Today’s News December 2, 2015

• Dead, White, & Blue – The Great Die-Off Of America's Blue Collar Whites

  …in the 2016 campaign season, it couldn’t be clearer that the billionaire version of white privilege is going great guns, but as for working class whites, not so much. As Barbara Ehrenreich, founding editor of the Economic Hardship Reporting Project, notes today, the sense of white privilege has taken a hit in America and that’s not surprising. A recent study she cites suggests that middle-aged whites with no more than a high-school degree now have death rates that, in developed countries, come close only to those last seen among Russian men after the collapse of the Soviet Union. In other words, whole cohorts of white Americans have ever less to cheer about in their lives, which may help explain all those public cheers for Trump et al.

  Submitted by Barbara Ehrenreich via TomDispatch.com,

  The white working class, which usually inspires liberal concern only for its paradoxical, Republican-leaning voting habits, has recently become newsworthy for something else: according to economist Anne Case and Angus Deaton, the winner of the latest Nobel Prize in economics, its members in the 45- to 54-year-old age group are dying at an immoderate rate. While the lifespan of affluent whites continues to lengthen, the lifespan of poor whites has been shrinking. As a result, in just the last four years, the gap between poor white men and wealthier ones has widened by up to four years. The New York Times summed up the Deaton and Case study with this headline: “Income Gap, Meet the Longevity Gap.”

  This was not supposed to happen. For almost a century, the comforting American narrative was that better nutrition and medical care would guarantee longer lives for all. So the great blue-collar die-off has come out of the blue and is, as the Wall Street Journal says, “startling.”

  It was especially not supposed to happen to whites who, in relation to people of color, have long had the advantage of higher earnings, better access to health care, safer neighborhoods, and of course freedom from the daily insults and harms inflicted on the darker-skinned. There has also been a major racial gap in longevity — 5.3 years between white and black men and 3.8 years between white and black women — though, hardly noticed, it has been narrowing for the last two decades. Only whites, however, are now dying off in unexpectedly large numbers in middle age, their excess deaths accounted for by suicide, alcoholism, and drug (usually opiate) addiction.

  There are some practical reasons why whites are likely to be more efficient than blacks at killing themselves. For one thing, they are more likely to be gun-owners, and white men favor gunshots as a means of suicide. For another, doctors, undoubtedly acting in part on stereotypes of non-whites as drug addicts, are more likely to prescribe powerful opiate painkillers to whites than to people of color. (I’ve been offered enough oxycodone prescriptions over the years to stock a small illegal business.)

  Manual labor — from waitressing to construction work — tends to wear the body down quickly, from knees to back and rotator cuffs, and when Tylenol fails, the doctor may opt for an opiate just to get you through the day.

  The Wages of Despair

  But something more profound is going on here, too. As New York Times columnist Paul Krugman puts it, the “diseases” leading to excess white working class deaths are those of “despair,” and some of the obvious causes are economic. In the last few decades, things have not been going well for working class people of any color.

  I grew up in an America where a man with a strong back — and better yet, a strong union — could reasonably expect to support a family on his own without a college degree. In 2015, those jobs are long gone, leaving only the kind of work once relegated to women and people of color available in areas like retail, landscaping, and delivery-truck driving. This means that those in the bottom 20% of white income distribution face material circumstances like those long familiar to poor blacks, including erratic employment and crowded, hazardous living spaces.

  White privilege was never, however, simply a matter of economic advantage. As the great African-American scholar W.E.B. Du Bois wrote in 1935, “It must be remembered that the white group of laborers, while they received a low wage, were compensated in part by a sort of public and psychological wage.”

  Some of the elements of this invisible wage sound almost quaint today, like Du Bois’s assertion that white working class people were “admitted freely with all classes of white people to public functions, public parks, and the best schools.” Today, there are few public spaces that are not open, at least legally speaking, to blacks, while the “best” schools are reserved for the affluent — mostly white and Asian American along with a sprinkling of other people of color to provide the fairy dust of “diversity.” While whites have lost ground economically, blacks have made gains, at least in the de jure sense. As a result, the “psychological wage” awarded to white people has been shrinking.

  For most of American history, government could be counted on to maintain white power and privilege by enforcing slavery and later segregation. When the federal government finally weighed in on the side of desegregation, working class whites were left to defend their own diminishing privilege by moving rightward toward the likes of Alabama Governor (and later presidential candidate) George Wallace and his many white pseudo-populist successors down to Donald Trump.

  At the same time, the day-to-day task of upholding white power devolved from the federal government to the state and then local level, specifically to local police forces, which, as we know, have taken it up with such enthusiasm as to become both a national and international scandal. The Guardian, for instance, now keeps a running tally of the number of Americans (mostly black) killed by cops (as of this moment, 1,209 for 2015), while black protest, in the form of the Black Lives Matter movement and a wave of on-campus demonstrations, has largely recaptured the moral high ground formerly occupied by the civil rights movement.

  The culture, too, has been inching bit by bit toward racial equality, if not, in some limited areas, black ascendency. If the stock image of the early twentieth century “Negro” was the minstrel, the role of rural simpleton in popular culture has been taken over in this century by the characters in Duck Dynasty and Here Comes Honey Boo Boo. At least in the entertainment world, working class whites are now regularly portrayed as moronic, while blacks are often hyper-articulate, street-smart, and sometimes as wealthy as Kanye West. It’s not easy to maintain the usual sense of white superiority when parts of the media are squeezing laughs from the contrast between savvy blacks and rural white bumpkins, as in the Tina Fey comedy Unbreakable Kimmy Schmidt. White, presumably upper-middle class people generally conceive of these characters and plot lines, which, to a child of white working class parents like myself, sting with condescension.

  Of course, there was also the election of the first black president. White, native-born Americans began to talk of “taking our country back.” The more affluent ones formed the Tea Party; less affluent ones often contented themselves with affixing Confederate flag decals to their trucks.

  On the American Downward Slope

  All of this means that the maintenance of white privilege, especially among the least privileged whites, has become more difficult and so, for some, more urgent than ever. Poor whites always had the comfort of knowing that someone was worse off and more despised than they were; racial subjugation was the ground under their feet, the rock they stood upon, even when their own situation was deteriorating.

  If the government, especially at the federal level, is no longer as reliable an enforcer of white privilege, then it’s grassroots initiatives by individuals and small groups that are helping to fill the gap — perpetrating the micro-aggressions that roil college campuses, the racial slurs yelled from pickup trucks, or, at a deadly extreme, the shooting up of a black church renowned for its efforts in the Civil Rights era. Dylann Roof, the Charleston killer who did just that, was a jobless high school dropout and reportedly a heavy user of alcohol and opiates. Even without a death sentence hanging over him, Roof was surely headed toward an early demise.

  Acts of racial aggression may provide their white perpetrators with a fleeting sense of triumph, but they also take a special kind of effort. It takes effort, for instance, to target a black runner and swerve over to insult her from your truck; it takes such effort — and a strong stomach — to paint a racial slur in excrement on a dormitory bathroom wall. College students may do such things in part out of a sense of economic vulnerability, the knowledge that as soon as school is over their college-debt payments will come due. No matter the effort expended, however, it is especially hard to maintain a feeling of racial superiority while struggling to hold onto one’s own place near the bottom of an undependable economy.

  While there is no medical evidence that racism is toxic to those who express it — after all, generations of wealthy slave owners survived quite nicely — the combination of downward mobility and racial resentment may be a potent invitation to the kind of despair that leads to suicide in one form or another, whether by gunshots or drugs. You can’t break a glass ceiling if you’re standing on ice.

  It’s easy for the liberal intelligentsia to feel righteous in their disgust for lower-class white racism, but the college-educated elite that produces the intelligentsia is in trouble, too, with diminishing prospects and an ever-slipperier slope for the young. Whole professions have fallen on hard times, from college teaching to journalism and the law. One of the worst mistakes this relative elite could make is to try to pump up its own pride by hating on those — of any color or ethnicity — who are falling even faster.

  

  

  

  

  

• It's Official (Again): The Current "Recovery" Is Worse Than The Great Depression's

  In a perfectly timed update to his infamous April 2009 "worse then The Great Depression" chart, Kevin O'Rourke has unveiled his latest chart-du-poor. With US manufacturing collapsing, bond yields tumbling, and The Fed about to hike rates to prove they can, this so-called 'recovery' has fallen below that following The Great Depression. As O'Rourke sums up, "pretty dismal stuff. Let’s hope that we can at least avoid the famous 1937-38 double dip."

   

  In 2009, things looked dire… with the crash in industrial production outpacing that of The Great Depression…

  

   

   

  In 2010, thanks to unprecedented reflationary policies, everything was awesome…

  

  (but by the end of the year, and as O'Rourke puts it "reflation turned to austerity in Europe, and the global recovery slowed, to the point where at times it seemed to be petering out almost altogether.")

   

  Which brings us to today – In August of 2015, the inevitable happened: our current recovery was overtaken by that of the interwar period. "Pretty dismal stuff," as O'Rourke opines.

  

   

  Concluding, rather ominously, "Let’s hope that we can at least avoid the famous 1937-38 double dip, visible at the end of the interwar series."

   

  Source: The Irish Economy blog

  

  

  

  

  

• The NBA is headed for Financial Problems

  By EconMatters

  

    

  Distressed Cost Structure

   

  The NBA has been a distressed business since the glory days of the “Bird-Magic” and “Air Jordan” era. It really suffered at the gate with the downturn in 2008 due to the financial crisis, and judging by early attendance numbers this year coupled with irresponsible and out of control cost structures on the player side of the equation for the past 5 years the NBA is badly in need of a financial restructuring to better align their costs with their profits.

   

  Gold Rush Free Agency Mentality

   

  Player salaries have been steadily rising due to poor mismanagement practices by ownership and a free agency process where the players hold all the cards. The Super Star players like Lebron James set the ball rolling for free agency with his Decision Circus which lifted all boats and had incompetent General Managers around the league seemingly caught in a Gold Rush Hysteria giving max contract deals for role players like Carlos Boozer. It isn`t really the Super Star players getting max contract deals which is hurting the league`s finances as much as the average to downright mediocre players receiving huge fully guaranteed contracts which are often so bad that the teams end up just writing off the contracts and cutting the players loose with several years left on the contracts.

   

  Poor Incentives in Place for Winning

   

  The poor mismanagement by ownership of these franchises is one factor, the other is the actual product on the court, and a broken business model. Unlike the NFL where in any given year many teams legitimately have a chance to win the Super bowl, in the NBA in a good year only 4 or 5 teams legitimately have a chance to win an NBA title. The rest of the teams are either purposely losing due to a poorly constructed ‘Drafting Incentive Plan’ purposely tanking to gain a better percentage chance in a lottery process, or putting a poor product on the court with no chance of winning an NBA title. This year it is even worse with basically only 3 teams having legitimate chances of winning an NBA title, and all the rest looking like poorly constructed versions of fantasy basketball teams with major shortcomings.

   

  The Houston Rockets

   

  An example of how even the better general managers around the league are pretty awful at controlling costs is the situation with the Houston Rockets. Daryl Morey GM of the Houston Rockets who has been cost conscious in the past avoiding some of the pitfalls of routinely giving bad contracts to substandard to average players has even fallen into this Gold Rush Mentality of the Free Agency Madness.

   

  This offseason Daryl Morey gave a backup point guard $6 Million per year in Patrick Beverley who averages 5 points a game, he also gave another role player in Corey Brewer $8 Million per year to average 6 points a game on 31% FG shooting, he gave $3.3 Million per year to an unproven second round K.J. McDaniels who averages 1 point a game, and acquired Ty Lawson`s $12 Million salary in the offseason and is averaging a robust 7 points a game. The Houston Rockets are already committing over $22 Million per year guaranteed to Dwight Howard who averages 13 points a game and $16 Million per year to James Harden who averages 29 points a game but refuses to play defense, and is a team morale killer who already quit on a coach getting Kevin McHale fired.

   

  Make no mistake the NBA is a player`s league, and that is going to be its downfall, the inmates are officially running the asylum. The players make so much money, and the ownership has poorly negotiated with the player`s union, where unlike the NFL players who are cut due to poor performance with substantial non-guaranteed portions of future salary obligations, the NBA teams have to eat the entire guaranteed contract regardless of performance on the court.

   

  Catch-22

   

  The catch-22 for ownership is once they are in this position is that they cannot fire the players, so the coach must always be the one to get fired. This further undermines any coach as the players realize they run the show. Accordingly they put effort forth on the court when they feel like it, and the coach has no real authority over the players to command effort on a nightly basis. And given that most of the teams have no realistic chance of competing for an NBA title, often times NBA players just mail it in from an effort standpoint, further undermining the quality of the product for the fan base which ultimately hurts season ticket sales.

   

  Network Deals & On Demand

   

  The only thing that has saved the NBA so far has been a large broadcast right`s deal with the networks in the ‘thought that content was king’ bubble, that other than the NFL, is now showing signs of severe hubris as major cord cutting is even affecting sports programming providers like ESPN as subscribers bail due to the rising costs. The NBA owners have been spending like drunken sailors expecting these huge television deals to continue into perpetuity, and they are in for a rude awakening come negotiations over the next television rights packages. On Demand is eating into everyone`s pie, even sporting events, with only the premium live events able to command higher advertising rates going forward.

