Today’s News 5th April 2016

• Turkey: The Business Of Refugee Smuggling & Sex Trafficking

  Submitted by Uzay Bulut via The Gatestone Institute,

  • Professional criminals convince parents that their daughters are going to a better life in Turkey. The parents are given 2000-5000 Turkish liras ($700-$1700) as a "bride price" — an enormous sum for a poor Syrian family.

  • "Girls between the ages of twelve and sixteen are referred to as pistachios, those between seventeen and twenty are called cherries, twenty to twenty-two are apples, and anyone older is a watermelon." — From a report on Turkey, by End Child Prostitution, Child Pornography and Trafficking of Children for Sexual Purposes (ECPAT).

  • Many Muslims have difficulty with, or even an aversion to, assimilating into the Western culture. Many seem to have the aim of importing to Europe the culture of intimidation, rape and abuse from which they fled.

  • Although the desperate victims are their Muslim sisters and brothers, wealthy Arab states do not take in refugees. The people in this area know too well that asylum seekers would bring with them problems, both social and economic. For many Muslim men such as wealthy, aging Saudis, it is easier to buy Syrian children from Turkey, Syria or Jordan as cheap sex slaves.

  On International Women's Day, March 8, Turkish news outlets covered the tragic life and early death of a Syrian child bride.

  Last August, in Aleppo, Mafe Zafur, 15, married her cousin Ibrahim Zafur in an Islamic marriage. The couple moved to Turkey, but the marriage ended after six months, when her husband abruptly threw out of their home. With nowhere to sleep, Mafe found shelter with her brother, 19, and another cousin, 14, in an abandoned truck.

  On 8 March, Mafe killed herself, reportedly with a shotgun. Her only possession, found in her pocket, was her handwritten marriage certificate.

  Mafe Zafur is only one of many young Syrians who have been victims of child marriage. Human rights groups report even greater abuse that gangs are perpetrating against the approximately three million Syrians who have fled to Turkey.

  A detailed report on Syrian women refugees, asylum seekers, and immigrants in Turkey, issued as far back as 2014 by the Association for Human Rights and Solidarity with the Oppressed (known in Turkish as Mazlumder), tells of early and forced marriages, polygamy, sexual harassment, human trafficking, prostitution, and rape that criminals inflicted upon Syrians in Turkey.

  According to the Mazlumder report, Syrians are sexually exploited by those who take advantage of their destitution. Children, especially girls, suffer most.

  Evidence, both witnessed and forensic, indicates that in every city where Syrian refugees have settled, prostitution has drastically increased. Young women between the ages of 15 and 20 are most commonly prostituted, but girls as young as thirteen are also exploited.

  Secil Erpolat, a lawyer with the Women's Rights Commission of the Bar Association in the Turkish province of Batman, said that many young Syrian girls are offered between 20 and 50 Turkish liras ($7-$18). Sometimes their clients pay them with food or other goods for which they are desperate.

  Women who have crossed the border illegally and arrive with no passport are at high risk of being kidnapped and sold as prostitutes or sex slaves. Criminal gangs bring refugees to towns along the border or into the local bus terminals where "refugee smuggling" has become a major source of income.

  Professional criminals convince parents that their daughters are going to a better life in Turkey. The parents are given 2000-5000 Turkish liras ($700-$1700) as a "bride price" — an enormous sum for a poor Syrian family — to smuggle their daughters across the border.

  "Many men in Turkey practice polygamy with Syrian girls or women, even though polygamy is illegal in Turkey," the lawyer Abdulhalim Yilmaz, head of Mazlumder's Refugee Commission, told Gatestone Institute. "Some men in Turkey take second or third Syrian wives without even officially registering them. These girls therefore have no legal status in Turkey. Economic deprivation is a major factor in this suffering, but it is also a religious and cultural phenomenon, as early marriage is allowed in the religion."

  Syrian women and children in Turkey also experience sexual harassment at work. Those who are able to get jobs earn little — perhaps enough to eat, but they work long and hard for that little. They are also subjected to whatever others choose to do to them as they work those long hours.

  A 16-year old Syrian girl, who lives with her sister in Izmir, told Mazlumder that "because we are Syrians who have come here to flee the war, they think of us as second-class people. My sister was in law school back in Syria, but the war forced her to leave school. Now unemployed men with children ask her to 'marry' them. They try to take advantage of our situation."

  If they are Kurds, they are discriminated against twice, first as refugees, then as Kurds. "The relief agencies here help only the Arab refugees; when they hear that we are Kurds, they either walk away from us, or they give very little, and then they do not return."

  The organization End Child Prostitution, Child Pornography and Trafficking of Children for Sexual Purposes (ECPAT) has produced a detailed report on the "Status of action against commercial sexual exploitation of children: Turkey." ECPAT's report cites, from the 2014 Global Slavery Index, estimates that the incidence of slavery in Turkey is the highest in Europe, due in no small measure to the prevalence of trafficking for sexual exploitation and early marriage.

  The ECPAT report quotes a U.S. State Department study from 2013: "Turkey is a destination, transit, and source country for children subjected to sex trafficking."

  The ECPAT report continues,

  "There is a risk of young asylum seekers disappearing from accommodation centres and becoming vulnerable to traffickers.

   

  "It is feared that reports from the UN-run Zaatari refugee camp for Syrians in Jordan are equally true for camps in Turkey: aging men from Saudi Arabia and other Gulf states take advantage of the Syrian crisis in order to purchase cheap teenage brides.

   

  "Evidence indicates that child trafficking is also happening between Syria and Turkey by established 'matchmakers' who traffic non-refugee girls from Syria who have been pre-ordered by age. Girls between the ages of twelve and sixteen are referred to as pistachios, those between seventeen and twenty are called cherries, twenty to twenty-two are apples, and anyone older is a watermelon."

  Apparently, 85% of Syrian refugees live outside refugee camps, and therefore cannot even be monitored by an international agency.

  Many refugee women in Turkey, according to the lawyer and vice-president of the Human Rights Association of Turkey (IHD), Eren Keskin, are forced to engage in prostitution outside, and even in, refugee camps built by the Turkish Prime Minister's Disaster and Emergency Management Authority (AFAD).

  "There are markets of prostitution in Antep. Those are all state-controlled places. Hundreds of refugees — women and children — are sold to men much older than they are," said Keskin. "We found that women are forced into prostitution because they want to buy bread for their children."

  Keskin said that they have received many complaints of rape, sexual assault and physical violence from refugees in the camps in the provinces of Hatay and Antep. "Despite all our attempts to enter those camps, the officials have not allowed us to."

  The Human Rights Association of Turkey has received many complaints of rape, sexual assault and physical violence from Syrian refugees in camps in Turkey. (Image source: UNHCR)

  Officials at AFAD, however, have strongly denied the allegations. "We provide refugees with education and health care. It is sad that after all the devoted work that AFAD has done to take care of refugees for the last five years, such baseless and unjust accusations are directed at us," a representative of AFAD told Gatestone.

  "The number of refugees in Turkey has reached to 2.8 million. Turkey has twenty-six accommodation centers in which about three hundred thousand refugees live. Those centers are regularly monitored by the UN; some UN officials are based in them."

  "Many refugees could have been provided with jobs suited to their training or skills," Cansu Turan, a social worker with the Human Rights Foundation of Turkey (TIHV), told Gatestone.

  "But none of them was asked about former jobs or educational background when they Turkish officials registered them. Therefore, they can work only informally and under the hardest conditions just to survive. This also paves the way for their sexual exploitation.

   

  "The most important question is why the refugee camps are not open to civil monitoring. Entry to refugee camps is not allowed. The camps are not transparent. There are many allegations as to what is happening in them. We are therefore worried about what they are hiding from us."

  "At our public centers where we provide support for refugees," Sema Genel Karaosmanoglu, the Executive Director of the Support to Life organization, told Gatestone.

  "We have encountered persons who have been victims of trafficking, sexual, and gender-based violence.

   

  "There is still no entry to the camps, and there is no transparency as entry is only possible after getting permission from relevant government institutions. But we have been able to gain access to those camps administered by municipalities in the provinces of Diyarbakir, Batman, and Suruc, Urfa."

  A representative at AFAD, however, told Gatestone that "the accommodation centers are transparent. If organizations would like to enter those places, they apply to us and we evaluate their applications. Thousands of media outlets have so far entered the accommodation centers to film and explore the life in them."

  "The number of current refugees is already too high," said the lawyer Abdulhalim Yilmaz, head Mazlumder's Refugee Commission. "But many Arab states, including Saudi Arabia and Bahrain, have not taken in a single Syrian refugee so far. And there are tens of thousands of refugees waiting at the borders of Turkey."

