Jun 26

Today’s News 26th June 2016

  • Is Brexit The First Of Many Dominoes? A Few Charts
    Courtesy of: Visual Capitalist

     

    Is Brexit the First of Many Dominoes?

    Markets have been turned upside down by a surprise Brexit result and the resignation of David Cameron. While there is looming uncertainty around how this will affect the United Kingdom and Europe from an economic perspective, it might be just the tip of the iceberg in terms of long-run consequences.

    A Brexit opens the door for future events that would be previously unfathomable by popular opinion, and it gives vital ammunition to groups that are seeking their own referendums for independence.

    Unwilling Passengers?

    As the UK ship distances itself from European docks, there are two passengers that may have been more comfortable remaining on shore.

    While England and Wales voted to “Leave” with 53.4% and 52.5% respectively, Scotland and Northern Ireland were both firmly in “Remain” territory. Scotland, which previously held its own independence referendum in 2014, voted overwhelmingly to have the UK remain in the EU with a 62% vote. Northern Ireland had a similar sentiment with 55.8% voting “Remain”.

    Scotland’s First Minister, Nicola Sturgeon, said today that a second independence referendum for Scotland is “highly likely”. She feels Scotland was taken out of the EU against its own will, and that Scottish independence is worth revisiting.

    Meanwhile, Northern Ireland has echoed these calls, instead potentially looking at voting on a united Ireland. Northern Ireland is the only country in the UK that shares a land border with a country in the EU.

    Others Dominoes

    The Brexit result has energized other populist movements across the European Union. Anti-immigration leaders such as Geert Wilders and Marine Le Pen have ratcheted up cries for their own independence votes:

    However, it is not just people on the fringe that are interested in revisiting EU membership. Even before the Brexit result, a poll by Ipsos Mori showed that the majority of people in France in Italy want to at least have a referendum on leaving:

    Meanwhile, over 40% of Swedes, Poles, and Belgians are in the same boat.

    Now that Brexit is a thing, will these numbers trend higher? What will be the next domino to fall?

  • Boris Johnson Wins Key Support To Become PM As Labour Leader Foils Leadership Coup

    While global financial markets, not to mention Europe’s political elite, rushes to preempt the global political fallout from Brexit, the UK itself is undergoing a chaotic and very much ad hoc politcal transformation, one which has seen no precedent in UK history, in the short day since David Cameron announced his resignation while the Chancellor George Osborne appears to have vaporized, just days after spending every waking moment prognosticating about doom and gloom should the Leave camp win.

    In the middle of this transformation is none other than Boris Johnson, the leader of the successful “Leave” campaign, who however has cause to celebrate tonight because according to the Sunday Times, the former London mayor has won the backing of a key colleague to replace David Cameron as prime minister. Justice minister Michael Gove, who together with Johnson led the “Leave” campaign, called Johnson on Saturday to say he would back him for the leadership of the ruling Conservative Party, Reuters added.

    The Sunday Times said interior minister Theresa May was expected to enter the leadership contest in the coming days and was likely to get support from allies of Cameron who see her as the best candidate to take on Johnson, a former London mayor.

    May supported the “Remain” campaign but took a lower profile than Cameron and finance minister George Osborne, whose hopes of becoming the party’s next leader took a big blow with the outcome of the referendum.

    One also wonders what, if any role, Nigel Farage will hold in the new cabinet: after all, if it weren;’t for the UKIP in last year’s elections, David Cameron would have never called the Referendum which has since cost him his job and the UK’s presence in the EU. For him to be omitted from any key position would be a massive oversight, and significant gamble, on the part of the Conservative Party.

    But it wasn’t just the Conservative Party that was seeing dramatic changes in its leadership overnight. As Sky News also reported moments ago, Jeremy Corbyn sacked Hilary Benn from the shadow cabinet following reports of a coup to oust the Labour leader. It follows claims in The Observer newspaper that the shadow foreign secretary would ask Mr Corbyn to resign if there was significant support for a move against the leader.

