Today’s News December 11, 2015

• Jeremy Grantham Urges "Easily Manipulated" Americans To "Become More Realistic" About World's Demise

  Authored by Jeremy Grantham via GMO,

  Give Me Only Good News!

  “It ain’t what you don’t know that gets you into trouble.    It’s what you know for sure that just ain’t so.”

  (Attributed to Mark Twain)

  It takes little experience in the investment business to realize that investors prefer good news. As a bear in the bull market of 1999 I was banned from an institution’s building as being “dangerously persuasive and totally wrong!” The investment industry also has a great incentive to encourage this optimistic bias, for little money would be made if the market ticked slowly upwards. Five steps forward and two back are far more profitable.

  Similarly, we environmentalists were shocked to realize how profoundly the general public preferred to believe good news on our climate, even if it meant disregarding the National Academies of the world. The fossil fuel industry, not surprisingly, encouraged this positive attitude. They had billions of dollars to protect. If the realistic information were to be widely believed, most of their assets would be stranded.

  When dealing with realistic limits to growth it is also obvious how reluctant everyone is to accept the natural mathematical limits: There simply cannot be compound growth in a finite world. A modest 1% growth compounded for the 3,000 years of Ancient Egypt’s population would have multiplied its economic output by nine trillion times!1 Yet, the improbability of feeding ten billion or so global inhabitants in 50 years is shrugged off with ease. And the entire economic and political system appears eager to encourage optimism on resources for it is completely wedded to the virtues of quantitative growth forever.

  Hard realities in these three fields are inconvenient for vested interests and because the day of reckoning can always be seen as “later,” politicians can always find a way to postpone necessary actions, as can we all:  “Because markets are efficient, these high prices must be reflecting the remarkable potential of the internet”; “the U.S. housing market largely reflects a strong U.S. economy”; “the climate has always changed”; “how could mere mortals change something as immense as the weather”; “we have nearly infinite resources, it is only a question of price”; “the infinite capacity of the human brain will always solve our problems.”

  Having realized the seriousness of this bias over the last few decades, I have noticed how hard it is to effectively pass on a warning for the same reason: No one wants to hear this bad news. So a while ago I came up with a list of propositions that are widely accepted by an educated business audience. They are widely accepted but totally wrong. It is my attempt to bring home how extreme is our preference for good news over accurate news. When you have run through this list you may be a little more aware of how dangerous our wishful thinking can be in investing and in the much more important fields of resource (especially food) limitations and the potentially life-threatening risks of climate damage. Wishful thinking and denial of unpleasant facts are simply not survival characteristics.

  Let me start with one of my favorites. For the 50 years I have been in America, Business Week and The Wall Street Journal have been telling us how incompetent at business the French are and how persistently we have been kicking their bottoms. If only they could get over their state socialism and their acute Eurosclerosis. And as far as I can tell we have generally accepted this thesis. Yet Exhibit 1 shows what has actually happened to France’s median hourly wage. It has gone from 100 to 280. Up 180% in 45 years!  Japan is up 140% and even the often sluggish Brits are up 60%. But the killer is the U.S. median wage. Dead flat for 45 years! These are the uncontestable facts. So, all I can say is that it is just as well the French have not been kicking our bottoms. But how is it that we can believe so firmly in something that just ain’t so, and by such a convincing amount?

  

  Exhibit 2 examines the proposition that although our wages may have done poorly, we are still the place that creates jobs. The left-hand panel certainly seems to confirm that with our modest official unemployment rate for 25- to 54-year-olds of below 5% compared to 9% for the E.U. The righthand panel, though, shows the true picture. It looks at the unemployment rate adjusted for the nonparticipation rate, the percentage of all 25- to 54-year-olds who are not actually working (i.e., it includes those discouraged, uninterested, or even sitting in jail). There are now 21% not employed in the U.S. compared to 20.5% for the E.U., and our long-suggested job creating skills are looking a little thin.

  

  The problem lies in the so-called participation rate, as shown in Exhibit 3. The U.S. was one of the leaders in the percentage of women working, and from 1972 to a peak in 1997 the U.S. participation rate rose from 70% to 80%. From 1984 on, the U.S. spent 20 years ahead of most other countries in participation rates, but after 1997 something appears to have gone wrong: While other developed countries continued to increase their participation rate, that of the U.S. declined from first to last in fairly rapid order.

  

  What a far cry this reality is from the view generally accepted by our business world.

  Exhibit 4 examines our belief that we have the best health care system in the world. And why shouldn’t we, given the money we put in (left-hand bar chart), over twice the average cost paid by the E.U. But the right-hand bar chart shows what we get back. Two years less life than the median. And watch out for when the Turks, Poles, and Czechs cut back on smoking, for then we may find our way to the bottom of the list.

  

  But if you really want to be worried about our comparative health you should take a look at  Exhibit 5, which comes hot off the press from the guy who was just awarded the Nobel Prize for Economics (wait a minute, must be some mistake, this work seems perfectly useful). The data shows the death rate for U.S. whites between the ages of 45 and 54, which happily these days is when very few people drop off. Since 1990 there has been a quite remarkable decline for other developed countries, about a one-third reduction, as you can see, including for U.S. Hispanics. But for U.S. whites there is a slight increase!  Further analysis for that group reveals that the general increase is caused by quite severe increases in deaths related to alcoholism, drug use, and suicides. Had the rate for U.S. whites declined in line with the others there would have been about 50,000 fewer deaths a year!  (For scale, this is nearly twice the yearly number of traffic deaths in the U.S.)

  

  You have to be careful these days when you suggest connections. For example, people have been told off for proposing that dramatic increases in population can help destabilize societies. Syria had two and a half million people when I was born and has 29 million people now. You can guess how much worse the situation is because of this but you should not talk about it. Similarly, Prince Charles has been extensively criticized by professors in The Guardian for suggesting that a several-year drought in Syria exacerbated social tensions by ruining many farmers. As if!  (You cannot prove precisely what effect climate damage had, but you certainly cannot prove that it did not have a large effect. It certainly had a contributory effect.)

  With that caveat, let me seriously suggest a connection between Exhibit 1, which shows no increase in the U.S. median wage for over 40 years following a wonderful prior 30 years of a rise of over 3% a year, and Exhibit 5, which shows the uptick in unnecessary deaths among U.S. non-Hispanic whites aged 45 to 54. This is precisely the age group that was led to expect better for themselves and much better for their children. But those aspirations have not been generously fulfilled. The U.S. Hispanics, in contrast, mostly arrived later and had different expectations. All in all, this data is quite bleak. The point here is that it bears absolutely no similarity to the more optimistic belief set that is generally accepted.

  The data presented in Exhibit 6 examines the proposition that “more and more goes to the government and soon they will have everything.”  You have heard that many times recently in the political debate. Sorry, “bull sessions.”  You can see that the U.S. share going to the government in taxes is about the least in the developed world and that it has barely twitched for 50 years. Yet, apparently we have been steadily going to hell. How is it possible that such a view is given such credence in the face of the data, which is, after all, official and simple, not ingeniously manipulated by some perfidious Brit. (Yes, I admit it, I consider myself American or British depending on whether the context is favorable or not.)

  

  “At least we live in a fair society” is the proposition examined in Exhibit 7. The Gini Ratio is a measure of income inequality. Low is good. Only Turkey and Mexico outflank the U.S. as more unequal amongst the richer countries. I was a bit surprised to see how high the U.S. already was in 1980 (I had been drinking from the same culture dissemination trough after all), but it was at least importantly lower.

  

  “We have a democracy where people really count” is an idea that is built into the background cultural noise. Exhibit 8 (also covered last quarter) on the left shows how the probability of a bill passing through Congress is affected by the general public’s enthusiasm or horror. In a nutshell, not at all!  The financial elite, on the other hand, can double the chance of a bill passing or, much more disturbingly, can completely block passage. Clearly these facts are totally incompatible with the concept of participatory democracy and equally entirely at odds with the much more favorable and optimistic beliefs we share about our democracy. We really, really want to believe good news and to believe that we have a superior system that only needs fine-tuning. But, it ain’t necessarily so.

  

  “We have the best education system in the world” is a proposition that goes without saying in Boston, with Harvard, MIT, and literally dozens of other universities. But Exhibit 9 shows the more downto-earth fact: mediocrity.

  

  Less than mediocre, though, is the data in Exhibit 10, which shows the percentage of 3- to 4-year-olds enrolled in school. This is an area of emphasis where the returns on investment are said to be particularly high – six for one – although I would not like to guarantee such returns myself. However, our relatively low ranking at the start of the process is not heartwarming.

  

  Exhibit 11 moves on to our production of CO2, which per capita is the largest in the world, just ahead of Australia. The two of us also worry the least, except for one Middle Eastern oil producer. There is a nice, i.e., interesting, negative correlation here of -0.54. Not bad at all. The greater your fossil fuel intensity, the more ingenious your fossil fuel propaganda is to create doubt and the more we are encouraged to think beautiful optimistic thoughts: clean coal and clean oil. And even as more people can see the climate damage, the richer countries can convince themselves that the damage is not that serious. Poorer countries, meanwhile, do not have that luxury and about 20% more are actively concerned (about 80% vs. 60%) than are the richer countries.

  

  And this brings me to the last and my absolute favorite of these false propositions, which I label, “I wish the U.S. government wouldn’t give so much to foreign countries (especially when times are bad)!” Now, I do not think I have met a single American who does not believe that the U.S. government is generous in its foreign aid. Yet, it just ain’t so, and by a remarkable degree. Exhibit 12 shows what other developed countries give, with the usual goody-goody Sweden leading the way with 1.4% of their GDP and the U.K. having quite recently shot up to 0.8%, for once ahead of Japan and Germany. Dead last is the U.S. at 0.2% of GDP, which it has averaged forever. This is the item with the biggest and most permanent gap between reality and perception. And, as always, the misperception is in favor of the favorable, the data that we would wish to be true.

