Today’s News December 20, 2015

• Obama Finally Commits To Putin's Syrian Policy – Yet Continues Violating It

  Authored by Eric Zuesse,

  The basic policy-difference on Syria has been between U.S. President Barack Obama’s insistence that Syria’s legal President must be ousted before any peace-process starts, versus Russian President Vladimir Putin’s insistence that no foreign power possesses the right to determine whom the leader of Syria or any other country will or won’t be – only the residents there do, via free and fair democratic elections. Putin proposes an internationally monitored and verified election in Syria to determine the identity of Syria’s President; Obama has rejected that proposal – until now.

  The world’s most-reliably honest and accurate news-medium, Deutsche Wirtschafts Nachrichten, or German Economic News, reports, on December 19th, three major articles about the latest stages of Obama’s newfound verbal commitment to Putin’s policy. They are all summarized here, with factual corrections added by me, because no news-source is 100% reliable:

  “UN-Sicherheitsrat verabschiedet Syrien-Resolution einstimmig” or “UN Security Council Adopts Syria-Resolution Unanimously,” reports that the U.N. Security Council has unanimously adopted a resolution that “essentially corresponds to the Russian proposals of the past few weeks”; and, so, "the international community concludes a combined joint action for a cessation of [Syrian] hostilities.” And: "US Secretary of State John Kerry said after the Security Council meeting chaired by him, that the resolution will send 'a clear message to all concerned that it is now time to stop the killing in Syria’.” However, actually, it’s not merely "Russian proposals of the past few weeks,” because as far back as 6 June 2012, Bloomberg News had headlined, “Russia Open to Syria Transition in Shift Away From Assad,” and reported that, "While Russia for the first time sees a change of government in Syria as possible via a series of steps, it remains adamant that the outcome not be imposed from outside, according to a Russian official not authorized to speak publicly on this matter. Russian Deputy Foreign Minister Gennady Gatilov said yesterday that his country has never insisted on Assad staying in power and a decision on his future must be taken by the Syrians themselves, state-run Rossiya 24 television said on its website.” (More recently, the Guardian on September 15th reported that former Finnish President Martti Ahtisaari went public saying that the West’s "failure to consider the Russian [2012] offer had led to a ‘self-made disaster’." So: this has been Russia’s position consistently since that time (not only “the past few weeks”), and it is only now being accepted (at least verbally) by the regime in Washington, and their toadies in other ‘Western’ countries. (I had first reported on Obama’s change of position on this November 15th, and reported further on it December 15th.)

   

  “UN-Friedensplan für Syrien: Das Verdienst der viel geschmähten Russen” or "UN peace plan for Syria: The merit of the much maligned Russians,” opines that “It speaks [favorably] for the US government [i.e., Obama] that it [he, via his subordinate John Kerry] has listened to Vladimir Putin” in this matter. This article summarizes the history by saying that "the Russians have said from the outset that they will not compete against the USA, but want to fight alongside the Western alliance against Islamist terrorism. The plan for an 18-month transitional period, as it has now been decided by the UN, comes from the Russians. They also have, contrary to the Western popular fiction, from the very beginning said that they do not want to hold on to Assad.” However, that slightly misstates Putin’s position, which has instead been: Russia will insist upon the next Syrian President’s being selected only by the Syrian population, regardless of what their choice might happen to be. To say that “they [the Russian government] do not want to hold on to Assad” is to imply that Putin wouldn’t prefer that the outcome of a democratic election in Syria result in the election of Assad or someone like him (i.e., non-sectarian, and especially not pro-Sunni, which would mean anti-Shiite, which would include anti-Iranian, pro-Arabic, meaning here also being pro-U.S.-aristocracy, a pawn of Washington), which is to make a misleading, and even false, statement. (Even the best news-medium isn’t perfect, as these examples clearly show. But at least DWN  tries its best to be truthful, whereas the norm in the Western press is instead to lie whenever necessary in order to keep up the Western — basically America’s — aristocracy’s anti-Russian propaganda-line.)

   

  “Trotz Friedens-Plan: Nato schickt Kriegsschiffe in das Mittelmeer” or "Despite peace plan: NATO sends warships into the Mediterranean Sea,” reports that, "Despite the UN peace plan for Syria, NATO stepped up its military presence in the Mediterranean area. NATO announced that it would support Turkey in the monitoring of the airspace at the border with Syria. Given the uncertain situation, the representatives of the alliance had decided to help, said NATO Secretary General Jens Stoltenberg on Friday. NATO would provide, inter alia, AWACS aircraft. In addition, the monitoring on the Mediterranean Sea will be increased by German and Danish military vessels.” Along with that comes their editorial opinion, which is unwarranted: this article opines that the NATO move somehow "shows that the US government is only partially able to control the alliance. NATO has now opened so many fronts that it is possible for the government in Washington barely to make informed decisions.” The editors’ inference and implication there, that Obama couldn’t have prevented NATO from doing this, is almost certainly false. I therefore shall here engage in my own editorializing, by asserting that progressives throughout the world (such as the owners of DWN seem to be) almost consistently exhibit an unstated underlying assumption that Obama isn’t really set upon the U.S. aristocracy’s decades-long effort and intention to conquer, to take control of, Russia. That assumption flies in the face of Obama’s actual record.

  “Linkspartei: Nach UN-Einigung Bundeswehr-Einsatz in Syrien stoppen” or "Left Party says UN agreement requires Germany’s military mission in Syria to stop,” reports that Germany’s Party of the Left asserts: "New troops would run counter to the peace plan.” Here is the rest of that brief article:

  The chairman of the Left Party, Bernd Riexinger, said:

   

  "I very much welcome that after nearly five years we finally take concrete steps toward peace negotiations in Syria. The federal government must now immediately stop with all its might the Bundeswehr war deployment. Hundreds of millions would be tax money now spent for a German war effort to thwart the peace plan of the United Nations. Federal Foreign Minister Steinmeier also must speak out for an internationally supervised arms embargo.

   

  Apart from peace negotiations and cease-fire agreements in Syria and an internationally monitored arms embargo strengthening nonviolent working organizations, humanitarian assistance to the civilian population and reconstruction assistance by armed groups, free regions and self-government structures are necessary. Everyone knows that there is no quick solution to the existing conflicts in the Middle East. Above all, there is no military solution."

  So: Germany’s right-wing Chancellor, Angela Merkel, is receiving pressure from a marginal leftist Party, to abandon the American anti-Assad war. Both Merkel and her master, Obama, are, in their decisions of action and of inaction, trying to do whatever they can to carry out the U.S. aristocracy’s objectives, even if they can’t say publicly that they still are trying to find some way to defeat Putin, and, in Syria, to block the Syrian election that Putin has been pressing for. Because, as every knowledgeable person knows, but the Western ‘news’ media prefer to ignore when they don’t come right out with lies denying it: any free and fair internationally monitored and verified election in Syria will almost certainly choose Bashar al-Assad by a huge margin, to lead the country. Most Syrians – even many Syrian Sunnis – prefer a non-sectarian leader, not the type that the U.S. and Saudi aristocracies want to impose there to defeat Russia.

  *  *  *

  Investigative historian Eric Zuesse is the author, most recently, of  They’re Not Even Close: The Democratic vs. Republican Economic Records, 1910-2010, and of CHRIST’S VENTRILOQUISTS: The Event that Created Christianity

   

  

  

  

  

  

• $20,000 Gold And The End Of "Pollyanna-ish Do-Goodery"

  "They just won't let the scales balance… it is a rampant narcissistic megalomania that somehow some guy in a air-conditioned office can best repliacte the free market and centrally plan our affairs… Their starry-eyed pollyanna-ish do-goodery never seems to pan out."

   

  In the flux of never before seen economic uncertainty, Stefan Molyneux and Mike Maloney discuss the difference between currency and money, the historical role of gold as money, the dependence of the United States government on Wall Street for tax revenue, the role of the Federal Reserve in the creation of unstable economic bubbles, the possibility of deflation, $20,000 gold and how you can protect yourself in these uncertain economic times.

  

  

  

  

  

• China Now Has So Much Bad Debt, It's Selling Soured Loans On Alibaba

  As those who frequent these pages are no doubt aware, NPLs at Chinese banks are rising.

  Here’s a kind of 30,000 -foot view from RBS’ Alberto Gallo:

  

  As we documented last month after data on new RMB loans showed that the credit impulse in China simply rolled over and died in October, part of the problem is that banks are becoming increasingly concerned about sour loans, as an acute overcapacity problem, a decelerating economy, and sluggish global growth and trade have conspired to create an environment in which borrowers are now taking on more debt just to service the loans they took out in the past.

  As Credit Suisse noted earlier this month, some firms are now borrowing just to pay salaries. Indeed, more than 50% of debt in the commodities space was EBIT-uncovered in 2014. The takeaway: China’s Minksy Moment is nigh.

