- The New 'Too Big To Fail' – EU Proposes Taxpayer-Funded Derivatives System Bailout
It would appear the powers-that-be have just stumbled on to the ugly fact that all the bailed-in depositor money in the world won't stop the novated, rehypothecated, collateral chain collapse contagion that Deutsche Bank's $40 trillion-plus derivatives book's Damocles sword hangs over the status quo. However, being the problem-solving types, the European technocrats have a 'fair-share' solution – back a derivative clearing-house with taxpayer money to solve the new too-biggest-to-fail problem "that no one saw coming."
While the "rules" right nbow are that everyone from shareholders, bondholders, and depositors alike on up the capital structure are supposedly "bailed-in" to save an ailing bank, this problem is just way too big.
Here's the problem… in 3 charts…
Derivatives book – yuuge…
Global contagion – yuuger…
Counterparty risk – yuugest…
And so, as Bloomberg reports, the dear old European taxpayer is about to save the world… The European Union plans to give authorities sweeping powers to tackle ailing derivatives clearinghouses to prevent their failure from wreaking havoc throughout the financial system.
Draft EU legislation seen by Bloomberg sets out rules on saving or shuttering clearinghouses that would apply to firms such as London-based LCH. The proposals cover everything from the creation of resolution authorities to the powers they would have when winding a company down, including writing down shares, debt and collateral.
Having forced most clearing to go through central counterparties to manage risk in the financial system, the EU will come out with recovery and resolution proposals by year-end. Clearing has come into focus after emerging as a pawn in the post-Brexit battle for London’s financial-services industry.
“If we are going to rely more on CCPs, we need to have a clear system in place to resolve them if things go wrong,” Valdis Dombrovskis, the EU’s financial-services chief, said last month.
Governments around the world were spooked by the damage inflicted by derivatives trades that went awry during the financial crisis. Since then, they’ve taken steps to ensure trading in the contracts is reported and centrally cleared.
Clearinghouses stand between the two sides of a derivative wager and hold collateral, known as margin, from both in case a member defaults.
The plan’s upfront costs for clearinghouses “are estimated to be in the millions for the largest institutions and in the thousands for smaller entities,” according to the summary of an EU impact study.
Costs for “better planning and prevention of failure” will vary by firms’ “size, interconnectedness, substitutability and complexity.”
While the process is taking risk out of the banking system, it has increased it in the clearinghouses, which might get into difficulty after the default of a clearing member — typically a major bank — or after some operational failure that inflicted major losses.
In both cases the authorities would need to act quickly and would be doing so amid a looming crisis.
And here is the kicker… guess who foots the bill when the fecal matter really strikes the rotating object…
“Should these options be unavailable or be demonstrably insufficient to safeguard financial stability, government participation in the shape of equity support or temporary public ownership could be considered as a last resort,” according to the proposal. Those steps would need to comply with EU rules on state aid.
So the US DoJ decision to retaliate for EU's Apple decision has boomerang'd right back at the EU taxpayer – who ultimately will bailout the new too-biggest-to-fail entities.
Italeave? Portugone? Fruckoff?
- Trader: "If You Take Away QE's Greater Fools, You'll Get A Market Resembling The Pit Scene From Trading Places"
By Richard Breslow, former FX trader and fund manager who writes for Bloomberg
You Don’t Need a Taper to Price for the Event
Yesterday’s article on potential ECB tapering of their quantitative easing activities was important – even if you discount or outright dismiss its likelihood. No one was prepared to fade the news on the day and the reverberations were far and wide. If you were a bond market, of any stripe, and open for business, you got sold.
Investors are long global bonds and other bond-infected assets in outsized size, and not at all sure why, other than that central banks will keep buying and nothing will ever change again
As QE gets long in the tooth, it has increasingly relied on the greater fool theory to maintain itself. Take that assumption away and you’ll get a market resembling the pit scene from “Trading Places”
Rather than dismissing the news (or trial balloon) ask yourself what would happen to your portfolio if global yield curves began to normalize. Which doesn’t require outright tightening to happen. Something to at least consider when submitting your bids for the next super-longs. It takes a lot of rolling down to get home scot-free from a 50-year maturity at crisis yields
It’s all been about greed in order to survive in this desperate grasping-for-yield world. But more and more serious investors are trying, largely in vain, to point out that survival in the future may require getting to the exit on time. Taking a mark-to-market hit on a negative yielding bond is a nasty shock investors aren’t used to. And certainly not prepared for
There’s been an assumption that bond vigilantes were permanently run out of town when the new central bank sheriffs came to town. And that back-ups in yield were some form of anti-social behavior to be scorned. But some policy makers are coming around to realize that steeper yield curves just might be what we need right now. For a whole host of reasons. And reminders that that’s possible should be taken as gentle nudges to reconsider the concept of adding a dose of prudence to investing decisions
“Don’t say no one warned you” will be heard along with the wailing of the those who just wouldn’t leave the dance floor.
* * *
- The Noose Is Tightening Quickly On The Global Economy
Submitted by Brandon Smith via Alt-Market.com,
The investment world has an embarrassingly short attention span. But frankly, it is a necessity. If daytraders, hedge funds and other horses in the carousel actually had to look beyond the next week of market activity or study back on market history in comparison to today, then they would not be able to retain their blind optimism, which is exactly what is necessary for them to continue functioning. If they were all to examine the global financial situation with any honesty, the entire facade would collapse tomorrow.
At bottom, it is not central bank stimulus and intervention alone that drives equities and bond markets; it is the naive faith and willful ignorance of average market participants. There is a problem with this kind of economic model, however. Reality is never kept in check indefinitely. Fiscal truths will be exposed, one way or another.
How does one know when this full spectrum shift in awareness will occur? Well, there’s no science that can help us with that. While basic economics is subject to the forces of supply, demand and mathematical inevitability, it is also subject to human psychology, which is another matter entirely.
In the past I have made a point to outline similarities in responses to various economic crises. For example, the media response and public perception at the onset of the Great Depression was a highly unfortunate exercise in false optimism. The response just before the credit crash of 2008 by the media and the masses was much the same. It is interesting to note in particular that the mainstream media tends to become more over-the-top in its certainty of economic stability the closer the system comes to collapse. That is to say, the nearer we edge towards financial calamity, the more violently the mainstream media attacks people who suggest that danger is on the horizon.
