Dec 08

Today’s News December 8, 2015

  • George Orwell, Edward Bernays & Perpetual War

    Submitted by Zero Hedge reader "Ferrari",

    Another horrific act of terror, another shrill chorus calls the faithful to war. It’s a recurring phenomenon in this early Twenty-first Century. The horrible news crashes from the heavens like a meteor, violently jolting us from the Saint Vitus Dance of our produce-consume existence. Our screens with all the answers flash between splattered blood on the pavement and the victims’ smiling faces as they were in life. From the Middle East we hear little and see less of the shattered lives on the receiving end of our vengeance. Like giving a fifth of bourbon to a drunk prostrate on the pavement, our leaders advocate more slaughter as the solution to the world’s problems. Mass civilian casualties is the global order of the day, the constant in our lives.

    Orwell’s essay on Perpetual War in “1984” is currently enjoying a revival in certain circles. Through the novel’s mysterious bogey man, Emmanuel Goldstein, Orwell avers that technological innovations have brought industry to such a level of efficiency that material abundance and leisure should be attainable to all. Widespread material comfort and spare time would allow the populace to develop intellectually and spiritually, and thus to achieve a kind of universal enlightenment. Orwell argues that with such leisure-based understanding, humanity would question the necessity for hierarchy and begin to threaten the arrangement that so benefits those at society’s pinnacle.

    During the first half of the Twentieth Century those atop “1984”’s pyramid perceived this eventuality and identified a leisured, enlightened public as a threat to social stability and their dominant position. The ruling caste devised Perpetual War as a way of keeping industrial production humming. Orwell plainly states, “The primary aim of modern warfare… is to use up the products of the machine without raising the general standard of living.”           Rather than distribute the fruits of modern industry to the masses, produced goods are blown up and sent to the bottom of the ocean, thus artificially maintaining scarcity. According to Orwell, both the terror and material scarcity attendant to such engineered, continuous conflict deprives humanity of the security and leisure necessary for the political awareness necessary to question society’s hierarchical arrangement. Perpetual War keeps the population struggling to eke out its meager existence and thus remain both ignorant and docile.

    The hypothesis of Perpetual War has been blowing around the sentient class for decades. Author Chalmers Johnson, said it was the failed promise of the promised peace dividend at the end of the Cold War that lead him to question motives behind the American Empire. Going back further, Col. Fletcher Prouty argued that the Vietnam War was engineered as early as 1945 to be a profit-making, interminable war. Vietnam, Korea, The Cold War, The War on Drugs, and now The Global War on Terror were all virtually unending with exorbitant price tags, driving nations–particularly our own–deeply into debt. Our leaders constantly cry public poverty when it comes to rebuilding our infrastructure or keeping the lights on in our cities, yet there’s always funds for new carpet bombing, furtive drone campaigns, or boots on the ground abroad.

    Orwell’s hypothesis of Perpetual War as a bulwark to maintain the status quo works quite well, up to a point. What he did not seem to recognize was the far more effective silencing mechanism, not of material scarcity, but of consumer abundance. Long before Orwell envisioned his “1984” nightmare, a small group of virtually anonymous men devised and implemented consumerism in a mere decade, the 1920’s.

    With industrial Europe transformed into a battlefield during World War I, America became the manufacturing base for the Western Powers. After the war, U.S. industrialists and Wall Street bankers feared the loss of demand for elevated wartime capacity would plunge the national economy into ruin. At that time the American public purchased items based on need. Paul Mazur of Lehman Brothers decided to change that, and with Edward Bernays’ adroit effort in public relations, they conceived and gave birth to the American Consumer by creating, molding, and then catering to the individual’s desires.

    The nephew of Sigmund Freud, Bernays was fascinated with his uncle’s work on the human subconscious and its applicability to commerce. For example, when tobacco industry executives came to him with the problem that half the population wouldn’t buy cigarettes, Bernays devised a scheme making it acceptable for women to smoke. Basing his research on psychoanalysis, he identified cigarettes as a phallic symbol. Bernays arranged for a group of young socialites to interrupt the New York Easter Day Parade by lighting up, declaring them “Torches of Freedom” for the whirring cameras and reporters. By portraying smoking as an act of women’s liberation, Bernays turned the tide, and Big Tobacco soon captured the other half of American market. Bernays and his cohorts continually repeated such manipulative feats for the next fifty years, and in the process supplanted the American citizen with the American consumer.

    The ramifications of the shift away from a needs-based culture cannot be overestimated. Acting on rational thought, the citizen who bought only what he needed merely did his job to sustain life and got on with his day. But desires emanate from emotion rather than reason, so the consumer driven by impulse becomes a puppet in the hands of those controlling the media. Fearing the herd, the powers that be have instilled in us a false belief in our own significance and made us slaves to our ethereal, artificial and irrational whims.

    The individual consumed and lead by base impulses ceases to think rationally, much less critically. Most importantly he sees himself, if he ever looks at himself beyond the bathroom mirror, as the embodiment of “product choice,” rather than the citizen of a republic obligated to being informed and participating in the public debate. The consciousness of the modern consumer is a passive, empty vessel, defined by corporate brands rather than a more autonomous self.

    An entire culture of such unquestioning individuals consumed by their own fickle desire forms a docile, in-cohesive herd of chattel, incapable of debate, unifying, or demanding a redress of grievances. “We are silenced by our greed,” as Christopher Hedges so succinctly defines it.

