Today’s News July 2, 2015

• US Police More Concerned About "Anti-Government" Domestic Extremists Than Al-Qaeda, Study Finds

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  

  U.S. law enforcement agencies rank the threat of violence from anti-government  extremists higher than the threat from radicalized Muslims, according to a report released Thursday by the Triangle Center on Terrorism and Homeland Security (TCTHS).

   

  The report, “Law Enforcement Assessment of the Violent Extremism Threat,” was based on survey research by Charles Kurzman, professor of sociology at the University of North Carolina at Chapel Hill, and David Schanzer, director of TCTHS and associate professor of the practice at Duke University’s Sanford School of Public Policy.

   

  The survey — conducted by the center with the Police Executive Research Forum — found that 74 percent of 382 law enforcement agencies rated anti-government extremism as one of the top three terrorist threats in their jurisdiction. By comparison, 39 percent listed extremism connected with Al Qaeda or like-minded terrorist organizations as a Top 3 terrorist threat.

   

  – From Duke’s Sanford School of Public Policy

  Since September 11, 2001, the frightened and emotionally pliable American public has gullibly relinquished its civil liberties and free heritage in order to allow the U.S. government to wage unaccountable and unconstitutional war again Al-Qaeda and radical Islamic terrorism across the world.

  Many of us have warned for years, that preemptively giving up freedoms to protect freedom could only make sense to a propagandized, ignorant public completely clueless of human history. We warned that any totalitarian apparatus implemented to fight an outside enemy, would ultimately be turned around and used upon the public domestically. We already know this is happening with the NSA’s bulk spying and data collection, and we are starting to see a proliferation of the meme that “domestic extremists are more dangerous than Al-Qaeda,” spreading from the mouths of a corrupt and paranoid political class. I’ve covered this topic on several occasions, for example:

  The “War on Terror” Turns Inward – DHS Report Warns of Right Wing Terror Threat

  Eric Holder Announces Task Force to Focus on “Domestic Terrorists”

  Rep. Steve Cohen Calls Tea Party Republicans “Domestic Enemies” on MSNBC

  New Hampshire City Requests a Tank to Deal with “Domestic Terrorist” Groups Like Occupy Wall Street and Libertarians

  It’s Official: The FBI Classifies Peaceful American Protestors as “Terrorists”

  If all that’s not enough to convince you we’ve got a problem, I bring to you conclusions from the recently released study, “Law Enforcement Assessment of the Violent Extremism Threat.” This study was based on a survey conducted by Charles Kurzman and David Schanzer, who recently penned an op-ed in the New York Times. Here are some excerpts from their article:

  In a survey we conducted with the Police Executive Research Forum last year of 382 law enforcement agencies, 74 percent reported anti-government extremism as one of the top three terrorist threats in their jurisdiction; 39 percent listed extremism connected with Al Qaeda or like-minded terrorist organizations. And only 3 percent identified the threat from Muslim extremists as severe, compared with 7 percent for anti-government and other forms of extremism.

   

  The self-proclaimed Islamic State’s efforts to radicalize American Muslims, which began just after the survey ended, may have increased threat perceptions somewhat, but not by much, as we found in follow-up interviews over the past year with counterterrorism specialists at 19 law enforcement agencies. These officers, selected from urban and rural areas around the country, said that radicalization from the Middle East was a concern, but not as dangerous as radicalization among right-wing extremists.

   

  Law enforcement agencies around the country are training their officers to recognize signs of anti-government extremism and to exercise caution during routine traffic stops, criminal investigations and other interactions with potential extremists. “The threat is real,” says the handout from one training program sponsored by the Department of Justice. Since 2000, the handout notes, 25 law enforcement officers have been killed by right-wing extremists, who share a “fear that government will confiscate firearms” and a “belief in the approaching collapse of government and the economy.”

   

  Meanwhile, terrorism of all forms has accounted for a tiny proportion of violence in America. There have been more than 215,000 murders in the United States since 9/11. For every person killed by Muslim extremists, there have been 4,300 homicides from other threats.

  Perhaps if the police didn’t harbor such negative thoughts about the general public, there wouldn’t be as many citizens killed by police. The recent tally is up to 463 killed so far in 2015, or an average of 2.5 Americans killed by police every day.

  Finally, I came across the following excerpt from a recently published National Journal article:

  Senate Democrats are calling for Congress to shift its focus from solely jihadist-fueled terrorism and hold hearings on the threats from domestic groups in upcoming weeks. And the Department of Justice has already opened up a domestic-terrorism investigation into the Charleston church shooting.

  The real enemy of the corrupt corporate state is none other than, “we the people.”

  

  

  

  

  

• Red China Goes Redder, Stocks Tumble Despite Government Ban On Bearish Talk

  Despite more liquidity injections (CNY35 billion 7day RevRepo), archaic deals for brokerages to manipulate their balance sheets, and local reporters noting China's propaganda ministry ordering state media to publish only positive opinions about the stock market, not to criticize, Chinese stocks are in red once again. The record streak of margin debt declines continues and although futures were driven up early on, any strength has been sold into as unwinds wreak havoc on the ponzi wealth creation scheme. All major indices are in the red with Shenzhen (home of the 500%-club) the worst, down around 2% (though as CNBC would say "off the lows").

  Despite this…

  BREAKING: China's propaganda ministry orders state media to publish positive opinions about stock market, NOT to criticize – media sources

  — George Chen (@george_chen) July 2, 2015

   

  Stocks can't catch a bid…

  

   

  China Realized Volatility remains extremely elevated…

  

   

  But VIX (implied volatility) has come off highs (though remains in a high risk regime)…

  

   

  Seems like now – heading into the morning session close – would be a good time for some manipulation. Because if not this looks awfully ominous…

   

  

   

  On a side note, Mizuho warns that since 2000, SHCOMP has never exceeded its recent high within 6 mos. of losing at least 15%; it will take longer for mainland investors to regain risk appetite.

   

  Charts: Bloomberg

  

  

  

  

  

• Payrolls Preview: Goldman Expects Jobs Data To Disappoint

  Despite much hopeful banter among the mainstream media, Goldman forecast nonfarm payroll job growth of 220k in June, notably below consensus expectations of 234k.

  

   

  This is roughly in line with Goldman's expectations for below average job growth over the remainder of 2015. Employment indicators were mixed in June: reported job availability, the employment components of most manufacturing surveys, and ADP employment growth improved, but jobless claims and job cuts both rose slightly and online job ads declined. Overall, the June data point to a gain below the very strong 280k increase in May.

   

  Arguing for a stronger report:

  • Manufacturing employment indicators. The employment components of the major manufacturing surveys were better on net in June, though many remain at somewhat soft levels. The employment components of the ISM manufacturing (+3.8pt to 55.5), New York Fed (+3.4pt to +8.7), Richmond Fed (+1pt to +4), Kansas City Fed (+8pt to -9), Dallas Fed (+7pt to -1.2), and Markit PMI surveys improved, while the employment components of the Chicago PMI and Philly Fed (-2.9pt to 3.8) surveys declined. Payroll employment growth in the manufacturing sector picked up a bit to 7k in May but has averaged just 4k over the last four months, below the average gain of 15k seen over the last year. While the manufacturing sector is more exposed to international trade than the services sector and appeared to suffer from the strong dollar earlier in the year, manufacturing indicators have improved recently.
  • Job availability. The Conference Board's labor differential—the net percent of households reporting jobs are plentiful vs. hard to get—improved by 2.3pt to -4.3 in June, close to the post-recession high.
  • ADP report. ADP employment rose 237k in June, above consensus expectations. ADP uses outside information to filter its raw data, and some of the strength could reflect the prior-month nonfarm payrolls print. In general, initial print ADP estimates have not been strong predictors of initial print total payroll gains reported by the Labor Department. However, we have found somewhat stronger correlations between ADP and nonfarm payrolls for some industries, in particular trade, transportation and utilities, which saw a solid 50k gain in the June ADP report.

  Arguing for a weaker report:

  • Jobless claims. The four-week moving average of initial jobless claims in the payrolls reference week rose 10k to 277k. Encouragingly, however, in states with large energy industries such as Texas, Oklahoma, and North Dakota, weekly claims have declined somewhat following large increases in prior months.
  • Online job ads. According to the Conference Board's Help Wanted Online (HWOL) report, both new and total online job ads fell in June following large increases in May. The decline in job ads in June occurred across all geographic regions. Among occupational categories, the largest declines came in office and administrative support and in sales.
  • Job cuts. Announced jobs cuts reported by the Challenger, Gray and Christmas report rose modestly in June on a seasonally adjusted basis, reflecting increases in cuts in the chemical and retail industries. Averaging across May and June, job cuts–which tend to be an early indicator of actual layoffs–declined a bit from the previous months, due mostly to a normalization of energy-sector job cuts, but remain slightly on the higher side of recent norms.

  Neutral factors:

  • Service sector surveys. The ISM nonmanufacturing and Markit PMI service sector surveys are not yet available for June. Fed surveys were mixed, with the employment component of the New York Fed survey rising sharply (+15.3pt to 20.3), while the employment components of the Richmond Fed (-3pt to +8) and Dallas Fed (-3.3pt to +5.6) surveys declined. Service-sector employment gains rose to 256k in May and averaged 212k over the last year.

  We expect the unemployment rate to decline one-tenth to 5.4% in June, from an unrounded 5.508% in May. The headline U3 unemployment rate declined by 0.8pp over the last year and the broader U6 underemployment rate declined by 1.3pp. Looking further ahead, we expect U3 to reach 5% by early 2016 and U6 to reach our 9% estimate of its full employment rate by the end of 2016.

  We expect a softer 0.1% increase in average hourly earnings for all workers in June as a result of calendar effects. Average hourly earnings for all workers rose 2.3% over the year ending in May, while average hourly earnings for production & nonsupervisory workers rose 2%. We see some preliminary signs of a pickup in wage growth, which we expect to reach about 2.75-3% by year-end, still below our 3.5% estimate of the full employment rate.

