- Venezuela Increasingly Looks Like A War Zone
Over the years, we have repeatedly poked fun at the transformation of Venezuela into a “socialist utopia” – an economy in a state of terminal collapse, where the destruction of the currency (one black market Bolivar is now worth 107 times less than the official currency’s exchange rate) and the resulting hyperinflation is only matched be barren wasteland that local stores have transformed into now that conventional supply chains are irreparably broken.
Just this past Wednesday we showed a clip of what is currently taking place inside Venezuela supermarkets, noting that “the hyperinflationary collapse in Venezuela is reaching its terminal phase. With inflation soaring at least 65%, murder rates the 2nd highest in the world, and chronic food (and toilet paper shortages), the following disturbing clip shows what is rapidly becoming major social unrest in the Maduro’s socialist paradise… and perhaps more importantly, Venezuela shows us what the end game for every fiat money system looks like (and perhaps Janet and her colleagues should remember that).”
Unfortunately, while mocking socialist paradises everywhere is a recurring theme especially once they have completely run out of other people’s money to burn through, what always follows next is far less amusing – completely social collapse, with riots, civil war and deaths not far behind.
That is precisely what the video shown below has captured. In the clip, a demonstration against Venezuela’s poor transportation services quickly turned violent. End result: one person dead from a gunshot wound, more than 80 arrested and four shops looted on the Manuel Piar Avenue in San Felix.
What is most distrubing is how comparable to an open war zone what was once a vibrant, rich and beautiful Latin American country has become.
This is just the beginning: with the ongoing collapse of the economy, the resultant acts of social violence will only deteriorate and claim more innocent lives, until the “socialist utopia” ends as it always does: with the arrival of a military coup or a full blown civil war.
- American (Predatory) Capitalism Explained In 130 Seconds
Now, more than ever, with Greece and Ukraine front and center, understanding how corporations take control of countries, and how capitalism drives the expansion of the Military Industrial Complex is crucial: “we have created a mutant form of predatory capitalism which has created an extremely unstable, unsustainable, unjust and very very dangerous world.”
Source: http://www.studiojoho.com/
- Bubble Finance And A Tale Of Two Spheres
Submitted by Doug Noland’s Credit Bubble Bulletin,
In a tiny subsection of the analytical world, analysis is becoming more pointed and poignant. I appreciate Bill Gross’s August commentary, where he concluded: “Say a little prayer that the BIS, yours truly, and a growing cast of contrarians, such as Jim Bianco and CNBC’s Rick Santelli, can convince the establishment that their world has changed.”
I’ll include the names Russell Napier, Albert Edwards and David Stockman as serious analysts whose views are especially pertinent. I presume each will exert minimal effect on “the establishment.”
Back to Bill Gross: “The BIS emphatically avers that there are substantial medium term costs of ‘persistent ultra-low interest rates’. Such rates they claim, ‘sap banks’ interest margins…cause pervasive mispricing in financial markets…threaten the solvency of insurance companies and pension funds…and as a result test technical, economic, legal and even political boundaries.’ ‘…The reason [the Fed will commence rate increases] will be that the central bankers that are charged with leading the global financial markets – the Fed and the BOE for now – are wising up; that the Taylor rule and any other standard signal of monetary policy must now be discarded into the trash bin of history.”
Count me skeptical that central bankers are on the brink of “wising up.” These days I have less confidence in the Fed than ever. For one, they are hopelessly trapped in Bubbles of their own making. Sure, crashing commodities and bubbling stock markets incite a little belated rethink. Yet I’ve seen not a hint of indication that policymakers are about to discard flawed doctrine. Devising inflationary measures – clever and otherwise – will remain their fixation. For a long time now, I’ve identified inflationism as the root cause of precarious financial and economic dynamics that will end in disaster. It’s been painful to witness the worst-case scenario unfold before our eyes.
Ben Bernanke (and his cohorts and most of the economic community) believes much of the hardship from the Depression would have been averted had only the Fed aggressively printed money after the 1929 stock market crash. Modern-day inflationism rests on the premise that central banks (in a fiat world) can control a general price level. This view ensures that Credit and speculative Bubbles, while potentially problematic, are not to be overly feared. Discussion of mal-investment and economic imbalances is archaic and irrelevant. And somehow the view holds that Bubble risk pales in comparison to “The Scourge of Deflation.”
After all, central bankers can always reflate system Credit and spur a generalized inflation. Stated differently, it is believed that central bankers and their electronic printing presses have the power to inflate out of deflationary Credit and economic busts. And repeated bouts of reflationary policies over recent decades have seemingly confirmed the merit of conventional doctrine. It has evolved to the point where the primary issue is whether policymakers have the determination to reflate sufficiently.
The onus, I suppose, is on my analysis (and other “contrarians”) to convince readers that This Time Is Different. Especially over the past three years, unprecedented central bank “money” printing has corresponded with heightened disinflationary forces globally. As I note repeatedly, the upshot has been unprecedented divergence between inflating securities/asset market Bubbles and deflating fundamental economic prospects. This divergence was widened notably over recent weeks. The fact that egregious monetary inflation has been pulled to the heart of contemporary “money” and Credit – central bank Credit and sovereign debt – is as well fundamental to the “End is Nigh” Thesis.
The work of the great Hyman Minsky plays prominently throughout my analytical framework. In particular, I appreciate his keen focus on “financial evolution.” Over time, it is inherent in finance (i.e. Credit and markets) to gravitate from the cautious and stable to the aggressive and increasingly unstable. It’s human, Credit and market nature. Minsky’s “Financial Instability Hypothesis” and the late-stage “Ponzi Finance” dynamic are more pertinent today than ever.
Finance has evolved profoundly over the past thirty years. Evolution in central bank monetary management has been equally momentous. Over time, the increasingly unhinged global fiat financial “system” turned acutely unstable. The Fed, in particular, resorted to market intervention and nurturing non-bank Credit expansion in order to sustain booms, inflated asset markets and deep structural economic maladjustment. This required the Federal Reserve’s adoption of doctrine ensuring liquid and stable securities markets – a historic boon to leveraged speculation, the evolving (and highly leveraged) derivatives marketplace and securities prices generally.
Fed and global central bank backstops buttressed the historic expansion in market-based finance. The proliferation of interlinked global market Bubbles drove outrageous policy experimentation. In time, the resulting globalized Bubble in market-based finance and speculation ensured that bolstering securities markets developed into the chief priority for the Fed and fellow global central bankers and officials. Just look at the Chinese over recent weeks.
Long-time readers know I am particularly fond of the “Financial Sphere vs. Real Economic Sphere” framework. It is valuable to view these as two separate but interrelated “Spheres,” with contrasting supply/demand, price and behavioral dynamics. In simplest terms, throwing excess “money”/liquidity at these respective “Spheres” over an extended period will foster disparate dynamics and consequences. And, importantly, over recent decades the Fed and global central bank policies have gravitated toward increasingly desperate “Financial Sphere” intervention and manipulation. The crisis response to the 2008/2009 crisis and then again in 2012 were decisive.
From Russell Napier “Most investors still believe that we live in a fiat currency world. They believe central bankers can create as much money as they believe to be necessary. Such truths are on the front page of every newspaper, but they may contain just as much truth as the headlines of their tabloid cousins. A belief in this ability to create money is the biggest mistake in analysis ever identified by this analyst. The first reality it ignores is that money, the stuff that buys things and assets, is created by an expansion of commercial bank, and not central bank, balance sheets. The massively expanded central bank balance sheets have not lifted the growth in broad money in the developed world above tepid levels. Until that happens, developed world monetary policy must be regarded as tight and not easy.”
This is thoughtful and important analysis. I’ll approach it from my somewhat contrasting analytical framework. From CBB day one, I’ve tried to significantly broaden how we define and analyze “money” and so-called “money supply”. I draw from Mises’ “fiduciary media” and inclusion of financial instruments with the “functionality” of traditional narrow definitions of money supply (i.e. currency, central bank Credit and bank deposits). For me, the perception of a safe and liquid store of (nominal) value is critical.
Moneyness is a market perception. The epicenter of danger lies in “money’s” virtual insatiable demand. It is prone to over-issuance. There is a powerful proclivity for government intervention, manipulation and inflation. The perception of moneyness is, in the end in a world of fiat, self-destructive.
After the past almost seven years, I don’t question central banks’ capacity to create “money.” And my framework doesn’t ascribe special status and power to commercial bank “money” or balance sheets. Besides, U.S. M2 “money supply” has inflated about $2.5 TN in three years, or 20%. Over three years U.S. Commercial Bank Liabilities have inflated the same $2.5 TN, or almost 20%.
The past three years have witnessed historic “money” and Credit expansion on a global basis. The fundamental problem is that global central bank (and governmental) policies over 30 years have profoundly distorted and undermined market incentive structures. This issue is not insufficient “money” – central bank, bank or otherwise. Finance has, however, been incentivized to flow in excess chiefly into the Financial Sphere, where it enjoys comforting policymaker control and support. As global maladjustment and imbalances (which engender disinflationary pressures) mount, why invest in the Real Economy Sphere when it appears so much safer and easier to chase returns in inflating central bank-supported securities market booms?
Why would company managements not use abundant corporate cash flow to repurchase shares when waning returns make it increasingly difficult to justify Real Economy investment? Why proceed with major new investment plans when ultra-easy M&A finance favors acquisitions? Why not just join The Crowd throwing “money” at tech startups and biotech where real economic returns are irrelevant anyway? Why not just “invest” in ETFs shares that buy shares in companies that repurchase their shares? Better yet, why not invest in “safe” bond funds that invest in safe companies that safely borrow “money” to buy back their shares and make acquisitions? Above all, don’t just sit there in “money” that returns near zero when there’s been such a proliferation of “money-like” financial instruments and products with the promise decent yields and returns? You see, it’s just not a quantity of “money” issue.
This vein of analysis offers layers of progressive complexity. Financial Sphere Bubbles over time engender major structural maladjustment. Throughout equities and debt markets, Bubble Dynamics ensure liquidity flows in progressive excess to the hot asset classes, sectors and products. If the Fed, central banks or the Chinese government seek to underpin such dynamics, momentum will eventually climax with precarious Terminal Phase “blow off” excess. This played prominently in techland in the late-nineties, housing/consumption during the mortgage finance Bubble period, in commodities and EM in the post-2008/09 crisis “global reflation trade,” and more recently (most conspicuously) in tech and biotech.
I have argued that it is a perilous myth that central bankers these days control a general price level. They instead incentivize massive financial flows into securities markets and fashionable sectors. Over time, ramifications and consequences reach the profound. For one, excess liquidity promotes over/mal-investment. It’s only the scope and nature that remain in question.
If major Bubble flows inundate new technology investment, the resulting surge in the supply of high-margin products engenders disinflationary pressures elsewhere. Policy responses to perceived heightened “deflation” risks then only work to exacerbate Bubbles, mounting imbalances and structural fragilities. This was a critical facet of “Roaring Twenties” analysis that was lost in time.
Bubbles categorically redistribute and destroy wealth, and I will turn more optimistic when policymakers finally “wise up” to this harsh reality. On the one hand, progressively destabilizing Financial Sphere monetary disorder ensures deep economic maladjustment (i.e. excessive Bubble-related spending in tech, housing related, EM, commodities and China). On the other, serial securities and asset market booms and busts spur destabilizing wealth redistributions – a boon to some and economic hardship (boom and bust collateral damage) to many. Both work to foster economic stagnation – deep structural impairment impervious to central bank reflationary measures.
