Today’s News December 5, 2015

Nothing To Fear But The Fearful Themselves

Submitted by Dan Sanchez via DanSanchez.me,

When I first learned of the recent attacks in Paris, a chill went down my spine. “No,” I thought, “This is all happening too fast.”

I was terrified. I was not terrorized, mind you. What happened in Paris was tragic, of course. But I was not so ignorant and innumerate as to think the kind of violence it represented was a statistically significant direct threat to myself and my loved ones. I was fully cognizant that, even with the recent uptick in terror attacks, the probability of my family ever being caught up in one was vanishingly minuscule. I am more likely to be felled by a deer or a bolt of lightning than by a jihadist’s Kalashnikov.

What terrified me was the response of all the people who are incapable of such a proportional perspective: those who saw the news from France and panicked, thinking “I’m next!” As distant as it was, the Paris attacks unleashed in America a surge of fear and of calls for greater police powers, as well as an attendant wave of anti-Muslim hate and war lust.

And as sophisticated and urbane as the French are reputed to be, they too let irrational terror wash over them. And under its sway, they permitted the State to run rampant over life and liberty. The public attitude was distilled by a young French citizen whose message to her government was, “Do whatever you want, but keep me safe.” With this mandate, France escalated its pointless and terrorist-breeding bombing of civilian-filled Syrian towns. And at home, as Truth in Media reported:

“…the French government declared a state of emergency based on a rarely used 1955 law that allows the state to conduct warrant-less searches of private property, impose curfews, restrict public gatherings and movements of people, confiscate weapons at will and take over the press.”

As always, the statist public perversely responded to terrorism drawn upon their heads by their government’s foreign militancy by sanctioning more such militancy. And it perversely rewarded that government for its abject failure to prevent the attacks with more resources, powers, and responsibility.

On top of arrest sweeps and threatening to close mosques, the French government’s emergency powers were invoked to place activists under house arrest in order to squelch completely unrelated protests. This demonstrated vividly that war is indeed the health of the State, and war-spawned terrorist attacks are like an adrenaline shot for domestic tyranny.

When I saw these responses, it fully sank in just how surrounded my family and I are by human livestock and just how acutely dangerous that position is. I realized that, when an attack of that scale and shock-value again happens on American soil, the pack-minded multitudes all around me will deafeningly bay for war. And the herd-minded hundreds of millions will stampede to the State for security, bleating to please, please be shorn of their remaining liberties.

I am not terrified of the terrorists; i.e., I am not, myself, terrorized. Rather, I am terrified of the terrorized; terrified of the bovine masses who are so easily manipulated by terrorists, governments, and the terror-amplifying media into allowing our country to slip toward totalitarianism and total war.

Now the result of that could be a statistically significant threat to myself and my family. Under an omnipotent government with permanent emergency powers, there would be a significant likelihood of my nephew being drafted to help occupy a foreign country; my daughter going hungry thanks to wartime economic planning; or myself being imprisoned or shot as a dissident.

Yet I have drawn solace from the fact that libertarians like myself are not alone in pushing back against the terrorized Right. Following the Paris attacks, many excellent articles from the political Left were published wisely warning the West not to answer indiscriminate violence in kind. Such a terror-driven response is exactly what the terrorists want, in order to polarize and sharpen a “clash of civilizations.”

And then yesterday’s San Bernardino attack happened.

Before the fact that the alleged shooters were Muslim emerged, the Left began jumping all over it as yet another in a long series of mass shootings by whites that demonstrated the urgent need for more gun control.

Two weeks earlier, these same progressives were calmly counseling the public to not be terrorized into giving their government more power to bomb, register, and persecute Muslims. Now they themselves were trying to terrorize the public into giving their government more power to disarm, register, and persecute gun owners.

They point out that you are more likely to be killed by a white, homegrown terrorist than a Muslim one. That may be true, but both of those fates are still far less likely than your odds of being crushed by furniture (or being killed by a cop, for that matter). Neither of these exaggerated threats are any justification for incurring the great and underestimated dangers involved in granting government sweeping new powers.

Progressives, who rightly support Black Lives Matter, are pining for more gun laws, while the already existing gun possession laws are one of the chief pretexts cops and courts use to brutalize and incarcerate blacks.

And the same progressives who rightly warn of potential fascism under the divisive demagoguery of Donald Trump, want to give the institution that Trump may come to control greater power to register and disarm the public. They ignore or deny the fact that the mass human roundups we associate with such regimes are only practicable given broad civilian disarmament. And broad civilian disarmament, in turn, is only practicable given broad gun registration. For example, the German Jews and liberals were easily liquidated by the Nazis, thanks to the Weimar Republic’s gun registration laws. Do you really want every single Mexican and Muslim in America disarmed or easily disarm-able under “Chancellor” Trump?

After San Bernardino, I am just as terrified of the terrorized and terrorizing Left as I am of the terrorized and terrorizing Right. I more fully realize that the latter can only do its worst if enabled by the former. The Left sets us up for the Right to knock us down. Call it the Weimar/Third Reich one-two punch.

I do not irrationally and disproportionately fear Muslim bomb-wielding jihadists or white, gun-toting nutcases. But I rationally and proportionately fear those who do, and the regimes such terror empowers. History demonstrates that governments are capable of mass murder and enslavement far beyond what rogue militants can muster. Industrial-scale terrorists are the ones who wear ties, chevrons, and badges. But such terrorists are a powerless few without the supine acquiescence of the terrorized many. There is nothing to fear but the fearful themselves.

Paris and San Bernardino taught me that my family is trapped amid a herd, completely surrounded by cattle-minded millions who can be spooked into large-scale stampedes with small-scale crimes. And there is literally no way out, because virtually the entire world is afflicted with one form of collectivist statism or another. Therefore, the only way to prevent my loved ones from being trampled is by helping as many people as I can to break the spell of terror that turns civilized men and women into rampaging beasts.