First, take a look at the following attempts by the media to embarrass or silence analysts like Peter Schiff just before the crash of 2007/2008:
Now, watch this attempt by CNBC to attack Bill Fleckenstein for having the audacity to question the validity of current stock values and pointing out that the Federal Reserve is destroying the economy rather than repairing it:
Notice any striking similarities between the mainstream rhetoric of 2006/2007 and the mainstream rhetoric of today? Notice how emotionally aggressive and almost desperate the media becomes when maintaining market faith, rather than looking at the situation objectively as the fundamentals begin to overwhelm investor complacency?
To be clear, while mainstream economists are almost always wrong, independent analysts are not prophets. We usually cannot provide the exact timing for the economic shifts we see coming. All we can do is provide a general window in which the events are likely to take place. Peter Schiff’s predictions on how the housing bubble and the credit crisis would play out were absolutely correct, even though he was about six months to eight months off his timing. Again, this is not an exact science, and human psychology has the ability to offset market fundamentals for months.
The supposed “catalyst” for the 2008 crash is primarily attributed to the fall of Lehman Brothers. I highly recommend any of the “bullish” economists out there arguing today that the central banks intend to prolong a stock rally indefinitely examine the statements made in the mainstream about Lehman and by Lehman leading up to their eventual death rattle. Then, absorb and really think on some of the recent statements and tactics used by Germany’s Deutsche Bank.
Specifically, note Lehman’s use of accounting and derivatives gimmicks and the cycling of funds through various accounts in order to make the company appear solvent. Then, take a look at revelations coming out of places like Italy that Deutsche Bank has been using the same model of false accounts and market manipulation, once again, with derivatives as a main tool for fraud.
Also notice the same outright dismissals of all pertinent evidence that Deutsche Bank might be suffering a capital shortfall, as Chief Executive John Cryan blames “speculators” for the companies losses. Lehman’s Dick Fuld and Bear Stearns’ Jimmy Cain both blamed “speculators” and “rumors and conspiracies” for the fall of their companies during the derivatives debacle eight years ago. It would seem that history doesn’t just rhyme, it sometimes repeats exactly.
Below is a rather revealing chart from the folks at Zero Hedge comparing the collapse of Lehman Brothers stock value to the steady decline of Deutsche Bank. Check it out:
To be clear, Lehman was no catalyst. It was only a litmus test for a system completely devoid of tangible value and drowning in toxic debt. Lehman was a part of a much larger problem, it was not the cause of the problem. The same is true for Deutsche Bank.
The panic growing around Germany’s second largest financial institution, Commerzbank, as it moves to lay off nearly 10,000 employees and suspend its dividend is another crisis indicator separate from Deutsche Bank. The clear solvency issues in Italy’s major banks, including Monte dei Paschi, are yet another explosive element.
Keep in mind that when these edifices begin to crumble and Europe enters a state of financial emergency, the mainstream media and numerous governments will continue to blame speculators. They will also claim that the entire disaster was set in motion through a “domino effect”; the first domino probably being Deutsche Bank. This will be a lie. There is no line of dominoes. One bank will not be bringing down the other banks — yes, there is terrible interdependency, but the real issue is that ALL of these banks are falling due to their own cancerous behaviors. The very system they are built around is a corrupt and unsustainable model, and I hold that this is by design.
International financiers do not want the general public to look at the validity of the system, they want the public to view collapse events as an oversimplified case of cause and effect.
If the public were to understand that the global banking model is a destructive one (for the public, not for the elites), then they might demand the erasure of the model and its institutions entirely. The elites don’t want that. What they want is to be free to conjure crisis after crisis after crisis; to have the option to collapse the system only to replace it with something identical in nature but even more oppressive in its function. They want to create chaos today so that greater centralization can be purchased in the future through mass fear.
I continue to maintain as I always have that central banks around the world are shifting strategies and will do very little to intervene from this point on in the propping up of insolvent banking groups or equities markets. It is very unlikely that Germany or the European Central Bank, for example, will move to infuse Deutsch Bank with capital (at least, not until the damage has already been done). It is also unlikely that any central bank will move to openly stimulate markets until an equities crash has run its course. In fact, some central banks including the Federal Reserve may act to expedite a stock crash — watch for this to occur if Donald Trump attains the White House.
This has all happened before. It happened in 2008 when the Federal Reserve stepped back and allowed Lehman Brothers to go bankrupt. It will probably happen again when the German government and the ECB refuse to back Deutsche Bank. The noose is tightening on the global economy and, once again, the mainstream media is too biased or too dumb to see it. They’ll accuse the alternative media of crying “doom and gloom,” and perhaps our timing will be off. But exact timing will not really matter once the house of cards begins to topple. If we stick to our positions and refuse to be intimidated by rhetoric, the time will come when people will only remember that we were right for the most part and that the mainstream media was incompetent or dishonest.
In the meantime, we have a whole swarm of other trigger events before the end of the year. I predicted in my article The World Is Turning Ugly As 2016 Winds Down that the Saudi 9/11 bill might be vetoed by Obama and that the veto would be overturned by the Senate. This has now taken place, which means increased Saudi tensions with the U.S. resulting in the eventual demise of the dollar’s petro-currency status. Watch the coming Italian constitutional referendum which could pave the way for conservative movements to initiate an Italian version of the Brexit. Also keep an eye on Syria yet again as diplomatic conflict flares between the U.S. and Russia (gee, who didn’t see that coming?). And, of course, the U.S. presidential election which appears to be culminating into the most divisive political event in America in decades.
Ignore the delusional positivism of the mainstream media and a large part of the equities trading community. Their fantasies only grow more elaborate the closer we get to a market heart attack. And remember, economic collapse is a process, not an overnight affair. The progression of global decline should be apparent to anyone paying attention since 2008. The only question is, when will the average citizen become aware? My feeling according to current trends is, very soon.
- Distillates Need a Cold Winter given the Supply Overhang (Video)
By EconMatters
Year over year the Distillate numbers from production, demand and supply appear the weakest in the Petroleum complex. A mild winter will be a headwind for Distillate prices in 2017 given current supply levels.
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- Chaffetz Blasts DOJ On "Side Agreements" That Effectively Prohibited FBI From Proving Intent
Two days ago the Chairman of the House Judiciary Committee, Bob Goodlatte (R-Virginia), wrote a letter to AG Lynch that, for the first time, revealed that the FBI apparently struck “side agreements” with both Cheryl Mills an Heather Samuelson to, among other things, “destroy” their “laptops after concluding their search” (see “FBI Allowed 2 Hillary Aides To “Destroy” Their Laptops In Newly Exposed ‘Side Agreements’“).
