May 30

Today’s News 30th May 2016

  • The Global Bear Market In Freedom

    Submitted by Erico Matias Tavares via Sinclair & Co.,

    Americans will be celebrating Memorial Day this weekend, to honor those who fought and died for the values they have traditionally cherished the most as a nation: life, liberty and the pursuit of happiness.

    The world has changed dramatically in recent decades. The geopolitical situation is much more complex, with rising powers challenging America's supremacy. The intractable war on terror seems interminable. Old foes appear to spring back to life even more powerful than before. And things at home look dicey in terms of politics and economics.

    As we reflect upon the ultimate sacrifice that others have made‎, it is an opportune moment to consider a very important question: is the US winning the fight for freedom?

    More than other dictatorial regimes, “totalitarianism” represents the opposite of everything America is supposed to stand for. For most people it conjures images of a repressive leader and his minions having total control of a society with very limited freedoms. That’s not too far off from reality, but there’s more to it and a process to get there.

    The term was first coined by Giovanni Amendola in 1923 to describe the emergence of Italian fascism (which was different from other dictatorships). However, it only gained traction in academic research during the 1960s largely based on the work of political scientists Carl Friedrich and Zbigniew Brzezinski. They reformulated the definition to account for the Soviet Union as well as the fascist regimes of the 20th century, where a totalitarian system featured the following mutually-supportive defining characteristics:

    1. An elaborate guiding ideology;
    2. A single mass party, typically led by a dictator;
    3. A system of terror, using such instruments as violence and secret police;
    4. A state monopoly on weapons;
    5. A state monopoly on the means of communication; and
    6. Central direction and control of the economy through state planning.

    As far as we can tell this definition has not been materially updated since it was first proposed, perhaps because the topic has lost academic interest following the collapse of the Soviet Union. One critique is that many totalitarian regimes do not exhibit all these characteristics at‎ the same time, and not with the same intensity. Initially they may even be welcomed and perceived as necessary by the general population, only to become more radical and pervasive over time, particularly as a result of a political or economic crisis.

    We could also argue that in today’s globalized world the ability to restrict the emigration of citizens has become an important component. After all, the “total” aspect of it becomes less relevant if everyone can get out of Dodge.

    Be that as it may, we will broadly employ these six characteristics to summarily analyze the shifts that have been occurring in the main geopolitical blocks across the world.

    The pattern that emerges should concern freedom lovers everywhere.

    The Islamic World

    “Muhammadan [Islamic] law did not derive directly from the Koran but developed… out of popular and administrative practice under the Umaiyads, and this practice often diverged from the intentions and even the explicit wording of the Koran…. Norms derived from the Koran were introduced into Muhammadan law almost invariably at a secondary stage.” –
    Joseph Schacht, The Origins of Muhammadan Jurisprudence

    Centuries ago Muhammad founded Islam, which translated from Arabic means “submission”. The literal interpretation of that word, his life and his teachings, at times taken to extremes, historically has created societies with a bias towards the restriction of freedoms. For one, slavery (white but especially from Africa) had been a recurring feature of Islamic commerce and society, even well after it was abolished in the West.

    All this was aggravated with the collapse of the Ottoman Empire after World War I, the subsequent (disastrous) redrawing of the Middle East map by the victors, the power vacuum left behind post European colonialism and the never ending sectarian conflict within Islam.

    Despite several attempts at secularism and democratic reform, today the Arab world is a wasteland of freedom. Add Iran and virtually all major Islamic states in the region operate under the definition of totalitarianism, especially when political Islam (sharia) is adopted as the law of the land.

    Out of the 157 countries surveyed by the Cato Institute in its 2013 Human Freedom Index study, no country with a Muslim population greater than 60% ranked in the top-50. Turkey, the first one on the list, ranked #61 (more on that shortly), followed by tiny Brunei at #64 and Indonesia at #70. Twelve of the bottom-20 countries fitted this criterion, with major Islamic countries like Saudi Arabia, Egypt and Iran ranked #144, #146 and #155, respectively.

    In several instances this race to the bottom has been a relatively recent phenomenon, going back a generation or so. Compare the pictures of women in Afghanistan and Iran in the 1970s, indistinguishable from their peers in the West, to today, where many are covered up from head to toe. Do the same for the graduation ceremony at Cairo University in Egypt over the most recent decades.

    The Arab Spring which started in 2011 as a protest against this lack of freedom unfortunately led to more radicalization, violence and war in many countries (the West shares some of the blame). At one point the nefarious Muslim Brotherhood was even elected to power in Egypt, immediately striving to turn the country into a hardcore Islamic state complete with full sharia law. Only the emergence of yet another military dictatorship was able to put a stop to all the mayhem and murder that followed.

    The most recent example in this shift towards fundamentalism is Turkey, once considered an inspiring example of a successful transition from an Islamic into a secular democratic society. After narrowly securing the majority of the votes in a tight election months ago, President Recep Tayyip Erdogan has been busy rolling back these reforms to create a fully-fledged Presidential system with a clear Islamic inspiration.

    In today’s Turkey, minorities are persecuted and in the case of the Kurds killed or placed under curfew, journalists and political opponents are jailed indefinitely, the media is being brought under state control, the military (the most powerful in the Middle East) is gaining political prominence under the pretext of the “fight against terrorism” and war refugees are used as a bargaining chip against Europe.

    All these are hallmarks of totalitarianism. Perhaps revealing his true intentions, Erdogan even went as far as praising Adolf Hitler’s governance model. The freedom loving part of Turkish society now has a real problem on its hands, along with Europe given the deepening commercial, financial and even political ties between the two regions.

    Astonishingly, some geopolitical analysts view Erdogan’s policies as a positive development, providing the muscle and determination to ensure stability in a very volatile part of the world. It is worthwhile remembering that Hitler too was propped up by the West in the 1930s as a deterrent against the Soviet Union.

    We sincerely hope that people in Muslim nations can find the peace, freedom and prosperity that they have aspired for so long. But the trend in this case is clearly not their friend.

    The Sino-Russian Axis

    “Everyone imposes his own system as far as his army can reach.” –
    Joseph Stalin

    Up until the 1980s both China and Soviet Russia were clearly totalitarian regimes, easily fulfilling all six characteristics.

    In the case of China, the world was reminded of this political reality during the tragic events of Tiananmen Square in 1989, when a popular uprising protesting for democracy was brutally crushed by the military. However, the leadership at the time recognized that things did need to change, especially if they wanted to generate a minimum level of prosperity for their citizens to avoid future unrest.

    Soon after private enterprise was encouraged to take a greater role in the economy; critical foreign investment and know-how were welcomed in certain areas of the country; the leadership proclaimed that “to get rich is glorious”. We all know the rest of the story: China has achieved unprecedented growth over a relatively short period, and is now a major player in global economic and political affairs.

    But has China abandoned totalitarianism?

    Terror may no longer be an obvious state tool, but it still lurks in the background, especially when persecuting religious minorities or those who do not follow the prevailing ideology – which at least on the outside is state supremacy under a modified Marxist ideology. Means of communication are broadly controlled, including censorship of the internet. Control of the military has been tightened under President Xi Jinping. And many parts of the country operate under a de facto police state.

    So other than private enterprise gaining a greater degree of freedom, more work is required to spread these gains across Chinese society. And in international affairs China certainly favors pragmatism over human rights. North Korea, its propped-up regional minion, remains undoubtedly under totalitarian control, even after the rise to power of Western educated Kim Jong-un.

    Russia had a rather more tumultuous transition to its current governance model. By the end of the 1990s it was clear that the market reforms adopted after the collapse of communism failed to produce the desired outcome, to put it mildly. A series of events – including a disastrous financial crisis in 1998 – eventually led to Vladimir Putin rising to power, who promptly tightened his grip over political and economic affairs. He still calls the shots to this day, we could say irrespective of his political title and election results.

    Despite this concentration of political power the Russian state has adopted a more conciliatory position towards its citizens, at least on the surface. There’s a good reason for this: Russia’s population is projected to decrease significantly over the next thirty years. And a serious repression of personal freedoms is not exactly conducive to having babies (unfortunately for Putin, Marx did not proclaim “workers of the world, reproduce!”)

    As an example of a shift towards a more tolerant and open society, Orthodox Christianity, which had been virtually eradicated after the Bolshevik revolution, has been making a comeback. The atrocities which took place under the Soviet regime are also the topic of public debate.

