Jan 23

Today’s News 23rd January 2016

  • Mitch McConnell Moves To Grant The President Unlimited War Powers With No Expiration Date

    Submitted by Mike Krieger via Liberty Blitzkrieg blog,

    The essential act of war is destruction, not necessarily of human lives, but of the products of human labour. War is a way of shattering to pieces, or pouring into the stratosphere, or sinking in the depths of the sea, materials which might otherwise be used to make the masses too comfortable, and hence, in the long run, too intelligent.

     

    – From George Orwell’s, 1984

    This morning, I came across an extremely important story with tremendous long-term negative implications for freedom in these United States. It relates to the fact that the always shady Senate Majority Leader Mitch McConnell is moving to fast track an Authorization of Military Force (AUMF) for the President that would allow for unrestricted warfare against ISIS. There would be no time or geographic restrictions on this authorization. Rather than being a favor to President Obama, this is primarily a means to ensure that whoever takes control in 2017 receives a blank check for unrestrained militarism with no expiration date. This is terrifying.

    Before I get into the issue at hand, some background is necessary. Many legal scholars, and indeed, even many members of Congress have admitted that Obama’s war against ISIS is illegal and unconstitutional. One of the best articles I’ve read on why this is the case, was published in the New York Times in 2014, which I covered in the post, Obama’s ISIS War is Not Only Illegal, it Makes George W. Bush Look Like a Constitutional Scholar. Here are a few excerpts:

    President Obama’s declaration of war against the terrorist group known as the Islamic State in Iraq and Syria marks a decisive break in the American constitutional tradition. Nothing attempted by his predecessor, George W. Bush, remotely compares in imperial hubris.

     

    Mr. Bush gained explicit congressional consent for his invasions of Afghanistan and Iraq. In contrast, the Obama administration has not even published a legal opinion attempting to justify the president’s assertion of unilateral war-making authority. This is because no serious opinion can be written.

     

    This became clear when White House officials briefed reporters before Mr. Obama’s speech to the nation on Wednesday evening. They said a war against ISIS was justified by Congress’s authorization of force against Al Qaeda after the Sept. 11, 2001, attacks, and that no new approval was needed.

     

    But the 2001 authorization for the use of military force does not apply here. That resolution — scaled back from what Mr. Bush initially wanted — extended only to nations and organizations that “planned, authorized, committed or aided” the 9/11 attacks.

     

    Not only was ISIS created long after 2001, but Al Qaeda publicly disavowed it earlier this year. It is Al Qaeda’s competitor, not its affiliate.

     

    Mr. Obama may rightly be frustrated by gridlock in Washington, but his assault on the rule of law is a devastating setback for our constitutional order. His refusal even to ask the Justice Department to provide a formal legal pretext for the war on ISIS is astonishing.

    It’s been almost two years since that Op-ed was written, and Obama is still carrying out his illegal war on ISIS with barely a peep from our incredibly corrupt and useless Congress. Indeed, the only thing Congress is scheming to do is to ensure the next President receives a blank check for perpetual war.

    From the National Journal:

    Sen­ate Ma­jor­ity Lead­er Mitch Mc­Con­nell offered mem­bers a snow-week­end sur­prise late Wed­nes­day night: Quietly tee­ing up a po­ten­tial de­bate on the leg­al un­der­pin­ning for the fight against IS­IS.

     

    After months of wor­ry­ing that such a res­ol­u­tion—known as an au­thor­iz­a­tion for the use of mil­it­ary force—would tie the next pres­id­ent’s hands, Mc­Con­nell’s move to fast-track the meas­ure sur­prised even his top deputy, Sen­ate Ma­jor­ity Whip John Cornyn, who was un­aware that Mc­Con­nell had set up the au­thor­iz­a­tion.

     

    The AUMF put for­ward by Mc­Con­nell would not re­strict the pres­id­ent’s use of ground troops, nor have any lim­its re­lated to time or geo­graphy. Nor would it touch on the is­sue of what to do with the 2001 AUMF, which the Obama ad­min­is­tra­tion has used to at­tack IS­IS des­pite that au­thor­iz­a­tion’s in­struc­tions to use force against those who planned the 9/11 ter­ror­ist at­tacks. By con­trast, the leg­al au­thor­ity put for­ward by the ad­min­is­tra­tion last Feb­ru­ary wouldn’t au­thor­ize “en­dur­ing of­fens­ive ground com­bat op­er­a­tions” and would have ended three years after en­act­ment, un­less reau­thor­ized.

    Read that over and over and over until you get how incredibly dangerous it is.

    Don Stew­art, Mc­Con­nell’s spokes­man, said Thursday in an email that the new AUMF “is not the one the [p]res­id­ent asked for” and “not one that would tie the [p]res­id­ent’s hands.”

    Exactly. It’s not the one the President asked for, it’s far more aggressive and dangerous.

    Stew­art ad­ded that the pro­cess Mc­Con­nell used to set up the AUMF, known as “Rule XIV,” merely sets up the au­thor­iz­a­tion for a fu­ture vote, but does not put it on the cal­en­dar—mean­ing a vote could come at any time, or not at all. The res­ol­u­tion already has four Re­pub­lic­an co­spon­sors: Sens. Lind­sey Gra­ham, Daniel Coats, Joni Ernst, and Or­rin Hatch.

    If war monger Lindsey Graham is a co-sponsor you know for sure it’s an unmitigated disaster for liberty.

    Sen­ate For­eign Re­la­tions Chair­man Bob Cork­er said that there is still a “wide di­versity” of opin­ions on the is­sue. Some Demo­crats were crit­ic­al of even the pres­id­ent’s own draft AUMF, warn­ing that they’d need ad­di­tion­al re­stric­tions from the ad­min­is­tra­tion on troop levels and geo­graph­ic bound­ar­ies be­fore they could sup­port any au­thor­iz­a­tion. Re­pub­lic­ans, mean­while, wor­ried deeply about re­strict­ing the pres­id­ent as this ad­min­is­tra­tion, and the next one, work to com­bat IS­IS.

     

    “This is the right thing,” said Gra­ham, a co­spon­sor on the new AUMF res­ol­u­tion. “This is the right in­fra­struc­ture to have.”

     

    “If our Demo­crat­ic friends don’t want to give this pres­id­ent and oth­er pres­id­ents the abil­ity to go after IS­IS without lim­it­a­tion to geo­graphy, time and means—be on the re­cord,” he added.

    Indeed, I’d like to see every member of Congress go on the record as to the issue of perpetual war to fight an enemy created by our government’s own foreign policy and our “allies'” funding and armaments.

    Kaine said that al­though he and the vast ma­jor­ity of Con­gress sup­port com­batting IS­IS, he dis­agrees with the ad­min­is­tra­tion that the pres­id­ent is with­in his au­thor­ity to do so. “I be­lieve the war is il­leg­al,” Kaine said Thursday. “I don’t think there’s a leg­al jus­ti­fic­a­tion for it. And I think the greatest danger we end up do­ing is al­low­ing the pres­id­ent to wage a war without Con­gress weigh­ing in.”

     

    Cornyn, who in Decem­ber said that Re­pub­lic­ans would not present an AUMF of their own un­til the pres­id­ent out­lined a strategy, said that he non­ethe­less wel­comed de­bate on the is­sue.

     

    “I don’t think we should be afraid of that de­bate, but we need a co­her­ent strategy from the pres­id­ent which we still don’t have and we also don’t need to tie the hands of the next pres­id­ent by re­strict­ing what the pres­id­ent can do,” Cornyn said.

    Sorry, but wasn’t the entire idea of a legislative branch to precisely restrict what the President can do. Congress is purely ceremonial at this point. What an utter embarrassment.

  • Is This The Hillary Clinton "Smoking Gun"?

    By Anthony DeChristopher, originally posted on The Hill

    The smoking gun?

    Special Access Programs (SAP) is a game changer.  It is now undeniably clear that the results of the FBI investigation will be the end of one of two things:  Hillary’s bid for the White House or the legitimacy of the FBI—at least when it comes to prosecuting cases on the mishandling of classified material.

    In 2006, a Special Forces Operational Detachment Alpha (ODA) from my company was deployed to Afghanistan.  Theirs was a particular mission that differed from the combat missions the typical ODAs were conducting at that time.  Everyone on that team maintained a Top Secret Sensitive and Compartmented Information (TS/SCI) clearance and was “read-on” to their special program.  A few months into their deployment, their Intelligence Sergeant lost a thumb-drive that possessed classified information.  A week later the thumb drive was found for sale at a local bazaar.

    In response to the events, Col. Ken Allard (ret.) stated, “You've got a situation in which the U.S. is going to be forced to change an awful lot of its operational techniques."

    Beyond the compromise of classified information, a lot did change.  New protocols for the handling of classified material were established, and the transportation of classified material on thumb drives was strictly forbidden.  The knee jerk reaction even went as far as to disable USB ports on our work computers—in case we forgot.

    Since then I’ve deployed to several locations where, at times, we operated in small teams with only non-secure cellphones with which to communicate.  We often found ourselves with a lot of information that needed to be sent up in reports, but due to the nature of our mission we were forced to sit on it for a few days until we were able to type it up and send it through a secure medium.  I’d be lying if I said we didn’t concoct elaborate plans with “foolproof” ways to communicate the information over non-secure channels, but in the end, no one was willing to take the risk of our “fail-safes” failing.

    As more information from Hillary Clinton’s server has been made available, it is clear that the contents of the server contained Imagery Intelligence (IMINT), Human Intelligence (HUMINT), and Signal Intelligence (SIGINT).  Understanding that much of the information has been retroactively classified, there are a few facts that are tough to grasp—at least from the perspective of an intelligence practitioner. 