Today, Jason Chaffetz, Chair of the House Oversight Committee, sent a follow-up letter requesting additional information and blasting the investigative process in which the “FBI inexplicably agreed to destroy the laptops knowing that the contents were the subject of Congressional subpoenas and preservation letters.”
But, perhaps the most startling takeaway from the Chaffetz letter is that limitations imposed by “side agreements” with Mills and Samuelson strictly prohibited the FBI from investigating the “intent” of Hillary’s staff to obstruct justice and/or destroy evidence subject to a Congressional subpoena. As pointed out by Chaffetz, the “side agreements” allowed the FBI to only review emails between 6/1/14 through 2/1/15 and only those sent/received by one of Clinton’s four email addresses used during her tenure as Secretary of State.
Even more disturbing, Chaffetz points out that the FBI agreed to the “side agreements” in June 2016 at which point they were already aware that Combetta deleted Hillary’s emails using Bleachbit on 3/31/15 after a conference call with Cheryl Mills and Hillary attorney, David Kendall. That said, the restrictions imposed by the “side agreements” strictly prohibited the FBI from reviewing Mills’ emails during that period which could have spoken to her intent to destroy evidence.
But, as always, we’re sure the DOJ and FBI will promptly clarify all of these new questions in a completely open and transparent way.
- "Heaven Help Us If There Is Ever A Modest Blip Of An Inflation Impulse"
By Charlie McElligott, head of cross-asset desk strategy at RBC
Despite the weakest Euro area Composite PMI since January ’15, periphery and core EGB’s are too seeing weakness, with traders noting not just the “tapering” story, but also Target 2 balance data, which is showing Italian and Spanish liabilities at 3+ year highs against German claims (2nd highest reading since 2008). All-in-all, just the hypothetical mention of “tapering” speaks to the extent of speculative positioning in the periphery govies, with the seemingly lazy 3-day move lower in IKA (Italian BTP futures) actually being a 2.1 standard deviation event (against the returns of the past year). To my points made for years now on risk-parity, risk-control / vol-targeting and leveraged ETPs, it’s the cost of “shadow short convexity” in the market place (as the strategies increase or decrease their exposure based on CB-repressed historical volatility), which now “more frequently than ever” smashes asset prices with stiff jolts of volatility “true-ups,” on account of their mechanical and unemotional rebalancing (and after a couple days…“back to normal” we go, as if nothing happened–this is your market structure).
The BoJ kicked this party off in September with their “curve steepening” discussion (since put “into motion” under the guise of “curve control / yield targeting policy”). As I have stated since over a week before the BoJ meeting, any curve-steeping operation could in fact be interpreted by the market as a QE taper, because 1) the BoJ is then by definition buying fewer bonds past 10 years against buying more in the belly—despite running out of bonds to buy there (!), and 2) potentially in a position where to stay true to their new policy, the BoJ could turn a NET SELLER of bonds when 10Y yields turn more negative!!! As such, the global long-end sold off, triggering the aforementioned systematic fund de-leveraging which spilled-over across most every asset-class (except for US Investment Grade, which in the words of country-great Travis Tritt continues to act “10 feet tall and bullet-proof” -> How’s that for showing my Ohio roots).
This latest version emanating off the Bloomberg story got a bit too much “headline” action, where the story itself spoke to a likely extension of the current ECB bond-buying program before “running out of Bunds” come-March. The market is positioned for this extension / “perpetuation of the status-quo”…although they also were in September, when it never came up in the ECB meeting. All eyes consensually see it coming in December now, yet some folks we speak to (who are close to the situation) indicate that the ECB is very closely watching the BoJ and the “market interpretation” of their current “stall tactics” being exhibited (in the form of this “curve control” snowball, against their longer-term “NEED” to go further NIRP-ier…which requires consensus building domestically and abroad on account of the negative implications for banks, pensions, insurance and corp balance sheets / capex investment). Everybody is trying to buy-time…but at the end of the day, “extend and pretend” is the name of the game. FWIW, I personally believe this was a “shot across the bow” by Draghi to the ECB’s General Council (zee Germans) that “more needs to be done…free us from your shackles…or else you are gonna have blood on your hands.”
It is SO tired, but let’s face it: when even the limpest “trial balloon” discussion of the ECB’s hypothetical, WAY down-the-road discussion of how to end their QE program (we could be talking 2020 here people) creates yet another “Mini-Taper Tantrum,” we have to be intellectually honest with ourselves (as do CBers) and acknowledge the incredible degree to which the current monpol framework has distorted prices / valuations / market structure. All assets are hooked on stimulus, and yet CB’s refuse to take the pain of allowing actual price-discovery. A “winnowing-out” of the excess leverage and weak-handed lazy positioning would allow for a return to a greatly-desired / more-functional capital-market, and with it, the “business cycle,” which would benefit the real economy for the “greater good.”
Ultimately, this is another “crack in the façade” of the QE monpol regime, buckling-further under its own weight. In both the case of the BoJ and the ECB, they are acknowledging that they have little-choice but to move to “yield targeting” due to said curve and market distortions as again, both are running out of bonds to buy.
And with that, so too wanes the market’s believe in the omniscience of the current framework (although yes, CB’s without a doubt can still “escalate” via debt monetization / “helicopter money”…but nobody has yet shown resolve to go ‘nuclear’ without a true crisis), especially as their policies only further set-the-table for volatility explosions—as they force “real money” to get “even long-er” of duration through their yield compression madness. Heaven help us if there is ever a modest blip of an inflation impulse. Caveat emptor.
* * *
CONTEXT OF THE OVERSEAS IMPACT ON UST CURVES FROM ‘JAPAN-TRUM’ AND NEWEST ‘ECB-MINI-TANTRUM’:
- Florida Faces "Biggest Evacuation Ever" As Hurricane Matthew Looms
Things in Florida just went to '11' as, following his declaration of a state of emergency, the governor warned the state could be facing its “biggest evacuation ever.”
Gov. Rick Scott said he didn’t know how many people would be ordered to leave the coastline because it is left up to individual counties. So far, only Brevard and Martin counties have issued mandatory evacuation orders.