    A lively, engaged electorate might steady power’s hand, but the U.S. electorate, as well as the rest of Western society, have been distracted and in the end lobotomized by an ever-increasing workload, fueled by the febrile chase of gewgaws and numbing mass entertainment. As Orwell observed in “1984,” modern technological marvels should liberate humanity to reach a higher form of living, but instead have been bent by men in the shadows to enslave us. One of those men, Edward Bernays, brazenly opened his book, “Propaganda,” with the declaration:

    The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. We are governed, our minds molded, our tastes formed, our ideas suggested, largely by men we have never heard of.

    Bernays and his cohorts manipulated the American electorate and shaped public opinion. Men like spymaster Allan Dulles, and the apostles of University of Chicago academic, Leo Strauss, ran foreign policy from behind the curtain and engineered decades of unending wars. All the while Americans have stood by idly cowed and duped into approving the global carnage, as those on top amassed more power.

    The owners of humanity’s wealth have always held undue sway over government. At times during the Twentieth Century it seemed as if Western society might reach a more sustainable balance between top and bottom, but towards the new millennium the scales tipped radically toward the top. Transfer of production to the virtual slave nations of Asia, as well as public and private skyrocketing debt worked to shift earlier material gains away from the masses to society’s owners. Consumerism is the opiate to calm us while the doctors in the shadows kill us with endless global war and its concomitant debt.

    Those on high profit immensely from the mayhem which embroils the globe. How we wound up killing in these far places and what exactly the policy is are questions we rarely ask. The carnage in the Middle East–much of it engineered by the Western powers–has been a bonanza for the for-profit Military Industrial Complex and the bankers enriched by the ballooning debt it generates. Every cruise missile or drone strike forges a new link in the public’s chains of debt-servitude. We should be asking, “Is there another way?” and collectively making life difficult for public officials who cannot answer.

  • China Chokes As Beijing Issues "Red Pollution Alert" For First Time Ever

    Just a week after Beijing's major literally had his head saved, thanks to a cold front which swept away some of the worst pollution ever, the city has raised the alarm once again.. but this time to a record level. For the first time ever, the municipal government has issued a so-called red pollution alert – imposed car bans and suspending schools – after acrid-smelling haze returned to the Chinese capital.

     

    Beijing mayor, Wang Anshun, vowed last year, as JapanTimes reports, that if pollution wasn’t brought under control by 2017, he would cut off his own head and present it to the country’s leadership.

    Time to sharpen up that ax again…

     

    The "airpocalypse" of smog swirling over Chinese cities has reached its most dangerous levels yet. Gizmodo explains…

    And here are some stills…

     

    Now you see it…

     

    Now you don't…

    As Bloomberg reports,

    Local authorities upgraded the air pollution alert to red from orange, effective from 7 a.m. Dec. 8 to noon Dec. 10, according to a statement on Beijing Municipal Environmental Protection Bureau’s official Weibo Monday.

     

    Some industrial companies must stop or limit production, outdoor construction work will be banned and primary schools and kindergartens are advised to cancel classes, the statement said. Even healthy people should try to avoid outdoor activity and choose public transportation.

     

    “The red alert shows the local government has stepped up efforts to protect citizens from pollution,” said Dong Liansai, climate and energy campaigner at Greenpeace East Asia. “It’s probably because of pressure from the central government.”

     

    Clear skies aren’t expected again until after the smog peaks Wednesday, according to the China National Environment Monitoring Center.

     

    Monday’s bad air, coupled with five days of hazardous pollution on Nov. 27-Dec. 1, raised fresh concern about the government’s ability to tackle air quality despite repeated statements from leaders that cleaning up the environment in the country is a top priority. Last week, the concentration of fine particulates that pose the greatest risk to human health rose to 666, more than 25 times World Health Organization-recommended levels.

    But who was to blame?

    The latest round of bad air was the result of “factory discharges and unfavorable weather conditions,” the state-run China Daily reported, citing National Meteorological Center Senior Engineer Xue Jianjun. China will strengthen inspections of polluting factories, Environmental Protection Minister Chen Jining said, according to China Daily.

     

    China urged local governments to start emergency measures to cope with the pollution, according to a statement on the Ministry of Environmental Protection on Sunday. Emissions from automobiles are the main contributor to Beijing’s smog, the ministry said on Dec. 1.

    Some foreign firms let staff work from home…

    Today appears no better either as at 7am, the air quialityindex is already at extreme highs…

    And finally, as we have expressed numerous times, SCMP's George Chen raises a very valid question…

     

     

    Because who can blame them for weak economic performance when they are "saving the world… from its deadliest threat.

  • Weimar Greece – The Effects Of A Currency Collapse

    Submitted by Jeff Thomas via InternationalMan.com,

    Cash is a scarce commodity in Greece.

    In June, Greek banks declared a surprise limitation on how much could be withdrawn from an account. At present, the government still limits the cash withdrawals of Greeks.

    And, of course, this is just the most recent in a series of events that make up the cash squeeze. In response, Greeks have done what all people do when they cannot get enough currency – they improvise.

    Several alternate systems for payment of goods and services have cropped up in Greece since 2010. One is TEM, which allows people to gain monetary credit on an internet site, which may then be used to pay others. Another system is the Athens Time Bank, which logs time units, allowing individuals to pay each other with their time. The services provided can be anything from language lessons to medical consultation. Other systems are popping up, as Greeks seek out any method of payment other than the euro, since they’re closed off from their own savings at the banks. As can be expected, barter is becoming more commonplace.

