- Gunmen Attack US Consulate In Turkey After Explosion Kills Three
Just as the Ferguson night turned violent, again, and at least two people were struck by gunfire during the latest riot to “commemorate” the death of Michael Brown, reports of violence came from another part in the world, Turkey where moments ago CNN Turk reported that two attackers, a man and a woman, opened fire on the U.S. consulate building in Turkey’s biggest city, Istanbul, on Monday and fled when police shot back.
The Cihan news agency said those involved in the attack on the building in Istanbul’s Sariyer district included one man and one woman. CNN Turk said there were no casualties.
Al Jazeera has more:
A gun attack targeted the US Consulate in Istanbul leading to an exchange of fire between assailants and security personnel, according to local media reports.
The reports said that one attacker was male and the other one was female, adding that the police was searching for the suspects.
Turkey has been in a heightened state of alert since it launched what officials described as a “synchronized war on terror” last month, including air strikes against Islamic State fighters in Syria and Kurdish militants in northern Iraq, and the detention of hundreds of suspects at home.
U.S. diplomatic missions have been targeted in Turkey in the past.
The far-leftist Revolutionary People’s Liberation Army-Front (DHKP-C), whose members are among those detained in recent weeks, claimed responsibility for a suicide bombing at the U.S. embassy in Ankara in 2013 which killed a Turkish security guard.
This follows more local violence when a bomb attack at an Istanbul police station early on Monday morning killed three people and injured at least 10, the Dogan news agency said on Monday. Istanbul police headquarters confirmed in a statement that three police officers and seven civilians were wounded in the blast, but gave no death toll.
The attack targeted the police station in Istanbul’s Sultanbeyli neighbourhood early on Monday morning and caused a fire that collapsed part of the three-storey building, the agency reported. The explosion also damaged neighbouring buildings and around 20 cars parked nearby, the private Dogan news agency reported.
One of the police officers injured in the explosion is reportedly in critical condition.
Al Jazeera’s Bernard Smith, reporting from Istanbul, said the blast struck at about 1am local time on Monday morning. “The neighbourhood is right on the outside edge of Istanbul in what could be called a ‘conservative’ area, way away from the central part of the city,” he said.
He said that there was no immediate claim for the attack, which comes at a time of a sharp spike in violence between Turkey’s security forces and fighters from the Kurdistan Workers’ Party, or PKK.
The attacks also come at a time when Turkey is taking a more active role against Islamic State of Iraq and the Levant (ISIL) fighters.
In fact, as described in detail in “We Have A Civil War”: Inside Turkey’s Descent Into Political, Social, And Economic Chaos, things in the country located at the nexus between Europe and Asia are about to get a whole lot worse:
Deflecting criticism surrounding Ankara’s anti-terror air campaign, Turkey’s foreign minister Mevlut Cavusoglu last week told state television that strikes against ISIS targets would pick up once the US had its resources in place at Incirlik which will supposedly serve as a hub for a new “comprehensive battle.”
As of yesterday, the next phase in Turkey’s NATO-blessed war against the PKK ISIS is about to unfold when yesterday six F-16 jets and about 300 personnel arrived in Incirlik Air Base in Turkey, the U.S. military said, after Ankara agreed last month to allow American planes to launch air strikes against Islamic State militants from there.
Prepare for much more violence, both real and false flagged, out of Turkey as the “war of Syrian invasion and Qatari gas pipeline liberation” unwinds with increasingly faster speed.
- CouNT TRuMPuLa…
Beware of wigs dressed as sheeple…
.
Sadly, he is no different from the rest of the statist shithead pack when it comes to a real issue.
- Goldman Hires Former Head Of NATO To Deal With DONG Scandal
Back in January 2014, we reported that Goldman’s merchant banking unit rushed to buy an 18% in Denmark’s DONG Energy (that would be Danish Oil & Natural Gas) company for $1.5 billion. The result was an immediate grassroots resistance campaign, as hundreds of thousands of Danes refused to hand over their DONG to the vampire squid for various reasons, not the least of which was granting Goldman veto rights over changes to DONG’s leadership and strategy, a right usually reserved for buyers of 33% of an entity. A bigger reason for the Danish anger at the Goldman DONG deal, was that as The Local reported a few months later, the sale “did not include a massive deal that both parties knew was imminent, shortchanging the company’s value by as much as 20 billion kroner.”
Which was to be expected: as we further said in January 2014, “if Goldman is involved, it guarantees future benefits for the Vampire Squid”. Sure enough:
Denmark lost out on billions of kroner when it sold partial ownership of Dong Energy to American investment firm Goldman Sachs in January 2014, Politiken reported Wednesday.
When the Danish government sold an 18 percent stake of Dong to Goldman Sachs, the Finance Ministry calculated the company’s value at 31.5 billion kroner ($4.6 billion).
But just three months later, Dong was granted the rights to instal a massive offshore wind park supported by the United Kingdom. According to Politiken, that deal shot Dong’s value up to over 50 billion kroner but was not calculated into the Goldman Sachs sale despite both Dong and the investment firm being fully aware of it.
Politiken also reports that the looming deal was common knowledge throughout the wind industry.
As a result, the locals were less than delighted to learn the details of yet another Goldman pillaging of taxpayers, one which allowed Goldman to make a substantial return on its investment in just months courtesy of what was information which the government either did not have access to, or simply refused to notice.
Bloomberg further reports that “the Goldman deal left an indelible mark on Danish politics. Disagreement over the Wall Street bank’s investment in state assets prompted a junior party in the former Social Democrat-led administration to quit the coalition in protest. Danes gathered in their thousands in front of the parliament to protest against the sale.”
Indeed, the deal caused a rift in the former Social Democrat-led coalition, culminating in the departure of a junior member, the Socialist People’s Party. The government of Helle Thorning-Schmidt that oversaw the Goldman deal was ousted in the June 2014 elections, paving the way for a Liberal government led by Lars Loekke Rasmussen. He served as finance minister under Fogh Rasmussen and was also prime minister from 2009 until 2011.
Fast forward over a year, and a shaken Denmark still refuses to let Goldman fully off the hook when recently the government decided to let lawmakers see secret documents on Goldman Sachs Group Inc.’s purchase of the 18% stake in DONG. However, as Goldman reports, this glimpse into the fine details of the Goldman decision making process will probably be a one-off. To wit: “The government says it’s making an exception in the case of Goldman’s 2014 investment in Dong Energy A/S after lawmakers on a committee overseeing the sale complained they weren’t given full access to the relevant files. Bjarne Corydon, who was finance minister at the time, said the information contained in the transaction papers was too sensitive even for the parliament committee.“
Almost as “sensitive” as when Goldman’s former employee and then Treasury Secretary Hank Paulson tried to pass an open-ended “three-page termsheet”bailout of, well, Goldman Sachs through Congress in 2008… and ultimately succeeded.
But while Goldman’s domination of all legislative matters in the US is well known and nobody will dare to make much of a fuss over it, in Denmark things are different.
Finance Minister Claus Hjort Frederiksen said this month he will release the documents more than a year after the transaction went through as lawmakers continue to argue over the deal. Goldman and PFA have said they have no objection to the files being made public.
Would the deal be unwound if it is discovered that Goldman had conspired and manipulated (with significant kickbacks) the government of Helle Thorning-Schmidt to fast track the deal which Goldman knew would be a huge IRR in just a few short months? It is unlikely:
Rene Christensen, a spokesman for the Danish People’s Party which lobbied to have the documents released, said there’s no risk their contents might trigger political demands that a new deal be negotiated.
“Altering the deal isn’t really what it’s about,” Christensen said by phone. “It’s about having had a finance minister who said he couldn’t trust the committee.” Denmark’s lawmakers deserve to know “what was so important about this deal that we weren’t allowed to see more details,” he said.
Martin Hintze, a partner at Goldman who sits on the board of Dong, was quoted by Berlingske as saying the bank has no objections to having the documents made public.
Of course it wouldn’t – any objections would be seen as confirmation the sale process was improper.
Which is why Goldman decided to go for the “sure thing” jugular, and just to make absolutely sure it controls the DONG process, Goldman hired none other than Anders Fogh Rasmussen, the former Danish prime minister who governed Denmark from 2001 until 2009 “to help tackle the political hurdles the bank has encountered since buying into a state utility last year.”
Why hire him? Because the current Danish prime minister, Lars Loekke Rasmussen, just happened to be the subordinate and finance minister under the “other” Rasmussen, the one Goldman just hired: Anders Fogh.
Because if buying current and former government leaders to control the decision-making process works in the US and every other developed nation, why not in Denmark.
But that’s not all: in this particular case, Goldman gets bonus influence points because in addition to purchasing the former Danish PM, and by implication, the current PM and his former fin-min protege, and assuring the DONG scandal quietly goes away, Goldman just hired the former head of NATO: from 2009 to 2014 Anders Fogh Rasmussen served as the 12th Secretary General of NATO.
In other words, with one hiring decision, Goldman not only assured its financial dominance over Denmark, but is now sure to capitalize on whatever military developments NATO unleashes in the coming weeks, which by the looks of things will involve Goldman funding every group in the upcoming Syrian invasion and the resulting latest and greatest war in the middle east.
- The Rich, The Poor, & The Trouble With Socialism
Authored by Bill Bonner (of Bonner & Partners), illustrated by Acting-Man's Pater Tenebrarum,
Rich Man, Poor Man
Poverty is better than wealth in one crucial way: The poor are still under the illusion that money can make them happy. People with money already know better. But they are reluctant to say anything for fear that the admiration they get for being wealthy would turn to contempt.
“You mean you’ve got all that moolah and you’re no happier than me?”
“That’s right, man.”
“You poor S.O.B.”
We bring this up because it is at the heart of government’s scam – the notion that it can make poor people happier. In the simplest form, government says to the masses: Hey, we’ll take away the rich guys’ money and give it to you. This has two major benefits (from an electoral point of view). First, and most obvious, it offers money for votes. Second, it offers something more important: status.
…and ending up moping.
After you have food, shelter, clothing, and a few necessities, everything else is status, vanity, and power. Extra money helps us feel good about ourselves… and attract mates. It’s not just the money that matters. It’s your relative position in society. From this point of view, it does as much good to take away a rich person’s money as it does to give money to a poor person.
Either way, the gap closes. Never, since the beginning of time up to 2015, has government ever added to wealth. It has no way to do so. And no intention of doing so. All it can do is to increase the power, wealth, or status of some people – at others’ expense.
The Trouble with Socialism
That is a perfectly satisfactory outcome for most people, at least in the short term. But the more this tool is used – the more some people’s power, status, and wealth is taken away – the more the wealth of all of them declines.
