Today’s News 16th March 2016

• Global Oil Equation (Video)

  By EconMatters

  

  Costs for servicing oil projects have pulled back considerably after a nice decade of price spikes, but oil servicing costs are going to rise again, necessitating higher oil prices to justify capital allocation behavior. There is no cure for low prices like low prices when the globe utilizes around 95 million barrels of oil per day. Remember when oil spiked to $147 a barrel, well we were at 89 million barrels per day in global consumption. Global oil consumption is going to outpace the growth of global oil production over the next decade which is going to lead to a really tight oil market in the future.

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• US Government Blames 9/11 On Iran, Fines Iran $10.5 Billion; Iran Refuses To Pay

  Authored by Eric Zuesse,

  On March 14th, Iran announced that it will never pay the $10.5B that a U.S. court demanded it pay for the 9/11 attacks.

  The same Bill-Clinton-appointed judge who had ruled, on 29 September 2015, that Saudi Arabia has sovereign immunity for 9/11 and so can’t be sued for it, ruled recently, on March 9th that Iran doesn’t have sovereign immunity and fined Iran $10.5 billion to be paid to 9/11 victims and insurers; but, on March 14, Iran’s Foreign Ministry said Iran won’t pay, because, as the Ministry’s spokesman Hossein Jaberi Ansari put it, "The ruling is ludicrous and absurd to the point that it makes a mockery of the principle of justice while [it] further tarnishes the US judiciary’s reputation.”

  The United States is allied with Iran’s enemy Saudi Arabia, the largest purchaser of U.S.-made weapons, and also the top influence in the Gulf Cooperation Council of Arabic oil royal families regarding where they buy their weapons. Those purchases, which are crucial to the stockholders in Lockheed Martin and other U.S. weapons-makers, are determined basically by the Saud family, the owners of Saudi Arabia.

  The Sauds, as the owners of the leading fundamentalist-Sunni country, including sole ownership of the world’s largest oil company Aramco, also own Islam’s two holiest sites, Mecca and Medina, and are therefore the leaders of Islam worldwide, because all Muslims (not only fundamentalist Sunnis) are required to bow down in prayer five times every day facing Mecca — facing the Saud family and the clergy that authorize continued ownership of Saudi Arabia by the Saud family: the Wahhabist clergy. Back in 1744, the founder of Wahhabism, Muhammad Ibn Wahhab, and the founder of Saudi Arabia, Muhammad Ibn Saud, jointly swore an eternal oath that Saud’s descendants would own the country, and that Wahhab’s clergymen would grant them God’s approval of their ownership and of their right to conquer other lands to expand the faith. (Religions throughout history have mainly been spread by conquest.)

  Part of that oath was also that the Sauds would exterminate Shia Muslims, so as to unify Islam worldwide as fundamentalist Sunnis, in order to enable a unified (100% Sunni) faith to take over the entire world. Iran is the center of Shia Islam, and so is especially the target of the Sauds to conquer and ‘convert’ the world to Wahhabism — which is called “Salafism” outside Saudi Arabia, and which is known outside Islam as simply fundamentalist Sunni Islam. Al Qaeda, ISIS, and other global-jihadist groups, all are Salafists; they’re all Sunni fundamentalists. Shia Islam has no real equivalent to this “global Caliphate” idea, the goal of conquering the world to ‘convert’ all lands someday to Islam. Jihadism, in that sense, doesn’t exist, except in the Sunni variant of Islam. Perhaps this is what Mr. Ansari meant by calling that judge’s verdict “ludicrous and absurd.” (However, Shia Islam tends to be more anti-Israeli  than does Sunni Islam; but, again, that’s no sort of global  aspiration; it’s strictly  Middle-Eastern.) (And, of course, historians, and the U.S. government, know these things, even if the U.S. public don’t — especially because it would be inconvenient for the U.S. government if the U.S. public knew what’s actually driving this nation’s foreign policies.)

  According to the evidence (or alleged evidence) that the judge in this case, George B. Daniels, cited in his “Findings of Fact and Conclusions of Law”  — in this case called “Fiona Havlish v. Usama Bin Laden”:

  Iran has been waging virtually an undeclared war against both the United States and Israel for thirty years.

   

  …

   

  Iran wages this undeclared war through asymetrical, or unconventional strategies and terrorism, often through proxies such as Hizballah, Hamas [which is actually “a Palestinian Sunni-Islamic fundamentalist organization” and as such is devoted to the destruction of Shiite Iran as well as Jewish Israel], Al Qaeda [which is likewise Salafist], and others  [all of which are Salafist].

   

  …

   

  For more than two decades, the IRGC [Islamic Republican Guard Corps, run by Iran’s Supreme Leader Ali Khameni] has provided funding and/or training for terrorism operations targeting American citizens, including Hizballah and Al Qaeda. [Hizballah has targeted American citizens who are serving in the U.S. military in Lebanon, because Hizballah is anti-Israeli, not because they are anti-American; and the U.S. military protect Israel. However, Al Qaeda targets non-Sunnis everywhere, and this also means that Al Qaeda is anti-Shia and aims to conquer Iran too: Al Qaeda is Salafist, dedicated to the conquest of all non-Sunni nations. Iran doesn’t fund or train its own enemies, such as Al Qaeda and ISIS.] … The factual reality — as found by the 9/11 Report — is that ’the relationship between Al Qaeda and Iran demonstrated that Sunni-Shia divisions did not necessarily pose an insurmountable barrier to cooperation between terrorist organizations.'

   

  …

   

  While Osama bin Laden and Al Qaeda were headquartered in Sudan in the early 1990s, Hassan al-Turabi fostered the creation of a foundation and alliance for combined Sunni and Shi’a opposition to the United States and the West, an effort that was agreed to and joined by Osama bin Laden and Ayman al-Zawahiri, leaders of Al Qaeda, and by the leadership of Iran. … Thereafter, senior Al Qaeda operatives and trainers traveled to Iran to receive training in explosives. … In 1993, in a meeting in Khartoum, Sudan, arranged by Ali Mohamed, a confessed Al Qaeda terrorist and trainer now in a U.S. prison, … Osama bin Laden and Ayman al-Zawahiri met directly with Iran’s master terrorist Imad Mughniyah and Iranian officials. [Wikipedia’s article on that witness, Ali Mohamed, says: "Ali Abdul Saoud Mohamed, is a double agent who worked for both the CIA and Egyptian Islamic Jihad simultaneously, reporting on the workings of each for the benefit of the other.” He would tell U.S. interrogators whatever they wanted to hear — such as that Iran was significantly involved in the 9/11 plot.]

  Iran’s news-report on March 14th summarizes that U.S. court decision by saying:

  The court ruling is based on the 9/11 Commission Report which stated that some attackers moved through Iran and did not have their passports stamped.

   

  The verdict comes as none of the 19 hijackers on September 11 were Iranian citizens. Fifteen were from Saudi Arabia, while two from the United Arab Emirates [another Salafist-run country] and one each from Egypt and Lebanon [Salafists from each].

  That alleged permission for “some attackers” to move freely through Iran instead of requiring them to use other countries to transit, is the basis of the court’s blaming Iran for 9/11, even though nothing is alleged in the court’s findings, that Iran participated in the 9/11 attacks, and also despite the following being noted even in the judge’s findings:

  “Although Al Qaeda operatives Khalid Sheikh Mohammed and Ramzi Binalshibh (now Guantanamo detainees) denied any reason, other than Iran’s refraining from stamping passports, for the hijackers to have traveled through Iran or any relationship between the hijackers and Hizballah, … their denials are not credible. … The actions of Iranian border authorities in refraining from stamping the passports of the Saudi hijackers vastly increased the likelihood of the operational success of the 9/11 plot.”

  Therefore, the U.S. government blames 9/11 on Iran, and only  on Iran (not at all on the Sauds and their Salafist friends).

  However, according to the bookkeeper and bagman for Al Qaeda — the man who travelled to collect in cash each one of the multi-million-dollar donations to Al Qaeda, with which donations the organization paid, as he said, the “salaries” of all of the fighters, including all of the 9/11 hijackers — almost all of the donors were members of the Saudi royal family, and a few of their friends.

  Among the named multimillion-dollar donors were: Prince Bandar bin Sultan al-Saud, Prince Waleed bin Tallal al-Saud, Prince Turki al-Faisal al-Saud, and Prince Mohammed al-Faisal al-Saud. Furthermore, he delivered sealed letters back-and-forth between bin Laden and Turki as well as "Abdullah, Fahd, okay, Salman [the present King], Waleed bin Talal, Bandar, Turki of course, and … Shaykh Bin Baz, Shaykh Uthaimeen, Shaykh Shehri, and Shaykh Hammoud al-Uqlaa.”

