Today’s News 16th January 2016

• The Ascendance of Sociopaths in U.S. Governance

  Submitted by Doug Casey via InternationalMan.com,

  An International Man lives and does business wherever he finds conditions most advantageous, regardless of arbitrary borders. He’s diversified globally, with passports from multiple countries, assets in several jurisdictions, and his residence in yet another. He doesn’t depend absolutely on any country and regards all of them as competitors for his capital and expertise.

  Living as an international man has always been an interesting possibility. But few Americans opted for it, since the U.S. used to reward those who settled in and put down roots. In fact, it rewarded them better than any other country in the world, so there was no pressing reason to become an international man.

  Things change, however, and being rooted like a plant – at least if you have a choice – is a suboptimal strategy if you wish to not only survive, but prosper. Throughout history, almost every place has at some point become dangerous for those who were stuck there. It may be America’s turn.

  For those who can take up the life of an international man, it’s no longer just an interesting lifestyle decision. It has become, at a minimum, an asset saver, and it could be a lifesaver. That said, I understand the hesitation you may feel about taking action; pulling up one’s roots (or at least grafting some of them to a new location) can be almost as traumatic to a man as to a vegetable.

  As any intelligent observer surveys the world’s economic and political landscape, he has to be disturbed – even dismayed and a bit frightened – by the gravity and number of problems that mark the horizon. We’re confronted by economic depression, looming financial chaos, serious currency inflation, onerous taxation, crippling regulation, a developing police state, and, worst of all, the prospect of a major war. It seems almost unbelievable that all these things could affect the U.S., which historically has been the land of the free.

  How did we get here? An argument can be made that things went bad because of miscalculation, accident, inattention, and the like. Those elements have had a role, but it is minor. Potential catastrophe across the board can’t be the result of happenstance. When things go wrong on a grand scale, it’s not just bad luck or inadvertence. It’s because of serious character flaws in one or many – or even all – of the players.

  So is there a root cause of all the problems I’ve cited? If we can find it, it may tell us how we personally can best respond to the problems.

  In this article, I’m going to argue that the U.S. government, in particular, has been overrun by the wrong kind of person. It’s a trend that’s been in motion for many years but has now reached a point of no return. In other words, a type of moral rot has become so prevalent that it’s institutional in nature. There is not going to be, therefore, any serious change in the direction in which the U.S. is headed until a genuine crisis topples the existing order. Until then, the trend will accelerate.

  The reason is that a certain class of people – sociopaths – are now fully in control of major American institutions. Their beliefs and attitudes are insinuated throughout the economic, political, intellectual, and psychological/spiritual fabric of the U.S.

  What does this mean to you, as an individual? It depends on your character. Are you the kind of person who supports “my country, right or wrong,” as did most Germans in the 1930s and 1940s? Or the kind who dodges the duty to be a helpmate to murderers? The type of passenger who goes down with the ship? Or the type who puts on his vest and looks for a lifeboat? The type of individual who supports the merchants who offer the fairest deal? Or the type who is gulled by splashy TV commercials?

  What the ascendancy of sociopaths means isn’t an academic question. Throughout history, the question has been a matter of life and death. That’s one reason America grew; every American (or any ex-colonial) has forebears who confronted the issue and decided to uproot themselves to go somewhere with better prospects. The losers were those who delayed thinking about the question until the last minute.

  I have often described myself, and those I prefer to associate with, as gamma rats. You may recall the ethologist’s characterization of the social interaction of rats as being between a few alpha rats and many beta rats, the alpha rats being dominant and the beta rats submissive. In addition, a small percentage are gamma rats that stake out prime territory and mates, like the alphas, but are not interested in dominating the betas. The people most inclined to leave for the wide world outside and seek fortune elsewhere are typically gamma personalities.

  You may be thinking that what happened in places like Nazi Germany, the Soviet Union, Mao’s China, Pol Pot’s Cambodia, and scores of other countries in recent history could not, for some reason, happen in the U.S.. Actually, there’s no reason it won’t at this point. All the institutions that made America exceptional – including a belief in capitalism, individualism, self-reliance, and the restraints of the Constitution – are now only historical artifacts.

  On the other hand, the distribution of sociopaths is completely uniform across both space and time. Per capita, there were no more evil people in Stalin’s Russia, Hitler’s Germany, Mao’s China, Amin’s Uganda, Ceausescu’s Romania, or Pol Pot’s Cambodia than there are today in the U.S. All you need is favorable conditions for them to bloom, much as mushrooms do after a rainstorm.

  Conditions for them in the U.S. are becoming quite favorable. Have you ever wondered where the 50,000 people employed by the TSA to inspect and degrade you came from? Most of them are middle-aged. Did they have jobs before they started doing something that any normal person would consider demeaning? Most did, but they were attracted to – not repelled by – a job where they wear a costume and abuse their fellow citizens all day.

  Few of them can imagine that they’re shepherding in a police state as they play their roles in security theater. (A reinforced door on the pilots’ cabin is probably all that’s actually needed, although the most effective solution would be to hold each airline responsible for its own security and for the harm done if it fails to protect passengers and third parties.) But the 50,000 newly employed are exactly the same type of people who joined the Gestapo – eager to help in the project of controlling everyone. Nobody was drafted into the Gestapo.

  What’s going on here is an instance of Pareto’s Law. That’s the 80-20 rule that tells us, for example, that 80% of your sales come from 20% of your salesmen or that 20% of the population are responsible for 80% of the crime.

  As I see it, 80% of people are basically decent; their basic instincts are to live by the Boy Scout virtues. 20% of people, however, are what you might call potential trouble sources, inclined toward doing the wrong thing when the opportunity presents itself. They might now be shoe clerks, mailmen, or waitresses – they seem perfectly benign in normal times. They play baseball on weekends and pet the family dog. However, given the chance, they will sign up for the Gestapo, the Stasi, the KGB, the TSA, Homeland Security, or whatever. Many seem well intentioned, but are likely to favor force as the solution to any problem.

  But it doesn’t end there, because 20% of that 20% are really bad actors. They are drawn to government and other positions where they can work their will on other people and, because they’re enthusiastic about government, they rise to leadership positions. They remake the culture of the organizations they run in their own image. Gradually, non-sociopaths can no longer stand being there. They leave. Soon the whole barrel is full of bad apples. That’s what’s happening today in the U.S.

  It’s a pity that Bush, when he was in office, made such a big deal of evil. He discredited the concept. He made Boobus americanus think it only existed in a distant axis, in places like North Korea, Iraq and Iran, which were and still are irrelevant backwaters and arbitrarily chosen enemies. Bush trivialized the concept of evil and made it seem banal because he was such a fool. All the while, real evil, very immediate and powerful, was growing right around him, and he lacked the awareness to see he was fertilizing it by turning the U.S. into a national security state after 9/11.

  Now, I believe, it’s out of control. The U.S. is already in a truly major depression and on the edge of financial chaos and a currency meltdown. The sociopaths in government will react by redoubling the pace toward a police state domestically and starting a major war abroad. To me, this is completely predictable. It’s what sociopaths do.

  Editor’s Note: A big part of any strategy to reduce your political risk is to place some of your savings outside the immediate reach of the thieving bureaucrats in your home country. Obtaining a foreign bank account is a convenient way to do just that.

  That way, your savings cannot be easily confiscated, frozen, or devalued at the drop of a hat or with a couple of taps on the keyboard. In the event capital controls are imposed, a foreign bank account will help ensure that you have access to your money when you need it the most.

  In short, your savings in a foreign bank will largely be safe from any madness in your home country.

  Despite what you may hear, having a foreign bank account is completely legal and is not about tax evasion or other illegal activities. It’s simply about legally diversifying your political risk by putting your liquid savings in sound, well-capitalized institutions where they’re treated best.

  We recently released a comprehensive free guide where we discuss our favorite foreign banks and jurisdictions, including, crucially, those that still accept Americans as clients and allow them to open accounts remotely for small minimums.

  New York Times best-selling author Doug Casey and his team describe how you can do it all from home. And there’s still time to get it done without extraordinary cost or effort. Click here to download the PDF now.

  

  

  

  

  

• The World’s Most Famous Case Of Hyperinflation (Part 1)

  The Great War ended on the 11th hour of November 11th, 1918, when the signed armistice came into effect.

  Though this peace would signal the end of the war, it would also help lead to a series of further destruction: this time the destruction of wealth and savings.

