Today’s News December 31, 2015

• Swiss Army Chief Warns Of Social Unrest, Calls Upon Citizens To Arm Themselves

  Swiss army chief André Blattmann warned, in a Swiss newspaper article on Sunday, the risks of social unrest in Europe are soaring. Recalling the experience of 1939/1945, Blattman fears the increasing aggression in public discourse is an explosively hazardous situation, and advises the Swiss people to arm themselves and warns that the basis for Swiss prosperity is "being called into question."

  

  As Deutsche Wirtschafts Nachrichten reports, speaking on the record for the first time since the November Paris terror attacks, Blattmann told the paper that despite a rise in security incidents over the past two years Switzerland’s means of defence were being reduced.

  The situation is growing increasingly risky, Blattman begins.

   

  "The threat of terror is rising, hybrid wars are being fought around the globe; the economic outlook is gloomy and the resulting migration flows of displaced persons and refugees have assumed unforeseen dimensions."

   

  Blattmann: "Social unrest can not be ruled out", the vocabulary in public discourse will "dangerously aggressive."

   

  "The mixture is increasingly unappetizing" Blattmann sees the basis of Swiss prosperity, "has long been once again called into question."

   

  He recalls the situation around the two world wars in the last century and advises Switzerland, to arm themselves.

   

  The Swiss Armed Forces had held many years ago maneuver, in which the starting point was focused on social unrest in Europe.

  *  *  *

  Swiss politicians, of course, responded with disbelief to the army chief and hold his warnings are exaggerated.

  

  

  

  

  

• Guest Post: "American Capitalism" No Longer Serves Society

  Authored by Paul Craig Roberts,

  One hundred years ago European civilization, as it had been known, was ending its life in the Great War, later renamed World War I. Millions of soldiers ordered by mindless generals into the hostile arms of barbed wire and machine gun fire had left the armies stalemated in trenches. A reasonable peace could have been reached, but US President Woodrow Wilson kept the carnage going by sending fresh American soldiers to try to turn the tide against Germany in favor of the English and French.

  The fresh Amerian machine gun and barbed wire fodder weakened the German position, and an armistance was agreed. The Germans were promised no territorial losses and no reparations if they laid down their arms, which they did only to be betrayed at Versailles. The injustice and stupidity of the Versailles Treaty produced the German hyperinflation, the collapse of the Weimar Republic, and the rise of Hitler.

  Hitler’s demands that Germany be put back together from the pieces handed out to France, Belgium, Denmark, Lithuania, Czechoslovakia, and Poland, comprising 13 percent of Germany’s European territory and one-tenth of her population, and a repeat of French and British stupidity that had sired the Great War finished off the remnants of European civilization in World War II.

  The United States benefitted greatly from this death. The economy of the United States was left untouched by both world wars, but economies elsewhere were destroyed. This left Washington and the New York banks the arbiters of the world economy. The US dollar replaced British sterling as the world reserve currency and became the foundation of US domination in the second half of the 20th century, a domination limited in its reach only by the Soviet Union.

  The Soviet collapse in 1991 removed this constraint from Washington. The result was a burst of American arrogance and hubris that wiped away in over-reach the leadership power that had been handed to the United States. Since the Clinton regime, Washington’s wars have eroded American leadership and replaced stability in the Middle East and North Africa with chaos.

  Washington moved in the wrong direction both in the economic and political arenas. In place of diplomacy, Washington used threats and coercion. “Do as you are told or we will bomb you into the stone age,” as Deputy Secretary of State Richard Armitage told President Musharraf of Pakistan. Not content to bully weak countries, Washington threatens poweful countries such as Russia, China, and Iran with economic sanctions and military actions. Consequently, much of the non-Western world is abandoning the US dollar as world currency, and a number of countries are organizing a payments system, World Bank, and IMF of their own. Some NATO members are rethinking their membership in an organization that Washington is herding into conflict with Russia.

  China’s unexpectedly rapid rise to power owes much to the greed of American capitalism. Pushed by Wall Street and the lure of “performance bonuses,” US corporate executives brought a halt to rising US living standards by sending high productivity, high value-added jobs abroad where comparable work is paid less. With the jobs went the technology and business knowhow. American capability was given to China. Apple Computer, for example, has not only offshored the jobs but also outsourced its production. Apple does not own the Chinese factories that produce its products.

  The savings in US labor costs became corporate profits, executive renumeration, and shareholder capital gains. One consequence was the worsening of the US income distribution and the concentration of income and wealth in few hands. A middle class democracy was transformed into an oligarchy. As former President Jimmy Carter recently said, the US is no longer a democracy; it is an oligarchy.

  In exchange for short-term profits and in order to avoid Wall Street threats of takeovers, capitalists gave away the American economy. As manufacturing and tradeable professional skill jobs flowed out of America, real family incomes ceased to grow and declined. The US labor force participation rate fell even as economic recovery was proclaimed. Job gains were limited to lowly paid domestic services, such as retail clerks, waitresses, and bartenders, and part-time jobs replaced full-time jobs. Young people entering the work force find it increasingly difficult to establish an independent existance, with 50 percent of 25-year old Americans living at home with parents.

  In an economy driven by consumer and investment spending, the absence of growth in real consumer income means an economy without economic growth. Led by Alan Greenspan, the Federal Reserve in the first years of the 21st century substituted a growth in consumer debt for the missing growth in consumer income in order to keep the economy moving. This could only be a short-term palliative, because the growth of consumer debt is limited by the growth of consumer income.

  Another serious mistake was the repeal of financial regulation that had made capitalism functional. The New York Banks were behind this egregious error, and they used their bought-and-paid-for Texas US Senator, whom they rewarded with a 7-figure salary and bank vice chairmanship to open the floodgates to amazing debt leverage and financial fraud with the repeal of Glass-Steagall.

  The repeal of Glass-Steagall destroyed the separation of commercial from investment banking. One result was the concentration of banking. Five mega-banks now dominate the American financial scene. Another result was the power that the mega-banks gained over the government of the United States. Today the US Treasury and the Federal Reserve serve only the interests of the mega-banks.

  In the United States savers have had no interest on their savings in eight years. Those who saved for their retirement in order to make paltry Social Security benefits liveable have had to draw down their capital, leaving less inheritance for hard-pressed sons, grandsons, daughters and granddaughters.

  Washington’s financial policy is forcing families to gradually extinguish themselves. This is “freedom and democracy “ America today.

  Among the capitalist themselves and their shills among the libertarian ideologues, who are correct about the abuse of government power but less concerned with the abuse of private power, the capitalist greed that is destroying families and the economy is regarded as the road to progress. By distrusting government regulators of private misbehavior, libertarians provided the cover for the repeal of the financial regulation that made American capitalism functional. Today dysfunctional capitalism rules, thanks to greed and libertarian ideology.

  With the demise of the American middle class, which becomes more obvious each day as another ladder of upward mobility is dismantled, the United States becomes a bipolar country consisting of the rich and the poor. The most obvious conclusion is that the failure of American political ledership means instability, leading to a conflict between the haves—the one percent—and the dispossessed—the 99 percent.

  The failure of leadership in the United States is not limited to the political arena but is across the board. The time horizon operating in American institutions is very short term. Just as US manufacturers have harmed US demand for their products by moving abroad American jobs and the consumer income associated with the jobs, university administrations are destroying universities. As much as 75 percent of university budgets is devoted to administration. There is a proliferation of provosts, assistant provosts, deans, assistant deans, and czars for every designated infraction of political correctness.

  Tenure-track jobs, the bedrock of academic freedom, are disappearing as university administrators turn to adjuncts to teach courses for a few thousand dollars. The decline in tenure-track jobs heralds a decline in enrollments in Ph.D. programs. University enrollments overall are likely to decline. The university experience is eroding at the same time that the financial return to a university education is eroding. Increasingly students graduate into an employment environment that does not produce sufficient income to service their student loans or to form independent households.

  Increasingly university research is funded by the Defense Department and by commercial interests and serves those interests. Universities are losing their role as sources of societal critics and reformers. Truth itself is becoming commercialized.

  The banking system, which formerly financed business, is increasingly focused on converting as much of the economy as possible into leveraged debt instruments. Even consumer spending is reduced with high credit card interest rate charges. Indebtedness is rising faster than the real production in the economy.

  Historically, capitalism was justified on the grounds that it guaranteed the efficient use of society’s resources. Profits were a sign that resources were being used to maximize social welfare, and losses were a sign of inefficient resource use, which was corrected by the firm going out of business. This is no longer the case when the economic policy of a counry serves to protect financial institutions that are “too big to fail” and when profits reflect the relocation abroad of US GDP as a result of jobs offshoring. Clearly, American capitalism no longer serves society, and the worsening distribution of income and wealth prove it.

  None of these serious problems will be addressed by the presidential candidates, and no party’s platform will consist of a rescue plan for America. Unbridled greed, short-term in nature, will continue to drive America into the ground.

  

  

  

  

  

• Time For Torches & Pitchforks: The Little Guy Is About To Get Monkey-Hammered Again

  Submitted by David Stockman via Contra Corner blog,

  The reputations of Ben and Janet are going to be eviscerated in 2016. That’s because the US economy will slide into recession in defiance of every claim they have made for their snake oil monetary policies. The plain fact is, massive falsification of financial markets via their “wealth effects” doctrine did not levitate main street prosperity at all; it just fueled another giant speculative mania in the Wall Street casino.