  If these women and children knew what was possibly awaiting them in Turkey, they would never set foot in the country.

  This is the inevitable outcome when a certain culture — the Islamic culture — does not have the least regard for women's rights. Instead, it is a culture of rape, slavery, abuse and discrimination that often exploits even the most vulnerable.

  The horror is that Turkey is the country that the EU is entrusting to "solve" the serious problem of refugees and migrants.

  The international community needs to protect Syrians, to cordon off parts of the country so that more people will not want to leave their homes to become refugees or asylum seekers in other countries. Perhaps many Syrians would even return to their homes.

  The West has always opened its arms to many beleaguered individuals from Muslim countries — such as 25-year-old Afghan student and journalist Sayed Pervez Kambaksh, who was beaten, taken to prison, and sentenced to death in 2007 for downloading a report on women's rights from the internet and for questioning Islam.

  It was Sweden and Norway that helped Kambaksh to flee Afghanistan in 2009 by helping him get access to a Swedish government plane. Kambaksh is now understood to be in the United States.

  Several European countries, however, have become the victims of the rapes, murders and other crimes committed by the very people who have entered the continent as refugees, asylum seekers or migrants.

  Europe is going through a security problem, as seen in the terrorist attacks in Paris and Brussels. Many Muslims have difficulty with, or even an aversion to, assimilating into the Western culture. Many seem to have the aim of importing to Europe the culture of intimidation, rape and abuse from which they fled.

  It would be more just and realistic if Muslim countries that share the same linguistic and religious background as Syrian refugees — and that are preferably more civilized and humanitarian than Turkey — could take at least some responsibility for their Muslim brothers and sisters. Although the desperate victims are their Muslim sisters and brothers, wealthy Arab states do not take in refugees. We have not seen any demonstrations with signs that read "Refugees Welcome!" People know that asylum seekers would bring with them problems, both social and economic. For many Muslim men such as wealthy, aging Saudis, it is easier to buy Syrian children from Turkey, Syria or Jordan as cheap sex slaves.

  Women and girls are not, to many, human beings who deserve to be treated humanely. They are only sex objects whose lives and dignity have no value. Syrians are there to abuse and exploit. The only way they can think of helping women is to "marry" them.

  

  

  

  

  

• "This Is Gonna Hurt"

  One way or another…

   

  

   

  Source: Townhall.com

  

  

  

  

  

• CNBC's Steve Liesman Makes A "Discovery": Americans Are Increasingly Angry And They Want Trump

  Earlier today, CNBC’s Steve Liesman made two very important, in fact “critical”, if about one year overdue, discoveries.

  The first one was that Americans are angry.

  According to the CNBC All-America Survey, a majority of Americans are angry about both the political and the economic system. 

  Perhaps if CNBC had discovered this sooner, it would have figured out that the reason it no longer reports its ratings to Nielsen has something to do with its underlying “rosy” slant on things, one which perhaps brings out people’s, well, anger. That and the occasional informercial for Ferrari and million dollar homes.

  

   

  The second discovery is that angry Americans largely support Trump over Hillary, something we have discussed since last summer.

  As Liesman puts it, nearly three-fourths of the public is angry or dissatisfied with the political system in Washington, compared with 56 percent who are angry or dissatisfied about the economy. This group favors Trump on the economy over Clinton 28 percent to 21 percent.

  

   

  Of those dissatisfied or angry with the economic system, Trump leads on the economy 27 percent to 19 percent for Clinton.

  

   

  All of these “surprises” should have been obvious.  But then the survey revealed several findings which surprised even us.

  First, and rather curiously, income isn’t correlated with anger, with angry respondents found both among the rich and the poor. 55% of people who earn $100,000 or more are dissatisfied or angry with the economic system, the same percentage as those who earn $30,000 or less.

  Also surprising: the wealthiest Americans are more likely to be angry or dissatisfied with the political system than the lowest income Americans.

  Another surprise: while conventional wisdom is that Clinton has more of a lock on the Democratic nomination than Trump has on the GOP nod, the CNBC survey shows that on key economic issues, Bernie Sanders is more of a challenge to Clinton than Kasich and Cruz are to Trump. For example, Sanders is virtually tied with Trump 25 percent to 26 percent on which candidate is judged to have the best policy for regulating Wall Street and the big banks. Clinton has the support of only 16 percent of the public on the issue. Clinton leads with support of 25 percent of the public on who has the best policies for the middle class, followed by 21 percent for Sanders and 16 percent for Trump.

  And finally, since this is CNBC, the channel reported that Trump is seen as best for the stock market by a wide margin. Fully 31 percent say his policies would be best for the stock market’s performance, compared with just 17 percent for Clinton. As many Democrats as Republican’s think Trump would be best for stocks.

  Which begs this question: since those who have the most invested in the stock market “run the system”, as they say, and ultimately decide who the next president is, why wouldn’t they “pick” Trump? And just how much of the most theatrical presidential election in history is, well, just theater?

  * * *

  Liesman’s full interview below:

  

  

  

  

  

• Vietnam War At 50 – Ron Paul Asks "Have We Learned Nothing?"

  Submitted by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

  Last week Defense Secretary Ashton Carter laid a wreath at the Vietnam Veterans Memorial in Washington in commemoration of the "50th anniversary" of that war. The date is confusing, as the war started earlier and ended far later than 1966. But the Vietnam War at 50 commemoration presents a good opportunity to reflect on the war and whether we have learned anything from it.

  Some 60,000 Americans were killed fighting in that war more than 8,000 miles away. More than a million Vietnamese military and civilians also lost their lives. The US government did not accept that it had pursued a bad policy in Vietnam until the bitter end. But in the end the war was lost and we went home, leaving the destruction of the war behind. For the many who survived on both sides, the war would continue to haunt them.

  It was thought at the time that we had learned something from this lost war. The War Powers Resolution was passed in 1973 to prevent future Vietnams by limiting the president’s ability to take the country to war without the Constitutionally-mandated Congressional declaration of war. But the law failed in its purpose and was actually used by the war party in Washington to make it easier to go to war without Congress.

  Such legislative tricks are doomed to failure when the people still refuse to demand that elected officials follow the Constitution.

  When President George HW Bush invaded Iraq in 1991, the warhawks celebrated what they considered the end of that post-Vietnam period where Americans were hesitant about being the policeman of the world. President Bush said famously at the time, “By God, we’ve kicked the Vietnam Syndrome once and for all.”

  They may have beat the Vietnam Syndrome, but they learned nothing from Vietnam.

  Colonel Harry Summers  returned to Vietnam in 1974 and told his Vietnamese counterpart Colonel Tsu, "You know, you never beat us on the battlefield." The Vietnamese officer responded, "That may be so, but it is also irrelevant."

  He is absolutely correct: tactical victories mean nothing when pursuing a strategic mistake.

  Last month was another anniversary. March 20, 2003 was the beginning of the second US war on Iraq. It was the night of “shock and awe” as bombs rained down on Iraqis. Like Vietnam, it was a war brought on by government lies and propaganda, amplified by a compliant media that repeated the lies without hesitation.

  Like Vietnam, the 2003 Iraq war was a disaster. More than 5,000 Americans were killed in the war and as many as a million or more Iraqis lost their lives. There is nothing to show for the war but destruction, trillions of dollars down the drain, and the emergence of al-Qaeda and ISIS.

  Sadly, unlike after the Vietnam fiasco there has been almost no backlash against the US empire. In fact, President Obama has continued the same failed policy and Congress doesn’t even attempt to reign him in. On the very anniversary of that disastrous 2003 invasion, President Obama announced that he was sending US Marines back into Iraq! And not a word from Congress.

  We’ve seemingly learned nothing.

  There have been too many war anniversaries! We want an end to all these pointless wars. It’s time we learn from these horrible mistakes.

  

  

  

  

  

• Goldman Questions Rally, Fears Looming Event Risk Amid Record VIX Longs

  Volatility (VIX) is now at its lowest level since before the August sell-off last summer yet CS Fear Barometer remains elevated leaving the spread between the two options-market-based indicators is at its widest ever.

  

  Credit Suisse sees two main reasons for the difference:

  1) VIX measures just vol whereas CSFB reflects skew (i.e. Demand for puts vs. calls) The skew being elevated is a function of the upside calls being sold broadly in the market plus portfolio hedging; and

  2) CSFB is a 3-month forward look — ie around time of brexit and other potential catalysts)

  But as Goldman Sachs details, with the unemployment rate at 5% the ISM manufacturing index at its current level of 51.8 suggests a VIX level of 19.2. The much higher new orders index (58.3) suggests a VIX level of 16.7. So the VIX is currently pricing further economic improvement…

  

   

  As the market itself seems to shrugg off the collapse in earnings expectations…

  

   

  However, Goldman adds, while volatility may be subdued for the next few weeks, perhaps until the next potential major catalyst, such as “Brexit”, if our economists are correct, Fed chatter may pick up again in H2… which is supported by the fact that investors are pouring money into levered long VIX ETPs.