“When you look at this storm as it goes along the East Coast, we’re going to have to prepare every county, so it could be the biggest evacuation ever. Every county is focused on it though. We’ve been working on it even before today,” Scott said.
Scott said the state is preparing for the worst and hoping for the best, 1010 WINS’ Steve Kastenbaum reported.
Matthew was a dangerous and life-threatening Category 3 storm with sustained winds of 120 mph, and it was expected to be very near Florida’s Atlantic coast by Thursday evening. It could become the first major hurricane to blow ashore in the U.S. since Wilma slashed across Florida in 2005.
As The Weather Channel reports,
"I cannot emphasize enough that everyone in our state must prepare now for a direct hit," Gov. Rick Scott said in a Wednesday press conference. "If Matthew directly impacts Florida, there will be massive destruction that we haven’t seen in years. This is a deadly storm approaching our state."
The stern warnings came from everywhere – especially weather forecasters.
"Extremely dangerous and life-threatening wind is possible," wrote the National Weather Service's Melbourne office in a forecast discussion. "Failure to adequately shelter may result in serious injury, loss of life or immense human suffering."
There is even a chance that the deadly Hurricane could loop back and strike Florida twice…
Meanwhile, Hurricane Matthew has already claimed it's first casualty in South Carolina as a man apparently decided to lead police directing evacuation traffic on a wild chase and then open fire on them. According to CNN, officers were forced to return fire and wounded the man who's condition is unknown at this time.
* * *
As we detailed earlier, residents in the projected path of the deadly Hurricane Matthew have started preparing for the worst as east-coast governors from Florida all the way to North Carolina have all declared states of emergency. Efforts to prepare for the deadly storm have resulted in massive gas lines and empty store shelves as residents either get out of town or bulk up on supplies to ride out the storm.
Hurricane Matthew has battered the Caribbean over the past two days as a massive category 4 storm, with maximum sustained winds of 140 mph, claiming at least 17 lives in Haiti and Cuba. According to the National Hurricane Center (NHC), Matthew was downgraded to a category 3 storm early this morning with maximum sustained winds of 120 mph but meteorologists warned the hurricane was likely to strengthen again in the coming days.
Per Reuters, the U.N. has declared Hurricane Matthew the biggest natural disaster to strike Haiti since the devastating earthquake six years ago after it destroyed close to 1,000 homes and left up to 10,000 people in shelters.
Authorities said on Wednesday five people in Haiti were crushed by trees and six were swept away by swollen rivers.
"More than 1,000 homes have been damaged or destroyed by the flood waters and violent winds," said Ernst Ais, the mayor of the town of Cavaillon, near Les Cayes. He said a mother and three children died in floodwaters in his town.
Three men were killed in Leogane, near Port-au-Prince, when a coconut palm fell on their home, the mayor there said.
Mourad Wahba, the U.N. secretary-general's deputy special representative for Haiti, said much of the population had been displaced by Matthew and at least 10,000 were in shelter.
"Haiti is facing the largest humanitarian event witnessed since the earthquake six years ago," he said.
Per the NHC, the latest forecast calls for Hurricane Matthew to make landfall in Florida as a "Major Hurricane" with maximum sustained winds of at least 110 mph late Thursday evening or early Friday morning. The storm is then expected to turn toward the northeast following right along the eastern seaboard all the way to North Carolina.
Parts of Florida are expected to receive up to 10 inches of rain which can fluctuate substantially depending upon the ultimate path of the storm. Meanwhile, Barclays analyst, Jay Gelb, warned that Hurricane Matthew may be among the top five worst U.S. hurricanes in history and has the potential to “wipe out” about a quarter’s worth of earnings for re-insurers.
Rainfall potential from #HurricaneMatthew along US SE coast. https://t.co/uD8H9qP7q4 pic.twitter.com/PFbokgtEqs
— Steve Herman (@W7VOA) October 5, 2016
Governor Nikki Haley of South Carolina has already closed schools and order evacuations of anyone within 100 miles of the coast as deadly winds and 5-7 foot storm surges are expected.
Meanwhile, gas lines have backed up all over the east coast as people prepare to get out of town or simply stock up on fuel for generators. Per NBC, gas stations across South Carolina are already running out of gas.
But that’s not been so easy for some on Hilton Head.
“We were at a station for 30 minutes and just as we pulled in they ran out of gas,” Montgomery said.
“We got in line and by the time we got up to the pump it was out of gas,” Orr said. “A lady came out to let everybody know that they was out of gas.”
And that’s a big concern for nearly everyone on the island.
“They should’ve been prepared for us,” Orr said. “They knew that it was coming so they should’ve had enough gas.”
And any station with remaining supplies are experiencing huge lines of antsy customers.
Long gas lines as #HurricaneMatthew approaches Florida. Glad to have a #Tesla. I'll charge up tonight in my garage. pic.twitter.com/7kdlnYnZ9W
— Allen Furmanski (@TekGuyAllen) October 5, 2016
Apparently the situation became so severe in Mount Pleasant, SC that the police department had to remind residents that "a gas station running out of gas" wasn't a valid reason to call 911.
Please do not call 911 because a gas station is out of gas. Remember to be patient with one another. #mtpsc #chstrfc
— Mount Pleasant PD (@MountPleasantPD) October 4, 2016
Traffic along the South Carolina hurricane evacuation route was at a standstill early this morning.
Evacuation traffic on I-26W in Charleston ahead of #HurricaneMatthew #News19 pic.twitter.com/rD4PokFqOp
— Deon Guillory (@DeonWLTX) October 5, 2016
Meanwhile, home improvement stores and grocery stores are running out of vital supplies like plywood and water as some residents prepare to ride out the storm from home.