  Bin Laden was advising them on whom the next Saudi King should be. He also advised, on that, "Halad or Shaykh Abu Hasan, Shayk Mujahideen, Shaykh Aman, and Shaykh Abul Sef … they want to know who they should support.” However, ultimately, the deciders on whom the next King should be were “Ulema [the Wahhabist clergy], essentially they are the king maker, … the people who … certify the Islamic legality of the jihad of Osama bin Laden.”

  He explained that the royals donated to bin Laden because he was spreading the faith and was therefore important to the Ulema — the clergy. That’s why they funded Al Qaeda — to spread the faith. For example, "Prince Nawaf" (bin Sultan bin Abdulaziz al-Saud), even though he, like “all the Prince(s), they were giving money” to Al Qaeda, was rejected  by the Ulema, "because Nawaf was known as a(n) extremely anti-Islamic person, okay, Sul — Sultan was being seen as a sodomite.” So, the ultimate people behind 9/11 were not only the Saud Princes but the Ulema — the kingmakers (who, however, are required to select the King only from among the Saud Princes).

  But, like the Sauds, and their lesser royals (all of them likewise Salafist) who rule the other Arabic oil-kingdoms, the U.S. government wants to conquer (yet again, after the first  time, the 1953 coup) Iran; so, the U.S. court-system, in this decision, is declaring the Iranian government to be not just a cause, but — in effect — the sole cause, of 9/11. It’s a way to squeeze Iran, to keep it down until another ‘revolution’ there (hoped to be by the CIA, like the first one was).

  And, as far as the 9/11-victim families are concerned: the U.S. government, obviously, has higher priorities than to be concerned about any sort of real “justice” for them. Punishing Iran (until it breaks, ‘America’s’ way) is far more important, to the powers-that-be in America. The victim-families can find their ‘justice’ only in heaven – if ever. (And, of course, the Salafists – including the 9/11 perpetrators – would have a different opinion regarding which individuals go to heaven, and which to hell.)

  *  *  *

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

   

  

  

  

  

  

• Kuroda U-Turn & PBOC Devaluation Send Yen, Yuan Tumbling In Early Asia Trading

  A 3rd consecutive day of weaker Yuan fix has sent Offshore Yuan tumbling again back to 1-week lows. However, it is Kuroda’s apparent U-turn on NIRP (dropping further rate cuts possible from the statement but now commenting that anything is possible) has sent Yen down hard (after strength during the US day session) almost back to pre-BOJ levels.

   

  Yuan short-squeeze is over… for now

  

   

  Bear in mind that while policymakers will crow about the apparent stability in Yuan (against the USD), based on the RMB Basket, Yuan has been notably weakening all year…

  

   

  Kuroda jawbones JPY back lower…

  • *KURODA: THEORETICALLY QUITE SOME ROOM TO CUT NEG. RATE FURTHER
  • *KURODA: THEORETICALLY, IS ROOM TO CUT RATE TO MINUS 0.5%
  • *KURODA: EFFECT OF NEG. RATE TO TAKE QUITE SOME TIME TO APPEAR

  And so it did…

  

   

  Bring it on Janet…

  

  

  

  

  

• Hungary's Orban "Rings Alarm Bells" On Brussels Plot To Create "United States Of Europe"

  If there’s one person who exemplifies anti-refugee sentiment in Europe more than anyone else, it’s not Frauke Petry, it’s not Geert Wilders, and it’s not Lutz Bachmann. It’s Viktor Orban.

  Orban raised eyebrows in September of last year, when the Hungarian PM built a 110-mile, razor wire migrant-be-gone fence along his country’s border with Serbia.

  But the fireworks began in earnest when dozens of refugees decided to try and break through the barrier. When the asylum seekers tested Orban’s resolve, riot police responded with water cannons and tear gas and that, as they say, was that when it came to traversing Hungary along the Balkan route to Germany.

  From that point forward, migrants were diverted through Croatia and Slovenia on the way to Austria and Germany. Some applauded Orban’s efforts to protect the integrity of Hungary’s borders, but many decried what they viewed as an inhumane and xenophobic response to a pressing humanitarian crisis.

  To put it lightly, Orban didn’t care about his critics.

  In fact, he doubled down on the rhetoric, insisting that his approach was necessary to “preserve Western Europe’s Christian heritage.”

  In his most recent slap in the face to Angela Merkel and anyone else in the bloc who supports her open-door policy, Orban called for a referendum on Europe’s quota system.

  “Nobody has asked the European people so far whether they support, accept, or reject the mandatory migrant quotas,” Orban proclaimed, at a press conference late last month. “The government is responding to public sentiment now: we Hungarians think introducing resettlement quotas for migrants without the backing of the people equals an abuse of power.”

  “This is a fundamental, unavoidable, essential question of Hungarian politics: can anyone else decide for Hungarians who we Hungarians should or should not live with?,” he asked.

  Not one to let sleeping dogs lie, Orban is back at it, this time positing a Brussels conspiracy to turn the bloc into the “United States of Europe.”

  Speaking at an event to celebrate Hungary’s 1848 revolution against the Habsburgs, Orban proclaimed that “the time has come to ring the alarm bells and gather allies” in an effort to thwart Brussels’ scheme. “If we want to stop the mass migration, first we must put the brakes on Brussels,” he said.

  As AP notes, “Hungary granted some sort of international protection to just 508 people last year.” Those who received protection were “real refugees,” the country says, drawing a distinction between those asylum seekers and the river of migrants that’s now cut off from the country via Orban’s fences on the Serbian and Croatian borders. Here are more excerpts from today’s speech at the National Museum:

  “The truth is not allowed to be said.”

   

  “It is forbidden to say that immigration brings crime and terror to our countries. It is forbidden to say that the arriving masses from other cultures are a threat to our way of life, our culture, our habits and our Christian traditions.”

   

  “Mass migration is a slow water which erodes the shore with a persistent flow. It masquerades as a humanitarian issue but its true nature is to occupy space.”

   

  

  Meanwhile, EU President Donald Tusk traveled to both Cyprus and Turkey on Tuesday ahead of yet another summit in Ankara on Thursday where EU leaders will once again attempt to hammer out some kind of deal to stop the flow of migrants into Western Europe with Turkisk PM Ahmet Davutoglu who will, as always, simple parrot whatever Erdogan told him to say. 

  In any event, Orban seems close to being in open rebellion against the powers the be in Brussels and looks hell bent on stoking a nationalistic furor among Hungarians. 

  When the PM speaks of “gathering allies,” he won’t have to look far. The far-right is on the rise across the bloc and if Brussels doesn’t start paying attention, a whole bunch of eurocrats may find themselves out in the cold – with the migrants.

  

  

  

  

  

• China Freight Index Collapses To Fresh Record Low

  The Baltic Dry Index has risen for the last few weeks, buoyed by hopes (a la Iron Ore) of a National People's Congress stimulus surge from China. While the scale of the 'bounce' is negligible in real terms compared to the total collapse, it has caused such momentum-muppets as Jim Cramer to proclaim China 'fixed' and investible. So we have one quick question – if everything is awesome, why did the China Containerized Freight Index just crash to new record lows?

  It appears BDIY gets over-excited relative to CCFI…

  

  Chart: Bloomberg

  Only to rapidly crash back to CCFI reality shortly afterwards. Given the complete collapse back of Iron Ore, the hopes placated on the dead-cat-bounce in BDIY appear a little misplaced.

  

  

  

  

  

• These Are The Energy Bonds Most Likely To Default In The Next Six Months

  Over the past several weeks, courtesy of the jump in oil prices from 13 years lows, the narrowly reopened window granting some companies the chance to sell equity and in some cases debt (and promptly use the proceeds to repay their secured lenders), and the various last-ditch extensions afforded to near-default oil and gas companies, the dire reality of the default wave about to be unleashed in the shale patch has been swept under the rug, if only briefly.

  That is about to change.

  In a recent interview with Bloomberg, Fitch’s Eric Rosenthal paints a very disturbing picture: the rating agency senior director predicts that about $40 billion worth of energy debt will likely default in 2016.

  Here are some of the highlights behind his forecast of a 6% default rate, the highest non-recessionary rate since 2000.