  

  Investors often chase strong performance but that has not been the case across the VIX ETP space. As the VIX has fallen, investors have been positioning for a rise in volatility via double levered long ETPs.

  

  Levered VIX ETP vega exposure has doubled since the market trough, driven by longs. We monitor vega exposure for a select group of 11 VIX ETPs, with around 4 billion in total market cap. We estimate that the gross vega notional across levered VIX ETPs now stands near a record high at around 244 million vega (in absolute terms), more than doubling since the market bottom in February. The increase has mostly been driven by long and double-levered long VIX ETPs, such as the UVXY and TVIX.

  Volatility investors are often interested in how much volatility exposure (vega) VIX ETPs carry and what percentage of the overall VIX futures market they account for.

  How big is the VIX ETP market? We estimate that the gross vega exposure controlled by the six most active VIX ETPs (VXX, VIXY, UVXY, TVIX, XIV, SVXY) which track the front month future is currently running at 320 million vega, which accounts for about 85% of the outstanding open interest in the VIX futures market.

  

  Simply put, as Goldman sums up, the options market seems to be questioning the quality of the rally and continues to price in more adverse outcomes.

  

  

  

  

  

• Refugees Flooding Italy Surge 80%; Proposed Solution in Single Picture

  Submitted by Mike “Mish” Shedlock of Mishtalk

  Italy’s Interior minister Angelino Alfano warns the refugee “system is at risk of collapse” following an 80 per cent spike in the number of arrivals to Italy across the central Mediterranean Sea in the first quarter of this year compared to 2015.

  Alfano fears that Syrians headed for Turkey will inetead head for Libya for an even more hazardous Mediterranean Sea crossing to Italy.

  How many tens of thousands of people can you keep, year after year? Without returns, either you organize real prisons, or it’s obvious that the system will collapse,” Mr Alfano said. “It doesn’t take a prophet to glimpse the future”.

  Costs are about to soar. Alfano wants to secure new deals with African nations, offering economic aid in exchange for taking back their citizens. Here’s a picture that explains everything.

  Refugee Crisis in a Single Picture

  

  Taking into consideration fences and walls, boat lifts, airlifts, increase security, border checks, prisons, crime, retention centers, and bribes to countries for taking back refugees: what’s this going to cost?

  Italy Seeks Greek-Style Solution

  The Financial Times reports Italy Pleads for Greek-Style Push to Return its Migrants.
  
  In an interview with the FT, Angelino Alfano, Italy’s interior minister, says the EU should move to secure deals with African nations, which are the source of the vast majority of migrants arriving in Italy, offering economic aid in exchange for taking back their citizens and preventing new flows.

   

  Mr Alfano’s request reflects renewed nervousness in Rome about the migration crisis following an 80 per cent spike in the number of arrivals to Italy across the central Mediterranean Sea in the first quarter of this year compared to 2015.

   

  If that increase holds through the warmer spring and summer months, it would smash the record 170,000 migrants who arrived in Italy in 2014, straining resources and creating a political problem for the centre-left government led by Matteo Renzi.

   

  “If Syrians don’t want to stay in Turkey but want to try the trip to Europe, they will go around and try to get here from Libya,” Mr Alfano said. “We still don’t have any evidence that this is happening, but we are monitoring.”

   

  “Irregular [migrants] have to be kept in closed camps from where they cannot escape. So how many tens of thousands of people can you keep, year after year? Without returns, either you organise real prisons, or it’s obvious that the system will collapse,” Mr Alfano said. “It doesn’t take a prophet to glimpse the future”.

  Cost Analysis

  Apparently it does take a prophet because Chancellor Merkel still doesn’t get it. And I have yet to see a complete analysis of the cost of these schemes, from anyone.

  New and Proposed Processes

  • Greece will return refugees to Turkey
  • On a one-for-one basis, Turkey will take those refugees and send them to Germany.
  • Turkey, (off the record as the EI looks the other way), will send refugees back to Syria in violation of international law.
  • Seeking news ways to get to the EU, Syrian refugees will attempt to get to Italy instead of Greece.
  • Italy will send those refugees back to Turkey where they presumably will be part of the existing one-for-one swap with the coalition of the willing (Germany).
  • Italy will return non-Syrians to Tunisia, Libya, and Egypt after bribing those countries with money.
  • In an effort to spread around the refugees monetary bribes go out to at least 10 countries.

  One country stands out in these preposterous scheme. Saudi Arabia, where art thou?

  

  

  

  

  

• Was There A Run On The Bank? JPM Caps Some ATM Withdrawals

  Under the auspices of "protecting clients from criminal activity," JPMorgan Chase has decided to impose withdrawal limits on certain ATM transactions. As WSJ reports, following the bank's ATM modification to enable $100-bills to be dispensed with no limit, some customers started pulling out tens of thousands of dollars at a time. This apparent bank run has prompted Jamie Dimon to cap ATM withdrawals at $1,000 per card daily for non-customers.

  Most large U.S. banks, including Chase, Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. have been rolling out new ATMs, sometimes known as eATMs, which perform more services akin to tellers. That includes allowing customers to withdraw different dollar denominations than the usual $20, typically ranging from $1 to $100.

   

  The efforts run counter to recent calls to phase out large bills such as the $100 bill or the €500 note ($569) to discourage corruption while putting up hurdles for tax evaders, terrorists, drug dealers and human traffickers.

   

  The Wall Street Journal reported in February that the European Central Bank was considering eliminating its highest paper currency denomination, the €500 note. Former U.S. Treasury Secretary Lawrence H. Summers also has called for an agreement by monetary authorities to stop issuing notes worth more than $50 or $100.

  This move appears to have backfired and created a 'run' of sorts on Chase…

  A funny thing happened as J.P. Morgan Chase & Co. modified its ATMs to dispense hundred-dollar bills with no limit: Some customers started pulling out tens of thousands of dollars at a time.

   

  While it was changing to newer ATM technology, J.P. Morgan found that some customers of banks in countries such as Russia and Ukraine had used Chase ATMs to withdraw tens of thousands of dollars in a single day, people familiar with the situation said. Chase had instances of people withdrawing $20,000 in one transaction, they added.

  Remember Greece?

  

   

  And, in what appears to the start of a war on cash in America, The Wall Street Journal reports,  the bank is cracking down, capping ATM withdrawals at $1,000 per card daily for noncustomers.

  The bank run by Chairman and Chief Executive Jamie Dimon said there doesn’t appear to be fraud involved. But in part due to heightened regulatory scrutiny, banks are paying more attention to large cash transfers that could be a sign of money laundering or other types of shady activity.

   

  The move by the largest bank in the country doesn’t affect J.P. Morgan Chase’s own customers, whose maximum daily withdrawals are set depending on the client’s account type.

   

  J.P. Morgan Chase’s change last month affects roughly 18,000 automated teller machines nationwide and followed an interim step earlier this year limiting noncustomer cash removals at $1,000 per transaction. The earlier move was made as a temporary fix while the bank could make software changes to roll out the more stringent daily limit, said bank spokeswoman Patricia Wexler.

  However, as we noted last night,

  What the story is about is the nebulous world of offshore tax evasion and tax havens, which based on data from the World Bank, IMF, UN, and central banks, hide between $21 and $32 trillion, where registered incorporation agents and law firms in small Caribbean countries (and not so small US states) make the laundering of money and the "disappearance" of the super wealthy, into untracable numbers hidden behind shell companies, possible.

  So, there is more than the total US GDP being laundered in offshore tax havens, but yes, let's eliminate the $100 bill to cut down on corruption and money laundering.

  Of course, we are sure this is just another 'storm in a teacup' as why should anyone question a fine upstanding and trustworthy bank withholding people's money when they are assuredly tax evaders, terrorists, drug dealers and human traffickers.

  

  

  

  

  

• Fed Sees Labor Market Worst Since 2009

  Cast your mind back to Friday – when payrolls confirmed everything for everyone and enabled more crowing from an establishment clinging to smoke and mirrors. It appears The Fed disagrees with the 'awesome' jobs market that BLS proposes as today's Labor Market Conditions Index continues to push to its weakest since 2009, drastically divergent from the seemingly all-impotrant non-farm payrolls data.