    Greece is right where Weimar Germany was in late 1922. The 1919 Treaty of Versailles required Germany to pay reparations for WWI. At the time, Germany, having lost the war, was already on the ropes economically. The conditions of the treaty amounted to an unpayable level of debt. As it became apparent that it was impossible to pay, the allies squeezed harder. Economic conditions in Germany worsened dramatically, not unlike Greece today, and for the same reason.

    Germans did their best to sidestep the economic squeeze. As the cost of goods and services was rapidly rising (on a daily basis), Germans learned that it was best to spend Reichsmarks as quickly as possible on virtually anything that was holding its value better than banknotes.

    Interestingly, in 1922, virtually no one felt that currency was the problem. German politicians blamed the allies, particularly the French, for demanding that Germany live up to the treaty they had signed. Bankers often blamed foreign currencies for rising against the mark. And the people of Germany generally placed the blame on the most immediate symptom – that costs were rising more quickly than wages. Although they were pleased when their own wages went up, they wanted the prices of commodities to remain the same. They therefore blamed the merchants (particularly the many Jewish merchants) for raising the prices of their goods every time wages increased. They blamed this on Jewish greed, failing to understand that, every time wages increased, the cost of production increased and that increase was passed to the merchants.

    In 1922, as in 2015, virtually everyone failed to recognise that monetary movement is circular in nature, not linear. All payments, for all goods and services, impact each other, in a domino effect.

    The provision of goods and services is the lifeblood of any economy. Those who offer them and those who pay for them create wealth by doing so. This is the natural order of economics. However, if currency is artificially pumped into an economic system, either through the printing of bank notes, as in Germany in 1922, or the provision of bailouts, as in Greece in 2015, no goods have been created, no services have been performed. The injection of currency fails to improve the economy; it makes the situation worse. At some point, the money tap must be shut off, and, when it is, a crash takes place. The severity of the crash is directly proportional to the degree of currency injection.

    So, as long as we’re comparing parallel events, what else happened back then? Well, one interesting development was that, although most everyone in Germany was experiencing a steady decrease in their standard of living, farmers seemed to be holding their own. This, of course, was because they remained productive. They created essential goods for sale to others, so they maintained their living standards. In the autumn of 1922, most Bavarians could not afford to attend Oktoberfest, but the beer halls did an acceptable business with the farmers who came to town for the celebration. They were deeply resented by city dwellers for being able to afford beer that they themselves could not afford.

    Such was the resentment that the prime minister of Bavaria submitted a bill to the Reichsrat to make gluttony a public offense.

    In 1923, as the Weimar inflation grew to the point that city dwellers were starving, many of them went out to the country to steal the produce the farmers had worked to grow. Resentment was so high against the farmers that many raiders killed the farmers out of hatred. Further, since they couldn’t take the farmers’ cattle back to the city with them, they slaughtered them in the fields, out of spite. Of course, by destroying the source of the food, they assured that they would receive even less in future. Many starved.

    As stated by British Author Adam Fergusson in When Money Dies:

    It brought out the worst in everybody… It caused fear and insecurity among those who had already known too much of both. It fostered xenophobia. It promoted contempt for government and the subversion of law and order.

    As stated at the time by Sir Basil Blackett, controller of finance of the British Treasury, “Each class in Germany thinks that the burden of taxation should fall on some other class.” (Does any of this sound familiar?)

    If Greece in 2015 mirrors Germany in 1922, then we might expect Greece in 2016 to come to resemble Germany in 1923.

    But how about the rest of us? We’re not in the state that Greece is in – at least not yet. But the EU as a whole, and the U.S., Canada, and many other “First World” countries, are following the same destructive economic path. (They just aren’t quite as far along as Weimar Germany, 1923.)

    So, we might be interested to know what came next in Germany.

    • Demands increased by the public for a mandatory redistribution of wealth.

    This has become a common cry, particularly in the U.S., where a presidential election will take place in a year and some candidates are fanning the flames on this issue.

    • Movement of currency had to notified, then authorised.

    Currency controls are being implemented, one after the other, to limit the people’s ability to move their own money. Most threatening is a plan to eliminate cash, so that money cannot be transferred without the permission of the banks.

    • Importation was regulated.

    Politicians in the EU and U.S. are speaking increasingly of the need for protective tariffs.

    Political leaders have, for decades been squeezing the economy for all they can get and, as they’ve reached the point of diminishing returns, they’ve done what politicians always do, increase debt in order to prolong and increase their intake of wealth.

    This can be likened to a farmer who, wanting more milk than a cow can produce, milks it dry, then, refusing to admit his folly, starts draining the cow of its blood. He may say to both himself and others that the increasing need may be satisfied by increasing the removal of blood and, on a temporary basis, this will allow him to continue making use of the cow. However, once he has done so, it is a certainty that, at some point very soon, the cow will collapse.

    This was the case in Germany in 1923…and is the case in much of the world now.

  • China Trade Plunges, Yuan Tumbles Near Lowest Level In 4 Years

    With just nine days until The Fed – which has prepared the world, apparently – will raise rates for the first time in years (and potentialy suck up to $800 billion of liquidity from the global collateral chains of shadow stability), it appears China is doing its best to start some destabilizing efforts (which worked last time). None of this is helped by the collapse in China trade (with imports down YoY for a record 13th month, and exports falling for 5 straight months).