  The world’s most famous hyperinflation event, which took place in Germany from 1921 and 1924, was a financial calamity that led millions of people to have their savings erased.

  

  Courtesy of: The Money Project

   

  The Treaty of Versailles

  Five years after the assassination of Archduke Franz Ferdinand, the Treaty of Versailles was signed, officially ending the state of war between Germany and the Allies.

  The terms of the agreement, which were essentially forced upon Germany, made the country:

  1. Accept blame for the war
  2. Agree to pay £6.6 billion in reparations (equal to $442 billion in USD today)
  3. Forfeit territory in Europe as well as its colonies
  4. Forbid Germany to have submarines or an air force, as well as a limited army and navy
  5. Accept the Rhineland, a strategic area bordering France and other countries, to be fully demilitarized.

  “I believe that the campaign for securing out of Germany the general costs of the war was one of the most serious acts of political unwisdom for which our statesmen have ever been responsible.”
  – John Maynard Keynes, representative of the British Treasury

  Keynes believed the sums being asked of Germany in reparations were many times more than it was possible for Germany to pay. He thought that this could create large amounts of instability with the global financial system.

  The Catalysts

  1. Germany had suspended the Mark’s convertibility into gold at the beginning of war.

  This created two separate versions of the same currency:

  Goldmark: The Goldmark refers to the version on the gold standard, with 2790 Mark equal to 1 kg of pure gold. This meant: 1 USD = 4 Goldmarks, £1 = 20.43 Goldmarks

  Papiermark: The Papiermark refers to the version printed on paper. These were used to finance the war.
  In fear that Germany would run the printing presses, the Allies specified that reparations must be paid in the Goldmarks and raw materials of equivalent value.

  2. Heavy Debt

  Even before reparations, Germany was already in significant debt. The country had borrowed heavily during the war with expectations that it would be won, leaving the losers repay the loans.

  Adding together previous debts with the reparations, debt exceeded Germany’s GDP.

  3. Inability to Pay

  The burden of payments was high. The country’s economy had been damaged by the war, and the loss of Germany’s richest farmland (West Prussia) and the Saar coalfields did not help either.

  Foreign speculators began to lose confidence in Germany’s ability to pay, and started betting against the Mark.

  Foreign banks and businesses expected increasingly large amounts of German money in exchange for their own currency. It became very expensive for Germany to buy food and raw materials from other countries.

  Germany began mass printing bank notes to buy foreign currency, which was in turn used to pay reparations.

  4. Invasion of The Ruhr

  After multiple defaults on payments of coal and timber, the Reparation Commission voted to occupy Germany’s most important industrial lands (The Ruhr) to enforce the payment of reparations.

  French and Belgian troops invaded in January 1923 and began The Occupation of The Ruhr.

  German authorities promoted the spirit of passive resistance, and told workers to “do nothing” to help the invaders. In other words, The Ruhr was in a general strike, and income from one of Germany’s most important industrial areas was gone.

  On top of that, more and more banknotes had to be printed to pay striking workers.

  Hyperinflation

  Just two calendar years after the end of the war, the Papiermark was worth 10% of its original value. By the end of 1923, it took 1 trillion Papiermarks to buy a single Goldmark.

  All cash savings had lost their value, and the prudent German middleclass savers were inexplicably punished.

  Learn about the effects of German hyperinflation, how it was curtailed, and about other famous hyperinflations in Part 2 (released sometime the week of Jan 18-22, 2016).

  Source: The Money Project via VisualCapitalist.com

  

  

  

  

  

• Oil, War, & Drastic Global Change

  Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

  The first thing that popped into our minds on Tuesday when WTI oil briefly broached $30 for its first $20 handle in many years, was that this should be triggering a Gawdawful amount of bets, $30 being such an obvious number. Which in turn would of necessity lead to a -brief- rise in prices.

  Apparently even that is not so easy to see, since when prices did indeed go up after, some 3% at the ‘top’, ‘analysts’ fell over each other talking up ‘bottom’, ‘rebound’ and even ‘recovery’. We’re really addicted to that recovery idea, aren’t we? Well, sorry, but this is not about recovering, it’s about covering (wagers).

  Same thing happened on Thursday after Brent hit that $20 handle, with prices up 2.5% at noon. That too, predictably, shall pass. Covering. On this early Friday morning, both WTI and Brent have resumed their fall, threatening $30 again. And those are just ‘official’ numbers, spot prices.

  If as a producer you’re really squeezed by your overproduction and your credit lines and your overflowing storage, you’ll have to settle for less. And you will. Which is going to put downward pressure on oil prices for a while to come. Inventories are more than full all over the world. With oil that was largely purchased, somewhat ironically, because prices were perceived as being low.

  Interestingly, people are finally waking up to the reality that this is a development that first started with falling demand. China. Told ya. And only afterwards did it turn into a supply issue as well, when every producer began pumping for their lives because demand was shrinking.

  All the talk about Saudi Arabia’s ‘tactics’ being aimed at strangling US frackers never sounded very bright. By November 2014, the notorious OPEC meeting, the Saudi’s, well before most others including ‘analysts’, knew to what extent demand was plunging. They had first-hand knowledge. And they had ideas, too, about where that could lead prices. Alarm bells in the desert.

  There are alarm bells ringing in many capitals, there’s not a single oil producer sitting comfy right now. And that’s why ‘official’ prices need to be taken with a bag of salt. Bloomberg puts the real price today at $26:

  The Real Price of Oil Is Far Lower Than You Realize

  While oil prices flashing across traders’ terminals are at the lowest in a decade, in real terms the collapse is even deeper. West Texas Intermediate futures, the U.S. benchmark, sank below $30 a barrel on Tuesday for the first time since 2003. Actual barrels of Saudi Arabian crude shipped to Asia are even cheaper, at $26 – the lowest since early 2002 once inflation is factored in and near levels seen before the turn of the millennium. Slumping oil prices are a critical signal that the boom in lending in China is “unwinding,” according to Adair Turner, chairman of the Institute for New Economic Thinking.

  

  Slowing investment and construction in China, the world’s biggest energy user, is “sending an enormous deflationary impetus through to the world, and that is a significant part of what’s happening in this oil-price collapse,” Turner, former chairman of the U.K. Financial Services Authority, said. The nation’s economic expansion faltered last year to the slowest pace in a quarter of a century. “You see a big destruction in the income of the oil and commodity producers,” Turner said. “That is having a major effect on their expenditure across the world.”

  Zero Hedge does one better and looks at 1998 dollars:

  The ‘Real’ Price Of Oil Is Below $17

  “You see a big destruction in the income of the oil and commodity producers,” exclaims an analyst but, as Bloomberg notes, while oil prices flashing across traders’ terminals are at the lowest in a decade, in real terms the collapse is considerably deeper. Adjusted for inflation, WTI is its lowest since 2002 and worse still Saudi Light Crude is trading at below $17 (in 1998 dollar terms) – the lowest since the 1980s… Slumping prices are a critical signal that the boom in lending in China is “unwinding,” according to Adair Turner, chairman of the Institute for New Economic Thinking.

  

  In fact, while sub-$30 per barrel oil sounds very scary, Saudi prices would be less than $17 a barrel when converted into dollar levels for 1998, the year oil sank to its lowest since the 1980s. Slowing investment and construction in China, the world’s biggest energy user, is “sending an enormous deflationary impetus through to the world, and that is a significant part of what’s happening in this oil-price collapse,” Turner, former chairman of the U.K. Financial Services Authority, said.

  But this still covers only light sweet crude. Heavier versions are already way below even those levels. Question: what does tar sands oil go for in 1998 dollars? $5 perhaps? A barrel’s worth of it fetched $8.35 in 2016 US dollars on Tuesday. And that does not stop production, because investment (sunk cost) has been spent so there’s no reason to cut, quite the contrary.

  Crude At $10 Is Already A Reality For Canadian Oil-Sands Miners

  Think oil in the $20s is bad? In Canada they’d be happy to sell it for $10. Canadian oil sands producers are feeling pain as bitumen – the thick, sticky substance at the center of the heated debate over TransCanada’s Keystone XL pipeline – hit a low of $8.35 on Tuesday, down from as much as $80 less than two years ago. Producers are all losing money at current prices, First Energy Capital’s Martin King said Tuesday at a conference in Calgary. Which doesn’t mean they’ll stop. Since most of the spending for bitumen extraction comes upfront, and thus is a sunk cost, production will continue and grow.

