- A Ratio Worth Respecting
From the Slope of Hope: Two months ago, I did a piece called A Fascinating Ratio, which suggested that a major reversal was coming once the ratio reached about 2.0. At the time I did the post in mid-May, the ratio was a little under 1.8, but thanks to the unflagging strength of equities, as well as the unwavering suckiness of precious metals, this ratio is up to 1.95. We’re getting very, very close to what I think will be a major pivot point, and perhaps the pairs trade opportunity of the decade:
What’s interesting is that the last major inflection point wasn’t precisely before the financial crisis took hold, as you might suspect. It was precisely a decade ago, in mid-2005. Back then, gold was dirt cheap, and as we know now, equities still had more than two years to go flying higher.Looking at the individual components, it’s obvious that gold has been a piece of trash for almost four solid years now, but we might be reaching an important support point, which is at about 107.50 defined by GLD, shown below:
At the same time, the S&P 500 ETF, symbol SPY, has already fractured its long-term ascending trendline. This violation, which took place on June 29, is something I don’t take lightly. In my experience, once a financial instrument starts “chipping away” at a trendline, its days are numbered.
In sum, the closer we get to a 2:1 relationship between SPY and GLD, the more powerful an opportunity is made available to go short the S&P and go long gold. Believe me, I realize what garbage gold looks like right now, and how powerful equities (think NFLX, GOOGL, AMZN, EBAY, etc.) appear to be. In spite of this, this contrarian play could be one of the most potent and profitable strategies in years.
- Does This Chart Look Bullish To You?
As Nasdaq soars to record-er highs and CNBC just can’t hold themselves back when Google adds as much in one day as the market cap of 415 S&P 500 companies, we have one question… should breadth look like this when the index is hitting new highs?
The troops aren’t following the generals…Now whwre have we seen this before?
h/t @HumbleStudent
Charts: Bloomberg
- The Bankruptcy Of The Planet Accelerates – 24 Nations Are Currently Facing A Debt Crisis
Submitted by Michael Snyder via The Economic Collapse blog,
There has been so much attention on Greece in recent weeks, but the truth is that Greece represents only a very tiny fraction of an unprecedented global debt bomb which threatens to explode at any moment. As you are about to see, there are 24 nations that are currently facing a full-blown debt crisis, and there are 14 more that are rapidly heading toward one. Right now, the debt to GDP ratio for the entire planet is up to an all-time record high of 286 percent, and globally there is approximately 200 TRILLION dollars of debt on the books. That breaks down to about $28,000 of debt for every man, woman and child on the entire planet. And since close to half of the population of the world lives on less than 10 dollars a day, there is no way that all of this debt can ever be repaid. The only “solution” under our current system is to kick the can down the road for as long as we can until this colossal debt pyramid finally collapses in upon itself.
As we are seeing in Greece, you can eventually accumulate so much debt that there is literally no way out. The other European nations are attempting to find a way to give Greece a third bailout, but that is like paying one credit card with another credit card because virtually everyone in Europe is absolutely drowning in debt.
Even if some “permanent solution” could be crafted for Greece, that would only solve a very small fraction of the overall problem that we are facing. The nations of the world have never been in this much debt before, and it gets worse with each passing day.
According to a new report from the Jubilee Debt Campaign, there are currently 24 countries in the world that are facing a full-blown debt crisis…
- Armenia
- Belize
- Costa Rica
- Croatia
- Cyprus
- Dominican Republic
- El Salvador
- The Gambia
- Greece
- Grenada
- Ireland
- Jamaica
- Lebanon
- Macedonia
- Marshall Islands
- Montenegro
- Portugal
- Spain
- Sri Lanka
- St Vincent and the Grenadines
- Tunisia
- Ukraine
- Sudan
- Zimbabwe
And there are another 14 nations that are right on the verge of one…
- Bhutan
- Cape Verde
- Dominica
- Ethiopia
- Ghana
- Laos
- Mauritania
- Mongolia
- Mozambique
- Samoa
- Sao Tome e Principe
- Senegal
- Tanzania
- Uganda
So what should be done about this?
Should we have the “wealthy” countries bail all of them out?
Well, the truth is that the “wealthy” countries are some of the biggest debt offenders of all. Just consider the United States. Our national debt has more than doubled since 2007, and at this point it has gotten so large that it is mathematically impossible to pay it off.
Europe is in similar shape. Members of the eurozone are trying to cobble together a “bailout package” for Greece, but the truth is that most of them will soon need bailouts too…
All of those countries will come knocking asking for help at some point. The fact is that their Debt to GDP levels have soared since the EU nearly collapsed in 2012.
Spain’s Debt to GDP has risen from 69% to 98%. Italy’s Debt to GDP has risen from 116% to 132%. France’s has risen from 85% to 95%.
In addition to Spain, Italy and France, let us not forget Belgium (106 percent debt to GDP), Ireland (109 debt to GDP) and Portugal (130 debt to GDP).
Once all of these dominoes start falling, the consequences for our massively overleveraged global financial system will be absolutely catastrophic…
Spain has over $1.0 trillion in debt outstanding… and Italy has €2.6 trillion. These bonds are backstopping tens of trillions of Euros’ worth of derivatives trades. A haircut or debt forgiveness for them would trigger systemic failure in Europe.
EU banks as a whole are leveraged at 26-to-1. At these leverage levels, even a 4% drop in asset prices wipes out ALL of your capital. And any haircut of Greek, Spanish, Italian and French debt would be a lot more than 4%.
Things in Asia look quite ominous as well.
According to Bloomberg, debt levels in China have risen to levels never recorded before…
While China’s economic expansion beat analysts’ forecasts in the second quarter, the country’s debt levels increased at an even faster pace.
Outstanding loans for companies and households stood at a record 207 percent of gross domestic product at the end of June, up from 125 percent in 2008, data compiled by Bloomberg show.
And remember, that doesn’t even include government debt. When you throw all forms of debt into the mix, the overall debt to GDP number for China is rapidly approaching 300 percent.
In Japan, things are even worse. The government debt to GDP ratio in Japan is now up to an astounding 230 percent. That number has gotten so high that it is hard to believe that it could possibly be true. At some point an implosion is coming in Japan which is going to shock the world.
Of course the same thing could be said about the entire planet. Yes, national governments and central banks have been attempting to kick the can down the road for as long as possible, but everyone knows that this is not going to end well.
And when things do really start falling apart, it will be unlike anything that we have ever seen before. Just consider what Egon von Greyerz recently told King World News…
Eric, there are now more problem areas in the world, rather than stable situations. No major nation in the West can repay its debts. The same is true for Japan and most of the emerging markets. Europe is a failed experiment for socialism and deficit spending. China is a massive bubble, in terms of its stock markets, property markets and shadow banking system. Japan is also a basket case and the U.S. is the most indebted country in the world and has lived above its means for over 50 years.
So we will see twin $200 trillion debt and $1.5 quadrillion derivatives implosions. That will lead to the most historic wealth destruction ever in global stock, with bond and property markets declining at least 75 – 95 percent. World trade will also contract dramatically and we will see massive hardship across the globe.
So what do you think is coming, and how bad will things ultimately get once this global debt crisis finally spins totally out of control?
- An "Austrian" Economist's Advice For Greece & The EU
Submitted by Dr. Richard Ebeling via The Cobden Centre,
For months, now, the mass media and the financial markets have anxiously watched and waited to see the outcome of a war of words, accusations, and threats that have been fought between Greece and its Eurozone and European Union partners.
Over several decades Greek governments accumulated a fiscally unmanageable debt and have been unwilling to introduce any meaningful, long-term economic and budgetary reforms to get the country’s political-economic house in order.
Greece’s Euro and EU partners have warned that Greece may be formally or informally expelled from the common currency and, perhaps, from the economic union if the terms for a new series of loans based on domestic Greek reforms and some debt restructuring cannot be agreed upon.
However, in the whirlwind of often sensational and uncertain daily new events, it is sometimes useful and even necessary to step back and try to take a look at the wider context of things in which those current events are occurring.
Greek and European Union Crisis is the Result of Collectivism
The fiscal and other economic policy problems that are plaguing Greece are simply the highly magnified and intensified problems that are affecting many of the other European nations
Many of them have accumulated large national debts that press upon the fiscal capacities of their taxpayers. They all have highly regulated markets and restricted labor markets. They all have aging populations expecting generous government-funded pensions as the years go by. They all have costly welfare state “entitlement” programs that must be financed through taxes and deficit financing.
They also share a generally anti-capitalistic mentality. Intellectuals, politicians, many in the electorates, and most certainly the national and EU bureaucrats neither understand nor advocate the classical liberal ideal of truly free markets or the wider political philosophy of individualism and individual rights to life, liberty, and honestly acquired property.
The market-oriented entrepreneur is neither trusted nor valued. Rather than seen as an innovator and creator of new, better, and less expensive products serving the betterment of the general consuming public, the business enterpriser is considered an exploiter, a manipulator and “selfish” profit-seeker only doing damage to the society in which he operates.