    First, when imagery that is classified SECRET//NOFORN (no foreign national) is viewed, regardless of the absence of classification markings, it is distinctly evident. Second, any documents that contain or reference HUMINT is always classified SECRET, and if specific names of sources or handlers are mentioned, they are at a minimum SECRET//NOFORN.  Third, SIGINT is always classified at the TS level.  It’s not uncommon for some SI to be downgraded and shared over SECRET mediums, however, it is highly unlikely that a Secretary of State would receive downgraded intelligence.  Finally, SAP intelligence has been discovered on Clinton’s private server, and many are now calling this the smoking gun.  SAP is a specialized management system of additional security controls designed to protect SAR or Special Access Required.  SAR has to do with extremely perishable operational methods and capabilities, and only selected individuals who are “read on” or “indoctrinated” are permitted access to these programs.  The mishandling of SAP can cause catastrophic damage to current collection methods, techniques and personnel. 

    In other words, if you have worked with classified material for more than a day, it seems highly implausible that someone could receive any of the aforementioned over an un-secure medium without alarm bells sounding.  However, reading about a Special Access Program on an unclassified device would make anyone even remotely familiar with intelligence mess their pantsuit.

    With more damming information being released almost weekly now, it’s interesting that during last Sunday’s Democratic debate, Clinton resoundingly stated: “No one is too big for jail.”  Although the context was referencing bank CEOs and Hedge fund managers, the obvious correlation left many scratching their heads and wondering—did Hillary Clinton just say, “I dare you” to the FBI?”

  • Are You A Sexually Frustrated Rapefugee In Germany? This Cartoon's For You

    Last week, we brought you two cartoons designed by European authorities to help “teach” Mid-East refugees what sort of behavior is acceptable at public venues.

    The first was a flyer created in Austria that Switzerland intends to distribute ahead of the upcoming Lucerne carnival. The leaflet outlines a number of acceptable behaviors such as shaking hands and mediating arguments while making it clear with giant red Xs that flying into a blind rage and open-hand slapping women and children isn’t something that’s generally tolerated in polite society.

    The second was a highly amusing cartoon strip given to refugees “who may have never swum in a public pool before.” As you can see, frowned upon behavior includes pushing women into the pool, drowning others, springing from the side of the pool onto a screaming blonde, and of course, creeping up behind women and touching their behinds.

    All of this comes as Europeans are rapidly losing their patience with politicians who have supported the resettlement of the millions of asylum seekers who have inundated the bloc from the war-torn Mid-East. A series of sexual assaults by men of “Arab origin” on New Year’s Eve quickly became a bloc-wide scandal and earlier this month, one small German town banned adult male refugees from the public pool.

    Now, with Angela Merkel’s support falling faster than Chinese stocks the morning after a tripped market circuit breaker, Germany has released a new integration safety guide for refugees called “Germany and its People.” Highlights are below.

    According to the presentation, the first thing you want to do if you’re a migrant is to avoid looking shady, which means making eye contact when you meet people.

    You should also dress up in a suit and go around shaking hands and telling people your name.

    You’re also reminded that being homosexual isn’t punishable by death in Germany.

    And that street brawls are discouraged.

    And no, it’s still not ok to beat small children.

    Finally, there’s the obligatory nod to unwelcome behind grabbing.

    In case that isn’t helpful enough, there’s also a guidebook which provides a series of helpful pointers for refugees looking to blend into Western European society. Here are some excerpts:

    • Welcome to Germany! This guide will provide you with information about the country you now find yourself in. It has been designed in response to common questions asked by refugees.
    • You should knock on the door before you go in.
    • Urinating in public can be an offense. Public toilets (WCs) are available in most places. WCs usually have toilet paper, but not a bidet. It is perfectly OK to throw toilet paper into the toilet. Don’t throw it into the waste bin. 
    • So you are free to believe whatever you like, but you are also expected to accept that other people may believe in another God or nothing at all.
    • It is common for couples of the same or different sex to show affection in public. This includes holding hands and sometimes kissing or cuddling in public. This is accepted and acceptable behavior. This should just be ignored.
    • Staring at other people is considered impolite.
    • If a person tells you to leave them alone, you should leave them alone immediately.
    • It is perfectly OK not to drink alcohol and many Germans do not drink any alcohol at all either. If you are offered an alcoholic drink, you can always say “nein, danke” if you don’t want it.

    Check back in six months to find out whether Germany’s efforts to acclimate its 1.1 million (and counting) new inhabitants have been successful.

    In the mean time, one Twitter user was kind enough to make his own cartoon series depicting things Westerners should avoid doing when visiting the Mid-East:

  • If You Don't Conform To The Crowd Now – You're A "Radical"

    Submitted by Simon Black via SovereignMan.com,

    In 2014, the Journal of Neuroscience published the results of a unique study that probed deep into human emotion.

    Two Dutch scientists had conducted an experiment in which they exposed test subjects to a wide range of scenarios to evoke some of the most primal human emotions– joy, anger, etc.

    Subjects were hooked up to an electro-encephalogram (EEG) in order to quantitatively measure their brains’ cognitive response to powerful emotions.

    And the results were pretty conclusive: the most powerful emotional experience, as measured by the sheer volume of human brain activity and neurological reaction, was humiliation.

    This really explains a lot when you think about it.

    Deep down we human beings are social creatures. We seek acceptance from the group.

    It’s why conformity is so much easier than standing apart from the crowd, even when the crowd makes absolutely no sense.

    And those who don’t conform and think independently are labeled radicals.

    Our financial system is a great example of this.

    They’ve spiked the punch bowl with so many lies. Home prices always go up. The debt doesn’t matter because we owe it to ourselves. We can always print more money.

    None of this nonsense is true. But the financial establishment tells us so. Big media repeats it over and over again. Eventually hundreds of millions of people believe it.

    And anyone who dares question the sanctity of this system is labeled a radical.

    (This goes for just about everything now. Eerily, governments are now branding people who disagree with the state as radicals.)

    This is total BS.

    You’re not a radical because the federal government’s own balance sheet shows that they are hopelessly insolvent to the tune of negative $17.7 trillion.

     

    You’re not a radical because the US Federal Reserve’s balance sheet shows that, on a mark to market basis, they too are insolvent.

     

    You’re not a radical because the balance sheet of the FDIC shows that they don’t maintain the minimum amount of capital as required by law to adequately insure the banking system.

     

    You’re not a radical because the financial statements of some of the largest banks in the country show that they only keep a tiny percentage of your savings on reserve, and park the rest of your money in some foolish investment fad, or loan it to a bankrupt government.

     

    You’re not a radical because the annual reports of the largest trust funds in the US retirement system show that they are either pitifully underfunded, or entirely out of cash.

     

    You’re not a radical because you think that, maybe just maybe, there might be negative consequences at some point down the road from all of this insanity…

     

    … that, maybe just maybe, when nearly every major component of the financial system is either highly illiquid or completely insolvent, that there could possibly be trouble down the road.

     

    Most of all, you’re not a radical because you have a Plan B.

    It hardly seems outlandish to look at objective, publicly available data and think “wow, this entire banking system is built on a house of cards…” and then to actually do something about it.

    There are so many options.

    You might look abroad to hold a portion of your savings where the banks are extremely liquid and well capitalized, located in a jurisdiction with minimal debt.

    Or you might simply consider holding some physical cash, or a mix between physical cash and precious metals.

    These aren’t radical ideas. It’s sensible to take astute, rational steps to protect yourself from the consequences of such obvious risks.

  • The World’s Most Famous Case Of Hyperinflation (Part 2)

    For the first infographic in this series, which summarizes the circumstances leading up to hyperinflation in Germany in 1921-1924, it can be found here: Hyperinflation (Part 1 of 2)

     

    Courtesy of: The Money Project

     

    Slippery Slope

    “Inflation took the basic law-and-order principles of loyalty and trust to the extreme.” Martin Geyer, Historian.

     

    “As things stand, the only way to finance the cost of fighting the war is to shift the burden into the future through loans.” Karl Helfferich, an economist in 1915.

     

    “There is a point at which printing money affects purchasing power by causing inflation.” Eduard Bernstein, socialist in 1918.

    In the two years past World War I, the German government added to the monetary base of the Papiermark by printing money. Economic historian Carl-Ludwig Holtfrerich said that the “lubricant of inflation” helped breathe new life into the private sector.

    The mark was trading for a low value against the dollar, sterling and the French franc and this helped to boost exports. Industrial output increased by 20% a year, unemployment fell to below 1 percent in 1922, and real wages rose significantly.

    Then, suddenly this “lubricant” turned into a slippery slope: at its most severe, the monthly rate of inflation reached 3.25 billion percent, equivalent to prices doubling every 49 hours.

    When did the “lubricant” of inflation turn into a toxic hyperinflationary spiral?

    The ultimate trigger for German hyperinflation was the loss of trust in the government’s policy and debt. Foreign markets refused to buy German debt or Papiermarks, the exchange rate depreciated, and the rate of inflation accelerated.

    The Effects

    Hyperinflation in Germany left millions of hard-working savers with nothing left.

    Over the course of months, what was enough money to start a stable retirement fund was no longer enough to buy even a loaf of bread.

    Who was affected?

    • The middle class – or Mittelstand – saw the value of their cash savings wiped out before their eyes.
    • Wealth was transferred from general public to the government, which issued the money.
    • Borrowers gained at the expense of lenders.
    • Renters gained at the expense of property owners (In Germany’s case, rent ceilings did not keep pace with general price levels)
    • The efficiency of the economy suffered, as people preferred to barter.
    • People preferred to hold onto hard assets (commodities, gold, land) rather than paper money, which continually lost value.

    Stories of Hyperinflation

    During the peak of hyperinflation, workers were often paid twice a day. Workers would shop at midday to make sure their money didn’t lose more value. People burned paper bills in the stove, as they were cheaper than wood or other fuel.

    Here some of the stories of ordinary Germans during the world’s most famous case of hyperinflation.