  The prospect that the leaders of our monetary politburo are about to be tarred and feathered by economic reality might be satisfying enough if it led to the repudiation of Keynesian central planning and a thorough housecleaning at the Fed. Unfortunately, it will also mean that tens of millions of retail investors and 401k holders will be taken to the slaughterhouse for the third time this century.

  And this time the Fed is out of dry powder, meaning retail investors will never recover as they did after 2002 and 2009. Moreover, the overwhelming share of main street losses will be the among baby-boom demographic——sixty and seventy something’s who will be down for the count.

  As Jim Quinn so graphically put it an the adjacent piece,

  Investors are lazing around the waterhole like unsuspecting gazelles. This herd will be running for their lives in the near future, as danger is lurking.

   

  

   

  With each passing day the evidence mounts, and yesterday morning’s trade data was a doozy. During November exports shrank by 2% and are now down 12% from the peak, and at the lowest level since March 2010.

  

  Yes, you can count on the Keynesian paint-by-the-numbers crowd to insist that exports don’t matter that much. Goods exports are just 8% of GDP and total exports including services are 12%.

  So what is 12% when Janet is busy at the Fed’s dashboard, tweaking the dials and thereby goosing the labor market back to the pink of full employment health?

  Well, let’s just say it again. Exports are a leading indicator because they foretell a shrinking world economy and the gathering implosion of the 20-year global credit bubble that vastly distorted and bloated the entire economic life of the planet. Among much other havoc stemming from Great Deflation now underway will be a body-blow to the supersized but unsustainable corporate profits that were generated by the credit bubble.

  By contrast, the seasonally maladjusted and trend-cycle juiced monthly BLS labor report is a thoroughly lagging indicator. And its an especially egregious victim of the Fed’s Bubble Finance regime.

  To wit, the massive flood of free money into the canyons of Wall Street not only unleashed its gambling instincts like never before, but also turned the C-suites of corporate America into stock trading rooms.

  Accordingly, corporate executives have become so obsessed with financial engineering and capturing stock option winnings that their principal lens on reality has become the Fed juiced stock averages. That makes them bullish in the extreme and hoarders of labor until the bubble bursts.

  As a reminder, consider again what happened during the Greenspan housing/credit bubble. Anyone paying a modicum of attention could have seen that an unsustainable boom in housing prices and mortgage finance was underway, and that when the music finally stopped there would be a sharp downshift in household spending and extraction of credit from phantom home price appreciation.

  The fact is, even Greenspan did not try to hide the phony prosperity, but actually publicized the massive amount of MEW (mortgage equity withdrawal) that was artificially ballooning the US economy. At its peak in 2006-2007, mortgage equity extraction accounted for upwards of 10% of disposable personal income.

  

  So even though this was evident by 2005 or shortly thereafter, how did corporate America manage the labor cycle?

  Why they adhered to the stock market averages in a perfect cheek-by-jowl manner! That is, the BLS jobs count is now an indefatigably lagging indicator divorced from the real main street economy; it rides the escalator up the financial bubble cycle and is slammed down the elevator when the bubble bursts.

  

  Thus, it took 60 months for nonfarm payrolls to rise  by 8 million jobs—-from roughly 130 million to 138 million between early 2003 and January 2008. Then in the next 20 months lay-offs soared and the entire 8 million job gain was wiped out.

  Needless to say, the BLS’ nonfarm payroll count peaked at 138.4 million just two months after the stock market peaked in November 2007. From there both careened down the slippery slope of a Fed induced financial bubble collapsing on its own weight.

  Yet back then neither Bernanke, Yellen (she was then Vice-Chair of the Fed) nor the rest of their Keynesian posse saw the recession coming—even when it was already well underway. Indeed, watching the BLS Jobs Friday count—–which by mid-2008 stood at 137 million or just shy of its all-time high—they saw no reason for alarm.

  Then the market plunged and the C-suite panicked. Six million jobs—-most of which would never have been created in the first place absent the Greenspan housing/credit bubble—-were deep-sixed within less than a year.

  Needless to say, here we are again with the monetary politburo gumming about their success in reviving the US economy based on sharply improved “labor market conditions” and a steadily rising BLS jobs count. And once more the Wall Street stock peddlers are beckoning the retail sheep to the slaughter based on the utterly foolish proposition that the Fed is raising rates after 84 months on the zero bound because the labor market and US economy are so strong.

  No they aren’t! This time the C-suite has adhered to the Bernanke-Yellen bubble curve even more slavishly than they did during the Greenspan boom. Unfortunately, two year from now the lines on the chart below will have plunged sharply toward the lower right.

  

  Forget the BLS’ completely manipulated and medicated jobs numbers. The fast money has already realized that the jig is up. The Fed is out of options, recession is coming to these shores in a gale force from a faltering global economy and financial risk is rapidly coming out of hiding.

  The sharp flattening of the yield curve is one clear sign. The 2s30s, in fact, is at levels last reached in early 2008.

  

  Likewise, the overnight general collateral rate is at 0.55%, the highest that it has been in over 7 years.

  

  What happens in an environment when risk comes back out into the open?  As we have learned twice this century already, the whole house of financial cards comes crashing down.

  The unfailing leading indicator that another Fed-driven financial bubble is fixing to collapse is the CCC junk yield. As is evident below, it is already knocking on the door of 20%, and the calamity of defaults in the oil patch, mining sector, retail and much more is just getting started.

  In fact, bond defaults will be the transmission channel by which the global deflation pounds the Wall Street casino and brings another recession cycle to main street. In that respect, one of the most egregious evils of ZIRP and financial repression is that they prolong and distend the bad credit cleansing cycle.

  This year, for example, only the tip of the default iceberg emerged in the shale patch because dozens of insolvent companies were able to refinance and thereby extend and pretend. But when that string runs out during the months ahead, the high yield default rate will soar even above its prior historic peaks, and send the entire corporate bond market into a thundering retreat.

  

  Under these conditions, the idea that the stock market is reasonably valued is almost criminally preposterous. Yet as we indicated yesterday, that truth is almost undetectable amidst Wall Street’s absolute deception and flim-flim on the matter of corporate profits.

  The fact is, the ex-items forward hockey sticks published by the sell side stock peddlers bear no relationship to reality. In March 2014, for example, the consensus projection pointed to earnings of $137 per share on the S&P 500 for 2015; they are ending up 24% lower at $104.

  By contrast, the real story lies in what has happened to honest GAAP earning since the pre-crisis peak in June 2007. To wit, compared to S&P 500 earnings of $84.92 per share at that time, per share earnings at the next peak in September 2014 amounted to $106 per share.

  That’s right. Reported per share earnings growth over the seven-year period was just 3.2% annually. And a considerable share of that miserly gain was due to shrinkage of the share count owing to the massive $3 trillion of stock buybacks which have occurred during the interim.

  Since the September 2014 LTM period, however, the actual earnings of the S&P 500 have been heading straight south, and in the most recent quarter clocked in at just $90.66 per share.

  That’s a 15% drop and the shrinkage of earnings is just getting started. And it means that the S&P 500’s 8-year EPS growth rate since the June 2007 peak now stands at a laughable 0.82%.

  That also means that on the heels of Tuesday dead cat bounce, the broad market’s trailing multiple closed in the nosebleed section of history at 22.9X.

  Finally, if falling per share earnings in the face of an oncoming recession were not enough, the fact remains that profit margins are still near all-time highs. Yet if the gathering global deflation and CapEx depression mean anything, it is that the bloated profit margins which emerged during the credit boom will undergo drastic compression in a world swimming in excess capacity and malinvestment.

  

  So believe this. Whatever savings and investments the middle class baby-boomers have left is about to get monkey-hammered good and hard.

  

  

  

  

  

• The Minimum Wage Hike Hangover Arrives: Dining Out To Cost 10% More Starting January 1

  One year ago, when the brainwashed economist Ph.D intelligentsia was stampeding over each other to come up with the most hyperbolic terms to dub the recovery that would be unleashed on the economy as a result of plunging oil, and gas, prices – with “unambiguously good” being our personal favorite – we would write post after post explaining just how wrong this is, and how in a hyperfinancialized economy, a 2-year record collapse in oil prices is about as “unambiguously bad” as it gets, and not just only for the hundreds of thousands of highly paid energy sector workers who had been the only source of in the early years after the financial crisis.

  Back then US GDP had risen 2.9% over the prior year; it has since tumbled to 2.1% and is sliding, while the rest of the world, especially the oil-producing nations, is gripped in a severe recession which has already spread to the US manufacturing sector and will soon drag down US services into a recession as well, aborting the Fed’s rate hike cycle.

  And then there was the idiocy with raising minimum wages which was supposed boost overall compensation: in another instance showcasing the real intellectual capacity of career and academic economists and those clueless enough to listen to them, we warned repeatedly that even the smallest of mandatory wage hikes would ripple through the economy and unleash extensive price increases across the board, not to mention countless job cuts as small and medium business, already struggling with keeping profits from plunging, had to find ways to eliminate overhead or raise prices.

