- Meet The Army's Next-Generation Assault Rifle And Sig Sauer Pistol
For the last three decades, the US Army has issued the M16 rifle and the M9 pistol to its infantry personnel. Both weapons are standard for the American soldier and have worked well in many overseas operations.
With the possibility of military conflict with China and or Russia, the Army has made several preparations to replace its aging and outdated weapons.
In 4Q 2017, we documented how the Army is preparing for decades of hybrid wars across multiple domains – space, cyberspace, air, land, and, maritime. We examined the Army’s latest Training and Doctrine Command report, which highlights how the next round of hybrid wars could begin somewhere around 2025 and last through 2040.
Then last month, the US Army’s chief of staff made it public that the service is expecting to procure the next-generation squad weapon would fire faster, farther than M16 and M249 infantry rifles and penetrate the most advanced body armor technologies in the world.
“It will fire at speeds that far exceed the velocity of bullets today, and it will penetrate any existing or known … body armor that’s out there,” Gen. Mark Milley told Military.com at the 2018 Association of the US Army’s Annual Meeting and Exposition.
“What I have seen so far from the engineers and the folks that put these things together, this is entirely technologically possible … It’s a very good weapon.”
The contract solicitation on FedBizzOpps states the Army plans to award production for up to “250,000 total weapons system(s) (NGSW-R, NGSW-AR, or both), 150,000,000 rounds of ammunition, spare parts, tools/gauges/accessories, and engineering support.”
As the series production of the next-generation assault rifle is imminent, the Army has also been replacing its outdated Beretta M9 pistol.
So what was wrong with the M9 and why has it been replaced?
Pistol technology had rapidly changed since the 1980s when the M9 was commissioned. Double-action strikers, uncommon three decades ago, have become standard, and for an excellent reason, said the American Rifleman. The striker system is sealed with no exposed hammer slot that does not allow dirt and debris into the gun.
The M9 is manufactured from an aluminum frame. Aluminum or steel frames were standard in the 20th century, but composite materials have replaced most base metals. Another negative of the M9 is its lack of a Picatinny rail to mount addition adds on, including lights, lasers, and or sights.
With all this in mind, 2018 has served as a transitional year for the Army in replacing its old weapons.
Earlier this year, the Army’s 101st Airborne Division was the first to receive the services’ new M17 and M18 pistol, engineered to give infantry an edge in the ability to fight in caves, tunnels, crawl spaces, houses, and other close quarter combat scenarios.
“You can close with the enemy in close quarter combat and engage the enemy with one hand. It is tough to do this with the M9,” Lt. Col. Martin O’Donnell, spokesman for the 101st Airborne, told reporters earlier this year.
The new pistol is also designed with an ergonomic configuration that allows soldiers to enable rapid hand switching as needed in combat.
The M17 is said by its designer to bring much tighter dispersion, improved versatility, and next-generation accuracy.
“With this weapon, you can change quickly from right hand to left hand. If you are shooting something that is not comfortable on your hand and can’t get a comfortable grip, it is not as accurate,” Sgt. 1st Class Andrew Flynn, 101st Division Master Gunner, said earlier this year.
The Army is now acquiring thousands of next-generation assault rifles and pistols in the pursuit of modernizing its forces before the next conflict slated for the mid-2020s.
- 25 Basic Life Skills That Should Be Taught In School (But Aren't)
Authored by Meadow Clark via Daisy Luther’s Organic Prepper blog,
I know lots of you are homeschool parents. But please accept before reading this article that many kids are sent to public schools for a wide variety of reasons. Please do not turn this into an argument about homeschooling vs. public schooling or an insult festival toward parents who send their kids to school. That’s not productive. Let’s talk about what is taught vs. what is missing. And also, keep in mind that school is the only chance that some children have to learn new ideas because their parents are either disinterested or close-minded. While most of us try to teach our children these excellent skills at home, many young people are not raised in households like ours.
Think of the vast amount of time that students spend in school. But what do they come away knowing? They are taught very few life skills, so are they really prepared for the real world?
Here’s one of the glaring problems with public school: it’s designed to waste time.
Like a Weeping Angel from Doctor Who, school can zap your life away. It wouldn’t be half bad if you were being taught something useful. Sure, reading and math are important, but the bulk of those things can be taught in much shorter periods of time than are being utilized right now. Plus, reading skills are deteriorating and math was swallowed by Common Core.
Ideally, there would be myriad forms of trustworthy education that could suit any personality. And ideally many of these skills would be taught by family and imparted by experienced people – but that’s getting harder to do.
So in the list below, think of what it would be like if schools were ideal and actually preparing people to live meaningful lives.
Without further ado, here are…
25 Life Skills That Should Be Taught In School (But Aren’t):
#1 Individual Thought
Instead of regurgitating what the teacher says and mirroring their peers, people need to think for themselves only. That means no groupthink. Most people think they are unique but are only parroting. That’s why you can figure out who they are from just two of their beliefs. A lot of people struggle with who they really are but can’t even have a thought of their own. Life shouldn’t be so monochromatic and Borg-like. Calling all real individuals.