    Mr Benn had also reportedly asked fellow MPs to join him in resigning from the shadow cabinet if Mr Corbyn ignored the request. A Labour spokesman said: “Jeremy has sacked him on the grounds that he has lost confidence in him.” Sky’s chief political correspondent, Jon Craig, said: “A shadow cabinet mutiny is much more serious than a backbench revolt, so Mr Corbyn has acted swiftly.

    “He has sacked Mr Benn, but that does not mean that the mutiny will not go ahead. Other shadow cabinet members may walk out now that Mr Benn has been sacked.”

     

    On Saturday, the embattled Labour leader had warned he would not stand aside if a leadership contest was held. He also told Sky’s Sophy Ridge that he would run again for leader in the event that a challenger came forward.

     

    Mr Corbyn has come under considerable pressure after the UK voted to leave the European Union in Thursday’s referendum, with many critics claiming that a lacklustre campaign had left Labour supporters confused on where the party stands.

     

    Mr Corbyn was heckled at a gay pride event in London yesterday and told to resign over not being able to get Labour voters in Wales, the Midlands and the North to back Remain. Tom Mauchline filmed his heated encounters with the politician, where he shouted: “It’s your fault Jeremy. When are you resigning? I’ve got a Polish friend in tears because you couldn’t get out the vote.”

     

    Mr Corbyn avoided engaging with the heckler before finally saying “I did all I could” – and one of his minders quickly stepped in front and added: “It’s the Murdoch press.”

    So Goldman Sachs 0 – Murdoch Press 1?

    Finally, while we follow these dramatic transformations within the UK’s political parties, we leave readers with the following disturbing photocollage of Donald Trump and Boris Johnson, the two biggest winners so far from the global anti-establishment revolt.

  • Facebook Introduces "Political Bias" Training For Employees

    After former news curators admitted that Facebook routinely suppressed conservative news on its news feed, a training manual was leaked that confirmed there was only one of ten “trusted” news sources by which trending news topics could come from with any type of conservative angle. In the wake of those bad public relations events, the company clumsily tried to save face. Facebook subsequently denied any wrongdoing but still introduced several changes in its policies – put another way, Facebook denied anti-conservative bias but changed policies that produce anti-conservative bias.

    After all of the aforementioned events, one would assume that Facebook would lay low and let all of this fade with time, but one would be wrong. Sheryl Sandberg, Facebook’s chief operating officer recently announced that the company would be introducing a “political bias” training program in addition to the managing unconscious bias class the company offers employees.

    “We have a managing bias class that all of our leaders and a lot of our employees have taken that I was part of helping to create. And we focused on racial bias, age bias, gender bias, national bias, and we’re going to add in a scenario now on political bias. So as we think about helping people understand different political points of view and being open to different points of view, we’re dealing with political bias as well going forward.” Sandberg said.

    As the Daily Signal reports, Sandberg acknowledged that Facebook and other tech companies are perceived as being liberal: “That’s a pretty important accusation and it’s one we take seriously. It’s also one which frankly rang true to some people because there is a concern that Silicon Valley companies have a liberal bias. And so we took it very seriously and did a thorough investigation and we didn’t find a liberal bias.“

    So Facebook has investigated itself, found absolutely no liberal bias, and then changed its policies and added a political bias training program to make sure there is no liberal bias – that sounds an awful lot like fixing something that isn’t broken, unless of course the company knows full well that it has a liberal bias and is trying to hide it, but that would be thinking way too outside the box.

    79% of Facebook employee contributions in 2016 have supported Democrats, and those employees have donated more than $114,000 to Hillary Clinton, nearly $100,000 more than to the closest Republican Marco Rubio. Nope, no chance of political bias within Facebook based on those numbers, move along.

    Sandberg dismissed the notion that Facebook wanted to be a media company to begin with: “We’re clear about the industry we’re in and the company we’re in: We’re a tech company, we’re not a media company. We’re not trying to hire journalists and we’re not trying to write news.”

    Yes a tech company – except when news curators are hired to create the news feed in which 44% of the adults who use Facebook identify it as a primary news source. Other than that, probably just a tech company… with no political bias.