  The 19-factor labor market conditions index developed by The Fed is not singing from the same Koombaya "everything is awesome" hymn-sheet that The White House would prefer…

  

   

  This kind of divergence has not been seen before in the lifetime of this data series… so what exactly is going on?

  It appears the market is starting to agree…

  

  

  

  

  

  

• The Other Problem With Debt No One Is Talking About

  Submitted by MN Gordon via EconomicPrism.com,

  Nearly 7 years have elapsed since the official end of the Great Recession.  By now it’s painfully obvious the rising tide of economic recovery has failed to lift all boats.  In fact, many boats bottomed out on the rocks in early 2009 and have been taking on water ever since.

  Last week, for instance, it was reported that U.S. credit card debt topped $714 billion in the third quarter of 2015.  That’s up $34 billion from the year before.  Shouldn’t the economic recovery allow consumers to pay down their debts?

  Indeed, it should, if only the economic recovery was the result of real, economic growth.  To the contrary, the recovery has been faux growth driven by cheap Fed credit and financial engineering.  Mutual increases in prosperity haven’t occurred.

  In particular, those outside the financial services business, and other bubble industries, like government lobbyists, have largely missed out on any increase in income or living standard.  Good paying professional jobs that vaporized during the downturn have been replaced with low paying service jobs.  Consumers have used credit card debt to pick up the slack.

  Unfortunately, this short term solution sets up consumers for pain in the future.  At some point, as debt increases faster than incomes, the ability to pay down the principle becomes near impossible.  Even making the minimum payment becomes more and more difficult as new debt is added to the burden each month.

  Playing with Fire

  “We’re playing with fire now,” said Odysseas Papadimitriou, chief executive of credit statistics and analysis site CardHub.  “Either an unexpected economic downtown or the continuation of current spending and payment trends could be enough to unleash an avalanche of defaults.”

  Papadimitriou is correct in his assertion we are playing with fire and that the continuation of current trends could unleash an avalanche of defaults.  But his statement that there could be an “unexpected” economic downturn doesn’t appreciate the natural rhythms of an economy.  Specifically, economic downturns are normal occurrences – they should be expected, not unexpected.

  From what we gather there has been roughly 12 recessions (assuming the 1980 and 1981-82 recessions were two distinct events) in the United States in the post-World War II era.  The average interval between these recessions has been about 58 months.  Based on the official end date of the Great Recession of June 2009, we are currently 82 months into the current recovery.  In other words, we are due for a downturn.  What’s more, we may presently be entering one.

  According the Atlanta Fed’s March 28 GDPNow model forecast, real GDP growth in the first quarter of 2016 is estimated to be 0.6 percent.  By the time you read this, the April 1 update will likely have been posted.  You can take a look at the Atlanta Fed’s latest forecast here.

  The point is, GDP is meager.  Moreover, present credit card debt is unsustainable.  The potential for an avalanche of defaults is already high, regardless of if there’s a recession.  Yet, at this point in the recovery, the looming potential for a recession is highly likely.  Hence, an avalanche of credit card defaults is practically certain.  But that’s not all…

  The Other Problem with Debt No One is Talking About

  The other problem with expanding consumer debt that is rarely, if ever, mentioned is that it accompanies expanding waste lines.  You can chart the strength of the relationship over time with a near perfect +1.0 positive correlation.  Why is this?

  We don’t know for sure.  We haven’t studied the data.  Nor have we researched the causation.  But gut feel tells us it has something to do with discipline.  More precisely lack of discipline.

  For example, the inclination to charge the purchase of a new flat screen TV complements the proclivity to jumbo size a mega gulp soda pop.  Both are entirely unnecessary.  But they go hand in hand.

  Saving up for a flat screen and resisting the jumbo size option takes the sort of self-restraint that’s absent from our debt saturated society.  Of course, the federal government is the worst offender.  Even with their bloated budgets they still need a half trillion dollar annual deficit to keep the machine humming along.

  No doubt, the promises politicians have made to voters for a comfortable retirement and free drugs are at the heart of matter.  Similar to credit card debt, the promises stack up each month and each year like dead wood in the Angeles National Forest.  At some point all it takes is the strike of a single match and the whole mountain conflagrates in a blazing inferno.

  

  

  

  

  

• In Grotesque Irony Iran Warns Obama Not To Cross "Red Lines"

  Last July, the United States entered into an agreement with Iran with the hopes of limiting their nuclear ability. At a high level, the US would lead the way in lifting oil and financial sanctions imposed due to Iran’s nuclear programs; in return Iran would reduce their stockpile of enriched uranium, storage facilities and centrifuges. What was not negotiated, however, were sanctions on missile technologies and conventional weapons.

  Per the White House:

  

   

  Then, in March 2016, Iran launched a series of ballistic missile tests early in the month that got the world’s attention.

   

  As we reported then, In a testament to the “success” of Washington’s foreign policy towards Iran, Iran’s Brigadier General Hossein Salami, deputy commander of the IRGC said the following: “The missiles fired today are the results of sanctions. The sanctions helped Iran develop its missile program.” Furthermore, the rockets had a quite clear message written on their side:

  The message printed on #IRGC missiles tested recently in #Hebrew :????? ????? ?????? ???
  “#Israel must be wiped off the face of the earth”

  — H.Soleimani (@MashreghNews_ir) March 9, 2016

   

  President Obama’s response? He said Iran was “not following the spirit of the deal.”

  This is what he said according to The Hill:

  “Iran so far has followed the letter of the agreement, but the spirit of the agreement involves Iran also sending signals to the world community and businesses that it is not going to be engaging in a range of provocative actions that are going to scare businesses off”

  While we’re sure Iran didn’t bat an eyelid at the latest hollow rhetoric from the White House, it did seem to get irritated when the Treasury then implemented fresh sanctions. The thought is that as the missiles become even more capable of hitting long range targets, they could eventually be equipped to carry nuclear warheads as well, immediately putting various neighboring countries in danger.

  Fast forward to today, when Iranian Deputy Chief of Staff Brig-Gen Maassoud Jazzayeri was quoted by the Fars News Agency as saying:

  “The White House should know that defense capacities and missile power, specially at the present juncture where plots and threats are galore, is among the Iranian nation’s red lines and a backup for the country’s national security and we don’t allow anyone to violate it”

  Clearly, the Iranian Revolutionay Guard was not particularly concerned how Obama evaluates the “spirit” of the deal as long as he remains utterly helpless to change it, something which Iran is absolutely convinced of at this moment.

  And then the moment of truth: Iran actually used Obama’s infamous “red line” phrase… against him, when “Iran warned the US on Monday that any attempt to encroach on the Islamic Republic’s ballistic missile program would constitute the crossing of a “red line.”

  “The US calculations about the Islamic Republic and the Iranian nation are fully incorrect,” Iranian Deputy Chief of Staff Brig-Gen Maassoud Jazzayeri was quoted by the Fars News Agency as saying.

  Jazzayeri accused US President Barack Obama of making vows and breaking them by saying removal of sanctions on Iran would be conditioned on the Islamic Republic halting its ballistic missile program.

  And with that, the farce was complete.

  * * *

  Incidentally, this latest slapdown back and forth but mostly back didn’t escape the GOP Presidential hopeful Donald Trump, who promptly called Obama a baby for thinking Iran was going to adhere to our guidelines: “I hate seeing President Obama today saying that Iran has violated our agreement. I mean, what did he think? He’s now complaining about Iran violating the agreement. What the hell did he think? He’s like a baby. He’s like a baby.“

  

  

  

  

  

• A Quarter Century Of Monetary Voodoo

  Authored by Bill Bonner via Bonner & Partners (annotated by Acting-Man.com's Pater Tenebrarum),

  A Witless Tool of the Deep State?

  Finance or politics? We don’t know which is jollier. The Republican presidential primary and Fed monetary policies seem to compete for headlines. Which can be most absurd? Which can be most outrageous? Which can get more page views?

  Politics, led by Donald J. Trump, was clearly in the lead… until Wednesday. Then, the money world, with Janet L. Yellen wearing the yellow jersey, spurted ahead in the Hilarity Run.

   

  

  A coo-coo for the stock market…

   

  “Cautious Yellen drives global stocks near 2016 peak,” reported a Reuters headline. The story itself was a remarkable tribute to the whole jackass money system.

  At first glance, “cautious Yellen” would seem incongruous with stocks rising to “near 2016 peak.” Caution normally means playing it cool, not encouraging speculation.

  But it wasn’t so much what Ms. Yellen said that sent stocks racing ahead. It was what she hasn’t done. And she hasn’t done exactly what we thought she wouldn’t do. That is, so far this year, she has not taken a single step in the direction of a “normal” monetary policy; our guess is that she never will.