The free enterpriser must be either heavily controlled or regulated, or he must be put out of business. The only good businessman is the one who works hand-in-hand with politicians and bureaucrats to manipulate and restrict markets for their mutual advantages.
The fact is that whether it is the EU political leadership and bureaucrats in Brussels or the local politicians and bureaucrats in the respective national capitals of the member countries, they all reflect one general political-economic set of policies: those of the interventionist-welfare state with its regulation of markets, its redistributive policies, and its use of state power to benefit some at the expensive of others through favors and privileges of one type or another.
Greece’s version of these problems and policies are in its essentials no different from those in the other Eurozone and European Union member states. Only the degree to which they have all come together in the current crisis has magnified the seriousness and consequences for all to see when such policies are carried far enough.
What, then, are the European Union and its member states such as Greece to do to start escaping from the current crisis and other similar crises in the future?
Ludwig von Mises’ Analysis of Europe’s Dilemma – Seventy Years Ago
Over seventy years ago, while Europe was being destroyed in the carnage of the Second World War, the famous Austrian economist, Ludwig von Mises, wrote a series of essays on how the European nations might recover from the ravages of totalitarianism and total war through which they were living.
Ludwig von Mises (1881-1973) was one of the most well-known free market economists of the twentieth century. Internationally renowned for his demonstration of the unworkability of socialist central planning and the inherent contradictions of interventionist-welfare state, as well as his development of the “Austrian” theory of money and the business cycle, Mises worked in the years between the two World Wars as a senior economic policy analyst for the Vienna Chamber of Commerce in his native Austria. In this role he witnessed and analyzed the growth of government power and control across Europe, as well as in his own country, in the 1920s and 1930s.
Mises explained how Europe’s financial and economic policy problems were the culmination of traveling down the collectivist road of government regulation, control and planning:
“For two generations now the policy of the European nations has been based on nothing else than preventing and eliminating the function of the market as the regulator of production. By duties and trade-policy measures of other sorts, by legal requirements and prohibitions, by the subsidization of uncompetitive enterprises, by the suppression or throttling of business that offers unwelcomed competition to the spoiled children of the political regime through the regulation of prices, interest rates and wages, the attempt is made to force production into paths which it otherwise would not have taken . . .
“The result of these policies is the severe economic crisis under which we suffer today. The crisis had its starting point in mistaken economic policy, and it will not end until it is recognized that the task of governments is to create the necessary preconditions for the prosperous operation of the economy, and not squandering more on foolish expenditures than the industry of the population is able to provide.”
The Politicized Economy of Power, Privilege and Connections
Mises also understood the political and economic corruption to which such a strangling system of government interventionism leads. He explained it with great cogency in the waning year of the Weimar Republic in Germany a few months before Adolf Hitler and his Nazi Party came to power in January of 1933.
In an essay on “The Myth of the Failure of Capitalism” (1932), Mises described the essence of the politicized economy that replaces a free market-oriented economy in an increasingly interventionist system:
“In the interventionist state it is no longer of crucial importance for the success of an enterprise that the business should be managed in a way that it satisfies the demands of consumers in the best and least costly manner.
“It is far more important that one has ‘good relationships’ with the political authorities so that the interventions work to the advantage and not the disadvantage of the enterprise. A few marks’ more tariff protection for the products of the enterprise and a few marks’ less tariff for the raw materials used in the manufacturing process can be of far more benefit to the enterprise than the greatest care in managing the business.
“No matter how well an enterprise may be managed, it will fail if it does not know how to protect its interests in the drawing up of the custom rates, in the negotiations before the arbitration boards, and with the cartel authorities. To have ‘connections’ becomes more important that to produce well and cheaply.
“So the leadership positions within the enterprise are no longer achieved by men who understand how to organize companies and to direct production in the way the market situation demands, but by men who are well thought of ‘above’ and ‘below,’ men who understand how to get along well with the press and all the political parties, especially with the radicals, so that they and their company give no offense. It is that class of general directors that negotiate far more often with state functionaries and party leaders than with those from whom they buy or to whom they sell.
“Since it is a question of obtaining political favors for these enterprises, their directors must repay the politicians with favors. In recent years, there have been relatively few large enterprises that have not had to spend very considerable sums for various undertakings in spite of it being clear from the start that they would yield no profit. But in spite of the expected loss it had to be done for political reasons. Let us not even mention contributions for purposes unrelated to business – for campaign funds, public welfare organizations, and the like.
“Forces are becoming more and more generally accepted that aim at making the direction of large banks, industrial concerns, and stock corporations independent of the shareholders . . . The directors of large enterprises nowadays no longer think they need to give consideration to the interests of the shareholders, since they feel themselves thoroughly supported by the state and that they have interventionist public opinion behind them.
“In those countries in which statism has most fully gained control . . . they manage the affairs of their corporations with about as little concern for the firm’s profitability as do the directors of public enterprises. The result is ruin.
“The theory that has been cobbled together says that these enterprises are too big to allow them to be managed simply in terms of their profitability. This is an extraordinarily convenient idea, considering that renouncing profitability in the management of the company leads to the enterprises insolvency. It is fortunate for those involved that the same theory then demands state intervention and support for those enterprises that are viewed as being too big to be allowed to go under . . .
“The crisis from which the world is suffering today is the crisis of interventionism and of national and municipal socialism; in short, it is the crisis of anti-capitalist policies.”
In Mises’ description, we find all the elements of what plagues the modern Western economies, including the United States. The politicizing of market decisions and outcomes with government support for those financial institutions and corporate enterprises defined as “good big to fail.” The pervasiveness of “crony capitalism,” with “connections” and government-business partnerships that serve the political class and anti-market business groups at the expense of consumers and those who wish to freely compete on a more open market. And the use of taxpayers’ dollars to feed the network of those receiving the favors, privileges, protections, and subsidies that government has the power to hand out in various and sundry ways.
A New Politics and Economics of Freedom for Prosperity
In 1940, Ludwig von Mises came to the United States as an exile from the tyrannies covering the map of Europe under the onslaught of the early Nazi conquests. From this new platform, Mises proceeded to write a series of papers and monographs during the war years outlining the changes that would have to be implemented to restore Europe’s freedom and prosperity.
(Most of these essays and monographs are published in, Richard M. Ebeling, ed., Selected Writings of Ludwig von Mises: Vol. 3: The Political Economy of International Reform and Reconstruction[Liberty Fund, 2000]).
To reverse this trend towards and consequences from political and economic collectivism, Mises argued that it was necessary to bring about a reawakened understanding of the principles of free market capitalism and classical liberalism And what needed to be implemented were economic policies consistent with those principles to create the institutional foundation for free men to interact for mutual benefit and material improvement.
The most fundamental changes to establish the foundations for the political and economic revival of Europe, Mises said, involved the mentality of the people. The first of these changes in thinking, he said, required no longer focusing primarily upon the short-run gains from various economic policies. Indeed, the economic calamities of the 1930s and the war through which Europe was then passing represented the fruits of a political economy of the short run. “Of course, there are pseudo-economists preaching the gospel of short-run policies,” Mises admitted. “‘In the long-run we are all dead,’ says Lord Keynes. But it all depends upon how long the short run will last.” And in Mises’ view, “Europe has now entered the stage in which it is experiencing the long-run consequences of its short-run policies.”
Practical politics in the earlier decades of the twentieth century had been geared to providing immediate benefits to various groups that could be satisfied only by undermining the long-run prospects and prosperity of society. In the new postwar period, Mises said, taxes could no longer be confiscatory. International debts could no longer be repudiated or diluted through currency controls or manipulations of exchange rates. Foreign investors could no longer be viewed as victims to be violated or plundered through regulations or nationalization of their property.
The countries of Europe needed to design economic policies with a long-run?perspective in mind. European recovery would require capital, and this would mean attracting foreign capital investment to assist in the process. Foreign private sector investors – especially American investors – would be reluctant unless they had the surety that there would be a protected and respected system of property rights, strict enforcement of market contracts for domestic and foreign businessmen, low and predictable taxes, reduced and limited government expenditures, balanced budgets, and a non-inflationary monetary environment.
These were the institutional preconditions for the economic reconstruction of Europe, Mises argued. Once these general changes had been made, governments would have done all in their power to establish the general political environment that would be most conducive to fostering the incentives and opportunities for the people of Europe to start the recovery and rebirth of their own countries.
The entrepreneurs, however, were the ones who were most despised and plundered by governments in that interwar epoch of interventionism and economic nationalism (many of whom ended up being killed by the Nazis during World War II due to the fact that in Central and especially Eastern Europe a large percentage of the entrepreneurs had been members of the Jewish community).
The lifeblood for European recovery had been lost, particularly in Eastern Europe. There would have to be a new respect and regard for these creative men of the market in order to foster the emergence of a new generation of such individuals. “If there is any hope for a new upswing it rests with the initiative of individuals,”Mises said. “The entrepreneurs will have to rebuild what the governments and the politicians have destroyed.”
The Need to End Special Interest Politics and Privileges
The second change needed in the European mentality, Mises said, was an end to special interest group politics. Governments throughout the interwar period had followed a “producer policy,” in which individual manufacturers, farmers, and workers in various niches in the system of division of labor formed coalitions to gain favors for themselves at the expense of others in the society.