    But serious challenges remain. Corruption at all levels of government remains pervasive. Local and regional mafias tend to absorb any power that is relinquished by the state over such a vast territory. And Putin’s confrontation with the West, which has led to the imposition of economic sanctions by the international community, means that the influence of the military apparatus is likely to remain strong over the years to come.

    As such, based on the foregoing we could say that Russia today is much more autocratic than totalitarian, certainly much more than democratic, although its governance model incorporates elements of all three.

    Here’s an important note about communist totalitarianism. Only one former communist country successfully prosecuted its communist leaders for their crimes, and that’s Cambodia (against Pol Pot’s Khmer Rouge). Everywhere else they got a free pass, despite enforcing directly or indirectly an ideology which caused the death of hundreds of millions of people worldwide.

    The fascists on the other hand were put on trial for the entire world to see. This may explain why they are readily demonized, while communists still manage to get elected in many parts of the world (especially in Europe and as we shall see, Latin America). Communism did not die; it is alive and doing very well.

    The Western Hemisphere ex-US

    “And that," put in the Director sententiously, "that is the secret of happiness and virtue — liking what you've got to do. All conditioning aims at that: making people like their unescapable social destiny.” ?
    Aldous Huxley, Brave New World

    Old Europe is the cradle of Western civilization. It has made an undeniable contribution to human progress over the centuries: democracy, human rights (including being the first to abolish slavery, that stain on humanity), widespread education, healthcare and agricultural + industrial revolutions to boot.

    It also came up with some really bad ideas – basically all the social “isms”: communism, fascism, socialism, anti-Semitism and of course totalitarianism. Some brutal wars were fought as a result of these bad ideas.

    The European Union (EU) in large part was created to prevent their reoccurrence, as well as establish a more influential global player by pooling 28 European nations together. Some even view it as an inevitable evolution of the fragmented nation states which had formed the bedrock of Western civilization for centuries.

    With this context, it would seem rather silly to ask if the EU is also a totalitarian state… until we look at the evidence.

    Take Greece. The country went bankrupt in 2010, when unsustainable fiscal policies and inherent flaws in the design of the Euro currency were painfully exposed. Since then that society was turned upside down by successive policies and reforms to rehabilitate the economy.

    The result? Virtual totalitarianism, at least under the definition we’re using: the social and economic policies adopted by the government are the same irrespective of who’s elected or the outcome of any popular referendum; there’s no state terrorism per se, but it’s not exactly pleasant to live under the constant threat of savings and pensions being wiped out if such policies are not duly followed; Greeks, like most other Europeans, are not allowed to contest their government’s monopoly on weapons; and there’s only one accepted guiding ideology – “European Unionism”. Only the great leader is missing (or is that Angela Merkel?)

    The same analysis can be extended to Portugal and other member states that are in a fiscal pickle. Those that aren’t may still breathe some freedom – provided they follow the political orthodoxy from Brussels, or else. Poland and Hungary recently found this out the hard way, as they may be forced to pay heavy fines as a result of their fierce opposition to the EU’s refugee resettlement program.

    Remember that totalitarianism can be a gradual process, and not necessarily overtly repressive at first. In the case of the EU, the political hardening from Brussels appears to be a more recent phenomenon (despite the historical disregard for national referendums and protestations) in light of some pretty obvious failures in dealing with serious issues since 2008. The bigger political integration project needs to stay on track, no matter what. It’s no wonder that in June the UK is voting on a referendum to get out of the EU. And it’s reasonable to assume others might follow suit.

    Latin America, where communism has always had deep roots, has been working at it for longer.

    Shocked by the fall of the Berlin Wall in the late 1980s and the apparent triumph of neoliberal policies across the region, Luiz Inácio Lula da Silva, leader of the Brazilian Workers' Party, and Cuba’s Fidel Castro approached other regional leftist organizations to create a countermovement and eventually bring communism back to power. The result was the creation of the Forum of São Paulo.

    Its first meeting took place in 1990, attended by no less than 48 parties and organizations. Since then, they have implemented their agenda very diligently by gradually infiltrating the media (traditionally left-leaning, and which only publicly acknowledged the existence of this Forum relatively recently), the education system, workers’ unions, politics from the local to the federal level and even the Catholic Church.

    The result was the rise to power in the 2000s of a multitude of “populist” leaders all over Latin America, including Lula in Brazil, Néstor Kirchner in Argentina, Hugo Chavez in Venezuela and Evo Morales in Bolivia – at a time when communism was considered all but dead. All that work to condition the masses, the promise of a more equitable distribution of resources via socialism and a rising wave of anti-Americanism proved irresistible to the electorate in these countries.

    The illusions of renewed prosperity and more equality quickly faded. Not even the bonanza brought about by the spectacular commodities boom could disguise the failure of the leftist economic policies, with indebtedness rising rapidly. When that boom turned into a bust post 2011, confidence in the political system quickly evaporated, compounded by a string of shocking corruption scandals (allegedly committed by those who came to power denouncing them).

    The legitimacy of those governments was quickly called into question, in most cases before they could at long last establish their coveted socialist utopias. Argentina narrowly voted out the leftist government, led by Cristina Kirchner. After many months of vigorous popular demonstrations, Brazil finally impeached Dilma Rousseff, heir apparent (placeholder?) of Lula, a few weeks ago (disentangling her party’s influence in Brazilian society may prove to be rather more difficult).

    But the Venezuelans were not so lucky, and are now facing the totalitarian boot of the government of Nicolás Maduro, the successor of Chavez: political assassinations and intimidation, banning of private gun ownership (already in 2012), media blackouts, loss of individual and economic freedoms, increased military control and all the rest. All this in the country with the largest oil reserves on the planet.

    Cuba of course remains firmly a totalitarian state, despite the recent overtures of US President Barak Obama. No respite for its citizens there either.

    The US

    “If we lose freedom here, there is no place to escape to. This is the last stand on Earth.” – Ronald Reagan

    When it comes to individual freedoms Americans are in a league of their own. Their country was founded by people seeking refuge from persecution, whose leaders were allergic to the concept of big government. Successive generations have fought very hard at home and abroad for the sake of liberty.

    If it were not for the US, Europe would have almost certainly succumbed to fascism or communism. The US Constitution, a marvel on how to limit the power of big government – by definition anti-totalitarian/authoritarian, is older than the constitutions of most advanced European nations.

    All that being said, it is undeniable that personal liberties took a big hit after 9/11, justified by the “war on terror”. And it’s not just from increased government surveillance, as one would immediately think. Today there is a set of powerful dynamics in motion that may fundamentally alter the relationship between Americans and their government.

    Here are a few examples:

    Growing dependency on the government: Self-reliance was once a hallmark of American life. But today the largest single employer in the US is the government. One in seven Americans receive food stamps, meaning that without the government they would go badly hungry. The US bureaucracy spent over $3.6 trillion in 2015, making it the largest enterprise on the planet. As the cost of staples like food, healthcare and education skyrocket, more and more people will push the government to pitch in via the ballot box.

     

    All this creates a self-perpetuating machine increasing the size of government to provide for all these needs. As Milton Freedman warned us, one of the costs of bigger government is the loss of freedom. But some Americans do not seem to care. The following Gallup poll shows the progressive embracing by the younger generations of the role of government and socialism (as of May 4, 2016):

     

     

    The ever expanding government debt: Maintaining this expanding machine costs a bundle. Even if taxes collected have been rising, the US government still comes up short, so borrowing goes up. In the last fiscal year, just the federal debt totaled over $18 trillion, more than 100% of GDP and almost $60,000 for every American adult and child. What is striking is how fast it has been growing, almost doubling over each of the last two presidencies. The graph below shows this staggering increase since 1950 in real terms.

     

    US Federal Debt in Real Terms ($2015): fiscal1950-fiscal2015

     

    Somebody will have to pay for all this at one point, and that’s you dear American reader. Also remember that unlike other developed countries you are taxed on your worldwide income, so there is no escape even if you leave the country. And the more the government owes today the more it will come after you at some point in the future, by whichever means, benevolent or otherwise.

     

    State allocation of resources: As the size of government expands, its influence over the economy and allocation of resources grows with it. And it can do so either directly using public entities or indirectly via big business, meaning large corporations favored by the government (which in turn have every incentive to try to influence that big government in their favor). The fascist dictatorships of Europe in the 20th century provided an extreme example of how this close alliance between politics and corporations controlled society.