     

    Onshore Yuan ands Shanghai Composite volatility is rising notably as the Chinese currency continues to be allowed to tumble, set for its weakest close against the USDollar in 4 years…

     

    And Chinese equity markets remain supported for now, but underlying selling pressure keeps reappearing…

     

    Charts: Bloomberg

  • Suicides In Alberta Soar In Wake Of Canada's Oilpatch Depression

    Over the past year, we have extensively chronicled the tragic story of Alberta – Canada’s once booming oilpatch – disintegrate slowly at first, then very fast, into an economic and financial wasteland:

    And, in the last article in this sad series describing the Alberta “bloodbath”, we said that the biggest casualty of Canada’s recession has been the local commercial real estate market, where office vacancies are about to surpass the aftermath of the (first) great financial crisis.

    We were wrong: the biggest casualty of Canada’s recession, which unless oil rebounds strongly soon will follow Brazil into an all out depression, are people themselves. As CBC reports the suicide rate in Alberta has increased dramatically in the wake of mounting job losses across the province.

    According to the Canadian media, the most recent data only goes to June, but according to the chief medical examiner’s office, 30 per cent more Albertans took their lives in the first half of this year compared to the same period last year. 

    That’s how bad Canada’s economic recession is: the real casualties are no longer metaphorical economic objects, but the very people who until recently enjoyed comfortable lives only to succumb to an unprecedented collapse in the local economy.

    Here are the statistics as reported by CBC:

    • From January to June 2014, there were 252 suicides in Alberta.
    • During the same period this year, there were 327.
    • If the trend continues, Alberta could be on track for 654 suicides this year.
    • In an average year, there are 500, according to the Centre for Suicide Prevention.

    “This is staggering,” said Mara Grunau, who heads the Centre for Suicide Prevention.  “It’s far more, far exceeds anything we would ever have expected, and we would never have expected to see this much this soon.”

    What is taking place is hardly surprising: in this year of mass layoffs in the energy sector, calls to the Calgary Distress Centre have changed tone and have become more frequent, says counsellor David Kirby.

    Unfortunately, when one can no longer slide the tragic reality under the rug of double seasonal adjustments and media propaganda meant to boost confidence despite economic collapse, human tragedy is what always follows.

    “For me it says something really about the horrible human impact of what’s happening in the economy with the recession and the real felt effect, the real suffering and the real struggle that people are experiencing,” he said.

    Kirby says demand for counselling services has increase by 80 per cent — and the problems people are struggling with are more complex. “There might be substance abuse issues. There might be imminent financial collapse,” he said.

    “Anxiety, depression. Relationship conflict, maybe concurrent domestic violence. So there are many more things that people are trying to juggle I think at the same time.”  Nancy Bergeron, who has answered distress centre phone lines for a few years, says this year has been the hardest.

    “People are just at wit’s end and they’re contemplating it, right?”

    Why? Simply because the price of a commodity has dropped to a third of what it was just over a year ago, and the shocking impact has been a paralysis of every aspect of financial, economic and social life, first in Alberta, and soon everywhere else across Canada, as the local recession (on its way to a depression) spreads across the country and eventually crosses the U.S. border.

  • Will The IRS Take Your Passport?

    Submitted by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

    A little-noticed provision in the highway funding bill Congress passed this week threatens a right most Americans take for granted: the right to travel abroad. The provision in question gives the Internal Revenue Service the authority to revoke the passport of anyone the IRS claims owes more than $50,000 in back taxes.

    Congress is giving the IRS this new power because a decline in gas tax receipts has bankrupted the federal highway trust fund. Of course, Congress would rather squeeze more money from the American people than reduce spending, repeal costly regulations, or return responsibility for highway construction to the states, local governments, and the private sector. On the other hand, most in Congress fear the political consequences of raising gas, or other, taxes. Giving the IRS new powers allows politicians to increase government revenue without having to increase tax rates. Some even brag about how they are “cracking down on tax cheats.”

    Pro-IRS politicians ignore how this new power will punish Americans who have actually paid all the taxes they are legally obligated to pay. This is because the provision does not provide taxpayers an opportunity to challenge a finding that they owe back taxes in federal court before their passport is revoked. Because IRS employees are not infallible, it is inevitable that many Americans will lose their right to travel because of a bureaucrat’s mistake.

    It is particularly odd that a Republican Congress would give this type of power to the IRS considering the continuing outrage over IRS targeting of “Tea Party” organizations. This is hardly the first time the IRS has been used to intimidate its opponents and/or powerful politicians. Presidents of both parties have used the IRS to target political enemies.

    For example, one of the articles of impeachment brought against Richard Nixon dealt with his attempt to have the IRS audit those Nixon perceived as political enemies. During the 1990s, an IRS agent allegedly told the head of an organization supporting then-President Bill Clinton's impeachment, “What do you expect when you target the President?” Can anyone doubt that some Americans will be targeted because an IRS bureaucrat does not approve of their political beliefs and activities?

    Some support giving the IRS new powers because they think that those who underpay their taxes somehow raise everyone else’s taxes. This argument assumes that the federal government must collect the maximum amount of taxes because the people cannot do without big government. Of course the truth is that the people would be better off without the welfare-warfare state. Wouldn't we be better off without a national health care program that increases health care costs, or without a war on terrorism that led to the rise of ISIS? Freeing the people from taxation, including the regressive and hidden inflation tax, is just one of the many ways the people will benefit from restoring constitutionally limited government.

    As the federal debt increases and the American economy declines, an increasingly desperate Congress will look for new ways to squeeze more revenue from taxpayers. Thus, the IRS will increasingly gain new and ever more tyrannical powers over Americans, including new restrictions on the right to travel or even move capital out of the country. The only way to end the IRS's assault on our liberties is for the people to force Congress to stop looking for new ways to pick our pockets, and instead usher in a new era of liberty, peace, and prosperity by demolishing the welfare-warfare state.