Reflationary policies and attendant inflated market Bubbles can hold the consequences at bay for a while. Importantly, resulting monetary disorder works to exacerbate both Financial Sphere and Real Economy Sphere maladjustment with potentially catastrophic consequences. Economists have traditionally debated “money illusion” (notably Irvine Fisher and JM Keynes). “Wealth illusion” is today more appropriate. The U.S. economic structure remains viable – these days the “envy of the world” – only so long as perceived wealth from securities markets remains grossly inflated. The consumption-based U.S. economy requires record household sector perceived wealth (inflated Household Net Worth). And this requires ongoing loose financial conditions, strong Credit growth and buoyant financial flows.
Because of the importance of the data, I wanted to circle back briefly to document key data released in last month’s Q1 2015 Z.1 “flow of funds” Credit report.
As a proxy for the “U.S. debt securities market,” I combine Fed data for outstanding Treasury, Agency, Corporate and muni debt securities. I then combine this with Total Equities to come to my proxy of the “Total Securities” markets. During Q1, Total Securities jumped $759bn to a record $73.195 TN. Total Securities as a percentage of GDP jumped five percentage points to a record 414%. For perspective, this ratio began the nineties at 183%, concluded 1999 at 356% and then rose to 371% to end 2007.
The value of U.S. Household (and non-profits) assets jumped $1.611 TN during Q1. By largest categories, Financial Assets jumped another $1.07 TN and Real Estate assets increased $500bn. And with Household Liabilities little changed for the quarter, Household Net Worth (assets minus liabilities) rose $1.6 TN to a record $84.925 TN. Over the past year, Household Net Worth inflated about $4.6 TN, with a two-year gain of $12.6 TN. Since the end of 2008, Household Net Worth has ballooned a stunning $28.4 TN, or 50%.
One cannot overstate the integral role the inflation in Household Net Worth has played in the Fed’s reflationary policymaking. Household Net Worth ended Q1 at a record 481% of GDP. This compares to 447% to end Bubble Year 1999 and 476% in Bubble Year 2007.
As was the case again during Q1, during the inflationary boom period, strong inflationary biases ensure that “wealth” increases a multiple of underlying Credit growth. This dynamic was on full display during both the tech and mortgage finance Bubble episodes. I recall being amazed at how $1 TN of mortgage Credit growth would fuel a $4.0 TN inflation in Household Net Worth. This “virtuous” dynamic turned vicious during the bust. The amount of new Credit required just to stabilize an inflated and maladjusted system becomes enormous.
There is now chatter of the Chinese government intervening in the stock market to the tune of $100bn in a single session. We’ve seen how, despite repeated bailouts and debt reductions, the Greek black hole grows only bigger. Meanwhile, with commodities in freefall, it was another ominous week for EM. And these examples provide apt reminders of inflationism’s biggest flaw: once commenced, it’s about impossible to rein in. I would add that “money” printing will never resolve the issue of structural maladjustment. Monetary inflation will, however, ensure only greater quantities of “money” will be required come the inevitable bust. And those quantities will eventually bring to question confidence in “money.” Read monetary history.
- Welcome To Planet Obama
- This Coal Mine Valued At $630 Million In 2011 Just Sold For One Dollar
The following photos are from Australia’s Isaac Plains coking-coal mine.
Why is Isaac Plains relevant? Well, in 2011 at the height of the Australian mining boom, Japanese conglomerate Sumitomo thought it has spotted a bargain, and a SMH reports, it approached Tony Poli, the founder of mid-tier miner Aquila Resources with an offer: it would buy its 50% stake in Isaac Plains, at the time Aquila’s only producing mine, for $430 million.
Market participants thought Aquila’s stake might fetch $300 million at best but Sumitomo was confident it would make a strong return, and offered almost 50% above fair value, especially since Brazil’s legendary mining company Vale owned the other 50% stake.
Net, the total value of the Isaac Plains mine in 2011 just just about $630 million.
It turns out Sumitomo was very, very wrong, and within a few years the writing was on the wall. In September 2014, Sumitomo and Vale shuttered the mine citing the downturn in the international coal market. Sumitomo said it would also take a writedown worth ¥30 billion ($11 million) on its Australian coal investments.
And as SMH tongue in cheekly adds, Isaac Plains was added to the long list of coal mines up for sale – but at a price. That price was finally revealed on Thursday: the princely sum of $1.
Why the complete collapse in price of the mine? Simple: blame China.
As Bloomberg explains, “a slump in the price of coking coal, used to make steel, to a decade low is forcing mines to close across the world and bankrupting some producers. Alpha Natural Resources Inc., the biggest U.S. producer, plans to file for bankruptcy protection in Virginia as soon as Monday, said three people with direct knowledge of the matter. It was valued at $7.3 billion in 2008.”
At the peak of the Chinese commodity bubble, which in turn resulted in a golden age for Australia’s mining companies, production from Isaac Plains hit a peak output was 2.8 million tons a year, with coal sold to steelmakers in Japan, South Korea and Taiwan.
However, in the past year, with the bursting of the Chinese housing bubble, and the dramatic cooling off of China’s shadow banking system, the commodity demand of Chinese ghost cities has gone on hiatus, and so has the production of mines such as Isaac Plains:
Coal’s demise is just part of a broader slump in commodity prices, which fell to the lowest in 13 years this month. The benchmark price for coking coal exported from Australia has slumped 24 percent this year to $85.40 a ton on Friday, according to prices from Steel Business Briefing. The quarterly benchmark price peaked at $330 a ton in 2011, according to Bloomberg Intelligence.
The closing of Isaac Plains and a second mine in Australia shut last year, Integra Coal, led to a 7.2 percent reduction in Vale’s total coal output in the first half of 2015. It took a $343 million writedown on its Australian coal assets, part of total impairments of $1.15 billion last year, Vale said Feb. 26.
Still, Vale’s and Sumitomo’s complete wipeout loss is someone else’s gain, in this case the new owner of Isaac Plain, which acquired the assets for a nominal tip, and merely had to fun ongoing spending and any debt obligations.
The new owners of Isaac Plains, Stanmore Coal, hope to restart production in the first half of 2016 and estimate the mine could operate for another three years.
The market took notice when the news of the dramatic purchase hit: Stanmore remains a minnow with a market capitalization of just $30 million. But with its shares up nearly 70 per cent on Thursday, investors have taken to the deal.
Still, as SMH adds, sluggish coking and thermal coal prices will continue to weigh heavily however regardless of how quickly they can restart production. Metallurgical coal has fallen another 25 per cent since January to about $US82 a tonne, from more than $US300 in 2011, while thermal coal has lost 8 per cent since January to languish around $US59 a tonne, compared to about $US150 three years ago.
Then again, with Stanmore’s cost basis virtually nil, it would be a fool not to take the discarded assets. As Kiril Sokoloff’s 13D wrote recently, “Buy when they give it away. What are they giving away now?” and recount how in 1977, “we were walking uptown in New York City with a friend who worked for a prominent trust company. He told us that the trustees of an estate had just sold a triplex on East End Avenue for $1. The reason? The $3,000 per month maintenance was “depleting the assets of the estate”.
Last week, Glencore sold the Cosmos nickel mine for AU$24.5 million. In 2008, Xstrata Plc paid AU$3.1 billion for Jubilee Mines to gain control of Cosmos—the Perth-based company’s flagship operation.
For what it’s worth, Javier Blas tweeted this week that, based on data from Citi Research, 90% of all M&A that miners did since 2007 has been written off. Makes you wonder about the current M&A boom…
All of which makes the researcher wonder if investors are missing the big picture:
There is a giant infrastructure investment boom just getting started in Asia and along the Silk Road. Wasn’t the whole commodity boom of the last decade based on infrastructure investment in China? Now, it will expand to all of Asia and beyond.
It is interesting to note how little is being written in the West about One Belt, One Road (see related themes). China Development Bank notes that the number of cross-border projects underway in the Silk Road effort already amount to $980 billion. Reportedly, Asia’s infrastructure needs are close to $8 trillion by 2020.
It remains to be seen if China can rebound, and if purchases such as Stanmore’s $1 acquisition of a site that has a resource of 30 million metric tons will be lucrative. At current prices, every incremental ton produced loses money. But maybe prices will rebound.
For now, however, one thing is certain – the biggest winner is not Stanmore despite its suddenly soaring stock price, but Tony Poli, the person who sold Issac Plains at the absolute top to the naive Japanese conglomerate:
[Poli] could barely believe his luck when Sumitomo came knocking. Then in 2014 Aquila was acquired by Baosteel and Aurizon for an eye watering $1.4 billion. It gave the two companies access to Aquila’s West Pilbara iron ore project, but the timing could barely have been worse. Iron ore prices have slumped by more than half in the last 12 months leading to speculation Aurizon may be forced to eventually take a writedown on the value of the Aquila deal on its balance sheet.
All of which is a very timely reminder: it is never an actual profit, until it has been booked. And as noted above, for 90% of all M&A deals in the past decade, the only thing booked is 100% losses.
- Gold And The Grave Dancers
Submitted by Pater Tenebrarum via Acting-Man.com,
The Asset They Love to Hate …
Back in the 1960s, Alan Greenspan wrote a well-known essay that to this day is an essential read for anyone who wants to understand the present-day monetary and economic system (which is a kind of “fascism lite” type of statism, masquerading as capitalism) and especially the almost visceral hate etatistes harbor toward gold. Greenspan’s essay is entitled “Gold and Economic Freedom”, and as the title already suggests, the two are intimately connected.
Alan Greenspan in the mid 1970s – although he later turned out to be a sell-out, his understanding of economics undoubtedly dwarfed that of his successors at the Fed (and we are not just saying this based on the essay discussed here).
Photo credit: Charles Kelly / AP Photo
What makes Greenspan’s essay especially noteworthy is that it manages to present both theory and history in a concise, easy to understand manner. There isn’t a word in it we would change. At one point, Greenspan provides a brief history lesson. Yes, the (relatively) free banking era in the United States in the 19th century involved fractional reserve banking and as a result, there were frequent boom and bust cycles. However, since there was no “lender of last resort” with an unlimited money printing capacity, these business cycles were sharp and brief, and the market economy quickly righted itself every time:
“A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World War I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.”
(emphasis added)
Alas, these relatively harmless business cycles provided interventionists with an opening to implement their central planning wet dreams, even though their ideas were based on what can charitably only be called appalling economic ignorance. This economic ignorance informs the monetary system to this day and we have nothing but contempt for these planners and their intellectual handmaidens.
We cannot quantify it with any precision, but we believe it can be taken as a given that they have retarded economic progress by an order of magnitude, for reasons of compounding alone. Based on historical data, we would estimate that average real annual growth would have been at least twice as large since 1913 than it has actually been if the economy had remained free. Compounded over more than a century, this is basically the difference between what we have today and the universe of Star Trek.
US GNP per capita in the decades before the establishment of the Federal Reserve: equitable and strong growth, unmatched before and ever since – in spite of fairly frequent boom-bust cycles click to enlarge.
As Greenspan notes:
“But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline — argued economic interventionists — why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely — it was claimed — there need never be any slumps in business. And so the Federal Reserve System was organized in 1913.”
