Today’s News 26th February 2016

• Do Americans Live In A False Reality Created By Orchestrated Events?

  Authored by Paul Craig Roberts,

  Most people who are aware and capable of thought have given up on what is called the “mainstream media.” The presstitutes have destroyed their credibility by helping Washington to lie—“Saddam Hussein’s weapons of mass destruction,” “Iranian nukes,” “Assad’s use of chemical weapons,” “Russian invasion of Ukraine,” and so forth. The “mainstream media” has also destroyed its credibility by its complete acceptance of whatever government authorities say about alleged “terrorist events,” such as 9/11 and Boston Marathon Bombing, or alleged mass shootings such as Sandy Hook and San Bernardino. Despite glaring inconsistencies, contradictions, and security failures that seem too unlikely to be believable, the “mainstream media” never asks questions or investigates. It merely reports as fact whatever authorities say.

  The sign of a totalitarian or authoritarian state is a media that feels no responsibility to investigate and to find the truth, accepting the role of propagandist instead. The entire Western media has been in the propaganda mode for a long time. In the US the transformation of journalists into propagandists was completed with the concentration of a diverse and independent media in six mega-corporations that are no longer run by journalists.

  As a consequence, thoughtful and aware people increasingly rely on alternative media that does question, marshall facts, and offers analysis in place of an unbelievable official story line.

  The prime example is 9/11. Large numbers of experts have destroyed the official story that has no factual evidence in its behalf. However, even without the hard evidence that 9/11 truthers have provided, the official story gives itself away. We are supposed to believe that a few Saudi Arabians with no technology beyond box cutters and no support from any government’s intelligence service were able to outwit the massive surveillance technology created by DARPA (Defense Advanced Research Projects Agency) and NSA (National Security Agency) and deal the most humiliating blow to a superpower ever delivered in human history. Moreover, they were able to do this without the President of the United States, the US Congress, and the “mainstream media” demanding accountability for such a total failure of the high-tech national security state. Instead of a White House led investigation of such a massive security failure, the White House resisted for more than one year any investigation whatsoever until finally giving in to demands from 9/11 families that could not be bought off and agreeing to a 9/11 Commission.

  The Commission did not investigate but merely sat and wrote down the story told to it by the government. Afterwards, the Commission’s chairman, co-chairman, and legal counsel wrote books in which they said that information was withheld from the Commission, that the Commission was lied to by officials of the government, and that the Commission “was set up to fail.” Despite all of this, the presstitutes still repeat the official propaganda, and there remain enough gullible Americans to prevent accountability.

  Competent historians know that false flag events are used to bring to fruition agendas that cannot otherwise be achieved. 9/11 gave the neoconservatives, who controlled the George W. Bush administration, the New Pearl Harbor that they said was necessary in order to launch their hegemonic military invasions of Muslim countries. The Boston Marathon Bombing permitted a trial run of the American Police State, complete with shutting down a large American city, putting 10,000 armed troops and SWAT teams on the streets where the troops conducted house to house searches forcing the residents out of their homes at gunpoint. This unprecedented operation was justified as necessary in order to locate one wounded 19 year old man, who clearly was a patsy.

  There are so many anomalies in the Sandy Hook story that it has generated a cottage industry of skeptics. I agree that there are anomalies, but I don’t have the time to study the issue and come to my own conclusion. What I have noticed is that we are not given many good explanations of the anomalies. For example, in this video made from the TV news coverage, https://www.youtube.com/watch?v=xaHtxlSDgbk the video’s creator makes a case that the person who is the grieving father who lost his son is the same person outfitted in SWAT clothes at Sandy Hook following the shooting. The person is identified as a known actor. Now, it seems to me that this is easy to test. The grieving father is known, the actor is known, and the authorities have to know who the SWAT team member is. If these three people, who can pass for one another, can be assembled in one room at the same time, we can dismiss the expose claimed in this one video. However, if three separate people cannot be produced together, then we must ask why this deception, which raises questions about the entire story. You can watch the entire video or just skip to the 9:30 mark and observe what appears to be the same person in two different roles.

  The “mainstream media” has the ability to make these simple investigations, but does not. Instead, the “mainstream media” calls skeptics “conspiracy theorists.”

  There is a book by Professor Jim Fetzer and Mike Palecek that says Sandy Hook was a FEMA drill to promote gun control and that no one died at Sandy Hook. The book was available on amazon.com but was suddenly banned. Why ban a book?

  Here is a free download of the book: http://rense.com/general96/nobodydied.html I have not read the book and have no opinion. I do know, however, that the police state that America is becoming certainly has a powerful interest in disarming the public. I also heard today a news report that people said to be parents of the dead children are bringing a lawsuit against the gun manufacturer, which is consistent with Fetzer’s claim.

  Here is a Buzzsaw interview with Jim Fetzer: https://www.youtube.com/watch?v=f-W3rIEe-ag If the information Fetzer provides is correct, clearly the US government has an authoritarian agenda and is using orchestrated events to create a false reality for Americans in order to achieve the agenda.

  It seems to me that Fetzer’s facts can be easily checked. If his facts check out, then a real investigation is required. If his facts do not check out, the official story gains credibility as Fetzer is one of the most energetic skeptics.

  Fetzer cannot be dismissed as a kook. He graduated magna cum laude from Princeton University, has a Ph.D. from Indiana University and was Distinguished McKnight University Professor at the University of Minnesota until his retirement in 2006. He has had a National Science Foundation fellowship, and he has published more than 100 articles and 20 books on philosophy of science and philosophy of cognitive science. He is an expert in artificial intelligence and computer science and founded the international journal Minds and Machines. In the late 1990s, Fetzer was asked to organize a symposium on philosophy of mind.

  For an intelligent person, the official stories of President Kennedy’s assassination and 9/11 are simply not believable, because the official stories are not consistent with the evidence and what we know. Fetzer’s frustration with less capable and less observant people increasingly shows, and this works to his disadvantage.

  It seems to me that if the authorities behind the official Sandy Hook story are secure with the official story, they would jump on the opportunity to confront and disprove Fetzer’s facts. Moreover, somewhere there must be photographs of the dead children, but, like the alleged large number of recordings by security cameras of an airliner hitting the Pentagon, no one has ever seen them. At least not that I know of.

  What disturbs me is that no one in authority or in the mainstream media has any interest in checking the facts. Instead, those who raise awkward matters are dismissed as conspiracy theorists.

  Why this is damning is puzzling. The government’s story of 9/11 is a story of a conspiracy as is the government’s story of the Boston Marathon Bombing. These things happen because of conspiracies. What is at issue is: whose conspiracy? We know from Operation Gladio and Operation Northwoods that governments do engage in murderous conspiracies against their own citizens. Therefore, it is a mistake to conclude that governments do not engage in conspiracies.

  One often hears the objection that if 9/11 was a false flag attack, someone would have talked.
  Why would they have talked? Only those who organized the conspiracy would know. Why would they undermine their own conspiracy?

  Recall William Binney. He developed the surveillance system used by NSA. When he saw that it was being used against the American people, he talked. But he had taken no documents with which to prove his claims, which saved him from successful prosecution but gave him no evidence for his claims. This is why Edward Snowden took the documents and released them. Nevertheless, many see Snowden as a spy who stole national security secrets, not as a whistleblower warning us that the Constitution that protects us is being overthrown.

  High level government officials have contradicted parts of the 9/11 official story and the official story that links the invasion of Iraq to 9/11 and to weapons of mass destruction. Transportation Secretary Norman Mineta contradicted Vice President Cheney and the official 9/11 story timeline. Treasury Secretary Paul O’Neill has said that overthrowing Saddam Hussein was the subject of the first cabinet meeting in the George W. Bush administration long before 9/11. He wrote it in a book and told it on CBS News’ 60 Minutes. CNN and other news stations reported it. But it had no effect.

  Whistleblowers pay a high price. Many of them are in prison. Obama has prosecuted and imprisoned a record number. Once they are thrown in prison, the question becomes: “Who would believe a criminal?”

  As for 9/11 all sorts of people have talked. Over 100 police, firemen and first responders have reported hearing and experiencing a large number of explosions in the Twin Towers. Maintanence personnel report experiencing massive explosions in the sub-basements prior to the building being hit by an airplane. None of this testimony has had any effect on the authorities behind the official story or on the presstitutes.

  There are 2,300 architects and engineers who have written to Congress requesting a real investigation. Instead of the request being treated with the respect that 2,300 professionals deserve, the professionals are dismissed as “conspiracy theorists.”

  An international panel of scientists have reported the presence of reacted and unreacted nanothermite in the dust of the World Trade Centers. They have offered their samples to government agencies and to scientists for confirmation. No one will touch it. The reason is clear. Today science funding is heavily dependent on the federal government and on private companies that have federal contracts. Scientists understand that speaking out about 9/11 means the termination of their career.

  The government has us where it wants us—powerless and disinformed. Most Americans are too uneducated to be able to tell the difference between a building falling down from asymetrical damage and one blowing up. Mainstream journalists cannot question and investigate and keep their jobs. Scientists cannot speak out and continue to be funded.

  Truth telling has been shoved off into the alternative Internet media where I would wager the government runs sites that proclaim wild conspiracies, the purpose of which is to discredit all skeptics.

  

  

  

  

  

• China May Have Found A "Solution" To Its Massive Bad Debt Problem

  Last April, China had an idea about how to boost the country’s dying credit impulse.

  As we’ve been at pains to explain for more than a year, China is attempting to do the impossible. They need to deleverage and re-leverage all at the same time. Efforts to rein in the mammoth shadow banking system after years of expansion put pressure on an economy that was already decelerating and by the end of 2014, Beijing was struggling to figure out how to keep credit flowing without embedding more risk into the system.

  One idea was to supercharge the country’s nascent ABS market which was barely producing $50 billion in supply per year (for context, consider that the US auto loan-backed ABS market alone saw $125 billion in issuance last year).

  As Reuters noted at the time, the idea was simple: “By making it easier for banks to repackage and resell receivables – such as loan repayments on mortgages, car loans and credit cards – the government hopes to free up banks’ balance sheets so they can lend more to the real economy.”

  In other words, offload the credit risk to investors who are searching for yield and once your book is unencumbered, make more loans, then package and sell them to investors, and around you go. It’s the “virtuous” originate-to-sell model and it works great – until it doesn’t.

  In any event, despite comments from the likes of ANZ’s Zhao Hao who said “there is a huge demand from banks alone to securitise assets,” the plan didn’t work.