  

  Still, the official numbers on NPLs (shown above) look surprisingly low for an economy which is supposedly careening towards a debt crisis. There’s a simple explanation for this apparent discrepancy: the numbers, like China’s official GDP prints, are fabricated.

  There are a number of strategies China uses to depress the official NPL figures including compelling banks to roll bad debt, but as Fitch outlined in detail back in May, Asset Management Companies play an important role.

  “China’s four major AMCs were set up in 1999 to absorb CNY1.4trn in bad assets at par value from China Development Bank and the big four banks (Industrial and Commercial Bank of China, China Construction Bank, Bank of China and Agricultural Bank of China) before their restructuring. NPL disposals to AMCs have increased in recent years as more banks have come under pressure to manage their reported NPL levels,” Fitch wrote, adding that “AMCs’ strategic importance [should] increase with China’s economic rebalancing,” 

  Here’s more:

  Bank loan disposals to AMCs also mask underlying NPL increases, and direct asset purchases by AMCs from borrowers mean bad assets may never be formally recognised as NPLs within the banking system.

   

  AMCs have only been granted licences from the CBRC to acquire restructured DAs directly from non-financial enterprises (NFE) since 2011. DAs purchased from these enterprises have since constantly increased as a share of the total. Fitch’s International Public Finance team estimates that 60%-70% of DAs restructured in 2010-2014 relate to the real estate sector. Many of the distressed property assets could be directly offloaded to AMCs without ever being recognised as bad loans through the banking system. This partly explains how reported NPL ratios for property loans are kept so low in China.

  
  

  The primary source of traditional DAs is banks. Upon completion of debt acquisition, the AMC assumes the pre-existing rights and obligations between the banks and debtors, and realises or enhances the value of the assets primarily through debt restructuring, litigation and sales. However, most of the DAs acquired by AMCs since 2011 have come from NFEs. AMCs also buy restructured DAs from banks and non-bank financial institutions.

  
  

  When AMCs acquire restructured DAs, they enter into an agreement with the creditor and debtor to confirm the contractual rights and obligations, and then acquire the debt from the creditor. The AMC, the debtor and its related parties also enter into a restructuring agreement that details the repayment amounts, the repayment method, repayment schedule, and any collateral and guarantee agreements. The restructuring returns and payment schedule are fixed at the time the restructuring agreements are made. 

  Yes, “upon completion of debt acquisition, the AMC assumes the pre-existing rights and obligations between the banks and debtors, and realises or enhances the value of the assets primarily through debt restructuring.”

  Unless of course they decide they’d rather just sell them to the highest bidder online. 

  As WSJ reports, China’s AMCs are now so flush with “duds” they’re finding it easier to auction the “assets” on Taobao.

  No, really.

  “These ‘bad banks’ nowadays would rather auction their inventory wholesale than restructure it the more traditional, painstaking way,” The Journal says, adding that “the latest round is a giant dump of soured loans on Alibaba Group’s popular Taobao e-commerce platform by China Huarong Asset Management Co., the nation’s largest distressed-debt buyer by asset size.” 

  Huarong intends to sell some CNY51.5 billion worth of nonperforming loans on Taobao. This follows Cinda’s listing of CNY4 billion worth DAs and as Barclays notes, is “in line with [the] view that AMCs in general will more frequently resort to a “wholesaling model” for distressed asset disposal (i.e. quick sale of acquired NPL to other parties, thereby earning slimmer margins as opposed to gains on asset value appreciation), given the increasing NPL supply amid the current credit cycle.”

  In other words, loans are going bad so quickly in China that AMCs need to resort to “wholesaling” in order to keep pace.;Here’s Barclays full take on the news:

  • We believe most of the reported distressed assets should be NPL from banks to be disposed of under the TDA model. According to media report (cnfol.com, 12 Dec 2015), the RMB51.5bn worth of distressed assets consist of debt claims to over 2,360 borrowers and 97% of these assets are lending secured by pledges, collaterals or guarantee. In terms of geographical distribution, 60% of the assets are from Zhejiang, Guangdong and Jiangsu province, according to the news report, consistent with the overall NPL formation trend we have observed in recent years.
  • The size of Huarong’s reported Taoba listing (RMB51.5bn) is larger than its outstanding TDA (RMB34.6bn) by the end of 1H15. According to news reports, it represents Huarong’s entire distressed asset book — which is unlikely to include the restructured distressed assets (RDA), in our view. Even if the company had not disposed of any TDA since 1H15, it would imply that it had acquired RMB16.9bn TDA so far in 2H15, exceeding the amount of RMB16.5bn acquired in 1H15. In comparison, Cinda’s listing of RMB4bn worth of distressed assets accounted for only 7% of its TDA balance as of 1H15 (RMB60bn).
  • We believe such a “wholesaling model” should reduce inventory risks for AMCs, thanks to the much faster asset turnover rate. In addition, it may provide more visibility on the operating trend of the business. As noted in our report (China Cinda Asset Management Co., Ltd.: Oversold high growth story, 13 Oct 2015), out of the RMB1bn worth of distressed assets Cinda auctioned on Taobao, 87% were successfully sold. However, given little disclosure on the acquisition cost, it is difficult to estimate the realized return rate on the disposed assets, which is quite sensitive to the assumption of acquisition cost (Figures 1 and 2).
  • In our view, the much larger size of Huarong’s reported Taobao TDA auction size compared to Cinda’s suggests that Huarong has a relatively weak franchise in the traditional NPL disposal business, as it may lack other means to dispose of the bulk of distressed assets acquired in recent years. Moreover, we believe AMCs should only dispose of assets that have relatively low appreciation potential under the new “wholesaling model” and aim to realize higher return rate on assets that have higher appreciation gain potential, which would generate sustainable income in the future even as it takes a longer time to dispose them of. As noted, we believe Cinda has a stronger franchise and strategic focus in the traditional NPL disposal business than Huarong in terms of both volume and return rate, thus we prefer Cinda given its higher probability of positive earnings surprise amid the NPL cycle.

  

  Apparently, business is good if you’re one of China’s big four bad banks. “Cinda said its first-half profit this year rose 47.7% to 7.8 billion yuan from a year earlier,” WSJ notes, while “Huarong’s net profit in the same period rose 39.4% to 9.87 billion.” In all, “profit at China’s Big Four asset management firms rose 27.6% last year.” 

  Of course all of this is completely opaque. There’s no way to determine what price the AMCs get at auction and although WSJ says “there are few signs that [AMC purchases from banks] have been outright bailouts of state lenders [given that] analysts estimate bad banks have been buying distressed assets at 40 cents on the dollar or less,” there’s no question that these operations are part of the larger effort to artificially suppress the offical bad loans data.

  The takeaway, of course, is that NPLs are soaring in China which is a harbinger of more trouble to come in 2016. On the bright side, you now know where to go if you want to bid on $8 billion is nonperforming loans to Chinese corporates.

  

  

  

  

  

  

• The New York Times Just Memory-Holed This Devastating Obama Admission

  By Sean Davis, co-founder of The Federalist

  

  The New York Times Just Memory-Holed This Devastating Obama Admission

  “Obama indicated that he did not see enough cable television to fully appreciate the anxiety after the attacks in Paris and San Bernardino.”

  A story published by the New York Times late Thursday night caused some major media waves. The story, which was written by reporters Peter Baker and Gardiner Harris, included a remarkable admission by Obama about his response to the recent terror attacks in Paris and San Bernardino, California.

  By Friday morning, however, the entire passage containing Obama’s admission had been erased from the story without any explanation from the New York Times. Here’s the passage that was included in the story when it was published Thursday night, courtesy of CNN’s Brian Stelter:

  Obama needs more cable news in his media diet? Revealing comment in a private meeting with newspaper columnists… pic.twitter.com/iUHz6Ey38g

  — Brian Stelter (@brianstelter) December 18, 2015

  In his meeting with the columnists, Mr. Obama indicated that he did not see enough cable television to fully appreciate the anxiety after the attacks in Paris and San Bernardino, and made clear that he plans to step up his public arguments. Republicans were telling Americans that he is not doing anything when he is doing a lot, he said.

  The version of the New York Times story that was published early Thursday evening indicated that Obama knew he was out of touch with the country on terrorism, and he thought that was due to not watching enough television. Obama critics immediately pounced on the stunning admission from the president, expressing shock that he would claim that a lack of TV time was the real reason for him not understanding Americans’ anxiety about terrorism.