  The increase in the overall default rate to 6 percent from 4.5 percent relates purely to the challenges of low commodity prices in the energy and metals/mining sectors. A false dawn in prices last spring allowed many energy companies to access the capital markets. As a result, the sector accounts for more outstanding debt in the high yield bond universe than any other — 19 percent. When combined with metals/mining, the two most distressed sectors account for 25 percent of the high-yield bond universe. Energy, rightfully, received much attention last year. With $13 billion of defaults already tallied this year, compared to $17.5 billion for all of 2015, it shows no signs of slowing down. E&P and coal companies are the most prone to default this year, with expected default rates of 30 percent to 35 percent and 60 percent, respectively. As these companies work through their last lifelines, like distressed debt exchanges, there is an expectation that we will see more filings.

  On the ongoing liquidity concerns resulting from what remains mostly a shut high yield issuance window:

  Currently, $63 billion of energy and metals/mining bond issues are bid below 40 cents. While there is definitely noise around names that are bid in the 60-to-80-cents region, the majority of issues trading at deep discounts are near-term default candidates. The high-yield market has bounced back nicely over the past few weeks, highlighted by a record $5 billion in mutual fund inflows, but the energy troubles aren’t getting resolved with crude oil prices still under $40. Liquidity is definitely a concern.

  Is the recent bounce in oil prices enough to delay the day of reckoning?

  While crude oil prices have gained more than $11 from a Feb. 11 low, the levels are still well below what is required to break even. Most energy companies need the WTI to be north of $50 and quickly. If this happens, the capital markets could thaw a bit and asset sales might get done, enabling these companies to keep going. However, several of these companies are already in a precarious position and will be tested further by semiannual interest payments due next month. Many have already used lifelines like distressed debt exchanges and hired restructuring advisers, so absent that fast rise in WTI, some defaults will be inevitable. We estimate about $40 billion of additional outstanding energy bond debt will likely default this year.

  Finally, on a topic very dear to us, recovery rates and what to expect if there is a 20% cumulative default rate in the energy sector.

  The 30-day post-default energy price over the past 12 months is 23 percent and that figure is unlikely to rise considering current secondary levels. It doesn’t bode well for recoveries. In the worst cases, investors could be looking at cents on the dollar.

  In short, it looks like we may be in the eye of the hurricane, and it is only a matter of time before the pent up avalanche of energy defaults is unleashed.

  But how long; what are the specifics? For those who enjoy combing through forward calendars, we have conducted a quick search of all U.S. 144A oil and gas bonds trading at 30 cents on the dollar or less, and which have an interest payment over the next six month, starting in April through September. As can be seen from the 141 individual bonds that satisfy these criteria, the eye of the hurricane is set to leave and unleash some very strong wind.

  
  
  

  

  

  

  

  

• "Cheerleader" Fed Loses Credibility: Big Funds No Longer Trust The 'Dot Plot'

  For the past four years, bond traders have quickly turned their focus after Federal Reserve meetings to something called the dot plot (seen as a key insight into their collective thinking on rates). The problem is, as Bloomberg exposes, the forecasts weren't very good… and fund managers are increasingly ignoring the dot plot for investment decisions, as one strategist exclaimed "we don’t put a lot of credibility in the dots, [officials] have usually been cheerleaders for the economy, and they get turning points in the economy wrong."

  The waning influence of the Fed’s projections is showing up in derivatives markets. After the December revision to the projected path of interest rates, traders responded much less than they did earlier in the year in the market for derivatives known as overnight-indexed swaps.

  

   

  As Bloomberg reports, market reaction to changes in the dot plot, once pronounced, has become more muted in recent months and investors at firms including Pacific Investment Management Co., BlackRock Inc. and Aberdeen Asset Management say they won’t take the Fed’s projections at face value when they’re updated Wednesday at the end of a two-day policy meeting.

  If the Fed is aiming to prepare the market for three or four rate increases this year, after officials in December projected four, traders aren’t buying it.

   

  “We always thought four hikes was an aspiration, not a forecast” for this year, said Richard Clarida, New York-based global strategic adviser with Pimco. “If you ask me, ‘Rich, would you like to play third base for the Yankees,’ I say yes. If you ask ‘Rich, will you play third base for the Yankees,’ I say no.”

   

  Aberdeen’s Maldari said he started questioning the economic projections in Fed statements in July, when the central bank inadvertently released confidential staff economic projections that implied rates should rise to 0.35 percent by the end of 2015, rather than the 0.625 percent implied in the most recent dot plot at that time.

   

  “That tells me they are thinking one thing and saying something else,” he said.

  Either way, as investors prepare for the Fed’s March 15-16 meeting, they think the policy statement and Fed Chair Janet Yellen’s press conference will attract most of the market’s attention. Clarida, of Pimco, expects the median Fed official’s projection will be for three interest-rate increases this year.

  “Almost certainly, the 2016 dots will shift down,” Clarida said.

   

  But “if they mark down 2016 to one hike, that would be a surprise. It would also be negative for stocks and credit spreads,” since investors would take that as a sign the economy is weaker than expected.

  Good luck tomorrow Janet.

  

  

  

  

  

• Grant Williams On Investing In Turbulent Times

  By Chris at www.CapitalistExploits.at

  I recently recorded a conversation with one of the most genuine, successful and intelligent human beings I have the pleasure of knowing.

  Grant Williams is a seasoned investment veteran having spent over 30 years in the markets – from New York to Tokyo and many places in between.

  Together with Raoul Pal, Grant founded Real Vision TV, a refreshing and desperately needed antidote to Bloomberg, CNBC and the likes. Real Vision TV is a place where the world’s best investors share their ideas and lessons via in-depth and fluff-free interviews.

  (If you’re not yet familiar with Real Vision TV you can and in fact should try it out for a month completely free by getting your access here. It’s hands down one of the best investing resources out there, and I don’t say this lightly.)

  Grant also blends history and humour with keen financial insight in his investment newsletter “Things That Make You Go Hmm…” which has quickly become one of the most popular and widely-read financial publications in the world.

  We discussed the global economy and what we believe is the most important element at the forefront of the minds of the world’s most successful money managers and traders.

  Grant will also be joining us to share his ideas and insights at our upcoming Seraph Global Summit in June, along with a host of other smart investors and all-around interesting people. If you think you fit that description you can find out how to attend the Summit here.

  Now, enjoy the conversation and let me know what you think about it by commenting here. Some things we discussed might be a bit controversial to some so I’m curious to hear your thoughts.

  

  – Chris

  “You can go through turbulent times and still have victory in your life.” – Natalie Cole

  

  

  

  

• Global Warming And Food Prices

  Submitted by Eric Matias Tavares of Sinclair & Co.,

  Given that we all have to eat and that there are some concerning environmental developments out there, here’s an interesting question: has global warming led to higher or lower food prices (thus far)?

  As always the answer depends on how this affects the balance between supply and demand. Assuming that demand grows steadily each year broadly in line with population (income effects aside), the major price swings should thus come from the supply side.

  As we all know growing food is sensitive to variations in the climate, and since discussing future global warming scenarios usually involves some type of natural catastrophe, we speculate that most people would expect that food prices increase as the world gets warmer and vice-versa.

  We decided to test this hypothesis using a very narrow set of (oversimplifying) assumptions.

  First, let’s start with the measurement of global temperatures. There are several ways to go about this. Given the debate around some ground weather stations being affected by the gradually changing environment around them (such as urbanization, new industrial developments) and their limited geographical representation, we decided to use global temperature data provided by satellite measurements (for both land and sea, since we extract food from both).

  

  This series is regularly updated by the University of Alabama in Huntsville. The graph above shows monthly readings as a deviation from (a positively sloped) trend line since November 1978. The data is fairly noisy but we can note in the first half of the series plenty of cooling observations interspersed with occasional warm spells, and the opposite occurring since the mid 1990s.

  The next step is to find a proxy for food prices. We decided to use the Producer Price Index portion for processed foods and feeds in the US (not seasonally adjusted), as provided by the Bureau of Labor Statistics. This series should broadly capture the big picture price swings across all the food categories closer to the end-user in a liberalized market environment (at least compared to other countries). We used the year-on-year change in percentage terms.

  Finally, we compare the evolution of the two data series. We smoothed the data using a 13-month (one year) simple moving average, and centered it to account for the (6-month) lag associated with this smoothing procedure. To account for the structural break of globalization our analysis starts in January 1990, which also means that a US price index should become more representative of general tendencies around the world.