  Source: Goldman Sachs

  

  

  

  

  

• A Short History: The Neocon "Clean Break" Grand Design & The "Regime Change" Disasters It Has Fostered

  Submitted by Dan Sanchez via AntiWar.com,

  To understand today’s crises in Iraq, Syria, Iran, and elsewhere, one must grasp their shared Lebanese connection. This assertion may seem odd. After all, what is the big deal about Lebanon? That little country hasn’t had top headlines since Israel deigned to bomb and invade it in 2006. Yet, to a large extent, the roots of the bloody tangle now enmeshing the Middle East lie in Lebanon: or to be more precise, in the Lebanon policy of Israel.

  Rewind to the era before the War on Terror. In 1995, Yitzhak Rabin, Israel’s “dovish” Prime Minister, was assassinated by a right-wing zealot. This precipitated an early election in which Rabin’s Labor Party was defeated by the ultra-hawkish Likud, lifting hardliner Benjamin Netanyahu to his first Premiership in 1996.

  That year, an elite study group produced a policy document for the incipient administration titled, “A Clean Break: A New Strategy for Securing the Realm.” The membership of the Clean Break study group is highly significant, as it included American neoconservatives who would later hold high offices in the Bush Administration and play driving roles in its Middle East policy.

  “A Clean Break” advised that the new Likud administration adopt a “shake it off” attitude toward the policy of the old Labor administration which, as the authors claimed, assumed national “exhaustion” and allowed national “retreat.” This was the “clean break” from the past that “A Clean Break” envisioned. Regarding Israel’s international policy, this meant:

  “…a clean break from the slogan, ‘comprehensive peace’ to a traditional concept of strategy based on balance of power.”

  Pursuit of comprehensive peace with all of Israel’s neighbors was to be abandoned for selective peace with some neighbors (namely Jordan and Turkey) and implacable antagonism toward others (namely Iraq, Syria, and Iran). The weight of its strategic allies would tip the balance of power in favor of Israel, which could then use that leverage to topple the regimes of its strategic adversaries by using covertly managed “proxy forces” and “the principle of preemption.” Through such a “redrawing of the map of the Middle East,” Israel will “shape the regional environment,” and thus, “Israel will not only contain its foes; it will transcend them.”

  “A Clean Break” was to Israel (and ultimately to the US) what Otto von Bismarck’s “Blood and Iron” speech was to Germany. As he set the German Empire on a warpath that would ultimately set Europe ablaze, Bismarck said:

  “Not through speeches and majority decisions will the great questions of the day be decided?—?that was the great mistake of 1848 and 1849?—?but by iron and blood.”

  Before setting Israel and the US on a warpath that would ultimately set the Middle East ablaze, the Clean Break authors were basically saying: Not through peace accords will the great questions of the day be decided?—?that was the great mistake of 1978 (at Camp David) and 1993 (at Oslo)?—?but by “divide and conquer” and regime change. By wars both aggressive (“preemptive”) and “dirty” (covert and proxy).

  ---

  “A Clean Break” slated Saddam Hussein’s Iraq as first up for regime change. This is highly significant, especially since several members of the Clean Break study group played decisive roles in steering and deceiving the United States into invading Iraq and overthrowing Saddam seven years later.

  

  The Clean Break study group’s leader, Richard Perle, led the call for Iraqi regime change beginning in the 90s from his perch at the Project for a New American Century and other neocon think tanks. And while serving as chairman of a high level Pentagon advisory committee, Perle helped coordinate the neoconservative takeover of foreign policy in the Bush administration and the final push for war in Iraq.

  

  Another Clean Breaker, Douglas Feith, was a Perle protege and a key player in that neocon coup. After 9/11, as Under Secretary of Defense for Policy, Feith created two secret Pentagon offices tasked with cherry-picking, distorting, and repackaging CIA and Pentagon intelligence to help make the case for war.

  Feith’s “Office of Special Plans” manipulated intelligence to promote the falsehood that Saddam had a secret weapons of mass destruction program that posed an imminent chemical, biological, and even nuclear threat. This lie was the main justification used by the Bush administration for the Iraq War.

  Feith’s “Counter Terrorism Evaluation Group” trawled through the CIA’s intelligence trash to stitch together far-fetched conspiracy theories linking Saddam Hussein’s Iraq with Osama bin Laden’s Al Qaeda, among other bizarre pairings. Perle put the Group into contact with Ahmed Chalabi, a dodgy anti-Saddam Iraqi exile who would spin even more yarn of this sort.

  

  Much of the Group’s grunt work was performed by David Wurmser, another Perle protege and the primary author of “A Clean Break.” Wurmser would go on to serve as an advisor to two key Iraq War proponents in the Bush administration: John Bolton at the State Department and Vice President Dick Cheney.

  The foregone conclusions generated by these Clean Breaker-led projects faced angry but ineffectual resistance from the Intelligence Community, and are now widely considered scandalously discredited. But they succeeded in helping, perhaps decisively, to overcome both bureaucratic and public resistance to the march to war.

  

  The Iraq War that followed put the Clean Break into action by grafting it onto America. The War accomplished the Clean Break objective of regime change in Iraq, thus beginning the “redrawing of the map of the Middle East.” And the attendant “Bush Doctrine” of preemptive war accomplished the Clean Break objective of “reestablishing the principle of preemption”

  ---

  But why did the Netanyahu/Bush Clean Breakers want to regime change Iraq in the first place? While reference is often made to “A Clean Break” as a prologue to the Iraq War, it is often forgotten that the document proposed regime change in Iraq primarily as a “means” of “weakening, containing, and even rolling back Syria.” Overthrowing Saddam in Iraq was merely a stepping stone to “foiling” and ultimately overthrowing Bashar al-Assad in neighboring Syria. As Pat Buchanan put it:

  “In the Perle-Feith-Wurmser strategy, Israel’s enemy remains Syria, but the road to Damascus runs through Baghdad.”

  Exactly how this was to work is baffling. As the document admitted, although both were Baathist regimes, Assad and Saddam were far more enemies than allies. “A Clean Break” floated a convoluted pipe dream involving a restored Hashemite monarchy in Iraq (the same US-backed, pro-Israel dynasty that rules Jordan) using its sway over an Iraqi cleric to turn his co-religionists in Syria against Assad. Instead, the neocons ended up settling for a different pipe(line) dream, sold to them by that con-man Chalabi, involving a pro-Israel, Chalabi-dominated Iraq building a pipeline from Mosul to Haifa. One only wonders why he didn’t sweeten the deal by including the Brooklyn Bridge in the sale.

  As incoherent as it may have been, getting at Syria through Iraq is what the neocons wanted. And this is also highly significant for us today, because the US has now fully embraced the objective of regime change in Syria, even with Barack Obama inhabiting the White House instead of George W. Bush.

  Washington is pursuing that objective by partnering with Turkey, Jordan, and the Gulf States in supporting the anti-Assad insurgency in Syria’s bloody civil war, and thereby majorly abetting the bin Ladenites (Syrian Al Qaeda and ISIS) leading that insurgency. Obama has virtually become an honorary Clean Breaker by pursuing a Clean Break objective (“rolling back Syria”) using Clean Break strategy (“balance of power” alliances with select Muslim states) and Clean Break tactics (a covert and proxy “dirty war”). Of course the neocons are the loudest voices calling for the continuance and escalation of this policy. And Israel is even directly involving itself by providing medical assistance to Syrian insurgents, including Al Qaeda fighters.

  ---

  Another target identified by “A Clean Break” was Iran. This is highly significant, since while the neocons were still riding high in the Bush administration’s saddle, they came within an inch of launching a US war on Iran over yet another manufactured and phony WMD crisis. While the Obama administration seems on the verge of finalizing a nuclear/peace deal with the Iranian government in Tehran, the neocons and Netanyahu himself (now Prime Minister once again) have pulled out all the stops to scupper it and put the US and Iran back on a collision course.

  The neocons are also championing ongoing American support for Saudi Arabia’s brutal war in Yemen to restore that country’s US-backed former dictator. Simply because the “Houthi” rebels that overthrew him and took the capital city of Sanaa are Shiites, they are assumed to be a proxy of the Shiite Iranians, and so this is seen by neocons and Saudi theocons alike as a war against Iranian expansion.

  Baghdad is a pit stop on the road to Damascus, and Sanaa is a pit stop on the road to Tehran. But, according to the Clean Breakers, Damascus and Tehran are themselves merely pit stops on the road to Beirut.

  According to “A Clean Break,” Israel’s main beef with Assad is that:

  “Syria challenges Israel on Lebanese soil.”

  And its great grief with the Ayatollah is that Iran, like Syria, is one of the:

  “…principal agents of aggression in Lebanon…”

  ---

  All regime change roads lead to Lebanon, it would seem. So this brings us back to our original question. What is the big deal about Lebanon?

  The answer to this question goes back to Israel’s very beginnings. Its Zionist founding fathers established the bulk of Israel’s territory by dispossessing and ethnically cleansing three-quarters of a million Palestinian Arabs in 1948. Hundreds of thousands of these were driven (sometimes literally in trucks, sometimes force marched with gunshots fired over their heads) into Lebanon, where they were gathered in miserable refugee camps.

  In Lebanon the Palestinians who had fled suffered an apartheid state almost as rigid as the one Israel imposed on those who stayed behind, because the dominant Maronite Christians there were so protective of their political and economic privileges in Lebanon’s confessional system.

  In a 1967 war of aggression, Israel conquered the rest of formerly-British Palestine, annexing the West Bank and Gaza Strip, and placing the Palestinians there (many of whom fled there seeking refuge after their homes were taken by the Israelis in 1948) under a brutal, permanent military occupation characterized by continuing dispossession and punctuated by paroxysms of mass murder.

  This compounding of their tragedy drove the Palestinians to despair and radicalization, and they subsequently lifted Yasser Arafat and his fedayeen (guerrilla) movement to the leadership of the Palestine Liberation Organization (PLO), then headquartered in Jordan.

  When the king of Jordan massacred and drove out the PLO, Arafat and the remaining members relocated to Lebanon. There they waged cross-border guerrilla warfare to try to drive Israel out of the occupied territories. The PLO drew heavily from the refugee camps in Lebanon for recruits.