  

  Conclusion

  This is more or less the best I can do to prove the point. We in the U.S. have a broad and heavy bias away from unpleasant data. We are ready to be manipulated by vested interests in finance, economics, and climate change, whose interests might be better served by our believing optimistic stuff “that just ain’t so.”  We are dealing today with important issues, one so important that it may affect the long-term viability of our global society and perhaps our species. It may well be necessary to our survival that we become more realistic, more willing to process the unpleasant, and, above all, less easily manipulated through our need for good news.

  

  

  

  

  

• China 'Stealth' Devaluation Continues – Yuan Plunges For 6th Day, Default Risk Soars, Fosun Bonds Crash

  USDCNY broke above 6.4500 for the first time since the August devaluation, extending its post-IMF plunge to 6 days. This is the largest and longest streak of weakness since March 2014 as China seems to have taken the SDR-inclusion as blessing to devalue its currency drip by drip. Default risk is once again stomping higher as CDS surge from 94bps to 112bps (2-month highs). The biggest news in China tonight is the disappearance of Fosun International's Chairman, China's 17th richest man (and the collapse in the company's bonds, since stocks are suspended).

  For the 6th day in a row (something which has not happened since March 2014), Yuan has plunged, now below the Augsut devaluation lows….

  

   

  The pressure on onshore Yuan (above) is being driven by even more significant selling pressure in offshore Yuan as outflows appear to be accelerating… and PBOC seems happy to "allow" the onshore Yuan to devalue alongside it

  

   

  to its lowest since July 2011…

  

   

  And Chinese default risk is on the rise…

  

   

  But what everyone is talking about is the disappearance of Fosun International's chairman.

  Its USD 2020 bonds plunged by a record and the company suspended its shares in Hong Kong after Caixin magazine reported that billionaire Chairman Guo Guangchang had gone missing.

  

   

  The shares declined for a sixth consecutive day on Thursday in Hong Kong, losing 1 percent to close at HK$13.34, and tumbled more than 11 percent to $1.55 in over-the-counter trading in New York. Fosun International dollar bonds fell by a record, with the $400 million of 6.875 percent bonds due in 2020 slumping 16.1 cents to 88.3 cents on the dollar as of 9:10 a.m. in Hong Kong.

  Closely held Fosun Group, which controls Fosun International, has “lost contact” with Guo, 48, the magazine said, citing people it didn’t identify.

  “The news that the chairman went missing will take a toll on the bond prices and until the company can clarify the situations, we’d expect further weakness in the near term,” Nuj Chiaranussati, a Singapore-based debt analyst at Gimme Credit LLC.

  Broadly speaking, Chinese stocks continue to drift lower after the rescue from carnage into month-end…

  

   

  Charts: Bloomberg

  

  

  

  

  

• War Is On The Horizon: Is It Too Late To Stop It?

  Authored by Paul Craig Roberts,

  One lesson from military history is that once mobilization for war begins, it takes on a momentum of its own and is uncontrollable.

  This might be what is occuring unrecognized before our eyes.

  In his September 28 speech at the 70th Anniversity of the United Nations, Russian President Vladimir Putin stated that Russia can no longer tolerate the state of affairs in the world. Two days later at the invitation of the Syrian government Russia began war against ISIS.

  Russia was quickly successful in destroying ISIS arms depots and helping the Syrian army to roll back ISIS gains. Russia also destroyed thousands of oil tankers, the contents of which were financing ISIS by transporting stolen Syrian oil to Turkey where it is sold to the family of the current gangster who rules Turkey.

  Washington was caught off guard by Russia’s decisiveness. Fearful that the quick success of such decisive action by Russia would discourage Washington’s NATO vassals from continuing to support Washington’s war against Assad and Washington’s use of its puppet government in Kiev to pressure Russia, Washington arranged for Turkey to shoot down a Russian fighter-bomber despite the agreement between Russia and NATO that there would be no air-to-air encounters in Russia’s area of air operation in Syria.

  Although denying all responsibility, Washington used Russia’s low key response to the attack, for which Turkey did not apologize, to reassure Europe that Russia is a paper tiger. The Western presstitutes trumpeted: “Russia A Paper Tiger.”

  The Russian government’s low key response to the provocation was used by Washington to reassure Europe that there is no risk in continuing to pressure Russia in the Middle East, Ukraine, Georgia, Montenegro, and elsewhere. Washington’s attack on Assad’s military is being used to reinforce the belief that is being inculcated in European governments that Russia’s responsible behavior to avoid war is a sign of fear and weakness.

  It is unclear to what extent the Russian and Chinese governments understand that their independent policies, reaffirmed by the Russian and Chinese presidents On September 28, are regarded by Washington as “existential threats” to US hegemony.

  The basis of US foreign policy is the commitment to prevent the rise of powers capable of constraining Washington’s unilateral action. The ability of Russia and China to do this makes them both a target.

  Washington is not opposed to terrorism. Washington has been purposely creating terrorism for many years. Terrorism is a weapon that Washington intends to use to destabilize Russia and China by exporting it to the Muslim populations in Russia and China.

  Washington is using Syria, as it used Ukraine, to demonstrate Russia’s impotence to Europe— and to China, as an impotent Russia is less attractive to China as an ally.

  For Russia, responsible response to provocation has become a liability, because it encourages more provocation.

  In other words, Washington and the gullibility of its European vassals have put humanity in a very dangerous situation, as the only choices left to Russia and China are to accept American vassalage or to prepare for war.

  Putin must be respected for putting more value on human life than do Washington and its European vassals and avoiding military responses to provocations. However, Russia must do something to make the NATO countries aware that there are serious costs of their accommodation of Washington’s aggression against Russia. For example, the Russian government could decide that it makes no sense to sell energy to European countries that are in a de facto state of war against Russia. With winter upon us, the Russian government could announce that Russia does not sell energy to NATO member countries. Russia would lose the money, but that is cheaper than losing one’s sovereignty or a war.

  To end the conflict in Ukraine, or to escalate it to a level beyond Europe’s willingness to participate, Russia could accept the requests of the breakaway provinces to be reunited with Russia. For Kiev to continue the conflict, Ukraine would have to attack Russia herself.

  The Russian government has relied on responsible, non-provocative responses. Russia has taken the diplomatic approach, relying on European governments coming to their senses, realizing that their national interests diverge from Washington’s, and ceasing to enable Washington’s hegemonic policy. Russia’s policy has failed. To repeat, Russia’s low key, responsible responses have been used by Washington to paint Russia as a paper tiger that no one needs to fear.

  We are left with the paradox that Russia’s determination to avoid war is leading directly to war.

  Whether or not the Russian media, Russian people, and the entirety of the Russian government understand this, it must be obvious to the Russian military. All that Russian military leaders need to do is to look at the composition of the forces sent by NATO to “combat ISIS.” As George Abert notes, the American, French, and British aircraft that have been deployed are jet fighters whose purpose is air-to-air combat, not ground attack. The jet fighters are not deployed to attack ISIS on the ground, but to threaten the Russian fighter-bombers that are attacking ISIS ground targets.

  There is no doubt that Washington is driving the world toward Armageddon, and Europe is the enabler. Washington’s bought-and-paid-for-puppets in Germany, France, and UK are either stupid, unconcerned, or powerless to escape from Washington’s grip. Unless Russia can wake up Europe, war is inevitable.

  Have the totally evil, dumbshit neocon warmongers who control the US government taught Putin that war is inevitable?

  

  

  

  

  

• Credit Suisse Warns On China: "Some Companies Are Having To Borrow To Pay Staff Salaries"

  During October, the credit impulse in China rolled over and died. 

  To be sure, the writing was on the wall before the data was released. Early in November, MNI suggested that according to discussions with bank personnel in China, data on lending for October was likely to come in exceptionally weak. As we noted at the time, that would mark a reversal from September when the credit impulse looked particularly strong and the numbers topped estimates handily.  “One source familiar with the data said new loans by the Big Four state-owned commercial banks in October plunged to a level that hasn’t been seen for many years,” MNI added. 

  Sure enough, when the numbers came in, new RMB loans to households fell 60% M/M and new loans to corporates declined nearly 40% from September. 

  

  To some, this was a shock. After all, multiple rate cuts and round after round of liquidity injections should have given banks plenty of dry powder to lend. But as we discussed at length (see here), liquidity isn’t the issue. 

  An acute overcapacity problem means corporates don’t need to invest and even if they did, overleveraged borrowers are beginning to have problems servicing their debt which makes banks reluctant to extend credit. Indeed, we really have no idea what the NPL picture really looks like in China thanks to the fact that lenders are encouraged to roll debt and thanks to the fact that some 40% of credit risk is carried off balance sheet or classified as something other than what it is (i.e. carried as an “investment”). 

  So what did China do? Well, they increased fiscal stimulus by a whopping 36%:

  

  In short, when monetary policy fails to give the economy the defibrillator shock it needs, authorities must resort to fiscal stimulus and if the likes of Citi’s Willem Buiter have their way, China will just print bonds for the PBoC to monetize (nothing like printing a liability and buying it from yourself with another liability that you also print). 

  For their part, Credit Suisse doesn’t think any of this is going to work. Not the easing, not the fiscal stimulus, nothing. In a note out out today, the bank goes point by meticulous point to explain why “the impact from stimulus is muted.”

