Today’s News August 19, 2015

• Chinese Stocks Crash 10% In 2 Days Despite Stable Yuan, Margin Debt Drops First Time In 8 Days

  At the end of the morning session there is more blood on the streets as The PPT never turned up…

  • *INVESTORS SELLING CHINA SHARES ON WEAKER YUAN: CHANGJIANG SEC.
  • *CHINA GOVT INACTION ON STOCKS CLD SPUR SELLING: CHANGJIANG SEC.

  

  *  *  *

  As we noted earlier…

  Following yesterday's massive CNY120bn liquidity injection – the largest since Jan 2014 – and the notable absence of the plunge protection team in the afternoon rout ("we're only here for emergencies"), we note that margin debt fell for the first time in 8 days as Chinese farmers and grandmas realized once again that the stock market is not a free-ride to nirvana. Chinese stock futures indicate the losses will be extended at the open (SHCOMP -2.7%) as the Yuan fix is held unchanged.

  Weakness in stocks continues…

  • *CHINA'S CSI 300 STOCK-INDEX FUTURES FALL 0.6% TO 3,603
  • *CHINA SHANGHAI COMPOSITE SET TO OPEN DOWN 2.7% TO 3,646.80

  

   

  We suspect The Chinese Plunge Protection Team will be out today as we near the 200DMA once again…

  

   

   

  And The PBOC sets the CNY Fix unchanged:

  • *CHINA SETS YUAN REFERENCE RATE AT 6.3963 AGAINST U.S. DOLLAR

  

  For now, no further liquidity injections following yesterday's outpouring…

  In a routine operation Tuesday, the People’s Bank offered 120 billion yuan ($18.77 billion) worth of seven-day reverse repurchase agreements, or reverse repos, short-term loans to commercial lenders in the money market.

   

  The cash injection marks the biggest of its kind since Jan. 28, 2014, when the bank offered 150 billion yuan via 14-day reverse repos.

  Some good news – or sanity…

  • *SHANGHAI MARGIN DEBT FALLS FOR FIRST TIME IN EIGHT DAYS

  Outstanding balance of Shanghai margin lending fell by 1.6%, or 14.6b yuan, from previous day to 879.9b yuan on Tuesday, according to exchange data. Tuesday’s percentage drop was biggest since Aug. 3.

  *  *  *

  Finally, we offer, once again, Alhambra Investment Partners' Jeffrey Snider's perspective on the "dollar run" that China is undergoing…

  To start this week, Ma Jun, chief economist for the PBOC, gave an email interview where he expressed his belief that the yuan will be more volatile but in either direction. Many still took those comments as if it were a veiled prescription toward devaluation.

  In the near term, it is more likely there will be “two way volatility,” or appreciation and depreciation of the yuan, Ma said in a question-and-answer statement sent by email.

   

  The central bank would move only in “exceptional circumstances” to iron out “excessive volatility” in the exchange rate, Ma said.

  If the central bank will only intervene under “exceptional circumstances” then the mainstream immediately turned that into “the PBOC is allowing devaluation because that is what it wants.” How any such thoughts could be considered consistent with what the PBOC has been doing until last week can only be misunderstanding the wholesale nature of global finance. Before last week, the PBOC had been intervening (who else could it have been?) so that the yuan wouldn’t move at all.

  

  This week has so far conformed to the wholesale interpretation. Just two days after Ma’s “exceptional circumstances” reference, the PBOC was “forced” to act once more, this time in one of its largest internal injections to, one more time, keep the yuan from depreciating sharply. Pay close attention to net results despite the conventional language:

  China’s central bank poured the largest amount of cash into the financial system on a single day in almost 19 months, signaling Beijing’s growing concerns about capital flowing out of the country following the recent weakening of its currency.

   

  Short-term interest rates and bond yields in the world’s second-largest economy have spiked in the past week, following an abrupt decision by the Chinese authorities to devalue the yuan last week. As money leaves the country, the amount of cash in the financial system declines, pushing rates higher.

  How is that not a “dollar” run, especially since it predates the assumed “devaluation”? The fact that the PBOC continues to flush “dollars” only suggests that it is not over; not even close (the amount of reverse repos PBOC undertakes in yuan is related and proportional to any “dollar” activity). Thus, I think that is why Ma reinforced the idea that China’s economy is in recovery and that the worst had passed at least economically. As I mentioned last week, after holding the yuan steady for five months the PBOC is just hanging on for dear life, hoping that the recovery message takes root and ends the run because it is obviously unable to do so in any fashion of either direction.

  

  While some indications show that perhaps the most acute part of the turmoil has passed, dating to around last Wednesday, that isn’t nearly the same as its welcome end.

  

  

  

  

  

• We Are The Government: Tactics For Taking Down The Police State

  Submitted by John Whitehead via The Rutherford Institute,

  “The people have the power, all we have to do is awaken that power in the people. The people are unaware. They’re not educated to realize that they have power. The system is so geared that everyone believes the government will fix everything. We are the government.”—John Lennon

  Saddled with a corporate media that marches in lockstep with the government, elected officials who dance to the tune of their corporate benefactors, and a court system that serves to maintain order rather than mete out justice, Americans often feel as if they have no voice, no authority and no recourse when it comes to holding government officials accountable and combatting rampant corruption and injustice.

  We’re impotent in the face of SWAT teams that break down doors and leave toddlers scarred for life. We’re helpless to prevent police shootings that leave unarmed citizens dead for no other reason than the police officer involved felt “threatened.” We shrug dismissively over the plight of fellow citizens who have their heads cracked, their bodies broken and their rights violated for failing to jump to attention when a police officer issues an order. And we fail to care about the thousands of individuals who have been punished with extreme sentences for nonviolent offenses and are forced to spend their lives as modern-day slaves in bondage to private prisons and the profit-driven corporations they serve.

  Make no mistake about it: virtually anything and everything is a crime nowadays (feeding the birds, growing vegetables in your front yard, etc.) to such an extent that if a prosecutor, police officer and judge were so inclined, you could be locked up for any inane reason.

  This is tyranny dressed up in the official garb of the police state. It is the self-righteous, heavy-handed arm of the law being used as a decoy to divert your attention to the so-called criminals in your midst (the fisherman who threw back small fish into the ocean, the mother who let her child walk to the playground alone, the pastor holding Bible studies in his backyard) so that you don’t focus on the criminal behavior being perpetrated by the government (bribery, cronyism, electoral fraud, slush funds, graft, pork, theft, and on and on).

  In the face of such abject injustice, outright corruption and overt inequality, it’s hard to feel empowered to believe the average citizen can make a difference. It’s hard to persuade anyone to stand against tyranny when all you can promise them as a reward is persecution, prosecution and a one-way trip to the morgue. And when the outcome seems to be a foregone conclusion—the government always wins—it can seem pointless, even foolhardy, to dare to challenge the system. As such, it’s far easier to buy into the political process, even though elections amount to nothing of consequence.

  There are also those who subscribe to the notion that an armed revolution is the only thing that will save America. These armed resistors are making themselves easy targets and will be the first to be taken down by militarized police who are trained to kill and armed to the teeth with every kind of weapon imaginable, from grenade launchers and sniper rifles to armored vehicles and Black Hawk helicopters.

  So how do you not only push back against the police state’s bureaucracy, corruption and cruelty but also launch a counterrevolution aimed at reclaiming control over the government using nonviolent means?

  You start by changing the rules and engaging in some (nonviolent) guerilla tactics.

  Employ militant nonviolent resistance and civil disobedience, which Martin Luther King Jr. used to great effect through the use of sit-ins, boycotts and marches.

  Take part in grassroots activism, which takes a trickle-up approach to governmental reform by implementing change at the local level (in other words, think nationally, but act locally).

  And then, while you’re at it, nullify everything the government does that is illegitimate, egregious or blatantly unconstitutional.

  Various cities and states have been using this historic doctrine with mixed results on issues as wide ranging as gun control and healthcare to “claim freedom from federal laws they find onerous or wrongheaded.”

  Where nullification can be particularly powerful, however, is in the hands of the juror.

  As law professor Ilya Somin explains, jury nullification is the practice by which a jury refuses to convict someone accused of a crime if they believe the “law in question is unjust or the punishment is excessive.”

  According to former federal prosecutor Paul Butler, the doctrine of jury nullification is “premised on the idea that ordinary citizens, not government officials, should have the final say as to whether a person should be punished.”

  Imagine that: a world where the citizenry—not the government or its corporate controllers—actually calls the shots and determines what is just.

  In a world of “rampant overcriminalization,” where the average citizen unknowingly breaks three laws a day, jury nullification acts as “a check on runaway authoritarian criminalization and the increasing network of confusing laws that are passed with neither the approval nor oftentimes even the knowledge of the citizenry.”

  Indeed, Butler believes so strongly in the power of nullification to balance the scales between the power of the prosecutor and the power of the people that he advises:

  If you are ever on a jury in a marijuana case, I recommend that you vote “not guilty” — even if you think the defendant actually smoked pot, or sold it to another consenting adult. As a juror, you have this power under the Bill of Rights; if you exercise it, you become part of a proud tradition of American jurors who helped make our laws fairer.

  In other words, it’s “we the people” who can and should be determining what laws are just, what activities are criminal and who can be jailed for what crimes.

  Not only should the punishment fit the crime, but the laws of the land should also reflect the concerns of the citizenry as opposed to the profit-driven priorities of Corporate America.

  Unfortunately, for thousands of Americans who are serving life sentences for nonviolent crimes as a result of harsh mandatory sentencing laws passed by “tough on crime” politicians, the punishment rarely fits the crime.

  As I point out in my book Battlefield America: The War on the American People, with every ill inflicted upon us by the American police state, from overcriminalization and surveillance to militarized police and private prisons, it’s money that drives the police state. And there is a lot of money to be made from criminalizing nonviolent activities and jailing Americans for nonviolent offenses.

  This is where the power of jury nullification is so critical: to reject inane laws and extreme sentences and counteract the edicts of a profit-driven governmental elite that sees nothing wrong with jailing someone for a lifetime for a relatively insignificant crime.

  Of course, the powers-that-be don’t want the citizenry to know that it has any power at all.

  They would prefer that we remain clueless about the government’s many illicit activities, ignorant about our constitutional rights, and powerless to bring about any real change. Indeed, so determined are they to keep us in the dark about the powers vested in “we the people” that the U.S. Supreme Court ruled in 1895 that jurors had no right during trials to be told about nullification.

  Moreover, anyone daring to educate a jury about nullification runs the risk of prosecution. Just recently, for example, 56-year-old Mark Iannicelli was charged with seven counts of jury tampering for handing out jury nullification fliers outside a Denver courtroom. Now Iannicelli is not being accused of advocating for or against any case in progress, nor is he charged with targeting any particular members of the jury. Nevertheless, Iannicelli could be sentenced to one to three years in prison because he dared to educate the jurors about an option that no judge or prosecutor ever mentions in court: the right to acquit someone who may be guilty if they also believe that the law is unjust.

  Such intimidation tactics proved less successful when used against Julian Heicklen, who was accused of jury tampering for handing out nullifications pamphlets in Manhattan. A federal district court judge found Heicklen not only innocent of the charge of jury tampering, but went so far as to warn that the law—18 U.S.C. § 1504—raises significant First Amendment concerns (“the First Amendment squarely protects speech concerning judicial proceedings and public debate regarding the functioning of the judicial system, so long as that speech does not interfere with the fair and impartial administration of justice”).

  Jury nullification has played a significant role in our nation’s history. It was championed early on by John Hancock and John Adams and relied on at various points since then to push back against laws deemed egregious, unjust or simply out of step with the times. Most recently, jury nullification has become a popular tactic to thwart laws that mandate harsh punishments for those convicted of possessing even minimal amounts of marijuana.

  For instance, in one case I worked on years ago, a jury refused to convict a 54-year-old man who had been charged with possession of marijuana. Prosecutors claimed that a SWAT team, doing an area-wide land and air sweep, had spotted two marijuana plants growing in the hollow of a dead tree on the man’s 39-acre property. Had the man been found guilty, he would have been sentenced to jail and his 90-year-old mother, blind, deaf and dependent on him for care, would have had to be institutionalized.

  In delivering his closing arguments, the prosecutor warned the jury that disagreement with the laws against pot possession and disapproval of police tactics are not valid reasons to nullify a case. Of course, those are exactly the reasons why more Americans should opt for nullification.

  In an age in which government officials accused of wrongdoing—police officers, elected officials, etc.—are treated with general leniency, while the average citizen is prosecuted to the full extent of the law, jury nullification is a powerful reminder that, as the Constitution tells us, “we the people” are the government.

  For too long we’ve allowed our so-called “representatives” to call the shots. Now it’s time to restore the citizenry to their rightful place in the republic: as the masters, not the servants.

  Jury nullification is one way of doing so.

  The reality with which we must contend is that justice in America is reserved for those who can afford to buy their way out of jail.

  For the rest of us who are dependent on the “fairness” of the system, there exists a multitude of ways in which justice can and does go wrong every day. Police misconduct. Prosecutorial misconduct. Judicial bias. Inadequate defense. Prosecutors who care more about winning a case than seeking justice. Judges who care more about what is legal than what is just. Jurors who know nothing of the law and are left to deliberate in the dark about life-and-death decisions. And an overwhelming body of laws, statutes and ordinances that render the average American a criminal, no matter how law-abiding they might think themselves.

  As I’ve said before, when you go into a courtroom, you’re going up against three adversaries who more often than not are operating off the same playbook: the police, the prosecutor and the judge.

  If you’re to have any hope of remaining free—and I use that word loosely—your best bet remains in your fellow citizens.

  They may not know what the Constitution says (studies have shown Americans to be abysmally ignorant about their rights), they may not know what the laws are (there are so many on the books that the average American breaks three laws a day without knowing it), and they may not even believe in your innocence, but if you’re lucky, they will have a conscience that speaks louder than the legalistic tones of the prosecutors and the judges and reminds them that justice and fairness go hand in hand.

  That’s ultimately what jury nullification is all about: restoring a sense of fairness to our system of justice. It’s the best protection for “we the people” against the oppression and tyranny of the government, and God knows, we can use all the protection we can get.

  Most of all, jury nullification is a powerful way to remind the government—all of those bureaucrats who have appointed themselves judge, jury and jailer over all that we are, have and do—that we’re the ones who set the rules.

  If they don’t like it, they can get another job.

  

  

  

  

  

• 23 Nations Around The World Where Stock Market Crashes Are Already Happening

  Submitted by Michael Snyder via The Economic Collapse blog,

  You can stop waiting for a global financial crisis to happen.  The truth is that one is happening right now.  All over the world, stock markets are already crashing.  Most of these stock market crashes are occurring in nations that are known as “emerging markets”.  In recent years, developing countries in Asia, South America and Africa loaded up on lots of cheap loans that were denominated in U.S. dollars.  But now that the U.S. dollar has been surging, those borrowers are finding that it takes much more of their own local currencies to service those loans.  At the same time, prices are crashing for many of the commodities that those countries export.  The exact same kind of double whammy caused the Latin American debt crisis of the 1980s and the Asian financial crisis of the 1990s.

  As you read this article, almost every single stock market in the world is down significantly from a record high that was set either earlier this year or late in 2014.  But even though stocks have been sliding in the western world, they haven’t completely collapsed just yet.

  In much of the developing world, it is a very different story.  Emerging market currencies are crashing hard, recessions are starting, and equity prices are getting absolutely hammered.

  Posted below is a list that I put together of 23 nations around the world where stock market crashes are already happening.  To see the stock market chart for each country, just click the link…

  1. Malaysia

  2. Brazil

  3. Egypt

  4. China

  5. Indonesia

  6. South Korea

  7. Turkey

  8. Chile

  9. Colombia

  10. Peru

  11. Bulgaria

  12. Greece

  13. Poland

  14. Serbia

  15. Slovenia

  16. Ukraine

  17. Ghana

  18. Kenya

  19. Morocco

  20. Nigeria

  21. Singapore

  22. Taiwan

  23. Thailand

  Of course this is just the beginning.  The western world is going to feel this kind of pain as well very soon.  I want to share with you an excerpt from an article that just appeared in the Telegraph entitled “Doomsday clock for global market crash strikes one minute to midnight as central banks lose control“.  You see, the Telegraph is not just one of the most important newspapers in the UK – it is truly one of the most important newspapers in the entire world.  When it speaks on financial matters, millions of people listen very carefully.  So for the Telegraph to declare that the countdown to a “global market crash” is “one minute to midnight” is a very, very big deal…

  When the banking crisis crippled global markets seven years ago, central bankers stepped in as lenders of last resort. Profligate private-sector loans were moved on to the public-sector balance sheet and vast money-printing gave the global economy room to heal.

   

  Time is now rapidly running out. From China to Brazil, the central banks have lost control and at the same time the global economy is grinding to a halt. It is only a matter of time before stock markets collapse under the weight of their lofty expectations and record valuations.

  I encourage you to read the rest of that excellent article right here.  It contains lots of charts and graphs, and it discusses many of the exact same things that I have been hammering on for months.

  When one of the newspapers of record for the entire planet starts sounding exactly like The Economic Collapse Blog, then you know that it is late in the game.

  Others are sounding the alarm about an imminent global financial crash as well.  For example, just consider what Egon von Greyerz recently told King World News…

  Eric, I fear that this coming September – October all hell will break loose in the world economy and markets. A lot of factors point to that, both fundamental and technical indicators and this indicates that we could have a number of shocks this autumn.

   

  Sadly, most investors will hold stocks, bonds and property and will see any decline in value as an opportunity. It will be a long time and a very big fall before they realize that the system will not help them this time because the central bankers have run out of ammunition to save the global financial system one more time. Yes, we will see more massive money printing, but it will just make things worse. And at some stage, which could be quite soon, real fear will set in, a fear of a magnitude the world has not experienced before.

  Hmm – there is another example of someone talking about September.  It is funny how often that month keeps coming up.

  And of course most of the major stock market crashes in U.S. history have been in the fall.  Just go back and take a look at what happened in 1929, 1987, 2001 and 2008.

  The “smart money” has been pulling their money out of stocks for quite a while now, and at this point a lot of others have hopped on the bandwagon.  The following comes from CNBC…

  The flight of investor money from U.S. stocks has turned into a stampede.

   

  In fact, the $78.7 billion leaving domestic equity-focused funds has been worse in 2015 than it was even during the financial crisis years, when the S&P 500 tumbled some 60 percent, according to data released Friday by Morningstar. The total is the highest since 1993.

   

  Domestic equity funds surrendered $20.4 billion in July alone and have seen $158.6 billion in redemptions over the past 12 months. Even a strong flow of money into passively managed exchange-traded funds has been unable to offset the stream to the exit among retail investors, who generally focus more on mutual funds than ETFs.

  A global financial crisis has already begun.

  So those that were claiming that one would not happen in 2015 are already wrong.

  Over the coming months we will find out how bad it will ultimately be.

  Sometimes I get criticized for talking about these things.  There are a few people out there that don’t like all of the “doom and gloom” that I discuss on my website.  Apparently it is a bad thing to talk about the things that really matter and we should all just be “keeping up with the Kardashians” instead.

  I consider myself just to be another watchman on the wall.  From our spots on the wall, watchmen such as myself all over the nation are sounding the alarm about what we clearly see coming.

  If we saw what was coming and we did not warn the people, their blood would be on our hands.  But if we do warn the people, then we have done our duty.

  Every day I just do the best that I can with what I have been given.  And there are many others just like me that are doing exactly the same thing.

  Those that do not like the warning message are going to feel really stupid when things start falling apart all around them and they finally realize how wrong they truly were.

  

  

  

  

  

• Vietnam Can't Keep Currency Up – Devalues Dong 3rd Time This Year, Widened Trading Bands

  Asian currency war contagion is spreading. Tonight’s victim is the Dong with Vietnam ‘devaluing’ the reference rate (for the 3rd time this year) by 1% to 21,890 and also widened the trading bands from 2% to 3% (since the recently widened 2% band was already broken)…

  • *VIETNAM CENTRAL BANK DEVALUES DONG BY 1%
  • *VIETNAM DEVALUES DONG REFERENCE RATE TO 21,890 PER DOLLAR
  • *VIETNAM CENTRAL BANK WIDENS DONG TRADING BAND TO 3% OF RATE

  

  Chart: Bloomberg

  

  

  

  

  

• Court To Bakery Owners: You Have No Property Rights

  Submitted by Ryan McMaken via The Mises Institute,

  The Colorado Appeals Court ruled that the owners of a bakery do not have any right to control their property, and that they shall be forced to provide bakery services to a couple that the owner would rather not do business with. In other words, they have no property rights. The court writes:

  Masterpiece remains free to continue espousing its religious beliefs, including its opposition to same-sex marriage. However, if it wishes to operate as a public accommodation and conduct business within the State of Colorado, CADA prohibits it from picking and choosing customers based on their sexual orientation.

  These sorts of rulings essentially rewrite the very nature of commerce and our whole concept of contracts. A business agreement (i.e., a contract) is based on two parties agreeing to a voluntary relationship. This is the foundation not only of business relationships, but of the relationship between citizens and states themselves. This is why "social contract" theory is so popular among theorists. Everyone recognizes that coerced relationships are inherently unjust, which is why defenders of the modern state system claim that states derive their legitimacy from a "social contract" in which both parties agree to the relationship.

  Without this contract into which both parties have presumably entered voluntarily, the relationship is unjust and a violation of basic human rights. But that all just goes out the window, apparently, when we're talking about discrimination. With court decisions like these, the court is saying that we can have contracts in which one only side agrees to it. But let's just call this what it is: seizure of one of the party's private property.

  Moreover, in an attempt to muddy the waters further, we're being told that this case is about religion. Ultimately, though, cases like these are really about nothing more than the simple right to control one's private property:

  In practice, the decision to exclude is always based on some type of discrimination. The type of discrimination can run the gamut from “you’re banned from my store because you groped customers” to “I don’t serve your (racial) kind.” In everyday life, the merchant, salesman, clerk, or owner of any kind must — because time is scarce — make constant discriminatory decisions as to whether or not he will do business with client A or client B. Indeed, every single economic act requires this sort of discrimination. A person may prefer to do business with more attractive people, or people who are friendlier. Or he may wish to work only with his co-religionists or citizens of his own nation-state. On a fundamental level, everyone knows this is the case, but many accept that it is the legitimate role of the state to decide which types of discrimination are acceptable and which are not. Hence, discrimination against unattractive people remains acceptable. Discrimination against certain racial groups is not.

  Regardless of what groups end up being favored, the effect of any anti-discrimination law is to curtail the freedom of the owner and to increase the size and scope of government’s coercive power over the lives and livelihoods of property owners. Moreover, since anti-discrimination law is heavily dependent on proving intent and motivation, such regulation also puts the government in the position of investigating the thoughts and opinions of owners. Sometimes, owners make this easy for regulators by stating their motivations outright, but in other cases, private owners are investigated and inferences are made as to the feelings and views of owners. This is necessary because, since every business transaction requires some sort of discrimination, the mere act of not entering into a business transaction is not sufficient to prove not-government-approved discrimination.  

  And even from a consequentialist angle, there is no real "cost" on the party being refused service. In this case, the refused party merely needs to drive down the road to one of dozens of similar bakeries in the Denver metropolitan area. But even if there were no other bakery in town (which is untrue of any community but the tiniest) the answer to this is to encourage more commercial freedom. Restricting commercial freedom merely produced the opposite effect of producing fewer bakeries:

  Thus, those who wish to lessen the negative effects of discrimination on consumers ought to concentrate on expanding the economic options for those who face discrimination. This is done through deregulation of industry and the elimination of corporate welfare and other anti-market programs and regulations that favor incumbent and semi-monopolist firms. Unfortunately, however, those who favor regulation of discrimination also tend to favor government regulation in general, including wage rates, employment practices, lending practices, food “purity,” and nearly everything else, in spite of the fact that the sum effect of such regulations is to prevent the entry of new firms into the market place while protecting the standing of large politically-powerful firms. The result is fewer merchants, fewer firms, fewer jobs, and more monopoly power which leads precisely to the negative discrimination-imposed burdens that the pro-regulation lobby claims to be fighting against.

  

  

  

  

  

• And The Best Way To Make Money In Chinese Stocks Is…

  For anyone who missed it, things spun out of control in China’s equity markets on Tuesday when a violent bout of afternoon selling sent the SHCOMP and the Shenzhen tumbling by more than 6%.

  More than half of the market traded limit-down.

  “At 2 p.m. it started to turn south again at a very fast rate,” one analyst told WSJ, adding that “people questioned why the government hadn’t yet stepped in.”

  That’s a testament to just how dependent China’s equity markets have become on the plunge protection “national team” spearheaded by China Securities Finance, the state-run margin lender that so far, has purchased nearly CNY1 trillion in shares. 

  

  It’s easy to see why investors would expect Beijing to intervene during a sell-off. After all, it was just four days ago that CSRC promised that the CSF would remain in the market “for years to come” and will “enter the market during times of volatility.” Times like Tuesday. 

  Of course it’s not at all difficult to spot a buyer of this size lumbering around in the market. Here’s what Goldman had to say on the subject earlier this month:

  “…government support has largely focused on large-cap blue chips and certain defensive sectors. Due to insufficient high-frequency data for fund flows across sectors, we used the sectors’ performance fluctuation from end-June to July and concluded that supportive capital has mostly flowed into large-cap blue chips or certain defensive sectors, such as banks, insurance, F&B and healthcare. Admittedly, the ‘national team’ has also invested in some ChiNext stocks and SME stocks according to media reports and the listed companies’ reports, although these investments appear to have taken up only a small proportion of the total government buying.”

   

  

  Given the above it shouldn’t come as a surprise that some enterprising investors have now taken to simply frontrunning the plunge protection team, because as any vacuum tube will tell you, frontrunning big trades is a great way to establish an impressive track record. Here’s Reuters:

  Some foreign investors have found a new and simple way to make money from China’s dysfunctional stock markets – by dispensing with market research and playing “follow the leader” instead.

   

  Rather than crunching data on earnings and stock valuations to come up with investment strategies, they are mimicking China’s so-called “national team”, a group of state-backed financial institutions tasked with propping up share prices.

   

  “Some of the recent policy measures taken by China’s authorities in the markets have been quite puzzling and it hasn’t really increased confidence among foreign investors,” said Karine Hirn, Hong Kong-based partner of Swedish group East Capital, a $3.5 billion fund management firm.

   

  “That has prompted some investors to closely follow the intervention tactics taken by authorities rather than analyzing and investing fundamentals which we think is required.”

   

  The national team is easy to identify and simple to follow, foreign investors say.

   

  It generally buys index heavyweights opportunistically when the market is tanking to shore up confidence.

   

  PetroChina Co Ltd is one of its favorites: with a free-float of only 2.4 percent but a weighting of more than 6 percent of the Shanghai Composite Index, it can have an outsized impact on the nation’s biggest stock exchange.

   

  Last week, when the index posted its biggest weekly gain in nearly two months, the top 10 index heavyweights, including PetroChina as well as state-owned banks and insurers, gained even as most other constituents declined, indicating authorities were intervening aggressively.

   

  Most of these purchases happen in the last 30 minutes of trading and in heavy volumes, according to Reuters data analysis of last week’s trades, indicating the aim of this intervention is to ensure benchmark indexes close higher.

  In case that’s not clear enough for you, consider this quote from a trader at an equity derivatives desk at a European bank in Hong Kong: “We watch what the large Chinese brokers are doing everyday and follow them blindly as that can be quite profitable in these illiquid markets.”

  Yes, “quite profitable”, and quite dangerous as well because as Reuters also notes, “the national team is unwittingly encouraging short-term trading patterns that amplify the detachment of stock markets, which have become less responsive to fundamental drivers such as earnings trends, domestic economic data and shifts in global markets.”

  So basically, China is doing the same thing everyone else is doing. All hail manipulated markets.

  

  

  

  

  

• FallMart

  From the Slope of Hope: On Tuesday morning, WalMart reportedly a 15% drop in profits year-over-year and warned they would be dropping estimates for forthcoming periods. I’ve placed countless thousands of trades in my life, but I don’t think I’ve ever traded a single share of WalMart. In spite of this, I decided to dust off the WMT chart and take a look at what was going on.

  Take a look at this long-term chart of the company below (click for a larger image):

  

  I’ve tinted the chart various colors to indicate these broad periods:

  • Green – the Growth Years (1977-1993): this was the period where long-term holders were awarded with life-changing gains. The stocked moved up 33,000%. A few thousand bucks bought while Jimmy Carter was President was worth a million bucks around the time Bill Clinton was inaugurated. The ascent in the stock was virtually uninterrupted. This is a textbook example of a long-term growth stock.
  • Cyan – Short Stagnation (1993-1997): The stock spent about half a decade digesting its gains and going nowhere. Latecomers, envious of the eye-popping returns from the “green” period, jumped on board, but they were evenly matched by those taking profits. After five years, a newcomer to the stock would have nothing to show for it.
  • Yellow – Internet Wannabe (1997-2000): Here the stock enjoyed the zany market of the late 1990s and also rode along Amazon’s coattails. The gain of 260% which was nothing to sneeze at, but 260% isn’t 33,000%. The big money had been made already.
  • Magenta – Long Stagnation (2000-2012): Here was a dozen year period in which WMT lost about a third of its value and gained it back again a number of times. There was plenty of money to be made by swing traders, but long-term holders, after a full dozen years, had absolutely nothing to show for their patience.
  • Gray – Sputter (2012-Present): WalMart starting regaining some of its past glory during the start of this period, and by January of this year, it reached the highest price in its entire multi-decade history as a public entity. It was up about 65% at that time from the start of the “gray” period, but then it started to slip. As you can see by the more detailed chart below, the stock eroded its gains away, and at present, less than half of the “gray” profits still exist. I’ve put a green tint to show the gap-down in price today.

  

  Thus, over the past half-year, sixty billion dollars in shareholder wealth have vanished, and it seems altogether likely that WalMart has seen its peak stock price for a long, long time.

  What’s striking to me about the recent activity is that this a singularly ugly period of WMT stock behavior. Over the years, there has been a lot of “backing and filling”, but what’s happened over the past six months is a different beast altogether: lots of “backing” and hardly any “filling”.

  I think we’re witnessing a sea change in the behavior of WalMart, and this is probably a helpful harbinger of the American economy as a whole.

  

  

  

  

  

• Citizen Patrols Return To Central Park After 26% Jump In Crime, Mayor de Blasio Blamed

  Until recently, the “socialization” of New York under newish mayor Bill DeBlasio mostly involved snowfall snafus, exploding manhole covers, giant sinkholes in the middle of the city, and boycotting NYPD cops. The rest was mostly still on auto pilot, and as a result, worked. However, slowly but surely, even the mecca of crony capitalism where at least 1% of the population has never had it better, is starting to succumb to the general economic malaise of the second great depression. Case in point, crime in Central Park is up 26% this year, which at a time of record wealth, gentrification and all time high stock prices, should be unheard of.

  It also confirms that not all is well with the “recovery” propaganda.

  Here are some of the relevant NYPD crime stats through Aug. 9:

  • A 100 percent increase in robberies so far this year — From 11 in 2014 to 22 in 2015
  • Grand larceny is up nearly 14 percent, from 29 in 2014 to 35 this year

  And with de Blasio avoiding the ugly reality literally in the middle of his city, the Guardian Angels have resumed crime patrols for the first time in 20 years. Many park-goers said they were happy to see them. Some even posed for pictures with them.

  According to CBS, the increase in robberies and other crimes this year has Guardian Angels founder Curtis Sliwa calling it a “mugger’s delight” and he wants Mayor Bill de Blasio to do something about it, CBS2’s Marcia Kramer reported Monday. “The mayor, he’s impervious to it. He’s oblivious,” Sliwa said. From CBS:

  The Guardian Angels want to take Mayor de Blasio on a tour of Central Park to show him what they see every night.

   

  “He acts like, ‘oh, but it doesn’t indicate it in the stats.’ He needs to leave Gracie Mansion and City Hall and stop worrying about the future of the world and start worrying about the here and now of our city,” Sliwa said.Their patrols are mostly at night, but when CBS2 cameras followed them Monday — and it was daylight – there were still some scary moments.

  Not surprisingly, Sliwa, who is also a conservative radio talk show host, laid the increase in crime in Central Park squarely on the mayor’s doorstep. “It’s no question that the cops no longer rule the park at night, and if they don’t rule the park at night they may not rule the city at night and that means the thugs, thug life will rule,” Sliwa said.

  One such example was homeless man with his pants seen cinched below his underwear, running around and screaming. He was drinking openly from a liquor bottle. City laws make it illegal to drink alcohol in public spaces like parks and streets.

  “That gentleman that you have on video, imagine if he would be in the rambles or a secluded area,” Guardian Angel Ben Garcia said. “Out of nowhere he pops up and starts screaming. Someone could get a heart attack and God forbid he decides to rob that person.”

  It could get much worse.

  And the truth is that while crime may have jumped in recent months, it is still a far cry from 2 decades ago.  Since 1994, overall crime including rape, robbery and felony assault is down 80 percent. During this same time, the number of visitors has climbed to 40 million a year. The likelihood of being a victim of crime in Central Park is roughly 1 in 350,000 visits or so.

  So for now there is no reason to panic, however if the current trend persists, and if at least one resident or visitor is violently mugged or, worse, killed in Central Park, that may mark the moment when NYC’s gentrification officially went into reverse.

  

  

  

  

  

• Is The New U.S. 'Law Of War Manual' Actually ‘Hitlerian'?

  Submitted by Eric Zuesse, author, most recently, of  They’re Not Even Close: The Democratic vs. Republican Economic Records, 1910-2010, and of Christ’s Ventriloquists: The Event that Created Christianity

  Is the New U.S. ‘Law of War Manual’ Actually ‘Hitlerian’?

  The Obama U.S. Department of Defense (DoD) has quietly issued its important Law of War Manual, and, unlike its predecessor, the 1956 U.S. Army Field Manual, which was not designed to approve of the worst practices by both the United States and its enemies in World War II, or after 9/11, this new document has been alleged specifically to do just that: to allow such attacks as the United States did on Dresden, Hiroshima, and Nagasaki, and in Iraq, and elsewhere.

  First here will be a summary of previous news reports about this historically important document; then, extensive quotations from the actual document itself will be provided, relating to the allegations in those previous news reports. Finally will be conclusions regarding whether, or the extent to which, those earlier news reports about it were true.

  EARLIER REPORTS ABOUT THE MANUAL:

  The document was first reported by DoD in a curt press release on June 12th, with a short-lived link to the source-document, and headlined, “DoD Announces New Law of War Manual.” This press release was published and discussed only in a few military newsmedia, not in the general press.

  The document was then anonymously reported on June 25th, at the non-military site, under the headline, “The USA writes their own version of ‘International Law’: Pentagon Rewrites ‘Law of War’ Declaring ‘Belligerent’ Journalists as Legitimate Targets.”

  That news article attracted some attention from journalists, but no link was provided to the actual document, which the U.S. DoD removed promptly after issuing it.

  A professor of journalism was quoted there as being opposed to the document’s allegedly allowing America’s embedded war journalists to kill the other side’s journalists. He said: “It gives them license to attack or even murder journalists that they don’t particularly like but aren’t on the other side.”

  Patrick Martin at the World Socialist Web Site, then headlined on August 11th, “Pentagon manual justifies war crimes and press censorship,” and he reported that the Committee to Protect Journalists was obsessed with the document’s implications regarding journalists.

  Then, Sherwood Ross headlined at opednews on August 13th, “Boyle: New Pentagon War Manual Reduces Us to ‘Level of Nazis’,” and he interviewed the famous expert on international law, Francis Boyle, about it, who had read the report. Ross opened: “The Pentagon’s new Law of War Manual(LOWM) sanctioning nuclear attacks and the killing of civilians, ‘reads like it was written by Hitler’s Ministry of War,’ says international law authority Francis Boyle of the University of Illinois at Champaign.” Ross continued: “Boyle points out the new manual is designed to supplant the 1956 U.S. Army Field Manual 27-10 written by Richard Baxter, the world’s leading authority on the Laws of War. Baxter was the Manley O. Hudson Professor of Law at Harvard Law School and a Judge on the International Court of Justice. Boyle was his top student.”

  The document is 1,204 pages. Here the general public can see the document and make their own judgments about it. What follows will concern specifically the claims about it that were made in those prior news articles, and will compare those claims with the relevant actual statements in the document itself. Reading what the document says is worthwhile, because its predecessor, the Army Field Manual, became central in the news coverage about torture and other Bush Administration war-crimes.

  THE DOCUMENT:

  First of all, regarding “journalists,” the document, in Chapter 4, says: “4.24.2 Journalists and other media representatives are regarded as civilians;471 i.e., journalism does not constitute taking a direct part in hostilities such that such a person would be deprived of protection from being made the object of attack.472.” Consequently, the journalism professor’s remark is dubious, at best, but probably can be considered to be outright false.

  The charge by the international lawyer, Professor Boyle, is a different matter altogether.

  This document says, in Chapter 5: “5.3.1 Responsibility of the Party Controlling Civilian 5.3.1 Persons and Objects. The party controlling civilians and civilian objects has the primary responsibility for the protection of civilians and civilian objects.13[13 See  J. Fred Buzhardt, DoD General Counsel, Letter to Senator Edward Kennedy, Sept. 22, 1972. …] The party controlling the civilian population generally has the greater opportunity to minimize risk to civilians.14[14  FINAL  REPORT ON  THE PERSIAN  GULF  WAR  614. …] Civilians also may share in the responsibility to take precautions for their own protection.15[15 U.S. Comments on the International Committee of the Red Cross’s Memorandum on the Applicability of International Humanitarian Law in the Gulf Region, Jan. 11, 1991. …]” This is directly counter to what Professor Boyle was alleged to have charged about the document.

  The document continues: “5.3.2 Essentially Negative Duties to Respect Civilians and to Refrain From Directing Military Operations Against Them. In general, military operations must not be directed against enemy civilians.16 In particular:
  • Civilians must not be made the object of attack;17
  • Military objectives may not be attacked when the expected incidental loss of life and injury to civilians or damage to civilian objects would be excessive in relation to the concrete and direct military advantage expected to be gained;18
  • Civilians must not be used as shields or as hostages;19 and
  • Measures of intimidation or terrorism against the civilian population are prohibited, including acts or threats of violence, the primary purpose of which is to spread terror among the civilian population.20″

  Furthermore: “5.3.3 Affirmative Duties to Take Feasible Precautions for the Protection of Civilians and Other Protected Persons and Objects. Parties to a conflict must take feasible precautions to reduce the risk of harm to the civilian population and other protected persons and objects.27 Feasible precautions to reduce the risk of harm to civilians and civilian objects must be taken when planning and conducting attacks.28”

  Moreover: “5.5.2 Parties to a conflict must conduct attacks in accordance with the principles of distinction and proportionality. In particular, the following rules must be observed:
  • Combatants may make military objectives the object of attack, but may not direct attacks against civilians, civilian objects, or other protected persons and objects.66
  • Combatants must refrain from attacks in which the expected loss of life or injury to civilians, and damage to civilian objects incidental to the attack, would be excessive in relation to the concrete and direct military advantage expected to be gained.67
  • Combatants must take feasible precautions in conducting attacks to reduce the risk of harm to civilians and other protected persons and objects.68
  • In conducting attacks, combatants must assess in good faith the information that is available to them.69
  • Combatants may not kill or wound the enemy by resort to perfidy.70
  • Specific rules apply to the use of certain types of weapons.71”

  In addition: “5.5.3.2 AP I Presumptions in Favor of Civilian Status in Conducting Attacks. In the context of conducting attacks, certain provisions of AP I reflect a presumption in favor of civilian status in cases of doubt. Article 52(3) of AP I provides that ‘[i]n case of doubt whether an object which is normally dedicated to civilian purposes, such as a place of worship, a house or other dwelling or a school, is being used to make an effective contribution to military actions, it shall be presumed not to be so used.’76 Article 50(1) of AP I provides that ‘[i]n case of doubt whether a person is a civilian, that person shall be considered to be a civilian.’”

  Then, there is this: “5.15 UNDEFENDED CITIES, TOWNS, AND VILLAGES. Attack, by whatever means, of a village, town, or city that is undefended is prohibited.360 Undefended villages, towns, or cities may, however, be captured.”

  Furthermore: “5.17 SEIZURE AND DESTRUCTION OF ENEMY PROPERTY. Outside the context of attacks, certain rules apply to the seizure and destruction of enemy property:
  • Enemy property may not be seized or destroyed unless imperatively demanded by the necessities of war.”

  These features too are not in accord with the phrase ‘reads like it was written by Hitler’s Ministry of War.’

  However, then, there is also this in Chapter 6, under “6.5 Lawful Weapons”:

  “6.5.1 Certain types of weapons, however, are subject to specific rules that apply to their use by the U.S. armed forces. These rules may reflect U.S. obligations under international law or national policy. These weapons include:
  • mines, booby-traps, and other devices (except certain specific classes of prohibited mines, booby-traps, and other devices);38
  • cluster munitions;39
  • incendiary weapons;40
  • laser weapons (except blinding lasers);41
  • riot control agents;42
  • herbicides;43
  • nuclear weapons; 44 and
  • explosive ordnance.45
  6.5.2 Other Examples of Lawful Weapons. In particular, aside from the rules prohibiting weapons calculated to cause superfluous injury and inherently indiscriminate weapons,46 there are no law of war rules specifically prohibiting or restricting the following types of weapons by the U.S. armed forces: …
  • depleted uranium munitions;51”

  Mines, cluster munitions, incendiary weapons, herbicides, nuclear weapons, and depleted uranium munitions, are all almost uncontrollably violative of the restrictions that were set forth in Chapter 5, preceding.

  There are also passages like this:

  “6.5.4.4 Expanding Bullets. The law of war does not prohibit the use of bullets that expand or flatten easily in the human body. Like other weapons, such bullets are only prohibited if they are calculated to cause superfluous injury.74 The U.S. armed forces have used expanding bullets in various counterterrorism and hostage rescue operations, some of which have been conducted in the context of armed conflict.
  The 1899 Declaration on Expanding Bullets prohibits the use of expanding bullets in armed conflicts in which all States that are parties to the conflict are also Party to the 1899 Declaration on Expanding Bullets.75 The United States is not a Party to the 1899 Declaration on Expanding Bullets, in part because evidence was not presented at the diplomatic conference that expanding bullets produced unnecessarily severe or cruel wounds.76”

  The United States still has not gone as far as the 1899 Declaration on Expanding Bullets. The U.S. presumption is instead that expanding bullets have not “produced unnecessarily severe or cruel wounds.” This is like George W. Bush saying that waterboarding, etc., aren’t “torture.” The document goes on to explain that, “expanding bullets are widely used by law enforcement agencies today, which also supports the conclusion that States do not regard such bullets are inherently inhumane or needlessly cruel.81” And, of course, the Republicans on the U.S. Supreme Court do not think that the death penalty is either “cruel” or “unusual” punishment. Perhaps Obama is a closeted Republican himself.

  The use of depleted uranium was justified by an American Ambassador’s statement asserting that, “The environmental and long-term health effects of the use of depleted uranium munitions have been thoroughly investigated by the World Health Organization, the United Nations Environmental Program, the International Atomic Energy Agency, NATO, the Centres for Disease Control, the European Commission, and others. None of these inquiries has documented long-term environmental or health effects attributable to use of these munitions.”

  However, according to Al Jazeera’s Dahr Jamail, on 15 March 2013: “Official Iraqi government statistics show that, prior to the outbreak of the First Gulf War in 1991, the rate of cancer cases in Iraq was 40 out of 100,000 people. By 1995, it had increased to 800 out of 100,000 people, and, by 2005, it had doubled to at least 1,600 out of 100,000 people. Current estimates show the increasing trend continuing. As shocking as these statistics are, due to a lack of adequate documentation, research, and reporting of cases, the actual rate of cancer and other diseases is likely to be much higher than even these figures suggest.” If those figures are accurate, then the reasonable presumption would be that depleted uranium should have been banned long ago. Continuing to assert that it’s not as dangerous a material as people think it is, seems likely to be based on cover-up, rather than on science. Until there is proof that it’s not that toxic, the presumption should be that it must be outlawed.

  Finally, though the press reports on this document have not generally focused on the issue of torture, it’s worth pointing out what the document does say, about that:

  “5.26.2 Information Gathering. The employment of measures necessary for obtaining information about the enemy and their country is considered permissible.727
  Information gathering measures, however, may not violate specific law of war rules.728
  For example, it would be unlawful, of course, to use torture or abuse to interrogate detainees for purposes of gathering information.”

  And: “9.8.1 Humane Treatment During Interrogation. Interrogation must be carried out in a manner consistent with the requirements for humane treatment, including the prohibition against acts of violence or intimidation, and insults.153
  No physical or mental torture, nor any other form of coercion, may be inflicted on POWs to secure from them information of any kind whatever.154 POWs who refuse to answer may not be threatened, insulted, or exposed to unpleasant or disadvantageous treatment of any kind.155
  Prohibited means include imposing inhumane conditions,156 denial of medical treatment, or the use of mind-altering chemicals.157”

  Those provisions would eliminate George W. Bush’s ‘justification’ for the use of tortures such as waterboarding, and humiliation.

  Furthermore: “8.2.1 Protection Against Violence, Torture, and Cruel Treatment. Detainees must be protected against violence to life and person, in particular murder of all kinds, mutilation, cruel treatment, torture, and any form of corporal punishment.29” 

  Therefore, even if Bush’s approved forms of torture were otherwise allowable under Obama’s new legal regime, some of those forms, such as waterboarding, and even “insults,” would be excluded by this provision.

  Moreover: “8.2.4 Threats to Commit Inhumane Treatment. Threats to commit the unlawful acts described above (i.e., violence against detainees, or humiliating or degrading treatment, or biological or medical experiments) are also prohibited.37”

  And: “8.14.4.1 U.S. Policy Prohibiting Transfers in Cases in Which Detainees Would Likely Be Tortured. U.S. policy provides that no person shall be transferred to another State if it is more likely than not that the person would be tortured in the receiving country.”

  Therefore, specifically as regards torture, the Obama system emphatically and clearly excludes what the Bush interpretation of the U.S. Army Field Manual  allowed.

  CONCLUSIONS:

  What seems undeniable about the Law of War Manual, is that there are self-contradictions within it. To assert that it “reads like it was written by Hitler’s Ministry of War,” is going too far. But, to say that it’s hypocritical (except, perhaps, on torture, where it’s clearly a repudiation of GWB’s practices), seems safely true.

  This being so, Obama’s Law of War Manual  should ultimately be judged by Obama’s actions as the U.S. Commander in Chief, and not merely by the document’s words. Actions speak truer than words, even if they don’t speak louder than words (and plenty of people still think that Obama isn’t a Republican in ‘Democratic’ verbal garb: they’re not tone-deaf, but they surely are action-deaf; lots of people judge by words not actions). For example: it was Obama himself who arranged the bloody coup in Ukraine and the resulting necessary ethnic cleansing there in order to exterminate or else drive out the residents in the area of Ukraine that had voted 90+% for the Ukrainian President whom Obama’s people (via their Ukrainian agents) had overthrown. Cluster bombs, firebombs, and other such munitions have been used by their stooges for this purpose, that ethnic cleansing: against the residents there. Obama has spoken publicly many times defending what they are doing, but using euphemisms to refer to it. He is certainly behind the coup and its follow-through in the ethnic cleansing, and none of it would be happening if he did not approve of it. Judging the mere words of Obama’s Law of War Manual  by Obama’s actions (such as in Ukraine, but also Syria, and Libya) is judging it by how he actually interprets it, and this technique of interpreting the document provides the answer to the document’s real meaning. It answers the question whenever there are contradictions within the document (as there indeed are).

  Consequently, what Francis Boyle was reported to have said is, in the final analysis, true, at least in practical terms — which is all that really counts — except on torture, where his allegation is simply false.

  Obama’s intent, like that of anyone, must be drawn from his actions, his decisons, not from his words, whenever the words and the actions don’t jibe, don’t match. When his Administration produced its Law of War Manual, it should be interpreted to mean what his Administration has done and is doing, not by its words, wherever there is a contradiction between those two.

  This also means that no matter how much one reads the document itself, some of what one is reading is deception if it’s not being interpreted by, and in the light of, an even more careful reading of Obama’s relevant actions regarding the matters to which the document pertains.

  Otherwise, the document is being read in a way that confuses its policy statements with its propaganda statements.

  Parts of the document are propaganda. The purpose isn’t to fool the public, who won’t read the document. The purpose of the propaganda is to enable future presidents to say, “But if you will look at this part of the Manual, you will see that what we are doing is perfectly legal.” Those mutually contradictory passages are there in order to provide answers which will satisfy both  the ‘hawks’ and  the ‘doves.’

  

  

  

  

  

• The 8 Trillion Black Swan: Is China's Shadow Banking System About To Collapse?

  “Wealth management products in China have come under the spotlight after a series of missed payments raised concerns over the shadow banking sector that often directs credit to firms shut out from bank lending or capital markets,” Reuters said in February, after reporting that CITIC (China’s top brokerage), was looking at ways to repay investors after the issuer of one of the wealth management products the broker sold missed a $1.12 million payment to investors.

  That news came a little over a year after the now infamous “Credit Equals Gold #1 Collective Trust Product” incident and a subsequent default scare on a similar product backed by loans to a struggling coal company. 

  Although wealth management products and CTPs (which differ from WMPs) are often described as “murky” and “opaque”, the basic concept is fairly simple. WMPs are marketed to investors as a way to get more bang for their buck (er.. yuan) than they would with bank deposits. Funds from these investors are then invested at a higher rate. If the assets investors’ money is used to fund run into trouble, that’s not good news for WMP investors. Simple. 

  The main issue here is the sheer size of the market. As FT notes, “in 2010, as regulators tried to rein in the explosion in bank credit resulting from the country’s Rmb4tn economic stimulus plan, banks turned to trusts to help them comply with lending controls.” So essentially, trusts helped banks offload credit risk at the behest of the PBoC. Here’s the process whereby banks use trusts to get balance sheet relief:

  

  The amount of trust loans outstanding in China has ballooned to nearly CNY7 trillion (total trust assets under management is something like CNY14 trillion) and now, Hebei Financing Investment Guarantee Group – which, as Caixan notes, is “the largest loan guarantee company in the northern province of Hebei [and] is wholly owned by the provincial regulator of state-owned assets” – is apparently broke, and that’s bad news because it guaranteed some CNY50 billion in loans made by dozens of trusts who in turn issued wealth management products to investors. 

  In short, if Hebei can’t guarantee the loans, WMP investors could be forced to take a loss and as anyone who follows developments in China’s financial markets knows, Beijing is not particularly keen on permitting SOEs to collapse – especially if there’s a risk of rattling retail investors’ fragile psyche. Here’s FT with the story:

  Eleven shadow banks have written an open letter to the top Communist party official in northern China’s Hebei province asking for a bailout that would enable the bankrupt credit guarantee company to continue to backstop loans to borrowers. If the guarantor cannot pay, it could spark defaults on at least 24 high-yielding wealth management products (WMPs).

   

  Hebei Financing Investment Guarantee Group has guaranteed Rmb50bn ($7.8bn) in loans from nearly 50 financial institutions, according to Caixin, a respected financial magazine. More than half of this total is from non-bank lenders, mainly trust companies, who lent to property developers and factories in overcapacity industries 

   

  The letter appeals directly to the government’s concern about social stability and the fear of retail investors protesting the loss of “blood and sweat money”. The 11 companies sold 24 separate WMPs worth Rmb5.5bn.

   

  “The domino effect from the successive and intersecting defaults of these trust products involves a multitude of financial institutions, an immense amount of money, and wide-ranging public interests,” 10 trust companies and a fund manager wrote to Zhao Kezhi, Hebei party secretary.

   

  “In order to prevent this incident from inciting panic among common people and creating an unnecessary social influence, we represent more than a thousand investors, more than a thousand families, in asking for a resolution.”

   

  Hebei Financing stopped paying out on all loan guarantees in January, when its chairman was replaced and another state-owned group was appointed as custodian.

   

  Though Hebei Financing guaranteed loans underlying WMPs, the products themselves did not guarantee investors against losses. Caixin reported that several trust companies, fearing reputational damage, have used their own capital to repay investors. 

   

  The 11 groups behind the recent letter have taken a different approach, pressuring the government for a rescue.

  There a few things to note here. First, the reason the underling assets are going bad is because WMP investors’ money was funneled into real estate development and all manner of other parts of the economy which are now struggling mightily. Second, the idea that China should allow for defaults on trust products is nothing new. In fact, we’ve been saying just that for at least a year. Finally, and perhaps most importantly, the banks’ playing of the social instability card underscores an argument we made when China’s equity market was in the midst of its harrowing plunge last month. In “Why China’s Stock Collapse Could Lead To Revolution” we warned that “it is only a matter of time before all the ‘nouveau riche’ farmers and grandparents see all their paper profits wiped out and hopefully go silently into that good night without starting mass riots or a revolution.”

  Yes, “hopefully”, but maybe not because as is becoming increasingly clear by the day, simultaneously micro managing the stock market, the FX market, the command economy, the media, and just about every other corner of society is becoming a task too tall even for the Politburo and sooner or later, something is going to break and shatter the “everything is under control” narrative.

  Whether or not the catalyst for widespread social upheaval will be a catastrophic chain reaction in the shadow banking system we can’t say for sure, but as FT reminds us, technical defaults on trust products have in the past been met with “public protests by angry investors at bank branches.”

  Here’s a snapshot of WMP issuance (note the durations as it gives you an idea of what kind volume we’re talking about on maturing products):

  

  As you might have noticed from the above, it appears that maturity mismatch could be a real problem here. Here’s what the RBA had to say about this in a bulletin dated June of this year:

  A key risk of unguaranteed bank WMPs is the maturity mismatch between most WMPs sold to investors and the assets they ultimately fund. Many WMPs are, at least partly, invested in illiquid assets with maturities in excess of one year, while the products themselves tend to have much shorter maturities; around 60 per cent of WMPs issued have a maturity of less than three months (Graph 5). A maturity mismatch between longer-term assets and shorter-term liabilities is typical for banks’ balance sheets, and they are accustomed to managing this. However, in the case of WMPs, the maturity mismatch exists for each individual and legally separate product, as the entire funding source for a particular WMP matures in one day. This results in considerable rollover risk. 

   

  

  In other words, the WMP issuers are perpetually borrowing short to lend long. The degree to which this is the case apparently varies depending what type of WMP (or trust product) one is looking at, and we will mercifully spare you the breakdown of the market by type (other than to include the pie chart shown below), but the important thing to note here is that it seems highly likely that at least CNY8 trillion in WMPs are exposed to the “considerable rollover risk” mentioned above.

  

  Allow us to explain how this could end. If China allows a state-run guarantor like Hebei Financing Investment Guarantee Group (the subject of the FT article cited above) to go broke and that in turn triggers losses for investors in WMP products, demand for those WMPs will dry up – and right quick. If that happens, WMPs will stop rolling, freezing the market and triggering a cascade of forced liquidations of the underlying (likely illiquid) assets. 

  It’s either that, or China bails everyone out. As the RBA concludes, “a key issue is whether the presumption of implicit guarantees is upheld or the authorities allow failing WMPs to default and investors to experience losses arising from these products.”

  And while that is certainly a key issue, the key issue is what those investors will do next.

  

  

  

  

  

• What Will You Do When The Government Checks Stop?

  Submitted by Tom Chatham via Project Chesapeake,

  Preppers talk about the day when paper currency becomes worthless and how they plan to barter when things fall apart. But, what will most people do when the government check they depend on stops forever more. Over 50% of the people in America now get some kind of government check every month. That is a question that I think many people have not come to grips with yet. At some point, the checks will stop.

  Social security and Medicare are running dry fast and it is only a matter of time before they stop paying out in whole or in part. If someone relies on these payments then they likely do not have sufficient money stored away to survive on in the event payments stop.

  Not only that, the many other entitlement payments sent out monthly that are keeping the population clothed, fed and housed will stop at some point as well. When that happens we already know what the result will be, especially in the cities. It is inevitable but many people still trust the government line and do not worry about it.

  There are those that realize the threat but have not taken any action to mitigate the problems that will result when the fateful day comes. Many hope it will be forestalled for their lifetimes and some hope if they ignore it, it simply will not happen. If government checks stop it will also mean the destruction of retirement plans and savings accounts and if you do not hold it you will not have it.

  One of the most vulnerable groups are the babyboomers that are now retiring at the rate of 10,000 per day. If this growing group suddenly looses their monthly check along with most or all of their savings, it is going to put a lot of pressure on society as these people suddenly try to return to the job market to survive.

  With the job market shrinking on a daily basis it is now imperative to develop a backup plan to generate some type of income when you can no longer rely on past promises to be honored. If you can store away some real money or valuable items to utilize later that is great but that will not last you forever.

  Anyone that survives the coming currency crisis will be someone that planned ahead and had some way to generate income after everything falls apart. If you can generate income to live on, be it money, food, medicine or some other item you need, you will be able to care for yourself for the duration.

  That is going to be a critical element in any long range plan you come up with. This means you will need to have the ability to produce something of value that society will need on a daily basis. The first things people seek out are food, shelter and clothing. Having some abilities in one or more of these areas will be the closest thing to guaranteed sales potential that you can get.

  Once these needs have been met by society other things will become important such as energy, security, transportation and medicine. Having some abilities in one or more of these areas will insure income for a long time to come as society rebuilds itself.

  If you have abilities in a primary need and a secondary need, you will be way ahead of the majority of the people seeking to survive the chaos that follows the loss of jobs and a functional currency.

  This plan could be as simple as growing a small garden to have vegetables and seeds to sell. At the same time it would be little trouble to add a few medicinal plants to your plot. You might be able to offer shelter in the form of a spare room or a cottage in your back yard. You could combine this with transportation or security services. In a breakdown of services, energy would be heavily affected. If you had the ability to produce electricity for refrigeration or ice production or the ability to power a vehicle with a wood gas system, you would have a valuable commodity. The ability to make small wood stoves for people without power would give you a large market for this type of appliance.

  It is important to think about all of the systems we rely on every day that people take for granted. This will give you a large list of potential goods or services that you may be able to provide after these things become difficult to get. A few dozen chickens producing eggs in your backyard could be the difference between getting by and suffering terribly.

  It is also important to think about the support systems you will need to supply the raw materials to produce your goods or services. Chickens need feed. Wood gas producers need a supply of wood. Making wood stoves requires steel. Growing a garden requires not only the knowledge but seeds, tools and fertilizer.

  It is important to keep in mind that retirement is a relatively new invention that came about in the 20th century. Until then, people worked until they literally dropped dead. When the current financial system breaks permanently, people will be forced to go back to work and keep doing so until the day they die. That is the reality many people will have to face in the near future. It is a reality that many have not considered and do not want to think about. You can ignore reality, but you cannot ignore the consequences of ignoring reality. When the government checks stop and your savings are gone, what will you do?

  

  

  

  

  

• Hillary Mocks FBI Claim She Wiped Email Server Clean, "What With A Cloth Or Something?"

  The stunning imbroglio of Hillary Clinton’s path to The White House took another absurd twist tonight when just hours after The FBI confirmed an “attempt” was made to wipe the hard drive of her email server (or in other words, remove all data on it), the former secretary of state seemed to mock the claims in a press conference. When asked specifically if she wiped the server, she ‘ummed’ and ‘ahhed’ then jokingly said “what with a cloth or something?”

   

   

  As The Daily Beast reports,

  NBC News quotes an FBI official as being optimistic that data can be recovered. Clinton’s campaign told Politifact “work-related emails were deleted after she turned them over to the State Department” last December, which means before she handed the server over to the FBI last month. The exact date is unknown.

   

  The Associated Press reported earlier Tuesday that investigators may be able to discern how secure her email system was, whether its files had been backed up, and if anyone else had accounts on the system.

  *  *  *

  And then there’s this…

  

  

  

  

  

• The Secret To Trump's Popularity (In 1 Cartoon)

  The career-politician’s Kryptonite – saying what you really think…

   

  

  
  

  Source: USNews.com

  

  

  

  

  

• Aug 19 – PBOC injects $48bn into China Development Bank

  EMOTION MOVING MARKETS NOW: 14/100 EXTREME FEAR

  PREVIOUS CLOSE: 12/100 EXTREME FEAR

  ONE WEEK AGO: 9/100 EXTREME FEAR

  ONE MONTH AGO: 32/100 EXTREME FEAR

  ONE YEAR AGO: 26/100 EXTREME FEAR

  Put and Call Options: EXTREME FEAR During the last five trading days, volume in put options has lagged volume in call options by 29.04% as investors make bullish bets in their portfolios. However, this is still among the highest levels of put buying seen during the last two years, indicating extreme fear on the part of investors.
  Market Volatility: NEUTRAL The CBOE Volatility Index (VIX) is at 13.79. This is a neutral reading and indicates that market risks appear low.

  Stock Price Strength: EXTREME FEAR The number of stocks hitting 52-week lows is slightly greater than the number hitting highs and is at the lower end of its range, indicating extreme fear.

  PIVOT POINTS

  EURUSD | GBPUSD | USDJPY | USDCAD | AUDUSD | EURJPY | EURCHF | EURGBP| GBPJPY | NZDUSD | USDCHF | EURAUD | AUDJPY 
  

  S&P 500 (ES) | NASDAQ 100 (NQ) | DOW 30 (YM) | RUSSELL 2000 (TF) | Euro (6E) |Pound (6B)

  EUROSTOXX 50 (FESX) | DAX 30 (FDAX) | BOBL (FGBM) | SCHATZ (FGBS) | BUND (FGBL)

  CRUDE OIL (CL) | GOLD (GC)

   

  MEME OF THE DAY – NYSE GOES DOWN

   

  UNUSUAL ACTIVITY

  IDTI Vol weakness SEP 19 PUT ACTIVITY @$1.25 on offer 4500+ Contracts

  SLB SEP 80 PUT ACTIVITY @$1.31 on offer 4000+ Contracts

  PYPL SEP WEEKLY4 PUTS on the BID @$1.35 3700 Contracts

  SPLS DEC 15 CALLS on the OFFER @$.90-.95 6000 Contracts

  SEMI – CEO Purchased $300k+ total

  AVHI Director Purchase 1,920 @$ 13.9989 Purchase 1,280 @$13.99

  More Unusual Activity…

   

  HEADLINES

   

  PBOC injects $48bn into China Development Bank –Xinhua

  Fitch Affirms Canada at ‘AAA’; Outlook Stable

  Fonterra GDT Price Index Rises +14.8% (prev -9.3%)

  ECB balance sheet expanded by EUR 5.31bn in latest week

  ECB lowers ELA cap for Greek banks to EUR89.7bn –Rtrs

  Tsipras, Advisors Consider Delaying Call For Confidence Vote – kathimerini

  Greek Finance Ministry Makes 7 Changes To Capital Controls – enikos

  Merkel To Press Dissenting Lawmakers To Support Bailout – ekathimerini

  IMF Calls On Saudi Arabia To Rely Less On Oil – MarketWatch

  Walmart Cuts Full Year Earnings Guidance After Disappointing Results – FT

  Home Depot Q2 EPS In-Line; Comps Outpace Expectations – Street Insider

  Lindt Half-Year Results Helped By Russell Stover Buy – RTRS

  Deutsche Bank AG ‘BBB+/A-2’ Ratings Affirmed; Outlook Stable – S&P

  Austria, Spain parliaments approve Greek aid deal

  56 Merkel lawmakers to reject bailout deal –BBG

  GOVERNMENTS/CENTRAL BANKS

  Atlanta Fed GDPnow (Q3): 1.3% (prev 0.7% on 13 August 2015)

  Fitch Affirms Canada at ‘AAA’; Outlook Stable

  COMMENT: Hilsenrath: Dallas Fed Gets a Non-Economist with a Controversial Resume

  ECB balance sheet expanded by EUR 5.31bn euros last week –Rtrs

  BoE analyzes whether Twitter can help predict a bank run –WSJ

  Irish cbank appoints advisers to beef up credit union regulation –Examiner

  GREECE

  ECB cuts Greek bank ELA cap to E89.7bn after Bank of Greece request –Rtrs

  Austria, Spain parliaments approve Greek aid deal –Livesquawk

  Greece eases capital controls for students and payments –Rtrs

  Merkel to Press Dissenting Lawmakers to Back Greece Bailout –BBG

  Dutch PM Rutte to Face Dutch Criticism Over Broken Greek-Aid Promise –BBG

  EU Spokeswoman: ESM Will Cover Greek Aid Without ‘New National Money’ –Livesquawk

  Greece Moves Forward With First Privatization Since Bailout Deal –BBG

  GEOPOLITICS

  Ukraine Says Separatist Attacks Ease for First Time in Week –BBG

  Putin Escalates Again in Ukraine –WSJ

  FIXED INCOME

  European Bonds Decline After Global Economic Data Beat Forecasts –BBG

  Corporate bond and equity market confidence diverging –FT

  NTMA Cancels EUR500 Mln Of The Irish Floating Rate Treasury Bond 2038 –NTMA

  High-grade leverage rose in Q2 –IFR

  Russian domestic dollar debt binge prompts liquidity fears –IFR

  Iraq Hires Banks Including Citigroup for $6bn bond Sale –BBG

  FX

  USD – Dollar buoyed by US housing data, Fed ahead –Investing.com

  GBP – Sterling rallies after UK inflation beats expectations –Rtrs

  TRY – Turkish lira hits record low after bank holds rates –CNBC

  IDR – Indonesia Cbank to Change Dollar Purchase Rules –WSJ

  RUB – Russians Feel Ruble’s Fall –NYT

  CLP – Chilean peso takes turn in EM filing line –FT

  ENERGY/COMMODITIES

  WTI futures settle 1.8% higher at $42.62 per barrel

  Brent futures settle 0.1% higher at $48.81 per barrel

  O&G – UK fracking industry set for a boost –FT

  AGS – Fonterra GDT Price Index Rises +14.8% (prev -9.3%)

  AGS – Fonterra chief bullish on dairy prices –FT

  METALS – Copper tumbles below $5,000 to fresh 6-year low –FT

  EQUITIES

  EARNINGS – Walmart profit misses expectations, lowers guidance –BBC

  EARNINGS – Home Depot Inc Q2 16 Adj EPS: $1.71 (est $1.71) –USAToday

  COMMODS – Rio considers Hunter coal break-up –AFR

  COMMODS – Noble Group Plunges to Seven-Year Low as CEO Defends Finances –BBG

  COMMODS – Glencore examines closure of platinum mine –FT

  COMMODS – Cairn Energy expects to begin drilling in Q4

  TECH: Sprint CEO escalates Twitter war with T-Mobile CEO –CNBC

  BANKS – Deutsche Bank’s Fingeroot Said to Take Credit Suisse Equity Role –BBG

  BANKS – S&P: Deutsche Bank AG ‘BBB+/A-2’ Ratings Affirmed; Outlook Stable

  BANKS – RBS sells Luxembourg fund business –FT

  BANKS – BNY Mellon to pay $14.8m to settle US SEC bribery charges –Rtrs

  EM – India’s Snapdeal raises $500m from Alibaba, Foxconn –FT

  EMERGING MARKETS

  CHINA – PBOC injects $48bn into China Development Bank –Xinhua

  CHINA OVERNIGHT – China’s central bank injects 120 bln into market –Xinhua

  CHINA COMMENT – Top analyst says Chinese authorities to maintain stability of the equity market –BI

  TURKEY – Turkey’s CBank Leaves Rates Unchanged –WSJ

   

  INDONESIA – Indonesia central bank holds key rate at 7.50% as expected –ST

  

  

  

  

  

• Ron Paul On The Seamless Web Of Liberty

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

  Many people think the Internal Revenue Service was violating civil liberties when it harassed tea party groups. After all, the groups were targeted because they wanted to exercise their civil liberty to challenge government policies. However, the specific issue in the IRS case was the groups’ application for tax-exempt status, which seems to be an aspect of economic liberty. In fact, the IRS case demonstrates that there is no meaningful distinction between civil and economic liberties. A true friend of the free society defends both civil and economic liberties.

  Many “civil libertarians” who oppose government laws interfering in the personal choices of consenting adults support laws preventing consenting adults from working for below the minimum wage. Other civil libertarians support government programs forcing consenting adults to purchase health insurance. Many liberals who join libertarians in opposing the NSA’s warrantless wiretapping fail to protest Obamacare’s assault on medical privacy. Even worse are those “First Amendment defenders” who cheer on government actions preventing religious individuals from operating their businesses in accord with the teachings of their faith.

  The hypocrisy of left-wing civil libertarians is matched by the hypocrisy of many “economic conservatives.” Too many conservatives combine opposition to high taxes and Obamacare with support for authoritarian measures aimed at stopping individuals from engaging in “immoral" behavior. These conservatives do not understand that using force to stop people from engaging in nonviolent activities that some consider immoral is just as wrong as using force to make people purchase health insurance. Obamacare and the drug war both violate individual rights, and neither has any place in a free society.

  In a free society, individuals must respect the right of others to make their own choices free from government coercion. However they do not have to approve of those choices. Individuals are free to use peaceful persuasion to stop others from engaging in immoral or destructive behavior. They can also avoid associating with individuals or businesses whose actions they find immoral or simply distasteful.

  Many civil and economic libertarians also mistakenly believe that they can defend liberty while supporting an imperialist foreign policy. It is impossible to be a true civil libertarian, or a true fiscal conservative, and support the warfare state.

  America’s imperialist foreign policy is the underlying justification for the rise of the modern surveillance state, and the reason Americans cannot board an airplane without being harassed and humiliated by the Transportation Security Administration. The warfare state is also the justification for the government’s greatest infringement on personal liberties: the military draft.

  The United States government’s militaristic foreign policy costs taxpayers over $1 trillion a year. The costs of empire are major drivers of the American debt. Yet many of the most fervent opponents of domestic spending oppose even minuscule cuts to the defense budget. The government’s budget will never be balanced until conservatives give up their love affair with the welfare state and military Keynesianism.

  Scholars, commentators, and other public figures who defend liberty in some areas and authoritarianism in other areas – or combine a defense of economic or civil liberty with a defense of the warfare state – undermine the case for the liberties they claim to cherish. Restoring the link between economic liberty, civil liberty, and peace is a vital task for those seeking to restore a society of liberty, peace, and prosperity. I examine the link between an interventionist foreign policy and a loss of our civil and economy liberties in my new book Swords into Plowshares.

  

  

  

  

  

• China's Richest Traders Are Rushing To Dump Their Stocks To The Retail Masses, Just Like In The US

  One of the things you will never hear on propaganda financial comedy TV, is that for all the endless prattle of cheap stocks and unlimited upside, the only purpose of pundit after pundit appearing inbetween commercials for incontinence diapers and get rich quick while trading options books (call now for a free copy while supplies last, for the next 3 years, is to sucker you, dear reader, in a casino that has been rigged by HFTs, and manipulated by central banks, into buying stocks so someone can collect a commission and someone else can offload a bag of overvalued toxic garbage to the infamous “dumb money” retail investor.

  The only problem is that after the Lehman collapse which revealed to everyone just how rigged everything truly was, the “dumb money” refused to participate in this so-called bull market, forcing global central banks to monetize $13 trillion in risk assets, and corporations to buyback their own stock at a record pace since Joe Sixpack refuses to bid it up.

  But who can blame the “dumb money” – here, as a reminder, is what the “smart money” has been doing not only in 2014…

  

   

  … but ever since the start of the second great depression also known as the “bull market”:

  

   

  As it turns out it is not just in the US that the “smart money” is bailing out as fast as it can: according to Bloomberg, the wealthiest investors in China’s stock market are also scrambling for the exits. To wit:

  The number of traders with more than 10 million yuan ($1.6 million) of shares in their accounts shrank by 28 percent in July, even as those with less than 100,000 yuan rose by 8 percent, according to the nation’s clearing agency. While some of the drop is explained by falling market values, CLSA Ltd. says China’s rich have taken advantage of state buying to cash out after the nation’s record-long bull market peaked in June.

  Visually:

  

  

  Now the reason the smart money is called that, is because, by and large, they know when the game is over and only some last minute government bailouts are keeping the farce upright, although as selloffs such as last night in China showed, it doesn’t take much to spook everyone that the government may not be backstopping the market for long unleashing a furious selling rampage.

  And, as Bloomberg adds, “investors with the most at stake are finding fewer reasons to own Chinese shares amid weak corporate earnings and some of the world’s highest valuations. With this month’s devaluation of the yuan adding to outflow pressures, bulls have started to question whether there’s enough buying power to prop up prices once the government pares back its unprecedented rescue effort – – a concern that contributed to the Shanghai Composite Index’s 6 percent plunge on Tuesday.”

  As a reminder, the median mainland stock traded at 72 times reported earnings on Monday, more expensive than any of the world’s 10 largest markets. The ratio was 68 at the peak of China’s equity bubble in 2007, according to data compiled by Bloomberg.

  Just a tad frothy. “The high net worth clients are the ones who moved the market,” Francis Cheung, the head of China and Hong Kong strategy at CLSA, wrote in an e-mail. “They tend to be more savvy.” What he meant is “they tend to be more selly.”

  Not only that, but they tend to own the government, and the press: the same press that promised untold stock market riches on the way up, and is now promising that the government can halt the market crash on the way down so please come back in, the water is warm.

  The problem is that only the dumbest money believe it, those with “<100,000 Yuan“, which will be nowhere near enough to satisfy the selling pressure once the whales start really dumping their holdings, leading to another Hanergy-type perpetual halt.

  “There is not a lot of fundamental support for the A-share market,” Cheung said. “Earnings are weak.”

  The rich know this: “the ranks of investors with at least 10 million yuan in stocks dropped to about 55,000 in July from 76,000 in June. Those with between 1 million yuan and 10 million yuan declined by 22 percent, according to data compiled by China Securities Depository and Clearing Corp.“

  The bottom line: “Wealthy investors, who have been through bear markets, are better at exiting,” said Hu Xingdou, an economics professor at the Beijing Institute of Technology.

  That’s true not only in China, it is certainly the case in the US as well, where the Fed has desperately been scrambling to give the impression that a $4.5 trillion balance sheet has made things “normal” again, when it apparently can’t realize that the greater the central bank intervention, the less the confidence anyone, not just smart, but dumb, and all other money, has in the market.

  Which is why the Fed may be on the verge of throwing the towel, and all those “smart” investors who still have not sold, tough.

  Until, of course, they scream and demand to be bailed out once again, when it’s all comes crashing down, which is precisely what will happen because in a banana republic like the US, it is those who never believed that the worst could happen to them for the second time in under a decade, that call the shots and control not only the legislative and the judicial branches of government, but the clueless economists who control the money printer as well. 

  Rinse. Repeat.

  

  

  

  

  

• Cyanide Thunderstorms Feared As Mystery Deepens Around $1.5 Billion Tianjin Explosion

  The story behind the chemical explosion that rocked China’s Tianjin port last Wednesday continues to evolve amid fears that the public could be at risk from the hundreds of tonnes of sodium cyanide stored at the facility.

  More specifically, Monday’s heightened concerns were related to the possibility that rain could interact with the water soluble chemical, releasing deadly hydrogen cyanide gas into the air. “First rain expected today or tonight. Avoid ALL contact with skin,” a text message purported to have originated at the US Embassy in Beijing read. The Embassy would later deny the message’s authenticity, perhaps at the behest of the Politburo which has kicked off the censorship campaign by shutting down hundreds of social media accounts for “spreading blast rumors.”

  Despite efforts to preserve order and clamp down on discussion, the anger in China is palpable as citizens demand answers as to how a catastrophe of this magnitude could have happened and as it turns out, not only was Tianjin International Ruihai Logistics storing sodium cyanide in amounts that were orders of magnitude larger than what they were supposed to be storing, but they were apparently doing so without a license. “The company has handled hazardous chemicals during a period without a licence,” an unnamed company official said on Tuesday. Apparently, Ruihai received the licenses it needed to handle the chemicals just two months ago, BBC reports, citing Xinhua. 

  Meanwhile, it looks as though determining who actually owns Ruihai will be complicated by the fact that in China, it’s not uncommon for front men to hold shares on behalf of a company’s real owners. This is of course an effort to obscure Communist party involvement in some enterprises and as FT reports, “that seems to be the case for Shu Jing and Li Liang, who appear in State Administration of Industry and Commerce records as holding 45 and 55 per cent of Ruihai International Logistics.” “Both Mr Shu and Mr Li told Chinese media they were holding their shares on behalf of someone else,” FT adds, “but would not say who.”

  Here’s more from FT:

  Licensing to operate a hazardous goods warehouse is not easy to come by, and Ruihai Logistics’ operation seems to have been approved after neighbouring lots had already been auctioned to residential developers.

   

  Adding to the speculation, Tianjin’s online corporate registry database was inaccessible for four days after the blasts. When access resumed on Monday, a search for Ruihai Logistics yielded a curious gap.

  The company was registered in 2012 but its current legal owners only bought their shares in 2013. The historic list of changes that should have reflected the previous owners did not appear.

   

  The records reveal that many Ruihai executives are former employees of Sinochem, the giant state-owned chemicals, fertiliser and iron ore trader that owns the largest hazardous warehouse operation in Tianjin.

  You get the idea. And although we’ll likely never know the true extent of the Party’s involvement with the company, local residents are furious, as evidenced by protests near the blast zone on Tuesday morning, which means Beijing must at least pretend to be serious about investigating the incident. In an effort to pacify the country’s censored masses, party mouthpiece The People’s Daily said 10 people, including the head and deputy head of Ruihai had been detained since Thursday. As Reuters reports, Yang Dongliang, head of the State Administration of Work Safety, is also under investigation:

  China said on Tuesday it is investigating the head of its work safety regulator who for years allowed companies to operate without a license for dangerous chemicals, days after blasts in a port warehouse storing such material killed 114 people.

   

  Yang Dongliang, head of the State Administration of Work Safety, is “currently undergoing investigation” for suspected violations of party discipline and the law, China’s anti-graft watchdog said in a statement on its website.

   

  The agency, the Central Commission for Discipline Inspection, did not say that Yang’s behavior was connected to the explosions in the port of Tianjin but the company that operated the chemical warehouse that blew up did not have a license to work with such dangerous materials for more than a year.

  While Beijing is busy engineering a smoke screen to appease the locals, thunderstorms are rolling into the area, which, as noted above, is bad news as the hundreds of tons of water soluble sodium cyanide are now exposed to the elements. Here’s Xinhua:

  Rains are expected to complicate rescue efforts and may spread pollution at the Tianjin port, which was rocked by warehouse blasts last week. China’s central meteorological authority has predicted a thunder storm over the blast site, where hundreds of tonnes of toxic cyanide still reside. A chemical weapon specialist at the site told Xinhua that rain water may merge with the scattered chemicals, adding to probability for new explosions and spreading toxins.

  On Tuesday, the Tianjin Environment Protection Bureau said it had collected 76 samples from around the blast site. “With regards to the safety levels, in total there are 29 cyanide inspection sites [and] of them, eight exceeded safety levels [with] the largest reading was 28 times over the safety standard,” said Bao Jingling, the agency’s chief engineer.

  Indeed, some have observed what’s been described as a “white foam” on the ground. 

  

  And as for the forecast, well, things don’t look promising:

  

  Finally, the first estimates of the damage are beginning to trickle in and while we won’t know the full extent of the human toll for quite sometime (if ever), Fitch puts the financial impact of the blasts for Chinese insurance companies at between $1-$1.5 billion. For anyone out there who’s long (or looking to get short) the Chinese P&C space, here’s Deutsche Bank’s take:

  Based on reported data, PICC was the largest P&C player in Tianjin with 28% market share in 2014, followed by Ping An at 23%, CPIC at 12% and Taiping at 5%. Tianjin is a relatively small market for listed insurers, accounted for 1.2% of 2014 premiums for PICC, 1.8% for Ping An, 1.4% for CPIC and 4.1% for Taiping.

   

  We note that it may be too early to assess ultimate losses from this event as it generally takes time for all claims to be filed. However, assuming losses are shared based on their respective market share in Tianjin, we estimate that every Rmb1bn ultimate loss, PICC’s 2015E combined ratio could increase by 12bps, Ping An by 18bps, CPIC by 14bps, and Taiping by 32bps and PICC’s 2015E net profit would decline by 1.6%, Ping An by 0.5%, CPIC by 0.8% and Taiping by 1.2%.

   

  We maintain our relatively cautious stance on Chinese P&C insurers as we expect underwriting profitability to be under pressure in the next 6-12 months amidst auto premium deregulation, potential increase in competition from online players and a tougher comp in 2H15E. 

  It also looks as though the government could be on the hook for tens of millions of yuan in insurance claims for injuries and deaths. The full Fitch statement is below.

  And meanwhile:

  Tianjin city sells 376m yuan of 3-yr bonds at 3.38%.

   

  China’s Tianjin Sells 1.46b Yuan Special Bonds in Placement.

  *  *  *

  Full statement from Fitch

  The insured losses from a series of explosions at a chemical warehouse in Tianjin on 12 August are likely to be material for Chinese insurance companies, potentially exceeding USD1bn-1.5bn, says Fitch Ratings. The high insurance penetration rate in this area could make the blasts one of the most costly catastrophe claims for the Chinese insurance sector in the last few years. While the incident is still developing, Fitch expects the number of reported insurance claims cases to surge further in the coming few weeks. 

  Fitch believes that claims from the blasts are likely to undermine the financial performance of some regional players and those property and casualty insurers with high risk accumulation in the affected areas. That said, it is too early to determine the exact impact that this incident will have on the credit strength of the Chinese insurance sector as a whole. 

  According to the China Insurance Regulatory Commission, non-life insurance premiums from Tianjin city amounted to CNY11bn (USD1.7bn) in 2014. As such, should insured losses come in at the high end of the initial USD1-1.5bn estimate, they would represent about 88% of total direct premiums written in Tianjin or roughly 5.4% of aggregated shareholder capital for the six most active issuers at end-2014. PICC Property and Casualty Company, Ping An Property & Casualty Insurance Company of China, China Pacific Property Insurance, China Continent Property & Casualty Insurance, Sunshine Property & Casualty Insurance and Taiping General Insurance are the most active insurers in the region, accounting for more than 77% of the non-life segment as measured by direct premiums written. 

  Claims from the blasts could be shared with both local and international reinsurers, which could mitigate the direct impact on the Chinese insurance sector. While insurers could recover a portion of their property claims from their reinsurers, their exposure, the amount of retention and the number of reinstatements under the catastrophe reinsurance program are likely to determine the degree of severity to which they are affected. Fitch estimates that the overall risk cession ratios of major non-life players active in the Tianjin region range from 10% to 15%. 

  Chinese media have reported that more than 8,000 vehicles were destroyed by the explosions. Claims from motor insurance could impair insurers’ margins and capital if their reinsurance protection is marginal and the degree of risk accumulation within the affected region is significant. Aside from motor excess of loss treaties, in which the reinsurers indemnify the ceding companies for losses that exceed a specified limit, it is common for Chinese insurers to use quota share reinsurance treaties to mitigate their solvency strain due to the strong growth in recent years from the motor insurance book of business. 

  The majority of claims will come from motor, cargo, liability and property insurance. However, medical and life insurance claims are also likely to be substantial. Victims of death and injuries are covered by a government-supported accident insurance plan for the Tianjin region, in addition to their own medical and life insurance policies. Each injured person who is insured by the government plan can claim compensation of between CNY20,000 and CNY35,000, depending on the extent of injuries while compensation of CNY50,000 will be paid in the event of death. 

  

  

  

  

  

• Gold Is "Undervalued" For 1st Time In 6 Years, BofAML Says

  With hedge funds net short for the first time ever, and Commercial Hedgers are holding the lowest net short position in gold futures since the launch of the gold bull market in 2001, we thought it interesting that – for the first time since 2009, BofAML's fund managers' survey finds Gold is "undervalued."

   

  For the first time since records began, hedge funds are net short gold futures, according to CFTC data…

   

  

   

  This is what happened the last time gold saw a 'low' net long position…

  

   

  And 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.

   

  

   

  And now… BofAML fund manager survey shows Gold is "undervalued" for the first time since 2009…

  

   

  So in aummary – Fast Money short, Smart Money least hedged,  Gold "undervalued"

   

  Source: Bloomberg and BofAML

  

  

  

  

  

• Noble Group’s Kurtosis Awakening Moment For The Commodity Markets

  Submitted by Simon Jacques

  Noble Group’s Kurtosis Awakening Moment For The Commodity Markets

  

  Trust is everything in commodity trading, it is also what is maintaining a constant risk premia in this market.

  Noble Group is Asia’s largest commodities trader.

  According to GMT research, Noble Group took what they have estimated as between $4 to $6 billions worth of fair value gains on asset valuation over the last 5 years.

  Just prior their Q2 earnings release, we published the reasons outlining why we believe that the trader is an accounting hocus-pocus.

  Since we are exactly one week after their Q2 results, in theory Standard and Poor’s had time to do their homework.

  We expect a big announcement of S&P on Noble Group later this week.

  UK insurers (who have also a foot in the cargo insurance market) have dumped Noble Group bonds overnight.

  The S&P downgrade was leaked or they have just anticipated it.

  Bonds maturing 2020 now trading in mid 80’s; private bank clients waking up to risks? Company no longer has access to capital markets.

  6 months after repeated ­assurances from Alireza that the financial accounting inquiry’s findings would not trigger a scramble for capital…

   

  

  … 5 yrs CDS paper quoted at 743 bps, stands at the highest level since 2009, 100bps bid-ask

  Energy credit analysts wonder where Noble Group’s financing will come from going forward with the downgrades.

  The trader will lose its access to their counter parties because of stricter limitations to deal with them now.

  Below is an excellent interview from GMT Research founder Gillem Tulloch made on Bloomberg Television.

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  Trading firms should be the experts at managing market risks; it’s at the core of our job to stay in business but when a major trader is on the brink of, and the market is pricing an event, the commodity market and market risk become extremely fungible.

  

  

  

  

  

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