  This drew Israel deeply into Lebanese affairs. In 1976, Israel started militarily supporting the Maronite Christians, helping to fuel a sectarian civil war that had recently begun and would rage until 1990. That same year, Syrian forces entered Lebanon, partook in the war, and began a military occupation of the country.

  In 1978, Israel invaded Lebanon to drive the PLO back and to recruit a proxy army called the “South Lebanon Army” (SLA).

  

  In 1982 Israel launched a full scale war in Lebanon, fighting both Syria and the PLO. Osama bin Laden later claimed that it was seeing the wreckage of tall buildings in Beirut toppled by Israel’s “total war” tactics that inspired him to destroy American buildings like the Twin Towers.

  In this war, Israel tried to install a group of Christian Fascists called the Phalange in power over Lebanon. This failed when the new Phalangist ruler was assassinated. As a reprisal, the Phalange perpetrated, with Israeli connivance, the massacre of hundreds (perhaps thousands) of Palestinian refugees and Lebanese Shiites. (See Murray Rothbard’s moving contemporary coverage of the atrocity.)

  

  Israel’s 1982 war succeeded in driving the PLO out of Lebanon, although not in destroying it. And of course hundreds of thousands of Palestinian refugees still linger in Lebanon’s camps, yearning for their right of return: a fact that cannot have escaped Israel’s notice.

  The Lebanese Shiites were either ambivalent or welcoming toward being rid of the PLO. But Israel rapidly squandered whatever patience the Shiites had for it by brutally occupying southern Lebanon for years. This led to the creation of Hezbollah, a Shiite militia not particularly concerned with the plight of the Sunni Palestinian refugees, but staunchly dedicated to driving Israel and its proxies (the SLA) completely out of Lebanon.

  Aided by Syria and Iran, though not nearly to the extent Israel would have us believe, Hezbollah became the chief defensive force directly frustrating Israel’s efforts to dominate and exploit its northern neighbor. In 1993 and again in 1996 (the year of “A Clean Break”), Israel launched still more major military operations in Lebanon, chiefly against Hezbollah, but also bombing Lebanon’s general population and infrastructure, trying to use terrorism to motivate the people and the central government to crack down on Hezbollah.

  This is the context of “A Clean Break”: Israel’s obsession with crushing Hezbollah and dominating Lebanon, even if it means turning most of the Middle East upside down (regime changing Syria, Iran, and Iraq) to do it.

  ---

  9/11 paved the way for realizing the Clean Break, using the United States as a gigantic proxy, thanks to the Israel Lobby’s massive influence in Congress and the neocons’ newly won dominance in the Bush Administration.

  Much to their chagrin, however, its first phase (the Iraq War) did not turn out so well for the Clean Breakers. The blundering American grunts ended up installing the most vehemently pro-Iran Shiite faction in power in Baghdad, and now Iranian troops are even stationed and fighting inside Iraq. Oops. And as it turns out, Chalabi may have been an Iranian agent all along. (But don’t worry, Mr. Perle, I’m sure he’ll eventually come through with that pipeline.)

  This disastrous outcome has given both Israel and Saudi Arabia nightmares about an emerging “Shia Crescent” arcing from Iran through Iraq into Syria. And now the new Shiite “star” in Yemen completes this menacing “Star and Crescent” picture. The fears of the Sunni Saudis are partially based on sectarianism. But what Israel sees in this picture is a huge potential regional support network for its nemesis Hezbollah.

  

  Israel would have none of it. In 2006, it launched its second full scale war in Lebanon, only to be driven back once again by that damned Hezbollah. It was time to start thinking big and regional again. As mentioned above, the Bush war on Iran didn’t pan out. (This was largely because the CIA got its revenge on the neocons by releasing a report stating plainly that Iran was not anything close to a nuclear threat.) So instead the neocons and the Saudis drew the US into what Seymour Hersh called “the Redirection” in 2007, which involved clandestine “dirty war” support for Sunni jihadists to counter Iran, Syria, and Hezbollah.

  When the 2011 Arab Spring wave of popular uprisings spread to Syria, the Redirection was put into overdrive. The subsequent US-led dirty war discussed above had the added bonus of drawing Hezbollah into the bloody quagmire to try to save Assad, whose regime now finally seems on the verge of collapse.

  The Clean Break is back, baby! Assad is going, Saddam is gone, and who knows: the Ayatollah may never get his nuclear deal anyway. But most importantly for “securing the realm,” Hezbollah is on the ropes.

  

  And so what if the Clean Break was rather messy and broke so many bodies and buildings along the way? Maybe it’s like what Lenin said about omelets and eggs: you just can’t make a Clean Break without breaking a few million Arabs and a few thousand Americans. And what about all those fanatics now running rampant throughout large swaths of the world thanks to the Clean Break wars, mass-executing Muslim “apostates” and Christian “infidels” and carrying out terrorist attacks on westerners? Again, the Clean Breakers must remind themselves, keep your eye on the omelet and forget the eggs.

  Well, dear reader, you and I are the eggs. And if we don’t want to see our world broken any further by the imperial clique of murderers in Washington for the sake of the petty regional ambitions of a tiny clique of murderers in Tel Aviv, we must insist on American politics making a clean break from the neocons, and US foreign policy making a clean break from Israel.

  

  

  

  

  

• "When People Jump In Even Though It's Overpriced, That's A Bubble" Shiller Warns

  Bob Shiller moves beyond his normal fence-sitting perspective and goes full Marc Faber in this brief clip. Noting that his CAPE indicator of equity market valuation is flashing red (highest since 1929, 2000, and 2007), Shiller warns it is “when people jump into stocks even though they know valuations are high… that’s a bubble,” slamming CNBC’s rosy perspective reflecting that this is the same as the dotcom rise. Notably he warns specifically “The US equity market is one of the highest in the world,” and now is a good time to diversify away from it. Additionally Shiller warns of the slowing momentum in the housing market… warning that mean-reversion is likely with risk for further decline.

  Shiller also slams the bull$hit addage that “booms don’t die of old age…” warning that inventories across goods-producing industries are building worryingly…

  As Shiller explains…

  

  

  

  

  

• Russia Or China – Washington's Conflict Over Who Is Public Enemy #1

  Submitted by Michael Klare via TomDispatch.com,

  America’s grand strategy, its long-term blueprint for advancing national interests and countering major adversaries, is in total disarray. Top officials lurch from crisis to crisis, improvising strategies as they go, but rarely pursuing a consistent set of policies. Some blame this indecisiveness on a lack of resolve at the White House, but the real reason lies deeper. It lurks in a disagreement among foreign policy elites over whether Russia or China constitutes America’s principal great-power adversary.

  Knowing one’s enemy is usually considered the essence of strategic planning. During the Cold War, enemy number one was, of course, unquestioned: it was the Soviet Union, and everything Washington did was aimed at diminishing Moscow’s reach and power. When the USSR imploded and disappeared, all that was left to challenge U.S. dominance were a few “rogue states.” In the wake of 9/11, however, President Bush declared a “global war on terror,” envisioning a decades-long campaign against Islamic extremists and their allies everywhere on the planet. From then on, with every country said to be either with us or against us, the chaos set in. Invasions, occupations, raids, drone wars ensued — all of it, in the end, disastrous — while China used its economic clout to gain new influence abroad and Russia began to menace its neighbors.

  Among Obama administration policymakers and their Republican opponents, the disarray in strategic thinking is striking. There is general agreement on the need to crush the Islamic State (ISIS), deny Iran the bomb, and give Israel all the weapons it wants, but not much else. There is certainly no agreement on how to allocate America’s strategic resources, including its military ones, even in relation to ISIS and Iran. Most crucially, there is no agreement on the question of whether a resurgent Russia or an ever more self-assured China should head Washington’s enemies list. Lacking such a consensus, it has become increasingly difficult to forge long-term strategic plans. And yet, while it is easy to decry the current lack of consensus on this point, there is no reason to assume that the anointment of a common enemy — a new Soviet Union — will make this country and the world any safer than it is today.

  Choosing the Enemy

  For some Washington strategists, including many prominent Republicans, Russia under the helm of Vladimir Putin represents the single most potent threat to America’s global interests, and so deserves the focus of U.S. attention. “Who can doubt that Russia will do what it pleases if its aggression goes unanswered?” Jeb Bush asserted on June 9th in Berlin during his first trip abroad as a potential presidential contender. In countering Putin, he noted, “our alliance [NATO], our solidarity, and our actions are essential if we want to preserve the fundamental principles of our international order, an order that free nations have sacrificed so much to build.”

  For many in the Obama administration, however, it is not Russia but China that poses the greatest threat to American interests. They feel that its containment should take priority over other considerations. If the U.S. fails to enact a new trade pact with its Pacific allies, Obama declared in April, “China, the 800-pound gorilla in Asia, will create its own set of rules,” further enriching Chinese companies and reducing U.S. access “in the fastest-growing, most dynamic economic part of the world.”

  In the wake of the collapse of the Soviet Union, the military strategists of a seemingly all-powerful United States — the unchallenged “hyperpower” of the immediate post-Cold War era — imagined the country being capable of fighting full-scale conflicts on two (or even three fronts) at once. The shock of the twenty-first century in Washington has been the discovery that the U.S. is not all-powerful and that it can’t successfully take on two major adversaries simultaneously (if it ever could). It can, of course, take relatively modest steps to parry the initiatives of both Moscow and Beijing while also fighting ISIS and other localized threats, as the Obama administration is indeed attempting to do. However, it cannot also pursue a consistent, long-range strategy aimed at neutralizing a major adversary as in the Cold War. Hence a decision to focus on either Russia or China as enemy number one would have significant implications for U.S. policy and the general tenor of world affairs.

  Choosing Russia as the primary enemy, for example, would inevitably result in a further buildup of NATO forces in Eastern Europe and the delivery of major weapons systems to Ukraine. The Obama administration has consistently opposed such deliveries, claiming that they would only inflame the ongoing conflict and sabotage peace talks. For those who view Russia as the greatest threat, however, such reluctance only encourages Putin to escalate his Ukrainian intervention and poses a long-term threat to U.S. interests. In light of Putin’s ruthlessness, said Senator John McCain, chairman of the Senate Armed Services Committee and a major advocate of a Russia-centric posture, the president’s unwillingness to better arm the Ukrainians “is one of the most shameful and dishonorable acts I have seen in my life.”