   

  Global Competition for Viewers

   

  Plus with the emergence of global television, Soccer and other sports are much more competitive even for viewership in the United States. And given the poor quality of product, often subpar effort on the court with mismatched incentives, and most teams having little chance of winning an NBA title – the NBA is in dire need of restructuring from a management, product and costs standpoint. Just watch NBA games and look at the number of empty seats each night around the league and compare this to college football games.

   

  NBA Rosters & Bad Salary Deals

   

  All one has to do is look at almost any NBA roster to find ridiculous contracts where the salaries don`t match the player`s performance on the court. Every NBA team is saddled with these hefty fully guaranteed financial ‘lemons of contracts’ due to incompetent general managers and poor ownership decisions with regard to running the franchise. The players run the show, and have for the last 10 years, and the product is being run into the ground as a result of a poorly handled Draft Incentivization Plan, and incompetent negotiations with the player`s union over the years by the Executive Management Team of the NBA.

   

  Brand Building is often more important than Winning in Basketball – “The Beard”

  In fact, the players today care more about building their brand so as to secure a huge shoe deal than about actually winning games. Case in point is James Harden`s $200 Million shoe deal with Adidas or dating a Kardashian, and the Rocket`s having a top 10 Team Salary Obligation of $90 Million, and a bottom 10 Winning percentage of 0.389! There is hardly any incentive at all for James Harden to actually play hard on defense when he has already cashed in on his brand!

   

  This is why when a team actually plays good team ball like the San Antonio Spurs or the Golden State Warriors and plays hard on defense it is such a shock to the system, and a huge advantage over the other NBA teams. This serves as an outlier event as opposed to normal behavior, and thus why the NBA routinely puts forth such an uninteresting and noncompetitive product on a nightly basis across the entire league!

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• US Intervention: Before And After

  Seasonally-adjusted democracy…

  Before and… After

  

  Source: PeakProsperity.com

  

  

  

  

• China 'Recovery' Meme Snaps – Tech & Growth Stocks Are Plunging

  With the dismal 10% drop in China Zhongdi Dairy’s IPO as it started trading, it appears Chinese investors are losing faith in the highest-flying stocks. Following Monday’s miracle afternoon rescue, ChiNext (tech-heavy) and Shenzhen (tech and growth-heavy) indices are plunging. Shanghai, which initially rose thanks to strength in housing stocks, has given up all its gains as last night’s Schrodinger PMIs were neither good nor bad enough to prompt immediate massive monetary liquidity tsunami.

   

  

   

  In Shenzhen only 230 of the 1686 stocks are up, with 420 stocks down over 5% and 40 limit-down at -10%.

  Telecoms, Tech, and Oil & Gas sectors are all weaker as Financials hold on to gains.
  

  Only the smallest-cap stocks are broadly higher with large and mega caps considerably lower.

   

  Charts: Bloomberg

  

  

  

  

  

• Murder And Mayhem In The Middle East (Why It Matters To Those Living In The West)

  Submitted by Chris Martenson via PeakProsperity.com,

  To understand what’s happening in Syria right now, you have to understand the tactics and motivations of the US and NATO — parties sharing interwoven aims and goals in the Middle East/North African (MENA) region.

  While the populations of Europe and the US are fed raw propaganda about the regional aims involved, the reality is far different.

  Where the propaganda claims that various bad dictators have to be taken out, or that democracy is the goal, neither have anything at all to do with what’s actually happening or has happened in the region.

  For starters, we all know that if oil fields were not at stake then the West would care much much less about MENA affairs.

  But a lot of outside interests do care. And their aims certainly and largely include controlling the region’s critical energy resources. There’s a lot of concern over whether Russia or China will instead come to dominate these last, best oil reserves on the planet.

  Further, we can dispense with the idea that the US and NATO have any interest at all in human rights in this story. If they did, then they’d at least have to admit that their strategies and tactics have unleashed immeasurable suffering, as well as created the conditions for lots more. But it would be silly to try and argue about or understand regional motivations through the lenses of human rights or civilian freedoms — as neither applies here.

  Divide And Conquer

  Instead, the policies in the MENA region are rooted in fracturing the region so that it will be easier to control.

  That’s a very old tactic; first utilized to a great extent by Britain starting back in the 1700s. 

  Divide and conquer. There’s a reason that’s a well-worn catch phrase: it’s hundreds of years old.

  But to get a handle on the level of depravity involved, I think it useful to examine what happened in Libya in 2011 when NATO took out Muamar Gaddafi and left the country a broken shell — as was intended.

  I cannot really give you a good reason for NATO involving itself in taking out Gaddafi. I only have bad ones.

  The official reason was that after the Arab Spring uprising in Libya in early 2011 (with plenty of evidence of Western influences in fanning those flames) things got ugly and protesters were shot. This allowed the UN to declare that it needed to protect civilians, and the ICC to charge Gaddafi with crimes against humanity, declaring that he needed to stand trial.

  Here’s how it went down:

  On 27 June, the ICC issued arrest warrants for Gaddafi, his son Saif al-Islam, and his brother-in-law Abdullah Senussi, head of state security, for charges concerning crimes against humanity.^[268] Libyan officials rejected the ICC, claiming that it had "no legitimacy whatsoever" and highlighting that "all of its activities are directed at African leaders".^[269]

   

  That month, Amnesty International published their findings, in which they asserted that many of the accusations of mass human rights abuses made against Gaddafist forces lacked credible evidence, and were instead fabrications of the rebel forces which had been readily adopted by the western media. 

  (Source)

  After the ICC's indictment, it was a hop, skip and a jump to declaring a NATO-enforced ‘no fly zone’ over Libya to protect civilians.

  From there it was just a straight jump to NATO actively shooting anything related to the Gaddafi government. NATO had thereby chosen sides and was directly supporting the rebellion.

  The pattern in play here is always the same: cherry-picked events are used as a pretext to support the side seeking to topple the existing government and thereby leave a sectarian wasteland to flourish in the inevitable power vacuum.

  If you are like most people in the West, you know almost nothing of any of this context. It’s not well reported. And Libya is rarely in the news even though it's going through increasingly desperate times.

  I found a speech given by Gaddafi a few months before he was killed to be especially compelling and revealing. I will reproduce it in its entirety here:

  For 40 years, or was it longer, I can't remember, I did all I could to give people houses, hospitals, schools, and when they were hungry, I gave them food. I even made Benghazi into farmland from the desert, I stood up to attacks from that cowboy Reagan, when he killed my adopted orphaned daughter, he was trying to kill me, instead he killed that poor innocent child. Then I helped my brothers and sisters from Africa with money for the African Union. 

   

  I did all I could to help people understand the concept of real democracy, where people's committees ran our country. But that was never enough, as some told me, even people who had 10 room homes, new suits and furniture, were never satisfied, as selfish as they were they wanted more. They told Americans and other visitors, that they needed "democracy" and "freedom" never realizing it was a cut throat system, where the biggest dog eats the rest, but they were enchanted with those words, never realizing that in America, there was no free medicine, no free hospitals, no free housing, no free education and no free food, except when people had to beg or go to long lines to get soup.

   

  No, no matter what I did, it was never enough for some, but for others, they knew I was the son of Gamal Abdel Nasser, the only true Arab and Muslim leader we've had since Salah-al-Deen, when he claimed the Suez Canal for his people, as I claimed Libya, for my people, it was his footsteps I tried to follow, to keep my people free from colonial domination – from thieves who would steal from us.

   

  Now, I am under attack by the biggest force in military history, my little African son, Obama wants to kill me, to take away the freedom of our country, to take away our free housing, our free medicine, our free education, our free food, and replace it with American style thievery, called "capitalism," but all of us in the Third World know what that means, it means corporations run the countries, run the world, and the people suffer. So, there is no alternative for me, I must make my stand, and if Allah wishes, I shall die by following His path, the path that has made our country rich with farmland, with food and health, and even allowed us to help our African and Arab brothers and sisters to work here with us, in the Libyan Jamahiriya.

   

  I do not wish to die, but if it comes to that, to save this land, my people, all the thousands who are all my children, then so be it.

   

  Let this testament be my voice to the world, that I stood up to crusader attacks of NATO, stood up to cruelty, stood up to betrayal, stood up to the West and its colonialist ambitions, and that I stood with my African brothers, my true Arab and Muslim brothers, as a beacon of light. When others were building castles, I lived in a modest house, and in a tent. I never forgot my youth in Sirte, I did not spend our national treasury foolishly, and like Salah-al-Deen, our great Muslim leader, who rescued Jerusalem for Islam, I took little for myself…

   

  In the West, some have called me "mad", "crazy", but they know the truth yet continue to lie, they know that our land is independent and free, not in the colonial grip, that my vision, my path, is, and has been clear and for my people and that I will fight to my last breath to keep us free, may Allah almighty help us to remain faithful and free. 

  (Source)

  Gaddafi’s great crime seems to be giving away too much oil wealth to his people. Was he a strongman? Yes, but you have to be to rule in that region right now. Was he the worst strong man? No, not by a long shot.

  As bad as he was, at least he didn’t kill a million Iraqis on trumped up charges of non-existent weapons of mass destruction.  Nor was he chopping off 50 heads per week and stoning females for adultery as is the case with Saudi Arabia right now.

  But again, whether he killed protestors or not, or committed war crimes or not, is irrelevant to the power structure. What mattered was that he had locked out Western interests, and instead used his country's oil wealth to provide free or extremely cheap health care, education and housing to a wide swath of Libyans.

  So let’s cut to the murder scene. Here’s how it went down:

  At around 08:30 local time on 20 October, Gaddafi, his army chief Abu-Bakr Yunis Jabr, his security chief Mansour Dhao, and a group of loyalists attempted to escape in a convoy of 75 vehicles.^[7][8] A Royal Air Force reconnaissance aircraft spotted the convoy moving at high speed, after NATO forces intercepted a satellite phone call made by Gaddafi.^[9]

   

  NATO aircraft then fired on 11 of the vehicles, destroying one. A U.S. Predator drone operated from a base near Las Vegas^[8] fired the first missiles at the convoy, hitting its target about 3 kilometres (2 mi) west of Sirte. Moments later, French Air Force Rafale fighter jets continued the bombing.^[10]

   

  The NATO bombing immobilized much of the convoy and killed dozens of loyalist fighters. Following the first strike, some 20 vehicles broke away from the main group and continued moving south. A second NATO airstrike damaged or destroyed 10 of these vehicles. According to the Financial Times, Free Libya units on the ground also struck the convoy.^[11]

   

  According to their statement, NATO was not aware at the time of the strike that Gaddafi was in the convoy. NATO stated that in accordance with Security Council Resolution 1973, it does not target individuals but only military assets that pose a threat. NATO later learned, "from open sources and Allied intelligence," that Gaddafi was in the convoy and that the strike likely contributed to his capture.^[11]

  (Source)

  To believe NATO, it had no idea Gaddafi was in that convoy (honest!), but just managed to have a Predator drone handy as well as a large number of jets armed for ground targets (not anti-aircraft missiles, as a no-fly zone might imply). It merely struck all of these vehicles over and over again in their quest to kill everyone on board because they were “military assets that posed a threat.”

  Because you live in the real world, you know that NATO knew exactly where Gaddafi was at all times and that he was in that convoy attempting to escape NATO's bombing raid.  Further, you won’t be surprised to learn that many of these vehicles were pickup trucks that really posed no military threat to NATO.  The point was to kill Gaddafi, and numerous resources were brought to bear on that mission.

  Gaddafi’s killing was the assassination of a foreign leader by Western interests. In this case, Gaddafi was just yet another target in a long line of leaders that attempted to keep those same interests at bay.

  After NATO was finished making a mess of Libya by taking out Gaddafi and leaving a right proper mess of a power vacuum, it simply departed — leaving the country to fend for itself.  Libya descended, of course, into an outright civil war and has remained ever since a hotbed of sectarian violence and increasing ISIS control and presence.

  If NATO/US had to follow the Pier I rule of “you break it, you buy it” they would still be in Libya offering money and assistance as the country settles down and begins the long process of rebuilding.

  But no such luck. That’s absolutely not how they operate. It’s disaster capitalism in action. The idea is to break things apart and then make money off of the pieces. It's not to help people.

  Otherwise, how do we explain these images?

  

  While imperfect by many standards, all of these countries were stable and increasingly prosperous before outside interests came in and turned them into a living nightmare.

  It is this context that explains why such reactionary and violent groups as ISIS arose. They are the natural response of violated people seeking to assert some control over lives that otherwise have no hope and even less meaning.

  I’m not justifying ISIS; only explaining the context that led to its rise.

  Speaking of which, let’s turn back to Libya:

  ISIS is tightening its grip in Libya

  Nov 15, 2015

   

  GENEVA (Reuters) – Islamic State militants have consolidated control over central Libya, carrying out summary executions, beheadings and amputations, the United Nations said on Monday in a further illustration of the North African state's descent into anarchy.

   

  All sides in Libya's multiple armed conflicts are committing breaches of international law that may amount to war crimes, including abductions, torture and the killing of civilians, according to a U.N. report.

   

  Islamic State (IS) has gained control over swathes of territory, "committing gross abuses including public summary executions of individuals based on their religion or political allegiance", the joint report by the U.N. High Commissioner for Human Rights and the U.N. Support Mission in Libya said.

   

  The U.N. had documented IS executions in their stronghold city of Sirte, in central Libya along the Mediterranean coast, and in Derna to the east, from which they were later ousted by local militias. Victims included Egyptian Copts, Ethiopians, Eritreans and a South Sudanese, the report said.