At the behest of trade unions, governments intervened, supported, and subsidized policies that in the longer run resulted in restrictions in output, misdirections of capital, and restraints on labor markets. Such policies had to be abandoned because they work counter to the integrative role prices and competition were meant to play in assuring coordination of markets, and the incentives and ability for capital formation. Producer-oriented policies were better called “production-curtailing policies,” Mises said, since they serve to protect the less competent producers from the rivalry of the more competent. Europe could ill afford to indulge in favors for the less efficient and less productive if the ravages of war were to be overcome quickly.
Third, Europe needed to give up the redistributive welfare state. Mises stated emphatically that, ?it is the duty of honest economists to repeat again and again that, after the destruction and the waste of a period of war, nothing else can lead society back to prosperity than the old recipe – produce more and consume less.
Who would be left to be taxed in any “tax the rich and subsidize the poor” scheme in a setting in which war has made practically everyone a “have-not,” when the focus of economic policy should be to foster capital formation, not wealth redistribution? “There is no other recipe than this,” Mises declared. “Produce more and better, and save more and more.”
Unless these changes occurred in people’s thinking, Europe’s path to reform and reconstruction would be more difficult and protracted than it needed to be. Neither the war nor its destruction stood in the way of Europe’s future. Ideas would determine what lie ahead.“What ranks above all else for economic and political reconstruction is a radical change of ideologies,” Mises said. “Economic prosperity is not so much a material problem; it is, first of all, an intellectual, spiritual and moral problem.”
And this intellectual, spiritual and moral problem could only have its solution in a restoration of a political philosophy of individualism and the economic policies of free market, liberal capitalism, in the view of Ludwig von Mises.
Today’s Europe Still in the Grip of Collectivist Ideals and Policies
It is true that Europe, today, does not have to recover from a devastating war, with its costs in human lives and physical property, and its resulting dramatic consumption of capital.
But today’s Europe suffers from its own destructive economic policies that hamper businesses and the spirit of entrepreneurship; siphon off the life-blood of enterprise and capital formation through the heavy burdens of taxes and straightjacketing anti-competitive regulations; rigid labor markets and generous welfare states that reduce the adaptability to change and lowers the incentives for people to want to be gainfully employed in profitable enterprises; and growing national debts to feed the costs of these unsustainable systems that threaten other European countries with the same fiscal abyss that has been facing Greece.
Greece’s and the European Union’s economic and political crisis will not be resolved through a new debt deal between the government in Athens and the European authorities. It will be merely one more stop-gag “solution” to a problem whose nature is endemic to the current ideology and politics of State-Power and collectivism.
Its real solution requires something deeper and more comprehensive: a revival of the classical liberal ideal of individualism and the economics of free market capitalism. This, unfortunately, is not likely to occur any time soon.
- Blankfein Joins The Billionaire Bankers' Club
One thing that has become abundantly clear after seven years of global QE is that the trickle-down “wealth effect” is a myth.
At the macro level, lackluster global demand betrays the failure of central bank policy to engineer a robust recovery. At the micro level, the growing wealth divide is proof of what should have been self evident even to a PhD economist: policies explicitly designed to inflate the assets most likely to be held by the wealthy will likely serve to exacerbate the disparity been the haves and the have nots.
Of course, post-crisis monetary policy has not only served to restore the fortunes of wealthy individuals – it’s also been tremendously helpful in nursing the world’s largest financial institutions back to health after they were nearly destroyed by their own greed and malfeasance.
These two happy (if you understand how important it is to have assets) byproducts of post-crisis money printing coalesce into what is perhaps the greatest betrayal of the public trust in modern history when one looks at how things have turned out for the very people whose decisions brought about the collapse of the system and effectively sowed the seeds for the very policies which have since served to make them even richer than they were before the meltdown. In short, Wall Street executives have done quite well since 2009 as was made abundantly clear last month when Bloomberg reported that Jamie Dimon had become a billionaire.
Well, just a little over a month later we learn that yet another TBTF CEO has joined the billionaire banker club and honestly, we’re surprised it took this long because after all, when you’re the CEO of the blood-sucking cephalopod that holds the political and financial fate of the world in its tentacles, it seems only right that you would have been a billionaire long before any other banker on the Street. Whatever the case, Lloyd Blankfein is now a billionaire. Bloomberg has more:
Goldman Sachs Group Inc. made hundreds of partners rich when it went public in 1999. Its performance since then has turned Lloyd Blankfein into a billionaire.
The chief executive officer of the Wall Street bank for the past nine years, Blankfein has seen his net worth surge to about $1.1 billion as the firm’s shares quadrupled since the initial public offering, according to the Bloomberg Billionaires Index. As the largest individual owner of Goldman Sachs stock, he has a stake in the company worth almost $500 million. Real estate and an investment portfolio seeded by cash bonuses and distributions from the bank’s private-equity funds add more than $600 million.
Blankfein, 60, was co-head of fixed-income trading when Goldman Sachs had its IPO, an event that created enormous wealth for executives. Partners in the firm received stock valued at an average of $63.6 million at the time of the sale. Henry Paulson, the bank’s CEO before and after the IPO, had almost $600 million of stock and options when he left to become U.S. Treasury Secretary in 2006, a move that allowed him to sell his stake without paying taxes.
Shares in the firm have climbed 298 percent since the IPO, compared with a 6 percent drop in the Standard & Poor’s 500 Financials Index. The stock has doubled in the past three years, reaching its highest level since 2007.
And frankly, that’s pretty much all you need to know. The Bloomberg article has more on Blankfein’s homes, background, and charity work, but the bottom line is that it pays (literally) to have friends (and former colleagues) in high government and regulatory places and if you’re still having trouble understanding how it’s possible that the same people who Plaxico’d themselves in 2008 and plunged the world into the worst recession since 1930 could possibly be allowed to not only remain out of jail but accumulate obscene fortunes on the back of the humble taxpayer well, “that’s why [Lloyd Blankfein] is richer than you.”
- Donald Trump The Demagogue
Submitted by Mike Krieger via Liberty Blitzkrieg blog,
It’s not too interesting to say that Donald Trump is a nationalist and aspiring despot who is manipulating bourgeois resentment, nativism, and ignorance to feed his power lust. It’s uninteresting because it is obviously true. It’s so true that stating it sounds more like an observation than a criticism.
Lovers of freedom need to confront the views of a man with views like this. What’s more, of all the speeches I heard at FreedomFest, I learned more from this one than any other. I heard, for the first time in my life, what a modern iteration of a consistently statist but non-leftist outlook on politics sounds and feels like in our own time.
What’s distinct about Trumpism, and the tradition of thought it represents, is that it is non-leftist in its cultural and political outlook and yet still totalitarian in the sense that it seeks total control of society and economy and places no limits on state power. The left has long waged war on bourgeois institutions like family, church, and property. In contrast, right fascism has made its peace with all three. It (very wisely) seeks political strategies that call on the organic matter of the social structure and inspire masses of people to rally around the nation as a personified ideal in history, under the leadership of a great and highly accomplished man.
Trump believes himself to be that man.
– From Jeffrey Tucker’s absolutely brilliant, must read, Trumpism: The Ideology
The Huffington Post caused a bit of a media storm earlier today with its announcement that it would be covering Trump’s presidential campaign in the entertainment section. Here’s the announcement:
After watching and listening to Donald Trump since he announced his candidacy for president, we have decided we won’t report on Trump’s campaign as part of The Huffington Post’s political coverage. Instead, we will cover his campaign as part of our Entertainment section. Our reason is simple: Trump’s campaign is a sideshow. We won’t take the bait. If you are interested in what The Donald has to say, you’ll find it next to our stories on the Kardashians and The Bachelorette.
Unfortunately, I have to disagree with this assessment. Trump may be a “joke” to people who see right through what he’s doing, but he’s no joke to his growing number of supporters. The Huffington Post would do far more good covering him religiously, while discrediting him every step of the way. Mocking him will only reflexively boost his support amongst an increasingly desperate and confused citizenry. As much as I wish he were a joke, he’s not. In fact, he’s very real and very dangerous.
Fortunately, Jeffrey Tucker at Liberty.me has penned a piece on Trump that is at the same time brilliant, incisive and necessary. He wrote the article on Trump I wish I had. If we are to ultimately choose liberty as opposed to Trump’s American brand of right-of-center statism, we much expose him for what he is in the context of history. Mocking him, ignoring him and hoping he just goes away silently into the night will not be enough.
Now here are some excerpts from Mr. Tucker’s excellent article: Trumpism: The Ideology
It’s not too interesting to say that Donald Trump is a nationalist and aspiring despot who is manipulating bourgeois resentment, nativism, and ignorance to feed his power lust. It’s uninteresting because it is obviously true. It’s so true that stating it sounds more like an observation than a criticism.
I just heard Trump speak live. It was an awesome experience, like an interwar séance of once-powerful dictators who inspired multitudes, drove countries into the ground, and died grim deaths.