    • “The price of tram rides and beef, theater tickets and school, newspapers and haircuts, sugar and bacon, is going up every week,” Eugeni Xammar, a journalist, wrote in February 1923. “As a result no one knows how long their money will last, and people are living in constant fear, thinking of nothing but eating and drinking, buying and selling.”
    • A man who drank two cups of coffee at 5,000 marks each was presented with a bill for 14,000 marks. When he asked about the large bill, he was told he should have ordered the coffees at the same time because the price had gone up in between cups.
    • A young couple took a few hundred million marks to the theater box office hoping to see a show, but discovered it wasn’t nearly enough. Tickets were now a billion marks each.
    • Historian Golo Mann wrote: “The effect of the devaluation of the German currency was like that of a second revolution, the first being the war and its immediate aftermath,” he concluded. Mann said deep-seated faith was being destroyed and replaced by fear and cynicism. “What was there to trust, who could you rely on if such were even possible?” he asked.

    Even Worse Cases of Hyperinflation

    While the German hyperinflation from 1921-1924 is the most known – it was not the worst episode in history.

    In mid-1946, prices in Hungary doubled every fifteen hours, giving an inflation rate of 41.9 quintillion percent. By July 1946, the 1931 gold pengõ was worth 130 trillion paper pengõs.

    Peak Inflation Rates:

    • Germany (1923): 3.5 billion percent
    • Zimbabwe (2008): 79.6 billion percent
    • Hungary (1946): 41.9 quintillion percent

    Hyperinflation has been surprisingly common in the 20th century, happening many dozens of times throughout the world. It continues to happen even today in countries such as Venezuela.

    What would become of Germany after its bout of hyperinflation?

    A young man named Adolf Hitler began to grow angry that innocent Germans were starving…

    “We are opposed to swarms of Americans and other foreigners raising prices throughout Germany while millions of Germans are starving because of the increased prices. We are equally opposed to German profiteers and we are demanding that all be imprisoned.” – Adolf Hitler, 1923, Chicago Tribune

  • "If You're Not Confused, You Don't Understand Things Very Well"

    Submitted by Vitaliy Katsenelson via ContrarianEdge.com,

    How Investors Should Deal With The Overwhelming Problem Of Understanding The World Economy

    “What the —- do I do now?” This was the actual subject line of an e-mail I received that really summed up most of the correspondence I got in response to an article I published last summer.

    To be fair, I painted a fairly negative macro picture of the world, throwing around a lot of fancy words, like “fragile” and “constrained system.” I guess I finally figured out the three keys to successful storytelling: One, never say more than is necessary; two, leave the audience wanting more; and three …

    Well, never mind No. 3, but here is more. Before I go further, if you believe the global economy is doing great and stocks are cheap, stop reading now; this column is not for you. I promise to write one for you at some point when stocks are cheap and the global economy is breathing well on its own — I just don’t know when that will be. But if you believe that stocks are expensive — even after the recent sell-off — and that a global economic time bomb is ticking because of unprecedented intervention by governments and central banks, then keep reading.

    Today, after the stock market has gone straight up for five years, investors are faced with two extremes: Go into cash and wait for the market crash or a correction and then go all in at the bottom, or else ride this bull with both feet in the stirrups, but try to jump off before it rolls over on you, no matter how quickly that happens.

    Of course, both options are really nonoptions. Tops and bottoms are only obvious in the rearview mirror. You may feel you can time the market, but I honestly don’t know anyone who has done it more than once and turned it into a process. Psychology — those little gears spinning but not quite meshing in your so-called mind — will drive you insane.

    It is incredibly difficult to sit on cash while everyone around you is making money. After all, no one knows how much energy this steroid-maddened bull has left in him. This is not a naturally raised farm animal but a by-product of a Frankenstein-like experiment by the Fed. This cyclical market (note: not secular; short-term, not long-term) may end tomorrow or in five years.

    Riding this bull is difficult because if you believe the market is overvalued and if you own a lot of overpriced stocks, then you are just hoping that greater fools will keep hopping on the bull, driving stock prices higher. More important, you have to believe that you are smarter than the other fools and will be able to hop off before them (very few manage this). Good luck with that — after all, the one looking for a greater fool will eventually find that fool by looking in the mirror.

    As I wrote in an article last spring, “As an investor you want to pay serious attention to ‘climate change’ — significant shifts in the global economy that can impact your portfolio.”

    There are plenty of climate-changing risks around us — starting with the prospect of higher, maybe even much higher, interest rates — which might be triggered in any number of ways: the Fed withdrawing quantitative easing, the Fed losing control of interest rates and seeing them rise without its permission, Japanese debt blowing up.

    Then we have the mother of all bubbles: the Chinese overconsumption of natural and financial resources bubble. Of course, Europe is relatively calm right now, but its structural problems are far from fixed. One way or another, the confluence of these factors will likely lead to slower economic growth and lower stock prices.

    So “what the —-” is our strategy? Read on to find out.

    I’ll explain what we’re doing with our portfolio, but first let me tell you a story. When I was a sophomore in college, I was taking five or six classes and had a full-time job and a full-time (more like overtime) girlfriend. I was approaching finals, I had to study for lots of tests and turn in assignments, and to make matters worse, I had procrastinated until the last minute.

    I felt overwhelmed and paralyzed. I whined to my father about my predicament. His answer was simple: Break up my big problems into smaller ones and then figure out how to tackle each of those separately. It worked. I listed every assignment and exam, prioritizing them by due date and importance. Suddenly, my problems, which together looked insurmountable, one by one started to look conquerable. I endured a few sleepless nights, but I turned in every assignment, studied for every test and got decent grades.

    Investors need to break up the seemingly overwhelming problem of understanding the global economy and markets into a series of small ones, and that is exactly what we do with our research. The appreciation or depreciation of any stock (or stock market) can be explained mathematically by two variables: earnings and price-earnings ratio.

    We take all the financial-climate-changing risks — rising interest rates, Japanese debt, the Chinese bubble, European structural problems — and analyze the impact they have on the Es and P/Es of every stock in our portfolio and any candidate we are considering.

    Let me walk you through some practical applications of how we tackle climate-changing risks at my firm.

    When China eventually blows up, companies that have exposure to hard commodities, directly or indirectly (think Caterpillar), will see their sales, margins and earnings severely impaired. Their P/Es will deflate as well, as the commodity supercycle that started in the early 2000s comes to an end.

    Countries that export a lot of hard commodities to China will feel the aftershock of the Chinese bubble bursting. The obvious ones are the ABCs: Australia, Brazil and Canada. However, if China takes oil prices down with it, then Russia and the Middle East petroleum-exporting mono-economies that have little to offer but oil will suffer. Local and foreign banks that have exposure to those countries and companies that derive significant profits from those markets will likely see their earnings pressured. (German automakers that sell lots of cars to China are a good example.)

    Japan is the most indebted first-world nation, but it borrows at rates that would make you think it was the least indebted country. As this party ends, we’ll probably see skyrocketing interest rates in Japan, a depreciating yen, significant Japanese inflation and, most likely, higher interest rates globally. Japan may end up being a wake-up call for debt investors.

    The depreciating yen will further stress the Japan-China relationship as it undermines the Chinese low-cost advantage. So paradoxically, on top of inflation, Japan brings a risk of deflation as well. If you own companies that make trinkets, their earnings will be under assault.

    Fixed-income investors running from Japanese bonds may find a temporary refuge in U.S. paper (driving our yields lower, at least at first) and in U.S. stocks. But it is hard to look at the future and not bet on significantly higher inflation and rising interest rates down the road.

    A side note: Economic instability will likely lead to political instability. We are already seeing some manifestations of this in Russia. Waltzing into Ukraine is Vladimir Putin’s way of redirecting attention from the gradually faltering Russian economy to another shiny object — Ukraine. Just imagine how stable Russia and the Middle East will be if the recent decline in oil prices continues much further. Defense industry stocks may prove to be a good hedge against future global economic weakness.

    Inflation and higher interest rates are two different risks, but both cause eventual deflation of P/Es. The impact on high-P/E stocks will be the most pronounced. I am generalizing, but high-P/E growth stocks are trading on expectations of future earnings that are years and years away. Those future earnings brought to the present (discounted) are a lot more valuable in a near-zero interest rate environment than when interest rates are high.

    Think of high-P/E stocks as long-duration bonds: They get slaughtered when interest rates rise (yes, long-term bonds are not a place to be either). If you are paying for growth, you want to be really sure it comes, because that earnings growth will have to overcome eventual P/E compression.

    Higher interest rates will have a significant linear impact on stocks that became bond substitutes. High-quality stocks that were bought indiscriminately for their dividend yield will go through substantial P/E compression. These stocks are purchased today out of desperation. Desperate people are not rational, and the herd mentality runs away with itself. When the herd heads for the exits, you don’t want to be standing in the doorway.

    Real estate investment trusts (REITs) and master limited partnerships (MLPs) have a double-linear relationship with interest rates: Their P/Es were inflated because of an insatiable thirst for yield, and their earnings were inflated by low borrowing costs. These companies’ balance sheets consume a lot of debt, and though many of them were able to lock in low borrowing costs for a while, they can’t do so forever. Their earnings will be at risk.

    As I write this, I keep thinking about Berkshire Hathaway vice chairman Charlie Munger’s remark at the company’s annual meeting in 2013, commenting on the then-current state of the global economy: “If you’re not confused, you don’t understand things very well.” A year later the state of the world is no clearer. This confusion Munger talked about means that we have very little clarity about the future and that as an investor you should position your portfolio for very different future economies. Inflation? Deflation? Maybe both? Or maybe deflation first and inflation second?

    I keep coming back to Japan because it is further along in this experiment than the rest of the world. The Japanese real estate bubble burst, the government leveraged up as the corporate sector deleveraged, interest rates fell to near zero, and the economy stagnated for two decades. Now debt servicing requires a quarter of Japan’s tax receipts, while its interest rates are likely a small fraction of what they are going to be in the future; thus Japan is on the brink of massive inflation.