  Why not? Is it because she is a witless tool of Deep State cronies? Is it because her economic theory is silly, superficial, and simpleminded? Or is it because she and her predecessor, Ben Bernanke, have done so much damage to the normal world that there is nothing to go back to?

   

  

  US monetary base and the effective federal funds rate – the “new normal”. It’s the new normal, because any serious change toward a normal state of affairs as it used to be understood will implode the credit and asset bubble – click to enlarge.

   

  They have burned our bridges… our factories… our savings… and everything else behind them. Now, it is better just to pack up, move out… and keep on going. That is more or less what Charlie Munger sees coming.

   

  Prepare for the Worst

  Asked whether the Fed would reduce its balance sheet to pre-Great Recession levels (by selling back to the private sector the $4 trillion worth of bonds it bought over the last eight years), Warren Buffett’s long-time business partner had this to say:

  I remember coffee for 5 cents and brand new automobiles for $600. The value of money will continue to go down. Over the past 50 years, we lived through the best time of human history. It is likely to get worse. I recommend you prepare for worse because pleasant surprises are easy to handle.

  The “normal” financial world is no longer habitable. Ms. Yellen went on to say that these soupçons of recklessness – her hints about not returning to normal – provided an “automatic stabilizer,” to the global financial system. That’s right (and here is where we begin to laugh uncontrollably).

  Not only does outrageously easy credit help “stabilize” the system, so does the anticipation of more of it! Maybe giving out the news that she will NOT even try to get back to normal helps to settle investors’ nerves. Maybe normal wasn’t all that great anyway.

  Either way, speculators can continue whatever perverted hustles they have going… free from the fear that “normal” will walk around the corner and catch them in the act.

  But what’s this? A complicating factor, the “outlook for inflation,” is “uncertain,” says Ms. Yellen. The Financial Times clarifies: “[I]nflation could take longer to return to the Fed’s 2% target.”

   

  

  5 year inflation breakeven rate – Ms. Yellen sees one thing, but the market apparently sees something different… – click to enlarge.

   

  Ms. Yellen is worried about a lack of inflation in much the same way primitive farmers worried about a lack of rain. Her response is to do more of the ritual dances… and say more of the magic incantations… that have so far only produced more drought conditions.

   

  A Quarter Century of Voodoo

  In Japan, they’ve been doing this voodoo for 26 years. We’ve had our eye on Japan since the mid-‘80s, when everyone was sure that Japan Inc. was the hottest thing in the econosphere.

  The miracle economy blew up in 1989, and liquidity disappeared. Since then, Japan Inc. has been the Sahara of the developed world. QE, ZIRP, NIRP, monumental deficits, Abe’s Arrows… nothing worked to make it rain.

   

  

  Data from the island of the parched: the Nikkei remains nearly 60% below its highs of 26 years ago. Meanwhile, the BoJ’s balance sheet has gone into orbit, in the latest ploy that’s not working – click to enlarge.

   

  Negative interest rates, announced late last year, were supposed do the job. Savers were supposed to throw up their hands, open up their wallets… and spend, spend, spend to avoid paying the tax on saving.

  Instead, savers saved more. What else could they do? With negative rates they needed more savings to get the same financial bang per buck. Result: In January, Japan’s retail sales fell 2.3% over the previous month.

  But the Japanese feds aren’t giving up. And now they turn to two of the world’s most celebrated witchdoctors – Paul Krugman and Joseph Stiglitz – for advice on what to do next.

   

  

  Krugstitz – the closest equivalent the modern world has to witchdoctors and voodoo practitioners. You might call them quacks to the powerful. Nothing of what these geniuses have prescribed over the years has worked, so obviously the Japanese asked them for more advice, which predictably turned out to be “do more of what hasn’t worked”. As snake oil selling goes, these guys are brilliant.

   

  Japan has famously run huge fiscal deficits in an effort to get the economy moving. Thanks to a quarter century of these loose budgets, the island now has gross government debt equal to 240% of GDP and nearly nine times tax revenues.

  Most of the spending is used to fund programs for old people – health care and pensions – making it hard to cut back. Japan’s government finances are nothing more than a huge, compulsory, unfunded, old-age benefit program… one that is sure to go broke.

  But don’t worry, Japan. According to the Financial Times, the two Nobel Laureates went to Tokyo and argued – if you can believe it – that Japan needs more liquidity, that is, “a looser fiscal policy.”

  Yes, like New Orleans needed a shower after Hurricane Katrina.

  

  

  

  

  

• Shocking Footage: Chicago Resident Gunned Down While Live-Streaming

  Over the weekend we reported some shocking gun crime statistics in Chicago: according to a CNN report, gun violence in the windy city is on track to post its worst year in the 21st century, the result of an unprecedented surge in gun deaths in the first three months of the year.  By March 31, 141 people had been killed. Last Thursday, eight were shot and two of them died in one hour alone, Chicago Police said.

  The 141 deaths in the first three months of the year mark a 71.9% jump from the same period in 2015, when 82 people were killed. It’s the worst start to a year since 1999, when 136 people died in the first three months the year, according to the Chicago Tribune.

  At that pace – an average of three killings every two days – Chicago would have 564 homicides by the end of the year. That would eclipse the 468 killings recorded in 2015 and 416 in 2014.

  

   

  However, nothing prepared us for this jarring example of just how bad gun violence in Chicago truly is.

  The following graphic footage shows a Chicago resident gunned down Thursday while live-streaming the entire event on Facebook, as he stood on a street corner. The man falls to the ground as the suspect stands over him continuing to fire shots.

  

  

   

  Viewer discretion strongly advised.

   

  This was one of nine shootings across the city on Thursday that left at least two people dead.

  Cited by BuzzFeed, Chicago Police Officer Thomas Sweeny said that the shooting occurred just before 5:00 p.m. in the 5800 block of South Hoyne Avenue. A suspect approached the 31-year-old man, shot him multiple times, then fled in a vehicle, Sweeney said.

  After the shooting stops, another man can be heard talking about taking the individual to a hospital as a woman wails in the background.

  The New York Daily News reported the victim was in critical condition Thursday night and had sustained multiple gun shot wounds.

  

  

  

  

  

• Allergan Implodes: Pfizer Deal In Jeopardy After Treasury Announces "Action To Curb Inversions, Earnings Stripping"

  As if a million M&A arbs suddenly cried out in terror, and were suddenly silenced.

   

  Moments ago the stock of Allergan imploded, crashing by 20%, plunging to $225 or the lowest level since late 2014, in the process blowing up countless M&A arb deals which were hoping the recently blowing out spread, which as of Friday hit a post announcement wide of $61, is attractive enough to take the risk of a Treasury crackdown on tax inversion deal.

  

  Alternatively, maybe someone knew something.

  Something, such as what the Treasury announced 5pm this afternoon in a release titled “Treasury Announces Additional Action to Curb Inversions, Address Earnings Stripping“

  As the title implies, the Treasury has just made it quite clear that any and all tax inversions, of which the Pfizer-Allergan deal is most notable, are no longer welcome. This is what it said.

  Treasury Announces Additional Action to Curb Inversions, Address Earnings Stripping

   

  Today, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) issued temporary and proposed regulations to further reduce the benefits of and limit the number of corporate tax inversions, including by addressing earnings stripping. By undertaking an inversion transaction, companies move their tax residence overseas to avoid U.S. taxes without making significant changes in their business operations. After an inversion, many of these companies continue to take advantage of the benefits of being based in the United States, while shifting a greater tax burden to other businesses and American families.

   

  “Treasury has taken action twice to make it harder for companies to invert. These actions took away some of the economic benefits of inverting and helped slow the pace of these transactions, but we know companies will continue to seek new and creative ways to relocate their tax residence to avoid paying taxes here at home,” said Treasury Secretary Jacob J. Lew. “Today, we are announcing additional actions to further rein in inversions and reduce the ability of companies to avoid taxes through earnings stripping. This will have an important effect, but we cannot stop these transactions without new legislation. I urge Congress to move forward with anti-inversion legislation this year. Ultimately, the best way to address inversions is to reform our business tax system, which is why Treasury is releasing an updated framework on business tax reform, outlining the administration’s proposals to date as a guide for future reform. While that work goes on, Congress should not wait to act as inversions continue to erode our tax base.”

   

  Genuine cross-border mergers make the U.S. economy stronger by enabling U.S. companies to invest overseas and encouraging foreign investment to flow into the United States. But these transactions should be driven by genuine business strategies and economic efficiencies, not a desire to shift the tax residence of a parent entity to a low-tax jurisdiction simply to avoid U.S. taxes.