The trouble with socialism, as Maggie Thatcher remarked, is that you run out of other people’s money. You run out because there is only so much wealth available… and because the redistribution of that wealth distorts the signals and incentives needed to create new wealth.
Joseph Stalin’s modest little dacha in Moscow – highly appropriate for a the global leader of the proletarians
Photo credit: RIA Novosti
This means that society gets poorer relative to other societies that are not stealing from one group to give to another. After a while, the difference becomes a problem.
The meddlers see that they are falling behind and change their policies to try to get back in the race. (This is more or less what happened in Britain and China in the 1970s and the Soviet Union in the 1980s.) Or the poorer society is conquered by the richer one (which has more money to spend on weapons). There is one other wrinkle worth mentioning…
Stalin’s summer residence in Sochi – the leader of the proletarians after all needed to rest now and then.
Photo credit: Miracle Maker
Although it is true that “leveling” may have a pleasing aspect to the masses (bringing the rich down so there is less difference between the two groups)… it is also true that leveling is just what powerful groups do not want to happen. Even when the elite go after “the rich” with taxes, confiscations, and levies, they tend to look out for themselves in other ways.
Stalin’s private indoor swimming pool in Sochi – a marble-quiet place of contemplation, perfect for hatching out the new plans to improve the happiness of the proletarians.
Photo credit: Miracle Maker
They allow themselves special rations – special medical care… special pensions… special parking places… and various drivers, valets, and assistants. One study found that there was more difference between the way Communist Party members and the masses lived in the Soviet Union than there was between the rich and poor in Reagan’s America.
Soviet leader Leonid Brezhnev photographed during a hunt in the GDR with his buddy Erich Honecker. Only the “dear leaders” could indulge in such luxuries in the socialist Utopia.
Photo credit: Wladimir Musaelian / TASS
About to go deer hunting in the GDR’s hunting grounds for comrades that were slightly more equal than the rest of the population (from left to right): Günter Mittag, Secretary for the Economy of the Socialist Unity Party’s central committee, Erich Honecker, General Secretary of the central committee of the Socialist Unity Party, Andrei Gromyko, Foreign Minister of the Soviet Union of Socialist Republics, and Pyotr Abrassimov, the Soviet Union’s ambassador to the GDR
Photo credit: Bundesarchiv
Alan Greenspan Was Right
All of this brings us to here and now… and to gold. Traditionally, gold is a form of money. Money has no intrinsic value. It is the economy that gives money its value. The more an economy can produce the more each unit of money is worth. It doesn’t matter whether it is gold, paper, or seashells.
But just as the common man is deceived by money (he thinks more of it will make him happier), so are policymakers. Their belief is a little more sophisticated. They know it is the economy, not money, that creates wealth. But they believe that adding money (and more demand) will make the economy function better… and make people wealthier.
Digital credit galore: total US credit market debt (black line), gross federal public debt (green line) and GDP (red line). Somehow, adding more and more debt hasn’t really made us a lot richer. It has however created a great mass of debt slaves – click to enlarge.
And in today’s post-Bretton Woods monetary system, they don’t add physical money (gold, paper, or coins); they add digital credit. This new form of money takes the scam to a new level. We have been trying to understand (and explain) how the system works and why it is doomed to failure.
But Alan Greenspan – bless his corrupted little heart – was on the case even before the credit bubble began:
“Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets.
A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit.”
Alan Greenspan, here photographed during a poker game as he announces a raise by ten dimes.
- Is The "Smart Money" Ready To Bet On Gold?
For the last three weeks, gold has experienced something that has never happened before – hedge funds aggregate net position has been short for the first time in history.
However, as Dana Lyons notes, this week saw another 'historic' shift in gold positioning as commercial hedgers shifted to the least hedged since 2001… so the 'fast' money is chasing momentum and the 'smart' money is lifting hedges into them.
It’s no secret that commodities have taken a drubbing during the deflationary spiral over the past year. And precious metals have been right up front in this beating. This includes gold, which has lost over 40% of its value the past 4 years. So needless to say, there has not been much good news on that front. However, as we touched on in a piece two weeks ago, there are signs beginning to pop up that may provide a glimmer of hope for gold bugs. In dollar terms, the price of gold continues to leak, offering very little evidence of any impending stability or bounce. On the other hand, in Euro terms, gold prices reached a key juncture a few weeks ago, as outlined in that previous post. And while no bounce has materialized as of yet, gold has at least held at the level we noted.
Today’s Chart Of The Day offers another hopeful data point for gold bulls. The CFTC tracks the net positioning of various groups of traders in the futures market in a report called the Commitment Of Traders (COT). One such group is called Commercial Hedgers. As their name implies, their main function in the futures market is to hedge. And while the Non-Commercial Speculators tend to be trend-following funds, the Commercial Hedgers’ postions tend to move contrary to price trends. Thus, it is almost always the case that these Hedgers will be correctly positioned – and to an extreme – at major turning points in a market.
How is that relevant for gold? As of this week, Commercial Hedgers are holding the lowest net short position in gold futures since the launch of the gold bull market in 2001.
Does this mean that a reversal higher is imminent in gold? Not necessarily. The thing with COT analysis is that it is difficult to correctly determine when an “extreme” in Hedgers’ positioning will actually result in a price reversal. As is said regarding all sorts of market metrics, an extreme in COT positioning can always get more extreme. Plus, the COT positioning can peak well in advance of the turn. Consider the Hedgers’ maximum net short positioning in gold futures which occurred in December 2009, 21 months – and another 50% gold rally – before prices topped.
Thus, it is tough to time trades with accuracy based on the COT report. However, one thing we can say in the gold bugs’ favor: what had mostly been a headwind for gold for the past decade or so is no longer the case. While it may not make an immediate impact, the “smart money” Commercial Hedgers are now more aligned with them than at any point since the bull market began in 2001.
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More from Dana Lyons, JLFMI and My401kPro.
- Never Forget – "Worthlessness" Happens
It could never happen here, right? Again…
h/t @Not_Jim_Cramer
- When Hindenburg Omens Are Ominous
Excerpted from John Hussman's Weekly Market Comment,
I’ve frequently noted that Hindenburg “Omens” in their commonly presented form (NYSE new highs and new lows both greater than 2.5% of issues traded) appear so frequently that they have very little practical use, especially when they occur as single instances. While a large number of simultaneous new highs and new lows is indicative of some amount of internal dispersion across individual stocks, this situation often occurs in markets that have been somewhat range-bound.
Still, when we think of market “internals,” the number of new highs and new lows can contribute useful information. To expand on the vocabulary we use to talk about internals, “leadership” typically refers to the number of stocks achieving new highs and new lows; “breadth” typically refers to the number of stocks advancing versus declining in a given day or week; and “participation” typically refers to the percentage of stocks that are advancing or declining in tandem with the major indices.
The original basis for the Hindenburg signal traces back to the “high-low logic index” that Norm Fosback created in the 1970’s. Jim Miekka introduced the Hindenburg as a daily rather than weekly measure, Kennedy Gammage gave it the ominous name, and Peter Eliades later added several criteria to reduce the noise of one-off signals, requiring additional confirmation that amounts to a requirement that more than one signal must emerge in the context of an advancing market with weakening breadth.
Those refinements substantially increase the usefulness of Hindenburg Omens, but they still emerge too frequently to identify decisive breakdowns in market internals. However, one could reasonably infer a very unfavorable signal about market internals if leadership, breadth, and participation were all uniformly negative at a point where the major indices were still holding up. Indeed, that’s exactly the situation in which a Hindenburg Omen becomes ominous. The chart below identifies the small handful of instances in the past two decades when this has been true.
While the measures of market internals that we use in practice are far more comprehensive, the evidence from leadership, breadth and participation above provides a fairly obvious signal of internal dispersion in the market. In our view, that dispersion is a strong indication that investors are shifting toward greater risk aversion. In an obscenely overvalued market with razor-thin risk premiums, a shift in the risk-preferences of investors has historically been the central feature that distinguishes a bubble from a collapse.
In my view, dismal market returns over the coming decade are baked in the cake as a result of extreme overvaluation at present. An improvement in market internals, however, would reduce the immediacy of our downside concerns. While a decision by the Federal Reserve to postpone the first interest rate hike might prompt a shift to more risk-seeking speculation, this outcome is not assured. The key indicator of risk-seeking would still be the behavior of market internals directly, not the words or behavior of the Fed. So we remain focused on market internals. In any event, waiting to normalize monetary policy may defer, but cannot avoid, a market collapse that is already baked in the cake. The Fed has only encouraged the completion of the current market cycle to begin from a more extreme peak. As we saw in 2000-2002 and again in 2007-2009, until and unless investors shift toward risk-seeking, as evidenced by the behavior of market internals, monetary easing may have little effect in slowing down a collapse.
Read Hussman's full letter here…
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Interesting…
- China Plunges 13% Since July Despite The Following 24 Market Manipulation Measures
"The greatest trick the central planners ever pulled was convincing the world omnipotence existed…" until now!
Since July 1st, China has unleashed at least 24 separate "measures" aimed purely and simpy at manipulating the stock market higher than prevailing market forces would warrant…
And the result is…
A 12.5% decline exposing the un-omnipotence of central planners when the fecal matter strikes the rotating object.
- Guest Post: Will Trump Save The World (By Doing A Deal With Putin)?
Authored by Edward Lozansky via Sputnik News,
For the past few weeks we have heard plenty of statements from Washington about the huge threat to U.S. National Security coming from Russia. Secretary of Defense Ashton Carter and top Pentagon brass are convinced — or say they are — that the Russian threat is an absolute reality. The latest in this row is the statement by the Head of the US Special Operations Command General Joseph Votel, who also views Russia as an "existential threat" to the United States, repeating accusations against Moscow over the Ukrainian crisis.
In Congress, the party of war keeps pushing the same line but If this were only related to the upcoming budget sequestration discussion — which, among other things, can affect the Pentagon — one could dismiss this incessant talk of an imminent Russian threat as a simple money extortion exercise. However, I am afraid it is not just about money.
Washington hawks want regime change in Russia, no more and no less. Their hatred of Putin, who has the guts to have his own opinion of world affairs, and who stands firm for his country's right to look after its security interests, makes him the ultimate evil — someone who has to go and be replaced by a more malleable character. A person like Boris Yeltsin, who knew who is running the show on the world stage and humbly accepted this sober fact.