The ideology is a 21st century version of right fascism — one of the most politically successful ideological strains of 20th century politics. Though hardly anyone talks about it today, we really should. It is still real. It exists. It is distinct. It is not going away. Trump has tapped into it, absorbing unto his own political ambitions every conceivable bourgeois resentment: race, class, sex, religion, economic. You would have to be hopelessly ignorant of modern history not to see the outlines and where they end up.
For now, Trump seems more like comedy than reality. I want to laugh about what he said, like reading a comic-book version of Franco, Mussolini, or Hitler. And truly I did laugh, as when he denounced the existence of tech support in India that serves American companies (“how can it be cheaper to call people there than here?” — as if he still thinks that long-distance charges apply).
Let’s hope this laughter doesn’t turn to tears.
Lovers of freedom need to confront the views of a man with views like this. What’s more, of all the speeches I heard at FreedomFest, I learned more from this one than any other. I heard, for the first time in my life, what a modern iteration of a consistently statist but non-leftist outlook on politics sounds and feels like in our own time. And I watched as most of the audience undulated between delight and disgust — with perhaps only 10% actually cheering his descent into vituperative anti-intellectualism. That was gratifying.
As of this writing, Trump is leading in the polls in the Republican field. He is hated by the media, which is a plus for the hoi polloi in the GOP. He says things he should not, which is also a plus for his supporters. He is brilliant at making belligerent noises rather than having worked out policy plans. He knows that real people don’t care about the details; they only want a strongman who shares their values. He makes fun of the intellectuals, of course, as all populists must do. Along with this penchant, Trump encourages a kind of nihilistic throwing out of rationality in favor of a trust in his own genius. And people respond, as we can see.
So, what does Trump actually believe? He does have a philosophy, though it takes a bit of insight and historical understanding to discern it. Of course race baiting is essential to the ideology, and there was plenty of that. When a Hispanic man asked a question, Trump interrupted him and asked if he had been sent by the Mexican government. He took it a step further, dividing blacks from Hispanics by inviting a black man to the microphone to tell how his own son was killed by an illegal immigrant.
Trump also tosses little bones to the Christian Right, enough to allow them to believe that he represents their interests. Yes, it’s implausible and hilarious. But the crowd who looks for this is easily won with winks and nudges, and those he did give. At the speech I heard, he railed against ISIS and its war against Christians, pointing out further than he is a Presbyterian and thus personally affected every time ISIS beheads a Christian. This entire section of his speech was structured to rally the nationalist Christian strain that was the bulwark of support for the last four Republican presidents.
But as much as racialist and religious resentment is part of his rhetorical apparatus, it is not his core. His core is about business, his own business and his acumen thereof. He is living proof that being a successful capitalist is no predictor of one’s appreciation for an actual free market (stealing not trading is more his style). It only implies a love of money and a longing for the power that comes with it. Trump has both.
In effect, he believes that he is running to be the CEO of the country — not just of the government (as Ross Perot once believed) but of the entire country. In this capacity, he believes that he will make deals with other countries that cause the U.S. to come out on top, whatever that could mean. He conjures up visions of himself or one of his associates sitting across the table from some Indian or Chinese leader and making wild demands that they will buy such and such amount of product else “we” won’t buy their product.
Yes, it’s bizarre. As Nick Gillespie said, he has a tenuous grasp on reality. Trade theory from hundreds of years plays no role in his thinking at all. To him, America is a homogenous unit, no different from his own business enterprise. With his run for president, he is really making a takeover bid, not just for another company to own but for an entire country to manage from the top down, under his proven and brilliant record of business negotiation, acquisition, and management.
What’s distinct about Trumpism, and the tradition of thought it represents, is that it is non-leftist in its cultural and political outlook and yet still totalitarian in the sense that it seeks total control of society and economy and places no limits on state power. The left has long waged war on bourgeois institutions like family, church, and property. In contrast, right fascism has made its peace with all three. It (very wisely) seeks political strategies that call on the organic matter of the social structure and inspire masses of people to rally around the nation as a personified ideal in history, under the leadership of a great and highly accomplished man.
Trump believes himself to be that man.
He sounds fresh, exciting, even thrilling, like a man with a plan and a complete disregard for the existing establishment and all its weakness and corruption. This is how strongmen take over countries. They say some true things, boldly, and conjure up visions of national greatness under their leadership. They’ve got the flags, the music, the hype, the hysteria, the resources, and they work to extract that thing in many people that seeks heroes and momentous struggles in which they can prove their greatness.
This is a dark history and I seriously doubt that Trump himself is aware of it. Instead, he just makes it up as he goes along, speaking from his gut. This penchant has always served him well. It cannot serve a whole nation well. Indeed, the very prospect is terrifying, and not just for the immigrant groups and imports he has chosen to scapegoat for all the country’s problems. It’s a disaster in waiting for everyone.
The main reason I chose to start this blog in the first place, was rooted in my deep fear of what might emerge after the current paradigm collapses. I have no doubt something very different is coming, I just desperately want that thing to be freedom, free markets and prosperity as opposed to the disaster that a $2 despot like Trump would bring. His ascension in the polls is very troubling, and makes me wonder whether the public will ultimately choose to rally behind some statist-demagogue wrapped in an American flag when things get bad enough, as opposed to something far more difficult: Liberty. I fear they may eventually choose someone like Donald Trump.
- Greece Is Now A Full-Blown Humanitarian Crisis – In 9 Charts
The people of Greece are facing further years of economic hardship following a Eurozone agreement over the terms of a third bailout. The deal included more tax rises and spending cuts, despite the Syriza government coming to power promising to end what it described as the "humiliation and pain" of austerity. With the country having already endured years of economic contraction since the global downturn, The BBC asks, just how does Greece's ordeal compare with other recessions and how have the lives of the country's people been affected?
The long recession
It is now generally agreed that Greece has experienced an economic crisis on the scale of the US Great Depression of the 1930s.
According to the Greek government's own figures, the economy first contracted in the final quarter of 2008 and – apart from some weak growth in 2014 – has been shrinking ever since. The recession has cut the size of the Greek economy by around a quarter, the largest contraction of an advanced economy since the 1950s.
Although the Greek recession has not been quite as deep as the Great Depression from peak to trough, it has gone on longer and many observers now believe Greek GDP will drop further in 2015.
Dwindling jobs
Jobs are increasingly difficult to come by in Greece – especially for the young. While a quarter of the population are out of work, youth unemployment is running much higher.
Half of those under 25 are out of work. In some regions of western Greece, the youth unemployment rate is well above 60%.
To make matters worse, long-term unemployment is at particularly high levels in Greece.
Being out of work for significant periods of time has severe consequences, according to a report by the European Parliament. The longer a person is unemployed, the less employable they become. Re-entering the workforce also becomes more difficult and more expensive.
Young people have been particularly affected by long-term unemployment: one out of three has been jobless for more than a year.
After two years out of work, the unemployed also lose their health insurance.
This persistent unemployment also means pension funds receive fewer contributions from the working population. As more Greeks are without jobs, more pensioners are having to sustain families on a reduced income.
According to the latest figures from the Greek government, 45% of pensioners receive monthly payments below the poverty line of €665.
Plummeting income
The Greek people are also facing dropping wages.
In the five years from 2008 to 2013, Greeks became on average 40% poorer, according to data from the country's statistical agency analysed by Reuters. As well as job losses and wage cuts, the decline can also be explained by steep cuts in workers' compensation and social benefits.
In 2014, disposable household income in Greece sunk to below 2003 levels.
Rising poverty
Like during all recessions, the poor and vulnerable have been hardest hit.
One in five Greeks are experiencing severe material deprivation, a figure that has nearly doubled since 2008.
Almost four million people living in Greece, more than a third of the country's total population, were classed as being 'at risk of poverty or social exclusion' in 2014.
According to Dr Panos Tsakloglou, economist and professor at the Athens University of Economics and Business, the crisis has exposed Greece's lack of social safety nets.
"The welfare state in Greece has historically been very weak, driven primarily by clientelistic calculations rather than an assessment of needs. In the past this was not really urgent because there were rarely any particularly explosive social conditions. The family was substituting the welfare state," he told the BBC.
Typically, if a young person lost his or her job or could not find a job after graduating, they would receive support from the family until their situation improved.
But as more and more people have become jobless and with pensions slashed as part of the austerity imposed on Greece from its creditors, ordinary Greeks are feeling the impact.
"This has led to many more unemployed people falling into poverty much faster," Dr Tsakloglou said.
Cuts to essential services
Healthcare is one of the public services that has been hit hardest by the crisis. An estimated 800,000 Greeks are without medical access due to a lack of insurance or poverty.
A 2014 report in the Lancet medical journal highlighted the devastating social and health consequences of the financial crisis and resulting austerity on the country's population.
At a time of heightened demand, the report said, "the scale and speed of imposed change have constrained the capacity of the public health system to respond to the needs of the population".
While a number of social initiatives and volunteer-led health clinics have emerged to ease the burden, many drug prevention and treatment centres and psychiatric clinics have been forced to close due to budget cuts.
HIV infections among injecting drug users rose from 15 in 2009 to 484 people in 2012.