  • "Brexit Is A Bear Stearns Moment, Not A Lehman Moment"

    By Epsilon Theory's Ben Hunt of Salient Partners

    Waiting for Humpty Dumpty  June 24, 2016

    Humpty Dumpty sat on a wall,
    Humpty Dumpty had a great fall.
    All the king’s horses and all the king’s men
    Couldn’t put Humpty together again.

    Brexit is a Bear Stearns moment, not a Lehman moment. That’s not to diminish what’s happening (markets felt like death in March, 2008), but this isn’t the event to make you run for the hills. Why not? Because it doesn’t directly crater the global currency system. It’s not too big of a shock for the central banks to control. It’s not a Humpty Dumpty event, where all the Fed’s horses and all the Fed’s men can’t glue the eggshell back together. But it is an event that forces investors to wake up and prepare their portfolios for the very real systemic risks ahead.

    There are two market risks associated with Brexit, just as there were two market risks associated with Bear Stearns.

    In the short term, the risk is a liquidity shock, or what’s more commonly called a Flash Crash. That could happen today, or it could happen next week if some hedge fund or shadow banking counterparty got totally wrong-footed on this trade and — like Bear Stearns — is taken out into the street and shot in the head.

    In the long term, the risk is an acceleration of a Eurozone break-up, which is indeed a Lehman moment (literally, as banks like Deutsche Bank will become both insolvent and illiquid). There are two paths for this. Either you get a bad election/referendum in France (a 2017 event) or you get a currency float in China (an anytime event). Brexit just increased the likelihood of these Humpty Dumpty events by a non-trivial degree.

    What’s next? From a game theory perspective, the EU and ECB need to crush the UK. It’s like the Greek debt negotiations … it was never about Greece, it was always about sending a signal that dissent and departure will not be tolerated to the countries that matter to the survival of the Eurozone (France, Italy, maybe Spain). Now they (and by “they” I mean the status quo politicians throughout the EU, not just Germany) are going to send that same signal to the same countries by hurting the UK any way they can, creating a Narrative that it’s economic death to leave the EU, much less the Eurozone. It’s not spite. It’s purely rational. It’s the smart move.

    What’s next? Every central bank in the world will step up their direct market interventions, particularly in the FX market, where it’s easiest for Plunge Protection Teams to get involved. Every central bank in the world will step up their jawboning and “communication policy” to support financial asset prices and squelch volatility. It wouldn’t surprise me a bit if the Fed started talking about a neutral stance, moving away from their avowed tightening bias. As I write this, Fed funds futures are now pricing in a 17% chance of a rate CUT in September. Yow!

    What’s the result? I think it works for while, just like it worked in the aftermath of Bear Stearns. By May 2008, credit and equity markets had retraced almost the entire Bear-driven decline. I remember vividly how the Narrative of the day was “systemic risk is off the table.” Yeah, well … we saw how that turned out. Now to be fair, history only rhymes, it doesn’t repeat. Maybe this Bear Stearns event isn’t followed by a Lehman event. But that’s what we should be watching for. That’s what we should be preparing our portfolios for.

    How do we prepare? I’ve got Five Easy Pieces, five suggestions for surviving these policy-controlled markets, described at length in the Epsilon Theory notes “Cat’s Cradle” and “Hobson’s Choice“. Here’s the skinny:

    Bottom line … if you ever needed a wake-up call that every crystal ball is broken and we are in a political storm of global proportions, today is it. That’s at least 3 mixed metaphors, but you get my point. Brexit isn’t a Humpty Dumpty moment itself, and I think The Powers That Be will kinda sorta tape this egg back together. But if there’s one thing we know about broken eggs and broken teacups and broken partnerships, it’s never the same again, no matter how hard you try to put the pieces back together. My view is that a Humpty Dumpty moment, in the form of a political/currency shock from China or a core Eurozone country, is a matter of when, not if. Tracking that “when”, and thinking about how to invest through it, is what Epsilon Theory is all about.