   

  Today, Treasury is taking action to:

  • Limit inversions by disregarding foreign parent stock attributable to recent inversions or acquisitions of U.S. companies. This will prevent a foreign company (including a recent inverter) that acquires multiple American companies in stock-based transactions from using the resulting increase in size to avoid the current inversion thresholds for a subsequent U.S. acquisition.
  • Address earnings stripping by:
    • Targeting transactions that generate large interest deductions by simply increasing related-party debt without financing new investment in the United States.
    • Allowing the IRS on audit to divide debt instruments into part debt and part equity, rather than the current system that generally treats them as wholly one or the other.
    • Facilitating improved due diligence and compliance by requiring certain large corporations to do up-front due diligence and documentation with respect to the characterization of related-party financial instruments as debt.  If these requirements are not met, instruments will be treated as equity for tax purposes.
    • Formalize Treasury’s two previous actions in September 2014 and November 2015.

   Treasury will continue to explore additional ways to address inversions.
   
  Treasury is also releasing an updated framework for business tax reform, which revises the framework released in 2012. This lays out the key elements of the President’s approach to reform and details the specific proposals the administration has put forward, including a comprehensive approach to reforming the international tax system.

  The Allergan-Pfizer spread now is basically to levels as if the deal never happened:

  

   

  We can’t wait to find out how many M&A arbs, who had anywhere between 2x and 5x (or more) leverage on the arb spread (of which the most notable recent arb chaser is none other than Franklin resources whose Dec 31. $1.3BN pure arb stake is now worth 20% less in an instant) just blew up after hours with just this one simple press release.

  The table below shows why Franklin Resources will be short one employee tomorrow:

  

  We also wonder how this will impact the broader, and quite illiquid, market tomorrow.

  

  

  

  

  

• The Inevitable Failure Of The War On Cash

  Submitted by Jeff Thomas via InternationalMan.com,

  Some years ago, when I suspected there would be a War on Cash at some point, everything in the behaviour of the central banks pointed to the idea—it fit exactly into their own informed, yet unrealistic, pattern of logic. I therefore decided that it would be a likely development and would take place at a time when they had tried everything else and had run out of other ideas. As to a date when this might happen…I had no idea.

  When several countries had begun to limit the amount of money that a depositor could take out of a bank, I decided that the first shots in the War on Cash had been fired and began to publish my prognostications as to what shape it would take. First, there were the benefits to the bank (the elimination of cash transactions, which would assure that virtually all monetary transactions, large and small, would have to be passed through banks, allowing them to effectively “own” all deposits, charge for every transaction and even refuse transactions). The governments would also benefit. In approving the banks’ monopoly on monetary transactions, they’d benefit primarily through the new ability to tax people by direct debit, ending any remnant of voluntary payment of taxation.

  What I didn’t anticipate at that time was that, within a few months, the War on Cash would be escalated quickly—more quickly than was safe for them to do, as it could alarm depositors. (As in the old analogy of boiling a frog, it’s always best to turn up the heat slowly, to lull the victim into complacency as he’s being done in.)

  This indicated to me that the central banks had decided that they’d already waited too late and had better hurry up the programme to assure that it was in place before a currency crisis could heat up.

  Since then, someone came up with an excellent name for the phenomenon, one that succinctly describes the plan in a nefarious way, as it deserves to be described—the War on Cash. Today, anyone who is paying attention is aware of the War on Cash and what it might do to him. As each new salvo by the banks and governments is uncovered, attentive observers are publishing such developments on the Internet.

  However, there’s another facet to the War on Cash that no one (to my knowledge) has yet addressed. The war is still new, and those who will be attacked are understandably still scrambling for their muskets and hurrying to the ramparts. (Musing on how a war will play out usually comes later, as it’s winding down and a victor seems apparent. However, in my belief, it’s wise to examine what the landscape will look like after the war is over, as it can serve to inform us as to what battle tactics should be employed.)

  So, let’s have a look. First off, we know that whenever there’s a coming monetary collapse, major banks look forward to employing their political influence to assure that legislation and emergency government measures protect them in a way that results in putting upcoming competitors out of business. We can expect the same this time around. These smaller banks arise during boom times by creating many small branches—the type seen in strip malls and shopping villages. Typically, they have only 1,000 or so depositors per bank—just barely enough to create profit, but, as “convenience banks,” they can count on a steady business from those who live nearby.

  Larger banks also tend to create numerous branches during good times, in order to hold down the rising competition; however, they resent the need to create endless less-profitable entities that tie up funds that could otherwise go out as directors’ bonuses. Consequently, when a monetary crisis occurs and the government steps in to help out the major banks, many of the smaller competitors are driven under, as they don’t receive the same governmental support. At such times, we see the edifices in the city remain, whilst the little banks in the strip mall disappear. The majors can now be rid of them. During a banking crisis, a country returns to 19th-century banking in terms of available institutions. Want to make a deposit? Make a trip into the city.

  In keeping with the War on Cash, ATMs will also be eliminated. All transactions will be by plastic card or smartphone.

  Certainly, as a result of the dangerous position the banks will already be in, we shall witness a steady increase in the charges by banks for the privilege of having them control depositors’ economic worth. Worse, we shall witness the outright confiscation of deposits (as in Cyprus in 2013) and the control of how much a depositor may debit his account in any given week (as in Greece today). It’s at this point that a universal trend to get around the banks’ control will unquestionably take hold. This, I believe, will manifest itself in two ways: top down and bottom up.

  Top Down

  As I write, bank branches—all of them in small towns—are already closing in “lesser” countries like Romania. This will both grow and spread eventually, to more prominent countries. Banking will be increasingly difficult for depositors, as the ability to actually talk to individuals at the bank will dry up. The bank will become more like a faceless authority that holds power over depositors’ money and will grow to be hated in a relatively short time. (Most of the people of the world have already learned to be deeply distrusting of banks and bankers; outright hatred would not be a major next step.)

  Bottom Up

  In the Eastern provinces of Mexico, the Campesinos already eschew banks, choosing instead to store their money privately. (Chiapas Province is in a virtual economic war with Western Mexico. They value the Libertad as East Indians value gold.) Those Mexicans who live further to the west regard their eastern brothers as somewhat lawless and uncivilised at present. However, when the Campesinos prove to be surviving the crisis better than their western neighbours are, the western provinces will, of necessity, follow their lead. Mexico will be amongst the first countries to return to precious metals as the primary (if not sole) currency, setting the stage for other countries.

  Countries such as Romania and Mexico will serve as an early-warning system. The solutions they and other “fringe” countries employ will spread quickly to the larger world. In order to keep from being controlled by banks, the average person in the EU, U.S. and other “civilised” jurisdictions will learn quickly that, if other forms of trade (alternate currencies, precious metals, barter, etc.) allow him to feed his children when the banks restrict him, he’ll resort to any and all forms of black market dealing that he can find.

  The Treaty of Versailles

  Following World War I, the victors decided to economically cripple the losers—the Germans. The Treaty of Versailles was ruthless in its purpose—to strip Germany of all possibility of future prosperity, so that it could never rise again.

  Of course, what happened was the opposite. Following an economic collapse just five years after the war, the German people, now desperate, chose to follow a new leader who promised that he would “make Germany great again.” The more arrogant he became, the more support he received. The oppression of the treaty failed, as Germans, pushed to the wall, came out fighting.

  I believe that the War on Cash will end without such an extreme, but, just as with the Treaty of Versailles, will be stopped by the people of the world as a result of a monetary stricture that is simply too oppressive to be tolerated. This will by no means be a pleasant historical period to travel through. Many people will have their savings wiped out. Many will literally starve. But the anger that’s created in them will reveal the banks as the clear “enemy” in this drama, and those citizens who are presently respectful of the laws of their country will increasingly defy the enemy. They will resort to an alternate system. This is historically what has always occurred when people have been squeezed to this degree, and it will repeat itself this time around.

  

  

  

  

  

• Valeant Tumbles As Lenders Demand Two Pounds Of Flesh For Covenant Waivers

  Two weeks ago, the catalyst that pushed Valeant CDS to record wide levels implying a 55% probability of default over 5 years, while sending the company’s stock plunging, was news that Valeant was scrambling to engage its lenders to obtain a default waiver to its bank credit agreement to eliminate a technical default that arose when it didn’t file its 10-K before March 15.

  As we reported then, “in anticipation of those meetings, owners of Valeant’s senior bank loans are reaching out to investment banks, including Barclays, who will help mediate the negotiations, the sources said. Barclays did not immediately respond for comment.”    

  As was explicitly warned, the lenders’ demands include higher interest payments and a pledge to pay a larger amount of the bank loans from the proceeds of any Valeant asset sales.