(emphasis added)
At the conclusion of his essay, Greenspan makes clear why the welfare/warfare statists just hate gold with a passion bordering on hysteria:
“Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit.”
[…]
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”
(emphasis added)
This always was and remains true.
Bought Off Intellectuals
All the “justifications” for today’s system we hear from the supporters of the centrally planned fiat money dispensation are nothing but propaganda. This propaganda includes a number of historical lies (such as the old canard that “governments had no choice but to abandon the gold standard if they wanted to rescue the economy”), commingled with theoretical assertions that have been thoroughly refuted countless times.
One of the latter is that an economy allegedly cannot grow unless the money supply grows as well (the truth is that any money supply is as good as any other, and in a free market prices would simply adjust). Another is that central banks need to be able to apply their “scientific monetary policy” to make up for the alleged deficiencies of the free market. In reality, central banking and fiat money have slowed real economic growth to a crawl and have produced boom-bust cycles of ever greater amplitude. Something like the “Great Depression” would never have been possible without a Federal Reserve and two heavily interventionist governments coming to power in a row (first Hoover’s and then FDR’s).
The assertions listed above and similar ones are reiterated sotto voce by countless mainstream economists and the entire mainstream financial press at every opportunity. Hoever, this should be no surprise: The Federal Reserve has practically bought off the entire economics profession (incidentally, so have other central banks and assorted state-funded institutions).
“The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession
[…]
One critical way the Fed exerts control on academic economists is through its relationships with the field’s gatekeepers. For instance, at the Journal of Monetary Economics, a must-publish venue for rising economists, more than half of the editorial board members are currently on the Fed payroll — and the rest have been in the past
[…]
A Fed spokeswoman says that exact figures for the number of economists contracted with weren’t available. But, she says, the Federal Reserve spent $389.2 million in 2008 on “monetary and economic policy,” money spent on analysis, research, data gathering, and studies on market structure; $433 million is budgeted for 2009. That’s a lot of money for a relatively small number of economists.
(emphasis added)
In a free market, the market value of thousands of today’s hyper-specialized macroeconomists would be a tiny fraction of what they get paid by the State. In an unhampered free market economy, many of them would probably be forced to actually perform productive jobs. There would of course still be room for economists, but only the most committed and talented among them would could hope to receive funding. Absolutely no-one would bother paying for central planning advice or statist propaganda, that much is absolutely certain. Obviously these economists are highly unlikely to bite the hand that feeds them.
As Hans-Hermann Hoppe has noted in this context:
“There are almost no economists, philosophers, historians, or social theorists of rank employed privately by members of the natural elite. And those few of the old elite who remain and who might have purchased their services can no longer afford intellectuals financially. Instead, intellectuals are now typically public employees, even if they work for nominally private institutions or foundations. Almost completely protected from the vagaries of consumer demand (“tenured”), their number has dramatically increased and their compensation is on average far above their genuine market value. At the same time the quality of their intellectual output has constantly fallen.
What you will discover is mostly irrelevance and incomprehensibility. Worse, insofar as today’s intellectual output is at all relevant and comprehensible, it is viciously statist. There are exceptions, but if practically all intellectuals are employed in the multiple branches of the state, then it should hardly come as a surprise that most of their ever-more voluminous output will, either by commission or omission, be statist propaganda.”
(emphasis added)
Economist Hans-Hermann Hoppe – a strongly committed enemy of the State, as the following quote illustrates: “[The State is] an institution run by gangs of murderers, plunderers, and thieves, surrounded by willing executioners, propagandists, sycophants, crooks, liars, clowns, charlatans, dupes and useful idiots – an institution that dirties and taints everything it touches”.
Photo via libertarianin.org
Given that intellectuals have great influence – the masses typically follow their lead, whether consciously or not – we shouldn’t be surprised that this “viciously statist propaganda” has become a hallmark of the mainstream press as well. This brings us back to the topic of gold.
Premature Grave Dancing
Readers may have noticed that there simply is no other asset that provokes more intense hatred in the mainstream press than gold. When the gold price declines as it has done since 2011, the press is literally brimming over with Schadenfreude, grave dancing exercises and anti-gold tirades. The lengthy preamble above is an attempt to explain why this is the case.
Intense grave dancing – the poor fellow at the bottom is Mr. Gold
Engraving by Michael Wolgemut
Simply put, gold is the one asset that provides the most reliable indictments of central economic planning and the abominable monetary and economic system that has been forced on us by the etatistes. In spite of its innumerable failures, socialism and its close cousin, modern-day corporatism (i.e., crony socialism), remains highly popular with the intellectual class, as it provides it with influence and money beyond its wildest dreams.
Unfortunately, it is even more popular with big business. The handful of large corporations that are controlling the press these days are not exactly big fans of the free market and its unfettered competition either. Established big business organizations prefer to keep upstart competition suppressed by means of obtaining privileges from the State. One would think that business should be against the over-regulation that characterizes today’s bureaucratic Leviathan State. This is not the case: Since it harms small emerging competitors more than established businesses, they are actually in favor of it.
Needless to say, the most powerful industry of modern times, the fractionally reserved banking cartel, is one of the biggest beneficiaries of the system and as such provides sheer unlimited funding to keep things right as they are.
When gold’s fall accelerated recently, we have seen an outpouring of doom-saying and thinly disguised contempt in the mainstream press that actually puts everything seen before into the shade. In a way this is surprising; after all, gold is a completely unimportant asset, right? Just think about this for a moment. If another currency, such as e.g. the yen, suffers a big decline, is it subjected to even remotely comparable vitriol in the press? Here are a few examples from the last week or so (with a few comments by us interspersed):
From Bloomberg (Bloomberg belongs to a limousine socialist, and is well-known for its pro-central banking/ pro-money printing and anti-gold editorial line. Some of the most ludicrous articles about gold ever published have appeared on Bloomberg):
Gold Slump Not Over as Speculators Go Net-Short for First Time – apparently Bloomberg’s authors have yet to hear about contrarian signals.
Gold Is Only Going to Get Worse (“Our survey shows a majority of traders and investors aren’t optimistic”) – indeed, Bloomberg seems to be blissfully unaware of contrarian sentiment analysis.
Gold Could Fall to the $1,000 Mark (video)
Good Luck Bargain Hunting for Gold Miners – naturally, gold miners are even more doomed than gold itself…
From the Wall Street Journal:
Let’s Get Real About Gold: It’s a Pet Rock – actually, as we have previously pointed out, it’s a door stop, not a pet rock. We should perhaps mention here what Jason Zweig, the author of this WSJ article, wrote in 2011 right at gold’s peak. From Mr. Zweig’s WSJ Article of September 17, 2011:
“Growing numbers of investing experts have been declaring that gold is a bubble: an insanely overvalued asset whose price is bound to burst. There is no basis for that opinion.”
With respect to gold miners (which since then are down by more than 80%) he opined:
“But there is one aspect of gold investing where it is possible to make rational estimates of value: the stocks of gold-mining companies. And, by historical standards, they seem cheap—based not on subjective forecasts of continuing fiscal apocalypse, but on objective measures of stock-market valuation.”
This is really a textbook example of how market sentiment works.
From Marketwatch:
The carnage isn’t over in gold, other metals-mining stocks
Study predicts gold could plunge to $350 an ounce (i.e., here come the extreme predictions, the inverse of the vast bullish consensus and the extreme bullish predictions that were made at the peak by gold bulls)
And all of this was finally crowned with the following pronouncement in the Washington Post:
Interestingly the author of this article, Matt O’Brian, actually gets one thing right, although his conclusion remains utterly wrong – he writes:
“When you think about it, a bet on gold is really a bet that the people in charge don’t know what they’re doing.”
That’s exactly what it is Mr. O’Brian. The wrong conclusion he comes to is this one:
”But economists do, for the most part, know what they’re doing.”
Yes, in some parallel universe perhaps. That people can profess such beliefs after the twin debacles of the tech and housing bust and after yet another giant asset bubble has been blown by these “economists who know what they are doing” is truly stunning. How blind and naïve can one possibly be? This article is a good example of statist propaganda. Our wise leaders know what they are doing! How can anyone doubt it!
Just to make this clear, we are not critical of people making bearish forecasts on gold. This is perfectly legitimate, especially as gold’s fundamental drivers have at best been stuck in “neutral” for much of the time over the past few years. Occasionally, gold’s fundamentals have switched to slightly more bullish, and then have quickly flipped back again to slightly more bearish, while its technical condition wasn’t much to write home about.
Gold primarily has vast bullish potential. The factors that are currently slightly bearish could very easily and quickly flip to outright bullish. Gold bulls have the laws of economics on their side: the greatest post WW2 experiment in global money printing on a grand scale is apodictically certain to fail and will likely result in one of the greatest economic busts of modern times.
Still A Contrarian’s Dream
We find the reactions in the press interesting for the following reasons:
Firstly, as mentioned above, we find it absolutely fascinating that gold is getting so much attention. The etatistes are apparently truly afraid of gold. If it were up to them, it would probably still be illegal (just a guess, mind).
Secondly, we also find it fascinating (and a bit depressing) how woefully uninformed the commentary on gold generally is, and this does not only apply to gold bears, but to gold bulls as well. There is hardly any market about which more nonsense is written than the gold market.
We have discussed this at length in previous articles on this blog, such as “Misconceptions about Gold”. Robert Blumen has contributed two excellent essays on the theoretical background that explain how exactly the gold price is formed (in “What Determines the Price of Gold” and “Misunderstanding Gold Demand”). In a somewhat dated “Update on Precious Metals” we provided a list of the most important fundamental drivers of the gold price (you’ll have to scroll down a bit to the section Fundamental Drivers of the Gold Market). We should also mention Keith Weiner’s frequent “Monetary Metals Supply and Demand” reports, which delve into the nitty-gritty of whether or not the metals are moved by developments on the physical side or the actions of futures speculators.
In spite of all this information being available for free on the intertubes, we notice that even gold bulls are still wasting time talking about things like jewelry demand and mine supply. Others keep going on about central bank buying and gold buying in China, often asserting that “demand evidently exceeds supply”, even in the face of a declining price. Demand and supply are always in balance. Price informs us about the relative urgency displayed by demanders and suppliers, and when the price declines, it indicates that the former aren’t sufficiently enthusiastic. The fact that gold moves from warehouse A (in, say, New York) to warehouse B (in Shanghai) has nothing to do with it.
Thirdly, we regard the excessive grave dancing, and the utter conviction with which gold is declared to be “doomed” as an outstanding contrary indicator. It means that a major trend change has to be very close. This is not to say that gold cannot fall further in the short term – technically it certainly continues to look weak, and the price attractor at $1,040-1,050 presumably still beckons. However, we believe that the long term outlook has greatly improved by the three waves of extreme bearish sentiment we have seen since 2013 (at the summer 2013 low, the late 2014 low and currently).
Even in the short term, it seems that chances are very good that a substantial rally will develop. For instance, the Daily Sentiment Index (DSI) of futures traders has recently fallen back to a record low of just 5% bulls on two consecutive occasions. A recent report by EWI contained the following chart illustrating the situation:
From 98% bulls at the top to just 5% bulls back-to-back – how sentiment on gold moves from one extreme to another – click to enlarge.