  Why? Because China’s NPLs were rising at a rapid clip as the economy continued to deteriorate. Banks didn’t want to lend more and risk further imperiling their balance sheet and even if they did, demand for credit was hardly robust in an economy struggling with an acute overcapacity problem. “With the evidence mounting that the country is experiencing an economic slowdown, Chinese banks don’t want to lend, so they don’t need to sell ABS to free up more room for lending,” Ji Weijie, senior associate at Beijing-based China Securities Co. said in June. “Plus with rising bad loans, banks are reluctant to move good assets off their balance sheets.”

  Right. Fortunately, China now has a solution for that rather vexing problem. Beijing will simply allow banks to securitize their NPLs.

  “China will allow domestic banks to issue up to 50 billion yuan ($7.7 billion) of asset-backed securities based on their non-performing loans, the first quota for such sales since 2008,” Bloomberg reports, citing the ubiquitous people familiar with the matter. “The quota, which will initially be allocated mainly to China’s largest banks, will allow lenders to remove non-performing loans from their balance sheets at a time when asset quality is deteriorating and the economy is slowing, the people said, asking not to be named as the plan isn’t public.”

  If this goes as planned it could allow banks to remove as much as CNY150 billion in bad loans from their books. While that may sound “relatively significant” to quote Sanford C. Bernstein’s Zhou Min, it’s probably not significant at all if you look at it in the context of the size of China’s banking system and the likely real NPL ratio which is probably much closer to 10% than it is to the headline prints. 

  Of course China will also need to find buyers for this paper and with the likes of Kyle Bass shouting from the rooftops about credit risk, it’s difficult to see how Chinese banks are going to get anyone excited about buying their non-performing assets especially in an evironment where the situation is expected to deteriorate continually going forward. 

  Also, it’s not at all clear that even if China’s banks do find buyers, they will use the balance sheet slack to lend to the real economy. Yes, China created an unbelievable $500 billion in debt last month, but TSF data is notoriously difficult to interpret (i.e. it would probably be a mistake to take that figure and attribute it solely to either banks’ willingness to lend or the real economy’s enthusiam to borrow). More importantly, this may be just another effort to manage the numbers. That is, if you engineer an epic TSF boom and then allow banks to dispose of their NPLs via ABS issuance, that’s just another way to fudge the NPL data. The souring debt hasn’t gone away. It’s just someone else’s responsibility. 

  Meanwhile, China’s shadow banking system continues to find new ways to obscure risk. As we wrote earlier this month, mid-tier Chinese banks are using DAMPs to make new loans that they can carry on their books as “investments” and “receivables” against which they do not hold much in the way of reserves. For instance, at Industrial Bank, the size of the “investment receivables” book doubled during 2015 and now sits at a massive $267 billion or, as Reuters noted at the time, more than its entire loan book and equivalent to “the total assets in the Philippine banking system.”

  Of course these are all just channel loans. It’s the same basic story: banks are finding innovative ways to lend outside of their official loan books and by carrying a non-trivial percentage of their credit risk as something that doesn’t count towards NPLs, they are obscuring risk. And on a massive scale. 

  “Banks are increasingly turning to so-called directional asset-management plans issued by brokerages and the subsidiaries of mutual-fund providers to channel lending,” Bloomberg wrote on Wednesday, adding that “the amount of money placed in such products jumped 70 percent last year to 18.8 trillion yuan ($2.9 trillion), outpacing the 17 percent growth for trust assets.”

  

  “These new shadow channels work like trusts. The structure typically involves a bank investing proceeds from its wealth-management products in a directional plan that will then lend to a borrower chosen by the bank,” Bloomberg continues. “This allows banks to extend credit while circumventing restrictions on certain borrowers — such as local government financing vehicles — as well as capital requirements on regular loans.”

  As we said three weeks ago, this isn’t exactly the same as ABS issuance. That is, the bank retains the credit risk here. The brokers are just the middlemen. “If you talk to a bank, they’ll say it’s somebody else’s credit risk,” Macquarie ‘s Matthew Smith told Bloomberg. “But the ultimate credit risk doesn’t disappear. The brokers for sure are not taking this on in exchange for a few basis points, so ultimately the banks are still holding onto this credit risk. If it all goes bad, the brokers don’t have the balance sheet to support it, and somebody else has to come in and take it over.”

  Or, as we put it: “…but that’s just semantics. You can call them “assets” or “investments” or “receivables” or whatever the hell else, but at the end of the day, these are loans. And the bank shoulders the entirety of the credit risk.”

  But again, because of these are carried on banks’ books, you won’t see them show up in the NPL column – even if they go bad.

  The takeaway from all of this is that trying to pin down credit risk at Chinese banks is an endless game of “Whack-a-Mole”. Beijing is constantly working to allow banks to shift and reclassify “assets” and/or transfer credit risk either to some entity where it can’t be tracked or at least to areas of the balance sheet where it effectively disappears. As Moody’s Stephen Schwartz puts it “every time they clamp down on one area, the financing pops up in another.”

  

  

  

  

  

  

• Why Hillary Clinton Cannot Beat Donald Trump

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  This morning, I read a fantastic article by Nathan J. Robinson in Current Affairs titled: Unless the Democrats Run Sanders, a Trump Nomination Means a Trump Presidency. Several months ago, I would have disagreed with this statement, but today I think it’s entirely accurate.

  One thing Clinton supporters remain in complete denial about (other than the fact most Americans who don’t identify as Democrats find her to be somewhere in between untrustworthy and criminal), is that a significant number of Sanders supporters will never vote for Hillary. Forget the fact that I know a few personally, I’ve noticed several interviews with voters who proclaim Sanders to be their first choice but Trump their second. Are they just saying this or do they mean it? I think a lot them mean it.

  Mr. Robinson’s article is a brilliant deep dive into what a real life Trump vs. Clinton matchup would look like, not what clueless beltway wonks want it to look it. What emerges is a convincing case that the only person who could stand up to Trump and defeat him in November is Bernie Sanders. I agree.

  So without further ado, here are a few excerpts:

  Instinctively, Hillary Clinton has long seemed by far the more electable of the two Democratic candidates. She is, after all, an experienced, pragmatic moderate, whereas Sanders is a raving, arm-flapping elderly Jewish socialist from Vermont. Clinton is simply closer to the American mainstream, thus she is more attractive to a broader swath of voters. Sanders campaigners have grown used to hearing the heavy-hearted lament “I like Bernie, I just don’t think he can win.” And in typical previous American elections, this would be perfectly accurate.

   

  But this is far from a typical previous American election. And recently, everything about the electability calculus has changed, due to one simple fact: Donald Trump is likely to be the Republican nominee for President. Given this reality, every Democratic strategic question must operate not on the basis of abstract electability against a hypothetical candidate, but specific electability against the actual Republican nominee, Donald Trump.

   

  Here, a Clinton match-up is highly likely to be an unmitigated electoral disaster, whereas a Sanders candidacy stands a far better chance. Every one of Clinton’s (considerable) weaknesses plays to every one of Trump’s strengths, whereas every one of Trump’s (few) weaknesses plays to every one of Sanders’s strengths. From a purely pragmatic standpoint, running Clinton against Trump is a disastrous, suicidal proposition.

   

  Her supporters insist that she has already been “tried and tested” against all the attacks that can be thrown at her. But this is not the case; she has never been subjected to the full brunt of attacks that come in a general presidential election. Bernie Sanders has ignored most tabloid dirt, treating it as a sensationalist distraction from real issues (“Enough with the damned emails!”) But for Donald Trump, sensationalist distractions are the whole game. He will attempt to crucify her. And it is very, very likely that he will succeed.

   

  This campaigning style makes Hillary Clinton Donald Trump’s dream opponent. She gives him an endless amount to work with. The emails, Benghazi, Whitewater, Iraq, the Lewinsky scandal, Chinagate, Travelgate, the missing law firm records, Jeffrey Epstein, Kissinger, Marc Rich, Haiti, Clinton Foundation tax errors, Clinton Foundation conflicts of interest, “We were broke when we left the White House,” Goldman Sachs… There is enough material in Hillary Clinton’s background for Donald Trump to run with six times over.

   

  Even a skilled campaigner would have a very difficult time parrying such endless attacks by Trump. Even the best campaigner would find it impossible to draw attention back to actual substantive policy issues, and would spend their every moment on the defensive. But Hillary Clinton is neither the best campaigner nor even a skilled one. In fact, she is a dreadful campaigner. She may be a skilled policymaker, but on the campaign trail she makes constant missteps and never realizes things have gone wrong until it’s too late.

   

  Everyone knows this. Even among Democratic party operatives, she’s acknowledged as “awkward and uninspiring on the stump,” carrying “Bill’s baggage with none of Bill’s warmth.” New York magazine described her “failing to demonstrate the most elementary political skills, much less those learned at Toastmasters or Dale Carnegie.” Last year the White House was panicking at her levels of electoral incompetence, her questionable decisionmaking, and her inclination for taking sleazy shortcuts. More recently, noting Sanders’s catch-up in the polls, The Washington Post’s Jennifer Rubin said that she was a “rotten candidate” whose attacks on Sanders made no sense, and that “at some point, you cannot blame the national mood or a poor staff or a brilliant opponent for Hillary Clinton’s campaign woes.” Yet in a race against Trump, Hillary will be handicapped not only by her feeble campaigning skills, but the fact that she will have a sour national mood, a poor staff, and a brilliant opponent.

   

  Every Democrat should take some time to fairly, dispassionately examine Clinton’s track record as a campaigner. Study how the ‘08 campaign was handled, and how this one has gone. Assess her strengths and weaknesses with as little bias or prejudice as possible. Then picture the race against Trump, and think about how it will unfold.

   

  It’s easy to see that Trump has every single advantage. Because the Republican primary will be over, he can come at her from both right and left as he pleases. As the candidate who thundered against the Iraq War at the Republican debate, he can taunt Clinton over her support for it. He will paint her as a member of the corrupt political establishment, and will even offer proof: “Well, I know you can buy politicians, because I bought Senator Clinton. I gave her money, she came to my wedding.” He can make it appear that Hillary Clinton can be bought, that he can’t, and that he is in charge. It’s also hard to defend against, because it appears to be partly true. Any denial looks like a lie, thus making Hillary’s situation look even worse. And then, when she stumbles, he will mock her as incompetent.