#2 Personal Finance, Saving & Budgets
The credit card and personal finance industry should not be the ones teaching us about money. And while I think Dave Ramsey’s advice from Total Money Makeover to start an emergency fund is golden; I’d like to nominate The Index Card by Helaine Olen as the curriculum. It is by far the best, most objective personal finance advice I’ve ever gotten. Takes all the confusion away. The name is from the idea that everything you need to know about finance fits on an index card – and the book even comes with it!
#3 Health & Nutrition
No fad diets. Just self-care and nutrition. Food selection and important information about vitamins, minerals, and bio-compounds. I know they teach health in school but c’mon… And why not include gardening and food prep?
#4 Resiliency & Failing Gracefully
The world can be crushing enough, perhaps resiliency and tenacity can be emphasized instead of measuring students against failure. Failure is inevitable after all, so people should be shown how to fall and get back up again.
#5 The Art of Conversation
‘Sup! Hav U taken this class B4?
#6 Logic, Reasoning, and Public Discourse
Did you know that schools have been rapidly dropping Logic classes? It’s time to stop the Idiocracy from spreading and revive Logic! Also, it would be nice if public discourse didn’t amount to two people rabidly screaming at each other.
#7 Character
You can’t legislate morality, but young people are eager to learn character. Instead of burdening children with global warming responsibility and punishing them severely for breaking unspoken social justice mores – how about letting them have fun but fostering a sense of character. Show them they have personal control/responsibility and that there are real-world consequences for their actions. Relationship skills probably shouldn’t be taught by government-run schools but ultimately those come from a person’s character.
#8 Negotiation
In order to make it in the real world and provide for a family, negotiating is crucial. It means being firm, having a backbone and the willingness to exhibit some disagreeableness.
#9 Cooking from Scratch
It’s a seriously needed lost art! And it overlaps with health, budget and survival classes.
#10 Survival & First Aid
All forms of survival, prepping and first aid, including wilderness first aid, should be taught to everyone. Survival without tech and during disasters or live shooting events – all of it. Gardening, self-defense, and firearms overlap with this class, too. The Dangerous Book for Boys, The American Boys Handy Book, The Field and Forest Handy Book: New Ideas for Out of Doors would be a great, fun start! Of course, The Organic Prepper makes a great curriculum – hi, homeschoolers!
#11 Speed Reading (But with Deep Comprehension)
Speed reading is not the same as skimming. Many people have been taught to skim haphazardly because of the Internet, new gadgets and pressure to multi-task. This study shows that skimming is actually not a great way to comprehend more. Speed reading removes “subvocalization” while reading, and it can be done while maintaining comprehension.
#12 Self-Defense
Both with and without firearms. It would include boundaries, situational awareness, and improvisation.
#13 Crash Course on How Government Works
People are told to go out and vote but a lot of them don’t even know much about the positions they are voting on. I wish School House Rock had kept up the government songs! “I’m just a bill…”
#14 Creativity
Our linear-thinking and tech-driven world is rapidly extinguishing right-brain thought, and that is a travesty. Our creative force needs to be ablaze at all times and should never be downgraded or snuffed out.
#15 Household & Basic Car Mechanic Repairs
Why are these skills not taught to everyone? Learn to be handy and be independent from others while putting thousands of savings toward paying down a house. A lot of people are afraid to try, but only because they weren’t taught and may be afraid to ask for help.
#16 Time Management, Focus, and Productivity
Multi-tasking is a proven fraud. In a world driven to distraction, the art of focus is priceless in the working world. Maximized time is a maximized life.
#17 How to Read Literature With Deeper Understanding
Let’s face it: high school makes a lot of people hate books. Something tells me that’s the real reason why 1984 is mandatory reading. Who actually remembers the deeper message later in life? Curriculum: The Well-Educated Mind by Susan Wise Bauer is a straight-forward, wonderful guide through the classical education most of us never got.
#18 Entrepreneurship, Career & Starting a Business in a Gig Economy
This is a crucial skill desperately needed in a changing job landscape. It could teach sales skills for all different personality types. And hey, wouldn’t it be great to cultivate what your passions are instead of being wedged into categories by those career assessments?
#19 Etiquette
Seriously. Make. This. A. Class.
#20 Social Skills
Social skills are different than etiquette and manners. It involves picking up on cues and tone, and knowing how to appropriately respond in different situations. There is dating etiquette and there is also dating social skills. These are just as important as having social awareness on the job.
#21 Study & Deep Research
Why do 12 years of school without first learning this key element?
#22 How to Selectively Make Real Friends
An elective class to win GOOD friends and influence people. Networking. Watching out for red flags in relationships. School is basically a big bullpen where you’re with the same people every day for 12 years. And they think homeschoolers aren’t “socialized”? Sheesh! Plus, social media gives the false impression of connection without much selectivity.
#23 Effective Communication & Writing
So apparently this is being taught now, but…is it really?
#24 Resume & Cover Letters
Firstly, a lot of people do not know how to craft these. And secondly, most of them are thrown into the trash or get lost in cyberspace. The soul-crushing job application process needs a serious makeover, but until that happens, people need to learn how to write an attention-grabbing human-voiced resume that gets that foot in the door.
#25 Understanding Credit Cards, Bills, Taxes, House/Car Purchases, Student Loans, Insurance
This is a much-needed course, unfortunately. This class would help students avoid predatory financial practices instead of being ushered right into them. Day 1: teacher cuts up all credit cards in a class demonstration.