That is why I am writing this essay: to implore you, the reader, to snap out of that spell if you have not already, and to help others do the same. Stop swallowing the overblown scaremongering of the government and its corporate media cronies. Stop letting them use hysteria over small menaces to drive you into the arms of tyranny, which is the greatest menace of all. Overthrow the reign of terror the State has installed over your mind. Else the days ahead may be terrible indeed.
Prominent Turkish Media Figure Resigns Citing Legal Battle With Erdogan

Last week, Turkey’s NATO-backed, Washington-approved autocrat Recep Tayyip Erdogan took another step towards ensuring that the concept of a free press doesn’t exist in Turkey when Can Dundar, editor in chief of Cumhuriyet, and Erdem Gul, the newspaper’s capital correspondent were arrested on charges of spying and aiding a terrorist organization.

When you hear “aiding a terrorist organization”, you might think the men had, say, provided weapons to extremists or perhaps assisted in the smuggling of illegal oil from which the most prominent terrorist organization on the planet derives up to a billion dollar per year in revenue.

But no, that’s what the Turkish government does. As for the reporters, their crime was exposing the fact that Ankara was sending weapons to militants in Syria via trucks manned by Turkish intelligence agents. For those who missed it, here’s the video proof:

Of course that was hardly the first time Erdogan has cracked down on the press. Back in September, in a move dubbed “unsubstantiated, outrageous and bizarre” by Amnesty International, Turkey arrested three Vice News journalists (two British citizens and an Iraqi) for allegedly “engaging in terror activity” on behalf of ISIS. That was just the latest example of Ankara using the NATO-backed ISIS offensive as an excuse to eradicate pro-Kurdish sentiment. According to The New York Times (and according to common sense) the reporters’ only real “crime” was “covering the conflict between Kurdish separatists and the Turkish state.”

And there are countless other examples.

Well, in the latest press casualty brought to you by America’s despotic ally in Ankara, Today’s Zaman Editor-in-Chief Bulent Kenes, a journalist who has been at the helm of Turkey’s best-selling English-language daily since it was launched in 2007, has resigned citing an ongoing legal battle with Erdogan. Here’s the full post from TZ:

Kenes said on Thursday that he cannot perform his job as the editor-in-chief of Today’s Zaman due to a series of criminal and civil lawsuits government officials have launched against him as part of the campaign of pressure on the independent media in Turkey. He has already been convicted in one defamation case and is facing many others that observers have said are nothing but intimidation and persecution of independent and critical journalists in Turkey.

He also said he wanted to spend more time with his family and pay more attention to his health.

“As the founding editor-in-chief of the Today’s Zaman, I have sincerely tried to fulfill my job to the best of my ability, maintained the paper’s integrity and tried to resist all kinds of pressure from the government as much as I could,” Kenes said. He wished success for his colleagues at the daily, which he said has been a leading brand name in telling Turkey’s story abroad, and thanked the readers of the daily for their valuable support for him over the years.

Kene? was arrested by the ?stanbul 7th Criminal Court of Peace on Oct. 10 and remained behind bars until his release pending trial was ordered on Oct. 14. The charges against the journalist concern 14 tweets that allegedly insult President Recep Tayyip Erdogan. He has already been convicted of insulting the president in a Twitter post and was handed a suspended prison sentence of 21 months earlier this year. However, Kenes did not even mention the president’s name in his tweet and this sentence has attracted worldwide condemnation.

Kenes is facing the prospect of up to eight years and two months in prison on charges of “insulting” Erdogan in a series of tweets and statements that he has said were simply the expression of a critical opinion. He has also been hit by dozens of other pending cases launched against him by Erdogan, Prime Minister Ahmet Davutoglu and other government officials.

So the takeaway from this travesty (well, other than to reiterate that the US should not be supporting this despot) is that you don’t “insult Erodgan” on Twitter. Especially if you happen to live in Turkey. Although amusingly, you might be able to get away with comparing the President to Gollum (from Lord of the Rings) because as it turns out, Turkish judges aren’t Tolkein fans and on that note, we close with the following from The Guardian:

The trial of a Turkish man accused of insulting the president, Recep Tayyip Erdogan, by comparing him to Gollum has been adjourned so that a group of experts can study JRR Tolkein’s Lord of the Rings character, Turkish media has reported.

Bilgin Ciftci was fired from his job at Turkey’s public health service in October after sharing images comparing Erdo?an’s facial expressions to those of Gollum.

According to a report in the daily newspaper Today’s Zaman, a court in Ayd?n has adjourned Ciftci’s trial as the chief judge had not seen the Lord of the Rings films. The court-appointed experts have reportedly been asked to determine whether the comparison is indeed an insult.
Do You Really Want to Raise Money From a Venture Capitalist?
By Chris at www.CapitalistExploits.at

When I was much younger everyone, myself included, wanted to be a hedge fund manager. And who could blame us. After seeing the kind of houses these folks lived in, any sensible bloke with aspirations of ditching the 30-year old Fiat for a Porsche wanted a hedge fund of their very own. They clearly brought only wonderful things to those who had one… except maybe Raj Rajaratnam.

A near mythical status was attributed to these God-like people, hedge fund managers that is. Even the excessively rotund, cabbage-faced geek, with the hygiene of a garbage bag would find himself swarming with girls should he let it slip that he indeed manages a hedge fund.

Today a similar status seems to have descended like a blanket of fog over venture capitalists. Like the aforementioned hedge fund managers, they’re largely misunderstood. Fog does that. It makes things… well, foggy.

A conversation I had with a couple of entrepreneurs shows the thickness of the fog.

The conversation went something like this:

Me: So how are you financing this?

Founder: We’ve raised some family and friends money a few months ago and now we’re looking for VC money.

Me: Why VC money? Why not angel money? (this is a very early stage company which is nowhere near being ready for VC capital)

Founder: Well VCs have a lot more money than angels, and we don’t want to waste our time with angels. We’re going straight to the top.

Me: The top of what?

Founder: Well VCs are it really. They’ve at the top. I mean they’ve got to where they’ve got to by being really good. No, we need VC money.

Me: Really? What do you believe they’re going to bring you that angels can’t?Founder: The expertise we get from VCs is going to help us a lot.

Me: Really, how do you figure that?

Founder: Well, VCs have more money, they have more contacts and they can get us strategic relationships.

Me: So you’re expecting them to be quite active in your business?

Founder: Yes.

This sort of thinking is complete horseshit and I told the founder so.

Companies have different capital requirements during their life-cycle, but as I mentioned last week, it is an entrepreneur’s job to identify the most efficient and attractive source of capital at any given point in the company’s life-cycle.