    The U.S. could be on a similar trajectory. Let me explain why.

    Government deleveraging follows one of three paths. The most blatant option is outright default, but because the U.S. borrows in its own currency, that will never happen here. (However, in Europe, where individual countries gave the keys to the printing press to the collective, the answer is less clear.) The second choice, austerity, is destimulating and deflationary to the economy in the short run and is unlikely to happen to any significant degree because cost-cutting will cost politicians their jobs. Last, we have the only true weapon government can and will use to deleverage: printing money. Money printing cheapens a currency — in other words, it brings on inflation.

    In case of either inflation or deflation, you want to own companies that have pricing power — it will protect their earnings. Those companies will be able to pass higher costs to their customers during a time of inflation and maintain their prices during deflation.

    On the one hand, inflation benefits companies with leveraged balance sheets because they’ll be paying off debt with inflated (cheaper) dollars. However, that benefit is offset by the likely higher interest rates these companies will have to pay on newly issued debt. Leverage is extremely dangerous during deflation because debt creates another fixed cost. Costs don’t shrink as fast as nominal revenues, so earnings decline. Therefore, unless your crystal ball is very clear and you have 100 percent certainty that inflation lies ahead, I’d err on the side of owning underleveraged companies rather than ones with significant debt.

    A lot of growth that happened since 2000 has taken place at the expense of government balance sheets. It is borrowed, unsustainable growth that will have to be repaid through higher interest rates and rising tax rates, which in turn will work as growth decelerators.

    This will have several consequences: First, it’s another reason for P/Es to shrink. Second, a lot of companies that are making their forecasts with normal GDP growth as the base for their revenue and earnings projections will likely be disappointed. And last, investors will need to look for companies whose revenues march to their own drummers and are not significantly linked to the health of the global or local economy.

    The definition of “dogma” by irrefutable Wikipedia is “a principle or set of principles laid down by an authority as incontrovertibly true.” On the surface this is the most dogmatic columns I have ever written, but that was not my intention. I just laid out an analytical framework, a checklist against which we stress test stocks in our portfolio.

    Despite my speaking ill of MLPs, we own an MLP. But unlike its comrades, it has a sustainable yield north of 10 percent and, more important, very little debt. Even if economic growth slows down or interest rates go up, the stock will still be undervalued — in other words, it has a significant margin of safety even if the future is less pleasant than the present.

    There are five final bits of advice with which I want to leave you: First, step out of your comfort zone and expand your fishing pool to include companies outside the U.S. That will allow you to increase the quality of your portfolio without sacrificing growth characteristics or valuation. It will also provide currency diversification as an added bonus.

    Second, disintermediate your buy and sell decisions. The difficulty of investing in an expensive market that is making new highs is that you’ll be selling stocks that hit your price targets. (If you don’t, you should.) Of course, selling stocks comes with a gift — cash. As this gift keeps on giving, your cash balance starts building up and creates pressure to buy. As parents tell their teenage kids, you don’t want to be pressured into decisions. In an overvalued market you don’t want to be pressured to buy; if you do, you’ll be making compromises and end up owning stocks that you’ll eventually regret.

    Margin of safety, margin of safety, margin of safety — those are my last three bits of advice. In an environment in which the future of Es and P/Es is uncertain, you want to cure some of that uncertainty by demanding an extra margin of safety from stocks in your portfolio.

     

  • This Interactive Graphic Reveals China's Massive Anti-Corruption Campaign

    Since taking office in 2013, Xi Jinping has been on a mission to root out corruption among the ranks of the Communist Party.

    Xi, whose efforts have affected both high-ranking officials and those lower on the totem pole, is keen on re-establishing party discipline. Policies handed down from on high often lose their teeth while filtering down through the sprawling party ranks. As The Atlantic put it last year, Xi wants to correct that by “reforming [China’s] very political culture.”

    The problem is “made more urgent by a slowing economy,” an economy which desperately needs to be reformed. “Reform, however, requires the ability to enact policy,” The Atlantic flatly adds. “That in turn necessitates bureaucrats who follow the central government’s orders.”

    Xi’s anti-corruption campaign has ensnared scores of officials from the prominent (the “tigers”) to the obscure (the “flies”), and as Foreign Policy wrote on Thursday, “the CCDI [just] released a communiqué promising to maintain ‘unabated forces and unchanging rhythm’ in pursuing the goal of a China where, as Xi put it, officials are ‘unable and unwilling to engage in corruption.’”

    Some 1,500 officials have seen their cases publicly announced. All 1,500 are represented in the following excellent interactive graphic from ChinaFile called “Catching Tigers and Flies.”

    We can only hope ChinaFile will create a similar tool for Beijing’s sweeping effort to arrest short sellers and market “manipulators.”

    Some facts about the graphic

    • Of the 1,460 felled, the vast majority are officials at the local and provincial level. Officials can be sorted among the fields of mining, petroleum, law and law enforcement, media, military, real estate, and rail. But there are also sizeable groups in the fields of higher education (78) and public security (36, including former oil czar and head of internal security Zhou Yongkang and the recently sentenced vice-minister for security Li Dongsheng). One hundred seventy-five of those in the database worked for state-owned enterprises.

    • Like Chinese officialdom itself, the database skews heavily male, with only 69 women in total. Just three women, in a pool of 146, are so-called tigers, those whose rank is above or equivalent to that of deputy provincial or deputy ministerial level officials.

    • According to data provided by ChinaFile but not yet searchable in the tool above, penalties are harsh, particularly given that most violations are economic (albeit egregious). Two hundred thirty-two individuals have been sentenced under criminal law; of those, 198 have been condemned to at least ten years’ imprisonment. Fifty of those have been sentenced for life (or handed a suspended death sentence, which generally becomes a life sentence), and eight are slated for execution.

    • To date, the sentenced individuals in the database, just 232 people, are collectively responsible for having embezzled, stolen, or taken as gifts nearly $1 billion. Figures are pulled from sentencing documents, often easily accessible in official media or on Chinese court websites.

    • Sentencing documents often include other lurid details. Yang Yueguo, a relatively minor official in the southern province of Yunnan, purchased $30,000 worth of jade jewelry using public funds. Quan Xiaohui, a municipal official in the central province of Henan, kept three mistresses. And Yan Yongxi, who once presided over Beijing’s rural Mentougou district, tried to hide his embezzled funds in his mistress’ gardening company. In all, the database includes some 67 individuals for whom adultery was listed as an element of their discipline violations.

    • Geographically, the cases are spread throughout China; but certain provinces, including Guangdong, Henan, and Shanxi — the stronghold of former president Hu Jintao’s former top aide, Ling Jihua — have seen the highest number targeted, second only Beijing. Fujian and Zhejiang, both provinces Xi once led, appear to have been dealt a lighter hand.

    • So far in 2016, the CCDI has announced 17 new investigations, including probes into several local officials, the head of the “clean and honest governance” unit of the prominent Fosun group, whose billionaire chairman was recently detained for questioning, and a deputy director of the Beijing office in charge of Taiwan affairs, whose investigation was announced just days after Taiwan elected a new President whose party favors greater independence from the mainland

  • Until Today, I Assumed Putin’s Russia Killed Litvinenko … Then I Looked for Myself

    I’ve always assumed that Putin’s KGB (now called the FSB) killed Alexander Litvinenko.

    But today’s announcement by the British that Putin “probably” approved Litvinenko’s murder made me curious enough to take a look for myself.

    Initially, Litvinenko was poisoned with radioactive polonium as he sipped tea in an upscale London hotel. The report makes it sound like only Russia had access to polonium, but it’s actually available online to anyone.

    Antiwar notes:

    If the Russians wanted to off Litvinenko, why would they poison him with a substance that left a radioactive trail traceable from Germany to Heathrow airport – and, in the process, contaminating scores of hotel rooms, offices, planes, restaurants, and homes?  Why not just put a bullet through his head? It makes no sense.

     

    But then conspiracy theories don’t have to make sense: they just have to take certain assumptions all the way to their implausible conclusions. If one starts with the premise that Putin and the Russians are a Satanic force capable of anything, and incompetent to boot, then it’s all perfectly “logical” – in the Bizarro World, at any rate.

     

    The idea that Litvinenko was a dangerous opponent of the Russian government who had to be killed because he posed a credible threat to the existence of the regime is laughable: practically no one inside Russia knew anything about him, and as for his crackpot “truther” theories about how Putin was behind every terrorist attack ever carried out within Russia’s borders – to assert that they had any credence outside of the Western media echo chamber is a joke.

     

    ***

     

    The meat of the matter – the real “evidence” – is hidden behind a veil of secrecy. Lord Owen’s inquiry was for the most part conducted in secret closed  hearings, with testimony given by anonymous witnesses, and this is central to the “evidence” that is supposed to convict Kovtun, Lugovoy, and the Russian government. Lord Owen, explains it this way:

     

    “Put very shortly, the closed evidence consists of evidence that is relevant to the Inquiry, but which has been assessed as being too sensitive to put into the public domain. The assessment that the material is sufficiently sensitive to warrant being treated as closed evidence in these proceedings has been made not by me, but by the Home Secretary. She has given effect to this decision by issuing a number of Restriction Notices, which is a procedure specified in section 19 of the Inquiries Act 2005. The Restriction Notices themselves, although not, of course, the sensitive documents appended to them, are public documents. They have been published on the Inquiry website and are also to be found at Appendix 7 to this Report.”

     

    In other words, the “evidence” is not for us ordinary mortals to see. We just have to take His Lordship’s word for it that the Russian government embarked on an improbable assassination mission against a marginal figure that reads like something Ian Fleming might have written under a pseudonym.

    So who killed Litvinenko ?

    Well, Mario Scaramella met with Litvinenko during the meal when Litvinenko was poisoned. Scaramella didn’t eat or drink a thing during the lunch, and then himself came down with a mild case of polonium poisoning.