  

  Another interesting question is where the price of oil would be right now if the perception of low prices had not made 2015 such a banner year for filling up storage space across the globe, including huge amounts of tankers that are left floating at sea, awaiting a ‘recovery’. But that is so last year:

  Tanker Rates Tumble As Last Pillar Of Strength In Oil Market Crashes

  If there was one silver-lining in the oil complex, it was the demand for VLCCs (as huge floating storage facilities or as China scooped up ‘cheap’ oil to refill their reserves) which drove tanker rates to record highs. Now, as Bloomberg notes so eloquently, it appears the party is over! Daily rates for benchmark Saudi Arabia-Japan VLCC cargoes have crashed 53% year-to-date to $50,955 (as it appears China’s record crude imports have ceased). In fact the rate crashed 12% today for the 12th straight daily decline from over $100,000 just a month ago…

  

  China imported a record amount of crude last year as oil’s lowest annual average price in more than a decade spurred stockpiling and boosted demand from independent refiners. China’s crude imports last month was equivalent to 7.85 million barrels a day, 6% higher than the previous record of 7.4 million in April, Bloomberg calculations show.

  

  China has exploited a plunge in crude prices by easing rules to allow private refiners, known as teapots, to import crude and by boosting shipments to fill emergency stockpiles. The nation’s overseas purchases may rise to 370 million metric tons this year, surpassing estimated U.S. imports of about 363 million tons, according to Li Li, a research director with ICIS China, an industry researcher. But given the crash in tanker rates – and implicitly demand – that “boom” appears to be over.

  The consequences of all this will be felt all over the world, and for a long time to come. All of our economic systems run on oil, so many jobs are related to it, so many ‘fields’ in the economy, and no, things won’t get easier when oil is at $20 or $10, it’ll be a disaster of biblical proportions, like a swarm of locusts that leaves precious little behind. Squeeze oil and you squeeze the entire economic system. That’s what all the ‘low oil prices are great for the economy’ analysts missed (many still do).

  Entire nations will undergo drastic changes in leadership and prosperity. Norway, Canada, North Dakota, Russia. But more than that, Middle East nations that rely entirely on oil, a dependency that won’t allow for many of their rulers to remain in office. Same goes for all OPEC nations, and many non-OPEC producers.

  We can argue that a war of some kind or another can be the black swan that sets prices ‘straight’, but black swans are supposed to be the things you can’t see coming, and Middle East warfare for obvious reasons doesn’t even qualify for that definition.

  The world is full of nations and rulers that are fighting for bare survival. And things like that don’t play out on a short term basis. For that reason alone, though there are many others as well, oil prices will remain under pressure for now.

  Even a war will be hard put to turn that trend around at this point. Unless production facilities are destroyed on a large scale, war may just lead to even more production as demand keeps falling. The fact that Iran is preparing to ‘come back online’, promising an even steeper glut in world markets, is putting the Saudi’s on edge. Rumors of Libya wanting to return for a piece of the pie won’t exactly soothe emotions either.

  And when, in a few years’ time, all the production cuts due to shut wells become our new reality, and eventually they must, then no, there will still not be an oil shortage. Because the economy will be doing so much worse by then that demand will have fallen more than supply.

  Barring large scale warfare in the Middle East there is nothing that can solve the low oil price conundrum. But think about it, which Gulf nation can even afford such warfare in present times? For that matter, which nation in the world can?

  The US may try and ignite a proxy war with Russia, but that would lead to an(other) endless and unwinnable war theater. Which would carry the threat of dragging in China as well. The US and its -soon even officially- shrinking economy can’t afford that. Which of course by no means guarantees it won’t try.

  

  

  

  

  

• Why Donald Trump Is Praying For A Market Crash

  When it comes to Trump’s relentless surge in the polls, one thing is certain: the so-called “pundits”, biased from day one, were, are, and will continue to be completely wrong. But as the day approaches when Trump appears set to win the GOP presidential nomination and face off against Hillary, who should one listen to? Well, according to InvesTech’s James Stack, with a track record of 86.4%, the market may be an almost flawless arbiter of the election outcome long before November.

  Here’s why:

  Does the stock market affect or predict the election outcome?

   

  The old saying that “people vote their pocketbooks” is more accurate than the average political analyst thinks. While Wall Street typically worries about how politics might affect the market, perhaps Presidential candidates should worry about how the stock market might affect their political outcomes.

   

  Historically, the market performance in the three months leading up to a Presidential Election has displayed an uncanny ability to forecast who will win the White House… the incumbent party or the challenger. Since 1928, there have been 22 Presidential Elections. In 14 of them, the S&P 500 climbed during the three months preceding election day. The incumbent President or party won in 12 of those 14 instances. However, in 7 of the 8 elections where the S&P 500 fell over that three month period, the incumbent party lost.

   

  There are only three exceptions to this correlation: 1956, 1968, and 1980. Statistically, the market has an 86.4% success rate in forecasting the election!

   

  This relationship occurs because the stock market reflects the economic outlook in the weeks leading up to the election. A rising stock market indicates an improving economy, which means rising confidence and increases the chances of the incumbent party’s re-election. Therefore, your time might be better spent from August through October watching the stock market rather than the debates if you want to know who will be President for the next four years.

  

  Here the reflexive question emerges: does the market predict the election outcome, or does the move in the market – whether by design or by chance – predetermine the election outcome?

  Now if only Donald Trump, or his backers for whatever reasons they may have, could orchestrate a market crash…

  

  

  

  

  

• "We Live In A Time Of Piecemeal-Planning & Incremental-Interventionism"

  Submitted by Richard Emebing via EpicTimes.com,

  Wherever we turn we are confronted with politicians, political pundits, television talking heads, and editorial page commentators, all of whom offer an array of plans, programs, and projects that will solve the problems of the world – if only government is given the power and authority to remake society in the design proposed.

  Even many of those who claim to be suspicious of “big government” and the Washington beltway powers-that-be, invariably offer their own versions of plans, programs, and projects they assert are compatible with or complementary to a free society.

  The differences too often boil down simply to matters of how the proposer wants to use government to remake or modify people and society. The idea that people should or could be left alone to design, undertake and manage their own plans and interactions with others is sometimes given lip service, but never entirely advocated or proposed in practice.

  In this sense, all those participating in contemporary politics are advocates of social engineering, that is, the modifying or remaking of part or all of society according to an imposed plan or set of plans.

  The idea that such an approach to social matters is inconsistent with both individual liberty and any proper functioning of a free society is beyond the pale of political and policy discourse. We live in a time of piecemeal planning and incremental interventionism.

  The Reasonableness of Individual Planning

  It is worthwhile, perhaps, to question this “spirit of the times,” and to do so in the context of marking an anniversary. Slightly over 70 years ago, on December 17, 1945, the Austrian economist (and much later economics Nobel Prize winner), Friedrich A. Hayek, delivered a lecture at University College in Dublin, Ireland on, “Individualism: True and False.”

  At a time when socialist central planning appeared to be the “wave of the future,” Hayek argued that the true and essential foundation for any society wishing to preserve human liberty and assure economic prosperity was a rightly understood philosophy of individualism.

  At the heart of Hayek’s criticisms of what he called the “false” individualism was the idea that individual human beings could ever have the knowledge, wisdom, or ability to design or remake a society according to some “rational” plan.

  It is easy, no doubt, to fall into this error and mistaken belief. After all, we all undertake plans and design projects of action that we attempt to bring to successful fruition. The construction engineer, for instance, designs a technical blueprint for designing and building a bridge over a river or a tunnel through a mountain.

  The individual private enterpriser works out a “business plan” about what product he might produce, the start-up investment and production costs that would be entailed, and the estimated consumer demand and stream of potential future revenues that would justify incurring the costs of bringing the business into existence and operation.

  As private individuals we design, plan, and attempt to implement our own activities all the time, including going to college and earning a degree; or selecting and pursuing a particular profession, occupation or employment; or forming clubs and associations with others in society to pursue the fulfillment of any variety of “good causes” or shared hobbies and interests; or even the general life we might like to live in terms of achieving a sense of fulfillment, purpose, and happiness during our earthly sojourn.

  Not to do all of these “planful” things, and many, many others of like kind, would leave our lives in disordered chaos and uncertain instability and confusion. Who, therefore, could be against or critical of wise, reasonable and “rational” planning of the society as a whole, in which we all live and work out our lives in interaction with multitudes of others?

  Yet, that idea of the social designing and engineering of society as a whole by government and its central planners is exactly what Friedrich Hayek asked us not to assume or take for granted.