  From the outset we were not expecting to find any significant relationship given all the noise in both of the series. Moreover, in principle any temperature changes should require some time to be fully reflected in food prices in light of all the supply chain dynamics. Finally, the world experienced a multitude of changes since 1990: increased trade flows, emerging markets coming of age, evolving regulation, fluctuating exchange rates, different consumption patterns, improvements in logistics, higher production efficiencies and so forth.

  Still, we did find an intriguing relationship…

  

  Source: University of Alabama in Huntsville, BLS.

  The graph above shows the smoothed food price index changes on the left scale and the smoothed satellite temperature anomalies on the right scale (inverted to facilitate the comparison).We have divided periods of warming and cooling as per the peaks and troughs of the latter, by picking the highest and lowest readings with some order of magnitude for that particular phase of the cycle. Therefore, a period of warming is defined as an increase in the smoothed anomaly series and cooling when it decreases, as per the annotations in the graph (again, the scale is inverted).

  Notice the evolution of the two series. Warming phases are typically associated with disinflation and at times even deflation (negative growth) of food prices, while cooling phases tend to produce inflation. And this relationship seems to have gotten tighter in recent years, we venture to say because of greater integration of global supply chains and markets.

  The latest warming phase started in mid-2011, which curiously roughly coincided with the top in the CRB Commodities Index. Since then food price inflation has been coming down, and is now in negative territory.

  Why is that?

  Higher levels of carbon in the atmosphere boost plant yields (more production = lower prices, all else equal), but since these have been growing steadily over decades we speculate that the intra-period variations might be attributed to better growing conditions on balance across the globe when it is warmer. And the tighter relationship between the two might be attributed to a more integrated global economy.

  The one thing that is clear is that higher temperature anomalies (as per the dataset we used) haven’t produced any major food disasters. On the contrary, our analysis suggests that food availability might have increased as a result.

  What does this mean for the future? Should we dismiss the dire warnings of Al Gore and other "alarmists" if the world continues to get warmer?

  Perhaps not yet. The severe discontinuities they are predicting could indeed be catastrophic for food production, such as flooding of coastal areas, disruption of normal growing seasons, desertification and so forth. On the other hand, if the world becomes cooler in the coming years (as some predict due to weakening solar cycles) we could experience increased difficulties in providing for an ever expanding population.

  Unfortunately the debate around climate change has become highly politicized and emotional, making accurate predictions – and adequate planning – even harder.

  Therefore, if warm conditions persist enjoy the cheaper food (until you don’t). Otherwise you might want to jack up your carbon footprint, just in case it gets really cold.

  

  

  

  

  

• Why Do Americans Consume 80 Percent Of All Prescription Painkillers?

  Submitted by Michael Snyder via The Economic Collapse blog,

  If Americans are so happy, then why do we consume 80 percent of the entire global supply of prescription painkillers?  Less than 5 percent of the world’s population lives in this country, and yet we buy four-fifths of these highly addictive drugs.  In the United States today, approximately 4.7 million Americans are addicted to prescription pain relievers, and that represents about a 300 percent increase since 1999.  If you personally know someone that is suffering from this addiction, then you probably already know how immensely destructive these drugs can be.  Someone that was formally living a very healthy and normal life can be reduced to a total basket case within a matter of weeks.

  And of course many don’t make it back at all.  According to the CDC, more than 28,000 Americans died from opioid overdoses in 2014.  Incredibly, those deaths represented 60 percent of all drug overdose deaths in the United States for that year…

  A report released by the US Centers for Disesase Control and Prevention (CDC) in January revealed that drug-overdose deaths reached a new high in 2014, totaling 47,055 people. Opioids, a type of powerful painkiller that requires a prescription, were involved in 60% of those deaths.

  Many Americans that start out on legal opioids quickly find themselves moving over to heroin because it is often cheaper and easier to obtain, and the U.S. is now facing a tremendous epidemic of heroin abuse as well.  In fact, the number of Americans that die of a heroin overdose nearly quadrupled between 2000 to 2013.

  Finally, the federal government has started to take notice of this crisis.  A bill was recently passed to spend more than a billion dollars over the next two year fighting this problem.

  But as long as doctors are writing thousands upon thousands of new prescriptions for these painkillers each year, this crisis is not going to go away any time soon.

  In the Appalachians, these prescription painkillers are commonly known as “hillbilly heroin“, and all of the attention that the New Hampshire primaries received focused a lot of attention on how this crisis is destroying countless numbers of lives up in the Northeast.  But one survey found that the states with the biggest problems with painkiller addiction are actually in the West…

  The National Survey on Drug Use and Health, a survey of approximately 67,500 people across the United States, found that the states with the highest rates of narcotic painkiller abuse were in the West – Arizona, Colorado, Idaho, Nevada, New Mexico, Oregon and Washington.

  Unless you are about to die, I would very strongly recommend that you resist any attempt by your doctor to put you on these “medications”.  Just consider what happened to one stay-at-home mother named Norah Mangan…

  I am an educated, suburban wife and stay-at-home mother of four. Life had been good to me until a fateful visit with an orthopedic physician, my chief complaint being mild arthritic pain in my toes. My physician handed me the first of many monthly prescriptions for Oxycodone and what followed that appointment was a rapid descent into hell. Within six months, I had become a raving drug addict.

  Before too long, Norah had to turn to means that were less than legal in order to keep fueling her addiction.  Her life was turned into a complete and utter disaster by drugs that were legally prescribed to her…

  It wasn’t long before my legal monthly prescription fell woefully short in terms of keeping my life altering pain at bay. In the interest of not incriminating myself, I’ll simply share that when procured through other means, Oxycodone generally sells for one dollar per milligram. I was draining our savings and was out of my mind. I was so tortured that I didn’t care about the deterioration of my moral values, in fact, I didn’t even notice. It’s hard to imagine that in such a short period of time I had morphed from a Mrs. Cleaver, baking hot cinnamon buns in anticipation of my children’s arrival home from school, to Scarface crushing pills on the glass top of the executive desk in our home office while thinking to myself as I heard them arrive from school…why oh why are they home already?

  You can read the rest of her amazing story right here…

  The truth is that we are the most drugged people on the face of the planet.  It has been estimated that 52 million Americans over the age of 12 have used prescription drugs in non-medical ways, and this problem gets worse with each passing year.

  According to research that was published in the Journal of the American Medical Association, 59 percent of all U.S. adults are currently on at least one prescription drug, and 15 percent of all U.S. adults are on at least five prescription drugs.  And the numbers are far worse for older Americans.  The following statistics come from one of my previous articles…

  –According to the CDC, approximately 9 out of every 10 Americans that are at least 60 years old say that they have taken at least one prescription drug within the last month.

   

  –There is an unintentional drug overdose death in the United States every 19 minutes.

   

  –In the United States today, prescription painkillers kill more Americans than heroin and cocaine combined.

   

  –According to the CDC, approximately three quarters of a million people a year are rushed to emergency rooms in the United States because of adverse reactions to pharmaceutical drugs.

   

  –The percentage of women taking antidepressants in America is higher than in any other country in the world.

   

  –Children in the United States are three times more likely to be prescribed antidepressants as children in Europe are.

   

  –A shocking Government Accountability Office report discovered that approximately one-third of all foster children in the United States are on at least one psychiatric drug.

   

  –A survey conducted for the National Institute on Drug Abuse found that more than 15 percent of all U.S. high school seniors abuse prescription drugs.

  We are a deeply unhappy nation that has been trained to turn to pills as a “quick fix” for our hurt and our pain.

  Yes, there are medical situations that call for prescription pain relievers.  But what we are seeing in America today goes far, far beyond that.  We are a nation of addicts that is always in search of a way to fill the gaping holes that we feel deep in our hearts.  This prescription pain killer crisis is just another symptom of a much deeper problem.

  

  

  

  

  

• JPMorgan Corners LME Aluminum Market, Leading To Strange "Price Anomalies"

  While not nearly as exciting as JPM cornering and manipulating the gold or silver markets, over the past few years Jamie Dimon’s bank appears to have cornered a very prominent commodity traded on the London Metals Exchange, aluminum, resulting in price “anomalies” which as Reuters politely puts it “mean prices do not always reflect fundamentals” and which as we put it, reflect outright manipulation, however because regulators are captured have so far completely slipped through the cracks.

  According to Reuters, large amounts of aluminum traded on the London Metal Exchange over the past couple of years “have at times been in the hands of a dominant position holder.” Citing sources at commodity trading houses, warehouses, producers, brokers and banks “one such position holder is U.S. bank JPMorgan.”

  Reuters adds that “other companies have done so in past” which perhaps is meant to mitigate JPM’s culpability, but merely confirms that if it isn’t one bank manipulating commodity markets, it’s another – the famous example of Sumitomo’s Yasuo “Mr. Copper” Hamanaka comes to mind.