  Since then the stock bounced modestly because apparently the algos forgot that when lenders smell blood and a potential default from a debtor without any other recourse, they will demand a pound of flesh. Or maybe two.

  Well, moments ago the market got a harsh reminder that Valeant is effectively negotiating default compliance with a group of banks who realize they are dealing with a company that has a $9 billion market cap and can thus ask for anything and management and shareholders have no choice but to say yes unless that $9 billion to quickly go to $0.

  According to Bloomberg, Valeant, just as predicted,  “is facing push back from some of its lenders as it seeks to waive a default and loosen restrictions on its debt, according to people with knowledge of the matter.”

  The resistance may complicate Valeant’s efforts to win the support it needs before the Wednesday deadline for lenders to respond. The company, which has about $32 billion in total debt, must gain approval from more than half of the investors holding its more than $11 billion of secured loans. Those that are balking are demanding a higher interest rate and a better fee, said the people, who asked not to be identified because the discussions are private. They also want to impose some restrictions on the terms the company is offering on the proposal, they said.

  Also known as a pound of flesh. Or maybe two.

  Bloomberg reports that the initial Valeant “bid” is a 50 basis-point fee and a 0.5 percentage point boost on the interest it pays on its term loans, people with knowledge of the matter said at the time.  Banks, however, want more: “Some lenders might see it as an opportunity to extract better pricing or other terms,” Justin Forlenza, an analyst at independent credit-research firm Covenant Review, said in an interview. “They can meet at a certain point that lenders and the company can get comfortable with.”

  Now this is only for the default waiver. Additionally, as a result of its collapsing business Valeant has to cure a key negative covenant limiting its interest coverage ratio to just 2.25x. Valeant’s coverage is about to jump to at least 3.00x and here again the banks want moar.

  Under the current proposal, the drug maker is also seeking to loosen restrictions on its credit pact that govern a measure of earnings the company needs to maintain relative to its annual interest expense, Valeant said in a statement on March 30. The interest-coverage ratio was set to jump to three times from 2.25 times, with that level set to be tested before the end of June, according to its current agreement with lenders.

   

  Asking lenders to relax loan covenants suggests Valeant may not be able to repay debt as quickly or generate projected earnings, according to Bloomberg Intelligence analyst Elizabeth Krutoholow.

  The good news for the banks is that Valeant still has lots of spare cash to pay out, and more importantly zero leverage. And since there are virtually no recent comps for such covenant waiver deals, the banks know that they can demand anything they want and will get it, since management has no choice but to concede to any demand, as the alternative is an outright default and complete collapse in the equity value of the company.

  This perhaps explains why after jumping into the $30 range last week, VRX stock is once again back just north of its multi year lows.

  

  

  

  

  

  

• Oil is Setting Up for a Massive Short Squeeze before OPEC Doha Meeting (Video)

  By EconMatters

  

  Barclays, BNP Paribas and a bunch of shorts are going to have to cover before the Doha Meeting. Expect the short squeeze to begin sometime this week.

  © EconMatters All Rights Reserved | Facebook | Twitter | YouTube | Email Digest | Kindle  

  

  

  

  

• Saudis Retaliate To "Oil Freeze" Fallout: Ban Transport Of Iranian Crude In Territorial Waters

  At first, when it announced the terms of its “oil freeze” agreement with Russia one month ago, Saudi Arabia seemed willing to grant Iran a temporary exemption from the supply freeze, at least until it recovers its pre-embargo production levels. That however changed on Friday when the country’s Deputy Crown Prince Mohammed bin Salman, shocked Saudi Arabia’s Arab allies in the Persian Gulf, telling Bloomberg his country would only join the freeze curbe Iran – and all other OPEC member nations – also joined.

  Following the Friday announcement, yesterday Iran’s oil minister Zangadeh made it clear that the country rejects Saudi demands, and would continue ramping up production at will, in the process making the April 17 Doha meeting meaningless.

  And then, in a new and unexpected retaliation by Saudi Arabia for Iran’s intransigence, moments ago the FT reported that Saudi Arabia has taken steps to slow Iran’s efforts at increasing oil exports, banning vessels that transport Iranian crude from entering their waters, according to traders and shipbrokers.

  More details from FT:

  Iranian vessels carrying the country’s crude are restricted from entering ports in Saudi Arabia and Bahrain, according to a circular sent by a shipping insurance company to its members in February.

   

  The notice said ships that have called to Iran as one of its last three ports of entry will also require approval from the Saudi and Bahraini authorities before entering their waters. Shipbrokers and traders have relayed the same messages since.

   

  Iranian oil executives have expressed their concern about the message circulating in the market, saying it is only adding to problems they face in selling their crude.

   

  Saudi Aramco, the state oil company, and The National Shipping Company of Saudi Arabia (Bahri) did not respond to requests for comment.

  It is not clear just how much of an impact this escalation will have because as shown in the map below, Saudi territorial waters are hardly a major factor in Gulf shipping lanes.

  

  However, considering that Iran already faces insurance, financing and legal obstacles despite the lifting of sanctions linked to its oil industry in January, and considering the amount of clout the Saudis have with financial partners, its attempt to make Iran’s oil production more difficult will surely reap at least partial success.

  Indeed, as the FT adds, oil tanker association Intertanko and other industry participants say no formal notice has been given by Saudi Arabia but uncertainty is making some charterers less willing to lift Iranian crude.

  ”It’s seen as an unknown risk,” said one shipbroker. “No one wants to disrupt their relationship with the Saudis.”

  As a reminder, the amount of oil being stored at sea off the coast of Iran has risen by 10 per cent since the start of the year, data from maritime data and analytics company Windward show, and now stands at more than 50m barrels.

  But what is perhaps far more troubling for Iran is that on Friday president Obama criticized Iranian leaders for undermining the “spirit” of last year’s historic nuclear agreement, even as they stick to the “letter” of the pact.

  According to the Hill, in comments following the Nuclear Security Summit in Washington, Obama denied speculation that the United States would ease rules preventing dollars from being used in financial transactions with Iran, in order to boost the country’s engagement with the rest of the world.

  Instead, Obama claimed, that Iran’s troubles even after the lifting of sanctions under the nuclear deal were due to its continued support of Hezbollah, ballistic missile tests and other aggressive behavior.

   

  “Iran so far has followed the letter of the agreement, but the spirit of the agreement involves Iran also sending signals to the world community and businesses that it is not going to be engaging in a range of provocative actions that are going to scare businesses off,” Obama said at a press conference.

   

  “When they launch ballistic missiles with slogans calling for the destruction of Israel, that makes businesses nervous.”

   

  “Iran has to understand what every country in the world understands, which is businesses want to go where they feel safe, where they don’t see massive controversy, where they can be confident that transactions are going to operate normally,” he added. “And that’s an adjustment that Iran’s going to have to make as well.”

  And so a new potential bullish catalyst for oil emerges: If Obama’s anger grows, and if the Iran agreement is ultimately unwound, that would mean that all of the excess oil brought on market by Iran, would promptly be taken off the market once more, in the process eliminating the supply glut overnight.

  It remains to be seen if Obama is ready to sacrifice his foreign “legacy” just to boost the price of oil, and thus, gas at the pump. Then again, considering over the weekend Goldman made a huge U-turn on the “low oil is good for the economy”, and if Obama’s advisors start whipsering in his ear how higher oil prices are critical for US energy companies, that may be precisely what ends up happening.

  

  

  

  

  

• One Junk Bond Analyst's Catastrophic Forecast For What Is Coming

  “cumulative losses over the length of the entire cycle could be worse than we’ve ever seen before”

       – BofA High Yield strategist Michael Contopoulos

   

  While not as quixotic as Morgan Stanley’s Adam Parker piece on market-chasing cockroaches, BofA high yield analyst Michael Contopoulos has moved beyond merely bearish and is now outright catastrophic . That may be a little far fetched, but in his latest note – while he doesn’t call rally chasers “cockroaches” (yet), he seems at a loss to explain the ongoing junk bond rally. His reasoning: fundamentals just keep getting worse by the day, while price action has completely disconnected from reality, and virtually nobody expects what is about to unfold in the junk bond space.

  First, according to his assessment of deteriorating macro and micro indicators, the recent price move makes little sense:

  Despite the strong payroll data the economy still appears to be headed in the wrong direction, as our economist’s tracking model now indicates just 0.6% Q1 GDP growth and a revised 2.0% (from 2.3%) for Q2. Should our team’s figures hold, the period ending March 31st will mark the 3rd consecutive quarterly decline in GDP and the second sub 1% quarter in the last 5. More importantly for high yield investors, however, is that earnings growth continues to be anemic. 2 weeks ago we wrote that too much emphasis has been placed on Adjusted EBITDA, an approximation of cash flow that doesn’t take into account “1-off” charges, working capital, capex, etc. Although we understand the allure of this measure, in our eyes it has the tendency to cover up late cycle problems; namely asset impairments. With the understanding, however, that this measure is likely to be used for some time to come, we highlight the following: Even with 1-off adjustments 6 out of 17 sectors realized negative year-over-year Adjusted EBITDA in Q4, with a 7th sector growing at just 0.5%. On an unadjusted basis, 9 sectors realized negative EBITDA growth for Q4.