  On the other hand, choosing China as America’s principal adversary means a relatively restrained stance on the Ukrainian front coupled with a more vigorous response to Chinese claims and base building in the South China Sea. This was the message delivered to Chinese leaders by Secretary of Defense Ashton Carter in late May at U.S. Pacific Command headquarters in Honolulu. Claiming that Chinese efforts to establish bases in the South China Sea were “out of step” with international norms, he warned of military action in response to any Chinese efforts to impede U.S. operations in the region. “There should be… no mistake about this — the United States will fly, sail, and operate wherever international law allows.”

  If you happen to be a Republican (other than Rand Paul) running for president, it’s easy enough to pursue an all-of-the-above strategy, calling for full-throttle campaigns against China, Russia, Iran, Syria, ISIS, and any other adversary that comes to mind. This, however, is rhetoric, not strategy. Eventually, one or another approach is likely to emerge as the winner and the course of history will be set.

  The “Pivot” to Asia

  The Obama administration’s fixation on the “800-pound gorilla” that is China came into focus sometime in 2010-2011. Plans were then being made for what was assumed to be the final withdrawal of U.S. forces from Iraq and the winding down of the American military presence in Afghanistan. At the time, the administration’s top officials conducted a systematic review of America’s long-term strategic interests and came to a consensus that could be summed up in three points: Asia and the Pacific Ocean had become the key global theater of international competition; China had taken advantage of a U.S. preoccupation with Iraq and Afghanistan to bolster its presence there; and to remain the world’s number one power, the United States would have to prevent China from gaining more ground.

  This posture, spelled out in a series of statements by President Obama, Secretary of State Hillary Clinton, and other top administration officials, was initially called the “pivot to Asia” and has since been relabeled a “rebalancing” to that region. Laying out the new strategy in 2011, Clinton noted, “The Asia-Pacific has become a key driver of global politics.  Stretching from the Indian subcontinent to the western shores of the Americas… it boasts almost half of the world’s population [and] includes many of the key engines of the global economy.” As the U.S. withdrew from its wars in the Middle East, “one of the most important tasks of American statecraft over the next decade will therefore be to lock in substantially increased investment — diplomatic, economic, strategic, and otherwise — in the Asia-Pacific region.”

  This strategy, administration officials claimed then and still insist, was never specifically aimed at containing the rise of China, but that, of course, was a diplomatic fig leaf on what was meant to be a full-scale challenge to a rising power. It was obvious that any strengthened American presence in the Pacific would indeed pose a direct challenge to Beijing’s regional aspirations. “My guidance is clear,” Obama told the Australian parliament that same November. “As we plan and budget for the future, we will allocate the resources necessary to maintain our strong military presence in this region. We will preserve our unique ability to project power and deter threats to peace.”

  Implementation of the pivot, Obama and Clinton explained, would include support for or cooperation with a set of countries that ring China, including increased military aid to Japan and the Philippines, diplomatic outreach to Burma, Indonesia, Malaysia, Vietnam, and other nations in Beijing’s economic orbit, military overtures to India, and the conclusion of a major trade arrangement, the Trans-Pacific Partnership (TPP), that would conveniently include most countries in the region but exclude China.

  Many in Washington have commented on how much more limited the administration’s actions in the Pacific have proven to be than the initial publicity suggested. Of course, Washington soon found itself re-embroiled in the Greater Middle East and shuttling many of its military resources back into that region, leaving less than expected available for a rebalancing to Asia. Still, the White House continues to pursue a strategic blueprint aimed at bolstering America’s encirclement of China. “No matter how many hotspots emerge elsewhere, we will continue to deepen our enduring commitment to this critical region,” National Security Adviser Susan Rice declared in November 2013.

  For Obama and his top officials, despite the challenge of ISIS and of disintegrating states like Yemen and Libya wracked with extremist violence, China remains the sole adversary capable of taking over as the world’s top power.  (Its economy already officially has.) To them, this translates into a simple message: China must be restrained through all means available. This does not mean, they claim, ignoring Russia and other potential foes. The White House has, for example, signaled that it will begin storing heavy weaponry, including tanks, in Eastern Europe for future use by any U.S. troops rotated into the region to counter Russian pressure against countries that were once part of the Soviet Union. And, of course, the Obama administration is continuing to up the ante against ISIS, most recently dispatching yet more U.S. military advisers to Iraq. They insist, however, that none of these concerns will deflect the administration from the primary task of containing China.

  Countering the Resurgent Russian Bear

  Not everyone in Washington shares this China-centric outlook. While most policymakers agree that China poses a potential long-term challenge to U.S. interests, an oppositional crew of them sees that threat as neither acute nor immediate. After all, China remains America’s second-leading trading partner (after Canada) and its largest supplier of imported goods. Many U.S. companies do extensive business in China, and so favor a cooperative relationship. Though the leadership in Beijing is clearly trying to secure what it sees as its interests in Asian waters, its focus remains primarily economic and its leaders seek to maintain friendly relations with the U.S., while regularly engaging in high-level diplomatic exchanges. Its president, Xi Jinping, is expected to visit Washington in September.

  Vladimir Putin’s Russia, on the other hand, looks far more threatening to many U.S. strategists. Its annexation of Crimea and its ongoing support for separatist forces in eastern Ukraine are viewed as direct and visceral threats on the Eurasian mainland to what they see as a U.S.-dominated world order. President Putin, moreover, has made no secret of his contempt for the West and his determination to pursue Russian national interests wherever they might lead. For many who remember the Cold War era — and that includes most senior U.S. policymakers — this looks a lot like the menacing behavior of the former Soviet Union; for them, Russia appears to be posing an existential threat to the U.S. in a way that China does not.

  Among those who are most representative of this dark, eerily familiar, and retrograde outlook is Senator McCain. Recently, offering an overview of the threats facing America and the West, he put Russia at the top of the list:

  “In the heart of Europe, we see Russia emboldened by a significant modernization of its military, resurrecting old imperial ambitions, and intent on conquest once again. For the first time in seven decades on this continent, a sovereign nation has been invaded and its territory annexed by force. Worse still, from central Europe to the Caucuses, people sense Russia’s shadow looming larger, and in the darkness, liberal values, democratic sovereignty, and open economies are being undermined.”

  For McCain and others who share his approach, there is no question about how the U.S. should respond: by bolstering NATO, providing major weapons systems to the Ukrainians, and countering Putin in every conceivable venue. In addition, like many Republicans, McCain favors increased production via hydro-fracking of domestic shale gas for export as liquefied natural gas to reduce the European Union’s reliance on Russian gas supplies.

  McCain’s views are shared by many of the Republican candidates for president. Jeb Bush, for instance, described Putin as “a ruthless pragmatist who will push until someone pushes back.” Senator Ted Cruz, when asked on Fox News what he would do to counter Putin, typically replied, “One, we need vigorous sanctions… Two, we should immediately reinstate the antiballistic missile batteries in Eastern Europe that President Obama canceled in 2009 in an effort to appease Russia. And three, we need to open up the export of liquid natural gas, which will help liberate Ukraine and Eastern Europe.” Similar comments from other candidates and potential candidates are commonplace.

  As the 2016 election season looms, expect the anti-Russian rhetoric to heat up. Many of the Republican candidates are likely to attack Hillary Clinton, the presumed Democratic candidate, for her role in the Obama administration’s 2009 “reset” of ties with Moscow, an attempted warming of relations that is now largely considered a failure. “She’s the one that literally brought the reset button to the Kremlin,” said former Texas Governor Rick Perry in April.

  If any of the Republican candidates other than Paul prevails in 2016, anti-Russianism is likely to become the centerpiece of foreign policy with far-reaching consequences. “No leader abroad draws more Republican criticism than Putin does,” a conservative website noted in June. “The candidates’ message is clear: If any of them are elected president, U.S. relations with Russia will turn even more negative.”

  The Long View

  Whoever wins in 2016, what Yale historian Paul Kennedy has termed “imperial overstretch” will surely continue to be an overwhelming reality for Washington. Nonetheless, count on a greater focus of attention and resources on one of those two contenders for the top place on Washington’s enemies list. A Democratic victory spearheaded by Hillary Clinton is likely to result in a more effectively focused emphasis on China as the country’s greatest long-term threat, while a Republican victory would undoubtedly sanctify Russia as enemy number one.

  For those of us residing outside Washington, this choice may appear to have few immediate consequences. The defense budget will rise in either case; troops will, as now, be shuttled desperately around the hot spots of the planet, and so on. Over the long run, however, don’t think for a second that the choice won’t matter.

  A stepped-up drive to counter Russia will inevitably produce a grim, unpredictable Cold War-like atmosphere of suspicion, muscle-flexing, and periodic crises. More U.S. troops will be deployed to Europe; American nuclear weapons may return there; and saber rattling, nuclear or otherwise, will increase. (Note that Moscow recently announced a decision to add another 40 intercontinental ballistic missiles to its already impressive nuclear arsenal and recall Senator Cruz’s proposal for deploying U.S. anti-missile batteries in Eastern Europe.) For those of us who can remember the actual Cold War, this is hardly an appealing prospect.

  A renewed focus on China would undoubtedly prove no less unnerving. It would involve the deployment of additional U.S. naval and air forces to the Pacific and an attendant risk of armed confrontation over China’s expanded military presence in the East and South China Seas. Cooperation on trade and the climate would be imperiled, along with the health of the global economy, while the flow of ideas and people between East and West would be further constricted. (In a sign of the times, China recently announced new curbs on the operations of foreign nongovernmental organizations.) Although that country possesses far fewer nuclear weapons than Russia, it is modernizing its arsenal and the risk of nuclear confrontation would undoubtedly increase as well.

  In short, the options for American global policy, post-2016, might be characterized as either grim and chaotic or even grimmer, if more focused. Most of us will fare equally badly under either of those outcomes, though defense contractors and others in what President Dwight Eisenhower first dubbed the “military-industrial complex” will have a field day. Domestic needs like health, education, infrastructure, and the environment will suffer either way, while prospects for peace and climate stability will recede.

