- War Party On The Run – The Roots Of The Anti-Trump, Anti-Sanders Camps In Both Parties
Submitted by Justin Raimondo via AntiWar.com,
I haven’t had this much fun in years – of course I’m talking about the US presidential election season, with The Donald taking on all comers, and winning (at least so far), and Bernie Sanders burning up the self-satisfied mandarins of the Democratic party Establishment.
What’s great about this spectacle – and one must view it as a spectacle in order to gain maximum enjoyment from it – is that, as none other than Rush Limbaugh points out:
“Trump is so far outside the formula that has been established for American politics that people who are inside the formula can’t comprehend it. They don’t understand why somebody would want to venture so far outside it, because it is what it is, and there’s a ladder of success that you have to climb. And somebody challenging it like this in more ways than one, as Trump is doing, has just got everybody experiencing every kind of emotion you can: They’re angry, they are flabbergasted, they’re shocked, they’re stunned – and all of it because he’s leading.”
As I explained here, and here, one of the ways Trump is upending the rules is that he’s broken with the GOP mandarins on foreign policy. Yes, yes, I know he bloviates about how he’s “the most militaristic person” on God’s green earth, but the fact is there’s plenty of others out there who out-do him in that category. I’ve heard him say he wants to “bomb the s**t out of ISIS,” but aren’t we doing that already – to little effect? When Bill O’Reilly asked him why he didn’t support putting ground troops in Syria, he answered “Do you want to run Syria?” O’Reilly demurred. Trump puffs up his chest and announces he wants us to have “the strongest biggest baddest military on earth” – but you’ll note he invariably adds: “So we’ll never have to use it.”
Most significantly, he doesn’t want to start World War III with Vladimir Putin’s Russia: he’s actually defied the anti-Russian propaganda blitz and said he’d like to be able to get along with Putin. This alone would’ve been enough for the neocons to start a holy war against him, but he’s even gone further than that and said the Iraq war – the neocons’ handiwork – was “one of the dumbest things ever,” and Limbaugh describes their response to a tee (of course without naming them).
Oh yes, it’s great fun watching the waterboarding of the neocons, because they count among their enemies the top two contenders for the Republican nomination, not only Trump but also Ted Cruz. The greasy-haired Canadian earned their ire when he attacked them by name, but as Rosie Gray reports in Buzzfeed they may be reconciling themselves to Cruz because he’s the only viable Not-Trump:
“Some of the hawkish figures who Ted Cruz recently dismissed as ‘crazy neo-con invade-every-country-on-earth and send our kids to die in the Middle East’ … say they’d consider supporting Cruz anyway if he’s the last man between Donald Trump and the Republican presidential nomination.
“Cruz, it turns out, hasn’t fully burned his bridges with that set of advisers and supporters of George W. Bush – figures like Weekly Standard editor Bill Kristol and former National Security Council official Elliott Abrams, who aren’t closed off to Cruz, especially in the case of Abrams. Indeed, despite some lingering resentment and suspicion, there are even glimmers of rapprochement as the Republican primary looks like it could become a two-man race. ‘I would not hesitate to back Cruz as the nominee,’ Abrams – who not long ago told National Review that Cruz’s use of the word neocon invoked ‘warmongering Jewish advisers’ – told BuzzFeed News.”
Cruz, for his part, is more than willing to smoke a peace pipe with the War Party:
“In an interview on his campaign bus in Iowa last week, Cruz told BuzzFeed News that, despite his jabs at neocons, he has ‘good relations with a great many foreign policy thinkers.’ Cruz has in the past cited Abrams along with former U.S. Ambassador to the U.N. John Bolton and former CIA director James Woolsey as trusted foreign policy experts.”
It’s getting pretty cozy in that campaign bus. Rosie, who knows a thing or two about neocons, seems to be the designated ambassador from Kristol-land to the Cruz campaign, and as the Anti-Trump Popular Front – the widest coalition in the history of politics, stretching all the way from the New York Times to Charles Krauthammer – tries to sell us on the idea that the Establishment is now backing Trump against the “insurgent” Cruz, she provides some insightful analysis of just who is the Real Establishment:
“The neocons’ willingness to consider Cruz stands in sharp contrast with a new line of current conventional wisdom in Washington that Cruz, who is the object of particularly intense personal dislike from establishment Republicans, is actually less acceptable to the establishment than Trump.”
We know who is the Establishment: it’s those brilliant folks who brought us the Iraq war, who want us to repeat our mistake in Syria, and who pine for a US-led regime-change operation in Russia to get rid of Putin and install a pliable Yeltsin-substitute in power. The Establishment, in short, is the War Party, otherwise known as the neoconservatives, and they are the tireless enemies of peace and liberty. Until and unless they are destroyed as a viable political force, either in the GOP or outside it, there will be no peace in this world. If and when Trump succeeds in sidelining them, that alone will be worth whatever price we have to pay in the – unlikely – event he makes it to the White House.
As even the usually clueless Ben Domenech, over at The Federalist, observes:
“On foreign policy, Donald Trump is exploiting American frustration with the elites of both parties. He cites over and over again his opposition to the war in Iraq as a smackdown for the neoconservative views which have ruled the roost in Republican foreign policy circles for 15 years. But he also uses his opposition to engagement in Libya to smack Barack Obama, Hillary Clinton, and Marco Rubio.
“It is very telling that the two leading candidates in the GOP primary today are very critical of intervention in Iraq and Libya and Syria, and this has not only not hurt them, but potentially helped them reach more than 50 percent support in the polls. One would think Republican elites would recognize this and think about what it means about the views of their base. One would think, but one would be wrong.”
With the triumph of Trumpismo having demolished the GOP foreign policy consensus – and the neocons’ ideological and organizational stranglehold on the conservative movement – the way will be cleared for a libertarian-ish insurgency to arise out of the rubble and make some real headway. I realize it’s hard to see this at the present moment: just like on HGTV, when some clueless couple on “Fixer Upper” or “Property Brothers” just can’t see that the scary dilapidated wreck of a house they’re being shown could become their Dream Home. Yet, in the end, they are bowled over by the luxurious and stunning result.
(Of course, there are no guarantees in life: a lot depends on if the fractious libertarians, beset as they are by right-wing opportunism and a brainless form of anti-political sectarianism, can finally get their act together.)
On the other side of the aisle – that is, in the Democratic party – a similar drama, with some significant variations, is being played out in the race pitting Bernie Sanders against Hillary Clinton. The latter is widely considered the presumptive heir, much like Jeb Bush was assumed to be the GOP frontrunner on account of his last name. Yet Bush has been humiliated and sidelined, and Mrs. Clinton may well be in danger of sharing his fate: Sanders is beating her in New Hampshire as well as in Iowa. This has “centrist” Michael Bloomberg, former New York City mayor and professional scold, so upset that he is threatening to launch a third party run if Sanders gets the nod.
The beleaguered Mrs. Clinton doesn’t have major principled differences with Sanders when it comes to domestic policy: their disagreements are over strategy, not goals. The real split is over foreign policy, with Hillary the hawk pecking at Sanders over his relatively dovish stances on issues from Iran to Libya. And now a posse of “national security” bureaucrats has taken out after Sanders with a joint statement deploring his unwillingness to parrot the War Party’s line:
“Over the past four debates, the subject of ISIS and Iran have come up a number of times. These are complex and challenging times, and we need a Commander in Chief who knows how to protect America and our allies and advance our interests and values around the world. The stakes are high. And we are concerned that Senator Sanders has not thought through these crucial national security issues that can have profound consequences for our security.
“His lack of a strategy for defeating ISIS – one of the greatest challenges we face today – is troubling. And the limited things he has said on ISIS are also troubling.
“For example, his call for more Iranian troops in Syria is dangerous and misguided and the opposite of what is needed. Supporting Iranian soldiers on Israel’s doorstep is a grave mistake. And while we support de-escalation of Sunni-Shia tensions, his argument that Iran and Saudi Arabia – two intense adversaries – should join together in a military coalition is just puzzling. Indeed, the Iranian government recently failed to stop protesters from ransacking and burning the Saudi embassy in Tehran, after which Saudi Arabia cut off diplomatic ties with Iran.
“We are all strong supporters of the nuclear diplomacy with Iran. Some of us were part of developing the policy that produced the diplomacy over the past several years. And we believe that there are areas for further cooperation under the right circumstances. But Senator Sanders’ call to ‘move aggressively’ to normalize relations with Iran – to develop a ‘warm’ relationship – breaks with President Obama, is out of step with the sober and responsible diplomatic approach that has been working for the United States, and if pursued would fail while causing consternation among our allies and partners.
“Given these concerns, it is important to ask what he would do on other issues – on Russia, China, our allies, nuclear proliferation, and so much else. We look forward to hearing him address these issues.
“We need a Commander in Chief who sees how all of these dynamics fit together – someone who sees the whole chessboard, as Hillary Clinton does.”
The only time the Clintonistas want to “move aggressively” is when it involves invading a sovereign nation like Iraq, Libya and Syria, and turning it into a cauldron of Islamist terror. Her “strategy” for defeating ISIS is to set up “no fly zones” in Syria, reoccupy Iraq, and fund the very head-chopping Syrian “rebels” from which ISIS and Al-Qaeda have sprung and with whom they are ideologically aligned. Indeed, Mrs. Clinton, who spearheaded the movement inside the US government to arm the Islamists in Syria and Libya, deserves the title “Mother of ISIS.”
As for all the balderdash about Iran: this is clearly the Israel lobby talking, and if there was any confusion about Mrs. Clinton’s role as their champion in the Democratic party, this should clear it up.