It's a different question how to achieve Putin's overthrow without a major military confrontation with Russia, a conflict that can well end in a conflagration engulfing the whole planet. It is one thing to perform regime change in Iraq, Libya or Ukraine but dealing with nuclear-armed Russia is quite a different matter.
Presently the hawks' thinking is still at the stage where they believe they can get rid of Putin through economic sanctions and by using the conflict in Ukraine to exhaust Russia's strength, ruin its economy and undermine its stability. There is no question that substantial damage to Russian economy has been done. It is not "in tatters," as Mr. Obama recently gloated, but is definitely shrinking and the number of people living below the poverty line has indeed increased. However, Putin's popularity is not heading south; on the contrary, his ratings jump a point or two every time another angry anti-Putin rebuke from Washington hits the airwaves.
Instead of accepting the failure of the current policy of sanctions and start searching for some kind of reasonable compromise, the party of war is pushing for escalation in tensions which can end up really badly for everyone. Any incident, however unintentional and insignificant in itself, can grow into something that we all — or rather those who will have survived — will remember with a sense of everlasting wonder at human stupidity.
What we see now resembles the hysteria in 2003 prior to and during the Iraq invasion. The party of war is so hell-bent on its perilous course that it can hardly be swayed by any reasonable arguments of those against warmongering. Nowadays even the most ardent supporters of the Iraq and Libya wars admit that they were huge mistakes which resulted in hundreds of thousands dead and wounded, millions of refugees, trillions of dollars wasted and the rise of ISIS on top of that.
Besides, there is another question that needs to be considered coolly and factually. Does Russia really represent the great or even greatest threat to America or for that matter to any NATO country?
Many Russians believe that actually it is America that represents the greatest threat to their country. Was it Russia that instigated a military coup in Mexico and installed an anti-American corrupted oligarch as its president? Was it Russia that imposed devastating economic sanctions on America — or is it the other way round? Is it Russia that supplies weapons and trains Mexican nationalists who are thinking of getting back territories lost during an armed conflict between the United States and the Centralist Republic of Mexico in the wake of the 1845 US annexation of Texas, which Mexico regarded as its inalienable part. Is it Russia that funds and supports American protest groups, something that we do around the world through the democracy promotion crusade?
As for the military threat, Putin and his generals are well aware that NATO armed forces are ten to fifteen times stronger than Russia's. You can call Putin any names but he is definitely not insane or suicidal. However, if you try to back the bear into a corner, anything can happen.
At this point it looks like the only and lonely sane voice in Washington belongs to the Secretary of State John Kerry who recently stated that he "doesn't agree with the assessment that Russia is an existential threat to the United States…. Certainly we have disagreements with Russia…but we don't view it as an existential threat."
As for the huge crowd of presidential candidates, it looks like so far the only one who promises to fix the US-Russia relations thus avoiding a looming disaster is Donald Trump. In his recent interview on CNN he said that he would be able to work well with the Russian president.
No matter how the media and Republican Party establishment are trying to humiliate Trump, I for one would give him a chance.
- Hillary Makes Her First Ad Buy
- "They'll Blame Physical Gold Holders For The Failure Of Monetary Policies" Marc Faber Explains Everything
Submitted by Johannes Maierhofer and Peter Matay via Marcopolis.net,
In this exclusive interview with Marcopolis.net Marc Faber covers it all: from commodities and China to the outlook on inflation, the Euro and gold. According to him the global economy is not healing. To the contrary, we might find ourselves back into recession within six months or a year. In that case he expects more money printing by central banks, which eventually could lead to high inflation rates and renewed strength in commodity prices.
On the bright side, he sees great economic potential in Vietnam. Also, the Iraqi stock market has good potential now that a deal with Iran has been reached. While mining stocks are extremely depressed we might see defaults before any meaningful recovery.
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In your 2002 book “Tomorrow’s gold” you identified two major investment themes: emerging markets along with commodities. That was a great call. As for commodities, they had a great run up until 2008. Then they crashed sharply along with everything else just to recover strongly into 2011. Since then they have acted weakly, and recently commodities even reached a 13-years low. Is this the end of the commodities-super-cycle, as some have claimed, or is it more like a correction?Well that’s a very good question because obviously the weakness in commodities this time is not due to, like, contraction in liquidity as we had in 2008. 2008 commodities ran up very quickly in the first half until July. The oil prices in 2007, just before they started to cut interest rates in the US were still at 78 dollars a barrel and then by July 2008 they ran up to 147 dollars a barrel. Afterwards they crashed within six months to 32 dollars a barrel and then as you said in 2011-2012, they recovered and were trading around 100 dollars a barrel. Now they have been weak again as well as all other industrial commodities and precious metals.
My sense is that this time around, commodity prices are weak because of weakness in the global economy, specifically weakening demand from China, because if you look at the Chinese consumption of industrial commodities, in 1970 China consumed 2% of all industrial commodities, by 1990 it was 5% of global commodity consumption for industrial commodities and by the year 2000 it was 12% and then it went in 2011-2012 to 47%, in other words almost half of all industrial commodities in the world were consumed by China.
Therefore a slowdown in the Chinese economy has a huge impact on the demand for industrial commodities and on the wellbeing of the commodity producers, whether that is the commodity producers in Latin America, in Central Asia, Middle East, Australasia, Africa and Russia.
And so because of the reduced demand from China, the prices have been very weak and I think that may last for quite some time because the Chinese economy will not go back and grow at 10% per annum any time soon. My view is that at the present time, there is hardly any growth in China. In some sectors there is a contraction and in some sectors, and don’t forget China is a country with 1.3 billion people, so some provinces may still grow and other provinces may contract, as well as some sectors may grow and others may contract. But in general I think the economy is weak.
My estimate is that at the very best the Chinese economy is growing at the present time at say 4% per annum and not at 7.8 or 8% as the government claims. We have relatively reliable statistics like auto sales and freight loadings that are down year on year, electricity consumption, exports, imports and so forth. So there has been a remarkable slow down and to answer your question about commodity prices, if the global economy slows down as much as I do believe, because other economists predict an acceleration of global growth, a healing of global growth, my sense is that it is the opposite, that within 6 months to one year we are back into recession and then it will depend on central banks and what they will do. Up until now, they have always printed money and I suppose they will continue to do that.
Now from a longer term perspective, commodity cycles last 45 to 60 years roughly, from trough to trough or peak to peak. In other words we had a peak in 1980 and then commodity prices were weak throughout the 1980s and 1990s, then in 1999 they started to pick up and went and made a peak for most commodities in 2008 and for the grains 2011-2012. Since then everything has been weak. I could argue that well, maybe this is a major correction in the commodities complex within still an upward wave of commodity prices and that the final peak prices are not yet seen.
As for Chinese stocks, they went up very strongly over the last year, but recently they crashed just as hard. Is this a precursor to something worse or is it merely a bump on the road towards a still ascendant China?
Well I think that a year ago in June/July 2014, Chinese stocks were very inexpensive compared to other markets in the world. They had been going down relative to the S&P since 2006 and compared to other Asian markets like the Philippines, Indonesia, Thailand… they had performed very poorly.
So a year ago my view was that a) because of the crackdown on visitors to Macau and more importantly because the property market in China was beginning to show cracks, prices were no longer going up and many markets were over supplied so my sense was that domestic money would shift out of the property market or de-emphasise property investments and go into equities, at the same time international investors were grossly underweight Chinese stocks and my sense was that as an international investor you look around the world and see all of these markets, the S&P is up at an all-time high last year already and then you see a market like Japan that two years ago was very depressed compared to other markets, so money went into there.
A year ago what was very depressed relative to everything else was the Chinese stock market. So money flowed also internationally into Chinese stocks and the market in China is relatively illiquid. You have to see. Because most blocks of shares are owned by the government or by large Chinese groups so what is available for trading is not that large.
Then the money flowed into Chinese stocks and they went up by more than 100% within a year and the whole thing became very speculative because in China people borrow a lot of money against what they buy whether it is properties or stocks and so the margin accounts increased dramatically and the margin debt reached almost 4% of GDP whereas in the US it is around 2% of GDP and it is at its highest level ever. So 4% was a very big figure. I think the government´s measure to support the market will largely fail and that eventually there will be more selling pressure and stocks will retreat somewhat more.
Do they go back to the levels of a year ago, to the 2014 lows? I don’t think so. I think this may be the beginning of a new bull market in China, but after a 100% rise we could have, like, from peak to trough a 40% correction. Or even 50%.
China has established the Asian Infrastructure Investment Bank (AIIB) and went ahead with plans for a so called “New Silk Road”, a huge infrastructure project, connecting China with Europe via a new land route and a maritime equivalent. Steen Jakobsen from Saxo Bank mentioned a while ago that this could be a game-changer – particularly in regards to the demand for commodities as much of the work and investment needed is in infrastructure, buildings and railroads. What do you think?
Well I think there may be some euphoria about this infrastructure building and the ´New Silk Road´. My sense is that yes, some investments will take place but we have to recognise that first of all it will take time. It is not going to be built overnight. Whether it will be really so profitable is another question and the other question is will China have the money to do it?
We are moving here into geopolitics, basically, because of the antagonism of the Western world towards Russia specifically Mr Putin, whom they portray as a villain when in fact he wasn’t the aggressor, it is NATO and the Neocons that essentially pushed the existing government out in Ukraine and began to create the whole problem that we have. If you look at the map of Europe and Eastern Europe it is very clear that Russia will not allow NATO to be east of the Dnieper River, in other words in eastern Ukraine nor will they give up the Crimea, this is strategically of great importance for Russia, has no strategic value for anybody else except for Russia. So the tensions have arisen and because of this hostility of the West towards Russia, Russia has been pushed closer to China.
They share very substantial borders areas with each other and because of the proximity of the two countries and the nature of their economies, Russia possessing the resources and China largely technology and consumer goods which Russians don’t necessarily produce, there is a symbiotic relationship going on. The Chinese and the Russians want to exploit this strength, what they call the hinterland essentially and the rim land in geopolitics.
Of course the US is completely against it because the containment policy was precisely directed against the major power emerging again in Central Asia and Far East Russia and in Russia. So this Silk Road initiative in my view is far from being a certain thing that it will succeed because there are also political obstacles and you know, when the Americans want to create trouble, that they excel at, they are very good at doing that.
Instead of building nations they destroy nations, from Libya to Egypt to Syria to Iraq and Afghanistan. Whatever they touch, they mess it up or in good English F* up!
What about Europe and Russia? E.g. many German industrialists don’t seem too happy with the current sanctions regime.
Not at all. Actually, you ask ordinary people in the whole of Europe about the policies of the governments towards Russia, 90% of ordinary people disapprove of the politics and policies that have been implemented and with the way European governments behave as if they were feudals of the United States and vassals of the US.
The reality is that Europe should be very close to Russia as it was in the 19th and 18th century, with very few exceptions like for example when Napoleon attacked Russia or when Hitler attacked Russia, but ordinarily the two regions, western Europe and Russia were much closer than say western Europe and the US because of the proximity and also culturally they were quite close.
You already mentioned commodity cycles. Economists have long debated the existence of long term waves in economics – the most prominent concept of which is the so called Kondratieff cycle. In your 2002 book you pick up on the idea by guessing where we might find ourselves in the current Kondratieff wave. If you did the same today, what do you think? Are we still in a falling wave? What are the important characteristics to look at? And most importantly, what does it mean for the medium to long-term outlook?
I mean, Irving Fisher the economist who essentially became famous because of his book Booms and Depressions in the 30s, said well this is a very difficult issue with knowing where in the cycle you are because basically it is like you are sitting on a ship and there are waves that will move the ship but then there is also wind that may come from another direction and the waves are not all regular and so forth, so the ship can have many different motions.
My view regarding the Kondratieff is that first of all it is important to understand that it is not really a business cycle but a price cycle. The price cycle obviously in the 19th century when economies were much more commodities related because agriculture until the beginning of the 20th century was the largest employer, so when agricultural prices went up, the farmers had more money and it benefitted the farming population and so the economy picked up and when the farm prices went down especially in the US with cotton obviously the economies that were producing these commodities suffered.
So in the 19th century we had several cycles, upcycles and down cycles. Basically the last down cycle as I mentioned would have been in essentially 1980 to around 1998-1999, so approximately twenty years. The up cycle before was between the 1940s and 1980s. You can’t measure it precisely. My sense is that one missing element in the Kondratieff in the late 1990s and early part of 2000-2005 was that normally when the Kondratieff bottoms out, Schumpeter, he built his business cycle theory around the Kondratieff and he explained that usually in the trough of the Kondratieff, in the depression, you have a massive liquidation of debts, and that hasn’t happened, it hasn’t happened.
And so it is conceivable that we were in a downward wave of the Kondratieff after 1980 and then we had within the downward wave this upward wave because of the opening of China, between 2000 and 2008. And as the Chinese economy weakens and as the debt level today is globally as a percent of the global economy 30% higher than it was in 2007.
So we can´t say that there has been deleveraging, on the contrary! The debt level is even more burdensome today than it was in 2007. Therefore it is possible that the big debt deleveraging is yet to occur and when it occurs then obviously commodity prices will still be weak for a while.
The question is then, if we follow through and say ok, the price of copper went from 60 cents a lb to over 4 dollars a lb and now we are around 2 dollars a lb, if it goes back down to 60 cents a lb, which I don’t believe it will, but say if it did, or if gold went back to 300 dollars and oz., if it did, what about financial assets?
Where would they be? Because that decline in commodity prices would signal a huge problem in the global economy and under those conditions I doubt that financial assets would do well, there would be massive bankruptcies among governments and massive write offs in sovereign debts. Greece should write off at least 50% of their debts and even then the debt would probably be too burdensome for an economy that hardly produces anything! So these are signals that I take very seriously and I quite frankly given the recent weakness in commodity prices, I can´t see how the global economy is getting stronger. I just can´t see it.
What was still in place until recently is this long term down trend in interest rates.
Yes, sure. You see, traditionally the Kondratieff is a price cycle and interest rates follow the Kondratieff very closely. So if you take the last cycle, the peak 1980 for commodity prices and at the same time you had the interest rate peak in September 1981 when long term US treasuries were yielding over 15%.
Then we have the down trend in the Kondratieff until 1999 -2000, the commodity prices start to go up but interest rates continue to go down. So that would again suggest that there is a possibility that this entire boom in commodities in 2000-2008 was actually a bull market within still a downward wave in the Kondratieff, it is possible.
In regards to the colossal amounts of debt there are two major schools of thought: Inflationists and Deflationists. According to the first, all the money printing will lead to high levels of inflation, devaluing the currency and with it the debt will be inflated away. Deflationists would hold against, that, even if central banks wanted to, they ultimately cannot stop deflation. Where do you stand in that debate?
Well you know it is like in a bubble. The bears are right and the bulls are right but at different times. Every bubble will go up and then eventually the bubble will burst and then you know prices collapse. So during the bubble stage the bullish people are right and during the collapse the bears are right, but at different times. This is the same with deflation and inflation; I think both will be right, but at different times. I believe that most people have a misconception of what inflation is. In other words most people, they think of inflation as an increase in price of goods they go and buy in the shop over there and over there, at the butcher and at the baker and in the grocery store and so forth when in fact this is just one of the symptoms of inflation.
You can have inflation that manifests itself in sharply rising wages, this hasn’t taken place but if you look globally, say in China, wages have gone up substantially or you take Thailand, wages have gone up substantially. Or it can manifest itself in rising commodity prices. Well I mean commodity prices have been weak lately but the oil price is still close to 50 dollars a barrel and it was at 12 dollars a barrel in 1999 and gold is still around 1000 dollars and it was at 300 dollars and below in the 1990s, the low was at 255 dollars. You understand? A lot of things have been weak recently but they are still up substantially compared to the past.
Or you take bond prices, in other words bond prices go up when interest rates go down. Bond prices in the last hundred years have never been this high; in other words interest rates have never been this low on sovereign debts. Or you take equity prices, ok some markets are down, mostly the emerging markets whether it is Russia or Brazil or the Asian markets, they are down from the peak but they are still much higher than say ten or fifteen years ago. Or you take property prices, it depends which properties but most property prices, for example if you look around here in Switzerland, the prices are much much higher than they were fifteen, twenty years ago.
Even in some areas, they may have come down a bit but in luxury areas there are record prices. Or you take the Hamptons, or Mayfair in London, or Chelsea in London, Kensington and so forth, prices are very high compared to say twenty years ago. Or you take paintings, art… I mean when I grew up and I started to work in 1970 in New York, in New York at that time a Rothko painting was offered to me for 30,000 dollars. I didn’t buy it because I thought why would I pay 30,000 for something like this! Now a Roscoe is maybe ten, twenty, thirty million dollars and I have a Warhol, it is not a big painting but nevertheless I bought it for 300 dollars in the 1970s. You understand? Prices have gone up dramatically, so if someone says to me, well there is deflation, I tell him, well tell me in what? You know, Hong Kong property prices, Singapore property prices, even Bangkok, Jakarta and so forth, all have been grossly inflated.
Therefore I think we have to re-examine the definition of inflation whereby maybe we have some sectors of the economy that are deflating, like if we measure wages inflation adjusted, they are all going down in the western world because a) the consumer price inflation that the Federal Reserve and Europeans report has nothing to do with the cost of living increase, the cost of living increases and we have studies about this, in most American cities are rising at between 5 and 10% per annum and if you include insurance premiums, health care costs, education costs and so forth.
So these prices are going up strongly. Or taxes, indirect taxes like tunnel fees or bridge tolls and so forth, all that is going up much more than the CPI and this is where people have to pay for to actually go to work and live. This is then reflected, this kind of inflation is reflected in a diminishing purchasing power of people, that’s why retail sales are relatively poor in the US despite of the fact that we are six years into an economic expansion. I am always telling people, you know when I started to work I didn’t have to be smart because if I put my money on deposit with the banks or bought government bonds they were yielding 6%.
Then from 1970 to 1981 interest rates continuously went up, so the compounding impact was very high. Now if I am a young guy, say your age; then I want to put my money on deposit, I am being F*d essentially by the banks because they are not paying me anything. If I buy ten years US treasury notes I am getting a yield of less than 3%; 2.3% at the present time and it was below 2% six months ago. So how can I really save? How can I make money? I want to buy a house ok?
Then you have to pay a huge price and the mortgage rate may still be around 4% you understand? So it is still relatively high interest rates on mortgages and one of the reasons that new home sales are not particularly strong is that young people just don’t have the money to buy it because a) they are also burdened with student debts. So I mean these are all issues that are very complex.
My sense is that knowing the central banks, and knowing the way that they think, what will come up when they realise that the global economy is not healing but actually back into contraction under the influence of the neo-Keynesians like Krugman, they will say, you know what?
We haven’t done enough, we have to do much more, and then they will print again and that is why I think that eventually we could have high inflation rates and a renewed increase in commodity prices.
A major argument by deflationists is that ultimately social mood might change. So while in 2008 everybody applauded the Fed for having saved the system, next time around it could be different. All the extraordinary measures might become too controversial, and all of a sudden we could see defaults happening in earnest. Is that a real possibility?
Yes. I mean I have read a lot about inflationary periods in history which we have experienced from time to time, under John Law in France and then later during the French revolution and in Latin America. I also experienced periods of high inflation myself in the sense that during the very high inflationary period in Latin America in the 1980s I visited most Latin American countries because I was interested in the fact that when you have high inflation in a country, usually the currency tumbles and so although there is high inflation in local currency, in a strong currency unit, like in the 80s the dollar was strong, the price level actually went down very substantially so investment opportunities were fantastic.
You could buy buildings in Buenos Aires, the stock market in the late 1980s in Argentina… the whole stock market was worth 750 million US dollars, 750, less than a billion. So you could essentially have bought the whole of Argentina for less than a billion dollars!! What happens in these periods of high monetary inflation is it is highly beneficial for a few families and a few well to do people because they know how to move their money between local currency and foreign currency and they know how to accumulate assets.
The people that get hurt are the masses, the middle class, the lower classes because their wages go up much less than the cost of living increases. Then what usually follows is a kind of political change of wind and you have new governments coming in and sometimes you have revolutions and sometimes you have an entire new leadership.
We had hyper-inflation in Germany and by the way there is a very good book out about the economics of inflation during the Weimar period, but in each instance it led to a polarisation of wealth and this is precisely what is happening now. You have huge merger and acquisition activity and you have stock buy-backs and if you look at the wealth inequality it is not between 1% of the population and 99, it is between 0.01%, the Carl Icahns of this world and the big assets holders and then the masses that do not have assets so they don’t benefit from rising asset prices.
In my view, you know you look at Trump, Donald Trump is no genius or anything, and he is not a particularly honest person either because his investors that bought bonds that were issued by his companies, most of them lost money, but he touches on one point, and this is a great dissatisfaction of the American of the typical American with his government.
I can tell you also that here in Switzerland, 90% of the people, they think the government is no longer looking after the interests of the people but after their own interests. It is the same in Europe. I think this is a huge failure of democracy, that democracy instead of having been able to elect leaders that look after the interests of the people, they actually look after their own interests. I mean you look at the Clintons, the Bush families and so forth, do you think they care about the ordinary Americans? They don’t care, they care about themselves, it is a power game. They care about money that is for sure.
When the German finance minister recently proposed a temporary Greek exit from the Euro it was perceived as a breach of what was long held as the sanctity of Monetary Union. For the first time a leading European politician departed from the line “to save the Euro no matter what”. Could this have been a watershed moment? What do you think, five or ten years from now, will there still be a euro, will it still be in the same composition or will it simply fall apart?
Nobody knows that. We don’t know how the world will look in five or ten years´ time but I would say that I believe the euro will survive. Now the question is, in what form? Maybe there will be a euro like a US dollar, we have a US dollar, and maybe some countries like Greece, Italy, Portugal, Spain will no longer use the euro and will have essentially gone back to their local currencies. It could be, maybe not. Because you understand, the typical Italian, Spaniard and Greek, he knows very well: we leave the EU, our pensions will be paid in local currency and that will be much less than what we get now.
So on the one hand, from a nationalistic point of view, most Europeans would like to leave the EU but when they look at their pocket book, it is like when Scotland, when the vote came up to exit Britain, Great Britain, the young people, most of them voted for the exit, but the elderly people, the pensioners, they were threatened, again because as you say the media said well you leave the EU, your pensions will be cut… so if you are an elderly pensioner, what do you prefer, to get your pension and be part of the UK or leave the UK and get lower payments?
This is one reason I think the EU may stay together but of course if the economic conditions in the southern countries, Greece, Italy, Spain… do not improve, if they actually worsen again then maybe the move towards leaving the EU will become very strong. Number two, I have been writing about this, you know if you look at history, we had great empires, the Greek empire and the Roman empire and the Ottomans and the Spanish empire and the British empire and now we have the supremacy of America that I probably waning but it was certainly there after the Second World War, the point is usually if you had empires in the past, it was very costly because you had to keep armies in the so called colonies in your territories, and if there were problems you would have to send in the troops and the ships and so forth to essentially enforce your empire.
In the modern empires, like the EU, you may have to pay. It is not sending armies to Greece but basically you have to pay so that Greece stays in the empire and then comes the questions the Germans ask, how long are they going to be willing to pay for it? Because it comes out of tax payers´ money, you understand, the politicians, they don’t pay it. Most politicians don’t even pay taxes because they are with the EU in Brussels or with the IMF or the OECD, all these clowns they don’t pay tax and then they go and propose wealth taxes on the others, on us, who work. They don’t work, they don’t pay tax but the others should pay tax.
Basically the tax payer in Germany one day he will say well we don’t like the policies of Mrs Merkel and this is happening in America, they don’t particularly like Donald Trump but they like the fact that he points the finger at all these others that have abused the system so badly. My sense is that we could have not necessarily revolutions in the sense that you have armies fighting against each other in Germany and France like in the French revolution and so forth but what we could have is through the democratic process people saying we are just fed up with these bureaucrats in Brussels and the ones in Berlin and the policies that always lean on America. We are sovereign nations; we want to be free, even if it costs us something.
We in Switzerland, we are not part of the EU but de facto, through the back door, Switzerland has essentially become an EU member.
Via regulations…
Yes. Absolutely. The Swiss fought for independence for the last 800 years and now suddenly they accept everything! They have no fighting spirit anymore!
But let´s assume some countries are ready to leave the euro zone. In the case of Greece this would go along with a major haircut or an outright default…
Yes, but a haircut and the default will occur regardless. I mean, even the IMF accepts the fact that the Greek debt has to be reduced somewhat. What they have done lately is the EU lends money to Greece and Greece then can pay the ECB and the IMF. It is a complete joke! It is a complete joke! It is like if you borrowed money from me, a thousand dollars, after one year you say, Marc look I can´t repay you and I can´t pay the interest, but if you lend me another thousand, then I can pay you the interest on the first thousand. But then you owe me two thousand!
And after the third year you come back and say Marc I´m very sorry, I can´t pay you the two thousand maybe you will lend me another thousand so I can at least pay you the interest on the two thousand! And so the game goes on. When you look at Greece objectively, private investors would never have lent all together 300 billion dollars to Greece, never! But governments are the peoples´ money you understand?
The ECB and the ESM and so forth are other peoples´ money, they don’t care.
When you say the defaults will come anyway, it would have huge implications, after all over the last 40-50 years it was inconceivable that a Western country would actually go bankrupt.
Well actually Greece has defaulted before and repeatedly.
Greece is relatively small compared to, let’s say, Italy. For a country like that to go bankrupt it would have huge consequences…
Yes sure, I agree with you that’s why we were discussing before that the debt liquidation hasn’t occurred yet. I mean I am less concerned about say Spain, Italy, France, and Greece defaulting than a big one defaulting. You understand? The US is not in a very good position either, if you look at their unfunded liabilities.
In America many cities are basically bankrupt as well as some states or semi states like Puerto Rico. Then, have a look at Japan, the Japanese situation is very serious in the long run because if interest rates, they are now on 10 years JGBs 0.03% but already at these very very low rates, Japan pays, I think close to 45% of tax revenues go to payment of interest on the debt. Now if the interest rates went up on JGBs to say 1%, all the tax revenues would have to be used to pay the interest on the debt! In my view, Japan has no other option but to print money or default and that will then imply that the Yen will then become weaker and so forth.
I mean the whole system in the world is in a complete mess.
But so far the central banks and the authorities were able to paint fresh paint on the cracks and so they are not that visible. And don’t forget; who actually has something to say in economics? Most of the people are university professors but they are somewhat linked to the Federal Reserve or to another central bank through consultancy arrangements and so forth.
Basically they are bribed to support the system. Number two, the financial system consists of money managers, hedge funds, the large long bonds, long equities funds like Fidelity and PIMCO and so on, all these guys are interested in money printing because it lifts the asset values and with rising asset values the fees go up and the performance fees go up so nobody has interest actually in an honest economic policy, they all are in favour of Bernanke´s bailout of problems that occurred in 2008.
What about QE being counterproductive in the sense that it actually increases deflationary pressures? The premise is that by keeping rates artificially suppressed, central banks make it impossible for the market to purge itself of inefficient actors. As a result, otherwise insolvent companies remain operational, adding even more to excess capacity. What do you think?
Yes. I think that is a very good point. That if you print money, the money will not flow evenly into the economic system and this has already been observed by Copernicus who wrote about money and it was later also observed by David Hume and by Irving Fisher that when you print money, the money flows do not benefit all classes of society and all industries equally at the same time.
What then happens is that you look for instance at commodity prices, ok, we had money printing and then prices rose but not only because of money printing, they rose mostly because of the incremental demand from China, but the Chinese boom came to some extent from money printing in the US which led to rising trade and current account deficits until 2008, until the crisis. Since then actually in terms of goods, the trade balance in the US has worsened again, further, but because of the oil industry the overall trade and current account deficit has been diminishing.
The point is simply this, the over capacities that we have in some industries like steel in China, cement and in resources, iron ore, this was made possible by money printing. I am not saying only, by to some extent money printing was responsible. The housing bubble, the housing inflation in the US was made possible by money printing and keeping interest rates artificially low. Now we have a bubble in sovereign debt and we have a bubble in equities, certainly in US equities.
When that bubble deflates eventually in sovereign debt and in equities, what the impact will be on the economy will be interesting to watch because the markets are not prepared for rising interest rates.
You already mentioned shrinking trade deficits in the US. As for the US dollar, it has considerably strengthened and at the same time treasury yields are really low…
Yes.
… and, if we understand correctly, you have been relatively positive on treasuries recently…
Yes.
… at the same time you mentioned that the long term outlook for the US is very bad…
Yes. Well you know it is like you have a wife and you have girlfriends! And the wife is maybe permanent but the girlfriends come and go! Optically, long term I would say ten years treasury or thirty years US treasury is of course unattractive, that we all agree because interest rates have been trending down since 1981 so we are more than 35 years into a declining interest rate structure, so we must be close to a low in interest rates.
The only question here is, the economic recovery in the US began in June 2009, so we are six years into an economic expansion, and this is historically the third longest expansion. We have been six years, March 2009 low S&P 666, where it went over 2100 so we are over 6 years into bull market, then I say to myself, I see the global economy weakening and I see French, Italian and Spanish bond yields lower than US treasury yields so with the view that most people have that the US dollar will remain relatively strong, I say to myself everybody is bullish about stocks in the US and everybody is bearish about bonds.
I say to myself maybe treasury notes, the ten years and the thirty years as an investment for the next 3 to 6 months is maybe not so bad. Then I also advocate in my investment strategy, always diversification between real estate, equities, bonds, cash and precious metals. And if someone comes to me and says Marc you are bearish about the world, shouldn’t you be all in cash?
I say yes, maybe that is correct except if I put all my money in cash with the banking system I take a huge risk because we have seen it in the case of Greece, we have seen it in the case of Cyprus and now they have announced that basically investors if there is again a crisis they will also have to pay something so if you have say 20 million dollars with the banks, and they have a problem, maybe you will only get 50% back. So I say to myself, rather than have the money in the banks I would have it in treasuries.
What about gold? Being in a correction mode for a couple of years already, it recently has broken down some more.
Well as you know there are so many explanations ranging from manipulation to essentially Chinese selling which could have been the case you know that margin calls went out for stock accounts, the margin buyers may not have been able to sell their shares because still about 20% are not trading.
Number two, they can’t sell their properties because you can’t sell overnight the properties so the margin call has to be met the next day and property transactions may take, I don’t know three months until you close and maybe there were some corporations or individuals that were holding gold and so that they could liquidate, that is an explanation that I could sympathise with.
Or you could say because of the strong dollar people became, or had hesitations of owning gold because they said if the dollar is strong why would I own gold? I mean there are lots of explanations. The simple explanation is of course that there were more sellers than buyers at that particular time. Now if you look at the pole market in gold, 1999 255 dollars went to 1921 dollars in September 2011 and then we had this correction which now we are in 2015, four years on and the price was always holding around 11 or 12 hundred and now it looks like it has broken down on the downside and then you have to ask yourself well is it a breakdown that will lead to further selling in other words, prices would move lower and find the low at, I don’t know, maybe 700, 800, 900 dollars, a thousand or is it a final liquidation from which prices will start to move up.
I really don’t know, all I know is that I own gold and it doesn’t worry me that it went down because as I mentioned to you I have this diversification, the bonds in US dollars and the cash in US dollars has been a good investment essentially over the last twelve months. Then I own equities and I own properties in Asia that have been reasonably good investments so the fact that gold is going down doesn’t worry me and I buy every month a little bit but I think on this weakness I will increase the position substantially because I had maybe say 25% in gold but because equities and properties went up, the dollar went up and gold went down, the allocation to gold is no longer 25% but maybe only 10 or 15%.
So then I have to stock it up again. But I would say an individual should definitely own some physical gold.
The bigger question is where should he store it? because I think if we think it through, the failure of monetary policies will not be admitted by the professors that are at central banks, they will then go and blame someone else for it and then an easy target would be to blame it on people that own physical gold because they can argue, well these are the ones that do take money out of circulation and then the velocity of money goes down, we have to take it away from them.
That has happened in 1933 in the US. With our brilliant governments in Europe that follow US policies and with the ECB talking every day to the Federal Reserve, they would do the same in Europe, take the gold away from people.
Back to where we started: major investment themes. Which ones are you seeing on the horizon, if any at all?
Yes, I mean first of all some investment themes are not easy to implement for individuals. In Asia, one country that stands out as having great economic potential is Vietnam.
And by the way the whole Indochinese region with Vietnam in the east and then north west with Laos, south west with Cambodia and then Thailand, Myanmar, India, Bangladesh and in the north China, and in the south Malaysia, Singapore… that whole region with over 500 million people has tremendous growth potential and Cambodia at the present time is a boom town, a boom country because it is also politically related, the Japanese and Koreans invest a lot of money as well as the Americans and the Chinese so they all compete essentially because Cambodia is strategically important.
Vietnam has a very strong export performance, the stock market has performed very badly for the last few years like China, until a year ago, properties have come down but in my view they are now bottoming out. The Vietnamese people are hardworking people not like say easy going like the Thais or the Indonesians or Philipinos, so I believe the country has a great potential.
Number two with the agreement with Iran, I think the future of southern Iraq is guaranteed in other words, from Bagdad south, that whole region where the oil is, Basra, that is Shia, their political future is essentially guaranteed because the Shias of Iran will not let ISIS capture that territory nor let Saudi Arabia invade. The Iraqi stock market is very inexpensive, it is very cheap. It is very difficult to invest now in Iran but in Iraq it is much easier and there are funds so that is an opportunity in my view. For the last few years emerging markets have underperformed say the US grossly, but if I look at the next ten years and in the immediate future, I don’t think that the emerging markets will perform well, they will come off further in my view but they are markets that offer relative good value in the sense that you have many shares say in Singapore, Malaysia, Thailand…that have a dividend yield of say 5-6% so at least you paid to wait. It is not yet at a very attractive valuation level but it´s reasonable. It is a world of inflated assets. Mining stocks are extremely depressed, I mean if someone says what is cheap in the market place then I would say the miners are incredibly low, next station is bankruptcy and maybe one of the big ones still goes bust and that would probably signal the end of the bear market in precious metals. Possible.
The future is unknown and we are not dealing with markets that are free markets anymore. A free market is defined as a market when no market participant has a dominant influence and can manipulate the market. Now we have government interventions everywhere and you don’t know what they will buy next. They bought bonds and mortgage backed securities to depress the yields on these securities, they pushed interest rates essentially everywhere to 0, and by doing that they basically expropriate savers because money, one of the functions of paper money is to store value but at zero interest rates there is no store of value.
They may through sovereign funds, they have done it already and the Swiss National Bank already bought shares, the Swiss National Bank they own over a billion dollars in Apple stock! You can be sure that Apple will go down because whatever the Swiss National Bank does is a disaster!
That is a very good sell signal! The other sovereign funds have also bought equities. Now the sovereign funds are not going to increase anymore because most of them are oil related so they have to actually liquidate and that is a game changer from one trillion dollars in assets, sovereign funds in year 2002, they went to over seven trillion, I think they are going to come down to maybe three trillion, that will have an impact on liquidity and on yields.
As for the long-term outlook, if the current set-up fails, what could replace it?
That’s why I think they will take the gold away and go back to some gold standard by revaluing the gold say from now 1000 dollars an oz. to say 10,000 dollars an oz.
This sounds rather far-fetched; at least when listening to professionals and people in academia.
Yes but I want to tell you, just in the last say twelve months, I have observed an increasing number of academics who are questioning monetary policies.
I mean some academics that have been quite mainstream in the past. I mean John Taylor has been critical for a long time as well as Ana Schwartz but she passed away and as Milton Freedman who also passed away a long time ago. But basically now I see more and more academics and influential people, also among the Republicans that are actually questioning the Fed and also the integrity of the Fed. That is a crack and as you said the credibility of the ECB is in my view badly tarnished already because people say how could they lend so much money to Greece?
But you understand, they never ask ordinary people, they ask academics, or economists and they all also get paid somewhere because they are either in the one or the other commission, so they are not going… it’s like if you go into a hospital and a doctor has killed a few patients unintentionally, another doctor will never testify against him. He will shut up because he is afraid one day other people will turn against him. Mistakes happen. And so among academic circles you will very seldom find criticism of central banks.
* * *
- Startups Getting Trashed
Well, the San Francisco Bay Area startup-for-everything economy has now reached a new low:
Interested, eh? Well, there are plenty of details. I personally take comfort from the pledge that the people paid to drag my trash can will be rated by the community (“‘A+++++++ Would let drag my recycling to the curb again.”)
Of course, none of this is free, ya know.
Happily, Silicon Valley hasn’t lost its sense of humor. Not to be outdone, this parody site has appeared:
- "Teflon" Trump Remains Double-Digit Leader In Post-Debate Poll
Despite rumors, spin, Koch Brothers’ spending, and FOX News’ efforts, “Teflon” Donald Trump remains the clear leader in the first post-debate poll.
According to the latest NBC News Online Poll conducted by SurveyMonkey, Trump is at the top of the list of GOP candidates that Republican primary voters would cast a ballot for if the primary were being held right now.
The overnight poll was conducted for 24 hours from Friday evening into Saturday. During that period, Donald Trump stayed in the headlines due to his negative comments about Kelly and was dis-invited from a major conservative gathering in Atlanta.
None of that stopped Trump from coming in at the top of the poll with 23 percent.
* * *
Carly Fiorina has surged into 4th place after her undercard victory this week and perhaps most stunningly for the ‘establishment’, Jeb Bush has dropped out of the Top 5.
- Cop Acquitted In Murder Of Kelly Thomas Just Arrested For Domestic Violence
Submitted by Sydney Barakat via TheAntiMedia.org,
Manuel Ramos, 41, the former Fullerton police officer who was ultimately acquitted after being tried for the beating and killing of Kelly Thomas, has been arrested once more—this time for domestic violence.
Thomas—an unarmed, mentally-ill homeless man—was brutally beaten to death by Ramos and two fellow officers in the summer of 2011. Two of the officers—Ramos, as well as Jay Cicinelli—were tried and acquitted of the murder. From the beginning, the case received nationwide coverage. A slew of peaceful protests resulted from the several injustices that were committed in this gut-wrenching case of excessive violence and abuse of power.
Now, Ramos has been arrested again. As ABC7 news reported,
“Police respond[ed] to a report of a family disturbance [and] arrested Manuel Ramos on July 16 after he allegedly assaulted a woman in the 3600 block of W. Oak Avenue.”
Ramos was then booked on the charge of misdemeanor domestic violence, but soon after posted bail and was released. According to the report, the case still remains under investigation.
This goes to show that when violent criminals are granted impunity, when they are let off the hook without even a slap on the wrist, they will continue their horrendous cycle of abuse of power and violence. When these murderers are exonerated without consequence, they are assisted in committing further assaults—in this case, domestic violence.
Mugshots of former officer Manuel Ramos.
Does Ramos lack so much compassion that he must beat the defenseless? First a mentally-ill man who was small in stature, then a woman.
What is more ridiculous is that journalists and live-streamers who covered the Kelly Thomas case are being dragged through a long and tedious court ordeal. They are facing charges, trials, and time in prison for simply filming and documenting the protests that occurred as result of the officers’ acquittals. Our own Patti Beers—also known as “P.M.” on her social media accounts—is facing such absurd charges for filming the acquittal protests. Patti’s trial has been covered by the Anti-Media, The Fifth Column, OC Weekly, AnonHQ, and more.
This case of police brutality and major injustices committed by law enforcement force us to ask:
when will this horrendous cycle of violence end? When will the law be lawful? When will the justice system deliver justice?
The issues extend far beyond Manuel Ramos, but if we let this cowardly badged thug go without consequence again, we are allowing for more of his kind to continue coming out of the woodworks. Additionally, if we allow journalists— real journalists like Patti Beers—to be tried for performing her civic duty—well, that’s just pouring salt in an already gaping wound.
- Luxury Goods And Status Symbols In Trouble In China
Submitted by Pater Tenebrarum via Acting-Man blog,
A friend recently mailed us an article from the Hong Kong Standard which describes how extremely high retail shop rents in Hong Kong can no longer be paid even by retailers of luxury brands.
Not only is this testament to the fact that Hong Kong’s real estate bubble has gotten out of hand quite a bit, but the waning demand for luxury goods is also highly interesting from a sociological and economic perspective. As the Standard reports:
Business is getting tougher for Hong Kong’s retailers with the value of total retail sales dipping 1.6 percent in the first half of 2015 from a year back, according to the Census and Statistics Department’s latest data.
Valuable gifts, including jewelry, watches and luxury goods, were hardest hit, with sales falling for 10 consecutive months. Sales value slumped 10.4 percent in June compared with a year earlier, despite efforts by several luxury brands – including Italian fashion house Prada – to boost sales by cutting prices. Squeezed by slimmer pickings in Hong Kong and the mainland market, top global luxury brands are looking to renegotiate store rents to cut costs.
The latest to plead for landlords’ mercy was French luxury goods conglomerate LVMH. Revenue from its signature brand Louis Vuitton slumped 10 percent year- on-year in Hong Kong, Macau and China for the first half while Europe and the United States saw stronger sales of fashion and leather goods. It is also planning to close a directly operated shop of its biggest watch brand, Tag Heuer, in Causeway Bay.
[…]
British high-end fashion house Burberry, which has 16 shops in the SAR, said it may trim its local store network and negotiate for lower rents after the Hong Kong market, which accounts for about one-tenth of the brand’s total sales, saw a double-digit percentage fall in sales over the period.
Meanwhile, Gucci owner Kering said it will consider closing its Hong Kong and Macau outlets if rents stay high.
[…]
Waning sales and whopping rents have sent Italian fashion label Baldinini packing. It shut its first and only flagship boutique in Hong Kong after just four months in operation, ending its three- year contract.
In June, visitor arrivals from the mainland were down 1.8 percent year- on-year. Adding to the woes of luxury goods vendors are the changing spending patterns of mainland visitors, who are now looking for more mid-priced products.
We don’t believe this is happening because prospective clients can no longer afford these goods. While Chinese consumers of ostentatious luxury items have probably taken a hit from China’s economic weakness and its wobbling real estate and stock market bubbles, they can surely still afford to buy Gucci bags and Tag Heuer watches. We believe that they rather no longer want to be seen adorned with such items.
Typically a decline in the desire to own products conferring and announcing one’s high social status happens close to, or hand in hand with fairly severe economic downturns. People no longer want to stand out as rich when times are getting tough. This effect can be observed in numerous areas, even in the colors and shapes people choose when buying cars. The colors tend to change from loud ones such as red, to inconspicuous/conservative ones such as gray and brown. Car shapes tend to go from sportive and sleek to boxy and inconspicuous.
Of course there is an additional reason for this development in China as our friend reminded us:
“Your point they no longer want to be seen with them is especially acute today with mainland Chinese, who are (were) the big buyers of luxury goods, property and services here.
[…]
The mainland’s corruption clampdown is deterring a lot of PRC citizens from exhibiting any wealth these days, a continuing crackdown that has lasted far longer than any Hong Kong businesses suspected and which has changed the dynamics of mainlander’s inward and outward spending.”
To this we would point out that China’s relentless crackdown on corruption is informed by the same “social mood” that is driving the reluctance to buy luxury items, and is driving capital outflows from China as well as the increasing unwillingness of businesses to invest. These developments are simply manifestations of an environment that has soured: They signal that China’s entire society is increasingly infested with a bearish outlook.
Recently China’s government has managed to halt the decline in the Shanghai stock market at what has reportedly been a huge cost. Zerohedge has published an article on a Goldman Sachs estimate of the amounts of money thrown at the market through government intervention. Apparently nearly 900 billion yuan have been spent merely to keep the market from cratering further.
The Shanghai Composite Index – a triangle has now formed in the index in the wake of unprecedented government intervention. Unfortunately, triangles are usually trend continuation formations – click to enlarge.
Our hunch is actually that this market will soon resume its decline in spite of the government’s frenetic antics. If China’s social mood has indeed turned bearish, nothing will keep the market from falling further.
The Social Mood is Changing Everywhere
In the US and Europe, sales of luxury goods appear to be in trouble as well. As a recent report in the Washington Post noted:
“[…] experts say the penchant for more discreet luxury goods is also partly being fueled by the simmering political debate about income inequality, which is leaving some big spenders worried that it is tacky to carry a purse that practically announces its four-figure price tag.
“We clearly can see that this is something where people are not wanting to show their wealth quite so conspicuously,” said Sarah Quinlan, who studies consumer spending patterns as the head of market insights for MasterCard Advisors.
This new attitude has helped create a rough patch for some of the titans of the luxury retail industry. Louis Vuitton, Gucci and Prada ascended as icons of global wealth as their $5,500 handbags and $695 silk scarves became status symbols from New York to Shanghai.
But today’s luxury shopper has soured on such obvious signs of affluence, in particular the logo-emblazoned goods that these brands became known for as they aggressively opened stores in emerging markets and in smaller cities in the United States and Europe.
“This is really what keeps me up at night,” Johann Rupert, the chief executive of Richemont, which owns Cartier and other big luxury brands, said at a business conference last week. “Because people with money will not wish to show it. If your child’s best friend’s parents go unemployed, you don’t want to buy a car or anything showy.”
We certainly wouldn’t want to be in the shoes of a manager of a luxury brand company right now. However, what is important here from our perspective is what this change in attitudes is saying about society as a whole and what its likely impact on financial markets and the economy is going to be. Luxury goods are typically doing best during bull markets, when people are suffused with optimism and are actually eager to show of their riches and success.
When this mood changes, it is a sign that the bullish trend in “risk assets” is likely to reverse. In fact, it signals a decline in people’s willingness to take risk more generally, which obviously has negative implications for the economy as well.
Conclusion
This is a trend one should definitely keep an eye on. It represents yet another subtle warning sign for the economy, stocks and other risk assets.
- Shots Fired In Ferguson On Brown Death Anniversary, Day After Hillary Says "Police Bias Is Clear"
Four days after we showed a video in which Nation of Islam leader urged black Americans to “rise up and kill those who kill us”, two days after we reported that “Black-White Race Relations Under Obama are the Worst In The 21st Century“, shots were fired, according to Reuters, on Sunday during a march in Ferguson, Missouri to mark the one year anniversary of the fatal shooting of unarmed black teenager Michael Brown, police said.
It was unclear who fired the shots or the extent of any injuries, a police spokesman told reporters, but initial reports suggested they were not aimed at the marchers. About six shots were heard as 300 people made their way to a church on the outskirts of Ferguson as part of events to mark the death of Brown at the hands of a white police officer one year ago.
St. Louis County Police Chief Jon Belmar said he was angry that a shooting had marred the weekend’s events in Ferguson, which have so far gone off without major incidents or arrests.
“These are the exact kind of events we try to avoid. I think it’s unfortunate. We are trying to keep everybody as safe as we can,” Belmar told reporters.
More troubling is that none other than the potential future president of the US was adding gasoline to the fire yesterday, when in an interview with Al Sharpton – her second national broadcast interview since she declared her candidacy in April – Hillary Clinton discussed “criminal justice reform” and said the following:
If you compare arrest records in, you know, charging of crimes, in convicting of crimes, in sentencing of crimes, you compare African-American men to white men. It is unfortunately clear as it could be that there is a bias in favor of white men…
The exchange takes place around 25 minutes 40 seconds into the video recording below:
Well, yes, there are certainly problem cases such as the “Police Officer Caught On Tape Discussing “Ways To Kill A Black Man And Cover It Up.” However, when a presidential candidate goes openly on record to state that she implicitly backs all those who say all the US police is problematic, is it any wonder Louis Farrakhan will that “if the federal government will not intercede in our affairs, then we must rise up and kill those who kill us. Stalk them and kill them and let them feel the pain of death that we are feeling.” In fact, he may well say that Hillary Clinton herself is supportive of his cause and, sure enough, her words would be sufficiently open for interpretation to permit such a take.
Finally, today’s Ferguson anniversary protest (and shooting) comes a day after the grotesque if not surreal took place for another democratic presidential candidate, Bernie Sanders in Seattle, when several visibly angry young “Black Lives Matter” activists stormed his stage, and whose beef with the mild-mannered 73-year-old socialist was not exactly clear neither was their intention (just like all the “#OccupyWallStreet “activists”) but who got to scream for a few minutes regardless. Bernie was literally speechless through the unscripted commotion, and ultimately decided to just leave without giving his speech.
- Summer Jobs Disappear; Lazy Teens, Immigrants Blamed
Back in May, we highlighted a report which showed that across OECD countries, 35 million people between the ages of 16 and 29 are jobless. “Overall, young people are twice as likely as prime-age workers to be unemployed,” the OECD said.
As anyone who follows the slow motion trainwreck that is the EMU knows, youth joblessness across the periphery is a disaster, with unemployment rates between 40% and 50%. And things aren’t great in America either. As nonprofit Generation Opportunity recently noted, “the effective (U-6) unemployment rate for 18-29 year olds, which adjusts for labor force participation by including those who have given up looking for work, is 13.8 percent (NSA).”
Against this backdrop, consider the following from Bloomberg, who bemoans the demise of the legendary “summer job” in America and offers three explanations for its disappearance.
Via Bloomberg:
At 41.3 percent, the July labor force participation rate of teens was the lowest for the month in the post-World War II period.
The teenage summer job has been going the way of telephone booths and the cassette tape for decades. The length of the downward trend has been masked by the fact that it’s hard to tease apart teen summer jobs from teen employment more generally.
Looking at the jump in the labor-force participation of teens in July over the average for the school months, it’s clear that summer jobs peaked in the mid-1960s and have been sliding since.
What gives?
1. This generation is lazy
Or, as Northeastern University labor economist Alicia Modestino puts it: “Some teens are doing other stuff” like coding camp, foreign travel or beaching it.
2. Typical teen jobs are drying up
“Think Blockbuster,” said Modestino.
3. Teens face competition
Modestino and other labor economists believe that the single-biggest explanation for the decline is that teenagers face stiff competition for what were once summer jobs from other workers, especially immigrants.
So basically, the excuses for the demise of the summer job are i) laziness, ii) lack of available employment, and iii) immigrant competition.
Come to think of it, those three excuses are a pretty good explanation for all joblessness in America.
- The Canaries Continue To Drop Like Flies
One would think as “canary” after “canary” falls silent either sickened with laryngitis, or worse – completely comatose, that those on Wall Street as well as the financial media itself would not only have seen, but heard, many of the warning calls that have been obvious for quite some time. Yet, history always shows; not only do they not see, but more often than not – they don’t want to see, nor hear the warning calls.
Even when all the warning signs are screaming danger – not only are they ignored, they’re explained away as if those which saw or heard them, should be ignored as they’ll contend not only did one not see; but couldn’t see.
What they’ll propose is: “That was not a “canary” but rather a “dodo.” After all, with a Fed that’s as interactive as this one currently is, surely what they believe they heard, or saw is impossible. For people say they’ve spotted warning signs in these ‘markets’ for years, and none have yet produced a crisis because – they’re now extinct! ” Yet, the wheezing sounds of many a Wall Street songbird has been apparent for quite a while. Again: If only one would care to look or listen.
Back in April of 2014 in an article titled “The Scarlet Absence Of A Letter of Credit” I opined a few scenarios as to why this seemingly dismissed revelation by the so-called “smart crowd” should not go unnoticed. For the implications may very well portend far greater reasons too worry in the coming future. Below is an excerpt. And let’s not forget this is some 16 months ago. When the financial media et al were still reciting in unison the wonders to which, “China will be the economy that leads us out of this current malaise.”
“Over the last few years since the financial melt down of 2008, we have seen what many have believed are precursors that may tip the hand of markets as to show just how unhealthy this levitating act fueled by free money has become.
And yes there are always false indicators, and we all know correlation doesn’t equal causation. And even more may shrug and think, “No letter of credit, so what.” However, if there were ever a canary in a coalmine worth noting this is one not to let one’s eyes to divert from.
The issue at hand is not just the foolishness of the absence contained in a one-off LOC gamble some company would take. Far from it.