  • Not So Fast: Scotland And Northern Ireland May Have Brexit Veto Rights

    Two days after the shocking Brexit result, the nightmares for the Remain camp – which refuses to accept a democratic reality – will not go away. As a result, it has gotten to the farcical point where disgruntled Remain voters have launched a petition demanding a second EU referendum, having clearly forgotten that it was the dramatically low turnout among their ranks that allowed the Leave vote to have such a knockout victory. To be sure this is a well-known technocrat approach: keep voting and revoting until the desired outcome is finally achieved.

    We doubt this particular approach has any hope of success. We also doubt that a call by Labor MP David Lammy, urging for a vote in Parliament to “stop this madness”, the madness in question being the will of the majority, which clearly is not appreciated by a member of a “democratically” elected institution. One can spend all day analyzing the amusing ironies in that statement.

     

    However, while these are merely desperation antics by a group who will do almost anything to hang on to the benefits presented to them by the status quo, regardless of the will of the majority, a curious observation has emerged courtesy of Jim Fitzpatrick, who points out that according to the 28-page government Command Paper laying out “The Process of withdrawing from the European Union“, which goes through the infamous Article 50 of the Treaty on European Union (TEU), the first time in history when Article 50 will be invoked, there may actually be a hurdle to the actual Brexit process, in the form of a Scottish and Northern Irish veto to Britain’s separation from the EU. To wit:

    The role of the devolved legislatures in implementing the withdrawal agreement:

     

    We asked Sir David whether he thought the Scottish Parliament would have to give its consent to measures extinguishing the application of EU law in Scotland. He noted that such measures would entail amendment of section 29 of the Scotland Act 1998, which binds the Scottish Parliament to act in a manner compatible with EU law, and he therefore believed that the Scottish Parliament’s consent would be required. He could envisage certain political advantages being drawn from not giving consent.

     

    We note that the European Communities Act is also entrenched in the devolution settlements of Wales and Northern Ireland. Though we have taken no evidence on this specific point, we have no reason to believe that the requirement for legislative consent for its repeal would not apply to all the devolved nations.

    To be sure, this is merely an interpretation and not a legalistic prescription. The basis of this opinion is as follows:

    In February 2016, the Government published a Command Paper entitled The process for withdrawing from the European Union, the findings of which have been widely challenged by those campaigning to leave the EU. We wanted to have as clear an understanding as possible of the process whereby the UK would withdraw from the EU, should the electorate so decide on 23 June. We therefore held a public evidence session with two experts in the field of EU law: Sir David Edward KCMG, QC, PC, FRSE, a former Judge of the Court of Justice of the European Union and Professor Emeritus at the School of Law, University of Edinburgh; and Professor Derrick Wyatt QC, Emeritus Professor of Law, Oxford University, and also of Brick Court Chambers.

    So is one interpretation of Article 50 on the potential stumbling block behind Brexit sufficient to derail the process? We doubt it: David Cameron has already resigned while Europe has activated the machinery for a British separation (even if it means keeping the UK as an “associated member” as Germany desperately needs the UK market to keep its own economy afloat). Then again, anything is possible and we are certain that thousands of lawyers are working feverishly at this moment to preserve any optionality the Remain group may still have before too much time has passed and enough procedures have been implemented making a return to the status quo impossible.

    Further complicating matters is the announcement by Scotland’s first minister Nicola Sturgeon who said that a second Scottish independence vote ‘highly likely’ adding that it was “democratically unacceptable” that Scotland faced the prospect of being taken out of the EU against its will. She said the Scottish government would begin preparing legislation to enable another independence vote.

    Whatever the outcome, it is certain that the status quo elites, who already lost hundreds of billions in equity “value” as a result of Brexit, will stop at nothing to prevent the existing globalized system from being deconstructed before their very eyes due to the “unexpected” arrival of democratic forces which demand real change. This will surely mean spending egregious amounts trying to find legalistic loopholes, and doing everything in their power to delay and prevent any incremental steps.