  As a result of this latest forced governmental intervention into the economy, everyone would be far worse off.

  But while we had seen isolated cases of mostly food sector companies push prices higher, so far there has not been a coordinated industry-wide effort that will see a sizable impact on food inflation. This will change for New Yorkers starting on January 1, when the cost of a night out in the Big Apple is about to get even pricier.

  As the Post reports, NYC diners can expect their restaurant and bar tabs to rise as much as 10 percent, plus tips, as restaurants seek to protect their profit margins from mandatory wage hikes; some eateries will eliminating tipping entirely – that primary source of incremental wages for thousands of food industry workers – and are hiking base prices by as much as 30%, with the money going toward higher payroll.

  

  As a result even less money will end up going in any one individual worker’s pocket; worse those who are ambitious and seek to stand out from the crowd will see their efforts diluted as their outsized contribution is repaid at the same rate as everyone else: easily the worst aspect of socialism.

  The reason for the across the board increases: “squeezed restaurateurs face a mandatory increase in wages that is changing the economics of the restaurant business and may result in a seismic shift in how workers are paid and the number of hours they work. New York’s minimum wage will rise to $9 an hour from $8.75, while the wage restaurants pay servers — not counting the tips customers pay — is going up by 50 percent, to $7.50 an hour.”

  This will have a profound impact on the bottom line, if not on the likes of massive corporations like McDonalds, then certainly on your favorite around the block restaurant.

  “Higher wages will cost us $600 a week,” said Jon Goldstein, a partner in Bistro 61, an Upper East Side eatery, which is experimenting with scheduling tweaks before it considers menu increases.

   

  

   

  “We’ll stagger our servers’ shifts so they don’t all come in at the same time or for a full shift, and we’ll make sure we don’t pay overtime,” Goldstein said.

  Which means less money for everyone.

  Some of the most famous names will be impacted too: P.J. Clarke’s, which operates three eateries in the city, estimates that the wage hikes will cost it $200,000 per restaurant and that its prices will go up nearly 4 percent next year. At one of its locations, the pub will eliminate table-busing positions.

  “We’ll make smaller sections for the servers so that, instead of 16 seats, they’ll have 12 seats,” said co-owner Philip Scotti “We’ll try it at one restaurant and see how it works.”

   

  At American Whiskey, a cavernous bar and restaurant at West 30th Street, diners can expect to see their tabs increase between 5 percent and 10 percent, said owner Casey Pratt.

   

  
  

   

  It’s not just the food: draft and bottled beers will go up by $1 and $2, to $8 and $9, while some main dishes will tick up by $2.

   

  “I don’t think it’ll be enough to keep people away,” said Pratt.

  Pratt will find out soon enough just what the price elasticity of New Yorkers for alcohol truly is.

  For some hiking prices is not an option so they have to do the only other thing they can: cut costs: smaller and lesser known restaurants don’t feel they have the power to raise their prices enough to eliminate tipping altogether like celebrity restaurateurs Danny Meyer and Tom Colicchio, who are rolling out such changes in their restaurant empires.

  “Everyone sells pizza,” said Jason Brunetti, who owns Pizzetteria Brunetti in the West Village. “What’s going to justify me selling pizza for $3 more when you can get a margherita pie at a thousand different places?”

   

  

   

  Instead, Brunetti is trying to eliminate overtime pay by hiring a part-time employee to make up the difference.

   

  By ending tipping, restaurants can sidestep the tipped minimum-wage pay hike. That makes the move even desirable for restaurants that would rather pocket the higher revenue while retaining the flexibility to raise prices as well as wages for workers.

  And then comes the spin: restaurateur Gabriel Stulman, who owns six restaurants in the West Village, announced last week he’s eliminating tipping on Jan. 4 at Fedora and will consider doing so at his other eateries. “While the prices for individual menu items may seem high at first, the overall cost of the meal will be only slightly greater under the new system,” according to the restaurateur’s site.

  Sure, just call it the hedonically-adjusted ObamaWage tax: “it may seem high at first, but once the zombification settles in, it will all fall into place.”

  

  

  

  

• Crude Oil Prices Suffer Biggest 2-Year Bloodbath On Record

  With yet another false-dawn of crude prices blowing in the wind of cash-flow generation desperation, we thought it an appropriate time for a bigger picture glance at the state of the carnage in crude…

   

  An ugly 2014 (down 46%)…

  

   

  Brought an avalanche of knife-catching "once in a lifetime" opportunists into ETFs to buy the dip in as levered way as they could…

  

   

  Only to see crude prices collapse another 31% in 2015 for the worst 2 year crash in the history of crude oil trading…

  

  h/t @VexMark

   

  And despite this bloodbath, production is rising, demand flailing, and global storage is at its limit…

  

   

  So what happens next?

  

  

  

  

  

• How Politics Brings Out the Worst In Us

  Submitted by Max Borders via The Foundation for Economic Education,

  The spectacle is not a collection of images, but a social relation among people, mediated by images.
  – Guy Duborg

  Have you seen The Best of Enemies? It’s a documentary about the famous 1968 debates between William F. Buckley, Jr. and Gore Vidal. The whole thing culminates in a moment where — after heated exchange — Buckley, taking Vidal’s bait, explodes,

  Now listen, you queer, you stop calling me a crypto-Nazi or I'll sock you in … And when you root for the soldiers of your own country to be brutally killed, you … I'll sock you in the goddam face and you'll stay plastered.

  And there it was. The dandies of the left and right reduced to ad hominem, almost coming to blows. Nielsen loved it. And politics as prime-time blood sport became an American pastime.

  Ironically, the very next evening I watched Chasing Tyson, a documentary following the career of Evander Holyfield, which culminates in the big fight where Tyson bites Holyfield’s ear. Twice.

  Two nights in a row. Two documentaries, with two men squaring off. Each ends in someone spitting blood and probably regretting it. For Tyson and Holyfield, the wounds have all healed. They each moved on. They forgave. And each respects what the other was able to achieve in his career. But Buckley and Vidal died with the poison of personal and political animus still in their spleens.

  This is happening to all of us.

  As the political parade passes, the spectacle plays itself out on television and social media. Those who gather choose their sides of the avenue. In so choosing, they self-segregate. Tribal affiliations are on display. It’s a natural human tendency, with deep roots in our evolutionary past.

  According to Sharon Begley, writing about the Kurzban-Cosmides-Tooby jersey experiment in which team colors seem to overcome racial biases,

  [Kurzban’s] basketball-jersey experiment and others that have confirmed its results suggest that humans do have brain circuits for classifying people — but according to whether they are likely to be an ally or an enemy.

  Politics brings out the worst in us by tapping into those tribal tendencies. Sure, trading barbs is better than trading bullets. We all know really nice people who participate in stinging or acrimonious exchanges online. Maybe we do it ourselves.

  Here’s a nice headline you might have shared: “5 Scientific Studies That Prove Republicans Are Stupid.”

  Or how about: “Yes, Liberalism is a Mental Disorder.”

  Here we have someone calling hundreds of millions of people stupid or crazy. Never mind that the country can’t be so easily divided into two teams. It’s a two party system. So in that good old democratic operating system (DOS) you have two choices of app, which means two choices of tribe.

  I wondered if anybody else ever saw things like I do, from this lonely distance. I found this from the Cato Institute’s Trevor Burrus:

  Like any other game, the rules create the attitudes and strategies of the players. Throw two brothers into the Colosseum for a gladiatorial fight to the death, and brotherly sentiment will quickly evaporate. Throw siblings, neighbors, or friends into a political world that increasingly controls our deepest values, and love and care are quickly traded for resentment.

   

  But it gets even worse. The first-past-the-post rules of our democratic politics turn a continuum of possibilities into binary choices and thus imposes black-and-white thinking onto a world made mostly of grays. Teams (politicians), cheerleaders (pundits), and fans (voters) galvanize around an artificially schismatic world view.

   

  And then our biases take over. Now that we’ve invented a problem — “which group of 50 percent +1 will control education for everyone?” — imposed a binary solution — “we will teach either creation or evolution” — and invented teams to rally around those solutions — “are you a science denier or a science supporter?” — our tribal and self-serving brains go to work assuring us that we are on the side of righteousness and truth.

   

  The shrillest and most dogmatic pundits and politicians become the most popular, feeding our sense of righteousness like southern Baptist preachers.

  This could have been yet another of those articles which I end with a call for reasoned discourse or more tolerance. Plenty of those articles have been written, and they don’t do much good. Our tribal brain burns hotter than any intellectual plea for tolerance. 

  Instead, I just want to point out what’s really going on: Politics sucks and democracy is overrated.

  Politics — especially elections — creates a system that brings out the worst in people. It poisons relationships. It pulls us in as spectators who stand agog at a completely inauthentic show of national politics (over which we have virtually no power). We end up mostly ignoring the local issues over which we could have considerably more influence. As a consequence, an entire nation falls under a particular kind of spell.

  As Jeffrey Tucker writes,

  We are encouraged to believe that we are running the system. So we flatter ourselves that our opinions matter. After all, it is we the voters who are in charge of building the regime under which we live. But look deeper and you discover a truth that is both terrifying and glorious: the building of the great society can’t be outsourced. It is up to you and me.