   

  Some were accused of "treason", others of same-sex relations, but none were given due legal process, according to the report, which covered the year through October.

   

  Four years after the overthrow of Muammar Gaddafi, Libya is locked in a conflict between two rival governments – an official one in the east and a self-declared one controlling the capital Tripoli – and the many armed factions that back them.

  (Source)

  After that atrocious summary, how bad does life under Gaddafi sound now? Again, he was targeted for execution by Western interests and the resulting mess is of little surprise to anybody with even modest curiosity about how violent overthrows tend to work out in the MENA region.

  But where is the UN security council denouncing the war crimes? And where is the ICC leveling crimes against humanity charges? Nowhere. There’s no more Western political interest in Libya now that it has been broken apart.

  As they say in the military: once is bad luck, twice is a coincidence, but three times is enemy action. This pattern of eliminating “a very bad man” and leaving the country in a complete mess has happened three times of late, with Syria targeted to be the fourth. So enemy action it is.

  ISIS and other extreme jihadist groups arose because of brutal conditions that made such harsh interpretations of ancient religious texts make sense by comparison.  When you have nothing left to believe in, one’s belief system can compensate by becoming rather inflexible.

  I know I have greatly simplified a terribly complex dynamic, but — speaking of beliefs — I don’t believe that terrorists are born, I believe they are raised.  When one has nothing left to lose, then anything becomes possible, including strapping on a suicide belt and flicking the switch.

  What I am saying is that this is not a battle between Christians and Muslims, nor is it a battle between good and evil, both characterizations that I’ve read recently in great abundance. That’s all nonsense for the masses.

  This is about resources and true wealth that is being siphoned from the people who have had the misfortune to be born on top of it, and towards other regions with greater power and reach. 

  There’s nothing different in what I am reading today from what the British redcoats did in India from the late 1700’s throughout the 1800’s.  Their military might assured that the East India Tea Company could continue to extract resources from the locals. 

  At the time the locals were called heathens, implying they were subhuman and therefore could be safely dispatched. Now they are called terrorists — same thing.  Dehumanize your foe to help rationalize one’s behaviors. It’s a tried and true practice of war propaganda.

  How This Affects You

  While we might be tempted to sit in our Western environs, secure in the idea that at least we aren’t ‘over there’ where all the bad things are happening, it would be a mistake to think that this turmoil will not impact you.

  I’m not talking about the ultra-remote chance of being a victim of blow-back terrorism either. I am referring to the idea that it would be a mistake to think that any government(s) that think nothing of ruining entire MENA countries will hesitate to throw anybody else under the bus that gets in their way.

  Ben Bernanke gave no thought to throwing granny under the bus in order to help the big banks get even bigger. He willingly and knowing transferred over a trillion dollars away from savers and handed it to the big banks.

  Similarly, we shouldn't expect enlightened behavior to emerge from the shadows of leadership once things get even dicer on the world stage.  In fact, we should expect the opposite.

  It would be a mistake to think that powers in charge would not turn their malign intent inwards toward their own populace if/when necessary. Today it’s Syria, yesterday it was Libya, but tomorrow it might be us.

  The people of France recently got a small taste of the horror that has been visited upon the people of Iraq, Syria, Yemen and Libya. And while I have no interest in seeing any more violence anywhere, perhaps the people of France will finally begin to ask what happened and why. I don’t mean the fine details of the night of the massacre, but how it came to be considered a ‘thing to do’ at all by the people who did it. (For those unaware, France has been particularly involved for years in fomenting revolt within Syria)

  Conclusion

  My intention in stringing these dots together is so that we can have an informed discussion about what’s happening in Syria and the Middle East at large. I am not at all interested in trying to understand events through the framing lenses of religion and/or ‘terrorism’, both of which are tools of distraction in my experience.

  Instead, I want to understand the power dynamics at play. And to try to peel back the layers, to understand why the powers that be consider this region so important at this moment in history.

  I think they know as well as we do that the shale oil revolution is not a revolution at all but a retirement party for an oil industry that has given us everything we hold economically dear but is on its last legs.

  I think that the power structures of the next twenty years are going to be utterly shaped by energy – who has it, who needs it and who’s controlling it.

  Saudi Arabia is acting increasingly desperate here and I think we know why.  They have a saying there: “My father rode a camel, I drove a car, my son flies a jet and his son will ride a camel.” 

  They know as well as anyone that their oil wealth will run out someday; and so, too, will the West’s interest in them.  With no giant military to protect them, the royalty in Saudi Arabia should have some serious concerns about the future.

  Heck, it’s even worse than that:

  Saudi Wells Running Dry — of Water — Spell End of Desert Wheat

  Nov 3, 2015

   

  Saudi Arabia became a net exporter of wheat in 1984 from producing almost none in the 1970s. The self-sufficiency program became a victim of its own success, however, as it quickly depleted aquifers that haven’t been filled since the last Ice Age.

   

  In an unexpected U-turn, the government said in 2008 it was phasing out the policy, reducing purchases of domestic wheat each year by 12.5 percent and bridging the gap progressively with imports.

   

  The last official local harvest occurred in May, although the United Nations Food and Agriculture Organization projects that a small crop of about metric 30,000 tons for traditional specialty bakery products will "prevail" in 2016. At its peak in 1992, Saudi Arabia produced 4.1 million tons of wheat and was one of the world’s top 10 wheat exporters.

   

  

  (Source)

  The Saudis did something very unwise – they pumped an aquifer filled over 10,000 years ago and used it to grow wheat in the desert.  Now their wells are running dry and they have no more water.

  And yet their population is expanding rapidly even as their oil fields deplete.  There’s a very bad intersection for Saudi Arabia, and the rulers know it.

  It helps to explain their recent actions of lashing out against long-standing regional foes and helps to explain the increasing desperation of their moves to help destabilize (and even bomb) their neighbors.

  My point here is that as resources become tight, the ruling powers can be expected to act in increasingly desperate ways.  This is a tenet of the Long Emergency of which James Kunstler wrote.

  The only response that makes any sense to me, at the individual level, is to reduce your needs and increase your resilience.

  This is something we cover in great detail in our new book, Prosper!: How To Prepare for the Future and Create a World Worth Inheriting, so I won’t go into all the details here.  Instead, my goal is to help cast a clarifying light on recent events and add some necessary detail that can help us more fully appreciate what’s happening around the world and why taking prudent preparations today is becoming increasingly urgent.

  

  

  

  

  

• House Democrat Warns Obama's Actions Could Lead To "Devastating Nuclear War"

  It was so much easier when Obama was running a military “sneakers on the ground” campaign in Iraq and Syria where there was no official confirmation of the thousands of “military advisors” engaging directly with various known and unknown adversaries. However, a recent surge of media reports by mainstream publications exposing America’s illicit troops operating in the middle eastern combat zones has made a total mockery of the latest US attempt at clandestine ops, and as a result earlier today the White House was forced to admit it would backtrack on its countless promises there would be “no boots on the ground” in Iraq.

  Did we say countless, we actually counted some of them – there are at least 16 specific instances in just the past two years in which Obama promised to not do what he just did:

  Remarks before meeting with Baltic State leaders, Aug. 30, 2013

  “In no event are we considering any kind of military action that would involve boots on the ground, that would involve a long-term campaign. But we are looking at the possibility of a limited, narrow act that would help make sure that not only Syria, but others around the world, understand that the international community cares about maintaining this chemical weapons ban and norm. So again, I repeat, we’re not considering any open-ended commitment. We’re not considering any boots-on-the-ground approach.”

  Remarks in the Rose Garden, Aug. 31, 2013

  “After careful deliberation, I have decided that the United States should take military action against Syrian regime targets. This would not be an open-ended intervention. We would not put boots on the ground. Instead, our action would be designed to be limited in duration and scope.”

  Interview on Bloomberg View, Feb, 27, 2014

  “We are doing everything we can to see how we can do that and how we can resource it. But I’ve looked at a whole lot of game plans, a whole lot of war plans, a whole bunch of scenarios, and nobody has been able to persuade me that us taking large-scale military action even absent boots on the ground, would actually solve the problem.”

  Address to the Nation on Syria, Sept. 10, 2014

  “I want the American people to understand how this effort will be different from the wars in Iraq and Afghanistan. It will not involve American combat troops fighting on foreign soil. This counterterrorism campaign will be waged through a steady, relentless effort to take out ISIL wherever they exist, using our air power and our support for partner forces on the ground.”

  Remarks at the White House, Feb. 11, 2015

  “The resolution we’ve submitted today does not call for the deployment of U.S. ground combat forces to Iraq or Syria. It is not the authorization of another ground war, like Afghanistan or Iraq. … As I’ve said before, I’m convinced that the United States should not get dragged back into another prolonged ground war in the Middle East. That’s not in our national security interest, and it’s not necessary for us to defeat ISIL. Local forces on the ground who know their countries best are best positioned to take the ground fight to ISIL, and that’s what they’re doing.”

  Remarks at the Pentagon, July 6, 2015

  “There are no current plans to do so. That’s not something that we currently discussed. I’ve always said that I’m going to do what’s necessary to protect the homeland. One of the principles that we all agree on, though, and I pressed folks pretty hard because in these conversations with my military advisers I want to make sure I’m getting blunt and unadulterated, uncensored advice. But in every one of the conversations that we’ve had, the strong consensus is that in order for us to succeed long-term in this fight against ISIL, we have to develop local security forces that can sustain progress. It is not enough for us to simply send in American troops to temporarily set back organizations like ISIL, but to then, as soon as we leave, see that void filled once again with extremists.”

  And many more such remarks; for the full list see here.

  However, Defense Secretary Ash Carter’s teleprompter was still warm from this unexpected announcement of a dramatic change in the White House’s narrative, when the problems rapidly emerged.

  First, it was the core Iraqi Shi’ite militias who quickly denounced the planned deployment, and threatened any US special forces found on the ground with swift death: “We will chase and fight any American force deployed in Iraq,” said Jafaar Hussaini, a spokesman for one of the Shi’ite armed groups, Kata’ib Hezbollah. “Any such American force will become a primary target for our group. We fought them before and we are ready to resume fighting.“

  Then it was Iraq’s new Prime Minister, Haider al-Abadi, who also rejected the need for US troops: “We do not need foreign ground combat forces on Iraqi land,” Abadi said in a statement.

  One wonders under what jurisdiction the Obama administration has decided to send troops to Iraq, if both the country’s sovereign government and its de facto army are making it very clear that the US is not welcome.

  And while we wait to find out just how Russia will respond to this very clear escalation in what is a proxy war that has now shifted from the air and the sea to its final destination, the ground, another stumbling block has emerged for Obama now that his private war in Iraq (and Syria) has been exposed to the world: Congress, and particularly members of his own party, Democrats who suddenly feel betrayed by their progressive, pacifist, Nobel-peace prize winning president.

  According to the National Review, White House press secretary Josh Earnest urged lawmakers to pass new legislation providing Obama with the explicit authority to counter ISIS. “This effort is serious, and should be the focus of serious debate,” Earnest told reporters during his Tuesday briefing. “It will take more than three weeks to pass an authorization for the use of military force (AUMF), but Congress, in each of these cases, must stop using the fact that these issues are difficult as an excuse for doing nothing.”

  Ironically, while traditionally the administration has blamed Republicans for doing nothing when it does not get its way, this time it is the Democrats who are lazy.

  Because as NRO adds, Carter got a hint of just how difficult it may be to sell Congress on such legislation when Representative Tulsi Gabbard (D., Hawaii) suggested that Obama’s decision to place American fighter jets equipped “to target Russian planes” on the border between Turkey and Syria, and his stated opposition to Russian-backed Syrian dictator Bashar al-Assad, could lead the U.S. into a nuclear war with Vladimir Putin’s regime.

  What is surprising is not that a Democrat will stand in the way of a neocon “liberal” president, who changes his political spots on a daily basis, depending entirely on the direction where the money is blowing from; what is surprising is that someone actually gets the stakes involved in the Syrian global proxy war (where the powers involved at last check include the US, Russian, Germany, France, and the UK) which as we have warned for the past year, can escalate to nothing short of a nuclear exchange. To wit:

  “Russia’s installation of their anti-aircraft missile-defense system increases that possibility of — whether it’s intentional or even an accidental event — where one side may shoot down the other side’s plane,” Gabbard told Carter. “And that’s really where the potential is for this devastating nuclear war.”

  Dear Ms. Gabbard: do you really think Obama does not know this?

  

  

  

  

  

• Martin Armstrong Warns "QE Has Failed… Central Banks Are Simply Trapped"

  Submitted by Martin Armstrong via ArmstrongEconomics.com,

  

  The central banks are simply trapped. They have bought in bonds under the theory that this will stimulate the economy by injecting cash. But there are several problems with this entire concept. This is an elitist view to say the least for the money injected does not stimulate the economy for it never reaches the consumer. This attempt to stimulate by increasing the money supply assumes that it does not matter who has the money. If we are looking only at the institutional level, then this will not contribute to DEMAND inflation only ASSET inflation by causing share markets to rise in proportion to the decline in currency value.

  

   

  The European Central Bank (ECB) then pushes interest rates negative to punish savers and consumers for not spending money that never reaches their pocket. Negative rates promotes hoarding cash outside of banks which in turn then inspires the brilliant idea of eliminating cash to force the objective and end hoarding. But negative rates have been simply a tax on money. The attempt to “manage” the economy from a macro level without considering the capital flow within the system is leading to disaster.