  

  Human Knowledge is Divided and Dispersed in Society

  Earlier in 1945, Hayek had published an article on, “The Use of Knowledge in Society,” in which he pointed out that a fundamental limitation on the ability to centrally plan the economic affairs of society was the inherent and inescapable division of knowledge in society.

  The division of labor through which we cooperatively associate with each other to better achieve our various goals and purposes carries with it a matching division of knowledge. The specialized types of knowledge that each of us possesses in comparison to others in society can never be fully and successfully centralized in the hands of a set of government central planners without losing much of the content and richness of the diverse qualities of that knowledge that exist in different forms in each individual’s mind.

  Hayek’s conclusion was that if all of that dispersed and decentralized knowledge that exists in the individual minds of all the members of society is to be effectively used and brought to bear for mutual improvement of the human condition, each of us must be left free to use that knowledge as we, respectively, think best and most advantageous.

  Furthermore, our various actions using our individual types and bits of unique knowledge is best integrated and coordinated through a competitively-based free pricing system generated by the unhampered interaction of market supply and demand. (See my article, “F. A. Hayek and Why Government Can’t Manage Society,” Part I and Part II.)

  Society is a Spontaneous Order, Not a Planned One

  In this later lecture on “Individualism: True and False” (which was published in Hayek’s collection of essays, Individualism and Economic Order), Hayek argued that the true individualism starts from the premise that “society” is not some ethereal entity having an existence of its own, nor the designed creation of one or a handful of minds imposing a “plan” on people that produces the social order.

  Instead, society is the cumulative and interactive outcome and result of multitudes of individual human beings making their separate individual plans that interact and generate connections and associations with other individual plans to produce the overall social order and its coordinated patterns.

  If we think of language, custom, tradition, most rules of common etiquette and interpersonal conduct, and the general moral and ethical codes that prevail in a society we surely realize, upon a little reflection, that they are the cumulative outcomes of multitudes of generations of people whose interactions brought about these social institutions without which human association and cooperation would hardly be possible.

  Once we realize this, we also understand that much of what we call “society” could not and was not designed because the forms, shapes and characteristics that it takes on could not have been anticipated or even imagined in all their detail and specificity as they emerged and evolved through historical time.

  If the evolution and institutions of society had been limited to what a group of central planners could have known and designed, our society’s development would have been confined and limited to what that handful of minds had been able to image and understand, given their own personal and limited knowledge.

  Or as Hayek expressed it:

  The “basic contention is . . . that there is no way towards understanding of social phenomena but through our understanding of individual actions directed towards other people and guided by their expected behavior . . .

   

  “It is the contention that, by tracing the combined effects of individual actions, we discover that many of the institutions on which human achievement rest have arisen and are functioning without a designing or directing mind; that, as [the eighteenth century Scottish moral philosopher] Adam Ferguson expressed it, ‘nations stumble upon establishments [institutions], which are indeed the result of human action but not the result of human design’; and that the spontaneous collaboration of free men often create things which are greater than their individual minds could ever fully comprehend.”

  Though Hayek does not include it, the next passage in Adam Ferguson’s An Essay on the History of Civil Society (1767), is most pertinent to this point:

  “It may with more reason be affirmed for communities [societies], that they admit of the greatest revolutions where no change is intended, and that the most refined politicians do not always know whither they are leading the state by their projects.”

   

  

  Market Planning versus Political Designs

  Those market experimenters and entrepreneurs of the eighteenth and early nineteenth centuries who began to invest in mass production machinery in what became known as the “factory system” never imagined that their attempts to find ways to produce more and less expensive goods for mass consumption as the means to earning their personal profits would cumulatively generate what we now call the “industrial revolution,” with the economic transformation of unimagined rising standards of human living that has come from it over the last two hundred years.

  Nor, more recently, could most, if hardly any, people have imagined the ways things would be changed and transformed in terms of everyday life through the development of computer technology. The first IBM computer occupied much of a city block in New York City. Who could have anticipated and planned for at that time that the later discovery and development of the microchip would revolutionize the world of communication and commerce in the way that has happened over the last few decades?

  Yet, one hundred years ago, an American president entered the First World War to “make the world safe for democracy” and helped to set in motion a sequence of unintended consequences that, instead, resulted in twentieth century Soviet communism, Italian fascism and German Nazism.

  And more recently, “anti-terrorist” nation building by U.S. government military intervention in Afghanistan, Iraq and Libya have helped foster, instead, the emergence of religious fanatics and cruel murderers equal to or often worse than the tyrants the interventions were designed to overturn.

  Knowledge-Using Institutions versus Great Men Politics

  What inferences were to be drawn from the view of a free society as, primarily, a “spontaneous order,” the cumulative, and often the unintended outcome, of multitudes of human interactions, the results of which could never be fully or in many instances even partially anticipated in its rich texture and form, out of which has come many of the human betterments around us?

  Hayek suggested that an important insight was to accept the fact that it was a false trail to be attempting to find wise leaders or super-human statesmen to guide society to a better future. The reality, he said, is that none have the wisdom or super-human talents and abilities to guide and direct human society.

  The fact is, people are limited in their knowledge, abilities and talents, and are too often tempted to misuse and abuse any such positions of political power to benefit themselves and their associates at the expense of others in society.

  The task, instead, Hayek said, is finding an institutional order in which the potential for such misuse and abuse is minimized and the widest latitude prevails for people to use their own unique and specialized knowledge and abilities in ways that not only benefit themselves but improve the conditions of many others in society, as well.

  Explained Hayek:

  The “chief concern was not so much with what man might occasionally achieve when he was at his best but that he should have as little opportunity as possible to do harm when he was at his worst . . .

   

  “The main merit . . . of [political] individualism . . . is that it is a system under which bad men can do least harm; it is a social system which does not depend for its functioning on our finding good men for running it, or on all men becoming better than they now are, but which makes use of men in all their given variety and complexity, sometimes good and sometimes bad, sometimes intelligent and more often stupid. [The] aim was a system under which it should be possible to grant freedom to all, instead of restricting it . . . to ‘the good and wise’ . . .

   

  “What the economists [of the eighteenth and nineteenth centuries] understood for the first time was that the market as it had grown up was an effective way of making men take part in a process more complex and extended than he could comprehend and that it was through the market that he was made to contribute ‘to ends which were no part of his purpose’ [to quote from Adam Smith] . . .

   

  “The true basis of [the individualist’s] argument is that nobody can know who knows best and that the only way by which we can find out is through a social process in which everybody is allowed to try and see what he can do.

   

  “The fundamental assumption here as elsewhere is the unlimited variety of human gifts and skills and the consequent ignorance of any single individual of most of what is known to all the members of society taken together.”

   

  

  Individual Freedom with Limited Government

  If we take Hayek’s argument to heart, we must not only doubt but strongly challenge the arrogance and hubris expressed by all those in the public policy arena who assert a presumed knowledge to know how to guide, direct, redesign, regulate and plan the society in a manner better than allowing the free interactions of multitudes of individuals within a general system of individual rights to life, liberty and honestly acquired property, with enforcement of all contracts and agreements freely and non-fraudulently entered into.

  As Hayek went on to say, this also implies a society in which individuals reap the benefits of all peaceful rewards they have earned, but also must be willing to bear the losses and disappointments when outcomes are not always to their liking.

  Thus, while such a free society rejects any and all political forms of favor, privilege and artificial status, it also operates on the basis of market-resulting inequalities of material and other outcomes under a regime of impartial and equal individual rights before the law. Either all people are treated equally before the law with resulting unequal economic outcomes, or government treats individuals unequally in the attempt to assure more equal economic results.

  Hayek ended his lecture with a question and an observation that is as relevant today as when he delivered it 70 years ago:

  “The fundamental attitude of true individualism is one of humility towards the processes by which mankind has achieved things which have not been designed or understood by any individual and are indeed greater than individual minds. The great question at this moment is whether man’s mind will be allowed to continue to grow as part of this process or whether human reason is to place itself in chains of its own making.

   

  “What individualism teaches us is that society is greater than the individual only in so far as it is free. In so far as it is controlled or directed, it is limited to the powers of the individual minds which control or direct it.”

  Which direction will the twenty-first century follow: individual free minds or politically managed minds? That is the question for all of us to answer.

  

  

  

  

• This Is The Cartoon Germany Hands Out To Sexually Frustrated Refugees

  Earlier this evening, we noted that the western German town of Bornheim has banned adult male asylum seekers from its indoor public pool after some German women complained of harassment.