  First there’s the big picture: 

  The government has become more active in terms of counter-cyclical measures since late summer. The PBoC has injected liquidity into the policy banks, through its selective easing program, and policy banks have invested in special infrastructure projects approved by planning agency NDRC. On top of the two batches launched at the end of August and October, NDRC is preparing another batch, probably for launch before the end of 2015. However, the impact of these stimulus measures on the real economy has been weak. 1) The private sector has not appeared enthusiastic about following Beijing’s lead. 2) Banks seem reluctant to lend. 3) Government officials and SOE executives have been demoralized by the anti-corruption campaign and salary cuts. 

  The “weak impact” of stimulus means that although the economy may “stabilize” in Q4, it will “slide again” in Q1 201

  Export order flows have been slow while export manufacturers are shutting down factories amid surging costs and the recent threat from the TPP agreement. The private sector does not seem keen to invest because of poor profitability in the manufacturing sector. Private consumption is not weak, but is by no means robust. Property developers have substantially slowed down construction activity in order to cut inventories. 

  And although Credit Suisse contends that a hard landing isn’t their base case (which is odd because frankly, the hard landing has already occurred), the bank does offer the following rather alarming account of corporate health and the read through for bank balance sheets:

  Still, we expect corporate profits to deteriorate significantly in 2016, as indicated by industrial sector nominal GDP growth. Feedback from the ground also suggests that not only are account receivables on the rise, but that some companies are now having to borrow to pay staff salaries. Corporate balance sheet deterioration may well be a theme in 2016, raising market concerns, in our view. A mirror image of that is the rise in bank non- performing loans. Our contacts among the banks seem increasingly concerned about the NPL issue in 2016.  

  Somehow, Credit Suisse’s takeaway from that assessment is that there’s no “systemic risk,” but we would beg to differ. We’re not at all surprised to learn that Chinese corporates are borrowing to pay employees. It was just three weeks ago when we reported that, just as we predicted in March of 2014, China is reaching its dreaded Minsky Moment, as companies are set to borrow some $1.2 trillion just to service the debt they already have and otherwise remain operational:

  

  As for what comes next, Credit Suisse says “the PBoC is likely to look at a deep cut in RRR in order to create more space for the banks combatting a rise in NPLs.” What counts as “deep” you ask? Up to 400 bps. 

  Here, courtesy of RBS’ Alberto Gallo, is a look at Chinese NPLs. Note that although the graphics also show special mention loans and doubtful accounts, the “real” numbers are still far, far higher:

  

  Finally, note that Credit Suisse is now “less concerned” about the possibility that Chinese corporates that have borrowed in dollars will run into trouble should a Fed hike and China’s desire to gradually let the yuan depreciate hurt the corporate sector’s ability to service its debt: “Fed tightening may create turbulence for Chinese dollar debt borrowers, but we are less concerned now than we would have been before as the domestic debt market is now available to fund the rollover.” Here’s a chart that shows Chinese corporate USD borrowings – decide for yourself if the domestic market will fund the rollover:

  

  

  

  

  

  

• Texas Police Chief Warns Obama Of "Approaching Revolution", Urges Citizens To Arms Themselves

  Randy Kennedy, the chief of the Hughes Springs Police Department (in Texas), is the latest in a string of police chiefs across the nation urging citizens to arm themselves following the recent mass shootings in Colorado Springs and San Bernardino.

  In this brief clip, Kennedy warns President Obama that trying to take away American's guns will "cause a revolution," adding that the 2nd Amendment is "there to protect us against a government that has over-reached its power," exclaiming "you are not our potentate, sir. You are our servant."

  As AP reports, Kennedy said his call to arms was the result of his disappointment with Obama's Oval Office speech Sunday in which the president vowed the U.S. will overcome a new phase of the terror threat that seeks to "poison the minds" of people here and around the world. The police chief told The Associated Press on Wednesday that he's not asking residents to turn into vigilantes or "become super action heroes."

  He warned people in his town to prepare themselves: "Be ready when the wolf comes to the door, because it's on its way."

  Kennedy is not the first to warn his citizens…Law enforcement officials in Arizona, Florida and New York also have recently prompted citizens to arm themselves – some using similar comments aimed at terrorism.

   Wayne Ivey, the sheriff in Brevard County, Florida, said in a video post on the department's Facebook page over the weekend that political leaders appear more interested in being politically correct than protecting people. He urged residents to arm themselves as a first line of defense against an active shooter.

   

  "The only thing that stops a bad guy with a gun is a good guy with a gun," Ivey said.

   

  Another Florida sheriff, Steve Whidden in Hendry County, this week encouraged more people to carry weapons because "we as a nation are under attack by radical Islamic terrorists."

   

  Maricopa County Sheriff Joe Arpaio in Arizona issued a statement Tuesday asking "legally armed citizens to take a stand, and take action during a mass shooting/terrorist event until law enforcement arrives."

   

  And last week, Ulster County Sheriff Paul Van Blarcum in upstate New York called for licensed gun owners in his county to arm themselves when leaving home, citing mass shootings in Paris and San Bernardino, California.

  

  

  

  

  

• Declassified U.S. Government Report on Fukushima: “100% of The Total Spent Fuel Was Released to the Atmosphere from Unit 4”

  We reported in 2011 that the International Atomic Energy Commission knew within weeks that Fukushima had melted down … but failed and refused to tell the public.

  The same year, we reported in 2011 that the U.S. knew within days of the Fukushima accident that Fukushima had melted down … but failed to tell the public.

  We noted in 2012:

  The fuel pools and rods at Fukushima appear to have “boiled”, caught fire and/or exploded soon after the earthquake knocked out power systems. See this, this, this, this and this.

  Now, a declassified report written by the U.S. Nuclear Regulatory Commission on March 18, 2011 – one week after the tidal wave hit Fukushima – states:

  The source term provided to NARAC was: (1) 25% of the total fuel in unit 2 released to the atmosphere, (2) 50% of the total spent fuel from unit 3 was released to the atmosphere, and (3) 100% of the total spent fuel was released to the atmosphere from unit 4.

  NARAC is the the U.S. National Atmospheric Release Advisory Center, located at the University of California’s Lawrence Livermore National Laboratory. NARAC “provides tools and services that map the probable spread of hazardous material accidentally or intentionally released into the atmosphere“.

  The fuel pools at Units 3 and 4 contained enormous amounts of radiation.

  For example, there was “more cesium in that [Unit 4] fuel pool than in all 800 nuclear bombs exploded above ground.”

  

  

  

  

• TEPCO Admits Fukushima Radiation Leaks Have Spiked Sharply

  Just weeks after the completion (and failure) of one supposed 'containment' wall (and as the construction of the "ice wall" begins), TEPCO, the operator of the crippled Fukushima nuclear plant, has admitted that the levels of radioactivity in underground tunnels has risen sharply (4000x last year's levels). As NHKWorld reports, TEPCO officials have stated that they plan to investigate what caused the spike in radiation… yes, that would seem like a good idea.

  With the newly constructed 780-meter 'containment' wall "already leaning," news that the radiation leaks are growing is a grave concern. As NHKWorld details,

  Tokyo Electric Power Company has detected 482,000 becquerels per liter of radioactive cesium in water samples taken from the tunnels on December 3rd. That's 4000 times higher than data taken in December last year.

   

  The samples also contained 500,000 becquerels of a beta-ray-emitting substance, up 4,100 times from the same period.

   

  Around 400 to 500 tons of radioactive water, including seawater washed ashore in the March 2011 tsunami, is still pooled in the tunnels.

   

  The tunnels lie next to a structure used to temporarily store highly radioactive water, which cooled melted nuclear fuel inside the damaged reactors.

   

  TEPCO officials say it is unlikely the wastewater stored in the building has seeped into the tunnels.

   

  They say the water level in the tunnels is higher than that in the building and measures are in place to stop the toxic water from leaking out.

   

  They plan to investigate what caused the spike in radiation.

  Do not panic though, since…

  They say there has been no leakage out of the tunnels as radiation levels in underground water nearby have not risen.

  Because why would they lie (again)?

  

  

  

  

  

• Playing Chess With Putin

  Submitted by Nick Giambruno via InternationalMan.com,

  “What’s it like playing chess with Obama?” asks a top aid of Russian president Vladimir Putin.

   

  Putin replies, “It’s like playing chess with a pigeon. First it knocks over all the pieces, then it shits on the board, and finally it struts around like it won.”

  Now, Putin hasn’t actually said this on record. It’s just a popular joke circulating in Russia.

  But I wouldn’t be surprised if he really did say it. It’s not far off base.

  Putin outmaneuvered the West in Ukraine and most recently in Syria. Most importantly, he has outflanked Western sanctions through increased financial and economic cooperation with China and other Eurasian powers.

  No matter what happens in the West, Russia’s recent power plays are creating tectonic shifts in geopolitics. This could be the largest shift in global power since World War II.

  Ultimately, this could threaten the U.S. dollar’s role as the world’s premier reserve currency. That would have huge negative implications for your personal freedom and financial prosperity.

  Will Russia End the Unipolar World?

  Actually, it’s not just Russia we have to watch. China, Iran, and other Eurasian powers are working with Russia on an ambitious goal. They’re trying to end U.S. dominance in global trade, finance, and military power.

  These countries want to create what Russian officials call a “multipolar world.” It would replace the unipolar world that’s existed since the early 1990s, when the Soviet Union collapsed. The U.S. has been the world’s sole superpower ever since.

  In short, Russia and its partners want to completely redraw the lines of global power. Here’s how they’re doing it…

  First, there’s China’s New Silk Road. It’s the biggest and most comprehensive infrastructure project in all of human history. The plan is to link Asia to Europe via modern land transit corridors.

  The project includes high-speed rail lines, modern highways, fiber optic cables, energy pipelines, seaports, and airports. Much of this new infrastructure will flow through Russia.

  If everything goes as planned, the New Silk Road will be a reality by 2025.

  This will free Russia, China, Iran, and others from dependence on ocean transport. At that point, control of the high seas, which the U.S. has had for many decades, won’t be nearly as important.