The gentleman mentioned above had an extremely early stage business. Just a few months old, and not much more than an idea. What he needs is pre-seed capital which almost never comes from VCs as the amounts in question are very small, often only a few hundred thousand dollars. He would have been better off sourcing angel money for two reasons:
1. His business was not yet mature enough to take to VC money, and
2. He needed additional help in his company on the skill side. This would most likely be easier for him to get from an interested angel investor who could join the board, than it would be from a VC fund.
The problem, I realised, that this entrepreneur faced, was that he didn’t understand the nature of what venture capital was, and had lumped venture capital together with anything related to private funding.

The trouble is if you don’t understand the person you’re trying to raise money from you land up wasting both parties time.

And furthermore, when the time does come and your business is at the stage where it needs to secure venture capital you can pretty much write off the VC you pitched earlier; he’s already had a bad experience with you since he realised you never did your homework before talking to him.

I’ve always felt that the relationship between entrepreneurs and investors is or should be that of a partnership. Those funding your business are partners in your business and as such you should educate yourself about who they are, what their motivations are and what they can and cannot bring to the table.

Who, Then, Are Venture Capitalists?

Perhaps let’s look at the structure of a typical VC fund as this will shine some light on the subject.

What takes place is that a bunch of smart, and sometimes not so smart guys, and sometimes gals, get together and form a company with the objective to get filthy stinking rich and they intend to do this by investing in exciting early stage ventures.

These guys are called the General Partners (GPs) and in order to leverage what they’re doing, they take in partners who wish to co-invest. These partners are passive and called Limited Partners (LPs) and they are usually charged 2% of capital and 20% of the carried interest, which in the industry is commonly known as 2:20.

The more money the GPs can raise from Limited Partners the better for them. More capital means more fees and returns. For example, a VC fund with $1 million under management that generates a 2x return will only earn the GP 20% of $1 million or $200,000.

On the other hand, a GP with $100 million who earns only 6% will earn $1.2 million or 20% of the $6 million, not to mention the 2% of fees, which on a $100 million fund amount to $2 million. Assets under management (AUM) are therefore super important to VCs.

What Does This Mean to You As a Founder Looking to Raise VC Money?

It means that your company should be large enough to be investable and it means that as an entrepreneur you need to understand who you’re talking to.

As an entrepreneur, right NOW may very well be THE best time to raise money because there are those who are throwing it out like a lolly scramble at a 5-year-old’s birthday party.

All that said, VCs are going to protect themselves. They understand they are investing in a risky asset class and will limit those risks as much as is possible. They’re going to demand liquidation preferences, maybe even 2x, and they’re going to take board seats.

Realise also that VCs, evil as they may look, are not their own boss. They answer to the LPs, and if they answer to their LPs and you take their money, you now do as well. Oh, and remember, LPs are often made up of pension funds, endowment funds, funds of funds and the like. As such LPs tend to know about as much about your business as they do about the city of Ouagadougou… not so much.

What do LPs want?

Exits.

If LPs want exits it means your investor want exits. Now that sounds a bit like stating the obvious but realise that one of the biggest risks behind venture capital is the lack of liquidity and there will be a push for liquidity whether you the founder like it or not.

Everyone wants to eventually see liquidity. This is why companies will IPO even if it means, like in the recent case of Square, the valuation is lowered.

Case Study

Consider for a moment some of the VCs in Square who got in at the Series E financing. Many invested with a 1.3x ratchet. Some elected to waive the ratchet and they’re staring at losses as a result, but many did not. It’s the VCs who are making money and the difference comes out of, you guessed it, founders’ pockets.

As an entrepreneur it’s important to know this early on when you’re taking VC money. Maybe you’re OK with that and you still walk away very rich, and maybe you don’t. It all depends on how much dilution you’ve already taken on and how much you can still take, and the size of the opportunity you’re hunting and how you execute on that.

Accretive dilution is fine and everyone is happy to see it, but as you can see VCs cover the downside and that means that someone has to pay for that protection. That someone will be staring you in the face every morning as you brush your teeth.

Now Jack Dorsey is still the largest shareholder owning over 24% of Square and we won’t be crying for him. Remember, this is one of the success stories.

What is important to understand is that as a founder it’s entirely possible to end up in a situation where your interests are no longer aligned with those of your shareholders.

It can happen where your VCs want that trade sale, or IPO, and you as a founder don’t. Maybe you’ve incurred too much dilution and a trade sale or IPO at the market price, based on your equity, means that VCs with a 2x liquidation preference make money, and you, after working 100-hour workweeks, losing your marriage and friends, after mortgaging your home, end up with nothing. Yep. Nada. Zilcho. It happens. I’d rather it didn’t happen to you.

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The Pretend War: Why Bombing ISIS Won't Solve The Problem

Authored by Andrew J. Bacevich, originally posted at The Spectator,

Not so long ago, David Cameron declared that he was not some "naive neocon who thinks you can drop democracy out of an aeroplane at 40,000 feet." Just a few weeks after making that speech, Cameron authorised UK forces to join in the bombing of Libya – where the outcome reaffirmed this essential lesson.

This week Cameron asked his parliament to share his ‘firm conviction’ that bombing Raqqa, the Syrian headquarters of the Islamic State, has become ‘imperative’… and they did.

At first glance, the case for doing so appears compelling. The atrocities in Paris certainly warrant a response. With François Hollande having declared his intention to ‘lead a war which will be pitiless’, other western nations can hardly sit on their hands; as with 9/11 and 7/7, the moment calls for solidarity. And since the RAF is already targeting Isis in Iraq, why not extend the operation to the other side of the elided border? What could be easier?

But it’s harder to establish what expanding the existing bombing campaign further will actually accomplish. Is Britain engaged in what deserves to be called a war, a term that implies politically purposeful military action? Or is the Cameron government — and the Hollande government as well — merely venting its anger, and thereby concealing the absence of clear-eyed political purpose?

Britain and France each once claimed a place among the world’s great military powers. Whether either nation today retains the will (or the capacity) to undertake a ‘pitiless’ war — presumably suggesting a decisive outcome at the far end — is doubtful. The greater risk is that, by confusing war with punishment, they exacerbate the regional disorder to which previous western military interventions have contributed.