  The only people to whom our opinions matter are the pollsters with their robocalls and their wet index fingers held aloft, and the media who hold up mirrors so distorted we can barely recognize ourselves.

  People are different. They are going to have differences of opinions, they’ll hold different values, and run in different circles. But we expect that our opinions, values and circles should extend to a nation of 350 million people; by brute force if necessary. And until they do we’ll just get on Facebook and sock them in the face until they stay plastered.

  On Election Day, the team with the red jerseys will pull on their side of the rope. The team with the blue jerseys will pull on their side of the rope. In the end, both will end up in the mud — because they’ve been standing in it all along.

  

  

  

  

  

• Technical Analysis of the Lumber Market

  By EconMatters

  

  Housing Demand Thesis

  The last two years rents have been rising primarily due to supply and demand issues. There hasn`t been enough multifamily housing to keep up with the demand, and as the employment levels go up and more millennials move out of their parent`s house, I expect the housing market to continue to be on the slow but steady upswing of the last several years for 2016.

   

  

  I think more and more single family homes will have to be built to keep up with the demand as renters for the last couple of years start to want to build equity in real estate versus throwing the money away on rent. And I expect the trend of more multifamily housing projects being built to continue for 2016 as well due to the escalating rents as the population growth has outstripped the conservative building strategies following the housing bubble that led to the financial crash in 2007/08. The builders were just very cautious and financing was subdued to say the least and now there is a lot of catchup going on in the housing sector.

   

  

  Technical History for 2015

   

  I thought I would take a look at the lumber market as my spider sense tells me that lumber could possibly be a buy here for 2016 and beyond. The March Lumber futures contract is trading at around $255 per mbf on Wednesday as the calendar year of 2015 comes to a close. The Lumber contract reached a low of $226 per mbf in September of 2015 when the rest of the financial market was looking vulnerable during the end of the third quarter selling that picked up steam on China Recession concerns. The Lumber market has been putting in higher lows into year end, and it seems to be setting up nicely for a move higher into 2016.

   

  

  2016 Technical Levels to Watch

   

  The play is relatively straight forward as there is 4 month overhead resistance at $270 per mbf on the charts and a breakout above this level with a buy stop letting buyers take you into the trade is one way to play this projected rise in lumber prices for 2016. I would put my protective stop at $255 per mbf if I entered on the breakout of the $270 resistance level. My initial target would be $310 per mbf for a 2.67:1 Reward/Risk profile for the trade. I would judge the price action from there and the overall market sentiment with the idea of letting it ride from this initial profit target.

   

  

  The next area on the two year chart for a profit target to the upside is the $340-$360 per mbf level. If you like to take half off and let the other half ride on the trade then this would be one way to play it by taking half off at the first profit level around $310 per mbf and then taking the second half off at $360 per mbf. One could also break the trade into 3 sections by having 1/3 of the trade riding for a breakout of the $360 level.

   

  

  Just for perspective there is 15 year resistance around the $400 per mbf area; but one thing about financial markets is that a trader wants to see how the contract reacts to price at key action levels. Therefore it would be nice to pocket a nice chunk of profits moving your protective stop up in a conservative manner and letting the last 1/3 of the trade prove to you that the trade is done to the upside. If we ever broke $450 per mbf the charts say that $500 per mbf is definitely possible, as back in March 1993 the Lumber futures went as high as $493.50 per mbf.

   

  

  In Summary

   

  Of course there are a myriad of different trading strategies in how to best take advantage of this possible setup in the Lumber market from an entry and exiting standpoint. I just like to add some trading color to the analysis so that readers can better understand the context of the key technical levels to watch for in the Lumber Futures Market for 2016.  

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• The Rise Of The Temp Economy: More U.S. Employers Than Ever Want A "Disposable Workforce"

  Submitted by Michael Snyder via The Economic Collapse blog,

  In this day and age it seems like almost everything is disposable, and many employers have found that they can make a lot more money if they have a workforce that can be turned on and off like a faucet. In America today, there are more than 17 million “independent workers”, and they represent a bigger share of the workforce than ever before.

  Federal laws give a lot of protection to “full-time workers”, but for temporary and contract employees it is a much different story. Temp workers don’t get health insurance, vacation time or retirement benefits. They are simply paid for the limited amount of time that they are needed and then they are disposed of immediately. There has always been a role for such workers in our economy, but these days some of the biggest corporations in the entire country are getting rid of “full-time workers” and replacing them with temp workers just so that they can make a few extra bucks. As a result, the ranks of the “working poor” continue to expand, and the decline of the middle class is accelerating.

  Steven Hill, a senior fellow with the New America Foundation and the author of “Raw Deal: How the Uber Economy and Runaway Capitalism Are Screwing American Workers“, says that the rise of the “1099 economy” is fundamentally shifting the balance of power between employers and employees…

  This practice has given rise to the term “1099 economy,” since these employees don’t file W-2 income tax forms like any regular, permanent employee; instead, they receive the 1099-MISC form for an IRS classification known as “independent contractor.” The advantage for a business of using 1099 workers over W-2 wage-earners is obvious: an employer usually can lower its labor costs dramatically, often by 30 percent or more, since it is not responsible for a 1099 worker’s health benefits, retirement, unemployment or injured workers compensation, lunch breaks, overtime, disability, paid sick, holiday or vacation leave and more. In addition, contract workers are paid only for the specific number of hours they spend providing labor, or completing a specific job, which increasingly are being reduced to shorter and shorter “micro-gigs.”

  Yes, there have always been temp agencies. And there has always been a need for workers that can come in and do a job on a short-term basis. But today, many of the largest and wealthiest corporations in America are purposely getting rid of “full-time workers” and instead are bringing in “independent contractors” to do the exact same jobs.

  In some instances, the full-time workers that get fired are actually brought back as the new “temp workers”…

  Merck, one of the world’s largest pharmaceutical companies, was a vanguard of this underhanded strategy. When it came under pressure to cut costs, it sold its Philadelphia factory to a company that fired all 400 employees—and then rehired them back as independent contractors. Merck then contracted with the company to carry on making antibiotics for them, using the exact same workers.

   

  An Arizona public-relations firm, LP&G, fired 88 percent of its staff, and then rehired them as freelancers working out of their homes, with no benefits. Even Outmagazine, the most-read gay monthly in the U.S., laid off its entire editorial staff and then rehired most of them as freelancers, without benefits and with salary cuts.

  All of those companies should be absolutely disgusted with themselves.

  How can the executives responsible for those decisions even sleep at night?

  Don’t they understand what they are doing to people?

  When you go from being a full-time worker to being on “temp status”, the changes can be quite dramatic. If this has ever happened to you, then you know what I am talking about. Having to pay “the other half” of the payroll tax or having to find your own much more expensive health insurance are just two of the big negatives that “independent contractors” have to face…

  Suddenly I was responsible for paying for my own health care, arranging for my own IRAs and saving for my own retirement. I also had to pay the employer’s half of the Social Security payroll tax, as well as Medicare — nearly an extra 8 percent deducted from my income. The costs for my health-care premiums zoomed out of sight, since I was no longer part of a large health-care pool that could negotiate favorable rates.

  The decline in the quality of our jobs is a theme that I have revisited repeatedly in my writing. In order for us to have a thriving middle class, we need lots of good paying middle class jobs.

  But our economy is not producing many of those jobs. Instead, most of the growth has been in low paying service jobs. The Middle class in the United States is being slowly but surely shredded, and our politicians don’t seem to care. If you doubt that the middle class is falling apart, just check out the following numbers which come from my previous article entitled “Sayonara Middle Class: 22 Stunning Pieces Of Evidence That Show The Middle Class In America Is Dying“…

  #1 This week we learned that for the first time ever recorded, middle class Americans make up a minority of the population. But back in 1971, 61 percent of all Americans lived in middle class households.

  #2 According to the Pew Research Center, the median income of middle class households declined by 4 percent from 2000 to 2014.

  #3 The Pew Research Center has also found that median wealth for middle class households dropped by an astounding 28 percent between 2001 and 2013.

  #4 In 1970, the middle class took home approximately 62 percent of all income. Today, that number has plummeted to just 43 percent.

  #5 There are still 900,000 fewer middle class jobs in America than there were when the last recession began, but our population has gotten significantly larger since that time.

  #6 According to the Social Security Administration, 51 percent of all American workers make less than $30,000 a year.

  #7 For the poorest 20 percent of all Americans, median household wealth declined from negative 905 dollars in 2000 to negative 6,029 dollars in 2011.

  #8 A recent nationwide survey discovered that 48 percent of all U.S. adults under the age of 30 believe that “the American Dream is dead”.

  #9 At this point, the U.S. only ranks 19th in the world when it comes to median wealth per adult.

  #10 Traditionally, entrepreneurship has been one of the engines that has fueled the growth of the middle class in the United States, but today the level of entrepreneurship in this country is sitting at an all-time low.

  #11 If you can believe it, the 20 wealthiest people in this country now have more money than the poorest 152 million Americans combined.

  #12 The top 0.1 percent of all American families have about as much wealth as the bottom 90 percent of all American families combined.