  As of Friday morning, however, the passage containing Obama’s admission was gone. Newsdiffs.org, a web site which captures changes made to online news stories, indicates that the major revision to the NYT story happened late on Thursday night, several hours after the story was published (text with a red background and strike-through is text that was eliminated from the story; text with a green background is text that was added to the story since its last revision):

  

   

  Hey @peterbakernyt @GardinerHarris: Why did you delete the newsworthy part of your story? https://t.co/uc7L9yEhaa pic.twitter.com/ME8WJauXZ5

  — Phil Kerpen (@kerpen) December 18, 2015

  NYT: Oh that part embarrassed the boss? So sorry, we’ll delete it ASAP.
  https://t.co/uc7L9yEhaa pic.twitter.com/ME8WJauXZ5

  — Phil Kerpen (@kerpen) December 18, 2015

  The unexplained deletion of that major passage wasn’t the only significant change made to the story since it was first published. New York Times editors also changed the story’s headline four separate times, according to Newsdiffs.org. Each headline revision either put Obama in a better light or put the GOP in a worse one.

  The original headline when the story was first published was “Obama Visiting National Counterterrorism Center.” Less than two hours later, the headline was “Obama, at Counterterrorism Center, Offers Assurances On Safety.” Then the headline was changed to “Frustrated by Republican Critics, Obama Defends Muted Response to Attacks.” Two hours later, the headline was once again revised to “Under Fire From G.O.P., Obama Defends Response to Terror Attacks.” The most recent headline revision, which accompanied the deletion of the passage where Obama admitted he didn’t understand the American public’s anxiety about terrorism, now reads, “Assailed by G.O.P., Obama Defends His Response To Terror Attacks.”

  

   

  @allahpundit WaPo characterized the exchange the same way, so NYT/WH can’t claim off record/out of context. pic.twitter.com/5r47zT8emW

  — Sean Davis (@seanmdav) December 18, 2015

  The addition (116 words) was much longer than the deletion (66 words) of the section that made Obama look bad. https://t.co/CAqgHVDbyN

  — Sean Davis (@seanmdav) December 18, 2015

   

  Baker and Gardiner, the two reporters who authored the NYT story, have yet to explain why Obama’s admission about being out of touch with the public on terrorism was deleted from their story.

  UPDATE: The New York Times claimed in a statement late Friday morning that its deletion of the Obama passage was not “unusual” and that it was merely “trimmed for space in the print paper”:

  Statement from NY Times re: deleting that passage about President Obama not recognizing anxiety over terrorism. pic.twitter.com/PwZngc88G2

  — T. Becket Adams (@BecketAdams) December 18, 2015

  The problem with this explanation is that it doesn’t make any sense when you review the first major online revision, which Newsdiffs.org archived at 10:21 p.m. EST. In that version, only one substantive revision was made: the paragraph about Obama not watching enough cable TV was removed and replaced with two paragraphs about Obama’s plan to combat ISIS.

  The section that was removed contained 66 words. The section that was added in its place contained 116 words. If the New York Times was indeed “trimming for space” in that particular revision, it will need to explain why its revision to that section added 50 words.

  

  

  

  

• Inflation Watch – New Yorker Edition

  Hedonically-adjusted words for the wealthy…

   

  

   

  h/t @BCApplebaum

  

  

  

  

  

• Teflon Trump

  In 13 succinct words, Donald Trump summed up reality in American politics…

  The last thing our country needs is another BUSH! Dumb as a rock!

  — Donald J. Trump (@realDonaldTrump) December 18, 2015

  Crushing the hopes and dreams of 'the establishment', The Donald continues to surge in popularity as nothing 'sticks' to hit no matter what he says…

  

  Source: The Economist

  As The Hill reports, Presidential candidate Donald Trump is enjoying his largest lead over the GOP field following Tuesday's presidential debate, a new poll finds.

  The post-debate survey from Public Policy Polling (PPP) released Friday shows the real estate mogul with 34 percent support nationally among GOP voters, up 8 points from a mid-November poll.

   

  Trump's favorability has also grown. He's rated at 51 percent favorable, 37 unfavorable.

   

  “As the year comes to a close Donald Trump is just getting stronger,” Dean Debnam, president of PPP, said in a statement.

  “His support for the nomination is growing but so is his overall favorability which suggests his ceiling could be higher than often assumed.”
   

  *  *  *

  And finally, this…

  Thank you @jimmykimmel for the great book. Grandpa @realdonaldtrump is making good use of it!!! #WinnersArentLosers pic.twitter.com/LLYQVzOlYZ

  — Donald Trump Jr. (@DonaldJTrumpJr) December 18, 2015

  

  

  

  

  

• Europe, Turkey Close Airspace To Russian Warplanes Flying Anti-ISIS Missions, General Says

  Exactly a month ago, Russia took it up a notch in Syria by deploying Tupolev Tu-95 Bears, Tu-22 Blinders, and Tu-160 Blackjacks in the fight against anti-Assad elements including ISIS and al-Nusra.

  The first footage of the strategic long-range bombers in action surfaced on November 17 and served notice that Moscow is willing to double down on its commitment to the fight even if securing key cities like Aleppo proves more challenging that The Kremlin originally anticipated.

  According to Gen. Anatoly Konovalov, deputy commander of Russia’s long-range aviation force, Moscow’s long-range warplanes have carried out 145 sorties against terrorist targets since mid-November. “In total, long-range aviation aircraft in Syria have carried out around 145 mission sorties, some 1,500 bombs have been dropped and about 20 cruise missiles have been fired,” Konovalov said. 

  Those who have followed the Syrian conflict might recall that in early September (so before Moscow made Russia’s involvement “official”) the US pressured Greece to deny Russia use of its airspace on supply runs to Latakia. Subsequently, Bulgaria said it had “enough serious doubts about the cargo of the planes” to refuse overflight privileges.  

  Well in the course of detailing Russia’s long-range bomber missions, Konovalov noted that the Tu-160s were forced to fly from the airfield of Olenegorsk in Russia’s northwestern Murmansk Region.

  

  

  Why is this notable, you ask? Here’s Konovalov again: “Europe didn’t let us fly; Turkey didn’t let us fly, but we showed that even is such conditions we’re capable of coping with the task using airfields on the Russian territory.”

  In other words, Europe and Turkey declined to allow Russia to use their airspace on the way to conducting airstrikes against the very same terrorists that attacked Paris just four days before the long-range warplanes were deployed to the fight in Syria. “Russian pilots had to leave for Syria from Russia’s northernmost Olenegorsk military airport in order to bypass Europe and then cross the Mediterranean Sea toward Syria,” Sputnik adds.

  As for the EU, the refusal likely stems from the long-running dispute over Ukraine and the attendant economic sanctions which are of course part and parcel of generally frosty relations between Brussels and Moscow. As for Turkey, it’s fairly obvious why Ankara is seeking to make life difficult for the Russians. The two countries are embroiled in an intense war of words following Erdogan’s move to down a Russian fighter jet near the Syrian border and like closing the Bosphorus, hampering Russian bombers’ path to Syria by declning overflight is just one more way for Ankara to impede Moscow’s efforts to shore up Assad. 

  At the end of the day, this is still more evidence that when it comes to “cooperation” in the war on terror, one side isn’t doing its part.

  

  

  

  

  

• Global Trade Snapshot – "The Pain Is Getting Worse"

  Via SouthBay Research,

  Whether measured in volumes (container throughput via Hong Kong) or in dollars (US Import/Exports), the pain is the same: 16 months of steady collapse in global trade.  

  

  The pain is getting worse. 

  

  More containers are leaving the US and going back to China empty.  From the Port of Long Beach (a major US/China trade port):

  • After unloading cargo in the US, over 60% of inbound containers are leaving empty
  • The rate is the highest since the recession began in 2007
  • More empty containers than export containers: since June 2014, every month with only one exception, there have been more empty outbound containers than loaded export containers  

  The global trade slowdown was kicked off in late 2013 when the Chinese government took steps to cool the credit markets.  The bursting of the credit bubble drove a collapse in commodity prices.  Copper, for example, quickly tumbled because 60%~80% of copper imports were used as collateral for loans.

  

  And not just copper.  Commodity-backed loans quickly fell out of favor and physical demand began to drop.  In 2013 iron ore imports to China surged 20%+.  They have fallen -5% since then. 

  The bubble was popped, taking demand – and global trade – down with it.  

  Put differently, China was on a super cycle fueled by a combination of (1) a capital-intensive infrastructure build-out, (2) increasing penetration of global manufacturing, (3) a credit bubble, and (4) corporate gambling on real estate, commodities, and other assets.  Government measures popped the hot-money and flattened public sector spending.  Commodities and other assets have crashed back to earth, with much pain on the way.

  Signs of a Bottom.  But what comes next?

  From China (Hong Kong) to Europe, Taiwan and Korea a bottom has formed.

  

  For the US: No Bottom

  • Materials and Agriculture in bad shape
  • Other Exports contracting at faster pace ($ and units) 

  A strong dollar contributes to further US trade deterioration. 

  Separating the materials pain from other export pain

  

  US export headline figures are bad…

  • YTD (-$87B) Y/Y
  • For 2015, likely to contract (-$100B) Y/Y
  • Cuts GDP by -0.7% 

  …But concentrates on commodities

  Of the (-$87B drop), most is materials and commodity (i.e. price drops are the big issue)

  • Food/Petroleum/Steel: 70% or (-$61B)
  • Related equipment: 8% or (-$7B).  