Even without Britain doing its bit, plenty of others are willing to drop bombs on Isis on either side of the Iraq-Syria frontier. With token assistance from Bahrain, Jordan, Saudi Arabia and Turkey, US forces have thus far flown some 57,000 sorties while completing 8,300 air strikes. United States Central Command keeps a running scorecard: 129 Isis tanks destroyed, 670 staging areas and 5,000 fighting positions plastered, and (in a newish development) 260 oil infrastructure facilities struck, with the numbers updated from one day to the next. The campaign that the Americans call Operation Inherent Resolve has been under way now for 17 months. It seems unlikely to end anytime soon.

In Westminster or the Elysée, the Pentagon’s carefully tabulated statistics are unlikely to garner much official attention, and for good reason. All these numbers make a rather depressing point: with plenty of sorties flown, munitions expended and targets hit, the results achieved, even when supplemented with commando raids, training missions and the generous distribution of arms to local forces, amount in sum to little more than military piddling. In the United States, the evident ineffectiveness of the air campaign has triggered calls for outright invasion. Pundits of a bellicose stripe, most of whom got the Iraq war of 2003 wrong, insist that a mere 10,000 or 20,000 ground troops — 50,000 tops! — will make short work of the Islamic State as a fighting force. Victory guaranteed. No sweat.

And who knows? Notwithstanding their record of dubious military prognostications, the proponents of invade-and-occupy just might be right — in the short term. The West can evict Isis from Raqqa if it really wants to. But as we have seen in other recent conflicts, the real problems are likely to present themselves the day after victory. What then? Once in, how will we get out? Competition rather than collaboration describes relations between many of the countries opposing Isis. As Barack Obama pointed out this week, there are now two coalitions converging over Syria: a US-led one, and a Russia-led one that includes Iran. Looking for complications? With Turkey this week having shot down a Russian fighter jet — the first time a Nato member has downed a Kremlin military aircraft for half a century — the subsequent war of words between Turkey’s President Recep Tayyip Erdogan and Vladimir Putin gives the world a glimpse into how all this could spin out of control.

The threat posed by terrorism is merely symptomatic of larger underlying problems. Crush Isis, whether by bombing or employing boots on the ground, and those problems will still persist. A new Isis, under a different name but probably flying the same banner, will appear in its place, much as Isis itself emerged from the ashes of al-Qaeda in Iraq.

Does the West possess the wherewithal to sustain another long war? Only if the allies wage that war exclusively from the air. The British army is now the smallest it has been since the 19th century, Cameron’s government having reduced it by 20 per cent since coming to power. The French army today numbers just over 100,000. London and Paris inevitably look to the United States as the pre-eminent member of the western alliance to take up the slack (the US still spends almost twice as much on defence as all other Nato members put together). But apart from Obama’s evident reluctance to close out his presidency by embarking upon a new war, advocates of a major ground offensive against Isis should note that the United States army is also shrinking. It’s also considerably worn out by the trials of the past dozen or more years. Those who cheer from the bleachers may be eager for action. Those likely to be sent to fight, not to mention citizens who actually care about the wellbeing of their soldiers, may feel less keen.

The fact is that Britain, France, the United States and the other allies face a perplexing strategic conundrum. Collectively, they find themselves locked in a protracted conflict with Islamic radicalism — of which Isis is but one manifestation. Prospects for negotiating an end to that conflict anytime soon appear to be nil. Alas, so too do prospects of winning it.

In this conflict, the West as a whole appears to enjoy the advantage of clear-cut military superiority. By almost any measure, we are stronger than our adversaries. Our arsenals are bigger, our weapons more sophisticated, our generals better educated in the art of war, our fighters better trained at waging it.

Yet time and again the actual deployment of our ostensibly superior military might has produced results other than those intended or anticipated. Even where armed intervention has achieved a semblance of tactical success — the ousting of some unsavoury dictator, for example — it has yielded neither reconciliation nor willing submission nor even sullen compliance. Instead, intervention typically serves to aggravate, inciting further resistance. Rather than putting out the fires of radicalism, we end up feeding them.

Although the comparison may strike some as historically imprecise, the present moment bears at least passing resemblance to the last occasion when British and French leaders got all worked up about taking on obstreperous Arabs. Back in 1956, the specific circumstances differed, of course. Then, the problem attracting the ire of British and French policymakers was the Arab nationalism of Gamal Abdel Nasser, who in seizing the Suez canal had committed a seemingly unpardonable offence. And the issue was preserving imperial privilege, not curbing terrorism. But then, as today, in both London and Paris, an emotional thirst for revenge overrode sober calculation.

The vicious Isis attacks in Paris represent another unpardonable offence. Through war, Cameron and Hollande seek to avenge the innocents who were killed and wounded. But as the humiliating outcome of the Suez war reminds us, there are some problems to which war is an unsuitable response.

Across much of the greater Middle East today, we confront one such problem. For western governments to reflexively visit further violence on that region represents not a policy but an abdication of policy. It’s past time to think differently.

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As an afterthought, we were reminded that while Hilary Benn voted for war this week, his father had a very different perspective…
For Citi, This Is The "Greatest Event Risk" For Markets In 2016

There’s quite a bit of talk these days about what’s “priced in” and what’s not.

The market, for instance, had “priced in” an expansion (not just an extension) of PSPP and a 20bps cut from Mario Draghi this week and as it turns out, the market was wrong, leading the likes of Goldman to go the mea culpa route (“we badly misread this meeting”).

But while everyone is keen on trading the rumor and trying to get out ahead of central bankers, no one seems interested in pricing in the myriad geopolitical risk factors that loom large on the horizon going into 2016.

Perhaps the market feels as though when it comes to capital markets, nothing short of a nuclear holocaust will be sufficient to trump central bankers hell bent on keeping the party going. Or perhaps investors simply don’t understand the gravity of the innumerable risk factors at play, but whatever the case, savvy market participants keen on “getting it right”, so to speak, might be wise to start pricing in some risk other than that which stems from the possibility that a central planner might not lean quite as dovish as everyone wants them to at the next policy meeting.

