Jan 09

Today’s News 9th January 2016

  • Taiwan Election: How a DPP Win Would Tick Off China

     

    By EconMatters

    Taiwan will elect a new president and parliament on January 16. The current President Ma Ying-jeou, from the Nationalist party (Kuomintang, KMT, led by Chiang kai-shek before his demise in 1975), will complete his second term in May. During the eight years President Ma has been in power, he has focused on improving relations with China, and achieved the most cordial terms since the end of the Chinese civil war in 1949. But since Ma cannot run again after serving the maximum of two terms, there are three fresh presidential candidates ducking it out in Taiwan.

    Candidate #1: Tsai Ing-wen, the Chairperson of the Democratic Progressive Party (DPP)

     

    Tsai has a master’s degree from Cornell Law, and a PhD in Law from the London School of Economics. So far, she was top of the last opinion poll at 45.2% last Tuesday before a polling blackout begins ahead of the Jan. 16 elections. Tsai previously served as DPP chair from 2008 to 2012 and is no stranger to a presidential campaign. She was the DPP’s presidential candidate in 2012 before losing to Ma Ying-jeou.

     

    Candidate #2: Eric Chu from the Nationalist party (KMT)

     

     

    Chu is the chairman of KMT and the current mayor of New Taipei with a master’s degree in Fiance and a PhD in Accounting from New York University. Chu declared his candidacy very late (in October, about 3 month before the election) to replace Hung Hsiu-chu at the last minute.

    This unusual debacle came as the KMT party miscalculated thinking it would be better off with a female candidate to run against the more popular female candidate Tsai Ing-wen from the Democratic Progressive Party (DPP). Unfortunately, Hung Hsiu-chu does not have the support base like Tsai and had been unpopular with voters, trailing badly in opinion polls. This last minute switch of candidate looks bad for the KMT party but also increases the odds of a complete loss in the presidential and general election.

     

    Candidate #3: James Soong from the People’s First Party (PFP)

     

     

    Soong has a Phd in political science from Georgetown University and is the founder and chairman of the PFP, part of the the KMT-led Pan-Blue Coalition. Soong was a KMT senior official before he left the party to run as an independent in the 2000 presidential election. Many has blamed Soong’s departure splitting the votes supporting KMT which resulted in KMT’s defeat in the 2000 election. He ran again in 2004 as Vice President to Lien Chan. The pair lost narrowly to the Chen Shui-bian from DPP seeking a second term. Now 73, Soong is at it again dividing the KMT’s support and sympathetic base. Not that it makes much of a difference as both KMT candidates fell miserably in the poll behind the DPP’s Tsai.

     

     

    DPP’s Scandalous Legacy 

    The liberal DPP had its shot at running Taiwan. Chen Shui-bian, the party’s former Chairman, won both the 2000 and 2004 presidential elections. During his two terms, the popularity of Chen and DPP sharply dropped due to alleged corruption within his administration. Chen was later convicted, along with his wife, on two bribery charges and was sentenced to 19 years in Taipei Prison. Tsai Ing-wen, the DPP current presidential candidate, is one of the very few highly educated DPP members and has been credited with picking up the pieces restoring DPP’s credibility and image after Chen’s scandal.

    DPP & Taiwan’s Legislative Violence

    DPP has a tendency of resorting to violence and many times exhibited traits of a mob group. Taiwan has mostly DPP to thank for the headlines and Youtube gone viral on “legislative violence” over the past decade. Below is the infamous picture back in 2006 when the then ruling party DPP deputy Wang Shu-hui chewed up a proposal to halt voting on opening direct transport links with Mainland China. Here is how Reuters describes the aftermath:

    Wang later spat out the document and tore it up after opposition lawmakers failed to get her to cough it up by pulling her hair. During the melee, another DPP woman legislator, Chuang Ho-tzu, spat at an opposition colleague.

    Taiwan rulling party DPP deputy chews up a porposal to halt voting in Parliarment in 2006

     

     

     

    “Violence Is Normal in a Democratic Society”

    Tsai Ing-wen was dubbed by Time magazine cover as the one that could “lead the Only Chinese democracy”. However, during a lecture at Harvard University in 2011, when asked about why DPP seems to use violence as a tool to gain political power, Tsai’s reply won a round of applause and laughter when she said “Your definition of violence in a democratic society, that seems to be normal when you speak louder.” (Youtube here, English starts at 0:49).

    I don’t think I need to waste more writing on how DPP has gone above and beyond simply “speaking louder”, and Tsai of all people knows it, which I think is why she dodged and made light of the question. That actually makes me queasy as she seems to endorse handling conflicts in a country bumpking style.

    DPP’s liberal view has gained a grassroot massive support base in the youth, farming and working class, which is evidenced by Tsai’s overwhelming lead in the poll. Nevertheless, political views aside, judging from DPP’s conflict resolution skill, I personally has much reservation about how DPP could bring more progress and achieve true democracy as many seem to believe.

     

     

    Status Quo with China?

    DPP has long held the position of pro-independence regarding Taiwan’s status and wanted to sever all ties (historic, cultural, economic, etc.) with Mainland China. But this time around, DPP and Tsai is signaling a more pragmatic approach. “We want to maintain the status quo. We want to maintain the current democratic way of life,” says Joseph Wu, Tsai’s No. 2 and the DPP secretary.

    Based on DPP’s history, I have serious doubt DPP would be contend with “status quo” regarding the cross-Taiwan-Strait relationship with China achieved by the KMT and Ma Ying-jeou.

    Will DPP Cross China’s Bottom Line?

    Even though Taiwan has its own military, foreign diplomacy and government services, Mainland China sees it as nothing more than a renegade province, and has threatened many times to overtake the island by force. China’s stance has softened quite a bit in recent years partly due to President Ma’s effort; however, an independent Taiwan remains the final “bottom line” not to be trifled with.  

     

    Taiwan president Ma Ying-jeou (left) and China’s president Xi Jinping (right) shaking hands on Nov. 7, 2015 in Singapore

     

    Between the KMT and DPP, China would rather deal with the KMT. Leaders in China actually have as much to lose as the KMT with an unprecedented win by the liberal DPP. To show support to the KMT and also send a message to DPP, president Xi Jinping of China met with president Ma Ying-jeou of Taiwan in Singapore in November, 2015 (aka 2015 Xi-Ma Meeting, although Taiwan calls it Ma-Xi Meeting). This is the first time the leaders of China and Taiwan met in more than six decades, and Singapore was chosen as a neutral ground.

     

    Bad Economy Keeps Idle Hands Busy

    China has its own economic problems and authorities recently had to make a move to stablize currency, buy share, suspend circuit-breaker. Meanwhile, Taiwan’s export-oriented economy is currently in recession sharing the pain from China marred by near-zero growth, stagnant wages and rising prices. There’s also the looming threat of an energy shortage, low domestic investment and overdependence on China, according to a new report by the the US-China Economic and Security Review Commission.

    Tsai is now regarded as a virtual shoe-in to win in the 2016 presidential election while DPP is expected to sweep the majority in the parliarment as well. This suggests Taiwan could revert back to a one-party political system with its own social and economic implications.

    Needless to say, things will also get ever more complicated and tricky between China and Taiwan. The sucess of both administrations depends on how their economic policies could turn things around for the Chinese people in Mainland China and Taiwan. So perhaps neither would have much time and energy to make good on their previous political rhetoric.

  • Chinese Immigrant Turned Citizen Defies Obama Gun Grab: "I Will Never Be A Slave Again"

    Submitted by Mac Slavo via SHTFPlan.com,

     

    President Obama knows that the American people have not embraced his radical, leftist gun control agenda.

    That’s why he took to the stage at a town hall spectacle hosted by CNN’s Anderson Cooper in attempt to defend his unconstitutional executive actions for stealth gun control, and try to convince Americans once and for all that he is not enacting some kind of gun grabbing conspiracy.

    But his “common sense” policies – made law under the force of executive order – and his crocodile tears for exploited victims of gun violence are not going to shift pubic opinion.

    There is clearly a line in the sand, and a bold Chinese immigrant, who became an American citizen by choice, is the latest to remind the government what it shall not infringe.

    Lily Tang Williams happens to be the state chair of the Colorado Libertarian Party and has made a splash with her January 5th Facebook post, which has now received thousands of comments and shares. Williams vows to defy all government attempts at disarmament, citing the authoritarian abuses of China, her native country.

    She declares, “I will always stand with my AR, no matter what my President signs with his pen.”

    Lily Tang Williams posted this on her Facebook account with the above picture of her holding a rifle against the backdrop of an American flag:

    If you believe more gun control by your government is going to save lives, you are being naïve. The champion of all the mass killings in this world is always a tyrannical government.

     

    Where I came from, China had killed thousands of the students by its own government during the massacre of Tian An Men square in 1989. I surely wish my fellow Chinese citizens back then had guns like this one I am holding in the picture.

     

    I am a Chinese immigrant and an American citizen by choice. I once was a slave before and I will never be one again.

     

    I will always stand with my AR, no matter what my President signs with his pen.

     

    #stopguncontrol #tyranny #tiananmenmassacre #lily4liberty

    Posted by Lily4Liberty on Tuesday, January 5, 2016

     

    Live free, or die standing on your feet.

    Lily Tang Williams has actually lived as a slave under an oppressive government, and like other immigrants who came to the U.S. fleeing such conditions, she is appalled at seeing the same pattern come home to America.

    But it isn’t over yet.

    By the look of determination in this freedom fighters’ eyes, the resistance won’t soon die, and government will still face an intense fight if it intends to completely eradicate freedom.

    Despite decades of indoctrination and mass media propaganda, millions and millions of Americans are still aware of what this country was founded upon, and what principles it stands for.

    And. They. Will. Never. Give. Up. Their. Guns. Period.

  • The Death Of The Canadian Oil Dream, A Firsthand Account

    We’ve spent quite a bit of time over the past 12 months documenting the trainwreck that is Alberta’s economy.

    Most recently, we brought you “This Is Canada’s Depression: Surging Crime, Soaring Suicides, Overwhelmed Food Banks” and “For Canadian Repo Men, Business Has Never Been Better“, but you can review the story in its entirety by revisiting the following posts:

    In short, Alberta is at the center of Canada’s oil patch and has suffered mightily in the wake of crude’s seemingly inexorable decline.

    Going into last year, Alberta expected its economy to grow at a nearly 3% clip. That forecast was reduced to 0.6% in March and further to -0.6% in the latest fiscal update. Oil and gas investment has fallen by a third while rig activity has been cut in half.

    The fallout is dramatic. Food bank usage in Alberta is up sharply and so, unfortunately, is property crime in places like Calgary where vacancy rates in the downtown area are at their highest levels since 2010. Suicide rates are on the rise as well while the outlook for unemployment continues to darken with each passing month of “lower for longer” oil prices.

    Below, find excerpts from an excellent account of the malaise penned by Jason ‎Markusoff who writes about Alberta, lives in Calgary, and has spent 12 years reporting for the city’s largest newspapers.

    *  *  *

    From “The Death Of The Alberta Dream,” by Jason Markusoff as originally published at Macleans

    Late last year, Brandon MacKay listed his Kawasaki dirt bike for sale on Kijiji, the online classifieds site. It was the only treat the 25-year-old had given himself in three years living in Fort McMurray. The rest he’d spent on supporting and visiting his wife and kids in Pictou County, N.S. But in crafting the ad for the bike—$4,400 or best offer—MacKay did what any sales agent would advise against: he revealed his desperation to sell. “I lost my job and am in need of money for my wife and kids for Christmas.”

    Energy companies are preparing for a grim 2016. Analysts predict budgets will get slashed further, and that more energy firms may have to cut staff, having already laid off thousands. Ongoing oil sands construction projects will continue to wind down with little to replace them, hitting both the residential and commercial real estate sectors hard. For instance, in nearly one-sixth of all the office space in downtown Calgary, the fluorescent lights now shine on empty cubicles, and it’s forecast to get worse. Reports of the symptoms pop up almost daily: more insolvencies, more business for moving trucks and repo crews, even a noticeable uptick in suicides. The Calgary Stampede itself has been forced to lay off staff, as its offseason event bookings dried up. In November, the Alberta unemployment rate came within one-tenth of a percentage point of the national average, the closest it’s been since 1989. Those trend lines are expected to cross over next year, making it more clear to Canadian job-seekers that the Alberta dream is in decline.