    La Republica (one of Italy’s largest newspapers)  wrote in 2006 (English translation) that Scaramella was a bad guy who may have worked with the CIA:

    Mario Scaramella is suspected of arms trafficking. Earlier this year, the public prosecutor of Naples has written for this offense to the docket and, soon after, had to stop the investigation. [He was convicted in Italy for selling arms (original Italian).]

     

    ***

     

    Sources found to be very credible by the prosecutor recalled that investigators suspected that Scaramella was actually in close relationship, if not actually working for, the CIA and that his ECPP could be a front company of the agency’s Langley.

    Antiwar notes:

    As I pointed out here:

     

    “Litvinenko was an employee of exiled Russian billionaire Boris Berezovsky – whose ill-gotten empire included a Russian syndicate of car-dealerships that had more than a nodding acquaintance with the Chechen Mafia – but was being slowly cut out of the money pipeline. Big-hearted Boris, who had initially put him on the payroll as anti-Putin propagandist, was evidently getting sick of him, and the out-of-work “dissident” was reportedly desperate for money. Litvinenko had several “ business meetings ” with Lugovoi in the months prior to his death, and, according to this report , he hatched a blackmail scheme targeting several well-known Russian tycoons and government officials.”

     

    Indeed, Litvinenko, in the months before his death, had targeted several well-known members of the Russian Mafia with his blackmail scheme. That they would take umbrage at this is hardly shocking.

    Alternatively, Litvinenko may actually have accidentally poisoned himself.  Antiwar again:

    Furthermore, there are indications that Litvinenko was engaged in the smuggling of nuclear materials. That he wound up being contaminated by the goods he was peddling on the black market seems far more credible than the cock-and-bull story about a vast Russian plot originating in the Kremlin,. Apparently Lord Owen has never heard of Occam’s Razor.

  • The "Potentially Epic" Winter Blizzard As Seen From Space

    On Wednesday we noted with some amusement that the “historic” winter blizzard that’s set to slam the east coast had been upgraded to a “potentially epic winter blockbuster.”

    The best thing about “potentially epic winter blockbusters” is that they pave the way for “potentially epic” weather scapegoating from the BES, who last year learned that the American public (not to mention the market) is apparently fine accepting double-adjusted GDP data.

    With the weather punditry’s hyperbole knob turned all the way up to eleven, the BEA has all the PR cover it needs to whip out triple seasonal adjustments and “calculate” that Q1 GDP did not really contract but when you melt the snow on a pro forma, “non-GAAP” basis, GDP likely grew by some $50 billion or more.

    Well as the storm rolls in and promises to blanket the northeast in two feet of economic activity crushing snow and ice, we get a look at the “potentially epic” system from space and it’s, well, epic.

    As for all of the retailers who just three months ago blamed abysmal performance on warm weather, they’ll now be completely free to reverse course and pin any upcoming comps misses on the “winter blockbuster” shown above.

    As you can see, everyone from “Fat Jack” to cabinet discounters are closing up shop ahead of the blizzard. 

    Meanwhile, panicked shoppers have turned grocery stores into a bad day in Caracas:

    Nicolas Maduro would be proud.

  • Is The Spectre Of Trump Haunting Davos?

    Submitted by Patrick Buchanan via Buchanan.org,

    The lights are burning late in Davos tonight.

    At the World Economic Forum, keynoter Joe Biden warned global elites that the unraveling of the middle class in America and Europe has provided “fertile terrain for reactionary politicians, demagogues peddling xenophobia, anti-immigration, nationalist, isolationist views.”

    Evidence of a nationalist backlash, said Biden, may be seen in the third parties arising across Europe, and in the U.S. primaries.

    But set aside Joe’s slurs — demagogues, xenophobia.

    Who really belongs in the dock here? Who caused this crisis of political legitimacy now gripping the nations of the West?

    Was it Donald Trump, who gives voice to the anger of those who believe themselves to have been betrayed? Or the elites who betrayed them?

    Can that crowd at Davos not understand that it is despised because it is seen as having subordinated the interests of the nations and people in whose name it presumes to speak, to advance an agenda that serves, first and foremost, its own naked self-interest?

    The political and economic elites of Davos have grow rich, fat and powerful by setting aside patriotism and sacrificing their countries on the altars of globalization and a New World Order.

    No more astute essay has been written this political season than that of Michael Brendan Dougherty in “This Week,” where he describes how, 20 years ago, my late friend Sam Francis predicted it all.

    In Chronicles, in 1996, Francis, a paleoconservative and proud son of the South, wrote:

    “[S]ooner or later, as the globalist elites seek to drag the country into conflicts and global commitments, preside over the economic pastoralization of the United States, manage the delegitimization of our own culture, and the dispossession of our people, and disregard or diminish our national interest and national sovereignty, a nationalist reaction is almost inevitable and will probably assume populist form when it arrives. The sooner it comes, the better.”

    What we saw through a glass darkly then, we now see face to face.

    Is not Trump the personification of the populist-nationalist revolt Francis predicted?

    And was it not presidents and Congresses of both parties who mired us in wars in Afghanistan, Iraq, Libya, Syria and Yemen, and negotiated the trade deals that have gutted American industry?

    The bleeding of factories and manufacturing jobs abroad has produced the demoralization and decline of our middle class, along with the wage stagnation and shrinking participation in the labor force.

    Is Trump responsible for that? Is Socialist Bernie Sanders, who voted against all those trade deals?

    If not, who did this to us?

    Was it not the Bush Republicans and Clinton Democrats?

    Americans never supported mass immigration.

    It was against their will that scores of millions, here legally and illegally, almost all from Third World countries, whose masses have never been fully assimilated into any western nation, have poured into the USA.

    Who voted for that?

    Religious, racial, cultural diversity has put an end to the “bad” old America we grew up in, as we evolve into the “universal nation” of Ben Wattenberg, who once rhapsodized, “The non-Europeanization of America is heartening news of an almost transcendental quality.”

    James Burnham, the ex-Trotskyite and Cold War geostrategist whose work Francis admired, called liberalism “the ideology of Western suicide.”

    If the West embraces, internalizes and operates on the principles of liberalism, Burnham wrote, the West with meet an early death.

    Among the dogmas of liberalism is the unproven assumption that peoples of all nationalities, tribes, cultures, creeds can coexist happily in nations, especially in a “creedal” nation like the USA, which has no ethnic core but rather is built upon ideas.

    A corollary is that “diversity,” a new America and new Europe where all nations are multiracial, multiethnic, multicultural and multilingual, is the future of the west and the model for mankind.

    Yet, large and growing minorities in every country of Europe, and now in America, believe that not only is this proposition absurd, the end result could be national suicide.

    And when one considers the millions who are flocking to Trump and Sanders, it is hard to believe that the establishments of the two parties, even if they defeat these challengers, can return to same old interventionist, trade, immigration and war policies.

    For Trump is not the last of the populist-nationalists.

    Given his success, other Republicans will emulate him. Already, other candidates are incorporating his message. The day Francis predicted was coming appears to have arrived.

    Angela Merkel may have been Time’s Person of the Year in 2016, but she will be lucky to survive in office in 2017, if she does not stop the invasion from Africa and the Middle East.

    Yet Joe Biden’s dismissal that it is reactionaries who oppose what the progressives of Davos believe is not entirely wrong. For as Georges Bernanos wrote, when Europe was caught between Bolshevism and fascism:

    To be a reactionary means simply to be alive, because only a corpse does not react any more — against the maggots teeming on it.

  • "Is The Bottom In?" – BofA Answers The Question Everyone Is Asking

    On Wednesday, as the Dow Jones plunged by over 550 points and the S&P dropped by 15% from its all time highs seen last summer, many speculated – most notably Tom DeMark – that the relentless selloff had finally hit an “interim low”, and was due for a rebound as much as 8%. Events since then have so far validated this forecast. 

    However the one question on everyone’s lips, is whether aside from a “interim low”, was Wednesday’s flush the market’s lows for the foreseeable future, and certainly for the first quarter.

    Bank of America responds.

    According to its strategist Michael Hartnett, while the January lows may indeed be in for the following reasons…

    Breadth Rule in “buy” territory (95% of mkts <200 & 50dma); FMS cash jumped to 5.4% in Jan (3rd highest since 2009); uber-crowded trades of long peripheral Euro-area debt, long Euro-area banks, long NKY, long FANG (FB, AMZN, NFLX, GOOG) spanked; capitulation in “Illiquid” yield plays (EMB, HY, MLPs); massive outperformance (6.8% YTD) of “long duration, short risk” CTA’s (Chart 2).

     

    ….the Q1 lows are not in. Here’s why:

    • Jan Fund Manage Survey shows investors still OW stocks
    •  China/EM/oil/commodity “event” yet to create “entry point” into distressed assets
    • long US$ trade yet to be unwound via a short-end collapse/Fed priced-out
    • GWIM not yet in risk-off mode (Chart 3)

    • SWF’s have plenty to unwind (AUM $7.2tn of which $4.4tn is in oil producing nations).

    As a reminder, there are just 6 trading days left in January, which means both DeMark and Hartnett may be spot on in the “bottom is in” for January forecast; it is after January that things get ugly again.

    But it was Hartnett’s conclusion that is most damning:

    Positioning jerkily, reluctantly adjusting to 2016 bear market & profit recession:

    • note 10-year rolling loss from commodities (-3.5%) currently worst since 1938
    • EM currencies trading 15% below their 2009 lows
    • yield on US HY bonds up from 4.9% to 9.8% in the past 18 months
    • equal-weighted US stock index down 25% from recent highs
    • 1638 global stocks (2/3 of the MSCI ACWI) down >20% from their peak
    • global profits (MSCI ACWI) currently falling 8.0% YoY.