     

    According to the findings of Martin Gilens and Benjamin Page at Princeton University, published in 2014, “economic elites and organized groups representing business interests have substantial independent impacts on US government policy, while average citizens and mass-based interest groups have little or no independent influence”. On top of that, a hybrid public-private entity controls US monetary policy, becoming particularly interventionist since the 2008 financial crisis.

     

    If you think all of this is theoretical, try this one for size. Executive Order 13603 was signed with little fanfare by President Barack Obama in March 16, 2012, authorizing the President to requisition property, force industry to expand production and the supply of basic resources, impose wage and price controls, settle labor disputes, control consumer and real estate credit, establish contractual priorities and allocate raw materials towards national defense; in other words, to obtain absolute control over the economy if deemed necessary (by who?) to protect the nation.

     

    The gun control debate: If you read the daily news you might think that the US has turned into the Wild West, with fanatical gunmen riding into town and shooting everything in sight. While the loss of life from any type of violence is regrettable, the reality is that gun homicides per capita are at generational lows. And yet many politicians and much of the mainstream media portray this as a core problem of American society that can only be fixed by restricting access to guns. If the majority of Americans feel that way obviously it should be subject to a debate. But what is unquestionable is that a state monopoly of weapons, if that is the desired outcome, is a key component of a totalitarian society.

     

    Growing intimidation: Some media commentators have denounced the current Administration’s harassment of the press. We really can’t say much about this, other than it seems to fit into a growing pattern of government intimidation, be it against whistleblowers or using agencies to target certain political groups. But this actually goes beyond the government. There appears to be state-sponsored “consensus” or even ideology forming around certain social and economic issues, which is heavily guarded by social justice warriors (reminiscent of the ideological “brown shirts” in Nazi Germany). Try challenging climate change, open border policies, multiculturalism, transgender bathrooms and a range of other issues and you may find yourself in court and/or being physically attacked.

     

    A Revealing Flyer Recently Posted in Boston, MA

     

    An imbalanced Supreme Court: Here’s a seldom discussed yet hugely important outcome of the 2016 Presidential Election. Commentators who say that Hillary Clinton or Donald Trump might become dictators display a very shallow understanding of how the US political system works. The US Constitution was designed to prevent this, and political representatives along with millions of patriots have sworn to defend it. But ultimately it’s the Supreme Court that decides what’s constitutional and what’s not. If the majority decides that the President should have dictatorial powers during an event like a terrorist attack or war, then all bets are off.

     

    Until the death of Justice Antonin Scalia, the Supreme Court was fairly balanced between conservatives and liberals, in a sense reflecting the broader views of society (in theory the political orientation should not matter, but in practice we are all human). Now Democrats have a unique chance in November to shift key rulings in their favor by appointing one and possibly more Justices who have a more liberal interpretation of the Constitution. Since they are appointed for life, this imbalance will deeply impact a generation if not more of American politics and in our view represents a serious risk to constitutional liberties.

    If we go back to that Cato Institute study on human freedoms, we find something very striking: the US did not make it to the top-10 freest countries in 2013. In fact it barely made it to the top-20, ranking #19 (paradoxically, where the land of the free still leads the world is in putting its citizens behind bars).

    We quickly dismiss and forget trends and statistics like this. After all, the US’ governance model will never change… right? Not quite. The US can become (and in many ways already is) less free.

    This means that citizens all over the world should be concerned. Why? Because Ronald Reagan was right: there is no more freedom if the US loses it.

    Think about it. Who else will lead the fight for individual liberties? Not the Eurocrats, based on the track record of the EU (they aren’t even capable of protecting their own women). Neither will the Russians nor the Chinese, whose patriarchies think they know better than the average citizen. The major Muslim countries are busy dismantling what’s left of freedom at home, while in some cases exporting fundamentalism abroad. And Latin America has a lot of cleaning up to do domestically.

    ***

    In 1630, before setting sail to the Americas, English Puritan leader John Winthrop admonished his fellow future New England colonists that their new community would be “the light of the world as a city upon a hill”, setting an example of communal charity, affection and unity to all other nations. The concept became central to the US’ conception of itself as an exceptional and exemplary nation.

    So far in early innings of the 21st century the US does not appear to be winning that fight for freedom – internationally, and even more disturbingly at home. That light is dimming pretty rapidly.

  • Libertarian Party Chairman Candidate Strips To His Underwear On Stage

    While badly needing an alternative to the fake left-right division plaguing US society, Americans will not get a much needed, credible libertarian “third choice” for at least another year. Here’s why.

    Earlier today, the Libertarian Party nominated former New Mexico Gov. Gary Johnson and former Massachusetts Gov. William Weld as its presidential ticket Sunday, as the party attempts to elevate itself into the mainstream during an election that’s given the small party unprecedented opportunity. Unfortunately, “taking itself into the mainstream” was just not meant to be for a party that earlier today saw a candidate for chairman strip to his underwear and give the entire convention a striptease.

    The pair, both two-term governors, have more executive experience than any other candidate in the race, and they will offer an alternative to two historically unpopular candidates, presumptive Republican nominee Donald Trump and Democratic front-runner Hillary Clinton.

    “This is the best message team going forward,” Johnson, the Libertarians’ presidential nominee, told reporters after Weld won the vice presidential nomination.

    And, as NBC reports, it all came to be in a contested convention. After endless speculation that the Republican Party’s divided primary might end in a contested convention in Cleveland and continued theories that the Democrats’ primary could end in Philadelphia with a floor battle between party insiders, 2016 finally had a contested convention, in Orlando. 

    Johnson won on the second ballot after falling short of a majority by just a few votes — getting 49.5 percent — on the first. However, unlike the democratic or republican races, there were no superdelegates who will make all the difference.

    Unfortunately, it is here that things took a turn for the bizarre. The tense hour between ballots left candidates scheming and delegates making floor deals and chanting for and against candidates. It was the kind of drama political reporters had previously only dreamed about.

    While Johnson locked down enough votes on the second ballot, the drama was far from finished Sunday. Libertarians also allow their party to choose the vice presidential nominee, and Johnson’s chosen running mate — Weld — is not a party favorite, as many question whether he’s really a Libertarian. It didn’t help that he endorsed Ohio Gov. John Kasich for the Republican presidential nomination earlier in the primary cycle.

    Weld fells a couple of dozen votes short on the first ballot, but he won on the second — by just a few votes — and the crowd erupted in boos and cheers.

    And then, the Libertarians showed that when it comes to stealing the stage and making a total farce, Trump is at best an amateur, when a candidate for the chairmanship of the Party decided to unleash in a stripteaser on the stage.

    As The Hill reports, the man took the stage and defended his chosen candidate for the party’s vice presidential nomination, Derrick Grayson, as the results of the second ballot were tabulated, according to reporters on the scene. During that time candidates for chairman of the party were allowed two minutes each to speak. The man stripped down to his underwear, before saying he was doing it for a dare and leaving the stage.

     

    This is what happened at the most important annual event for the US libertarian party:

    Several delegates came to the microphones after the display to complain, with one attempting to revoke the man’s membership from the party.

    To summarize: after eight straight hours of voting, the Libertarian Party had its nominees, America had finally seen a contested convention, and one person got naked. 

    The good news is that if this is a preview to the insanity to come during the republican and democratic conventions, Americans will be greatly entertained this summer…

  • China Sends Yellen Another Warning, Fixes Yuan At Lowest In Over Five years

    We got an early hint of what the PBOC would do tonight on Friday and Saturday, when as we reported, an unprecedented volume burst of bitcoin buying out of China, sent the digital currency soaring to the highest level since 2014.

    To be sure, we had expected sailing would not be smooth for the FX market, when on Friday afternoon, after Yellen’s’ unexpectedly hawkish comments at Harvard, which sent the USD surging, we predicted a stormy sea for the Monday Yuan fix:

    That is precisely what happened when moments ago the PBOC set the official exchange rate of the onshore Yuan lower by nearly 0.5%, from 6.5490 to 6.5794, the lowest fixing in more than 5 years, or February 2011.