   

  Charges of misogyny against Trump won’t work. He is going to fill the press with the rape and harassment allegations against Bill Clinton and Hillary’s role in discrediting the victims (something that made even Lena Dunham deeply queasy.) He can always remind people that Hillary Clinton referred to Monica Lewinsky as a “narcissistic loony toon.” Furthermore, since Trump is not an anti-Planned Parenthood zealot (being the only one willing to stick up for women’s health in a room full of Republicans), it will be hard for Clinton to paint him as the usual anti-feminist right-winger.

   

  Trump will capitalize on his reputation as a truth-teller, and be vicious about both Clinton’s sudden changes of position (e.g. the switch on gay marriage, plus the affected economic populism of her run against Sanders) and her perceived dishonesty. One can already imagine the monologue:

   

  “She lies so much. Everything she says is a lie. I’ve never seen someone who lies so much in my life. Let me tell you three lies she’s told. She made up a story about how she was ducking sniper fire! There was no sniper fire. She made it up! How do you forget a thing like that? She said she was named after Sir Edmund Hillary, the guy who climbed Mount Everest. He hadn’t even climbed it when she was born! Total lie! She lied about the emails, of course, as we all know, and is probably going to be indicted. You know she said there were weapons of mass destruction in Iraq! It was a lie! Thousands of American soldiers are dead because of her. Not only does she lie, her lies kill people. That’s four lies, I said I’d give you three. You can’t even count them. You want to go on PolitiFact, see how many lies she has? It takes you an hour to read them all! In fact, they ask her, she doesn’t even say she hasn’t lied. They asked her straight up, she says she usually tries to tell the truth! Ooooh, she tries! Come on! This is a person, every single word out of her mouth is a lie. Nobody trusts her. Check the polls, nobody trusts her. Yuge liar.”

   

  Trump will bob, weave, jab, and hook. He won’t let up. And because Clinton actually has lied, and actually did vote for the Iraq War, and actually is hyper-cosy with Wall Street, and actually does change her positions based on expediency, all she can do is issue further implausible denials, which will further embolden Trump. Nor does she have a single offensive weapon at her disposal, since every legitimate criticism of Trump’s background (inconsistent political positions, shady financial dealings, pattern of deception) is equally applicable to Clinton, and he knows how to make such things slide off him, whereas she does not.

  Here’s another example. If Hillary tries to hit Trump on his Mexican/Muslims comments, Trump can accurately point out she called inner city blacks “super predators.”

  Nor are the demographics going to be as favorable to Clinton as she thinks. Trump’s populism will have huge resonance among the white working class in both red and blue states; he might even peel away her black support. And Trump has already proven false the prediction that he would alienate Evangelicals through his vulgarity and his self-deification. Democrats are insistently repeating their belief that a Trump nomination will mobilize liberals to head to the polls like never before, but with nobody particularly enthusiastic for Clinton’s candidacy, it’s not implausible that a large number of people will find both options so unappealing that they stay home.

  Yep, many Sanders supporters will never vote for Hillary. In fact, more than a few will vote for Trump.

  Trump’s various unique methods of attack would instantly be made far less useful in a run against Sanders. All of the most personal charges (untrustworthiness, corruption, rank hypocrisy) are much more difficult to make stick. The rich history of dubious business dealings is nonexistent. None of the sleaze in which Trump traffics can be found clinging to Bernie. Trump’s standup routine just has much less obvious personal material to work with. Sanders is a fairly transparent guy; he likes the social safety net, he doesn’t like oligarchy, he’s a workaholic who sometimes takes a break to play basketball, and that’s pretty much all there is to it. Contrast that with the above-noted list of juicy Clinton tidbits.

   

  Trump can’t clown around nearly as much at a debate with Sanders, for the simple reason that Sanders is dead set on keeping every conversation about the plight of America’s poor under the present economic system. If Trump tells jokes and goofs off here, he looks as if he’s belittling poor people, not a magnificent idea for an Ivy League trust fund billionaire running against a working class public servant and veteran of the Civil Rights movement. Instead, Trump will be forced to do what Hillary Clinton has been forced to do during the primary, namely to make himself sound as much like Bernie Sanders as possible. For Trump, having to get serious and take the Trump Show off the air will be devastating to his unique charismatic appeal.

   

  Trump is an attention-craving parasite, and such creatures are powerful only when indulged and paid attention to. Clinton will be forced to pay attention to Trump because of his constant evocation of her scandals. She will attempt to go after him. She will, in other words, feed the troll. Sanders, by contrast, will almost certainly behave as if Trump isn’t even there. He is unlikely to rise to Trump’s bait, because Sanders doesn’t even care to listen to anything that’s not about saving social security or the disappearing middle class. He will almost certainly seem as if he barely knows who Trump is. Sanders’s commercials will be similar to those he has run in the primary, featuring uplifting images of America, aspirational sentiments about what we can be together, and moving testimonies from ordinary Americans. Putting such genuine dignity and good feeling against Trump’s race-baiting clownishness will be like finally pouring water on the Wicked Witch. Hillary Clinton cannot do this; with her, the campaign will inevitably descend into the gutter, and the unstoppable bloated Trump menace will continue to grow ever larger.

   

  Of course, the American people are still jittery about socialism. But they’re less jittery than they used to be, and Bernie does a good job portraying socialism as being about little more than paid family leave and sick days (a debatable proposition, but one beside the point.) His policies are popular and appeal to the prevailing national sentiment. It’s a risk, certainly. But the Soviet Union bogeyman is long gone, and everyone gets called a socialist these days no matter what their politics. It’s possible that swing voters dislike socialism more than they dislike Hillary Clinton, but in a time of economic discontent one probably shouldn’t bet on it.

   

  But even if it was correct to say that Sanders was “starting to” lose (instead of progressively losing less and less), this should only motivate all Democrats to work harder to make sure he is nominated. One’s support for Sanders should increase in direct proportion to one’s fear of Trump.

   

  And if Trump is the nominee, Hillary Clinton should drop out of the race and throw her every ounce of energy into supporting Sanders. If this does not occur, the resulting consequences for Muslims and Mexican immigrants of a Trump presidency will be fully the responsibility of Clinton and the Democratic Party. To run a candidate who can’t win, or who is a very high-risk proposition, is to recklessly play with the lives of millions of people. So much depends on stopping Trump; a principled defeat will mean nothing to the deported, or to those being roughed up by Trump’s goon squads or executed with pigs’ blood-dipped bullets.

  Trump vs. Clinton will appear to most Americans as a choice between something new and risky, and something old and corrupt. In 2016, who do you think the public will choose?

  If Democrats foolishly nominate Hillary Clinton, they will be the only ones to blame for a Trump Presidency.

  

  

  

  

  

• Jihadists Are Selling CIA-Supplied Weapons On Facebook

  Once upon a time, roughly two year ago, the US would vehemently deny that any of its weapons made their way to ISIS, Al Nusra, and the various other jihadist groups operating in the middle east and which the US is, supposedly, targeting for eradication as part of the Syria proxy war. Then, little by little it was revealed that not only is the US not targeting said groups, which led to the Russian bombing campaign unleashed in September, but that it was actively arming them.

  And nowhere is this more obvious than in a Facebook page called “The first weapons market in the Idleb countryside” which showcases posts with photographs of weapons, claimed to be CIA-supplied, inviting buyers to contact page administrators privately using popular messaging application Whatsapp to discuss sales and transactions.

  

  Think of it as a Alibaba for ISIS, in which the CIA is the main supplier.

  As The Foreign Desk News’ Lisa Daftari explains, Jihadists in Syria are using Facebook as a marketplace to buy, sell and barter a wide variety of American-made weapons and munitions ranging from rocket launchers to machine guns.

  An AGS-17 Soviet-era grenade launcher is listed for $3,800 and below that a thermal camera made by Oregon-based company FLIR, is listed alongside posts advertising the sale of 105mm cannon shells.

  Weapons like TOW and MANPAD missile launchers, which the CIA has provided to rebel groups in Iraq and Syria, and can pose serious threats to civilian and military jets, are also advertised on the page.

  Throughout the course of the Syrian Civil War, efforts by the U.S. to arm so-called “moderate rebels” with heavy weapons have largely fallen flat due to fears that they will end up with groups such as Al Qaeda or even ISIS.

  Buyers can also make requests for specific weapons, as one post on the page says, “Quick friends, I need a gun with a silencer.”

  Page members are linked to jihadist groups Ahrar Al-Sham and the Islamic Front, the former allegedly linked to Al-Qaeda

  

  

  

  

  

• Guest Post: Will A "Socialist" Government Make Americans Freer?

  Submitted by Jason Kuznicki via Foundation for Economic Education,

  “Socialism” is a weasel word.

  Consider that the adjective “socialist” applies commonly — even plausibly — to countries with vastly different ex ante institutions and with vastly different social and economic outcomes. Yet Canada, Norway, Venezuela, and Cuba can’t all be one thing. Does socialism mean substantial freedom of the press, as in Norway? Or does it mean the vicious suppression of dissent, as in Venezuela?

  We need more clarity here before we decide whether socialism is a worthwhile social system, and whether, as Will Wilkinson recommends, we ought to support a socialist candidate for president.

  An approach that clearly will not do is to apply the term “socialism” to virtually all foreign countries. Shabby as that definition may be, some do seem to use it, both favorably and not. The result is that “socialism” has grown popular largely because a lot of people have concluded that the American status quo stinks. Maybe it does stink, but that doesn’t endow “socialism” with a proper definition.

  Let’s see what happens when we drill down to the level of institutions.

  Now, we might personally wish that the word “socialism” meant “the social system in which the state owns the means of production and runs the major industries of the nation.”

  This is a workable definition: It has a clear genus and differentia; it includes some systems, while excluding others; and it’s not obviously self-referential. It’s also the definition preferred by many important political actors in the twentieth century, including Vladimir Lenin.

  Lenin’s definition was not a bad one. But it’s far from the only current, taxonomically proper definition of socialism. As Will Wilkinson rightly notes, socialism also commonly means “the social system in which the state uses taxation to provide an extensive social safety net.”

  And yet, as Will also notes, “ownership of the means of production” and “provision of a social safety net” are logically independent policies. A state can do one, the other, both, or neither. Of these four possibilities, there’s only one that can’t plausibly be called a socialism — and not a single state on earth behaves this way!

  Better terms are in order, but I know that whatever I propose here isn’t going to stick, so I’m not going to try. Instead I want to look at some of the consequences that may arise from our fuzzy terminology.

  One danger is that we may believe and support one conception of “socialism” — only to find that the agents we’ve tasked with supplying it have had other ideas all along: We may want Norway but get Venezuela. Wittingly or unwittingly.