     

    Price action shows policy impotence & Quantitative Failure:

    • since Japan expanded ETF purchases Dec 18th the Yen is +2.9%, Nikkei -16.6%
    • since ECB cut rates Dec 3rd the Euro is -1.1%, Euro Stoxx 600 -11.6%
    • and since Fed hiked on Dec 16th the S&P is -9.4%
    • 2yr yields are -18bps, 10yr yields -29bps.

    Lacking true Positioning shake-out, lacking catalysts for Profit turnaround & lacking visible Policy panic, we remain “sellers into strength” of risk assets

    Summarizing BofA’s chief investment strategist: enjoy the relief rally, it won’t last.

  • Attention Finally Turns To Saudi Arabia's "Secret" US Treasury Holdings

    In November of 2014, we announced the quiet death of the petrodollar.

    The system which underwrote decades of dollar dominance and kept a perpetual bid under USD assets met an untimely demise when the Saudis moved to bankrupt the US shale complex by deliberately suppressing oil prices.

    The implications, we said, would be far-reaching.

    For years, oil producing nations plowed their USD crude proceeds into USTs and other dollar assets in a virtuous loop both for the currency and for the nation that printed it. The “Great Accumulation” (as Deutsche Bank calls it) of USD FX reserves ended for good in early 2015 but no one noticed until China began to liquidate mountains of US paper in an attempt to manage a runaway devaluation effort.

    By the start of September, all anyone wanted to talk about was the depletion of EM FX war chests as the world suddenly came to understand that the selling of FX reserves amounts to QE in reverse and might therefore serve to tighten global monetary conditions, drive up yields on core paper, and sap liquidity as traditional net exporters of capital suddenly stopped buying amid slumping commodity prices and the yuan fiasco. Some wondered if the reserve drawdowns would cause the Fed to delay liftoff as the FOMC would effectively be tightening into a tightening.

    Against this backdrop we said that the most important chart in the world may well be one that depicts the combined FX reserves of Saudi Arabia and China.

    Now that Saudi Arabia’s oil price gambit has backfired on the way to blowing a hole in the kingdom’s budget that amounted to 16% of GDP last year, the market is speculating that Riyadh’s vast SAMA reserves could disappear altogether – especially considering the added cost of funding the war in Yemen and maintaining the riyal peg.

    As it stands, the Saudis have around $630 billion parked at SAMA. That’s the third-largest rainy day fund on the planet.

    How long the reserves will last given the myriad headwinds facing the kingdom is an open question, but here’s a useful graphic from BofAML which endeavors to show how long Riyadh can hold out under various assumptions about oil prices and borrowing:

    What’s interesting about Saudi Arabia’s UST reserves is that no one knows how “vast” they actually are.

    For one thing, SAMA is a sovereign wealth fund, which means we can’t just look at the headline number and make assumptions about US paper because the fund’s holdings aren’t homogeneous.

    But there’s more to the ambiguity than that. “It’s a secret of the vast U.S. Treasury market, a holdover from an age of oil shortages and mighty petrodollars,” Bloomberg writes of Saudi Arabia’s US Treasury holdings. Put simply: there’s no way for the market to assess the impact of the SAMA drawdown because the composition of the portfolio is a state secret of both Saudi Arabia and the US.

    “As a matter of policy, the Treasury has never disclosed the holdings of Saudi Arabia, long a key ally in the volatile Middle East, and instead groups it with 14 other mostly OPEC nations including Kuwait, the United Arab Emirates and Nigeria,” Bloomberg goes on to note, adding that the rules are different for almost everyone else. Although Saudi Arabia’s “secret” is protected by “an unusual blackout by the U.S. Treasury Department,” for more than a hundred other countries, from China to the Vatican, the Treasury provides a detailed breakdown of how much U.S. debt each holds.”

    For his part, Edwin Truman (the former Treasury assistant secretary for international affairs during the late 1990s) doesn’t get it. “It’s mind-boggling they haven’t undone it,” he says, incredulous. “The Treasury didn’t want to offend OPEC [but] it’s hard to justify this special treatment at this point.”

    So who does know how much US paper the Saudis are sitting on? Well, the Saudis of course, “a handful of Treasury officials,” and some bureaucrats at the Fed, Bloomberg says, noting that “for everyone else, it’s a guessing game.”

    Yes, a “guessing game,” and one that may have profound consequences for markets and for geopolitics.

    With Iranian supply set to flood an already overflowing oil market, Saudi Arabia’s finances are likely to deteriorate further. Especially if the conflict in Yemen continues to fester and the kingdom refuses to cede the riyal peg. That means that unless the Saudis are prepared to take on more debt (and the kingdom’s debt to GDP is already set to rise to 33% by 2020 from just 2% at the end of 2014), they’re going to be selling something from SAMA and the market has no way of knowing what ahead of time.

    Politically all of this comes at an especially critical juncture. The US is pushing to reduce its dependence on foreign (read: Saudi) oil and Washington’s rapprochement with Tehran has ruffled more than a few feathers in Riyadh. 

    “Events in recent months, from President Barack Obama’s landmark nuclear deal with Iran to Saudi Arabia’s execution of a prominent Shiite cleric who challenged the royal family, underscore just how sensitive U.S.-Saudi relations have become, [but] whatever the political considerations, some analysts speculate Saudi Arabia may actually be trying to hold onto its Treasuries as part of a strategy to bulk up on dollar assets amid the deepening turmoil in global financial markets,” Bloomberg goes on to say. Here’s more:

    “You need dollars if you’re an oil producer, you want to make sure you have dollars on your balance sheet,” said Sebastien Galy, Deutsche Bank’s director of foreign-exchange strategy, who suggests SAMA could be raising cash by liquidating riskier investments such as stocks, real estate and private equity. Holding dollars also makes sense as a hedge against the plummeting price of oil, which is priced in the U.S. currency.

     

    Figures from SAMA suggest the kingdom might be reallocating some of its reserves into short-term, liquid assets to help the finance ministry meet budget commitments and defend its 30-year-old currency peg of 3.75 riyals to the dollar.

     

    The central bank has increased foreign currencies and deposits held abroad by 7 percent in the first 11 months of 2015, while at the same time reducing foreign securities, consisting of equities and longer-term debt, by 20 percent.

     


    If the Saudis are avoiding selling US paper for as long as they can, one wonders what it is they’re selling instead to boost cash and deposits. As we noted last week, sovereign wealth funds are set to liquidate $75 billion in equities in 2016, an outflow which may or may not be covered by “dumb” money inflows from the retail crowd. 

    In any event, those hoping for an end to the “legacy” policy of keeping Saudi Arabia’s UST holdings shrouded in secrecy shouldn’t hold their breath. “They’ll want to deal with it sooner or later,” the abovementioned Edwin Truman says.

    We’ll close with a simple question: who would be the new patron saint of the US Treasury Department in the event the Saudis drawdown all of their reserves and decide to diversify away from USD assets once the tide turns for crude, red ink turns to black, and the kingdom once again becomes a net exporter of capital? Put differently, who will monetize the US deficit if relations between Washington and Riyadh hit the skids over Iran? It damn sure won’t be China, where authorities are selling USTs by the hundreds of billions.

  • The Secret Behind The Next Global Crash

    Submitted by Pepe Escobar, Op-ed via SputnikNews.com,

    The World Economic Forum in Davos is submerged by a tsunami of denials, and even non-denial denials, stating there won’t be a follow-up to the Crash of 2008.

    Yet there will be. And the stage is already set for it.

    Selected Persian Gulf traders, and that includes Westerners working in the Gulf confirm that Saudi Arabia is unloading at least $1 trillion in securities and crashing global markets under orders from the Masters of the Universe – those above the lame presidency of Barack Obama.

     

    An official of the Saudi oil company Aramco watches progress at a rig at the al-Howta oil field.

    Those were the days when the House of Saud would as much as flirt with such an idea to have all their assets frozen. Yet now they are acting under orders. And more is to come; according to crack Persian Gulf traders Saudi Western security investments may amount to as much as $8 trillion, and Abu Dhabi’s as $4 trillion.

    In Abu Dhabi everything was broken into compartments, so no one could figure it out, except brokers and traders who would know each supervisor of a compartment of investments. And for the House of Saud, predictably, denial is an iron rule. 

    This massive securities dump has been occasionally corporate media, but the figures are grossly underestimated. The full information simply won’t filter because the Masters of the Universe have vetoed it. 

    There has been a huge increase in the Saudi and Abu Dhabi dump since the start of 2016. A Persian Gulf source says the Saudi strategy “will demolish the markets.” Another referred to a case of “maggots eating the carcass in the dark”; one just had to look at the rout in Wall Street, across Europe and in Hong Kong and Tokyo on Wednesday.

    So it’s already happening. And a crucial subplot may be, in the short to medium term, no less than the collapse of the eurozone.

    The Crash of 2016?

    So a case could be made of a panicked House of Saud being instrumentalized to crash a great deal of the global economy. Cui bono? 

    Russian former Finance Minister Alexei Kudrin
     
     

    Moscow and Tehran are very much on it. The logic behind crashing markets, creating a recession and a depression – from the point of view of the Masters of the Universe above the lame duck President of the United States — is to engineer a major slow down, cripple buying patterns, decrease oil and natural gas consumption, and point Russia on a road to ruin. Besides, the ultra low oil price also translates into a sort of ersatz sanction on Iran.

    Still, Iranian oil about to reach the market will be around an extra 500,000 barrels a day by mid-year, plus a surplus stored in tankers in the Persian Gulf. This oil can and will be absorbed, as demand is rising (in the US, for instance, by 1.9 million barrels a day in 2015) while supply is falling.

    Surging demand and falling production will reverse the oil crash by July. Moreover, China’s oil imports recently surged 9.3% at 7.85 million barrels a day, discrediting the hegemonic narrative of a collapse of China's economy – or of China being responsible for the current market blues.

    So, as I outlined here, oil should turn around soon. Goldman Sachs concurs. That gives the Masters of the Universe a short window of opportunity enabling the Saudis to dump massive amounts of securities in the markets.