    The rest of the country isn’t immune from those ominous grinding sounds coming from Canada’s longtime economic engine. Canadian GDP dipped into recession territory in the first half of 2015 on the oil shock, and though the country managed a rebound in the third quarter, Alberta’s troubles—as well as slumps in other oil-rich provinces like Saskatchewan and Newfoundland—have left a gaping wound. The energy sector had long driven Canada’s trade surplus, papering over weakness elsewhere while soaking up large numbers of unemployed and underemployed people from regions like the Maritimes and hard-hit southwestern Ontario.

    But even average growth seems a ways off, as troubles keep filtering through the province. In Alberta’s southeast, Medicine Hat drew international acclaim in the spring of 2015 after it became the first city in Canada to eliminate homelessness, having pursued an ambitious five-year agenda to put people into subsidized housing within 10 days of them landing in emergency shelters. After so much progress, Medicine Hat’s Salvation Army shelter is back to averaging 17 clients a night, up about one-third since 2014—too many to promptly find them all affordable housing. Local demand for donated clothing and household items also rose by more than a quarter over the last year, says manager Murray Jaster. But donations slumped too, and he had to reduce staff.

    To Jaster’s point, there is much his province used to have that now seems gone. Most noticeable is Alberta’s eroding status as the Promised Land for so many Canadians from other parts of the country. Over the last decade, net interprovincial migration by 18- to 44-year-olds, the key working demographic, swelled Alberta’s population by 200,000, according to a report by a rather envious Business Council of British Columbia. (That province netted fewer than 40,000 over that stretch, while all other provinces were net losers.) The momentum has shifted. While 1,200 more Canadians still moved to the province than left it during the third quarter of 2015, that was the smallest gain since 2010—when the province was recovering from the 2009 oil price collapse—and less than half the average of the last 50 years.

    “Seeing that there’s no real light at the end of the tunnel right now, more [companies] are turning to job cuts,” says Wendy Giuffre, the president of Wendy Ellen, a human resources consultancy. “It seems that there’s another wave right now. I think people were kind of hopeful things were going to pick up sooner, but it’s not looking too promising.”

    Statistics Canada’s payroll survey shows Alberta shed 63,500 jobs over the year leading up to October. That doesn’t account for lost potential—the Canadian Association of Petroleum Producers estimates 40,000 jobs that were expected to be created never materialized.

    It’s no secret that Alberta’s economy is closely linked to the peaks and craters of oil prices—nominal GDP (not adjusted for inflation) swings in tandem with crude prices. It’s why Fort McMurray is like a wounded beast these days. MacKay’s neighbour got laid off this fall. “I watched the bank come and take his truck,” he recalls—it was that or not feed the kids. Home prices in November were 20 per cent below last year’s average, with even townhouses and duplexes losing $100,000 in value. According to reports, a number of people who used to regularly donate to the city’s food bank have become clients.

    What happens in the oil fields directly affects one of Canada’s largest business cores. Elevator trips to Beaver’s small ninth-floor Calgary office have gotten lonelier. Nearly one-third of the office space in the 32-storey highrise is listed for lease or sublease. The asking rate to rent downtown Calgary’s “Class A” office space is down nearly 42 per cent from last year, the result of “a complete lack of demand,” according to a report by real estate advisers Jones Lang Lasalle. 

    The hollowing out of Calgary offices has decimated the corporate lunch crowd. Regulars who would come to Jalapeno’s Mexican Grill three times a week now visit once, or not at all, owner Doug Hernandez says. “We’re not making any money; we’re just floating right now,” he says. “The problem would be when I’m not wearing my lifejacket anymore. Then I’d drown.” 

    Much more in the full article here

  • Raoul Pal Explains What Indicators He Looks At To Decide If The Next Crisis Has Arrived

    Two months ago, RealVision’s Raoul Pal brought our readers an interview excerpt with “The Fourth Turning” author Neil Howe in which the author and current head of Saeculum Research explained “what keeps him up at night.”

    Today, we bring our readers another RealVision excerpt of a reflexive “interview” in which Pal himself is in the hot seat, and is challenged by Ken Monahan to lay out the market shifts he expects in 2016. In the full interview Raoul goes into detail on the indicators he will be watching throughout 2016 that will suggest that a liquidity crisis is imminent. He emphasizes that if this scenario occurs, most people are in investments that “they should absolutely not be in.”

    One such metric closely followed by Pal is the ISM. This is what he says:

    The ISM to me is the global guide to the business cycle. I think that [with the ISM below 50] we have a 65% chance or probability of a recession. We’ve seen that the cycle peaked back in 2011. It troughs at some point. The cycle always does this. We look back at the probabilities. We have a reasonable chance of a recession. Again, I don’t deal in certainties. It’s not like it’s definitely going to happen.

     

    … the probability is now that we crossed 50, that over due course, the business cycle will continue lower, and therefore we should see the ISM coming through 47 which is the recession level – maybe much lower than that depending on the severity of the recession. So that would mean that the year on year rate of change of the S&P would be negative.

     

    … if I’m right and the ISM, for example, gets down to 47, 45 then you’d start to see the year on year rate of change on the S&P at -10%

    A way of visualizing Pal’s point comes courtesy of BofA, which shows that once the ISM drops below 45, it virtually always results in a recession, with just two false positives: in 1951 and 1968.

    And then there is another indicator which Pal watches, one which we have been warning about since early 2014 when it first started to slide because it is the most important leading indicator into any global recession, namely trade – for the simple reason that while central banks can print  asset prices, “they can’t print trade.”

    The ISM is my basic framework, you then need to further increase the probability of success of what you’re trying to do. So what you look at, for example, is all the other economic indicators around what’s happening in the global economy. For example, if I look at exports – global exports. Global exports around the world are the second lowest levels since 1958. There’s something going on that the world is slowing down. Some of it is dollar translation effect. And the other is volume loss. So there’s something going on that wasn’t going on in 2012.

    Yes, something is indeed going on, and after years of ignoring it because it was masked by the “wealth effect” of central bank manipulation, the markets are starting to realize it. Pal then touches on all the other deteriorating economic data points we have covered over the past year.

    Then we look at other things like freight shipments. We look at retail sales. We look at industrial production. Once you start putting all the data series together many of them are at levels – durable goods – that are only seen in recessions.

    Correct, and yet the question is: why does Janet Yellen ignore it and continue to push on with the “recovery” narrative, because ultimately is all about the “narrative” to boost confidence:

    Its the Fed’s job to say things are good because it’s about expectations management. Whether we like it or not it’s a behavioral economics world and I’m realizing that more and more that you need to look at how behavior and incentive schemes are done. Soshe has to say that. She’s not going to say, “Oh, my God, the economy is looking terrible” until she has to because then you flip around the expectations.

    Of course, with every passing day, the moment when Yellen will say the “economic is looking terrible” draws closer, and with it brings not only a return to ZIRP, and then NIRP, but also presents the question: will the Fed do another round of QE, or will it finally proceed to what Bernane said back in 2002 was the endgame all along: helicopter money. Or non-helicopter money is on the latter.

    There is more in the Raoul Pal interview excerpt can be watched below, and much more in the full hour-long interview. Furthermore, Raoul Pal has again given Zero Hedge readers an exclusive weekly trial so both the full Howe, and all the other fascinating interviews in RealVision’s database can be watched in their entirety. To do so, please click here and use the “zerohedge” trial code.

  • "Death To Saudi Arabia": Thousands Of Iranians Pour Into The Streets In Anti-Saudi Protests

    It’s now been nearly a week since Saudi Arabia set the Muslim world on fire (both figuratively and literally) by executing prominent Shiite cleric Nimr al-Nimr.

    The Sheikh was a leading figure in the 2011 anti-government protests staged in the kingdom’s Eastern Province and when the House of Saud moved to silence a dissident voice once in for all last Saturday, demonstrators poured into the streets from Bahrain to Pakistan to decry the execution.

    For the Saudis, Nimr is a “terrorist,” but for the Shiite community he has now become a symbol of the oppression embodied by the Sunni Gulf monarchies. For those interested in a bit of background, here are some excerpts from The Atlantic:

    The State Department cable added Nimr was gaining popularity among young people. His stature grew in spring 2009, after Shia pilgrims clashed with security forces in Medina over access to holy sites; Nimr denounced the security forces, but then was forced to go into hiding to avoid arrest. By January 2010, the State Department reported in another cable that Nimr had returned home and was living under something like house arrest. The diplomat, who wrote that cable, judged that Nimr had overestimated his sway, gone too big, and as a result had lost his influence. A neighbor said that the government “chose not to pursue him further out of concern they would elevate his status.”

     

    The government changed its ignore-them-and-they’ll-go-away stance on Shia rabble-rousers once the Arab Spring began. In Bahrain, Shia protests threatened the stability of the regime, and the Sunni regimes of Saudi Arabia and the United Arab Emirates sent troops to help quell uprisings. But protests also spread from Bahrain into the kingdom. Nimr preached forcefully against the regime, and was rare in speaking up both in favor of the domestic protests and those in Bahrain.

     

    In another 2011 speech, Nimr said, “From the day I was born and to this day, I’ve never felt safe or secure in this country. We are not loyal to other countries or authorities, nor are we loyal to this country. What is this country? The regime that oppresses me? The regime that steals my money, sheds my blood, and violates my honor?”

     

    That was all too much for the regime, and in 2012 it moved to arrest him. But during his apprehension, police claimed they came under fire. Nimr was shot in the leg. He was charged with sedition and various terrorism-related crimes.

    In the six days since his death, Saudi Arabia and its allies have been busy cutting all ties (both diplomatic and commercial) with Iran. “Enough is enough”, was the message from Riyadh after protesters firebombed the Saudi embassy in Tehran last Saturday.

    Now, with tensions running higher than ever, the feud threatens to derail a fragile peace “process” in Syria on the way to plunging the region into an all-out sectarian shooting war.

    Each side accuses the other of being a state sponsor of terror and each side blames the other for fomenting sectarian discord. Needless to say, it’s difficult to look past the fact that Saudi Arabia’s promotion of Wahhabism is almost unquestionably to blame for the rise of extremist elements throughout the Islamic World. At the very least, Riyadh’s contention that Iran promotes sectarian strife is an egregious case of the pot calling the kettle black.

    In any event, Iranians are in no mood to forgive and forget. “Iranians held mass protests on Friday across the Islamic Republic, angered by Saudi Arabia’s execution of a Shiite cleric that has enflamed regional tensions between the Mideast rivals,” AP reports, adding that “after Friday prayers in Tehran, thousands of worshippers joined the rally, carrying pictures of al-Nimr and chanting “Death to Al Saud,” referencing the kingdom’s royal family.” They also chanted “down with the US” and “death to Israel.”

    Below, find the visuals which underscore the fact that the sense of outrage is palpable – to say the least.

  • Why Is North Korea Our Problem?

    Submitted by Patrick Buchanan via Buchanan.org,

    For Xi Jinping, it has been a rough week.

    Panicked flight from China’s currency twice caused a plunge of 7 percent in her stock market, forcing a suspension of trading.

    Kim Jong Un, the megalomaniac who runs North Korea, ignored Xi’s warning and set off a fourth nuclear bomb. While probably not a hydrogen bomb as claimed, it was the largest blast ever in Korea.

    And if Pyongyang continues building and testing nuclear bombs, Beijing is going to wake up one day and find that its neighbors, South Korea and Japan, have also acquired nuclear weapons as deterrents to North Korea.

    And should Japan and South Korea do so, Taiwan, Vietnam and Manila, all bullied by Beijing, may also be in the market for nukes.

    Hence, if Beijing refuses to cooperate to de-nuclearize North Korea, she could find herself, a decade hence, surrounded by nuclear weapons states, from Russia to India and from Pakistan to Japan.

    Still, this testing of a bomb by North Korea, coupled with the bellicosity of Kim Jong Un, should cause us to take a hard look at our own war guarantees to Asia that date back to John Foster Dulles.

    At the end of the Korean War in July 1953, South Korea was devastated, unable to defend herself without the U.S. Navy and Air Force and scores of thousands of U.S. troops.

    So, America negotiated a mutual security treaty.

    But today, South Korea has 50 million people, twice that of the North, the world’s 13th largest economy, 40 times the size of North Korea’s, and access to the most modern U.S. weapons.

    In 2015, Seoul ran a trade surplus of almost $30 billion with the United States, a sum almost equal to North Korea’s entire GDP.

    Why, then, are 25,000 U.S. troops still in South Korea?

    Why are they in the DMZ, ensuring that Americans are among the first to die in any Second Korean War?

    Given the proximity of the huge North Korean Army, with its thousands of missiles and artillery pieces, only 35 miles from Seoul, any invasion would have to be met almost immediately with U.S.-fired atomic weapons.