Yet the Clintonian arguments for an anti-Iranian foreign policy are not very convincing. For just one example: If “supporting Iranian soldiers at Israel’s doorstep is a grave mistake” then is Israel supporting ISIS at their own doorstep an equally grave miscalculation? But of course you won’t be hearing any criticism like that coming from this crowd.
From a noninterventionist perspective, neither Sanders nor Trump is perfect – both are very far from that. But to nitpick over their deviations is to entirely miss the point, as sectarians of both the left and right are bound to do. These two candidates represent, each in their own way, powerful and growing tendencies on both sides of the ideological spectrum that the movement for peace can utilize to its own advantage. For we cannot change the world until and unless we begin to understand it: only then can we take advantage of such openings as it allows. What is happening in this country is a rebellion against both wings of the War Party – and that is something to be celebrated and encouraged, even as we critique its shortcoming and urge the rebels to take their insurgency further.
Insofar as this election season is concerned, the watchwords or slogans that give voice to the “correct” position are best expressed in terms of double-negatives. For the conservative Republican readers, that would be: anti-anti-Trump. For the progressive Democrats: anti-anti-Sanders.
We are hearing the voices of the Mushy Moderate Middle rise up in defense of the status quo: Democrats like the Washington courtier Dana Milbank are warning us against Sanders, while the neocons to a man are railing against the Trumpist Temptation. This should be enough to tell us what is the right road to take and what our answer to the Mushy Middletarians must be: Extremism in defense of peace is no vice – and moderation in the fight against the War Party is no virtue!
- ISIS Planning To Build Navy, NATO Commander Imagines
Perhaps the most peculiar thing about Islamic State is that despite continual reports of highly successful airstrikes and proclamations from various governments regarding the extent to which the group’s operational capacity has been severely diminished, they never seem to go away.
In fact, besides the recent declaration from the group’s leadership that fighters’ salaries will be cut by 50% due to “exceptional circumstances,” we really haven’t seen any concrete evidence to support the contention that “the terrorists” (as Sergei Lavrov matter-of-factly calls them) are on their last legs.
Ramadi was retaken by the Iraqi army but the real prize is Mosul and ISIS remains just as entrenched there as they ever were. The group recently launched a serious offensive in Libya, where the country’s oil infrastructure is under attack. And no one is any closer to liberating Raqqa, the de facto ISIS capital.
Sure, Russia has released hundreds of videos depicting what The Kremlin says are airstrikes against training centers, stongholds, and, most notably, oil tankers but at the end of the day, al-Hayat Media Center continues to churn out the propaganda and the group fights on, seemingly no worse for wear.
One person who isn’t convinced that the group’s capabilities have been curtailed is Vice-Adml Clive Johnstone, a senior NATO Naval officer.
Clive is especially concerned about Islamic State’s maritime “ambitions.” ISIS, he figures, wants to build a navy. “The march of Islamic State in Iraq and Levant (Isil) along the Libyan coast has cast an ‘uncomfortable shadow’ across shipping,” The Telegraph writes, quoting Johnstone.
“We know they have had ambitions to go off shore, we know they would like to have a maritime arm,” the Admiral continues.
Back to that in a moment after a brief trip down hypocrisy lane.
Johnstone says he’s worried about “sophisticated Chinese and Russian” weapons falling into the hands of militant groups like Hezbollah. Those weapons, he says, create a “horrible opportunity” that a “misdirected, untargeted round of a very high quality weapons system will just happen to target a cruise liner, or an oil platform, or a container ship.”
Johnstone apparently isn’t concerned that “sophisticated” American weapons might be used for similar attacks.
After all, the US is arming all sorts of Sunni extremists in Syria and one group (the FSA) has already done exactly what Johnstone claims to be so afraid of: they used a US-supplied TOW to destroy a Russian search and rescue helicopter (see here for more).
The other hypocritical thing to note about Johnstone’s assessment is that it was NATO itself that put Libya in the position it’s in now. Had NATO not supported the overthrow of Gaddafi, we wouldn’t be in this situation in the first place and ISIS wouldn’t be running amok in the country’s oil crescent.
Johnstone goes on to describe what type of attack he imagines might be coming in the Mediterranean.
“I think it won’t be a planned, horrible mischievous act, I think it will be an act which is almost a mistake, or it will be an act of random terrorism that will suddenly have extraordinary implications for the Western world,” he says.
Got that? It will either be some kind of unplanned, “almost” accident that isn’t “horrible” or it will be an earth-shattering, murderous, “random” act of terrorism. It seems pretty clear from that convoluted bit of nonsense that Johnstone has no idea what he’s talking about.
But that’s ok, because the Admiral’s point isn’t to provide any intelligence about a credible threat to a cruise liner. No, his point is to explain why NATO needs to send more ships to the Mediterranean. And because it’s not polite to say “we need to have a stepped up presence because the Russians are there,” he’ll claim extra maritime muscle is necessary because ISIS is building a navy. Here’s The Telegraph again:
The Nato allies must also not allow themselves to be “hustled out” of the eastern Mediterranean, where the Russian Navy is increasingly active, he said.
He said the growing risks to shipping in the Mediterranean mean he is “quietly worried” there will be an attack or serious incident.
Got it. So NATO needs more warships in the region because ISIS may be planning a “serious” maritime “incident.” Just like how the US needs to have troops in Syria because of ISIS. And just like Turkish President Recep Tayyip Erdogan needs to consolidate power so he can combat the ISIS threat. And just like Russia needs to support Bashar al-Assad in order to keep ISIS from taking Damascus.
Now that you mention it, you can pretty much justify anything these days by claiming you’re fighting ISIS. Maybe that’s why they’ve stuck around so long. If world powers eliminate them, how will everyone explain their warmongering?
- Chart Of The Day: $17 Trillion In Student Debt By 2030
Student Loan Debt is a cancer for our society. This misconception that getting a college education equals a steady career has been dashed by the recession. For-profit colleges pray on undereducated and low-income individuals. Text book prices have risen exponentially while the cost of a quality education has as well.
This industry of education is going backwards, and will one day burst – will that happen soon?
- China's 3 Trillion Yuan Margin Call Time Bomb Is About To Explode
Make no mistake, investors didn’t need any more reasons to be bearish on Chinese equities.
Mainland markets are veritable casinos dominated by retail investors who until last summer, were enthralled with the prospect of easy riches in an environment where shares only seemed to know one direction: up.
All of that changed last June when a dramatic unwind in the half dozen backdoor margin lending channels that helped to fuel the rally triggered an epic rout that became self-fulfilling once the retail crowd (which accounts for 80% of the market) became rip sellers rather than dip buyers.
Since then, successive efforts on the part of the CSRC to stabilize the situation by pouring CNY1.5 trillion into A-shares has met with limited success as periods of calm are interrupted by violent bouts of selling like those we saw earlier this month when China tried and failed to implement a circuit breaker.
Throw in the ongoing yuan deval fiasco and there’s every reason not to be involved in Chinese stocks.
But when it rains it pours, and now, analysts say margin calls on SCLs are the next landmine that may pose a “systemic risk” for China’s battered markets.
“Some companies that had pledged shares as collateral for loans are now faced with a stark choice – dump them under pressure from impatient brokers and banks and book a loss, or stump up fresh cash or other assets to make up for the difference in value,” Reuters writes.
This is a rather large problem. Over half of all listed companies have their shares pledged. As BofA notes, “1,411 A-share companies have had some of their shares been pledged for SCLs by their major shareholders, representing 50.2% of the total number of A-shares. The value of stocks pledged for SCLs has been rising consistently – from Rmb2.36tr on 1 July 2015 to Rmb3.05tr by 1 Jan 2016, i.e., up by 29% in 2H15.”
In short, the steep decline in margin financing paints an incomplete picture when it comes to understanding how much leverage is in the system.
On one hand, the headline figure on margin financing suggests quite a bit of deleveraging has taken place since things hit peak absurdity last spring. Here’s a look at how quickly the unwind materialized once things began to get dicey:
But as the SCL chart shown above demonstrates, the decline in headline margin debt only tells part of the story. Indeed, BofA says even the CNY3.05 trillion number for SCLs may be underestimate the amount of leverage in the market. “Our SCL data might have under-estimated the true extent of such activities because 1) only major shareholders, i.e., those who own more than 5% of a company’s stocks, are obliged to disclose their SCL activities; and 2) we have assumed a 12-month duration for the 2,889 deals, 44% of the total, that have no ending date disclosed vs. over 16 months on average for those that have,” the bank writes.
Where things get truly frightening is when one looks under the hood on these deals.
Have a look at the following table which shows that of companies with pledged shares, an astonishing 82% were trading at a multiple of 50X or more at the time of their pledging:
“The collateral value,” BofA says dryly, “is far from solid.”
“If the market continues to fall, equity pledging-related selling pressure could increase significantly,” Gao Ting, head of China strategy with UBS warns.
To let BofA tell it, fully a third of SCLs will face margin call pressure and some 371 of the 1,411 stocks pledged have already hit their triggers. “Assuming 40% loan-to-asset value at the time of SCL granting, our analysis suggests that by now, 371 stocks, worth Rmb641bn based on their current market values, have seen their share prices reached the stop-loss levels; and additional 281 stocks, worth Rmb310bn, the warning levels.”
What happens when the margin calls start you ask? Well, nothing good.
“When a position has to be closed for transactions using floating shares as collateral, the pledger sells on the secondary market, putting further pressure on the stock market,” Ting cautions.
Right. Which means stocks fall further and trigger more margin calls which means more forced liquidations in a never-ending, self reinforcing loop. Or, as Reuters puts it: “[It’s] a vicious cycle where further share price drops are likely to trigger more margin calls and threaten further forced sales.“
And this isn’t some hypothetical – it’s already started. “On Jan 18, some stocks of a company used as collaterals for a SCL were liquidated by the lender, which prompted its share price to limit down the next day,” BofA recounts. “The stock had been suspended from trading since then. So far, at least 11 A-shares have been suspended as their prices approached the cut-loss levels.”