To be sure, the implications of pricing in geopolitical risk need not necessarily lead one to a bearish conclusion. A war time boost might be just what the US economy needs to finally get back to trend (lord knows the MIC would love it) from a growth perspective, and one has to think that no matter how long OPEC keeps flooding the market, crude might well spike in the event NATO decides to shoot down another Russian plane in Syria or vice versa.

And we cannot forget about epochal political shifts in key emerging economies (e.g. Brazil, Turkey, and Malaysia), EU periphery hot spots (e.g. Spain and Portugal), and in America (where anti-establishment candidates are capitalizing on voters’ disgust for politics as usual inside the Beltway).

Of course the Janet Yellens, Mario Draghis, and Haruhiko Kurodas of the world will likely still dominate when it comes to explaining why markets behave the way they do on a daily basis, but recognizing the importance of analyzing geopolitics in the course of evaluating the outlook for markets is nonetheless critical.

Recognizing this, Citi is out with some new commentary that’s worth a read for those who understand that there’s more to developing a prudent, long-term view of where asset prices are heading than parsing what a PhD economist mutters at a press conference – or at least there should be.

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From Citi

In our view, investors should be prepared for the convergence of rising “Old” geopolitical risks with “New” socio-economic risks, creating more destabilizing byproducts in the process. Such outcomes are already in evidence with the burgeoning refugee crisis and the spike in terrorist activity, symptoms of profound foreign policy failures and shortcomings in global governance in controlling their escalation. Together, these rising risks may form a toxic brew that exceeds the capacity of central bank liquidity to mask them.

In the year ahead, geopolitical risks likely pose the greatest potential to disrupt markets in terms of event risk. But failure to address new socio-economic risks, such as income inequality and youth unemployment, runs the arguably much greater risk of undermining the functioning of the global system, creating a negative feedback loop. There is also the potential for geopolitical risks to intersect with economic fragility in the event of a downturn, amplifying both.

The November terrorist attacks in Paris took place in a year that saw a significant uptick in the nature and the extent of the risk of terrorism, mainly at the hands of ISIS. In our view, the Paris attacks mark a turning point with global implications. In a tactical sense, the attacks marked a new stage in ISIS approach, being a series of coordinated attacks, perhaps centrally-planned, and, crucially, outside of ISIS’s field of operations (the self-proclaimed “Caliphate”) where it has sought to establish its parallel state and expand its territorial reach. It remains to be seen whether the group has the capacity to launch other attacks in developed market capital cities.

Terrorism is not a new risk, but overall, levels of violent conflict are at a post-Cold War high according to the Uppsala Conflict Data Program, which tracks three types: armed conflicts between states, between non-state groups, and civilian massacres. 36 ISIS’ shift away from the symbolic soft targets of Al Qaeda’s “spectaculars” to mass shooting incidents in capital cities, focusing on fairly undistinguished targets, will be difficult to combat. With the flow of foreign fighters to and from Syria continuing, the desire to maintain open borders has never seemed under greater threat in the post-Cold War era.

For 2016, Fewer Systemically-Significant Elections: US, Taiwan and Brexit Referendum in Focus

There are — perhaps mercifully — relatively few systemically-significant political signposts with the potential to influence global markets in 2016. The most impactful include US presidential elections in November and the UK referendum on EU membership (due by end-2017). Taiwanese general elections and South Korean parliamentary elections will also take place, with Taiwan especially closely-watched given the country’s relationship to China. Other government collapses and/or snap elections may also emerge of course where governments fall under pressure, with Venezuela bearing close watching.

Instead of the usual focus on election-watching, it may be that the political significance of 2016 will not be about election results this year, but in how economic and political conditions will influence the coming constellation of systemically significant elections in France and Germany in 2017 and the context for scheduled leadership transitions in China and Russia (see Figure 57)

US Elections — Anti-Establishment Republican Candidates in the Lead, But For How Long? Will the US Have its First Female President? Anti-establishment candidates Donald Trump and Ben Carson continue to dominate polls for the Republican nomination, with sustained popularity for surprise Democratic challenger Bernie Sanders, a self-declared Socialist in a country where the term is typically regarded as a political insult. Candidate after candidate has made blunders that would, under other circumstances, have cost them US public support. This time, Americans seem to be rewarding candidates who depart from the usual political script. With just under a year to go, the US political establishment and markets have not been overly concerned, with most treating the race as rather colorful political theatre, but we suspect that will soon change.

Could the UK Vote to Leave the EU? Rising Brexit — and UK Breakup — Risk Could the UK vote to leave the European Union? Once no more than a tail risk, in our view Brexit risk is on the rise, with perhaps a 20-30% probability. The pro-EU lead has fallen in recent months to roughly 3 percentage points. Could Brexit really happen? It is far from impossible — we consider Brexit risk to be one of the top global political risks; if it transpires, it would likely prompt a wider unravelling within Europe.

The Refugee Crisis and EU Political Risk: Welcome Refugees, Goodbye Merkel? European policymakers are struggling to resolve the refugee and migration crisis, which follows in the wake of a list of challenges, from the Greek debt crisis, the Russia-Ukraine conflict and the broader challenge of reforming the Eurozone and EU architecture, and is emerging as a significant source of political risk. In addition to influencing election outcomes, the refugee crisis will test cohesion between EU member states, requiring burden-sharing on a topic much more unpopular with their voters than bailouts: immigration. The potential for the refugee and migration crisis to destabilize the EU could eventually overshadow Grexit (in any case a lower risk for 2016 than in previous years). Could it also be the undoing of the European politician who has done the most to help resolve it?

Geopolitical Outlook: The Syria Conflict Enters its Fifth Year, and What Will Follow the End of Sanctions in Iran? As the Syria conflict enters its fifth year, Europe’s political imperative to stem the flow of refugees and Russia’s expanded military intervention in Syria are altering the regional political calculus, forcing Washington’s hand as the US enters an election year. The Obama Administration’s recent decision to send approximately 50 “special advisors” highlights the degree to which the security situation in Afghanistan, Iraq and now Syria have all worsened, compelling President Obama, who came to power promising to extricate US forces from these conflicts, to revisit the US stance. What will be the impact of these moves: will the conflict expand, or could the refugee crisis and Paris attacks provide the impetus for cooperation that will pull the Syria conflict out of its downward spiral — and potentially lead to a rapprochement between Russia and the West? Although diplomatic differences have narrowed encouragingly, it is difficult to envision a durable political solution emerging soon. The recent Turkish-Russia military incident underscores the risk of so many actors, with often competing interests, operating in an increasingly crowded military theatre.