My dad just sent me this pic as he is in line at @HomeDepot in Stuart,Fl 6am! Praying for all who might be in #HurricaneMatthew path pic.twitter.com/rGFL4e4DdK
— Scottie Nell Hughes (@scottienhughes) October 5, 2016
Lines for gas are very long in Mount Pleasant. And there's no bread. #HurricaneMatthew #chswx pic.twitter.com/Xv71rd0meV
— Andrew Knapp (@offlede) October 4, 2016
People in #Gainesville already stocking up for #HurricaneMatthew. These shelves of water are empty. @WCJB20 pic.twitter.com/sFqa8oK6We
— Brooke Shafer (@Brooke_Tv20) October 5, 2016
Hurricane Matthew is still in the Bahamas and the water shelves in Wal-Mart are already bare in Virginia. Wow pic.twitter.com/vFFA6GnLVu
— Steve Campbell (@campbellstevend) October 5, 2016
More #cbs12 photos of people getting ready for #HurricaneMatthew Lola E. says water is running low on the shelves at a St. Lucie Walmart. pic.twitter.com/EDq4qkdwWa
— WPEC CBS12 News (@CBS12) October 4, 2016
- Elizabeth Holmes To Shut Theranos' Core Operations, Fire 40% Of Workers
The death of Theranos has been long coming ever since the WSJ' John Carreyrou did a phenomenal job, starting about one year ago, of exposing the fraud that is Clinton Global Initiative-darling Elizabeth Holmes, but as of this evening it is largely official. In an "open letter" just posted on the company's website, Holmes said Theranos would shut down its blood-testing clinical labs and fire 340 of approximately 790 full time employees, roughly 40% of its entire workforce.
As the WSJ, whose story this has been from day one writes, "the moves mark a dramatic retreat by the Palo Alto company and founder Elizabeth Holmes from their core strategy of offering a long menu of low-price blood tests directly to consumers. Those ambitions already were endangered by crippling regulatory sanctions that followed revelations by The Wall Street Journal of shortcomings in Theranos’s technology and operations."
Still, while Theranos' official closure, and still long-overdue criminal raid, should have taken place long ago (we wonder if Holmes' proximity to the Clinton Foundation may be a mitigating factor) in a testament to just how much dumb money there really is, the company will still continue to operate, even if under a severely scaled down, "post-pivot" business model. As Holmes writes, "we will return our undivided attention to our miniLab platform. Our ultimate goal is to commercialize miniaturized, automated laboratories capable of small-volume sample testing, with an emphasis on vulnerable patient populations, including oncology, pediatrics, and intensive care."
Holmes announced in August a new blood-testing device called miniLab, which is about the size of a printer but hasn’t been approved by regulators. The shutdowns and layoffs could help the closely held company minimize its cash burn in its attempt to accelerate the development of products that could be sold to outside laboratories, although it is unclear who would want to buy them.
Her full – and perhaps final – letter is below:
For our stakeholders,
After many months spent assessing our strengths and addressing our weaknesses, we have moved to structure our company around the model best aligned with our core values and mission.
We have decided to close our clinical labs and Theranos Wellness Centers, which will impact approximately 340 employees in Arizona, California, and Pennsylvania. We are profoundly grateful to these team members, many of whom have devoted years to Theranos and our mission, for their commitment to our company and our guests.
We will return our undivided attention to our miniLab platform. Our ultimate goal is to commercialize miniaturized, automated laboratories capable of small-volume sample testing, with an emphasis on vulnerable patient populations, including oncology, pediatrics, and intensive care.
We have a new executive team leading our work toward obtaining FDA clearances, building commercial partnerships, and pursuing publications in scientific journals.
We are fortunate to have supporters and investors who believe deeply in our mission of affordable, less invasive lab testing, and to have the runway to realize our vision.
I look forward to sharing more with you as we progress along the way.
Sincerely,
Elizabeth Holmes
According to the WSJ, a retreat from the strategy that won the company a valuation of $9 billion in 2014 could make it less complicated for Ms. Holmes, to keep running Theranos as chief executive if the a ban sought by regulators to prevent her from owning any lab for two years is imposed. She also controls a majority voting stake in the company and can’t be easily removed from her position, according to people familiar with the matter.
As for the new product, we doubt it will get a billion, or even a million dollar valuation: "The miniLab was unveiled at a conference of lab scientists, and Ms. Holmes said it could run accurate tests from a few drops of blood. Theranos sought emergency clearance of Zika-virus blood test but then withdrew its request after federal regulators found that the company didn’t include proper patient safeguards in a study of the new test."
Oops.
But while Holmes downfall, while fascinating, was predictable the far bigger question is how she managed to get to the top in the first place. The answer: a relent barrage of sycophants, paving her way from day one, instead of asking probing questions for some reason we hope to uncover one day. Here is a sample of everyone in the press who probably should be fired, courtesy of Bruce Quinn.
August 30, 2013
"Theranos: The Biggest Biotech You've Never Heard of."
San Francisco Business Times. By Ron Leuty. Here.September 8, 2013
"Elizabeth Holmes: The Breakthrough of Instant Diagnosis."The pivotal Wall Street Journal article, by Joseph Rago. HereA Stanford dropout is bidding to make tests more accurate, less painful – and at a fraction of the current price.September 9, 2013"Secretive Theranos emerging partly from shadows."SF BizJournal, SF/Biotech, by Ron Leuty, subtitled, "The biggest biotech you've never heard of." Here.October 9, 2013
"Just a Drop Will Do."
Pediatric News. By William Wilkoff. Here.November 6, 2013"What Heath Care Needs is a Real Time Snapshot of You."WIRED, By Daniela Hernandez. Here.November 13, 2013.
"One Small Ow-eee."
PediaBlog. By Ned Ketyer MD. Here.November 18, 2013
"Creative disruption? She's 29 and Set to Reboot Lab Medicine."MedPageToday. By Eric Topol. Here.February 18, 2014"This Woman Invented a Way to Run 30 Lab Tests on Only One Drop of Blood."WIRED again, by Caitlin Roper. Here. WIRED revisits Holmes, with an interview.February 28, 2014"Stanford Dropout Revolutionizes Blood Tests"Take Part, by Liana Aghajanian. Here.June, 2014Hematology Reports (Open Access Journal). Full article PDF: Here.Chan SM, Chadwick J, Young DL, Holmes E, & Gotlib J (2014). Intensive serial biomarker profiling for the prediction of neutropenic fever with hematologic malignancies undergoing therapy: a pilot study. Hematology Reports 6(2).Pubmed Central, here.June 12, 2014"This CEO is Out for Blood."June 17, 2014"Elizabeth Holmes, Who Wants To Shake Up The Blood Testing Industry, Is A Billionaire At 30."Forbes [blog], by – Zina Moukheiber. Here.July 2, 2014"Bloody Amazing."Forbes [blog 7/2, and Issue, 7/21], by Mathew Herper. Here.June 3, 2014
US Patent: "Systems and Methods of Sample Processing and Fluid Control in a Fluidic System."