“On Thursday, trading in shares of Maoye Communication and Network Co Ltd was halted after it said it received notice that its controlling shareholder faces margin calls, one of at least eight companies that have made similar announcements so far this year,” Reuters adds.
Note that if this entire thing were to unwind it would be larger than if every bit of margin debt were squeezed out of the system. BofA figures the average loan-to-asset value is about 40%. Apply that to the CNY3.05 trillion pile of collateralized stocks and you’ve got the potential for a CNY1.22 trillion unwind.
And it gets still worse. Remember China’s multi-trillion yuan black swan, the WMP industry? Well the WMPs are involved here too. Here’s an example, again from BofA:
We cite a recently reported example involving the controlling shareholder of Guangxi Future Technology. According to articles by Securities Times (Jan 19) and 21st Century Business Herald (Jan 20), in December 2015 Pudong Development Bank set up a WMP called Tebon Huijin No.1 Asset Management Plan to fund the shareholder’s purchase of its own company’s shares. Essentially, the WMP buyers, as the senior tranche investors, lent money for the shareholder to buy their own stock. Similar to other structured WMPs, this product has a stop-loss clause, and the company’s share price dropped below the stop-loss level on Jan 18. As the controlling shareholder did not put up additional margin, Pudong Development Bank liquidated all stock in the plan (equivalent to 2.13% of the company’s outstanding shares). This is the first case of forced liquidation by such products but in our view there could be additional cases given how sharply the market has declined in recent weeks.
In short, this is a house of cards built on a still enormous amount of leverage. At the risk of mixing metaphors, the problem here is that once the dominos start to fall, it will be impossible to stop the downward momentum.
The takeaway: “we’re going to need a bigger plunge protection team”…
- Zika Outbreak Epicenter In Same Area Genetically-Modified Mosquitoes Released In 2015
Submitted by Clare Bernishvia TheAntiMedia.org,
The World Health Organization announced it will convene an Emergency Committee under International Health Regulations on Monday, February 1, concerning the Zika virus ‘explosive’ spread throughout the Americas. The virus reportedly has the potential to reach pandemic proportions — possibly around the globe. But understandingwhy this outbreak happened is vital to curbing it. As the WHO statement said:
“A causal relationship between Zika virus infection and birth malformations and neurological syndromes … is strongly suspected. [These links] have rapidly changed the risk profile of Zika, from a mild threat to one of alarming proportions.
“WHO is deeply concerned about this rapidly evolving situation for 4 main reasons: the possible association of infection with birth malformations and neurological syndromes; the potential for further international spread given the wide geographical distribution of the mosquito vector; the lack of population immunity in newly affected areas; and the absence of vaccines, specific treatments, and rapid diagnostic tests […]
“The level of concern is high, as is the level of uncertainty.”
Zika seemingly exploded out of nowhere. Though it was first discovered in 1947, cases only sporadically occurred throughout Africa and southern Asia. In 2007, the first case was reported in the Pacific. In 2013, a smattering of small outbreaks and individual cases were officially documented in Africa and the western Pacific. They also began showing up in the Americas. In May 2015, Brazil reported its first case of Zika virus — and the situation changed dramatically.
Brazil is now considered the epicenter of the Zika outbreak, which coincides with at least 4,000 reports of babies born with microcephaly just since October.
When examining a rapidly expanding potential pandemic, it’s necessary to leave no stone unturned so possible solutions, as well as future prevention, will be as effective as possible. In that vein, there was another significant development in 2015.
Oxitec first unveiled its large-scale, genetically-modified mosquito farm in Brazil in July 2012, with the goal of reducing “the incidence of dengue fever,” as The Disease Daily reported. Dengue fever is spread by the same Aedes mosquitoes which spread the Zika virus — and though they “cannot fly more than 400 meters,” WHO stated, “it may inadvertently be transported by humans from one place to another.” By July 2015, shortly after the GM mosquitoes were first released into the wild in Juazeiro, Brazil, Oxitec proudly announced they had “successfully controlled the Aedes aegypti mosquito that spreads dengue fever, chikungunya and zika virus, by reducing the target population by more than 90%.”
Though that might sound like an astounding success — and, arguably, it was — there is an alarming possibility to consider.
Nature, as one Redditor keenly pointed out, finds a way — and the effort to control dengue, zika, and other viruses, appears to have backfired dramatically.
Juazeiro, Brazil — the location where genetically-modified mosquitoes were first released into the wild.
Map showing the concentration of suspected Zika-related cases of microcephaly in Brazil.
The particular strain of Oxitec GM mosquitoes, OX513A, are genetically altered so the vast majority of their offspring will die before they mature — though Dr. Ricarda Steinbrecher published concerns in a report in September 2010 that a known survival rate of 3-4 percent warranted further study before the release of the GM insects. Her concerns, which were echoed by several other scientists both at the time and since, appear to have been ignored — though they should not have been.
Those genetically-modified mosquitoes work to control wild, potentially disease-carrying populations in a very specific manner. Only the male modified Aedes mosquitoes are supposed to be released into the wild — as they will mate with their unaltered female counterparts. Once offspring are produced, the modified, scientific facet is supposed to ‘kick in’ and kill that larvae before it reaches breeding age — if tetracycline is not present during its development. But there is a problem.
Aedes aegypti mosquito. Image credit: Muhammad Mahdi Karim
According to an unclassified document from the Trade and Agriculture Directorate Committee for Agriculture dated February 2015, Brazil is the third largest in “global antimicrobial consumption in food animal production” — meaning, Brazil is third in the world for its use of tetracycline in its food animals. As a study by the American Society of Agronomy, et. al., explained, “It is estimated that approximately 75% of antibiotics are not absorbed by animals and are excreted in waste.” One of the antibiotics (or antimicrobials) specifically named in that report for its environmental persistence is tetracycline.
In fact, as a confidential internal Oxitec document divulged in 2012, that survival rate could be as high as 15% — even with low levels of tetracycline present. “Even small amounts of tetracycline can repress” the engineered lethality. Indeed, that 15% survival rate was described by Oxitec:
“After a lot of testing and comparing experimental design, it was found that [researchers] had used a cat food to feed the [OX513A] larvae and this cat food contained chicken. It is known that tetracycline is routinely used to prevent infections in chickens, especially in the cheap, mass produced, chicken used for animal food. The chicken is heat-treated before being used, but this does not remove all the tetracycline. This meant that a small amount of tetracycline was being added from the food to the larvae and repressing the [designed] lethal system.”
Even absent this tetracycline, as Steinbrecher explained, a “sub-population” of genetically-modified Aedes mosquitoes could theoretically develop and thrive, in theory, “capable of surviving and flourishing despite any further” releases of ‘pure’ GM mosquitoes which still have that gene intact. She added, “the effectiveness of the system also depends on the [genetically-designed] late onset of the lethality. If the time of onset is altered due to environmental conditions … then a 3-4% [survival rate] represents a much bigger problem…”
As the WHO stated in its press release, “conditions associated with this year’s El Nino weather pattern are expected to increase mosquito populations greatly in many areas.”
Incidentally, President Obama called for a massive research effort to develop a vaccine for the Zika virus, as one does not currently exist. Brazil has now called in 200,000 soldiers to somehow help combat the virus’ spread. Aedes mosquitoes have reportedly been spotted in the U.K. But perhaps the most ironic — or not — proposition was proffered on January 19, by the MIT Technology Review:
“An outbreak in the Western Hemisphere could give countries including the United States new reasons to try wiping out mosquitoes with genetic engineering.
“Yesterday, the Brazilian city of Piracicaba said it would expand the use of genetically modified mosquitoes …
“The GM mosquitoes were created by Oxitec, a British company recently purchased by Intrexon, a synthetic biology company based in Maryland. The company said it has released bugs in parts of Brazil and the Cayman Islands to battle dengue fever.”
- Dallas Fed "Responds" To Zero Hedge FOIA Request
Two weeks ago, Zero Hedge reported an exclusive story corroborated by at least two independent sources, in which we informed our readers that members of the Dallas Federal Reserve had met with bank lenders with distressed loan exposure to the US oil and gas sector and, after parsing through the complete bank books, had advised banks to i) not urge creditor counterparties into default, ii) urge asset sales instead, and iii) ultimately suspend mark to market in various instances.
The Dallas Fed took the opportunity to respond (on Twitter), when in a tersely worded statement it said the following:
No truth to this @zerohedge story. The Dallas Fed does not issue such guidance to banks. https://t.co/rmE3Zul3PM
— Dallas Fed (@DallasFed) January 18, 2016
We thanked the Fed for answering even if its response was in itself a lie, and further since we fully stood by our story, we asked the Federal Reserve chaired by Goldman Sachs veteran, Robert Kaplan, to answer several follow up questions regarding this matter which is of significant public interest. To wit:
- Has the Dallas Fed, or any other members and individuals of the Federal Reserve System, met with U.S. bank and other lender management teams in recent weeks/months and if so what was the purpose of such meetings?
- Has the Dallas Fed, or any other members and individuals of the Federal Reserve System, requested that banks and other lenders present their internal energy loan books and loan marks for Fed inspection in recent weeks/months?
- Has the Dallas Fed, or any other members and individuals of the Federal Reserve System, discussed options facing financial lenders, and other creditors, who have distressed credit exposure including but not limited to:
- avoiding defaults on distressed debtor counterparties?
- encouraging asset sales for distressed debtor counterparties?
- advising banks to avoid the proper marking of loan exposure to market?