  Before we say “oh please, of course we’ll end up in Norway,” let’s recall how eager our leftist intelligentsia has been to praise Chavez’s Venezuela — and even declare it an “economic miracle” — until the truth became unavoidable: The “miracle” of socialism in Venezuela turned out to be nothing more than a transient oil boom. Yet leftist intellectuals are the very sorts of people who will be drawn, by self-selection, to an administration that is proud to call itself socialist.

  There’s some resemblance to a “motte-and-bailey” process here: they cultivate the rich, desirable fields of the bailey, until they are attacked, at which point they retreat to the well-fortified motte. The easily defensible motte is the comfortable social democracy of northern Europe, which we all agree is pretty nice and happens to have quite a few free-market features. The bailey is the Cuban revolution.

  This motte-and-bailey process does not need to be deliberate; it may be the result of a genuinely patchwork socialist coalition. No one in the coalition needs to have bad faith. An equivocal word is all that’s needed, and one is already on hand.

  Even when we look only at one country, the problem remains: We may only want some institutional parts of Denmark — and we may want them for good reasons, such as Denmark’s relatively loose regulatory environment. But what we get may only be the other institutional parts of Denmark — such as its high personal income taxes. (Worth noting: Bernie Sanders has explicitly promised the higher personal income taxes, while his views on regulation are anything but Danish.)

  Will thinks that electing someone on the far left of the American political spectrum could be somewhat good for liberty, but I’m far from convinced. Remember what happened the last time we put just a center-leftist in the White House: By the very same measures of economic freedom that Will uses to tout Denmark’s success, America’s economic freedom ranking sharply declined. And that decline was the direct result of Barack Obama’s left-wing economic policies. We got a larger welfare state and higher taxes, but we also got much more command-and-control regulation.

  Faced with similar objections from others, Will has already performed a nice sidestep: He has replied that voting for Sanders is — obviously — just a strategic move: “Obviously,” he writes, “President Bernie Sanders wouldn’t get to implement his economic policy.” Emphasis his.

  To which I’d ask: Do you really mean that Sanders would achieve none of his economic agenda? At all? Because I can name at least two items that seem like safe bets: more protectionism and stricter controls on immigration. A lot of Sanders’s ideas will indeed be dead on arrival, but these two won’t, and he would be delighted to make a bipartisan deal that cuts against most everything that Will, the Niskanen Center, and libertarians generally claim to stand for. Cheering for a guy who would happily bury your legislative agenda, and who stands a good chance of actually doing it seems… well, odd.

  There is also a frank inconsistency to Will’s argument: The claim that Sanders will make us more like Denmark can’t be squared with the claim that Sanders will be totally ineffective. Arguing both is just throwing spaghetti on the wall — and hoping the result looks like libertarianism.

  Would Sanders decriminalize marijuana? Or reform the criminal justice system? Or start fewer wars? Or spend less on defense? Or give us all puppies? I don’t know. Obama promised to close Guantanamo. He promised to be much better on civil liberties. He promised not to start “dumb wars” or bomb new and exotic countries. He even promised accountability for torture.

  In 2008, I made the terrible mistake of counting those promises in his favor. We’ve seen how well that worked out.

  It’s completely beyond me why I should trust similarly tangential promises this time around — particularly from a candidate like Sanders, whose record on foreign policy is already disturbingly clear. None of the rest of these desiderata have anything to do with state control over our economic life, which would appear to be the one thing the left wants most of all. (Marijuana: illegal in Cuba. Legal in North Korea. Yay freedom?)

  Ultimately, I think that electing someone significantly further left than Obama will not help matters in any sense at all, except maybe that it will show how little trust we should put in anyone who willingly wears the socialist label. The only good outcome of a Sanders administration may be that we’ll all say to ourselves afterward: “Well, we won’t be trying that again!”

  Now, I am prepared to believe, exactly as Will writes, that “‘social democracy,’ as it actually exists, is sometimes more ‘libertarian’ than the good old U.S. of A.” That’s true, at least in a few senses. Consider, for instance, that Denmark isn’t drone bombing unknown persons in Pakistan using a type of algorithm that can’t seem to deliver interesting Facebook ads. (One could say that, as usual, Denmark is letting us do their dirty work for them, with their full approval, but I won’t press the point.)

  Either way, that’s still a pretty low bar, no? Meanwhile, there remains plenty of room for us to imitate some other bad things — things that we aren’t doing now, but that Denmark is doing, like taxing its citizens way, way too much. The fact that these things are a part of the complex conglomerate known as northern European social democracy doesn’t necessarily make them good, exactly as remote control assassination doesn’t become good merely by virtue of being American.

  In short: Point taken about social democracy. At times, some of it isn’t completely terrible. But that only gets us so far, and not quite to the Sanders slot in the ballot box.

  It seems interest in "socialism" is peaking once again…

   

  

  

  

  

  

• The 10th GOP Debate Begins: And Then There Were 5 – Live Feed

  With the field down to the fantastic five, tonight's GOP debate – the last chance to hatchet your opponent before Super Tuesday – should be a real deathmatch. With The Donald so far ahead, Kasich and Carson have nothing to lose and Rubio and Cruz will be lobbing soundbite-grenades at one another as well as taking aim at Trump. In light of Trump's comments on Tuesday night, "it's going to be an amazing two months… we might not even need the two months, folks, to be honest," the gloves must come off.

  Dead men walking?

  

   

  How @realDonaldTrump dominates America as #GOPdebate gets underway. More #realtime data:https://t.co/0I2QNqjWOW pic.twitter.com/9Yf20VnHd3

  — GoogleTrends (@GoogleTrends) February 26, 2016

   

  Carson goes negative early… "Our nation is heading off the abyss of destruction."

  The debate is due to start at 830ET (Live Feed)

   

  And considering a key topic of the debate will be illegal immigration, here is a feed in Spanish.

   

  And finally, what it all really means…

  

  

  

  

  

• R.I.P. M&A Boom: Goldman Fails To Get $2 Billion LBO Deal Done Even At Double-Digit Yields

  Make no mistake, there are any number of landmines that threaten to send global markets into a veritable tailspin. There’s the risk of further weakness (and volatility) in crude, there’s the risk that China suddenly decides on a one-off RMB deval, there’s the risk that someone makes a “mistake” in Syria and triggers a global conflict, etc.

  You know the drill.

  But when it comes to identifying what’s most likely to present a major problem (i.e. the risk factor that has the best chance of playing out and wreaking havoc) one would be inclined to say that a junk bond meltdown is a good candidate.

  The influx of money into HY – attributable in part to the proliferation of more esoteric ETFs and investors’ never-ending quest for yield – has gone a long ways towards keeping primary markets open to distressed issuers. Like US O&G companies who, by virtually of their persistent cash flow shortfalls, are for all intents and purposes perpetually insolvent and rely solely on capital markets to fill their funding gaps.

  Well now, the party is over and the energy defaults are beginning, which means capital markets for junk bonds have slammed shut. Need proof? Have a look:

  

  On Thursday, we got still more evidence that the market’s appetite for junk is waning when Goldman ran into trouble trying to get the financing done for the Vista/Solera deal. 

  Solera – which is being sold to PE Vista Equity Partners – didn’t have any trouble with a $1.9 billion leveraged loan offering last week (it was actually oversubscribed), but when Goldman tried to price $2 billion in bonds intended to help fund the LBO, things got dicey. Goldman was already figuring on pricing it at 10.75% -11% (which is obviously a rather punishing rate in the first place and was up from initial guidance of 10%) but by this morning, the bank had only managed to drum up about $1 billion in interest, causing pricing expectations to move above the expected range. 

  “The difficulties are the latest sign that it is getting harder for heavily indebted companies to borrow,” WSJ noted this afternoon. “Junk-rated firms have issued just $11.6 billion in bonds so far this year, down from $48.5 billion during the same period last year and the lowest total since 2009 during the depths of the financial crisis, according to Dealogic.”

  As The Journal goes on to note, this wasn’t the first sign that things are starting to fall apart. “In recent weeks, LeasePlan International NV shelved a €1.55 billion ($1.71 billion) bond sale after failing to get enough investor interest. Banks were forced to fund Endurance International Group Holdings Inc.’s acquisition of email-marketing firm Constant Contact Inc. after failing to find buyers for $1.1 billion of buyout debt.”

  So, yeah. You can kiss the M&A boom goodbye, because it won’t be long before HY blows up completely and the contagion spreads to IG, creating a whole host of “fallen angels” who will then also lose market access, and so on, and so forth in a messy default cycle that will not only make this year far, far worse for mergers than last year’s $4.3 trillion bonanza, but will also spell doom for any junk-rated corporates that need to refinance to stay afloat. 

  As for the Solera deal – better luck tomorrow. Maybe make it 12% and give investors the weekend to think it over.

  

  

  

  

  

• A Teachable Moment: The Young Person Complaining About Her Job At Yelp Discovers Real Minimum Wage Is $0

  Submitted by Charles Hugh-Smith vis OfTwoMinds blog,

  You identified two problems but do not propose any solutions to either one; and you missed the two real problems.

  This open letter from a young customer support employee of Yelp in San Francisco to her CEO has garnered a variety of comments that display a common bifurcation: some are sympathetic to her struggle to get by in a very costly region on a modest salary, while others wonder if the letter is an Onion parody of clueless entitlement: An Open Letter To My CEO.

  I am sympathetic to anyone who arrives in a very competitive "big city" with no local contacts and not a lot of experience or specialized training. That describes me when I arrived in the San Francisco Bay Area a few decades ago.

  My B.A. is in philosophy, which has a similar market value to your degree in English, i.e. near-zero. But this doesn't mean my training in philosophy has no value; it simply means you can't walk up to a potential employer and say, "Hi, I have a degree in philosophy, hire me."

  The value is only reaped by applying what you have learned. Studying philosophy taught me a number of specific analytic skills: to seek out false assumptions and identify problems and potential solutions. If you can't frame the problem accurately and coherently, it's impossible to identify any useful solutions.

  These skills have served me well, despite my "worthless" degree. Though nobody had any sound reason to pay me a lot of money simply because I had a B.A. in philosophy, life presents a constant flow of problems that need to be analyzed in ways that enable the development of solutions.

  In other words, there is a super-abundance of opportunities to apply what I learned.

  Taking my own experience as an employee, employer, business owner and entrepreneur, I've condensed what I've learned about creating value (i.e. earnings) and the emerging economy into a book: Get a Job, Build a Real Career and Defy a Bewildering Economy.

  It is less a career-guidance book and more of an explanation of how the economy actually works. It covers the eight essential skills you need to successfully navigate the economy as it is, not as we wish it was.

  Rather than tell you the book is useful, I'll apply what's in it.

  I don't think your age, gender, ethnicity, etc. is relevant. Anyone can apply what I'm sharing.

  You have identified what you perceive as your two big problems: the cost of living in the S.F. Bay Area is very high, and your pay is too modest to enable the lifestyle you anticipated/expected.

  You identified these two problems but do not propose any solutions to either one; and you missed the two real problems. Problems don't solve themselves; problem-solving requires analysis, diligence and a willingness to learn from others, to experiment and fail–not once, but continually.

  You did not identify the third problem: your expectations are completely mis-aligned with reality. The S.F. Bay Area is one of the most attractive, stimulating, dynamic urban regions in the world, and it attracts capital and talent from all over the globe.

  The demand to live and work here outstrips the supply of dwellings and high-paying jobs, so the costs of living are very high and the pay for labor is low unless you're able to take advantage of specific skills or social contacts.

  Many of the people who come here seeking work are highly educated, experienced, creative, ambitious, hard-working, dedicated, etc., and many possess enviable social skills (social capital).

  If you intend to find work here (i.e. if you don't have a large monthly income from a trust fund), you will be competing against extremely competitive, ambitious people, many of whom focus not on the hardships but on the opportunities. Expecting to outcompete these people for a high-paying job is unrealistic unless you have competitive skills, a strong work ethic, abundant social and human capital, etc.

  Whatever you lack, you will have to acquire in order to be competitive in this environment.

  if you want a degree that opens doors, earn a PhD in EE/CS from UC Berkeley or Stanford, or get top marks in your Stanford/Haas School (UCB) MBA program.

  For the rest of us mere mortals, credentials don't offer much advantage, as this is one of the most over-credentialed locales on the planet.

  The question is: what can you do to create value? It's not so much a matter of having job skills or experience; it's how those can be applied to create value–either for your employer or for your own enterprise.

  So the real problem you have is: what can you do to increase your value creation and thus your earnings? "Unfair" doesn't count. Labor has a market value, end of story. Unfortunately, there is an oversupply of labor around the world and a scarcity of high-paying jobs.

  It may seem like there is an abundance of high-paying jobs in the Bay Area because we're in the bubble factory of the world, but this is only a reflection of frothy VC-fueled valuations of zero-profit companies and highly paid employees' ability to make their employers obscene amounts of money.

  if you want to earn $100,000, you need to bring in $500,000 in revenues for your employee, minimum.

  The second problem you have is: what can you do to dramatically lower your cost of living? Since you didn't properly identify the actual problems, you were incapable of finding solutions. Now that we've identified your real problems, we can seek solutions.

  As for living costs: your goal should be to live on one of your two paychecks a month: $733. Immigrants often get by on low-paying jobs and yet manage to buy a house and pay the mortgage off in five years. They do this by sharing expenses. If you want a very low-cost lifestyle, try befriending immigrants in your social circle (or add them to your circle). Someone will likely know someone in their extended group who has a room for rent (in a house they're buying by pooling six adults' modest wages).

  As for food–shop only in Chinatown or ethnic markets. If you are careful and observe what the older ladies are buying, you will not be able to carry $20 of groceries. Just recently, I bought two pounds of beautiful tangerines for $1 in Chinatown and wonderfully fresh yao-choy veggies for less than $2. Many fish are available for $2 or $3 a pound; if you're vegan, pressed tofu is a cheap substitute for meat.

  Asian-style cooking only uses a few ounces of meat/meat substitute anyway.

  A carton of black beans used for seasoning (it adds umami) will cost you $1.29, and last you a year. A jar of chili bean sauce (a teaspoon enlivens a dish most wonderfully) costs $2.29.

  You get the point: learn to cook vegetable-based meals and your costs to eat gourmet food will drop under $100 per month. A pound of beans and some Asian veggies will feed you for a week, and with some cheap seasoning, it will be delicious.

  We eat better at home for $150 than people who spend $2,000 a month eating out. Anybody can learn how to cook with low-cost ingredients on YouTube University. Make a pot of spicy dal, experiment.

  If you don't have any family to share expenses with, form a family-type group of responsible, honest friends. Rent a house with them, make some basic good-neighbor rules, and kick out whomever fails to fulfill their duties and responsibilities. It will be good experience for running your own enterprise.

  Here is my version of a letter you could have sent Yelp's CEO:

  Dear CEO:

   

  I know you're busy, but I have two ideas that will immediately lower the costs of providing customer support while boosting productivity and employee retention.

   

  After three months in customer support, I've observed that a few employees have developed ways to handle customer issues quickly and with relatively few coupons. Others solve customer issues by throwing coupons at everyone.

   

  I've developed a brief, concise training program that would give every customer support employee the tools to resolve customer problems more efficiently and at lower cost than the present system.

   

  If customer support teams were able to earn bonuses based on their improved productivity and lower costs, this would immediately improve employee retention, at a modest cost that would be more than paid for by higher productivity.

   

  The benefits from these two ideas would be immediate. I am hoping you can get me fifteen minutes with the V.P. of customer support to present my training/productivity ideas, and I'm excited by the possibility that we could make dramatic improvements with a modest investment of time and virtually no capital costs.

   

  Sincerely,

  Yelp Employee

  cc: V.P. of customer support

  Which letter do you think would be more effective in accomplishing your goal of earning more money–your letter or my letter? As management guru Peter Drucker noted, businesses don't have profits, they only have expenses. Value creation boils down to cutting costs, boosting revenues and increasing productivity.

  This is as true of a sole proprietorship as it is of a major corporation.

  If the management of Yelp failed to show interest in your letter/proposal and did not even hear you out, you learned a very important lesson:

  Yelp's management is incompetent and/or dysfunctional, and there is no opportunity for you at Yelp. This new knowledge clarifies your solution: find a job at a company/agency that is open to new ideas and is thus a place where you might be able to contribute value and grow your own human/social capital–and your earnings.

  If you want to be in PR/media, start designing media/PR campaigns for small businesses for free. Most won't have any social media exposure; they will welcome your efforts to boost their revenues/customer base.

  This is your job from hour 41 (after your full-time gig) to hour 55. Convincing small businesses to give you, an inexperienced person with no track record, hard cash, will be difficult; convincing them to let you design and produce a social-media campaign and share any increase in revenues with you is a much easier sell, because you're taking the risks: if the campaign flops, you earn nothing, and the business owner isn't out any cash.

  But you will have learned a lot by the time you run 10 or 20 such campaigns, and if you do a good job, are honest, forthright and do what you say you're going to do, you'll assemble a useful network of contacts that will lead to opportunities you cannot anticipate.

  There is much more in my book, but I hope you've learned something that can be applied to your future endeavors from this Teachable Moment.

  

  

  

  

  

• Demand For Big Bills Soars As Japan Stuffs Safes With 10,000-Yen Notes

  Earlier this week, we were amused but not at all surprised to learn that Japanese citizens are buying safes like they’re going out of style.

  The reason: negative rates and the incipient fear of a cash ban. “Look no further than Japan’s hardware stores for a worrying new sign that consumers are hoarding cash–the opposite of what the Bank of Japan had hoped when it recently introduced negative interest rates,” WSJ wrote. “Signs are emerging of higher demand for safes—a place where the interest rate on cash is always zero, no matter what the central bank does.”

  

  Put simply, the public has suddenly become aware of what it means when central banks adopt negative rates. The NIRP discussion escaped polite circles of Keynesian PhD economists long ago, and now it’s migrated from financial news networks to Main Street.

  Although banks have thus far been able to largely avoid passing on negative rates to savers, there’s only so long their resilience can last. At some point, NIM will simply flatline and if that happens just as a global recession and the attendant writedowns a downturn would entail occurs, then banks are going to need to offset some of the pain. That could mean taxing deposits.

  As we noted on Monday, circulation of the 1,000 franc note soared 17% last year in Switzerland in the wake of the SNB’s plunge into the NIRP Twilight Zone.  As it turns out, demand for big bills is soaring in Japan as well.

  “Demand for 10,000-yen bills is steadily rising in Japan, even as the nation’s population falls and the use of credit cards and other forms of electronic payment increases,” Bloomberg writes. “While more cash might sound like a good thing, some economists are concerned that it shows Japanese households are squirreling away money at home instead of investing it or putting it into bank accounts — where it can make its way back into the financial system and be put to productive use.”

  

  One safe maker who spoke to Bloomberg said safe shipments have doubled over the last six months. While part of the demand for safes is likely attributable to the country’s new “My Number” initiative, “the negative-rate policy is likely to intensify the preference of Japanese households to keep cash at home,” Hideo Kumano, an economist at Dai-ichi Life Research Institute said. “Overall, the trend of more cash at home reflects concern about the outlook for economy among households. This isn’t a good thing.”

  No, it’s not. And just wait until the Japanese (and European) public makes the connection between NIRP and the cash ban calls. That is, once average people grasp the concept of the effective lower bound and then figure out that a cashless society will allow policymakers to dictate economic outcomes by robbing the public of its economic autonomy, it will be time to break out the torches and the pitchforks. 

  We suppose it’s time for Kuroda to propose banning the 10,000-yen note. You know, to deter the Yakuza…

  

  

  

  

  

  

• An Escalating War On Cash Threatens The Stability & Tranquility Of Developed Societies

  Submitted by John Browne via Euro Pacific Capital,

  On February 16th, The Washington Post printed the article, “It’s time to kill the $100 bill.” This came on the heels of a CNNMoney item, the day before, entitled “Death of the 500 euro bill getting closer.” The former cited a recent Harvard Kennedy School working paper, No. 52 by Senior Fellow Peter Sands, concluding that the abolition of high denomination notes would help deter “tax evasion, financial crime, terrorist finance and corruption.” In recent days, former Treasury Secretary Larry Summers, ECB President Mario Draghi, and even the editorial board of the New York Times, came out in support of the elimination of large currency notes. Apart from the question as to why these calls are being raised now with such frequency, the larger issue is whether these moves are actually needed or if they merely a subterfuge for more complex economic manipulations by central banks to extend control over private wealth.

  In early 2015, it was reported that Spain had already limited private cash transactions to 2,500 euros. Italy and France set limits of 1,000 euros. In France, all cash withdrawals in excess of 10,000 euros in a single month must be reported to government agencies. In the U.S., such limits are $10,000 per withdrawal. China, India and Sweden are among those with plans under way to eradicate cash.

  On April 20, 2015, the Mises Institute reported that Chase, a subsidiary of JPMorgan Chase and a bailout recipient of some $25 billion (ProPublica, 2/22/16), had announced restrictions on its customers’ ability to use cash in the payment of credit cards, mortgages, equity lines and auto loans. Before that, on April 1, 2015, Chase, in concert with JPMorgan, updated its safe deposit box lease agreement to provide, “You agree not to store any cash or coins [including gold and silver] other than those found to have a collectible value.”

  The war on cash unquestionably has extended from government into the private banking sector. But the public is predominantly unaware of the ever-increasing encroachment into individual privacy and freedom.

  On February 5, 2016, The New York Times reported, “the United States could face a new recession in 2016 due to a ‘perfect storm’ of economic conditions.” Ten days later, in an introductory statement, Draghi told a European Parliamentary Committee that, “In recent weeks, we have witnessed increasing concerns about the prospects for the global economy.”

  When consumers worry about the economy, unemployment and their own finances, spending on non-essentials diminishes. Caution results also in paying down loans and hoarding cash.

  When economic growth falters, central banks lower interest rates and inject funds into the economy. But if consumer confidence falls further, cash hoarding causes a fall in the velocity of money. This stimulates central banks to discourage the hoarding of cash by introducing negative interest rates to force deposits out of banks. On February 10th, during her congressional testimony, Fed Chair Janet Yellen admitted that there had been a discussion but never fully researched “the legal issues”. However, her Vice-Chair, Stanley Fischer, already had told the Council on Foreign Relations, nine days earlier, that the Fed had discussed negative rate policy all the way back in 2012.

  Should negative rates fail to force funds out of banks, governments may look to limit, and even forbid, the use of cash in large transactions. This is tantamount to a war on cash as part of an effort to eliminate citizens’ control over their wealth.

  Furthermore, a war on cash could extend even to seizure of cash deposits under certain circumstances. The confiscation of bank deposits may seem remote to Americans. However, the 2013 Cypriot banking crisis exposed the new central bank stance of ‘bail-ins’ whereby deposits could now be frozen and even confiscated to rescue a bank!

  Most of the great economic growth and apparent prosperity of the past 45 years, since the U.S. broke its dollar’s last link to gold, has been financed by credit-unimaginable trillions of dollars of credit. At the heart of this massive credit system are the banks.

  The current collapse of oil prices places pressure on the sovereign wealth funds of oil-rich nations to reduce deposits and to sell securities. Lower deposits reduce the banks’ ability to lend and generate profits. If, simultaneously, a shrinking economy leads to bankruptcies and non-performing loans, banks would appear not only less profitable, but increasingly risky. Currently, banks are experiencing many of these pressures, which threaten a credit shortage just when it is needed most to boost confidence. This helps to explain why the current downturn in markets is being led by the financial sector.

  To help make sure that depositors’ money stays in banks despite the negative rates, governments have proposed measures to eradicate opportunities to pay in cash. These measures are camouflaged politically as ‘protective’ means against money laundering, especially by terrorists.

  But perhaps the most insidious of government motivations to ban cash is to increase the capability of surveillance over all spending by citizens and corporations. Undoubtedly, this makes it harder for anyone to shield income from the taxman, but it also makes it more difficult to achieve any type of anonymity in the marketplace. Soon there may be no legal place to shield legitimate wealth or spending patterns from the eyes of politicians.

  Negative interest rates combined with the eradication of cash appear as a desperate attempt to control global private wealth.

  Jamie Dimon is one of the world’s most astute and powerful individual bankers. On February 11th, he invested some $26.6 million in the depressed stock of his bank, JPMorgan Chase. Reported as demonstrating confidence, it may be that Dimon sees the stock price recovering strongly when it is realized more widely just how much the banks might benefit from negative rates and the erosion of cash held privately outside the banks.

  President Nixon’s decision to unilaterally abolish the last remnants of a gold standard in 1971 heralded a nuclear age for international trade in which nations looked to gain advantage through serial debasement of their currencies and make up the difference with massive debt creation, unfettered by any link to gold. Similar to the nuclear strategy of mutually assured destruction, it set international trade on a course of mutually assured economic destruction.

  The size and scope of the political, economic and financial problems that now challenge the relative stability and tranquility of developed societies are unprecedented. Should the war on cash prove unsuccessful in its early stages, banks could be closed for long periods.

  Investors should be aware of such possibilities and consider whether to hold cash and precious metals prudently outside the banking system. Better to be even months too early than a second too late should we be left facing a bank’s closed doors.

  

  

  

  

  

• Afghan Refugee Takes Class On "How To Behave With Women", Promptly Rapes Belgian Woman

  As we reported earlier today, European officials have essentially put an expiration date on the EU as we know it. It’s 10 days from now.

  That’s when a team from Brussels will convene a summit with Turkey to discuss a coordinated response to the refugee crisis that threatens to plunge the bloc into “anarchy” (to quote Jean Asselborn, Luxembourg’s foreign minister). As the weather starts to improve, Europe fears even more asylum seekers will attempt to make the journey, straining Schengen to the breaking point.

  Compounding the crisis is the increasingly negative perception Europeans have of refugees. As we wrote recently, Europe was remarkably resilient in the wake of the Paris attacks as people seemed to view the tragedy more as a symbol of why migrants are fleeing the Mid-East than as an omen of what they’d be exporting to Western Europe.

  The goodwill faded however, following a series of alleged sexual assaults early last month and before you knew it, reports were coming in from all over the bloc that seemed to suggest quite a few male refugees had a penchant for rape. Needless to say, most officials were quick to contend that one (or two, or 50) bad apples shouldn’t be allowed to spoil the whole bushel, but others, like far-right Dutch politician Geert Wilders (who called for Arab “testosterone bombs” to locked in asylum centers) weren’t so forgiving.

  The death of a 22-year-old Swedish asylum center worker at the hands of a Somali migrant and the rape of a 10-year-old boy by an Iraqi refugee who blamed the act on a “sexual emergency,” haven’t helped. 

  

  (22-year-old Alexandra Mezher was stabbed to death by a 15-year-old migrant at an asylum center)

  European officials have proven completely inept when it comes to tackling the problem. Germany and Austria, for instance, attempted to create integration programs designed to teach asylum seekers about European societal norms. The classes touch on everything from how not to enter rooms with closed doors without knocking to where it is and isn’t acceptable to urinate. 

  Some countries have also dreamed up some amusing cartoons that illustrate what’s acceptable behavior both in everyday life and at the swimming pool, where refugees have a particularly hard time understanding how to behave. 

  

  Belgium also offers courses in proper behavior but apparently, they aren’t especially effective. We say that because as RT reports, “a 16-year-old Afghan refugee, who had recently taken a course on how to behave towards women, has been charged with raping a female employee at a refugee shelter in Belgium.”

  The attack took place in Menan, near the French border where the child has been staying for five months. 

  Two weeks before the incident took place, the boy apparently attended a class on how men should treat women in polite society. The class was taught by Red Cross Flanders. 

  “When a minor comes to Belgium and when a minor comes to a center of the Red Cross Flanders, we teach them two things: first thing is sexual education… sometimes we are talking about children who are 14, 15, 16 years old. Without parents, they do not know anything,” a spokeswoman for Red Cross told RT.

  “We also have to explain what the normal ways of treating women here in Flanders [are],” she added.

  Now, we’re not sure what “the normal ways of treating women in Flanders” are, but we’re reasonably certain they don’t involve taking caterers into the basement and raping them which is apparently what this young man did. “He already had an eye on her for quite some time, when he followed her into the basement,” the Red Cross explained. ” The victim worked for a catering company that cooks for the center.

  We’re reminded of what Markus Wallner, the head of Austria’s western Vorarlberg region said about the chances that integration courses will ultimately be successful: “Let’s not delude ourselves.”

  Tom Van Grieken, leader of the Belgian anti-immigrant party Vlaams Belang, isn’t “deluded.” Here’s what he had to say about the incident: “People who need a course on how to treat women should not be there in the first place.”

  

  

  

  

  

• Albert Edwards Is In Love With This Asset That Hasn't Had A Losing Year Since 2007

  Albert Edwards is in love, but what makes it somewhat awkward is that the object of his affection is not living flesh and blood but a major asset, one which he calls “probably the most fantastic investment of the last decade”, and one which so many others have called the “widowmaker” for the simple reason that they have shorted it, shorted it again, and shorted it some more, only to always lose money because as their adversary that have the most irrational, most childish and most desperate central bank in the world: the Bank of Japan.

  The security in question is the 10 Year Japanese Bonds (JGB), and what makes it fascinating, is that according to Edwards, it has not had a down year since 2007!

  Here is Edwards explaining his love for the JGB:

  Name me a major asset that has not seen one single yoy decline since the start of 2007? Clearly not equities or commodities. What about bonds? Again clearly not corporate bonds. What about 10y government bonds? I?ll give you a clue. It?s not the US, UK or Germany, all which saw negative yoy returns, most notably in 2013.

   

  The only major asset to have seen continuous positive yoy returns since before the Global Financial Crisis is 10y Japanese bonds, now yielding -0.06%. In a world of negative policy rates, I am scratching my increasingly bald head as to where, if anywhere, yields will bottom. Why bother with global equities when you can own the JGB (see below)?!

   

  

   

   

  Japanese 10y bond yields yesterday crashed below zero to a record low of minus 0.06%. How low can they go? And having followed Swiss bond yields into negative territory (Swiss 10y yields currently stand at -0.5%), is this a shape of things to come for the US and Europe? Japanese 10y bonds, as I highlighted on the front cover, are the only major global asset class that have not seen a negative yoy return at any time since the Global Financial Crisis at the start of 2007 (see chart below comparing Japanese 10y total return to US and German 10y).

   

  

   

  To be sure, Edwards remains very bearish on the economy and the stock market, which is also why he is very bullish on bonds, and especially those of Japan because he thinks the NIRP farce has only just begun, and the result will be far more negative rates, and thus soaring prices:

  I believe that the next recession will bring deeply negative rates, however damaging it might be to bank profits, and I see central banks implementing restrictions for holding cash. And as Vincent Chaigneau, SG?s head of bond strategy, pointed out to me a few days ago when the US 10y Note was 1.68%, ?If in one year that same note (then a 9y) trades at minus 0.32% (down 200bp) then the T-Note will have delivered a total return of 19%. Not bad indeed!

  Is Edwards right? Well, Kyle Bass would disagree, but Bass underestimated just how cornered Japan is: after all, for the central bank of the nation with the 400% total debt/GDP the opportunity cost of doing idiotic things is very low, which explains not only NIRP but also why the WSJ in a post earlier urged Kuroda to monetize oil. After all, it’s not like the BOJ has any credibility left.

  But that’s also the biggest risk: as Edwards himself admits, “can the plunge in JGB yields into negative territory be seen as a vote of no confidence in Abenomics? It certainly can…” But if the central bank’s confidence is shattered, what is there to prevent bondholders from simply selling their JGB holdings on concerns the BOJ will no longer be the marginal price setter of the JGB, and convert the proceeds into some currency that does not belong to a debt banana republic (or, gasp, gold)?

  In other words, the more bonds the BOJ monetizes, the closer we are to the endgame for not only the BOJ, but for Japan: after all without the BOJ’s backstop purchases, the yields on Japanese bonds would be comparable to those of Venezuela.

  And since the only reason to buy JGBs is to frontrun the BOJ’s own purchases, the risk here is that of terminal confidence failure in the BOJ.

  Yes, Japanese bonds have generated positive returns for the past 9 years, but all it takes is just one moment of sheer central bank stupidity, or outright insanity, to destroy everything. The BOJ had just such a moment one month ago when it launched NIRP. What if the next moment is its last?

  In fact, in a world in which the last, and increasingly more risky, counterparty are central banks themselves, isn’t owning the one asset that has zero counterparty risk the best option?

  

  

  

  

  

• Federal Court Rules You Can Be Arrested Simply For Filming The Police

  Submitted by Derrick Broze via TheAntiMedia.org,

  A federal court in the Eastern District of Pennsylvania has ruled that filming the police without a specific challenge or criticism is not constitutionally protected.

  The cases of Fields v. City of Philadelphia, and Geraci v. City of Philadelphia involve two different incidents where individuals were arrested for filming the police. Richard Fields, a Temple University student, was arrested after stopping to take a picture of a large group of police outside a house party. Amanda Geraci, a legal observer with CopWatch Berkeley, attended a large protest against fracking in September 2012 and was arrested while filming the arrest of another protester.

  Both Fields and Geraci are seeking damages from the Philadelphia Police Department for violating their Constitutional right to videotape public officials. Previous rulings have found the public has a right to record police as form of “expressive conduct,” such as a protest or criticism, which is protected by the First Amendment.

  The appeals court was specifically tasked with finding out whether or not the public has a First Amendment right to photograph and film police without a clear expression of criticism or challenge to police conduct.

  The court wrote:

  “Fields’ and Geraci’s alleged ‘constitutionally protected conduct’ consists of observing and photographing, or making a record of, police activity in a public forum. Neither uttered any words to the effect he or she sought to take pictures to oppose police activity. Their particular behavior is only afforded First Amendment protection if we construe it as expressive conduct.”

  The court ultimately stated,

  “We find no basis to craft a new First Amendment right based solely on ‘observing and recording’ without expressive conduct.”

   

  “Absent any authority from the Supreme Court or our Court of Appeals, we decline to create a new First Amendment right for citizens to photograph officers when they have no expressive purpose such as challenging police actions,” the decision concluded.

  Eugene Volokh, a professor of law at UCLA, disagrees with the decision and says he believes it will eventually be overturned by the Third Circuit Court of Appeals upon appeal.

  “Whether one is physically speaking (to challenge or criticize the police or to praise them or to say something else) is relevant to whether one is engaged in expression,” Volokh wrote in the Washington Post.

   

  “But it’s not relevant to whether one is gathering information, and the First Amendment protects silent gathering of information (at least by recording in public) for possible future publication as much as it protects loud gathering of information.”

  Whether or not the ruling is overturned, it should serve as a reminder to all free hearts and minds that the cost of liberty is eternal vigilance. We cannot become passive and allow the ruling class and despots in government to subvert our path towards liberation. Now more than ever we need communities to actively organize copwatching and politician-watching campaigns that encourage accountability and transparency.  We must also remain strong in our sense of morality and principles, and not allow what is “legal” or “constitutional” to limit us in our fight for freedom.

  

  

  

  

  

• The Curious Case Of "Strong" January Durable Goods: It Was All In The Seasonal Adjustment

  Two weeks ago, when the strong retail sales report saved the US market from plunging below the critical 1,812 level, we peeked behind the headline of the just reported January retail sales report, and we found that far from the adjusted 3.4% Y/Y increase in retail sales, the actual, unadjusted, number was a paltry 1.4% shown in the chart below…

  

   

  … and matching the lowest January increase since the financial crisis.

  

   

  As we also showed, the seasonal adjustment factor for January 2016 was a glaring outlier, and by far the biggest one this decade.

  

   

  Which brings us to today’s Durable Goods report.

  As we reported earlier in the day, the numbers on the surface, were strong, with one of the largest monthly jumps in years even if the annual change continued to underwhelm, while core capex shipment remained negative.

  And then something caught our attention: according to a report by Mitsubishi UFJ’s John Hermann, one of the most important, if volatile, series in the overall monthly update, that of commercial aircraft orders made absolutely no sense. As he notes, in January Boeing reported a 70% drop in actual aircraft unit orders (the same in dollar terms), and yet according to the Department of Commerce, the matched series of nondefense aircraft orders soared by 54% in January.

  How could this be? Simple: seasonal adjustments.

  

   

  Which made us curious: was this “strong” Durable Goods report nothing than more seasonal adjustment slight of hand? The answer, in a word, yes.

  The chart below shows the difference between the actual and adjusted series. We are almost surprised to learn that in January, the monthly adjustment hit a record high $14 billion.

  

   

  But maybe on an annual basis the difference was not quite as gaping? To account for that we repeated the analysis we did with retail sales, only with durable goods excluding transports: after all we already knew that the aircraft number was a complete farce. What we found was that just like with the retail sales report two weeks ago, so all of the upside in the durable goods report was from seasonals.

  As shown in the chart below, while adjusted core durable goods barely declined from a year ago – and keep in mind that seasonal adjustments only affects month to month variance, not year over year – dropping a fractional -0.6%, on an unadjusted basis, the drop was a material -2.5%, by far the biggest since 2009.

  

   

  And just to show how acute the adjustment fabrication was January of 2016, here is the seasonal adjustment factor, which we calculated as the annual change in the seasonally adjusted number relative to the unadjusted one. It is rather obvious where the outlier is.

  

  What all the above means is that contrary to the “smoothed over” numbers, in January capital spending was not only far worse than expected and will be revised lower in coming months, but will give the market – and the Fed – a false impression about the state of the economy.

  Which would be a problem if the Fed was actually data dependent as it claims. However, since recent events have demonstrated that the Fed was, is and continue to be entirely Dow Jones-dependent, none of the above actually matters, especially since no economic data is relevant when algos engage in short squeeze igniring stop hunts, or when either the Fed or the Treasury decide to postpone a POMO or Treasury auction, and unleash a massive risk ramp higher.

  

  

  

  

  

• Why It Was So Important For The S&P To Close Above 1950

  Today's OMFG face-ripping, short-squeezing, broken-bond-market-buying ramp was crucial for many chart-watchers.

  The S&P 500's close above 1950 (or more accurately, above recent highs and back above the all-important 50-day moving-average) provides hopeful confirmation that the uptrend off the Dimon Bottom will continue (as BofA's Stephen Suttmeier recently noted) following the same 'W' shape recovery seen in Q3/4 2015.

  For many, hope is that we extend higher after today's all important break of the 50DMA…

  

   

  However, we have seen this pattern on a bigger scale before… and it did not end well.

  What happens next?

  

   

  "Hope" is a strategy in today's new normal… especially if The NY Fed can break the bond market again tomorrow.

  *  *  *

  As we noted earlier, there are a few reasons to be question this bounce in stocks…

  Capital Structure says "No" US FINL vs Credit…

  

  Carry Trade says "No" – US Stocks vs Yuan…

  

   

  Inflation Expectations says "No" – EU Stoxx vs Inflation…

  

   

  Bonds say no "No" – US Stocks vs TSY Curve…

  

  

  

  

  

  

• 3 Things: Earnings Lies, Profits Slide, EBITDA Is Bulls**t

  Submitted by Lance Roberts via RealInvestmentAdvice.com,

  Earnings Worse Than You Think

  Just like the hit series “House Of Cards,” Wall Street earnings season has become rife with manipulation, deceit and obfuscation that could rival the dark corners of Washington, D.C.

  What is most fascinating is that so many individuals invest hard earned capital based on these manipulated numbers. The failure to understand the “quality” of earnings, rather than the “quantity,” has always led to disappointing outcomes at some point in the future. 

  According to analysts at Bank of America Merrill Lynch, the percentage of companies reporting adjusted earnings has increased sharply over the past 18 months or so. Today, almost 90% of companies now report earnings on an adjusted basis.

  

  Back in the 80’s and early 90’s companies used to report GAAP earnings in their quarterly releases. If an investor dug through the report they would find “adjusted” and “proforma” earnings buried in the back. Today, it is GAAP earnings which are buried in the back hoping investors will miss the ugly truth.

  These “adjusted or Pro-forma earnings” exclude items that a company deems “special, one-time or extraordinary.” The problem is that these “special, one-time” items appear “every” quarter leaving investors with a muddier picture of what companies are really making.

  As BofAML states:

  “We are increasingly concerned with the number of companies (non-commodity) reporting earnings on an adjusted basis versus those that are stressing GAAP accounting, and find the divergence a consequence of less earnings power.

   

  Consider that when US GDP growth was averaging 3% (the 5 quarters September 2013 through September 2014) on average 80% of US HY companies reported earnings on an adjusted basis. Since September 2014, however, with US GDP averaging just 1.9%, over 87% of companies have reported on an adjusted basis. Perhaps even more telling, between the end of 2010 and 2013, the percentage of companies reporting adjusted EBITDA was relatively constant and since 2013, the number has been on a steady rise.

   

  We are increasingly concerned with this trend, as on an unadjusted basis non-commodity earnings growth has been negative 2 of the last 4 quarters, representing the worst 4 quarter average earnings growth in a non-recessionary period since late 2000.”

  This accounting manipulation to win the “beat the earnings” game each quarter is important to corporate executives whose major source of wealth is stock-based compensation. As confirmed in a WSJ article:

  “If you believe a recent academic study, one out of five [20%] U.S. finance chiefs have been scrambling to fiddle with their companies’ earnings.

   

  Not Enron-style, fraudulent fiddles, mind you. More like clever—and legal—exploitations of accounting standards that ‘manage earnings to misrepresent [the company’s] economic performance,’ according to the study’s authors, Ilia Dichev and Shiva Rajgopal of Emory University and John Graham of Duke University. Lightly searing the books rather than cooking them, if you like.”