A similar message is conveyed by sentimentrader’s gold optimism index, an average of the most important gold sentiment surveys and positioning data, which we already shown in Bill Bonner’s recent article “Gold Miners, RIP”. Currently the “Gold Optix” is at its second-lowest level in history, undercutting even the low recorded in the year 2000, at the bottom of a 20 year bear market:
Gold market participants haven’t even been this bearish back in the year 2000 – click to enlarge.
As might be imagined, other market positioning and sentiment data all convey a similar message: small speculators hold a large net short position in gold futures, managed money is net short gold futures, Rydex precious metals assets are close to “wipe-out” territory, closed end bullion funds trade at vast discounts to their net asset value, GLD keeps losing gold, etc., etc.
In short, everybody knows gold can only fall further and is positioned accordingly. If there is one truism about markets one needs to be aware of, it is this one: What “everybody knows” isn’t worth knowing. Naturally, all those who have maintained a somewhat positive view on gold in recent years (including yours truly) look like idiots right now – but there is considerable potential that assorted gold haters will be invested with this particular mantle over coming years. Don’t worry, we’ll needle them right back. 🙂
Conclusion
As we have already mentioned in our missive on the recent “Gold Panic”, when everybody in a market is looking in the same direction, it is time to pay close attention. Contrarians should really love the current juncture in the gold market. At the very least, a playable counter-trend move should be close at hand, and perhaps a long term turn is actually finally in the offing. After all, the market has by now finally more or less replicated the mid-cycle decline of 1974-1976.
Lastly, we are actually gratified by the fact that assorted etatistes still seem so preoccupied with gold. This is a sign that gold remains an important monetary asset, one that continues to stand tall as an indictment of central economic planning, socialism and corporatism in all its forms. Even after having declined by roughly 45% from its 2011 high, gold is still up by more than 3,000% against the US dollar since the latter was cut loose from its tie to gold by Nixon’s default in 1971. This means that even with gold under pressure for four years running, the dollar has still crashed by 97% against it since 1971.
There is little question which currency is more useful to preserving value and protecting savers and property rights, and which one is more useful for the depredations of a greedy and insatiable Leviathan State. Hence all the gold hate pouring forth in the mainstream press. It will be interesting to see what happens once the collapse of fiat money against gold resumes – especially as we think it will do so with a real bang.
What remains of the gold stash of the Bank of England
Photo credit: Caters News
- The Cyber Wars Begin: Obama Says US "Must Retaliate" Against China For Historic Data Breach
On Friday, we highlighted a “secret” NSA map which purports to show every Chinese cyber attack on US targets over the past five years. “The prizes that China pilfered during its ‘intrusions’ included everything from specifications for hybrid cars to formulas for pharmaceutical products to details about U.S. military and civilian air traffic control systems,” intelligence sources told NBC, who broke the story.
The release of the map marked the culmination of a cyber attack propaganda campaign which began with accusations that North Korea had attempted to sabotage Sony, reached peak absurdity when Penn State claimed Chinese spies had taken control of the campus engineering department, and turned serious when Washington blamed China for what was deemed “the largest theft of US government data ever.” “Whether all of this is cause for the Pentagon to activate the ‘offensive’ component of its brand new cyber strategy remains to be seen,” we said yesterday.
As it turns out, the Office of Personnel Management breach will indeed be used to justify a cyber “retaliation”against China, because as The New York Times notes, “the hacking attack was so vast in scope and ambition that the usual practices for dealing with traditional espionage cases [do] not apply.” Here’s more:
The Obama administration has determined that it must retaliate against China for the theft of the personal information of more than 20 million Americans from the databases of the Office of Personnel Management, but it is still struggling to decide what it can do without prompting an escalating cyberconflict.
The decision came after the administration concluded that the hacking attack was so vast in scope and ambition that the usual practices for dealing with traditional espionage cases did not apply.
But in a series of classified meetings, officials have struggled to choose among options that range from largely symbolic responses — for example, diplomatic protests or the ouster of known Chinese agents in the United States — to more significant actions that some officials fear could lead to an escalation of the hacking conflict between the two countries.
That does not mean a response will happen anytime soon — or be obvious when it does.
So the US will do something, it just doesn’t yet know what or when or even if anyone will notice, but one thing is clear: “this aggression will not stand, man.”
The problem with “symbolic” responses is that they are merely, well, symbolic, and any real retaliation risks escalating the “cyberconflict.” Then again, not doing anything also risks prompting an escalation:
But over recent days, both James Clapper Jr., the director of national intelligence, and Adm. Michael S. Rogers, director of the National Security Agency and commander of the military’s Cyber Command, have hinted at the internal debate by noting that unless the United States finds a way to respond to the attacks, they are bound to escalate.
Mr. Clapper predicted that the number and sophistication of hacking aimed at the United States would worsen “until such time as we create both the substance and psychology of deterrence.”
This echoes the rhetoric from the DoD’s “cyber strategy” released in April which says that “deterrence is partially a function of perception [and] works by convincing a potential adversary that it will suffer unacceptable costs if it conducts an attack on the United States.”
For now at least, it looks like criminal charges are off the table.
The Justice Department is exploring legal action against Chinese individuals and organizations believed responsible for the personnel office theft, much as it did last summer when five officers of the People’s Liberation Army, part of the Chinese military, were indicted on a charge of the theft of intellectual property from American companies. While Justice officials say that earlier action was a breakthrough, others characterize the punishment as only symbolic: Unless they visit the United States or a friendly nation, none of them are likely to ever see the inside of an American courtroom.
“Criminal charges appear to be unlikely in the case of the O.P.M. breach,” a study of the Office of Personnel Management breach published by the Congressional Research Service two weeks ago concluded. “As a matter of policy, the United States has sought to distinguish between cyber intrusions to collect data for national security purposes — to which the United States deems counterintelligence to be an appropriate response — and cyber intrusions to steal data for commercial purposes, to which the United States deems a criminal justice response to be appropriate.“
Instead, the US may look to remove the so called “great firewall” which Beijing uses to censor content it considers to be subversive or otherwise objectionable.
One of the most innovative actions discussed inside the intelligence agencies, according to two officials familiar with the debate, involves finding a way to breach the so-called great firewall, the complex network of censorship and control that the Chinese government keeps in place to suppress dissent inside the country. The idea would be to demonstrate to the Chinese leadership that the one thing they value most — keeping absolute control over the country’s political dialogue — could be at risk if they do not moderate attacks on the United States.
So perhaps there’s a silver lining in all of this: China’s 650 million internet users may, if only for a split second, be free to surf the web without the Politburo filter.
Of course if the US really wanted to do some cyber damage, the Pentagon could hack into China’s National Bureau of Statistics and see what the country’s real GDP figure looks like, and if that doesn’t teach them a lesson, maybe the best option would be to breach China Securities Finance Corporation and hit the “sell” button.
Finally, for those interested to monitor the global cyber war in real time, you can do so via Norsecorp by clicking on the following map.
- 11 Red Flags As We Enter The Pivotal Month Of August 2015
Submitted by Michael Snyder via The Economic Collapse blog,
Are you ready for what is coming in August? All over America, economic, political and social tensions are building, and the next 30 days could turn out to be pivotal. In July, we saw things start to turn. As you will read about below, a major six year trendline for the S&P 500 was finally broken this month, Chinese stocks crashed, commodities crashed, and debt problems started erupting all over the planet. I fully expect that this next month (August) will be a month of transition as we enter an extremely chaotic time in the fall and winter.
Things are unfolding in textbook fashion for another major global financial crisis in the months ahead, and yet most people refuse to see what is happening. In their blind optimism, they want to believe that things will somehow be different this time. Well, the coming months will definitely reveal who was right and who was wrong. The following are 11 red flag events that just happened as we enter the pivotal month of August 2015…
#1 Puerto Rico is going to default on a 58 million dollar debt payment that is due on Saturday. Even though this has serious implications for the U.S. financial system, Barack Obama has said that there will be no bailout for “America’s Greece”.
#2 As James Bailey has pointed out, the most important trendline for the S&P 500 has finally been broken after holding up for six years. This is a critical technical signal that will likely motivate a significant number of investors to sell off their holdings in the weeks ahead.
#3 The IMF is indicating that it will not take part in the new Greek debt deal. As a result, the whole thing may completely fall apart…
Leaked minutes of the fund’s latest board meeting, which took place on Wednesday, showed staff “cannot reach agreement at this stage” on whether to take part in the new €86bn (£60bn) bailout for Greece. The document said there were doubts over the capacity of the Athens Government to implement economic reforms, as well as the over the sustainability of the country’s sovereign debt pile, which is now projected to hit 200 percent of GDP.
The German Chancellor, Angela Merkel, only sanctioned a new Greek deal earlier this month on the condition that the IMF takes part.
#4 Italy is going down the exact same path as Greece, but Italy is going to be a much larger problem for Europe because it has a far, far larger economy. This week, we learned that youth unemployment in Italy has reached a 38-year high of 44 percent, and Italy’s debt to GDP ratio has now hit 135 percent.
#5 The Canadian economy has officially entered a new recession. This is something that was not supposed to happen.
#6 The price of oil plummeted close to 20 percent during the month of July. It was the worst month for the price of oil that we have seen since October 2008, which just happened to be during the height of the last financial crisis.
#7 Commodities just had their worst month in almost four years. As I have written about previously, we witnessed a collapse in commodity prices just before the stock market crash of 2008 too.
#8 Thanks to Barack Obama, the U.S. coal industry is imploding, and some of the largest coal producers in the entire country have just announced that they are declaring bankruptcy…
On Thursday, Bloomberg reported that the biggest American producer of coking coal, Alpha Natural Resources, could file for bankruptcy as soon as Monday.
Competitor Walter Energy filed for bankruptcy earlier this month, and several others have done the same this year.
#9 For the month of July, the Shanghai Composite Index was down 13.4 percent. Despite unprecedented government intervention to prop up the market, it was the worst month for Chinese stocks since October 2009.
#10 A major red flag that a recession in the United States is fast approaching is the fact that Exxon Mobile just announced their worst earnings for a single quarter since 2009. Compared to the same time period one year ago, Exxon Mobile’s earnings were down 51 percent.
#11 Chevron is another oil giant that has seen earnings plunge. In the second quarter of this year, Chevron’s earnings were down an eye-popping 90 percent from a year ago.
And in this list I didn’t even mention the economic chaos that is happening down in South America. For full coverage of that, please see my previous article entitled “The South American Financial Crisis Of 2015“.
To a certain extent, I can understand why most Americans are not alarmed about the months ahead. The relative stability of the past several years has lulled most of us into a false sense of security, and the mainstream media is assuring everyone that everything is going to be just fine and that brighter days are ahead. At this point, many believe that it is patently absurd to suggest that we could see an economic collapse in 2015. But of course even though the signs were glaringly apparent, very few of us anticipated the financial crisis of 2008 either.
A few weeks ago, I authored a piece entitled “The Last Days Of ‘Normal Life’ In America“, and I stand by every single word of that article. I truly believe that the era of debt-fueled prosperity that we have been enjoying for so long is coming to an end, and our standard of living will never again get back to this level.
Just yesterday, I had the chance to go over and stock up on some emergency supplies at a dollar store. It always astounds me what you can still buy for a dollar. The combined cost of raw materials, manufacturing, packaging, shipping and retailing most of these items shouldn’t be less than a dollar, but thanks to having the reserve currency of the world we are still able to go to these big box stores and fill up our carts with lots and lots of extremely inexpensive merchandise.
