprisingly, credit creation without restraint has papered the globe with the greatest pile of debt mankind has ever amassed, measured in nominal terms or relative to the underlying economy. A measure of how extraordinary this situation is: most people regard it as normal, if they think of it all. Debt is a first mover, a financial constant. Any exigency small or large can be met from an unlimited credit pool that will always be with us. How to rebuild Houston, Florida, and Puerto Rico? No problem, borrow.

    Although fiat credit creation by governments and central banks is unconnected to the real economy, its effects are not. Their debt becomes an asset within the financial system. Through fractional reserve banking, securitization, and derivatives it become the basis for a multiplication of the original debt. That multiplication is many times the multiplier (the reciprocal of the reserve requirement) taught in introductory macroeconomics classes whereby the debt is contained within the banking system.

    Nominal global debt is reckoned at between $225 and $250 trillion, or about three times global GDP. Financial, debt-supported derivatives (financial instruments whose prices are derived from the prices of other financial instruments) are estimated at anywhere from $500 trillion to $1 quadrillion notational, or six to twelve times global GDP.

    Overpriced houses did not cause the last financial crisis and almost bring down the world’s financial system, securitized packages of mortgages and their associated derivatives did. The Panglossian view of derivatives is that most of them can be netted out against offsetting derivatives, thus actual exposures are far less that notational amounts. The real world view is they can only be netted out as long as all counterparties remain solvent. As we learned in 2009, that is not always a correct assumption.

    Globally, unfunded old age pension and medical liabilities, not counted as debt but still promises made that often have the force of law, sum to another $400 trillion. In the US, they are about $210 trillion, or about 11 times US GDP. Demographics amplify the liability: across the developed world, declining birth rates and extensions in life expectancies mean a shrinking pool of workers supports an expanding pool of beneficiaries. In the last month, SLL has posted four excellent articles by John Mauldin for those who want all the gruesome details. (Just enter John Mauldin in SLL’s search box and they’ll pop right up.)

    This doom porn, the skeptics will say, is almost as old as Deep Throat (released in 1972). Markets crash from time to time, but they always bounce back. Central banks and governments come to the rescue with fiscal stimulus (increased government debt) and unlimited fiat debt.

    Why should we worry now?

    There are a number of reasons.

    When the world was less indebted, a fiat currency unit’s worth of debt produced more than a fiat currency unit’s worth of expanded output of goods and services. Sometime within the last year or two, the marginal economic effectiveness of all that government and central bank debt reached zero, and is negative after debt service.

    With the world saturated in debt, another fiat currency unit of debt produces no increase in output. Kick in the costs of servicing and repaying that debt, and increasing debt is actually retarding economic growth. It accounts for the long-term slowing growth trend, flat incomes, and “secular stagnation” that puzzle so many economists.

    It also accounts for the lack of inflation that puzzles so many central bankers, at least in the price indexes they look at. They are looking at the wrong indexes. The relevant indices are stock, high-grade bond, real estate, and cryptocurrency prices, still at or close to record highs, and corporate and securitized-debt credit spreads to treasury benchmarks at record lows (indicating massive complacency about corporate credit risk). Here inflation—the speculative kind that blows bubbles—is alive and thriving.

    With the Federal Reserve now taking steps to shrink its balance sheet and other central banks making noises about doing the same, global fiat debt creation may go into reverse for the first time in many years. Brandon Smith at Alt-Market.com argues that this is part of plan leading to a crash and global, centralized monetary control.

    He may or may not be on to something, however, valuation extremes and sentiment indicators point to the same conclusion concerning a crash. SLL maintains financial markets are exercises in crowd psychology, impervious to government and central bank efforts to control them, designed to separate the maximum number of speculators from a maximum amount of their money.

    Robert Prechter, of Elliott Wave International, has written the chapter and the verse on markets and psychology. (SLL reviewed his groundbreaking tome, The Socionomic Theory of Finance.) Consider the following from Elliot Wave International’s October “Financial Forecast.”

    Every month another sentiment indicator seems to pop to a frothy new extreme. Last month it was the percentage of cash that members of the American Association of Individual Investors harbored in their investment portfolios. At 14.5%, it was the smallest allocation to this safe alternative since January 2000, the same month that the Dow Industrials began a 38% decline that lasted through October 2002. Last month, we also showed a new bullish extreme for the five-day average of Market Vane’s Bullish Consensus survey of advisors. On September 15, the average pushed to 71%, a new ten-year extreme.

     

    …

     

    The most recent Commitment of Traders Report shows that Large Speculators in futures on the CBOE Volatility Index (VIX) have amassed a record net- short position of 172,395 contracts.