  A country without a coherent plan for advancing its national interests is a sorry thing. Worse yet, however, as we may find out in the years to come, would be a country forever on the brink of crisis and conflict with a beleaguered, nuclear-armed rival.

  

  

  

  

  

• The "Smartest Money" Is Liquidating Stocks At A Record Pace: "Selling Everything That’s Not Bolted Down"

  Just over two years ago, at the Milken global conference, the head of Apollo Group Leon Black said that “this is an almost biblical opportunity to reap gains and sell” adding that his firm has been a net seller for the last 15 months, ending with the emphatic punchline that Apollo is “selling everything that is not nailed down.”

  Roughly at that time the great stock buyback binge began, which coupled with two more central banks entering the stock levitation “wealth effect” bonanza, provided ample opportunity for the biggest asset managers in the world to sell into.

  But while we knew that both “vanilla” institutions and hedge funds were actively selling in the public markets, it was not until last week when we got the most candid glimpse of just how much. We described it last week when citing Bank of America who said that “BofAML clients were big net sellers of US stocks in the amount of $4.1bn, following four weeks of net buying. Net sales were the largest since January 2008 and led by institutional clients—after three weeks of net buying, institutional clients’ net sales last week were the largest in our data history.“

  

   

  Today, we got definitive confirmation that the truly “smartest money in the room”, those who dabble not in the bipolar public markets but in private equity had indeed started “selling everything that is not nailed down” several years ago hitting a climax this past quarter, when Bloomberg reported that two years after Leon Black’s infamous statement, “other private-equity firms are following suit – dumping stakes into the markets at a record clip.“

  According to Bloomberg data, firms including Blackstone Group and TPG have been “capitalizing on record stock markets around the world to sell shares, mostly in their companies that have already gone public. Globally, buyout firms conducted 97 stock offerings in the second quarter, more than in any other three-month period.“

  And who are these core investors selling their equity stakes to: mostly to the companies themselves…

  

   

  … but what’s worse, as directors and ultimate decision-makers, they are forcing their very companies to lever up even more to fund these buybacks of “insider” stock!

  

   

  Since Black made his comments in April 2013, the MSCI World Index has gained 18%, stretching valuations even higher. Bloomberg adds that “headwinds that threaten to rattle global equities are everywhere — from the Greek and Puerto Rican debt crises to an eventual increase in U.S. interest rates” but in a world in which central banks are the first and last backstop to a market drop, there is “no risk”… which is why the insiders are taking every advantage to liquidate.

  “It’s clear that we are currently in an environment of frothy valuations,” said Lise Buyer, founder of IPO advisory firm Class V Group.

  Her disturbing punchline: “The insiders – those with the most knowledge – are finding this a very good time to take some money off the table.“

  This year, private-equity firms sold $73 billion of their buyouts to the public, a record amount over a six month period, Bloomberg data show.

  Some examples:

  The biggest such deal this year came in May when Blackstone sold 90 million shares, or $2.69 billion worth, of hotel-chain Hilton Worldwide Holdings Inc. in a secondary offering. Blackstone took the company private in 2007 for $26 billion and did an IPO in December 2013, raising $2.7 billion. After the latest sale, Blackstone’s stake in Hilton fell to 46 percent from 82 percent before the IPO, Bloomberg data show.

   

  The largest European exit so far this year was the $2.46 billion IPO of online car dealership Auto Trader Group Plc in London, where Apax Partners sold shares. In Asia, private-equity firm China Aerospace Investment Holdings Ltd. sold 2.3 million shares in a $2.12 billion IPO of China National Nuclear Power Co.

  Which leads to a paradox: the PE firms, now focused on selling the remainder of their equity positions in massive peak credit bubble LBOs from the 2006-2007 period via secondaries have nothing left to take public, and as a result  they’re doing fewer initial offerings: PE-backed IPOs have had the slowest start to the year since 2010, selling $8.2 billion in stock.

  The reason: “many of the larger companies that were swooped up during the buyout boom that ended in 2007 have already gone public. Today’s selling is largely private-equity owners getting out of those assets.“

  “It’s been a lot more about harvesting public positions than creating new ones through IPOs,” said Cully Davis, co-head of equity capital markets for the Americas at Credit Suisse Group AG. “The markets are open and the financial sponsors are pretty astute about timing their exits.”

  In other words, the insiders are not only selling, they are liquidating every last share they can find.

  In an echo of Leon Black, Frank Maturo, vice chairman of equity capital markets at UBS AG, said, “Private equity is selling everything that’s not bolted down. With the robust valuations in today’s market, they are accelerating monetizations of companies they own.”

  But what does the smart money know, anyway… aside, of course, from selling when they can not when they have to.

  And now back to CNBC and their paper-money “trader” talking heads saying there is only upside from here to eternity. Let’s see if we have these right: “the money is still on the sidelines”, “there is a wall of worry”, “Greece is a dip-buying opportunity”, actually “everything is a dip-buying opportunity”, “stocks are not a bubble, it is bonds that are a bubble”, “the economic recovery is just around the corner” and “99% percentile valuations are just slightly stretched if you seasonally-adjusted them enough times.”

  That about covers it.

  

  

  

  

  

• "Heartbreaking" Scene Unfolds At Greek Banks As Pensioners Clamor For Cash

  1,000 Greek bank branches chanced a stampede in order to open their doors to the country’s retirees on Wednesday.

  The scene was somewhat chaotic as pensioners formed long lines and the country’s elderly attempted to squeeze through the doors in order to access pension payments.

  As Bloomberg reports, payouts were rationed and disbursals were limited according to last name. Here’s more: 

  It’s a day of fresh indignities for the people of Greece.

  
  

  About a third of the nation’s depleted banks cracked open their doors after being closed for three days. But all they did was ration pension payments, hours after the country became the first advanced economy to miss a payment to the International Monetary Fund and its bailout program expired.

   

  On the third day of capital controls, a few dozen pensioners lined up by 7 a.m. at a central Athens branch of the National Bank of Greece, an hour before opening time. They were to receive a maximum of 120 euros ($133), compared with the average monthly payment of about 600 euros. Many left with nothing after the manager said only those with last names starting with the letters A through K would get paid.

   

  “Not only will I have to queue for hours at the bank in the hope of getting 120 euros, but I’ll have a two-hour round trip,” said Dimitris Danaos, 77, a retired local government worker who was making the bus journey from his home outside the Greek capital to the suburb of Glyfada. 

  AFP has more color:

  In chaotic scenes, thousands of angry elderly Greeks on Wednesday besieged the nation’s crisis-hit banks, which have reopened to allow them to withdraw vital cash from their state pensions.

   

  “Let them go to hell!” said one pensioner waiting to get his money, after failed talks between Athens and international creditors sparked a week-long banking shutdown.

   

  The Greek government, which closed the banks and imposed strict capital controls after cash machines ran dry, has temporarily reopened almost 1,000 branches to allow pensioners without cards to withdraw 120 euros ($133) to last the rest of the week.

   

  The move has again sparked lengthy queues at banks across Greece — and outrage from many retirees who are regarded as among the most vulnerable in society, exposed to a vicious and lengthy economic downturn.

   

  Under banking restrictions imposed all week, ordinary Greeks can withdraw up to 60 euros a day for each credit or debit card — but many of the elderly population do not have cards.

   

  Another customer, a retired mariner who asked not to be named, told AFP he had no cash to buy crucial medicine for his sick wife.

   

  “I worked for 50 years on the sea and now I am the beggar for 120 euros,” he said.

   

  “I took out 120 euros — but I have no money for medication for my wife, who had an operation and is ill,” he added.

   

  
  

  Here’s a look at the scene at National Bank in Athens courtesy of The Telegraph:

  As we outlined in detail earlier this morning, the latest polls show a slim majority of Greeks plan to vote “no” in the upcoming referendum (which, as far as we know, will still go on). Many analysts and commentators say a “oxi” vote would likely lead to a euro exit and with it, far more pain for the country’s retirees.

  Indeed, as we noted on Tuesday in “For Greeks, The Nightmare Is Just Beginning: Here Come The Depositor Haircuts,” Goldman has suggested that only once Syriza’s “core constituency of pensioners and public sector employees” sees the cash reserves (to which they have heretofore enjoyed first claim on) run dry, will they “face the direct implications of the liquidity squeeze the political impasse between Greece and its creditors has created. And only then will the alignment of domestic political interests within Greece change to allow a way forward.”

  And so, as sad as it is, the scene that unfolded today in front of the roughly one-third of Greek bank branches which opened their doors to pensioners, may have been preordained by the powers that be in Burssels because as we said yesterday evening, breaking Syriza’s voter base may have been necessary in order for the Troika to finally force Tsipras to relent or else risk being driven from office, after capital controls and depositor haircuts force public sector employees to collectively cry “Uncle”, beg Europe to take it back, and present Merkel with Tsipras and Varoufakis’ heads on a proverbial (and metaphorical, we hope) silver platter. 

  

  

  

  

  

• Who Will Be The Last To Crash?

  Submitted by Paul Rosenberg via FreemansPerspective.com,

  This is the question that astute investors are forced to ask themselves these days. No reasonable person believes that a system of ever-expanding debt can resolve painlessly. It simply cannot happen… not, at least, until 2+2 stops equaling four.

  But the international money system, while deeply interconnected, can implode in sections. In fact, it’s highly unlikely that it will crash as a single unit.

  So, if you have significant moneys to invest, you end up coming back to our question: Who will be the last to crash? Once you decide that, you can concentrate your assets in that place, hoping to come through the crash with at least most of your value intact.

  Let’s look at several aspects of this:

  #1: Background statistics:

  • World debt is upwards of $200 trillion, and growing steadily. World GDP is $70-some trillion, only about a third of the debt. This debt will not be paid back. Massive amounts of debt will have to be written off in losses.

  • US debt is north of $18 trillion. (Amazingly, *cough*, it hasn’t changed in months *cough*.) Forward promises are north of $200 trillion, meaning that a child born today is responsible to repay $625,000. And since roughly half the US population pays no income tax… and presuming that this newborn will be a member of the productive half… he or she is born $1.25 million in debt. Such repayments will never happen. Most of those debts will not be repaid.

  • Japan is worse off than the US. The UK is bad. Many EU countries are worse.