  • China "Disappears" More Bank Executives As Witch Hunt Intensifies

    “Chairman of Guotai Junan Int’l, 1 of China’s largest brokerages, is “missing”; company said can’t find him”

    Regular readers are likely familiar with the quote excerpted above, but for anyone who might have missed the original story, that’s from George Chen and when it hit Twitter late last month we couldn’t help but laugh because after all, it’s not every day that a publicly traded company comes out and says they can’t find their CEO. 

    As strange as the statement might have seemed to the uninitiated, for those who’ve followed China’s equity markets this year it wasn’t hard to imagine what might have happened to Yim Fung. 

    Beijing is the midst of a truly epic witch hunt aimed at tracking down and detaining what officials say are “malicious” short sellers and market manipulators who allegedly played a part in the meltdown the hit Chinese stocks at the end of the summer. The campaign – dubbed “kill the chicken to scare the monkey” after a Chinese proverb – is really nothing more than an attempt to coerce market participants into acting in a way that’s conducive to stock charts that go “up and to the right.”

    As it turns out, Yim was indeed ensnared by authorities in connection with the arrest of CRSC vice chairman Yao Gang. Well, less than a week later, a number of media outlets reported that Beijing had launched a new round of investigations into at least three brokerages. Here’s what we said at the time: 

    It appears that after a period of relative calm, the Politburo is set to once again crackdown on any type of “malicious” behavior that Beijing thinks contributed to declining stock prices (remember, China isn’t a big fan of the whole “stocks can go down as well as up” thing, which means arresting anyone suspected of selling or, in extreme cases, halting the entire market). On Friday, the SHCOMP plunged nearly 6% after Citic Securities and Guosen Securities disclosed regulatory probes. Shares in both brokerages traded limit down on the news. Haitong Securities’, which is also facing an investigation, had its shares suspended. 

     

    Both Citic and Guosen said the new probes centered on alleged “rule violations.” “The finance crackdown has intensified in recent weeks and ensnared a prominent hedge-fund manager and a CSRC vice chairman,” Bloomberg notes, adding that “Citic Securities President Cheng Boming is among seven of the company’s executives named by Xinhua News Agency as being under investigation.”

    That was on November 27. Over the weekend (so just over a week later), two Citic executives apparently suffered the same fate as Yim Fung because as Reuters reports, the broker can’t find two of its top bankers. 

    “CITIC Securities is not able to contact two of its top executives, China’s biggest brokerage said on Sunday, following media reports that they had been asked by authorities to assist in an investigation,” Reuters says, adding that Jun Chen – Citic’s head of investment banking – and Jianlin Yan – who runs investment banking at the company’s overseas unit – have been unreachable since at least Friday. 

    As is usually the case when Beijing “disappears” some folks, no one is sure whether Jianlin and Jun are implicated in the probe or whether they are merely “assisting” authorities. Here’s Reuters again: “Chinese business publication Caixin said on Friday the pair had been detained, although it was not clear whether they were subjects of an investigation or merely being asked to assist with it.”

    Late last month, Citic announced that chairman Wang Dongming would step down “in consideration of his age,” but the ubiquitous “people familiar with the matter” say he was forced out for failing to stop insider trading. “Citic used its own balance sheet to buy stocks as part of the rescue effort and also executed trades on behalf of other national team entities,” FT reports, referencing China’s so-called “national team” which the PBoC used to pump some CNY1.5 trillion into the market. “Citic executives are alleged to have used information about which stocks the national team intended to ‘front-run’ for their own accounts.”

    So who knows where Citic’s executives are being held or why they’re being detained, but what seems clear from Fu Zhenghua’s (read more about Fu, the man at the heart of Xi’s crackdown, here) increasingly aggressive campaign is that the Politburo fully intends to make an example of quite a few people that were involved in the sweeping effort to prop up the market.

    Whether this represents an honest attempt to root out corruption or whether the idea is simply to intimidate the market on the way to ensuring that everyone toes the line going forward is unclear but one thing we do know is this (to quote a director at an international brokerage in Hong Kong quoted by Reuters last week): “At the moment, if you don’t do what the CSRC asks you to do, there will be blood.”

  • NYT: Americans With Assault Rifles Should "Give Them Up For The Good Of Their Fellow Citizens"

    Submitted by Matt Vespa via Townhall.com,

    Well, it seems the media’s horrific campaign of inaccuracy hasn’t stopped. According to Reuters, for the first time in nearly a century, The New York Times editorial board took their plea for gun bans to the front page on Saturday, calling our nation’s inaction on gun control a “moral outrage and a national disgrace.” No, we shouldn’t be surprised that they decided to follow the likes of the Washington Post and the Los Angeles Times with their own inane call to arms for gun control. And we shouldn’t be shocked that they want policies that employ confiscatory measures, while also banning an entire class of firearms, specifically assault rifles and certain types of ammunition [emphasis mine]:

    It is a moral outrage and a national disgrace that civilians can legally purchase weapons designed specifically to kill people with brutal speed and efficiency. These are weapons of war, barely modified and deliberately marketed as tools of macho vigilantism and even insurrection.
    America’s elected leaders offer prayers for gun victims and then, callously and without fear of consequence, reject the most basic restrictions on weapons of mass killing, as they did on Thursday. They distract us with arguments about the word terrorism. Let’s be clear: These spree killings are all, in their own ways, acts of terrorism.

     

    […]

     

    It is not necessary to debate the peculiar wording of the Second Amendment. No right is unlimited and immune from reasonable regulation.