Unfortunately, this massively inflated standard of living is going to come crashing to a halt. This next financial crisis is going to destroy the system that is currently producing such comfortable lifestyles for the vast majority of us, and that will be an extremely painful experience.
So enjoy this summer for as long as it lasts. Even though August threatens to be pivotal, it is going to be nothing compared to what will follow.
Fall and winter are coming.
Prepare while there is still time to do so.
- Furious Americans Demand Extradition Of Cecil-Killing Dentist As Poachers Kill Lion's Brother
Update: The status of Cecil’s brother is now the subject of a “dispute” between conservationists.
* * *
There’s a lot going on in the world, but you wouldn’t know it if you tuned in to the nightly news because according to the mainstream media, the only thing that happened anywhere last week is that a dentist shot a lion.
(Cecil the lion is the one on the right)
That’s right folks, Walter killed Cecil and some folks – scratch that – a lot of folks are unhappy about it.
In fact, hundreds of protesters papered Dr. Palmer’s office with subtle messages like “rot in hell” and “there’s a deep cavity waiting for you.”
As Reuters reports, Cecil’s untimely demise has the potential to put a dent in a lucrative industry by leaving a bad taste in the mouths of big game hunters, who may now hesitate before participating in this “archaic bloodsport”. Here’s more:
Hunters longing to shoot big game in the African wild may choose a different target after public backlash against a Minnesota dentist who killed Zimbabwe’s Cecil the lion just outside a national wildlife preserve.
African hunts are booked months in advance and pricey affairs, often costing $8,000 to $50,000, with approval needed from U.S. and U.N. agencies to bring back trophies such as the head of a lion to the United States.
“It has left a bad taste in their mouths,” said James Jeffrey, a Houston-based international hunting agent with more than 12 years experience.
“They read all those books and it is people’s dreams to go over there and do it. Some of these guys have worked their whole lives to do this one hunt,” he said.
Eleven African countries issue lion hunting permits. Of them South Africa’s hunting industry is the biggest, worth $675 million, according to the Professional Hunters Association.
Americans make up the bulk of non-African hunters, with 15,000 going to the continent on hunting safaris each year, according to John Jackson, president of Conservation Force, a lobby group that says regulated lion hunting helps protect the animal by giving reserve owners a financial incentive to deter poachers and cultivate stock.
Supporters argue the money generated from hunts bolsters the coffers for conservation in emerging African countries that want to use their limited finances for social programs.
Critics see the hunts as an archaic bloodsport, hurting species such as lions, which an academic study in 2012 said had seen a population fall of nearly 70 percent in the last 50 years.
In response to the killing, Zimbabwe has now put a halt to big game hunts pending an investigation. From AP:
Zimbabwean wildlife authorities say they have suspended the hunting of lions, leopards and elephants in an area favoured by hunters following the killing of a lion popular with tourists.
The National Parks and Wildlife Authority said Saturday that bow and arrow hunts have also been suspended unless they are approved by the authority’s director.
The authority says it is also investigating the killing of another lion in April that may have been illegal. It says it only received the information this week.
And don’t expect the controversy to dissipate any time soon because in what is either a deliberate attempt on the part of an enterprising poacher to capitalize off the incident or else an incredibly ill-timed coincidence, Cecil’s brother Jericho was killed today by hunters. Here’s Sky News:
The brother of Cecil the lion, Jericho, has been shot dead by poachers, the Zimbabwe Conservation Task Force has said.
The organisation wrote on Facebook: “It is with huge disgust and sadness that we have just been informed that Jericho, Cecil’s brother, has been killed at 4pm today.
“We are absolutely heart broken.”
It is thought Jericho had been protecting Cecil’s cubs.
And because the story obviously needed to get sadder still, those cubs will now likely die as well.
Via The Daily Mail:
Before his death there had been concerns Jericho would not be able to hold the territory of Cecil’s cubs alone and could be chased away by rival lions.
Unprotected, the lionesses and cubs are now under threat and [must] move away or be killed.
Last week Mr Rodrigues, told the Daily Mail Online Jericho was keeping the cubs safe from any rival males.
(Jericho and Cecil in better times)
As for Palmer, Zimbabwe is looking to have the dentist extradited from the US. “Environment minister Oppah Muchinguri said the dentist should be handed over to Zimbabwean officials to face justice, adding that she understood prosecutors had started the legal process to make that happen,” the Daily Mail notes.
And for anyone who thinks getting Palmer sent back to Zimbabwe will be like pulling teeth (so to speak), the public outcry may end up pressuing The White House into action, because as you can see from the screengrab below, a peitition to have Palmer extradicted has received the necessary number of signatures to warrant a response from The President:
So in the end, we suppose the only question for Obama will be how to explain the fact that, as we reported on Thursday, the death of Cecil, as well as countless other lions, elephants, rhinos and other animals, is solely as a result of the Zimbabwe government’s corruption. A corruption, which the US government knew all about, and despite the fact that Washington knew US hunters were killing not only elephants but lions, the government’s only real concern was the “serious risks that Americans could be implicated in smuggling and poaching operations.”
- Did We Just Hit The Threshold For Short Covering In Gold?
Two weeks ago we noted something that has never happened before in gold – hedge funds, according to CFTC, had a net short position for the first in history. The past week saw a very surprising negligible shift of just 11 contracts as the short position shrank to 11,334 contracts. However, the aggregate net long position has dropped to a level that in the past has represented a threshold for signficant short-covering (21% and 17% rallies respectively). So with hedgies as short as they have ever been in history and aggregate positioning at a historically crucial level, one wonders if gold is due for a bounce…
Hedgies remain the most short they have ever been in gold…
This is what happened the last time gold saw a 'low' net long position…
and now, the aggregate net position in gold futures appears to have hit a threshold that in the past has created a significant short-covering rally…
The last 2 times aggregate net long positions were this low, gold rallied 21% and 17%…
Did we just reach that short-covering threshold once again?
- The Great Greek Fudge
Submitted by Pieter Cleppe of Open Europe
The Great Greek Fudge
A third Greek bailout involving loans from the European Stability Mechanism (ESM), the eurozone’s bailout scheme, is now being negotiated. The start was quite rocky, with haggling over the precise location in Athens where negotiations need to take place and Greek officials once again withholding information to creditors. Therefore, few still believe that it will be possible to conclude a deal in time for Greece to repay 3.2 billion euro to the ECB on 20 August. Several national Parliaments in the Eurozone would need to approve a final deal, which would necessitate calling their members back from recess around two weeks before the 20th, so it’s weird that French EU Commissioner Pierre Moscovici still seems so confident that the deadline can be met.
If indeed there is no deal, Greece is likely to request a second so-called “bridge loan” to allow it to pay the ECB, firmly within the Eurozone tradition of the creditor providing the debtor cash in order to pay back the creditor. France, which is most eager to keep Greece inside the Eurozone, is afraid that bilateral bridge loans from Eurozone countries wouldn’t be approved by the more critical member states, as this would risk France having to foot this bill on its own, perhaps with Italy. Not exactly a rosy prospect for socialist French President Hollande, who’s already struggling to contain the far right anti-euro formation Front National.
The only European fund practically available to provide a bridge loan is the European Financial Stabilisation Mechanism (EFSM), a fund created in May 2010, which has been raising 60 billion euro on the markets, with the EU’s €1 trillion Budget as collateral. The EFSM belongs not just to Eurozone member states, but to all EU member states. How on earth did the UK, which isn’t part of the Eurozone, agree to bail it out in 2010, one may wonder? The reason is that the decision to create the EFSM was taking precisely at the time of the power vacuum in the UK. Labour had just lost the election and the Conservatives were still busy negotiating a coalition with the Lib Dems. Outgoing Labour Chancellor Alistair Darling claimed to have “consulted” likely new Chancellor George Osborne, but it remains muddy who precisely gave the expensive OK. In order to correct this, PM Cameron secured a declaration from other EU leaders in December 2010 that the fund wasn’t going to be used any longer, until it was used after all, in July 2015, to provide Greece with a first bridge loan. Then not only the UK, but also the Czech Republic and Poland protested heavily, only backing down when they secured special guarantees against possible losses and a commitment that it would be illegal in the future to provide loans to Eurozone countries with the EFSM without also providing such guarantees to non-euro states.
EU Finance Ministers are currently busy implementing the legal change, through a “written procedure”, which should be finalized before the middle of August. The Council declared in July that an “agreement” on this legal change was needed “in any case before” Greece can request a second bridge loan. Another “written procedure” is needed for that, but it’s unlikely that Finance Ministers will manage to decide this in smoke-filled rooms. With Polish elections coming up on 25 October, local opposition parties may once again rail against Polish PM Ewa Kopacz, who promised voters they wouldn’t be exposed to this. Also the UK may use this as an opportunity to extract concessions related to its own agenda for EU reform. Perhaps the French government’s sudden openness to this agenda and its welcome stance that “we need a fair treatment of the ‘out’ countries” may have been linked to the British approval for a first bridge loan.
As always in the Eurozone, the safest bet is on another fudge, at least when it comes to the bridge loan.
More questionable is how the IMF’s statement that it “cannot reach staff-level agreement [to participate to a third Greek bailout] at this stage” will play out, given that Greece no longer meets two of the four IMF criteria for a bailout: ability/willingness to implement reform and debt sustainability. It will only decide whether to take part in the bailout after Greece has “agreed on a comprehensive set of reforms” and after the Eurozone has “agreed on debt relief”, meaning it may even only join next year or not at all, of course. This is a problem, given that a number of Eurozone states, especially Germany and the Netherlands, have explicitly linked their willingness for a third Greek bailout to participation by the IMF. Former EU Commissioner for Monetary Affairs Olli Rehn has suggested that many countries demand IMF involvement in bailouts because they don’t trust the Commission.
It’s not entirely clear what will be sufficient for the IMF: its President, Christine Lagarde, has discussed a write-down on the value of the country’s debt but ruled out a straight “haircut”, while mentioning an extension of debt maturities, an extension of grace periods and a maximum reduction of interest rates. The IMF carries the legacy of its former Director Dominique Strauss-Kahn, who managed to overcome opposition within the fund against taking part in the first Greek bailout in 2010. The IMF only issues loans to countries when there is prospect for debt sustainability, which clearly wasn’t the case for Greece in 2010, but the interests of supposedly “systemic” banks were considered to be more important. Now the IMF, which has never taken straight losses on loans it has issued, may be experiencing this in case of Grexit.
As opposed to the IMF, which has completely ruled out the idea of taking losses on its lending to Greece, and contrary to the picture painted by some, Germany has made some noices suggesting it may be open to cutting its losses in Greece. German Chancellor Merkel has not only been open to extending debt maturities and lowering interest rates, but her Finance Minister Wolfgang Schäuble has said that “if you think the best way for Greece” is debt relief, then “the best way forward” is to leave the euro, adding that “a real debt haircut isn’t compatible with the membership of the currency union”. So Germany is willing to accept debt relief, if there is Grexit.
Some have questioned Schäuble’s claim that debt relief wouldn’t be legally banned within the eurozone, as for example Financial Times columnist Wolfgang Munchau, who recently wrote: “In its landmark Pringle ruling — relating to an Irish case in 2012 — the European Court of Justice (ECJ) said bailouts are fine, even under Article 125, as long as the purpose of the bailout is to render the fiscal position of the recipient country sustainable in the long run.”