Mental wellbeing
The crisis also appears to have taken its toll on people's wellbeing.
Figures suggest that the prevalence of major depression almost trebled from 3% to 8% of the population in the three years to 2011, during the onset of the crisis.
While starting from a low initial figure, the suicide rate rose by 35% in Greece between 2010 and 2012, according to a study published in the British Medical Journal.
Researchers concluded that suicides among those of working age coincided with austerity measures.
Greece's public and non-profit mental health service providers have been forced to scale back operations, shut down, or reduce staff, while plans for development of child psychiatric services have been abandoned.
Funding for mental health decreased by 20% between 2010 and 2011, and by a further 55% the following year.
The brain drain
Faced with the prospect of dwindling incomes or unemployment, many Greeks have been forced to look for work elsewhere. In the last five years, Greece's population has declined, falling by about 400,000.
A 2013 study found that more than 120,000 professionals, including doctors, engineers and scientists, had left Greece since the start of the crisis in 2010.
A more recent European University Institute survey found that of those who emigrated, nine in 10 hold a university degree and more than 60% of those have a master's degree, while 11% hold a PhD.
Foteini Ploumbi was in her early thirties when she lost her job as a warehouse supervisor in Athens after the owner could no longer afford to pay his staff.
After a year looking for a new job in Greece, she moved to the UK in 2013 and immediately found work as a business analyst in London.
"I had no choice but leave if I wanted to work, I had no prospect of employment in Greece. I would love to go back, my whole life is back there. But logic stops me from returning at the moment," she said.
"In the UK, I can get by – I can't even do that in Greece."
- When It Comes To Total Debt, Greece Is Not That Much Worse Than France (Or The USA)
Now that even the IMF has admitted Greece has an unsustainable debt problem with a debt-to-GDP ratio which will soon cross 200% after its third bailout (even if it leaves open the question what the IMF thinks about Japan’s debt “sustainability”) we wonder what the IMF thinks when looking at Greece’s net government liabilities, which as SocGen’s Albert Edwards reminds us are rapidly approaching 1000%.
Which incidentally means that Greece is only marginally better than the USA, whose comparable net liability is a little over 500%, while its other nearest comparable is none other than France, whose next president may will be “Madame Frexit” and whose biggest headache will be how to resolve government promises to creditors and retirees that are five times greater than the country’s GDP.
Still, surely those “in control” are fully aware of all this, and are taking measures to contain it once the Greek debt fiasco spills over beyond Greek borders and returns to the European periphery or, worse, slips into the most unstable core nation of all: France.
Here are Albert Edwards thoughts on how this particular crisis would play out, considering it was none other than France that did not push for a bigger debt haircut for Greece:
I was not in any way surprised that Germany was able to gather a huge number of allies to its camp, with its traditional fiscally conservatively minded allies such as Finland, Holland and Austria, as well as many central European governments. I was not even surprised that other countries previously crushed by austerity, Spain, Ireland etc., were firmly in the Germany camp too. But I was really surprised that French authorities did not stand up to say what was happening was unacceptable, unsustainable, and indeed unfair, and that they would have no part of it.
France instead facilitated a resolution of the impasse, acting as ‘good cop’ to Germany’s ‘bad cop’ routine and helping the Greeks to draft their proposals. The Wall Street Journal quotes one German official “The French smoothed the way so that the Greeks could walk, and then we pushed a bit.” Many critics of the deal would instead say the Greeks have indeed been walked to the edge – the edge of a cliff – and then pushed a bit.
The reason why I am surprised that France went along with this extreme and humiliating austerity programme – and the effective removal of sovereignty forced on Greece – is simply its own self-interest, for France could itself end up in the firing line. The problem France will surely find further down the road is that its own debt dynamics and sustainability is also highly questionable. Estimates we have used before with calculations for the present value of unfunded liabilities (as a % of GDP) show that actually it is not Spain or Italy that have the worst long-term debt sustainability issues; it is the US and France, and then next in line, surprisingly, Germany (see chart below).
Although on a much smaller scale to the problems faced by Greece, unfunded government liabilities elsewhere are still a genuine problem. We are not talking here about the on-balance sheet government debt to income ratios – although on that basis Italy’s situation looks dire. But dire though Italy’s situation is, once you add in the off-balance sheet liabilities, which are only now coming onto the balance sheet as populations rapidly age, it is even worse for the US, France, Germany and the UK, in that order.
A combination of inflation, defaulting on pension and medical promises, and severe fiscal retrenchment is the likely response. But, for the US and the UK, we have had a glimpse of where this will end – QE, devaluation and the printing press. Within the eurozone, the vision of austerity as a remedy to fiscal excess, as shown in the Greek settlement, shows that austerity and ‘reform’ will be the likely route imposed from above. Germany has huge overseas assets accumulated via persistently large current account surpluses to call on to pay its unfunded bills. Germany had net overseas assets of around 50% of GDP last time I looked, whereas France does not have this huge well of assets, and indeed is a net debtor by around 20% of GDP. Hence it was France’s own perilous fiscal situation that left me most surprised that they did not make a strong stand that the Greek ‘agreement’ was wholly unacceptable.
We disagree, and find it far less surprising: ultimately Hollande’s sole focus was to preserve near-term stability (and his job) at any cost, if only until the 2017 French elections, which he is guaranteed to lose. Even if the French fiscal and solvency situation deteriorates dramatically over the next two years (and it will because as we showed in June, France has now had 80 consecutive months of record unemployment as a result of yet another socialist economic failure), by the time the world wakes up it will be someone else’s problem, most likely that of Marine Le Pen, at which point the only way to resolve the French “problem” will by through the printing of French Francs (something Greece will likely have been doing for a while using its own currency the Drachma following its own inevitable exit from the European monetary prison).
Because one look at the chart above and everything should be clear: there may be stability now, but once the current generation of workers retires and realizes its entitlements and retirement benefits were a big fat lie, it will have two choices: violence or printing. We tend to think it will choose the latter.
- Martin Armstrong: "Those In Power Will Risk War And Civil Unrest To Preserve It"
Submitted by Martin Armstrong via ArmstrongEconomics.com,
Nigel Farage may be the only practical politician these days because he came from the trading sector. He explains the Euro-Project and its failures. He makes it clear that the Greek people never voted to enter the euro, and explains that it was forced upon them by Goldman Sachs and their politicians.
Nigel also explains that the Euro project idea that a trade and economic union would then magically produce a political union – the United States of Europe and eliminate war.
He has warned that the idea of a political union would end European wars has actually filled Europe with rising resentment in where there is now a new Berlin Wall emerging between Northern and Southern Europe.
The Euro project was a delusional dream for it was never designed to succeed but to cut corners all in hope of creating the United States of Europe to challenge the USA and dethrone the dollar.
That dream has turned into a nightmare and will never raise Europe to that lofty goal of the financial capitol of the world.
The IMF acts as a member of the Troika, yet has no elected position whatsoever. The second unelected member is Mario Draghi of the ECB. Then the head of Europe is also unelected by the people.
The entire government design is totally un-Democratic and therein lies the crisis. Not a single member of the Troika ever needs to worry about polls since they do not have to worry about elections.
This is authoritarian government if we have ever seen one.
The ECB attempts by sheer force to manipulate the economy with zero chance of success employing negative interest rates and defending banks as the (former?) Goldman Sachs man Mario Draghi dictates.
Now, far too many political jobs have been created in Brussels.
This is no longer about what is best for Europe, it is what is necessary to retain government jobs.
The Invisible Hand of Adam Smith works even in this instance – those in power are only interested in their self-interest and will risk war and civil unrest to maintain their failed dreams of power.
- China Dumps Record $143 Billion In US Treasurys In Three Months Via Belgium
When the latest Treasury International Capital data was released yesterday, many were quick to conclude that not only had China’s selling of US Treasury ceased, but that with the addition of $7 billion in US government paper, China’s latest total holdings of $1270.3 billion were the highest since May of 2014. And if one was merely looking at the “China” line item in the major foreign holders table, that would be correct.
However, as we have shown before, when looking at China’s Treasury holdings, one also has to add the “Belgian” Treasuries, which is where China had been anonymously engaging in a record buying spree via the local Euroclear, starting in late 2013, which however concluded with a bang in early 2015.
This is what we said last month:
- “Belgium” is, or rather, was a front for China: either SAFE, CIC, or the PBOC itself.
- That Belgium’s holdings, after soaring as high as $381 billion a
year ago, have since tumbled as China has
dumped the bulk of its Euroclear custody holdings, and that once this
number is back to its historical level of around $170-$180 billion,
“Belgium” will again be just Belgium. - China’s foreign reserves plunged concurrently and this was offset by a the
biggest quarterly drop in Chinese pro-forma treasury holdings, which
dropped by a record $72 billion in the month of March, and a record $113
billion for the quarter.