PDF, Patent 8,742,230 B2, 80 pp.. Here.
"This invention is in the field of medical devices…portable medical devices that allow real-tie detection of analytes from a biological fluid…for providing point-of-care testing for a variety of medical applications."June 20, 2014
"Theranos: Small Sample, Big Opportunity."
Decibio [Consultancy blog]. By Eric Lakin. Here.July 8, 2014"Nanotainer Revolutionizes Blood Testing." VIDEOUSA TODAY. Here.July 15, 2014
"Meet Elizabeth Holmes, Silicon Valley's Latest Phenomenon"
San Jose Mercury News, by Michelle Quinn. Here.July 15, 2014
"Theranos bringing 500 new jobs to Scottsdale's SkySong."
Phoenix Business Journal. By Angela Gonzales. Here. [SkySong is an ASU-affiliated tech park].July 21, 2014
"Meet Elizabeth Holmes, the Youngest Female Self-made Billionaire Changing the World with Medical Technology."
Women's ILAB, by Katherine Melescuic. Here.August 11, 2014"Ignoring Lab Industry, Theranos Goes Its Way.""My Visit to Walgreens for Theranos Lab Tests." DARK REPORT (Paper by subscription only). Table of contents here.September 8, 2014September 8, 2014"Elizabeth Holmes takes Theranos' blood test to tech movers, shakers."Biotech SF / Bizjournals – by Ron Leuty. Discussion of TechCrunch presentation. Here.September 29, 2014
"This Woman's Revolutionary Idea Made Her A Billionaire — And Could Change Medicine."
Business Insider. By Kevin Loria. Here. See also June 4, 2015.September 30, 2014"Queen Elizabeth: Mystique of Theranos founder grows with Forbes' richest ranking."Biotech SF / Bizjournals – by Ron Leuty. Here.October, 2014
"Health Plans Deploy New Systems to Control Use of Lab Tests."
Managed Care. By Joseph Burns. Here.
Does not directly cite Theranos. Cites contrasting viewpoints on the value of direct easy inexpensive test access:October 1, 2014
"How One Entrepreneur is Transforming Blood Testing."Slate – by Kevin Loria. Here. [Reprint from Business Insider, 9/29, above.]October 16, 2014
"She's America's Youngest Female Billionaire – And a Dropout."
by Rachel Crane. CNN/Money. Here. [Text & Video.]October 27, 2014
"Theranos Due Diligence: Company Profile, SWOT Analysis, Market Opportunity."
Decibio. Consulting group profile of Theranos and its valuation and market position (73 pages; $850). Here. Table of Contents, here. Additional description here.November 7, 2014TEDMED – Youtube – Elizabeth Holmes at TEDMED. VIDEO.
Here.,For further details, see here.November 7, 2014
"Major Upside for Walgreens Stock"
InvestorPlace. By John Divine. Here.
"The single biggest catalyst for WAG stock in the future may be the company’s decision to partner with the privately held health-tech firm Theranos."December 8, 2014Fortune/Youtube – Theranos Billionaire Founder Talks Growth. VIDEO.Video interview with Pattie Sellers. Here.
For further details, see here.December 8, 2014
"Here's How the World's Youngest Self-Made Female Billionaire Shows People She's In Charge."
Business Insider. By Richard Feloni. Here.December 8, 2014
"The New Yorker on the Promise, the Secrecy, and the Challenges of Super-Startup Theranos."
MedCityNews. by Meghana Keshavan. Here.December 12, 2014
"Behind the Curtain at Theranos."
NBC News. (Video). Interview with Ken Auletta. Here.
For more detail, see here.December 14, 2014
"Blood Test Innovation: Less Cost, No Big Needle"
Information Week/Healthcare. By Larry Stofko. Here.January 28, 2015"Elizabeth Holmes, Theranos: Transforming Healthcare by Embracing Failure."Youtube. Stanford Graduate School of Business. Here.February, 2015"Top 10 Most Innovative Companies in Health Care, 2015: #7, Theranos"Fast Company (staff), here.February, 2015"Vetting Theranos"Laboratory Economics [trade journal, subscription]. By JonDavid Kipp. Here.February 2, 2015."CEO Q&A: Craig Hall."Real Estate Daily. By Christina Perez. Hall was early investor in Theranos. Here.February 3, 2015"Breakthrough Branding: Theranos, with Walgreens, Revolutionizes Healthcare."Brand Channel. By Sheila Shayon. Here.February 3, 2015"Will Theranos Turn the Lab Industry Upside Down?"February 6, 2015"Ten Things to Know about America's Youngest Female Billionaire."Business Insider. By Koa Beck. Here.February 5, 2015"Disruptive Technology Main Focus at Clinton Health Conference."California Healthline. By Lauren McSherry. Here.President Clinton, Fourth Annual Health Matters Activation Summit. "Access to health information is a basic human right," said Elizabeth Holmes, a young Silicon Valley entrepreneur who founded Theranos, a blood analytics and diagnostics company. [President] Clinton, who applauded her work to provide low-cost testing to the general public, said the company is valued at $9 billion. See also at Clinton Foundation.org, here.February 10, 2015"Elizabeth Holmes – Theranos"Upstart. By Teresa Novellino. Here.February 10, 2015"Theranos CEO: Avoid Backup Plans."INC (from Stanford Business School.) By Deborah Peterson. Here."I think that the minute that you have a backup plan, you've admitted that you're not going to succeed."February 17, 2015"Stealth Research: Is Biomedical Innovation Happening Outside the Peer-reviewed Literature?"JAMA. By John P.A. Ionnanidis. Here."Theranos is just one example among many for which major efforts and major claims about biomedical progress seem to be happening outside the peer-reviewed scientific literature…stealth research creates total ambiguity about what evidence can be trusted in a mix of possibly brilliant ideas, aggressive corporate announcements, and mass media hype." See comment at Healthnewsreview.org here (February 23, 2015).February 27, 2015"Tech company Theranos pushes consumer lab-testing bill."Arizona Republic. By Ken Tucker. Here.For legislative text, here. For a blog on the topic, here. For cloud version of the legislative text, here. Article in March 2015 Laboratory Economics [subscription, here.]February, 2015"Theranos: Blood Tests that Need Just a Tiny Sample."Walgreens website, "At the Corner of Happy and Healthy," accessed 2/17/2015. Here.March, 2015"Secret Shoppers Disappointed by Theranos."Laboratory Economics. By Jondavid Klipp. Here (subscription).Summarizes experiences of "secret shoppers" from Piper Jaffray, an Arizona lab, The Dark Report, and a California lab. Most reported 3-day results