  US Exports (ex Food, Autos & Oil) are shrinking Faster

  Strip out Food, Petroleum & even Auto exports.  Food & Petroleum because price collapses distort the value of trade.  Autos because auto exports are mostly sub-assemblies shipped to Canada and Mexico and re-imported to the US as cars and trucks.  What remains is a true view of demand by US trading partners. 

  Strong dollar dulls trade

  While total US exports have steadily contracted Y/Y every month in 2015 (except for January), the pace accelerated beginning in August, when the dollar strengthened against global currencies: o Jan-July (7 months): -$27B o Aug-Oct (3 months): -$23B 

  Going Forward: Trade Remains Under Pressure

  The two engines of growth – China and the US – are stalling again.

  Chinese demand is falling back again

  The most recent US-China trade data comes out of the Port of Long Beach (November cargo data).  Long Beach is a primary port for China/US trade.  We've already noted the acceleration in empty containers, indicative of even lower China imports from the US.  

  Further analysis shows:

  • Trend reversal: export growth has shifted from slight growth to contraction
  • Nominal export volumes are below last year's levels and the lowest since 2011.  

  

  KEY TAKEAWAYS

  • Best case: A bottom has formed and current activity reflects bouncing off the bottom
  • Worst case: China demand is slowing again, with no change likely until late 1Q 2016

  US Private Sector demand: No Longer Just Stalling

  • US core goods demand growth has stalled
  • Signs of contraction are popping up  

  

  In a sign of falling consumer and factory demand, US imports (ex Autos, Oil & Cell Phones) have contracted for the 1st time in 2.5 years.   The trend has shifted from stalling to contraction.  No wonder the BDI has fallen again
   

  Charting US 'demand' for stuff

  From railcar shipments to truck freight, the story is consistent: once we remove the impact of high volume commodities like oil and coal, cargo shipments are heading below last year's levels.

  

  The railcar shipment story reflects the overall global slowdown that began May 2014.

  The recent contraction is mostly driven by a collapse in coal shipments, but the general story is no growth in demand.    

  The slowdown is also echoed in truck shipping activity.

  Trucking activity is a critical data point because ~70% of all goods in the US move by truck.  It is a window into near-term (30~60 day) demand.

  Offered here are two different views of trucking conditions today.

  

  Cass is a company providing logistical support to truckers.  Their Freight Index measures cargo shipments.

  Note that 2015 shipments have been less than last year's, and have fallen to 2013 levels as of August.

  Another view comes from DAT (another trucking support company).  They measure demand in terms of a Load-to-Truck ratio (cargo shipment volumes relative to available truck capacity).  

  

  Again, evidence of decelerating domestic demand and at 2013 levels.

  Taken together, the trucking data is consistent with 4Q 2015 GDP of  < 1%.

  

  

  

  

  

• Despite Lifting Of Export Ban, Moody's "Bombshell" Sparks Panic In Energy Credit Markets

  The Senate and House passed the spending bill this week, which the President signed into law on the same day. Embedded in the law is a provision to lift the 40-year old crude export ban. The lifting of the crude export ban is a historic milestone, but seemingly less relevant for US E&Ps, Midstream and Oilfield Services as compared to a year and a half ago when WTI-Brent spreads were close to $9.00/bbl vs. the current spread of $0.80/bbl. Nevertheless, there is still a negative long-term impact on refiners should spreads re-widen.

  As BofAML notes,

  Moody’s dropped a bombshell on the market this week as it lowered its oil and natural gas price deck and subsequently placed 29 investment grade and BB rated US E&P companies under review for possible downgrades. The review reflects Moody’s expectations that industry fundamentals will remain weak through at least 2017. Moody's expects to conclude most reviews over the next several months. Companies may be downgraded 1-2 notches and some ratings could be confirmed as well. Moody's continues to assess single B and lower rated companies. We believe the price deck outlook will also have ramifications for Oilfield Service Ratings.

  Looking into 2016, we expect additional downgrades, which could lead to $30bn+ of Investment Grade Energy bonds falling into the High Yield Index if prices remain weak. Notably S&P and Fitch would have to take similar actions for falling angel scenario to play out.

  

   

  US high yield energy underperformed this week The BofAML US HY Energy Index sharply underperformed the BofAML US HY Master II Index this week, returning -5.4% vs. -1.4%. The underperformance was led by E&Ps and OFS, which returned -8.1% and -4.3%, respectively. Midstream & Distribution and Refining underperformed more modestly, returning -3.0% and -1.7%, respectively. Within the high yield energy space, single B rated energy performed the worst returning -6.7%, with by C rated and BB rated, returning -6.1% and -4.5%, respectively. These returns significantly underperformed the broader high yield market as C, single B and BB rated high yield returned -2.4%, -1.3% and -1.1%, respectively. Energy equities also significantly underperformed the broader market driven by E&Ps, Midstream MLPs and Oilfield Services returning -10.7%, -6.6% and -5.5%, respectively, vs. -0.5% for the S&P 500 while Refiners underperformed less dramatically, returning -2.9%.

  

   

  The news this week that Moody’s has made a sharp reduction to its oil and natural gas price assumptions is a pre-cursor to a series of negative credit rating actions, in BofAML's view. They anticipate a combination of outright downgrades and/or changes in outlooks to negative that could exaggerate the spread widening seen among investment grade producers over the past few weeks.

  In other words, the credit crisis just spread contagiously from HY to IG…

  

  

  

  

  

• As Wall Street Vultures Circle The Next Junk Bond Fund Casualty, A Familiar Name Emerges

  Now that all the suspense surrounding the Fed’s rate hike is gone, and only questions about the future of risk assets and deflation remain in a “Policy Mistake” world, the market’s attention is turning back to the disturbing topic which spread like wildfire two weeks ago when first Third Avenue, and then several more mutual and hedge funds announced they would liquidate while imposing redemption “gates.”

  To be sure, the spin doctors scrambled to make the Third Avenue junk bond fund collapse a unique, one-off situation, however subsequent fund flow data released late last week suggested that the pain for debt (and especially high yield) funds is only beginning. As we wrote on Thursday night, in a development that is certain to further exacerbate the (in)stability of the bond market, Bank of America wrote that there was  “Carnage in Fixed Income” as a result of the largest outflow from junk bond funds in at least a year.

  

  It wasn’t just junk: as the FT chimed in, investment grade – that all important category for funding stock buybacks – was also slammed as “investment grade bond funds in the US have been hit with a record wave of redemptions, a week after two high-yield funds announced they would shutter and another barred withdrawals as the credit market showed further cracks.” This was the largest outflows since Lipper began tracking flows in 1992.

  And despite rising briefly, bond prices resumed their fall over the past week following the fading euphoria from Yellen’s rate hike decision (which is very adverse for all fixed income products) the combination of redemptions and further price declines will quickly turn quite deadly for many funds who have been scrambling to juggle both sliding AUMs and droppinh prices, and are hanging on by a thread. 

  So in what may be an attempt to create some more volatility (after all a flatter yield curve means that only a surge in volatility can help bank profits) Citi’s William Katz writes that he “spent the last few days combing AUM releases, prospectuses, Morningstar, Simfund, and Statements of Additional Information in an effort to gauge High Yield dynamics across our Coverage universe” and specifically to determine which mutual fund(s) will follow Third Avenue next into the twilight zone.

  And so Wall Street has set its sights on the next junk bond fund casualty, a name which is well-known to most equity market participants: none other than Waddell and Reed (WDR), the fund which rose to infamy in the aftermath of the May 2010 Flash Crash, after it was initially blamed by the SEC as the culprit behind the Dow’s 1000 point crash, at least until the entire fiasco was re-blamed this past April on an Indian spoofer out of London, Nav Sarao who now faces life in prison just so the regulators can keep attention away the real market destabilizing, high frequency trading culprits.

  According to Citi, while the sector faces varying risks within the category that are likely to amplify attrition in the near term, Waddell seems most vulnerable for four key reasons:

  1. large percentage of U.S. Retail AUM;
  2. greatest percentage of LT AUM;
  3. among worst in class performance metrics; and,
  4. perhaps most worrisome, the highest allocations to CCC+ or lower rated investments within the largest Retail HY funds at the firm level – the latter potentially problematic should liquidity remain scant and/or credit take a further turn for the worse.