     

    Certain kinds of weapons, like the slightly modified combat rifles used in California, and certain kinds of ammunition, must be outlawed for civilian ownership. It is possible to define those guns in a clear and effective way and, yes, it would require Americans who own those kinds of weapons to give them up for the good of their fellow citizens.

    First, let’s give it up for the New York Times, and their like-minded colleagues in the media–and in politics–for driving up gun sales. Undoubtedly, after all of this nonsensical discussion about gun control, gun and ammo sales will go up (that’s a good thing). The irony never ceases to amaze me how the very faction of this country what wants to deploy unconstitutional gun control measures, only end up becoming better gun salespersons.

    Moreover, every mass shooting is an act of terror? They’re not. Mass shootings can be part of a terrorist’s arsenal of carnage to push whatever agenda they have in mind, but not every mass shooting is terrorism. The same logic is applied to defining genocide. Genocide is mass killing, but not all mass killings are genocides. What happened in Paris was a horrific terrorist attack perpetrated by ISIS. They had an agenda. They deployed suicide bombers and shooters to target scores of innocent Parisians, which they thought could influence the nation’s policy in the Middle East. The Islamic State attacked France for insulting the prophet Muhammad; they called Paris “the capital of abomination and perversion;” and–perhaps the most important part–the French were attacked due to their intervention in Syria. There are multiple definitions of terrorism; almost every singe one includes some form of political goal. There was no such goal when Adam Lanza senselessly murdered 20 schoolchildren in Newtown in 2012, hence why it was called a mass shooting, and not an act of terrorism. Concerning the San Bernardino shooting, it’s now a federal terrorism investigation. We’ll know in due time the motives and aims behind this attack.

    The Times says that it’s easy to define “combat rifles,” though they apparently didn’t know the definition of terrorism–and the left has tried to do this back in the early 1990s with the Assault Weapons Ban. It was a laughable piece of comedy that was attached to the overall Violent Crime Control and Law Enforcement Act in 1994, that was partially responsible for historic Democratic losses in the midterm elections. When it expired in 2004, the data showed that these weapons are a) rarely used in crimes, which remains so to this day and b) did next to nothing to reduce violent crime. Oddly enough, the New York Times ran a piece in September of 2014 highlighting that fact:

    …[I]n the 10 years since the previous ban lapsed, even gun control advocates acknowledge a larger truth: The law that barred the sale of assault weapons from 1994 to 2004 made little difference.

     

    It turns out that big, scary military rifles don’t kill the vast majority of the 11,000 Americans murdered with guns each year. Little handguns do[*].

     

    In 2012, only 322 people were murdered with any kind of rifle, F.B.I. data shows.

     

    […]

     

    The policy proved costly. Mr. Clinton blamed the ban for Democratic losses in 1994. Crime fell, but when the ban expired, a detailed study found no proof that it had contributed to the decline.

     

    The ban did reduce the number of assault weapons recovered by local police, to 1 percent from roughly 2 percent.

     

    “Should it be renewed, the ban’s effects on gun violence are likely to be small at best and perhaps too small for reliable measurement,” a Department of Justice-funded evaluation concluded.

    Lastly, the “it would require Americans who own those kinds of weapons to give them up for the good of their fellow citizens” part. Why? The vast majority of gun owners–99.9 percent according to Sen. Bernie Sanders–are law-abiding. They have to turn them over because the liberal political class is egregiously ignorant on this issue? They have to turn them over because while they aren’t used often in gun crimes, liberals are afraid of them? The Times has shown that the left is getting closer to outright saying having assault rifles in one's home warrants the National Guard, FBI, ATF, and local law enforcement busting down your door, terrifying your family, and confiscating constitutionally protected items.

    Any rational person should balk at this proposal. Any Second Amendment supporter would, as in other counties, should (and probably would) completely ignore the call to hand over their firearms. But if you’re a liberal–in keeping with their principle that government power should be controlled by the few in order to be dictated to the rest of us–you must believe this is a good policy. If ending gun violence enhances the public good, then by all means strip law-abiding Americans of their rights; the end result will pay off. It’s a perverse notion.

    This is where this debate is heading–and it’s getting messier with each horrific mass shooting. The left is now mixing terrorism and mass shootings to push a narrative to eviscerate the Second Amendment. We once again have rehashed stories about the AR-15 rifle, which isn’t as powerful as a hunting rifle and rarely used in crimes. And we have the media endorsing gun control policies that would require gun bans and confiscation. They’re insinuating parts of it, but the brash call to ban guns entirely is coming.

    Yes, not every right is absolute. There are restrictions, but government and active citizenry should work to maximize these rights to their fullest extent. The pre-existing laws on guns are fine. We need to have a debate on how to revamp our mental health system, and integrate it into our background check system. The problem is that it doesn’t accomplish the left’s goal of destroying gun rights, so they’ll do everything in their power to prevent that debate.

    *Support for a handgun ban is insanely low. 

  • Beware The "Massive Stop Loss" – JPM's Head Quant Warns This Unexpected Downside Catalyst Looms Next Week

    The uncanny ability of JPM’s head quant, Marko Kolanovic – the man Bloomberg recently called “Gandalf” due to his predictive success – to call key market inflection points has been extensively documented on these pages, most recently a month ago when we showed that just after he said the “rally drivers are gone with downside risk ahead”, the market proceed to swoon, two months after the same Kolanovic correctly predicted that the “technical buying begins.”

     

    We bring up Kolanovic because earlier today he released a new note in which he together with JPM’s Global Equity Strategy team lays out both the longer-term, as well as the immediate risks facing the market.