  #13 If you have no debt and you also have ten dollars in your pocket, that gives you a greater net worth than about 25 percent of all Americans.

  #14 The number of Americans that are living in concentrated areas of high poverty has doubled since the year 2000.

  #15 An astounding 48.8 percent of all 25-year-old Americans still live at home with their parents.

  #16 According to the U.S. Census Bureau, 49 percent of all Americans now live in a home that receives money from the government each month, and nearly 47 million Americans are living in poverty right now.

  #17 In 2007, about one out of every eight children in America was on food stamps. Today, that number is one out of every five.

  #18 According to Kathryn J. Edin and H. Luke Shaefer, the authors of a new book entitled “$2.00 a Day: Living on Almost Nothing in America“, there are 1.5 million “ultrapoor” households in the United States that live on less than two dollars a day. That number has doubled since 1996.

  #19 46 million Americans use food banks each year, and lines start forming at some U.S. food banks as early as 6:30 in the morning because people want to get something before the food supplies run out.

  #20 The number of homeless children in the U.S. has increased by 60 percent over the past six years.

  #21 According to Poverty USA, 1.6 million American children slept in a homeless shelter or some other form of emergency housing last year.

  #22 The median net worth of families in the United States was $137, 955 in 2007. Today, it is just $82,756.

  So is there a solution?

  Is our transition to a “1099 economy” inevitable?

  

  

  

  

  

• Will 2016 Bring About a 2008 Type Crisis? Pt 1

  The world is lurching towards another Crisis.

   

  Japan, which has been ground zero for Keynesian insanity, is back in technical recession. This comes after the Bank of Japan launched the single largest QE program in history: a QE program equal to 25% of GDP launched in April 2013.

   

  This program bought an uptick in economic growth for just six months before Japan’s GDP growth rolled over again.  Similarly, an expansion of QE in October 2014 pulled Japan back from the brink, but GDP growth collapsed again soon after, plunging the country into technical recession earlier this year.

   

  

   

  Japan is completely insolvent. The country has no choice but to continue to implement QE or else it will go completely bust in a matter of months. However, with the Bank of Japan already monetizing ALL of the country’s debt issuance, the question arises, “just what else can it buy?”

   

  We’ll find out in 2016. But Japan is now officially in the End Game from Central Banking.

   

  Europe is not far behind.

   

  The ECB has cut interest rates to negative, cut them further into negative, launched a QE program, and then cut interest rates even further into negative while extending its QE program.

   

  EU GDP growth has flat-lined at barely positive.

   

  

   

  But the economy is having serious difficulty fending off deflation.

   

  When your ENTIRE banking system is leveraged by 26 to 1, as is Europe’s, even a 4% drop in asset values renders the system insolvent. Without significant inflation, the EU’s banking system is toast.

   

  

   

  ECB President Draghi better have more in his bazooka that what he’s fired so far, or the EU’s $46 trillion banking system will collapse. However, as is the case with the Bank of Japan, the ECB is facing a shortage of viable assets to buy.

   

  Between these two banking systems alone, you’ve got the makings of a global financial crisis at least on par with 2008. Both countries are sinking into deflation at a time when their respective Central Banks have little if any ammo left. This leaves the US Fed to hold the system together. But the Fed is TIGHTENING, not loosening monetary policy.

   

  The stage is set for another Crisis. Smart investors are preparing now.

   

  We just published a 21-page investment report titled Stock Market Crash Survival Guide.

   

  In it, we outline precisely how the crash will unfold as well as which investments will perform best during a stock market crash.

   

  We are giving away just 1,000 copies for FREE to the public.

   

  To pick up yours, swing by:

  https://www.phoenixcapitalmarketing.com/stockmarketcrash.html

   

  Best Regards

   

  Graham Summers

  Chief Market Strategist

  Phoenix Capital Research

   

   

   

   

   

   

   

   

   

   

  

  

  

  

• The Wheels Just Fell Off: US Trucking Has Not Been This Bad Since The Financial Crisis

  Earlier this month, we profiled yet another casualty of slumping trade, falling commodity prices, and mediocre, double-adjusted economic “growth”: trucking. 

  More specifically, we highlighted the dramatic November decline in Class 5-8 orders. The numbers for Class 8 – those trucks with a gross weight over 33K pounds and which, you’re reminded, make up the backbone of U.S. trade infrastructure and logistics – were a veritable disaster. 

  “Class 8 orders of 16,600 were below our channel check based 22,000-25,000 expectation, dropped 59% yr/yr and 36% from October (vs. the ten-year average 7% decrease in November from October), and was the weakest order month on a seasonally adjusted basis since August 2010,” Wells Fargo exclaimed, before adding that “clearly, November Class 8 orders slowed to weak levels and were beneath expectations.” 

  Yes, “clearly”:

  

  And a bit more from FTR: 

  FTR has released preliminary data showing November 2015 North American Class 8 truck net orders at 16,475, 59% below a year ago and the lowest level since September 2012.  This was the weakest November order activity since 2009 and was a major disappointment, coming in significantly below expectations.  All of the OEMs, except one, experienced unusually low orders for the month.

  “Based on what we were seeing, we thought freight and truck sales would stay strong through the end of 2015 and into 2016, with a downturn beginning at some point in the second half of 2016,” Kenny Vieth, president & senior analyst with ACT Research Co told FleetOwner. “Falling commodity prices means freight is drying up and that is freeing up [truck] capacity. Meanwhile, exporting less means manufactures like Caterpillar can’t sell as many machines overseas, so they start producing less and that reduces freight further,” he added.

  Well, don’t look now, but Morgan Stanley is out with its latest “truck stop” (i.e. a freight transportation update) and the picture is not pretty. Have a look at the following three graphics for the bank’s Truckload Freight Index broken down by flatbed, dry van, and reefer:

  

  

  

  In short: this is the worst things have been since the crisis.

  Importantly, note that the malaise is widespread. That is, you’re seeing the same picture in flatbed, refrigerated, and dry van, which would certainly seem to indicate that demand for everything from foodstuffs, to building materials, to merchandise is simply collapsing. Here’s a look at survey respondents’ appraisal of the current situation and their outlook for demand going forward:

  

  If, as one might suspect, this is a harbinger of what’s in store for the economy in 2016, you can expect the Fed hike to be reversed in short order – with QE4 right around the corner.

  *  *  *

  

  

  

  

  

• Stocks Flash Crash Into Close As Emerging Market, Commodity Carnage Spreads

  Update: S&P Futures tumbled back to the lows of the day after hours…

  

   

  S&P remains just in the green for 2015…

   

  2058.90 has just become the most important number in the world…

  

   

  There was a major Institutional seller at VWAP all day…

  

   

  And it seems like someone puked into the last 30 minutes…

  

   

  With a decent-sized sudden flash-crash as the 330RAMP was about begin…

  

   

   

  They tried to ramp 'em around 130pmET – that failed – and then at 330pmET it snapped…

  

   

  Futures show that selling began as soon as the US day session closed last night and accelerated as China opened and Yuan collapsed…

  

   

  Treasury Yields oscillated in a narrow range today… (front-end outperformed 2Y to 5Y about 2bps lower, out years unch)

  

   

  HY and IG bonds continues to decouple (as we suspect systemic fears in the credit market lead traders to hedge using thge 'cheapest' option – LQD – as opposed to a more expensive but lower tracking error alternative like HYG or HYCDX)

  

   

  Leaving the LQD at key support relative to HYG…

  

   

  Energy credit markets continue to indicate more weakness than stocks "believe" is possible…

  

   

  The Dollar Index rallied modestly in the day against the majors…

  

   

  But EM FX collapsed against the USDollar (to a new record low for JPMorgan's EM FX Index)… the last time EM FX plunged like this was when China devalued in early December…

  

   

  • *RUSSIAN RUBLE ENDS 2015 AT RECORD-LOW 73.59 PER U.S. DOLLAR

  Oil Producers saw FX rates slammed…

  

   

  And they are not  being helped by the fresh collapse in crude from Iran and Saudi comments, and US production and inventory increases…

  

   

   

  As Dollar strength weighed on PMs but Copper was bid… not how once again silver and crude were glued to each other…

  

   

  Finally, we thought this worth a glance… hope springs eternally transitory…

  

   

  Charts: Bloomberg

  

  

  

  

• The Problem With Progressives: Everything Is Now A Taxpayer-Funded "Right"

  Submitted by Yonathan Amselem via The Mises Institute,

  Progressives are often good people with good intentions. However, modern Progressivism has evolved into something so shapeless and amorphous as to amount to little more than a belief in “things that sound nice.” Mainstream Progressives have done an abysmal job of outlining precisely, in their view, the proper role of government and what (if any) limiting principle(s) apply to the state as a whole.

  Everything Is Now a Taxpayer-Funded “Right”

  Problems with today’s leftism begin with the ideology’s conception of “rights.” In the common laissez-faire view, rights are universal because they do not impose a duty on others to act positively on our behalf. Simply put, the proper view of human rights is that they prohibit us from initiating coercion against others.

  Moreover, not only are the rights universal, but they are inherent to being human. To argue that the state confers these rights suggests that the state, through whatever “legitimate” institutions it may possess, can also take them away. This is an unacceptable possibility in a society of free people.