Last but not least….a bonus that is only being sort of taught apparently?
GEOGRAPHY!
If people want to let their government charge trillions to lob bombs into another country, then by Jove, they’d better be able to point it out on a map… I’m being darkly facetious, but seriously, geography is important.
It may even drive a wanderlust to explore, and the government doesn’t want that. We were always at war with Eurasia!
I was tempted to put some other electives on the list like “Relationship Skills by Interviewing Elderly Couples” or “Why TV Sucks” but I realize that these fall outside the realm of objectivity and belong in class #1: Individual Thought.
- Australian Spies May Get License To Kill During International Secret Missions
Australian spies on top secret missions may soon gain a license to kill enemies who pose a risk to their undercover missions while operating abroad, reports ABC News.
Australian James Bond, George Lazenby Australian Secret Intelligence Service (ASIS) officers are currently permitted to use their weapons in self-defense, or to protect anyone working with the spy agency, however on Thursday the Morrison government is set to introduce new laws to Parliament which will allow spies to use “reasonable force” during overseas missions.
Australian Defense Minister Marise Payne Foreign Minister Marise Payne said the new powers were needed because ASIS officers “often work in dangerous locations, including under warlike conditions, to protect Australia and our interests”. –ABC News.
The Aussie government has justified the new policy by pointing to the broader scope of “more dangerous missions in new places and circumstances unforseen 14 years ago,” when the Intelligence Services Act provisions were last addressed.
“As the world becomes more complex, the overseas operating environment for ASIS also becomes more complex,” said Payne in a statement, adding “The changes will mean officers are able to protect a broader range of people and use reasonable force if someone poses a risk to an operation.”
“Like the existing ability to use weapons for self-defence, these amendments will be an exception to the standing prohibitions against the use of violence or use of weapons by ASIS.”
According to the foreign minister, ASIS’s watchdog would maintain an important oversight role over the use of weapons and force by the intelligence service.
- Don't Get Distracted By The Trump/Fed Soap Opera – The Crash Will Continue
Authored by Brandon Smith via Alt-Market.com,
At the beginning of 2018 I wrote extensively on what was likely to happen under the administration of Jerome Powell, the new Federal Reserve Chairman. In my article ‘New Fed Chairman Will Trigger A Historic Stock Market Crash In 2018‘, published in February, I predicted that the Fed would continue interest rate increases and balance sheet cuts throughout the year and they would knowingly initiate a crash in equities.
To be clear, this was not a very popular sentiment at the time, just as it wasn’t popular when I predicted in 2015 that the Fed would launch interest rate hikes instead of going to negative rates in order to start a catalyst for economic crisis. The problem some people have with this concept is that they just can’t fathom that the central bank would deliberately crash the system. They desperately cling to the notion that the Fed and other central banks want to keep the machine rolling forward at any cost. This is simply not true.
The claim is that the banking elites are “required” to keep the system propped up in a state of reanimation because they are reliant on the system to provide capital and thus “influence.” The people that assert this argument don’t seem to understand how central banks operate.
As most liberty activists should know by now, central banks are essentially a legally protected counterfeiting scheme. Using fractional reserve banking at a ratio that is secret, central banks create their own capital from thin air, and they can infuse capital into international banks at will when it suits their purposes. There is no “profit motive” for the banking syndicate. They can print the cash or digitally conjure it anytime they wish, and they can use it to purchase tangible assets before their printing diminishes the buying power of the currency, passing price inflation on to regular citizens.
Thus, keeping the system in perpetual positive motion is not necessary in terms of the transfer of wealth from the population to the banking class. In fact, economic crisis events are very useful to the elites because these events allow the banks to buy up concrete assets like natural resources, businesses and properties for pennies on the dollar.
For example, this is exactly what they did during the Great Depression when major banks like JP Morgan bought out thousands of failing local banks across the U.S. and took control of mortgages and other assets being paid off by a vast portion of the American citizenry. The banking system never looked the same again, and international banks continue to dominate ever since as localized competition remains elusive.
This also occurred after the crash of 2008 when companies like Blackstone bought up billions in distressed mortgages for well below previous market value, taking control of the property market and turning bankruptcies into rentals.
The 2008 crash was an asset buying bonanza for banks and corporation bailed out by the Federal Reserve. Low interest rates provided endless cheap credit through which companies could buy anything and everything. Of course, they mostly bought their own equities through stock buybacks, artificially inflating the stock market to the point of absurdity while taking on historic levels of debt — but we’ll get to that in just a moment.
The point is, there is every reason for central banks and their international corporate banking partners in crime to want a controlled demolition of the economic system. As long as they always control the dominant currency mechanism and the means of wealth distribution, they can use fiscal disasters to buy up hard assets for almost nothing.
The profit motive argument against deliberately triggered market declines has no legs when we consider this reality. But there is another reason far beyond the issue of asset accumulation; namely the psychological effects these events have on the masses.
Economic panic is a very useful tool in the hands of the banking establishment for molding social conditions in a way that gives them greater psychological power over the public. In every instance of financial catastrophe it is the banker cabal that is asked to step in and save the day. In 2008 it was the Federal Reserve that was tapped to act as a hero to the mainstream, and only through the tireless efforts of alternative economists and liberty activists has this fallacy been exposed to some in the population.