    But with North Korea possessing a nuclear arsenal estimated at 8 to 12 weapons and growing, a question arises: Why should the U.S. engage in a nuclear exchange with North Korea, over South Korea?

    Why should a treaty that dates back 60 years commit us, in perpetuity, to back South Korea in a war from the first shot with Pyongyang, when that war could swiftly escalate to nuclear?

    How does this comport with U.S. national interests?

    In 1877, Lord Salisbury, commenting on Great Britain’s stance on the Eastern Question, noted that “the commonest error in politics is sticking to the carcass of dead policies.”

    Is this not true today of America’s Asian alliances?

    North Korea’s tests of atomic weapons and development of land-based and submarine-launched missiles should cause us to reconsider strategic commitments that date back to the 1950s.

    President Nixon, ahead of his time, understood this.

    As he began the drawdown of U.S. forces in Vietnam in 1969, he declared in Guam that while America would meet her treaty obligations, henceforth, Asian nations should provide the ground troops to defend themselves. Gen. MacArthur had told President Kennedy, before Vietnam, not to put U.S. foot soldiers onto the Asian mainland.

    Now that we have entered a post-post Cold War era, where many Asian nations possess the actual or potential military power to defend themselves, something like a new Nixon Doctrine is worth considering.

    Take all of the major territorial quarrels between China and its neighbors — the dispute with India over Aksai Chin and Arunachal Pradesh, the dispute with Japan over the Senkaku Islands, with Vietnam over the Paracels, with the Philippines over the Spratlys.

    In none of these quarrels and conflicts does there seem to be any vital U.S. national interest so imperiled that we should risk a clash with a nuclear power like Beijing.

    Once, there was a time when Hitler, Stalin, Mussolini and Tojo ruled almost all of Eurasia. And another time when a monolithic Sino-Soviet Communist bloc ruled from the Elbe to the Pacific.

    As those times are long gone, is it not time for an exhaustive review of the alliances we have entered into and the war guarantees we have issued, to fight for nations and interests other than our own?

    Under NATO, we are committed to go to war against a nuclear-armed Russia on behalf of 27 nations, including tiny Estonia.

    One understood the necessity to defend West Germany and keep the Red Army on the other side of the Elbe, but when did Estonia’s independence become so critical to U.S. security that we would fight a nuclear-armed Russia rather than lose it?

    Indeed, how many of the dozens of U.S. war guarantees we have outstanding would we honor by going to war if they were called?

  • China's Largest Bank Is Mystery Buyer Of Massive 1,500 Ton Gold Vault In London

    Back in June 2013, when Deutsche Bank opened a gold vault in Singapore which could hold up to 200 metric tons, the German bank was euphoric about the prospects for storing physical gold: “Gold has traditionally been stored in London, Zurich and New York, but there is a serious shift in dynamics going on as the global financial crisis continues to evolve,” Mark Smallwood, Deutsche Asset & Wealth Management’s head of wealth planning in the Asia-Pacific region, told The Wall Street Journal.

    This is what the outside, and inside, of the state of the art Singapore vault looked like:

     

    Mark was correct and thanks to the ongoing decline in gold prices, Chinese and Indian demand for the metal, the physical metal that is, not its various paper manifestations, has risen to record levels. Alas, one thing Mark did not know is that in early 2014, a German regulator would reveal that “precious metals manipulation was worse than the Libor scandal” and as a result the largest German bank (and largest bank in the world by notional derivative exposure) – which has been probed and found guilty for rigging virtually every market, including gold – would quietly liquidate its entire physical precious metals trading group.

    Which meant that Deutsche Bank’s Singapore gold vaul, was about to be sold.

    But while the sale of DB’s Singapore gold vault was to be expected with China’s ravenous apetite for warehousing physical gold around the Pacific Rim, what may have escape popular attention is that Deutsche Bank’s even more massive, and even newer, gold vault in London was also “on the block” as of December 2014 when we reported that Deutsche Bank is “open to offers for its London-based gold vault following the closure of its physical precious metals business.” As Reuters noted: “If the right offer came along, then the bank would sell the London vault,” one source close to the situation said. 

    Most curiously, the bank’s London gold vault only became operational in June of 2014, more than two years after launching the project. It can store some 1,500 tonnes of gold and was built and managed by British security services company G4S.

    As Reuters further noted, with other banks withdrawing from the commodities business to cut costs and reduce their regulatory burden, it might be difficult for Deutsche Bank to find buyers amongst its nearest peers. However, one possible buyer is general LBMA-member, Chinese bank ICBC, which we said at the end of 2014, was trying to build a presence in London.

    In any case, the list of potential buyers for DB’s brand new vault lease remained a mystery, and perhaps our revelation of the exact location of this vault, something potential buyers tend not to appreciate especially when said vault will house up to 1,500 tons of gold, or over $50 billion worth of “inventory”, may have dissuaded some. As a reminder, the “secret” location of the Deutsche Bank vault, which as revealed in the G4S building application, is located in the Park Royal complex, and specifically at the 291 Abbey Road, London NW10 7SA location.

    As it turns out, one persistent buyer failed to be dissuaded.

    According to Reuters, as was rumored one year ago, China’s largest bank – and in fact the world’s largest bank – by assets, ICBC Standard Bank, is buying the lease on Deutsche Bank’s London gold and silver vault, enlarging its footprint in the city’s bullion market, four industry sources close to the companies told Reuters.

    China’s ICBC, which took a controlling stake in Standard Bank’s London-based Global Markets business last year, has also applied to become a clearing member of the London gold and silver over-the-counter business.

    From Reuters:

    The Chinese and South African lender is aiming to fill the gap left by Western banks, which are retreating from commodities to cut costs and reduce regulatory burden. “They (ICBC Standard Bank) have taken on the lease for the vault,” the first source said.

     

    Currently, five banks – JP Morgan, HSBC, Bank of Nova Scotia, Barclays and UBS – settle daily bullion transactions between dealers, amounting to more than $5 trillion worth of metal each year in the London over-the-counter market.

     

    These banks are shareholders of the London Precious Metals Clearing (LPMCL) company. They will decide whether to accept or reject ICBC Standard Bank’s application within the next few months. The LPMCL declined to comment.

     

    “They are applying for clearing membership at the moment, but that’s still subject to a vote, which has not taken place yet,” the source said.

    Should the vote go in its favor, ICBC will be ready with what may be one of the largest gold vaults in London, if not the world, to park local gold which will then be promptly shipped over to the mainland to be dealt with as seen fit. Unless, of course, the vault is there for the reverse migration: to house quietly escaping Chinese gold as part of the local oligarchy’s attempts to circumvent China’s capital controls, a task so far accomplished relatively painless with bitcoin.

    Only time will tell.

    What is perhaps most surprising is how cheaply ICBC acquired the massive gold vault: “The figure that was initially talked about may have been around $4 million, but it’s way lower now,” a second source said, without disclosing the figure paid for the vault.

    So what does “way less” than $4 million buy you nowadays? Here is the answer, courtesy of Google Maps:

     

    Finally, for those curious, here is precisely where the brand new gold vault of the world’s biggest bank will be located.

  • Americans Can't Wait To Get Out Of These Five States

    A low cost of living, no sales tax, and beautiful scenery (oh, naked bike rides, more strip clubs per capita than any other US city, and legalized weed) means Oregon is the "top moving destination" for Americans for the third year running, according to United Van Lines, with 69% of moves inbound. But, which states are Americans leaving in droves?

    Americans continue to pack up and head West and South, according to new data from United Van Lines.

    Oregon is the most popular moving destination of 2015 with 69 percent of moves to and from the state being inbound. The state has continued to climb the ranks, increasing inbound migration by 10 percent over the past six years. New to the 2015 top inbound list is another Pacific West state, Washington, which came in at No. 10 with 56 percent inbound moves.

    Moving In – The top inbound states of 2015 were:

    1. Oregon
    2. South Carolina
    3. Vermont
    4. Idaho
    5. North Carolina
    6. Florida
    7. Nevada
    8. District of Columbia
    9. Texas
    10. Washington

    The Northeast continues to experience a moving deficit with New Jersey (67 percent outbound) and New York (65 percent) making the list of top outbound states for the fourth consecutive year. Two other states in the region — Connecticut (63 percent) and Massachusetts (57 percent) — also joined the top outbound list this year. The exception to this trend is Vermont (62 percent inbound), which moved up two spots on the list of top inbound states to No. 3.

    Moving Out – The top outbound states for 2015 were:

    1. New Jersey
    2. New York
    3. Illinois
    4. Connecticut
    5. Ohio
    6. Kansas
    7. Massachusetts
    8. West Virginia
    9. Mississippi
    10. Maryland

    Simply put, Americans are moving from heavily-regulated, bureaucratic, high cost-of-living states to more affordable states.

    This year's data from United Van Lines…

     

    And the interactive version from the last 39 years…

     

    Finally, as The Daily Signal concludes,

    Moving patterns show how important cost of living is to American families.

     

    With perfect weather and a booming, high-tech economy, California ought to be the #1 destination. Instead, more moving trucks are leaving the state than entering.

  • Market Massacre: Worst Ever First Week Of Trading

    What better analogy than this…

     

    This was the worst first week of the year for US equities… ever!

    Dow… (even worse than 2008)

     

    S&P…

     

    Europe was a disaster…

     

    And epic for China…

     

    And while only Trannies are in a bear market (down 20%) in the US, these 7 developed world markets are already there…(h/t SocGen's Andrew Laphthorne)

     

    *  *  *

    So let's look at the week in stocks…

    It was all looking so awesome last night…

     

    Futures show the swings better (with China weakness as an early week driver and US as late-week driver)…

     

    Small Caps and Trannies are down around 7% this week, S&P best but still down over 5% (and down 6 of the last 7 days)

    • S&P down 5.3% – worst week since Black Monday
    • Dow Industrials down 5.6% – worst week since Black Monday
    • Small Caps down 6.9% – worst week since Nov 2011 – Russell 2000 lowest close since since Oct 2014
    • Dow Transports down 7.1% – worst week since Sept 2011 – lowest close since Nov 2013

    The Dow is down 1400 points in a week (from 17,660 to 16,250)

     

    Utes managed to end the week unchanged but Homebuilders collapsed… Financials and Materials were next worst…

    • Financials down 6.6% – worst week since May 2012
    • Materials down 7.4% – worst week since Sept 2011
    • Homebuilders down 8.6% – worst since Aug 2011

    VIX broke back above 25… (VIX up 60% in 2 weeks – biggest jump since Black Monday)

     

    What did Janet do? Post Fed rate-hike – S&P down 6.5%, Gold up 3%, 30Y Bonds up 1.6%

     

     

    Stocks are about half-way there…

     

    Since the end of QE3, Trannies are down 20% and only Nasdaq is holding any gains…

     

    The FANTAsy stocks are all red since the end of 2015 (with TSLA and AMZN worst)…

     

    Energy Stocks finally woke up to reality in the credit underlying commodity…

     

    US financials have started to plunge back to credit/yield curve reality…

     

    With MS and GS back below Tangible Book Value for first time in 2 years…

     

     

     

    Away from stocks…

     

    Treasury Yields tumbled, closing at their low yields of the year with the belly of the curve outperforming… 10Y yields dropped 14bps this week – the biggest drop in 3 months.

     

    FX markets were volatile but by the end The Dollar Index closed unchanged (against the majors)…

     

    But the USDollar surged 1.5% against Asian FX – its best week in 5 months… (Asian FX is its weakest since April 2009 against the USD)

     

    But AUDJPY – probably the world's most-levered carry trades – collapsed 6.7% this week!! It's worst week since May 2010…

     

    Commodities were very mixed this week…

     

    Gold rallied 4% this week – its best 'first week of the year' since 2008… (best week in 5 months) – breaking 2 key technical levels…

     

    Crude down 5 days in a row touching a $32 handle at the lows… biggest weekly drop since Nov 2014

    In Summary – Sell The Dips!

    See you all Sunday night!

    Charts: Bloomberg

    Bonus Chart: Investors seeking safety are greatly rotating from Triple AAA stocks to Gold stocks (h/t SocGen's Andrew Laphthorne)

     

  • Islamic Radicalism: A Consequence Of Petro-Imperialism

    Submitted by Nauman Sadiq

    Islamic radicalism, a consequence of Petro-imperialism:

    In its July 2013 report [1] the European Parliament identified the Wahhabi-Salafi roots of global terrorism, but the report conveniently absolved the Western powers of their culpability and chose to overlook the role played by the Western powers in nurturing Islamic extremism and jihadism during the Cold War against the erstwhile Soviet Union. The pivotal role played by the Wahhabi-Salafi ideology in radicalizing Muslims all over the world is an established fact as mentioned in the EU report; this Wahhabi-Salafi ideology is generously sponsored by Saudi Arabia and the Gulf-based Arab petro-monarchies since the 1973 oil embargo when the price of oil quadrupled and the contribution of the Arab sheikhs towards the “spiritual well-being” of the Muslims all over the world magnified proportionally; however, the Arab despots are in turn propped up by the Western powers since the Cold War; thus syllogistically speaking, the root cause of Islamic radicalism is the neocolonial powers’ manipulation of the socio-political life of the Arabs specifically and the Muslims generally in order to appropriate their energy resources in the context of an energy-starved industrialized world. This is the principal thesis of this write-up which I will discuss in detail in the following paragraphs.

    Prologue:

    Peaceful or not, Islam is only a religion just like any other cosmopolitan religion whether it’s Christianity, Buddhism or Hinduism. Instead of taking an ‘essentialist’ approach, which lays emphasis on ‘essences,’ we need to look at the evolution of social phenomena in its proper historical context. For instance: to assert that human beings are evil by ‘nature’ is an essentialist approach; it overlooks the role played by ‘nurture’ in grooming human beings. Human beings are only ‘intelligent’ by nature, but they are neither good nor evil by nature; whatever they are, whether good or evil, is the outcome of their nurture or upbringing. Similarly, to pronounce that Islam is a retrogressive or violent religion is an ‘essentialist’ approach; it overlooks how Islam and the Quranic verses are interpreted by its followers depending on the subject’s socio-cultural context. For example: the Western expat Muslims who are brought up in the West and who have imbibed the Western values would interpret a Quranic verse in a liberal fashion; an urban middle class Muslim of the Muslim-majority countries would interpret the same verse rather conservatively; and a rural-tribal Muslim who has been indoctrinated by the radical clerics would find meanings in it which could be extreme. It is all about culture rather than religion or scriptures per se.

    Moreover, I said that Islam is only a religion just like any other religion. But certain reductive neo-liberals blame the religion, as an institution and ideology for all that is wrong with the world. I have not read much history since I am only a humble student of international politics; that’s why I don’t know what the Crusades and the Spanish Inquisition were all about? Although, I have a gut feeling that those were also political conflicts which are presented to us in a religious garb. However, I am certain that all the conflicts of the 20th and 21st centuries were either nationalist (tribal) conflicts; or they had economics and power as their goals. Examples: First and Second World Wars; Korea and Vietnam wars; Afghanistan and Iraq wars; and Libya and Syria wars.

    When the neo-liberals commit the fallacy of blaming religion as a root factor in the contemporary national and international politics, I am not sure which ancient global order they conjure up in their minds, the Holy Roman Empire perhaps? Religion may have been a paramount factor in the ancient times, if at all, but the contemporary politics is all about economics and power: the Western corporations rule the world and politics and diplomacy is all about protecting the trade and energy interests of the Corporate Empire. Thus, the root of all evil in the contemporary politics is capitalism, not religion, which has been reduced to a secondary role and at times to complete irrelevance especially in the liberal and secular Western societies.

    More to the point, when the neo-liberals blame religion for all that is wrong with the world, they are actually engaging in a peculiar kind of juvenile thinking: a child mistakenly assumes that the world can only be seen from his eyes; and that all the people think exactly like he does. He does not understands that the outlooks and worldviews and the preferences and priorities of the people could be very different depending on their upbringing, circumstances and stations in life. You are not supposed to put yourself in another person’s shoes because sizes vary; you are supposed to put that other person in his own shoes, keeping in view his upbringing and mindset and then prescribe a viable future course of action for his individual and social well-being.

    As we know that politics is a collective exercise for creating an ideal social matrix in which individuals and their families can live peacefully and happily, and in which they can maximally actualize their innate potentials. The first priority of the liberals, especially the privileged liberal elite of the developing countries, seems to be to create a liberal society in the developing countries in which they and their families can feel at home. I don’t have anything against a liberal society, especially if looked at from a feminist, inclusive and egalitarian angle, but the ground reality of the developing world is very different from the reality of the developed world. The first and foremost preference of the developing world isn’t social liberalization; it is reducing poverty, ensuring equitable distribution of wealth and economic growth. Liberal ethos and values, important as they are, can wait; our first preference ought to be to create a fair and egalitarian social and economic order on a national and international level, only then can our interests and priorities converge on a single and common goal.

    If the liberals are willing to compromise on the foremost goal of equitable distribution of wealth, then the heavens won’t fall if they could show a little flexibility and maturity on the subject of the enforcement of liberal values too, which affects them on a personal level, more than anything. The socialist liberals of ‘60s and ‘70s at least made sense when they promoted liberalism along with the promise of radical redistribution of wealth. But the neo-liberals of 21st century are a breed apart who shrug off abject poverty and gross inequality of wealth in the developing nations as a secondary preference and espouse liberal values as their first and foremost priority.

    The mainspring of Islamic extremism:

    If we look at the evolution of Islamic religion and culture throughout the 20th and 21st centuries, it hasn’t been natural. Some deleterious mutations have occurred somewhere which have negatively impacted the Islamic societies all over the world. Social selection (or social conditioning) plays the same role in the social sciences which the natural selection plays in the biological sciences: it selects the traits, norms and values which are most beneficial to the host culture. Seen from this angle, social diversity is a desirable quality for social progress; because when diverse customs and value-systems compete with each other, the culture retains the beneficial customs and values and discards the deleterious traditions and habits. A decentralized and unorganized religion, like Sufi Islam, engenders diverse strains of beliefs and thoughts which compete with one another in gaining social acceptance and currency. A heavily centralized and tightly organized religion, on the other hand, depends more on authority and dogma than value and utility. A centralized religion is also more ossified and less adaptive to change compared to a decentralized religion.

    The Shia Muslims have their Imams and Marjahs (religious authorities) but it is generally assumed about the Sunni Islam that it discourages the authority of the clergy. In this sense, Sunni Islam is closer to Protestantism theoretically, because it promotes an individual and personal interpretation of scriptures and religion. It might be true about the educated Sunni Muslims but on a popular level of the masses of the Third World Islamic countries, the House of Saud plays the same role in Islam that the Pope plays in Catholicism. By virtue of their physical possession of the holy places of Islam – Mecca and Medina – they are the de facto Caliphs of Islam. The title of the Saudi King, Khadim-ul-Haramain-al-Shareefain (Servant of the House of God), makes him the vice-regent of God on Earth. And the title of the Caliph of Islam is not limited to a nation-state, he wields enormous influence throughout the Commonwealth of Islam: that is, the Muslim Ummah.

    Islam is regarded as the fastest growing religion of the 20th and 21st centuries. There are two factors responsible for this atavistic phenomena of Islamic resurgence: firstly, unlike Christianity which is more idealistic, Islam is a more practical religion, it does not demands from its followers to give up worldly pleasures but only to regulate them; and secondly, Islam as a religion and ideology has the world’s richest financiers. After the 1973 collective Arab oil embargo against the West, the price of oil quadrupled; the Arabs petro-sheikhs now have so much money that they don’t know where to spend it? This is the reason why we see an exponential growth in Islamic charities and madrassahs all over the world and especially in the Islamic world. Although the Arab sheikhs of the oil-rich Saudi Arabia, Qatar, Kuwait and some emirates of UAE generally sponsor the Wahhabi-Salafi brand of Islam but the difference between the numerous sects of Sunni Islam is more nominal than substantive. The charities and madrassahs belonging to all the Sunni sects get generous funding from the Gulf states as well as the private Gulf-based donors.

    After sufficiently bringing home the fact that Islam as a religion isn’t different from other cosmopolitan religions in regard to any intrinsic feature and that the only factor which differentiates Islam from other mainstream religions is the abundant energy resources in the Muslim-majority countries of the Persian Gulf and the Middle East and North Africa (MENA) region; and the effect of those resources and the global players’ manipulation of the socio-political life of the inhabitants of those regions to exploit their resources culminated in the emergence of the phenomena of Petro-Islamic extremism and violent Takfiri-Jihadism, our next task is to examine the symbiotic relationship between the illegitimate Gulf rulers and the neo-colonial powers.

    The global neocolonial political and economic order:

    Before we get to the crux of the matter, however, let us first cursorily discuss that why is it impossible to bring about a major fundamental change: political, social or economic, on a national level under the existing international political and economic dispensation? As we know that the Western so-called liberal-democracies could be liberal, however, they are anything but democracies; in fact, the right term for the Western system of government is plutocratic oligarchies. They are ruled by the super-rich corporations whose wealth is measured in hundreds of billions of dollars, far more than the total GDPs of many developing nations; and the status of those multinational corporations as dominant players in their national and international politics gets an official imprimatur when the Western governments endorse the Congressional lobbying practice of the so-called ‘special interest’ groups, which is a euphemism for ‘business interests.’

    Moreover, since the Western governments are nothing but the mouthpieces of their business interests on the international political and economic forums, therefore, any national or international entity which hinders or opposes the agenda of the aforesaid business interests is either coerced into accepting their demands or gets sidelined. In 2013 the Manmohan Singh’s government of India had certain objections to further opening up to the Western businesses; the Business Roundtable which is an informal congregation of major US businesses and which together holds a net wealth of $6 trillion (6000 billion) held a meeting with the representatives of the Indian government and made them an offer which they couldn’t refuse. The developing economies, like India, are always hungry for the Foreign Direct Investment (FDI) to grow further, and that investment comes mostly from the Western corporations.

    When the Business Roundtables or the Paris-based International Chamber of Commerce (ICC) form pressure groups and engage in ‘collective bargaining’ activities, the nascent and fragile developing economies don’t have a choice but to toe their line. State ‘sovereignty’ that the sovereign nation-states are at liberty to pursue an independent policy, especially an economic and trade policy, is a myth. Just like the ruling elites of the developing countries who have a stranglehold and a monopoly over domestic politics; similarly the neo-colonial powers and their multinational corporations control the international politics and the global economic order. Any state who dares to transgress becomes an international pariah like Castro’s Cuba, Mugabe’s Zimbabwe or North Korea; and more recently Iran, which had been cut off from the global economic system, because of its supposed nuclear aspirations. Good for Iran that it has one of the largest oil and gas resources, otherwise it would have been insolvent by now; such is the power of global financial system especially the banking sector, and the significance of petro-dollar because the global oil transactions are pegged in the US dollars all over the world, and all the major oil bourses are also located in the Western world.

    There is an essential precondition in the European Union’s charter of union according to which the under-developed countries of Europe who joined the EU allowed free movement of goods (free trade) only on the reciprocal precondition that the developed countries would allow the free movement of labor. What’s obvious in this condition is the fact that the free trade only benefits the countries which have a strong manufacturing base, and the free movement of workers only favors the under-developed countries where labor is cheap. Now when the international financial institutions, like the IMF and WTO, promote free trade by exhorting the developing countries all over the world to reduce tariffs and subsidies without the reciprocal free movement of labor, whose interests do such institutions try to protect? Obviously, such global financial institutions espouse the interests of their biggest donors by shares, i.e. the developed countries.
     
    Some market fundamentalists who irrationally believe in the laissez-faire capitalism try to justify this unfair practice by positing Schumpeter’s theory of ‘creative destruction’ that the free trade between unequal trade partners leads to the destruction of the host country’s existing economic order and a subsequent reconfiguration gives birth to a better economic order. Whenever one comes up with gross absurdities such as these, they should always make it contingent on the principle of reciprocity: that is, if free trade is beneficial for the nascent industrial base of the underdeveloped countries, then the free movement of labor is equally beneficial for the labor force of the developed countries. The policy-makers of the developing countries must not fall prey to such deceptive reasoning, instead they must devise a policy which suits their national interest. But the trouble is that the governments of the Third world are dependent on the global loan sharks, such as IMF and World Bank, that’s why they cannot adopt an independent economic and trade policy.
     
    From the end of the Second World War to the beginning of the 21st century the neo-colonial powers have brazenly exploited the Third world’s resources and labor, but after China’s accession to the World Trade Organization in 2001 things changed a little. Behind the “Iron Curtain” of international isolation, China successfully built its manufacturing base by imparting vocational and technical education to its disciplined workforce and by building an industrial and transport infrastructure. It didn’t allow any imports until 2001, but after entering the WTO it opened up its import-export policy on a reciprocal basis; and since the labor in China is much cheaper than its Western counterparts, therefore, it now has a comparative advantage over Western bloc which China has exploited in its national interest.
     
    Asking the neo-colonial powers to act in the interests of the developing world is incredibly naïve. It’s like asking the factory-owners to act in the interest of their factory-workers on altruistic grounds. This is not the way forward, the factory-workers must strengthen their own labor unions and claim what’s rightfully theirs. The developing countries must form regional blocs and settle things among themselves. If a country takes interest in the affairs of its regional neighbor; like if India takes interest in the affairs of Pakistan, or if Pakistan is wary of the happenings in Afghanistan and Iran, their concerns are understandable. But what “vital strategic interests” does the US has in the Middle East where 35,000 of its troops are currently stationed, ten thousand kilometers away from its geographical borders? ‘Humanitarian imperialism’ is merely a charade, it’s the trade and energy-interests of the corporate empire which are ‘vitally’ important to the neo-colonial powers.

    Cold War and the birth of Islamic Jihad:

    The Western powers’ collusion and conflicted relationship with the Islamic jihadists (aka moderate rebels) in Syria isn’t the only instance of its kind. The Western powers always leave such pernicious relationships deliberately ambiguous in order to fill the gaps in their self-serving diplomacy and also for the sake of “plausible deniability.” Throughout the late ‘70s and ‘80s during the Cold War, they used the jihadists as proxies in their war against the Soviets. The Cold War was a war between the Global Capitalist bloc and the Global Communist bloc for global domination. The Communists used their proxies the Viet Congs to liberate Vietnam from the imperialist hegemony. The Global Capitalist bloc had no answer to the cleverly executed asymmetric warfare.

    Moreover, the Communist bloc had a moral advantage over the Capitalist bloc: that is, the mass appeal of the egalitarian and revolutionary Marxist and Maoist ideologies. Using their: “Working men and women of all the countries, unite!” rhetoric, the Communists could have instigated an uprising anywhere in the world; but how could the Capitalists retaliate, through “the trickle-down economics” and “the American way of life” rhetoric? The Western policy-makers faced quite a dilemma, but then their Machiavellian strategists, capitalizing on the regional grassroots religious sentiment, came up with an equally robust antidote: that is, the Islamic Jihad.

    During the Soviet-Afghan conflict from 1979 to 1988 between the Global Capitalist bloc and the Global Communist alliance, Saudi Arabia and the Gulf Arab petro-monarchies took the side of the former; because the USSR and the Central Asian states produce more energy and consume less of it; thus they are net exporters of energy; while the Global Capitalist bloc is a net importer of energy. It suits the economic interests of the Gulf Cooperation Council (GCC) countries to maintain and strengthen a supplier-consumer relationship with the Capitalist bloc. Now the BRICS are equally hungry for the Middle Eastern energy but it’s a recent development; during the Cold War an alliance with the Western countries suited the economic interests of the Gulf Arab petro-monarchies. Hence, the Communists were pronounced as Kafirs (infidels) and the Western capitalist bloc as Ahl-e-Kitaab (People of the Book) by the Salafi preachers of the Gulf Arab states.

    All the celebrity terrorists, whose names we now hear in the mainstream media every day, were the products of the Soviet-Afghan war: like Osama bin Laden, Ayman al Zawahiri, the Haqqanis, the Taliban, the Hekmatyars etc. But that war wasn’t limited only to Afghanistan; the NATO-GCC alliance of the Cold War had funded, trained and armed the Islamic Jihadists all over the Middle East region; we hear the names of Jihadists operating in the regions as far afield as Uzbekistan and North Caucasus. In his 1998 interview [2], the National Security Adviser to President Carter, Zbigniew Brzezinski, had confessed that the President signed the directive for secret aid to the Afghan Mujahideen in July 1979 while the Soviet Army invaded Afghanistan in December 1979. Here is a poignant excerpt from his interview:

    Question: “And neither do you regret having supported the Islamic Jihadis, having given arms and advice to future terrorists?”

    Brzezinski: “What is most important to the history of the world? The Taliban or the collapse of the Soviet empire? Some stirred-up Moslems or the liberation of Central Europe and the end of the cold war?”

    Despite the crass insensitivity, you got to give credit to Zbigniew Brzezinski that at least he had the guts to speak the unembellished truth. The hypocritical Western policy makers of today, on the other hand, say one thing in public and do the opposite on the ground. However, keep in mind that the aforementioned interview was recorded in 1998. After the WTC tragedy in 2001, no Western policy-maker can now dare to be as blunt and honest as Brzezinski.

    The Anglo-Wahhabi alliance:

    All the recent wars and conflicts aside, the unholy alliance between the Anglo-Americans and the Wahhabi-Salafis of the Gulf petro-monarchies, which I call “the Anglo-Wahhabi alliance,” is much older. The British stirred up uprising in Arabia by instigating the Sharifs of Mecca to rebel against the Ottoman rule during the First World War. After the Ottoman Empire collapsed, the British Empire backed King Abdul Aziz (Ibn-e-Saud) in his struggle against the Sharifs of Mecca; because the latter were demanding too much of a price for their loyalty: that is, the unification of the whole of Arabia under their suzerainty. King Abdul Aziz defeated the Sharifs and united his dominions into the Kingdom of Saudi Arabia in 1932 with the support of the British. However, by then the tide of British Imperialism was subsiding and the Americans inherited the former possessions and the rights and liabilities of the British Empire.

    At the end of the Second World War on 14 February 1945, President Franklin D. Roosevelt held a historic meeting with King Abdul Aziz at Great Bitter Lake in the Suez canal onboard USS Quincy, and laid the foundations of an enduring Anglo-Wahhabi friendship which persists to this day; despite many ebbs and flows and some testing times especially in the wake of 9/11 tragedy when 15 out of 19 hijackers of the 9/11 plot turned out to be Saudi citizens. During the course of that momentous Great Bitter Lake meeting, among other things, it was decided to set up the United States Military Training Mission (USMTM) to Saudi Arabia to “train, advise and assist” the Saudi Arabian Armed Forces.

    Aside from USMTM, the US-based Vinnell Corporation, which is a private military company based in the US and a subsidiary of the Northrop Grumman, used over a thousand Vietnam war veterans to train and equip the 125,000 strong Saudi Arabian National Guards (SANG) which is not under the authority of the Saudi Ministry of Defense and which acts as the Praetorian Guards of the House of Saud. The relationship which existed between the Arab American Oil Company (ARAMCO) and the House of Saud is no secret. Moreover, the Critical Infrastructure Protection Force, whose strength is numbered in tens of thousands, is also being trained and equipped by the US to guard the critical Saudi oil infrastructure along its eastern Persian Gulf coast where 90% Saudi oil reserves are located. Furthermore, the US has numerous air bases and missile defense systems currently operating in the Persian Gulf states and also a naval base in Bahrain where the Fifth Fleet of the US Navy is based.

    The point that I am trying to make is that left to their own resources, the Persian Gulf’s petro-monarchies lack the manpower, the military technology and the moral authority to rule over the forcefully suppressed and disenfranchised Arab masses, not only the Arab masses but also the South Asian and African immigrants of the Gulf Arab states. One-third of Saudi Arabian population is comprised of immigrants; similarly, more than 75% of UAE’s population is also comprised of immigrants from Pakistan, Bangladesh, India and Sri Lanka; and all the other Gulf monarchies also have a similar proportion of the immigrants from the developing countries; moreover, unlike the immigrants in the Western countries who hold the citizenship status, the Gulf’s immigrants have lived there for decades and sometimes for generations, and they are still regarded as unentitled foreigners.

    Petroimperialism and the Western energy interests:

    A legitimate question arises in the mind of a curious reader , however, that why do the Western powers support the Gulf’s petro-monarchies, knowing fully well that they are the ones responsible for nurturing the Takfiri-Jihadi ideology all over the Islamic world; does that not runs counter to their professed goal of eliminating Islamic extremism and terrorism? When you ask this question, you get two very different and contradictory responses depending on who you are talking to. If you ask this question from a Western policy-maker or a diplomat that why do you support the Gulf’s despots? He replies that it’s because we have vital strategic interests in the Middle East and North Africa region; by which he means abundant oil and natural gas reserves and also the fact that the Arab Sheikhs have made substantial investments in the Western economies at a time of global recession and the outsourcing of most of manufacturing to China. Thus, the Western policy-makers’ defense is predicated on self-interest, i.e. the Western national interests.

    When you ask the same question, however, from the constituents of the Western liberalism that what is the Western policy in the Middle East region? The constituents’ response is quite the opposite, they don’t think that the Western powers control the Middle East, or the global politics and economics in general, for their trade and energy interests; they believe that the motives of the Western powers are more altruistic than selfish. The constituents of the Western liberalism mistakenly believe in the counterfactual concepts of humanitarian and liberal interventionism and the responsibility to protect.

    Coming back to the question, why do the Western powers prop up the Middle Eastern dictators knowing fully well that they are the ones responsible for nurturing Islamic jihadism and is it possible that in some future point in time they will withdraw their support? It is highly unlikely at least in the foreseeable future. The Western powers have become so dependent on the Arab petro-dollars that they would rather fight the Arab tyrants’ wars for them against their regional rivals. Presently, there are two regional powers vying for dominance in the Middle East: Saudi Arabia and Iran. The Syrian civil war is basically a Sunni Jihad against the Shi’a Resistance axis. The Shi’a alliance is comprised of Iran and Syria, the latter is ruled by an Alawi (Shi’a) regime, even though the majority of Syria’s population is Sunni Muslims and the Alawites constitute only 12% of the population. Lebanon-based Hezbollah (which is also Shi’a) is an integral part of the Shi’a Resistance axis. And recently the Nouri al Maliki and Haider al Abadi administrations in Iraq, which also has a Shi’a majority, have formed a tenuous alliance with Iran.

    Moreover, Saudi Arabia has long-standing grievances against Iran’s meddling in the Middle Eastern affairs, especially the latter’s support to the Palestinian cause, the Houthis in Yemen, the Bahraini Shi’as and more importantly the significant and restive Shi’a minority in the Eastern Province of Saudi Arabia where 90% of Saudi oil reserves are located along the Persian Gulf’s coast. On top of that Saudi Arabia also has grievances against the US for toppling the Sunni Saddam regime in Iraq in 2003 which had formed a bulwark against the Khomeini influence in the Middle East because of Saddam’s military prowess. Furthermore, in the wake of political movements for enfranchisement during the Arab Spring of 2011, Saudi Arabia took advantage of the opportunity and militarized the peaceful and democratic protests in Syria with the help of its Sunni allies: the Gulf monarchies of Qatar, UAE, Kuwait and Jordan and Turkey (all Sunnis) against the Shi’a regime of Bashar al Assad.

    However, why did the Western powers preferred to join this Sunni alliance against the Shi’a Resistance axis? It’s because the Assad regime has a history of hostility towards the West; it had also formed a close working relationship with the erstwhile Soviet Union and it still hosts a Russian naval facility at Tartus; and its proxy in Lebanon, Hezbollah, has emerged over the years as the single biggest threat to the Israel’s regional security. On the other hand, all the aforementioned Sunni states have always been the steadfast allies of the Western powers along with Israel; don’t get misled by the public posturing, all the aforementioned Sunni states along with the Western support are in the same boat in the Syrian civil war as Israel.

    Hypothetically speaking, had the Western powers not joined the ignoble Syrian Jihad which has claimed 250,000 lives so far and made millions of Syrians refugees, what could have been an appropriate course of action to force the Gulf monarchies, Turkey and Jordan, not to engage in fomenting trouble in Syria? This is a question of will, if there is will there are always numerous ways to deal with the problem. However, after what has happened in Afghanistan, Iraq, Libya and Syria only a naïve neoliberal will prescribe a Western military intervention anywhere in the world. But if military intervention is off the table, is there a viable alternative to enforce justice and to force the states to follow moral principles in international politics? Yes there is.

    The crippling “third party” economic sanctions on Iran in the last few years may not have accomplished much, but those sanctions have brought to the fore the enormous power which the Western financial institutions and the petro-dollar as a global reserve currency wields over the global financial system. We must bear in mind that the Iranian nuclear negotiations were as much about Iran’s nuclear program as they were about its ballistic missile program, which is a much bigger “conventional threat” to the Gulf’s petro-monarchies just across the Persian Gulf. Despite the sanctions being unfair, Iran felt the heat so much that it remained engaged in the negotiations throughout the last few years, and finally the issue was amicably settled in the form of the Iran nuclear deal in April 2015. However, such was the crippling effect of those “third party” sanctions on the Iranian economy that had it not been for Iran’s enormous oil and gas reserves, and some Russian, Chinese and Turkish help in illicitly buying Iranian oil, it could have defaulted due to those sanctions.

    All I am trying to suggest is, that there are ways to arm-twist the Gulf’s petro-monarchies to implement democratic reforms and to refrain from sponsoring the Takfiri-Jihadist terror groups all over the Islamic world, provided that we have just and upright international arbiters. However, there is a caveat: Iran is only a single oil-rich state which has 160 billion barrels of proven crude oil reserves and around 4 million barrels per day (mbpd) production. On the other hand, the Persian Gulf’s petro-monarchies are actually three oil-rich states: Saudi Arabia with its 265 billion barrels of proven reserves and 10 mbpd of daily crude oil production; and UAE and Kuwait with 200 billion barrels (100 billion barrels each) of proven reserves and 6 mbpd of daily crude oil production; together their share amounts to 465 billion barrels, almost one-third of the world’s 1477 billion barrels of total proven crude oil reserves; and if we add Qatar to the equation, which isn’t oil-rich, as such, but has substantial natural gas reserves, it must take a morally very very upright arbiter to sanction all of them.

    Therefore, though sanctioning the Gulf petro-monarchies sounds like a good idea on paper, but bear in mind that the relationship between the Gulf’s petro-monarchies and the industrialized world is that of a consumer-supplier relationship: the Gulf Arab states are the suppliers of energy and the industrialized world is its consumer, therefore, the Western powers cannot sanction their energy-suppliers and largest investors, if anything, the Gulf’s petro-monarchies have in the past “sanctioned” the Western powers by imposing an oil embargo in 1973 after the Arab-Israel war. The 1973 Arab oil embargo against the West had lasted only for a short span of six months but it had such a profound effect on the psyche and the subsequent strategy of the Western powers that after the embargo the price of crude oil in the international market quadrupled; the US imposed a ban on the export of indigenously produced crude oil outside the US’ borders which is still in place; and the US started keeping a strategic oil reserve amounting to two months of fuel supply for its total energy needs for the military purposes that includes jet fuel for its aircrafts and petrol and diesel for the armored personnel carriers, battle tanks and naval vessels.

    Recently, some very upbeat rumors about “the Shale Revolution” [3] have been circulating the mainstream media. However, the Shale revolution is primarily a natural gas revolution: it has increased the ‘probable-recoverable’ resources of natural gas by 30%. The ‘shale oil’ on the other hand, refers to two very different kinds of energy resource: one, the solid kerogen, though substantial resources of kerogen have been found in the US’ Green River formations, but the cost of extracting liquid crude from solid kerogen is so high that it is economically unviable for at least another 100 years; two, the tight oil which is blocked by the shale, it is a viable energy resource, but the reserves are so limited, around 4 billion barrels in Texas and North Dakota, that it will run out in a few years.

    Although, the Canadian oil sands and the Venezuelan heavy crude are environmentally polluting energy resources but economically they are viable sources of crude oil. More than the size of the oil reserves, however, it is also about the per barrel extraction cost, which determines the profits for the multinational oil companies and in that regard the Persian Gulf’s crude oil is the most profitable. Moreover, regarding the US’ supposed energy independence after the so-called “Shale Revolution,” the US produced 11 million barrels per day (bpd) of crude oil in the first quarter of 2014; that is, more than Saudi Arabia and Russia’s output, each of which produces around 10 million bpd, but the US still imported 7.5 million bpd during the same period of time; that is, more than the oil imports of France and Britain put together. More than the total volume of oil production, the volume which an oil-producing country exports determines its place in the “hierarchy of petroleum” and the Gulf’s petro-monarchies constitute the top tier of that pyramid.

    Conclusion:

    It is generally believed that political Islam is the precursor of Islamic extremism and Jihadism, however, there are two distinct and separate types of political Islam: the despotic political Islam of the Gulf variety and the democratic political Islam of the Turkish and the Muslim Brotherhood variety. The latter Islamist organization never ruled over Egypt except for a brief year long stint, it would be unwise to draw any conclusions from such a brief period of time in history. The Turkish variety of political Islam, the oft-quoted ‘Turkish model,’ however, is worth emulating all over the Islamic world. I do understand that political Islam in all its forms and manifestations is an anathema to the liberals, but it is the ground reality of the Islamic world. The liberal dictatorships no matter how benevolent they may be, had never worked in the past, and they will meet the same fate in the future.

    The mainspring of Islamic extremism and militancy isn’t the moderate and democratic political Islam, because why would people turn to violence when they can exercise their right to choose their rulers? The mainspring of Islamic militancy is the despotic and militant political Islam of the Gulf variety. The Western powers are fully aware of this fact, then why do they choose to support the same forces that have nurtured jihadism and terrorism when their ostensible and professed goal is to eliminate Islamic extremism and militancy? It is because it has been a firm policy-principle of the Western powers to promote ‘stability’ in the Middle East rather than representative democracy. They are fully cognizant of the ground reality that the mainstream Muslim sentiment is firmly against any Western military presence and interference in the Middle East region. Additionally, the Western policy-makers also prefer to deal with small groups of Middle Eastern ‘strongmen’ rather than cultivating a complex and uncertain relationship on a popular level, certainly a myopic approach which is the hallmark of the so-called ‘pragmatic’ politicians and strategists.

    Sources and links:

    [1] European parliament identifies Wahhabi and Salafi roots of global terrorism:
    http://www.dawn.com/news/1029713

    [2] How Jimmy Carter and I started the Mujahideen? Zbigniew Brzezinski:
    http://www.counterpunch.org/1998/01/15/how-jimmy-carter-and-i-started-the-mujahideen/

    [3] Difference between shale oil and tight oil:
    http://www.theoildrum.com/node/9753

    About the author:

    Nauman Sadiq is an Islamabad-based attorney, blogger and geopolitical analyst who has a particular interest in the politics of Af-Pak and MENA regions, energy wars and Petro-imperialism.

  • Cultural Marxism Explained In 7 Minutes

    Submitted by Joseph Salerno via The Mises Institute,

    This is an excellent short video explaining the source and nature of Cultural Marxist movements like political correctness, modern feminism, pansexualism, multiculturalism, "whiteness studies," etc. 

     

    For an in-depth critique of the thinkers whose writings shaped Cultural Marxism, see Fools, Frauds and Firebrands:  Thinkers of the New Left by the eminent British philosopher Roger Scruton.  Scruton brilliantly exposes the pretensions, obscurities, and inanities of Sartre, Foucault, Galbraith, Marcuse, Lukacs, Habermas, Adorno, Rawls, Dworkin and others of their ilk.

    The book is not just a philosophical tract but a work in critical political economy and contains one of the most penetrating discussions of the Marxist labor theory of value that I have ever read.

  • Stunning Photos From China's Creepiest Modern Ghost Town

    Welcome to the most ironically-named city in China. A would-be utopia, rapidly constructed for a population of one million (that failed to materialize), the futuristic city of Ordos, which takes its name from ordo, the Mongolian word for crowd and the root for the English word 'horde', has been almost totally abandoned. The stunning landscape left behind in the following images is both disturbing and confirming of China's epic mal-investment boom…

    Via Artnet News

    The images, taken by Shanghai-based photographer Raphael Olivier and shared at Creative Boom, depict a strange modern ghost town. The city, in the Inner Mongolia region, was constructed under the old "if you build it, they will come" motto, but the teeming masses have never made their way to Ordos.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    The city includes dormant schools, sports complexes, hospitals, convention centers, and other major facilities, all completed between 2005 and 2010. The Chinese building boom has seen many new cities become overnight metropolises, but Ordos City failed to replicate that success.

    "The city is now a surreal landscape of empty streets, decaying monuments, abandoned buildings and half-finished housing projects," writes Olivier. "It is more than anywhere the symbol of the Chinese Dream with all its challenges and contradictions, an Orwellian vision of a bright future caught up by a less flamboyant reality."

    Raphael Olivier, Ordos, Inner Mongolia, the Ordos Museum.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia, the Ordos Museum.
    Photo: Raphael Olivier.

    The city's most fantastical structures include the Ordos Museum, designed by China's MAD Archictects, which resembles a tiled metal blob overlooking the Gobi Desert.

    Like the rest of the city, the museum was apparently built without much forethought: "As for the gallery spaces, we didn't know what kind of exhibitions they would hold, so they are designed to be flexible," the architecture firm told ArchDaily.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    "This plaza is now a favorite amongst the locals who gather their families and friends to explore, play or lounge in the pleasant landscape," wrote de zeen magazine upon Ordos's completion in 2011, in a rather premature judgment.

    Based on reports from intrepid photojournalists and travelers, including the Bohemian Blog, the city's residents (reportedly just 20,000 souls, or two percent of the total capacity) largely consist of construction crews, maintenance workers, and random employees.

    See more of Olivier's photos of Ordos below:

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia, the Ordos mosque.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia, the Ordos mosque.
    Photo: Raphael Olivier.

     

    We have nothing to add… except one chart…

     

     

    This is what happens when the central planners get drunk on their own hopium-laced Kool-Aid.

     

    Images: Artnet News

  • 2016 Theme #5: The Systemic Failure of High Finance

    Submitted by Charles Hugh-Smith of OfTwoMinds blog,

    This week I am addressing themes I see playing out in 2016.

    A number of systemic, structural forces are intersecting in 2016. One is the failure of high finance to fix the global economy's systemic problems.

    The operative conceit of the past 7 years has been that high finance can fix whatever's broken in the world's economies. According to this narrative, all the world needed to boost "growth," employment and profits was lower interest rates, more liquidity, reverse repos and some other fancy financial footwork.

    Once all this high finance generated more borrowing by debt-serfs, property developers, students, corporations buying back their shares and financiers skimming billions from asset bubbles, systemic problems would be dissolved or mitigated.

    Cheap credit, asset bubbles and immense profiteering by financiers would heal all wounds and make everything better for everyone, even those at the bottom layer of the economy.

    Unfortunately, this isn't true. High finance and cheap credit have intensified structural problems such as rising inequality, not resolved them.

    The implicit promise of the neoliberal project is that liberalizing private-sector markets and credit will magically grease the processes of growth and widespread prosperity.

    When economies have the right systems in place–decentralized, somewhat free markets, an entrepreneurial spirit, many unmet needs, idle productive capacity and a credit-starved real economy–freeing up static markets and credit can unleash the productive capacity of the bottom level of the economy.

    But in economies dominated by state/private monopolies and cartels, neoliberalism simply funnels the profits of financialization to the few at the expense of the many, and at the cost of heightened instability and insecurity.

    Making more credit available for student loans didn't fix America's broken higher education system–it only tightened the grip of the higher education cartel and turned another generation of students into debt-serfs.

    Loosening mortgage standards and lowering interest rates didn't turn America into an "ownership society"–it turned it into a boom-and-bust speculative society with many more losers than winners in the neoliberal/high finance speculative casino.

    The essence of neoliberal high finance is the vast majority of gamers in the casino lose security and wealth, while the House (the state and the banks) skim the resulting profits. Main Street has found its security stripped away (sorry, Bucko, no yield on savings now; you have to belly up and place a high-risk bet at a gaming table to keep what you had before) in exchange for the potential of outsized profits.

    But alas, the games are rigged; the financiers have first access to the Federal Reserve's nearly free money, and insiders profit from stock buybacks and other financial gaming that generates monumental profits but zero goods and services.

    If debt had grown in parallel with GDP and inflation, total credit market debt in the U.S. would be around $20+ trillion rather than $59 trillion. The difference is speculative excess, manifested in asset bubbles and staggering amounts of debt.

    The casino's losers get the debt, the winners skim the profits.

    The only possible output of this system is rising income and wealth inequality:

    Cheap credit doesn't reverse the elimination of jobs via automation–it accelerates that process by making capital machinery and software cheaper than labor and labor overhead.

    Cheap credit and high finance don't fix what's broken in our democracy–they have greased the skids to what we have now–"democracy" for the highest bidder by giving financiers and corporations the means to stripmine productive assets and use the gargantuan profits to buy political favors.

    High finance isn't the cure–it's the disease.

    *  *  *

    My book on the emerging economy is now available as a audiobook: Get a Job, Build a Real Career and Defy a Bewildering Economy (Audible.com).

    My new book is #7 in Amazon's Kindle ebooks > Business & Money > International Economics: A Radically Beneficial World: Automation, Technology and Creating Jobs for All. The Kindle edition is $$9.95 and the print edition is currently discounted to $21.60.

     

  • This Is The $3.5 Trillion "Neutron Bomb" That Keeps Kyle Bass Up At Night

    Earlier today, CNBC invited Kyle Bass, the man who correctly predicted and profited from the subprime collapse, to discuss what he thought was the biggest threat to the global financial system.

    Here is the highlight of what he said:

    What I think the narrative will swing to by the end of this year if not sooner, is the real issue in China is not simply that profits have peaked. The real issue is the size of their banking system. Do you remember the reason the European countries ended up falling like dominoes during the European crisis was their banking systems became many multiples of their GDP and therefore many, many multiples of their central government revenue. In China, in dollar terms their banking system is almost $35 trillion against a GDP of $10 and their banking system has grown 400% in 8 years with non-performing loans being nonexistent. So what we are going to see next is a credit cycle, and in a credit cycle you see some losses, but if China’s banking system loses 10%, you are going to see them lose $3.5 trillion. 

    He then puts this number in the context of China’s “massive” foreign reserves:

    What’s the magic number in their FX reserve pile today? When you look at banking system assets divided by their foreign exchange reserves, China is 7x, it’s one of the worst in the world. I think people are mypoically focused on a giant number of reserves, of $3 trillion or thereabouts, and no one is really paying attention to the size of the system and what’s about to happen.

    Actually that’s not true: we first pointed this out more than 2 years ago, when we showed “How China’s Stunning $15 Trillion In New Liquidity Blew Bernanke’s QE Out Of The Water.”

     

    A few weeks later we followed up with another stunning chart showing “How In Five Short Years, China Humiliated The World’s Central Banks.” However, we do agree fully with Bass that virtually nobody else is paying attention to this epic question of scale, especially as it relates to another topic we have been covering for the past two years: China’s soaring, and dramatically underreported non-performing loans.

    More on that in a second, but first a quick reminder that as we also reported over the weekend, for Kyle Bass, “The Greatest Investment Opportunity Right Now” is to short the Chinese currency: a trade which just in the past week has generated tremendous returns (using the embedded FX leverage), and which we are confident will continue to be very profitable, especially since as we first said in August, days before China’s devaluation, the only thing that could save China’s economy from an even harder landing, is to rapidly devalue their currency. China did just that, and has been doing that ever since.

    Earlier today, even Goldman – with a huge delay – finally came to see things correctly, when it said that:

    “We are adjusting our USDCNY forecast weaker, to 7.00 on a 12-month horizon (our twelve-month forecast was 6.60 previously) and 7.30 by end-2017 (from 6.80 previously). Though markets have been moving quickly, and today’s lower USDCNY fixing suggests the possibility that policymakers may want to stabilize expectations for the CNY, this puts us back on the weak side of market pricing over a twelve-month horizon, consistent with our view that 2016 will be a year of continued “bumpy deceleration” and significant policy easing in the Chinese economy, and that the potential for greater CNY depreciation remains a large source of uncertainty.”

    So going back to Kyle Bass’ thesis, it a relatively simple one: China has been avoiding a credit, or non-performing loan cycle, and fabricating the data, but the time has run out.

    “China many years ago attached its currency to the dollar: they hitched their wagon to our star very smartly because back then our goal was to depreciate our dollar through inflation. So we issued debt to the rest of the world to depreciate the dollar. And so now the real problem is China has hitched their wagon to our star, and their currency has effectively appreciated about 60% versus the rest of the world since 2005 and it’s killing them… China’s effective exchange rate moving up versus the rest of the world made their goods and services a little bit more expensive each year and now that labor arbitrage is gone. And if that labor arbitrage is gone, and the banking system has expanded 400% in 7 years without a nonperforming loan cycle, my view is we are going to see a non-performing loan cycle.”

    So what exactly is this non-performing loan cycle that Kyle Bass is referring to, and where does he get a $3 trillion potential loan loss – a quantum step in admission of economic failure which we first dubbed China’s neutron bomb” in October 2015 – number?

    Luckily, we explained all of this two months ago when we showed how “China’s Banking Sector Is Sitting On A $3 Trillion Neutron Bomb.” For those who missed it, here is the explanation behind what could be the best trade of the next 12-18 months (the best trade of 2015 incidentally was to be long Glencore CDS, as we suggested in 2014) according to Kyle Bass:

    * * *

    We’ve long contended that official data on bad loans at Chinese banks is even less reliable than NBS GDP prints. Indeed, the lengths Beijing goes to in order to obscure the extent to which banks’ balance sheets are in peril is truly something to behold and much like the deficient deflator math which may be causing the country to habitually overstate GDP growth, it’s not even clear that China could report the real numbers if it wanted to. 

    We took an in-depth look at the problem in “How China’s Banks Hide Trillions In Credit Risk: Full Frontal”, and we’ve revisited the issue on a number of occasions noting in August that according to a transcript of an internal meeting of the China Banking Regulatory Commission, bad loans jumped CNY322.2 billion in H1 to CNY1.8 trillion, a 36% increase. Of course that’s just the tip of the iceberg. In other words, that comes from a government agency and although the scope of the increase sounds serious, it still translates into an NPL ratio of just 1.82%. Here’s a look at the “official” numbers (note that when one includes doubtful accounts, the ratio jumps to somewhere in the neighborhood of 3-4%):

    Source: Fitch

    There are any number of reasons why those figures don’t even come close to approximating reality. For instance, there’s Beijing’s habit of compelling banks to roll over bad loans, and then there’s China’s massive (and by “massive” we mean CNY17 trillion) wealth management product industry which, when coupled with some creative accounting, allows Chinese banks to hold some 40% of credit risk off balance sheet.

    Well as time goes on, and as market participants scrutinize the data coming out of the world’s second most important economy, quite a few analysts are beginning to take a closer look at the NPL data for Chinese banks. Indeed, if Beijing continues to move toward “allowing” defaults to occur (even at SOEs) and if China’s transition from smokestack economy to a consumption and services-driven model continues to put pressure on borrowers from the manufacturing sector, the situation is likely to deteriorate quickly. If you needed evidence of just how precarious things truly are, look no further than a recent report from Macquarie which showed that a quarter of Chinese firms with debt are currently unable to cover their annual interest expense (as you might imagine, it’s even worse for commodities firms). 

    Just two weeks after we highighted the Macquarie report, we took a look at research conducted by Hong-Kong based CLSA. Unsurprisingly, it turns out that Chinese banks’ bad debts ratio could be as high 8.1%, a whopping 6 times higher than the official 1.5% NPL level reported by China’s banking regulator. 

    We called that revelation China’s “neutron bomb” but it turns out we may have jumped the gun. According to Hong Kong-based “Autonomous Research”, the real figure may be closer to 21% when one takes into account the aforementioned shadow banking sector. Here’s more from Bloomberg:

    Corporate investigator Violet Ho never put a lot of faith in the bad loan numbers reported by China’s banks.

    Crisscrossing provinces from Shandong to Xinjiang, she’s seen too much — from the shell game of moving assets between affiliated companies to disguise the true state of their finances to cover-ups by bankers loath to admit that loans they made won’t be recovered.

     

    The amount of bad debt piling up in China is at the center of a debate about whether the country will continue as a locomotive of global growth or sink into decades of stagnation like Japan after its credit bubble burst. Bank of China Ltd. reported on Thursday its biggest quarterly bad-loan provisions since going public in 2006.

     

    Charlene Chu, who made her name at Fitch Ratings making bearish assessments of the risks from China’s credit explosion since 2008, is among those crunching the numbers.

     

    While corporate investigator Ho relies on her observations from hitting the road, Chu and her colleagues at

    Autonomous Research in Hong Kong take a top-down approach. They estimate how much money is being wasted after the nation began getting smaller and smaller economic returns on its credit from 2008. Their assessment is informed by data from economies such as Japan that have gone though similar debt explosions.

     

    While traditional bank loans are not Chu’s prime focus — she looks at the wider picture, including shadow banking — she says her work suggests that nonperforming loans may be at 20 percent to 21 percent, or even higher.

     

     

    “A financial crisis is by no means preordained, but if losses don’t manifest in financial sector losses, they will do so via slowing growth and deflation, as they did in Japan,” said Chu. “China is confronting a massive debt problem, the scale of which the world has never seen.”

    As a reminder, here’s a look at the scope of the “problem” Chu is describing:

     

    And here’s a bit more on special mention loans and the ubiquitous practice of “evergreening”:

    Slicing and dicing the official loan numbers, Christine Kuo, a senior vice president of Moody’s Investors Service in Hong Kong, focuses on trends in debts overdue for 90 days, rather than those classified as “nonperforming.” Another tactic some analysts use is to add nonperforming debt to “special mention” loans, those that are overdue but not yet classified as impaired, yielding a rate of 5.1 percent.

     

    Banks’ bad-loan numbers are capped by “evergreening,” the practise of rolling over debt that isn’t repaid on time, according to experts including Keith Pogson, a Hong Kong-based senior partner at Ernst & Young LLP. Pogson was involved in restructuring debt at Chinese banks in 1998, when their NPL ratios were as high as 25 percent.

    So let’s just be clear: if 8% is a “neutron bomb”, a 21% NPL ratio in China is the asteroid that killed the dinosaurs. Here’s why: 

     

    If one very conservatively assumes that loans are about half of the total asset base (realistically 60-70%), and applies an 20% NPL to this number instead of the official 1.5% NPL estimate, the capital shortfall is a staggering $3 trillion. 

    That, as we suggested three weeks ago, may help to explain why round after round of liquidity injections (via RRR cuts, LTROs, and various short- and medium-term financing ops) haven’t done much to boost the credit impulse. In short, banks may be quietly soaking up the funds not to lend them out, but to plug a giant, $3 trillion, solvency shortfall. 

    In the end, we would actually venture to suggest that the real figure is probably far higher than 20%. There’s no way to get a read on how the country’s vast shadow banking complex plays into this but when you look at the numbers, it’s almost inconceivable to imagine that banks aren’t staring down sour loans at least on the order of a couple of trillion. 

    To the PBoC we say, “good luck plugging that gap” and to the rest of the world we say “beware, the engine of global growth and trade may be facing a pile of bad loans the size of Germany’s GDP.”

    We close with the following from Kroll’s senior managing director in Hong Kong Violet Ho (quoted above):

    “A credit report for a Chinese company is not worth the paper it’s written on.”

  • Doctors Urge California Residents "Leave Now…While You Can" As Gas Leak Fears Grow

    Submitted by Claire Bernish via TheAntiMedia.org,

    California Governor Jerry Brown finally declared a state of emergency on Wednesday, concerning the ongoing, currently unstoppable methane gas leak spewing from Aliso Canyon that has created a nightmare for residents of Porter Ranch.

    “I will tell you, this goes well beyond Porter Ranch. We’ve had complaints from as far as Chatsworth, Northridge, and Granada Hills,” emphasized Los Angeles City Councilman Mitchell Englander during a Porter Ranch town hall meeting on December 28. “Apparently this plume of toxic chemicals and whatever it might be, doesn’t know zip codes […] This is the equivalent of the BP oil spill on land, in a populated community.”

    Aliso Canyon sits less than two and a half miles from Porter Ranch and less than 30 miles from the city of Los Angeles — the second most populous city in the United States — whose outlying total statistical area includes nearly 18 million residents, as of 2013.

    Brown has been widely criticized for lack of decisive action on the leak, which is erupting from its underground storage area with all the force “of a volcano.” Under Wednesday’s declaration, “all state agencies will utilize state personnel, equipment, and facilities to ensure a continuous and thorough state response to this incident.”

    Porter Ranch residents have been evacuating the area for some time, though SoCalGas’ rather maladroit handling of the relocation procedure has been a nightmare — and the cause for a mounting number of lawsuits, including one from the L.A. city attorney’s office.

    Los Angeles City Attorney Mike Feuer filed a civil lawsuit last month concerning the massive methane leak’s impact on area residents’ health and damage to the environment — which alleged failure by SoCalGas to prevent the leak and further exacerbation of “the effects of that failure by allowing acute odor and health problems faced by the community to persist for more than a month, to say nothing about the indefinite time it will persist into the future.”

    Pediatrician Dr. Richard Kang gave an ominous warning during the Porter Ranch meeting, saying, “Unfortunately, the only real way to get away from the symptoms is… you have to relocate — you have to get away from the environment.” Health complaints include severe headaches, nosebleeds, respiratory issues including increasing cases of asthma, and a number of other issues.

    SoCalGas, in the meantime, stated they were “providing air filters for people’s homes,” but though “the odor added to the leaking gas can cause symptoms for some, the gas is not toxic and county health officials have said the leak does not pose a long-term health risk.”