  As Reuters points out, “while no rules have been broken, holding a large, sometimes dominant position can to an extent have an influence on prices in the short term for contracts that will soon reach maturity.” For its part, the LME said it “would seek additional information from market participants regarding activity that raises concern.”

  “If a breach of the LME’s rules is deemed to have occurred, we would take appropriate action.”

  We won’t hold our breath.

  The details of JPM’s quasi-cornering of aluminum are as follows: the positions have typically meant a backwardation or premium for the nearby contract, suggesting tight supplies. But aluminum is oversupplied and inventories are massive, which mean the natural state of the market should be contango or discount.

  It also means holders of short positions, which could be bets on lower prices or hedges for physical holdings, have had to pay more to roll over their positions.

  “JPMorgan have been doing this on-and-off for a long time. The
  backwardation (or premium) doesn’t accurately reflect oversupply,” a
  Reuters source at a commodity trading firm said.

  “The positions are large, not many people can do these amounts. It’s worthwhile for JP because they can borrow very cheaply, they have the credit rating,” an aluminum trader at a commodities broker said.

  For some months now there have been large holdings of aluminum warrants, which are a claim to metal stored in warehouses approved by the LME. Currently there is a dominant position holding 50-79% of warrants. 

  One consequence of this is the premium for the cash contract over the benchmark three-month future. It rose to around $23 a tonne in December, the highest since late 2014.

  Reuters reveals the following details of large open interest holdings since April 2014 gathered from industry sources.

  • FEBRUARY 2016 CONTRACT

  One company held 20-29 percent of open interest on February 10, between 403,000 and 584,000 tonnes. Prices on that day value the holding at $596-$864 million. A $5 contango for the February vs March contract became a backwardation of $8 on Feb. 15, 2 days before expiry.

  • JANUARY 2016 CONTRACT

  One company held 20-29 percent of open interest on Jan. 18, between 238,000 and 346,000 tonnes or $350-$508 million. A $5 contango for the January versus February contract turned into a $8 backwardation on Jan. 19, one day before expiry.

  • DECEMBER 2015 CONTRACT

  One company held 20-29 percent of open interest on December 14, between 230,000 and 333,000 tonnes or $352-$493 million. A $7 discount for the December versus the January contract became a $31 a tonne premium on Dec. 15, one day before expiry.

  • APRIL 2015 CONTRACT

  One company held 30-39 percent of open interest on April 8, between 748,000 and 972,000 tonnes or $1.3-$1.7 billion. A $5 discount for the April versus the May contract turned into a $22 backwardation on April 13, two days before expiry

  • NOVEMBER 2014 CONTRACT

  One company held more than 40 percent of open interest on Nov. 11, more than 1.223 million tonnes or a minimum of $2.5 billion. A $10 contango for the November versus the December contract became a $21 premium on Nov. 18, one day before expiry.

  • AUGUST 2014 CONTRACT

  One company held 20-29 percent of open interest from Aug. 18, between 224,000-325,000 tonnes or $450-$650 million. A $10 discount for the August vs the September contract became a $16 premium on Aug. 18, two days before expiry.

  • APRIL 2014 CONTRACT

  One company held more than 40 percent of the open interest on April 9, more than 920,000 tonnes of metal or $1.7 billion. A $15 discount for the April versus the May contract became a premium of $14 a tonne on April 15, the day before expiry.

  As a result, we now know that JPM has not only cornered the aluminum market as of this moment – something that very likely will go on indefinitely – but said cornering had lead to the abovementioned “price anomalies.” What is surprising is that according to the CFTC, the LME and various regional regulators  this is perfectly normal behacior, and likely happens every day as big banks are given a green light to do whatever they want with any one product.

  We wonder if whether having had the above information at hand, U.S. District Judge Katherine B. Forrest would have dismissed the LME, JPMorgan, Goldman Sachs, Glencore and others from recent multidistrict litigation accusing them of manipulating aluminum prices.

  If nothing else, at least today’s disclosure of aluminum manipulation answers the implicit question in our post from two months ago, in which we reported that “Someone Is Trying To Corner The Copper Market” on the LME, where the described pricing “anomaly” was virtually a carbon copy of what is taking place with aluminum on the LME.

  We now have a pretty good idea of the “who”, and we wonder if that same “who” has also managed to corner by comparable means or otherwise, any other commodity markets, including certain precious metals.

  

  

  

  

  

• Soros Floods Democrats With Millions, Warns Trump Of "Consequences"

  Following MoveOn.org's "success" last Friday, George Soros is back on the lips of an increasing number of Americans as Bloomberg reports, the liberal billionaire, whose effort to unseat President George W. Bush in 2004 shattered political spending records, is returning to big-ticket activism after an 11-year hiatus. Soros has spent or committed more than $13 million to support Hillary Clinton and other Democrats this election cycle and has warned Donald Trump (and Ted Cruz) of "consequences" for their words and actions. Welcome to the Oligarchy.

  

  Having already already donated  more than his total disclosed spending in the last two presidential elections combined, Bloomberg reports,

  Soros has expressed alarm over the past few months at the candidacies of Republicans Donald Trump and Ted Cruz. In a statement last week about a new group he's funding to increase voting by Latinos and immigrants in the election, he again mentioned the two candidates by name.

   

  "The intense anti-immigrant and anti-Muslim rhetoric that has been fueled by the Republican primary is deeply offensive," Soros said in the statement. "There should be consequences for the outrageous statements and proposals that we've regularly heard from candidates Trump and Cruz."

   

  Michael Vachon, a spokesman and political adviser to Soros, said there was no single cause for the increase in spending. "His support of Clinton is one reason. The tone of the other candidates is the other," Vachon said. The Clinton, Cruz and Trump campaigns, which face crucial primary contests in Ohio and Florida today, didn't respond to requests for comment.

  Soros's importance to Clinton goes beyond the checks he writes, since other major Democratic donors sometimes follow his lead.

  At the same time, it's likely that in a general election, Trump would pillory Clinton for her reliance on Soros and other wealthy hedge-fund managers. The billionaire real-estate developer has spent months portraying his Republican rivals as the tools of their donors.

  Soros's personal fortune stands at about $24 billion, according to the Bloomberg Billionaires Index.

  Soros spent an unprecedented $27 million trying to defeat Bush's re-election in 2004, much of it through independent groups known as 527s that could accept donations of unlimited size. While the groups Soros funded knocked on doors and tried to boost voter turnout, a conservative 527 group aired a powerful series of ads questioning Democrat John Kerry's war record, helping Bush win a second term. "They were in-your-face distortions of the truth," a frustrated Soros told the New York Times Magazine in 2006. "People don't care about the truth."

   

  Soros signed on as an early backer of Obama during the 2008 campaign, but spent only about $5 million on political causes that cycle, according to a tally by Bloomberg that doesn't include undisclosed donations to political nonprofits. He spent even less in 2012, even though the Supreme Court's Citizens United ruling prompted a flood of new seven-figure contributions that year.

  A few months later, Soros told a Clinton confidant that he wished he hadn't backed Obama in the primary four years earlier.

  "He said he's been impressed that he can always call/meet with you on an issue of policy and he hasn't met with the president ever," Neera Tanden said in a 2012 e-mail to Clinton, who was then serving as Obama's Secretary of State. "He regretted his decision in the primary — he likes to admit mistakes when he makes them and that was one of them."

  The e-mail was one of thousands of Clinton's messages that the State Department later made public, several of which show what a warm reception Soros got from her office.

  At Davos in January, Soros remarked that Trump and Cruz are engaging in "fear mongering." But he predicted that neither of them would prevail in the November election. "Here I have to confess to a little bit of bias, so take that into account," he told Bloomberg Television. "I think it's going to lead to a landslide for Hillary Clinton."

  Can The GOP stop Soros? "Trump and Cruz doing the work of ISIS"

  

  

  

  

  

• Why Students Give 'American' Capitalism An "F"

  Submitted by B.F.Marcus via Foundation for Economic Education,

  Not only are young voters more likely to support Democrats than Republicans, they are also more likely to support the most left-wing Democrats. In recent polls of voters under 30, self-declared democratic socialist Bernie Sanders beats the more mainstream Hillary Clinton by almost six-to-one.

  Former professor Mark Pastin, writing in the Weekly Standard, acknowledges some of Clinton's flaws as a candidate, but concludes that "the most compelling explanation" for young Democrats' overwhelming preference for Sanders "is that young voters actually like the idea of a socialist revolution."