    First, we lay out JPM’s longer-term concerns for the S&P500, starting with the same one noted previously by everyone from Zero Hedge, to Goldman, to Credit Suisse to Citi: profit margins, and specifically their lack of future growth as a result of relentless dollar strength. Here are some of the main ones:

    Negative earnings effect from energy is likely to fade away, but strong USD will continue to exert some drag causing further negative revisions to current 2016 earnings growth estimates of 8.5%. Equity multiple will be limited from re-rating higher, in our view. The market is of age, already trading at close to 18x (NTM) P/E and we expect higher volatility going forward.

     

     

    The current year is likely looking to print flat earnings growth—negative revenue growth roughly offset by some margin expansion and significant share repurchases. While buyback activity should continue to synthetically boost earnings growth in this lackluster economic environment, margin expansion is near full exhaustion and in 2016 will possibly turn negative for the first time in this recovery. This suggests that we need at least some top-line growth in order to avoid a possible earnings recession next year. In that vein, one of the biggest risks equities face is a continuation in the strengthening of the US dollar and the Fed getting ahead of the curve (“policy error”). We estimate that a 5-6% change in the USD TWI corresponds to ~3% change in S&P 500 EPS.

    Then there is the question of the what a rising rate environment will do to equity returns. Here, JPM tries to walk a fine line and spin a contraction in financial conditions as if not bullish for stocks than hardly bearish…

    Historically, higher rates have meant lower but not necessarily negative equity returns. Correlations between rising short-term rates and S&P 500 performance imply a negative relationship, especially in a lower growth environment like today. During previous liftoffs equity markets have typically fared well, but the macro environment was also more supportive—GDP is less impressive now at +2.25% y/y vs. +3.4% y/y during previous episodes and the USD has increased +10% y/y on a trade-weighted basis vs. basically unchanged previously.

    Which brings us to another topic covered extensively here previously: the possible inversion of the yield curve as the Fed hikes the short-end while the long-end prices in policy error, or a failure to stoke inflation. Indicatively, the 2s30s is now the flattest it has been since February.

    More so, the slope of the yield curve is also a factor to consider, with the worst case for equities being a rising rate scenario with a flattening/inverting yield curve. We are not there yet, with 10s/2s spread having averaged near 140bps. 

    And then it gets interesting: Kolanovic’ first prediction – expect not only higher volatility but higher levels of tail risk.

    Also, higher rates have typically resulted in higher market volatility. While it may be difficult to quantify, certain parts of the market could be highly levered to the prolonged zero interest rate policy (i.e., long/short, distressed funds) which may require risk to be re-priced.  

     

    In our 2015 Outlook published last year, we forecasted that the average VIX level would increase from the 2014 average level of 14 to 16 this year. The average VIX level ended up at 16.5, very close to our forecast. While historically periods of falling volatility lasted much longer than periods of rising volatility, we again forecast an increase in volatility for 2016. Our forecast is for the average VIX levels to rise from the current level of ~15 to an average of 16-18 next year. We also forecast higher levels of tail risk.

    What does this mean in practical terms:

    Tail risk is a measure of volatility of volatility, so we expect both quiet periods and periods of volatile selloffs such as the one we saw in August this year. Our forecast of higher volatility is primarily based on the rates cycle and uncertainty around central bank policy, as well as extremely low levels of market liquidity.

    JPM also warns about a market which has lost more than half of its orderbook depth as a result of collapsing liquidity over the past decade courtesy of Reg NMS and the advent of predatory, order frontrunning HFT algos. As a result, the market no longer has any capacity to “absorb large shocks“

    While equity volumes look robust, market depth has declined by more than 60% over the last 2 years. With market depth so low, the market does not have capacity to absorb large shocks. This was best illustrated during the August 24th crash.

     

     

     

    Additionally, high levels of geopolitical risk are likely to add to  market volatility. These risks include increased tensions in the Middle East (e.g., between Russia and NATO allies), increased risk of terrorist attacks in the US and Europe, as well as strains in the Eurozone related to the immigration crisis. Furthermore, levels of equity volatility appear to be below the volatility levels of other asset classes. Following the August spike in volatility, equity volatility dropped below the levels of volatility implied by other asset classes. Most notable is the divergence of equity volatility to levels of credit spreads that kept on rising during H2

    * * *

    Which then brings us to what Kolanovic believes is the key near-term risk.

    Not surprisingly, the biggest potential selloff catalyst is the Fed itself and specifically the Dec. 16 FOMC announcement, which the Fed is desperate to guide as being “priced in” by the market, but considering the Fed’s track record with getting any forecast right, concerns are starting to grow. “As for near-term risks—we believe the most imminent market catalyst will be the December Fed meeting in which we are likely to see the first rate hike of the cycle.”

    * * *

    So far so good, but to a market which has traded mostly on technicals and program buying (and selling) in recent months, there is something far more troubling than just what the Fed will announce:

    This important event falls at a peculiar time—less than 48 hours before the largest option expiry in many years. There are $1.1 trillion of S&P 500 options expiring on Friday morning. $670Bn of these are puts, of which $215Bn are struck relatively close below the market level, between 1900 and 2050. Clients are net long these puts and will likely hold onto them through the event and until expiry. At the time of the Fed announcement, these put options will essentially look like a massive stop loss order under the market.

    What does this mean? Considering that the bulk of the puts have been layered by the program traders themselves, including CTA trend-followers, and since the vol surface of the market will be well-known to everyone in advance, there is a very high probability the implied “stop loss” level will be triggered, and the market could trade to a level equivalent to the strike price, somewhere in the 1,800 area, or nearly 200 points below current levels.