  In addition to the New Silk Road, a set of interlocking international organizations is emerging. These new organizations are supporting Russia’s plans for a multipolar world.

  Trade – The Eurasian Economic Union

  The Eurasian Economic Union (EEU) is a Russian-led trading bloc.

  The EEU allows for free movement of goods, services, money, and people through Russia, Belarus, Kazakhstan, Kyrgyzstan, and Armenia. It’s gradually expanding as countries along the New Silk Road remove trade barriers.

  Security – The Shanghai Cooperation Organization

  In the military and security realm, there’s the Shanghai Cooperation Organization (SCO). It could become a NATO of the East.

  Current members include Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. India and Pakistan will join by 2016. Iran is also likely to join in the future.

  A Parallel International Financial System

  China’s Asian Infrastructure Investment Bank (AIIB) will provide funding for international infrastructure projects. It’s an alternative to the International Monetary Fund (IMF) and World Bank, which are both dominated by the U.S.

  The BRICS countries – Brazil, Russia, India, China, and South Africa – all support Russia’s goal of creating a multipolar world. Like the AIIB, the BRICS New Development Bank (NDB) is an international financial institution based in China. It’s another alternative to the IMF and World Bank.

  The NDB and AIIB will complement, not compete with, each other in financing New Silk Road projects. The NDB will also finance infrastructure projects in Africa and South America.

  It’s important to note that the NDB will use members’ national currencies, not the U.S. dollar. It won’t depend on U.S.-controlled institutions for anything. This reduces the NDB’s exposure to U.S. pressure.

  The BRICS countries are also looking to build an alternative to SWIFT, the major international payments system.

  SWIFT is truly essential to the current international financial system. Without it, it’s nearly impossible to move money from a bank in country A to a bank in country B.

  The U.S. kicked Iran out of SWIFT in 2012. This crippled Iran’s international trade. It also showed that the U.S. could use SWIFT as a political weapon. The BRICS countries want their own system so they can neutralize that power.

  AIIB, NDB, and the potential SWIFT alternative are the seeds of a parallel international financial system. Together, they will reduce the importance and demand for U.S. dollars.

  What it Means for You

  Today, most international trade is done in U.S. dollars. When one country wants to trade with another, it almost always has to buy U.S. dollars on the foreign exchange market first. This creates demand for U.S. dollars – much more than there would be otherwise. That boosts the value of the dollar.

  Imagine how much this arrangement props up the U.S. dollar. It’s incredible.

  This arrangement has allowed the U.S. government (and U.S. citizens) to live way beyond its means for decades. It also gives the U.S. unchecked geopolitical leverage. The U.S. could exclude virtually any country from the U.S. dollar-based financial system…and by extension the vast majority of international trade.

  The U.S. takes this unique position for granted. But it will disappear once the dollar loses its premier status.

  This will likely be the tipping point…

  Afterward, the U.S. government will be desperate enough to implement capital controls, people controls, nationalization of retirement savings, and other forms of wealth confiscation.

  It would be wise to prepare for the economic and sociopolitical fallout while you still can. Expect bigger government, less freedom, shrinking prosperity…and possibly worse.

  It’s probably not going to happen tomorrow. But it’s clear where the bankrupt governments of the U.S. and most of the West are headed.

  Once the dollar loses its status as the world’s premier reserve currency, you will have few, if any options, to protect yourself.

  This is why it’s essential to act before that happens.

  If Putin continues to outmaneuver the U.S. on the geopolitical chessboard, the dollar could collapse sooner rather than later.

  The sad truth is, most people have no idea how bad things could get, let alone how to prepare…

  There are straightforward steps you can start taking today to protect your savings and yourself. You don’t have to be on the losing team in this high-stakes chess match with Putin.

  This just-released video will show you where to begin. Click here to watch it now.

  

  

  

  

  

• "Straddle-Up" Goldman's 'Winning' Options Strategy Into Year-End

  As 2015 draws to a close, Goldman identifies 15 straddle-buying opportunities on stocks with liquid options, reporting in December. Our studies analyzing historical earnings events show at-the-money straddles are systematically undervalued ahead of the event. Buying straddles ahead of earnings has returned 10% through early December vs. the long term average of 2%.

  As Goldman Sachs writes, our studies analyzing historical earnings events show at-the-money straddles are systematically undervalued ahead of the event.

  Buying straddles ahead of earnings has returned 10% through early December vs. the long term average of 2%.

  

   

  The average cost of a straddle on this list is only slightly above the historical earnings move despite capturing more than a week of trading days outside earnings. We see KMX, ACN and ORCL particularly inexpensive compared to prior earnings moves.

  

   

  Straddle buyers risk losing the premium paid if shares close at the strike price on expiration.

  

  

  

  

  

• FT Bombshell: EU Unveils Standing Border Force That Will Act "Even If A Government Objects"

  Last weekend we wrote that in Europe’s attempt to contain the greatest refugee crisis since WWII, it would directly take control over the border control of the one country which over the summer lost its sovereignty (but at least it still has the euro), and which serves as a springboard for tens of thousands of migrants to proceed onward with their journey to Germany (where as reported earlier, they are no longer desired, as their continued arrival results in a plunging approval rating for Angela Merkel).

  We added that the deployment of additional officers will begin next week, and noted that as our friends at Keep Talking Greece wrote:

  “the masks have fallen. Hand in hand, the European Union and the Frontex want to cancel national sovereignty and take over border controls in the pretext of “safeguarding the Schengen borders”. With controversial claims, they use the case of Greece to create an example that could soon happen “in the border area near you.”  And the plan is all German.”

  Finally, we asked whether this was merely Paranoia…

  “or just another confirmation that the Eurozone is using every incremental, and produced, crisis to cement its power over discrete European state sovereignty and wipe out the cultural and religious borders the prevent the amalgamation of Europe into a Brussels, Berlin and Frankfurt-controlled superstate? “

  It was not paranoia, because according to blockbuster FT report released moments ago, “Brussels is to propose the creation of a standing European border force that could take control of the bloc’s external frontiers — even if a government objected.“

  As even the otherwise pro-EU FT cautiously notes, “The move would arguably represent the biggest transfer of sovereignty since the creation of the single currency.”

  We agree, because this is precisely what we said would happen.

  … the European Commission will unveil plans next week to replace the Frontex border agency with a permanent border force and coastguard — deployed with the final say of the commission, according to EU officials and documents seen by the Financial Times.

   

  The blueprint represents a last-ditch attempt to save the Schengen passport-free travel zone, by introducing the kind of common border policing repeatedly demanded by Paris and Berlin. Britain and Ireland have opt-outs from EU migration policy, and would not be obliged to take part in the scheme.

  Naturally, the first guniea pig wil be Greece: the state which has already lost its sovereignty courtesy of capital controls that will likely persist in some form in perpetuity, and which is most distressed and thus least equipped to say no. It will spread from there and promptly become the norm for a “project” which the European apparatchiks think is long overdue.

  Indeed, as the FT adds, “European leaders have discussed a common border force for more than 15 years, but always struggled to overcome deep-seated objections to yielding national powers to monitor or enforce borders — one of the core functions of a sovereign state. Greece, for instance, only recently agreed to accept EU offers to send border teams, after months of wrangling over their remit.”

  However now in the aftermath of the Paris suicide bombings and the indefinite emergency “pre-crime” laws instituted in France, conventional wisdom in Brussels is that Europeans’ eagerness to trade sovereignty (and thus liberty) in exchange for (border) security, is far greater.

  The result: a loss of border sovereignty, which woul effectively make the customs union one big superstate controlled by Brussels:

  One of the most contentious elements of the regulation would hand the commission the power to authorise a deployment to a frontier, on the recommendation of the management board of the newly formed European Border and Coast Guard. This would also apply to non-EU members of Schengen, such as Norway.

  And the absolute kicker:

  Although member states would be consulted, they would not have the power to veto a deployment unilaterally.

  And just like that, goodbye sovereignty… all in the name of halting the endless onslaught of Syrian refugees, which ironically was unleashed in the first place just so Europe could get its supplies of natural gas from Qatar instead of Russia.

  Europe has a prepared response, of course, saying that individual states are clearly unable to defend themselves against the barbarian refugee hordes:

  “Dimitris Avramopoulos, who is responsible for EU migration policy, said: “The refugee crisis has shown the limitations of the current EU border agency, Frontex, to effectively address and remedy the situation created by . . . the pressure on Europe’s external borders.” He said the EBCG would be a way to “protect and strengthen Schengen”.

  Actually, it would be a way to hand over all military control to a body of unelected bureaucrats. Here’s why:

  If the plan is approved by EU states, Frontex’s replacement will have a slew of new powers, including the ability to hire and control its own border guards and buy its own equipment. It will also be allowed to operate in non-EU countries — such as Serbia and Macedonia, which have become transit countries for people trying to reach northern Europe — if requested.

  One doesn’t have to even be a member of the EU any more to become a vassal state of Brussels.  But the scariest aspect is the following:

  The new agency will be able to deport people who do not have the right to remain in Europe — a power Frontex lacked.

  And just like that, the decision of who can and who can’t stay in any one European country will be delegated to some faceless bureaucrat in Brussels, circumventing all sovereign laws.

  The new force will also be able to call on a pool of border guards set aside by member states in reserve, as well as its own guards. National capitals will retain day-to-day control of their borders, but the new agency will be able to monitor their efforts and step in if it feels the protection on offer is inadequate.