  “There have been complaints of sexual harassment and chatting-up going on in this swimming pool … by groups of young men, and this has prompted some women to leave (the premises),” the town’s deputy mayor said.

  Bornheim, as it turns out, is just a stone’s throw away from Cologne where a wave of sexual assaults allegedly perpetrated by men of “Arab origin” at a New Year’s Eve festival has mushroomed into a bloc-wide scandal.

  Now, officials from across Europe are struggling to deflect criticism and devise a way to ensure that women are safe in large crowds.

  As we documented on Thursday, Switzerland has adopted an Austrian cartoon flyer for its upcoming  Lucerne carnival. The pictogram lays out various instances of accepted behavior such as kissing and praying, while making it clear that flying into a mad rage and open-hand slapping women and small children is frowned upon in polite society.

  

  Well now, in a story that combines the concern about public pools and the effort to dissuade lewd behavior with cartoons, The Local reports that “in Bavaria, swimming pools have issued leaflets with simple pictorial instructions on behaviour for migrants who may never have swum in public before.”

  Officials dreamed up the leaflets in 2013 after witnessing an increasing number of “problems” at the city’s 18 public swimming pools.

  “The ground rule of respect for women – whatever clothing they’re wearing – is unfortunately not respected by all our swimmers. That’s why there is an explicit indication about it,” a Munich city spokesman said.

  The “explicit indication” the spokesman mentions is a slightly creepy first-person view of a hand reaching out to touch the behind of an unsuspecting female swimmer:

  

  That is unacceptable, as is drowing others (#4 below), pushing women into the pool (#3 below), and leaping from the side onto a screaming blonde (#7 below).

  Here is the full cartoon which you are encouraged to review in its entirety if you are an asylum seeker that plans on swimming in Bavaria.

  

  We’d be remiss if we didn’t mention that this is the same logic employed by Cologne mayor Henriette Reker who, in the wake of the New Year’s Eve assaults, suggested that one solution to the “problem” would be to “explain to people from other cultures that the jolly and frisky attitude during our Carnival is not a sign of sexual openness.” Neither is wearing a bikini.

  We’ll close with a modified version of what we said on Thursday with regard to the Austrian pictograph: “…whether the cartoons will be successful in taming the refugees’ more base instincts, stop by a Bavarian public pool to find out.”

  

  

  

  

• "This One Is A Bag Of Dicks": America Answers Oregon Militia's Plea For "Supplies"

  Shortly after Ammon Bundy and a handful of armed militiamen “seized” a remote bird sanctuary to protest the imprisonment of a rancher and his son for setting fire to federal land, the group appealed to “patriotic” Americans to send supplies.

  Initially, Bundy said his followers were prepared to occupy the building “for years” if they had to if it meant securing the release of Dwight Hammond and his son Steven and forcing the federal government to reimagine laws around land rights. As a reminder, the group is apparently attempting to force the issue of land control back into the national consciousness with a kind of ad hoc, haphazard rekindling of the Sagebrush Rebellion.

  Shortly after Bundy suggested that the standoff could last “years”, it became apparent that the group might not have packed enough supplies.

  Before you knew it, Jon Ritzheimer – the same Jon Ritzheimer who, in a YouTube video addressed to his family, cries while clutching a small paperback copy of the Constitution on the way to explaining why it’s necessary to commandeer a tiny building in the middle of nowhere – took to Facebook to ask for “cold weather socks, snacks, energy drinks, equipment for cold weather, snow camo, gear, and anything you think will help.”

  Well as it turns out, some “sympathizers” did indeed have ideas about “what would help.”

  “The occupiers, who took over buildings at the Malheur National Wildlife Refuge on Jan. 2 in the latest conflict over the U.S. government’s control of land in the West, had been hoping for snacks, fuel and warm clothes when they provided sympathizers with a local mailing address,” Reuters notes. “Instead, as they angrily showed online, they received sex-related toys and food that would be of little use as they braced for a long standoff with federal law enforcement agents who have kept watch from a distance.”

  Yes, “food that would be of little use as they braced for a long standoff with federal agents.” Food like “a bag of penis-shaped candies,” or as Jon Ritzheimer puts it in an angry new video, “this one was really funny, a bag o’ dicks.”

  Watch below as Jon loses his cool with an American public he’s trying so desperately to “help”.

  

  

  

  

• GM/Ford Credit Risk Surges To 2 Year Highs As Fitch Raises Auto Sector Concerns

  With the feds probing Deutsche Bank's exaggerating Auto ABS demand, car dealerships suing automakers for being forced to channel-stuff, direct evidence of massive channel-stuffing with near-record inventories-to-sales, and sales now beginning to tumble after last month's weak credit growth, it is perhaps no wonder that Fitch has raised the warning flag about automotive vehicle and parts makers…

  As we demonstrated last week, the cracks are already starting to show.

  Sales slowing dramatically…

  

   

  Inventories continue to soar…

  

   

  And that has not ended well in the past…

  

   

  And now Fitch raises concerns:

  Automobiles & parts companies five-year Credit Default Swaps (CDS) have experienced notable widening recently, according to Fitch Solutions in its latest case study.

   

  CDS on automobiles & parts companies have widened 11.5% on average over the past week (22.4% over the month), underperforming the 6% widening observed for the broader consumer goods industry last week.

   

  Auto companies domiciled in North America saw the most spread widening (14% w/w, 31% m/m), followed by European autos (11% w/w, 16% m/m) and Asian issuers (3% w/w, 12% m/m).

   

  "The increase in market scrutiny over the auto sector likely stems from overall jitters relating to China's economic slowdown and the potential impact on demand for autos and parts," said Diana Allmendinger, Director, Fitch Solutions.

  In fact Ford is at its highest credit risk in over 2 years and GM getting close..

  

   

  But it's not just F and GM…

  

   

  And we detailed previously, it would appear that demand for auto loan ABS may be beginning to dry up as investment banks are forced to engineer an artificial buzz around new deals in order to keep skeptical investors from demanding sharply higher yields. 

  As a reminder, if the market for auto loan ABS stalls (so to speak), it will trigger a chain reaction all the way down to the dealers who will suddenly care about the creditworthiness of borrowers again.

  Once that happens, the US auto "miracle" will suddenly disappear in a cloud of noxious tail pipe exhaust as the one reliable "driver" of consumption in America is exposed for what it is: a castle built on subprime quicksand.

  

  

  

  

  

  

• German Town Bans Refugees From Pools

  On Thursday, we brought you an Austrian cartoon flyer that the Swiss department of Health and Social Services intends to distribute to refugees ahead of the Lucerne carnival which starts on February 4.

  The flyer features a number of pictograms depicting acceptable versus unacceptable behavior. Shaking hands, for instance, is ok, while flying into a rage and open-hand slapping young children is generally frowned upon:

  

  It’s necessary to lay out the ground rules ahead of time because as we and others have documented exhaustively over the past several weeks, Europe has been struggling to deal with a growing sex assault scandal. According to “hundreds” of reports, men of “Arab origin” formed “gangs” to assault women in Germany, Finland, and Austria on New Year’s Eve and last August, dozens of teenage girls were allegedly attacked in a similar fashion at a festival in Sweden.

  The public outcry has been long and loud. Women in Cologne massed last week in the city center in Cologne, holding signs that read “Ms Merkel where are you? What do you say? This scares us!,” among other things. The attacks have also emboldened nationalist movements across the block. Thousands of PEGIDA demonstrators poured into the streets last weekend in Germany and in Finland, a right-wing group called “The Soldiers of Odin” now patrols the streets in an effort to “assist” police in preventing crime.

  Now, we’re beginning to see the first signs of segregation as one German town has banned adult male asylum seekers from the public pool.

  “A western German town has barred adult male asylum seekers from its public indoor swimming pool after receiving complaints that some women were sexually harassed there,” Reuters reports, adding that “the deputy mayor of Bornheim, a town of 48,000 some 30 km south of Cologne, said on Friday that a difficult decision was taken to send a clear message that breaching German cultural norms was a red line that should not be crossed.”

  “There have been complaints of sexual harassment and chatting-up going on in this swimming pool … by groups of young men, and this has prompted some women to leave (the premises),” Markus Schnapka told Reuters.

  “This led to my decision that adult males from our asylum shelters may not enter the swimming pool until further notice.”