    Which would be a tragedy for the Fed: after all, nothing is more important to Yellen, Draghi et al, than affirmative market signaling – pointing to the (surging) market’s reaction and saying “look, we did the right thing”, just as Draghi did on Friday when he explicitly talked the market higher in the aftermath of the ECB’s disastrous announcement.

    The irony will be if, regardless of what the Fed does, the subsequent move is driven not by the market’s read through of monetary policy but by the “pin” in this massive $1.1 trillion option expiry, the biggest in many years, one which if recent market action is an indicator, suggests the stop loss strike level will be taken out in the process setting the “psychological” stage for market participants who will look at the drop in the market, and equate it with a vote of no confidence in what the Fed is doing, potentially forcing the Fed to backtrack in less than 2 days!

    Whether this happens remains to be seen, and we are confident the Fed’s “arm’s length” market-moving JV partner, Citadel, is currently scrambling to prevent any imminent selloff. However, considering Kolanovic’ track record of hinting at key risk inflection risk, it is quite likely that whatever the ultimate closing price on December 16 and, more importantly, December 18, volatility may very soon have an “August 24” type event.

  • Amid FX Reserve Liquidation, These Are The Countries JP Morgan Says Are Most Vulnerable

    On Friday in, “Correlation May Not Equal Causation, But This Divergence Looks Like Bad News,” we highlighted the following two charts from Credit Suisse:

    As you can see, equities and global growth have tracked global FX reserves with some degree of consistency going back at least fifteen years. Now that the so-called “great accumulation” has come to a rather unceremonious end thanks to slumping commodity prices, the incipient threat of a Fed hike, and China’s yuan deval, the amount held in FX war chests has decoupled markedly from stocks and economic output. That, we contend, probably doesn’t bode well. 

    Falling FX reserves should, all else equal, amount to a drain on global liquidity. That is, for years commodity producers were net exporters of capital, snapping up billions upon billions of USD assets to hold for a rainy day.

    Well, not to put too fine a point on it, but EM now has a deluge on its hands and a long list of country-specific, idiosyncratic political factors are making the situation immeasurably worse in certain markets by putting even more pressure on local currencies (see Brazil and Turkey for instance) and hence on reserves. 

    To be sure, each country has its own set of problems and each situation is unique, but generally speaking, it’s time to start asking the hard questions about reserve adequacy.

    While EM sovereigns as a group may be in better shape now in terms of “original sin” (i.e borrowing heavily in foreign currencies) than they were during say, the Asian Currency Crisis,  the confluence of factors outlined above means no one is truly “safe” in the current environment as moving from liquidation back to accumulation will entail a sharp reversal in commodity prices and a pickup in the pace of global growth and trade. 

    For those curious to know which countries are running dangerously low relative to their liabilities and other important metrics, we present the following from JP Morgan. 

    *  *  *

    From JP Morgan

    A common metric to assess the adequacy of foreign exchange reserves is to look at external debt. Reserves of countries with a higher proportion of external liabilities in foreign currency are perceived to be more vulnerable, particularly if these liabilities have short-term maturity given rollover risks. Our colleagues in EM research highlighted that on aggregate the short term external debt profile looks manageable relative to FX reserves. Do some countries appear riskier than other?

    The IMF provides the split between domestic and foreign currency debt by maturity for most countries. Typically, the majority of external debt is denominated in foreign currency. Countries with proportionally high local currency external debt (more than 30%) include India, Czech Republic, Mexico, Poland, Thailand, and South Africa. In Figure 6, we look at reserves as a proportion of both short and long term external debt, in foreign currency where available. This proportion is high for short-term debt (i.e. more than 100%) in Argentina and Turkey. Countries that appear vulnerable on total external debt including long term debt are Argentina, Turkey, Hungary, Indonesia, Poland, Mexico, South Africa, and Brazil.

    The IMF proposed a framework (IMF, Assessing Reserve Adequacy, Apr 2015) to compare FX reserve adequacy across countries. In addition to short-term external debt, to capture short term refinancing needs, they augment their metric with exports, to reflect potential losses from drop in external demand or a terms of trade shock, broad money supply, to capture the risk of deposit flight, i.e. dollarization of deposits, and portfolio and other bank-related liabilities to capture the risk of capital outflows by foreign investors. We can see this reserve adequacy ratio in Figure 7, which presents the ratio of reserves to a weighted average of short-term debt, export income, broad money supply and certain foreign liabilities. Reserves in the range of 100-150 percent of the composite metric are considered broadly adequate for precautionary purposes. On their measure, countries that appear below the recommended band are Malaysia, South Africa and Turkey. 

    Where is dollarization of deposits a problem? As mention above the reason the IMF included broad money supply in its FX reserve adequacy metric is to capture the risk that deposits are converted into foreign currency. This is because previous EM capital account crises had been accompanied by “dollarization of deposits”. We look at the proportion of foreign currency deposits to broad money supply or M2 to see where dollarization of deposits is most extensive (with the caveat that some of these countries’ impose restrictions on foreign currency deposits). The countries that appear to hold a high proportion of foreign currency deposits relative to M2 are Turkey, Philippines, Indonesia and Taiwan. The biggest change in this ratio since last year has been in Turkey, Hungary, Malaysia, Indonesia, and Philippines (Figure 8). It is thus these countries that have been facing most intense “dollarization of deposits” currently (with the caveat that we only have data for Brazil and South Africa up until Q2). 

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