It wasn’t precisely clear just why China, which had historically used
UK-based offshore banks to transact in US paper in addition to the
mainland, would pick Belgium (and Euroclear) or why it chose to hide its transactions in
such a crude way, however the recent acceleration in capital outflow from
China manifesting in a plunge in Chinese forex reserves, coupled with a
record monthly liquidation in total Chinese holdings, exposed just where China was trading.So with the benefit of the TIC data, we know that China’s Treasury liquidation has not only not stopped, but has continued. Enter, once again, Belgium, only this time it is not a “mystery” buyer behind the small central European country’s holdings, but a seller.
As the chart below shows, after a record $92.5 billion drop in March, “Belgium” sold another $24 billion in April, and another $26 billion last month, bringing the total liquidation to a whopping $142.5 billion for the months of March, April and May.
This means that after adding mainland China’s token increase of $7 billion in May after a $40 billion increase the two months prior, net of Belgium’s liquidation, China has sold a record $96 billion in Treasurys in the last three months.
Just to confirm that one should add the dramatic changes in “Belgium” holdings to mainland China Treasury, here is a chart overlaying China’s Forex reserves, which as we learned today had dramatically increased by 600 tons of gold, but more importantly forex reserves declined to $3.693 trillion, a drop of $17 billion from $3.711 trillion the month before, and the lowest since September 2013!
Putting all of this together, it reveals that China has already dumped a record total $107 billion in US Treasurys in 2015 to offset what is now quite clear capital flight from the mainland, and the most aggressive attempt to keep the Renminbi stable.
- Peru Sued By Illinois Firm For Unpaid Birdshit Bonds
If you’ve followed the recent evolution of fixed income products, you’re well aware that when it comes to pooling assets and securitizing cash flows, pretty much anything goes. From subprime auto loans, to credit card receivables, to P2P debt, to PE home flipper loans, you name it and there’s a fixed income security for it.
Given the above, we were fairly certain that when it comes to bonds, nothing would surprise us in terms of debtors, creditors, and the underlying assets.
We were wrong.
As Bloomberg reports, Illinois-based MMA Consultants 1 Inc has filed suit in U.S. District Court in connection with money the firm says it is owed by The Republic of Peru for bonds issued in 1875. Here’s more:
Fourteen bonds the country issued in 1875 .. are now held by an Illinois firm that says it’s having a hard time redeeming them.
MMA said it sent three letters to Peru’s Minister of Economics and Finance requesting payment to no avail. The company is suing for breach of contract. It didn’t reveal in the lawsuit how it came by the bonds.
If that were the whole story, it wouldn’t be all that interesting. Fortunately, there’s more:
[The] bonds were issued to pay off debt to a U.S. guano consignment company.
Each bond promised a payoff of $1,000 “United States Gold coin” plus 7 percent interest a year, according to the complaint filed Thursday by MMA Consultants 1 Inc. in federal court in New York.
The bonds bear the signature of Don Manuel Freyre, who is described as the “Envoy Extraordinaire and Minister Plenipotentiary of Peru,” according to the complaint.
Because we cannot imagine what we could possibly add that would make this any more amusing than it already is, we’ll simply leave you with the following summary:
MMA Consultants 1 is attempting to collect what, with interest, amounts to $182 million in gold coins from “Envoy Extraordinaire” Don Manuel Freyre, in connection with bonds Peru issued 140 years ago to pay off a debt to a seabird dung consignment company.
(Don Manuel Freyre, Envoy Extraordinaire)
- California Water Wars Escalate: State Changes Law, Orders Farmers To Stop Pumping
"In the water world, the pre-1914 rights were considered to be gold," exclaimed one water attorney, but as AP reports, it appears that 'gold' is being tested as California water regulators flexed their muscles by ordering a group of farmers to stop pumping from a branch of the San Joaquin River amid an escalating battle over how much power the state has to protect waterways that are drying up in the drought. As usual, governments do what they want with one almond farmer raging "I've made investments as a farmer based on the rule of law…Now, somebody's changing the law that we depend on." This is not abiout toi get any better as NBCNews reports, this drought is of historic proportions – the worst in over 100 years.
The current drought has averaged a reading of -3.67 over the last three years, nearly twice as bad as the second-driest stretch since 1900, which occurred in 1959.
Other studies using PDSI data drawn from tree-ring observations reaching even further back in time reveal similar findings. One such study from University of Minnesota and Woods Hole Oceanographic Institute researchers showed the current drought is California's worst in at least 1,200 years.
And as AP reports, regulatords are changing the laws to address the problems…
The State Water Resources Control Board issued the cease and desist order Thursday against an irrigation district in California's agriculture-rich Central Valley that it said had failed to obey a previous warning to stop pumping. Hefty fines could follow.
The action against the West Side Irrigation District in Tracy could be the first of many as farmers, cities and corporations dig in to protect water rights that were secured long before people began flooding the West and have remained all but immune from mandatory curtailments.
"I've made investments as a farmer based on the rule of law," said David Phippen, an almond grower in the South San Joaquin Irrigation District. "Now, somebody's changing the law that we depend on."
Phippen said his grandfather paid a premium price in the 1930s for hundreds of acres because it came with nearly ironclad senior water rights.
Phippen said he takes those rights to the bank when he needs loans to replant almond orchards or install new irrigation lines. He fears that state officials are tampering with that time-tested system.
Several irrigation districts have filed unresolved legal challenges to stop the curtailments demanded by the state.
Among them is the West Side Irrigation District, which claimed a victory in a ruling last week by a Sacramento judge who said the state's initial order to stop pumping amounted to an unconstitutional violation of due process rights by not allowing hearings on the cuts.
Superior Court Judge Shelleyanne Chang also indicated, however, that the water board can advise water rights holders to curtail use and fine them if the agency determines use exceeded the limit.
West Side is a small district with junior water rights, but the ruling also has implications for larger districts with senior rights.
West Side's attorney Steven Herum said the order issued Thursday was prompted after the judge sided with his client.
"It is clear that the cease-and-desist order is retaliatory," Herum said. "It's intended to punish the district."
Still the farmers face an uphill battle…
Buzz Thompson, a water rights expert at Stanford Law School, expects California to prevail in the fight to pursue its unprecedented water cuts because courts have consistently expanded its authority.
"It's only when you get into a really serious drought that you finally face the question," he said.
California is an anomaly among Western states in the way it treats water rights. Thompson said other states use widespread meters and remote sensors to measure consumption or don't provide special status to those with property next to natural waterways.
"In any other state, this wouldn't be a question," he said.
California rights holders are going to have to abide by more strict measurement requirements starting next year after fighting several attempts to overhaul the rules for decades, said Andy Sawyer, a longtime attorney at the water board.
"They long thought it's nobody else's business," said Lester Snow, executive director of the California Water Foundation, which advocates for better measurement of water consumption to improve management.
* * *
The Water Wars are just beginning and, it appears, with big oil still exempt, the small businessman and average joe face the costs…
- The Wall Of Worry
Greece… just another brick in the wall…
Nothing to see here, move along…
Just promise to keep borrowing, keep leveraging, and keep spending and “they” promise to keep you “safe from domestic terrorism”, “safe from buyback-preferring CEOs’, and “safe from a drop in your wealth” forever…
Source: @StockCats
- 5 Things To Ponder: Beach Reading
Submitted by Lance Roberts via STA Wealth Management,
Today, is my last day of vacation. Later this afternoon, my family and I board a flight that will leave this tropical paradise behind and return us back home to Houston, Texas. Since I have a few hours of flight time ahead of me, I have prepared a reading list to pass the time.
The last week of being detached from my daily routine has given me a good opportunity to recenter my views on the economy, the markets and overall investor psychology. While the markets have improved since the "resolution" of the Greek crisis, in my opinion I would have expected substantially more given the overall "angst" that the situation was generating. Yet, as of Thursday's close, as shown in the chart below, the market remains in a bearish consolidation pattern. Furthermore, relative strength, momentum and volume remain a detraction from the "bullishness" of this week's "crisis resolution rally."
As I noted earlier this week:
"To re-establish the longer-term bullish trend, the market will need to move to new highs. Any failure to do so will simply keep the markets trapped in the ongoing topping process that began earlier this year.
While the rally on Monday certainly gave a relief to the "bull" camp, it has not been enough to completely shake the "bearish" grasp on the markets currently."
"Also, notice the correlation between peaks in the Shanghai Index and the S&P 500. According to a recent Bloomberg article, margin debt in China reached $264 Billion in April of this year. After adjusting for the size of the two markets, is about double that of the roughly $500 billion in margin debt in the U.S.
This difference in relative size was given as a prime example about how margin debt is not a problem for the U.S. However, the relative size of margin debt in the past has not been a "safety net" that investors should rely on. As shown, the level of real (inflation adjusted) margin debt as a percentage of real GDP has reached levels only witnessed at the peaks of the last two financial bubble peaks in the U.S."
It is worth reminding readers that nothing has been resolved in Greece other than the passage of a bill that will impose harsh austerity measures for the country in exchange for a "loan to pay principal and interest payments" back to the people who loaned them money in the first place. This is the equivalent of "paying a credit card with another credit card." It keeps the bankers happy but keeps the individual broke.
We are not done with the Greek "crisis" as of yet and the country, and their inherent problems, will be back in the headlines soon. The problem with China's economy, real estate and markets have also not been resolved and the fallout there will likely be more significant than most currently attribute to it.
In the meantime, here is my "beach reading" for the long plane ride back home to reality.
1) Is The NYSE Relevant Anymore? by Jonathon Trugman via NY Post
"Today, the NYSE has morphed into a TV studio and a historical museum. Still, there are few places on Earth more patriotic than the exchange.
The people on the floor — the few who remain — are a special breed of New Yorker, financier and American.
But on Wednesday, the NYSE management embarrassed its floor traders and the country, weakened the already depleted public confidence in markets and cost itself millions in commissions — all supposedly because of a software update gone wrong.
It also taught its customers that it has become largely irrelevant to market trading — the markets functioned just fine without it."
Read Also: Why Investing Is Very Complicated by Sendhil Mullainathan via NY Times
2) Is The Global Economy Headed For Another Crash? by Peter Spence via The Telegraph
"The growth outlook for the rest of the year looks positively rosy. But economists aren't always the best bunch at spotting a coming crash.
A sell-off in bonds – a place where you want to put your money when you're not confident about growth – suggests that investors are becoming more optimistic.
But if history is a useful guide, then the US may already be due another recession. The average post-war growth streak has lasted less than five years.
And the Bank for International Settlements, the so-called central bank of central banks, has warned that policymakers may not have room to fight the next financial crisis."
Read Also: Earth's Economy Continues Recessionary Cooling by IronMan via Political Calculations
3) Cracks In The Markets Facade by Joe Calhoun via Alhambra Partners
"If the US economy doesn't start to improve measurably in short order the Fed might find itself in the same predicament as the PBOC. The S&P 500 appears to have peaked in any case. As I wrote a couple of months ago, the long term momentum indicator I use is putting out sell signals not seen since late 2007 (and in 2000 before that). All we're waiting on now is a catalyst to push the market into a full blown, honest to goodness correction. Would a loss of confidence in the abilities of the world's central bankers be sufficient to the task? I don't know but I'm certain the PBOC, the Fed and the ECB don't want to find out. I suspect in the end they'll have little say on the matter."
Read Also: One Lesson To Learn Before A Correction by John Hussman via Hussman Funds
Read Also: Can You Forecast Better Than A Dart Throwing Chimp by Timmar via Psy-Fi Blog
4) If The Fed Hikes, It's One And Done by Paul Kasriel via Financial Sense
"So, current inflationary pressures are quite mild here in the U.S. The current rate of growth in U.S. thin-air credit is below its "normal" rate, suggesting that credit creation is not fostering a future surge in U.S. inflation. And the global inflationary environment appears equally tranquil, if not more so. The Chinese economy, which already had experienced a growth slowdown, will now be negatively affected by its recent stock market swoon. And Europe is not exactly booming, Greece aside. Given all this, it is not clear what is motivating the Fed's desire to raise its policy interest rates sometime later this year. Whatever the motivation, if the Fed does pull the interest-rate tightening trigger in 2015, it will not likely do so again for many months thereafter. In other words, for Fed interest rate hikes in 2015, it's one and done."
Read Also: The Mirage Of The Financial Singularity by Dr. Robert Shiller via Project Syndicate
5) The Why Of Weak Wages by Michelle Lazette via Cleveland Federal Reserve
"Technological advances. Lower productivity. Fewer full-time workers. Depending on whom one asks, the reasons vary for why we've experienced more than a decade of low wage growth. Observers agree, though: Stubbornly low wages impact society and the US economy."
Read Also: The Psychology Of Risk by Victor Ricciardi via Kentuck State University
Psychology of Risk-Behavioral Finance Perspective
Other Interesting Reads
The Future Of Politically Correct Cultism by Brandon Smith via ZeroHedge
The Real Risk Of The China Market Crash by Evan Osnos via The New Yorker
Knowing When To Sell Real Estate Investments by Keith Jurow via Advisor Perspectives
On Europe: "A clueless political personnel, in denial of the systemic nature of the crisis, is pursuing policies akin to carpet-bombing the economy of proud European nations in order to save them." – Yanis Varoufakis
Have a great weekend.
- "Irrelevant" Greece 'Deal' Sparks Week-Long Stock And Bond Buying Frenzy
This old clip seems very appropriate… Full Throttle until around 2:00… everyone smiling as the 'boat' surges ever faster… then hubris gets its revenge…
We expect the traditional no volume, USDJPY-levitation driven buying of ES will surely resume once US algos wake up and launch the self-trading spoof programs.
And Volume just got worse and worse all week…
Some context that Greece doesn't matter… On the week…
- Nasdaq +4.1% to record highs – best week since Bullard bounce in October
- S&P +2.3% – best week since March
Trannies and Small Caps disappointed on the week…
On the day – Nasdaq started off crazy right after the close as GOOG hit then just squeezed higher to fresh record highs… S&P unch, Dow down…
But Small Caps were ugly today…
But all the exuberance in Nasdaq is focused in an ever-shrinking number of names…
Note that once the short squeeze had ended there was no follow through at all in the major indices… and in fact shorts started gathering pace again…
Google had a day…
And Netflix had a week…
ETSY Soared because Goldman mentioned it in a Google call… and shorts got "Volkwagen'd"
- VIX -28% – biggest drop since Jan 2013
- Energy Stocks XLE -1.3% – down a record 11 straight weeks to Jan 2013 lows
- Financial Stocks XLF +2.75% – best week since Feb
- Greek Stocks (GREK) -8.2% – worst week since January
It is pretty clear who won and who lost from the Greek bailout…
- China ASHR +0.37% – not exactly the 'recovery' that all that intervention hoped for
- China FXI +0.17% – first gain in 4 weeks
- 30Y TSY -11bps – best week since May
And where do rates go next? if the lagged correlation with crude holds up, considerably lower…
- USD Index +1.9% – best week since May
- EURUSD -2.5% – worst week since May
JPY flatlined today… and thus so did stocks. But it has been a one way street for USD strength, everything else weakness this week…
And digging into the details a little more, your daily FX roundup (courtesy of ForexLive):
- Silver -4.1% – down 8 of last 9 weeks
- Gold -2.2% – down 7 of lats 9 weeks, worst week since March
Ugly for precious metals leaves them still massively outperforming Nasdaq since the dotcom bubble…
- WTI Crude -4.3% – 5th losing week in a row… worst 3-week loss in 2015)
Charts: Bloomberg
- "Trust, But Vilify" – What A Difference 28 Years Makes
- Attention Greek Bankers: Bridge In Brooklyn For Sale On The Cheap
Submitted by George Kinits of Alcimos
First of all, the facts. According to Ms. Danièle Nouy, head of the Single Supervisory Mechanism, Greek banks were proclaimed as recently as 7 June “to be solvent and liquid”. Ms. Nouy went on to say that “[t]he Greek supervisors have done good work over the past years in order to recapitalise and restructure the financial sector. That was also visible in the outcome of our stress test. The Greek institutions have experienced difficult phases in the past. But they have never before been so well prepared for them”. When pressed about the DTA/DTC issue facing Greek banks (DTA make up more than 40% of their capital), she seemed unperturbed: “That is not only a Greek issue but a general problem.[…] [W]e are now in a transitional phase, in which new capital rules are being introduced. When this has been completed, part of this problem will be fixed. But that requires a global approach”. Ms. Nouy’s view accords with the results of the ECB AQR back in October.
If you were a shareholder of a Greek bank, you wouldn’t lose sleep over your relationship with your regulator. In that context, the statement of the 12 July Euro Summit may have come as a shock—particularly the bit about the new program for Greece having to include “the establishment of a buffer of EUR 10 to 25bn for the banking sector in order to address potential bank recapitalisation needs and resolution costs, of which EUR 10bn would be made available immediately in a segregated account at the ESM”. And further down: “The ECB/SSM will conduct a comprehensive assessment after the summer. The overall buffer will cater for possible capital shortfalls following the comprehensive assessment after the legal framework is applied”.
You could be forgiven for thinking—where did that come from? A keen observer might also notice that one of the six things that the Summit asked Greece to do by 22 July is to transpose the Bank Recovery and Resolution Directive (BRRD). Why all the haste, then? After all, when the European Commission requested on 28 May eleven countries to implement BRRD, Greece was not even among those countries. Could the tight deadline then have anything to do with the following mention in the Summit statement: “EUR 10bn [of the buffer for the banking sector] would be made available immediately in a segregated account at the ESM”?
Let us first look at what the IMF has to say about the issue. In the IMF’s initial debt sustainability analysis of 26 June, bank recap needs were estimated at only €5.9bn (p. 7, table 1). Not the case in its latest debt sustainability analysis (14 July):”The preliminary (mutually agreed) assessment of the three institutions is that total financing need through end-2018 will increase to Euro 85 billion, or some Euro 25 billion above what was projected in the IMF’s published DSA only two weeks ago, largely on account of the estimated need for a larger banking sector backstop for Euro 25 billion [emphasis ours]”.
Now let’s see what the European Commission said in its assessment of Greece’s request for support from the ESM (dated 10 July): “[S]ince end-2014, the situation of the banking sector has deteriorated dramatically amid increased State financing risks, strong deposit outflows, a worsened macroeconomic development and more recently due to the implementation of administrative measures designed to stabilise the funding situation of banks and preserve financial stability. […] The estimated size of the required capital backstop amounts on a preliminary basis to EUR 25 bn”.
Quite weird, no? Despite the fact that “since end-2014, the situation of the banking sector has deteriorated dramatically”, the three institutions thought till 7 June that Greek banks were solvent and as recently as 26 June (the date of the IMF’s initial deb sustainability analysis) that only €5.9bn would be needed for bank recap. On 10 July the European Commission already thought that €25bn were needed, but that probably did not get communicated to participants in the Euro Summit on 12 July who spoke of a buffer between €10bn and €25bn (quite a broad range, that one), of which €10bn was needed “immediately”. Finally, on 14 July the IMF confirmed needs to be €25bn. Quite a mess, frankly.
Now, there are two ways in which one could interpret this. Someone leery of the European institutions might think that Eurocrats came up with yet another way of enriching large European banks at the expense of the Greek and European taxpayer (some people, like former Bundesbank head Karl Otto Pöhl, claim that even the first Greek bailout was “about protecting German banks, but especially the French banks, from debt write offs”). That the €25bn will be used to endow Greek banks, which will be bailed in and then sold off in a matter of months by the Single Resolution Mechanism (SRM) (to be launched on 1 January 2016). No prizes for guessing who will buy Greek banks. Some cynics might even say that, when €25bn of public money becomes available, a bureaucrat is sure to find a way to line his friends’ pockets.
Judging from press reports, Greek bankers remain unruffled. They seem to think that the bank recap will take the form of the 2013 exercise: back then, private investors put up just 10% of the funds needed, while the rest came from the European taxpayers (via the Greek taxpayer). They seem to rely on an exception in to the general rule of the BRRD (“no public funds to be used without a bail-in”): according to point (e) of Article 59 (3) of the BRRD, “an injection of own funds or purchase of capital instruments at prices and on terms that do not confer an advantage upon the institution” does not necessitate a bail-in, as long as the supported institution was solvent (or words to that effect) at the time of the intervention.
According to this narrative, none of the three institutions had an inkling as to what exactly was happening with Greek banks—their regulator, the SSM, even thought they were well capitalized. It apparently dawned on the three institutions right around the European Summit that there was a problem, but, although they knew before the Summit that the hole was €25bn, they apparently forgot to tell Europe’s leaders how big it was, and they mistakenly thought they could fix it with perhaps €10bn. But they knew that fixing the problem is something that should happen “immediately”.
That this presents a reversal of the longstanding sweep-under-the-carpet, kick-the-can-further approach of Eurocrats to all-things-Greek should not be a cause for concern. Nor should the timing raise any eyebrows: slapping an additional almost 10% of GDP onto Greece’s funding needs at a time when the Europeans and the IMF are at odds over the sustainability of Greek debt may seem a bit odd, but one should not read anything into it.
Oh, and that paragraph in the latest IMF debt sustainability analysis: “[T]he proposed additional injection of large-scale support for the banking system would be the third such publicly funded rescue in the last 5 years. Further capital injections could be needed in the future, absent a radical solution to the governance issues that are at the root of the problems of the Greek banking system [emphasis ours]. There are at this stage no concrete plans in this regard”. Nothing to be concerned about, just some mandarin venting frustration.
The SSM will simply run a stress test on Greek banks, and identify a €25bn capital shortfall (despite the words of Ms. Nouy just a bit over a month ago). Greek banks will be able to complete their capital raising exercises by 31 December 2015 (when, according to Article 32(4) of the BRRD the only exception to “no public funds without a bail-in” rule expires); if not, the always obliging European Commission will certainly provide an extension. Investors will certainly flock to subscribe for Greek bank rights issues, despite having thrown €8.3bn down the drain by doing the exact same thing just over a year ago.
Of course, there are some rather inconvenient facts, which one would need to ignore under this scenario: for example, if the SSM has to run stress tests on Greek banks, this will take some time. Why then the rush to implement BRRD and the need to set aside the €10bn for Greek bank recap “immediately”? Oh, and there is that Bruegel report on Greek bank recap which came out while the Euro Summit was still in progress, and puts things rather bluntly: “[T]he potential package for Greece would include 10 to 25bn for the banking sector in order to address potential recapitalisation needs. Rumours this morning suggest the banks would then become part of a new asset fund and sold off to pay down debt” (mind you that the piece was already published at 7am). Again, nothing to worry about, just some academic hokum.
And if you believe all that, there’s a bridge in Brooklyn I want to sell you.
- The GOP's Biggest Nightmare: Trump Dominates Fox News Poll
Demagogue or not, The Donald continues to gain support among Republicans for the GOP Presidential nomination, according to the latest FOX News poll, and among Republican primary voters, Trump now captures 18 percent: more than his closest competitor, Walker.
He’s closely followed by Walker at 15 percent and former Florida Gov. Jeb Bush at 14 percent. No one else reaches double-digits.
Support for Trump is up seven percentage points since last month and up 14 points since May. He’s also the candidate GOP primary voters say they are most interested in learning more about during the debates.
Walker’s up six points since he officially kicked off his campaign. That bump gets him back to the support he was receiving earlier this year. In March, he was also at 15 percent.
Kentucky Sen. Rand Paul gets eight percent, Florida Sen. Marco Rubio receives seven percent, former neurosurgeon Ben Carson comes in at six percent, and Texas Sen. Ted Cruz and former Arkansas Gov. Mike Huckabee get four percent a piece.
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Here's Martin Armstrong on the matter…
Trump is hitting very hard, clearly tapping into the emerging anti-establishment politician trend. He bluntly states, “Who do you want negotiating with China? Trump or Bush?” You could expand that to Hillary. Her negotiations amount to how much they are willing to donate to her questionable charity. People setup such charities because they have money to give back TO society, like Bill Gates. The Clintons started their charity when they were broke. Who is the charity really benefiting and why did Hillary shakedown countries as Secretary of State to pile in money to their questionable charity?
MSNBC keeps trying to focus on Trump’s comments on Mexico. They give him tons of airtime in an attempt to discourage people from voting for him, but they may be creating the exact opposite. Despite what everyone says, he is tapping into the increasingly popular view that everyone is starting to feel, having had enough of politicians, or at least the ones with a brain.
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- Iran Is Hiding 51 Million Oil Barrels At Sea, Maritime Tracker Reports
With yesterday's appearance what seems like the first Iran oil tanker to set sail post-nuke-deal, Haaretz reports that Iran has been hiding millions of barrels of oil it never reported to the United States or in the world oil market, according to a company that has developed sophisticated maritime tracking technology. With the world’s fourth-largest oil reserves, Iran denies it’s storing oil at sea, despite reports that surfaced in The New York Times as early as 2012; but Ami Daniel, Windward founder and cochairman, shows "the Iranians are taking huge, 280-meter-long ships and filling them with oil, to sit at sea and wait. Because the sanctions allow for production of only three million barrels a day, they began storing the remainder… oil tankers have been sitting in the Gulf for anywhere between three and six months, just waiting for orders."
Searching for ships that do not want to be found…
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As Bloomberg explains, based in Tel Aviv, Windward was founded four years ago by two Israeli naval officers…
The algorithms Windward developed were initially intended to tackle illegal fishing by analyzing and profiling normative patterns in sea traffic. The entrepreneurs discovered that their technology could also be used to monitor unusual behavior near, say, oil-drilling ports in Libya.
These anomalies of maritime behavior, which occur daily, would have probably gone undetected in the past. Today, advanced satellite imaging and communications technology, coupled with analytical software developed by an Israeli startup called Windward, identifies potential illegal activity in real time.
"Everything affects everything else in the sea,” Daniel said in an interview. "We see when things are beginning to happen. We give you the insight first because we can see when patterns start changing.”
According to Windward, the Iranian ships are purposely hiding their cargo.
According to Windward, the amount of oil Iran is storing offshore has jumped more than 150% over the last year to over 51 million barrels as of Wednesday. The increase coincided with nuclear talks with world powers led by the U.S. while Iranian President Hassan Rohani publicly claimed Iran did not have enough oil to fulfill its own needs.
The amount of oil Iran is holding is far larger than the daily quota of 30 million barrels imposed by the Organization of the Petroleum Exporting Countries on its members.
…
Iran currently produces 3.3 million barrels of oil daily, according to the U.S. Energy Agency, slightly more than the three-million-barrel ceiling stipulated by the sanctions, which allow Iran to export no more than one million barrels a day.
Limitations were also placed on Iran’s oil-storage facilities, which Tehran apparently circumvented with the offshore storage scheme. The amount of oil involved is quite extensive: Annually, Iran pumps 1.204 billion barrels of oil, meaning the offshore oil stores reported by Windward account for 4.2% of Iran’s yearly production. In total, there are 28 Iranian tankers in the Gulf, each holding between one and two million barrels, according to Windward.
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Follow in real-time the rise of floating storage in Iran's waters…
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