  To be sure, Citi does not want to be blamed for inspiring a bond fund panic, and caveats its forecast by saying that “the whole sector is overweight risk as all the players are overweight CCC+ or lower rated securities versus HYG (BLK’s HY ETF). While WDR is most at risk to elevated attrition, in our view, the Group at large could face a pick-up in redemptions, particularly given: 1) move by the Fed to raise interest rates; 2) aging economic cycle; and, 3) adverse seasonality before considering longer term ramifications associated with the pending DoL Fiduciary Reform proposal. That said, C’s strategists see some improvement in HY returns into ’16, suggesting attrition pressure could alleviate into the new year; though we see APAM, FII and TROW as the largest incremental beneficiaries.“

  Disclaimer in place, the writing of Waddell’s epitaph resumes: “Why is WDR in the worst shape? Four reasons: 1) HY is among highest percentage of U.S. Retail; 2) the category also amounts for among the highest percentage of LT AUM; 3) performance is among worst in class; and, 4) WDR is in the top three most levered to the highest risk investments in HY, with 46% of the portfolio rated CCC+ and below vs. a median of 22% for peers.”

  In its evaluation of Waddell’s risk, Citi first gauges its exposure:

  In Figure 1, we show Active Retail High Yield AUM relative to Total Retail LT AUM. Here AB (11%) and WDR (10%) have the highest level of Retail HY exposure, while IVZ (1%), AMG (1%), and BEN (1%) are seemingly least impacted.

  

   

  Next, Citi highlights Active Retail High Yield AUM relative to Total LT AUM (Retail + Institutional). Here WDR has the highest level of total exposure to HY followed by FII with 8% and 6%, respectively. Citi does however note that AB becomes less at risk when looking at its HY exposure against total assets.

  

   

  Another problem emerges when looking at flagship HY funds at each company relative to Total LT retail AUM. WDR has the highest leverage to one fund (High Income at 10%) followed by AB (High Income at 9%).

  

   

  Next, Citi looks at flow dynamics, and shows AUM and flows for each of the funds. It notes three key observations: 1) majority of YTD Fund flows have been negative with a few exceptions; 2) BlackRock High Yield Bond Fund has been the biggest gatherer of net flows with $3.2B of inflow YTD (as of 11/30); while, 3) Waddell’s High Income Fund has seen the highest level redemptions with $1.9B of outflow (as of 11/30).

  

   

  Finally, Citi breaks down the credit quality of each fund based on percentage of the portfolio with a credit rating of CCC+ or lower. All respective fund portfolios have a higher percentage of CCC+, or lower rated, products compared to HYG. HYG is used as the proxy for the HY index, as investors use the ETF as a proxy for overall High Yield performance and sector/credit rating exposure.

  Citi finds that AMG’s Third Avenue Focused Credit had the highest percentage of its portfolio levered to CCC+ or lower at 76% followed by Artisan’s High Income (55%) and WDR High Income (46%). On a comparable basis, HYG has a ~9% allocation to CCC+ or lower.

  

   

  Here is how Waddell stacks up by industry and credit quality relative to the HYG benchmark.

  

   

  In short, for Waddell And Reed the shorting sharks are circling, desperate for the drop of blood that will set them over the edge, even as the Wall Street vultures are once again circling above, sensing that the next risk-flaring catalyst is about to keel over and die.

  How to profit from this imminent death, in true Wall Street fashion? For all those who would like to repeat the Third Avenue paradigm and short the bonds most widely held by Waddell, in the process accelerating the fund’s demise and unleashing a liquidation scramble which would send the bond prices even lower, here is the list of top bonds held by WHIAX.

  

   

  Finally, here is Citi explaining why the demise of Third Avenue is just the beginning of an avalanche that will have dramatic consequences for the entire junk bond space: “The mismatch between FI and dealer inventory leaves very little room for error, particularly should either credit further deteriorate and/or liquidity further dry up, the latter certainty not aided by the Fed raising ST rates.“

  

  

  

  

  

  

• Huge Fukushima Cover-Up Exposed, Government Scientists In Meltdown

  Submitted by Sean Adl-Tabatabai via InvestmentWatchBlog.com,

  Fukushima radiation just off the North American coast is higher now than it has ever been, and government scientists and mainstream press are scrambling to cover-up and downplay the ever-increasing deadly threat that looms for millions of Americans. 

  

  Following the March 2011 meltdown at Japan’s Fukushima Daiichi nuclear power plant, reactors have sprayed immeasurable amounts of radioactive material into the air, most of which settled into the Pacific Ocean. A study by the American Geophysical Union has found that radiation levels from Alaska to California have increased and continue to increase since they were last taken.

  Naturalnews.com reports:

  The highest levels yet of radiation from the disaster were found in a sample taken 2,500 kilometers (approx. 1,550 miles) west of San Francisco.

   

  “Safe” according to whom?

   

  Lead researcher Ken Buesseler of Woods Hole Oceanographic Institution was one of the first people to begin monitoring Fukushima radiation in the Pacific Ocean, with his first samples taken three months after the disaster started. In 2014, he launched a citizen monitoring effort – Our Radioactive Ocean – to help collect more data on ocean-borne radioactivity.

   

  The researchers track Fukushima radiation by focusing on the isotope Cesium-134, which has a half-life of only two years. All Cesium-134 in the ocean likely comes from the Fukushima disaster. In contrast, Cesium-137 – also released in huge quantities from Fukushima – has a half-life of 30 years, and persists in the ocean, not just from Fukushima, but also from nuclear tests conducted as far back as the 1950s.

   

  The most recent study added 110 new Cesium-134 samples to the ongoing studies. These samples were an average of 11 Becquerels per cubic meter of sea water, a level 50 percent higher than other samples taken so far.

   

  Instead of presenting the findings as an alarming sign of growing radiation, however, Buesseler emphasizes that the Cesium-134 levels detected are still 500 times lower than the drinking water limits set by the U.S. government. The news site The Big Wobble questions whether Buesseler and Woods Hole’s heavy financial reliance on the U.S. government – Woods Hole has received nearly $8 million in research funding from several government agencies – plays any role in this emphasis.

   

  Situation still worsening

   

  The reality, however, is that radiation along the West Coast is expected to keep getting worse. According to a 2013 study by the Nansen Environmental and Remote Sensing Center in Norway, the oceanic radiation plume released by Fukushima is likely to hit the North American West Coast in force in 2017, with levels peaking in 2018. Most of the radioactive material from the disaster is likely to stay concentrated on the western coast through at least 2026.

   

  According to professor Michio Aoyama of Japan’s Fukushima University Institute of Environmental Radioactivity, the amount of radiation from Fukushima that has now reached North America is probably nearly as much as was spread over Japan during the initial disaster.

   

  The recent Woods Hole study also confirmed that radioactive material is still leaking into the Pacific Ocean from the crippled Fukushima plant. Cesium-134 levels off the Japanese coast are between 10 and 100 times higher than those detected off the coast of California.

   

  Without directly challenging the U.S. government’s “safe” radiation limits, Buesseler obliquely references the fact that any radioactive contamination of the ocean is cause for concern.

   

  “Despite the fact that the levels of contamination off our shores remain well below government-established safety limits for human health or to marine life,” he said, “the changing values underscore the need to more closely monitor contamination levels across the Pacific.”

  *  *  *

  Don't worry though Olympians, everything will be fine in a few billion or so years.

  

  

  

  

  

• The Natural Gas Market Play

  By EconMatters

  

    

  Bearish Sentiment

   

  A lot of bearishness has been priced into the natural gas market due to many factors including robust production, bulging inventories, and mild weather on average across the country. Natural gas in the futures market reached a low of $1.68 MMBtu for Henry Hub on the January contract this past week. Natural gas closed trading on Friday at around $1.77 MMBtu.

   

  These prices for natural gas are the lowest in 15 years and the questions that accompany such lows are the following: How low can prices go, do these low prices create a buying opportunity, what kind of timeframe is involved, and what is the best strategy for capitalizing on a rebound in natural gas prices.

   

  

  How Low

   

  In regard to how low natural gas can go, back in 2012 traders and analysts were talking about sub $1 MMBtu natural gas based on the fact that the derivative product`s markets related to natural gas production were actually booming for the specialty gases. Hence a producer was incentivized to produce natural gas below costs because the margins were so high for the specialty gases associated with producing natural gas in the drilling process. In 2012 natural gas for the front month contract in Henry Hub futures dipped briefly below $2 MMBtu around the time when traders were discussing sub $1 natural gas.

  Read: NRG Energy is a Free Roll on Natural Gas Prices

  Given the fact that even the best traders and market analysts have no idea the exact low point for any market, let us just use this $1 MMBtu price for the worst case scenario for how low natural gas prices can go. I firmly believe in the rationality of financial markets in the longer term, and from this follows the old trading axiom that there is no cure for low prices like low prices. I don`t think there is that much more money to be made from the short side of the natural gas market over the same three year time frame.

   

  

  Buying Opportunity

   

  Therefore I view the current price of natural gas as a buying opportunity over a three year time horizon. I realize that I cannot predict the bottom in the market, and I am not going to try and be perfect regarding timing the turn in the market. However, I do predict given the decline in oil and gas drilling rigs, the economics of producing below longer term costs, and the fact that markets often lead the fundamentals, that this represents a buying opportunity in natural gas. I am basically buying when everyone else and their grandma is selling the natural gas market. I am sure corporations, wildcatters and trading firms are all making business decisions based upon these low natural gas prices, and they are not from the bullish side of the equation. I want to be on the other side of this trade given my three year time horizon.