  There was no official word on how the ban would be enforced but Markus Schnapka, who heads the social affairs department in Bornheim, said the measure would remain in place until refugees “got the message” – whatever that means. Here’s the facility:

  

  Meanwhile, in Finland, employees of the Diakonissalaitos Foundation which runs the local center for asylum seekers say elderly Finnish women are preying upon young male refugees. “The older Finnish woman suspected to have bought sex alone Finland tulleelta a minor asylum seeker,” a clumsy translation of a story that ran yesterday in prominent Finnish tabloid Ilta-Sanomat reads. Here’s more:

  Deaconess Institute working with asylum seekers as a teacher Taina Cederström to strengthen the Ilta-Sanomat. Cederström continue that women were trying to buy sex from minors Helsinki railway station during the Christmas season. Women offered Cederström data show that the boys return for 20 euros. – We made ??a conclusion that there must have been a bunch of people pre-Christmas traffic. Money is purchased, Cederström says.Cederström says that two women blow to the companies he is quite sure. – Similar cases are certainly other. The Honourable Members heard enough.

   

  “One boy asked, that receive women kiss when want to”

   

  Deaconess Institute’s employees were able to track down the case, when they began to wonder where young boys find their money on tobacco, and other things.

   

  Cederström says that this is a new phenomenon. Young people at the station has been sufficient in the past. Cederström, the station is now gone for Finnish women 30-40 years of age to buy the services of minors. Cederström thinks that women are, in principle, to all appearances, smart, prosperous people. Someone feeling of superiority it has.

  So there you have it. The descent of European society into bacchanalia. Lewd “chatting up” at indoor pools in Germany and young boys sold for €20 to elderly female predators at train stations in Finland. 

  We wonder how long it will be before asylum seekers are banned from other public facilities in Germany. We also wonder if the Soldiers of Odin will intervene to keep underage boys from being sold into slavery for a pack of cigarettes. 

  

  

  

  

  

• Atlanta Fed Explains Why It Waited Until The Market Close To Reveal The Lowest Q4 GDP Estimate Yet

  As we noted earlier, the Atlanta Fed waited until the market close to reveal its most dire GDP estimate yet: a paltry 0.6%, matching the 0.6% recorded during the “harsh winter” first quarter: one could be forgiven to think that during today’s already chaotic selloff, the last thing traders and algos needed was news that US economic growth had ground to a virtual halt in the quarter in which Yellen decided to hike the interest rate.

  Moments ago the Atlanta Fed was kind enough to explain the reason behind this surprising delay for a report it usually releases before noon. The answer: “technical delays” and “nothing nefarious.”

  @zerohedge Apologies for the late-day data release. Nothing more nefarious than technical difficulties, which we believe have been resolved.

  — Atlanta Fed (@AtlantaFed) January 15, 2016

  Thanks for the explanation.

  

  

  

  

• Weekend Reading: Breaking Markets – Season II

  Submitted by Lance Roberts via RealInvestmentAdvice.com,

  Last week, I started the weekly reading list by stating:

  “This week has certainly been interesting with the Dow Jones Industrial Average having the worst start to a year…well…ever.”

  This week was not much difference as the markets continued their slide into the “worst-start-of-the-year-everer.”

  However, with the markets roughly down 7% since the beginning of this year, it certainly has seemed painful as investors have been slammed from all angles. However, as I addressed earlier this year with respect to January statistics, this is well within historical norms. To wit:

  “Furthermore, while January’s maximum positive return was just 9.2%, the maximum drawdown for the month was the lowest for all months at -6.79%.”

  

  “However, given the length of the current bull market run from 2009 to present, the risks are mounting that January will likely have consecutive negative performance years which would confirm the ongoing market topping process I discussed previously. Such an outcome would suggest a more conservative approach to investment allocations.”

  With the markets now extremely oversold on a short-term basis, it is quite likely that a bounce will occur in the days ahead. Such a bounce will likely be met by sellers wanting to reduce risk of a more substantial correction. But will they be right?

  This weekend’s reading list is a collection of articles on the current state of the market.  Is the bull still alive or is it being hunted by the bear?

  ---

  1) Death Throes Of A Bull Market by Anthony Mirhaydari via Fiscal Times

  “Fed Chair Janet Yellen will be forced to either acknowledge labor market tightening as reason to continue with the four-hike schedule for 2016 or risk her credibility, belittle job market stability and sound a warning about the risks of lower oil prices and cheap gasoline (sacrilege to regular Americans) by slowing the hiking pace after a single 0.25 percent increase last month.

   

  If she gets it wrong, things could get ugly fast.

   

  The Russell 2000 has dropped all the way back to levels last seen in October 2013 as it has dropped below its 200-week moving average for the first time since 2011.”

  

  But Also Read: It’s Too Early To Call The End Of The Bull by Andrew Bary via Barron’s

   

  2) Market Dive Explained In One Chart by Daniel Alpert via CNBC

  “But here’s the brutal bottom line: The non-energy portion of the U.S. current account deficit, relative to GDP, has ballooned by 236 percent since its low in December 2013, during which period the energy deficit fell by 57 percent.”

  

  But Also Read: The U.S. Is Teetering On Edge Of Recession by Robert Reich via TruthDig

  Opposing View: No Recession Yet by Caroline Baum via MarketWatch

   

  3) The Bear Comes Out Of Hibernation by Michael Snyder via Zero Hedge

  “According to the Bespoke Investment Group, the average stock on that index is down a staggering 26.9 percent from the peak of the market…

   

  Indeed, the Standard & Poor’s 1500 index – a broad basket of large, mid and small company stocks – shows that the average stock’s distance from its 52-week high is 26.9%, according to stats compiled by Bespoke Investment Group through Friday’s close.

   

  ‘That’s bear market territory!’ says Paul Hickey, co-founder of Bespoke Investment Group, the firm that provided USA TODAY with the gloomy price data.

  So if the average stock has fallen 26.9 percent, what kind of market are we in?

   

  To me, that is definitely bear market territory.”

  But Also Read: What Is Jeff Gundlach Predicting For 2016 by John Gittelsohn via Bloomberg

   

  4) We Are Entering “Irrational Pessimism” by David Rosenberg via Financial Post

  “’If you can keep your head when all about you are losing theirs and blaming it on you.’

   

  Thank you, Mr. Kipling. Keep saying it over and over.

   

  I have three pieces of advice to all the Nervous Nellies out there: Turn off the TV, focus on the big picture, and review your asset mix so as to use this corrective phase and radical repricing of relative asset prices as an opportunity to rebalance the portfolio.”

  But Also Read: RBS Cries “Sell Everything” by Ambrose Evans-Pritchard

  Further Read: Big Bad China by Shane Obata via THA Business

   

  5) What Is A Reveral Vs. A Correction by Simon Constable via WSJ

  “For the past 12 months the S&P 500 index of large stocks has bounced around, neither continuing the trend upward nor starting a new one downward.

   

  That “sideways” movement is making some market strategists worried that a reversal may occur in which a new downward trend starts. If such a trend does start, these strategists will want to warn investors earlier rather than later.”

  But Also Read: Smart Money Turning Bearish by Julia La Roche via Business Insider

  And: The Future Ain’t What It Used To Be by Doug Kass via Yahoo Finance

  ---

  MUST READS

  • The Last Hurrah For Job Growth by Louis Woodhill via Real Clear Markets
  • US Real Estate 25-60% Overvalued by Chris Matthews via Fortune
  • Retired Until No Other Job Available by Salil Mehta via Statistical Ideas
  • SNAFU – Situation Normal All ‘FANGed Up by Cliff Asness via AQR
  • The Payoff Pitch by Michael Liebowitz via 720 Global
  • A 40-55% Reversal Return To Norms by John Hussman via Hussman Funds
  • Predicting The Future Is Impossible by Joe Calhoun via Alhambra Partners
  • Peak Pessimism: S&P Will Fall By 75% by Tyler Durden via Zero Hedge
  • 3 Charts Every Investor Must See by Jesse Felder via The Felder Report
  • Complacent Correction Cause For Concern by Dana Lyons via Tumblr

  ---

  “Better to preserve capital on the downside rather than outperform on the upside” – William J. Lippman

  

  

  

  

  

• Atlanta Fed Waits Until The Close To Reveal 0.6% Q4 GDP Estimate

  With less than half an hour until the close, we asked the Atlanta Fed – the most accurate predictor of GDP – which was scheduled to post an update of its Q4 GDP NowCast following today’s ugly economic data, if it was was planning on releasing its latest Q4 GDP estimate before or after the close, something it usually does just before noon.