     

    Which brings us to a post we wrote last Wednesday, when according to Daiwa, “Round Two Of China Capital Outflows Is About To Begin.” The highlights:

    As Kevin Lai, HK-based chief economist of Asia ex-Japan at Daiwa Capital Markets writes in note released overnight, round two of China capital outflows is about to begin, if second half last year was considered the first round. This is what he believes will happen next:

    • China’s FX reserves may fall below $2t in about a year
    • Downward pressure on FX reserves is most likely to be underestimated as short-term speculative flows are far more ready to leave than real flows
    • Based on estimates, about 49% of PBOC’s FX reserves are made up of flows which are speculative and short-term in nature
    • Expects decline in FX reserves to be more rapid in next 24 months at least
    • Look for further $500b decline to $2.7t by end-2016 and a further $900b decline to $1.7t by end-2017
    • If companies, especially SOEs, face trouble paying back creditors, central government would bail them out
    • Massive bailouts would require government’s monetary policy to turn a lot more aggressive, putting more pressure on yuan
    • Policymakers would have to seriously think about letting CNY slide gradually to a better equilibrium level

    His conclusion: the USD/CNY will hit 7.50 by end-2016, some 15% higher than where it is now.

    Then again, also today Goldman chimed in with a warning that “the end of a temporary sweet spot that China enjoyed with its exchange rate, strength versus the dollar and weakness against trading partners, will spur renewed capital outflows.”

    Since Goldman has become the “Dennis Gartman” of investment banks, this “warning” may just be the confirmation that ongoing Chinese devaluation will not spook FX markets.

    On the other hand, purely statistically, it is about time Goldman got something right, and if this is it, it means that the Fed’s June/July rate hike is about to be derailed, for the reasons laid out previously why with the domestic economy no longer a factor, the only thing influencing the Fed is China, and whether or not EM currencies are turmoiling.

    For the answer keep an eye on the offshore Yuan: if the selling and shorting resumes in earnest without an intervention by the PBOC, the events from August and January are about to deja vu themselves, all over again.

    And, of course, bitcoin. If the Chinese, who know the local financial situtation better than anyone, are openly rushing into the “safety” of a digital currency to avoid imminent devaluation, then we have our answer.

    For now, the local commodity markets are displeased as China’s Iron-Ore futures slide to three month low, lowest since Feb. 22; now down 2.5% at 336.0 yuan/MT, while that other China carry currency, the AUDUSD, is down a comparable to the CNY 0.4%, to 0.7151, and is fast approaching a two month low.

  • "This Is Not The America My Parents Immigrated To In 1957"

    Submitted by 'Stucky' via The Burning Platform blog,

    Not that I remember what America was like in 1957, as I was not yet five years old. Years later, when I was old enough to understand, they told me their story. Briefly, it goes like this.

    Dad was born in Romania (Czernowitz in Northern Bulovina), but he identified (haha) as German because, well, his dad was German, his mom was German, they spoke German and kept German customs, and lived in a German community so, applying the “quacking duck” theory, that’s what he was. Mom was born in Yugoslavia (now, Slovenia), but she identified as German for the same reasons as dad did. The Nazi regime would refer to folks such as my parents as “Volksdeutsche” —- being German as a people or race, regardless of citizenship. More on that  here.

     

    When dad was about seventeen the Deutsche Wehrmacht (army) made a pit stop in his neck of the woods, and forcibly yanked his ass off the farm, and within a few weeks turned him into a bonafide Mortarman (dudes who launch grenades). He might have destroyed or damaged a Russkie tank or two, but was eventually captured by the Russians, and spent the rest of the war, and some time thereafter, in one of their luxurious prison camps. When mom was a pre-teen the Russian army made a pit stop in her neck of the woods, killed most of her family, but spared her life and put her to work as a slave laborer and sex-toy (cuz she was very pretty), in one of their gulags.

     

    Obviously they both survived this ordeal (otherwise I probably wouldn’t be writing this). However, after the war ended, neither parent was allowed back to their ancestral homes. In order to keep Germans from becoming a “problem” again, Eastern Europe (with approval of all the Western powers) decided to enact a program of ethnic cleansing by expelling as many as 14 million Germans. This German Diaspora comprised the largest migration of any European people in modern history. More here. Many died, estimates range from 500,000 to 2,000,000. My parents survived that as well, obviously.

     

    They arrived as Flüchtlinge (refugees) in an Austrian camp for such people … two Germans as refugees in a German country, how weird is that … found each other, did the nasty posthaste, and produced me, at the time a bastard child mostly unwelcome anywhere. (I’m just glad my dad wasn’t some anonymous Russian soldier!). They gave it their best shot living this way. But, even as late as 1957, there wasn’t enough work in Austria. They felt their future would be better elsewhere. So, they came to America … for work.

    You do understand the meaning of that last sentence? It means my parents came to America for a selfish reason, as all immigrants do. Sure, the stated reason for most immigrants may be for economic betterment, to escape political repression, or flee religious persecution, and such. But, the ultimate motivating factor is always for the betterment of one’s self, and/or family. In other words, no immigrant has ever arrived at these shores in order to make America great. On the contrary, they came because they believed America was already great, and a land of opportunity.

    This quest for “opportunity” is one of the key distinguishing characteristics of the “old world” immigrants. Not all, but a great many of the current horde invading this country come not because America is great and offers opportunities, but because America has become the Land Of Entitlements — a concept unknown to old world immigrants. In fact, my dad needed a “sponsor” to guarantee that my father would have a job the moment he arrived. No job? No skills? Stay home! And don’t even think of gaining entry if you, or your loved ones, have some kind of disease. There were zero social backstops. No food-stamps. No free medical visits. No free transportation. No free-housing via Section 8, or some other thieving giveaway.

    And to be honest, those folks back then wouldn’t accept free shit if you handed it to them on a silver platter. For the first couple months in this country my parents lived in an abandoned apartment building in NYC without even running water. Jack, my dad’s employer, offered to let us live in a spare room in his house until dad could get on his feet. Dad refused, saying he came to this country to work, and not to receive charity. Compare that mentality to the current free-loaders who demand “their rights” the moment they set foot here … for example, people who get social-security (and loads of other freebies) without ever having paid even a thin dime into the system. This is criminal in the sense that it is literally theft from the people who are forced to pay for all this ”free” stuff. These people should be ashamed, but they know no shame. Rather, they will shout you down as a racist and bigot for even suggesting the hideous Biblical concept of ‘he who does not work, shall not eat’. It can be argued that immigrants helped build America, or that immigrants are what made us great. But, that was a long time ago, in a different era, under totally different circumstances. Try to remember this; not all immigrants are equal, or beneficial to this country.

    Part of Trump’s plan to make America great again is to build a yuuge wall. That’s a really dumb idea when compared to other alternatives. The best idea is so simple; immediately end all entitlements to people here illegally! I’m fairly certain that act alone will stop the flow almost overnight. Why hasn’t Trump (apparently) not even considered that option? Perhaps because he know that free shit, once given, can never be rescinded? Perhaps because he realizes that those who get free shit are forever beholden to the shit-giver, and therefore they are easily controlled and manipulated …. not to mention a permanent guaranteed voting class? If so, Mr. Trump doesn’t have much chance of making America great again no matter how high he builds his wall.

    Or, how about this? A tit-for-tat immigration policy; enact immigration laws identical to that of Mexico.

     

    What is the meaning of “Make America Great Again!” except that it is both an admission of America in decline, and a boast that only Trump can restore us to our former glory?

    On the one hand, many (such as myself) find that to be a refreshing change of pace from the braggadocio propaganda we’ve heard for about the past twenty years … culminating with the biggest (and least successful) braggart of them all, Obama, informing us almost daily that America is an “exceptional” nation, the “indispensable” country, the “sole” superpower of Planet Earth, …. nay, the greatest power ever in human history, to which every other nation on earth aspires to imitate.

    “Obama has talked more about American exceptionalism than Presidents Reagan, George H.W. Bush, Bill Clinton, and George W. Bush combined: a search on UC Santa Barbara’s exhaustive presidential records library finds that no president from 1981 to today uttered the phrase ‘American exceptionalism’ except Obama.” ——— John Gans Jr., The Atlantic, 2011

    “‘American exceptionalism’ is not a traditional part of presidential vocabulary. According to Schlesinger’s search of public records, Obama is the only president in 82 years to use the term.” – Robert Schlesinger, U.S. News and World Report

    On the other hand, Trump is the first candidate (at least in modern times) to run openly and without apology on a platform of American decline. Let’s take a quick look at how one President talked about America shortly after we arrived here.