- advising banks to mark loan exposure to a model framework, one created either by the creditors themselves or one presented by members of the Federal Reserve network?
- avoiding the presentation of public filings with loan exposure marked to market values of counterparty debt?
- Was the Dallas Fed, or any other members and individuals of the Federal Reserve System, consulted before the January 15, 2016 Citigroup Q4 earnings call during which the bank refused to disclose to the public the full extent of its reserves related to its oil and gas loan exposure, as quoted from CFO John Gerspach:
“while we are taking what we believe to be the appropriate reserves for that, I’m just not prepared to give you a specific number right now as far as the amount of reserves that we have on that particular book of business. That’s just not something that we’ve traditionally done in the past.”
- Furthermore, if the Dallas Fed, or any other members and individuals of the Federal Reserve system, were not consulted when Citigroup made the decision to withhold such relevant information on potential energy loan losses, does the Federal Reserve System believe that Citigroup is in compliance with its public disclosure requirements by withholding such information from its shareholders and the public?
- If the Dallas Fed does not issue “such” guidance to banks, then what precisely guidance does the Dallas Fed issue to banks?
We assumed (correctly) there would be no Twitter, or any other unofficial response to this list of questions, which is why two weeks ago we, in collaboration with several readers (due to obvious reverse FOIA purposes), also requested an official response from the Fed through a Freedom Of Information Act submission. Surely if the Fed would go so far as to call us liars, it would have no problem either responding or providing the required information.
This is what we got back.
We appreciate the “response.”
With regard to [1] and [2], we find it disturbing that the Dallas Fed not only does not keep internal logs of who visits the Fed (or whom the Fed visits), but especially that there is no internal log of whom the President meets with as part of ordinary course of business.
This is troubling when one considers that as part of its routine disclosures, the NY Fed not only keeps a detailed log of the President’s daily schedules but also makes them publicly available each quarter (link to the most recent one). One wonders how the Board, and the president, holds itself “reasonably” accountable to the public if there is no internal record at all of any in house meetings, which clearly become a relevant topic in issues such as this.
As for [3], we will gladly readdress the question in the proper semantic protocol, and will follow back with another FOIA requesting the explicit financial records of bank energy loan books which the Fed has collected as part of its recent diligence efforts to uncover which banks are underreserved, the same diligence that prompted the Fed to pursue the procedure that prompted our article in the first place, a procedure which the Dallas Fed alleges “there is no truth” to.
We look forward to discovering what excuse the Dallas Fed will provide to not supply the requested information in that particular FOIA request.
- OPEC Production Cut News Dominates the Oil Market, Jan. 29, 2016 (Video)
By EconMatters
It seems we may have bottomed in the oil market, and a lot of shorts are starting to get nervous considering their large short trading book right now. Can you say “Short Squeeze”?
© EconMatters All Rights Reserved | Facebook | Twitter | YouTube | Email Digest | Kindle
- Helicopter Money Arrives: Switzerland To Hand Out $2500 Monthly To All Citizens
With Citi's chief economist proclaiming "only helicopter money can save the world now," and the Bank of England pre-empting paradropping money concerns, it appears that Australia's largest investment bank's forecast that money-drops were 12-18 months away was too conservative. While The Finns consider a "basic monthly income" for the entire population, Swiss residents are to vote on a countrywide referendum about a radical plan to pay every single adult a guaranteed income of around $2500 per month, with authorities insisting that people will still want to find a job.
The plan, as The Daily Mail reports, proposed by a group of intellectuals, could make the country the first in the world to pay all of its citizens a monthly basic income regardless if they work or not. But the initiative has not gained much traction among politicians from left and right despite the fact that a referendum on it was approved by the federal government for the ballot box on June 5.
Under the proposed initiative, each adult would receive $2,500 per months, and each child would also receive 625 francs ($750) a month.
The federal government estimates the cost of the proposal at 208 billion francs ($215 billion) a year.
Around 153 billion francs ($155 bn) would have to be levied from taxes, while 55 billion francs ($60 bn) would be transferred from social insurance and social assistance spending.
That is 30% of GDP!!!
The action committee pushing the initiative consists of artists, writers and intellectuals, including publicist Daniel Straub, former federal government spokesman Oswald Sigg and Zurich rapper Franziska Schläpfer (known as “Big Zis”), the SDA news agency reported. Personalities supporting the bid include writers Adolf Muschg and Ruth Schweikert, philosopher Hans Saner and communications expert Beatrice Tschanz. The group said a new survey showed that the majority of Swiss residents would continue working if the guaranteed income proposal was approved.
'The argument of opponents that a guaranteed income would reduce the incentive of people to work is therefore largely contradicted,' it said in a statement quoted by The Local.
However, a third of the 1,076 people interviewed for the survey by the Demoscope Institute believed that 'others would stop working'.
And more than half of those surveyed (56 percent) believe the guaranteed income proposal will never see the light of day.
The initiative’s backers say it aims to break the link between employment and income, with people entitled to guaranteed income regardless of whether they work.
Or put another way – break the link between actually having to work for anything ever again… but maybe this "group of itellentuals" should hark Margaret Thatcher's words that "eventually you run out of other people's money!!"
* * *
As we previously detailed, support is growing around the world for such spending to be funded by “People’s QE.” The idea behind “People’s QE” is that central banks would directly fund government spending… and even inject money directly into household bank accounts, if need be. And the idea is catching on.
Already the European Central Bank is buying bonds of the European Investment Bank, an E.U. institution that finances infrastructure projects. And the new leader of Britain’s Labor Party, Jeremy Corbyn, is backing a British version of this scheme.
That’s the monster coming to towns and villages near you! Call it “overt monetary financing.” Call it “money from helicopters.” Call it “insane.”
But it won’t be unpopular. Who will protest when the feds begin handing our money to “mid- and low-income households”?
Simply put, The Keynesian Endgame is here… as the only way to avoid secular stagnation (which, for the uninitiated, is just another complicated-sounding, economist buzzword for the more colloquial “everything grinds to a halt”) is for central bankers to call in the Krugman Kraken and go full-Keynes.
Rather than buying assets, central banks drop money on the street. Or even better, in a more modern and civilised fashion, credit our bank accounts! That, after all, may be more effective than buying assets, and would not imply the same transfer of wealth as previous or current forms of QE. Indeed, ‘helicopter money’ can be seen as permanent QE, where the central bank commits to making the increase in the monetary base permanent.
Again, crediting accounts does not guarantee that money will be spent – in contrast to monetary financing where the newly created cash can be used for fiscal spending. And in many cases, such policy would actually imply fiscal policy, as most central banks cannot conduct helicopter money operations on their own.
…
So again, the thing to realize here is that this has moved well beyond the theoretical and it's not entirely clear that most people understand how completely absurd this has become (and this isn't necessarily a specific critique of SocGen by the way, it's just an honest look at what's going on). At the risk of violating every semblance of capital market analysis decorum, allow us to just say that this is pure, unadulterated insanity. There's not even any humor in it anymore.
You cannot simply print a piece of paper, sell it to yourself, and then use the virtual pieces of paper you just printed to buy your piece of paper to stimulate the economy. There's no credibility in that whatsoever, and we don't mean that in the somewhat academic language that everyone is now employing on the way to criticizing the Fed, the ECB, and the BoJ.
The monetizing of state debt by the central bank is the engine of helicopter money. When the central state issues $1 trillion in bonds and drops the money into household bank accounts, the central bank buys the new bonds and promptly buries them in the bank's balance sheet as an asset.
The Japanese model is to lower interest rates to the point that the cost of issuing new sovereign debt is reduced to near-zero. Until, of course, the sovereign debt piles up into a mountain so vast that servicing the interest absorbs 40+% of all tax revenues.
But the downsides of helicopter money are never mentioned, of course. Like QE (i.e. monetary stimulus), fiscal stimulus (helicopter money) will be sold as a temporary measure that quickly become permanent, as the economy will crater the moment it is withdrawn.
The temporary relief turns out to be, well, heroin, and the Cold Turkey withdrawal, full-blown depression.
- Indictment Looms As FBI Declares 22 Clinton Home-Server Emails "Top Secret"
Just as we warned, and she must have known, it appears at least 22 of the emails found on Hillary Clinton’s private email server have been declared “top secret” by The FBI (but will not be releasing the contents) according to AP.
Clinton has insisted she never sent or received information on her personal email account that was classified at the time. No emails released so far were stamped “CLASSIFIED” or “TOP SECRET,” but reviewers previously had designated more than 1,000 messages at lower classification levels for public release. Friday’s will be the first at the top secret level.
And because the administration believes strongly in transparency and accountability, you won’t get any information about just what kind of state secrets were passed on a non-secure server:
- STATE DEPT WON’T SPEAK ON CONTENT OF TOP SECRET E-MAILS: KIRBY
- KIRBY: SOME CLINTON-OBAMA E-MAIL EXCHANGES ARE BEING WITHHELD
The Obama administration is confirming for the first time that Hillary Clinton’s unsecured home server contained some closely guarded secrets, including material requiring one of the highest levels of classification.
The revelation comes just three days before the Iowa presidential nominating caucuses in which Clinton is a candidate.
The State Department will release more emails from Clinton’s time as secretary of state later Friday.
But The Associated Press has learned that 7 email chains are being withheld in full for containing “top secret” material.
The 37 pages include messages recently described by a key intelligence official as concerning so-called “special access programs” — a highly restricted subset of classified material that could point to confidential sources or clandestine programs like drone strikes or government eavesdropping.
Department officials wouldn’t describe the substance of the emails, or say if Clinton had sent any herself.
Spokesman John Kirby tells the AP that no judgment on past classification was made. But the department is looking into that, too.