  These numbers, by the way, are ignoring more than a quadrillion dollars of derivatives and lots of other monkey business. (Rehypothecation, *cough*, *cough*.)

  #2: No one wants to rock the boat.

  Informed men and women understand that the entire system is unstable. Probably a majority of them are simply hoping that it holds together until they die. A few dream that magical new inventions will kick-start the system into a new orgy of debt, blowing an even larger super-bubble that lasts through their hopefully longer lifetimes.

  But informed people also know that the system stands almost wholly upon confidence. If the sheep get scared enough to run away, the whole thing ends… and no one is ready for it to end.

  So, heavy investors speak in soothing tones. They don’t want to spook the masses.

  #3: We’ve already had warning shots.

  Last year, the International Monetary Fund (IMF) published a horrifying paper, called The Fund’s Lending Framework and Sovereign Debt. That paper, in turn, was based upon one from December of 2013, called Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten.

  The December 2013 document, right at the start, says that “financial repression” is necessary. Here’s what it says (emphasis mine):

  The claim is that advanced countries do not need to resort to the standard toolkit of emerging markets, including debt restructurings and conversions, higher inflation, capital controls and other forms of financial repression… [T]his claim is at odds with the historical track record of most advanced economies, where debt restructuring or conversions, financial repression, and a tolerance for higher inflation, or a combination of these were an integral part of the resolution of significant past debt overhangs.

  So, in order to fix debt overhangs – currently at horrifying levels – financial repression is not just an option, but required.

  And of course, they’ve already had a trial run, when they stole funds directly from individual bank accounts in Cyprus.

  The IMF report goes on to say:

  [G]overnments can stuff debt into local pension funds and insurance companies, forcing them through regulation to accept far lower rates of return than they might otherwise demand.

  [D]omestic defaults, restructurings, or conversions are particularly difficult to document and can sometimes be disguised as “voluntary.”

  We have a pretty good idea of what’s coming down the pike.

  But again, Goldman’s Muppets are not to be told about this. And truthfully, most of them don’t want to know.

  #4: We have no view of what’s happening in the back rooms.

  People make large bets on what Janet Yellen and the Fed will decide next, but when we do that, we overlook something very important:

  Yellen is merely an employee of the Federal Reserve, not an owner. And we don’t know who the owners are.

  We do know that the Fed is owned by private banks, and that it has a monopoly on the creation of US currency, but we really don’t know who owns the shares. The true owners are almost certainly reflected in the roster of primary dealers, who skim Federal Reserve units as they’re being made, but we don’t know much more than that.

  So…

  Who are the people that Yellen takes orders from?

  What do these people want?

  What are their long-term positions?

  Who might they protect, aside from themselves?

  We don’t have real answers to any of these questions. From our perspective, the guts of the machine are hidden behind a curtain.

  #5: The US is playing to win.

  One thing we do know is that the US has a strong hand. Within a general deflationary situation, the Fed can print away. And they’re propping up the US markets quite well… for now.

  Feeling their power (after all, they can blow up more stuff than anyone else!), the US is throwing their weight around, forcing nearly every bank in the world to play by their rules. (Think FATCA and fining foreign banks.) And for the moment, it is working.

  Bullying everyone else over the long term may, however, not be viable. No one – especially people like Putin and the Chinese bosses – likes to be slapped around in public. And they are not powerless.

  Conclusion: Most Bets Are on the US

  Europe isn’t looking good. Japan isn’t looking good. The UK is holding, but as mentioned above, its numbers are horrible. Switzerland seems to be in-between strategies. China has problems. Russia has problems. The BRICS have never been stable.

  That leaves the US. My impression is that most serious investors would rather hold dollars than yen or euros; most big businesses too. Their bets are on that the US will crash last.

  So, are the Fed and the US Treasury doing this intentionally? Are they quietly pulling the pins out from under the others, making sure that they’ll be the last currency standing? I have no inside information, but I’d bet on it.

  Remember, the gang on the Potomac has most Americans believing that whatever they do overseas is pure and holy. Furthermore, 99% of their serfs will reflexively obey any order they give. So, why shouldn’t they play dirty? They have the best bombs and a somnambulant public.

  For now.

  

  

  

  

  

• Black Churches Are Burning Across The South, Arson Eyed

  Following the murder of nine African American churchgoers in Charleston, South Carolina last month, we said the following about the current state of American society:

  The riots that left Baltimore in ashes in late April and the massacre that occurred last week at the historic Emanuel AME church in Charleston serve as vivid reminders of the extent to which American society now teeters perpetually on the edge of social upheaval. Increasingly, those who feel ‘the system’ has somehow failed them are turning to violence as a means of addressing their grievances, which betrays a complete lack of faith in the government’s ability to help create the conditions under which groups and individuals with divergent interests can coexist without sinking into a Hobbesian state of nature. 

  We then made the following admittedly stark prediction: “Ultimately, it appears America has become a country wherein everyone feels marginalized and/or aggrieved in one way or another. In the absence of a dramatic societal reboot, we fear social instability is likely here to stay.”

  That assessment appears to have been quite accurate because over the course of just two weeks, six predominantly African American churches in the US have burned, with authorities suspecting arson in several of the blazes. NY Times has the story:

  Ivestigators sifted through the burned-out shell of a black church here on Wednesday, trying to determine the cause of a fire that has left residents here anguished.

   

  Williamsburg County officials said the fire at the Mount Zion A.M.E. Church, which took more than two hours to extinguish, began around 8:30 p.m. on Tuesday and burned through the church’s roof. Lightning storms moved through the area overnight.

   

  
  

   

  The fire came as the authorities in Georgia, North Carolina, South Carolina and Tennessee investigated blazes at other churches, most of them predominantly black. Although the authorities have concluded that some of those fires were arson, officials have not yet described any of the episodes as hate crimes.

   

  One of the fires was caused by lightning and another was electrical. Investigators also said there was no evidence that the fires at the churches were linked.

  Still, it’s difficult to ignore the trend — especially in light of recent events. Indeed, Mount Zion has burned to the ground before. 20 years ago, two Ku Klux Klan members pleaded guilty to civil rights charges on the heels of a fire at the church. Here’s AFP:

  “There are still a lot of questions to be answered,” Williamsburg County chief deputy sheriff Stephen Gardner told reporters in Greeleyville when asked Wednesday about the cause of the Mount Zion fire.

   

  “We haven’t ruled anything in or anything out at this point,” added Federal Bureau of Investigation (FBI) agent Craig Chilcott, as sniffer dogs helped police and fire investigators comb through the church ruins.

   

  Mount Zion last burned to the ground in June 1995, in a fire that prompted the arrest of two Ku Klux Klan members in their early 20s.

   

  The pair got prison terms after pleading guilty to federal civil rights charges, while the church won a $37.8 million lawsuit against the Christian Knights of the Ku Klux Klan and its South Carolina leader.

   

  “Because of its prominence in the African-American community, the church has historically been a target of arson and destruction by bigots and white supremacists,” said the department’s National Church Arson Task Force, launched by then-president Bill Clinton in the aftermath of the 1995 Mount Zion fire.

  In addition to the fire at Mount Zion, Glover Grove Baptist Church in Warrenville, South Carolina burned down on June 26, Briar Creek Road Baptist Church in North Carolina was reduced to ashes on June 24, God’s Power Church Of Christ in Macon, Georgia was found on fire with the front doors wired shut on the 23rd, and bales of hay as well as a church van were set alight in front of College Hill Seventh Day Adventist church in Knoxville, Tennessee on June 21. Here are the visuals:

  

  

  

  *  *  *

  So while the jury is still out (so to speak) on whether there is indeed some discernible connection between the incidents shown above, it does appear that at least some of these fires were set intentionally which would seem to be further evidence that the fabric of American society may be ripping apart at the seams and we suspect that when December rolls around and we once again review the most-read posts of the preceding 12 months, we’ll find that for the second year running, “civil unrest” is a common thread.

  

  

  

  

  

• Bank Of England Warns Greece "Threatens To Trigger Market Selloff That Could Ripple Through The Global Economy"

  Early last week we presented something rather shocking: a note by Goldman Sachs suggested that as a result of the ECB’s QE failure to push the EUR lower and with bond yields having risen instead of falling since the launch of the ECB’s QE in March, and perhaps due to a perplexing conflict between the ECB and the Bundesbank when it comes to debt monetization, a Greek default sparking contagion blowout risk, not to mention a “seven big figure” tumble in the EURUSD, may be just what the ECB needs.

  On one hand, the Goldman assessment was not surprising: after all the bank’s top trade for 2015 has been that the EUR will go much lower from current levels so in many ways it was self-serving. But, what’s far more stunning is that Goldman, accurately, assessed the ECB’s needs in light of what is increasingly seen by many as a QE program that is faltering just 4 months after its launch, and the direct implication was evident: for all the posturing and bluffing from Greece that it won’t be blackmailed, it may have fallen precisely in a trap set by none other than the ECB.

  The only hurdle was getting the Greeks to accept the blame for the failure of the negotiations which happened, at least in the perspective of the Eurozone, when Tsipras announced the referendum after midnight on Friday. Merkel herself admitted as much earlier:

  • MERKEL SAYS GREECE UNILATERALLY ABANDONED SUCCESSFUL TALKS

  In other words, when it comes to Europe, Greece lost the blame game, and just like the Ukraine civil war last year, became an unwitting catalyst greenlighting Germany’s concession to ECB QE, this time it may be Greece that launches the next step in the ECB’s master plan: not just QE but more QE.

  This is precisely what Goldman’s Franceso Garzarelli, co-head of macro and markets research, admitted earlier today in an interview on Bloomberg TV, when he said that the ECB “will have to go big” if the situation in Greece worsens and leads to wider peripheral bond yield spreads.

  He added that a close call or “no” vote at referendum will cause spread widening which as a result of the complete lack of bond liquidity borne out of the ECB’s intervention and soaking up of government bond collateral, “the market is not deep enough to accommodate a rotation in risk at this point in time.“

  How ironic: what Goldman is saying that the more the ECB intervene, the more it will have to intervene. Which, of course, is very convenient for all those who stand to benefit the most from more ECB – entities such as Goldman Sachs…

  In terms of specific markets, Garzarelli said that the 10Y Italian yield at 3% would be a sign ECB may move. He added that the market is currently “frozen” with Italy-Germany spread trading in a range because the direct risk from Greece is low, i.e., “if you have Greek risk on at the moment it’s because you want it”; because there is hope of an agreement and because expectation the ECB will limit contagion. The clear circularity of the last argument is too obvious to even note it.

  And perhaps just to emphasize Goldman’s point, earlier today another (ex) Goldmanite, this time the one in charge of the Bank of England, Mark Carney, directly refuted Obama who said Greece is not a “major shock” to the US economy, admiting this morning that “the outlook for financial stability in the U.K. has deteriorated in recent days as the crisis in Greece intensifies, underscoring how the Mediterranean nation’s debt troubles are reverberating outside the eurozone.”

  As the WSJ reported, when “presenting the BOE’s twice-yearly Financial Stability Report, the central bank’s governor Mark Carney said the risks associated with Greece and its failure so far to reach a deal with its international creditors have grown acute, and threaten to trigger a selloff in financial markets that could ripple through to the wider global economy.”

  Mr. Carney told reporters that although U.K. banks’ direct exposure to Greece through loans and deposits is minimal, that doesn’t mean the British economy would necessarily be immune to the fallout should Greece exit the eurozone.

   

  “The situation remains fluid, and it is possible that a deepening of the Greek crisis could prompt a broader reassessment of risk in financial markets,” Mr. Carney said. That could ultimately hurt the confidence of businesses and households in Britain, he said.

   

  The BOE has been working with the U.K. Treasury and authorities across Europe to draw up contingency plans to shield the U.K. economy from harm, Mr. Carney said, although he declined to elaborate. He did say regulators have in stepped up their scrutiny and engagement with the U.K. branches of some Greek lenders.

   

  On Wednesday, U.K. Treasury chief George Osborne said Britain is hoping for the best but “preparing for the worst.”

   

  “We stand ready to do whatever is necessary to protect our economic security at this uncertain time.”

  Conveniently, if only for all those 0.01% of the economy who benefit directly from QE, so does the ECB: it is, in fact, ready (and would be delighted) to “go big”…

  

  …. in case Greece votes “Oxi” on Sunday which would mean that, for the second time in the 21st century, Goldman wins and Greece loses.

  

  

  

  

  

• The Current Oil Price Slump Is Far From Over

  Submitted by Arthur Berman via ArtBerman.com,

  The oil price collapse of 2014-2015 began one year ago this month (Figure 1).  The world crossed a boundary in which prices are not only lower now but will probably remain lower for some time. It represents a phase change like when water turns into ice: the composition is the same as before but the physical state and governing laws are different.*

  
  Figure 1. Daily crude oil prices, June 2014-June 2015.  Source: EIA.
  (Click image to enlarge)

  For oil prices, the phase change was caused mostly by the growth of a new source of supply from unconventional, expensive oil. Expensive oil made sense only because of the longest period ever of high oil prices in real dollars from late 2010 until mid-2014.

  The phase change occurred also because of a profoundly weakened global economy and lower demand growth for oil. This followed the 2008 Financial Collapse and the preceding decades of reliance on debt to create economic expansion in a world approaching the limits of growth.

  If the cause of the Financial Collapse was too much debt, the solution taken by central banks was more debt. This may have saved the world from an even worse crisis in 2008-2009 but it did not result in growing demand for oil and other commodities necessary for an expanding economy.

  Monetary policies following the 2008 Collapse produced the longest period of sustained low interest rates in recent history. As a result, capital flowed into the development and over-production of marginally profitable unconventional oil because of high coupon yields compared with other investments.

  The devaluation of the U.S. dollar following the 2008 Financial Collapse corresponded to a weak currency exchange rate and an increase in oil prices.  The fall in oil prices in mid-2014 coincided with monetary policies that strengthened the dollar.

  Prolonged high oil prices caused demand destruction. This also allowed the expansion of renewable energy that could compete only at high energy costs. Concerns about global climate change and its relationship to burning oil and other fossil energy threatened the future interests of conventional oil-exporting countries. OPEC hopes to regain market share from expensive unconventional oil and renewable energy, and to renew demand for oil through several years of low oil prices.

  OPEC increased production in mid-2014, and decided not to cut production at its November 2014 meeting   By January 2015 oil prices fell below $50 per barrel.

  Most observers expected a sharp reduction in U.S. tight oil production after rig counts fell with lower prices. Production fell in early 2015 but recovered as new capital poured into North American E&P companies. This and the partial recovery of oil prices into the mid-$60 per barrel range gave expensive oil another day to survive and fight.

  If capital continues to flow to unconventional oil companies and OPEC’s resolve stays firm, oil prices could average near the present range for many years. Oil prices will probably fall in the second half of 2015 as the ongoing production surplus and weak demand overcome the sentiment-based belief that a price recovery is already underway.

  Oil prices must inevitably rise as unconventional production peaks over the next decade and oil-exporting countries increasingly consume more of their own oil. Politically driven supply interruptions will inevitably punctuate the emerging new reality with periods of higher prices.

  For now, however, we have crossed a boundary and notions of normal or business-as-usual should be put aside.

  A New Supply Source and Over-Production 

  The main cause of the price collapse of 2014-2015 was over-production of oil.  Most of the increase came from unconventional production in the United States and Canada–tight oil, oil sands and deep-water oil. From 2008 to 2015, U.S. and Canadian production increased 7.65 million barrels per day (mmpbd). During the same period, non-OPEC production less the U.S. and Canada decreased 2.85 mmbpd and OPEC production increased 1.79 mmbpd (Figure 2).

  
  Figure 2 . World liquids production since 2008 and the relative shares for the U.S. & Canada, OPEC and non-OPEC less the U.S. and Canada.
  Source: EIA and Labyrinth Consulting Services, Inc.
  (Click image to enlarge)

  North American unconventional and OPEC conventional production increased almost 4 mmbpd in 2014 alone (Figure 3).

  
  Figure 3. U.S. + Canada & OPEC Liquids Production Since January 2014. Source: EIA and Labyrinth Consulting Services, Inc.
  (Click image to enlarge)

  Through 2013, unconventional production growth was matched by decreases in OPEC production mostly from supply interruptions due to political events (Figure 4). The result was that prices remained high despite increases in unconventional production.

           
  Figure 4. U.S. + Canada & OPEC Liquids Production Growth, 2011-2015. Source: EIA and Labyrinth Consulting Services, Inc.
  (Click image to enlarge)

  OPEC responded to defend its market share in mid-2014 by increasing production. Prices started falling in late June 2014 from $115 per barrel (Brent) and reached a low in late January 2015 of $47 per barrel after OPEC decided not to cut production at its November 2014 meeting.

  Unconventional production slowed and fell in early 2015. Then, prices increased beginning in February and Brent has averaged $63 per barrel since May 1 (WTI average $59 per barrel). Over-production continues as different parties struggle for market share, for cash flow to survive, or both.

  If high oil prices created the conditions for unconventional oil to grow and challenge OPEC’s market share, then prolonged low oil prices must be part of OPEC’s solution.  By keeping prices below the marginal cost of unconventional production (about $75 per barrel), OPEC hopes that expensive oil production will decline along with the fortunes of the companies engaged in these plays.

  Decreased Demand and Demand Destruction 

  OPEC is as concerned about long-term demand as it is about market share. Oil is the only major source of revenue for many OPEC countries and low demand, potential competition from other fuel sources, and the effect of a perceived link between oil use and climate change are existential threats.

  Demand growth for oil has been declining since the late 1960s (Figure 5).  OPEC hopes to stimulate demand through low oil prices back to the peak levels that existed before the price shocks of the 1970s and 1980s.

  
  Figure 5. World Liquids Demand Growth.  Source: BP, EIA and Labyrinth Consulting Services, Inc.
  (Click image to enlarge)

  Demand destruction followed periods of high oil prices from 1979-1981 (Iran-Iraq War) and from 2007-2008 (demand growth from China).  2010-2014 was the longest period in history–33 months–of oil prices above $90 per barrel in real dollars (Figure 6). Since 2011, demand growth has fallen to only 0.5% per year so far in 2015 (Figure 5).

  
  Figure 6. Crude oil prices more than $90 per barrel in 2015 dollars. Source: EIA, Federal Reserve Board and Labyrinth Consulting Services, Inc.
  (Click image to enlarge)

  Prolonged low oil prices may restore growth to the global economy accomplishing what the central banks have failed to do since 2008. If successful, interest rates should rise and this may restrict the flow of capital to unconventional E&P companies. Most of the capital provided to these companies comes from high-yield (“junk”) corporate bond sales, preferred share offerings, and debt. In a zero-interest rate world (Figure 7), these provide yields that are are much higher than those found in more conventional investments like U.S. Treasury bonds or money market accounts. If interest rates increase with a stronger economy, capital may flow to more productive investments that offer yields that are more competitive with higher risk tight oil offerings.

  
  Figure 7. Federal funds interest rates January 2000-June 2015 and Brent crude oil price.
  Federal Reserve Board, EIA and Labyrinth Consulting Services, Inc.
  (Click image to enlarge)

  Over-Production Continues

  The over-production that began the oil price collapse continues and has gotten worse. The global production surplus (production minus consumption) has gone on for 17 months and has grown from 1.25 mmbpd in May 2014, just before prices began to fall, to almost 3 mmbpd in May 2015 (Figure 8).

  
  Figure 8. World liquids production surplus or deficit and Brent crude oil price. Source: EIA and Labyrinth Consulting Services, Inc.
  (Click image to enlarge)

  We may take some comfort that the rate of increase has slowed but it is difficult to explain the increase in prices over the last few months based on supply and demand.

  The production supply surplus that is largely responsible for the current oil-price collapse is not a trivial event that will likely go away soon unless production is cut either by unconventional producers or OPEC. Earlier production surpluses in May 2005 and January 2012 were higher than today but were short-lived and related to specific non-systemic factors (Figure 9).