     

    …

     

    This record bet on subdued volatility sets the stage perfectly for the period of “high volatility” that EWFF called for in August.

     

    …Large Speculators in the E-mini DJIA futures have pushed their net-long position to 95,976 contracts, more than four times the number of contracts they held in January 2008, shortly after the Dow started its largest percentage decline since 1929. So, investors are betting to a record degree that the stock market will continue to rise and volatility will continue to remain subdued. Paradoxically, these measures indicate that exact opposite.

     

    …Various media accounts confirm that a rare complacency now dominates the stock market.

    One doesn’t have to buy in to socionomics to realize that virtually everyone is now on the same side of the boat, a condition generally followed by the boat capsizing. Using conventional valuation measures, the only time stocks have been more highly valued is just before the tech wreck in 2000.

    If one does buy into socionomics, the last few upward squiggles in the stock market will put the finishing touches on intermediate, primary, cycle, supercycle, and grand supercycle Elliot Waves dating back to 2016, 2009, 1974, 1932, and the 1780s, respectively. In other words, this is going to be a crash for the ages.

    Given the unprecedented level of global debt, that appears to be the most likely scenario. Every financial asset in the world is either a debt claim or an even less secure equity claim—a claim on what’s left after debt is paid. Much of the world’s real, tangible assets are mortgaged.

    When the debt bubble implodes, a global margin call will prompt forced selling, driving down all asset prices precipitously. Most of what is currently regarded as wealth will vanish. Opening up the world’s fiat debt spigots full force won’t stop this one. The notions that governments and central banks have speculators’ backs, that problems caused by excessive debt can be solved with more debt, will be revealed as monumental follies. And markets will not come back, at least in our lifetimes.

    Long-time readers will point out that SLL has been issuing warnings for years. Again, guilty as charged. However, we’ll join Mr. Prechter and company in their prediction that US equity markets top out before the end of this year. (They called last year’s top in the government bond market, adding to an impressive list of correct calls.) If we’re wrong, it won’t be the first or last time. If we’re right, given the magnitude of what’s coming, being a few years early won’t matter at all.

    Our concluding clichés: fear is stronger than greed and markets go down much quicker than they go up.

  • DHS Releases Images Of Border Wall Prototypes

    The White House wasn’t going to let minor details like the fact that Congress hasn’t appropriated any money to fund construction of President Trump’s promised border wall stop it from building eight prototypes in Otay Mesa, near San Diego.

    And with few expecting the Democrats to accept the White House’s demands relating to a tentative deal that Trump struck with “Chuck and Nancy” last month to avert a shutdown and secure some border wall funding in exchange for enshrining DACA, it’s possible that the Trump administration will never secure the funds, given rumors that a handful of Republican lawmakers privately oppose it.  

    Nevertheless, construction on the prototypes, which were selected by the Department of Homeland Security back in August, began two weeks ago. And now, DHS has released the first images of the partly finished designs.

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    Plans for the prototypes that were selected by DHS after a bidding process that began in the spring were published in late August.

    The prototypes are meant to be a “menu of designs” that might be used for the wall, should it be built. Four of the prototypes are made of concrete, while the other four are made of other materials, the Blaze reports. They range from 18 to 30 feet high and are “designed to deter illegal crossings,” says the Border Protection office. They are expected to cost $3.6 million.

    The money for building the prototypes came from $20 million that Congress has allowed the Department of Homeland Security to pull from other areas of its budget. That followed an executive order President Donald Trump signed in January directing the federal government to begin construction on the border wall as soon as possible.

    While the final cost of a border wall would depend on which design is chosen, estimates range from the upper end of $70 billion from a report by Senate Democrats, to $21.6 billion estimated by the US Department of Homeland Security.

  • Did Bannon Just Take Down Harvey Weinstein?

    Authored by Tom Luongo via TomLuongo.me,

    The biggest open-secret in Hollywood was that Harvey Weinstein was a Grade-A pervert.  And his ‘coming out party’ this week is incredibly intriguing.  Hollywood is a dirty place.

    It’s Chinatown, squared.

    And, at this point it’s what we don’t know that is more interesting than what we’ve heard so far.  But, staying focused on Harvey Gropeman, Producer at Large, his position has been to act as one of the main enforcers of the status quo in all of the power centers of the United States.

    From the casting couches of Hollywood to the banks on Wall St. to the grubby think tanks in D.C., this story won’t have all the twists and turns of L.A. Confidential, but it will have the same implications.

    Weinstein, in effect, was perfectly suited for his role.  He is a man of infinite appetites with poor impulse control.  A pathetic loser with power over hot, young women desperate for fame.

    And these women made the trade willingly.  “Small price to pay, right?”  Wrong.