  Modern Progressivism, however, has so warped the entire nature of rights as to turn almost any desired good or service into a right.

  In this view, private employers refusing to subsidize birth control purchases by employees are violating a woman’s “right” to birth control. Business owners with religious convictions about homosexuality are denying “rights” by refusing to bake cakes for homosexual couples. Offering someone a job that pays wages below some arbitrary federal or state mandated minimum is now an act in violation of a “labor right.”

  A service once voluntarily offered to the public is now a duty enforced by the violent arm of the state.

  The list of our newfound rights is almost endless, but ten conversations with ten different Progressives will yield ten different sets of absolute rights. Perhaps the only common thread among them all is the demand that the state coerce all members of society into paying for all the goods and services to which we now have a “right.”

  A Plea for More Precise Language

  Pitching a wish list of other people’s property naturally requires a total deformation of the English language. The left has recently adopted many vague, imprecise, but passionate words into their lexicon.

  “Equality,” “social justice,” “appropriation,” “racism,” “climate justice,” “micro-aggressions,” and many other terms referencing broad, nebulous concepts are now battle cries for stuff.

  In practice, being “for” something like social justice means to be for just about anything and against just about anything! Do any two people have the same idea about what social justice means?

  Groups as diverse as American universities, the Green Party, Italian Fascists, and even the American Nazi party share a commitment to “social justice.” This is not a minor point — expressing a vague set of guiding principles means that almost all government objectives will be legitimate, no matter the destructive means used to achieve those professed ends. Much like Progressive “rights,” terms like “social justice” can be used to justify the overwhelming majority of government action.

  The Only Principle Is Faith in the Power of the State

  As vague and misty as most modern leftist ideals can be, they do share one solid, bedrock principle: the need for continuous expansion of the government’s role in our lives. The government’s heavy handed regulation of our industries has imposed unbelievable barriers and costs to the supply of goods and services. No matter that this overhead hurts the poorest among us the most, to the Progressive, these costs are necessary in order to ensure we are protected from “greed” or “racism” or sexism” or “wage injustice” or whatever word-clothing that particular government expansion merits. The goal of the policy is vague therefore the government impediment will last indefinitely. The crusade will never end.

  Meanwhile, the trillions of dollars spent yearly on welfare programs have done astoundingly little to improve the economic outcomes of the poor since the 1960s. Not even Karl Marx could have imagined a program of wealth extraction and transfer as large (in real terms) as that of the United States government. Yet, poverty rates for African Americans and Native Americans (two groups many of these programs were specifically intended to help) have been stagnant since President Johnson’s War on Poverty began.

  The government’s intervention into our financial markets, healthcare system, education establishment and other industries has created structural disorder and price confusion. Bailouts, mandates, licensing laws, arbitrary restrictions, taxes on capital, massive monetary expansions, allotments of unwarranted credit, and other gargantuan government schemes have destroyed the natural channels of capital flows. Costs for even the most basic medical treatments have skyrocketed, another housing and stock bubble is in the horizon, and the federal student loan program has created millions of worthless degrees and a mountain of debt. The Progressive is un-phased by the government’s history of failure because he or she is certain that their vague principals simply require more action by our leaders. If we will only give the state and its army of foot soldiers more tax dollars and more power, the problem will surely go away.

  

  

  

  

  

• Another Regime Change "Success": Ukraine President Less Popular Than State Dept-Ousted Predecessor

  Two weeks ago, we noted – with some amusement – that Ukraine has defaulted to Russia on a $3 billion obligation. To be sure, the move wasn’t unexpected. 

  “I have a feeling that they will not pay us back because they are crooks,” Russian PM Dmitry Medvedev said previously. 

  Here, in a nutshell, is what happened. 

  Back in 2013, Putin bought a $3 billion eurobond from Kiev’s Russian-backed President Viktor Yanukovych. As Reuters noted at the time, “Kiev needed cash to cover its external funding gap, while the central bank’s currency reserves are depleted by efforts to support the hryvnia and repay foreign debt.” 

  

  The deal was closed in December of that year. Two months (nearly to the day) later, Yanukovich was run out of Ukraine by protesters supported by the US and, most notably, by John McCain. 

  Later, as part of a deal to restructure some $18 billion in debt, the Petro Poroshenko (Yanukovych’s successor) government struck a deal with creditors including T. Rowe and Franklin Templeton that will see creditors take a 20% haircut on the way to improving Ukraine’s debt sustainability. Kiev offered Putin the same deal. Indignant at the prospect of having to take a 20% loss on money loaned to a friendly government but now owed by a country with which Moscow is effectively at war, The Kremlin refused. Ukraine defaulted. 

  We retell that story in order to provide some context for the following poll from Gallup which shows that incredibly, Poroshenko is now less popular than Yanukovych before he was ousted. 

  

  From Gallup: 

  Despite signs last year that Ukraine’s then-new president was starting to rebuild Ukrainians’ trust in their leadership, President Petro Poroshenko is now less popular than his predecessor Viktor Yanukovych was before he was ousted. After more than a year in office, 17% of Ukrainians approve of the job that Poroshenko is doing. This approval rating is down sharply from 47% a few months after his election in May 2014.

   

  Poroshenko’s low approval rating largely reflects Ukrainians’ disenchantment with their leadership, which many feel has failed to deliver on what protesters demanded when they took to the streets two years ago. Since the Maidan revolution, Ukraine’s economy has been in shambles, the Crimea region joined Russia and fighting between Ukrainian forces and pro-Russian separatists in the country’s East has claimed more than 9,000 lives.

   

  Poroshenko is not popular in any region of Ukraine.

   

  

   

  As low as Poroshenko’s approval rating is, fewer Ukrainians have faith in their national government, which many have criticized for its slow pace of reform. Ukrainians’ trust in their national government arguably did not have much room to fall, but the 8% who express confidence in their government is only one-third of what it was in 2014 (24%). It is also one of the lowest trust levels Gallup has recorded in Ukraine since 2006.

   

  

   

  Just another US foreign policy, regime change success story…

  

  

  

  

• Something Just Broke In The U.S. Silver Market

  Submitted by Steve St.Angelo via SprottMoney.com,

  After looking over all the figures, it seems as if something broke in the U.S. Silver Market this year. By that, I mean the normal supply and demand forces no longer make sense. I believe this stemmed from the massive amount of physical silver investment demand beginning in June as financial and geopolitical events pushed the retail silver market into severe shortages.

  To start off, the United States has been the largest importer of silver in the world for many years. Even though India has imported more silver recently, its annual amount has fluctuated widely, while the U.S. has been more consistent.

  For example the U.S. silver imports have ranged between 4,500-6,000 metric tons (mt) a year, while India imported between 2,000-7,000 mt. Overall, the U.S. is the clear winner by importing a total of 39,500 mt of silver from 2007 to 2014, while India totaled 31,700 mt.

  To put these metric ton figures into perspective… look below:

  • Total U.S. Silver Imports 2007-2014 = 1.27 billion oz
  • Total India Silver Imports 2007-2014 = 1.02 billion oz

  The reason the U.S. imports so much silver is due to its large industrial silver manufacturing industry. Here were the top five industrial silver fabricators in 2014, according to the 2015 World Silver Survey:

  • China = 5,788 mt
  • U.S. = 3,902 mt
  • India = 1,470 mt
  • Germany = 652 mt
  • S. Korea = 652 mt

  While China is the largest industrial silver fabricator in the world, it also produces a lot more domestic silver than the U.S. In 2014, China produced 3,568 mt of silver, while U.S domestic mine supply was only 1,169…. three times less. So, the U.S. must import more silver than China to meet its total fabrication needs.

  Furthermore, the U.S. Mint has been producing more Silver Eagles each year, which requires additional imports of the metal. Now, with that basic ground work, let’s look at why the U.S. Silver Market dynamics were altered this year.

  Something Changed In The U.S. Silver Market

  As I mentioned in several articles, U.S. silver imports surged at the beginning of the year. This continued with another whopping 533 mt of silver imported in September for a total of 4,476 mt for the first three-quarters of the year:

  

  Thus, total U.S. silver imports are up 798 mt from the 3,678 mt imported last year during the same time period. Which means, the U.S. imported an extra 25.6 million oz (Moz) of silver this year over last. That’s a lot of silver.

  NOTE: These U.S. silver imports are bullion and dore bars. Silver bullion is high quality bullion ready to be used as investment or fabrication, while dore bars are semi-pure bars poured at the mines needing further refinement.

  Why all this extra silver? Was it due to industrial demand? Well, let’s take a look. These next two charts show the change in U.S. industrial silver imports and exports (Q1-Q3) compared to last year:

  

  According to the USGS, the U.S. imported more silver waste silver scrap (4,710 mt vs 3,690 mt), semi manufactured forms (795 mt vs 252 mt) and powdered silver (664 mt vs 436 mt) in the first three-quarters of 2014 compared to 2015. The total silver imports of these three industrial categories was 29% lower this year compared to 2014.

  Okay, how about U.S. industrial silver exports:

  

  Here we can see the same trend. The U.S. exported less silver waste scrap, semi manufactured forms and silver powder this year to date compared to the same period in 2014.