In the next crisis, it will be the IMF that is used as the front organization for the next rescue as market collapse leads into a crisis in confidence in the U.S. dollar. I outlined the plan for this in my recent article ‘IMF Reveals That Cryptocurrency Is The New World Order End Game.’
The average person is completely unaware of the Hegelian con-game being played here. And, when banking institutions step in as the designated “caregivers” to the ailing economy, what we sometimes see is a kind of reverse “Florence Nightingale effect”, in which the patients fall in love with the nurse merely because they have associated the extension of economic function to an extension of their lives (or at least, an extension of comfort in their lives).
The next engineered crash is shaping up to become the most epic in history, and make no mistake, it has already started.
Even now mindless optimism and blind faith in the markets continues, and the assumption on the part of the investment world is that the banks will eventually be forced to admit their “policy error” on tightening and that they will revert back to lower rates or even more QE. This is not going to happen.
An example of the Fed reversal fantasy was the reaction to Jerome Powell’s recent speech in light of “criticism” by the Trump Administration. Powell’s statement included a throwaway line indicating that the Fed rate was “just below” the neutral rate, which investors and algo trading computers immediately interpreted as a “dovish” pull back from a previous statement in which Powell said they were a “long way” from the neutral rate. Stocks spiked on the “shift” in speech patterns.
Yes, investment markets really are that desperate for a sign that the Fed will keep the party going. But let’s look at reality.
Powell is simply repeating a fact, not changing Fed policy on rate hikes – the Fed funds rate is 2.19% technically just below what the Fed considers the “neutral rate” of inflation; around 2.5% to 3%. The assumption markets are making is that the Fed will not hike BEYOND the neutral rate of inflation. This is a naive assumption. At no point did Powell indicate the Fed would stop rate hikes. In fact, Powell dared to reiterate his assertions that the US economy is healthy and well into “recovery”. This is not the statement of an institution that is about to stray from its current path.
I would also point out that all this focus on interest rates might be a distraction from the Fed balance sheet cuts. I cannot recall if Trump ever complained about this issue, but asset cuts are a primary key to the decline in stock markets, perhaps more so than interest rates.
Hopium sellers have been peddling several scenarios lately in which the current downtrend in markets will stop and the bull rally party rekindled. The three most pervasive are…
Scenario #1: The Fed suddenly skips rate hikes in the near term under pressure from markets and the White House.
Scenario #2: The Fed fully admits to policy error in light of stock market declines and re-launches QE.
Scenario #3: Trump announces successful trade war negotiations, primarily with China, and ends tariff measures.
As I have noted many times in the past year, Jerome Powell admitted in the minutes of the October 2012 Fed meeting that tightening measures in the face of extreme market addiction to stimulus would inevitably cause a crisis event. The Fed had created a monster of a bubble, and a monster in the investment world, and they knew they were doing it. With corporate and consumer debt levels at historic highs, any interest rate increases, no matter how seemingly marginal, will kill stock buybacks, cause corporate cutbacks and derail consumer spending.
Fed asset cuts will also offset stock buybacks over time and drag markets lower. If the suspicions of alternative economists are correct, then the Fed has been holding a massive short volatility position for years. Powell seems to confirm this kind of market manipulation in his statements in the Fed minutes of October 2012. If they continue to unwind this position as they dump their balance sheet, stocks will crash regardless of interest rates.
Today, Jerome Powell is taking the exact actions in policy that he originally admitted would cause a crash. Powell is not tightening out of stupidity, nor is he tightening out of a misguided error in policy. Powell is tightening because the banking elites WANT a crash. Period.
Because of this, it is highly unlikely that the Fed will stop tightening measures, let alone reverse them. The Fed does not care about “pressure” from markets, or pressure from the White House which I believe is part of a farcical Kabuki theater. The Fed will continue hiking up to the neutral rate of inflation, and probably well beyond that into 2019. This is exactly what they did during the Great Depression to escalate the crisis, and it is exactly what they will do today.
Trump’s trade war rhetoric and false media headlines are now the only levers that can be pulled to stall the market landslide. But it appears that this stalling is meant to make the crash more manageable, not stop it from happening. With Trump’s cabinet loaded with globalists, it is foolish to believe the current trend will end any other way.
Trump will jawbone markets up at times, but overall there will be no progression in negotiations. The latest Powell statement is most likely designed to help mitigate the downturn that will occur when the Trump Administration announces “no progress” with China after the impending G20 conference. The trade war will eventually escalate to include threats to U.S. bond markets and the dollar itself.
Trump’s policies match almost exactly with the model followed by Herbert Hoover preceding the crash of 1929 and the Great Depression. His trade war is a perfect distraction for the masses as central banks, the real culprits behind the crisis, pull the plug on life support for the economy. We will at times hear rumors of new ground gained with China and other nations, and these rumors will continue to be dispelled days later as they have been for the past year.
The battle between Trump and the Fed is purely a soap opera designed to lure conservatives into the Neo-con fold as they are told that Trump is a mere victim of Federal Reserve’s interest rate hikes. The rest of the world is being told that Trump is a gigantic baby, throwing a tantrum over a collapsing stock market bubble that he originally took credit for. They will be told that it is Trump’s tariffs and populism that are destabilizing the economy, not the Fed’s tightening into economic weakness.