   

  

  Timeframe

   

  As I mentioned the timeframe for this trade or investment decision to play out is three years. Do I think the natural gas market will put in a bullish move more towards the front end of this timeframe? I would say the probabilities are sufficient to suggest that I may be trading around a core position that has substantial profits during this 3 year time frame, as a year is an eternity in a market like natural gas. Natural gas can easily move to $5 MMBtu in a reduction in production and an extremely hot summer, followed by an overly brutal winter heating season.

   

  The market can really trend, it can spike, it can retrace, and it can do all kinds of strange things. Remember two winters ago? I am confident the investment makes money over a three year time frame, and it is up to the individual where and when to take profits on the trade. It may make sense to reallocate capital after a nice fifteen month`s trending move in natural gas, or it may make sense to just ride the trade well past three years if circumstances dictate.

   

  

  Upside Variables?

   

  There are so many unpredictable variables like more Power Generation continuing to transfer from coal based to natural gas, the economy starts growing 3 to 4% instead of 2%, demand outstrips existing capacity in the electricity market, demand for a period outstrips supply in natural gas, an insane hurricane season knocking production offline and doing damage to natural gas infrastructure.

   

  Read: The Irony of Keystone XL

  What I do know is one way or another natural gas somehow finds its way back to the $5 MMBtu level even during the shale revolution. I expect that sometime over the next three years natural gas finds its way back to this ‘natural gravitational’ market price. It may even make several trips up to $5 MMBtu over the course of the next three years. It was just over $7 MMBtu two winters ago after the last crushing of the market back in 2012 to below $2 MMBtu. It took just two short years to really move well above the $5 level.

   

  

  Best Strategy

   

  The best strategy for playing this move depends on a trader`s resources. Most traders are not going to employ swaps, options or other derivatives due to resource constraints and sophistication concerns. Investors could buy futures and just roll over the positions each month, buy back dated futures contracts, or even buy stocks highly correlated to the price of natural gas. But with bankruptcy and individual company specific concerns I would stay away from this option until more visibility on the ramifications of sub $2 natural gas plays out on companies` balance sheets.

   

  You don`t want to be forced out of the trade due to factors outside of your control like management incompetence that wipes out your equity stake before natural gas prices recover which is open-ended to a large extent. Rolling over the futures contract may be more than the average investor is willing to stomach, and the volatility of the front month futures contract may create havoc on one`s sleeping bliss after a poor inventory report. The back month futures contracts have some premium factored into them as well, and liquidity concerns are involved.

   

  

  UNG ETF

   

  I would recommend using the UNG ETF, it has been around since 2007, has decent volume, consists of natural gas futures contracts, and roughly tracks the price of the natural gas market over the last eight years. It isn`t going to totally fall apart like some of those poorly constructed ETFs that are supposed to track markets but inevitably lose value over time regardless of long term price returns of the underlying assets being tracked.

  Read: Obama Put Taiwan on ISIS Radar

  In short, this instrument will do what an investor needs to accomplish to track any rebound in natural gas prices over the next three years without being margined out of the market or having to worry about timing this rebound perfectly. I would not worry about trying to scale into a position based upon price. If one is using size on this investment then a nice Algo buying program will suffice for next week`s action. We are not trying to pick a bottom here, we expect that prices can go lower, but the current price represents value for us over a three year time frame both from a trading an investment standpoint.

   

  

  The question here is can I make money at these prices if I buy right now over the next three years. Am I going to be able to stay in this trade until the turn plays out in the natural gas market? And will I be able to at least double my initial investment over this timeframe if this is my longer term goal? My analysis is that the affirmative case can be made for these questions. The minimum profit goal is 20% on this investment play. An investor should not be looking to take any profits on this play until this minimum profit threshold is met.

   

  Therefore, assuming an investor has an average position price in UNG around $7 a share, the minimum profit target would be $8.75 a share for any timeframe during this three year investment window for justifying taking off this trade from a profit perspective. This trade profile is built upon being rewarded for taking risk and providing liquidity to a market that is basically in freefall mode. A 5% profit target on the trade is just poor risk reward trade management. Keep this in mind when thinking about profit targets for this investment.

   

  Therefore unless I have a better opportunity with the same risk to reward profile for this investment capital over the next three years then this is a good place to park some capital and put it to work for me. I realize this play seems highly contrarian in the current market environment, and this is a positive, it means that I am being paid for taking this risk, and my upside reward is what makes this play worthwhile in my trading book.

  © EconMatters All Rights Reserved | Facebook | Twitter | Free Email | Kindle

  

  

  

  

• "Most Liberal" US College Unleashes Demands For "Deconstructing The White Supremacist, Capitalist System"

  The manifesto for the micro-aggressives has been unleashed on an unknowing "safe-space"-seeking, politically-corrected, American public. Students at no lesser liberalist college than Oberlin, Ohio, have released 14 pages of full social-justice-warrior-tard warning that they are "not polite requests, but concrete and unmalleable demands."

  As DailyCaller.com reports, the list, which bubbled up online over the past three days, is no less than 14 pages in length, and includes a staggering 50 demands, many of which divide into several sub-demands. Not only are the demands numerous, but they are quite severe and are paired with stern rhetoric. The document opens as follows:

  Oberlin College and Conservatory is an unethical institution. From capitalizing on massive labor exploitation across campus, to the Conservatory of Music treating Black and other students of color as less than through its everyday running, Oberlin College unapologetically acts as [sic] unethical institution, antithetical to its historical vision. In the 1830s, this school claimed a legacy of supporting its Black students. However, that legacy has amounted to nothing more than a public relations campaign initiated to benefit the image of the institution and not the Africana people it was set out for…

   

  [T]his institution functions on the premises of imperialism, white supremacy, capitalism, ableism, and a cissexist heteropatriarchy. Oberlin College and Conservatory uses the limited number of Black and Brown students to color in its brochures, but then erases us from student life on this campus. You profit off of our accomplishments and invisible labor, yet You expect us to produce personal solutions to institutional incompetencies. We as a College-defined “high risk,” “low income,” “disadvantaged” community should not have to carry the burden of deconstructing the white supremacist, patriarchal, capitalist system that we took no part in creating, yet is so deeply embedded in the soil upon which this institution was built.

  After continuing in this manner for a while and outlining some broad goals (such as “the eradication hegemony in the curriculum”), the document begins to reel off demands, warning that they are “not polite requests, but concrete and unmalleable demands.” If Oberlin doesn’t capitulate, the document warns of a “full and forceful response,” though, despite the detailed demands, what the “response” would be remains entirely undefined.

  • A 40 percent increase in the number of black students in the school’s jazz department by 2022 (demands related to the jazz department are in general very numerous).

  • The elimination of the school’s No Trespass list, which bars certain individuals deemed unsafe from entering campus, because it includes blacks in disproportionate numbers.
  • The creation of a bridge program that will recruit recently-released prisoners to enroll at Oberlin for undergraduate courses
  • “A more inclusive audition process in the Conservatory that does not privilege Western European theoretical knowledge over playing ability.”
  • Adding Africa-centric course requirements for all departments that have existing Western civilization-themed course requirements. For example, history majors are required to take a U.S. history course, so they should also be required to take a course on African history prior to 1800.
  • The establishment of special, segregated black-only “safe spaces” across campus, including in the central library and the school’s science building.
  • An $8.20/hour stipend for black student leaders who are organizing protest efforts
  • The creation of a school busing system for Oberlin, Ohio’s K-12 schools, paid for by the college.
  • The immediate firing of eight college employees for various offenses, including music theory professor Allen Cadwallader for “the racist undertones of his course as well as the way in which he treats black Jazz who take his course, which is rooted in white supremacy.”

  While the long list of demands clearly involved a substantial amount of effort, one interesting aspect is its authorship is not totally clear. The original Google Docs post of the demands (which has since been deleted) credits them to ABUSUA, a black student group, but that group doesn’t appear to have much of a public online presence, and there’s also no outside evidence of them taking credit for it. But some other Oberlin organizations, like its pro-Palestine group, have publicly endorsed the demands, and there was also an online document collecting signatures which, according to the blog Legal Insurrection, surpassed 400 before also being taken down.

  Whatever the demands’ origin, it’s not a huge surprise that they’ve popped up at Oberlin. Two years ago, the school had a series of hate crimes faked by liberal students, and earlier this year an appearance by feminism critic Christina Hoff Sommers prompted students to create a special “safe space” for students who felt emotionally traumatized by her lecture.

  The full list  of "demands" are presented below. Enjoy.

  

  

  

  

  

• Is This How The Dollar Gets Replaced?