  * * *

  Now we admit that some of this may come as a shock to some naive Europhiles, who still do not realize that all of this was preplanned, and predicted as long ago as 2008 when an internal AIG presentation answered the simple question: What Europe Wants. The answer:

  To use global issues as excuses to extend its power:

  • environmental issues: increase control over member countries; advance idea of global governance
  • terrorism: use excuse for greater control over police and judicial issues; increase extent of surveillance
  • global financial crisis: kill two birds (free market; Anglo-Saxon economies) with one stone (Europe-wide regulator; attempts at global financial governance)
  • EMU: create a crisis to force introduction of “European economic government”

  All have been spot on, but not even this aggressive and accurate forecast predicted that Europe would be so bold as to effectively take over border and population control sovereignty across the entire continent. It is about to do just that.

  

  

  

  

  

• Trump Takes Nation By Storm: More Americans Agree With Muslim Ban Than Reject It

  In case you were confused how it is that Donald Trump's polling numbers could increase following his Muslim-ban comments (which have beeen widely denigrated by any and all talking head who can fog a mirror – from The White House down…), here is the "surely not us?" answer.

  As The Hill reports, a new post-Trump survey by Rasmussed finds that 46% of likely voters would favor a policy preventing Muslim immigrants from entering the country until tighter screening procedures can be implemented, while only 40% would oppose such a measure.

   

  

   

  In direct opposition to what The White House said (that Trump’s proposal is "totally contrary to our values as Americans,") it is apparent from this survey that the Obama Administration does not know its 'constituents' as well as it may have thought.

  Simply put, based on this poll, more Americans – republicans and democrats – support Trump's idea of banning the entry of Muslims into America than oppose it, and now that it is 'polling' as a populist idea, we await Hillary Clinton to jump on the bandwagon.

  Wow, my poll numbers have just been announced and have gone through the roof!

  — Donald J. Trump (@realDonaldTrump) December 10, 2015

  

  

  

  

  

• Rand Paul Backs Trump, Unleashes "Top Ten Things That Make Obama Unqualified" For Office

  Submitted by Mac Slavo via SHTFPlan.com,

  The White House, which is running a blatantly unconstitutional regime, is now attempting to vet potential successors to the Oval Office, and yet again take out opposition leaders.

  First, Obama said that Assad lost all legitimacy, and should step down, and partnered with al Qaeda and ISIS to back up his opinions.

  Now, Obama’s press secretary has claimed that Donald Trump has lost all legitimacy and has been “disqualified” from running for office. Just how does the White House plan to back up its opinions this time? Trump claims that he won’t be intimidated and exit the race, but one has to wonder how far the system will go to get its way.

  “The fact is the first thing a President does when he or she takes the oath of office is to swear an oath to preserve, protect and defend the Constitution of the United States. And the fact is that what Donald Trump said yesterday disqualifies him from serving as President… And any Republican who’s too fearful of the Republican base to admit it has no business serving as president either,” Earnest said.

  See video and details of White House press secretary Josh Earnest’s comments here.

  Senator Rand Paul, who is also running for the GOP nomination, but who has received only a fraction of the coverage that Trump has, blasted back at the arrogance of the Obama White House, suggesting that President Obama should address his own “disqualifying” characteristics first:

  Today I would like to put a mirror in front of the Obama White House and show them the top ten things that make HIM unqualified:

  — Dr. Rand Paul (@RandPaul) December 9, 2015

  Rand Paul did make a list of his top reasons, and tweeted them out in succession. Of course, there are many more examples that should be dealt with. Here are Rand’s reasons, listed on the Washington Examiner, or here on Twitter:

  1. “Tried to take over 1/6 of the economy in Obamacare, wrecked the system and hurt patients and taxpayers.”

  1. Tried to take over 1/6 of economy in Obamacare, wrecked the system and hurt patients and taxpayers

  — Dr. Rand Paul (@RandPaul) December 9, 2015

  2. “Thinks an executive order is legislation and how you make law.”

   

  2. Thinks an executive order is legislation and how you make law

  — Dr. Rand Paul (@RandPaul) December 9, 2015

  3. “Fought an undeclared, unconstitutional war in Libya, turned it into Jihadist wonderland.”

  3. Fought an undeclared, unconstitutional war in Libya, turned it into Jihadist wonderland

  — Dr. Rand Paul (@RandPaul) December 9, 2015

  4. “Fighting an undeclared, unconstitutional war in Syria, [and] trying to put ISIS in Damascus.”

  4. Fighting an undeclared, unconstitutional war in Syria, trying to put ISIS in Damascus.

  — Dr. Rand Paul (@RandPaul) December 9, 2015

  5. “Signed into law the indefinite detention of American citizens.” (Paul is referring to the National Defense Authorization Act (NDAA) signed by Obama in 2011, which earned heavy criticism from groups like the American Civil Liberties Union).

  5. Signed into law the indefinite detention of American citizens — Dr. Rand Paul (@RandPaul) December 9, 2015

  6. “His copy of the bill of rights obviously goes from 1 to 3, skipping the 2nd amendment.”

  6. His copy of the bill of rights obviously goes from 1 to 3, skipping the 2nd amendment.

  — Dr. Rand Paul (@RandPaul) December 9, 2015

  7. [A federal appeals] Court ruled his NSA spying on every American was illegal.”

  7. Court ruled his NSA spying on every American was illegal. — Dr. Rand Paul (@RandPaul) December 9, 2015

  8. “He has added more debt than anyone in history.”

  8. He has added more debt than anyone in history.

  — Dr. Rand Paul (@RandPaul) December 9, 2015

  9. “Appointed an attorney general who thinks speech against Muslims is a bigger threat than terrorism.”

  9. Appointed an attorney general who thinks speech against Muslims is a bigger threat than terrorism. — Dr. Rand Paul (@RandPaul) December 9, 2015

  10. “[Environmental Protection Agency] rules by executive FIAT trying to kill an entire American industry and way of life (coal).”

  10. EPA rules by executive FIAT trying to kill an entire American industry and way of life (coal).

  — Dr. Rand Paul (@RandPaul) December 9, 2015

  Not sure how Rand interprets the first amendment, but it’s pretty obvious that the administration that has punished more whistleblowers than any other, and allowed the NSA, intelligence community and private business to spy on and censor anyone it wishes, has no respect for the 1st Amendment or 4th Amendment either. Due process and whole back of the original ten amendments has definitely eroded to point where the ink is no longer legible.

  Benghazi/Gaddafi, Fast and Furious and the use of drones all belong on this list as well, but it is only 10 and a good start. ISIS and the covert support of terrorism is its own giant issue that should be a nationwide scandal, with impeachments, prosecutions and a gutting of the entire staff of every major office in Washington, D.C. But it will never happen.

  Obama’s role in the bankers bailout and the failure to prosecute Wall Street executives, or end legalized derivatives are all crimes that will also escape any notion of justice, even if the criminals strike again.

  Though none of these men are perfect or trustworthy with ultimate power, President Obama and his team make Donald Trump and Rand Paul look like founding fathers.

  

  

  

  

  

• Visualizing Russia's Intervention In Syria

  Earlier this week, a rather amusing piece appeared on Sputnik entitled “Ahead of the Game: Russia Moving Faster in Syria Than US Media Can Report.” In it, Russian media outlined five steps US diplomacy expert Robert Farley thinks Russia will take next in Syria. The point of the article is this: Russia had already taken four of the five steps by the time Farley produced his list. 

  That is in many ways emblematic of Moscow’s deployment in Syria. From the time a Russian three star general strolled into the US embassy in Baghdad and informed the staff that airstrikes “start in one hour,” the rapidity with which Putin’s forces have established a base, sent in equipment, and launched a coordinated campaign with the IRGC and Hezbollah has been nothing short of astonishing. 

  That said, the mission hasn’t been without setbacks. There was of course the downing of a warplane by Turkey and the subsequent destruction of a Russian search and rescue helicopter by the FSA and as Bloomberg correctly points out (although the article is absurdly biased), “many senior officials in Moscow underestimated how long the operation in support of Bashar al-Assad would take when Putin entered Syria’s civil war on Sept. 30 and no longer talk in terms of just a few months, with one saying the hope now is that it won’t last several years.”

  But Putin isn’t Obama and irrespective of how long the campaign will ultimately take, The Kremlin looks prepared not only to stay the course, but to ramp up the deployment. Not only is Moscow hitting terrorist targets with cruise missiles from Russia’s Caspian Fleet, but now, Moscow is shooting at ISIS from a submarine in what can only be described as an effort by Putin to use Syria as a testing ground for Russia’s long dormant military juggernaut (after all, you don’t really need to shoot at a group that doesn’t have an air force or a navy from a sub). 

  On that note, we present the following update graphic prepared by Louis Martin-Vézian of CIGeography as post at The Aviationst. It documents the scope of Russia’s operation in the Mid-East and should give you an idea of just how committed Moscow is to the fight.

  

  

  

  

  

  

• The Fed's Painted Itself Into The Most Dangerous Corner In History – Why There Will Soon Be A Riot In The Casino

  Submitted by David Stockman via Contra Corner blog,

  The chart below crystalizes why the Fed is stranded in a monetary no man’s land. By the time of next week’s meeting the federal funds rate will have been pinned at about 10 bps, or effectively zero, for 84 straight months.

  Yet during that same period, the consumer price level has risen by 1.75% per year. And that’s if you give credit to all of the BLS gimmicks, such as hedonic adjustments for quality change, homeowners “imputed” rents and product basket substitution, which cause inflation to be systematically understated.

  On a basis that is close enough for government work, therefore, the real money market interest rate has been negative 2% for seven years. But that’s so crazy, unjustified, and unprecedented that even the Keynesian money printers who run the Fed have run out of excuses.

  Presumably, Yellen and her posse know that we did not have seven years running of negative real money market rates even during the Great Depression of the 1930s.

  So after one pretension, delusion, head fake and forecasting error after another, the denizens of the Eccles Building have painted themselves into the most dangerous monetary corner in history. They have left themselves no alternative except to provoke a riot in the casino – the very outcome that has filled them with fear and dread all these years.