  

  Then we have the problem that the central banks in attempting QE operations, cannot figure out how to reverse the process. They cannot sell the debt back to the market thereby defeating the original concept of creating elastic money supply. You increase the money supply during a recession to prevent banks being forced to sell assets to meet a panic demand for cash. Transactional banking has altered the classic borrow short lend long operations of banks cancelling out the idea of requiring and elastic money supply. All central banks can do now is allow the bonds they bought to mature and expire. If they attempt to sell the bonds they bought back into the marketplace, they will drive rates higher in a panic.

  

   

  The ECB is now expected to inject “fresh” stimulus into Euroland’s economy come Thursday given Mario Draghi said he and his policymakers would “do what we must” to return inflation from its current level of 0.1% to 2% asap. Draghi now implies that he has failed for unless he takes aggressive action, there is a tremendous risk of a dramatic disappointment in financial markets as QE is revealed as a failure.

  The combination of a continued declining recovery and a deflationary atmosphere present a compelling case that the ECB will accelerate it program despite strong opposition from German policymakers and others on the 25-strong committee. Since late October, many officials from Euroland have gathered in Frankfurt to brainstorm just what the central bank could do now to turn things around.

  Many can only see that the same course must be extended and pledging to buy about €60bn of bonds a month from March 2015 until September 2016 was not enough as they assumed would create inflation to achieve 2%. This has produced a total buying spree of about €582bn out of a planned €1.1tn. All this did was ease up some credit markets, but bad loans are still the huge problem for banks and raising taxes dampens the BELIEF that there is a viable future to even borrow to expand the economy.

  European economic growth remains extremely weak and inflation has failed to pick up as much as the ECB had anticipated BECAUSE they are NOT lowering taxes and that is the ONLY way to reignite DEMAND inflation from the consumer. Increasing the money supply which never reaches their pockets is pointless especially when banks are not interested in lending in the face a serious unperforming loans as taxes and tax enforcement increase. Clearly, the ECB has already changed its tone on the September 2016 deadline.

  

  The ECB’s position is to remain in denial arguing that QE is indeed working, but it is just not working fast enough. Without the ability to control taxation, buying bonds and attempting to simply inject capital that cannot reach the consumer becomes a joke. It is more like a medieval doctor who bleeds his patient and assumes when the patient dies it was not the method of bleeding and perhaps he took out too much blood but the fact he did not bleed him soon enough. Inflation by their own measurement has remained under 1% for two years.

  

   

  There is absolutely no credibility in terms of returning inflation to a 2% target. Obviously, the argument is to bleed the system further by buying even more bonds. The burning question is the very theory of QE being inflationary. The ECB has bought mostly government bonds amounting to slightly less than 75% of all purchases. The balance is composed of repackaged loans as covered bonds or as asset-backed securities.Buying in government debt clearly creates no jobs and it certainly does not expand the economy. Government produces nothing but a drain upon the wealth of a nation that is produced only by the people. The larger the government, the lower the economic growth for you are spending more to sustain government that creating an economy.

  The Federal Reserve was established in 1913 with the directive that to stimulate they would buy directly corporate paper – NEVER government. When banks were reluctant to lend, the Fed would buy the corporate paper and that would prevent unemployment. Thanks to World War I, the structure of the Fed was altered and they were directed to buy government bonds. That directive was never reversed. Today, while most central banks have stuck to buying mainly government or quasi government bonds which do not directly stimulate the economy,they have failed to comprehend the significant difference between buying corporate debt issues compared to government. This is a primary misconception of how to manage an economy and holds a large key as to why QE has failed combined with raising taxes and increasing tax enforcement to pay for QE.

  

  Indeed, if we look at central banks as a whole, the Bank of Japan purchased exchange traded funds and property directly that was in the form of Japan real estate investment trusts,as part of its QE program.

  

  However, real estate trusts are a dead asset class. They also produce nothing and represented purely a collapsing asset value. This failed utterly to “stimulate” the economy for it merely relieved others of sure losses.

   

  

  The ECB became the first major central bank to follow Larry Summer moving into negative interest rate territory which was really aq tax on money. The ECB cut its deposit rate below zero last year punishing people for saving money when in fact they fear the future and will not spend lacking confidence. We have now seen this policy adopted in Scandinavia and Switzerland. The US Federal Reserve is not following this course and sees that negative rates destabilizes pension funds and the efficient use of capital. The Fed counters this trend warning that its domestic policy objectives cannot be held hostage to international and it sees that interest rates must rise to be “normalized” to prevent a further economic crisis. This clash between policies between the ECB and the Fed are more likely to weaken the euro against the dollar.

  

   

  Moreover, I have argued that the Fed should abandon paying 0.25% on excess reserves. Foreign institutions are moving cash to their US branches to simply deposit money at the Fed. This money is  accumulating massively and obviously it is NOT stimulating the economy. The ECB can buy European bonds and the cash is being sent into the dollar and deposited at the Fed. Total deposits at the Fed in excess reserve facility is approaching $3 trillion. This may be creating money which in theory would be inflationary, but if it is simply parked, it has no inflationary impact for the velocity of money in this cash become zero.

  

   

  Clearly, the ECB cannot stimulate the European economy with QE unless it also lowers taxation and buys private debt directly to stimulate the economy when banks are now simply transactional. Allowing the ECB to buy bonds with lower negative yields while raising taxes is proving to be a lethal policy that is sending capital on every boat to the USA. Currently, the ECB has a ban on buying anything with a yield below minus 0.2%. The ECB somehow must convince markets not only that it can hit its inflation target, but that its policy is even sound. QE is not working and it cannot work under these conditions.

  

  

  

  

  

• The "Robin Hood" CEO Who Famously Raised His Employees' Minimum Wage To $70,000 Has A Dirty Secret

  When Gravity Payment’s CEO Dan Price announced on April 13 that he would raise the minimum wage of his staff to $70,000 a year, the story went beyond viral: it took the media, especially the part of it which has been obsessing with income and wealth inequality which in the aftermath of Piketty would be most of it, by meteoric storm. Not only that, but the soon to be lionized young chief executive doubled down on this story of “purest of corporate nobility” by announcing he would cut his own compensation of $1.1 million to offset the cost.

  Price’s story rocketed around the world, “a capitalist fairy tale to counter growing inequality.” As Bloomberg’s Karen Weise writes “with his tousled long hair and dark brown eyes, Price combined Brad Pitt’s smolder and Boo Boo Bear’s aw-shucks demeanor to become an articulate and attractive messenger. Rush Limbaugh denounced him as a socialist. Jesse Ventura christened him Robin Hood.”

  By 3 a.m. the morning after the announcement, Price’s phone was buzzing. The Today Show wanted him the next morning, as did Good Morning America. He hopped a plane to New York. “I did something like 25 live TV interviews in three days,” he says. “We are really passionate about reforming credit card processing. This seemed like an opportunity—we could have a really big impact doing that.”

  Fox News pilloried him. Actor Russell Brand, in a laudatory YouTube video, joked, “It’s difficult to ignore the fact that Dan Price looks a lot like Jesus.”

  

  Price signed with the talent agency William Morris Endeavor Entertainment and now charges as much as $20,000 per speech, Pirkle says. Price told his team that the company was getting free booth space at Inc. magazine’s annual conference, in addition to a speaking fee. “In terms of what they’re paying us for a one-hour talk, we’re looking at well over $100,000,” he said. Inc. put him on its November cover. (Inc. didn’t respond to requests for comment.)

  The idea came to him, he later told the media, after talking to a friend who earned less than he did. He’d read about a study showing that extra income improves the happiness of people who earn less than about $75,000. “It’s not about making money; it’s about making a difference,” Price told the Today Show, one of two dozen TV interviews he did in the days following the announcement.

  When Price made his $70,000 announcement, he told his staff, “My pay is set based on market rates and kinda what it would take to replace me. And because of this growing inequality, as a CEO that amount is really, really high. I make, uh, you know, a crazy, uh, my compensation is really, really high.”

  

  Gravity staffers plank during meetings to encourage each other to speak quickly.

   

  As he’s recounted over and over, Price says his aha moment about pay came in late March, on the hike with his friend. “I realized that there were people I was working with—that I said I valued as partners, I said I really want to invest in—and they were making less than her,” he told The Daily Show’s Trevor Noah.

  Overnight, he became the hero of progressives everywhere demanding lower CEO pay and higher worker pay.

  And if his story was true, he could have indeed become the poster child for corporate nobility in an age of runaway executive pay.

  Unfortunately for Dan Price’s enthralled fans and adoring media supporters, as a must-read expose by Bloomberg’s Karen Weise which digs below the surface of what now appear to have been very hollow words reveals, Price had a dirty secret revealing that his true motives were far different than what he disclosed repeatedly on prime time TV.

  The lawsuit.

  In the summer, the New York Times ran a longer piece on Price, now 31, showing that raising wages wasn’t so simple. Job applicants had overwhelmed his company, and two employees quit, saying the increase wasn’t fair to higher earners. “Potentially the worst blow of all,” the Times wrote, was that about two weeks after the announcement, Price was sued by his older brother Lucas, who owns about 30 percent of Gravity, alleging Price paid himself too much in the first place. Price insinuated that his brother may have sued in reaction to the generous pay increase. “I know the decision to pay everyone a living wage is controversial,” he told the Seattle Times, which first reported the lawsuit. “I deeply regret the rift this has caused in my relationship with my brother.”

  The important detail here to remember is that suing Price was none other than his brother, Lucas, co-founder of the company.

  As Weise continues, “an expensive lawsuit, filed possibly in response to his kind act, made Price seem more of an underdog.“

  When I met him at Gravity’s headquarters in mid-October, he wasn’t even supposed to be in Seattle. He’d been scheduled to join Planned Parenthood President Cecile Richards and General David Petraeus on a panel titled “Leading Under Pressure” at the Chicago Ideas Week festival. But Price had canceled at the last minute, saying he’d hit a wall of exhaustion. “I think I’m just standing in for a bunch of other people doing great stuff,” he said. “To me the responsibility is to be the best spokesperson I can.”

   

  As we talked about his wild six months, I brought up the lawsuit, asking if Price thought Gravity’s spending on the raises triggered his brother’s suit, as he’d implied. “I have no idea,” he slowly shrugged, looking right at me. “The quote in the Seattle Times from his attorney was, ‘It wasn’t only because of that.’?” He twisted his beard between two fingers, contemplating the statement by Lucas’s attorney, Greg Hollon. “That one singular quote in the paper is the only information I have about if they were connected or not.”

  And now, some 8 months after the story first broke, the truth about Price’s true motives emerges:

  It’s a poignant story, one that I almost wrote. Until I realized Price knew more than he was letting on. The lawsuit couldn’t have been prompted by the pay raise—if anything, it may have been the other way around. And his salary before the big announcement was unusually high. As I read through the court record and media reports, I began to see how Price was writing his own origin myth one interview at a time. With what he says is a $500,000 book deal, he’s solidifying his place as the next do-gooder businessman, joining the CEOs of bigger companies, such as Zappos’s Tony Hsieh and Whole Foods Market’s John Mackey. In the process, he’s surely become the only credit card processing executive to be feted by Esquire, courted by literary agents, and swooned at by women on social media who declared him “yum.” But how it all happened is a little more complicated.

  Actually it not that complicated. As it turns out, the wage hike for his employees and his own personal wage cut was merely a self-defense measure in response to the lawsuit that had been filed before, not after, his stunning announcement. A measure that was wrapped in an unprecedented and carefully constructed media campaign designed to make him the hero. Here’s Bloomberg crushing the progressive’s image of their own personal corporate Jesus:

  Two weeks after returning from the April media blitzkrieg in New York, Price told me, he was settling in at home to finally unwind. “I was going to watch my first soccer game since this had all happened,” he recalled. “My doorbell rang, and there was a legal courier. ‘Are you Dan Price?’ ‘Yes.’ ” Price said he was served with Lucas’s lawsuit. “I was shocked,” he said. “The soccer game got turned off pretty quickly.” It was during this recounting that Price told me how the comment from Lucas’s lawyer in the Seattle Times was the “only information I have about if they were connected or not.”

   

  The possible retaliatory nature of the suit only adds to the drama of Price’s wage hike. “This is all speculation on my part,” Pirkle said in late September, before explaining how, as minority shareholder, Lucas gets paid dividends from Gravity’s profits. “Those profits are obsolete when you raise the wages. His brother’s, like, ‘That’s my money.’ ”

   

  Pirkle suggested to me that the lawsuit could be part of a broader narrative about the purpose of business: “Is it to maximize shareholder returns? Or is it to best serve the customers and provide for employees?” Inc. hypothesized that Lucas filed the lawsuit after the pay increase “perhaps to pressure Dan to sell when Gravity was in the limelight, thus maximizing the value of Lucas’s share.”

  There is just one big problem with all those scenarios: as Weise discovered, the lawsuit predates the raise.

  Lucas did file the case two weeks after Price’s announcement, but according to court records, Price was served with the suit at his house on the afternoon of March 16—about two weeks before the fabled hike with his friend and almost a month before the wage increase announcement. Washington state allows litigants to serve a defendant before a suit is filed with the court. Hollon, Lucas’s attorney, says Price informed his brother of the pay hike with an e-mail on April 9, only five days before the New York Times and NBC descended on Seattle.(Pirkle said that in a later document, Lucas “specifically referenced” the wage hike as grounds for the case. Hollon responded that the May document added the pay increase as “one of the potential factual bases supporting the claims in the lawsuit” since “the wage program appeared to be a reaction by Dan to the lawsuit.”)