This sounds a bit like a stretch. The ESM is very much conceived as a “European IMF”, hence the ECJ’s use of the term “sustainable”, reminiscent of the IMF’s condition to provide cash. Just like the IMF, the ESM has been set up to issue “loans”, not to provide “transfers”. Obviously, a loan with an artificially low interest rate partly counts as a “transfer”, but even for the rather politicized judges of the European Court of Justice there is an end to stretching the meaning of words.
Therefore, apart from the case where the ECJ would completely remove the meaning of the words of its previous rulings and the ESM Treaty, EU law doesn’t allow the “loans” made to Greece to just be forgiven, as much as proponents of a Eurozone transfer union like Mr. Munchau may regret this.
After PM Tsipras threatened with an internal referendum in his own left-wing populist Syriza party, it looks like he has secured the necessary domestic support for a third Greek bailout.
Obstacles remain, but much of the protest in “creditor countries” seem to have been overcome. In Finland, where the coalition was at risk at some point, Foreign Minister Timo Soini has said that it “would make no sense” for his Eurosceptic Finns party to leave the Finnish coalition over this. In the Netherlands, the governing VVD party, which is skeptical to the Greek deal, has provided tacit consent for negotiations to start. In Germany, despite all the noice, Merkel enjoys a comfortable majority to get on with the third range of transfers.
The third bailout is likely not to be sufficient to cover all Greek funding needs in the next few years, also given that expecting 50 billion euro from privatizing Greek state assets looks a little rosy. This is a problem which can be solved near the end of the bailout period, once Greece has made it through the difficult year 2015. In 2016 and 2017, the country needs to make debt repayments “only” amounting to around 6 billion euro each year.
The IMF may in the end just back down and join in, given how it already bent its rules twice to agree to Greek bailouts. It would have been expected to provide between 10% and a third of the funding of the new bailout which may amount to 86 billion euro (and possibly more), so if the IMF wouldn’t back down, Germany and France would see their bill for the third bailout rise with another 1.7 billion and 1.3 billion euro respectively. A lot will depend on how the IMF will calculate “debt sustainaibility”. Speaking in the Dutch Parliament, Eurogroup chief Jeroen Dijsselbloem said on 16 July that the Eurozone already “agreed with the IMF to look at “debt service”, not merely at the debt to GDP levels”. In other words: because Greece’s interest burden as a percentage of GDP is even lower than the one carried by Portugal, Italy, Ireland and Spain, one can ignore the fact that its debt to GDP is at the horrendous level of 180% now. This of course overlooks the difficulty to boost that GDP, given the tax hikes and the capital controls which will be hard to remove as a result of the talk about “Grexit”. Still, a fudge looks on the cards.
It isn’t a good idea to let the bill of Eurozone taxpayers grow even bigger, to burden an economy already crippled by debt with even more debt and to intervene deeply into domestic Greek policy choices. Opting for Grexit may have been the wisest choice for everyone. The opportunity was there, given that many Greeks had already taken their savings out of banks anyway. Also, many of the reasons to think Greece still may leave the Eurozone, like the difficulty to unwind capital controls, remain in place. We have come close, but Grexit seems to have been avoided for now. But it’s unlikely to have been referred “ad kalendas Graecas”- “until pigs can fly”.
- "Asia Crisis, Tech Bubble Burst, Lehman"… And Today
While over the past several months many have been focused – finally – on the bursting of China’s 3 bubbles (credit, housing and investment), in the context of its 4th burst bubble, the stock market which the politburo is desperately trying to patch up every single day, a far scarier picture has emerged within the entire Emerging Market space, where Brazil has rapidly become a “ground zero” case study for what has moved beyond mere recession and is an accelerated collapse into economic depression, as we discussed previously.
Bank of America notes overnight that “capitulation is already visible in bond/bank/FX correlations and “forced selling” of crowded EM growth trades.” Here is what BofA’s Michael Hartnett has to say about the EM capitulation/collapse phase:
Despite muted asset returns, 2015 has seen the emergence of two big trends: the risk of a bubble in US health care & technology; and the crash in EM/Resources/Commodities.
The journey from hubris to humiliation in EM has taken roughly 5 years. Back in late 2010, when Sepp Blatter announced that Russia & Qatar would follow Brazil as hosts of the FIFA World Cup, both China & India were on course for >10% GDP growth, EM spreads were significantly lower, and the market cap of EM ($3.7 trillion on December 1st 2010) was twice the market cap of US banks, and exceeded the combined market cap of US tech & health care. Today, the market cap of EM equities is the same, while the combined market cap of US tech, health care and banks is over $10 trillion.
Note that the classic sign of crisis and capital flight, higher interest rates, falling currency, and falling bank stocks are now visible in Brazil (and elsewhere). Indeed, the correlation between Brazilian bond yields and Brazilian financials/BRL turned sharply negative during each of the past 3 systemic crises (Asia ‘98, Tech ‘02 & Lehman ’08) and is doing so again today (Chart 3).
In other words, while the S&P continues to exist in its own inert bubble, where stocks no longer are able to discount anything and merely float on the sea of $22 trillion in liquidity created by central banks, for Brazil, the correlation between key assets classes reveals that the local situation is on par with the three greatest crises of the past two decades: the Asia Crisis, the bursting of the Tech bubble, and of course, Lehman.
While it is naive to blame much of this on the strength of the US dollar, one thing is obvious, as BofA notes: “Structural inflection points in both EM/DM (Chart 6 & Table 3) have tended to coincide with major geopolitical events and/or policy shifts that have started or ended a multi-year move in the US dollar, e.g. Bretton Woods ‘70s, LatAm debt crisis ‘80s, Asia crisis ‘90s, Lehman 200.8”
So for those who are seeking the inflection point in deciding how and whether to invest in EM, “asset allocation to EM awaits an “event” (e.g. Fed hikes, China deval, bankruptcy/ default) to create narrative of US$ peak & unambiguous EM value).”
For the time being, the dominant narrative is that the US has a ways to go and will go even higher if and when the Fed starts its hiking cycle (even if riots break out among the BRIC nations which, like Brazil, are facing economic devastation).
Unless, of course, the first rate hike is precisely the catalyst that ends the past year’s dollar surge, as the market prices in the failure of the Fed’s hiking cycle and begins trading in anticipation of the admission of such failure which will lead to an end of rate hikes once the US economy slides into all out recession (the plunge in globla trade is the biggest flashing red light in that regard) and corporate profitability moves beyond GAAP recession into all out depression, ultimately culminating with the launch of QE4 and monetary policy reverting back to square one.
- The Latest Government Trust Fund To Go Bankrupt
Submitted by Sovereign Man
The Latest Government Trust Fund To Go Bankrupt
On June 6, 1932, President Herbert Hoover imposed the first ever national gasoline tax in the United States, initially set at 1 cent per gallon.
It was a major success for the federal government; the tax on gasoline alone was responsible for over 15% of their 1933 tax revenue.
What’s curious is that the Senate Finance Committee issued a report the following year stating that the federal gasoline tax should be repealed. But that never happened.
Instead it went up.
Under President Eisenhower, the tax increased to 3 cents per gallon. Under Reagan, 9 cents.
It’s risen steadily through the years to a level of 18.4 cents for every gallon of unleaded fuel, and 24.4 cents per gallon of diesel.
All of this tax revenue is –supposed– to go to the Federal Highway Trust Fund, something established back in the 1950s to finance the care and maintenance of the nation’s highways.
And now it, too, is insolvent.
Earlier this week I told you about Social Security’s Disability Insurance Trust Fund (DI), which will become insolvent in a matter of months.
The DI problem (just like the rest of Social Security) has been a long time coming.
But rather than form some meaningful solution, Congress has instead opted to commit financial fraud by commingling DI monies together with the other Social Security funds.
Now comes the Highway Trust Fund.
The difference between DI and the Highway Trust fund is that this one won’t be insolvent in a matter of years or months. Their own data shows that it may very well be toast… today.
Once again- Congress to the rescue.
Having waited until almost quite literally the last minute, their solution is to… wait for it… kick the can down the road.
Congress has now passed a 90-day stay of execution for the Highway Trust Fund, which only delays the inevitable.
Over the next three months they’ll sit down to the task of figuring out who to steal from.
They’re either going to raise taxes on you.
Or they’ll raise taxes on someone else, the costs of which will ultimately be passed on to you.
Or they’ll simply default on their obligations to the residents of the United States to maintain the federal highway system.
None of this should come as a surprise. This is what happens when nations go bankrupt: one by one, its major institutions fall into insolvency.
Today it’s the Highway Fund. Tomorrow it’ll be the Pension Benefit Guarantee Corporation (we’ll talk about that one soon) and the United States Postal Service.
Then it’ll be Social Security and Medicare. Then the Federal Reserve. And eventually it’ll be the United States government itself.
The signs are everywhere– every single one of these hallowed institutions is flat broke.
It’s no longer some wild assertion to say that. Their own financial statements show that they’re insolvent. And it’s not hard to figure out what happens down the road.
Bankrupt governments invariably resort to plundering the wealth of their citizens. Inflation. Higher taxes. Confiscation of assets. Indebting unborn generations. And defaulting on the benefits promises they made to voters.
- Head Of Collapsed Mt.Gox Exchange Arrested With Half A Billion In Bitcoin Still Unaccounted
Back in its 2013 heyday, when bitcoin soared from below $100 to over $1000 in the span of a few months (in no small part thanks to the collapse of the Cyprus banking system) there was only one real Bitcoin exchange: Magic: The Gathering Online Exchange, or Mt. Gox as it was better known, which had become the world’s largest hub for trading the digital currency. And then, as mysteriously as it had appeared, Mt. Gox went dark, and filed for bankruptcy after nearly half a billion dollars worth of bitcoin “disappeared.”
For a case study of a blistering rise and an absolutely epic fall of an exchange that i) was named after Magic: the Gathering and ii) transacted in a digital currency which many have speculated was conceived by the NSA nearly two decades ago and was used as a honeypot to trap the gullible, look no further than Mt.Gox which after halting withdrawals for the second (and final time) has finally done the honorable thing, and filed for bankruptcy. As the WSJ reports, “Bitcoin exchange Mt. Gox said Friday it was filing for bankruptcy protection after losing almost 750,000 of its customers’ bitcoins, marking the collapse of a marketplace that once dominated trading in the virtual currency. The company said it also lost around 100,000 of its own bitcoins. Together, the lost bitcoins would be worth approximately $473 million at market prices charted by the CoinDesk bitcoin index, although the price of Mt. Gox bitcoin had fallen well below that index after it stopped bitcoin withdrawals in early February.”
The punchline: speaking to reporters at Tokyo District Court Friday after the bankruptcy filing, Mt. Gox owner Mark Karpelès said technical issues had opened the way for fraudulent withdrawals, and he apologized to customers.
“There was some weakness in the system, and the bitcoins have disappeared. I apologize for causing trouble.”
In other words, oops sorry, several hundred million in Bitcoin is unaccounted for but blame the “system weakness.” This promptly led to various artistic interpretations on the Mt. Gox logo, such as this one:
Some were confused if Karpeles was going to get away with nothing more than an excuse, even if – as many speculated – he had personally fabricated exchange data entries and embezzled millions of dollars for his own account.