  Submitted by Chris via CapitalistExploits.at,

  I’m sitting here at my desk, laptop open, 7 browser tabs open, a half dozen documents open, emails popping in every few minutes, Skype messages coming in, and bunch of PDF reports open for review. A smartphone collects calls and texts coming in, and next to this is a Kindle with 3 books I’m reading at the moment. That’s just the technology.

  Then I have a fly buzzing around, annoying the dog sitting at my feet. And as I look outside the window, a jasmine bush in full flower attracts bees collecting nectar from it.

  Taking it all in it struck me why we are wired for narrow-minded thinking. Why the majority misses some of the biggest changes that have taken place. Changes that have taken place right under our noses.

  You see, in order to make sense of everything around us our brain has to simplify it. Thousands of auditory, tactile and visual inputs every minute bombard us. In order to survive we have to narrow down and focus on what’s important. It’s a human trait which ensures survival and it’s been around ever since our grubby-looking ancestors were to be found running from lions in the savannah.

  Our brain has to quickly categorize, file, and trash information. It sure is an efficient search and retrieval system. But in its search for efficiency the brain looks at a particular piece of information, goes and rummages around in the back and retrieves anything similar as a reference point.

  The more instances of our brain coming up with such reference points, the greater our reinforcement of that particular item or topic. If we’re staring at a strange round-shaped object trying to figure out what it is, our brain searches diligently for information on round shaped objects – baseball, cricket ball, tennis ball… you get the picture. It then attempts to match those retrieved pieces of data with what we’re looking at.

  The default in our brain is therefore to something which already exists, or something which looks like something which already exists. It is far easier for our brain to compute this and takes far less work.

  Remember the brain is an absolute energy hog, consuming a quarter of your body’s energy even while it accounts for barely 2% of your body weight and it therefore is constantly attempting to conserve energy.

  This explains why drastic, revolutionary, disruptive answers to existing problems very rarely come from existing channels or are identified by those who are embedded in the particular sector experiencing the problem.

  To prove my point consider that Uber wasn’t conceived of by a taxi driver. Paypal wasn’t birthed by a banker. Airbnb wasn’t the product of hoteliers, and Instagram wasn’t the brainchild of a photographer. All have disrupted industries in their own right and yet none look remotely like the industry which they disrupt.

  What Does All This Have to Do With the Dollar and Currencies?

  Ask nearly anybody what will replace the mighty greenback and you’ll get a mishmash of politically inspired views. The Chinese renminbi, gold, or an SDR currency are all popular. I’m sure you’ve heard the arguments before.

  I submit to you that the future of currency will be none of the above. It will not be a centralized currency. In fact, it may not be one currency at all. It will not be coercive, and it will be transacted on the blockchain and will be market driven.

  The dollar will be replaced by asset transfers sitting on the blockchain protocol. This is the world’s largest distributed computing project on Earth. It’s a global payment platform which doesn’t require any centralized authority for its functionality, and it’s as close to incorruptible as anything the world’s ever seen, including Mother Theresa.

  New technology is often misunderstood. Anything new and different is initially going to be misunderstood. Well-meaning critics dismiss it together with self-interested critics whose profit stream is connected in some way.

  This is true of Bitcoin and its underlying architecture – the blockchain.

  Ask yourself why today we use fiat currency and I think there are essentially two main reasons:

  1. We trust it long enough to hold it for periods of time, and
  2. The alternatives aren’t as liquid.

  What happens when alternatives start rearing their heads and they don’t require trust. Note: I said DON’T require trust not that are trustworthy. There is a difference. Certain fiat currencies have been trustworthy for brief periods of time but the blockchain provides a trustless system. That solves the first reason why fiat currencies are used.

  What happens when you add liquidity to alternatives?

  The answer is that market forces take hold and the consumer makes the decision to transact based on what’s best for him. Couple that with frictionless transactions and liquidity can explode faster than Uber grabbing market share of the taxi industry.

  I’ve not even mentioned the fact that you can stand in the Sahara desert and transfer an asset to Hong Kong on your smart phone for free, in seconds, and far more securely than any transaction you’ve ever conducted. I’ve not mentioned that the functions of authentication, validation, escrow and delivery are handled seamlessly and for close to zero cost.

  I’ve not mentioned that the blockchain is asset agnostic. What this means, and this is important for the dollar, is that if you wish you can trade your 1965 Ford Mustang on the blockchain; and you should, because quite frankly, old cars are horrible, noisy, uncomfortable and bring down the neighborhood. I know, I’ve got a neighbour who stores a gazillion of these horrible things.

  Why is this important for the dollar?

  In case it isn’t obvious. A world where money is decentralized means a world where nothing you’ve ever seen before will become the new norm and the new norm is unlikely to include a scrap of paper issued by a bankrupt government.

  I very much look forward to it.

  “We want a whole sequence of companies: digital title, digital media assets, digital stocks and bonds, digital crowdfunding, digital insurance. If you have online trust like the blockchain provides, you can reinvent field after field after field.” – Marc Andreeson

  

  

  

  

  

• The Market Has Spoken: The Fed Made A Policy Mistake And "Quantitative Failure" Looms – What Comes Next

  Now that the Fed’s rate hike is in the history books and Yellen is eager to demonstrate that the Fed is confident enough in the US economy by unleashing the first tightening cycle in nearly a decade, market participants are dramatically shifting their attention, from the rate hike as a bullish key catalyst in the “renormalization” timeline (“buy stocks” because the Fed wouldn’t risk recession if it wasn’t confident in the economy), to the actual consequences of the Fed’s dramatically changed reaction function, which as we explained previously, was far more hawkish than the market initially expected. 

  Most important however, as we have repeatedly discussed ever since August, is the market’s obsession with whether the Fed just made a critical “policy mistake.” As Bank of America’s Michael Hartnett, one of the foremost skeptics that the Fed is doing the right thing, explained previosly, “the “tail risks” to “deflationary expansion” are high. Like a game of Jenga, a bull market built by central banks can collapse if further BoJ/ECB QE and Fed hikes engender US dollar spikes & US EPS & EM/commodity swoons, FX-wars & volatility rather than a fullblown recovery.“

  The threat, therefore, is that after “Quantitative Success” pushed up stocks from 666 to over 2,100 in 6 years, the opposite may be on deck now, hence the neo-narrative of Quantitative Failure and the dual risk that:

  • Fresh attempts at QE in Japan & Europe are met with investor rebellion in the absence of clear signs of economic improvement.
  • Fed tightening into a “deflationary expansion” proves a “policy mistake” by causing harmful US dollar appreciation.

  For signs of the first look no further than the market’s profound disappointment with the BOJ announcement on Friday morning, which sent the Japanese Yen plunging at first, only for the carry currency to soar once the market realized that the BOJ’s ability to intervene in markets may be far more constrained than had been anticipated, as we showed yesterday…

  

   

  … and of course, the ECB’s historic disappointment on December 3 when Mario Draghi promised the sun, moon and stars and delivered… almost nothing, likewise sending the EUR soaring and crushing countless macro hedge funds.

  But how to determine if the Fed made a mistake, and more importantly if the market thinks the Fed made a mistake? We presented Hartnett’s answer to that key question as well, saying that upon a rate hike:

  • Watch the long-end
  • If the long-end concurs with the Fed’s view of economic recovery, then banks, cyclicals and value stocks will receive a bid. Asset allocation toward “strong
    dollar” & “Fed tightening plays” will harden, with the exception that value will likely outperform growth
  • If the long-end rallies, signaling a policy mistake, then cash, volatility, gold & defensive growth will be the way to go.

  So what happened since the Fed hike? Well, after a one-day kneejerk rebound in risk, coupled with a drop in vol, gold and virtually no reaction in the long-end, the result, as shown below, has been a very disturbing one for the Fed. 

  As can be clearly seen, the market has responded not only by endorsing a deflationary outcome with the 30Y jumping, WTI sliding, but also stocks tumbling, with the Thursday and Friday drop in the S&P matching the worst plunge in the market since the ETFlash crash of August 24.

  

   

  In short, the market has spoken: this is a “policy mistake”, or as Bank of America – which also explained recently in 8 very charts why the Fed just launched the next Bear Market – called it “Quantitative Failure.”

  The question then becomes: what happens next when the “boxed in” Fed realizes it has erred, and scrambles to undo the damage, any last trace credibility be damned? Here is Hartnett’s answer to that as well:
  

  Since the risk of Quantitative Failure brings with it the risk of more extreme policies/politics in 2016, the natural hedges are gold & volatility. Gold in particular will be interesting to watch in coming months. The Fed’s determination to raise rates means gold prices should fall. If in contrast gold rises with Fed hikes that’s a clear sign of a “policy mistake” and investors anticipating the need for more inflationary policies next year.