The truth is, BOTH Trump and the Fed are working in tandem while playing a game of pretend-fighting that Trump knows well from his days in the WWE (World Wrestling Entertainment) and reality TV.
The establishment wants the system to break down, but at a speed that is manageable for them and psychologically disarming for us.
The optimistic claim that what we are seeing in equities is nothing more than a “correction” is a fallacy that misrepresents the reality of conditions on the ground. It is based on assumptions that the Fed will stop tightening measures and that the trade war will end abruptly and favorably. It is also based on severe cognitive dissonance — the optimism of drug addicts, their veins filled with years of QE heroin. The truth is that the drug binge is over.
The banking elites are done with that phase of the collapse, and they are moving onto the next phase. It is clear in their actions, it is clear in their public admissions, and it is clear in the downward spiral of the economy at large. What we are seeing is not a “correction,” it’s a crash. It is time for people to accept this fact and prepare accordingly if they have not already.
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- Why Powell's Speech Today Was "A Stroke Of Genius"
Submitted by Nicholas Colas of DataTrek
A Man for All Seasons
To our thinking, Chair Powell’s speech today was a stroke of genius. By easing the Fed’s public stance on rates, he puts all the responsibility for near term market direction on President Trump’s shoulders as he prepares to meet Chinese President Xi at the G20. US equities are barely up on the year, so what happens in Buenos Aires will determine if stocks post a positive 2018.
Federal Reserve Chair Powell really is a “Markets guy” after all, as today’s speech at the The Economic Club of New York showed. After saying interest rates were “far from neutral” on October 3rd, he didn’t make the crowd wait long today for his revised assessment. Powell’s new take, which appears in the 2nd paragraph of his talk: rates “remain just below the broad range of estimates of the level that would be neutral for the economy.”
We’ve been repeatedly pointing you to Fed Funds Futures as a forward-looking indicator for US central bank policy, and that market has been pricing in Powell’s speech as if it had an advanced copy a month ago. After October’s stock market swoon, Futures only gave the Fed a 17% chance of getting to a +3% funds rate, for example. Two-year Treasury yields – our other favored indicator – told a similar story, peaking on November 8th.
Since Fed Fund Futures had this event nailed, even if US stocks did not, let’s see what they say now with the benefit of a few hours to digest Powell’s talk:
- The odds that the Fed moves in December by 25 basis points are now 83%, up from 79% yesterday.
- Odds that the Fed stands pat or even cuts rates back to current levels at the March 2019 FOMC meeting are now better than 50/50, at 58/42. Yesterday they were about the same, at 55/45.
- Futures give the edge to seeing just one 25bp rate increase during all of 2019 (assuming the December 2018 bump), with 38% odds. Chances that the central bank raises rates twice or more in 2019 are now just 33%, down from 37% yesterday.
Hard-nosed numbers aside, the real genius of Chair Powell’s speech today is that it takes Fed policy out of the near term market narrative and shifts investors’ focus to President Trump’s end-of-week G20 meeting with Chinese President Xi. Here’s how this calculus works:
- US equities rallied strongly today because Powell’s comments effectively acknowledge the market’s concerns of a slowing global economy, driven in large part by the effect of US trade policy.
- All major US equity indices are up slightly on the year, or at least flat. The Dow: +2.6%. S&P 500: +2.6%. Russell 2000: -0.3%, but up 1% with dividends.
- The Trump/Xi G20 meeting on Friday is now the make-or-break event that will determine if US stocks print a positive or negative 2018. There simply are no other near-term catalysts that equal the importance of this event.
Squint only slightly through Machiavellian eyes, and Powell’s rate retreat looks very much like a calculated effort to pressure President Trump to make real progress at the G20. Chair Powell left himself enough wiggle room to change his stance in 2019. Mr. Trump does not have the luxury of time if he wants to see US stocks end the year on a high note. And Mr. Trump’s affinity for using the US stock market as a barometer for his professional success as President is well known…
Summing up: our Sunday note highlighted that US stocks sit on a fulcrum with “Hope” of a change in Fed/trade policy the only counterbalances to the heavyweight concerns of a slowing global economy. Chair Powell delivered on one of those hopes today. It will be up to President Trump to find a way to do the same later this week. Given today’s events, he does not really have a choice.
- "Thin-Air-Spending" & What To Watch As Asset Prices Plunge
Authored by Daniel Nevins via FFWiley.com,
“It is high time we rediscovered the role of the financial cycle in macroeconomics.”
—Claudio Borio, Bank for International SettlementsIn May, we queued up the b-side of a record describing America’s balance sheet – we looked at the mix of lenders instead of the usual “a-side” analysis of the borrowers.
We showed that the balance sheet includes four types of lenders—banks, the Fed, foreigners and prior domestic saving—as in the updated chart below. And the “prior domestic saving” category, since you asked, is mostly households, pension funds and insurance companies investing in bonds and bond funds.
Then we showed why the b-side is so important, even as it gets little attention. That is, the four types of lenders are fundamentally different from one another – lending by banks is highly correlated to spending (same-period and next-period spending), whereas the other lenders show no such correlation.