    The House of Saud may need the money badly, considering their budget on red alert. But dumping their securities is also clearly self-destructive. They simply cannot sell $8 trillion. The House of Saud is actually destroying the balance of their wealth. As much as Western hagiography tries to paint Riyadh as a responsible player, the fact is scores of Saudi princes are horrified at the destruction of the wealth of the kingdom through this slow motion harakiri.

    Would there be a Plan B? Yes. Warrior prince Mohammed bin Sultan – who’s actually running the show in Riyadh – should be on the first flight to Moscow to engineer a common strategy. Yet that won’t happen.

    Oil pumps in operation at an oilfield near central Los Angeles
     
     

    And as far as China – Saudi Arabia’s top oil importer — is concerned, Xi Jinping has just been to Riyadh; Aramco and Sinopec signed a strategic partnership; but the strategic partnership that really matters, considering the future of One Belt, One Road, is actually Beijing-Tehran.

    The massive Saudi dumping of securities ties in with the Saudi oil price war. In the current, extremely volatile situation oil is down, stocks are down and oil stocks are down. Still the House of Saud has not understood that the Masters of the Universe are getting them to destroy themselves many times over, including flooding the oil market with their shut-in capacity. And all that to fatally wound Russia, Iran and… Saudi Arabia itself.

    Only a Pawn in Their Game

    Meanwhile, Riyadh is rife with rumors there will be a coup against King Salman – virtually demented and confined to a room in his palace in Riyadh. There are two possible scenarios in play:

    1) King Salman, 80, abdicates in favor of his son, notorious arrogant/ignorant troublemaker Warrior Prince Mohammed bin Salman, 30, currently deputy crown prince and defense minister and the second in the line of succession but de facto running the show in Riyadh. This could happen anytime soon. As an extra bonus, current Oil Minister Ali al-Naimi, not a royal, would be replaced by Abdulaziz bin Salman, another son of the king.

     

    2) A palace coup. Salman – and his troublemaker son – are out of the picture, replaced by Ahmed bin Abdulaziz (who was a previous Minister of the Interior), or Prince Mohammed bin Nayef (the current Minister of the Interior and Crown Prince.)

    Whatever scenario prevails, the British MI6 is intimately aware of the whole pantomime. And the German BND might be. Everyone remembers the BND memo at the end of 2015 that depicted Deputy Crown Prince Mohammed bin Salman as a “political gambler” who is destabilizing the Arab world through proxy wars in Yemen and Syria.

    Saudi sources — for obvious reasons insisting on anonymity — stress that as much as 80% of the House of Saud favors a coup.

    Yet the question is whether a House reshuffle would change their slow motion hara-kiri. The categorical imperative remains; the Masters of the Universe are ready to bring the whole world down in a major recession basically to strangle Russia. The House of Saud is just a pawn in this vicious game.

     

  • Why The Oil Price Crash Is Killing The NHL

    Submitted by Julianne Geiger via OilPrice.com,

    With oil prices dipping below $30 and dire forecasts for the already-low Canadian dollar, the National Hockey League (NHL) is taking a hit that would normally lead to a mass exodus of players to Russia – if the ruble wasn’t tanking as well.

    The NHL’s revenue depends on the Canadian dollar, which in turn is on the downward slide thanks to the plummeting oil prices. As NHL revenues decline, player salaries go down, and roster cuts go up.

    From a profit standpoint, Canadian teams will be hardest hit, and the worst is yet to come if predictions are anything to go by.

    The Canadian dollar, or the ‘loonie’, has already slipped below 70 cents on the U.S. dollar for the first time since 2003. And according to MacQuarie—which also had the presence of mind to forecast the dip in the Canadian dollar last fall—the currency is expected to drop to 59 cents on the US dollar by the end of 2016.

    This would be an all-time low. The last time it even came close was in 2002, when it hit 61.79 cents on the U.S. dollar.

    Yesterday, the Bank of Canada revealed its interest rate decision. While it was expected to cut rates to 0.25 percent, and possibly to 0 percent later this year, it kept them at 0.5 percent. This marked a bit of a vote of confidence in the loonie, which responded up half a cent to 68.89 cents on the U.S. dollar. But within an hour, it was back down to 68.63, finishing the day at 69.03.

    Oil is at the heart of this problem, as a large part of Canada’s U.S. dollar income comes from energy industry exports, mostly crude oil. Almost always, when oil falls, the Canadian position against the dollar does the same. The growth of oil sands had previously put the loonie in a good position, but those massive oil sands projects are struggling to stay alive right now—at best.

    What does it have to do with hockey? Well, everything.

    The NHL is comprised of 30 teams, with players from 20 different countries. Some 50 percent of these players are Canadian. Seven of the 30 NHL teams are in Canada, while 23 are in the U.S.

    Canadian teams take in Canadian dollars through ticket sales, but they pay out the bulk of their expenses—salaries and tons of travel—in U.S. dollars.

    While the NHL is headquartered in New York City, it originated in Quebec, and the ‘national’ part of this acronym is Canadian in more ways than one.

    The players are paid in U.S. dollars now, but the NHL Canadian franchises receive most of their income in local currency. With a dipping Canadian dollar, this means the teams take a huge hit when they have to pay salaries in U.S. dollars, along with all the travel expenses.

    Since 2005, the NHL has capped player salaries based on the league’s revenue. If league revenue takes a hit—and if Macquarie’s predictions come true for this year—the NHL could be looking at a significant salary cut.

    The cap was initially set because the league failed to reach a salary bargaining agreement with the players, which led to the cancellation of the entire 2004-2005 season.

    It is important to note that not all NHL teams spend at their limit, so some teams and players will be affected more than others.

    Should predictions ring true, history offers us a sneak preview of what may be to come for the NHL.

    In the 2004-2005 lockout—when we didn’t have NHL hockey for an entire year—there was a mass exodus of players to Europe. Some 400 players—more than half of the league total—hopped transatlantic flights with their sticks to play for European leagues. A 2012 lockout, though shorter, also saw players pack up and leave.

    This time around, with the Canadian dollar at its lowest point since 2003 thanks to the oil price crunch, the teams may even be happy to see them go.

    During the 2012 lockout, some 30 NHL players moved to Russia to play for the Kontinental Hockey League (KHL). Russia could be a key hockey beneficiary again, should the NHL lower the salary cap.

    Or maybe not. Players might not find things much better. The Russian ruble is tanking as well, along with the price of oil and sanctions. Owners say they are broke. Players say they aren’t being paid.

    It’s crisis everywhere for hockey, which is as dependent on oil as it is on sticks and pucks.

  • Here Are The Best And Worst Things About A Trump Presidency, According To Americans

    As we head into the Iowa caucus, Americans are getting serious about the 2016 race for the White House.

    After an extremely painful series of debates that pitted a dizzying array of GOP candidates against one another in a kind of soapbox free-for-all, the Republican field has for all intents and purposes been narrowed to two candidates: Ted Cruz and Donald Trump.

    Trump’s meteoric rise to the top of the polls represents something of a coup for a system that has for years been dominated by an entrenched political aristocracy. The rise of Trump (and of Bernie Sanders for that matter) seems to suggest that America has become fed up with business as usual inside the Beltway.

    Voters, it would seem, are ready for real (as opposed to Obama-brand) “change” and regardless of what you think about Trump or Sanders, it’s fairly clear that both would run administrations that look nothing like what the country is used to.

    And while we know that Trump has managed to secure an almost religious following in part by whipping voters into a veritable frenzy, we do not yet know what, specifically, voters see in brazen billionaire beyond the rather amorphous “Make America Great Again” campaign slogan.

    Here to shed some light on the subject is Gallup, who conducted research to discover what Americans think would be the best and worst things about a Trump presidency. Here are the results from a survey conducted January 6-10, which asked a nationally representative sample of Americans to analyze the Donald’s character:

    From Gallup:

    Asked to name the best or most positive thing about a possible Donald Trump presidency if he were to be elected in 2016, Americans most commonly volunteer his business background, policies on immigration and honesty — that he says what he feels. Other positives mentioned by at least 5% of Americans are his confidence — that he doesn’t back down — and that he would improve the economy. More than four in 10 cannot name anything positive about a potential Trump presidency.

     

    Americans are much more likely to mention potentially negative aspects of a Trump presidency than to mention positive aspects — only 8% say “nothing” when asked about the downsides of such a presidency, with another 9% not having an opinion.

    The list of possible negatives that would be associated with a Trump presidency are most focused on his personality and style. Americans say Trump as president would be too outspoken and impulsive, as well as arrogant, offensive and rude, ill-tempered and hot-headed, and “stupid and idiotic.” Others mention that he lacks experience, is racist and discriminates against minorities, and that he would embarrass the U.S. and lose the respect of other nations.

     

  • The Recession As Seen In Houston, Texas

    The Texas recession is only in its early innings, but we were pleasantly surprised to learn, courtesy of a reader, that it may not be as severe as some expect thanks to good samaritans such Houston-based Gramercy Cleaners on Richmond avenue whose compassion with the imploding energy sector is manifesting itself in service discounts.

    When the shale crisis spills over to the banking sector, will we see New York cleaners likewise discounting services to laid off investment bankers? Somehow we doubt it.

  • Central Banks Have "Over-Promised" What Can Actually Be Delivered

    Via Scotiabank's Guy Haselmann,

    Markets need to retreat from dependency on central bank stimulus which they falsely believe provides the magical elixir that fixes all economic and financial market woes.

    At some point during the past few years, central bank stimulus has gone from a net benefit to a source of financial market ailments.  Investors who have rightly arrived at this conclusion have shifted from dip buyers in risk assets to sellers of up-ticks (see January 6th note ‘Down Side Up’).