As a reminder, when it filed for bankruptcy in February 2014, Mt. Gox said 750,000 customer bitcoins and another 100,000 belonging to the exchange were stolen due to a software security flaw. The lost funds represented the equivalent of $480 million at the time of the bankruptcy filing. Mt. Gox also said more than $27 million was missing from its Japanese bank accounts. Karpeles, who had blamed hackers for the loss, later said he had recovered 200,000 of the lost bitcoins.
Earlier today we got the answer when nearly 18 months after his infamous apology, Mark Karpeles was arrested in Tokyo. FT reports that Japanese police have arrested Mark Karpelès, the head of the bankrupt Japan-based bitcoin exchange Mt Gox. The arrest charge is that he made an illegal entry to the system in February 2013 and increased the balance of his account by $1 million.
And yet, a year and a half after the exchange insolvency, nobody truly knows what happened:
The alleged crimes involved are hard to pin down, say police sources, because of the absence of a specific laws governing the virtual currency. Police have acknowledged privately that there technical elements of the alleged disappearance of nearly $500m that “are still not properly understood”.
Asked by Mt Gox to look into the matter in March Last year, the Tokyo Metropolitan Police were not able to begin their investigation until three months later. Even then, say people close to the investigation, the two police departments in charge — the cyber crime unit and the white-collar crime unit — did not properly share information.
The year long investigation, say legal experts, has culminated in an arrest that will allow police to hold Mr Karpelès without charge for 23 days. If he continues to deny any wrongdoing during that time, police may alter the charge, and hold him for another 23 days.
While Karpeles may very well be guilty of embezzlement and massive fraud against his clients, could it be the still undetermined “crimes” relating to a virtual currency will become just the excuse to keep unsavory suspects detained and/or under arrest for an indefinite period of time? Because being held for up to 46 days without any charge seems a little Guantanamoish.
As the FT adds, “the case has exposed both the complexities of crime relating to the bitcoin virtual currency, and the profound difficulties encountered by the Japanese police as they have attempted to investigate the Mt Gox.”
Seemingly the complexity was not as big as that encountered by US regulators and police who 7 years after the greatest criminal systemic collapse, and after the statute of limitations has now expired, have yet to arrest anyone for a multi-trillion systemic crime far greater than Karpeles’ $500 million embezzlement.
As for the former Mt. Gox head, today’s arrest will hardly come as a surprise as it was expected for over two weeks: Japanese journalists had been encamped outside his Tokyo home for several days. Footage of him being led from his home to a police car showed Mr Karpelès wearing a T-shirt and a baseball cap.
Mt. Gox bitcoin firm head arrested – The Japan News http://t.co/t4xFsyCsNy
#mtgox #Bitcoin #?????? pic.twitter.com/A2M8Lyz7px— The Japan News (@The_Japan_News) August 1, 2015
Mr Karpelès could, if found guilty, face up to five years in prison or a fine of as much as Y500,000 which at today’s exchange rate is just over $4000.
So let’s do the math: steal $500 million which only you know where it is, spend 5 years in prison, and be fined $5000. Sounds like a pretty good deal…
Anyone curious for more, there was an AMA this morning with a person representing to be Ashley Barr, the first Mt. Gox employee which gives more insight into Karpeles various pathologies. It can be found here.
- Greece May Miss ECB Payment As Germany Says Bailout Timeline Is Unrealistic
Greek PM Alexis Tsipras won a hard fought victory over party rivals on Thursday when Syriza’s central committee voted to postpone an emergency congress until after formal discussions on the country’s third bailout program are complete.
Syriza has been grappling with bitter infighting since more than 30 MPs in Tsipras’ parliamentary coalition defected during a vote on the first set of bailout prior actions, forcing the PM to rely on opposition votes to clear the way for formal discussions with creditors. The party dispute was exacerbated by reports that ex-Energy Minister and incorrigible Grexit proponent Panayiotis Lafazanis (along with several Left Platform co-conspirators) planned to storm the Greek mint and seize the country’s currency reserves.
Fed up, Tsipras told 200 members of Syriza’s central committee on Thursday that essentially, they could either hold a party referendum on the bailout on Sunday or wait until September to sort things out, leading us to note that “were Syriza to vote on whether or not Greece should follow through on the agreement with creditors, the market could be in for an event that is far more dramatic and important than the original referendum.”
Lafazanis refused to go along with the idea. “How many referenda are we going to hold? We’ve already done one and we won with 62 per cent of the vote”, he said. Ultimately, the party approved a September congress. This gives Tsipras some “breathing space,” FT notes, “but Thursday’s highly charged debate signalled that the Left Platform, which supports an end to austerity and a ‘Grexit’ from the euro, would continue to oppose a fresh bailout.”
And the party’s radical leftists aren’t alone in their opposition to the third program for Athens. On Thursday, FT reported that according to “strictly confidential” minutes from the IMF’s Wednesday board meeting, the Fund will not support the new bailout until the debt relief issue is decided and until it’s clear that Greece “has the institutional and political capacity to implement economic reforms.”
Somehow, all of this must be worked out in the next three weeks. Greece must make a €3.2 billion payment to the ECB on August 20 and if the bailout isn’t in place by then, it’s either tap the remainder of the funds in the EFSM (which would require still more discussions with the UK and other decidedly unwilling non-euro states) or risk losing ELA which would trigger the complete collapse of not only the Greek economy but the banking sector and then, in short order, the government. The question is whether Germany can be reasonably expected to take it on faith that i) the Greek political situation will not eventually result in Athens walking back its austerity promises, and ii) that the IMF will eventually hold up its end of the deal once Berlin approves some manner of debt re-profiling for the Greeks.
Now, according to Focus magazine, there are questions as to whether the timetable for cementing the bailout agreement is realistic. German lawmakers may now have to postpone a Bundestag vote and Athens has already discussed the possibility of taking a second bridge loan from the EFSM, Focus says. Here’s more (Google translated):
The timetable for the negotiations on a third aid package in favor of Greece is to look for an internal assessment of the federal government any more. According to the already contemplated for mid-August special session of the German Bundestag must be moved, according to government sources in Berlin.
The objective pursued by the EU Commission scheduling is too closely knit, criticize experts.This was reported in its latest issue of FOCUS.
Accordingly, the negotiations should be completed before August 10.On August 11, the euro zone finance ministers would approve the results before the agreement of other euro countries ratified and approved by the Parliament in Athens.Also, the Bundestag must still approve.
Due to delay Greece threatens a serious cash problem.The government in Athens must, at the latest on August 20, 3.2 billion euros, the European Central Bank to transfer (ECB), which should be possible without new loans from the third aid package barely.
Therefore already searched in circles of the EU Commission for ways to temporarily raise money from another pot. Speaking here a renewed bailout from the European Financial Stabilisation Mechanism is (EFSM)
This is difficult, however, because the EU states will again require an indemnity outside the euro-zone in this case. As early as September Greece must further loans operate: The International Monetary Fund (IMF) then expected repayments totaling € 1.56 billion in four tranches.In addition, running on 4 September from short-term government bonds in the amount of 1.4 billion euros, which Greece must also refinance.
And here’s the summary from Bloomberg:
German parliament meeting that was considered for mid-August might have to be postponed as European Commission’s schedule for aid talks is “much too tight,” Focus magazine reports, citing unidentified people in German govt.
Greece has to pay EU3.2b to the ECB by Aug. 20, which it may not be able to do without third aid package.
In other words, Greece will likely need yet another bridge loan from the EFSM and that will once again require the approval of non-euro countries that will, for the second time in a month, be asked to put their taxpayers at risk in order to keep the ill-fated EMU project alive and preserve the now thoroughly discredited notion that the currency union is “indissoluble.”
And make no mistake, Greece and its EMU “partners” had better hope things go smoothly after August because one more bridge loan and the EFSM is tapped out, which means Brussels will have to devise some other circular funding mechanism in the event the third program (which is itself nothing more than a dressed up ponzi scheme) isn’t in place by September.
Or, summarized in one picture:
- German Government Launches Investigation of Journalists for Treason
Submitted by Mike Krieger via Liberty Blitzkrieg blog,
If it were up to the Federal Attorney General and the President of the German Domestic Security Agency, two of our reporters would soon be in prison for at least two years. Today, we were officially informed about investigations against our Markus Beckedahl, Andre Meister and an unknown“ party. The accusation: Treason.
– From Netzpolitik.org: Suspicion of Treason“: Federal Attorney General Announces Investigation Against Us In Addition To Our Sources
Widespread outrage across Germany is erupting following the revelation that the nation’s Attorney General has launched an investigation into treason charges for two journalists working for Netzpolitik.
The charge is treason. The crime is journalism.
We learn from The Guardian that:
Germany has opened a treason investigation into a news website a broadcaster said had reported on plans to increase state surveillance of online communications.
German media said it was the first time in more than 50 years journalists had faced treason charges, and some denounced the move as an attack on the freedom of the press.
“The federal prosecutor has started an investigation on suspicion of treason into the articles … published on the internet blog Netzpolitik.org,” a spokeswoman for the prosecutor’s office said.
The public broadcaster ARD reported Netzpolitik.org had published an article on how the BfV was seeking extra funding to increase its online surveillance, and another about plans to set up a special unit to monitor social media, both based on leaked confidential documents.
“This is an attack on the freedom of the press,” Netzpolitik.org journalist Andre Meister, targeted by the investigation along with editor-in-chief Markus Beckedahl, said in a statement. “We’re not going to be intimidated by this.”
Cory Doctorow at Boing Boing accurately notes the shadiness and hypocrisy of it all:
The German prosecutors who dropped all action against the US and UK spy-agencies who trampled German law and put the whole nation, up to and including Chancellor Angela Merkel, under surveillance, have decided instead to open an investigation into the bloggers at Netzpolitik, who revealed the wrongdoing.
Netzpolitik are an important source of independent news, analysis and campaigning for privacy and freedom in Germany. This is a genuinely shameful moment for the nation. We stand with Netzpolitik and its supporters around the world.
While this is horrible news, there is a silver lining. The main reason the German government feels a need to go overtly fascist, is because they are scared shitless. They are scared of the truth, of the light and of their own citizens. Such a corrupt and compromised government can’t last very long.
Additionally, we should commend the bravery of the journalists involved. As reported by the Intercept:
Asked if Netzpolitik would continue to report using materials gained from whistleblowers, Meister replied, “That’s our job, so of course we will continue to report about publicly relevant information, which obviously includes information from whistleblowers from state and private entities. As a matter of fact, just [yesterday] we have exposed the new ‘cyber strategy’ of the German Federal Military ‘Bundeswehr’ about offensive cyber attacks.”
“If anything, all the support is showing that we must be doing the right thing, so we will continue what we do and maybe even step up the pace. … To paraphrase a Google engineer after yet another NSA leak: ‘Fuck those guys!'”
Bravo. These guys deserve our complete and total support.
* * *
For related articles, see:
Standard & Poor’s Warns on Germany as Anti-Euro Political Party Soars in Popularity
Video of the Day – “End the Fed” Rallies are Exploding Throughout Germany
Martin Luther King: “Everything Adolf Hitler did in Germany was Legal”
- Chinese Company Replaces Humans With Robots, Production Skyrockets, Mistakes Disappear
“I believe that anyone who has a job and works full time, they should be able to pay the things that sustain life: food, shelter and clothing. I can’t even do that.”