  

  Indeed, Yellen and Bernanke before her have made a huge deal out of communications clarity and forward guidance. But how do you explain to even the credulous gamblers and day traders on Wall Street that the business cycle has not been outlawed and that free money can not last forever, world without end?

  Likewise, after all these years of saying that the dollar’s exchange rate is the responsibility of the US Treasury— and that the Eccles Building only does domestic monetary policy—– how will the Fed heads explain that they have wrapped themselves around the axle of an unrelentingly strong dollar?

  And that they are impotent to stop the gale force of global deflation and recession being imported into the domestic economy by the inexorable unwinding of the massive dollar short that they have spent years fueling?

  For years now the dollar has been a “funding” currency in the global casino—-something the gamblers borrowed or effectively sold short in order to pile into higher yielding EM debt, equities and commodities until they peaked awhile back.

  But the fantastic global credit bubble summarized below has now reached its apogee. China and the EM economies are rolling over into a debilitating deflation, thereby catalyzing the mother of all margins calls. This time subprime is lettered in Chinese and speaks with a Portuguese accent.

  This time the correction will not be in the overbuilt and over-valued domestic (and other DMs like Spain) housing market. Instead, there will be a global CapEx depression and its contractionary cascade will cause the entire global economy to shrink for the first time since the 1930s.

  In fact, it is already happening, even by the lights of the IMF. The world’s nominal GDP has dropped 5% in dollar terms during the past year, and that’s what counts because the world’s $225 trillion tower of debt is heavily denominated in dollars, or linked to it through exchange rates, most especially the Chinese RMB.

  But unlike the short-lived recessionary dips of the past, the southward turn in the graph below still has a long way to go. Brazil is plunging into its so-called hard-landing and China is not far behind—-along with its supply chain and DM materials exporters like Canada and Australia.

  Figure 1. Gross Planet Product at current prices (trillions of dollars, 1980 – 2015)

  

  Source: IMF World Economic Outlook Database, October 2015.

  Shrinking GPP (Gross Planet Product) is not even in the Fed’s vocabulary yet, and even when they do latch on to it, they won’t dare explain it honestly and cogently.

  That’s because contracting GPP measures the abysmal failure of the two-decade long global experiment in massive central bank money printing, and the unsustainable credit fueled economic boom it enabled. And it is a stark reminder that the world’s effective leverage ratio will be rising—even as income and cash flow sink deeper into deflation.

  So the Fed will have some heavy duty “splanin”  to do, but it will be hard-pressed to come up with words that comfort the casino, rather than spook it.

  After all, for most of this century the Fed’s post meeting statements and minutes have been progressively degenerating into embarrassingly empty pabulum; and its seemingly rock solid voting consensus was an artifact of being on the Easy Button 80% of the time.

  In that environment there was little to debate and less to explain. They simply delivered an economic weather report and urged Wall Street to hang on for the ride.

  

  But now the Fed must emerge from the shaded zone shown above for the first time on a sustained basis since the 1980s. Yet as it seeks to explain a macro-economic slump that it absolutely did not see coming, and confesses to its complete lack of policy tools to reverse the worldwide deflationary tide now lapping at these shores, its statements will be reduced to self-evident and self-contradictory gibberish.

  Likewise, the 19 members of the Board will take to noisy public quarrelling right in front of the boys and girls on Wall Street for the first time in their lives.

  The reason that there will soon be a riot in the casino, therefore, is not owing to the prospect of a 25 bps pinprick after all this time on the zero bound.

  The hissy fit will happen because the Fed’s words and actions starting next week will not say “we have your back, keep buying”.

  The message will be “we are lost and you are on your own”.

  And that’s not “priced in”. Not even close.

  Evidence that a completely new monetary policy ball game is commencing comes from JM Keynes’ current vicar on earth himself, Larry Summers. Three days ago he penned a strange op ed in which he apparently reminded himself that the business cycle has not been outlawed——something most non-PhDs presumably already knew:

  U.S. and international experience suggests that once a recovery is mature, the odds that it will end within two years are about half and that it will end in less than three years are over two-thirds. Because normal growth is now below 2 percent rather than near 3 percent, as has been the case historically, the risk may even be greater now. While the risk of recession may seem remote given recent growth, it bears emphasizing that since World War II, no postwar recession has been predicted a year in advance by the Fed, the White House or the consensus forecast.

  Well now. If you wait until month 78 of a business expansion to end the emergency policy, and then hesitate to venture more than a few basis points off the zero bound, you will indeed use up the remaining runway right quick.

  That’s because the average of ten business cycle expansions since 1948 have lasted but 61 months; and the only expansion that was appreciably longer than the present tepid affair was the 119 month stretch of the 1990s.

  

  Historical Length of Recoveries

  But let’s see. Back then the Fed’s balance sheet was $300 billion, not $4.5 trillion. The world had less than $40 trillion of debt or about 1.4X GDP, not $225 trillion or nearly 3X global income.

  

  And, most importantly, China was still a quasi-agrarian victim of Mao’s destructrutive experiments in collectivist economics and state generated famine, not today’s towering Red Ponzi.

  That is, it was irrelevant then, but is now a bloated economic whale sinking under the weight of $30 trillion of debt and the most reckless spree of over-investment and mindless public and private construction in recorded history.

  So as this domestic business expansion cycle get long in the tooth, the US economy is confronted by a veritable engine of global deflation in the form of China and its EM supply chain. After a 20-year credit driven boom, it now payback time. All of these economies find their exports stalled, their exchange rates falling, and their debt service exploding higher.

  What this means, of course, is that Wall Street’s “decoupling” myth will soon be on the scrap heap. US exports and imports are now crumbling, and even the standard measures of goods transit are cliff diving.

  

  Likewise, today’s wholesale report for November was a red alert warning that a big recession inducing inventory liquidation is just around the corner.  Even if Janet Yellen won’t find this chart on her dash board of 19 lagging labor indicators, the message is unmistakable.

  

  According to Dr. Summers, the thing to do when recession strikes is to cut interest rates by 300 basis points. But even he admits it ain’t going to happen this time.

  Even if were technically possible to have a negative 300 bps federal funds rate, what is already a 2016 election year gong show would take on a whole new level of crazy. The brutally trod upon savers and retirees of American would well and truly revolt.

  Historical experience suggests that when recession comes it is necessary to cut interest rates by more than 300 basis points. I agree with the market that the Fed likely will not be able to raise rates by 100 basis points a year without threatening to undermine the recovery. But even if this were possible, the chances are very high that recession will come before there is room to cut rates by enough to offset it. The knowledge that this is the case must surely reduce confidence and inhibit demand.

   

  Central bankers bravely assert that they can always use unconventional tools. But there may be less in the cupboard than they suppose. The efficacy of further quantitative easing in an environment of well-functioning markets and already very low medium-term rates is highly questionable. There are severe limits on how negative rates can become. A central bank that is forced back to the zero lower bound is not likely to have great credibility if it engages in forward guidance.

  So if the endlessly clever word-splitter who currently heads the church of Keynes on earth can do not better than the above ill-disguised punt, can you imagine what blithering incoherence will be contained in the meeting statements as the recession gathers force next year?

  Yes, there will be a riot in the casino.

  

  

  

  

  

• "Let's Just Hope Shipping Isn't Telling the Real Story of China"

  One of the recurring topics we have focused on extensively in the past few months has been the dramatic collapse of all shipping-related metrics when it comes to seaborne trade with China, from the recent record plunge in the Baltic Dry index…

  

   

  … to Shanghai Containerized Freight…

  

   

  … both of which are taking place even as China exports record amount of commodities to the outside world…

  

   

  We have also repeatedly noted that the implications for both China, and the entire world, from these charts are dire because they suggest that not only is China not growing, but the entire world is now gripped in not only an earnings and GDP (in USD-denominated terms, global GDP is set to decline by several trillion dollars) recession, but also suffering its first trade contraction since the financial crisis.

  

   

  And now, Bloomberg has turned its attention to just these, and other comparable charts, and published an article titled “Let’s Just Hope Shipping Isn’t Telling the Real Story of China“, prudently adding that investors betting that China’s near-insatiable appetite for industrial raw materials will drive global economic growth may want to skip the shipping news.

  Here’s why:

  For the first time in at least a decade, combined seaborne imports of iron ore and coal – commodities that helped fuel a manufacturing boom in the world’s second-largest economy — are down from a year earlier. While demand next year may be a little better, slower-than-anticipated growth in 2015 has led to almost perpetual disappointment for shippers, after analysts’ predictions at the end of 2014 for a rebound proved wrong.

  

   

  The article notes that China accounts for two in every three iron-ore cargoes in the world, and is the largest importer of soybeans and rice. But this year, demand has slowed to the point where any speculation that China may be growing at anything near to 7% is a joke.

  Combined seaborne imports of iron ore and coal will drop 4.8 percent to 1.097 billion metric tons, the first decline since at least 2003, according to data from Clarkson Plc, the biggest shipbroker. A year ago, Clarkson was anticipating a 5.5 percent increase for 2015. The broker expects growth to increase just 0.04 percent next year.

  

   

  It will get worse: “The China Iron and Steel Association predicted crude-steel output will tumble by 23 million tons to 783 million tons next year. That lost output is more than a quarter of what U.S. steelmakers produce.”

  A big reason for the collapse in Chinese demand are Beijing’s attempts to crack down on excess leverage.

  Imports are weakening even as China’s economy keeps expanding because of reduced spending by local governments that are dominant players in the economy, according to Fielding Chen, a Hong Kong-based economist for Bloomberg Intelligence. The central government in January withdrew guarantees for Local Government Financing Vehicles used to finance infrastructure projects during the country’s boom years, when domestic capacity surged over the past decade, he said.