  NOTE: There are two other categories of industrial silver imports-exports, however I did not include them as their total figures were much smaller than the three listed above. In addition, even though total U.S. silver waste scrap tonnage is significant (11,000 mt ytd), it turns out to be only worth 33 cents an ounce.

  Now, if we take the net change for Q1-Q3 2014 vs 2015, this is the result:

  

  As we can see in the chart above, the U.S. imported 798 mt of silver bullion and dore bars Q1-Q3 compared to last year, but industrial silver imports (silver powder & semi manufactured forms) were down an astonishing 771 mt and industrial silver exports were down 353 mt.

  When I made the chart above, I only included the two fabricated silver components of semi manufactured forms and silver powder. So, as total silver imports surged, industrial silver imports plummeted while industrial silver exports declined significantly.

  Again, why did the U.S. import so much more silver this year if industrial silver supply and demand were down considerably compared to last year. If U.S. silver imports continue to be strong for the remainder of the year, it could reach over 6,000 mt. The last time the U.S. imported that much silver was in 2011.

  I went back and looked at the data for 2011 and found some surprising results. If we compare U.S. silver supply and demand for the first three-quarters of 2015 vs 2011, this is the outcome:

  

  Even though the U.S. imported 284 mt more silver bullion and dore bars during the first three-quarters of 2011 than during the same period this year, industrial silver imports were 161 mt higher and industrial exports a staggering 1,150 mt larger. So, it made sense for the U.S. to import 6,300 mt of silver in 2011.

  However, this wasn’t the case this year. So, again… where did this silver go? Maybe some of it went into the surging physical investment demand. If we look at the next chart, we can see that U.S. Silver Eagle sales hit a record 47 Moz this year:

  

  While total Silver Eagle sales were 7 Moz higher this year versus 2011, the Comex silver inventories also fell from a high of 184 Moz in the beginning of July down to 158 Moz currently:

  

  To sum this all up, the U.S. has imported 20% more silver in the first three-quarters of 2015 compared to last year while industrial demand has fallen considerably and the COMEX silver inventories declined 26 Moz from its peak.

  So, for whatever reason… there is more silver coming into the U.S. than the market dictates. Of course, physical silver investment demand is much higher this year, but it doesn’t account for all the extra silver imports. Thus, some large entities must be acquiring silver off the radar.

  Why Did The U.S. Silver Market Break From Its Normal Market Dynamics

  According to the USGS silver import-export data, the U.S. Silver Market is behaving much different from previous years. As I stated, U.S. silver bullion and dore bar imports hit a record 6,000 mt in 2011. However, this was due to elevated industrial silver demand and exports.

  This year, the U.S. is on track to import 6,000 mt, but industrial silver supply and industrial exports are down considerably. Which means, the huge increase in U.S. silver imports must be due to physical silver investment demand. This doesn’t make sense as the price of silver is trading at a four-year low.

  As I mentioned, there was a large decline of silver inventories at the COMEX this year. Furthermore, according to the 2015 Silver Interim Report by the GFMS Team at Thomson Reuters, they show a 17.1 Moz net decline of Global Silver ETF inventories, while physical bar and coin demand rose to 206.5 Moz this year.

  Looking at the following chart from my article, DEATH OF PAPER GOLD & SILVER: The Data Proves It,

  

  We can see the drastic change of investor sentiment for physical silver bar and coin over Global Paper Silver ETFs. In over the past five years, Global Silver ETF inventories experienced a net build of 18.2 Moz compared to 994 Moz of physical silver bar and coin demand. Moreover, that figure is conservative due to the fact that the GFMS Team at Thomson Reuters does not include private silver rounds (bars) in their data.

  Again, something broke in the U.S. Silver Market this year. I believe it had to do with the beginning shock of a possible Greek Exit of the European Union and continued by the threat of a U.S. and broader stock market collapse. Even though the Fed and Central Banks continue to prop up highly inflated over-leveraged Bonds & Stocks, this is not a long-term sustainable economic policy.

  At some point, investors (especially wealthy investors and institutions) will start buying physical gold and silver to protect wealth before the collapse of the Greatest Ponzi Scheme in history begins in earnest. It will only take a small percentage increase of new buyers, say 2-3%, to totally overwhelm the precious metal market. When I say 2-3% new buyers, I am referring to those currently invested in paper assets.

  The U.S. Silver Market broke a trend this year which I believe is significant going forward. While precious metal investors may be frustrated by the low paper price of gold and silver.. the fundamentals for owning the metals are stronger than ever.

  

  

  

  

  

• Americans Petition Obama To Declare Erdogan's Turkey State Sponsor Of Terror

  On our way to documenting Turkey’s arrest of two generals and a colonel who dared to stop a weapons-laden MIT truck in route to Syria, we said that “if there’s a silver lining to last Tuesday’s downing of a Russian Su-24 warplane by two Turkish F-16s it’s that the world is now starting to scrutinize President Recep Tayyip Erdogan.”

  Indeed, in the wake of the plane “incident”, Russia embarked on an epic PR campaign to expose the Erdogan government’s complicity in Islamic State’s illegal crude trade and to generally wake the world up to the fact that if ever there were a state sponsor of terror, it’s Turkey. 

  While it’s probably too much to ask for the general public to delve deeply into the history of Wahhabism in Saudi Arabia on the way to drawing a connection between Riyadh and the ideology espoused by the various Sunni extremist groups operating in the Mid-East and generally recognized as “terrorists” by the Western media, watching clips of Russian warplanes vaporizing oil tanker trucks requires little in the way of intellectual investment. That’s perhaps why The Kremlin’s PR blitz has done such an admirable job of alerting the world to Turkey’s role in sponsoring terror. 

  In fact, word has even reached nearly 35,000 members of the generally clueless American public as evidenced by a White House petition to have Erdogan’s Turkey recognized as a state sponsor of terror. 

  “Following Turkey’s downing of a Russian jet striking the Islamic State (IS), it is undeniable that Pres. Recep Tayyip Erdogan supports jihad terrorism in Syria,” the petition says. “IS exports oil via Turkey and terrorists of IS, al-Qaeda, and other jihad groups transit the border.” 

  While it looks as though the plea will fall far short of the 100,000 signatures it needs, it appears the people are waking up – if only gradually.

  

  

  

  

  

  

• The Fed Just Gave The Treasury A Record $19 Billion Holiday Bonus

  Something surprising emerged in the latest Daily Treasury Statement report showing the sources and uses of operating cash of the US Treasury: the line item for Federal Reserve Earnings exploded to $19.3 billion on December 28, doubling the amount of cash the Fed had remitted to the Treasury for all of 2015.

  

   

  This record, unprecedented one-day payment is shown in the chart below:

  

   

  And just like that the Fed, also known as the printer of US currency, gave the Treasury a one time record bonus of $19 billion.

  But wait, isn’t direct funding of the Treasury against US policy: after all, hasn’t Bernanke been on the record countless times repeating that the Fed does not monetize the US deficit?

  What is going on here.

  For the answer, go back to the $1.1 trillion spending deal which the “bipartisan” Congress fought so hard to get, and specifically the Highway Bill, which as a reminder would be funded with surplus funds from the Federal Reserve and part of the annual dividend banks get for owning shares of Fed regional banks.

  As Bloomberg reported previously, the Fed’s surplus capital comes from the 12 reserve banks. “The highway bill would allow for a one-time draw of $19 billion from the surplus funds, which totaled $29.3 billion as of Nov. 25. If the surplus account goes above $10 billion, that capital would be swept to the government.”

  The US banking system, which is therefore indirectly funding the US highway bill, was not happy:

  “This proposal is misguided and undermines a key agreement that has underpinned the U.S. banking system for a century,” ABA President and Chief Executive Officer Rob Nichols said in a statement. “Banks shouldn’t be used like an E-Z Pass to pay for highways.”

  Still, the reality is that after this one-time bonus of $19 billion, it will take a long time before the Fed has to pony up a comparable amount:

  The banking industry has vigorously fought a cut in the dividend payout to avoid becoming a future source for government funding and potentially paving the way for a tax on banks. Decreasing the payout to 1.5 percent was estimated to generate about $17 billion over 10 years for the highway trust fund. The payout totaled less than $350 million apiece last year for JPMorgan, Bank of America, Citigroup and Wells Fargo & Co.

  According to others such as Stone McCarthy, the direct remittance from the Fed to the Treasury “serves as a reminder of poor fiscal policy, and an attack against the Fed’s independence.”

  What Fed independence?

  Actually, what today’s “bonus” really serves, is a test of the direct monetary financing, aka “helicopter money”, policy which we have been warning is coming, and which the Fed will have no choice but to unleash once the current experiment with hiking rates in a time of global economic recession ends with a bang.

  For now, however, any time you see workers filling potholes during your commute over the next 6 months, remember to thank Santa Yellen: a big part of the funds to fill those pothole was magically created by her pressing CTRL+P.

  

  

  

  

  

  

• Caught On Tape: Saudi Warplanes Vaporize Coca Cola Plant In Yemen

  Earlier this week, Saudi Arabia released budget numbers which showed that the kingdom ran a deficit in 2015 that amounted to some 15% of GDP. 

  To be sure, that was far better than feared, but it’s still a disaster and reflects just how much damage Riyadh’s two wars are inflicting on the monarchy’s finances.