    Look at the women most opposed to Trump, the Ashley Judds, the Gwynneth Paltrows.  They were all used by Weinstein or someone like him.  More will come out every day.

    Ben Affleck is next because he couldn’t handle fame and power any better than the rest of them did. He’s also Batman and Disney will not pass up the opportunity to bloody Warner Bros. nose.

    The story is perverted by the desperate need of the powerful to maintain their power at all costs.  Weinstein’s film companies acted like money laundering operations for the DNC.  How many millions did he raise for people like Obama, Hillary, Pelosi, Feinstein?

    How many millions were added to the budgets of performer’s salaries to be funneled from Wall St. financiers to those same people?

    The whole thing is an internecine nightmare of quid pro quo and the shadiest of finances.

    And Steve Bannon just attacked all of it.  In real time.

    The Bannonator

    Yes, you heard me. Steve Bannon is the Dr. Evil in this movie.  He’s the mastermind behind this.  Except that Bannon isn’t the villain (well, to Harvey Weinstein he is) but the protagonist.  Think about it for two seconds.

    Who else has motive, means, opportunity and, most importantly, the will to take on the biggest, most powerful (and pathetic) people in the world.

    And he doesn’t want money.  Bannon’s already rich.  Remember, as Bannon left the White House he said that there he had influence, but at Breitbart he has power.

    We’re seeing the first effects of his deploying that power.

    Go through it like Jake Gittes or Sam Spade

    Motive?  Bannon, for whatever faults he has, is a patriot.  He’s a disciple of Andrew Breitbart who routinely castigated Hollywood to ‘stop raping the children.’  Bannon joined Trump’s campaign and turned the messaging into a pale reflection of his film, “Generation Zero.”

    Bannon understands the cultural and generational imperatives of this moment in time.  If you haven’t watched that film then you don’t know who Steve Bannon is.

    Means?  The man runs Breitbart.

    Opportunity?  Bannon made millions as a producer on Seinfeld.  He worked in Hollywood for years.  Bannon also saw all sorts of stuff while working for Trump.

    Remember, I told you on the outside he would be Trump’s Secret Agent, using his newly-found knowledge (cue the Hero Cycle!) from the Underworld of Washington to deploy sump pumps in the swamp.

    Will?  That’s my guess.  Spending time in Washington changes everyone.  It corrupts the venal and galvanizes the principled.  Bannon didn’t want to cut deals to govern.  He wasn’t interested in governing the U.S. with Trump, he was interested in blowing up the vile status quo.  He runs Breitbart.

    How do I know Bannon was behind this?  The headlines today are all about how Bannon did some business with Weinstein over a decade ago.  A minor company that Bannon ran into the ground.  It went bankrupt.  Simple guilt by ironic association.

    Here’s a better question?  Who hasn’t worked with Weinstein in Hollywood?  This story is simply chum to feed to the loony left’s Facebook feeds.  It will alienate even more people from that pillar of thought control.

    The left crowed when they thought they’d chased Bannon from the White House.  They thought they had Trump cornered and without friends.  But, Bannon’s leaving the White House wasn’t the end of the movie, it was, simply the end of a smaller arc.

    The Weinstein Turn

    In writing, there is something called the “Mid-Point Turn.”  It is the moment when someone does something so singular, usually bad, that it ensures things can never go back to the way they were at the beginning.

    The fall of Harvey Weinstein is the ‘Mid-Point Turn’ for this part of the story.  The lid has been blown off the abuse cycle in Hollywood. Someone finally is going down for their crimes.  The guy behind the outing is still in power and the dominoes will continue to fall.

    Trump was right to lean on the NFL like he did.  It galvanized his base.  It exposed the hypocrisy of a hyper-violent sport played by criminals and financed by taxpayers.  They think they can just stop taking a knee for a few weeks and all will be forgiven.

    No.  It won’t.  The same thing with the image handlers in Hollywood.  They think that isolating Weinstein, putting out rumors of rehab, etc. will make this thing go away.  Harvey Weinstein is going to jail.  He’s a sex offender.

    But, the real story is how much this disrupts the money laundering cycle of the entertainment industry to maintain control over the narrative.  Trump’s base already didn’t like Hollywood.  Now they hate it.

    George Clooney recently ranted about Steve Bannon saying,

     “Steve Bannon is a failed f**king screenwriter, and if you’ve ever read [his] screenplay, it’s unbelievable. Now, if he’d somehow managed miraculously to get that thing produced, he’d still be in Hollywood, still making movies and licking my a$$ to get me to do one of his stupid-a$$ screenplays.”

    Well, George, Bannon is right now producing one of the best screenplays I’ve read in a long time.  He has power and your boy Harvey has lawyers.  How’s that for an act reversal?

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