   

  “This has reduced China’s appetite for steel and copper and other commodities that are used to build roads, subways and reservoirs,” Chen said. “It is not good for the economy and is one of the main reasons China cannot import more.”

  While China has attempted to boost the economy using monetary (cutting RRR ratios and interest rates) and fiscal (boosting spending at the local government level) stimulus, for now it appears to have cut back on the traditional growth dynamo which propelled China as the focus of global growth during the financial crisis – its relentless debt creation, which has doubled its total debt/EBITDA from just over 150% in 2007 to over 300% as of this year (282% as of 2014).

  

  It is this slowdown in China’s debt creation that is the true reason behind the global growth slowdown experienced both in China and around the globe.

  Bloomberg offers a ray of hope when it notes that the rout in buying showed signs of easing last month. China’s iron-ore imports rose to 82.13 million tons, a jump of 22 percent compared with a year earlier. Even so, the extra shipments are mostly because of rising Chinese steel exports, or tolling, rather than the nation’s own demand, according to Andy Xie who predicted in February that iron-ore prices would sink into the $30s this year, compared with $71 at the start of the year.

  Unfortunately, there is only so much time China can buy: Chinese steel mills have been pressured by losses, low prices and overcapacity as demand drops to levels unseen since 2009, cutting profits and reducing incentive for re-stocking. Worse, as we first showed two months ago, as a result of until recently soaring debt levels and collapsing commodity prices, more than half of indebted Chinese commodity companies are facing the grim prospect of imminent bankruptcy as they can’t even cover one year of interest with their existing cash flows.

  

  As a result, the commentary is downright disastrous:

  “For dry bulk, China has gone completely belly up,” said Erik Nikolai Stavseth, an analyst at Arctic Securities ASA in Oslo, talking about ships that haul everything from coal to iron ore to grain. “Present Chinese demand is insufficient to service dry-bulk production, which is driving down rates and subsequently asset values as they follow each other.”

   

  “China’s slowdown has come as a major shock to the system,” said Hartland Shipping’s Prentis. “We are now caught in the twilight zone between shifts in China’s economy, and it is uncomfortable as it’s causing unexpected slowing of demand.”

  So what can one do?

  There are two options: do as the Blooomberg article sarcastically suggests, and Hope Shipping Isn’t Telling the Real Story of China, or one can prepare for the mother of all mean reversions: after all it was China that dragged the world out of the second great depression (if only temporarily) when it unleashed the biggest debt-creation spree in history (one putting the Fed and all its peers to shame as we showed previously). It will be only fitting that China’s drags it back in.

  

  

  

  

  

• Czech President: Turkey “Behaves As If [It’s] An Ally of the Islamic State; Removes Oil … Which Finances [ISIS]]

  Czech President Milos Zeman said yesterday (English translation):

  I think [Turkey] is indeed a member of NATO, but sometimes behaves as if more was an ally of the Islamic Republic: removes oil from the Syrian sites, which finances the Islamic state.

   

  ***

   

  They do not like the Kurds, which are the only ones who fought effectively with the Islamic state. That is why Turkey [should be viewed] with caution and why it should not be an EU member.

  He is one hundred percent right …

  Postscript: The date of the article is “9.12.2015”, which 0 in the Czech way of writing dates – means December 9, 2015.

   

  

  

  

  

• This Is The Scariest Chart For Angela Merkel

  Having won Time’s “Person of the Year” award, German chancellor Angela Merkel may have little time, or cause, for celebration.

  The reason for that is that, as we noted yesterday when commenting on Donald Trump’s snub of Time in which he said that it “picked person who is ruining Germany”, is that according to increasingly more Germans, Trump just may be – in his trademark politically incorrect way – right.

  Recall:

  In past years, Angela Merkel has been feted like a superstar at annual meetings of her Christian Democratic Union (CDU) party, earning thunderous ovations for defending German interests in the euro crisis and facing down Vladimir Putin over Ukraine. But a CDU congress in the southwestern city of Karlsruhe next week is shaping up to be a very different affair. Under intense pressure from conservative allies to reduce the flood of refugees into Germany, the 61-year-old chancellor faces the biggest test of her authority from within the party in years.

   

  Her Bavarian allies, the Christian Social Union (CSU), have been pressing for a cap for months, and even some of Merkel’s own ministers are lobbying openly for a tougher stance from the chancellor, who marked 10 years in office last month and must decide by next autumn whether she will seek a fourth term in 2017.

   

  “Merkel has never endured such sharp criticism from within her own ranks since becoming chancellor,” read a front-page editorial in conservative daily newspaper Frankfurter Allgemeine Zeitung on Monday. “Under no circumstances can she allow the congress to approve a resolution on refugee policy that includes the word ‘Obergrenze’.” 

   

  “The mood among conservative members of parliament is really catastrophic right now,” said one senior CDU lawmaker, declining to be named. “Merkel is totally isolated.” “She needs to wake up,” said another top ranking party member.

  Why this dramatic shift in opinion about a chancellor who until recently was seen as untouchable and simply indestructable, and suddenly appears to be all too fragile? The answer is shown in the simple chart below, which shows the soaring numbers of migrant arrivals in Germany.

  

   

  The chart has major implications for Merkel’s political career because, as the WSJ notes, the higher the number of migrants, the lower her approval rating… and the higher the rating of her conservative ally, Bavarian Premier Horst Seedorf.

  

   

  Suddenly invincible Angela does not seem so unshakable. For those who have missed the story, here is what happened from the WSJ:

  When refugees marched from Budapest Sept. 4, paralyzing Hungary’s main highway to Austria, Mr. Orban phoned Vienna. Mr. Faymann wouldn’t take his calls, aides to each say. Mr. Orban convened his national-security cabinet and decided to bus the migrants to the border. “If Austria wants them, they can have them,” Mr. Orban said, according to a person present.

   

  Hungary’s foreign minister told his shocked Austrian counterpart the news at an EU meeting that day. Austrian officials, unprepared for mass arrivals, urgently sought German help.

   

  The emergency caught Ms. Merkel on a day of party events in Essen and Cologne. In a volley of phone calls, she and Mr. Faymann shared a calculus, say aides to each: Only force could halt the migrants at the border; inaction could result in exhausted refugees dying on the highway. 

   

  Ms. Merkel made a snap decision that sent shock waves around Europe: Throw Germany’s doors open. Bypassing Europe’s asylum rules and skeptical members of her government, she ordered trains to carry the migrants to Munich.

   

  Her aides couldn’t reach her coalition partner, Bavaria’s premier Mr. Seehofer. He, like Mr. Orban, wanted to stop the migrants; the two men became Ms. Merkel’s most outspoken adversaries. Mr. Seehofer declined to be interviewed.

  Initially the Germans were delighted…

  As Germans greeted refugees in Munich with sweets, toys and hugs, Mr. Orban told Ms. Merkel by phone her decision undermined the fight against illegal immigration and lured migrants to Europe, aides to each say. He lambasted German and Austrian volunteers who drove into Hungary to give Syrians a lift: “Legally they are human traffickers. Is that what you want?”

   

  He told her Hungary was fencing off its southern border. If all EU countries did the same, he said, the crisis would end. “The Hungarian solution,” he said, “is the only solution.”

   

  Ms. Merkel replied that if Europe wanted a wall, it would have to be high and defended with violence against civilians, and Greece could hardly wall the Aegean Sea. A fence might work for Hungary, she told Mr. Orban, but she sought answers for all Europe.

  … But then the mood at home turned decidedly sour:

  Backlash built against Ms. Merkel at home, where pro-refugee euphoria faded while as many as 10,000 arrived daily. Local governments struggled to house and feed them. In overstretched Bavaria, Mr. Seehofer threatened to sue the federal government unless Ms. Merkel set a cap on arrivals.

   

  She dismissed the demand. “If we have to start apologizing now for showing a friendly face in emergencies,” she told reporters, “then this is not my country.” She knew she had to convince voters the situation wasn’t out of control. Immersing herself in the logistics of accommodating migrants, she learned details about heated tents and housing containers. She tightened rules on asylum-seekers’ benefits. She pushed for EU migrant-processing centers in Greece and Italy to block bogus asylum claimants.

  Merkel then did half a U-turn, doing everything in her power to court not only Turkey but Eastern European nations in hopes they would accommodate the bulk of the refugees.

  She courted Turkish President Recep Tayyip Erdogan, whom she had long mistrusted but whose help she needed to reduce the migrant flow. Mr. Erdogan’s demands, EU officials say, included money for refugee camps, visa-free European travel for Turks, revitalizing stalled talks on EU membership and regular summits with EU leaders. Visiting Istanbul in October, Ms. Merkel told him she was willing to talk about everything. One problem: Her party opposes Turkey’s joining the EU.

  No problem: two weekends ago, Turkey was fast tracked for EU accession, with visa requirements set to be reduced, even as Turkey gets billions in “aid” to help with the refugee settlement

  Then it was the Balkans’ turn:

  Balkan countries struggled with the buildup of migrants south of Hungary, whose anti-migrant fence created bottlenecks elsewhere. And many governments criticized Greece for waving migrants through.

   

  At a summit of countries along the Balkan migration trail, called at Ms. Merkel’s behest, leaders warned they would build fences if Germany closed its border. Ms. Merkel said that, having grown up in communist East Germany, she opposed walling off countries but that there might be no alternative unless Greece and others helped manage the flow.

   

  Under German pressure, the Balkan countries agreed to put up 100,000 people until the EU could find long-term homes. By November, far more were entering Europe. Germany alone expects to receive a million asylum-seekers this year.