A key regional wildcard will be impact of the end of (much of) the sanctions regime against Iran, a rare recent example of a diplomatic breakthrough, and one fraught with controversy. Can the Iran deal withstand rigorous inspections, opposition from Iranian hardliners, and the potential for regime change in Washington? How will Tehran exert influence in the region, and how will other regional players, from Riyadh to Jerusalem, interact with it?
Why The Liberal Media Hate Trump

Submitted by Patrick Buchanan via Buchanan.org,

In the feudal era there were the “three estates” – the clergy, the nobility and the commons. The first and second were eradicated in Robespierre’s Revolution.

But in the 18th and 19th century, Edmund Burke and Thomas Carlyle identified what the latter called a “stupendous Fourth Estate.”

Wrote William Thackeray: “Of the Corporation of the Goosequill — of the Press … of the fourth estate. … There she is — the great engine — she never sleeps. She has her ambassadors in every quarter of the world — her courtiers upon every road. Her officers march along with armies, and her envoys walk into statesmen’s cabinets.”

The fourth estate, the press, the disciples of Voltaire, had replaced the clergy it had dethroned as the new arbiters of morality and rectitude.

Today the press decides what words are permissible and what thoughts are acceptable. The press conducts the inquisitions where heretics are blacklisted and excommunicated from the company of decent men, while others are forgiven if they recant their heresies.

With the rise of network television and its vast audience, the fourth estate reached apogee in the 1960s and 1970s, playing lead roles in elevating JFK and breaking Lyndon Johnson and Richard Nixon.

Yet before he went down, Nixon inflicted deep and enduring wounds upon the fourth estate.

When the national press and its auxiliaries sought to break his Vietnam War policy in 1969, Nixon called on the “great silent majority” to stand by him and dispatched Vice President Spiro Agnew to launch a counter-strike on network prejudice and power.

A huge majority rallied to Nixon and Agnew, exposing how far out of touch with America our Lords Spiritual and Lords Temporal had become.

Nixon, the man most hated by the elites in the postwar era, save Joe McCarthy, who also detested and battled the press, then ran up a 49-state landslide against the candidate of the media and counter-culture, George McGovern. Media bitterness knew no bounds.

And with Watergate, the press extracted its pound of flesh. By August 1974, it had reached a new apex of national prestige.

In “The Making of the President 1972,“ Teddy White described the power the “adversary press” had acquired over America’s public life.

“The power of the press in America is a primordial one. It sets the agenda of public discussion, and this sweeping political power is unrestrained by any law. It determines what people will talk and think about — an authority that in other nations is reserved for tyrants, priests, parties and mandarins.”

Nixon and Agnew were attacked for not understanding the First Amendment freedom of the press.

But all they were doing was using their First Amendment freedom of speech to raise doubts about the objectivity, reliability and truthfulness of the adversary press.

Since those days, conservatives have attacked the mainstream media attacking them. And four decades of this endless warfare has stripped the press of its pious pretense to neutrality.

Millions now regard the media as ideologues who are masquerading as journalists and use press privileges and power to pursue agendas not dissimilar to those of the candidates and parties they oppose.

Even before Nixon and Agnew, conservatives believed this.

At the Goldwater convention at the Cow Palace in 1964 when ex-President Eisenhower mentioned “sensation-seeking columnists and commentators,” to his amazement, the hall exploded.

Enter The Donald.

His popularity is traceable to the fact that he rejects the moral authority of the media, breaks their commandments, and mocks their condemnations. His contempt for the norms of Political Correctness is daily on display.

And that large slice of America that detests a media whose public approval now rivals that of Congress, relishes this defiance. The last thing these folks want Trump to do is to apologize to the press.

And the media have played right into Trump’s hand.

They constantly denounce him as grossly insensitive for what he has said about women, Mexicans, Muslims, McCain and a reporter with a disability. Such crimes against decency, says the press, disqualify Trump as a candidate for president.

Yet, when they demand he apologize, Trump doubles down. And when they demand that Republicans repudiate him, the GOP base replies:

“Who are you to tell us whom we may nominate? You are not friends. You are not going to vote for us. And the names you call Trump – bigot, racist, xenophobe, sexist – are the names you call us, nothing but cuss words that a corrupt establishment uses on those it most detests.”

What the Trump campaign reveals is that, to populists and Republicans, the political establishment and its media arm are looked upon the way the commons and peasantry of 1789 looked upon the ancien regime and the king’s courtiers at Versailles.

Yet, now that the fourth estate is as discredited as the clergy in 1789, the larger problem is that there is no arbiter of truth, morality and decency left whom we all respect. Like 4th-century Romans, we barely agree on what those terms mean anymore.
Correlation May Not Equal Causation, But This Divergence Looks Like Bad News

For about three weeks, beginning on August 11, just about all anyone wanted to talk about were EM FX reserves.

The conversation starter was of course China’s “surprise” yuan devaluation which, contrary to the official narrative, did not in fact give more of a role to the market in determining the exchange rate. In fact, the PBoC’s hand became even heavier. As BNP so eloquently put it, “whereas the daily fix was previously used to fix the spot rate, the PBoC now seemingly fixes the spot rate to determine the daily fix, [thus] the role of the market in determining the exchange rate has, if anything, been reduced in the short term.” A reduced role for the market meant an increased role for Beijing and that, in turn, meant liquidating FX reserves to control the spot.

Well about a week into the new FX regime, everyone began to take a look at just how much in US paper China was burning and suddenly, the world woke up to what we’d been saying for months, namely that not only was the pace of China’s UST liquidation set to increase going forward, but in fact Beijing had been a seller of USD assets for quite some time.

Subsequently, the market came to understand what we first began to discuss in our November 2014 classic, “How The Petrodollar Quietly Died, And Nobody Noticed”: between slumping commodity prices, FX pain, and, as of August, the China deval, the “great accumulation” (as Deutsche Bank would later call it) was over. EM had begun liquidating their UST warchests and ultimately, every analyst on the street as well as every mainstream financial media outlet would end up documenting exactly what we had been saying for the better part of a year: when EM liquidates its reserves, it’s QE in reverse and thus amounts to a drain on global liquidity as commodity producers cease to be net exporters of capital.