    Take a look (or, recall, if you have a good memory) at JFK’s speeches. You simply won’t find them littered with exceptionals, indispensables, and other superlatives … as those words simply weren’t part of the political lexicon back then. American wealth and military might were basically a given, and indisputable. Big dogs simply and quietly go about their business. It’s the small and insignificant Chihuahuas of the world who yap endlessly about their superiority.

    In his inaugural address JFK reflected the character of old world immigrants when he urged all of us to not ask what this country can do for us, but what can we do for our country. His only use of “great” was to invoke the USA / Soviet Union blocs as “two great and powerful groups of nations”. In another speech he spoke of America as “a great power” — but not “the greatest power.” In that same speech he said; — “we must face the fact that the United States is neither omnipotent or omniscient … that we are only six percent of the world’s population … that we cannot impose our will upon the other 94 percent of mankind … that we cannot right every wrong or reverse each adversity … and that therefore there cannot be an American solution to every world problem.” Don’t confuse that “negative” statement with Trump’s assessment of America. JFK’s commentary is one of quiet strength and tremendous wisdom rooted in a deep and abiding confidence of America’s unstated power …. a confidence so unshakeable that there was no need to speak of it.

    While Trump speaks openly about America’s decline, Obama and Hillary acknowledge the same sentiment, albeit unknowingly. Decline is evident when one has to say endlessly and openly what once was too obvious to say. In other words, if you have to brag about it, you no longer have it.

    For a cultural equivalent, call it the Rambo-ization of America. I absolutely loved “westerns” as a kid. The post WWII movie “heroes” of my youth were folks like John Wayne, Burt Lancaster, Chuck Conners, and then as a teen, Lee Van Cleef and Clint Eastwood. Other than their acting abilities, what was remarkable about them? Well …. nothing, really. They were remarkably ordinary looking, like the guy in your office or next-door neighbor, not overly muscled, not possessing other-worldly fighting skills, and their weapons were basically identical to that of their enemies. But, then came America’s defeat (or, was it a “draw”?) in Vietnam to a bunch of guys dressed in pajamas, with rusty rifles, and living in tunnels. Hollywood helped us cope with our malaise and depression by now giving us outrageousness; outrageous muscles, outrageous weapons, and outrageous killing skills whereby now an Army is no longer needed but, rather, just One Guy defeats the gooks. We like our lies, but we really really love outrageous lies. Eventually, mere humans, no matter how muscled, no longer provided enough titillation to dull our senses. Whereby we once were satisfied that Conan enjoyed crushing his enemies and hearing the lamentations of their women, by 1984 we demanded and cheered a virtually undefeatable cyborg from the future with a German accent uttering amazing philosophical pandering such as, “Fuck you, asshole.” And, what heroes do we have today? Spiderman, Thor, Hulk, Superman, X-Men, Iron Man, Ant Man, Captain America, Batman, ad infinitum. How ironic that in an Age of Science and Technology that we find solace and amusement in heroes who defy all known laws of physics … and, sensible dialogue. It seems that the deeper America sinks into chaos, that the more ridiculously obscene our heroes (and, leaders) become.

    [Side Note; Surprisingly (probably to most folks), it is Ronald Reagan who started the ball rolling in terms of being defensive regarding America’s greatness. I do acknowledge that he said this – “Let’s reject the nonsense that America is doomed to decline”. However, Reagan used “again” — long before The Donald did — in his iconic 1984 commercial titled ‘Prouder, Stronger, Better’ where the voiceover says — “It’s morning again in America.” — and later asks, “Why would we ever want to return to where we were less than four short years ago?” — a very Trump-ish admission of America’s decline. Nevertheless, Reagan is hard to pigeonhole as he didn’t lack for superlatives flowing from both sides of his mouth ranging from his “shining city upon a hill” (probably stolen from JFK’s inaugural address) to his unwavering, almost Obama-esque belief in America’s greatness — “ … here in the heartland of America lives the hope of the world … in a world wracked by hatred, economic crisis, and political tension, America remains mankind’s best hope.”.]

    When it’s all said and done, remember to tell your grandchildren about The Year 2016. It’s the official year when the USA!USA!USA! went on record as being a Nation In Decline. Thank you, Donald!

    *  *  *

    The biggest change since our arrival in 1957 is that America has somehow morphed from being a democracy to at best being an oligarchy, at worst, a dictatorship.

    Now, some of you are getting ready to educate me on the error of my ways by pointing out that the United States is a republic. Let’s not quibble over semantics. The key question is whether this country is controlled by an elite aristocracy, or the public. In a democracy/republic the government represents the people, while an aristocracy represents itself. An elite aristocracy is a dictatorship no matter how it is flavored; Nazis in Germany, Commies in Soviet Union, Fascists in Italy, or oligarchs in the United States.

     

    — A massive Health bill affecting about 20% of the US economy is passed despite the overwhelming majority of people against it, and none of the legislators actually aware of what the bill contained until after it was passed. Does this sound like a representative democracy, or dictatorship?

     

    — A town in Vermont, and across America, is forced to accept Muslim refugees (and then forced to pay for all their freebies) without the citizens even being allowed to question the town leaders because that would me “messy” and people would come “out of the woodwork” with all kinds of differing opinions. Does this sound like a representative democracy, or dictatorship?

     

    — The Military Commissions Act, signed by Bush in 2006, abandoned the Geneva Convention, legalized the torture of U.S. citizens, suspended all civil rights for prisoners and allows the President to declare virtually anyone to be an “enemy combatant“. Furthermore, it retroactively granted blanket immunity to all U.S. military personnel who have committed war crimes under the Geneva Convention. Furthermore, the immunity would extend to present and future war crimes as well. Furthermore, it utterly nullifies the courts and makes it illegal for the judicial branch of government to interfere with the imprisonment and torture of anyone. In other words, the United States declared itself immune from any international law, and that it will officially harbor and support war criminals. Does this sound like a representative democracy, or dictatorship?

     

    — Obama is pushing for several international trade deals (TTIP, TPP, and/or TISA). Only a handful of people know the full scope of these deals. Most legislators working on these deals are only allowed to see small parts of the deal. What we do know is that these deals will transfer national sovereignty to an international corporate dictatorship. We, the people, aren’t allowed to see any of the details …. until after it is passed. Does this sound like a representative democracy, or dictatorship?

     

    — It is a parade of lies which has led to the death of thousands of young Americans – and tens of thousands physically and psychologically wounded — in Iraq and Afghanistan … not to mention hundreds of thousands, if not millions, of dead and wounded citizens throughout the Middle East. According to the Constitution only Congress can declare wars. But, through the use of Executive Orders, the president can unilaterally declare wars at will. Our sons and daughters used as cannon fodder, our debt piling up, an economy in ruins … and there isn’t a damned thing you can do about it. If you dare protest about such things, you will be targeted as a potential terrorist. Does this sound like a representative democracy, or dictatorship?

     

    — The Supreme Court in their 2010 Citizens United decision enabled unlimited secret money — including foreign money — to pour into U.S. political and judicial campaigns. Let’s see if former President Jimmy Carter thinks this is part of representative democracy: “It violates the essence of what made America a great country in its political system. Now it’s just an oligarchy with unlimited political bribery being the essence of getting the nominations for president or being elected president. And the same thing applies to governors, and U.S. Senators and congress members. So, now we’ve just seen a subversion of our political system as a payoff to major contributors, who want and expect, and sometimes get, favors for themselves after the election is over. At the present time the incumbents, Democrats and Republicans, look upon this unlimited money as a great benefit to themselves. Somebody that is already in Congress has a great deal more to sell.”

     

    — This country is ruled by force, not law. Governmental assassinations of US citizens. A highly militarized police with almost unlimited powers to harass, intimidate, and brutalize with impunity. TSA groping whereby in any other setting would be considered sexual harassment. Overseas detention, torture and assassinations carried out against anyone, including American citizens, without due process … and without recourse if later cleared. Warrantless GPS tracking by the FBI. The IRS targeting religious groups. Some people now actually be charged with pre-crimes. Checkpoints up to one hundred miles inland from all our borders (including the two oceans and Gulf of Mexico) in an area stunningly known as a “Constitution Free Zone”. No Ride / No Fly lists which are extrajudicial, secret, and form a guilty-until-proven innocent framework that subverts freedom instead of protecting it. A See Something/Say Something program which goes beyond the already high-tech surveillance apparatus of the NSA and turns each of us into an unpaid employee of the police state similar to what the East German Stasi did to their citizens. Web cameras and surveillance proliferating like a wildfire, data mining, recording all your phone conversations, all your web searches, all your emails, and all without your consent. An FDA, which has near-total food control and usually renders anything healthy as toxic, and all that is toxic as healthy, and does insane shit like jailing folks who buy raw milk. Literally tens of thousands of regulations which literally invade every facet of society, whereby it has been said that almost all of us commit three felonies per day, and every violation of these laws will be met with the full force and fury of the State which promises fines, penalties, forfeiture of properties, or imprisonment.   Does any of this even remotely resemble a representative democracy, or does it sound more like a dictatorship?