   

  

   

  The lawsuit is light on details, but it claims that Price “improperly used his majority control of the company” to overpay himself, in the process reducing what Lucas was due. “Daniel’s actions have been burdensome, harsh and wrongful, and have shown a lack of fair dealing toward Lucas,” the suit alleges. It asks for unspecified damages and that Price buy out Lucas’s interest in Gravity. Hollon said the lawsuit was the culmination of “years” of efforts to resolve Lucas’s concerns. Price “on several occasions suggested to Lucas that if Lucas didn’t like Dan’s actions regarding Lucas’s rights as a shareholder, Lucas should seek legal remedies,” Hollon wrote in an e-mail. “Prior to the lawsuit, Dan had made clear that he would only engage with Lucas through Lucas’s counsel.”

  Weise then asks the $70,000 question: “if the lawsuit wasn’t a reaction to the wage hike, could it have been the other way around? After all, Price announced his magnanimous act a month after his brother sued him for, in essence, being greedy. Lowering his pay could give Price negotiating leverage, too. “With profits, at least in the short term, shifted to salaries, there is little left over to buy out his brother,” the New York Times reported Price said.

  She confronts Price with this discovery:

  In a follow-up interview in mid-November, I pressed Price about the inconsistency. How could what he told me about being served two weeks after announcing the raise be true when the court records indicated otherwise?

   

  “Umm, I’m not, I have to look,” he said.

   

  The court document, I said, definitely says March 16.

   

  “I am only aware of the suit being initiated after the raise,” he replied.

   

  “The court record shows you being served on March 16 … at 1:25 p.m.,” I said. “And actually, your answer to it was dated April 3,” also before the pay hike.

   

  “I am only aware of the suit being initiated after the raise,” he repeated.

   

  I asked again how that could be, saying the declaration of service shows Price was served with the complaint, the summons, and other documents, “that you are a male, who is white, age 30, 5-feet-8-inches, medium height, dark hair.”

   

  He paused for 20 seconds. “Are you there?” he asked, then twice repeated his statement that he was only aware of the suit being initiated in late April. “I’d be happy to answer any other questions you may have,” he added.

  Any other questions, of course, except the one about the smoking gun which crushes his entire narrative of generous Robin Hood corporate CEO into pulp.

  We doubt any of the fawning media outlets that chased Price in April and subsequently will care to point out this unpleasant outlier to the convenient narrative he had created for himself.

  And while the date of the original lawsuit explains Price’s “generosity”, another secret may explain his desire for admiration and public adulation, one which if proven to be true, may quickly change Price’s public profile from one corporate saint into a personal demon. Here is Weise’s second revelation:

  Price’s life may get more complicated the week of Dec. 7, when TEDx plans to post online a public talk by his former wife, who changed her last name to Colón. She spoke on Oct. 28 at the University of Kentucky about the power of writing to overcome trauma. Colón stood on stage wearing cerulean blue and, without naming Price, read from a journal entry she says she wrote in May 2006 about her then-husband. “He got mad at me for ignoring him and grabbed me and shook me again,” she read. “He also threw me to the ground and got on top of me. He started punching me in the stomach and slapped me across the face. I was shaking so bad.” Later in the talk, Colón recalled once locking herself in her car, “afraid he was going to body-slam me into the ground again or waterboard me in our upstairs bathroom like he had done before.”

   

  I read those quotes to Price. “I’m just going to take a second because this is very surprising to me,” he said. He paused. “I appreciate and respect my former wife, and she played a very positive role in my life,” he said. “Out of respect for her, I wouldn’t feel comfortable responding to a supposed allegation she may have said coming from a Bloomberg Businessweek reporter when I have absolutely zero evidence of an allegation being made.” I told him that I wanted to be clear: I was giving him the chance to deny the claims. “My comment is very responsive,” he said. “I would be more than happy to provide a comment if and when I actually get the benefit of seeing what you are referencing.”

   

  About three hours later, Price called back. “There’s one more thing that I would like to add to my previous statement,” he said. “The events that you described never happened.”

   

  One aspect of Price’s saga is certain: Seventy employees at Gravity now earn far more than they did before. Was it altruism or a costly lawsuit that motivated it? If his book doesn’t provide answers, perhaps Lucas’s case, which goes to trial in May, will.

  And, Weise ignored to add because it is self-explanatory, if these allegations going to Price’s true motives, and his spousal abuse are proven correct, all those very generous wage hikes will prove quite transitory as Gravity Payment’s clients desert the company one by one, leading to the company’s collapse. We wonder if the generous CEO will then take money out of his own bank account to bankroll the insolvent company and provide the needed funding for payroll and keeping his remaining employees happy, or he will simply max out his own compensation in as the company crashes and burns?

  

  Much more in the full article from Bloomberg Businessweek 

  

  

  

  

  

• It's "All About The Dollar" For SocGen

  As we noted earlier when looking at the best performing assets of 2015, a curious picture has emerged: denominated in local currencies, there are quite a few assets that have generated substantial returns as the year draws to a close. However, in USD terms the picture is starkly different with the vast majority of USD-redenominated assets generating negative returns.

  As DB’s Jim Reid summarized, “very few global asset classes have gone up in Dollar terms this year. Russian equities (+15.6%) and the Nikkei (+11.8%) have been the notable outperformers while European credit is in double digit negative returns which is the case also for European sovereign bond markets. So in a world of a stronger dollar it’s been very difficult to generate positive dollar returns in 2016. With so many dollar investors at a global level this surely has to have had a big impact on the mood of 2015 and confidence.“

  

   

  It is not just risk assets, of course: as we first profiled back in February, the entire global economy, when denominated in dollars, will see a dramatic GDP contraction of over $2 trillion as a result of the strengthening dollar.

  This is a theme that SocGen’s Andrew Lapthorne has been covering extensively over the past several months, as covered most recently in “What Will Happen To Corporate Profits If The Fed Hikes In December.”

  He continues today, picking up on the theme of divergence in USD vs non-USD returns, saying that “the translation effect of the US dollar is having a big impact on overall performance. Quoted in almost any other currency 2015 looks fairly healthy, but this performance disappears when it is translated into US dollars. Eurozone investors may appear better off, given double-digit returns on many of the headline eurozone indices this year, but in reality this is largely down to the debasement of the currency, and after big US dollar gains in November, more than 4%, the euro is now down almost 13% YTD, and in US dollars eurozone equities are negative this year.“

  This is why, as the SocGen note is titled, it is “all about the US dollar” according to Lapthorne.

  He then says that in a world in which local-currency denominated asset growth is almost entirely driven by currency devaluation, “what matters next is whether these competitive devaluations can lead to volume growth and market share gains.”

  His answer is that so far, having moved first, “it is only Japan that has seen a meaningful boost to profits beyond simple translation effects. No doubt helping to explain the strong Nikkei performance this year, even in US dollars, and despite Japan falling back into recession. The Japanese have learned their lesson from the rapid yen appreciation in the 1990’s, but as we mentioned in a Quant Quickie a couple of weeks ago, the US is at risk of suffering the same fate.” That note can be found here.

  Lapthorne then notes the strange divergence which we pointed out earlier today when remarking on the drubbing in global commodities:

  Whilst most global sectors fell last month, the brunt of the selling was seen in the Oil E&P Industrials Metals and Mining sectors, driven lower by continuing disappointing data out of China and once again collapsing commodity prices. Oil, copper, iron ore and silver, to name just a few, were all down by 9% or more during November.

  However, one market emerged largely unscathed in November: “The exception to this global picture is in the US, where sector performance was a Pavlovian response to the much expected upcoming US rate rises (Utilities down and Basic Materials up). Global investors may be cyclically bearish, but US investors appear distracted by the historically cyclically positive message US rate rises might imply. We think this may prove a mistake.”

  Which is logical: after years of rewarding stocks for a weaker dollar, over the past year we have seen the market flip as the correlation has inverted and stocks rise with the dollar. Which is great if the Fed is right and the dollar is up for the right reasons, but is a huge gamble if the strong dollar merely reflects the unprecedented easing by all the other central banks, whose sole intention is so boost their own exports, corporate profitability and share of global trade in a zero sum space.

  Which is also the basis for Lapthorne’s warning: for now the market is hypnotized by the Fed’s inexplicable eagerness to hike rates even as the Manufacturing ISM tumbles below 50 and with Q4 GDP now projected to drop to just 1.4% annualized, and is convinced there is something “just around the corner” that is not obvious to market participants, but the Fed is aware of.

  Alas, that is almost certainly not the case, especially considering the Fed’s track record of “seeing behind corners” or even “contained” things in plain sight.

  And while we agree that US investors are largely oblivious to what everyone else is seeing, the question remains: what is the catalyst that will make them see. Perhaps the reality of Q4 earnings which will be a disaster should the dollar continue its rise, will finally reprice both lofty EPS expectations as well as PE multiples, something David Tepper warned about back in August before the ETFlash crash.

  Then again, perhaps not, because remember: once the Fed abort the rate hike cycle as it will certainly have to, and relents (with or without an accompanying stock crash) that QE4 and NIRP are next, then we merely go back to square one, where the market levitates courtesy of direct Fed intervention and the cycle begins from scratch. At that point there will be only one question left: does the Fed have enough credibility left to herd the various market algos into levitating asset prices for yet another QE season, or will that be it?

  

  

  

  

  

• A Look Inside Saudi Arabia's Elaborate U.S. Propaganda Machine

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  Elements of the charm offensive include the launch of a pro-Saudi Arabia media portal operated by high-profile Republican campaign consultants; a special English-language website devoted to putting a positive spin on the latest developments in the Yemen war; glitzy dinners with American political and business elites; and a non-stop push to sway reporters and policymakers.

   

  That has been accompanied by a spending spree on American lobbyists with ties to the Washington establishment. The Saudi Arabian Embassy, as we’ve reported, now retains the brother of Hillary Clinton’s campaign chairman, the leader of one of the largest Republican Super PACs in the country, and a law firm with deep ties to the Obama administration. One of Jeb Bush’s top fundraisers, Ignacio Sanchez, is also lobbying for the Saudi Kingdom.

   

  In September, the Kingdom helped sponsor opulent galas for Washington’s business elite at the Ritz Carlton and the Andrew Mellon Auditorium. The events were attended by King Salman, along with the chief executives of General Electric and Lockheed Martin, the chairman of Marriott International, and prominent think tank officials.

   

  – From the Intercept article: Inside Saudi Arabia’s Campaign to Charm American Policymakers and Journalists

  So what do you do when you’re a barbaric monarchy with a justice system remarkably similar to ISIS, but at the same time want to remain very close ally of the U.S. government? You create a sophisticated propaganda network, naturally.

  This is precisely what the Kingdom of Saudi Arabia has done, and the Intercept’s Lee Fang shined some light into this very dark and slimy corner.

  From the Intercept:

  Soon after launching a brutal air and ground assault in Yemen, the Kingdom of Saudi Arabia began devoting significant resources to a sophisticated public relations blitz in Washington, D.C.

   

  The PR campaign is designed to maintain close ties with the U.S. even as the Saudi-led military incursion into the poorest Arab nation in the Middle East has killed nearly 6,000 people, almost half of them civilians.

   

  Elements of the charm offensive include the launch of a pro-Saudi Arabia media portal operated by high-profile Republican campaign consultants; a special English-language website devoted to putting a positive spin on the latest developments in the Yemen war; glitzy dinners with American political and business elites; and a non-stop push to sway reporters and policymakers.

   

  That has been accompanied by a spending spree on American lobbyists with ties to the Washington establishment. The Saudi Arabian Embassy, as we’ve reported, now retains the brother of Hillary Clinton’s campaign chairman, the leader of one of the largest Republican Super PACs in the country, and a law firm with deep ties to the Obama administration. One of Jeb Bush’s top fundraisers, Ignacio Sanchez, is also lobbying for the Saudi Kingdom.

   

  In September, the Kingdom helped sponsor opulent galas for Washington’s business elite at the Ritz Carlton and the Andrew Mellon Auditorium. The events were attended by King Salman, along with the chief executives of General Electric and Lockheed Martin, the chairman of Marriott International, and prominent think tank officials.

   

  Kingdom-backed nonprofits have secured positive press through a number of channels. For instance, on September 21, Hussein Ibish, a senior resident scholar at the Arab Gulf States Institute in Washington, a new think tank fully funded by the governments of Saudi Arabia and the United Arab Emirates, penned an opinion column in the New York Times heralding “A Saudi-American Reset.” In the piece, Ibish minimized “two years of perceived slights and supposed snubs” and insisted that “the new contours of a revitalized but evolving partnership between the United States and Saudi Arabia are beginning to take shape.”

  In what seems like a shameless lack of transparency, the New York Times ended the above mentioned op-ed with the byline below, failing to mention the fact that this think tank is fully funded by the Saudis and UAE, i.e., the fact that it was pure foreign propaganda printed by the New York Times.

  

  It should have read: “is a contributing opinion writer working on behalf of the governments of Saudi Arabia and the UAE,” but of course, it didn’t.

  The Saudi Embassy’s effort to shape media coverage is led by Qorvis, a consulting firm that has worked for the Saudi government since the months following the terrorist attacks on September 11, 2001. Qorvis’ recent disclosures under the Foreign Agents Registration Act show that it created an entire website — operationrenewalofhope.com — to promote the Saudi-led war in Yemen. It also “researched potential grassroots supporters in select states” and provided an ongoing effort to reach out to reporters concerning the Yemen war.