and many reported standard venipuncture.March 2, 2015"Meet the Most Impressive Woman on Forbes' Female Billionaire List."Identities.Mic. March 2, 2015. By Julie Zeilinger. Here.March 5, 2015"Millennials and Money: New Kids in the Forbes Billionaires Club."National Center for Business Journalism. By Rian Bosse. Elizabeth Holmes noted. Here.March 6, 2015"Theranos Files Comment In Support Of Food and Drug Administration Oversight Of Laboratory-Developed Tests."Theranos Press Release. Here.The comment letter, dated 3/1/2015, 4 pages, here.March 7, 2015."Health care in America: Shock treatment. A wasteful and inefficient industry is in the throes of great disruption."March 9, 2015"Theranos and Cleveland Clinic Announce Strategic Alliance to Improve Patient Care through Innovation in Testing."Press release. Here.March 9, 2015"Cleveland Clinic Taps Theranos, Bets on Cheaper Diagnostics."Healthcare Finance News. Anthony Brio. Here.March 9, 2015.Fox News Cleveland Clinic/Theranos Interview. VIDEO.March 9, 2015"Cleveland Clinic Enters 'Long-Term Strategic Alliance' with Theranos, Inc."Crain's Cleveland Business. By Timothy Magaw. Here.March 9, 2015"Elizabeth Holmes: 2015 Horatio Alger Award Winner."March 13, 2015"Theranos Seeks FDA Approval for Early-detection Ebola Test: George Schultz."Silicon Valley Business Journal. By Ben Soriano. Here.March 17, 2015"Mark Cuban Talks Healthcare Investing: Soon Our Bodies Will Be Big Math Equations."MedCity News. By Stephanie Baum. Here.“Sensors are the next opportunity,” Cuban said. He also voiced his enthusiasm for companies like 23andMe and Theranos.March 23, 2015"Boies Schiller Set to Open Palo Alto Outpost."The Recorder. By Patience Haggin. Here.April 7, 2015"Patients Can Soon Get Lab Tests Without Doctors' Orders."Arizona Republic. By Yvonne Wingett Sanchez & Ken Alltucker. Here.April 8, 2015"Theranos One Step Closer to Consumerizing Health."Decibio [Blog]. By Eric Lakin. Here. [Arizona consumer test law.]April 9, 2015"Arizona Health Law Could Boost Theranos' Biotech Prospects."USA Today [America's Markets]. By Marco Della Cava. Here.April 16, 2015"Elizabeth Holmes."TIME [100 Most Influential People.] By Henry Kissinger. Here.April 17, 2015."How Elizabeth Holmes became inspired to transform blood testing." VIDEOApril 20, 2015"The Doctor is Out: LabCorp to Let Consumers Order Own Tests."Bloomberg. By Cynthia Koons. Here., Also: In slightly different version, same author, Bloomberg Business Week, 4/27/15.April 20, 2015"What News at Theranos? Lab Firm Expands in AZ.""In Arizona, New Consumer Direct Access Law is a First Win for California-Based Theranos.""Theranos: Many Questions, but Very Few Answers."Dark Report (subscription). Here.April 27, 2015"World's Youngest Billionaire – Another Steve Jobs?"CNBC. By Abigail Stevenson. Here.April 27, 2015"Occam's Razor and the Secrecy of Theranos. A Bunch of Crock? No."Medcitynews. By Meghana Keshavan. Here.April 28, 2015"Guest List, State Dinner, Prime Minister Shinzo Abe, Japan."Washington Post. Here. (Including Ms. Holmes.)May 5, 2015"Theranos Sticks It to Critics, Plans Expansion of Lab Services."San Francisco Business Times. By Ron Leuty. Here."Can Theranos Disrupt the Clinical Lab Testing Market? An Objective Look at Advantages, Liabilities, and Challenges That Must Be Addressed."
[Pathology] Executive War College. By Dr. Robert Boorstein. [Deck] Here.May 7, 2015"Theranos Jump Starts Consumer Lab Testing."Fortune. By Ron Parloff. Here."My last routine blood tests, drawn at my physician’s office…cost me $433 out of pocket, even after application of my “gold”-level insurance….Had I not been insured, the lab’s price for those tests would have been $2,411, according to the explanation of benefits sent me. The same tests, according to Theranos’s price menu, would have cost me $75."May 7, 2015"New Laboratory Testing Firm Seeks to Shatter Old Diagnostic Testing Model."Genomeweb. Here.May 7, 2015"Silicon Valley Lab Testing Startup Hires Clinton Advisor."May 11, 2015"Our Editor Describes Visit to Theranos Test Center."Dark Report. (Subscription). Here.Sidebar: "Comparing Patient Visit with Advertised Benefits."May 11, 2015"Airbnb Chesky, Theranos Holmes among presidential entrepreneurs."USAToday. By Marco della Cava. Here.Winners met with Commerce Secretary Penny Pritzker and President Obama.May 11, 2015"Elizabeth Holmes on Joining the Presidential Ambassadors for Global Entrepreneurship Initiative."Theranos/news/posts. By Elizabeth Holmes. Here.June 2, 2015.Elizabeth Holmes: Charlie Rose. VIDEO.Here. Comment, Kevin Loria, June 4, 2015.June, 2015"Collecting More Dollars From Patients: Why It’s Time For Clinical Labs and Pathology Groups to Move To The Retail Model."Dark Report [Trade journal, white paper]. Here.This white paper does not mention "Theranos" but covers the topic of retail access to laboratory tests.June 19, 2015"Personalized Technology Will Upend the Doctor-Patient Relationship."Harvard Business Review. By Sundar Subramanian et al. Here.June 21, 2015"The Benefits to Your Brain of a Work Uniform."Providence Journal [Chicago Tribune]. By Alexia Elejalde-Ruiz. Here.June 22, 2015."With Carlos Slim, Billionaire Elizabeth Holmes Brings Innovative Blood Testing Method To Mexico."Forbes. By Dolia Estevez. Here.June 23, 2015"Theranos' New Deal with Billionair Carlos Slim May Take It to Another Level."Biz Journal SF. By Ron Leuty. Here.July 2, 2015"Controversial Multibillion-Dollar Health Startup Theranos Just Got a Huge Seal of Approval from the US Government."Business Insider. By Laren F Friedman. Here.July 2, 2015"Disruptive Diagnostics Firm Theranos Gets Boost from FDA."Fortune. By Roger Parloff. Here.July 3, 2015"Theranos Blood Test: The Insanely Influential Stanford Professor Who Called the Comapny Out for its 'Stealth Research.' "Washington Post. By Ariana Eunjung Cha. Here.July 24, 2015"Biden Visits Theranos Lab as Part of Healthcare Innovation Summit"USAToday. By Marco della Cava. Here.July 24, 2015"Theranos Pushing Direct to Consumer Blood Testing."Health IT Outcomes. By Christine Kern. Here.July 30, 2015"Theranos’ Holmes Marks 50th Anniversary of Medicare and Medicaid with Vision for Next 50 Years."Business Wire [press release]. Here.August 11, 2015"Nickles Takes On