    All of that is perfectly expected. That said we wonder if the same elitist minorities, which have already shown boundless disdain for the voice of the majority, will keep their interventionism within a peaceful framework because the last thing the world needs is for a tiny majority to start yet another global war to distract from their accelerating loss of influence and power. Then again, just like in the 1930s when the world was also squeezed in a global depression, the only thing that can boost the fortunes of the 1% is war.

    Why is why war is the inevitable outcome that a world saddled with gargantuan amounts of debt, borrowed from a future that has no growth prospects, will get. We can only hope that Brexit is not the spark to this outcome.

  • 750,000 Californians Past The Age Of 65 Are Still Working

    Regular readers are well aware that residents are rushing out of California in droves for many reason, least of which is the high cost of living. For those older California residents that choose to stay however because they simply can’t uproot their lives and start “fresh” somewhere else, the reality is even more gruesome as they have no choice but to continue working into their retirement years. More than 740,000 Californians between the ages 65 and 74 are still employed or looking for work the Sacramento Bee reports, and the reasons are largely attributable to money.

    As the Sacramento Bee reports, more than 740,000 California residents between ages 65 and 74 are employed or looking for work, roughly double the number from 15 years ago, according to a Sacramento Bee review of the latest census data.

    Much of that growth reflects a swell of baby boomers entering retirement age. But the proportion of California seniors between ages 65 and 74 still working or looking for work also has risen, going from 20 percent in 2000 to 26 percent in 2014.

     

    Californians are working longer for a number of reasons. Some do not have enough money to retire or are among a growing number of seniors living in poverty. Others are waiting to collect their full allotment of Social Security payments as the federal retirement age gradually rises from 65 to 67. Many are simply in good health and want to keep working as life spans increase.

    The percent of Californians ages 65-69 who are still working or looking for work has increased dramatically since 1990, and still remains well over 30%. The percent of residents between 70-74 who are still working or looking for work has trended up since 1990 as well, although much more gradually, and remains just under 20%.

    Not surprisingly, seniors in the Bay Area (due to the tech bubble that we have covered extensively) and Los Angeles metro area are most likely to work past 65.

     

    Perhaps the most interesting thing from the Bee’s report is that the jobs that seniors are holding are traditionally higher paying, which implies the cost of living is so horrendous in California that literally everyone is struggling to make ends meet, let alone get ahead in order to retire.

    However, older workers are still performing jobs that younger workers are more likely to perform, which again is a red flag that older workers are doing anything they can in order to continue to earn money in what is considered retirement age. It is notable that these types of jobs are lower paying jobs, which one can infer the severity of older workers needs to make ends meet.

     

    The fiscal situation for these seniors is about to get much, much worse. With Governor Brown signing the new minimum wage bill, that even he admitted makes no sense economically, one can rest assured that those increased labor costs will indeed be passed on to Californians in one form or another. Also, don’t forget that tax increases are looming for the the Golden State. Recall that Cali had missed projected tax revenues by nearly $1 billion through the first four months of the year – those revenues will have to be replaced somehow, and with residents leaving in droves, those that remain will have to shoulder the burden.

    That said, at least the above example provides a vivid demonstration why the US labor participation rate is crashing as more and more younger workers are unable to develop work careers as increasingly more aged workers remain stuck in their positions thus bottlenecking the natural pipeline of US jobs, and forcing millions of younger Americans, for whose meager skills there is no demand, to stay in school.

    Meanwhile, the number of American workers aged 55 and older enjoying Obama’s “recovery” have never been greater…

  • The Real Brexit "Catastrophe": World's 400 Richest People Lose $127 Billion

    For all the scaremongering and threats of an imminent financial apocalypse should Brexit win, including dire forecasts from the likes of George Soros, the Bank of England, David Cameron (who even invoked war), and even Jacob Rothschild, something “unexpected” happened yesterday: the UK was the best performing European market following the Brexit outcome.

     

    This outcome was just as we expected three days ago for reasons that we penned in “Is Soros Wrong“, where we said “in a world in which central banks rush to devalue their currency at any means necessary just to gain a modest competitive advantage in global trade wars, a GBP collapse is precisely what the BOE should want, if it means kickstarting the UK economy.”