But economic theory says all lending is the same – how can banks be different?
Finally, we shared a diagram that explains the previous result.
The diagram shows that bank lending is unique because it creates fresh spending power from “thin air.” We’ll leave further explanations aside for now, but you might check our articles here or here to review how banks create spending power from nothing, and why that process invalidates entire libraries full of mainstream thinking. (Or see our book for more detail.)
Bank balance sheets are also highly predictive, as we showed when we used bank credit to construct a business-cycle indicator. (Again, see the b-side article linked above.) Considering the connections—empirical and conceptual—between bank credit and the business cycle, our indicator might be the best first step to business-cycle forecasting.
Okay so banks conjure spending from thin air—does anything else do the same?
Now we’ll take a second step by asking: What else materializes from thin air? How about the gains and losses in your investment portfolio? It sure seems as though investment gains and losses pop up from nowhere. And by combining them with new bank credit, we’ll create a highly predictive composite indicator that we’ll call thin-air spending power (TSP). Here are the two inputs to the composite:
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Real new bank credit. Inflation-adjusted new bank credit aggregated over four-quarter periods and expressed as a percent of final domestic demand in the prior period.
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Real holding gains. Inflation-adjusted holding gains (household and nonprofit gains from equities, mutual funds, real estate and pensions) aggregated over four-quarter periods and expressed as a percent of final domestic demand in the prior period.
And the chart below provides an example, using data from 2002 to 2008, of how we can track real new bank credit and real holding gains through a business cycle by placing one on each axis. Note that we’re mapping a path through the two dimensions by connecting data sequentially. Although the path shows just a single cycle (the last decade’s housing boom), the pattern is similar to that of the previous seven cycles, which you can confirm by reviewing the chartbook we’ll link at the end of this article.
But what exactly does TSP tell us?
So TSP is a creature of habit, and it has a habit of cycling through three phases: recovery, financial inflation and financial deflation.
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Recovery. TSP meanders upwards and rightwards as the financial economy heals from the prior recession.
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Financial inflation. TSP enjoys the big air of the upper-right triangle.
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Financial deflation. TSP completes the cycle by becoming scarce once again, dropping below a diagonal recession warning.
In other words, TSP typically triggers a recession warning shortly before the onset of a recession, anywhere from one to five quarters before. But you might wonder where the recession-warning line comes from—how do we determine its slope and position? Here’s the rationale for our choices:
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Slope. We consider the additional spending that could result from a dollar of real new bank credit versus a dollar of real holding gains. We expect a dollar of real new bank credit to result in up to a dollar of additional spending, but probably not a full dollar due to the portion that banks invest in securities rather than loans—security purchases don’t always flow into the real economy as directly and reliably as loans do. And for real holding gains, there’s a substantial literature suggesting that each dollar of additional wealth boosts spending by anywhere from three or four cents to a little more than ten cents. So weighing up real new bank credit against real holding gains, we see a ratio of about ten to one as far as the effects on economy-wide spending, and that determines the slope of our recession-warning line.
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Position. We draw the line through the origin to keep it as simple as possible. That choice won’t be optimal in every cycle, but we don’t believe it’s realistic to think we can “engineer” a substantially better one, especially as cycles change from one to the next.
Note that we’re cognizant of the risks of false precision. We didn’t fit the recession-warning line using regressions or other statistical techniques—we chose nice, round numbers that seemed reasonable, conceptually, and then we stopped there. Our choices may or may not hold up in the future, but we’d rather focus on whether current dynamics could be different to the past than on data mining the past to the fifth decimal point.
What can we say about the next few years?
And since we mentioned it, are we expecting the dynamics to be different this time? Or, will they be the same as usual?
You’ll form your own views, but our nickel’s worth of advice is to expect the usual. After eight rate hikes (and counting) and nine years of expansion, it’s natural for bankers, borrowers and asset markets to anticipate slower growth, and that’s exactly what we think we’re seeing in 2018. We’re seeing the financial economy lead the real economy. Or, to use a term that’s become popular in some circles of economics, the financial cycle is leading the business cycle. As a next step, we expect the financial cycle to fall into a more definitive contraction.
So once again, the financial cycle should drag the business cycle lower, and our TSP chart offers clues about the timing. Most importantly, the diagonal recession warning provides a decent tripwire for the countdown to the business cycle’s apex. We haven’t triggered the tripwire just yet, but we get an interesting result when we use high frequency data to estimate where TSP might fall at year-end. That is, our year-end (Q4) estimate sits only just above the recession-warning line, as shown below.
Conclusions
To be clear, we won’t know TSP’s actual Q4 reading until the Fed’s “flow of funds” data becomes available. But for now, we suggest watching the high frequency data, as above, especially as financial markets appear to be losing their nine-year-long buoyancy.
More generally, we’ll continue to promote the following beliefs:
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There is such as thing as a financial cycle (skeptics notwithstanding).
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The financial cycle explains a significant portion of the business cycle.
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To properly account for the financial cycle, you have to first reject a handful of the most pervasive and deeply held tenets of Keynesian, Monetarist and New Classical theories.
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The most predictive financial-cycle indicators are those that measure spending power created from thin air, as in our TSP chart.