  Dear @AtlantaFed will you be updating your Q4 GDP NowCast today as your schedule says you will? https://t.co/YrUvkxf5Nl

  — zerohedge (@zerohedge) January 15, 2016

  And, at close ahead of a three day weekend, the economists in charge of the sacred GDP excel model, finally did what they were supposed to do hours later and revised Q4 GDP growth to just 0.6%, a number which some – such as Barclays – would say is too high in light of the economic drop the US economy has experienced in the past month. Note the timestamp:

  

  Here is the argument:

  The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2015 is 0.6 percent on January 15, down from 0.8 percent on January 8. The forecast for fourth quarter real consumer spending growth fell from 2.0 percent to 1.7 percent after this morning’s retail sales report from the U.S. Census Bureau and the industrial production release from the Federal Reserve.

   

  

  As a reminder 0.6% is how much the US economy “grew” by in the revised Q1 2015 quarter when the “harsh weather” was blamed for unleashing hell on US GDP. Whose fault will it be this time?

  Worse, it means that Yellen raised rates in a quarter in which the US economy may well end up contracting in nominal terms.

  Finally, perhaps the fact that the Atlanta Fed waited as long as it did, is confirmation that bad news for the economy is now bad news for stocks, at least until the Fed does fold and either cut or launch more QE.

  

  

  

  

  

• Black Friday

  Unleash hell…

  And this…

  Worst Start To A Year… Ever!

  

   

  It's ugly in 'Murica…

  

   

  Of course – it's not just US, China has collapsed this year…(Worst start to a year ever)

  

  Japan was a shitshow..

  

   

  And Europe is in a bear market having erased all of the Q€ gains… (Worst start to a year ever)

  

   

  The day in stocks…

  

  • *NASDAQ COMPOSITE INDEX SINKS 2.7% TO LOWEST IN 14 MONTHS

  • *S&P 500 FALLS 2.2% TO LOWEST LEVEL SINCE AUG. 25

  But that level was heavily defended…

  

   

   

  The week in stocks… worst 3-week drop in S&P, Dow, Trannies, Small Caps, and Nasdaq since Aug 2011

  

   

  2016 in stocks…

  

   

  Since The Fed rate-hike in stocks…

  

   

  Since The Fed across asset-classes…

  

   

  Since the end of QE3 in stocks…

  

   

  It's a bloodbath in FANGs and Biotechs…

  

   

  FANTAsy stocks are really ugly year-to-date (cap-weighted FANGs are down 12% YTD, Biotechs -17%)

  

   

  Surprise – Equity markets catch down to on balance volume…

  

   

  Financials bloodbathery fell to catch down to credit…

  

   

  On the week, credit remains the leader…

  

   

  But credit signals more pain to come… in stocks…

  

   

  Especially in the most credit-sensitive small caps…

  

   

  And VIX…

  

   

  With Energy credit risk at its highest on record…

  

  Carnage Continues, Energy Yields Set Record High

  (Bloomberg) — WTI oil has dropped to a new 12y low, falling below $30/bbl, triggering a broad sell-off across asset classes, with equities dropping 2.6%, HY ETFs falling 1.6% (lowest levels since 9/09), HYCDX slipping 1.1% and cash bonds falling across sectors led by oil companies in the Energy sector.

   

  The BofAML U.S. HY Energy index YTW set a new historical high last night closing at 17.43%, surpassing the 17.048% close on 12/5/2008 during the height of the financial crisis

   

  As of Wednesday’s close, the BofAML U.S. HY Energy index option adjusted spread to Tsys closed at +1,501, eclipsing the previous wide level seen at the height of the crisis of +1,494 on 12/5/2008

   

  Energy bonds were roiled led by Sanchez Energy which plummeted 32% intraday followed by EP Energy (-15%), Whiting Petroleum (-13%), and Oasis Petroleum (-11%)

   

  

  As Energy, Materials, and Financials lead the collapse in stocks since The Fed rate-hike…

  

   

  Treasury yields collapsed this week (with the curve flat)…

  

   

  And the USD Index gave up some of its gains to end the week up 0.3%… USDJPY dropped 0.25% on the week

  

  • *RUSSIAN RUBLE WEAKENS 2% TO 77.603 PER DOLLAR, RECORD-LOW CLOSE

  Commodities were a mess with Gold and silver best (unch to modestly lower) while copper and crude were clubbed…

  

   

  Crude closed below $30 for the first time since September 2003…

  

   

  Charts: Bloomberg

  Bonus Chart: Rate-Hike Odds have plunged…

  

  Bonus Bonus Chart: Value is collapsing and Momentum remains high post-QE3 – we suspect that will revert… (h/t @groditi)

  

  

  

  

  

• Americans This Weekend (In 1 Chart)

  (3)01k?

   

  

   

  Source: Townhall.com

  

  

  

  

  

• The US Consumer Is Drowning His Sorrows At The Bar

  Submitted by Jim Quinn via The Burning Platform blog,

  Month after month I watch as the MSM mouthpieces try to spin declining consumer spending in a positive light. They are practically out of excuses. They are befuddled, because month after month they report “awesome” job gains and can’t understand why all these gainfully employed Americans aren’t buying shit they don’t need like they used to. These faux journalists, spouting propaganda for their ruling class bosses, are willfully ignorant of the fact the job gains are in low paying part-time jobs and the fact that Obamacare and record high rents are sapping any discretionary income households would use to buy stuff.

  Despite the propaganda from the media and happy talk from the Liar-in-Chief, the country is currently in a recession and the Fed has no ammo to fake another recovery. We are going down and going down hard. When 70% of your economy is based on Americans buying shit they don’t need from China on credit cards, a dramatic slowdown in consumer spending equals recession. When sales actually fall from November to December during the holiday season, you are in recession. We’ve arrived.

  The December report was a disaster and portends horrible retailer results coming down the road. More ghost malls coming to your neighborhood. The annual results were pitiful, with the more recent months even more dreadful. So after adding 10 million jobs, according to Obama, spending declines? They must be great jobs.

  I think the results are even worse than portrayed in the results presented by the Census Bureau. Retail sales grew by only 2.2% in 2015 versus 2014. That is significantly less than the real inflation being experienced by real people, so on an inflation adjusted basis they fell. Even the 2.2% increase is artificially pumped up by the Fed induced auto debt fueled boom in car sales (or long-term rentals in reality). The 7 year 0% auto loans, subprime auto loans to deadbeats, and record levels of auto leases have created fake demand that will end in tears when the defaults skyrocket. If you remove these fake sales, then total retail sales are up a pitiful 0.9% over 2014.

   

  When you realize that two of the few strong sales categories were autos (7.5%) and furniture stores (5.8%), you can put your thinking cap on and realize the 7 year 0% financing scam is solely responsible for these sales. Reducing credit score criteria and extending loan terms always works. Right? The other relatively strong area was internet sales (6.3%). Amazon and the rest of the on-line retail segment continues to destroy the bricks and mortar retailers, but even these sales are slowing. They were up a weak 0.3% from November. Before the states started taxing internet sales and it was still a newer concept, the annual growth rates were 15% to 20%, so the 6.3% growth rate is rather unimpressive.

  

   

  And this leads me to the strongest spending segment – restaurants/bars. Sales were up 8.1% over 2014 and continued strong in December. I know this is true firsthand as my wife is a waitress at a restaurant/sports bar and business was booming in December and continues to be good in January. My thesis for this strong spending is that people are so miserable about the economy in general and the direction of the country (reflected in Trump’s support), they have decided to drink and eat, for tomorrow we die. Dining out or getting loaded at a bar takes your mind off your troubles for a few hours. It’s not a huge expenditure and you just put it on your credit card and worry about it later.

  When the mass layoffs start hitting in 2016, even this category of spending will contract. If you think the 2015 consumer spending numbers were atrocious, you haven’t seen anything yet.

  

  

  

  

  

• Here's A Chart You Won't See On CNBC

  What goes up, comes down considerably faster.

  For global stocks, Bloomberg notes, the way down ($15 trillion lost in 7 months) has been much easier than the climb up ($30 trillion added in 4 years).

  

  Source: Bloomberg

  With markets from Asia to Europe entering bear markets this month, stocks worldwide have lost more than $14 trillion, or 20 percent, in value from a record last June amid worries over global growth and deepening oil declines. The pace of the drop has been so fast that it has already unraveled about half of the rally since a low in 2011.