    On Friday, the market started to price it in too, and in the process revealed that the biggest sovereign losers from Brexit will not be the UK but Europe.

    Not only, though. Because as we noted yesterday in “Who Are The Biggest Losers From Brexit?”, there is an even bigger loser than the EU: Britain and Europe’s wealthiest people.

    Britain’s 15 wealthiest citizens had $5.5 billion erased from their collective fortune Friday after the country voted to leave the European Union. Britain’s richest person, Gerald Grosvenor, led the decline with a loss of $1 billion, according to the Bloomberg Billionaires Index. He was followed by Topshop owner Philip Green, fellow land baron Charles Cadogan and Bruno Schroder, majority shareholder of money manager Schroders Plc.

    It wasn’t just Britain: as Bloomberg added overnight, the world’s 400 richest people lost $127.4 billion Friday as global equity markets reeled from the news that British voters elected to leave the European Union. The billionaires lost 3.2 percent of their total net worth, bringing the combined sum to $3.9 trillion, according to the Bloomberg Billionaires Index. The biggest decline belonged to Europe’s richest person, Amancio Ortega, who lost more than $6 billion, while nine others dropped more than $1 billion, including Bill Gates, Jeff Bezos and Gerald Cavendish Grosvenor, the wealthiest person in the U.K.

    Ironically, it turns out that when George Soros threatened “The Brexit crash will make all of you poorer – be warned“, what he really meant is “it will make me poorer.” And yes, George, the people were warned which is why they voted the way they did.

  • What Happened With LTCM Is Now Happening Across The Political And Economic World

    Submitted by Michael Krieger of Liberty BlitzKrieg

    Brexit = Death of the Technocrats

    My political opinions lean more and more to Anarchy (philosophically understood, meaning abolition of control not whiskered men with bombs) … the most improper job of any man, even saints (who at any rate were at least unwilling to take it on), is bossing other men. Not one in a million is fit for it, and least of all those who seek the opportunity.

          – J. R. R. Tolkien

    What transpired last night in the United Kingdom represented one of the most extraordinary expressions of democracy in my lifetime. When faced with an event of such monumental significance, it’s difficult to pick any particular direction for a post like this. I have so many thoughts running through my mind and so many angles I could potentially address, it’s simply impossible to do them all justice. As such, I’ve decided to focus on one very meaningful implication of Brexit: death of the technocrats.

    To start, I want to dive into one of the more interesting controversies from the weeks leading up to the vote. What I’m referring to is the statement made by Vote Leave’s Michael Grove regarding “experts.”

    From the Telegraph:

    On Friday night, during an interview on Sky News about the EU, Faisal Islam challenged the Justice Secretary to name a single independent economic authority that thought Brexit was a good idea. Mr Gove’s response was defiant.

     

    “I’m glad these organizations aren’t on my side,” he said. “I think people in this country have had enough of experts.”

     

    Mr Islam spluttered incredulously. People in this country, he repeated, “have had enough of experts?”

     

    Mr Gove stood his ground. Yes, he said, people in this country had had enough of experts “saying that they know what is best”. Mr Gove had “faith in the British people”. The so-called experts, clearly, did not.

    For his words, Mr. Gove was attacked relentlessly. His language was described as dangerous, and he was scolded for its supposed anti-intellectualism. The “very smart people” issuing these condemnations did so in their typical self-satisfied, smug manner. Nonetheless, Michael Gove was absolutely correct in his assessment, and in this post I will detail precisely why.

    First of all, what is an “expert?” From what I can gather this term is bestowed upon someone with an advanced degree who has successfully maneuvered him or herself into a position of prominence within government, a think tank, central banking or academia.

    As someone who worked on Wall Street for a decade, I was constantly surrounded by people with advanced degrees from the most prestigious institutions. I also know that your degree means absolutely nothing the moment you walk in that door for the first day of work. You enter a place filled with people who have battling it out for years if not decades in their profession of choice, and the only thing that matters now is performance. If you don’t perform you’re gone, and nobody’s gonna care about the long sting of letters next to your name.