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Other methods decompose the financial cycle into component cycles. (See our book, Economics for Independent Thinkers.)
To demonstrate the fourth point, in particular, we’ve published a chartbook with more history. The chartbook tracks TSP through every business-cycle expansion from 1954 onwards, among other charts, and shows that the two-dimensional approach has fewer anomalies than real new bank credit alone. Of course, that doesn’t necessarily make TSP better than other approaches—there are plenty of data-mined models that show ‘A’-grade back-tested results. But those models often require checking your intuition at the door, whereas our b-side approach is built mostly on intuition. In other words, we aim for indicators that extend our intuitive beliefs about how stuff works. If you’re willing to entertain that we might be onto something, check back for updates and further discussion.
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- European Gas Stations Out Of Diesel: French Refinery Strike Deepens Crisis
Authored by Mike Shedlock via MishTalk,
Diesel is in short supply in Europe. The situation is about to worsen as the biggest French refinery is shutting down.
Bloomberg reports Europe’s Diesel Woes Deepen as Strike Halts French Oil Refinery.
Total SA, France’s biggest refiner, is in the process of shutting its largest plant in the country, the 247,000-barrel-a-day Gonfreville facility in Normandy, due to a labor dispute, a spokeswoman for the company said on Tuesday. A few hundred miles away, in the Netherlands, retail fuel stations are running out of supplies because of shipping constraints on the Rhine, according to Royal Dutch Shell Plc.
Shell said Nov. 20 that it cut production at its Rheinland refining site, the biggest complex of its kind in Germany, due to low water levels on the Rhine. In a tweet on Tuesday, the company said that it was temporarily unable to supply some unmanned fuel stations in the Netherlands.
Gas stations in Germany had already been running dry due to the situation on the Rhine, a major petroleum product transportation corridor that runs northwest from the Swiss Alps all the way to the Netherlands. Switzerland released emergency fuel stockpiles because of the situation on the river.
The premium per barrel of diesel over Brent crude – another indicator of market strength – was at $15.96 on Tuesday, the highest for the time of year in six years.
Diesel Price Poised to Soar
This shutdown cannot possibly come at a worse time for French President Emmanuel Macron.
Macron is already reeling over a protest of his diesel tax.
Diesel Tax Turns Violent
People from across France went to Paris to let the president know how they feel about the taxes in general and the tax on diesel. The [Diesel Tax Protests](Diesel Protests in France Turn Violent) then turned violent.
Expect more reactions when the price skyrockets.
Macron Proposes Shutting Down Nuclear Power
In another poorly-timed announcement, France president Emmanuel Macron unveils plan to reduce reliance on nuclear energy.
Amid daily protests about high energy prices, Mr Macron said Francewill shut down 14 nuclear reactors by 2035.
France depends more on nuclear energy than any other country, getting about three-quarters of its electricity from its 19 nuclear plants.
The French leader promised to develop renewable energy instead, saying his priority is weaning France’s economy from fuel that contributes to global warming.
Say What?
Excuse me for pointing out that nuclear energy does not add to greenhouse gasses, not that this whole global warming scare makes much sense in the first place.
Macron’s Latest Brainchild
Mr Macron also said the government will find a way to delay tax increases on fuel during periods when world oil prices are rising.
Excuse me for pointing out that the diesel protest came when oil prices were falling.
In an attempt to calm the protesters, Mr Macron proposed a three-month consultation with associations and activist groups, including the so-called “yellow jackets” who have led the recent protests, about how best to handle the rising energy costs.
Yeah right. That’s sure to work.
Floating in Outer Space
Courtesy of the New York Times, here’s the comment of the day:
“He seems to be deaf,” said Fabrice Schlegel, who has helped lead some of the citizen protests that have convulsed France in recent weeks.
‘‘He’s talking to us about the ‘ecological transition.’ This is a politician who is floating in outer space.”
Macron’s Foot in Mouth Disease
Macron’s diesel and nuclear gaffes are on top of his threat to Keep EU in Perpetual “Temporary” Customs Union Backstop.
Actually, I am happy for Macron for those custom union threats.
Hopefully it will wake up the UK parliament enough to vote down this pathetic deal that Theresa May is attempting to cram down the UK’s throat.
- Another China Sex Doll Brothel Goes Tits-Up After Police Raid
The same day as a South China Morning Post exposé on Hong Kong’s first sex doll brothel – asking in the headline “is it legal?” and insinuating the dolls fulfill rape fantasies, the silicone whorehouse in the city of Kwun Tong was raided by police and shut down.
Condoms are in plentiful supply, while the workers at the Kwun Tong business are ready to fulfil a customer’s every wish – although as plastic sex dolls they play a passive role in proceedings. –SCMP
According to police, the 30-year-old owner, Rex, was arrested at home following the “anti-obscene objects” operation at “This Mary,” at the Hoi Luen Industrial Center late last week. Rex came into the sex trade “after stumbling upon sex dolls last year after working as a salesman” for the dolls, ranging in price from $2,300 – $3,800 USD. After buying the dolls from a dealer in mainland China, Rex set up shop – letting men far and wide masturbate with his dolls… Until SCMP showed up and threw cold water on the whole thing.
Three television sets, 18 suspected indecent objects and three memory sticks were seized.