  This should not come as a major surprise as it is a rather “open secret.” Companies manipulate bottom line earnings by utilizing “cookie-jar” reserves, heavy use of accruals, and other accounting instruments to flatter earnings.

  “The tricks are well-known: A difficult quarter can be made easier by releasing reserves set aside for a rainy day or recognizing revenues before sales are made, while a good quarter is often the time to hide a big ‘restructuring charge’ that would otherwise stand out like a sore thumb.

   

  What is more surprising though is CFOs’ belief that these practices leave a significant mark on companies’ reported profits and losses. When asked about the magnitude of the earnings misrepresentation, the study’s respondents said it was around 10% of earnings per share.“

  Why is this important? Because, while manipulating earnings may work in the short-term, eventually, cost cutting, wage suppression, earnings manipulations, share-buybacks, etc. reach their effective limit. When that limit is reached, companies can no longer hide the weakness in their actual operating revenues. That point has likely been reached.

  From the WSJ:

  “There’s a big difference between companies’ advertised performance in 2015 and how they actually did.

   

  How big? With most calendar-year results now in, FactSet estimates companies in the S&P 500 earned 0.4% more per share in 2015 than the year before. That marks the weakest growth since 2009. But this is based on so-called pro forma figures, results provided by companies that exclude certain items such as restructuring charges or stock-based compensation.

   

  Look to results reported under generally accepted accounting principles (GAAP) and S&P earnings per share fell by 12.7%, according to S&P Dow Jones Indices. That is the sharpest decline since the financial crisis year of 2008. Plus, the reported earnings were 25% lower than the pro forma figures—the widest difference since 2008 when companies took a record amount of charges.

   

  ?The implication: Even after a brutal start to 2016, stocks may still be more expensive than they seem. Even worse, investors may be paying for earnings and growth that aren’t anywhere near what they think. The result could be that share prices have even further to fall before they entice true value investors.

   

  The difference shows up starkly when looking at price/earnings ratios. On a pro forma basis, the S&P trades at less than 17 times 2015 earnings. But that shoots up to over 21 times under GAAP.“

  

  History is pretty clear. As long as earnings are deteriorating, you don’t want to be invested in stocks.

  Fantasy Vs. Reality

  What is most interesting, is that despite the ongoing earnings recession, Wall Street firms continue to predict an onward and upward push of profitability into the foreseeable future. As shown in the estimates below from Goldman Sachs, there is NO consideration for the impact of economic recession over the next several years.

  

  Of course, this was the same prediction made in 1999 and in 2006 until the eventual and inevitable “reversion to the mean” occurred.

  Eric Parnell recently penned an excellent piece in this regard entitled “Fantasy vs. Reality:”

  “The perpetual optimism of the corporate earnings forecast is remarkable. And while its well understood that things almost never turn out as good as we might anticipate, it is notable how widely divergent these earnings forecasts are from the actual outcomes that ultimately come to pass. Beware the analysis pinning its conclusions on the forward price-to-earnings ratio on the S&P 500 Index or any of its constituents for that matter, for it may lead to conclusions that are ultimately built on sand.

   

  Clearly, relying on corporate earnings forecasts for the basis of investment decision making should be done at an investors own risk. Forecasts start out as wildly optimistic, with greater hopes the longer the time horizon. Which leads to a final point worth mentioning. Standard & Poor’s recently released a first look at the earnings forecasts for 2017. And if past experience is any guide, it may be indicating trouble on the horizon for the coming year. For instead of the robust +20% earnings forecasts throughout 2017, we instead see a notable fade as the year progresses. Perhaps these forecasts will improve with the passage of time.

   

  But if forecasters are this unenthusiastic about a point that is so far away in the future, what will the reality look like once we finally arrive?”

  

  Unfortunately, considering that historically analysts future forecasts are 33% higher on average than reality turns out to be, the case for a deeper “bear market” is gaining traction.

  EBITDA Is BullS***

  I have written in the past about the fallacy of using EBITDA (Earnings Before Interest Taxes Depreciation and Amortization) due to the ability to fudge/manipulate the number. To wit:

  

   

  “As shown in the table, it is not surprising to see that 93% of the respondents pointed to “influence on stock price” and “outside pressure” as the reason for manipulating earnings figures. For fundamental investors this manipulation of earnings skews valuation analysis particularly with respect to P/E’s, EV/EBITDA, PEG, etc.”

  Ramy Elitzur, via The Account Art Of War, recently expounded on the problems of using EBITDA.

  “Being a CPA and having an MBA, in my arrogance I thought that I am well beyond such materials. I stood corrected, whatever I thought I knew about accounting was turned on its head. One of the things that I thought that I knew well was the importance of income-based metrics such as EBITDA and that cash flow information is not as important. It turned out that common garden variety metrics, such as EBITDA, could be hazardous to your health.”

  The article is worth reading and chocked full of good information, however, here are the four-crucial points:

  1. EBITDA is not a good surrogate for cash flow analysis because it assumes that all revenues are collected immediately and all expenses are paid immediately, leading, as I illustrated above, to a false sense of liquidity.
  2. Superficial common garden-variety accounting ratios will fail to detect signs of liquidity problems.
  3. Direct cash flow statements provide a much deeper insight than the indirect cash flow statements as to what happened in operating cash flows. Note that the vast majority (well over 90%) of public companies use the indirect format.
  4. EBITDA just like net income is very sensitive to accounting manipulations.

  The last point is the most critical. As discussed above, the tricks to manipulate earnings are well-known which inflates the results to a significant degree making an investment appear “cheaper” than it actually is.

  As Charlie Munger once said:

  “I think that every time you see the word EBITDA, you should substitute the word ‘bullshit’ earnings.”

  Just some things to think about.

  

  

  

  

  

• "Broken" Bond Market Sparks Farcical Oil & Stock Buying Scramble

  Extremely not suitable for work… It just seemed like one of those days…

   

  This was yesterday…

  

   

  And this is today…

  

   

  Everything was fine, treading water… weaknes after weak data and oil lower… AND THEN NY Fed cancelled the 7Y auction and all hell broke loose…

  

   

  Unleashing another epic short squeeze…

  

   

  Another spell of ovenight weakness in futures that was gobbled up at the EU open and US open…Futures were ramped to the highs on Monday, and ran those stops

  

   

  Today's ramp took the S&P 500 back above 50-day moving-average for the first time in 2016… to the highest since January 8th

  

   

  Bullard 2 DeMark 0

  — Northy (@NorthmanTrader) February 25, 2016

   

  Year-to-Date, Small Caps are back out of correction and Trannies are now down by less than 2%…

  

   

  VIX tumbled back below 20 towards 2016 lows…

  

   

  Financial stocks were bid… but bonds closed wider…

  

   

   

  FX markets were relatively calm again with slight weakness in the USD Index, strength in commodity currencies and cable stopped its free-fall…

  

   

  Bond yields & Stocks decoupled, but the Auction cancellation sparked  a surge in both…

  

  Treasury yields crashed into the 7Y Auction… which was then cancelled… which sent yields soaring… only to fade notably into the close…

  

   

  Notice anything odd about this chart? Gold ended higher on the day (despite some earlier thumpings for PMs), copper crumbled (as China fell), but crude just did it's full retard thing…

  

   

  And finally, we go back to the beginning, the "technical issues" enabled a farcical spike in WTI today.. just like yesterday…

  

   

  Charts: Bloomberg

  Bonus Chart: First things last- China stocks suffered the worst loss since Black Monday week overnight…

  

  

  

  

  

• ISIS Threatens To Shoot Mark Zuckerberg, Jack Dorsey; Shut Down Facebook, Twitter

  ISIS has always had a love-hate relationship with Jack Dorsey.

  On the one hand, no organization (with the possible exception of the CIA and MiT) has done more for Islamic State than Twitter. The group’s followers are adept users of social media and Twitter is one of the main channels by which al-Hayat Media Center and its dozens of offshoots distribute their propaganda. 

  On the other hand, Twitter isn’t exactly enamored with its role as an ISIS propaganda distribution channel and so, the site routinely closes down ISIS-linked accounts. Last March, when the group had finally had enough of seeing their Twitter accounts shuttered, the jihadists threatened to send “lions” to “take Dorsey’s breath away.”

  Well, nearly a year later and Dorsey is still around and judging from the beard he was sporting lately, he might have become an ISIS sympathizer.

  

  On Wednesday, ISIS took its latest swipe at the Twitter founder as well as Facebook chief Mark Zuckerberg when a group of hackers known as “the sons of the Caliphate army” released a new propaganda video depicting militant computer nerds apparently infiltrating Facebook and Twitter accounts. 

  10,000 Facebook accounts were hacked the group claims and “many of them have been given to supporters.” 

  Ultimately, the “sons” figure a “lowbrow” hacker like Mark Zuckerberg “isn’t in their league” which is why every time Zuck “closes one account,” ISIS will “take 10 in return.” The 25 minute clip ends with the following image showing showing Zuckerberg and Dorsey being shot in the face with virtual bullets.

  

  You can watch the entire video in all its epic absurdity below.

  Of course ISIS shouldn’t get too bent out of shape about having its supporters’ Facebook pages deleted. After all, there’s always “CaliphateBook“…

  

  

  

  

  

  

• Alex Jones: "The Globalists Are Pure Evil… They're Going To Kill Donald Trump"

  While Alex Jones is exuberant at the rise of The Donald, he is deathly concerned. Given that "the globalists are pure evil," he exclaims, "they're going to kill Donald Trump."

   

  It appears Trump himself is concerned as InfoWars reports, according to his former advisor Roger Stone, Trump now wears a bullet proof vest at all public appearances due to the sheer volume of death threats he receives on a regular basis.

  Trump first began wearing the vest in October last year after after reports that the world’s most wanted drug lord El Chapo had put a $100 million bounty on his head. He also received Secret Service protection at around this time.

  But, all of this is 'trump'd by the sheer foolishness of NYTimes' reporter Ross Douthat, who caused an outrage after he joked about how an assassination attempt could end Donald Trump's presidential campaign.

  “Good news guys I’ve figured out how the Trump campaign ends,” Douthat tweeted last night.

  He has since delted the tweet… but luckily we screengrabbed before it disappeared:

  

   

  That said, we can't even imagine what would occur if a right-leaning media organization "jokingly" commented about a Hillary assassination…

  

   

  

  

  

  

  

Digest powered by RSS Digest