  Well of course the Saudis needed as much propaganda as possible following the 9/11 attacks, given the obvious links back to the Kingdom. Recall:

  The New York Post Reports – FBI is Covering Up Saudi Links to 9/11 Attack

  Must Watch Video – Congressman Thomas Massie Calls for Release of Secret 9/11 Documents Upon Reading Them

  Two Congressmen Push for Release of 28-Page Document Showing Saudi Involvement in 9/11

  In July, the Saudi Embassy announced the launch of Arabia Now, an “online hub for news related to the Kingdom,” according to a press release. Since then, the site has work to promote Saudi Arabia as a bastion for human rights and progress, with posts claiming that the Kingdom is the “most generous country in the world.” While Saudi Arabian war ships blocked humanitarian assistance to Yemen, the Arabia Now news hub claimed that “Saudi Arabia was the only country that responded to the humanitarian assistance appeal launched by the U.N. to help Yemen by extending a donation of $274 million.”

   

  Qorvis has contracted other firms to gauge public opinion, including Tuluna USA, an online survey company, and American Directions Group, a phone survey company founded by a pollster who previously worked for Bill Clinton.

   

  Perhaps not coincidentally, Saudi officials have regularly appeared on cable news programs and at Washington, D.C., think tank events to reassure American audiences that the Saudi-led campaign in Yemen is in U.S. interests.

  Here’s a user friendly graphic showing how some of this works.

  

  *  *  *

  For related articles, see:

  Saudi Arabia and ISIS – A Side by Side Comparison

  Another New Low – Saudi Arabia Threatens to Sue Twitter Users Who Compare it to ISIS

  Saudi Arabia Sentences Poet to Death for “Renouncing Islam”

  So Who’s Really Sponsoring ISIS? Turkey, Saudi Arabia, and Other U.S. “Allies”

  Saudi Arabia Bombs Second Yemeni Wedding in a Week – At Least 23 Dead

  Saudi Arabia Bombs Second Yemeni Wedding in a Week – At Least 23 Dead

  Saudi Arabia Forces the UN to Drop Humanitarian Inquiry Into Yemen Atrocities

  Not a Joke – Saudi Arabia Chosen to Head UN Human Rights Panel

  Saudi Arabia Prepares to Execute Teenager via “Crucifixion” for Political Dissent

  

  

  

  

  

• A Brief Rumination on the Coming Cashless Society

  Today, I hired an independent researcher to do some legal consulting for me.  We agreed on a $100 “detainer”.  Since I began checking out of the system in 2009, and mainly to avoid any more contact with the IRS, I stopped doing business with all banks.  I don’t have any bank accounts of any kind, no credit cards, and I don’t even have a debit card through services like PayPal because they’re all tied in to the same corrupt banking system, and the IRS can (and most likely will) find you or at least your money by data mining your banking records.  So to eliminate this attack vector I primarily operate with United States Notes (better known to the sheep as Federal Reserve Notes), i.e. cash.  So to pay the detainer should have been a simple matter of running over and depositing a $100 note into my researcher’s account at my local Chase Bank branch.  Nope.

  When I got there, the teller informed me that Chase does not accept cash deposits.  The funds had to be in the form of a check or they could do a debit or an advance on a debit/credit card.  I told her I thought that was a very silly policy and she gave me one of those, “Oh well, fuck you” smiles.  This was actually in the news last year, and Chase’s official policy is here.  The reason they give for this is: “We’re trying to do more to combat money laundering and other criminal activities”, which is banker euphemism for “We’re slowly phasing out cash from society to make it easier to control and manipulate all of you serfs MUHAHAHAHAHAHAHAHA!”  I inquired if Chase would accept a post office money order, and she replied in the affirmative.  Haha, bitch, the day is mine!

  In the years since I went all cash, I’ve learned a few tricks and “backdoors” to still get paid for the particular expertise I dispense for money and to also pay for services where a check is required.  Of course there are gift cards issued by Visa, MasterCard, American Express, etc., which act in most cases like normal credit cards.  But in fact once you register the card you have opened a bank account with the issuing bank.  The fact that you had to provide a Social Security Number to register the card should have clued you in (read the fine print on the bottom of the page here; note “Green Dot Bank … Member FDIC”).  You can use these cards for up to 2 weeks as a straight debit card without registering (at least that was the case when I experimented with a WalMart MoneyCard using the Green Dot Bank network).  After that, you won’t be able to use it until you register it (with a SSN) or else you can return it and have the balance refunded.  If you are going to use a gift card, I suggest getting one of the above mentioned and using it up within the registration grace period, or get a speficially non-reloadable gift card (edit: which do not require registration with SSN) that expires once it’s depleted (i.e. it’s more like actual cash, and if you lose it, you lost it).  However, unless I want to order something online or make a reservation that requires some sort of credit card, I prefer to stay away from the banks altogether and use US Postal Service Money Orders.

  First of all, the post office has an interesting history in the United States, and although the modern United States Postal Service is officially “an independent establishment of the executive branch” (see 39 U.S.C. § 201) it actually rests in its own jurisdiction.  I can’t get into the intricacies of what this all means (primarily because I haven’t researched it all out myself), but I do know that USPS Money Orders are not governed by the same laws that govern, say, national banks, or even money orders issued by independent operators.  For example, I can walk into a post office and purchase a money order up to a denomination of $2,000.00 for a fee of $1.60 (or up to $500.00 for $1.25).  I don’t have to present anything other than the order and the cash.  No ID is required.  The clerk takes the money and your fee, makes up the money order, and hands it back to you, blank except for the imprinted amount.  Whereas, if you were to purchase a money order from e.g. a grocery store, as of a few years ago you are now required to present ID, which is recorded in some fashion (to prevent fraud and thwart terrorism, of course).  In other words, it’s still tied in with the banking system, and subject to banking laws.

  As mentioned, the USPS money order is blank and it’s up to you to fill it out.  If you want you can just leave it blank and hold it indefinitely as cash; when you want to spend it you fill it out to yourself and cash it.  Or you can spend it as cash with anyone who will accept it (think precious metals dealers, people).  You can fill it out, or just hand it to them and let them fill it out, and get any change coming back in cash.  The best part is you don’t need a bank account to cash them; you can simply go to any post office, present it for payment (with ID), and you get handed back a pile of notes and coins.  Now, this isn’t always fullproof: sometimes the teller doesn’t have the cash at hand to cash out your entire money order if it’s particularly large, so you will either have to go at the end of the day when their coffers are filled or find a post office that does more volume and therefore will have more cash on hand.  It’s a pain when they don’t have enough money to cover the instrument; to me that’s fraud, or more specifically check-kiting (try using the “Oh well, sorry!” excuse yourself when you bounce a check and see what happens).  I’ve tried yelling at the staff and complaining to the Postmaster General, but there’s really not much you can do other than sue in court…an interesting proposition, and one I would like to research some other time when I don’t have so many fires already raging.  At any rate, it’s a reasonable trade-off for being free from the banksters and their shitty, almost arbitrary and capricious anonimity-assaulting rules.  Also, there’s never a fee to cash the money order, whereas most banks charge a $5-$10 fee for cashing a check drawn on the bank for non-account holders.

  So continuing my saga, off I went to the post office to exchange the piece of paper I had in my pocket for another piece of paper that Chase bank would be happy to accept (after having to wait in line for half an hour; ironically I had a $900 money order waiting for me at my mail pick-up but I wasn’t able to cash it on the spot because it was still too early in the day :\).  I then went back over to Chase and handed them the money order, my anonimity and freedom preserved, and my researcher paid.  My time wasted.

  I wanted to write about this in the same way I wrote about the shantytowns popping up in Stockton, California.  It’s one thing to talk about it, and in the case of the looming cashless society, to piss and moan over it, but when it actually arrives in the form of a small incremental move like the above, and it confronts you, it is prudent to take heed.  This is a harbinger of the cashless society that is slowly creeping over us.  The clock is ticking.  Take advantage of it while you can, because once it’s gone, so is another aspect of our freedom.  And unless an alternative currency not controlled by any particular government comes to the fore, or precious metals make a big comeback as currency, or barter returns to local communities as a big aspect of our local economies again, or perhaps some new currency spontaneously pops up in some part of the country or world that takes off organically, unless something replaces the relatively free currency we have presently, we will have lost forever a fundamental aspect of our freedom.  If even our petit spending money on things like a quick snack at the gas station on the way home or an eighth of weed from your local dealer is controlled by international banksters, how free can you really be?  If you don’t have the credits to even pay for a drink because the government cut you off for not being patriotic enough–if you don’t have the mark–what will you do?

  I am Chumbawamba.

  

  

  

  

• Artist's Impression Of Obama's World

  Don’t look now, but it’s right in front of your face…

   

  

   

  Source: Investors.com

  

  

  

  

  

• Iraqi PM Rejects US "Boots On Ground" As Shiite Militias Pledge To Kill US Soldiers

  There are probably a lot of lessons we can learn from the conflict in Syria. 

  We might, for instance, pause and reflect on the morality of subjecting millions of people to untold pain and suffering in pursuit of geopolitical expediency. Or we could make a serious effort to reevaluate a foreign policy that too often centers around bringing about regime change in far away lands without considering the ramifications and potential for blowback. 

  Of course that kind of deep self-reflection will never happen in Washington, but fortunately, there’s a far simpler lesson that requires very little in the way of high level thinking to understand. Here it is: arming and funding Islamic militants you just met is always a bad idea. 

  In the worst case scenario you lose control of them only to watch in horror as the Frankenstein you created escapes from the lab, rumbles out of the castle, and proceeds to terrorize and murder all the villagers. In the best case scenario, they do what you thought they were going to do (in this case fight Assad’s army) but they occasionally go off the rails and blow up a Russian search and rescue helicopter after executing one of Moscow’s pilots. 

  In Syria, the FSA falls into the “best case scenario” category but as we’ve been at pains to explain, arming them now makes even less sense than it did initially because, i) you risk starting a world war as they are using US-supplied weapons to fire on Iranian soldiers and Russian equipment, and, on a practical level, ii) they’re using US-supplied weapons to kill the same Iran-backed Shiite militiamen who are fighting with the Iraqi regulars just across the border. 

  Consider the following excerpts from various media outlets: 

  Shi’ite Muslim militiamen and Iraqi army forces launched a counter-offensive against Islamic State insurgents near Ramadi on Saturday, a militia spokesman said, aiming to reverse potentially devastating gains by the jihadi militants. – Reuters, May 23

   

  U.S. airstrikes targeting ISIS around Ramadi are proving “not very effective,” according to the head of the Iran-backed militias surrounding the conquered Iraqi city. “We expect more from the Americans,” Hadi al-Ameri told NBC News. “There are no real airstrikes against ISIS headquarters.” – NBC, June 23

   

  Iraqi forces and the Shiite militias fighting alongside them announced Friday that they had retaken the oil refinery at Baiji from Islamic State militants, in some of the first significant progress against the extremist group after months of stalled efforts. – New York Times, October 16

   

  Iraq’s official military doesn’t appear to be in any position to take on ISIS. Shiite militia groups have proved much more effective at fighting ISIS than Iraq’s official military, and it’s the Shiites who are taking the lead in the Iraqi government’s new campaign to retake Anbar. – Slate, May 26, 2015

  You get the idea. 

  Make no mistake, there are some very serious questions about these militias’ human rights record, but the point is that when it comes to fighting Sunni extremists, there’s no one better to have on your side than fearsome Shiite militiamen even if some of those militiamen were responsible for killing hundreds of US soldiers with copper-tipped IEDs during the Iraq occupation. 

  As we documented extensively in “Who Really Controls Iraq? Inside Iran’s Powerful Proxy Armies,” Tehran controls these fighters and thanks to their effectiveness on the battlefield, the militias effectively control the US-armed Iraqi regulars. As Reuters noted in October, “the Fifth Iraqi Army Division now reports to the militias’ chain of command, not to the military’s, according to several U.S. and coalition military officials. The division rarely communicates with the Defence Ministry’s joint operation command, from which Abadi and senior Iraqi officers monitor the war, the officials said.”

  Here’s a bit more color from the same investigative piece that should give you an idea of what’s going on in Iraq:

  Iraqi Prime Minister Haider al-Abadi, a Shi’ite, came to office just over a year ago backed by both the United States and Iran. He promised to rebuild the fragmented country he inherited from his predecessor, Nuri al-Maliki, who was widely accused of fueling sectarian divisions. Since then, though, even more power has shifted from the government to the militia leaders.

   

  Those leaders are friendly with Abadi. But the most influential describe themselves as loyal not only to Iraq but also to Iran’s supreme leader, Ayatollah Ali Khamenei. Three big militias – Amiri’s Badr Organisation, Asaib Ahl al-Haq and Kataib Hezbollah – use the Iranian Shi’ite cleric’s image on either their posters or websites. Badr officials describe their relationship with Iran as good for Iraq’s national interests.

  Iraq, for all intents and purposes, is now an Iranian colony both politically and militarily. 

  In the wake of the US invasion in 2003, Tehran was concerned that the Cheney Bush administration would move to invade Iran next. This, along with a desire to aid the Americans in fighting The Taliban in Afghanistan (who Iran now covertly supports in an effort to usurp ISIS influence), led the IRGC to forge a quasi-friendly relationship with The Pentagon. And then George Bush put Iran in his infamous “Axis of Evil.” From that point forward the Quds encouraged Iraq’s Shiite militias to target American troops, which goes a long way towards explaining why the US accuses Iran of being the world’s number one state sponsor of terror (of course that’s absurd, but hey, we didn’t say it, Washington did). 