For those that Clinton only read, and didn’t write or forward, she still would have been required to report classification slippages that she recognized.
Possible responses for classification infractions include counseling, warnings or other action, State Department officials said, though they declined to say if these applied to Clinton or senior aides who’ve since left the department. The officials weren’t authorized to speak on the matter and spoke on condition of anonymity.
However, as we previously noted, the implications are tough for The DoJ – if they indict they crush their own candidate’s chances of the Presidency, if they do not – someone will leak the details and the FBI will revolt… The leaking of the Clinton emails has been compared to as the next “Watergate” by former U.S. Attorney Joe DiGenova this week, if current FBI investigations don’t proceed in an appropriate manner. The revelation comes after more emails from Hilary Clinton’s personal email have come to light.
“[The investigation has reached] a critical mass,” DiGenova told radio host Laura Ingraham when discussing the FBI’s still pending investigation. Though Clinton is still yet to be charged with any crime, DiGenova advised on Tuesday that changes may be on the horizon. The mishandling over the classified intelligence may lead to an imminent indictment, with DiGenova suggesting it may come to a head within 60 days.
“I believe that the evidence that the FBI is compiling will be so compelling that, unless [Lynch] agrees to the charges, there will be a massive revolt inside the FBI, which she will not be able to survive as an attorney general,” he said.
“The intelligence community will not stand for that. They will fight for indictment and they are already in the process of gearing themselves to basically revolt if she refuses to bring charges.”
The FBI also is looking into Clinton’s email setup, but has said nothing about the nature of its probe. Independent experts say it is highly unlikely that Clinton will be charged with wrongdoing, based on the limited details that have surfaced up to now and the lack of indications that she intended to break any laws.
“What I would hope comes out of all of this is a bit of humility” and an acknowledgement from Clinton that “I made some serious mistakes,” said Bradley Moss, a Washington lawyer who regularly handles security clearance matters.
Legal questions aside, it’s the potential political costs that are probably of more immediate concern for Clinton. She has struggled in surveys measuring her perceived trustworthiness and an active federal investigation, especially one buoyed by evidence that top secret material coursed through her account, could negate one of her main selling points for becoming commander in chief: Her national security resume.
- Former Citi Trader Exposes How Wall Street Came To Own The Clintons
Submitted by Mike Krieger via Liberty Blitzkrieg blog,
Former FX trader at Citigroup, Chris Arnade, just penned a poignant and entertaining Op-ed at The Guardian detailing how Wall Street came to own the Democratic Party via the Clintons over the course of his career. While anyone reading this already knows how completely bought and paid for the Clintons are by the big financial interests, the article provides some interesting anecdotes as well as a classic quote about a young Larry Summers.
Here are some choice excerpts from the piece:
I owe almost my entire Wall Street career to the Clintons. I am not alone; most bankers owe their careers, and their wealth, to them. Over the last 25 years they – with the Clintons it is never just Bill or Hillary – implemented policies that placed Wall Street at the center of the Democratic economic agenda, turning it from a party against Wall Street to a party of Wall Street.
That is why when I recently went to see Hillary Clinton campaign for president and speak about reforming Wall Street I was skeptical. What I heard hasn’t changed that skepticism. The policies she offers are mid-course corrections. In the Clintons’ world, Wall Street stays at the center, economically and politically. Given Wall Street’s power and influence, that is a dangerous place to leave them.
The administration’s economic policy took shape as trickle down, Democratic style. They championed free trade, pushing Nafta. They reformed welfare, buying into the conservative view that poverty was about dependency, not about situation. They threw the old left a few bones, repealing prior tax cuts on the rich, but used the increased revenues mostly on Wall Street’s favorite issue: cutting the debt.
Most importantly, when faced with their first financial crisis, they bailed out Wall Street.
That crisis came in January 1995, halfway through the administration’s first term. Mexico, after having boomed from the optimism surrounding Nafta, went bust. It was a huge embarrassment for the administration, given the push they had made for Nafta against a cynical Democratic party.
Money was fleeing Mexico, and much of it was coming back through me and my firm. Selling investors’ Mexican bonds was my first job on Wall Street, and now they were trying to sell them back to us. But we hadn’t just sold Mexican bonds to clients, instead we did it using new derivatives product to get around regulatory issues and take advantages of tax rules, and lend the clients money. Given how aggressive we were, and how profitable it was for us, older traders kept expecting to be stopped by regulators from the new administration, but that didn’t happen.
When Mexico started to collapse, the shudders began. Initially our firm lost only tens of millions, a large loss but not catastrophic. The crisis however was worsening, and Mexico was headed towards a default, or closing its border to money flows. We stood to lose hundreds of millions, something we might not have survived. Other Wall Street firms were in worse shape, having done the trade in a much bigger size. The biggest was rumored to be Lehman, which stood to lose billions, a loss they couldn’t have survived.
As the crisis unfolded, senior management traveled to DC as part of a group of bankers to meet with Treasury officials. They had hoped to meet with Rubin, who was now Treasury secretary. Instead they met with the undersecretary for international affairs who my boss described as: “Some young egghead academic who likes himself a lot and is wide eyed with a taste of power.” That egghead was Larry Summers who would succeed Rubin as Treasury Secretary.
The bailout worked, with Mexico edging away from a crisis, allowing it to repay the loans, at profit. It also worked wonders on Wall Street, which let out a huge sigh of relief.
The success encouraged the administration, which used it as an economic blueprint that emphasized Wall Street. It also emphasized bailouts, believing it was counterproductive to let banks fail, or to punish them with losses, or fines or, God forbid, charge them with crimes, and risk endangering the economy.
The use of bailouts should have also been a reason to heavily regulate Wall Street, to prevent behavior that would require a bailout. But the administration didn’t do that; instead they went the opposite direction and continued to deregulate it, culminating in the repeal of Glass Steagall in 1999.
It changed the trading floor, which started to fill with Democrats. On my trading floor, Robert Rubin, who had joined my firm after leaving the administration, held traders attention by telling long stories and jokes about Bill Clinton to wide-eyed traders.
Wall Street now had both political parties working for them, and really nobody holding them accountable. Now, no trade was too aggressive, no risk too crazy, no behavior to unethical and no loss too painful. It unleashed a boom that produced plenty of smaller crisis (Russia, Dotcom), before culminating in the housing and financial crisis of 2008.
But hey…
For related articles on Hillary’s long standing Wall Street love affair, see:
A New Low – Hillary Clinton Claims 9/11 is the Reason She’s Owned by Wall Street
COMPROMISED – How Two of Hillary Clinton’s Top Aides Received Golden Parachutes from Wall Street
- BofA Presents The 4 "D's" Of Deflationary Doom
Going into Friday, Japanese monetary policy already stood out as the most egregious example of Keynesian insanity the market has ever witnessed.
You’ll recall the central bank is monetizing the entirety of gross JGB issuance and is on a lunatic quest to own the entire ETF market.
But the BoJ still hadn’t gone full-Krugman by taking rates negative. That changed overnight when the bank took the NIRP plunge as Haruhiko Kuroda reminded the world that when it comes to maniacal monetary policy, no one does it like he does.
Why is NIRP necessary in Japan? The same reason it’s necessary in Europe and the same reason ZIRP had to hang around in the US for eight years: inflation. Or, more specifically, a lack of inflation.
Japan has been stuck in the deflationary doldrums for as long as some Wall Street rookies have been alive and Europe has bounced around in deflation on several occasions of late although data out today showed eurozone inflation “soaring” 0.4%.
So what gives? How much damn fiat money do the Kurodas and Yellens and Draghis of the world have to print before inflation picks up? Are central bankers contributing to the problem by destroying creative destruction and thus perpetuating the global deflationary supply glut?
The problem, BofA’s Michael Hartnett says, can be traced to the “Deflationary D’s”: debt, deleveraging, demographics, disruption. Read on to discover why “the nominal GDP of the industrialized world has grown just 4.1% since the lows of Q1’2009, one of the tiniest, deflationary expansions ever. “
* * *
From BofA
The nominal GDP of the industrialized world has grown just 4.1% since the lows of Q1’2009, one of the tiniest, deflationary expansions ever. And while asset prices are up significantly since their 2008/09 lows, the underlying message from Wall Street in recent years (underperformance of bank stocks – see Chart 1, stubbornly low government bond yields, all-time relative highs in “high quality” stocks, and sustained outperformance of “growth” stocks over “value” stocks) has been doggedly deflationary.
The Deflationary “D’s”
Why has an almost manic monetary policy been so ineffective at generating a broad, sustained economic recovery, or at least alleviating the threat of deflation? Secular factors, most obviously the 4 deflationary “D’s” of excess Debt, financial sector Deleveraging, aging Demographics and tech Disruption have played a major role:
- 1. Debt levels remain very large: according to the BIS, global debt as a share of GDP was 246% in Q4’2000, 269% in Q4’2007 and 286% in Q2’2014.
- 2. Deleveraging has impeded the housing recovery and its “multiplier” effect: CoreLogic’s Housing Credit Index, which measures mortgage credit availability in the US, has plunged from 100 to 42 in the past seven years; US mortgage credit outstanding has fallen more than $1tn since its peak of $14.8tn in ’08.
- 3. Demographics reveal a dramatic aging of the developed world’s population: in the next 10 days, 112,000 people in the US, Europe and Japan will reach the retirement age of 65.
- 4. Disruption via innovation in robotics, AI and so on, which the World Economic Forum forecasts will cause the loss of a net 5.1mn jobs in the next 5 years.
And while all are secular in nature, the deflationary D’s have also impacted the economic cycle in recent quarters: excess Debt and financial sector Deleveraging have exacerbated problems in China, energy and credit markets; tech Disruption has been a massive factor in the collapse in the oil price; aging Demographics and tech Disruption have played a role in the desire of the Consumer to save rather than spend in the past 18 months.