It’s the desperation that could be hidden that’s a precursor one has to watch for. For the amount of desperation, or the degree that might be hidden beneath the surface to which a commodity will be sent overseas to another country, a country for all intents and purposes is using that very product as a pseudo currency to back other financial obligations without the requisite document to be paid. Is mind numbingly dangerous in its implications in my view.”
Fast forward to today and what is the current state of the commodity sector? If your answer resembled something along the lines of catastrophe, falling knife, broke or busted; you would be closer to reality than the “everything is awesome” spin you used to hear when the price of another commodity: oil, dropped again, and again signalling the cue for analysts to take to the airwaves or keyboards and herald “More money in consumers pockets via a reduction in gas prices equals more consumer spending!” Yet, you don’t hear that tune any longer do you?
Consumer spending, the metric that’s been trumpeted as “the” supposed songbird for the chorus of data points as to prove there’s an ever burgeoning economy. Not only hasn’t shown signs of growth when it comes to retail spending. It too has contracted. The most recent U.S. Dept. of Commerce release in July showed June with a decrease of 0.3% from the previous month, while April and May were also revised downward.
During this period oil (e.g., Brent) has precipitously dropped from over $100 per barrel to where it now sits and bounces under $50. However, just to give a little more context. The first fall was over a year ago where it initially free-fell cutting its price in half just when it should have had the greatest impact. e.g., The Christmas holiday shopping season. And the result? Dismal holiday sales returns. So dismal all one heard or read was the excuse of “the weather.”
So now with reports for April, May, and June in the books during another precipitous oil drop. This time albeit from a far lower bar ($65-ish.) falling once again below the $50 mark and not only remaining, but seeming to threaten falling even further to even lower lows. It’s now hard to ignore the fact, all that presumed “money in consumers pockets” made possible to spend is either lost in the sofa cushions or, never materialized in the way many on Wall Street were convinced it would. For if it did – than why would numbers be revised down?
Once again, let’s not forget this is during another of what many see as the “get out and hit the open road fun-time” officially kicked off via the Memorial Day holiday. And May of June’s number couldn’t even hold to unchanged status? What does that scream let alone “sing?”
What happened to the “pent-up demand” that must have surely been burning holes in consumers pockets with all that gas savings we were told was taking place across the nation? Surely one must construe if it didn’t take place during the holiday shopping it therefore must at least show signs when the weather broke. Unless the consumer is what many of us have argued: Broke. It would seem the “numbers” are showing that’s far more the case.
Another canary that seems to have fallen silent is the one that sang the tune “This Qtr. just you watch, earnings will need to be revised up!” And they have, only not from a level that would suggest a healthy start to begin with.
The game of “bait and switch” metric announcements or reporting is not only laughable it borders on obscene. So much so I would envision if one asked a street-hustling 3-card-Monte player what they thought of today’s earnings reporting. They would throw down their cards in disgust and ask how they missed such a money-making
racketopportunity. For if you can start by saying 4, then lower it to 1, where they come in at 2 – only on Wall Street can one state with a straight face (as well as duck any jail time for outright fraud) “This earnings season not only beat expectations, but was double the consensus!”Only a street hustler can fully appreciate, as well as be left envious to this ingenious sleight of hand.
Then there’s the “Greece is solved” and “Greece doesn’t matter” chorus that was proclaimed before, during, and after the first indications of trouble. And once again we are waking to the tune near daily, not only is Greece still not solved – it sits on a perch so precariously swinging too-and-fro between further calamity into an outright civil chaos and catastrophe. So much so the greater media at large seems exhausted as to vocalize any further developments.
And who can forget that other tune that suddenly has also fallen silent: “The economy is not only ready to take off once QE has ended, and we expect GDP to not only signal but print 4%+ in the coming Qrts. After all, we just went from our previous upward revised call which was just under 4 – where we just printed 5% for Q3!”
All sounds great except for one thing. That Q3 was Q3 2014. What happened next? Lest I remind you to look back on some of the preceding paragraphs? For that’s where I reminded you about “weather” and the dismal revisions to a lower Q1, and Q2 spending reports, let alone where GDP prints are proposed to print next. However, if one listens carefully, what seems abundantly clear for the next print will be a tune that sounds familiar. Only this time – 3 is now the new 5!
Even if one tries to shield their eyes and ears away from these harbingers in ways we’ve all been reminded countless times by Disney™ movies spanning generations as: “not too worry and sing a happy tune.” The problem there? Disney’s own dulcet tones were met this earnings season with a far different reception, as its shares like many others of the media space that were once considered “bank” were tarred and feathered as its stock was treated more like the paper found in the bottom of the bird’s cage.
If there’s one note that’s been ringing louder and louder it’s this…
It’s getting harder and harder for even the most vocal among Wall Street as they try to sing the “everything is awesome” song when the ground around them continues to be littered with an ever-increasing amount of sprawled out – motionless – canaries.
- "We Should Admit This Isn’t Going To Work": One Country's Grim Assessment Of Greece's Future
On Saturday, Frankfurter Allgemeine Sonntagszeitung reported that Greece’s creditors – the “quadriga” as it were – had agreed on the terms to be imposed on Athens in return for an ESM rescue package worth some €86 billion. The 27-page draft MOU is “substantial and far reaching,” and includes cuts to defense spending and subsidies for farmers, Bloomberg says, summarizing the FAZ report.
Greece desperately needs to close the deal next week. If the new program isn’t formally in place by August 20, a €3.2 billion payment to the ECB won’t be possible – a default to the central bank would likely be catastrophic, as Greece’s banking sector would collapse entirely in the absence of the ELA liquidity drip.
Once Greek officials agree to the conditions, the draft will be circulated to EMU member countries for approval and Alexis Tsipras will need to go once more to parliament where he hopes the Syriza rebellion which imperiled the first two votes on bailout prior actions will have died down in the wake of a dramatic party meeting late last month in which the Greek Premier insisted that for the time being, “opposing voices must stop.” Here’s Reuters:
Greece is on track to complete a draft deal on a third bailout by Tuesday and possibly get a first disbursement by Aug. 20 to meet a key payment, sources familiar with a conference call of senior EU finance officials late on Friday said.
Greek Prime Minister Alexis Tsipras has tried to force the pace of the talks, keen to wrap up agreement on sensitive economic reforms by mid-August, while many Greeks are on holiday, and receive an initial aid disbursement by Aug. 20 in time to make a bond payment to the European Central Bank.
If a draft memorandum of understanding and an updated debt sustainability analysis are ready as planned on Tuesday, the Greek government and parliament would be expected to approve them by Thursday.
And more from Kathimerini:
Greece will aim to finalize an agreement with lenders next week in the hope of being in a position to pass the deal through Parliament by next Thursday.
There are a number of issues that need to be ironed out in the next couple of days if the government is to be able to keep to a timetable that would allow the European Stability Mechanism to disburse money before Greece has to repay 3.2 billion euros to the European Central Bank on August 20.
Some of the issues on which there is yet to be agreement include changes to farmers’ taxation, scrapping nuisance taxes, further product market liberalization, deregulating some professions and allowing Sunday trading.
The other issues that must be settled are which prior actions have to be approved now and how much fresh funding Greece will receive on approval of the third bailout.
If the new agreement is approved by the Greek Parliament on Thursday, eurozone finance ministers are likely to convene the next day to give their green light as well.
Of course not every EMU finance minister is convinced that the ad hoc, rushed effort to disburse aid to Greece is prudent. As Reuters goes on to note, German FinMin Wolfgang Schaeuble (who, you’re reminded, would much prefer that Greece simply leaves the currency bloc so that Berlin can send a message to Rome and, more importantly, to Paris) favors a second bridge loan from the EFSM so as to allow for futher deliberation:
Some countries, led by Germany, were keen to nail down more specific long-term reform commitments in addition to the immediate actions to be implemented, the source added.
Germany, keen on fiscal discipline and far-reaching economic reforms, is sceptical of any early deal and doubts a multi-billion-euro bailout can be agreed by mid-August.
“It remains completely open,” said one politician from the ruling coalition government, adding that Finance Minister Wolfgang Schaeuble was taking a cautious view of comments by commission chief Jean-Claude Juncker on the chances of a deal.
Greece would not get a free ticket to new aid, the coalition politician added.
The Sueddeutsche Zeitung said the German Finance Ministry favoured another bridge loan to give Greece and its creditors time to negotiate a comprehensive reform programme.
The ministry says a range of issues remain to be settled.
Yes, a “range of issues” are still up for debate, the most pressing of which is the simple question of whether the entire effort is ultimately for naught, something the IMF has suggested on a number of occasions. One person who thinks the new bailout is an exercise in futility is Finnish Foreign Minister Timo Soini who, as Bloomberg reports, thinks Europe should simply admit “that this isn’t going to work.”
A third Greek bailout won’t work and will only prolong the difficulties plaguing the euro area, according to Finnish Foreign Minister Timo Soini.
But his party, the euro-skeptic the Finns, is ready to discuss another rescue package because allowing Greece to fail would only add to Europe’s costs, he said.
The Finns party, which in April became part of a ruling coalition for the first time, has no choice but to support a bailout since not doing so would cause the three-party government to collapse. That would only open the door for the left-wing opposition, Soini said.
“I kept my party in the opposition for four years because of this subject,” he said. “But with this government structure we can’t block the program alone and we’d be replaced.”
While Finland drove a hard bargain during Greece’s second bailout, it may no longer have the clout to block a deal. Finland has already made its 1.44 billion-euro contribution to the permanent European Stability Mechanism. Should Europe decide that the future of the euro zone is at stake, a bailout won’t require unanimous backing from members; 85 percent is enough.
Even without an imminent bailout agreement, a European fund deployed in July to help Greece clear arrears contains about 5 billion euros and could be tapped again for a bridge loan.
According to Soini, bridge financing will do little to solve the long-term fiscal plight Greece faces.
“This bridge funding isn’t going to be final solution,” he said. “There’s no solution for this particular problem that doesn’t cost Finnish taxpayers.”
Unfortunately, Soini’s assessment applies to a number of EMU governments and in the end, the paradox of the Greek tragicomedy may well be that no one (including Greece) wants to keep Greece in the EMU but everyone will endeavor to preserve the status quo because changing things is simply too painful. With that in mind, we’ll leave you with the following quote from Soini:
“If Greece collapsed and Grexit would be tomorrow’s reality, we would lose 3-4 billion euros more or less at once. So I hope that the EU and euro zone, that in due course, we can face the facts and say enough is enough and that we must do something else.”
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