    But, as the Los Angeles Daily News reported on December 25, “Los Angeles County health officials said prolonged exposure to trace chemicals, some of which are known carcinogens, can cause long-term health effects.” Nevertheless, they also “cautioned that levels examined so far here are not believed to be associated with long-term health problems.”

    “The gas company says, ‘This is just the smell you’re reacting to, it’s just temporary, it’s not a problem, it’s not serious’ — these people aren’t stupid,” said attorney Rex Paris. “How could somebody possibly say that? We have children whose noses are bleeding every day, we have people who suffer from chronic headaches [and] are nauseous every, single day. How does that not become a serious issue? Why are they saying something nobody here believes? […] They’re trying to convince everybody that it’s all in our heads. It’s a trick.”

    In fact, as Erin Brockovich pointed out, “no one really knows the long-term side effects of benzene and radon, the carcinogens that are commonly found in natural gas.”

    Additionally, area house pets seem particularly vulnerable — possibly acting the part of unwitting canaries — as veterinarian Dr. David Smith described in the town hall meeting. Noting he has seen dozens of sickened animals, Smith said, “I’ve seen dogs, cats, birds, pocket pets… the primary symptoms I’ve seen are gastrointestinal vomiting […]These are not things you should be inhaling.” He added, “We have seen dermatological issues as well, some very unusual bacterial infections in dogs,” including one case in which a dog had such an infection on its face, and “the client developed almost the exact same kind of symptoms soon after that […] their physician thinks it’s related [to exposure from the gas leak] and so I tend to think these correlations are real.”

    Though the declaration of emergency states “the Division of Oil, Gas, and Geothermal Resources shall continue its prohibition against Southern California Gas Company injecting any gas into the Aliso Canyon Storage Facility,” it does not make that moratorium dependent on stoppage of the leak; rather, only “until a comprehensive review, utilizing independent experts […] is completed.”

    Physician Dr. Brooks Michaels, addressing the town hall meeting, gave the sternest advice to those still in the area surrounding the unprecedented leak:

    “If you have a chance to leave, if you’re able to leave… if you have a chance to relocate, do it now. I’m telling you, it’s really critical.”

    Understandably, Brown’s state of emergency seems almost too little, too late for many.

    You can watch the Porter Ranch town hall meeting here:

  • Weekend Reading: Breaking Markets

    Submitted by Lance Roberts via RealInvestmentAdvice.com,

    AAA-Weekend-Reading-Breaking-Markets

    This week has certainly been interesting with the Dow Jones Industrial Average having the worst start to a year…well…ever. Even more interesting is the culprit was primarily the collapse of financial markets in China.

    Why is that interesting? Because it is exactly the issue that I wrote about during the summer of 2015:

    “And this last week, we saw what happens when things go ‘inevitably wrong.’

     

    The perils of margin debt should not be readily dismissed. For a real time example of financial market leverage and consequences, one needs to look no further than the Shangai Index in China. That market is in a complete collapse as plunging prices are forcing investors to sell shares. While the Chinese government has injected liquidity, suspended trading in almost half of the listed equities and encouraged pension funds to buy securities, these actions have done little to stem the decline as investors ‘panic sell’ in a rush to safety. That collapse, if history is any guide, is likely not done as shown in the chart below.”

    China-SP500-010706

    “Also, notice the correlation between peaks in the Shanghai Index and the S&P 500.

     

    While no single indicator should be relied upon as a measure to manage a portfolio, it should be well understood by now that leverage is a ‘double-edged sword.’ While rising leverage provides the additional liquidity to drive stock prices higher on the way up, it also cuts deeply as prices fall.”

    This weekend’s reading list is a collection of analysis as to the potential impact of China. Is history set to repeat itself? And, most importantly as discussed in yesterday’s post, investors may have witnessed the “ringing of the bell” for the end of the bull market that begin in 2009. While it is too early to know for certain, things are getting much more interesting. It is time to start paying attention to the risks.

    1) Debt Signals Problems For Markets by Lisa Abramowicz via Bloomberg

    “Thanks in large part to a circuit-breaking selloff in China, stocks are already digging a hole at the start of the new year. Savvy traders know to avoid making big decisions based on a day or two of equity market histrionics, lest they look like chickens with their heads chopped off rather than skilled prognosticators. They rely on more dependable barometers to determine the longer-term direction, and what they see right now could be a big cause for concern.

     

    One of the best current indicators is dollar-denominated investment-grade debt, which has been tracking U.S. stocks much more closely than high-yield bonds. High-grade bonds remained fairly steady throughout 2015’s market roller coaster, even as stocks bounced around in a rather fruitless attempt to find direction and riskier corporate debt suffered some of its biggest declines on record.”

    But Also Read: China’s Market Won’t Be Halted Anymore by Myles Udland via Business Insider

     

    2) Markets Aren’t Cooperating With Fed Rate Hike by Jeffrey Snider via Alhambra Partners

    “When the FOMC voted on December 16 to raise rates, they did so with reservations, some expressed publicly, that maybe they didn’t really have the ability to do it. There is a reason that we refer to money markets in the plural, since there are, as the “s” at the end indicates, more than one. At one point in financial history, they all worked very well together, though the manner in which that harmony developed appears entirely lost on policymakers. They just assumed and continued to do so; they still do today, though with much less certainty attached.

     

    In the little more than two weeks since the FOMC’s move, money markets have not behaved.”

    But Also Read: Federal Reserve Is Giant Weapon With No Ammo Left by Myles Udland via Business Insider

    Opposing View: Fed’s Lacker Suggest 4-More Hikes In 2016 by Jason Lange via Reuters

     

    3) 5 Facts About The Market Sell-Off by Mohamed El-Erian via Bloomberg

    “Here are the five things to know about the implications of the sell-off for 2016 and beyond:

    1. Geopolitics

    2. Risk Taking

    3. Liquidity – Fed vs. Everyone Else

    4. Global Economy

    5. Future Policy Decisions”

    But Also Read: Brace For A Rare Recession In Profits by Matt Egan via CNN Money

    VIEWS & OPINIONS ON THE CORRECTION

    MUST READS

    “Some people are never too old to find new ways to lose money.” – Anon

  • 2016's "How To Make A Fortune" Cookie

    Anyone for Chinese?

     

     

    Source: Townhall.com

  • "The Entire Risk Paradigm Is Shifting" – Stocks Join Global 'Reality' Adjustments

    Submitted by Jeffrey Snider via Alhambra Investment Partners,

    The focus on China as if their problems were only Chinese is highly misplaced, though you can understand the appeal of the excuse. This sentiment was expressed over and over today (just as it was in August):

    Do we all live in China now? Investors could be excused for thinking that, given that arcane indicators such as a Chinese manufacturing index and the value of the Chinese yuan are inducing nauseating drops in the U.S. stock market. And the surprise halt to trading in the latest Chinese session, a mere 30 minutes after markets opened, has thrown U.S. and European markets into a tailspin.

     

    Last we checked, however, the Dow Jones and S&P 500 indexes were composed of U.S. companies that might do some business in China, but still earn the vast majority of their revenue elsewhere. And elsewhere, economic fundamentals are looking way better than the gloomy start to this year’s trading would suggest.

    This is one of those forest and trees moments that get caught up on the surface of anachronistic thinking. Even if all that were true, the fact that China is an export economy having trouble finding any sustained and sufficient demand for its industrial capacity is a direct reflection upon global “demand”; which still includes the same business climate that US companies derive their revenue and earnings from.

    But it never really is so much about business today as it is risks for business tomorrow. In raw terms, if Chinese firms and its economy can so struggle in this environment it stands to reason to at least contemplate why that might be – and how that might directly reflect on domestic considerations. Further, as noted earlier, risk perceptions have changed as the FOMC is no longer given blanket faith to declare whatever sky color they wish. Stocks really haven’t had much success, overall, in a year and a half; a pause that itself should register as complimentary to the Chinese struggles.

    The S&P 500 is down just over 7 percent from its May high, but the average stock in the larger S&P 1500 was down 24 percent from its high as of yesterday’s close, according to new research from Bespoke Investment Group. A bear market is defined as a decline of 20 percent or more, meaning the average stock has already reached that threshold.

    As Bespoke points out, the pain in stocks is not just energy-related shares. Small caps are among the hardest hit (the S&P 600 small cap is down an astounding 28% from its high!) as well as consumer discretionary stocks; the very sorts of economically-sensitive issues that should be leading the market if this was just China as China. Instead, they suggest China is, again, finding difficulty in no small part because of intensifying US struggles. That much has been obvious from trade figures which declare in no uncertain terms the great and ongoing lack of US “demand.”

    From that visible contradiction, the entire risk paradigm is shifting more so than it already has. Commodities and “money” more broadly are winning the argument, so to speak, having declared long ago greater downside risks. Now that those are becoming rapidly the actual baseline, even for stocks, what is taking place in China is the connected realignment of monetary condition in that frightening direction. Stocks are finding more downside volatility because stock investors are being forced to recognize in truly comprehensive fashion that there is an actual and sizable downside.

    ABOOK Jan 2016 Dollar HYG GSG SP500

    This is increasingly taking on the proportions of a global reset. As such, the “dollar” stands right in the middle of it as both messenger and agent. You cannot separate China from the whole as China isn’t really the problem but rather the most visible symptom of it. If there were a full recovery as the FOMC claims in moving against the possibility of overheating, financial firms would be at the front of that greedily taking up the mantle of raw financial opportunity. They did so in times past, usually in direct relation to the QE’s – and were only burned for their trouble. There is no recovery opportunity, which is why they have been retreating in “money” in really precipitous fashion.

    It is the very mechanism of discounting. The fact that stocks may also be participating is a very important indication of how much that has penetrated into broad and systemic perceptions. China matters, but not so much just for China. The US may look lackluster (to some, a narrowing minority) by comparison to the direction of China’s economy, but that really doesn’t tell us as much about tomorrow as is repeatedly claimed. A chronically ill economy is highly susceptible not to catching fire and taking off, but rather to converging with all the very real disasters already spreading globally – the risk that money markets are increasingly discounting and carrying out. Financial markets are obviously more and more worried that memories of lackluster will be all that there was of the QE-driven cycle.

  • Auto Sales Are About To Choke: Increase In Non-Revolving Credit Is Smallest In 4 Years

    Moments ago, the Fed released the latest, November, consumer credit data: it was not good. Rising by just $13.95 trillion, it was a big miss to the $18.5 trillion expected, and below the $15.6 billion downward revised increase in October. In fact, three months after the historic surge in September to the highest print in the revised series, total consumer credit has tumbled to the lowest since January.

     

    But the big problem was not in the total data, but in one of the two key component data sets.

    Recall that a few days ago we noted something very disturbing for US auto makers: for all the hoopla around the auto sales number, US domestic car sales had actually dropped to a 6 month low, missing estimates by the most since 2008.

     

    What was just as disturbing was that “plans to buy an auto” had tumbled the most since January of 2013.

     

    Lacking the most recent credit data, we did not know what may have caused this dramatic slowdown in auto purchasing, and intentions. Now that we have the data, we also have the answer, because while revolving consumer credit rose at a respectable pace of $5.7 billion in November, it was that all important “other” series, non-revolving credit – the source of funds for student and auto loans – where there was a dramatic slowdown.

    As the chart below shows, after rising by $15.5 billion in the month before, and a near-record $22 billion in September, the November increase in nonrevolving credit was a paltry $8.3 billion – this was the smallest monthly increase in this most important for US car makers data, since February of 2012!

     

    Suddenly both the slowdown in December car sales, and the collapse in buying intentions makes all the sense in the world: US consumer may have just had their fill of auto-related loans, and without these to fund future purchases, even on the most relaxed terms in auto loan history, the pace of current and future purchases will collapse.

    And, as we showed earlier today, this collapse in auto loan issuance could not have come at a worse possible time: the chart below shows that the motor vehicle inventory-to-sale ratio is now the highest since August 2008:

     

    As we said this morning, “the channel-stuffed “see how well we are doing” smoke and mirrors of credit-fueled malinvestment has hit a wall and yet the automakers – afraid to signal any chink in that armor – kept producing.”

    And now we know why nobody was buying: suddenly the car loan issuance pipeline has been shut half way.

    The conclusion: unless there is a surge in non-revolving debt in December and the coming months, the cheap debt-funded US auto renaissance is officially over. As for the follow up question, whether this was caused by a revulsion toward more debt, then the rate hike in 2015 which was immediate passed through to borrowers, will make sure that what is currently a half-shut credit pipeline, will slam shut in the coming months and choke the only sector in the US manufacturing economy that was still relatively vibrant.

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