    I’ll stop now, even though I could easily go on for another ten thousand words. Besides, some of you will say this is all anecdotal. Some will attempt to refute each and every point. And others – the especially ignorant – will chime in with a “Well, you have nothing to worry about if you don’t break the laws”. The most retarded of all will opine, “Hey! Shaddup! This is all for our safety and security! And, the children.” OK, you doubters, let’s end this article with some ….. science.

     “Testing Theories of American Politics”

    A single empirical study titled “Testing Theories of American Politics” was published in 2014 in the journal Perspectives on Politics, issued by the American Political Science Association.

    This study investigated answers to 1,779 survey questions asked between 1981 and 2002 on public policy issues. The responses were broken down by income level. Then they researched actual enacted policies and whether or not those policies reflected public preferences … or, conversely, whether the relevant corporate-lobbied positions had instead become public policy. Let’s get to the good stuff, their conclusions. None of the below should be a surprise to you. But, at least there’s now some empirical data to validate your hunches.

    “In the United States, our findings indicate, the majority does not rule—at least not in the causal sense of actually determining policy outcome. …………… When a majority of citizens disagrees with economic elites and/or with organized interests, they generally lose. …………… even when fairly large majorities of Americans favor policy change, they generally do not get it …………… Our analyses suggest that majorities of the American public actually have little influence over the policies our government adopts …………… , the opinions of lower-income groups, and the interest groups that represent them, appear to have little or no independent impact on policy …………… however, the preferences of rich people had a much bigger impact on subsequent policy decisions (40% of preferences enacted) ) than the views of middle-income and poor Americans (18% of preferences enacted) …………… [when] policy making is dominated by powerful business organizations and a small number of affluent Americans, then America’s claims to being a democratic society are seriously threatened.”

    Let me summarize all that for you, and please excuse my profanity; —- your elected representatives don’t give a rat’s ass shit about you and what you want for this country (except at election time). So, stop kidding yourselves by thinking your vote matters.

    *  *  *

    This is NOT an article about the pros and cons of Donald Trump. Nevertheless, the question must be asked; “what changes if Trump becomes President?” Near as I can tell Trump’s platform is as follows; 1) all our politicians are stupid, but he’s not, 2) nobody knows how to make good deals, but he does, 3) he’s gonna build a yuuge wall, 4) he’s going to create jobs, somehow, 5) we’re gonna have the biggest badass military in the world (isn’t that the case already?), 6) cops are just gr-r-r-reat, and he’s going to take care of them, believe you me. Did I miss anything?

    (BTW, I have even less hopes for the Democrat side of the same coin. Hillary will clearly continue with the status quo … except, as an added bonus, she might start a nuke war with Russia. And Bernie’s socialism will most clearly add to our many undemocratic woes.)

    This article is about the huge issues facing Amerika, and our decline into a dictatorship. What will The Donald do about the issues I raised above, and the ten thousand words I didn’t include? Is he even aware of the issues? Will he bring back the America of my youth? Can he change the regret my aged parents (and, myself) have for coming to this country, and can he restore hope to the weary? I think I know the answers. Except for a few changes (maybe) … it’ll just be more of the same. No one man, at this point in American history, can stop the Coming Shitstorm headed our way. Trust me, it won’t be long before you hear these words from your local servant in blue — “Ihre Papiere bitte” — and the hellish circle will be complete.

    *  *  *

    “Hoffnung”, the German word for ‘hope’, is my dad’s favorite word because it has carried him through many tribulations. I might insist on having “He never lost hope” engraved on his gravestone. Hope sustained him when the Nazis ripped him from his home. Hope lifted his spirits as a prisoner of war. Hope kept him alive when the Russians released him to the British, and he worked in a coal mine under terrible conditions near Scotland for a few years to pay off his “debt”. Hope kept him from falling apart when mom fell down the stairs not so long ago. Hope kept him from depression when he crashed his beloved classic Mercedes last year. Hope is what brought him and his family to America for a better life. I just wonder if he would have left Austria if he knew that 57 years later his very own son would have no hope whatsoever for the America he was about to call home. So sorry, that’s just the way I feel right now, and for the past six months or so. Hoffnung ist tot.

  • Cash-Strapped ISIS Is Selling Sex Slaves On Facebook: Asking Price $8,000 Each

    One month after disturbing reports emerged that the cash-strapped Islamic State regime, which as noted last week is rapidly losing control over territory it had gained during its 2014 blitz offensive in 2014 in Iraq and Syria, has been killing its own fighters in order to sell their organs, as well as paying $50 to fighters for every female sex slave they own, ISIS has now tapped into yet another critical cash-flow stream: selling female sex slaves.

    A recent Facebook posting attributed to an Islamic State fighter who calls himself Abu Assad Almani shows a young woman, around 18, with olive skin and dark bangs that droop onto her face. In the Facebook photo, she attempts to smile but doesn’t look at her photographer. The caption mentions a single biographical fact: She is for sale.

    “To all the bros thinking about buying a slave, this one is $8,000,” begins the May 20 Facebook posting by Almani. The same man posted a second image a few hours later, this one a pale young face with weepy red eyes. “Another sabiyah [slave], also about $8,000,” the posting reads. “Yay, or nay?”

     

    As WaPo adds, after advising his Facebook friends to “get married” and “come to dawlah,” the name for the Islamic State’s territory in Iraq and Syria, Almani then engaged with different commenters in an extensive discussion about whether the $8,000 asking price was a good value. Some who replied to the postings mocked the women’s looks, while others scolded Almani for posting photos of women who weren’t wearing the veil.

    The sex trade conversation then devolved into pure Econ 101: “What makes her worth that price? Does she have an exceptional skill?” one of his correspondents asks about woman in the second photo. “Nope,” he replies. “Supply and demand makes her that price.”

    Technically $8,000 was the ask. It is unclear what if any bids were presented and if any actual trades took place.

    A Yazidi who had been held by ISIS militants as a slave for several
    months sits in a tent outside Duhok, Iraq.

    According to WaPo, the photos were taken down within hours by Facebook; it is unclear whether the account’s owner was doing the selling himself or commenting about women being sold by other fighters.

    The unusual posting suggests that not only is ISIS in desperate financial straits, but obviously hundreds of women who are now ISIS’ sex slaves face an extremely perilous existence. The group’s female captives appear to be sold and traded by cash-strapped fighters, subjected to shortages of food and medicine, and put at risk daily by military strikes, according to terrorism experts and human rights groups.

    Social-media sites used by ­Islamic State fighters in recent months have included numerous accounts of the buying and selling of sex slaves, as well the promulgation of formal rules for dealing with them. The guidelines cover such topics as whether it’s possible to have sex with prepubescent prisoners, yes, the Islamic State’s “legal experts” say, and how severely a slave can be beaten.

    But until the May 20 incident, there were no known instances of Islamic State fighters posting photographs of female captives being offered for sale. The photos of the two unidentified women appeared only briefly before being deleted by Facebook, but the images were captured by the Middle East Media Research Institute, a Washington nonprofit group that monitors jihadists’ ­social-media accounts.

    Not much is known about Abu Almani, the owner of the Facebook account: according to WaPo he is thought to be a German national fighting for the Islamic State in Syria. He has previously posted to social-media accounts under that name, in the slangy, poorly rendered English used by many European fighters who can’t speak Arabic. Early postings suggest that Almani is intimately familiar with the Islamic State’s activities around Raqqa, the group’s de facto capital in Syria. He also regularly uses his accounts to solicit donations for the terrorist group.

    ISIS has had to constantly innovate its sex slave trade marketing. Facebook has been quick to react to terrorists’ use its pages. At the same time, the militants also have become more agile, leaping quickly from one social-media platform to another and opening new accounts as soon as older ones are shut down.