All of this figured heavily in the Fed’s decision to adopt the “clean relent” in September but because the market has a short memory, the global EM FX reserve liquidation story has been largely forgotten even as commodity prices remain in the doldrums and even as a laundry list of idiosyncratic factors are still weighing on the world’s most important emerging economies from Brasilia to Ankara to Beijing to Kuala Lumpur.

Bear in mind that just as QE floods the market with liquidity, the liquidation of EM FX reserves sucks liquidity out and thus should exert a tightening effect even as DM central banks (minus the Fed) struggle to meet market expectations for easing. There are obviously a number of mitigating factors here, but the point is that the conditions which prompted EM to liquidate their reserves have not changed and indeed, things could get materially worse depending on how things shape up in Brazil and Turkey and depending on the trajectory of the Chinese economy (SDR-induced inflows or no, there’s still a hard landing and capital is still flowing the wrong way).

Against this backdrop we present the following two graphics from Credit Suisse who looks at the relationship between FX reserves and, i) global equities, and ii) global growth. While the bank’s opinion is that “the problem is GEM growth not FX reserves,” and while they caution that correlation “does not establish causation,” the graphics speak for themselves.

Take a look at the divergence and draw your own conclusions about where we’re headed:
Democratic New York State Sheriff Urges Citizens To Carry Guns In Mass Shooting Aftermath

Slowly but surely America is losing it.

In the aftermath of the San Bernardino mass shooting, which according to the FBI is now being treated as a terrorist attack, and since ISIS is at least indirectly related makes it the biggest terrorist attack on US soil since Sept. 11, the suggestions, proposals, if not outright threats on how to respond, show just how schizophrenic US society is becoming when it comes to this most sensitive of social issues: gun violence.

Case in point, yesterday afternoon, a sheriff from New York State’s Ulster Country, Paul Van Blarcum, asked residents in his county to carry their legal guns in the wake of a mass shooting in California that has reignited a national conversation about gun control.

“In light of recent events that have occurred in the United States and around the world I want to encourage citizens of Ulster County who are licensed to carry a firearm to PLEASE DO SO,” Ulster County Sheriff Paul J. Van Blarcum wrote on Facebook Thursday. “I urge you to responsibly take advantage of your legal right to carry a firearm.”

According to NBC, Van Blarcum’s Facebook post, which also urged active duty and retired officers to carry guns “whenever you leave your house,” had been shared more than 28,000 times by Friday afternoon. The post also drew more than 3,000 comments.

His appeal is addressed to a very small set of people: only about 10,000 people in Ulster County are licensed to carry handguns, Van Blarcum told the AP. That’s about 5 percent of the more than 180,000 people. Which means if terrorism does strike in this otherwise sleepy country 100 miles north of New York City, it would the obligation of each gun-carrying citizen to protect 19 of their peers.

As could be expected, the responses ranged on both sides of the spectrum with extreme opinions prevailing: some posters thanked the sheriff, saying his message would help keep the county safe. Others said more firearms would only lead to more violence. “There were more positive comments than negative, but the negative ones are very adamant,” Van Blarcum told The Associated Press.

What is most surprising is that Van Blacrum is, according to the AP, a democrat. In other words, he can’t be blamed of being just another gun crazy republican, hell bent on forming his own militia.

“I’m not trying to drum up a militia of any sort,” Van Blarcum said, according to NBC New York. “It’s just a reminder that if you want to, you have a right to carry it. It might come in handy. It’s better to have it than not have it. We’re partners with the public in crime prevention.”

Ironically, Blarcum’s post came as many, especially fellow democrat President Barack Obama, are calling for stricter gun control measures following the recent string of high-profile shootings. “We’re going to have to, I think, search ourselves as a society to make sure that we take some basic steps that make it harder — not impossible — but harder for individuals to get access to weapons,” Obama said Thursday.

What is strange is that two ideologically similar people can have two such diametrically opposing opinions on how to deal with the threat of imported terrorism.

However, what is beyond debate and is demonstratively factual, is that as we showed earlier today, ever since Obama’s election, gun sales have soared, mostly over concerns that the president, who has been very forthright with his anti-gun agenda, could make selling of weapons illegal with an unexpected executive order at any moment.

What we also showed, is that over the past 20 years, the murder rate in the US has steadily declined even as total new gun sales have risen. While correlation does not equal causation, in this particular case the case can be made that it is Van Blacrum whose response is fundamentally right.

However, where things get truly deranged, is that just 100 miles south of this update county, another democrat, this time NYC mayor Bill de Blasio is taking on gun makers directly, in a way he hopes to really make them hurt, by forcing New York pension funds to sell their shares.

According to the NYT, New York City Mayor Bill de Blasio urged the city’s pension funds on Friday to divest their holdings in stocks of gun makers after this week’s mass shooting in San Bernardino, California. This has precedent: two of the funds in the city’s $155 billion pension system dropped their holdings in gun manufacturers such as Smith & Wesson Holding Corp and Sturm Ruger & Co Inc after the Sandy Hook school shooting in 2012. This time de Blasio is targeting everyone.

Those two funds were the New York City Employees Retirement System and the New York City Teachers Retirement System. Funds for the city’s police and fire departments and the city’s board of education have not divested.

“I call on all government pension funds in New York City and across the country to divest immediately from funds that include assault weapon manufacturers,” de Blasio said in a statement. De Blasio also appealed to private investors to dump gun stocks and funds that invest in them.

This is what happens when punitive socialism meets capital markets: “the mayor urged the city comptroller “to divest as soon as possible if no verifiable assurance is given that assault weapons will not be sold to civilians.” The comptroller’s office, which oversees the funds, said it was down to the mayor to present detailed plans to pension fund board members. “We look forward to receiving that proposal,” said John McKay, a spokesman for the comptroller. “Gun violence is a real and constant threat to our children, families and communities.”

Ironically, NY pension investments in gun makers across the three funds amounted to a paltry $2.1 million, as of Sept. 30 – in other words selling their stakes would maybe impact the stock price by 1 cent or so.