    With only limited tools, central bank ‘aspirin’ can only treat symptoms rather than root causes.  Monetary policy stimulus healed some pain, but it is not a cure, nor is it able to concoct one.  Moreover, too much ‘aspirin’ can produce undesirable side-effects.

    There is plenty of evidence to suggest that central banks have over-promised what can actually be delivered. Certainly growth and inflation have under-shot expectations and forecasts every year since QE1 began in 2008.  The stated and suggested words of “doing whatever it takes” now look more problematic for financial markets than do the benefits they may or may not be providing economies. The Fed hike in December was likely the result of the FOMC’s assessment that this ‘cost versus benefit equation’ had indeed tilted.

    Market volatility in 2016 is a function of this action (reversal).  The one-way quasi-coordination of global central banks from 2009 to 2014 has fractured, which in turn has fueled two-way trading and the resulting market volatility.  While some central banks (e.g. ECB and BoJ) continue to ease rates, the central banks of the following countries have all hiked rates in the past few quarters: US, Brazil, Peru, Chile, Colombia, South Africa, Philippines, Paraguay, Iceland, and Paraguay, to name a few.

    A few years ago, FOMC members stated that they were “the only game in town” and “did not want to look as if we were not doing enough”.  FOMC members believed that help had to come from somewhere, as the political polarization in Washington was clear to everyone. Unfortunately, the ‘temporary relief’ has hidden the aggregating costs that mount under financial repression, market speculation, and debt issuance.

    Most would agree that the primary cause of the financial crisis in 2008 was excessive debt levels.  Yet today, public and private debt levels have risen to all-time highs of 185% of GDP in emerging markets and above 275% of GDP in OECD countries; over 35 percentage points above 2007 levels.   

    Keeping rates below the ‘Wicksellian natural rate’ (i.e., too low for too long) has allowed too much debt to accumulate, stolen growth from the future, harmed pensions and other savers, and subsidized over-capacity.  The former Chief Economist for the BIS William White wrote in a recent note that in an attempt to prevent an Irving Fisher-type of debt-deflation spiral, the Fed may have increased the odds of one.

    Aggressive central bank responses and the asymmetric bias toward easy money resulted from an urgency to address low prices and maintain growth.  It is possible that low prices over the last three decades were simply the result of globalization, and of China and Eastern Europe entering the global economy.  If this statement is more true than not, then central banks have over-reacted.

    In addition, many critics have postulated that the Fed has contributed to increased income inequality by inflating assets prices. The wealthiest have certainly benefited the most. Debt issuance proceeds being used for share buybacks accentuated the impact.  Perhaps, if the long-term unemployed received government sponsored new training or education, then structural unemployment would be lower. In the meantime, rising inequality is partially responsible for anti-establishment sentiment visible in political polls.

    In doing the heavy lifting for elected officials, the Fed has enabled fiscal stalemate and political polarization.  These same officials will likely blame the Fed as more troubles become exposed. Wild markets are certainly a circumstance of Fed policy.  It is a current financial market problem that risks turning into an economic one. The answers and cures going forward should, therefore, not be provided by monetary officials.

    Chair Yellen, during her testimony on February 10th, should re-focus the market’s attention away from dependency on global central bank stimulus as the cure-all, and alternatively use her testimony to argue that fiscal policy should play a larger role. Without clearer visibility on the economy, taxes, health care costs, and regulation, easy money will not flow into the capital spending that is necessary to increase aggregate demand and stabilize markets.

    Nurse:  “Doctor the man you’ve just treated collapsed on the front steps.  What should I do?”

     

    Doctor:  “Turn him around so it looks like he was just arriving!”

  • "Worst Start To Year Since 2008" But Stocks Bounce On Crude Squeeze, Central Bank Hopes

    There's always hope…

     

    Summing the week up perfectly…

    As a reminder, this is still the 2nd worst start to a year ever…

    • *MSCI ALL-COUNTRY WORLD INDEX CLIMBS 2.6%, MOST SINCE JUNE 2012

    And yet propagandists are proclaiming victory?

     

    Of course it was all about Crude's recovery… From the $27.56 lows on Wednesday, WTI March crude oil futures contract is up nearly 20% in just over 48 hours…

     

    Meanwhile the chaos unfolding in the Oil ETF/ETN Complex continues…

     

    Enabling a v-shaped recovery in stocks…

     

    With all major indices closing green for the week…

     

    2016 still ugly…

     

    AAPL soared 5.2% today alone!! Running stops above the last week's highs…

     

    HYG V-Shaped recovery…

     

    Not everybody was loving it – Treasuries were bid despite today's euphoria…

     

    On the week, Treasury yields v-shape recovered back to slightly higher with the belly underperforming… Bonds undergo The Batman Pattern!!!

     

    Today's weakness in JPY and and EUR (following moar ECB and BOJ blather from Davos) left The USD Index notably higher on the week…

    • *RUBLE RISES 5.9% TO CLOSE AT 78.024 PER DOLLAR

     

    Leaving The USD Index at 8 week highs…

     

    And despite the USD strength, all commodities closed the week green with crude's epic meltup making it the outperformer…

     

    Charts: Bloomberg

  • Weekend Reading: The Bear Awakens

    Submitted by Lance Roberts via RealInvestmentAdvice.com,

    Of the last several weeks, I have suggested that markets are oversold and that a bounce was likely. However, such a reflexive bounce should be used to sell into as it is now becoming clearer the markets have changed their trend from positive to negative. As I discussed earlier this week:

    “The concept of the full-market cycle is critically important to understand considering the markets have very likely broken the bullish trend that began in 2009. Take a look at the first chart below.”

    SP500-MarketUpdate-011516-3

    “This “weekly” chart of the S&P 500 shows the bullish trends which were clearly defined during their advances in the late 1990’s, 2003-2007 and 2009-present. Each of these bullish advances, despite ongoing bullish calls to the contrary, ended rather badly with extremely similar circumstances: technical breakdowns, weakening economics, and deteriorating earnings.

     

    As I have shown in the chart above, when the markets broke the bullish trends (blue dashed lines), the subsequent bear market occurred rather rapidly. The conversion from the bull market to the bear market was marked by a breakdown in prices and the issuance of a very long-term “sell signal” as noted in the bottom of the chart.

     

    We can look at this same analysis a little differently and see much of the same evidence.”

    SP500-MarketUpdate-011516

    “The chart above shows something I discussed last week: ‘Markets crash when they’re oversold.’”

    The inability for the markets to muster a rally from currently extremely oversold short-term conditions suggests market dynamics have indeed changed from a “buy the dip” to “sell the rally” mentality.

    This weekend’s reading list is a collection of articles on the current state of the market. Is this just a correction within a bullish tend? Or, is this the beginning of the long awaited bear?

    1) 7 Reasons Not To Be A Bear by Jeff Reeves via MarketWatch

    • Jobs
    • Housing
    • Oil
    • Insulation From China
    • Valuations
    • US Dollar
    • The Long Term

    But Also Read:  Growth Fears Grip The Market by Robert Johnson via Morningstar

    2) Charts To Retain Ones Sanity by Scott Grannis via Calafia Beach Pundit

    “Financial markets are once again swooning as oil prices collapse, stoking fears of another global financial crisis. Without trying to minimize the angst we all feel, I offer here some charts which are useful for retaining one’s sanity, along with some commentary.”

    HY-Energy-spreads

    But Also Read: US Economy Slip-Sliding Away by Pater Tenebrarum via Acting Man Blog

    Also Read: The Case For Chaos & Equity Bottoms by Anna-Louise Jackson via Bloomberg

    3) The Deeper Causes Of The Market Rout by Mohamed El-Erian via Bloomberg

    “To shed light on one of the worst starts to a new year for global stock markets, some analysts are turning to macroeconomic explanations, such as China’s economic slowdown and its uncharacteristic policy slips. Others prefer to focus on the cascading influence of unhinged markets, such as oil. Yet neither explanation is sufficiently comprehensive; and each fails to account for major changes in liquidity and volatility.”

    But Also Read: Art Cashin – “This Is What You Get Before A Crisis” by Christoph Gisiger via Zero Hedge

    And: 7 Numbers To Put The Market Madness Into Perspective by Paul Lim via Time

    4) Who Let The Bulls Out? by Paul La Monica via CNN Money

    “Deutsche Bank chief equity strategist David Bianco defended stocks in a report Tuesday called ‘Gotta swing when you see it.’ He must be eager for spring training to start.

    Bianco wrote, ‘We are not panicked by this correction because we understand it. It’s driven by a profit recession centered at certain industries caused by factors that we’ve long flagged as risks.’

     

    In other words, nobody should be surprised that the dramatic plunge in oil prices is bad news for the bottom lines of energy and industrial companies.

    Bianco added that ‘this correction has overly punished other sectors and now we’re ready to take advantage of it.’  And he said the next 5% move in the S&P 500 is likely ‘to be up and soon.'”

    Also Read: Stocks Could Fall 5000 Points by Brett Arends via MarketWatch

    Further Read: Ray Dalio On Asymmetric Risk by Tyler Durden via Zero Hedge

     

    Watch: Stocks Have Much Further To Fall

     

    5) Will The Fed Rescue The Market by Anthony Mirhaydari via Fiscal Times

    “It’s far from assured the Fed will ride to the rescue of investors this time.

    On Friday, San Francisco Fed President John Williams said he doesn’t see signs that asset values are depressed or below normal and cited the strong dollar as more of a concern than low commodity prices. He defended the December rate hike decision — and he added that the Fed has met its full employment mandate, believes the labor market will continue to strengthen this year and that inflation should return to policymakers’ 2 percent target over the next couple of years.

     

    We’ll know more when the Fed holds its next policy meeting on January 26 and 27. We’ll find out this week if the bloodbath continues.”

    SP-large-cap-012016

    But Also Read: The Bright Side To Stock Rout by John Kimelman via Barron’s

    And: Time To Be A Contrarian? by John Plender via FT.com

    MUST READS

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

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