  When it came to vassal state Greece, Germany, pardon Europe, had a simple solution: threaten the country with expulsion from Schengen and an indefinite isolation from the European Union. Greece promptly threw in the towel and handed over control of its border to Brussels.

  Meanwhile, the Paris terrorist event has rendered Merkel’s initial “welcoming” stance impossible:

  The Paris attacks have made Ms. Merkel’s remedies harder to sell. Eastern European leaders are still balking at taking Muslim refugees, although the EU quota decision is binding. Mr. Orban blames Germany’s open-door policy for admitting terrorists. “We are monitoring every Muslim in our territory,” Slovakian Prime Minister Robert Fico said publicly after visiting the French embassy there following the Paris attacks. He declined to comment.

  In the end the biggest loser may be Europe itself, whose “union” is unraveling before our eyes. However, before Europe falls, the first casualty will be the person for whom a united Europe, at any means and at any cost, will be her one legacy, or perhaps epitaph.

  In Germany, pressure on the chancellor is mounting inside her coalition. At their Nov. 19 party congress, Mr. Seehofer’s Bavarian conservatives voted to cap migration. Ms. Merkel told the congress turning refugees away was unworkable: “Isolation is not a solution in the 21st century.” Applause was sparse.

   

  “You know we’re unrelenting,” Mr. Seehofer replied. “You haven’t heard the last of this.” He earned a thunderous ovation.

  How does this end? Keep an eye on Merkel’s “scariest chart” for hints: unless Germany can stem the influx of refugees (while making other European nations increasingly angry and unhappy with their lot in the EU) the damage to Germany’s chancellor (who once cried when faced with the prospect of a Greek default) inflicted by five years of an insolvency European periphery will seem like a walk in the park compared to what the “refugee tsunami” will unleash first in Germany and then across all of Europe.

  

  

  

  

  

• Two US Military Servicemen Claim 'Doctors Without Borders' Hospital Was Intentionally Targeted

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  Over the last month or so, there’s been a bit of a flurry of U.S. military members with conscience coming forward to tell the truth about incidents or practices they deem unethical.

  For example, just last month, four former drone operators came forward to denounce the program publicly, coupled with a letter addressed to President Obama. As noted in the post, Drone Whistleblower Claim – Pilots Often High on Drugs; Refer to Children as “Fun Size Terrorists”:

  The killings, part of the Obama administration’s targeted assassination program, are aiding terrorist recruitment and thus undermining the program’s goal of eliminating such fighters, the veterans added. Drone operators refer to children as “fun-size terrorists” and liken killing them to “cutting the grass before it grows too long,” said one of the operators, Michael Haas, a former senior airman in the Air Force. Haas also described widespread drug and alcohol abuse, further stating that some operators had flown missions while impaired.

   

  Haas also described widespread alcohol and drug abuse among drone pilots. Drone operators, he said, would frequently get intoxicated using bath salts and synthetic marijuana to avoid possible drug testing and in an effort to “bend that reality and try to picture yourself not being there.” Haas said that he knew at least a half-dozen people in his unit who were using bath salts and that drug use had “impaired” them during missions.

  Moving along to today’s piece, two U.S. servicemen have come forward to claim that, as opposed to the Pentagon’s official story, the military intentionally targeted the Afghan Doctors without Borders hospital, in an attack that killed 31 civilians.

  The AP reports:

  WASHINGTON (AP) — Two servicemen have told Congress that American special forces called in an air strike on a hospital in Afghanistan because they believed the Taliban were using it as a command center, contradicting the military’s explanation that the attack was meant for a different building.

   

  Rep. Duncan Hunter, a California Republican who serves on the House Armed Services Committee, quoted the servicemen without naming them in a letter he sent Tuesday to Defense Secretary Ash Carter. The letter highlights gaps in the military’s explanation of an October air strike on a Doctors Without Borders hospital in Kunduz that killed 31 civilians.

   

  Hunter said the accounts provided to him raise the possibility that the U.S. was manipulated by its Afghan partners into attacking the hospital. If true, that would be a setback in the U.S. effort to work with and train a local force capable of securing that country.

   

  The two servicemen told Hunter the U.S. special forces soldiers who called in the air strike were not aware the Doctors Without Borders building was still being used as a hospital. Afghan forces, they say, told them it had become a Taliban command and control center.

   

  Doctors Without Borders leaders and independent witnesses insist there were no armed men in the hospital, and the military’s investigation supported that contention.

   

  The military’s official account, a summary of which was disclosed on Nov. 25 by the commanding U.S. general in Afghanistan, says the soldiers and airmen intended the air strike to hit a different building a half mile away — an Afghan intelligence facility said to be occupied by the Taliban.

   

  It was only because of technical failures and human error, Gen. John Campbell told reporters, that an AC-130 mistakenly struck and destroyed the trauma center in the Doctors Without Borders hospital.

   

  Campbell’s account didn’t address the evidence that the U.S. had been focusing on the hospital.

   

  The day before the attack, a senior special forces commander wrote in a report that the hospital was in Taliban hands and his objective was to clear it. A senior Pentagon official called Doctors Without Borders to ask whether their hospital had been overrun; he was told it had not.

   

  Hunter wrote to Carter of his concern “that inaccurate information and poor intelligence was provided by Afghan forces — including information that was both incorrect and unverified by U.S. intelligence and personnel.”

   

  Campbell said the AC-130 was sent to attack a different building, but when its sensors malfunctioned, the crew used visual cues to home in on what turned out to be the wrong building. One minute before the attack, he said, the crew passed on the coordinates of the building it was about to strike to its headquarters, which knew Doctors Without Borders was in that compound but was unable to detect the mistake in time.

   

  Hunter’s letter questioned how the military could misidentify an internationally run hospital that had been operating for years, given the billions of dollars that have been spent on technology designed to help commanders understand their battlespace.

  Mistakes happen. In war and in pretty much everything in life. That’s simply unavoidable. What is avoidable is lying after the fact, which is clearly what the U.S. military has chosen to do in this case. It is also what it chooses to do in all sorts of cases in which the truth would be embarrassing or harmful to the agenda of empire and the military-industrial complex. Which is precisely why people are increasingly distrustful of all institutions. “We the people” suspect we’re constantly lied to in the pursuit of an elitist agenda which is counter to our best interests.

  We are right.

  

  

  

  

  

• Brazil Faces Disastrous Downgrade Debacle: Here's What You Need To Know

  Back on September 9, S&P threw Brazil in the junk bin. 

  “We anticipate that within the next year [another] downgrade could stem in particular from a further deterioration of Brazil’s fiscal position, or from potential key policy reversals given the fluid political dynamics, including a further lack of cohesion within the cabinet,” the ratings agency noted, explaining its negative outlook. “A downgrade could also result from greater economic turmoil than we currently expect either due to governability issues or the weakened external environment.”

  Suffice to say that the political “dynamics” have not become more favorable despite some observers’ contention that the further we move down the road to a Rousseff impeachment, the happier the market will be given her track record. House Speaker Eduardo Cunha faces an investigation by the ethics committee in connection with his alleged role in the Carwash scandal while the relationship between Rousseff and VP Michel Temer looks increasingly tenuous. Meanwhile, the arrest of Delcidio Amaral seemed to have ushered in a new era wherein sitting lawmakers aren’t above the law and may be too busy looking over their shoulders going forward to legislate. All of this casts considerable doubt on the country’s ability to overcome fractious politics on the way to adopting some semblance of fiscal rectitude. 

  As for “economic turmoil,” well, Brazil has effectively descended into a depression since S&P’s downgrade. GDP is collapsing, inflation is sitting at 10.5%, a 12-year high, and unemployment is soaring. Everything that could possibly go wrong economically is going wrong and thanks to rising prices and the incipient threat of lagged FX pass through, Copom is powerless to adopt counter-cyclical policies and will in fact be forced to hike in January. 

  Against this backdrop, Moody’s put the country’s investment grade rating on review Wednesday, suggesting it may not be long before Brazil gets junked again (don’t worry, Cunha says it’s priced in). 

  For those wondering how long it will be before the “B” in BRICS gets junked by everyone, look no further than the following slides from Credit Suisse who notes that “the continuation of unfavorable fiscal balances, prolonged recession, high inflation, and continued rise in public debt as a percentage of GDP are compatible with the expectation of additional downgrades in 2016 and 2017.” 

  

  

  

  

  And it’s not just the sovereign. Brazilian corporates are in trouble as well. As Bloomberg reports, “Fitch Ratings estimates it may slash the ratings of as many as 10 companies for every one it upgrades in 2016.” Here’s more: 

  Fitch has a negative outlook on Brazil and on the grades of more than half of the Brazilian companies it rates. Its BBB- ranking for sovereign bonds is the lowest possible investment grade. Standard & Poor’s cut the country to junk in September.

   

  Brazilian companies have accounted for 11 of 15 bond defaults in Latin America this year as a widening bribery probe into Petroleo Brasileiro SA roils the nation’s construction and banking industries.

   

  Rising yields threaten to make it harder for Brazil’s debt-laden businesses to refinance obligations as $30 billion of overseas bonds come due in the next two years.

  Needless to say, if the BRL continues to weaken in the face of still depressed commodity prices and a worsening political situation, it will become more and more difficult for Brazilian corporates that have borrowed in dollars to service their debt. Don’t forget, Brazil has some $89 billion in USD bonds trading above 9% (a large chunk is Petrobras paper). Here’s the full breakdown: Petrobras (USD37bn), USD20bn of industrials, USD15bn of banks (mostly subordinated), USD6bn of rigs, USD3bn of royalty-backed bonds and USD8bn of other sectors. 

  We’ll close with two tables. One from Deutsche Bank and one from the BIS. The first gives you an idea of what Brazil is facing in terms of USD bond maturities going forward and the second shows you the aggregate burden.

  

  

  

  

  

  

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