  I'm embarrassed to confess that when I was a young voter, I probably would have been among the "Sandernistas."

  I don't think Pastin is right about the revolution, though. Much of Sanders's success in defanging the word socialism is in pairing it with an emphasis on democracy, as George Bernard Shaw and the Fabians did in an earlier era. Democratic socialists — at least among my comrades — preferred the idea of evolutionary socialism, and we tried hard to distance ourselves from the revolutionary folks.

  Whether by evolution or revolution, however, what we all sought was less competition and more cooperation, less commerce and more compassion. Above all, we wanted greater equality.

  "When I asked my students what they thought socialism meant," Pastin writes, "they would generally recite some version of the Marxist chestnut 'from each according to ability and to each according to need.'" That sounds about right, but add to that the assumption that it's government's job to effect the transfer.

  My father, gently skeptical of my politics, pointed out a problem confronting American socialists: we tended to imagine ourselves on the receiving end of the redistribution — rob from the rich and give to the rest of us. "However poor we may think we are in the United States," he told me, "we would have to give up most of what we now have in order to make everyone in the world equal." This was strange to hear from someone always behind on the rent and facing ever-growing debt.

  Pastin makes a related point: "I've always thought that socialism appealed to students because they have never not been on the receiving end of government largesse."

  As an informal test of his students' egalitarian beliefs, Pastin "would offer to run the class along socialist principles, such as the mandate to take from the able and give to the needy." Specifically, he proposed subtracting points from the A students and transferring them to those who would otherwise earn lower grades.

  Even the most ardent socialist students balked at this arrangement. In fact, according to Pastin, the highest-performing students were both more likely to be self-declared socialists and more likely to meet his proposal with outrage: grading, they argued, should be a matter of merit.

  Is it pure hypocrisy on the part of these rhetorical radicals, or is there a logical consistency behind this apparent contradiction in their values?

  Trying to recall the details of my own callow political folly, I seem to recall three main issues behind my anti-capitalistic mentality:

  1. "Capitalism" was just the word we all used for whatever we didn't like about the status quo, especially whatever struck us as promoting inequality. I had friends propose to me that we should consider the C-word a catchall for racism, patriarchy, and crony corporatism. If that's what capitalism means, how could anyone be for it?
  2. Even when we left race and sex out of the equation, our understanding of commerce was zero-sum: the 1 percent grew rich by exploiting the 99 percent.
  3. For whatever reason, none of us imagined we'd ever be business people, except on the smallest possible scale: at farmer's markets, as street vendors, in small shops. Those things weren't capitalism. Capitalism was big business: McDonald's, IBM, the military-industrial complex.

  I don't know how many of today's young socialists hold these same assumptions, but a question recently posted to Quora.com sounds like it could have been written by one of my fellow lefties in the 1980s: "Should I drop out of college to disobey the capitalist world that values a human with a piece of paper?" (See Praxis strategist Derek Magill's withering advice to the would-be dropout.)

  Even if a different array of confusions drives the radical chic of millennial voters, what is clear is that they see American capitalism as rigged. "Crony capitalism," from their perspective, is redundant – and "free market" is an oxymoron. They're not necessarily opposed to meritocracy; they just don't see what merit has to do with the marketplace.

  Grading that would penalize the studious to reward the slackers is obviously unfair, and a sure-fire strategy to kill anyone's incentive to do the homework. It's not that the socialist students are applying the principle inconsistently; it's that they don't see what merit has to do with commerce. Some of that may be intellectual laziness, some is the result of indoctrination by anti-capitalist faculty, but much of it is also based in the reality of America's mixed economy.

  Not only have young voters spent most of their lives sheltered from the productive side of the commercial world, schooled by men and women who are themselves deliberately insulated from the marketplace, but time spent in the reality of the private sector is hardly an education in what the advocates of economic freedom have in mind when we talk about the free market.

  If my own experience is any guide, today's democratic socialists will have to spend a lot of time unlearning much of what they've been taught.

  Pastin's informal experiment is an illuminating first step, and it's a powerful way to expose the conflict between his students' understanding of merit and the socialists' understanding of equality. But there's also a danger in comparing the economy to the classroom. By offering his grade redistribution as an analogy for socialism, Pastin seems to imply that the merit-based grade system better resembles a free market. But that's silly.

  For one thing, studying hard for your next exam may improve your own GPA, but it probably doesn't help your classmates. In contrast, an unhampered marketplace makes everyone better off, however unequally.

  More significantly, in a free economy, there is no one person in the role of the grade-giving professor. In the absence of coercion, power has a hard time remaining that centralized. Yes, wealth can be seen as a kind of grade, but in the free market, an entrepreneur's profits and losses are like millions of cumulative grades from the consumers. A+ for improving our lives. F for wasting time and resources.

  That kind of spontaneous, decentralized, self-regulating prosperity is every bit as radical as the visions of young socialists, minus the impoverishing effects of coerced redistribution. It's almost certainly not what they imagine when they say they oppose "capitalism."

   

  

  

  

  

  

• Millennials Flee "Three-Alarm" Blaze In Vancouver's "Insane" Housing Market

  Way back in June of last year, we showed you 13 cities where millennials have no hope of affording a home. They included Seattle, Boston, New York, Washington DC, San Jose, San Diego, San Francisco, and Los Angeles.

  “The bad news is that the areas that often most appeal to young adults are also the ones where homeownership is the most out of reach,” Bloomberg remarked at the time before quoting one 28-year-old with a graduate degree as saying the following: “I’m making a good salary and I’m doing all these things that I’m supposed to be doing. But you’re just not able to save enough to get to that number. Housing is so inflated.”

  Yes, “housing is so inflated” in certain areas not the least of which is Vancouver where prices have gone full-retard. As we wrote early last month, “residential property sales in Greater Vancouver rose 31.7% in January, 46% above the 10-year sales average for the first month of the year and the second highest January ever according to the Greater Vancouver Real Estate Board.”

  The benchmark price for a detached home in Vancouver: $1,293,700. The benchmark price for an apartment: $456,600.

  

  That’s led to all sorts of ridiculous aberrations including the now famous shack-like “fixer upper” that sold for $2,500,000 in Point Grey. “Hot doesn’t quite describe Vancouver’s three-alarm fire of a housing market,” Bank of Montreal chief economist Doug Porter remarked, underscoring the madness. 

  New data out today from the Canadian Real Estate Association shows the average price of a home in Canada rose an astonishing 16% Y/Y to more than $500,000. Underscoring the extent to which British Columbia and Ontario are driving the market, stripping out those two provinces pulls the national average down to under $300,000. Here’s a look at the province-by-province breakdown:

  

  And here’s city-by-city:

  

  “The number of single family home sales above one million dollars is rising in Greater Vancouver and the GTA,” Gregory Klump CREA’s chief economist said. “If recent trends continue, home sales above $1 million will account for a greater share of activity and will further fuel year-over-year average price increases in these markets.”

  We also remarked last month on Canada’s growing tech industry and how it’s affected property prices in Waterloo, Ontario known as “Canada’s Silicon Valley.” The population in Waterloo is only 140,000, but the city has two universities and a Google office. As for the real estate market, it’s “lightning in a bottle” to quote Google’s country manager for Canada. “The buzz has created a ‘land grab’ and now, condos are renting for nearly C$2,000 per month while one-bedroom units are selling for more than a quarter of a million dollars,” we said.

  Well now, in a story that combines all three themes mentioned above (millennials, Vancouver housing, and Canada’s tech economy), we learn that housing as become so expensive in Vancouver that millennials are simply moving away, threatening the city’s burgeoning tech culture. 

  Meet Kevin Oke, co-founder of LlamaZoo Interactive and former Vancouver resident.

  

  “Housing in Vancouver is insane — it was insane when I left and it’s more insane now,” Oke told Bloomberg. “If you’re trying to do the startup thing full-time, it would have been really difficult with all the expenses.”

  Indeed, Kevin.

  “Oke, now 33, is part of the millennial retreat from a city where housing prices have skyrocketed at a faster pace than even in San Francisco, another North American technology locus,” Bloomberg writes. “Rising costs are putting Vancouver’s vaunted growth engine at risk as the city hemorrhages people employed in tech and new media for more affordable locales, including Victoria and Kelowna. The flight of millennials from Vancouver is similar to trends found in other cities with soaring home prices.”