  Fast forward to 2015 and the US has essentially comes to terms with the fact that Iran’s proxies are going to fight ISIS alongside the Iraqi regulars. It’s only annoying for Washington when those proxies say things like this: “the United States lacks the decisiveness and the readiness to supply weapons needed to eliminate militancy in the region.” But while it’s fine to taunt the US regarding Washington’s highly suspicious lack of commitment to the fight against ISIS in Iraq, Iran is not keen on seeing a sizeable US troop presence on its border (again) which is why it should come as no surprise to you that on the heels of Ash Carter’s announcement earlier today that the US is set to send SpecOps to Iraq, Kataib Hezbollah immediately threatened to attack them. Here’s Retuers: 

  “We will chase and fight any American force deployed in Iraq,” said Jafaar Hussaini, a spokesman for one of the Shi’ite armed groups, Kata’ib Hezbollah. “Any such American force will become a primary target for our group. We fought them before and we are ready to resume fighting.”

  Badr Organisation and Asaib Ahl al-Haq (mentioned above) weren’t far behind: 

  “All Iraqis look to (the Americans) as occupiers who are not trustworthy,” said Muen al-Kadhimi, a senior aide to the leader of the Badr Organisation.

  “The militias, grouped with volunteer fighters under a government-run umbrella, are seen as a bulwark in Iraq’s battle against Islamic State,” Reuters adds.

  Predictably, PM Abadi was out just hours later reiterating (he already said this once back in October) that Iraq does “not need foreign ground combat forces on Iraqi land.”

  Obviously, these pronouncements might as well have been issued directly from Tehran because that’s unquestionably who’s pulling the strings here, but this does set up an interesting scenario. Washington probably wasn’t looking for permission in the first place despite Carter’s lip service to Baghdad on Tuesday. The US will likely embed the Spec Ops with the Peshmerga via the KRG in Erbil. 

  The question then, is this: if the Iraqi regulars are now loyal to the Shiite militias and if Iran is pulling the strings in Baghdad, what will the relationship be between a US/Peshmerga effort to fight ISIS and an Iran/Iraqi effort? Furthermore, what happens if Russia begins bombing ISIS targets in Iraq? 

  Time will tell, but the big picture takeaway here is this: this war doesn’t end in Syria. 

  *  *  *

  Bonus: Visuals of Iraqi Shiite fighters

  

  

  

  

  

  

  

  

  

  

  

• Short-Termist America – Value-Extraction Has Replaced Value-Creation

  Submitted by Michael Lebowitz via 720Global.com,

  Buybacks Part 3: Washington’s Warning

  Stock buybacks are a conflict of interest which has been exposed primarily through extravagant levels of executive pay and income inequality. As an extension of previous articles on this topic, 720 Global digs even deeper to expose the truth behind the logic and rationale of corporate stock buybacks. 

  In his 1995 speech at Harvard University, Charlie Munger (Vice Chairman Berkshire Hathaway) walks through a multitude of causes for human misjudgment. Embedded throughout his speech is the core role incentives play in influencing human behavior.  One does not require a PhD in psychology to understand why corporate executives continue to expand stock buybacks at, counter?intuitively, record high stock valuations. The latest reminder of such incentives comes from The Center for Effective Government and Institute for Policy Studies. In a recent study they found that the retirement funds of the chief executives of the 100 largest corporations are worth on average just under $50 million, or a combined $4.9 billion.  This amount is equal to the aggregate retirement accounts of 41% of U.S. families.

  Stunning facts like that compel 720 Global to continue to raise awareness regarding the dangers buybacks impose not only on American public companies and their investors but also on the economic and social fabric of the nation. In part 1 of this series, “Buybacks: Connecting Dots to the F?Word”, 720 Global highlighted how executive leadership has elected to engage in uses of their corporate resources that benefit executive compensation at the expense of long?term shareholders, the company’s future success and ultimately the U.S. economy. Part 2, “Shorting the Buyback Contradiction”, examined the ways in which buybacks distort equity valuations and exposed the unknown risks being shouldered by investors.

  This third article in the series extends the analysis of the prior two articles.  It provides a more specific review of the ways in which corporations are manipulating their stock price and abusing the trust of investors to the direct benefit of corporate executives.

  Corporate America and American Values – The Backdrop

  Well before the Revolutionary War, commerce and trade in the American colonies was vibrant.  By the early 1700’s, the colonies under British rule had rapidly become one of the most productive and wealthiest economies in the world, providing Great Britain with an invaluable source of trade goods as well as an increasingly powerful tax base for revenue.  Naturally, those businesses ? farming, manufacturing, printing and journalism, education, import/export – have evolved into what we know today as the domestic corporate sector.    As corporate America grows stronger, more profitable and more powerful and influential, logic follows that this is a reflection of the durability and steadfastness of America.  That is as it has always been.

  These businesses, and their now global success are a manifestation of something immensely larger than that of the profits and material benefits they generate.    The foundation of this country was conceived, established, dedicated and founded by good, brave men whom we today endearingly and reverently refer to as our Founding Fathers.  By them, the United States of America was founded for a multitude of express purposes which cumulatively represent a set of moral ideals.  From these established ideals, more than any other country in the history of mankind, much happiness and success has been derived.    The fact that the United States of America was established as a republic, a nation based on the rule of law, amplifies the obligation of the population, especially leaders of all forms, in adhering to those moral ideals. 

  Reinforcing this concept in his first inaugural address to the population of the new republic, George Washington warned “…the propitious smiles of heaven can never be expected on a nation that disregards the eternal rules of order and right which heaven itself has ordained.”   And yet, for all of that foundation and obligation and reverence to which we owe our remarkable success, the traditional mechanisms by which we measure that success are failing.

  Executive Greed

  Today, corporate profits and U.S. stock markets, two of our broadest yardsticks for measuring economic success, are near record highs.  On those metrics, one might be tempted to suppose that the strength of America is reflected in the strength and success of its businesses.  And yet, corporate profitability and rising stock markets are not translating into widespread economic prosperity as shown in the graph below comparing stagnating hourly earnings versus the S&P 500.

  Wages Versus the S&P 500
  

  Vast swaths of the population in the United States are not enjoying the benefits of the so?called post?crisis recovery.  Meanwhile, the top executives of major corporations are prospering in a way never before seen.  This contrast between the rich becoming ultra?rich and the rest of the population stagnating at best, was a characteristic of the pre?depression “Roaring 20’s” as well. A report issued by the Economic Policy Institute on CEO pay highlights that in 2014 the CEO?to?worker compensation ratio was 303X compared with 58x in 1989 and 20X in 1965.    The exponential rise in executive compensation has occurred in both relative and absolute terms.  From 1978 to 2014, inflation?adjusted CEO compensation increased 997 percent, almost double the rise in stock market value. When compared with other highly paid workers (defined as those earning more than 99.9% of other wage earners), CEO compensation was 5.84 times greater.  The rate at which CEO compensation outpaced the top 0.1% of wage earners reflects the power of CEO’s to extract “concessions” rather than an outsized contribution to productivity.

  The composition of executive pay has gone from one predominately salary based with less than 15% stock and option rewards in the mid?1960’s to one heavily dependent on stock and option rewards averaging well over 80% in 2013.  These stock?based incentives make executives highly motivated to keep their stock price elevated at all costs.    The compensation structure in conjunction with the rise in pressure from Wall Street and investors to keep stock prices elevated arguably leads to short?term decision?making that ultimately does not afford proper consideration of the long?term problems those decisions create.

  One of the most prevalent ways in which executives can carry out such a compensation?maximizing scheme is through share buybacks.  Share buybacks as a percentage of corporate use of cash are at near?record levels and rising rapidly. In a market where all major indices and the majority of publicly?traded company shares are near all?time highs, the proper question is, why?   As Warren Buffett wrote in his 1999 letter to shareholders, “Managements, however, seem to follow this perverse activity (buy high, sell low) very cheerfully.”  As outlined in Part 1 on this topic, Connecting Dots to the F?Word, the three reasons CEO’s give to justify this action do not stand on their own.  The purpose of this article is to explore more deeply, as a point of emphasis, the backdrop which allows such activity to proliferate and to further expose the “chicanery” (Buffett’s word) being employed by corporate executives in continuing to engage in share buybacks in defiance of sound business practices.

  In 2007, companies in the S&P 500 returned over one?third of their cash, $635 billion, to shareholders through buybacks as shown below.  At the time, this played a meaningful role in helping to elevate equity market valuations into the teeth of the subsequent financial crisis when stocks fell by over 50%.  Now in 2015, share buybacks are expected to rise 18% on a year?over?year basis.  Like 2007, corporations will again spend nearly one?third of cash, over $600 billion, on buybacks. The growing popularity of buybacks is graphed below along with the disturbing trend in the percentage of cash invested for future growth. Similarly, stock valuations measured several different ways rival levels only seen with the exuberance of 1929, 2000, and 2007.

  Share Buybacks versus the Percentage of Cash Reinvested for Growth
  

  Naturally, the data appears disturbing but a recent report from Reuters puts an even finer point on the issue.  In an investigative article entitled The Cannibalized Company, Reuters states:

  “Almost 60 percent of the 3,297 publicly traded non?financial U.S. companies Reuters examined have bought back their shares since 2010.  In fiscal 2014, spending on buybacks and dividends surpassed the companies’ combined net income for the first time outside of a recessionary period, and continued to climb for the 613 companies that have already reported for fiscal 2015.  In the most recent reporting year, share purchases reached a record $520 billion.  Throw in the most recent year’s $365 billion in dividends, and the total amount returned to shareholders reaches $885 billion, more than the companies’ combined net income of $847 billion.”

  The premise behind the current executive pay structure argues that the talent associated with the strategic decision?making and leadership qualities required to successfully drive large organizations is unique, hard to find and, once found, critical to be retained.  In efforts to better align the incentives of corporate executives and the interests of the company, executive compensation has increasingly become tied to outcomes associated with stock price.   Award executives more stock, and, assuming they make good decisions for the growth of the company, the share price will rise and reward the executive and shareholders alike.

  Alternatively, what is happening is the compensation structure for CEO’s and senior executives has become so skewed towards stock?based incentives of such gargantuan size that it has become the predominant driver of corporate decision?making.  Companies eschew the idea of making longer?term investments through capital expenditures because it does not immediately help the measurement ratios upon which Wall Street bases “success”, and it may indeed hurt those ratios.    Of course, these are the same ratios upon which executive compensation depends, since Wall Street analyst recommendations drive share prices and share price drives executive compensation.    The result in one case is strategic decision?making that naturally neglects long?term commitments of capital into what Clayton Christensen calls “market?creating Innovations” in favor of “efficiency innovations”.    As described in Innovation, companies become increasingly dependent upon efficiency innovations and the balance between important long?term and short?term uses of capital is quickly lost causing economic harm.

  In another case, executives use precious capital, often borrowed, to conduct share repurchases precisely because it has the immediate effect of driving share prices higher.  As 2007 illustrated, this façade of “value” is short?lived because it does nothing to organically enhance the value of the company and hurts long?term prospects by diverting cash to a very expensive use. In this case, the perceived “talent” of leadership required in senior executives to successfully drive large organizations is fallacious and runs counter to the logic applied in their exorbitant pay structures.  It also disregards “the eternal rules of order” George Washington spoke of in his first inaugural address.

  The end result of either case is that corporate cash, earned or borrowed, is squandered for the self?serving purpose of maximizing executive compensation instead of being used for productive purposes.

  “Maximizing Shareholder Value”

  Several events have come together over the years to enable and encourage such behavior by executive leadership.    In the mid?1970’s, the concept of maximizing shareholder value was introduced by Jensen and Meckling, professors at the University of Rochester.  Thus began the era of myopia related to stock?based incentives for executives with no foresight as to the long?term implications of such an ill?conceived concept.    We see this effect repeatedly in policy construction within our government.  Politicians identify a problem and then set about crafting a bill that will address it without realistic consideration for either the immediate peripheral implications or the long?term unintended consequences.  What begins as a well?meaning, if not vote?attracting, proposal soon becomes a law that in 5 or 10 years mushrooms into a vast government program and deep financial burden offering little economic benefit.  

  In 1982, the Securities Exchange Commission created a rule that allowed companies to buy back their own shares.  Rule 10b?18 allows a company’s board of directors to authorize senior executives to repurchase up to a certain dollar amount of stock over a specified or open?ended period of time.    The company must publicly announce the program after which it may then proceed to repurchase their own shares on the open market without concern that the SEC will charge it with stock price manipulation.  There are a few guidelines within which the company must operate regarding repurchases but the oversight is structurally weak and only monitored quarterly.  Rule 10b?18 explicitly legalized stock market manipulation through open?market repurchases.

  The rule was radically divergent from the agency’s original mandate laid out in the Securities Exchange Act of 1934 which properly responded to the multitude of corrupt activities that fueled speculation and led to the 1929 stock market crash.    The adoption of Rule 10b?18 reflected the view of then commission chairman John Shad, former vice?chairman of E.F. Hutton and obvious Wall Street insider, that the risks of sweeping deregulation of securities markets were justifiable.   With the stated mission of the SEC in mind, “to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation”, liberties currently afforded corporate executives through share buybacks are at odds with that mission.