Indeed, even in the US, the ease with which debt, deleveraging, demographics and disruption have nullified the strong tailwinds of low mortgage rates, low unemployment rates and collapsing gas prices, thus resulting in higher household savings rates, has surprised many. It certainly goes far in explaining the “deflationary” nature of the economic expansion, the wage inequality and insecurity associated with this decade, as well as the rise in political populism across the western world.
* * *
We suppose that at some point, policy makers will heed the (loud) calls for helicopter money and once the cash paradropping begins, we’ll see you in the Weimar Republic.
- Who Can Afford The American Dream? "Rental Rates Have Reached Apocalyptic Levels"
Submitted by Mac Slavo via SHTFPlan.com,
Skyrocketing costs and shrinking opportunity are meeting head on with full on economic disaster. The Dude, Where’s My Stuff? generation doesn’t have much motivation to go on for growing up and getting their life together these days.
Record numbers are out of the work force; record numbers are living with their parents in the basement; record numbers are losing the battle of return on investment with higher education – purchased with burdensome loans – in order to attain better employment and stability. Rising costs are hitting home owners and renters alike, with a real squeeze coming down on those just starting out.
And all of that is driving the economy to the brink.
That American Dream thing is a going up in smoke. Upward mobility has stalled, and stagnation is setting in.
It is becoming apparent that a lost generation is upon us, and the Americans of tomorrow may not even have a meager concept of what this country stood for, because their lives will be so completely desolate and controlled.
A Forbes columnist asked the question: Can Millennials Afford The American Dream? Forbes’ Kerri Zane writes:
The local radio news station in Los Angeles recently reported that the rental rates in this city have reached apocalyptic levels. So it stands to reason the next best step is to purchase a home. Easier said than done, particularly for millennials.
At the end of last year my 25-year-old daughter and I were discussing this issue. She and her live-in boyfriend had been exploring the notion, but with the median home price in Los Angeles exceeding $500,000.00, it is completely out of reach for them. Between juggling school loan payoffs and each working in the freelance world of entertainment, saving for a down payment and/or qualifying for a mortgage, in this day and age, is tough.
[…]
Over the last 20 plus years I have watched as the cost of living in the U.S., and more specifically Los Angeles, steadily climbed. It became apparent, without a doubt, that if my daughters (I have two) were going to have a home, it would be up to mom to help them.
Before you rush to judgement about my children’s work ethic or my parenting style… look at the stats… home affordability will decline through-out 2016 by 4 to 5%. We all know that at the end of 2015 the feds increased mortgage rates, and real estate pundits predict home prices will continue to appreciate at 3 to 4%… the cost of in-state tuition and fees at public four-year institutions have increased at an average rate of 3.4% per year beyond inflation.
These kids are stuck between a rock and a hard place.
It is a pertinent question for this generation. Will there be security and prosperity for those who are willing to work hard?
Basically, all the trends are headed in the wrong direction for a healthy society.
Demographically, people are falling in on themselves.
The Pew Research Center conducted a study in 2012 on the rising number of millennials living with their parents, and the reasons contributing to the decline:
In 2012, 36% of the nation’s young adults ages 18 to 31—the so-called Millennial generation—were living in their parents’ home, according to a new Pew Research Center analysis of U.S. Census Bureau data. This is the highest share in at least four decades and represents a slow but steady increase over the 32% of their same-aged counterparts who were living at home prior to the Great Recession in 2007 and the 34% doing so when it officially ended in 2009.
A record total of 21.6 million Millennials lived in their parents’ home in 2012, up from 18.5 million of their same aged counterparts in 2007. Of these, at least a third and perhaps as many as half are college students.
[…]
Since the onset of the 2007-2009 recession, both age groups have experienced a rise in this living arrangement.
[…]
The steady rise in the share of young adults who live in their parents’ home appears to be driven by a combination of economic, educational and cultural factors. Among them:
Declining employment. … Rising college enrollment. … Declining marriage.
And that’s just for those who were willing to give things a try.
The rest are on the dole, and bulging the size and scope of federal government even further, and millions falling to the bottom are looking to the government as a parental figure and savior – who dispenses benefits and can “take care of” them.
A wave of unemployment, and those who have permanently dropped out of the work force and all appearances of looking for work, is setting in. And things don’t look pretty from there.
- Negative Interest Rates Show Desperation of Central Banks
Image: MarketWatchJapan has joined the EU, Denmark, Switzerland and Sweden in imposing negative interest rates.
Indeed, more than a fifth of the world's GDP is now covered by a central bank with negative interest rates.
The Wall Street Journal notes:
TOKYO—Japan’s central bank stunned the markets Friday by setting the country’s first negative interest rates, in a desperate attempt to keep the economy from sliding back into the stagnation that has dogged it for much of the last two decades.
BBC writes:
The country is desperate to increase spending and investment.
***
Japan has been desperate to boost consumer spending for years. At one point it even issued shopping vouchers to stimulate demand.
The New York Times writes:
Moving to negative rates reflects a measure of desperation on the part of central banks. Their traditional tools have been largely exhausted, as most countries’ interest rates have been pushed to almost nothing.
MarketWatch’s senior markets writer, William Watts, notes:
This might not be the sort of capitulation stock-market investors were anticipating.
The Bank of Japan’s surprise decision Friday to start charging depositors for parking excess reserves at the central bank triggered a global equity rally. But several monetary policy watchers and market strategists worried that the move was an acknowledgment that the world’s central banks are running out of ammunition in the battle against deflation.
“This is an interesting move that looks a lot more like desperation or novelty than it looks like a program meant to make a real difference,” said Robert Brusca, chief economist at FAO Economics.
Kit Juckes, global macro strategist at Société Générale, underlined the moment in a note to clients:
“First of all, forget the details, feed on the symbolism. Germany, Switzerland and Japan, the three great current account powers of the post-Bretton Woods era, whose surpluses have financed the frivolity of baby boomer Anglo-Saxons, are being told in no uncertain terms to stop saving.”
Whether the strategy works or not is less important than what the decision says about global disinflationary forces, he said, which have forced the central banks to “set off on this path…following a trail of breadcrumbs as they head for the gingerbread house.”
***
But others worry that the move underlines a degree of desperation and a sense that the asset purchases at the heart of global quantitative-easing strategies are running up against some important limits.
***
Daiwa economists and others expect the Bank of Japan to remain under pressure to ease further. And when push comes to shove, the bank will be likely to push rates further into negative territory rather than ramp up asset purchases.
“Ultimately, negative interest rates from a veteran of monetary expansion such as the BOJ mark a capitulation about the effectiveness of QE alone as an inflation-targeting tool in world of lingering growth-debt imbalances and commodity price wars,” said Lena Komileva, economist at G-plus Economics, in emailed comments.
***
Banks will presumably move their deposit rates below zero in response ….
Likewise, Bloomberg previously noted of the initiation of negative rates in the EU:
Negative interest rates are a sign of desperation, a signal that traditional policy options have proved ineffective and new limits need to be explored. They punish banks that hoard cash instead of extending loans to businesses or to weaker lenders.
And negative rates will eventually come to America.
Central bankers are implementing negative interest rates to force savers to buy assets … so as to artificially stimulate the economy. Specifically:
A negative interest rate means the central bank and perhaps private banks will charge negative interest: instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank. This is intended to incentivize banks to lend money more freely and businesses and individuals to invest, lend, and spend money rather than pay a fee to keep it safe.
Next up: The war on cash.
Postscript: Ironically, the Fed has gone to great lengths to DISCOURAGE banks from lending to Main Street.
- The Disturbing Reasons Why The Bank Of Japan Stunned Everyone With Negative Rates
As we noted earlier, in a paradoxical U-turn, one which caught everyone by surprise as a result of Kuroda’s own promise just one week ago not to engage in NIRP…
… and two months after the ECB’s December 3 disappointing announcement led to a historic surge in the EUR, today countless macro hedge funds have been left reeling with huge losses once again, as many had recently turned bullish on the Yen…
… only to be eviscerated by the BOJ’s negative rates announcement.
So what happened? Reuters has an amusing take, one which we doubt many macro HFs will find quite entertaining:
Bank of Japan Governor Haruhiko Kuroda used classic shock tactics on Friday to push through his latest unconventional monetary policy of negative rates: deny, then strike.
The paradox, of course, is that by “striking”, Kuroda slammed precisely those who were meant to benefit the most from the BOJ’s action: financial institutions. To be sure, it is not just hedge funds who will be left reeling but Japanese banks themselves, because as a result of negative rates, their NIM will go horizontal and lead to even more pronounced losses, something European banks – such as Deutsche Bank – have discovered the hard way over the past year and a half.
There are other problems with the BOJ’s seemingly chaotic, if not panicked, decision: as Reuters adds, “a razor-thin 5-4 vote underscores the difficulty Kuroda had in winning enough board backing for his shock tactic, and illustrates the doubts among board members about the governor’s line that by sticking to a 2 percent inflation goal the BOJ can make people believe prices will rise.”
In a note released this morning, Goldman itself warns that it has “concerns” about Kuroda’s act, the key one being that while it crushed many market participants, the BOJ’s action will have no benefit for the actual economy (and in fact it will end up hurting banks whose NIMs are about to pancake):
… we do have concerns about the policy transmission channel. Policy Board Member Koji Ishida, who voted against the new measures, said that “a further decline in JGB yields would not have significantly positive effects on economy activity.” We concur with this sentiment, particularly for capex. The key determinants of capex in Japan are the expected growth rate and uncertainty about the future as seen by corporate management according to our analysis, while the impact of real long-term rates has weakened markedly in recent years.