  In other words, as we have said for the past 2 years, since the Fed does not ever have the option of waving the white flag of surrender and admitting defeat (at least as long as there is fiat currency left for its to print and debase) it will have no choice but to unleash even more violent, “unorthodox”, inflation-stimulating policies in the coming months (such as the monetary paradrops we discussed here in September and October). When that happens, the biggest winner will be the one asset class that as of this moment has never been more hated, the one whose hedge fund net short position has never been greater: Gold.

  

  Gold rose 1.5% on Friday while risk was turmoiling, but is still below the FOMC announcement price. That means that while risk assets have started pricing in the Fed’s misstep, gold and its record hedge funds shorts are still mostly unaware.

  

  

  

  

  

• Spreading The Christmas Fear, Ho Ho Hobama

  Comply, you cynics!

   

  

   

  Source: Ben Garrison

  

  

  

  

  

• Hedge Fund Gold Positioning Has Never Been This Extreme

  Having closed lower for 8 of the last 9 weeks, gold has become the momentum-chasing hedge fund community's latest target. Despite empirical data showing no relationship between higher rates and 'lower' gold, the meme continues as Managed Money added to its already record short position in gold futures this week, pushing the leveraged bets to the most extremely bearish in history.

   

  

   

  As we recently concluded,

  Our assessment is that one simply cannot afford to ignore the fact that gold provides insurance against a potential blow-up of the global fiat money and debt bubble – regardless of its near to medium term price performance. Its performance is in any case only negative in USD terms – in no other currency can gold be deemed to be in a significant bear market. In fact, as we have recently pointed out, it is already making new all time highs in some fiat currencies.

   

  Gold’s characteristic as a hedge/insurance against the consequences of policymaker machinations has recently gained additional importance in light of the fact that the echo bubble is clearly fraying at the edges already. Sooner or later there will be another full-blown crisis, at which point gold ownership will definitely be of great advantage. It is often said that the only certainties in life are death and taxes, but that is not quite true. There is another apodictic certainty: all booms driven by credit expansion will eventually blow up.

  

  

  

  

  

• Market Shudders As Brazil Risks "Succumbing To Fiscal Populism" With New FinMin

  The decision to approve a 2016 budget guidelines bill that targets a 0.5% primary surplus as opposed to a 0.7% surplus may have been the last straw for (former) Brazilian FinMin Joaquim Levy.

  Speculation had been swirling for months that Levy’s exit was imminent as Brazil’s intractable political crisis made pushing unpopular austerity measures through Congress all but impossible for the University of Chicago-trained economist.

  “In many ways, Levy’s task was daunting from the moment he took office,” Bloomberg notes. “Not only was the country already sliding into recession — the result of plunging prices for Brazil’s commodity exports and four years of Rousseff’s interventionist policies — but a corruption scandal emanating from the state-run oil giant was spreading fast.” Here’s a look at the recession in historical context:

  

  Well, the nightmare came to an end for Levy on Friday when the finance ministry announced that he would step down and Rousseff announced the confirmation of Planning Minister Nelson Barbosa as the new FinMin.

  

  (Levy and Barbosa)

  Barbosa, who holds a PhD degree in Economics from the New School for Social Research in New York and a Master’s degree and BA in Economics from the Federal University of Rio de Janeiro is, to quote Goldman, “an experienced public servant [and] is widely believed to have been one of the intellectual forces behind the so-called “New Economic Matrix” developed and implemented at the Ministry of Finance under former Finance Minister Mantega.”

  “In essence” Goldman continues, the idea is that “growth and development will emanate from fiscal expansion, lower interest rates, currency devaluation, trade protection, national content rules and import substitution policies.” Right. So not exactly what the market might have wanted to see in a country that desperately needs to double down on fiscal rectitude.

  “Levy leaving is a clear negative,” Phillip Blackwood, managing partner at EM Quest Capital LLP told Bloomberg on Friday as the BRL real extended losses and stocks closed at six-year lows. Here’s some historical context on the fiscal situation:

  

  Barbosa sought to calm market jitters, telling reporters that he is committed to fiscal adjustment and the countries fiscal goals will not change with Levy’s exit. Obviously that’s a bit difficult to believe because if the fiscal goals Levy advocated had been compatible with the direction the government intends to move in going forward, he wouldn’t have been forced out in the first place.

  For their part, Moody’s (which is the last of the big three ratings agencies to maintain an IG rating for Brazil) says Levy’s ouster “complicates fiscal consolidation.” As a reminder, from Credit Suisse: 

  

  Meanwhile, Eurasia says the President’s choice of Barbosa “certainly reinforces [an] increasingly bearish outlook should Rousseff in fact win the impeachment battle.”

  The new FinMin “now faces the daunting challenge of convincing investors and rating companies that he has the political support and personal conviction needed to shore up fiscal accounts,” Bloomberg adds. “While Rousseff says she backs measures to raise taxes and cut spending, her allies are reluctant to tighten the belt amid surging unemployment and shrinking wages.” Here’s some further color from BofAML: 

  Naturally, the focus turns now to the direction of the fiscal policy under the new FinMin, which should affect the recovery in confidence and thus growth. With mounting downside risks to growth that heavily weigh on the government’s revenues and the ongoing challenges in passing fiscal measures in Congress, tangible results over statements will now be needed to improve expectations over primary fiscal results ahead.

   

  Monetary policy may feel additional pressures to control inflation expectations under a less intense fiscal contraction, and our perception is that the risk for a hike in January continues to increase. 

   

  The continuing depreciation of the BRL should play against inflation expectations also, further increasing BCB’s pressures to deliver hikes ahead. 

  So in other words, Barbosa’s appointment will put more pressure on the BRL which will in turn force Copom to get more aggressive with procyclical measures to control inflation which is precisely the opposite of the “New Economic Matrix” tenets as outlined by Goldman above. 

  In short, this isn’t good from the market’s perspective and you can bet the BRL and the Bovespa will likely trade lower up to and until Rousseff and Barbosa can establish some degree of credibility when it comes to managing a rapidly deteriorating fiscal situation. On that note we close with one last quote from Goldman: 

  Our, and the market’s, main concern is that the complex political picture, the beginning of impeachment proceedings against President Rousseff, and growing pressure from some political parties and social movements close to the government for a new policy direction may lead the administration to, at best, soften its commitment to fiscal austerity, and at worst, succumb to the temptation of fiscal populism.

  *  *  *

  Bonus: selected charts from Credit Suisse:

  

  

  

  
  

  

  

  

  

  

• On "Average", Stocks Are Testing The Post-2009 Uptrend

  Via Dana Lyons' Tumblr,

  At this moment, an index that tracks the average stock move is testing the uptrend since 2009.

  We talk often about the Value Line Geometric Composite (VLG). To refresh, the VLG is an unweighted index of about 1700 stocks that essentially tracks what the median stock in the market is doing. As such, we believe it is the truest measure of the health of the broad market. Most recently (on Monday), we noted that the VLG was testing what we have called a “pass/fail” level on its chart. That is, the response of the VLG at this level may tell us a lot about whether the next big move in the market is up or down. It may even, arguably, dictate the fate of the post-2009 cyclical bull market for the broad market of stocks. The VLG passed the test on September 29. We’ll see if it can pass it again here.

  Well, the VLG has a sister index called the Value Line Arithmetic Index (VLA). What the VLA does is track the average move of the same ~1700 stocks. So it is similar to the VLG but can be more heavily influenced by big movers. Like the VLG, the Value Line Arithmetic Index is testing a key price level as well. Specifically, it closed today right at the Up trendline extending from the 2009 low.

   

  

   

  Now, like the VLG, we are not aware of any investable instruments tied directly to the VLA (there used to be a VLG futures contract). Thus, you may wonder why we bother looking at the index – and how could we reasonably apply technical analysis to the VLA chart.

  To answer the 2nd question, in our extensive experience, it’s because prices tend to adhere closely to basic technical tools even though no one is trading the index directly. Witness the post-2009 Up trendline, extending from 2009 and up through the 2011 lows. At the late September low, the VLA held precisely at the trendline. Is that mere coincidence? We don’t think so.

  So why bother looking at the index anyway? Well, precisely because it does tend to follow some of the basic TA and charting tools. Therefore, the behavior of the VLA can be very instructive regarding the health of the broad stock market. For example, when the index was the first to break out to all-time highs in 2010 = healthy. When the VLA failed to make a new high along with the major averages in May = unhealthy. When the VLA failed to get closer than 7% from its April high during the post-September bounce = really unhealthy.

  Therefore, although nobody is trading the index, we can still glean valuable information from it. And the information we’ve been getting from the VLA points to an unhealthy state of affairs in the broad market. Importantly, we will watch the present test of the post-2009 Up trendline. If the VLA can hold here, perhaps a year-end rally can still materialize.

  If the trendline fails to hold (like it did for the VLG in August), then the market may be in for a further decline. And considering the magnitude of the trendline being broken, it may not be just your “average” decline.

  *  *  *

  More from Dana Lyons, JLFMI and My401kPro.

  

  

  

  

  

Digest powered by RSS Digest