  

  According to Statistics Canada, Vancouver added only 884 net new people age 18-24 last year. That’s the lowest level on record. The net number of those age 25-44 fell 1,300, the most since 2007 which, you might recall, is the year the country experienced a commercial paper crisis that in many was a canary in the coal mine ahead of the the US housing meltdown.

  “We’re banging our heads on the wall,” Christine Duhaime, founder and executive director of the Digital Finance Institute says. “Why aren’t they staying?”

  “Because it’s too expensive,” she says, answering her own question. “Vancouver is going to lose its tech edge.” Here’s the insanity graphed:

  

  And while the millennials fleeing rising home prices in Vancouver are flocking to the likes of Victoria and Kelowna, we’ve got a better idea for those who are feeling priced out of the market: Calgary, where the death of Canada’s oil patch has literally driven prices into the ground:

  

  Of course you’ll have to deal with rising property crime, higher suicide rates, and soaring foodbank usage, but hey, you can’t have it all. 

  Normally, these things have a way of sorting themselves out. People get fed up, they leave, demand falls, supply rises, and prices adjust. Only there’s an x-factor here: China. Where thanks to expectations of a much deeper yuan devaluation, investors are moving their money out of the country to “safer” havens – like Canadian real estate. 

  So get ready Kevin, because as long as the PBoC can’t figure out how to manage a controlled devaluation, the bubble you’re seeing in Vancouver and Toronto will spread and when it does, you better hope you bought instead of rented.

  *  *  *

  Bonus: Here are some excerpts from “Without Affordable Housing, Vancouver Risks Becoming An Economic Ghost Town,” by Ryan Holmes, CEO of HootSuite, is an angel investor and advisor, and mentors startups and entrepreneurs as originally published in The Financial Post:

  The tech economy in Vancouver and across Canada has never looked brighter. 

  But there’s one enormous cloud looming on the horizon — housing affordability. It’s no secret that Vancouver housing is increasingly unaffordable. (The same goes for Toronto, to a slightly lesser extent.)

  An influx of global capital has affected the local real real estate market, though that’s far from the sole cause. The population of Metro Vancouver is growing at a clip of roughly 30,000 residents each year, fueled primarily by immigration from abroad. Low-cost borrowing and fast-rising home values have driven purchases for investments, rather than as a place to live. And Vancouver’s geography — hemmed in by mountains and ocean, with limited space for development — is only compounding the issue.

  The consequence of this is impossible to overlook. Unaffordability is emptying Vancouver of one of its most valuable assets — young people who grew up in the city and who are invested in it. As well, qualified newcomers who could bring talent, drive and vision to Vancouver are looking elsewhere. The projected closure of more than a dozen Vancouver public schools hints at the scale of the problem: Families can no longer afford to live here.

  This is worrying for several reasons, chief among them that it makes it exceptionally hard to grow a business in Vancouver. I’ve experienced this firsthand at my company, but it’s hardly unique to the technology sector.

  This lack of affordable housing has reached a crisis point. Vancouver risks becoming an economic ghost town: a city with no viable economy, other than a service industry catering to wealthy residents and tourists.

  Today, the city consists of a few square kilometres of high-rises in a tiny downtown core, hemmed in by a sea of single-family homes. This approach to urban development no longer makes sense.

  Yet, conversations at the highest levels have been noticeably lacking. Vancouver desperately needs all government stakeholders — local, provincial and federal — to come to the table and begin the search for solutions in earnest.

  

  

  

  

  

• Oil Pops After Lower-Than-Expected Crude Build

  Against expectations of a 3.2mm build, API reported a 1.5mm build after-hours today which sparked a modest pop in crude prices. Cushing saw its 7th weekly build (471k) as Gasoline extended its run of draws to the 4th week.

  API:

  • Crude +1.5m
  • Cushing +471k
  • Gasoline -1.2m

  5th weely crude build, 7th weekly Cushing build, but 4th weekly Gasoline draw…

  

   

  The reaction was a modest pop for now…

  

   

  But algos now running stops…

  

  

  

  

  

  

• US Recession Data Signals It's A Very Short Road To Capital Controls

  Submitted by Simon Black via SovereignMan.com,

  “Prosperity is like a Jenga tower. Take one piece out and the whole thing can fall.”

  That’s a direct quote from John Williams, the President of the San Francisco Federal Reserve Bank in a speech he gave a few weeks ago.

  He could have just as easily been talking about propaganda. The Fed, the White House, Wall Street, the media have a vested interest in peddling a certain narrative about the economy.

  The narrative goes something like this: “Everything’s awesome. Stop asking questions”.

  But if you look at their own data, the numbers tell a different story.

  My team and I were recently studying US manufacturing indices, something that has traditionally been a strong indicator of recession.

  This is data collected by the Federal Reserve; they survey manufacturing businesses and ask if factory orders are growing, shrinking, or relatively unchanged.

  You’d think that based on this “everything is awesome” narrative that all the numbers would be growing.

  And yet, much of the data show that manufacturing is shrinking. Or to be even more clear, that the US is in a manufacturing recession.

  In Texas, for example, just 4% of businesses report that they are growing. 38% are shrinking.

  The Philadelphia Fed’s Manufacturing Index has been in recession since September of last year.

  The San Francisco Fed’s Total Factor Productivity is also reporting negative growth.

  The New York Fed’s Empire State Manufacturing Index was at minus 16.6 for February. In fact, the last time the index was below -15 was in October 2008, ten months into the Great Recession.

  The numbers are all pretty clear: there’s an obvious industrial and manufacturing downturn.

  But that shouldn’t matter because Fox News, CNN, CNBC, and the White House tell us that consumer spending drives the US economy; industrial production is irrelevant.

  They run headlines like “RETAIL SALES RISE MORE THAN EXPECTED” as part of the good news narrative.

  This sounds mysteriously like “FEWER PEOPLE KILLED BY POLICE THAN EXPECTED” or “FEWER AIRLINES DECLARE BANKRUPTCY THAN EXPECTED”.

  But the reality is that prosperity isn’t a Jenga puzzle. It’s quite simple. You have to produce more than you consume.

  Strangely, though, the financial establishment cheers when consumption is up. And they totally ignore the data when production is down.

  This is the exact opposite of prosperity.

  And no surprise, if you look at the long-term data you’ll see that a manufacturing downturn (i.e. less production) almost invariably precedes a recession.

  There were large downturns in manufacturing and industrial production in 2008, 2001, 1990, 1980-81, 1974, 1970… and every other recession since the Great Depression.

  More importantly, out of the 17 recessions over the last century, the longest period between them was about 10 years.

  The average time between recessions at just about 68 months.

  Bottom line– the economy is due for a recession. And the indicators suggest that one may already be in the works.

  The bigger challenge is that both the Federal Reserve and the Federal Government are out of ammo.

  The US government spent trillions fighting the last recession back in 2008.

  But back then the US government debt level was “only” $9.5 trillion, so they could theoretically afford the bailouts.

  Today government debt exceeds $19 trillion, well in excess of 100% of GDP. They don’t have the ability to bail anyone out, including themselves.

  The Fed doesn’t have any room either. On average, the Fed cuts interest rates by 3.5% in a recession. And the smallest interest rate cut in any recession during the last 60 years was 2%.

  Today, interest rates are at 0.25%… next to nothing. They’ve been at near-zero levels since the last recession.

  That means that even if the next (i.e. current) recession is extremely mild and the Fed cuts by only 2%, interest rates are practically guaranteed to go below zero.

  And from there, it’s a very short road to capital controls.

  Capital controls are a policy tool used by desperate governments to keep money trapped in a failing financial system.

  Think about it—when rates turn negative, who in his/her right mind would keep money in a savings account that’s going to charge YOU interest for the privilege of letting a banker gamble your funds away on the latest investment fad?

  A rational person would close his/her account. Or at least maintain a minimal balance and hold cash.

  But if too many people take their money out of the banks, then the entire system collapses.

  And governments have shown they will do whatever it takes to prevent this from happening… even if it means restricting what you can/cannot do with your own savings.

  We’re already seeing bank withdrawal restrictions in Europe, as well as loud calls to ban cash on both sides of the Atlantic.

  These things are happening. And with the recession data in particular, we’re not talking about “what if”. We’re talking about “what is”.

  

  

  

  

  

• S&P Loses Key Technical Support As Bears Battered Brazil & Black-Gold

  Keep calm… It's The Fed tomorrow, what could possibly go wrong…

   

  Ahead of tomorrow's Fed statement and press conference, here is what has happened since they last "did" something…

  

   

  The Dow clung desperately to unchanged but The S&P could not get green (as Small Caps tumbled)

  

   

  Since Friday…

  

   

  Which meant the S&P lost its 200DMA support…

  

   

  Blame Kuroda!!