  And here is a bonus chart from Bank of America, which looks at the S&P on an equal weighted basis, to avoid such aberrations as the collapsing market breadth phenomenon, also known as FANG. Spot the symmetry.

  

   

  

  

  

  

  

• Bill Gross' Advice To Traders As Stocks Crash

  In a time when the S&P fluctuates with unprecedented velocity and investors need HFT-like reflexes to catch any momentum move, this may be the most practical advice to traders we have heard today.

  In an email to Bloomberg, the former (and currently in contention for the title with Jeff Gundlach) bond king Bill Gross says to “stay out of the bathroom” as stock markets enter bear territory.

  For those who ate Chipotle.coli for lunch, our condolences.

  Some more Gross courtesy of Bloomberg:

  “Markets are recognizing the limited tools they now have to prop up assets AND real economies,” Gross, who manages the $1.3 billion Janus Global Unconstrained Bond Fund, said in an e-mail.

   

  Stocks fell around the world today, with U.S. equities trading at the lowest levels since August as oil plunged below $30 a barrel. Treasuries gained as U.S. economic data did little to ease concerns that global growth is slowing.

   

  “Wealth effect constructed with paper – sometimes corrugated/strong, sometimes toilet/flimsy,” Gross said in a Tweet on Friday from the Janus Capital Group Inc. account. “Stay out of the bathroom.”

   

  Gross warned in December that markets were headed for a fall and urged urged investors to de-risk their portfolios or “look around like Wile E. Coyote wondering how far is down,” a reference to the cartoon character whose schemes to catch the bird Road Runner always backfire, often with a plunge over a cliff.

   

  In his e-mail, Gross said that zero-percent interest rates and quantitative easing created leverage that fueled a wealth effect and propped up markets in a way that now seems unsustainable.

  His conclusion: “The wealth effect is created by leverage based on QE’s and 0% rates.”

  In other words, it was all an illusion.

  

  

  

  

  

• Chipotle To Close All Stores Next Month For Meeting On How Not To Poison People

  Chipotle poisoned some folks.

  America’s love affair with “fast casual” darling Chipotle ended in a wave of severe nausea last year as a food poisoning outbreak that started in July spread to multiple states and sickened hundreds of patrons.

  Since last summer, authorities have tied Chipotle to at least six outbreaks spanning two types of bacteria (E. coli and salmonella) and one virus (the “winter vomiting bug”).

  As The Chicago Tribune recounts, the incidents “included one that started in October in Oregon and Washington and spread to seven other states, sickening more than 50 people by mid-November, [one in] December [in which] about 200 were sickened by norovirus after eating at a Chipotle in Boston, five cases of E. coli poisoning in Kansas, North Dakota and Oklahoma, five illnesses tied to one Seattle store in July, 100 illnesses [linked to] an outlet in Simi Valley, California,” and an unfortunate episode “in September [when] more than 60 fell ill in Minnesota.”

  That’s a lot of sick people and as you might image, the stock fell ill as well, dropping some 40% since the first reported cases.

  
  

  Now, the chain is set to hold a kind of ad hoc “try not to poison anyone” meeting on February 8, when all stores will close “for a few hours” so that management can “discuss some of the changes [its] making to enhance food safety, to talk about the restaurant’s role in all of that and to answer questions from employees.”

  Yes, “questions from employees”, who might ask if their jobs are on the line after same store sales collapsed 30% in December and after the company was served with a Grand Jury Subpoena in connection with an official criminal investigation being conducted by the U.S. Attorney’s Office for the Central District of California.

  They might also be concerned with the dozens of lawsuits Bill Marler, a food safety litigator in Seattle, says he’s about to file.

  Perhaps management can calm employees’ frayed nerves the same way they calmed the market: by explaining that buybacks will always cure what ails you.

  

  (the magic of the buyback as seen on January 6)

  

  

  

  

  

• The Game Of Chicken Between The Fed & The PBOC Escalates

  Submitted by Ben Hunt via Salient Partners' Epsilon Theory blog,

  There’s more than a whiff of 2008 in the air. The sources of systemic financial sector risk are different this time (they always are), but China and the global industrial/commodity complex are even larger tectonic plates than the US housing market, and their shifts are no less destructive. There’s also more than a whiff of 1938 in the air (hat tip to Ray Dalio), as we have a Fed that is apparently hell-bent on raising rates even as a Category 5 deflationary hurricane heads our way, even as the yield curve continues to flatten. 

   

  What really stinks of 2008 to me is the dismissive, condescending manner of our market Missionaries (to use the game theory lingo), who insist that the US energy and manufacturing sectors are somehow a separate animal from the US economy, who proclaim that China and its monetary policy are “well contained” and pose little risk to US markets. Unfortunately, the role and influence of Missionaries is even greater today in this policy-driven market, and profoundly misleading media Narratives reverberate everywhere. 

   

  For example, we all know that it’s the overwhelming oil “glut” that’s driving oil prices down and wreaking havoc in capital markets, right? It’s all about OPEC versus US frackers, right?

   

  Here’s a 5-year chart of the broad-weighted US dollar index (this is the index the Fed publishes, which – unlike the DXY index and its >50% Euro weighting – weights all US trading partners on a pro rata basis) versus the price of WTI crude oil. The blue line marks Yellen’s announcement of the Fed’s current tightening bias in the summer of 2014.

  

   

   

  Ummm … this nearly perfect inverse relationship is not an accident. I’m not saying that supply and demand don’t matter. Of course they do. What I’m saying is that divergent monetary policy and its reflection in currency exchange rates matter even more. Where is the greatest monetary policy divergence in the world today? Between the US and China. What currency is the largest contributor to the Fed’s broad-weighted dollar index? The yuan (21.5%). THIS is what you need to pay attention to in order to understand what’s going on with oil. THIS is why the game of Chicken between the Fed and the PBOC is so much more relevant to markets than the game of Chicken between Saudi Arabia and Texas.

   

  But wait, there’s more.

   

  My belief is that a garden variety, inventory-led recession emanating from the energy and manufacturing sectors is already here. Maybe I’m wrong about that. Maybe I spend too much time in Houston. Maybe low wage, easily fired service sector jobs are the new engine for US GDP growth, replacing the prior two engines – housing/construction 2004-2008 and energy/manufacturing 2010-2014. But I don’t see how you can look at the high yield credit market today or projections of Q4 GDP or any number of credit cycle indicators and not conclude that we are rolling into some sort of “mild” recession. 

   

  My fear is that in addition to this inventory-led recession or near-recession, we are about to be walloped by a new financial sector crisis coming out of Asia. 

   

  What do I mean? I mean that Chinese banks are not healthy. At all. I mean that China’s attempt to recapitalize heavily indebted state-owned enterprises through the equity market was an utter failure. I mean that China is going to need every penny of its $3 trillion reserves to recapitalize its banks when the day of reckoning comes. I mean that China’s dollar reserves were $4 trillion a year ago, and they’ve spent a trillion dollars already trying to manage a slow devaluation of the yuan. I mean that the flight of capital out of China (and emerging markets in general) is an overwhelming force. I mean that we could wake up any morning to read that China has devalued the yuan by 10-15%.

   

  Look … the people running Asian banks aren’t idiots. They can see where things are clearly headed, and they are going to do what smart bankers always do in these circumstances: TRUST NO ONE. I believe that there is going to be a polar vortex of a credit freeze coming out of Asia that will look a lot like 1997. Put this on top of the deflationary impact of China’s devaluation. Put this on top of an inventory-led recession or near recession in the US, together with high yield credit stress. Put this on top of massive market complacency driven by an ill-placed faith in central banks to save the day. Put this on top of a potentially realigning election in the US this November. Put this on top of a Fed that is tightening. Storm warning, indeed.

   

  So what’s to be done? As Col. Kilgore said in “Apocalypse Now”, you can either surf or you can fight. You can adopt strategies that can make money in this sort of environment (historically speaking, longer-term US Treasuries and trend-following strategies that can go short), or you can slog it out with a traditional equity-heavy portfolio.

   

  Also, as some Epsilon Theory readers may know, I co-managed a long/short hedge fund that weathered the 2008 systemic storm successfully. There were trades available then that, in slightly different form, are just as available today. For example, it may surprise anyone who’s read or seen (or lived) “The Big Short” that the credit default swap (CDS) market is even larger today than it was in 2008. I’d welcome a conversation with anyone who’d like to discuss these systemic risk trades and how they might be implemented today.

   

  

  

  

  

  

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