    And while we commiserate with the plight of hundreds of women who are the innocent hostages of yet another proxy war involving the world’s political superpowers, we can’t help but notice how increasingly streamlined and efficient the Islamic State is becoming as a result of its fiscal stress.

    Recall in late April we showed a wage voucher which confirmed that ISIS is now paying soldiers extra cash for each additional family member with the biggest kick for those who have a sex slave in the form of a $50 bonus. The following crinkled wage voucher breaks it down by family member:

    • For each of his two wives, al-Jiburi would receive an extra $50.
    • For each of his six children under age 15, he would get another $35.
    • Any “female captive” – sex slave – would entitle him to an additional $50.

    So “invest” $50 to cultivate each sex slave, and then retain a substantial portion of the ~$8,000 transaction price once said slave is sold on to her future owner. Not a bad IRR for a militant regime whose collapse is now just a matter of time.

  • CEO Of Asia's Largest Commodity Trader Unexpectedly Resigns

    We have tracked the problems of recently junked Noble Group – Asia’s largest commodity trader – extensively over the past year (see “Noble Group’s Kurtosis Awakening Moment For The Commodity Markets“, “Junk Isn’t Very Noble: Asia’s Largest Commodity Trader Responds To Moody’s Downgrade“, “Noble Group’s Cliffhanger“, “Noble Group’s “Collateral Margin Call“, “Noble Group’s “Margin Call” Part II: The Enron Moment“).

    And then moments ago things finally turned serious for the company, which just a few weeks ago finalized a $3 billion credit facility in what according to some was an “all clear” moment. Apparently the only clarity was for long-time company CEO, and former Goldmanite Yusuf Alireza, that the time has come to exit stage left.

    As the company announced moments ago on the Singapore stock exchange, not only is CEO Alireza resigning, to be replaced by William Randall and Jeff Frase as co-CEOs, but the company will also begin the sale process of its Noble Americas Energy Solutions, a deal that will generate “significant cash proceeds”, which is great since Nobel is desperately in need of cash; it also means that the company is losing one more of its star performing assets as it continues to asset strip itself of any potential future growth, and is merely scrambling to preserve solvency and liquidity.

    Randall, based in Hong Kong, is currently President of Noble Group and an Executive Director and will retain his Board Seat. Frase, based in Stamford, Connecticut is currently President, Noble Americas and Head of Oil Liquids and will be invited to join the Board.

    From the press release:

    The Directors of Noble Group announce that they have accepted the resignation of Yusuf Alireza, Chief Executive Officer.

     

    Mr. Alireza has helped guide Noble through a very challenging period, moving the company to an asset light, merchant focused model; he played a pivotal role in the successful sale of Noble Agri to a group of investors led by COFCO, and has also been instrumental in securing the recently announced re-financing, a crucial element in the process of giving the group a stable base from which to develop.

     

    With this transformation process now largely complete, Mr. Alireza considered that the time was right for him to move on. The Board wishes to thank Mr. Alireza for his dedication and commitment to the company over the last four years, and in particular for his huge commitment of time and energy over the past eighteen months, as Noble has navigated some of the most difficult market conditions ever seen in commodities markets.

     

    The Board looks forward to working with Yusuf in the future should the opportunity arise.

     

    A separate announcement will be made about succession to Mr. Alireza

    And in a separate press release the company announced Alireza’s replacements, as well as the major corporate overhaul noted above:

    The Board of Directors of Noble Group wishes to announce the appointment of Mr. William Randall and Mr. Jeff Frase as Co Chief Executive Officers. Will, based in Hong Kong, is currently President of Noble Group and an Executive Director and will retain his Board Seat. Jeff, based in Stamford, Connecticut is currently President, Noble Americas and Head of Oil Liquids and will be invited to join the Board.

     

    In addition, the Board also confirmed today that Mr. Richard Elman will continue in his role as Chairman and Executive Director.

    Richard Elman commented “I am delighted that Will and Jeff will be leading Noble Group’s operations as we embark on the Company’s next chapter. Their complementary commodities expertise and geographical focus will be hugely valuable as we position ourselves for the future.” 

     

    Will, having begun his career with Noble in Australia in February 1997, established Noble’s coal operations, mining and supply chain management businesses. He also served as a Director of Noble Energy Inc. prior to being appointed Global Head of Coal and Coke in 2006, and a member of the Noble Group internal Management Committee Board in 2008. He was appointed an Executive Director and Head of Hard Commodities in 2012, prior to which he had been Head of Energy Coal and Carbon Complex. He holds a Bachelor degree in Business from the Australian Catholic University majoring in international marketing and finance.

     

    Jeff is based in Stamford, Connecticut and is currently President, Noble Americas and Head of Oil Liquids.

     

    Jeff joined the Group from JP Morgan in New York where he was Managing Director and Global Head of Oil Trading. Prior to JP Morgan he spent 17 years at Goldman Sachs where he was a Managing Director and Global Head of Crude Oil and Derivatives Trading.

     

    The Board expects to announce some further additional leadership appointments in due course as the business developments dictate.

     

    In addition, the Board wishes to announce that it will shortly be starting the sale process for Noble Americas Energy Solutions, a transaction which is expected to generate both significant cash proceeds and profits to substantially enhance the balance sheet. This is in addition to fund raising initiative previously announced. Full details will be released in the near future.

    For a rather gloomy, pessimistic, and in light of this latest news, justified, take on how the Noble Group saga ends, please read the following note “The Big N, its Bankruptcy Risk and its Circularity with the Energy Commodity Prices.”

  • ECB Policy-Failure On Display: European Businesses Aren't Planning To Invest

    There once was a time (at least in banished Austrian economic circles) when low market interest rates signaled to entrepreneurs a positive environment in which to make investments in order to grow or create new product. That indicator has long since been broken as central banks muddy the waters and arbitrarily move interest rates wherever they feel 'optimal', including corporate bond rates.

    The textbook intent of NIRP and ZIRP is to incentivize the banks to make loans and increase credit demand by making rates more attractive; however the central banks have not been able to do that, and the central planners now don't know what to do (aside from the inevitable helicopter money path of course) in a debt-saturated world.

    As evidence that the mechanism the central banks rely on to stimulate the economy is broken, we turn to a recent survey done by Intrum Justitia AB, which looked at whether or not negative interest rates were changing the minds of Europe's companies on investment decisions (CapEx) – the answer is a resounding no.

     

    84 percent of the 9,440 companies surveyed in 2016 said that low rates haven't affected their willingness to invest, up from 73 percent just last year. In other words, not only are artificially low rates not spurring businesses to invest earlier than originally planned, companies aren't even considering it anymore.

     

    Intrum CEO Mikael Ericson said "Evidently, the strategy of keeping interest rates low for more than a year has not created the much sought-after stability. A calculation of an investment includes assumptions of the future. To get the calculation to go together those assumptions need to include a belief in stability and prosperity in the future. Perhaps the negative interest rates do not signal that stability at all, rather that we are still in an extraordinary situation."

    With nearly $10 trillion in debt trading at negative yields, it is safe to say we are still in an extraordinary situation. More importantly, the key takeaway here (other than another central planning failure) is that despite an extremely low cost of capital, companies still have no projects worth undertaking that make capital investments attractive – that should be what concerns everyone.

  • Paul Craig Roberts: Killary Will Be The Last US President

    Authored by Paul Craig Roberts,

    As Our Past Wars Are Glorified This Memorial Day Weekend, Give Some Thought To Our Prospects Against The Russians And Chinese In World War III

    The Saker reports that Russia is preparing for World War III, not because Russia intends to initiate aggression but because Russia is alarmed by the hubris and arrogance of the West, by the demonization of Russia, by provocative military actions by the West, by American interference in the Russian province of Chechnya and in former Russian provinces of Ukraine and Georgia, and by the absence of any restraint from Western Europe on Washington’s ability to foment war.

    Like Steven Starr, Stephen Cohen, myself, and a small number of others, the Saker understands the reckless irresponsibility of convincing Russia that the United States intends to attack her.

    It is extraordinary to see the confidence that many Americans place in their military’s ability. After 15 years the US has been unable to defeat a few lightly armed Taliban, and after 13 years the situation in Iraq remains out of control. This is not very reassuring for the prospect of taking on Russia, much less the strategic alliance between Russia and China. The US could not even defeat China, a Third World country at the time, in Korea 60 years ago.