On Wednesday, a Post reporter saw the televisions being used to show pornographic films inside three private rooms in which the dolls were placed.
The owner was released on bail and must report back next month.
The proprietor, a Hongkonger who gave his name only as Rex, said on Saturday police approached him, offering an explanation he described as “something really nonsensical”.
He did not elaborate further. –SCMP
Rex was charging customers $61.00 an hour to “try before you buy” one of three silicone sex dolls, while clients are allowed to bring a real woman to participate in their sex doll session for $110 to enjoy 90 minutes of human-on-doll-on-human action. According to This Mary, guests were provided “general supplies” free of charge, and conducted a “comprehensive cleaning service” to ensure nobody gets sloppy seconds.
The brothel featured three themed rooms; classroom, anime and home.
Police told SCMP that Rex was arrested for the public display of sex toys for sale without properly covering them, as required by the Control of Obscene and Indecent Articles Ordinance – not for the sex doll business. Rex says he plans to consult friends for advice, but could not say whether he will remain in business.
The closure of Hong Kong’s first sex doll brothel echoes that of a September incident in Italy, when officials raided and shut down that country’s first such establishment as well – citing the violation of laws against “renting out accommodation,” as well as concerns that the dolls were improperly cleaned between uses.
Can’t a guy just go to a strip mall establishment and masturbate with the potentially sperm-filled synthetic woman of his dreams?
- "They Warned Us" – We Haven't Seen Anything Like This Since The Darkest Days Of 2015/16
Authored by Jeffrey Snider via Alhambra Investment Partners,
We can add this to the list of all the things going wrong in October. If it felt like a wave of renewed deflation built up and swept over markets and the global economy, it’s because that’s just what had happened. I don’t think it random coincidence the WTI curve went contango and oil prices globally crashed when they did. Golden Weeks in China are always interesting, especially on the reopen.
There are two facts as they pertain to China in 2018. The first is the nation’s clear monetary trouble. The second is why it has (re)emerged.
The statistics for the first part were pretty grim last month, accounting for much of why October was such a major global mess. The People’s Bank of China has been forced into cutting back on monetary growth in base measures all year. This all changed in January, the same time the global economy began to come crashing back down from its low-level reflation in 2017.
Without foreign assets, eurodollars, flowing onto its balance sheet on the asset side the central bank can only restrict growth on the money (liability) side. Factoring the cash needs for the central government, the result has been an increasing squeeze on the RMB base. This includes, ominously, actual cash in circulation.
In October, currency issue expanded by just 2.6% year-over-year. That brings the 6-month average down to 2.7%, which is the lowest average (not counting New Year January/February distortions) in all of the published PBOC data. They’ve just about turned off the literal printing press in China.
For the banking system, the external monetary noose tightened much more. This, of course, was perfectly predictable. China’s central bank practically announced what was going to happen when it cut the RRR during this very month in question. I wrote when the country reopened from its National Holiday week last month:
The RRR cut signals that the reserve problem therefore dollar problem is anticipated to grow worse. The PBOC is actually telling us that they expect in the months ahead the same or perhaps bigger commitment to “stepped up support.” CNY doesn’t need support if there is no worsening “capital outflow” situation of retreating eurodollar funding.
This will require more monetary contraction in bank reserves than we’ve already seen. The central bank is forecasting more problems ahead.
Both parts have since been shown to be true; facts. China expended more “foreign reserves” than they had been in trying to support CNY. That caused contraction on the PBOC’s asset side, now confirmed by that institution. The net result was both the lowest currency growth on record (above) as well as a huge contraction in bank reserves (below).
How big?
We haven’t seen anything like this since the darkest days of 2015-16. Deposits of Other Depository Corporations, the technical liability of the PBOC that counts as RMB bank reserves, crashed by 7.9% year-over-year in October. Unlike the January-February New Year holidays, the October Golden Week doesn’t move up and down the calendar, meaning that the numbers presented here are all apples to apples.
These are no statistical flukes.
This fills out the picture of October’s liquidations inside as well as outside of China. It is most certainly a deflationary squeeze, and one whose origin we know too well. The only positive we can take from the PBOC’s participation is how it gives us a very good sense of what is going on in the global currency shadows.
This is one of the few major statistics that shed light on what is otherwise almost totally hidden. And you needn’t possess any advanced training in derivatives, wholesale funding, or cross border flow accounting to understand what’s going on here.
It isn’t debatable, nor is there any ambiguity. China has a huge monetary problem on its hands, and one that is denominated in dollars but often has nothing whatsoever to do with the United States except for that one quirk.
This problem is growing, giving us a good sense of why things have turned and why they might not be done moving in the wrong direction. Not in some unique fashion but under the same kind of disruptive influence we’ve seen three times already in the last ten years.
I wrote yesterday:
It is the combination of those two things which has left us with one lost decade and beginning a second staring into yet another downturn. The world needs (euro)dollars (short) but the global banking system no longer produces them in sufficient quantity (shortage). So long as both parts remain true, false dawn reflations are the best we are going to see.
The Communist Chinese have been kind enough to prove these assertions through nothing more than simple balance sheet, monetary accounting.
The big downside, of course, is the entire global economy bears the brunt of what those numbers show. Again.
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