Theranos."O'Dwyer PR Inside News, here. (Nickles is a Washington policy group).August 17, 2015"A Good Month for Blood."Laboratory Equipment. By Michelle Taylor. Here.August 19-20, 2015"Leveraging Pharmacies for Rapid Diagnostics."7th Annual Next Generation Diagnostics Summit (Two-Day Track on Pharmacies).While not specific to Theranos, a two-day meeting on lab tests in the pharmacy space.August 24, 2015"Labcorp is Reaching Past Doctor's Office to the Patient."Investors Business Daily. By Gillian Rich. Here.October 5, 2015"Elizabeth Holmes on Using Business to Change the World."Forbes. By Sarah Hedgecock. Here.October 6, 2015"Self Made Billionaire on Re-inventing Blood Tests: It's Like Cocaine."Vanity Fair. By Emily Jane Fox. Here.October 6, 2015"How Theranos is Disrupting the Health Care Industry."Bloomberg. [VIDEO 6:38 min.] Here."A cholesterol test is $2.99, whereas it could cost hundreds in other locations…The response from the lab industry, they have so aggressively seeded false information about us into the press, into journalists, into physicians in the market we are in."October 7, 2015"Theranos Founder Elizabeth Holmes to Deliver Keynote Address at 2015 Medical Innovation Summit."Craigs Cleveland Business. Here.October 12, 2015"Theranos' Elizabeth Holmes Call on Women to Help Each Other."Fortune. By Michael Lev-Ram. Here.October 12, 2015"CME Group Announces Elizabeth Holmes as the 2015 Melamed-Arditti Innovation Award Receipient."MarketWatch. Here.* * *Finally, here is a brief history of the rise and fall of Theranos and Liz Holmes in the only appropriate format for this farce: a cartoon.
- Preparing For A Resurgence Of Globalism
Backlash to World Economic Order Clouds Outlook at IMF Talks … Policy-making elites converge on Washington this week for meetings that epitomize a faith in globalization that’s at odds with the growing backlash against the inequities it creates. From Britain’s vote to leave the European Union to Donald Trump’s championing of “America First,” pressures are mounting to roll back the economic integration that has been a hallmark of gatherings of the IMF and World Bank for more than 70 years.
– Bloomberg
Populism versus globalism again, a meme we first identified after Brexit. The idea, we suggested was that a dialogue would be created in mainstream media painting populism as responsible for numerous economic political and military difficulties. Gradually, globalism would be suggested as the remedy for populism.
At the end of this Bloomberg article, we find the beginnings of this rhetorical justification:
“The consensus in policy-making circles was that more trade meant better economic growth,” said Standard Chartered head of Greater China economic research Ding Shuang, who worked at the IMF from 1997 to 2010. “But the benefits weren’t shared equitably, so now we see a round of anti-globalization, anti-free trade. “Globalization will stall for the moment, until we can find a way to share those benefits,” he added.
This is the argument that will be made then, in louder and louder tones. Globalism has been rejected in favor of populism because globalism did not equitably share benefits.
Solution? Make globalism more widespread and equitable. This is the argument being advanced, one that builds the justification for pushing globalism forward and expanding it.
This is why memes are so important from an elite standpoint. Gradually, they can be reconfigured into “directed history.” Memes, once expressed, can be acted upon. That is what will happen here, no doubt, if this meme continues to be expanded.
More:
Fed by stagnant wages and diminishing job security, the populist uprising threatens to depress a world economy that International Monetary Fund Managing Director Christine Lagarde says is already “weak and fragile.” The calls for less integration and more trade barriers also pose risks for elevated financial markets that remain susceptible to sudden swings in investor sentiment, as underscored by recent jitters over Frankfurt-based Deutsche Bank AG’s financial health.
“The backlash against globalization is manifesting itself in increased nationalistic sentiment, against the outside world and in favor of increasing isolation,” said Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong and a former IMF official. “If we lose consensus on what kind of a world we want to have, the world will probably be worse off.”
This is textbook stuff. First create the meme, which is always the expression of a problem: global warming, resource scarcity, prejudice, etc. Then gradually begin to prepare and offer antidotes.
If the meme is successful, selected activists and politicians will begin to call for action. That’s how the meme drives the appropriate solution.
Watching memes is useful because often you can predict the solution and thus see trends developing far in advance. In this case we would hypothesize that this meme will be expressed via forms of globalism that will extend to those immediately affected. This may, in fact, be lucrative for those who understand the elite mechanism and its regional implementations.
Global warming, for instance, is a meme – a falsehood. But hundreds of billions and perhaps trillions have been spent in an attempt to treat it as a reality. Many have captured significant profits from participating in global warming remedies even thought he problem doesn’t exist, or not in a way that can be affected by man-made solutions.
There is no doubt more action is coming on the globalist front, justified by “populist pushback.” Christine Lagarde herself, head of the IMF, is quoted in the Blooomberg article as saying that “policy makers attending the Oct. 7-9 annual meeting of the IMF and World Bank have two tasks.”
First, do no harm, which above all means resisting the temptation to throw up protectionist barriers to trade.
And second, take action to boost lackluster global growth and make it more inclusive.
Conclusion: It can’t be any clearer than that. Globalism, you see, is being recast not just as inevitable but as necessary as well, as the wise choice when contrasted with “populism.” We’ll see how far and fast this meme grows. Right now it looks to be a major one.
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