    The world of politics, government and central banking famously and problematically does not work this way. Look around you at all the discredited “thought leaders” who continue to be paraded around on television, and who still advise Presidents and Prime Ministers the world over. In the aftermath of the 2008 financial crisis no changing of the guard was permitted. Sure we were given a fresh face with Barack Obama, but his advisers didn’t change. He immediately hired both Larry Summers and Timothy Geithner, and that’s the moment I knew he was a gigantic fraud. To summarize, the exact same people who ruined the world bailed themselves out, avoided all accountability and continue to call the shots. These are the men and women we know as “the experts.”

    The point isn’t to say that having an advanced degree in a particular field of study doesn’t make an individual especially useful to society. It does. The issue here is accountability. If you want to go around calling yourself an expert and demanding that your views be implemented across a given civilization, you had better do a good job. If you do a poor job, you should be immediately replaced with someone who has a different perspective. After all, there are plenty of experts out there to choose from. Unfortunately, our societies tend to get stuck with egomaniacal, incompetent, but politically savvy experts who never go away. They can blow up the world a million times over and still somehow survive to call the shots. This is the main reason the world is in the state it’s in, and it’s the reason reactionary forces are rising across the globe.

    The Brexit vote in itself proves the point. Sure, David Cameron has announced his intention to resign, but where are the the resignations of EU technocrats? If anyone was discredited by this vote it’s the leadership of the EU, but they aren’t going anywhere. Why? Because they’re experts, and experts stay around forever. Like Larry Summers, bank executives and neocon war mongers, these people never suffer the consequences of their actions and thus remain free to run around endlessly destroying the world from their unassailable perches of power.

    That’s the point. Being an expert does not make you infallible. Your credentials should certainly offer you a seat at the policy making table, but from that moment on you had better demonstrate performance. It’s the same way with a corporate job. The resume gets you in the door, but your production day in and day out keeps you in the seat.

    The status quo doesn’t see things this way. To the status quo technocrat, this is a lifelong position. They consider themselves to be the wise indispensable elders required to steer the world in the appropriate direction irrespective of any and all calamities they cause along the way. Unfortunately for us, history shows us that the biggest disasters happen precisely when you combine such expert arrogance with unbridled power.

    One of the best modern examples of this relates to the tale of the 1990’s mega hedge fund Long Term Capital Management (LTCM). A story that was perfectly captured in the excellent book by Roger Lowenstein, When Genius Failed.

    The leadership of LTCM was hailed as the best of the best from the beginning and expectations were high. It’s principals consisted of not only Wall Street veterans but also several former university professors, including two Nobel Prize-winning economists. Yet, what transpired after only five years in operation was one of the most spectacular failures of modern times. A train wreck so large and so completely out of control, it required a Federal Reserve led bailout.

    What happened with LTCM is happening right now across the political and economic spheres in virtually all nations. You have a collection of self-assured, arrogant “experts” running the world into the ground with their policies. As I said earlier, I have no problem with experts. I have a problem when experts are permitted to operate with zero accountability. The EU represents such technocratic immunity better than any other institution in the Western world. The British people recognized that they couldn’t remove these technocrats from power from within (something proven once and for all by the fact no EU leaders have resigned), so they decided to leave. I commend that choice and I think the sooner the status quo is disposed of, the greater the likelihood for a positive longterm outcome.

    As I warned last year in my post, A Message to Europe – Prepare for Nationalism:

    Actions have consequences, and people can only be pushed so far before they snap. I believe the Paris terror attacks will be a major catalyst that will ultimately usher in nationalist type governments in many parts of Europe, culminating in an end of the EU as we know it and a return to true nation-states. Although I think a return to regional government and democracy is what Europeans need and deserve, the way in which it will come about, and the types of governments we could see emerge, are unlikely to be particularly enlightened or democratic after the dust has settled.

     

    My thoughts and prayers go out to all the victims of these horrific events, but the Paris attacks didn’t happen in a vacuum. The people of Europe have already become increasingly resentful against the EU,  something which is not debatable at this point. This accurate perception of an undemocratic, technocratic Brussels-led EU dictatorship was further solidified earlier this year after the Greek people went to the polls and voted for one thing, only to be instructed that their vote doesn’t actually matter.