These two dramatically opposing reactions to the same “terrorist” event, which one can claim the US brought on itself with the CIA’s creation of the Islamic State as a clandestine method to overthrow Syria’s president al Assad, and by two people who are both democrats, shows just how ridiculous the gun control debate is set to become in the coming days.

At this point, if we had to forecast the final outcome, we would say that just as we accurately predicted the terrorist events in Paris two months earlier, so this time the “terrorist attacks” together with comprehensive 24/7 TV coverage, in the US will get worse and worse until one of two things happen, if not both: the NSA will see all of its surveillance powers reinstated legally in the coming months, while the US will see increasingly more escalating “attacks” until ultimately Obama’s crackdown on gun sales and possession hits its breaking point and the president’s gun confiscation mandate is finally executed. We hope we are wrong.
Indian Government Shifts Focus to Temple Stash After Failing To Get Citizens' Gold

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

The scheme has only attracted about one kilogram in a month, prompting the government to nudge temples through banks to hand over their treasures, the sources said, but at least one temple said it was still unconvinced by the plan.

“Convincing retail consumers is not an easy task, it takes time,” said a senior official with a state bank, who declined to be named. “We’re planning now to focus on institutions like temples.”

A finance ministry official said if banks fail to win over temples, the government could intervene directly by talking to the temples as it is looking for a big boost to the scheme to keep both imports and the current account deficit under control.

– From the Reuters article: India Targets Temple Gold Hoard to Rescue Monetization Plan

The Indian government has been trying to get its citizenry to relinquish its gold to the bankers for a very long time. I’ve covered this saga periodically over the past several years, most recently in last month’s post, A Warning to Indian Citizens – Your Government Wants Your Gold. Here’s an excerpt:

India’s prime minister on Thursday unveiled three state-backed plans to try to tap the stockpiles of the precious metal to trim physical demand and reduce imports by providing people with alternative avenues for investment. At an event in New Delhi, Modi announced the formal start of a gold-deposit plan, a sovereign-bond program linked to the metal’s price and introduction of locally minted coins, some bearing the face of Mahatma Gandhi.

Under the gold-deposit plan, investors can deposit a minimum of 30 grams with banks to earn interest, and at maturity either redeem the gold or cash, according to a government statement in June. Banks holding the bullion will be free to sell or lend the gold to jewelers, thereby boosting supply. The planned sovereign-bond issue will be open to investors from Thursday up to Nov. 20, the Reserve Bank of India said on Nov. 3.

So how is the scheme working out thus far? Not well. Not well at all.

Reuters reports:

India is trying to persuade rich temples to deposit some of their gold hoards with banks to revive a plan to recycle tonnes of the precious metal and cut gold imports, sources said.

The scheme has only attracted about one kilogramme in a month, prompting the government to nudge temples through banks to hand over their treasures, the sources said, but at least one temple said it was still unconvinced by the plan.

In a bid to reduce the economically crippling imports, Prime Minister Narendra Modi launched the much-publicised scheme to tap a pool of more than 20,000 tonnes of gold lying idle in homes and temples.

"Convincing retail consumers is not an easy task, it takes time,” said a senior official with a state bank, who declined to be named. “We’re planning now to focus on institutions like temples.”

But Mumbai’s two-century-old Shree Siddhivinayak temple, which is devoted to the Hindu elephant-headed god Ganesha, said it remained unconvinced about the benefits.

Modi wants temples to deposit some of this with banks, in return for interest and cash at redemption. The government would melt the gold and loan it to jewelers.

A finance ministry official said if banks fail to win over temples, the government could intervene directly by talking to the temples as it is looking for a big boost to the scheme to keep both imports and the current account deficit under control.

Well sure. As is standard operating procedure with government, if voluntarism fails, use coercion.

Despite offering slightly better interest rates than past schemes, the government is finding it difficult to break families’ attachment to their jewellery. Gold is used mainly as wedding gifts, religious donations and as an investment.

“After melting, banks will deduct impurity that will cut the net weight,” said Narendra Murari Rane, chairman of the trust for the Siddhivinayak temple.

The temple, which has 160 kg of gold and is partly plated in the precious metal, is nevertheless examining the scheme.

The Tirupati temple in Andhra Pradesh state will hold a meeting soon to consider participating, an official said.

You’ve been warned.

* * *

For prior articles on this topic, see:

A Warning to Indian Citizens – Your Government Wants Your Gold

India’s Central Bank Will Sell Gold on the Market in Exchange for Gold at the Bank of England

The Times of India: “Almost Every Passenger on a Flight from Dubai to Calicut Was Found Carrying 1kg of Gold”

Gold Smuggling Increases 7x in India and Surpasses Illegal Drug Trade

Indian Temples Fight Back Against Government Gold Grabbing Plot
Caught On Tape: Russia Destroys ISIS Oil Transport Cars, Al-Qaeda Training Camp
From a reputational perspective, this was a decisively bad week for Turkey. In the immediate aftermath of Ankara’s brazen move to shoot down a Russian Su-24 near the Syrian border, Vladimir Putin accused the country of being complicit in the funding on ISIS.

Those allegations stung, especially in light of the fact that Putin delivered the accusations while sitting right next to Jordan’s King Abdullah. What Turkey didn’t know, however, was that The Kremlin fully intended to launch an all-out PR campaign to implicate Erdogan and his family in the funding of international terrorism.

In a dramatic presentation delivered on Wednesday, the Russian MoD outlined the supply routes ISIS uses to smuggle its stolen crude and as it turns out, all roads literally lead to Turkey. This is of course broadly consistent with our assessment of the situation as outlined in the following four pieces:
This all comes on the heels of Russian airstrikes on ISIS oil convoys which Moscow claims provoked Ankara to engage The Kremlin’s warplane late last month.

Well, if you thought Russia was set to let up on destroying Islamic State oil trucks and crude infrastructure, or on bombing ISIL and al-Nusra (both of which are supported by Turkey, Saudi Arabia, and Qatar) you can think again, because as the following clips show, Moscow is now hell bent on proving a point to the financiers of Sunni extremism.

A strike on an “automobile column transporting oil products” in Aleppo:

Russian bombers, meet al-Nusra training camp: