Today’s News December 6, 2015

• Cuomo Sends Investigators After Blackout Forces Shutdown Of Nuclear Reactor Near NYC

  Almost 2 years after being fined for falsifying safety records, and 7 months after a transformer exploded at the Indian Point Nuclear Reactor (just 30 miles from midtown Manhattan), Entergy – the plant's operator – has 'safely' shutdown the Unit 2 reactor due to a major outage cut power  to several control rods. Despite the company's reports that no radioactivity was released to the environment, NY Governor Cuomo has sent investigators to the site to 'monitor' the situation.

  As AP reports, officials say one of the Indian Point nuclear power plant's reactors in suburban New York has been shut down because several control rods lost power.

  Plant owner Entergy says control room operators safely shut down the Indian Point 2 reactor around 5:30 p.m. Saturday. The reactor's designed to make a safe shutdown if the control rods lose electricity.

   

  Gov. Andrew Cuomo says the company reports no radiation was released into the environment. State Department of Public Service workers are headed to the plant in Buchanan, about 30 miles north of midtown Manhattan.

   

  The Indian Point 3 reactor is running. Together, the two reactors supply about one-quarter of the power used in New York City and Westchester County.

   

  Indian Point 3 was shut down in July after a water pump problem.

  But despite the company operating the site reports that there was no radioactivity released from the reactor Unit 2.

  Statement from Governoir Cuomo:

   

  "Earlier tonight, the Unit 2 reactor at the Indian Point Nuclear Facility was forced to shut down due to a reported power loss to several control rods. The company reports that there was no radioactivity released to the environment. I have directed the Department of Public Service to investigate and monitor the situation and a team is currently en route to Indian Point to begin its work."

  .@Indian_Point spokesman says control room operators shut down unit 2 reactor 5:30 p.m. Cause being investigated. pic.twitter.com/489AfosiJi

  — James Nani (@JamesNani845) December 6, 2015

  

  *  *  *

  As a reminder, Indian Point is just 38 miles north of New York City, and produces some 25 percent of New York City’s and Westchester’s electricity. The combined power generated by the two units amounts to over 2000 megawatts. The facility employs some 1,600 people.

  The two current reactors, Indian Point 2 and 3 (Indian Point 1 was shutdown in 1974) are four-loop Westinghouse pressurized water reactors both of similar design. Units 2 and 3 were completed in 1974 and 1976, respectively.

   

  

  The plant has been a subject of controversy due to its proximity to NYC. Several environmental groups have been calling for Indian Point’s permanent shutdown for years. It also has a history of transformer accidents and various leaks, including a 2012 explosion in the main transformer that spilled oil into the river and caused Entergy to pay a fine of a $1.2 million.

  

  

  

  

  

• "We" Don't Really Know What's Happening

  Submitted by Paul Rosenberg via FreeMansPerspective.com,

  "If you don't read a newspaper every day, you are uninformed. If you do, you are misinformed." – Mark Twain

   

  "Wars start because diplomats lie to reporters, then believe what they read in the newspaper." – Unknown

  We Don't Really Know What's Happening… And, believe it or not, this is rather good news. I’ll explain.

  We all like to know what’s happening in the world, and for good reason… understanding our surroundings is essential to survival. We instinctively seek information… we need information. There is, however, a problem that we face:

  No matter how much “news” you consume, you won’t really know what’s going on in the world.

  We can’t know, because ‘the news’ is half illusion, provided by government-dependent corporations that are paid to keep you watching and to keep you joined to the status quo.

  Granted, they are quite good at providing pictures from disaster areas, but when it comes to explaining why the disaster happened, they mislead almost every time. Yes, some truth makes its way through the news machine, but most of it is wrapped in layers of manipulation. If, for example, you watch the news feeds all day, you’ll find a good deal of truth, but you’ll find it amongst a pile of half-truths. Do you really have enough time to analyze them all?

  One Piece of Truth

  The truth about public reporting comes out from time to time, but usually well after the fact. So, here’s one piece of truth that’s worth remembering:

  For those who don’t recall the 1970s, Daniel Ellsberg was a man who worked as an analyst at the RAND Corp., moved from there to the Pentagon, spent two years in Vietnam working for the State Department, and then went back to RAND. He is the man who leaked the Pentagon Papers in 1971. These were the documents that revealed that three US presidential administrations had been plainly, knowingly, and openly lying to the public.

  Here’s what Ellsberg thought the New York Times was good for:

  … to see what the rubes and the yokels are thinking about and what they think is going on and what they think the policy is….

  Later, in 1998, he said this in an interview:

  The public is lied to every day by the president, by his spokespeople, by his officers. If you can’t handle the thought that the president lies to the public for all kinds of reasons, you couldn’t stay in the government at that level….

  And here’s what Michael Deaver, a top aide to President Ronald Reagan, said about the press:

  The media I’ve had a lot to do with is lazy. We fed them and they ate it every day.

  That’s the truth about news, my friends. The newspapers are where the yokels get informed, presidents flatly lie, and legislatures are massively corrupt. The TV stations recycle opinions from the leading newspapers. And Internet news sites primarily recycle TV and newspaper stories.

  Yes, some truth does slide through, but it looks almost the same as the other stuff. The only places we get anything close to refined truth is on a few Internet sites… and many of them have a particular axe to grind.

  And the Internet news sites that really dig through the pile are in jeopardy. The Internet is being funneled into Google, Facebook, and a few other friends of the state. If things continue as they’ve been going, the independents will be cut off soon enough, under the guise of copyright or some such.

  Sad to say, we shouldn’t accept the news as true. In my personal experience, I’ve been close enough to a few news stories to know the truth, and the networks got it wrong every time.

  More Truth

  This is what William Colby, former director of the CIA, is quoted as saying in Derailing Democracy: The America the Media Don’t Want You to See:

  The Central Intelligence Agency owns everyone of any significance in the major media.

  Now, since people have disputed that quotation, let’s back it up: Please consider Operation Mockingbird.

  Beginning in 1948, a CIA agent named Frank Wisner started gathering journalists and broadcasters… and started using them to ‘inform’ the public. The operation soon got so elaborate that other agents called it “Wisner’s Wurlitzer.” (Wurlitzer being the brand of organ that was played in churches.) In other words, Wisner played the media like a musical instrument.

  While the real situation is more complex than this short description, rest assured that every major news organization in every major country is manipulated by intelligence groups. Where do you think they get all those “unnamed sources”?

  If you were an intel operator, wouldn’t you do precisely that? You’d be considered derelict not to. So, you can rely upon this fact. And see here for a minor example.

  And So…

  I could continue listing facts, but there’s no real point. The crucial thing is to accept the truth:

  The news is worked over before it reaches us.

  We do know some facts, of course, and a generation from now we may learn nearly the whole truth about some of these events, but only if we wait and then go out of our way to find it.

  The good news in all of this comes when we accept the facts and stop running our brains on bad information. Yes, it would be nice to know what’s really going on, but we don’t, and there isn’t much we can do about it. So, it’s time to stop treating the news seriously.

  So long as the guv-megacorp-intel structure remains, it will enforce our ignorance. That’s what such organizations do, by their very nature. To expect differently is like expecting a dog to sprout wings and fly.

  But once we accept that fact, we stop being spun around by the talking heads and their handlers.

  After that, we can find truth in books and in other serious publications.

  So, I suggest that you start ignoring the news. Rather, use all that time and energy to start building the kind of world you’d like to live in.

  

  

  

  

  

  

• Putin Accuses US Of ISIS Oil Coverup

  Last Wednesday, the Russian MoD delivered a lengthy presentation which contained compelling visual evidence of a connection between Islamic State’s illegal and highly profitable trade in stolen Iraqi and Syrian crude and Turkey. Here are some highlights:

  After loading up with oil, a truck convoy in east Syria heads toward Turkey in direction Al-Qamishli:

  

  

  

  

  October 18: in the Drer-ez-zor region a satellite imagte reveals 1772 oil trucks:

  

  

  

  November 14: in the Tavan and Zaho regions, in the zone where coalition forces are active, one can see a gathering of oil trucks:

  

  November 28: in the region Kara-Choh on the territory of an oil refinery one can see 50 oil trucks:

  

  

  The routes of alleged oil smuggling from Syria and Iraq to Turkey:

  

  A substantial part from east Syria enter a refinery in Batman, Turkey (100km from the Syria border):

  

  The slide show, hosted by Deputy Minister of Defence Anatoly Antonov, featured photos of oil trucks, videos of airstrikes and maps detailing the trafficking of stolen oil. It was the latest PR snafu for Erdogan who is struggling to convince Turkey’s allies that The Kremlin’s accusations are unfounded and that Ankara isn’t set to put NATO in an awkward position by effectively instigating a shooting war with Russia. 

  Washington came to Erdogan’s defense in the aftermath of Moscow’s claims as State Department spokesman Mark Toner said the US is confident that Ankara “is not complicit in Islamic State oil smuggling.” Russia seemed to take that denial in stride, but after US special envoy and coordinator for international energy affairs, Amos Hochstein, said on Friday that the amount of oil smuggled into Turkey from Syria is “of no significance from a volume perspective”, Moscow appears to have had enough. 

  On Saturday, Russia accused the US of participating in a cover-up. “Our colleagues from the State Department and the Pentagon have confirmed that the photo-proof, which we presented at a briefing [on December 2], of the origin and destination of the stolen oil, coming from the areas controlled by the terrorists, is authentic. However, the US claim that they ‘don’t see the border crossings with tanker trucks crossing the border,’ raises a smile, if only, because the photos are still images,”  Major General Igor Konashenkov, a Defense Ministry spokesman said. “We advise the American side to have a look at how the tanker trucks not only drive through checkpoints at the Turkish border, but pass through them without even stopping.”

  As RT notes, an unnamed US State Department official confirmed to Reuters on Friday that the Russian photos of thousands of oil tanker trucks in Syria were authentic [but] stressed that he hasn’t seen “the imagery of the border crossing with trucks crossing the border, and that’s because [the US doesn’t] believe it exists.”

  Well, here it is:

  “The declarations of the Pentagon and the State Department seem like a theatre of the absurd,” the MoD added, before noting that Washington should “watch the videos taken by its (own) drones which have recently been three times as numerous over the Turkey-Syria border and above the oil zones”. That, by the way, is an attempt to mock Washington for increasing the number of drones monitoring the situation while failing to actually conduct strikes. Earlier this week, Russia said that despite Washington’s claims, the US and its partners are actually not bombing ISIS oil infrastructure or convoys.

  In case the above isn’t clear enough, here’s more from the Russian MoD’s Facebook: “When US officials say they don’t see how the terrorists’ oil is smuggled to Turkey… it smells badly of a desire to cover up these acts.”

  We have on any number of occasions suggested that Washington has avoided striking ISIS oil convoys in an effort to ensure that the group retains the funding it needs to continue to destabilize Syria and the Assad government (see here for instance) and in order to preserve amicable relations with Ankara which appears to benefit from the trafficking of illegal crude both from Kurdistan and Islamic State.

  And so, Russia once again turns the screws on the West in an effort to expose what at this point looks to be a coordinated effort to facilitate the funding of international terrorism via the establishment and maintenance of smuggling routes for some 50,000 b/d of oil looted from fields in eastern Syria and northern Iraq. If the US is indeed complicit in this, it might be time to cut ties with Erdogan because Moscow is on the PR warpath and it’s just a matter of time before the smoking gun emerges.

  

  

  

  

  

• America's 'New' Bill Of "Wrongs"

  Via Oquities,

  THE BILL OF WRONGS

  Amendment I

  Congress shall make laws respecting an establishment of religion, and may constrain the free exercise thereof; and limiting free speech and the press; and suppressing the right of the people to assemble, and to discourage the people from petitioning the Government for a redress of grievances.

  Amendment II

  A well armed Constabulary, being necessary to the subjugation of a spirit of freedom, the privilege of the people to keep and bear Arms, shall be infringed and modified.

  Amendment III

  The people shall be required to compensate the Government for the cost of goods and services provided to non-citizens, and the Government may extract and disburse such in a manner to be prescribed politically.

  Amendment IV

  The right of the Government to inspect the people in their persons, houses, and effects, and if necessary without their knowledge, shall not be violated, and Warrants shall issue in secret courts without due process or support by Oath or affirmation, execution of which shall be broad and at the discetion of authorities.

  Amendment V

  Any person shall be held to answer for a capital, or otherwise infamous crime, without due process of law; and any person shall be subject to prosecution by any level of Government, simultaneously or consecutively, to be put in jeopardy of life or limb for the same offense more than once if necessary; and be compelled to submit biological samples for any criminal case in order to be a witness against himself, and may be deprived of life, liberty, or property, without due process of law; and private property shall be taken for public use, without just compensation.

  Amendment VI

  In all criminal prosecutions, the accused may be held for lengthy periods before a trial, and tried by a jury generally unfamiliar with law in the State and district wherein the crime shall have been committed, with the nature and cause of the accusation to be obscured as the Government deems necessary; with the use of Government negotiated witness arrangements that may benefit the accusers and/or prosecuting attorneys; and to have qualified Assistance of Counsel for his defense based on ability to pay.

  Amendment VII

  In Suits at common law, the well provisioned litigant shall have numerous opportunites to appeal, and litigants may be compelled to utilize non-judicial forums as compelled by extra-judicial organizations to settle disputes.

  Amendment VIII

  Bail may encompass a variety of fees including, but not limited to, charges for self internment and monitoring, re-education and counseling; and private prisons may determine if and when sentencing is extended without show of cause in a court of law.

  Amendment IX

  The enumeration in the Constitution, of certain rights, shall reflect the Government's ability to diminish or expand, as necessary, the rights of the people.

  Amendment X

  The powers not delegated to the States by the Constitution, or to the people, are reserved to the United States.  

  

  

  

  

• Whistleblower Warned Turkey Would Attack A Russian Jet

  Society needs whistleblowers. They serve as a check on corruption and governmental overreach and in the private sector, they are often the only thing that stands between unbridled corporate greed and the otherwise clueless masses. 

  As Edward Snowden demonstrated, even the most “developed” of nations need checks on government and that goes double in places like Turkey, where an autocracy is masquerading as a largely developed democracy. 

  Despite the fact that Erdogan has managed to create an environment in which the press and the police are afraid to pursue the truth for fear of brutal reprisals from Ankara, there’s one Turkish citizen who stands against the suppression of free speech: Fuat Avni. 

  Fuat Avni is a pseudonym used by an anonymous government whistleblower. He has more than 2.3 million followers on Twitter (so, half as many as Donald Trump).

  

  Here are two excerpts from an interview Vocativ conducted with Fuat Avni last year: 

  Vocativ: Is there a reason why you chose the name Fuat Avni?

   

  FA: I did not open the account with this name initially. I used different names. But I did not want any other person to be hurt because of what I wrote, so I changed user names frequently. Fuat Avni means “a helping heart.” I thought it to be suitable and I continued with it.

   

  Vocativ: Do you alone control the Twitter account? 

   

  FA: There is no team behind it, only me. I don’t need to get any information from anyone because for years I have been working at in sensitive positions within the AKP [Turkey’s ruling party]. Because of my position, I have information about people at critical points. The reports and information come to my desk as well. It is ridiculous to think that an insider gets information from an outsider. Only I and Allah know who Fuat Avni is.

   

  Well, on Sunday, October 11, Fuat Avnil tweeted something interesting. 

  18. Seçimden çok korkan Yezid, iç sava? ç?karman?n yan?s?ra Rus jetlerini dü?ürüp ülkeyi fiilen sava?a sokmay? bile dü?ünüyor.

  — fuatavni (@fuatavni_f) October 11, 2015

  That, allegedly, is the tweet that foretold Ankara’s move to shoot down a Russian Su-24 near the Syrian border late last month in the first incident of a NATO member engaging a Russian or Soviet aircraft in more than six decades.

  The prediction didn’t go unnoticed. 

  Late last month, Russia’s sharp-tongued, US foreign policy critic extraordinaire Maria Zakharova cited the Fuat Avnil tweet in accusing Turkey of purposefully downing the Russian warplane. Here’s Today’s Zaman (whose editor in chief just resigned under legal pressure from Erdogan):

  In comments on Turkey’s recent downing of a Russian jet over violation of its airspace, a spokesperson from the Russian Foreign Ministry has recalled that famous Turkish Twitter whistleblower claimed back in October that the Turkish government was planning to down a Russian jet to remain in power.

   

  At a press conference on Wednesday, Russian Foreign Ministry spokesperson Maria Zakharova claimed that Turkey “purposefully” downed the Russian Su-24 at the Turkish-Syrian border on Tuesday and said the “unprecedented” incident will have serious repercussions.  

   

  She also quoted statements of Turkish Twitter whistleblower Fuat Avni who claimed in October that the Justice and Development Party (AK Party) government and President Recep Tayyip Erdo?an were  planning to down a Russian jet to bring Turkey to brink of war with Russia to ultimately keep its power. “This is very interesting,” Zakharova said.

   

  
  

  Yes, it is “very interesting” that Turkey’s most famous whistleblower and anonymous Twitter personality should predict such a dramatic event more than a month ahead of time. As Zaman goes on to note, “Fuat Avni’s identity is unknown and has prompted wide speculation, but the account has previously revealed numerous details that would appear to indicate that the user is close to or inside the government and the account has attracted a large following.”

  Fuat Avni also predicted the widespread crackdown on the media ahead of of November’s elections. The government also attempted to have his account blocked in October after he tweeted information about Bilal Erdogan’s finances (again, from Today’s Zaman):

  Fuat Avni said in a series of tweets on Oct. 4: “In Italy, Bilal will manage accounts in Switzerland and other countries. Bilal has billions of dollars to manage.” Claiming that Bilal flew to Italy on Sept. 27 and plans to remain there for a while, with family members possibly joining him later, Fuat Avni wrote: “They are planning to keep Bilal in Italy until the [Nov. 1] election. They will decide whether or not he will come back depending on the situation after the election.” The whistleblower said there is a plan in place for President Erdogan and his family to flee a possible trial on corruption charges if necessary after Nov. 1 and that Foreign Minister Feridun Sinirlioglu is organizing the plan.

   

  After Fuat Avni’s claims were reported by media outlets, Bilal Erdogan’s lawyer filed a complaint against Fuat Avni’s Twitter account, asking for a court to block access to it on the grounds that the tweets breach his rights. In a decision on Oct. 6, the ?stanbul 7th Penal Court of Peace decided to demand that Twitter block access to the account in Turkey, but the popular social media website has refused to implement the court decision.

  As you can see, this is a serious thorn in the side of the Erodgan regime and in case the implications of the above aren’t clear enough, we’ll close with a quote from Istanbul-based Cihan News – which is controlled by Zaman owner Feza Publications – ca. October 12: 

  Avni, who claims to be among Erdogan’s inner circle, says the president of Turkey has seen the latest polls in the run-up to the snap election in November, and is convinced that the Justice and Development Party (AK Party) cannot regain a single-party majority. 

   

  Avni purports that Erdogan is even thinking of declaring war on Russia and taking advantage of the de facto situation, consolidating his grip on power. 

  

  

  

  

  

• "Hollow Markets"

  Excerpted from Ben Hunt's Epsilon Theory blog,

  Whatever shocks emanate from polarized politics, their market impact today is significantly greater than even 10 years ago. That’s because we have evolved a profoundly non-robust liquidity provision system, where trading volumes look fine on the surface and appear to function perfectly well in ordinary times, but collapse utterly under duress. Even in the ordinary times, healthy trading volumes are more appearance than reality, as once you strip out all of the faux trades (HFT machines trading with other HFT machines for rebates, ETF arbitrage, etc.) and positioning trades (algo-driven rebalancing of systematic strategies and portfolio overlays), there’s precious little investment happening today.

  Here’s how I think we got into this difficult state of affairs:

   First, Dodd-Frank regulation makes it prohibitively expensive for bulge bracket bank trading desks to maintain a trading “inventory” of stocks and bonds and directional exposures of any sort for any length of time. Just as Amazon measures itself on the basis of how little inventory it has to maintain for how little a span of time, so do modern trading desks. There is soooo little risk-taking or prop desk trading at the big banks these days, which of course was an explicit goal of Dodd-Frank, but the unintended consequence is that a major trading counterparty and liquidity provider when markets get squirrelly has been taken out into the street and shot.

   

  Second, the deregulation and privatization of market exchanges, combined with modern networking technologies, has created an opportunity for technology companies to provide trading liquidity on a purely voluntary basis. To be clear, I’m not suggesting that liquidity was provided on an involuntary basis in the past or that the old-fashioned humans manning the old-fashioned order book at the old-fashioned exchanges were motivated by anything other than greed. As Don Barzini would say, “after all, we are not Communists”. But there is a massive and systemically vital difference between the business model and liquidity provision regime (to use a good political science word) of humans operating within a narrowly defined, publicly repeatable game with forced participation and of machines operating within a broadly defined, privately unrepeatable game with unforced participation.

  Whatever the root causes, modern market liquidity (like beauty) is only skin deep. And because liquidity is only skin deep, whenever a policy shock hits (say, the Swiss National Bank unpegs the Swiss franc from the euro) or whenever there’s a technology “glitch” (say, when a new Sungard program misfires and the VIX can’t be priced for 10 minutes) everything falls apart, particularly the models that we commonly use to calculate portfolio risk.

  For example, here’s a compilation of recent impossible market events across different asset classes and geographies (hat tip to the Barclays derivatives team)… impossible in the sense that, per the Central Tendency on which standard deviation risk modeling is based, these events shouldn’t occur together over a million years of market activity, much less the past 4 years.   
  

  Source: Barclays, November 2015.

  So just to recap… these market dislocations DID occur, and yet we continue to use the risk models that say these dislocations cannot possibly occur. Huh? And before you say, “well, I’m a long term investor, not a trader, so these temporary market liquidity failures don’t really affect me”, ask yourself this: do you use a trader’s tools, like stop-loss orders? do you use a trader’s securities, like ETFs? If you answered yes to either question, then you can call yourself a long term investor all you like, but you’ve got more than a little trader in you. And a trader who doesn’t pay attention to the modern realities of market structure and liquidity provision is not long for this world.

  If you want to read more about the Epsilon Theory perspective on hollow markets and the use of game theory to understand this dynamic, read “Season of the Glitch”, “Ghost in the Machine”, and “Hollow Men, Hollow Markets, Hollow World”.

  

  

  

  

  

• IceCap Asks If It Can It Get Any Worse In The Search For Yield? (And Answers: "You Bet")

  From IceCap Asset Management

  Can it get any worse?

  In the 1980s, term deposit investors routinely earned 15% and higher on their guaranteed savings. Yes, with inflation running sky high the real return was much lower. Yet, savers were accustomed to some pretty nice nominal returns.

  The 1990s rolled around, and so too did interest rates. In fact interest rates rolled right on down to the 7.5% range. Suddenly all term deposit investors were receiving 50% less than they did a short 10 years earlier. In other words – these savers effectively took a 50% cut in their investment income. Still, 7.5% was better than nothing.

  Then came the 2000s. And when considering the number of zero’s, it is rather ironic in that by 2010, term deposit investors were earning pretty close to 0%, or nothing to be exact.

  So, in a very short 30 years the world’s central banks have completely destroyed any chance for savers to earn anything on a safe, bank deposit.

  Can it get any worse? You betcha it can, and it already has.

  

   

  If central banks are able to cure the economic world, then cutting interest rates from 15% in the 1980s to 7.50% in the 1990s would have cured all economic ills. Instead the world witnessed:

  • 1987 crash
  • Savings & Loans crash
  • Mexican Peso crash
  • Asian currency crash
  • Long-term Capital Management crash And, if central banks are able to cure the economic world, then cutting interest rates from 7.50% in the 1990s to 3.50% in the 2000s would have cured all economic ills. Instead the world witnessed:
  • Tech market crash
  • Housing market crash
  • Portugal, Ireland, Italy, Greece, Spain government crash

  Despite this brutal record, onward they march. Today, central banks have cut interest rates to 0% and today we are witnessing:

  • Declining global growth
  • investors and savers searching the world for income

  We’ve discussed the lack of global growth before. Nothing has changed – the world continues to suffer from any acceleration in economic growth, and this is despite 0% interest rates. Investors and workers everywhere around the world need to grasp this all important fact.

  Which brings us back to understanding interest rates and predicting where they are headed.

  But first, we ask you to really think about the second point above: – investors and savers searching the world for income.

  When central banks set the price of money (setting interest rates), they do this from the perspective of the BUYER of money – not the SELLER of money. This is the key point in understanding interest rates.

  Central banks believe that reducing the cost of money will encourage and incentivize people and companies to BUY money. And when they BUY money, they will then spend the money which will create economic growth.

  This makes sense on paper and it is what universities, governments and Goldman Sachs have been telling everyone for over 30 years – therefore it MUST be true.

  But it isn’t.

  If going from 15% to 7.5% created growth, and then going from 7.5% to 3.5% created growth, then surely going from 3.5% to 0% should definitely create growth.

  That’s what both logic and linear thinking tells you.

  Now, this is the point where the main street advisors and banks stammer that things ARE improving. They whip out numerous charts and data points showing year-over-year improvements in employment, housing, real income, consumer sentiment, PE Ratios and credit spreads.

  Yes, things MUST be getting better.

  But, if things really are getting better, why have central banks all over the world continued to lower interest rates?

  And worse still – why are many lowering interest rates straight through the illogical level of 0%?

  Yes, today practically all of Europe have journeyed through this once fictional barrier and have now established NEGATIVE interest rates.

  While central bankers cannot change the direction of the global economy, they can certainly identify when things are not quite going as well as it is hope for.

  While central banks are hoping their 0% and now NEGATIVE% interest rates will stimulate a recovery; savers, and term deposit investors are hoping for something very different – a source of interest or income greater than 0%.

  Recall that the price of money has 2 sides: those who are buying money and those who are selling money.

  While central banks are hoping their 0% interest rate policies will encourage people and companies to buy money, they have simultaneously crushed the hopes of everyone who is selling money.

  Yes, instead of earning 3.5%, 7.5% or 15% on their savings as they did decades before, today savers everywhere have to either accept 0% on their money or do something different, very different.

  And in many ways, these “very different” things are creating trouble.

  Most term deposit investors are risk-averse. They cannot tolerate losses. They want safety of capital and the ability to earn interest on their savings.

  By creating 0% interest rates, central banks have thrown these savers to the wolves of wall street. And once savers enter the wolves’ den, only bad things can happen.

  And in the investment world, this means doing things you wouldn’t ordinarily do – such as investing in markets you have historically avoided.

  For example just 2 short years ago, Canadians searching for more investment income were told to invest in Energy and Pipeline stocks. These companies paid out 8% in dividends and savers were told these companies were strong, their dividends were strong and the price of oil was strong.

  Instead, the price of oil collapsed 60% which caused many of these companies to cut their dividends and the stocks fell over 40%:

  -40% loss for conservative investors

  

  Another favourite investment strategy for income seeking savers has been High Yield Bonds. We’ve been told that bonds are always safe, and that there’s nothing to worry about. So load up and enjoy the 7%.

  Interest payments and forever forget about 0% term deposits. Considering this group of investments has declined -3% over the last year, we wonder just how forgetful these investors really are.

  We should ask the following:

  • Why are savers investing in energy stocks and high yield bonds?
  • When central banks reduced interest rates to 0%, they effectively forced savers to become the very thing they tried to avoid – aggressive investors.

  Of course, the investment industry has to accept some of the blame as well. We see countless brochures, commercials and pop-up ads screaming at people to Search for Yield.

  Yes, these investment companies are suddenly claiming to being experts in identifying stocks and bonds from around the world that pay a nice, and sleep easy dividend.

  As investment managers ourselves, we can tell you with absolute certainty there are no free-investment meals in the world. If global interest rates are at 0%, it means every other dividend and interest rate significantly above 0% carries certain degrees of risk.

  And if you want to know the next “income seeking” strategy that will produce significant losses for investors, look no further than emerging market bonds.

  More in the full note below (link)

  

  

  

  

• Dozens Of Global Stock Markets Are Already Crashing: "Not Seen Numbers Like These Since 2008"

  As SHTFPlan.com's Mac Slavo notes,

  The system is beyond the point where it is merely showing stresses and fractures. Things are now falling apart and there may well be no way of putting them back together again.

   

  The media will continue to claim everything is fine, until the day of panic and reckoning when it will suddenly be the ‘next Greece’ or ‘2008 all over again’… but worse.

  27 Major Global Stocks Markets That Have Already Crashed By Double Digit Percentages In 2015

  (via The Economic Collapse blog's Michael Snider)

  Anyone that tries to tell you that a global financial crisis is not happening is not being honest with you.  Right now, there are 27 major global stock markets that have declined by double digit percentages from their peaks earlier this year.  And this is truly a global phenomenon – we have seen stock market crashes in Asia, Europe, South America, Africa and the Middle East.  But because U.S. stocks are only down less than a thousand points from the peak earlier this year, most Americans seem to think that everything is just fine.

  The truth, of course, is that everything is not fine.  We are witnessing a pattern similar to what we saw back in 2008.  Back then, Chinese stocks and other major stock markets started crashing first, and then U.S. stocks followed later.

  But when you step back and look at what has been happening globally, a much more ominous picture emerges.  I spent much of the afternoon looking at stock market charts for the largest economies all over the globe.  What I discovered was financial carnage that was much worse than I anticipated.

  It turns out that there are at least 27 major global stock markets that have fallen by more than 10 percent from peaks that were set earlier this year. As you can see, many of these stock market declines have been quite impressive…

  1. China: down more than 30 percent

  2. Saudi Arabia: down 26 percent

  3. Germany: down about 13 percent

  4. United Kingdom: down close to 12 percent

  5. Spain: down 15 percent

  6. Brazil: down more than 22 percent (13,000 points overall)

  7. Malaysia: down 17 percent

  8. Turkey: down 16 percent

  9. India: down close to 12 percent

  10. Chile: down 11 percent

  11. Columbia: down about 30 percent

  12. Peru: down more than 40 percent

  13. Bulgaria: down more than 20 percent

  14. Greece: down more than 30 percent

  15. Poland: down about 19 percent

  16. Malaysia: down 10 percent

  17. Egypt: down 32 percent

  18. Indonesia: down 18 percent

  19. Canada: down 12 percent

  20. Ukraine: down 45 percent

  21. Morocco: down 13 percent

  22. Ghana: down 17 percent

  23. Kenya: down 27 percent

  24. Australia: down 13 percent

  25. Nigeria: down more than 30 percent

  26. Taiwan: down 15 percent

  27. Thailand: down 20 percent

  We have not seen numbers like these since 2008, and trillions of dollars of stock market wealth has been wiped out globally.  So the “nothing is happening” crowd is simply dead wrong.  Stocks are already crashing all over the planet. 

  [ZH: In fact 47 of the world's 93 largest stock indices are down over 10% year-to-date…]

  

   

  In fact 30 nations are down over 20% Year-to-date…

  

   

  Just because the big U.S. stock market crash has not happened quite yet does not mean that a major global financial crisis is not happening.

  But do you know what is crashing here in this country?

  Junk bonds.

  At this point, yields on the riskiest junk bonds have risen to levels that we have not seen since the last financial crisis.  As I have discussed repeatedly, yields on junk bonds spiked dramatically just before the stock market crash of 2008, and now it is happening again…

  

  This is precisely the kind of behavior that we would expect to see if a major U.S. stock market crash was imminent.  Personally, I watch the junk bond market very, very closely because it is such a key leading indicator.  And according to Jeffrey Snider, it appears that “something” is starting to cause junk bonds to sell off at an alarming pace…

  There isn’t much as far as confirmation, but it increasingly appears as if “something” just hit the triple hooks (CCC) in the junk bond bubble. At least as far as one view of it, Bank of America ML’s CCC implied yield, there was a huge selloff that brought the yield to a new cycle high (low in price) above even the 2011 crisis peak.

  But just like in 2008, a lot of people will not heed the warnings because they don’t have the patience to watch long-term trends play out.

  We live in a society where we expect constant instant gratification.  We have instant coffee, video on demand and 48 hour news cycles.  If something does not happen immediately, most of us quickly lose patience.

  For months, I have been warning that conditions were perfect for another major global financial crisis, and since that time events have been unfolding in textbook fashion.

  And as you can see from the numbers above, we have already entered a new global financial crisis.  If you tried to tell someone in China, Brazil or Saudi Arabia that a financial crisis was not happening, they would just laugh at you.  We need to start learning that the world doesn’t revolve around the United States.

  Of course the U.S. is heading for tremendous difficulties as well.  This is something that I covered yesterday.  All of the fundamental economic numbers are absolutely screaming “recession”, and yet most of the “experts” are still forecasting good things for the coming year.

  Those that do not learn from history are doomed to repeat it.  None of the problems that caused the crisis the last time around have been fixed, and most of our “leaders” seem blind to what is happening at this moment even though the exact same patterns that played out in 2008 are playing out once again right in front of our eyes.

  

   

  If you have been waiting for the next global financial crisis, you can stop, because it is already here.

  As we move toward the end of 2015, let us hope for the best, but let us also get prepared for the worst.

  

  

  

  

  

• The Rise Of The Politics Of Fear

  "In the past, politicians promised to create a better world. They had different ways of achieving this but their power and authority came from the optimstic visions they offered their people. Those dreams failed. Today, people have lost faith in ideologies. Increasingly politicians are seen simply as mannequins. But now they have discovered a new role that restores that power and authority. Instead of delivering dreams… politicians promise to protect us… for life."

  As DailyMotion notes, The Power of Nightmares, subtitled The Rise of the Politics of Fear, is a BBC documentary film series, written and produced by Adam Curtis. Its three one-hour parts consist mostly of a montage of archive footage with Curtis's narration. The series was first broadcast in the United Kingdom in late 2004 and has subsequently been broadcast in multiple countries and shown in several film festivals, including the 2005 Cannes Film Festival.

  The films compare the rise of the Neo-Conservative movement in the United States and the radical Islamist movement, making comparisons on their origins and claiming similarities between the two.

   

  More controversially, it argues that the threat of radical Islamism as a massive, sinister organised force of destruction, specifically in the form of al-Qaeda, is a myth perpetrated by politicians in many countries – and particularly American Neo-Conservatives – in an attempt to unite and inspire their people following the failure of earlier, more utopian ideologies.

  11 years later and this 'strategy' has escalated.. and has never been more crucial to comprehend.

  Part 1…
  

  Part 2…
  

  Part 3…
  

  h/t ILLILLILLI

  

  

  

  

  

• The Inside Story Why The ECB Decided "The Markets Needed To Be Disappointed" And How It All Fell Apart

  On Wednesday morning, less than 24 hours before the historic, and grossly disappointing ECB announcement, one which sent the EUR soaring the most since the Fed’s announcement of QE1, we warned that Mario Draghi may underdeliver, although in doing so he would face the risk of appearing quite weak before the ECB’s governing council where in recent months the schism between European doves and hawks has grown to epic proportions.

  As MNI noted, “Thursday’s meeting will not only be key for the euro area’s economic outlook but also decisive for the nature of Draghi’s presidency as he starts the second half of his tenure. If he gets his way without sparking a revolt, it hard to conceive a situation in which Draghi won’t prevail” to which we add that this is “correct, but the moment ECB decision-making devolves into a pissing contest, Europe has a big problem.”

  After all if Europe’s monetary politics become nothing but a contest of egos, a tragic endgame is all but assured. We concluded by saying that “the question is whether Draghi will listen to logic and reason, or if he will continue his campaign to isolate the Hawks on the ECB governing council and in the process make Europe’s monetary situation unfixable. If Draghi does relent, the EURUSD can soar as high as 1.09 tomorrow according to some estimates.”

  The next day not only was the warning of underdelivery prescient as Draghi did not prevail, but the EURUSD did soar as high as 1.09 as the ECB unveiled a “stunning” package which left Goldman’s FX strategist reeling .

  But just as we were almost ready to congratulate Draghi on “relenting” and acting rationally, we read a Reuters piece which explains that not only did Draghi not relent from his endless confrontation with the ECB governing council, he actually lost. This is what Reuters just reported:

  One source with direct knowledge of the situation interpreted Draghi’s public stance ahead of the meeting as trying to pressure the Governing Council to take bigger action.

   

  “Draghi raised expectations too high, on purpose, and attempted to paint the Governing Council into a corner,” the source said. “This was problematic and he was criticized for this by several governors in private.”

  He failed, and in doing so may have emboldened the Weidmann-led hawks at the ECB whose opposition to Draghi’s ultra-easy policies has been duly noted.

  How did they win?

  Reuters says that “unlike last year, when opponents of quantitative easing made their stance public before the decision, the hawks mostly worked behind the scenes. Opponents worked to curtail proposals coming out of the ECB’s committees that prepared the decisions, ensuring that some of the more radical measures expected by market players never made it onto the table.”

  The huge market disappointment took place following weeks of public statement by Draghi which convinced traders that the Italian would unleash something short of a neutron bomb, and as a result markets also expected a 25 percent increase in monthly asset purchases and possibly even a deeper rate cut. More radical options under discussion included the purchase of corporate debt or a split deposit rate that would punish banks parking too much cash with the central bank, sources told Reuters earlier.

  None of that happened.

  Reuters then explains that the smaller than expected move is seen by some as a disappointment for Draghi, who has established a track record for promising and delivering big, as he did with his July 2012 pledge to “do whatever it takes” to preserve the euro and pushing through bigger than expected QE earlier this year.

  “Like the Fed earlier this year the ECB has now managed to confuse markets and the public. From now on, markets will treat hints dropped by ECB president Mario Draghi and some of his colleagues with much more scepticism than before,” brokerage Berenberg said.

  Here, however, is where the narrative breaks:

  “the European Central Bank President and his chief economist Peter Praet stoked expectations with dovish speeches in the weeks before the meeting but the ECB’s Governing Council concluded that markets needed to be disappointed this time because the economic outlook has improved and new inflation forecasts were not as bad as feared, the sources said.”

  Now that, unfortunately, makes zero sense because as we reported, the very next day the US stock market had its biggest one day gain entirely due to Draghi appearance in New York, where he reassured the market that there is no need at all to be disappointed, when he said that “QE there to stay”, could be “calibrated” if needed and the ECB can use “further tools” if needed as there is “no limit” to the “size of the ECB’s balance sheet.”

  What happened next was a tremendous surge in the S&P which soared to pre-ECB drop levels, even as the EUR, which is at least in theory the monetary policy transmission mechanism did almost nothing.

  

   

  Ironically, the market’s first reaction was of course correct: yes, Draghi may have resumed his jawboning as the market breathed a sigh of relief, but what will actually happen if the Fed does hike on December 16 without a major increase in ECB liquidity, is that as much as $800 billion in liquidity will be soaked up by the Fed’s 25bps rate hike as calculated previously. The impact of a move which is the equivalent of unwinding one and a third of QE2 overnight, will certainly have dramatic consequences on risk prices unless there is a more than offsetting injection of liquidity elsewhere.

  Finally, confirming that Reuters’ attempt to smooth Draghi’s mistake is nothing but an urgently hashed out fiction meant to goalseek the deeply flawed conclusion to a broken narrative, is what Draghi said during yesterday’s Q&A.

  Recall that as we reported previously, Mervyn King asked Draghi if “today’s speech deliberately designed to try offset some of the reaction yesterday?” to which Draghi responsed shockingly honestly: “Not really… well, of course.“

   

  Here is what really happened: the ECB tried to engineer a modest market selloff because the “market needed to be disappointed“, coupled with a modest rise in the EUR to give the Fed some rate-hike breathing room. Instead, since everyone was positioned exactly the same – wrong – way, the dramatic overreaction in stocks and FX forced Draghi to not only panic but to publicly come out and admit that the only purpose of his Friday speech was to offset the damage from his failure to defeat the opposition at the governing council and to send markets surging. Which they promptly did. 

  And while the markets rejoiced at this latest verbal intervention, the question is now that Draghi has challenged the governing council and lost, and furthermore, once again relented to markets, how will the hawks on the council react to any future demands by Draghi to push the S&P even higher? Lastly, if Berenberg is wrong and the ECB has lost a major portion of its credibility, how will Draghi jawbone next time when not even “whatever it takes” is sufficient any more?

  

  

  

  

  

• JPMorgan Warns Of "Eye-Catching" 76% Probability Of Recession

  Just days ago Citi pronounced, much to the chagrin of the status-quo-hugging Fed faithful, that given the turn in corporate profits (and concerns over margin sustainability) that the chance of a recession in the US had risen to 65% (and on that basis had a bearish outlook for US equities). Now, as other major sell-side shops jump on the equity un-bullish narrative, JPMorgan's Michael Feroli warns that in the past, a low unemployment rate, rising compensation, falling margins, and elevated durables investment have historically signaled an elevated risk that an expansion is nearing its end… and puts the probability of a US recession within 3 years at 76%. Of course, you do not need to worry, because Janet Yellen said this is not true (though failed to provide here reasoning).

   

  As Citi recently noted the cumulative probability of a recession in the next year rises to 65%.

  

  In the US our chief concern is margin sustainability. Corporate profits as a share of GDP have been at all-time highs, which is just another way of saying the rewards to labour have been at all-time lows. But change may be afoot in the form of modest labour market tightening in the US.

   

  

   

  It is too soon to see this show up in core (ex Fins, Energy and Materials) margins in the US but that may be where things go. Modest nominal wage acceleration combined with global disinflation (price taking by US firms) and lack of productivity growth may mean margins come under pressure from labour costs.

  And now, JPMorgan's Mike Feroli raises a red flag warning that:

  Our longer-run indicators, however, continue to suggest an elevated risk that the expansion is nearing its end, and our preferred model now puts the probability of recession within three years at an eye-catching 76%.

  As he details…

  We recently developed two sets of models for assessing the risk that the next recession will start within given horizons. One was focused on high-frequency indicators and aimed to measure the probability of a recession starting within six months. The other aimed to capture longer-run cycle indicators that suggest an elevated background risk of the expansion ending within horizons of one to five years.

   

  Table 1 updates our models’ assessments of the probability of recession beginning within six months from our recent note. When we first wrote, only manufacturing sentiment was signaling an above-average probability of imminent recession. But recent weakening in the Richmond Fed services survey and the ISM nonmanufacturing index have now pushed the nonmanufacturing sentiment probability up somewhat as well. Nonetheless, estimates that combine signals from multiple indicators continue to predict little overall recession risk, and we conclude that the chance of a recession beginning within sixmonths is 5% or less.

   

  

   

  In our work on longer-term risks, we found that a low unemployment rate, rising compensation, falling margins, and elevated durables investment have historically signaled an elevated risk that an expansion is nearing its end.

   

  Figure 8 shows that probabilities of recession within 1, 2, and 3 years predicted by models based on these four variables have recently moved up to 23%, 48%, and 76%, respectively.

   

  

   

  Although all four variables have moved in the direction of increased risk in recent years, the particularly sharp moves in predicted recession probabilities since mid-2014 have been driven most prominently by our measure of the decline in margins (which we define as the decline in the 4-quarter moving average of nonfinancial corporate net operating surplus as a percent of net value added, as a fraction of its peak in the current expansion). Figure 9 shows the history of this variable over the postwar sample period. Indeed, on most (but not all) of the occasions when this variable fell to its current level, a recession began within a few years. Although continued expansion remains our baseline forecast, we will more carefully investigate the risks of recession emanating from the corporate sector.

   

  

  *  *  *

  So first Citi, and now JPMorgan warn that there is a significant and growing chance that the US economy contracts next year? According to Janet Yellen, who was asked precisely this question during her hearing in Congress today, there is no risk: according to her, she doesn't see the recession risk as "anything close" to 65%. She did not provide a number which she thought is more appropriate.

  She also said that the FOMC would only raise rates as long as policy makers think U.S. will "enjoy at least some above-trend growth" that would result in improving labor market.. 

  Her conclusion: if the rate hike results in "unintended consequences" the Fed can always just lower rates. Which incidentally is precisely what the Fed did in last 1936 when it, too, erroneously decided the economy was strong enough to sustain a tightening of financial conditions…

  

  … only to cut immediately. The collateral damage? The Dow Jones plunged 50% the next year…

  

  … and unleashed a severe recession in the second half of 1937, followed a few year later by the start of World War II.

  This time is not different.

  

  

  

  

  

• The San Bernardino Massacre: Perceptions, Propaganda, And Blowback

  Submitted by Justin Raimondo via AntiWar.com,

  The reaction to the San Bernardino shooting in which 14 people were killed and several more wounded is a textbook case of confirmation bias. The first reactions came from the liberal wing of the Twittersphere, heavily represented by “mainstream” journalists, who immediately took the incident to be a classic “mass shooting” of the Sandy Hook-Columbine variety, and it didn’t take long for the finger-wagging to begin. At once pro-gun control and anti-religious, the meme went out into cyberspace: “thoughts and prayers” aren’t enough, we need to crack down on gun ownership in this country. The front page of the New York Daily News expressed the left-liberal party line: “GOD ISN’T FIXING THIS: As latest batch of innocent Americans are left lying in pools of blood, cowards who could truly end gun scourge continue to hide behind meaningless platitudes.”

  As it turned out, however, the guns used by Syed Farook and Tashveen Malik, the two perpetrators, were bought legally – and their weaponry consisted of a lot more than mere guns. The editors of the Daily News didn’t wait for the facts because they didn’t care about the facts. They just wanted to make a point – one which turned out to be not only wrong but also completely beside the point.

  In the same city, in the offices of a very similar – if ideologically opposite – tabloid, the editors of the New York Post were jumping the gun in an entirely different direction. As the ethnicity and religious affiliation of the attackers came out, they ran with a simple two-word headline: “MUSLIM KILLERS,” with a modifying qualifier: “Terror eyed as couple slaughters 14 in Calif.” As more information came out, however, the editors pulled back, and the final edition was quite different: “MURDER MISSION,” read the headline, with a neutral supplementary: “Shooters slaughter 14 in Calif.” These two editions were published hours after the incident, and only a few hours apart – a testament to the dangers of jumping to conclusions.

  
   

  This reversal is explained by the subsequent release of yet more information about the perpetrators: Syed Farook worked at the San Bernardino Department of Public Health, which had rented a room at the facility where the massacre took place. The event was a holiday party, which Farook attended, but left early after a reported altercation of some kind. He returned with Malik, his wife, armed to the teeth, and the slaughter commenced.

  These facts would appear to point in a different direction entirely from the scenario painted by the Post’s initial edition, and so the imagery conjured by the new headline went from that of the rampaging “Muslim Killers” to the “Murder Mission” of what appeared to be a case of workplace violence.

  That’s what I thought around midnight last night, when I tweeted my tentative opinion that the workplace violence scenario seemed to be the most likely. My main reason was the nature of the target: why, I asked, would terrorists choose the Christmas party of the San Bernardino Public Health Department as the latest object of their wrath? In addition, reports of a dispute at the event involving Farook seemed to indicate that scenario: he got angry, came back, and started shooting. There were also reports of “turmoil” inside the department where he worked; several people had left amid rumors of disputes with management, and the fact that Farooq and his accomplice were targeting a very specific group of people – and not, say, a military facility, or even a soft target like a mall – seemed to corroborate this conclusion.

  However, as more facts came out, this explanation began to make less sense. To begin with, a bomb – actually, three bombs taped together – had been left behind at the scene of the shooting. The bomb was linked to a device found in Farook’s rental car – rented three days prior – that was very similar to the jury-rigged remote-controlled IEDs recommended by al-Qaeda’s Inspire magazine, which detailed how to make an explosive device with readily available materials. We don’t yet know why the bomb failed to go off,.

  Although reports that the couple came into the venue wearing body armor and Go-Pro body cameras turned out to be false, they were wearing “tactical” clothing, i.e. vests that enabled them to carry large amounts of ammunition. And indeed they were carrying huge amounts, enough to let them reload on the scene, and continue firing up to seventy-five rounds for over 30 seconds. This accounts for the large number of casualties.

  Furthermore, the discovery of twelve “pipe-bomb type” devices, hundreds of tools for making more, and “thousands” of rounds of ammunition in the Redlands home rented by Farooq and his wife eliminates the workplace violence scenario. This was, in effect, a bomb-making factory, and neighbors indicate that a number of people were involved: packages were received throughout the day, and activity was observed into the night. One of these neighbors claims they were ready to contact law enforcement but hesitated to do so for fear of being accused of “racial profiling.” Both Farooq and his bride were of Pakistani extraction.

  Two factors indicating that this was indeed a terrorist cell carrying out a pre-planned operation, and not a disgruntled employee intent on revenge against his co-workers, are plain enough: 1) The couple dropped off their child at a relative’s house the day before the attack, claiming to have a doctor’s appointment, and 2) The tactics utilized in the shooting of the victims and the gunfight with the police — which included throwing a fake pipe bomb out of their car as the cops pursued them – are evidence of some kind of military training. Such training could have occurred during Farooq’s trips to Saudi Arabia and Pakistan.

  And we are beginning to hear evidence of international contacts with “more than one” terrorist suspect under surveillance by law enforcement. All that’s missing – as of this writing – is a claim of responsibility by some overseas terrorist outfit.

  Yet questions remain: again, the target – a holiday party in a small city – hardly seems like the sort ISIS or al-Qaeda would zero in on. Clearly the couple were planning on a much larger operation, but this plan was changed by something that triggered Farooq to act sooner. And we still don’t have the whole picture: there could conceivably be some new information that could alter our whole perception of what motivated Farooq and Malik.

  Which brings me to my point: our perception of the facts is shaped – and altered – by our preconceptions. In short, people believe what they want to believe – and the facts be damned. In this case, major media organizations didn’t wait for the facts to come in before they pronounced judgment. They simply rushed into print with what were little more than editorials, bereft of any responsibility to their readers or the truth.

  This is why those who proclaim that bias is inherent in all journalism, and that there’s no such thing as objective reporting, are dangerously wrong. Yes, we’re all human; yes, everyone has opinions. But some people wait for the facts to come in before giving vent to those opinions, while others don’t bother with such niceties.

  The reality, as I see it, and given what we know now, is this: San Bernardino was an act of terrorism that may or may not have been directed from overseas. The implications of that are very grave for those of us who oppose our crazed foreign policy of perpetual war, and the relentless assault on our civil liberties on the home front.

  The pressure to “destroy them over there before they strike us over here” is going to increase a hundred-fold. The advocates of universal surveillance are going to be empowered as never before. That these tactics haven’t worked in the past – and, indeed, have backfired badly – won’t deter the usual suspects from insisting that war and repression are the answers to the problem of terrorism.

  Our answer to the War Party must be that their strategy has failed: the terrorists couldn’t recruit anyone if we weren’t over there bombing what remains of their cities and seeking to impose our will on a populace that will never accept our domination, no matter how many soldiers we send and bombing sorties we launch.

  As for the authoritarians who want to use incidents like the San Bernardino attack as a pretext to abolish the Constitution and institute a regime of total surveillance and outright repression: where was their vaunted surveillance system in this case? We didn’t detect this plot – and perhaps that’s because watching everyone, and collecting everyone’s information, blinds us to the real villains hiding in our midst. Then again, perhaps ferreting out villains isn’t the real purpose of government spying.

  After the 9/11 attacks, the nation was swept by a wave of war hysteria, and concern for basic civil liberties went right out the window: we will doubtless experience a similar phenomenon in the days and months to come. Yet we are confident that when the history of our era is written, the advocates of peace and liberty will be vindicated, while the War Party will be discredited and disdained by future generations. We must live in the future, in a sense, in order to fight for the future – if there is to be one, that is.

  

  

  

  

  

• "Terrorist" With Machete In London Subway Slashes Man's Throat Screaming "This Is For Syria"

  Less than a week after the San Bernardino shooting, the ghost of ISIS terrorism has finally landed in London, where moments ago news broke that a man wileding a machete screamed “this is for Syria” before slashing a person’s throat at London’s Leytonstone subway station, and attacking up to three people.

  The following video of the incident was released on Twitter hours ago, and shows a large pool of blood spattered across the ticket hall before the alleged knifeman is Tasered by a Met Police officer.

   

  Part 2 ???? Wats goin on mate pic.twitter.com/dgnlsI1sow

  — #UnoMyStyle (@BigTobzsf) December 5, 2015

   

  The Express released the following pictures of what it has dubbed the “Syria revenge” stabbing:

  BREAKING: First pics of #Leytonstone ‘Syria revenge’ stabbing: https://t.co/4QI4Xjz9W3 pic.twitter.com/X49LCvQCge

  — Daily Express (@Daily_Express) December 5, 2015

  

  

   

  As the Telegraph reports, police were called to Leytonstone station after reports of a stabbing in the ticket hall on Saturday at around 7pm. The alleged assailant was promptly tasered by police at the scene.

  Terrified passengers, some with children, can be seen running across the east London Tube station away from the scene.

  For the rest of today, no service btn Liverpool St and Woodford / Newbury Park due to a police investigation. Severe delays on rest of line.

  — Central line (@centralline) December 5, 2015

  As recounted by the Guardian, one person, who claims to have witnessed the attack, took to social media to reveal details of the horror.

  Laurynas Godvisa said: “So as I was going to Leytonstone station was dressed to go to Christmas dinner with people from work.

  “As I walked down I just saw a lot of people running but I ignored it and kept walking to get my train, but suddenly what I saw I couldn’t believe my eyes and what I saw was a guy with a knife and a dead guy on the floor.

  “I was so scared I ran for my life. After good 10-15 police came and got the guy and arrested him.

  “And as he was coming out this is what he said: ‘This is what happens when you f*** with mother Syria all of your blood will be spilled’.”

  A Met Police spokesman confirmed the incident saying that “Police were called at 19:06hrs on Saturday, 5 December, to reports of a stabbing at Leytonstone underground station. The male suspect was reportedly threatening other people with a knife.

  “Met officers attended the scene. A man was arrested at 19:14hrs and taken to an east London police station where he remains in custody. A Taser was discharged by one of the Met officers.”

  “Officers from British Transport Police are now dealing with the incident at the scene. We are aware of one man having sustained serious stab injuries. We await details of any other injuries.”

  Horrific scenes at Leytonstone station. 1 confirmed stabbing however rumours are 2 people have been stabbed. pic.twitter.com/xNRawShOxw

  — Khayam (@khayamcreates) December 5, 2015

   

  So far there is little news on the condition of the victim of the attack: one victim is in a serious condition with multiple stab wounds and it is believed up to two others may also have been injured.

  A spokeswoman from London Ambulance Service said: “We were called at 7:09pm to reports of an assault at Leytonstone underground station We sent a number of resources to the including our joint response unit, an incident response officer, an ambulance crew and London’s Air Ambulance to the scene. We treated a man for stab wounds. He was taken as a priority to hospital escorted by the doctor from London’s Air Ambulance.”

  And while it is only a matter of time before a “terrorist” link is found in this latest attack meant to put another western country on edge and to justify the UK’s recent launch of air strikes against ISIS, we wonder if there will be a front page op-ed in a leading liberal UK newspaper tomorrow demanding that all machetes be henceforth banned even as local TV crews stream live from the home of the alleged terrorist.

  * * *

  Update: as expected, the “terrorist” link was just been revealed with Sky News reported that the subway incident is already being treated as an act of terrorism:

  Update – Metropolitan police confirm Counter Terrorism Command now investigating stabbing incident at Leytonstone underground station

  — Sky News Newsdesk (@SkyNewsBreak) December 5, 2015

  

  

  

  

  

• 'Bankrupt' Mortgage Lenders Unveil The Zero-Money-Down "Friends-And-Family" Mortgage

  Ripping straight from the pages of the "those who failed to learn from history are doomed… period" book of centrally-planned desperation to maintain American Dream 'wealth' by unsustainably levitating home prices, the government's bankruptcy mortgage guarantors have just announced "HomeReady Mortgages." These so-called 'enhanced affordable lending products – provided by the US taxpayer – enable 97%-plus Loan-to-Value loans to borrowers based not on their income (which is too low) but on "non-borrowers" like extended family or children! "Whatever it takes" to maintain the illusion of normalcy and hand out more money just reached peak Einsteinian insanity.

   

  In its latest 'offering' letter for HomeReady Mortgages, Fannie Mae offers what it calls 'innovative underwriting flexibility'…

  • Offers an innovative new feature that supports extended family households: will consider income from a non-borrower household member as a compensating factor in DU to allow for a debt-to-income (DTI) ratio >45% to 50%.
  • Allows non-occupant borrowers, such as a parent.
  • Permits rental income from an accessory dwelling unit (such as a basement apartment).
  • Allows boarder income (updated guidelines provide documentation flexibility).

  In other words, as KARE11 tries to defend…

  "It could be a credit problem, it could be an income problem, it could be an employment history problem, it could be a debt-ratio problem. There are a number of things that can affect a person's situation," said Chris O'Connell, a licensed mortgage loan officer with Nations Reliable Lending in Edina.

   

  Mortgage giant Fannie Mae recognizes these hardships, and in response will soon offer a new kind of mortgage with new rules designed to add flexibility for borrowers.

   

  "They've recognized that households have changed and our guidelines need to change with it," said O'Connell.

   

  HomeReady will consider incomes from others planning to live in the house without being a borrower on the loan.

   

  This means, if you live with parents, siblings, working children or maybe a roommate, as long as they make 30 percent of the household income, Fannie will include their money to help you qualify for a loan.

   

  These are being called "non-borrowers" by Fannie. 

  Non-borrower backed mortgages!!??

  Also, non-occupants of the home can add further income to the mortgage. Perhaps parents living elsewhere but willing to help pay the loan.

   

  "The typical household has changed now. It's not the household we used to know 20 years ago because there's a lot of extended family. Parents are living with the family, children are staying home longer, and it allows you to consider their income too," said Tousley.

  But it gets even better… If you don't have the down-payment (of 3% or less of the home's value) then there is a solution for you too…

  Flexible sources of funds can be used for  the down payment and closing costs with no  minimum contribution required from the  borrower’s own funds

   

  Gifts, grants, Community Seconds®, and cash-on-hand permitted as a source of funds for down payment and closing costs.

  And what is a "Community Second" we hear you cry? Well…

  An alternative financing option for low- and moderate-income households under which an investor purchases a first mortgage that has a subsidized second mortgage behind it. The second mortgage may be issued by a state, county, or local housing agency, foundation, or nonprofit organization. Payment on the second mortgage is often deferred and carries a very low interest rate (or no interest rate at all).

   

  Part of the debt may be forgiven incrementally for each year the buyer remains in the home.

  So, to sum up – if you don't have any savings, the government will give you some to use as a down-payment (which as long as you stay poor will be forgiven over time).. and then the government will allow you to borrow 97% of the value of the home on the basis not of your income and ability to pay but of any rag-tag bunch of friends, family, or pets you can gather under your 'new' roof… and all subsidized by the good 'ol US Taxpayer… for your own good.

  And why are they doing this? Aside from the obvious desperation to keep home prices higher via unsustainable demand? Simple… because it's fair… it is everyone's right – no matter how poor, how uncreditworthy, how under-employed, how much of a drag on the rest of society, or how ignorant – to leverage themselves (at the US taxpayer's dime) at 30-40 to 1 into record high US home prices… as they explain themselves…

  (Aligned with Fannie Mae’s regulatory housing goals and may help lenders meet applicable Community Reinvestment Act goals)

  So do not claim when this all goes utterly pear-shaped that this was not the government's doing… it was! and is!

  *  *  *

  To torture an analogy to death, give a nation just enough 'rope' and it will drown itself in generational debt servitude… or perhaps that was/is the plan all along… certainly makes it 'easy' to vote for the party with all the handouts?

  

  

  

  

  

• 326,000 Native-Born Americans Lost Their Job In November: Why This Remains The Most Important Jobs Chart

  Friday’s release of a “just right” jobs report, in which the US economy reportedly added 211,000 jobs, more than the 200,000 expected, solidified its position as the “most important” one in recent years, after it was broadly interpreted by economists as the sufficient condition for the Fed to hike rates on December 16, 7 years to the day after the same Fed cut rates to zero.

  As such, if indeed the Fed does hike, over the next several quarters, the US labor data will take a secondary place in terms of importance unless, of course, it plummets in which case the Fed will be forced to quickly undo its tightening policy and go back to ZIRP if not NIRP and more QE.

  However, even as the Fed’s “data (in)dependent” monetary policy takes on secondary relevance as we enter 2016, one aspect of the US jobs market is certain to take on an unprecedented importance.

  We first laid out what that is three months ago when we said that “the one chart that matters more than ever, has little to nothing to do with the Fed’s monetary policy, but everything to do with the November 2016 presidential elections in which the topic of immigration, both legal and illegal, is shaping up to be the most rancorous, contentious and divisive.”

  We were talking about the chart showing the cumulative addition of foreign-born and native-born workers added to US payrolls according to the BLS since December 2007, i.e., since the start of the recession/Second Great Depression.

  Curiously, it is precisely this data that got absolutely no mention following yesterday’s job report, about which the fawning mainstream media only noted, in passing, one negative aspect to the report: the fact that 319,000 part-time jobs for economic reasons were added in November. However, with Trump and his anti-immigration campaign having just taken the biggest lead in the republican primary race, we are confident that the chart shown below will soon be recognizable to economic and political pundits everywhere.

  And here is why we are confident this particular data should have been prominently noted by all experts when dissecting yesterday’s job report: according to the BLS’ Household Survey, while 375,000 foreign-born workers found jobs in November, a whopping 326,000 native-born Americans lost theirs.

  

   

  How does this data look like over the long-run: presenting, the cumulative number of job gains by foreign born workers since December 2007. At 25.5 million, it is the highest in the series.

  

   

  If only the chart for native-born workers was anything remotely as buoyant.

  

   

  And here, as we have shown previously, is the most important jobs chart for 2016: since December 2007 the US economy added just 747,000 native-born workers (a number which tumbled as much as 8 million during the depths of the crisis), compared to a 260% greater increase in foreign-born workers, to just under 2.7 million.

  

  

  We are confident that one can make the case that there are considerations on both the labor demand-side (whether US employers have a natural tendency to hire foreign-born workers is open to debate) as well as on the supply-side: it may be easier to obtain wage-equivalent welfare compensation for native-born Americans than for their foreign-born peers, forcing the latter group to be much more engaged and active in finding a wage-paying job.

  However, the underlying economics of this trend are largely irrelevant: as the presidential primary race hits a crescendo all that will matter is the soundbite that over the past 8 years, 2.7 million foreign-born Americans have found a job compared to only 747,000 native-born. The result is a combustible mess that will lead to serious fireworks during each and every subsequent GOP primary debate, especially if Trump remains solidly in the lead.

  

  

  

  

  

• Will 2017 Be The Year Of The EM Corporate Debt Crisis?

  Back in October we brought you “Chinese Cash Flow Shocker: More Than Half Of Commodity Companies Can’t Pay The Interest On Their Debt,” in which we highlighted a report from Macquarie that contained the following rather disconcerting data point: “…more than half of the cumulative debt in the Chinese commodity sector was EBIT-uncovered in 2014.” 

  That’s right, “more than half,” and before you say “well, it is commodities and it is China after all,” consider that for the entire universe of CNY22 trillion in corporate debt, the “percentage of EBIT-uncovered debt went up from 19.9% in 2013 to 23.6% last year.” So, nearly a quarter. 

  In November, we revisited the idea (presented in these pages more than 18 months ago), that China may have reached its dreaded Minksy Moment, as Chinese corporates are set to take out some CNY7.6 trillion in new loans this year just to pay interest on their existing borrowings. As Morgan Stanley put it last year, China looks to be reaching “the point at which Ponzi and speculative borrowers are no longer able to roll over their debts or borrow additional capital to make interest payments.” You know what happens next, and we’re already seeing it as the number of onshore defaults accelerates. 

  

  This is part of a wider discussion about EM corporate debt in a world where EM FX has plunged and investor confidence in the space is rapidly deteriorating in the face of low commodity prices, a strong USD, a looming Fed hike, and a series of idiosyncratic political risk factors playing out from Brasilia to Ankara to Kuala Lumpur.

  With that in mind, Deutsche Bank is out with a new special report on EM debt which has quite a bit of useful color on exactly where things stand for corporate borrowers across a variety of emerging economies. 

  “Demands for EM debt are on a declining trend, as the outlook for both portfolio flows into EM economies and funds flows into EM debt funds remain lackluster due to slow growth, worse credit fundamentals, and expected rise in US yields,” Deutsche begins, adding that “EM corporates need to cope with continued rise in leverage and eroding cash buffers.” 

  Private capital outflows were negative this year for the first time since the crisis. “Even during the peak of the crisis in 2008, EM outflows were a small fraction of the losses we expect in 2015,” Deutsche notes.

  

  Next, Deutsche moves to consider the corporate debt picture, where most of the EM re-leveraging has been concentrated. Specifically, “while EM government debt levels have only moderately increased over the past few years, non- financial EM corporate debt has seen a dramatic rise [jumping] from a level of around 60% of GDP in 2008 to the current level of close to 90% of GDP.” 

  

  Here’s where it gets interesting. Although Deutsche (repeatedly) describes the situation as “benign”, it’s pretty clear that the trend in EBITDA coverage is moving in the wrong direction – and fast for LatAm HY and CEEMA investment grade:

  

  “Interest coverage has been declining among EM corporates due to lower growth and weaker commodity prices [but] EM corporates’ solvency is unlikely to be challenged as an asset class in 2016, in our view,” Deutsche says, cheerfully. Well that’s good – Deutsche Bank doesn’t think the entire EM corporate sector is likely to become insolvent in the next twelve months. See? There’s always a silver lining if you just look for it. 

  However, when we look out to 2017, the outlook worsens. In short, the space will benefit from a sharp drop in USD-denominated debt maturities in 2016, but that reverses course the following year:

  

  After a rather rosy assessment of the outlook for next year, here’s what Deutsche says about 2017:

  The liquidity picture for EM corporates in 2017 looks less appealing, due to a 38% yoy increase in USD bond maturities (to USD122bn) and lingering uncertainty on commodity prices (an important component of the corporate sectors’ cash flow) and FX (a headwind for domestic-oriented players). A further depletion in cash buffers and reduced appetite for certain portions of the EM corporate universe may lead to increased refinancing stress in 2017 – especially if inflationary pressures build and domestic liquidity conditions also have to be tightened. 

  When Deutsche looks at what the bank says is a representative sample of corporate borrowers across LatAm and Ceemea, they find that only 14% of the sample is “in danger” based on net debt-to-EBITDA and cash-to-short term debt. However, when the bank uses 9%+ bond yields as a proxy for “oh shit,” it turns out that a whopping 27% of the LatAm sample is in trouble. Specifically, Brazil has some $89 billion in USD bonds trading above 9% (a large chunk is Petrobras paper). Here’s the full breakdown: Petrobras (USD37bn), USD20bn of industrials, USD15bn of banks (mostly subordinated), USD6bn of rigs, USD3bn of royalty-backed bonds and USD8bn of other sectors.

  So ultimately, this is a question of where EM goes from here and as we’ve said on any number of occasions, the answer to that question is likely “nowhere good.” Turkey is at war with the PKK and is about to be at war with Russia while Erdogan is busy establishing what amounts to a police state. Brazil has descended into a depression while the government is coming apart at the seams. No one knows if China will be able to keep it together in the midst of a currency conundrum, a collapsing economy, an acute overcapacity problem, lingering equity market volatility, and a looming credit crisis. Malaysia has its own political battles still to fight, and to top it all off, the Fed is about to hike which will invariably put further pressure on EM FX and accelerate outflows. Meanwhile, the outlook for commodities is nothing short of grim.

  So it’s difficult to see how the picture improves for a universe of EM corporates that’s 50% more leveraged today than in 2008 and is likely to have more trouble servicing debt going forward especially if the dollar soars post-liftoff.

  Throw in the fact that global growth and trade are likely to be stuck in the doldrums for the foreseeable future and China may not be the only major EM to have a Minsky Moment over the next three to five years.

  

  

  

  

  

• Did Turkey Just Invade Iraq To Protect Erdogan's ISIS Oil Smuggling Routes?

  On Friday, Turkey sent troops into Iraq.

  Here’s a video of the deployment shared on social media:

  Contrary to what you might have read, there’s really nothing unusual about that. 

  As you may recall, Turkey’s military entered Iraq back in September in hot pursuit of PKK “terrorists” Ankara claimed had fled over the border. And that was just par for the proverbial course.  Here’s what we said at the time: 

  In early 2008, Turkish soldiers entered Iraq in a similar effort to eradicate the PKK. “Operation Sun”, as the incursion was called, was conducted with Washington’s blessing for the most part. “Washington described the PKK as a ‘common enemy’, and only urged Ankara to keep its incursion short and closely focused,” BBC noted at the time, adding that “the positions of the UN and EU have been similar, suggesting a degree of sympathy with Turkey’s cause.”

   

  And then there was “Operation Steel” in 1995. And “Operation Hammer” in 1997.” And “Operation Dawn.” And the aplty named “Operation Northern Iraq.” 

   

  You get the idea. 

   

  So while history doesn’t repeat itself, it damn sure rhymes and here we are again watching as the Turkish military crosses the Iraqi border as though it’s not even there chasing “terrorists” up into the mountains.

  What’s different this time around, is that this isn’t a Kurd-chasing mission.

  In fact, if you believe the official line, it’s the exact opposite. Turkey has apparently had some 90 troops on the ground in Bashiqa “for two years” on a mission to “train” the Peshmerga. The new troops – around 150 personnel supported by two dozen tanks- will “take over the mission,” according to Hurriyet. “Turkey will have a permanent military base in the Bashiqa region of Mosul as the Turkish forces in the region training the Peshmerga forces have been reinforced,” the daily continues, adding that “the deal regarding the base was signed between Kurdistan Regional Government (KRG) President Massoud Barzani and Turkish Foreign Minister Feridun Sinirlioglu, during the latter’s visit to northern Iraq on Nov. 4.” 

  

  Ok, so what’s important to remember here is that although Erdogan is no “fan-o’-Kurds”, Ankara is friendly with the KRG and indeed, Barzani’s 632,000 b/d oil operation (which, you’re reminded, runs independent of SOMO, much to Baghdad’s chagrin) depends heavily on a pipeline that runs from Iraq to Ceyhan. Over the summer, the PKK attacked the pipeline costing the KRG some $250 million in lost revenue. As Rudaw noted at the time, that amounts to an entire month’s worth of salaries for the Peshmerga and other security forces, underscoring the extent to which oil sales via Turkey are crucial to the government in Erbil.

  

  You might also remember from “ISIS Oil Trade Full Frontal: “Raqqa’s Rockefellers”, Bilal Erdogan, KRG Crude, And The Israel Connection,” that there seems to be some commingling going on when it comes to Turkish and ISIS crude. Technically, both are “illegal” and because the 45,000 or so barrels per day that ISIS pumps are so inconsequential in the large scheme of things, it’s easy for Islamic State crude to get “lost” in the shuffle once it gets to Turkey which works out great for those involved in the smuggling operation (as an aside, Russia has identified what Moscow says are other ISIS oil smuggling routes but we’ll focus on northern Iraq for now).

  You might notice that there’s a certian irony to this whole thing as it relates to the KRG. What the Al-Araby al-Jadeed report (cited in the article linked above) suggests is that the Kurds in Iraq are to some extent complicit in the entire operation which is amusing because it’s the sale of undocumented Kurdish crude that allegedly funds the Peshmerga’s fight against Islamic State. As with every other dynamic in the region, the entire thing is impossibly convoluted. 

  With that in mind, consider where these Turkish troops (who, again, are supposed to be “training” the Peshmerga) are located. 

  

  So they’re right next to Mosul and right between the Kurds and ISIS and, most importantly of all, right on what Al-Araby al-Jadeed claims is the smuggling route for illegal ISIS crude into Turkey from Iraq.

  The star on the map is Zakho. Araby al-Jadeed, citing an unnamed Kurdish security officials, employees at the Ibrahim Khalil border crossing between Turkey and Iraqi Kurdistan, and an official at one of three oil companies that deal in IS-smuggled oil, says that once Islamic State oil “is extracted and loaded, the oil tankers leave Nineveh province and head north to the city of Zakho, 88km north of Mosul [and] after IS oil lorries arrive in Zakho – normally 70 to 100 of them at a time – they are met by oil smuggling mafias, a mix of Syrian and Iraqi Kurds, in addition to some Turks and Iranians.”

  

  Araby al-Jadeed’s story takes a turn for the fantastic after that, but the point is that it seems extraordinarily convenient that just as Russia is making an all-out effort to expose Turkey’s role in financing Islamic State’s lucrative oil operation and also to destroy ISIS oil convoys in Syria, that Ankara would dispatch troops and two dozen tanks to the exact place in Iraq where some reports suggest the heart of ISIS’ Iraqi oil operation lies. 

  For his part, Iraqi PM Haider al-Abadi has called for Turkey to “immediately” withdraw its troops. He also calls Ankara’s incursion a “violation of sovereignty.” Here’s the full statement:

  It has been confirmed to us that Turkish troops numbering around one regiment armoured with tanks and artillery entered the Iraqi territory, and specifically the province of Nineveh claim that they are training Iraqi groups without the request or authorization from the Iraqi federal authorities and this is considered a serious breach of Iraqi sovereignty and does not conform with the good neighbourly relations between Iraq and Turkey.

   

  The Iraqi authorities call on Turkey to respect good neighbourly relations and to withdraw immediately from the Iraqi territory.

  That would seem to indicate that Baghdad has never approved the “training mission” that Ankara claims has been going on east of Mosul for two years.

  Furthermore, this underscores the fact that Iraq does not want help from NATO when it comes to fighting ISIS. As we reported last week, Iraqis generally believe the US is in bed with Islamic State and you can bet that Russia and Iran will be keen on advising Baghdad to be exceptionally assertive when it comes to expelling a highly suspicious Turkish presence near Najma. 

  Ultimately, this is yet another escalation from Erdogan and the timing, location, and vague explanation raise all sorts of questions about what exactly those 150 troops and 25 tanks are doing but you can be sure that if Baghdad rebukes Washington and green lights Russian recon and airstrikes in Iraq, we’ll find out soon enough.

  

  

  

  

• Broken Commodities Continue To Crush Investors

  Via Dana Lyons' Tumblr,

  Since breaking key support 1 year ago, commodities have continued to drop, setting a 13-year low today.

  This post is not one that is going to spotlight a current potential investment opportunity. In fact, it actually shines the spotlight on a development we highlighted over a year ago. And no, it is not a “told-you-so” or a back-slapper of a post. Consider it more of A) an update and B) a public service announcement.

  On October 30, 2014, we posted a piece entitled “It’s Make Or Break Time For Commodities”. In the post, we included a chart (as always) that detailed what we deemed to be a major area of support for the Thomson Reuters CoreCommodity CRB Index (CRB) around 266. It was so major that we suggested it was a “make or break” spot for the key commodity index. Specifically, a “make” could produce a “substantial and durable” bounce and even potentially usher in “a resumption of the post-2001 commodity bull market”. On the other hand, a “break” would “open the index up to further (perhaps significant) weakness” and maybe even “cast a doubt on the likelihood of resuming the commodity bull market any time soon.”

  Here is that chart from over a year ago:

  

   

  Just a few weeks later, the CRB registered a “break”, dropping below that key support level – and it has not looked back since. The break did indeed produce “further (perhaps significant) weakness” as the CRB would lose 25% of its value in just 2 months. Furthermore, the index has continued to drop for another full year which has definitively “cast a doubt on the likelihood of resuming the commodity bull market any time soon”

  Here is the update as of today:

  

   

  We actually expanded the chart back another 9 years to include the post-1999 UP trendline that just happened to intersect the 2 lines of support in the original chart. As you can see, the CRB closed at a new 13-year low today, around 180. The index has now lost one third of its value since violating the “make or break” level that we highlighted over a year ago.

  Now, again, this post is not meant to pat ourselves on the back. In fact, it is more about identifying the point at which we would know we are wrong. If you read the post from last October, you’ll see that we actually saw ample evidence to support a bounce in the CRB from that key level. However, we also recognized that, should such a bounce not materialize and the CRB fail to hold that key level, then the index was likely broken.

  While our strategy is almost always to buy “relative strength”, i.e., things that are in strong uptrends, there are times when we will take stabs at mean-reversion, knife-catching type plays. However, we will only attempt such trades at what we consider to be major, longer-term support levels. That 266 level in the CRB would have been one of those levels.

  That said, in the event that that major level was broken to the downside, we knew it would be time to cut bait on the trade and move on. In our view, that is an important lesson to keep in mind. It is OK to attempt to catch a falling knife at a level you deem to be of utmost significance on the chart. If you are wrong, at least you know where to cut your losses and move on. At worst, you come away with one small knife cut.

  The worst thing you can do is to continuously attempt to catch the falling knife. When something is in free-fall, realize that it is normally for a good reason. Trends tend to persist so expect that something that is plummeting to continue to plummet. Just remember that there will be just 1 bottom. In the event of a multi-year collapse in a security or commodity, etc., the odds of picking the “bottom” day out of possibly hundreds of possibilities are slim. If you repeatedly try, the odds are all you will come away with are a multitude of knife holes in your hands – and your portfolio.

  Take the CRB, for example. Since breaking that key level a year ago, the index has made no less than 51 new 52-week lows. If you’ve been trying to catch the knife that whole time, your portfolio looks like swiss cheese right now. By the way, if you think that’s far-fetched because commodities sentiment was not too bad until just recently, think again. Remember that we wrote in our post last year that commodities were already despised then. They have undergone over a year of declines since then and they are still dropping.

  The point is, if you are going to attempt to catch a proverbial falling knife on a chart, at least do so only at a point you deem to be a “make or break” type level. Whether or not you can likely accurately identify a “make or break” level is another matter. The point is that, should that level fail, like it did on the CRB Index a year ago, you know the security is broken and it is time to walk away.

  *  *  *

  More from Dana Lyons, JLFMI and My401kPro.

  

  

  

  

  

• How Gun Laws 'Work' In Reality

  Uncivil disobedience…

   

  

   

  Source: Investors.com

  

  

  

  

  

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