Of interest to us was the growth and inflation forecasts in the Outlook for Economic Activity and Prices (Outlook Report) also released on January 29. As we expected, the BOJ cut the FY2016 core CPI outlook to +0.8%, from +1.4% in October, but other growth rate and price outlooks were largely unchanged. The future benefits of changing to this historical policy regime (i.e., introducing a negative interest rate) were hardly factored in by the Policy Board despite the above explanation of the policy transmission channels made by Governor Kuroda.
In our view, this suggests that the BOJ intended to affect the expectations of forex market participants with a bold and surprising announcement. As we mentioned above, Governor Kuroda had continuously rejected the possibility of cutting interest rates in the Diet and other public forums until only recently. Governor Kuroda may have spotted a chance to surprise at the January 29 MPM having seen a substantial decline in market expectations for an interest rate cut as a result of this. He declared that the BOJ is prepared to lower the interest rate further into negative territory if it decided this was necessary, and introduced examples of countries with large negative interest rates such as Switzerland (-0.75%) and Sweden (-1.1%). We believe this was also intended to keep expectations alive in the forex market going forward.
Translated, this means that just like China’s central bank, which in recent weeks has been panicking over how to scare currency speculators away from shorting its currency too far, and thus unleashing a surge in capital outflows (which as we wrote yesterday are estimated to have hit a near record $185 billion in January), the BOJ is likewise scrambling to prevent aggressive shorting of the JPY, and now that it has unleashed NIRP will use it as the “backstop bazooka” that can be used at any given moment when the USDJPY gets too low, spooking speculators and other hedge funds who have ironically been the biggest beneficiaries from BOJ policies.
But how did Draghi get the idea to engage in NIRP specifically as the? Reuters writes that it all started precisely a week ago: on Jan. 21, a day before flying out for the annual World Economic Forum in Davos, Kuroda told Japan’s parliament he was not considering negative interest rates. But he quietly told his staff to come up with several options in case the BOJ eased.“
Of course, our staff knew that several central banks have adopted negative interest rates, so they’ve been analyzing the step for some time,” Kuroda said at a news conference on Friday. “They raised it as one of the options, which we discussed at today’s meeting.”
By the time Kuroda returned from Davos, BOJ staff were ready to propose negative rates, taking a leaf from the European Central Bank’s book. “The ECB showed that combining QE and negative interest rates can work,” one BOJ official said. “It was just a question of overcoming some technical difficulties.”
Which at least superficially makes sense: one can be wrong, but if the right intentions are good – it can be excused. But the punchline that should leave everyone speechless is that it wasn’t even the right intention. Instead, it was this:
People close to Kuroda say that Davos – where he mingled with central bankers such as ECB President Mario Draghi and leading company executives – likely prompted him to pull the trigger. “Davos is really important. Many central bank governors change their perception of things there,” said one central bank policymaker who has regular interaction with Kuroda.
In other words, it was peer pressure by other, just as desperate central bankers, that forced Kuroda to act!
Actually, it’s even worse than that, because that is just half of the story. Here is the other half, again thanks to Reuters:
“When stocks are falling this much, it’s hard to justify not acting,” said one of the individuals, who has occasional contact with Kuroda.
And there you have it: stocks are dropping, so central banks must intervene, just as they have done from day one. Just as Draghi did most recently on December 4 when asked if his speech was meant to talk up markets: recall the exchange: “was today’s speech deliberately designed to try offset some of the reaction yesterday?” to which Draghi’s response was legendary: “Not really… well, of course.“
This was followed by loud laughter, and why not: Draghi had succeeded in pushing stocks higher, if only for the time being.
Just like Kuroda has done today. Alas, just like in December, the laughter won’t last. First, as MarketWatch notes, “The move does speak to a certain degree of desperation.”
Finally, there’s this disturbing bit from Goldman’s take of the BOJ’s decision:
Regarding the Introduction of Supplementary Measures for Quantitative and Qualitative Monetary Easing announced at the December 2015 MPM, we believe the BOJ thinks that JGB purchases will have reached their technical limit in quantitative terms eventually, and it is highly likely it was a last-ditch measure to somehow maintain the current pace of purchases for some time. If not, we would have expected the BOJ not to introduce a negative interest rate this time either and to have opted instead to further increase JGB purchases.
And when none other than Goldman Sachs says the Bank of Japan engaged in a “last-ditch measure” it may be time to panic.
- Bank of Japan Policy Panic Unleashes Stock, Bond Buying Pandemonium
Some soothing month-end meditation…
So let's start with today's idiocy… US equities driven by fundamentals!!
- *S&P 500 EXTENDS GAIN TO 2.1%, HEADED FOR BEST DAY SINCE SEPT.8
But here is some context for January's moves…
For China…
Worst ever…
For US markets – apart from 2009's collapse, this is the worst January ever… Saved by today's total panic!
But bonds had a great one!!
This is Gold's 3rd January up in a row (and 8th of the last 11 years)…
Across asset-classes, Bonds & Bullion did well, stocks and crude not so much…
Small Caps underperformed while the S&P was the least bad performer…
FANTAsy stocks are all down aside from FB – with TSLA and NFLX down over 20%…
Bond yields are down across the curve… The belly (5Y and 7Y yield) outperformed – down a stunning 40-45bps on the month…
So not an awsesome month but hey… what a week right!!
* * *
On the week…even Nasdaq managed to get green despite AAPL and AMZN collapse…
Energy stocks simply exploded higher off Monday's lows…
Bonds & Stocks were bid…
With Treasury yields down 12-15bps on the week (though 30Y oddly underperformed)
The USDollar Index soared back to unchanged on the week after BoJ's idiocy…
Commodities all gained on the week with crude and copper best…
Finally today…
Total panic buying…
Yeah this really happened!!! 3000 points of swing in Nikkei 225
Creating a giant squeeze in US equities…
Well it is Friday after all…
And when does this ever end well for stocks?
Charts: Bloomberg
Bonus Chart: An awkward reality check…
A year ago, Q4 Earnings for the Energy Sector were expected to be -1.8%. Today: -74.1%. #LeverageKills
— Not Jim Cramer (@Not_Jim_Cramer) January 29, 2016
- Meanwhile In Canada, A Real Estate Bargain Emerges…
We’ve long known that Canada, like Sweden and Denmark, is sitting on a giant housing bubble.
Indeed we took a close look at the issue back in March of last year and have revisited in on several occasions since. Put simply, the divergence between crude prices and the country’s housing market simply isn’t sustainable a you can see from the following chart:
And while the boom is rapidly turning to bust in places like Calgary, things are humming right along in Waterloo, where Napoleon was defeated in 1815. No, wait – wrong Waterloo. This is Waterloo, Ontario, a town of 140,000 that’s being billed as “Canada’s Silicon Valley.”
As Bloomberg reports, “the town revolves around two universities and a burgeoning technology sector that’s attracted companies such as Google Inc. and dozens of startups.” Here’s a look inside the Kitchener-Waterloo Google office:
The buzz has created a “land grab” and now, condos are renting for nearly C$2,000 per month while one-bedroom units are selling for more than a quarter of a million dollars.
Vacancy rates are at 13-year lows and Google’s country manager for Canada calls the city “lightning in a bottle.”
If that sounds like a bubble to you, you’d be correct but some investors don’t see it that way.
Take Bill Ring for instance, head of operations for a property management company who Bloomberg notes drove two hours to Toronto to attend a rowdy sales pitch for condos in Waterloo put on by a Bay Street trader turned-tech investor, turned-real estate mogul. “Students are coming in and need a place to live, tech companies are opening. It’ll all drive the value up,” he says. “I don’t want to invest in stocks because they’re crazy and real estate is a solid, safe investment.“
Yes, Bill wants a “solid, safe investment” that isn’t “crazy.”
Like Canadian real estate.
Which definitely isn’t a bubble.
After all, if the housing market in Canada were overheating, you wouldn’t be able to get “bargains” like the listing shown below from Vancouver.
h/t @penultsquire
Good luck Bill.
- Weekend Reading: Mental Floss
Submitted by Lance Roberts via RealInvestmentAdvice.com,
Over the last couple of week’s most of the weekend reading list has been attributed to the market’s stumble since the beginning of this year. Importantly, as we rapidly head into January’s close, there seems to be little to reverse the negative tide sweeping through the market.
As I wrote earlier this week, this isn’t a good thing.
“It would seem logical that a weak performance in January would lead to some recovery in February. Markets are oversold, sentiment is bearish and February is still within the seasonally strong 6-months of the year. Makes sense.
Unfortunately, the historical data suggests that this will likely not be the case. The chart below is the historical point gain/loss for January and February back to 1957. Since 1957, there have been 20 January months that have posted negative returns or 33% of the time.”
“February has followed those 20 losing January months by posting gains 5-times and declining 14-times. In other words, with January likely to close out the month in negative territory, there is a 70% chance that February will decline also.
The high degree of risk of further declines in February would likely result in a confirmation of the bear market. This is not a market to be trifled with. Caution is advised.”
In other words, there is a real probability that if the markets don’t get a lift between now and the end of the month, February could be the beginning of a technical bear market decline.
But were could that lift come from? The first is month-end window dressing by fund managers after a brutal start to the new year. After much liquidation, fund managers will need to rebalance holdings.
The second is the potential for Central Banks to intervene which could embolden the bulls as further support could temporarily delay the onset of a bear market and recession. Note: I said temporarily. Pulling forward future consumption is not a long-term solution to organic economic growth.
Not to be disappointed, the BOJ announced a move into NEGATIVE interest rate territory to try and boost economic growth in Japan. (Interestingly, however, was the lack of increase in QE.) The announcement was a shock to the markets as the BOJ had just stated last week that negative interest rates were not being considered. Here are some early takes on the BOJ’s move:
- World shares heat up as Bank of Japan goes sub-zero (Reuters)
- Stocks Rally With Bonds as BOJ Ends Grim January on High Note (BBG)
- Japan Follows Europe Into Negative Interest Rate Territory (WSJ)
- BOJ Move Resulting In Currency Wars & Global Slowdown (ZeroHedge)
That move, on top of the latest FOMC meeting, more market turmoil and bond yields flip-flopping around 2%, has made this a most interesting week. Here are some of the things I am reading this weekend.
1) Why Junk Bonds Will Sink Stocks Further by Yves Smith via Naked Capitalism
“Investment lore is full of sayings as to how the bond markets can send false positives about lousy prospects for the real economy and the stock market. However, as Wolf sets forth below, a new Moody’s article makes a compelling case as to why the high risk spreads in the junk bond market bode ill for the stock market.”
But Also Read: Credit Cycle In Full Collapse Mode by Myrmikan Research
And Read: We Should Be Terrified By Junk Bonds by Rana Foroohar via Time
2) If It’s A Bear Market, It Ain’t Over by Joe Calhoun via Alhambra Partners
“The real enemy of investors is not these fairly routine 10 or 20% downturns. The real enemy is the bear market that is associated with a recession or crisis, the one that knocks your equity block down by 40 or 50%. And actually it isn’t even the depth that is the real enemy. For most investors the enemy is time.”
But Also Read: El-Erian: Day Of Reckoning Coming by Mohamed El-Erian via CNBC
Opposing View: Don’t Do Anything, Just Stand There by Wade Slome via Investing Caffeine
And Also: What Investors Shouldn’t Do In A Bear Market by Peter Hodson via Financial Post
3) 34 Charts: This Time Is Different by Will Ortel via CFA Institute
“In October, I asked whether the market could have its cake and eat it too. The hope was for persistent low interest rates and consistently appreciating securities.
Somebody seems to have remembered cake doesn’t work that way.
According to some, this buying opportunity is brought to you by the letter “C”: China, commodities, and the now questionably healthy consumer. Reaching towards risk feels sensible. It’s been nearly 10 years since it wasn’t.
But today, growth, like certainty, is hard to come by. We hear the word “recession” again. There have been more Google searches for the phrase “sell stocks” this month than at any time since October 2008. And January is not over.
To some strategists, the writing is on the wall. I wrote recently that anyone who says they know exactly what will happen is wrong, cheating, or both. I still think that. So before getting into what I see, I want to tell you what to do: your homework. Now is the time to distinguish yourself as an investor. So as you read through everything below, remember: I’ll be disappointed if you wind up agreeing with everything I say.”
Also Read: Why Dip Buyers Will Get Clobbered by David Stockman via Contra Corner
Watch: Recession Fears Grow Louder by Heather Long via CNN Money
<br /> >
4) The Time To Sell Has Passed by Doug Kass via Yahoo Finance
“The time to sell has likely passed. Those opportunities had been in place since last spring and were the outgrowth of a deteriorating fundamental and technical backdrop that many investors ignored.
But while I have a more-constructive market view for the short term my confidence level isn’t high. In a fragile-growth setting, too much can upset the apple cart.”
Also Read: Sellers Are Still In Control by Michael Kahn via Barron’s
Further Read: It Wasn’t Oil, China Or The Fed by James Juliand via RTW
5) Feldstein: Let Markets Fall, Fed Should Hike Rates by Greg Robb via Market Watch
“In an interview with MarketWatch, Feldstein said stocks are overvalued. Any signal from the U.S. central bank that it may pause from its plans to continue raising interest rates would only create the impression that there is a “Fed put” on the market. A put is an option that protects an investor from losses.”
But Also Read: The Fed Doesn’t Understand Liquidity by Louis Woodhill via Real Clear Markets
And: Did The Fed Make A Huge Mistake? by Matt O’Brien via WaPo
MUST READS
- Myth Of The 10 Best Days by Meb Faber via Faber Research
- Why The “R” Word? by John Shmuel via Financial Post
- 15 Things Productive People Do by Kevin Kruse via Forbes
- Why Does Pessimism Sound So Smart by Morgan Housel via Motley Fool
- Here’s Why All The Markets Are Falling by Tyler Durden via Zero Hedge
- Where’s The CapEx Boom? by Buttonwood via The Economist
- Don’t Say You Weren’t Warned…Again! by Michael Lebowitz via 720 Global
- Relief Rallies Truncated By Awful Losses by John Hussman via Hussman Funds
- What Follows The Most Epic Reach For Yield by Jesse Felder via The Felder Report
- Will January Volatility Wreck The Year by Dana Lyons via Tumblr
- Peak Profits by Chris Brightman via Research Affiliates
“I can calculate the motion of heavenly bodies, but not the madness of people” – Sir Issac Newton
- WTF Just Happened Here?
Early in the day, VIX spiked ‘oddly’ and instanly broke the options market…
Prompting the start of an epic ramp in stocks:
Which was all good and fine, until the last minute of the US day-session today, when, as a follow up question, we have just this to ask: WTF just happened here?
Here is Central Bank XYZ’s VIX fat finger, zoomed in.
When Citi warned earlier to “Be Prepared For All Sorts Of Insanity Today“, it wasn’t kidding.
- The BoJ "Gift" Is A One Day Reprieve – Use It Wisely
Via Scotiabank's Guy Haselmann,
By surprising markets with a move to a negative deposit rate, the Bank of Japan gave investors temporary reprieve, providing a much needed opportunity to pare portfolio risk at better prices. Unfortunately, the improvement in financial asset prices will be short-lived; except, of course, for long-maturity Treasuries.
- As I wrote on January 4th, “Investors should be careful not underestimating just how far long-maturity Treasury yields can fall”. These conditions still exist.
The BoJ action to drop its deposit rate from 0% to -0.10% will likely prove to be more symbolic than impactful. However, it is understandable why the BoJ wanted to take action. In January, the TOPIX was down 10% and the traded-weighted Yen appreciated by 3.5%. Currency strength and the fall in oil prices conspired to push Japan’s preferred inflation measure back into deflation. However, if Japan (which only strips out food) stripped out energy from its measure (like other countries do), then its inflation measure would be above 1%.
The BoJ issued a highly informative and clear 4-page explanation of its action (China could use this clarity as an example of effective communication). It introduced a three-tiered system for rates, similar to that used in some European countries. The BoJ made it clear that the negative rate is not applied to outstanding balances of current accounts, but rather applied only to marginal increases in current account balances.
Since the money base is growing at an annual pace of 80 trillion yen, outstanding balances of current accounts will increase on an aggregate basis. However, in order to limit harm to earnings of financial institutions from the negative deposit rate, the BoJ will increase the tier thresholds accordingly. In other words, the current balance to which thezero interest rate will be applied will increase, so that the threshold to which a negative interest is applied “will remain at adequate levels”.
When a central bank hits the 0% lower bound in rates, the impact of any further unconventional easing actions is felt via a weaker currency. Therefore, the diverging policy actions between the hiking Fed and the easing BOJ and ECB, means that the upward pressure on the USD versus the Euro and Yen will continue. The effect of a stronger dollar iscounter to the perceived and kneejerk market euphoria that arose today; and which seem to arise during easing actions. A stronger USD will act like a magnet for global deflationary forces. Investors beware.
A strengthening USD has numerous consequences. The Yuan‘s peg to the USD has certainly damaged China’s competitiveness. The trade-weighted Yuan has dropped by over 25% during the past three years. Moreover, Chinese wages have risen considerably in the past decade, further lowering their competitiveness. China is no longer viewed as the world’s low-cost producer. China is currently trying to find the tricky balance between finding new sources of growth, remaining competitive, stabilizing financial markets, and limiting capital flight.
The move by the BoJ makes this balance more difficult. It increases the pressure on China to devalue its currency further. However, with China’s rise as the world’s second largest economy and its acceptance into the IMF SDR basket, its global responsibility has escalated accordingly. Currency devaluation by China (or by Japan for that matter) steals growth from the rest of the world; such action is clearly non-beneficial to US risk assets.
- A strengthening US dollar has already damaged US corporate earnings – around 50% of S&P 500 earning comes from overseas (and global trade has dropped ominously).
China and Emerging economies were growing above 10% in 2010, but are growing at less than 4%. Clearly, the global economy has lost an important engine of growth. Moreover, the world has never been more indebted and the developed world demographics are simply terrible. For several years, China’s debt has been growing at the unsustainable rate of over 2 times its GDP. Enormous indebtedness has borrowed too much from the future. High indebtedness and low rates globally means there is far less fiscal slack or monetary ammunition with which to respond.
The savings rate in China is 40% to 50%. This is partially due to a lack of confidence in the future, but mainly due to China’s very poor retirement and health care programs. After several decades of the one-child policy, many Chinese are not just trying to save for their own retirements, and potential future health care costs, but are saving for two sets of grandparents who did not receive the benefits of recent wage hikes.
Low interest rates initially cause investors to desperately search for yield. However, eventually risk assets become too mispriced (and thus skewed to the downside). When this occurs, portfolio preferences switch to cash alternative or ‘return of capital’ strategies. During such an environment, the pressure on savers to save more to reach retirement goals intensifies. If, for example, interest rates fall from 4% to 3%, an investor would have to increase savings by more than 20% each year to reach the same goal over 30 years.
I maintain that central banks are miscalculating the non-linear cost-benefit equation of their policy actions. Prudent investors should use today’s month-end BoJ gift to pare portfolio risks and to buy long-dated Treasuries.
“The change, it had to come / We knew it all along / We were liberated from the fold, that’s all…” – The Who
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