  When we say “two” wars, we’re of course talking about the figurative “war” on US shale production and the literal war against the Iran-backed Houthis in neighboring Yemen. The following graphic from Deutsche Bank should give you an idea of just how much Riyadh spends on the military:

  

  Indeed, as we noted on Monday, the kingdom would sooner overhaul the welfare state (i.e. reduce subsidies) than it would cede market share to US producers or allow Iran to establish what would amount to a colony overlooking the Bab-el-Mandeb. 

  The Saudi intervention in Yemen dates back to March of this year when airstrikes dubbed “Operation Decisive Storm” began. At that point, the Houthis had advanced all the way to Aden, driving President Mansur Hadi into exile in Riyadh. With the help of ground troops from the UAE and Qatar, the Saudi-led coalition has now pushed the rebels back to Sana’a, home of a UNESCO world heritage site which has sustained irreparable damage under heavy Saudi airstrikes. 

  Despite ceasefire talks held earlier this month, the violence continues as Saudi Arabia has been forced to shoot down three Scud missiles fired from Yemen over the past two weeks. 

  Well, in case the obliteration of an MSF hospital in Saada wasn’t enough to convince you that Riyadh is spending wisely on the war effort, today we learn that a Saudi airstrike has decimated a Coca Cola bottling factory in Sana’a on Wednesday.

  We can only assume it was a “rebel hideout” much like the MSF hospital the US destroyed in Kunduz in October. Below, find the video of the strike along with images from the rubble.

  And the aftermath:

  

  

  

  

  

  

  

  

  

  Money well spent?

  

  

  

  

• The Oligarch Tax Bracket: How The Tax Rate For The Wealthiest 400 Americans Plunged From 27% To 17%

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  I never liked the saying: “We are the 99%.” While admittedly catchy and effective as a slogan, I think it is ultimately divisive and counterproductive. The reason I say this is because the statement itself alienates much needed allies for no good reason.

   

  In a country with a population of 320 million, the 1% represents 3.2 million people, which is a pretty big number. While the 1% certainly have far superior material lives compared to the 99%, that doesn’t mean a particularly large percentage of them are thieves, cronies or oligarchs. In fact, it behooves people interested in transitioning to another paradigm to court as many of them as possible to the cause. It is very useful to have well meaning people with resources and connections on your side. To blithely assume there aren’t plenty of potential allies from a pool of 3.2 million is committing strategic suicide.

   

  – From the post: Charting the American Oligarchy – How 0.01% of the Population Contributes 42% of All Campaign Cash

  Much of my focus throughout 2015 was on the pernicious influence of the 0.01%, i.e., the American oligarchy. Indeed, nothing would please oligarchs more than to define a struggle as the 99% vs. the 1% in order to shift attention away from the real root of the problem, themselves.

  As I’ve mentioned time and time again, 99% of the 1% doesn’t bribe politicians, write tax laws, or influence U.S. foreign policy. To discover the real players, the people who drive American domestic and foreign policy and make all of the important decisions, you only need to focus on a hand full of people.

  Today, the New York Times published an important article that proves the point. Here are the key paragraphs in the entire lengthy article:

  The impact on their own fortunes has been stark. Two decades ago, when Bill Clinton was elected president, the 400 highest-earning taxpayers in America paid nearly 27 percent of their income in federal taxes, according to I.R.S. data. By 2012, when President Obama was re-elected, that figure had fallen to less than 17 percent, which is just slightly more than the typical family making $100,000 annually, when payroll taxes are included for both groups.

   

  

   

  From Mr. Obama’s inauguration through the end of 2012, federal income tax rates on individuals did not change (excluding payroll taxes). But the highest-earning one-thousandth of Americans went from paying an average of 20.9 percent to 17.6 percent. By contrast, the top 1 percent, excluding the very wealthy, went from paying just under 24 percent on average to just over that level.

  This is merely a reflection of what I’ve been saying throughout the Obama Presidency. That he is nothing more than an oligarch-coddling puppet masquerading as a progressive.

  As you can see, tax rates for the non-oligarch 1% actually went up during his Presidency, while oligarch tax rates declined substantially. This is precisely what Obama will be remembered for by history, bailing out and protecting the 0.01%, at the expense of everyone else.

  We need to grow up and understand the battle lines clearly in order to win. It is demonstrably not the 99% vs. the 1%. In reality, it’s the oligarchy and the system they created vs. everyone else.

  I suggest you read the entire article, but here are a few of the more compelling segments:

  With inequality at its highest levels in nearly a century and public debate rising over whether the government should respond to it through higher taxes on the wealthy, the very richest Americans have financed a sophisticated and astonishingly effective apparatus for shielding their fortunes. Some call it the “income defense industry,” consisting of a high-priced phalanx of lawyers, estate planners, lobbyists and anti-tax activists who exploit and defend a dizzying array of tax maneuvers, virtually none of them available to taxpayers of more modest means.

   

  In recent years, this apparatus has become one of the most powerful avenues of influence for wealthy Americans of all political stripes, including Mr. Loeb and Mr. Cohen, who give heavily to Republicans, and the liberal billionaire George Soros, who has called for higher levies on the rich while at the same time using tax loopholes to bolster his own fortune.

   

  All are among a small group providing much of the early cash for the 2016 presidential campaign.

   

  Operating largely out of public view — in tax court, through arcane legislative provisions and in private negotiations with the Internal Revenue Service — the wealthy have used their influence to steadily whittle away at the government’s ability to tax them. The effect has been to create a kind of private tax system, catering to only several thousand Americans.

   

  The impact on their own fortunes has been stark. Two decades ago, when Bill Clinton was elected president, the 400 highest-earning taxpayers in America paid nearly 27 percent of their income in federal taxes, according to I.R.S. data. By 2012, when President Obama was re-elected, that figure had fallen to less than 17 percent, which is just slightly more than the typical family making $100,000 annually, when payroll taxes are included for both groups.

   

  The ultra-wealthy “literally pay millions of dollars for these services,” said Jeffrey A. Winters, a political scientist at Northwestern University who studies economic elites, “and save in the tens or hundreds of millions in taxes.”

   

  The wealthy can also avail themselves of a range of esoteric and customized tax deductions that go far beyond writing off a home office or dinner with a client. One aggressive strategy is to place income in a type of charitable trust, generating a deduction that offsets the income tax. The trust then purchases what’s known as a private placement life insurance policy, which invests the money on a tax-free basis, frequently in a number of hedge funds. The person’s heirs can inherit, also tax-free, whatever money is left after the trust pays out a percentage each year to charity, often a considerable sum.

   

  Among tax lawyers and accountants, “the best and brightest get a high from figuring out how to do tricky little deals,” said Karen L. Hawkins, who until recently headed the I.R.S. office that oversees tax practitioners. “Frankly, it is almost beyond the intellectual and resource capacity of the Internal Revenue Service to catch.”

   

  The combination of cost and complexity has had a profound effect, tax experts said. Whatever tax rates Congress sets, the actual rates paid by the ultra-wealthy tend to fall over time as they exploit their numerous advantages.

   

  From Mr. Obama’s inauguration through the end of 2012, federal income tax rates on individuals did not change (excluding payroll taxes). But the highest-earning one-thousandth of Americans went from paying an average of 20.9 percent to 17.6 percent. By contrast, the top 1 percent, excluding the very wealthy, went from paying just under 24 percent on average to just over that level.

  There you have it.

  

  

  

  

  

  

• The Next Time Your Financial Advisor Tells You To Buy Stocks, Show Them This Chart

  Earlier today, we noted that while the market was surging last week, the smart money was selling. This comes at the same time as ICI reported major redemptions from both stock ($3.9 billion) and bond ($4.5 billion) mutual funds, even as corporate buybacks were decelerating, leading to the question of just who was buying stocks during the Santa rally of the past two weeks.

  But something even more surprising emerged when looking at the detailed breakdown of how the “smart money” has been flowing. As Bank of America clarifies, when explaining where its $0.7 billion in weekly outflows came from, “net sales were chiefly due to institutional clients last week” and adds that institutionals “have sold stocks for eight consecutive weeks”!

  And then something even more surprising emerges when looking at the YTD breakdown of flows: while hedge funds and private clients (retail) have largely offset each other over the past year, the former selling $2.8BN and the latter buying $2.2BN in 2015, something odd has taken place at the institutional level: starting in early January, the largest financial institutions – mutual funds and various other asset managers – have unleashed an unprecedented selling spree for 11 consecutive months, which has brought their total outflow to $26.8 billion.

  Which leads to another question: if institutions are actively dumping stocks, perhaps mom and pop investors should show the following chart to their financial advisors, who directly or indirectly work for these institutions, and ask them: why should they be buying, when the counterparty they are buying from is, most likely, this very same financial advisor?

  

   

  It isn’t just 2015: as BofA adds, and shows in the next chart “institutional clients overall were only net buyers in 2009, as well as in 2011.” They were net sellers all the other time as the green line clearly shows.

  

   

  Finally, here is the full breakdown of what all of Bank of America’s clients have done since the start of the recession: it is almost as if they have all been… selling?

  

   

  Just who is the greater fool?

  

  

  

  

  

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