That rather depressing quote is from 61-year old Rebecca Cornick. She’s a grandmother and a 9-year Wendy’s veteran who spoke to CBS News. Rebecca makes $9 an hour and her plight is representative of fast food workers across the country who are campaigning for higher pay.
The fast food worker pay debate is part of a larger discussion as “states and cities across the country [wrestle] with the idea of raising the minimum wage,” CBS notes, adding that “right now, 29 states have minimums above the federal $7.25 an hour [and] four cities, including Los Angeles, have doubled their minimum to $15.”
Proponents of raising the pay floor argue that it’s simply not possible to live on minimum wage and indeed, there’s plenty of evidence to suggest that they’re right. Opponents say forcing employers to pay more will simply mean that companies will fire people or stop hiring and indeed, as we highlighted on Friday, it looks as though WalMart’s move to implement an across-the-board pay raise for its low-paid workers may have contributed to a decision to layoff around 1,000 people at its home office in Bentonville.
“The reality is that most business are not going to pay $15 dollars an hour and keep their doors open,” one Burger King franchisee told CBS. “It just won’t happen. The economics don’t work in this industry. There is a limit to what you’re going to pay for a hamburger.”
Yes, there’s only so much people will pay for a hamburger which is why Ronald McDonald has made an executive decision to hire more efficient employees at some locations:
With all of that in mind, consider the following from TechRepublic who tells the story of Changying Precision Technology Company, which has replaced almost all of its human employees with robots to great success:
In Dongguan City, located in the central Guangdong province of China, a technology company has set up a factory run almost exclusively by robots, and the results are fascinating.
The Changying Precision Technology Company factory in Dongguan has automated production lines that use robotic arms to produce parts for cell phones.
The factory also has automated machining equipment, autonomous transport trucks, and other automated equipment in the warehouse.
There are still people working at the factory, though. Three workers check and monitor each production line and there are other employees who monitor a computer control system. Previously, there were 650 employees at the factory. With the new robots, there’s now only 60. Luo Weiqiang, general manager of the company, told the People’s Daily that the number of employees could drop to 20 in the future.
The robots have produced almost three times as many pieces as were produced before. According to the People’s Daily, production per person has increased from 8,000 pieces to 21,000 pieces. That’s a 162.5% increase.
The increased production rate hasn’t come at the cost of quality either. In fact, quality has improved. Before the robots, the product defect rate was 25%, now it is below 5%.
So to anyone planning on picketing the local McDonald’s in an attempt to secure a 70% wage hike, be careful, because this “guy” is ready to work, doesn’t need breaks, and never makes a mistake:
Let’s just hope he doesn’t become self aware.
- Don't Exaggerate Significance of SNB's Loss
The Swiss National Bank reported a record CHF50.1 bln loss. It has got the chins wagging, but the real implications are minor. The losses are not realized and are unlikely to be repeated. In fact, if the SNB’s report had covered the month of July, the loss would likely have been smaller.
More of the SNB’s loss stemmed from the valuation of its foreign currency holdings in the face of franc appreciation, especially after the cap was abandoned in mid-January. Here in July the franc fell nearly 3% against the US dollar and about 1.3% against the euro. These two currencies account for nearly 3/4 of the SNB’s reserves. The franc fell 2% against sterling and 1.5% against the yen. These four currencies together account for nearly 90% of the reserves.
It addition to the currency valuation markdown, the SNB reported a CHF3.2 bln euro loss on its gold holdings. Gold lost another 5% in July in franc terms. These losses reduce the SNB’s equity to CHF3.425 bln, which amounts to just shy of 6% of its assets.
There are two implications, and they have nothing to do with the solvency of the Swiss National Bank. The first implication, and one that central banks are sensitive to is reputational risk. If the central bank losses money, doesn’t it undermine its credibility to manage the country’s economy? While it is difficult to show that the SNB’s reputation has been harmed, its performance provides its critics with fodder.
Switzerland’s parliamentary election will be held in mid-October. These losses allow for a politicalization of monetary policy that may not be particularly helpful. A couple of parliamentarians are pressing the SNB to adopt a new cap for the franc (euro floor) at CHF1.15. While this is highly unlikely to be implemented, it illustrates the frustration with the franc’s appreciation.
The SNB appears to have been given a free pass on its effort to stem the rise of the franc. In 2013, Switzerland’s current account surplus was 10.7% of GDP. Last year, it fell back to 7%. The OECD expects its to be 10.1% of GDP this year and 10.5% next year. Countries with such substantial surpluses often come under international pressure to reduce the imbalance.
However, a closer inspection of the Swiss current account composition suggests that it is not particularly sensitive to currency appreciation. There are three main drivers of the Swiss current account surplus and trade is not one of them.
First, the largest contributor is from investment income. These are mostly coupon and dividends on foreign portfolio investment. In this context we note Japan is evolving in the same direction. Its investment income often overwhelms the trade balance on the current account.
Second, financial services are important but are not driven by currency fluctuations. Third, officials point to what is called “merchanting.” It is the sales of goods that do not cross Swiss borders. This arises primarily from the commodity trading businesses that are located in Switzerland. This activity can account for 1/4-1/3 of the Swiss current account surplus.
The other implication of the SNB’s loss is that it may be unable to make its customary payout to the federal government and cantons. Some cantons depend on payment from the SNB to reach their fiscal targets. The failure to make a payment in 2013 due to the fall in gold saw criticism heaped on the central bank.
The record loss of the SNB is embarrassing, and it gives its critics fresh ammunition ahead of the national election. It could squeeze the finances of a few cantons, but it already has distributed CHF1 bln earlier this year based on last year’s profits. Its losses, largely an accounting function and not realized, is of little economic or financial consequence.
- Near-Term Dollar Outlook
The unexpectedly record low increase in Q2 US Employment Cost Index unwound the some of the dollar’s weekly gains and neutralized the near-term technical outlook. Next week’s nonfarm payrolls are still critical, and the weakness may put even greater burden on the jobs data to demonstrate that slack is indeed being absorbed.
The Dollar Index was poised to challenge the three-month high set on July 21 near 98.15, but the sell-off following the ECI report reversed the gains scored on the back of the FOMC statement and Q2 GDP (and upward revision in Q1). The five-day moving average barely crossed below the 20-day average for the first time since late-June. It did not close below 96.40 (a retreacement objective and 100-day moving average), but instead finished the week and month near the middle of the 96.00-98.00 trading range.
The euro’s five-day moving crossed above the 20-day average a day before the FOMC statement. After the Q2 GDP data and a threat that the Greek government would collapse saw the euro briefly trade below $1.09. It rebounded with the help of month-end demand and signs that the Greek government will survive until at least September. Before the weekend, nearly covered the entire week’s range. Both the RSI and MACDs are consistent with a further push higher in the euro, but how fast it reversed the pre-weekend gains, and the relatively soft close suggests the bears are still in control. Initial support is seen near $1.0950. It may require greater confidence of a September rate hike before the $1.08 level can be breached.
The dollar was pushing above JPY124.50, the upper end of its range since mid-June and was stopped cold by the disappointing ECI. The fact that Japan’s CPI excluding food and energy rose to 0.6% also discourage ideas that the BOJ the needs to provide additional stimulus. Support for the dollar is seen in the JPY123.00-JPY123.30 area. A break that could signal a move into the JPY122.00-JPY122.50 band.
Since the middle of July, sterling has tried and failed to rise above $1.5700 a handful of times. The technical indicators suggest the bulls may have been luck next week. The BOE meeting is expected to see 2-3 hawkish dissents to what is anticipated to be a majority decision to keep policy on hold. The minutes and the inflation report, with an update in macro-forecasts will be announced at the same time. Before the weekend, sterling traded on both sides of Thursday’s range. Even though it finished the week at its highest close in two week, it was still neutral. A move above $1.57 would encourage a run toward $1.5800. Support is seen in the $1.5540-$1.5560.
The Australian dollar nearly posted a potential key reversal before the weekend by making fresh multi-year lows (~$0.7235) before rallying to new highs for the week (almost $0.7370), but like sterling, the close was neutral. The 20-day moving average is found near $0.7380, and the Aussie has not closed above this average since June 25. It also roughly corresponds with the top end of a near-term down channel. There is a bullish divergence in the RSI, and the MACDs are turning higher. The market may be poised test the downtrend line drawn off May, June and July highs. It is found near comes in near $0.7420 by the end of next week. If the RBA cuts rates next week, especially given that it would surprise participants, the modestly positive technical developments would likely be negated.
News that the Canadian economy unexpectedly contracted in May sent the Canadian dollar lower. This was partly masked by US dollar weakness. The greenback failed to take out the July 24 multi-year high just above CAD1.3100. The US dollar closed on its highs, however, and additional near-term gains are likely. The next important technical target is some distance away at CAD1.3450. Support is seen near CAD1.2940.
The September light crude futures contract has fallen for seven consecutive weeks. It has consistently recorded lower highs and lower lows. The MACDs are trying to turn, but the RSI has drifted lower. Initial support is seen near $46.70 and then $45. Resistance is seen near $50.
The fact that the US 10-year yield was little changed on the week masks the 12 bp increase seen in the first four sessions last week. Yields reversed lower on Thursday, and the weak ECI on Friday, pushed the 10-year yield below 2.20% for the first time since July 7-9, which itself was the first time since the beginning of June. Although the 2.0% level is more significant, yields may find support near 2.08%-2.14%. The 2.30% area likely represents the near-term cap.
The S&P 500 flirted with the 200-day moving average at the start of the week. By the end of the week, it was about 2.5% above the lows set on Monday. Nevertheless, the close before the weekend was poor, on session lows. Over the past three months, buying interest has dried up near 2130. The S&P 500 has been in a broad 2040-2135 range since early February. It is not clear what is going to drive it out of that range.
Observations based on the speculative positioning in the futures market:
1. There were no significant (more than 10k contracts) adjustments to gross speculative currency positioning in the CFTC reporting week ending July 28. The run-up to the FOMC meeting may have deterred activity.
2. A clear pattern was speculators to reduce short euro, yen and sterling positions, and expand the short position in the other currencies. Similarly, speculators cut gross long Australian and Canadian dollar futures.
3. The divergence of monetary policy, which we argue is the key driver, also benefits sterling, where the BOE is also expected to raise rates. The net short sterling position is the smallest since last November. We would not be surprised if it turned positive in the coming weeks. The net position in the Swiss franc is moving in the opposite direction. Speculators have been net long francs since mid-March. It is on the verge of turning short.
4. The net short Canadian dollar position (56.1k contracts) is the largest since March 2014. It is likely to grow further. The net short Mexican peso position continues to grow, setting a new record each time it does.
5. Speculators turned to a net long US 10-year Treasury futures position in the previous reporting week and grew it further over the past week to stand at 65.6k contracts. The bulls added 31.9k contracts, lifting the gross long position to 491.5k contracts. The bears covered 6.3k short contracts, leaving 425.9k.
6. Bulls and bears added to gross positioning the light sweet crude oil futures. The gross longs rose by 11.6k contracts to 476k. The gross shorts increased 21.9k contracts to 232.6. This resulted in a 10.3k contract reduction in the net long position, leaving 243.4k contracts.
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