    Actions have consequences, and we’ve now witnessed the first of these consequences. The “experts” have warned us of the disaster to befall Great Britain should it Brexit. Well we now have front row seats from which to observe the outcome of the UK versus large economies that remain in the euro such as France, Spain and Italy. As usual, I suspect the experts will be wrong.

    For more, see:

  • Global Institutions May Be Susceptible To Hackers, SWIFT Remains Vulnerable

    The world of central banking relies on transferring vast amounts of information along controlled and secure messaging lines, around 2 million per day between roughly 7,000 institutions. The system of connections to and from central banks in Asia, Russia, China, Africa, and the Americas is known as SWIFT (The Society for Worldwide Interbank Financial Telecommunication). SWIFT provides a means for sending messages between the parties that have access to it. Each party is responsible for providing security measures before accessing the SWIFT network.

    On March 7, 2016 Reuters reported the central bank for Bangladesh stated it discovered unauthorized withdrawals from its account at the Federal Reserve Bank of New York (FRBNY).  The amount of the unauthorized transfer has been reported to be USD $951 million.  The World Bank database shows Bangladesh holds just shy of USD $28 billion in foreign exchange reserves on its books, an amount that has tripled since 2011.

    Around the middle of April reports appeared which  stated that roughly USD $81 million remained uncovered. It still remains uncovered as of this writing.  What also remains uncovered is the truth of what happened. We have yet to learn if someone hacked into the SWIFT system from outside the Bangladesh central bank headquarters or if the unauthorized transaction was executed as an "inside job". Sources speaking with Zero Hedge control cyber security operations for international companies have said it would appear the complexity of the steps necessary to execute a transaction across the SWIFT system would  require knowledge from someone who regularly interacts with the SWIFT system.

    What's more, the SWIFT hack was not even the main objective of the group, they merely stumbled upon an entry point while monitoring the system for message flows.  Security in the cyber world is fragile, as evidenced by the uniqueness of the SWIFT system and the fact that entry to  the system was not the main purpose of the hackers.

    Symantec said in a blog post that the SWIFT attack shared code and tools similar to those used to attack SONY's systems in  2014. When systems are compromised, entire rebuilds are necessary to ensure a vacuum-type environment going forward.  As the US Dept. of Homeland Security Chief said at a Council on Foreign Relations Q&A, we're paraphrasing, "we assume every system is compromised and we focus primarily on the offensive". What he likely means is that the best defense is a good offense, take out the other guys' system before he gets into yours.  This view could be damaging to FireEye should this topic find itself on the mainstream stage.

    FireEye bills its product as one that can be installed on an existing system and secure that system, meaning that beyond a doubt the FireEye product is  able to clean and sanitize a system that was once open to be compromised, a defensive system. One may be well suited to  ponder: at what point is a system too complex for FireEye's product to just be installed and trusted? Mandiant, the InfoSec  arm of FireEye has been hired to investigate the Bangladesh hack and it will be interesting to see if the company pushes to  clean the current SWIFT system or agrees to go along with a completely new platform.

    The SWIFT rebuild will likely require the insights of an outlet such as Hyper Ledger, run by longtime Zero Hedge CDS and commodity trading icorn, Blythe Masters.  Hyper Ledger works with a consortium of organizations and corporations tasked with developing systems to offer protection for messages sent between  the worlds central banks, which will be based on blockchain technology.  A rebuild is still likely 2 years away according to well placed Zero Hedge sources, which opens new concerns about the current integrity of the SWIFT platform and what problems may be lurking within it that we have yet to discover.  

    One thing is certain: with "big bank" support behind both blockchain and Masters' startup, it is only a matter of time before SWIFT is phased out, most likely in some major "scandal" that discredits the way US Dollars have been transferred around the globe for decades.

    The question that remains unanswered currently is:  Who still has access to the central banking SWIFT system and is capable, right now, of monitoring message flow between institutions?  Something to keep in mind as the EU experiment unravels.

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