  

   

  Biotechs Battered…

  

   

  But Valeant was Baumgartner'd…

  

   

  HY credit was clubbed (worst 2 days in 5 weeks) – likely hurt by Valeant bond crash

  

   

  Treasury yields were a mixed bag today (long-end outperforming) but traded in a very narrow range…

  

   

  But the curve flattened further (down 2bps to 174bps) to its lowest since Dec 2008…

  

   

  Which is disastrous for banks…

  

   

  The USD Index flatlined today as stronger JPY offset weakness in commdopity currencies (and cable)…

  

   

  The biggest mover was BRL as Lula was dragged back into the cabinet… This is the worst 2-day drop (over 5%) for BRL since Sept 2011

  

   

  Commodities were all lower, gold and silver marginal as crude crapped the bed again…

  

   

  Oil's worst 2-day drop in over a month…

  

   

  With just hours to go before OPEX, WTI appears to be pinning towards the $35 strike…

  

   

  Charts: Bloomberg

  Bonus Chart: It appears even WSJ has given up trying to pretend non-GAAP earnings are in any way real…

  

  h/t Randy W

  

  

  

  

• For The First Time, National Support For Trump Rises Above 50%

  With Trump preparing to steamroll the competition in today’s all important primaries, where a victory in Florida is now all but assured and only a Kasich challenge in Ohio can potentially spoil the day for the Donald – if Trump wins Florida and Ohio, it’s over – earlier today he got some more good news to propell him even further.

  First, it was The week’s Economist/YouGov Poll which found Trump remaining at the top of GOP voters’ preference with an ever wider lead, while Florida Senator Marco Rubio seems most damaged by the two weeks of attacks and counter-attacks. In fact, this is the first time Trump has garnered the support of a majority of Republican primary voters nationwide, scoring an all time high of 53% in support at the national level. YouGov’s February 24-27 survey marked his previous high, at 44% support.

  

   

  What is interesting is that contrary to mainstream media insinuations that Trump is the most polarizing candidate, YouGov finds that the most disliked remaining Republican candidate is actually Marco Rubio .

  

  His favorable rating among Republican primary voters has dropped nine points from what it was two weeks ago; his unfavorable rating has jumped eleven points in the same period.  Every other remaining contender, including Kasich, receives better ratings.

  To be sure, Trump who is the clear GOP frontrunner (74% of Republican primary voters expect him to be the nominee), still has a way to go to win over the supporters of his GOP opponents.  About four in ten Republican voters don’t think Trump cares about people like them, and believe he cares more about himself than the country.  A third are dubious about his plans for the economy, think he is not honest and trustworthy, and say he isn’t ready to be Commander-in-Chief.

  

  

  All of that will change, however, if and when Trump wins two two “winner takes all” states later today, and as of this moment there is just one person standing in his way: the state’s suddenly resurgent governor.

  As YouGov notes, Kasich’s ratings are particularly strong this week.  He gained five points among Republican primary voters in favorability compared with the last Economist/YouGov Poll.  Among the public overall, slightly more people like Kasich than dislike him.  Those national ratings are better than those Americans give any of the other Republicans (for comparison, 61% of Americans have an unfavorable view of Trump).  Kasich scores better with Democratic primary voters than any other GOP candidate (and if Democratic voters could choose the GOP nominee, Kasich would be the frontrunner).

  What separates Trump voters from those supporting other candidates is the importance of the issue of immigration.  While Republican voters generally think the economy is the country’s most important issue, no matter whether they are for or against Trump, Trump’s supporters are nearly five times as likely as supporters of other candidates to say immigration is the issue that matters most to them.   But Trump’s brashness may be more important than his issue positions.  The most important reason people support Trump, chosen by both Trump supporters and opponents in the party, is that he is not politically correct.

  

   

  Most importantly, however, one in five Republican supporters and opponents think none of the options offered explains support for Trump.  As for their personal support, shaking up politics is most important for Trump voters; policy proposals and honesty matter most to supporters of the other three.

  So far Trump is certainly delivering on what his fans demand of him.

  

  

  

  

  

• US Troops Overwhelmingly Support Trump, Reject Neocon Foreign Policy

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  Starbucks Chairman Howard Schultz has said of the upcoming Concert for Valor:

   

  “The post-9/11 years have brought us the longest period of sustained warfare in our nation’s history. The less than one percent of Americans who volunteered to serve during this time have afforded the rest of us remarkable freedoms — but that freedom comes with a responsibility to understand their sacrifice, to honor them, and to appreciate the skills and experience they offer when they return home.”

   

  It was crafty of Schultz to redirect that famed 1% label from the ultra rich, represented by CEOs like him, onto our “heroes.” At the concert, I hope Schultz has a chance to get more specific about those “remarkable freedoms.” Will he mention that the U.S. has the highest per capita prison population on the planet?  Does he include among those remarkable freedoms the guarantee that dogs, Tasers, tear gas, and riot police will be sent after you if you stay out past dark protesting the killing of an unarmed Black teenager by a representative of this country’s increasingly militarized police? Will the freedom to be too big to fail and so to have the right to melt down the economy and walk away without going to prison — as Jamie Dimon, the CEO of Chase, did – be mentioned? Do these remarkable freedoms include having every American phone call and email recorded and stored away by the NSA?

   

  – From the post: “Stop Thanking Me for My Service” – Former U.S. Army Ranger Blasts American Foreign Policy and The Corporate State

  The U.S. presidential campaign in 2016 thus far has exhibited a dramatic and much needed public rejection of the status quo, aka “the establishment.” While a majority of the commentary has been justifiably focused on anger about the economy and how a smaller and smaller group of “insiders” have systematically accumulated more and more wealth via parasitic rent-seeking behavior, there’s another very important repudiation occurring. A total rejection of neocon, interventionist foreign policy.

  Longtime readers of Liberty Blitzkrieg will be under no illusions about the fact that the Obama administration has represented a perfect continuation of the George W. Bush foreign policy doctrine, albeit with a more sleek marketing approach to placate the conscience of willfully ignorant fake liberals. Well the blowback from this one party foreign policy approach has arrived, with its evidence appearing in the form of military support of both Trump and Sanders.

  As reported by the Military Times:

  In an exclusive survey of American military personnel, Donald Trump and Bernie Sanders emerged as active-duty service members’ top choices to become the next commander in chief.

   

  The Republican front runner Trump was the most popular candidate in a subscriber poll that closed Sunday, with 27 percent saying they would back the business mogul if the election were held tomorrow. Sanders, the independent Vermont senator, was a close second at 22 percent.

   

  The data also suggest that military personnel have not been dissuaded by political rivals who contend Trump and Sanders have weak foreign policy credentials and don’t have recognized experts as national security advisers.

   

  Florida Republican Sen. Marco Rubio, who has made national security issues one of the centerpieces of his campaign, was nearly last in the Military Times survey, with only about 9 percent of candidates favoring him. 

  Now here’s a graphic of the totals:

  

  The first thing that catches your eye is that the two biggest establishment neocons when it comes to U.S. foreign policy, Hillary Clinton and Marco Rubio, have virtually zero support. While Trump sits in the top spot, this isn’t totally surprising given his campaign rhetoric advocating for both a military buildup as well as a more circumspect approach when it comes to interventionism. That said, what is downright shocking is how Bernie Sanders occupies a close second to Trump while absolutely crushing Hillary Clinton. Since the U.S. military is not known for being a bunch of socialist hippies, there’s something extremely significant going on here, and that something is a rejection of neocon interventionist foreign policy by the U.S. military.

  The U.S. establishment can either fade away quietly or it can be tossed away kicking and screaming, but go it will. From all ends of the political spectrum, the American public has had enough and is beginning to forcefully reject the corrupt and criminal status quo. It can’t happen soon enough.

  For some examples of foreign policy disasters during the neocon Obama administration, see:

  Further Details Emerge on the Epic U.S. Foreign Policy Disaster that is Syria

  “Stop Thanking Me for My Service” – Former U.S. Army Ranger Blasts American Foreign Policy and The Corporate State

  More Foreign Policy Incompetence – U.S. Humanitarian Aid is Going Directly to ISIS

  Afghan President Hamid Karzai Slams U.S. Foreign Policy in Farewell Speech

  America’s Disastrous Foreign Policy – My Thoughts on Iraq

  “We Came, We Saw, He Died” – Revisiting the Incredible Disaster That Is Libya

  

  

  

  

  

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