   

  

   

  Because one quarter doesn’t tell the whole picture of a company’s earnings momentum, we also calculated both Adjusted and Unadjusted EBITDA by weighting the last 5 quarters 30%, 25%, 20%, 15,%, 10% (Q4 2015 having the highest weight Q4 2014 the lowest). What we find is that the commodities sectors are clearly not the only industries to be experiencing troubles as Capital Good, Commercial Services, Consumer Products, Gaming, Media, Retail, Technology and Utilities are all under pressure. Additionally, on an unadjusted basis Healthcare also doesn’t look like the darling some firm’s spreads would suggest.

  Then he looks at where in the credit cycle the market currently finds itself:

  We’ve written on multiple occasions how the main question mark surrounding the end of this credit cycle is its shape, not whether we’re currently living through it. As mentioned above, fundamentals have been consistently deteriorating even outside of commodities, defaults are rising, new credit creation is becoming difficult, and illiquidity is still a problem. Although technical tailwinds in the form of retail inflows and supportive central bank policies can prolong the market unwind, they do not change its direction as ultimately fundamentals will prevail.

  That is a bold assumption with every central bank having become an activist, but yes: ultimately fundamentals will prevail.

  In terms of the shape of this cycle, absent a recession we expect the pace of defaults to be much closer to the 1998 experience than the 2007 one. In fact, we have coined the phrase “a rolling blackout” to describe the potential for a period of many years where the market experiences general weakness and moderately high defaults as individual sectors take turns realizing their moment of distress. Whether these moments are based on a deterioration of underlying fundamentals, an unwind of crowded trades, or some sort of series of macro-economic incidents is nearly irrelevant, as the uncertainty and consistent underperformance of the overall market will likely frustrate many investors and asset allocators. In our view this is not unlike the 1998-2002 experience, where the very same scenario could played out: years of high yield underperformance, poor returns and moderately high defaults. Recall in those years, high yield returned 2.9%, 2.5%, -5%, 4.4%, -1.9% (and 3 years in a row of negative excess returns) while the default rate slowly crept up from 2% to 8% over the course of 3.5 years before hitting double digits.

  Next, he proceeds to the “apocalyptic part”, stating quite clearly that “the losses over the credit cycle could be worse than we’ve ever seen before.” One reason: central bank intervention that keeps kicking the can instead of allowing the disastrous fundamentals to finally reveal themselves.

  Should the market realize a mid to high single digit default rate for years cumulative losses over the length of the entire cycle could be worse than we’ve ever seen before. A total of 33% of issuers defaulted over the course of the 1987 and 1999 default cycles, higher than the 25% in 2008 as the latter benefitted from unprecedented central bank intervention. But the very same policies which helped alleviate the pain in the last cycle will likely add to the severity of the next one. This is because many of the companies that should have defaulted 7 years ago but instead received a lifeline will likely shutter doors now. As risk premiums have caused yields to jump nearly 400bp, many of these firm’s business models will now likely be unsustainable; especially given the lack of EBITDA growth we have seen this cycle (Chart 1). When these issuers are then coupled with the newest crop of unsustainable businesses from this credit cycle, we could see cumulative default rates approaching 40% this cycle versus the traditional 33%.

   

   

  It’s not just the upcoming surge defaults. Contopoulos also e focuses on product-specific issues which we have discussed before, namely the already record low recovery rates, a unique feature of this particular default cycle. These are only going to get worse.

  However, not only will defaults be higher than in past cycles, but credit losses are also likely to be worse than ever before. That’s because recoveries, even outside of the commodity space have been paltry in the post crisis years. Given where we are in the default cycle, prevailing recoveries are a full 10 points lower than where they should be. Chart 2 highlights historical time periods characterized by low default rates (inside of 4%). Whereas in the past, recoveries tended to surpass 50% in low default environments, the last few years have seen those averaging 40%. This is telling because it means the pressure on recoveries is not being caused by the abundance of assets for sale in the market, which increases as more companies default, but rather because of the quality of these assets as we have discussed in part 1 of our recovery analysis published last year.

   

  

  One reason for the collapse in recovery rates: the extensively documented chronic underinvestment in replenishing the asset base, and instead “investing” in buybacks and dividends.

  So why are today’s assets garnering less enthusiasm than before? One reason, of course, is that a large portion of defaults today are in the commodity space, which are finishing with sub 10% recoveries as investors try to grapple with a market which may not have hit its bottom. However, problems persist even outside of the commodity industries. Take a look at the YoY growth in capex for non-commodity HY issuers (Chart 3). It’s striking how CEOs have invested much less in their businesses this cycle compared to previous ones. In fact, most of the capex growth since 2010 has come from energy issuers on the back of the US energy independence story in the early part of the decade; and we all know not to count on that going forward. On top of that, asset impairments as a percentage of tangible assets are through the roof, chipping away at valuations of an already low asset base. Not surprisingly, non-commodity recoveries reflect the same extent of erosion post 2010 as does overall HY (Chart 4).

  If that wasn’t bad enough, it gets worse: “Given that HY companies have seen hardly any organic growth within last few years, it is of little surprise that recoveries today are so low. The bad news is that we think they are going to decline further.”

  Contopoulos then analyzes various fundamental trends to determine the shape of the upcoming default cycle, and concludes with the following bleak assessment:

  So where does this leave us? According to our model, should the default cycle look similar to the 1999 experience (2yr cumulative DR of 25%), and debt-to-asset ratio touch the highs of that cycle (0.51x), recoveries can be as low as 16c on the dollar. There is also a case to made that if there is no catalyst to total capitulation, and we see a longer flatter default cycle, we could see 2yr cumulative default rates much less than 25%. While this is reasonable, one can also argue that debt-to-asset ratio which today already stands at 0.48x, could ultimately go much further past 0.51x. Additionally, as we have seen in the post crisis years, default rates matter less than debt-to-asset ratios, meaning recoveries even under a rolling blackout scenario could even be worse than we expect.

   

  

   

  Table 3 presents a scenario analysis of the range of recoveries to expect in the next few years depending on one’s forecast of default rates and debt-to-asset ratios. In almost any scenario recovery rates stand to be well below 30% this cycle.

  According to Contopoulos, investors are only slowly starting to appreciate just how bad the future will be for junk bond investors:

  While most investors we have talked to appreciate that recoveries will be lower going forward, we think it’s just as important to highlight just how much. Because, 8% yield may sound attractive if your expected credit losses are 400bps (6% DR*70% LGD). But the picture suddenly becomes unappealing knowing these losses could accumulate to 500bps; suddenly leaving you with an unremarkable excess spread cushion.

   

  And it appears that investors have begun to pay attention, at least as seen from the events in the primary market. It’s no surprise that CCC issuance has cratered in the last year as investors are unwilling to extend credit to low quality issuers. Now it seems they are even rewarding BB issuers for using their newly raised debt judiciously, as can be seen from the lower clearing yields for debt being earmarked for capex investment over anything else

  Welcome to the brave new world of massive default losses and record low recoveries.

  This new world will be one where investors should and will adjust their expected compensation higher to make up for rising defaults, dwindling recoveries, and declining liquidity, all of which are here to stay.

  Come to think of it, we almost prefer Adam Parker’s incoherent ramblings about cockroaches better: at least it gave some sense that there could be a happy ending. If only for the cockroaches that is….

  

  

  

  

  

• Dismal Data Deluge Deletes Dow Dead-Cat-Bounce

  Nothing to see here, move along…

   

  But but but the "great" jobs data… The dead-cat-bounce is over…

  

   

  Trannies had a tough day…

  

   

  But US equities are holding on to some of the gains from Friday's exuberance…

  

   

  Notably there was significant selling at VWAP (suggesting institutional derisking)…

  

   

  Treasuries traded in a worryingly narrow illiquid range today ending very modesly lower in yield…

  

   

  The US Dollar Index ended the day unchanged after weakening from overnight strength after the dismal slew of US data today…

  

   

  Despite the "deadness" of the FX and bond markets, commodities had a volatile day with crude gettin smashed to one-month lows…

  

   

  Finally, as a gentle reminder…

  

   

  Charts: Bloomberg

  

  

  

  

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