    Americans need to pay attention to the fact that “their” government is a collection of crazed stupid fools likely to bring vaporization to the United States and all of Europe.

    Russian weapons systems are far superior to American ones. American weapons are produced by private companies for the purpose of making vast profits. The capability of the weapons is not the main concern. There are endless cost overruns that raise the price of US weapons into outer space.

    The F-35 fighter, which is less capable than the F-15 it is supposed to replace, costs between $148 million and $337 million per fighter, depending on whether it is an Air Force, Marine Corps, or Navy model. 

    A helmet for a F-35 pilot costs $400,000, more than a high end Ferrari. 

    (Washington forces or bribes hapless Denmark into purchasing useless and costly F-35)

    It is entirely possible that the world is being led to destruction by nothing more than the greed of the US military-security complex. Delighted that the reckless and stupid Obama regime has resurrected the Cold War, thus providing a more convincing “enemy” than the hoax terrorist one, the “Russian threat” has been restored to its 20th century role of providing a justification for bleeding the American taxpayer, social services, and the US economy dry in behalf of profits for armament manufacturers.

    However, this time Washington’s rhetoric accompanying the revived Cold War is far more reckless and dangerous, as are Washington’s actions, than during the real Cold War. Previous US presidents worked to defuse tensions. The Obama regime has inflated tensions with lies and reckless provocations, which makes it far more likely that the new Cold War will turn hot. If Killary gains the White House, the world is unlikely to survive her first term.

    All of America’s wars except the first—the war for independence—were wars for Empire. Keep that fact in mind as you hear the Memorial Day bloviations about the brave men and women who served our country in its times of peril. The United States has never been in peril, but Washington has delivered peril to numerous other countries in its pursuit of hegemony over others.

    Today for the first time in its history the US faces peril as a result of Washington’s attempts to assert hegemony over Russia and China.

    Russia and China are not impressed by Washington’s arrogance, hubris, and stupidity. Moreover, these two countries are not the native American Plains Indians, who were starved into submission by the Union Army’s slaughter of the buffalo.

    They are not the tired Spain of 1898 from whom Washington stole Cuba and the Philippines and called the theft a “liberation.”

    They are not small Japan whose limited resources were spread over the vastness of the Pacific and Asia.

    They are not Germany already defeated by the Red Army before Washington came to the war.

    They are not Granada, Panama, Iraq, Libya, Somalia, or the various Latin American countries that General Smedley Butler said the US Marines made safe for “the United Fruit Company” and “some lousy bank investment.”

    An insouciant American population preoccupied with selfies and delusions of military prowess, while its crazed government picks a fight with Russia and China, has no future.

  • Opportunity Amongst The Entrails Of European Banks

    By Chris at www.CapitalistExploits.at

    In a misguided and desperate attempt to fight the headwinds of deflation (a byproduct ofunsustainable debt which the market has been trying to unwind for the past decade), central bankers have manipulated markets with a range of tools. This ranges from a lot of preposterous jawboning to quantitative easing and slashing interest rates all the way down to levels never experienced before.

    The markets’ belief in central bankers abilities to keep this particular boat afloat has never been higher. We can see this in the futures market where the market is pricing in low (and even negative) interest rates well into the sunset. If you doubt me go take a look at Euribor rates where the market still expects 3-month euro rates to be 0% some 5 years from now.One would only do this if one thought that default risk was non-existent.

    As if that is not enough, central bankers themselves actually are beginning to believe their own rhetoric:

    “But we are magic people. Each time we take something and give to the markets – a rabbit out of the hat.” – Vitas Vasiliauskas, ECB Governing Council member

    We are clearly dealing with delusional people, and market participants are increasingly making decisions based on the absurdities uttered by these people.

    Expecting the very same people who have caused so many of the problems we face today to be able to both identify and then solve those problems is like expecting my dog to be able to solve a quantum mechanics problem, cook my dinner, and restrain himself from chasing a cat. It’s just not going to happen.

    While we can’t stop or change what these monetary masters of the universe have done (and will likely continue to do), we can look to profit from the global mispricing of assets – a byproduct of their actions.

    The economic and political problems in Europe have seen investors turn on European banking stocks in the same way an ill treated pit bull can turn on its owner, mauling him to death.

    Ask one hundred people where things are headed with European banks and you’ll likely receive an overwhelming majority telling you they’re in trouble and to stay away.

    This is one of the most fearful markets in the world today.

    Quite simply: European banks today are universally feared and hated. I have no doubt that some will disappear over the course of the next decade, if not sooner. But certainly much of the pessimism is baked into the proverbial cake.

    Markets are forward-looking and the market is pricing in serious problems for European banks. But here’s the deal:

    Things don’t actually need to get better. The worst, already priced into the market, just need NOT eventuate. 

    This market is priced for the absolute worst. And while the worst may yet happen, it’s unlikely to happen to all the players.

    This shouldn’t come as a surprise. Any investor who was alive during the last decade harbours a deep-seated hatred of financial institutions. First, they came near bringing down the world economy in 2008 and then they lobbied the political class to ensure they could keep the holiday home on the French Riviera. And it all worked.

    Having spent the beginning of my career in the entrails of investment banks I sympathise. I can name a few people who should have been drowned at birth who inhabit the hallowed walls of these “fine” institutions.

    All that aside, when a market is so unloved I’m instinctively curious. And so into the carnage we go hunting… And while parsing the entrails of financial reports we found something very interesting and we think it’s worth sharing.

    Loving The Dutch

    Anywhere you go in the world I can pretty much guarantee you that when meeting a Dutchman you’re likely to find them amongst the friendliest, most open, and genuine people you’ll meet. Maybe I’ve just been lucky but I’ve just found another reason to love them.

    The opportunity we are investing in is ING, a Dutch banking group (ING on the NYSE or INGVF in Amsterdam).

    ING, like its unusual headquarters, stands out for a number of reasons.

    ING House

    One of the reasons is that ING trades at 80% of tangible book value, sports a price to earnings of 9.8x, and has just increased their dividend to 7%.

    This is easily one of the more compelling opportunities in the market today. It’s no surprise that it is hidden in a sector as bleak and miserable looking as European banking.

    ING Chart

    Digging deeper, we see that their capital levels are one of the highest in the industry and rising. They are also sporting strong loan volume growth and are implementing a deposit repricing rollout to further strengthen their profit margins.

    Embracing Digital

    To understand why ING has managed to significantly increase profitability and growing its customer base while its competitors have languished, we need to look at their cost structure. It is here that we find that, unlike its more traditional peers such as Deutsche Bank and Commerzbank, ING operates without branches.

    Preferring to leverage technology, they have managed to operate and compete with a far lower cost structure and this has allowed them to achieve a 30% return on their equity.

    Take a look at this slide from their 2016 investor presentation:

    ING Presentation

    ING has been tarred with the brush of recent well publicised negative market events such as exposure to the energy sector and Russia. It’s common knowledge that European banks have been financiers of Russian business and so the subsequent collapse in the ruble, together with negative impact of the energy sector, has severely impacted their balance sheets.

    ING’s Russian exposure is approximately 1% of their loan book so we think investors’ fears are way overdone with respect to ING.

    The other well publicised market event has been the Ukraine. But ING’s Ukraine exposure amounts to 0.2% of their loan book.

    And given the fact that ING’s NPL coverage ratio as of last quarter was 66% we think once again that the market is mispricing ING. Certainly two of the most publicised negative market events have brought negative views of European banks regardless of who is actually exposed.

    Considering all of the above, it is not hard to see that throwing the baby out with the bathwater has provided the opportunity to buy a well run company at a nice discount.

    (As a side note, I’d suggest buying ING in Amsterdam for greater liquidity.)

    And while buying ING outright makes a lot of sense, this is not how we’re personally trading this.

    Brad, the head trader at our Asymmetric Opportunities Fund, has prepared a detailed writeup on how exactly we’re playing this: a way to place a small amount of capital at risk and potentially achieve a 1,150% payoff.

    As a subscriber of Capitalist Exploits you’ll automatically receive this tomorrow (and if not, I encourage you to sign up here). Consider it a window into how a successful hedge fund trader approaches such opportunities.

    – Chris  

    “People who confuse what they wish were true with what is really true create distorted pictures of reality that make it impossible for them to make the best choices.” – Ray Dalio, founder Bridgewater Associates

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