  Taxpayers Subsidize Corporate Spending ? Buybacks Subsidize Executives

  The power and influence of corporate America is further on display in their lobbying efforts to extract public?sector funding for assistance in trade and research and development.   Despite trillions in accumulating public debt and on?going deficits, publicly?held companies with record profits, lobby for and receive assistance in funding pet projects to their benefit.  At the same time, instead of using their own cash to advance these projects, they engage in share buybacks which divert capital toward a highly self?serving purpose.   Although the public assistance of funding such projects occurs under the guise that U.S. corporations cannot remain competitive without the aid of federal funds, it is unclear why taxpayer funds should be used to subsidize the investment activities of corporate entities which at the same time are using their own capital to repurchase stock.  

  According to William Lazonick a professor at the University of Massachusetts at Lowell who cites the Center for American Progress, Exxon Mobil received $600 million per year in subsidies for oil exploration.  The energy giant spent approximately $21 billion a year on share buybacks while spending approximately zero dollars on alternative energy efforts.    Microsoft, GE and other companies lobbied the U.S. government to triple its investment in alternative energy research and subsidies to $16 billion per year.  Over the past ten years, Microsoft and GE spent about the same amount annually on share repurchases.

  The same thing happens in nanotechnology, pharmaceuticals and virtually every other business sector.    Powerful companies lobby congress for federal spending on what are certainly important issues that deserve research and development focus.    However, the companies themselves turn around and spend multiples of billions manipulating their stock price which boosts already egregious executive compensation.    Lazonick points out that Intel spent four times the budget of the National Nanotechnology Initiative, which receives federal funding, on buybacks in 2013.  According to the Wall Street Journal, Intel CEO Brian Krzanich received $10 million in compensation in 2013, less than 10% of which was base salary (Krzanich received a 20% pay increase in 2014).

  Major pharmaceutical companies such as Merck, Allergan, AbbVie and Pfizer generally argue that the profits from high priced healthcare drugs permit more research and development to be done in the United States.  Importantly, Lazonick points out that these firms coincidently enjoy tremendous benefits of favorable intellectual property rules and weak price regulation by doing their business in the US.  Yet in the 10 years between 2004 and 2013, Pfizer alone used over 70% of its profits for share buybacks.  The painfully high prices Americans pay for prescription drugs has far more to do with stock price manipulation and inflated executive compensation than the stated cost of conducting R&D in the United States.  That explanation is a smokescreen intended to deceive legislators, regulators and the public.  Pfizer CEO, Ian Read, was paid $23.2 million in 2014, nearly 70% of which was stock and option?based rewards.

  Conclusion

  The prophetic warnings of corruption of America’s moral ideals may have begun in 1789 with the words from America’s first President, but they have been routinely revisited throughout our history.  In 1961, Dwight Eisenhower also issued a dire warning in his farewell address to the nation.    In that address he pointed specifically to the military?industrial complex, a term he coined, but words which today have far broader application. 

  “…we must guard against the acquisition of unwarranted influence… The potential for the disastrous rise of misplaced power exists and will persist.   Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.”

  It is vital to give proper consideration to the improper liberties that are being taken by those with “unwarranted influence” and “misplaced power”.   Value extraction has replaced value creation in pursuit of short?term, self?serving benefits at the expense of long?term stability and durability of corporate America and therefore the country as a whole.  As citizens, our obligation is to be well?informed, cognizant, outspoken and to vote.  As investment managers, our role is to always protect the wealth of clients through a critical view of the actions of authorities with fair and rigorous questioning of intentions and incentives.  The words of men may temporarily suspend but they do not alter the laws of financial dynamics. The fundamentals always take precedence eventually.

  

  

  

  

  

• U.S. Total Debt Soars By $674 Billion In November

  When the US reached a debt ceiling deal in the beginning of November, it was common knowledge that there would be a debt accrual “catch up” to make up for lost time when the US was operating under emergency measures to avoid breach of the debt ceiling. And sure enough, when the accurate total debt number was released on November 2, this was indeed the case, when we learned that the US had added some $339 billion in debt during the “emergency measures” period.

  However, what is unclear is how in the remaining 4 weeks of November, the US managed to add another $335 billion in total debt, bringing the total increase for the month of November to a whopping $674 billion, and total US debt to a record $18.827 trillion.

  

   

  Also, just to preempt the question, the chart below shows the change in US debt under president Barack Obama: starting at $10.6 trillion on January 21, 2009, total debt is now up just over 77% under Obama’s tenure, to $18.8 trilion. At the current pace of growth, it may double by the time Hillary is sworn in as America’s next president.

  

  

  

  

  

  

• Despite LeBeau-gasms, Domestic Vehicle Sales Slide For 2nd Month In A Row, Miss By Most In 5 Months

  Well this is a little awkward. After a day of exuberant unsubstantiated auto sales proclamations that a) it’s not all subprime, b) 8-year credit terms do not pull forward demand, and c) it’s totally sustainable; anyone could have been forgiven for being excited about the total vehicle sales of 18.12mm (according to Wards’ data), just above expectations of 18.10mm and flat from October. However, Wards reported just 14.03mm domestic vehicles sold (missing expectations by the most since June) and dropping for the 2nd month in a row. Those darned facts do get in the way eh?

   

  Recessions happen at the funniest times eh?

  

   

  Domestic vehicle sales are up just 2.6% YoY… and that is as credit soars to this sector…

  

   

  Should we worry? Well it seems we will not be relying on China to save us?

  

   

   

  We are going to need more up and to the right of this…

  

   

  Charts: Bloomberg

  

  

  

  

  

• Millennials Increasingly Believe The American Dream "Is Not Really Alive"

  If you’re a millennial, you’d be forgiven for being disillusioned with the American dream. 

  After all, there’s a good chance you just found out that the college degree you paid $35,000 (or more) for isn’t worth much in today’s labor market. Even if you’re lucky enough to find a full-time job that doesn’t involve serving Jager shots at three in the morning, your wages aren’t likely to keep up with the soaring cost of living let alone be sufficient to service your mountainous student debt. 

  Meanwhile, you might have also discovered that the “economic recovery” your econ teachers told you about really never took place and that Ben Bernanke’s “courage” really didn’t do much of anything to improve the lot of the Middle Class, which you probably thought you were set to join within a month of graduation.

  In fact, statistics show there’s about a one in three chance that you’re back living in your parents’ basement, which means you get the privilege of eating dinner with the family every night and listening to your dad tell you how disgusted he is with the fact that he can’t get a promotion but his boss just bought a new Maserati thanks to a Fed-assisted tripling of the company’s stock price.

  No sir, we don’t blame you for being disgusted nor were we surprised to discover that compared to young Americans in 1986, you’re three times as likely to think the American dream is dead and buried.  

  As WaPo notes, “young workers today are significantly more pessimistic about the possibility of success in America than their counterparts were in 1986, according to a new Fusion 2016 Issues poll – a shift that appears to reflect lingering damage from the Great Recession and more than a decade of wage stagnation for typical workers.”

  

  More color on the methodology: 

  The Fusion poll replicated the questions from a Roper/Wall Street Journal poll of young Americans that was conducted in 1986, the year Mister Mister topped the pop charts and Bill Buckner’s error cost the Boston Red Sox a World Series title. Both polls posed a series of questions about the American Dream: what it meant to individuals, whether it actually existed and, if it did, how hard it was to attain.

   

  In the three decades between the surveys, pollsters found, share of young Americans overall who said the American Dream “is not really alive” grew sharply from 12 to 29 percent. Among white people, it nearly tripled from 10 percent to 29 percent. One in three white non-college graduates now say it is not alive, compared to one-fifth of white college graduates; the increase from 1986 was larger for non-graduates than for graduates.

  Of course maybe if you just wait long enough, the Bernanke QE “wealth effect” will eventually trickle down. Or better still, maybe lackluster revenue growth will miraculously pick up for American corporates, ending the necessity of using financial engineering to squeeze EPS beats out of topline misses thus sparking a frenzied hiring spree. 

  But above all, don’t rest on your laurels. You, like Ben, should have “the courage to act.”

  

  

  

  

  

  

• Brazil Releases Shocking GDP "Obituary": "It's Mutated Into An Outright Depression," Goldman Exclaims

  To be sure, we haven’t exactly been shy about characterizing Brazil’s economic malaise as more akin to a depression than a recession. Here are a few representative headlines:

  • Depression Tracker: Brazil Braces For Big Week Of Bad Data
  • Depression Tracker: Unemployment Soars In Latin America’s Most Important Economy
  • Brazil’s Economy Slides Into Depression, And Now Olympians Will Be Swimming In Feces

  The problem, you’re reminded, is that Brazil is in the midst of a dramatic economic downturn that’s left the country to suffer through the worst inflation-growth outcome (i.e. stagflation) in more than a decade. Unemployment and inflation are soaring (annual headline IPCA inflation at 10.28%, unemployment at 7.9% in August, up from just 4.7% a year earlier) while output is plunging (IBC-Br monthly real GDP indicator down 6.1% Y/Y in September) and the market is losing confidence in the government’s ability to end a political stalemate on the way to shoring up the fiscal books and hitting primary surplus targets. Last week’s arrest of prominent lawmaker Delcidio Amaral in connection with the ongoing Carwash investigation didn’t help.

  Thanks to the above mentioned IBC-Br monthly indicator (which showed an economy in “free fall” to quote Barclays) we already knew Q3 was going to be bad on the GDP front. But this is Brazil we’re talking about, which means that as bad as consensus is, there’s always the distinct possibility that the actual numbers will be far worse than expected and that’s exactly what happened on Tuesday. 

  Real GDP fell 1.7% Q/Q and 4.5% Y/Y while Q2’s already abysmal -1.9% contraction was revised down to -2.1%.

  

  All of those prints missed expectations and the headline number was worse than all but three estimates from the 44 economists Bloomberg surveyed.

  

  If you dig down a bit further you can begin to see why we’ve been so adamant about calling this a depression. Here’s Goldman with the summary:

  Private consumption has now declined for three consecutive quarters (at an average quarterly rate of -8.5% qoq sa, annualized), and investment spending for nine consecutive quarters (at an average rate of -10.0% qoq sa, annualized). Overall, gross fixed investment declined by a cumulative 21% from 2Q2013. The declining capital stock of the economy (declining capital-labor ratio) hurts productivity growth and limits even further potential GDP. The sharp contraction of real activity during 3Q was broad-based: both on the supply and final demand side. Final domestic demand weakened sharply during 3Q2015 (-1.7% qoq sa and -6.0% yoy) with private consumption down 1.5% qoq sa (-4.5% yoy) and gross fixed investment down 4.0% qoq sa (-15.0% yoy). Finally, on the supply side, we highlight that the large labor intensive services sector retrenched again at the margin (-1.0% qoq sa; -2.9% yoy).

  Yes, “the services sector retrenched again,” and as WSJ noted earlier, “Brazil’s service sector, including beauty salons, banks and realtors, employs more than any other sector in the country by a wide margin, and represents about 60% of GDP.” Here’s the full breakdown:

  

  “At first read, the report recalls an obituary. There is no room for any growth in the coming quarters. The situation is really, really bad,” according to Andre Perfeito, chief economist at Gradual Investimentos, who spoke to Bloomberg by phone. “It’s a substantial hit coming not only from investment, which has fallen nine quarters in a row, but this year the big change is the substantial drop in consumption. We have not seen such a string of bad numbers for consumption,” Carlos Kawall, chief economist at Banco Safra and former Treasury secretary added.

  

  This of course comes back to a worsening unemployment picture. Remember, employment fell 3.5% Y/Y and real wages slumped a whopping 7.0% in October. As Goldman put it, “the real wage bill of the economy shrank by a large 10.3% yoy in October; the largest decline since October 2003.” The unemployment rate hit 7.9% in August, up from just 4.7% a year ago.

  

  That means people like Rossini Santos, the 43-year old, unemployed steelworker with an $80,000 mortgage and a $17,000 Chevy Prizm note that Bloomberg profiled in October, will have a harder and harder time finding work and thus servicing their debt. “The idea that consumers might not have income to service debt in the years to follow I think is what terrifies them. Even if there is a recovery of sentiment, we believe the labor market will continue suffering throughout the next year, and that will hold down household consumption,” Barclays economist Bruno Rovai said. 

  Meanwhile, Copom is completely stuck. Inflation is soaring and will likely get worse to lagged FX pass through which means if anything, rates need to rise. As Daniel Weeks, chief economist at Garde Asset Management put in on Tuesday, “the negative GDP may influence BCB, but rising inflation will prevail.” That means that Brazil, much like some of its Andean neighbors will need to consider pro-cyclical policy measures – i.e. Copom will need to hike. 

  Bradesco BBI sees two hikes, one in January and one in March. “Although BCB kept Selic unchanged in last meeting, the dissent in the decision (two members voted for a 50 bps hike) and the change in the post-communique text (removing the phrase ‘keeping interest rates unchanged for a sufficient period’) are indicatives that the BCB may change its course of action soon,” the bank says, adding that “given soaring inflation expectations, it is now too much of a risk for the BCB to wait and see if the recession will eventually lead to lower inflation in 2016.”

  So with no counter-cyclical maneuverability, the economy (specifically investment, manufacturing, and the credit impulse) will continue to suffer mightily going forward. We’ll close with a quote from Goldman’s Alberto Ramos, Brazilian commentator par excellence:

  What started as a recession driven by the adjustment needs of an economy that accumulated large macro imbalances is now mutating into an outright economic depression given the deep contraction of domestic demand.

  

  

  

  

  

  

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