  
  Figure 9.  World liquids relative production surplus or deficit and Brent price in 2015 dollars, 2003-2015. 
  Source: EIA and Labyrinth Consulting Services, Inc.
  (Click image to enlarge)

  The present supply imbalance is structural and persistent. The only comparable episode in recent history was the production deficit immediately before the 2008 Financial Collapse that lasted 11 months. It was driven by growing Chinese and other Far East demand and by dwindling oil supplies following the peak of conventional production in 2005.

  For now, OPEC appears committed to continued over-production to achieve its goals. Its production increased 1.4 million barrels of liquids per day during the last year (Figure 3) and some analysts suggest it might increase by an equal amount again in coming months.

  Meanwhile, U.S. production has not fallen much so far. Production from the main tight oil plays fell about 77,000 bpd in January 2015, was basically flat in February and increased 51,000 bpd in March (Figure 10). This is partly because companies are high-grading well completions in the best parts of the plays. It is also because of the backlog of drilled but uncompleted wells that are being brought on production at a fraction of the incremental cost of drilling new wells.

  
  Figure 10. Oil production from tight oil plays in the U.S. Source: Drilling Info and Labyrinth Consulting Services, Inc.
  (Click image to enlarge)

  But the most significant factor is that capital flow to U.S. unconventional plays has increased. Figure 11 shows that almost $17 billion in equity offerings flowed to U.S. oil companies in the first quarter of 2015, more than in any other period since 2010. The percent of E&P equity rose to over 10% of overall issuance from an average of about 4-5% over the last decade. This can only be explained because there are no alternative investments with comparable yields and that investors believe that they are buying assets that are somehow viable at current oil prices.

  
  Figure 11. Capital available to U.S. E&P companies in the first quarter of 2015. Source: Wall Street Journal.
  (Click image to enlarge)

  Tight oil companies have made the case that through increased efficiency and lower service costs that their economics are better at lower oil prices today than they were at $90 per barrel prices a few years ago. First quarter (Q1) financial results do not support this claim.

  In fact, tight oil companies are losing more than twice as much money in Q1 2015 as they were in 2014. On average, companies that were spending $1.40 for every dollar they earned from operations last year are now spending $3.20 for every dollar earned (Figure 12).

  
  Figure 12. First quarter (Q1) 2015 vs. full-year 2014 capital expenditures-to-cash flow from operations ratio.
  Source: Google Finance and Labyrinth Consulting Services, Inc.
  (Click image to enlarge)

  Follow The Money

  The strength of the U.S. dollar provides a simple and generally reliable way to cut through the complex factors that govern oil prices. A negative correlation exists between the strength of the U.S. dollar and the price of oil (Figure 13). This correlation is particularly strong beginning in about 1997.

  
  Figure 13.  U.S. Federal Reserve Board broad dollar index and CPI-adjusted Brent and WTI crude oil prices.
  Source:  Federal Reserve Board, EIA and Labyrinth Consulting Services, Inc.
  (Click image to enlarge)

  The relationship is key to understanding the current oil-price collapse. Figure 14 shows the daily exchange rate of the U.S. Dollar and the Euro in relation to Brent and WTI crude oil prices.  The onset of price decline coincided with a stronger U.S. dollar beginning in June 2014 that may be related to the end of quantitative easing and to an improving U.S. economy.  The recent increase in oil prices in 2015 corresponds to weakening of the dollar that may reflect disappointingly weak first quarter 2015 U.S. GDP growth.

  
  Figure 14. U.S. dollar/Euro exchange rate, Brent and WTI prices. Source: EIA, Oanada and Labyrinth Consulting Services, Inc.
  (Click image to enlarge)

  The standard explanation for the relationship between the dollar and oil price is that global oil transactions are carried out in U.S. dollars. When the dollar is weak against other currencies, oil prices are higher and when the dollar is strong, oil prices are lower. In other words, a stronger U.S. economy and currency may reduce oil prices and vice versa. While the observation is accurate, the explanation is more complex.

  Oil and other commodities are hedges against economic risk and uncertainty. Oil prices increase and decrease as risk perception rises and falls. High oil-supply risk or “fear premiums” generally manifest as short-lived, upward price spikes that are quickly integrated into forward price expectations. Following the initial shock of oil-supply risk, U.S. Treasury bond and related “flight-to-safety” investments tend to lower oil price trends as the U.S. dollar appreciates.

  Supply and demand balance operates as a first-order cycle against which economic uncertainty and geopolitical risk fluctuate as second- and third-order cycles. When a  first-order supply imbalance coincides with second- or third-order economic or geopolitical factors, an upward or downward price-cycle may develop. Higher energy costs are a weight on the economy that may lower currency values.  Conversely, lower energy costs may lift the economy and currency values.

  The U.S. is the world’s largest economy and the U.S.dollar is the world reserve currency. This makes the U.S. dollar a fairly reliable reflection and measure of all of these factors.

  The 2014-2015 oil price collapse may be understood then as a supply surplus that occurred at a time of a strengthening U.S. economy (low economic uncertainty) and relatively low geopolitical risk (Figure 15).  The additive effect of these three cycles was a sharp decline in oil prices.

  
  Figure 15. World liquids production or surplus, Brent price and U.S. dollar index.
  Source: EIA, Federal Reserve Board and Labyrinth Consulting Services, Inc.
  (Click image to enlarge)

  Are Low Oil Prices Long or Short Term?

  Oil price collapses in 1981-1986 and 2008-2009 are the only analogues for the present price situation (Figure 16). So far, the current price collapse seems more similar to 1981-1986 than to 2008-2009.

  
  Figure 16. The 1981-1986 and 2008-2009 oil price collapses in the context of OPEC and
  non-OPEC oil  production, oil consumption and Brent crude oil price in 2014 U.S. dollars.
  Source: BP, EIA and Labyrinth Consulting Services, Inc.
  (Click image to enlarge)

  1981-1986 was a long-term event. The price collapse itself lasted for 5 years but oil prices remained below $90 per barrel in real dollars until 2007, almost 27 years.

  2008-2009 was a short-term event. Prices began falling in July 2008 and reached a low point in December 2008. Prices recovered and reached $90 per barrel in April 2010 and $100 per barrel in March 2011. Then entire cycle from $90 per barrel and back again lasted a little more than 2 years.

  The oil price collapse of the 1980s was similar to the present price collapse because the primary cause was a new source of supply. Non-OPEC production exceeded OPEC production in 1978 as new supply from the North Sea (U.K. and Norway), western Siberia (Russia), the Campeche Sound (Mexico) and China came on line. Unlike the present, the new supply was inexpensive conventional oil.

  Oil prices had increased in 1979-1981 to more than $90 per barrel in real dollars because of supply interruptions at the beginning of the Iran-Iraq war. This caused approximately 4.3 mmbpd of demand destruction. Lower demand and continued supply growth from non-OPEC countries caused a production surplus beginning in 1982.

  Oil prices fell from $106 per barrel in 1980 to $31 per barrel in 1986. OPEC cut 10 mmbpd of production between 1980 and 1985 with no effect on falling oil prices. In 1986, OPEC decided to increase production to protect market share, abandoning its role as “swing producer.”

  Although neither the volume of new supply or the amount of demand destruction during the current price collapse are as great as 1981-1986, they are more similar than to 2008-2009.

  The 2008-2009 oil price collapse was part of an overall crash of the entire global economy. High oil prices in 2007 and 2008 were due to a large and persistent production supply deficit because of high demand from China and the Far East, and dwindling supplies following the peak of conventional oil production in 2005 (Figures 15 and 17). The surplus had nothing to do with new supply but was completely due to decreased demand from a collapsing global economy. The surplus only lasted for 6 months and never approached the level seen in 2014-2015 (an OPEC production cut  in early 2009 limited the length of the surplus and possibly its magnitude).

  
  Figure 17. World liquids production surplus of deficit (12-month moving average) and Brent oil price. Source: EIA and Labyrinth Consulting Services, Inc.
  (Click image to enlarge)

  High oil prices preceding the 2014-2015 price collapse began because of supply interruptions resulting from the Arab Spring. Brent price reached a maximum of $129 per barrel in April 2011 at the height of the Libyan Civil War. These events corresponded with a period of U.S. currency devaluation following the 2008 Financial Collapse and an extraordinarily weak U.S. dollar (Figures 13 and 15). The additive effects of a supply deficit, economic uncertainty and geopolitical risk resulted in high oil prices.

  Case histories neither predict the present or the future but offer guidelines. These two case histories simply suggest is that the present period of low oil prices is more similar to that of the 1980s and 1990s than to that of the 2008-2009 period. That similarity means that the current phenomenon is likely to be a relatively long-term event.

  Conclusions

  The availability of capital to fund unconventional production is the key to how long low oil prices will last going forward. If the flow of capital continues, then the production surplus and lower oil prices will also continue, assuming that OPEC is able to maintain higher production levels and that demand growth remains relatively low.

  Eventually, price will win and unconventional production will fall. The market will rebalance and prices will rise. If oil prices stay low for long enough, demand will increase to support those higher prices. I doubt that prices will increase to levels before mid-2014 barring politically driven shock events. $90 per barrel appears to be the empirical threshold price above which demand destruction begins.

  It is more difficult to predict how the second- and third-order effects of economic uncertainty and geopolitical risk may affect supply and demand fundamentals and, therefore, price.  These are the wild cards that could change the  outcome that I describe.

  The most likely case is that oil prices will decrease in the second half of 2015 and that financial distress to all oil producers will increase. The hope and expectation that the worst is over will fade as the new reality of prolonged low oil prices is reluctantly accepted.

  We have had a year of lower oil prices. Based on available data, I see no end in sight yet. The market must balance before things get better and prices improve. That can only happen if production falls and demand increases. That will take time.

  We have crossed a boundary and things are different now.

  

  

  

  

  

• China Races To Rescue Stocks As Margin Mania Unwind Wreaks Havoc

  As outlined earlier today, Chinese equities re-plunged on Wednesday, retracing Tuesday’s bounce and returning stocks to their post-PBoC crash levels, hit on Monday after a desperation dual rate cut failed to trump margin jitters and ATM lines in Greece. 

  As tipped in “The Biggest Threat To Chinese Stocks: Shadow Lending Crackdown”, margin trading above and beyond officially sanctioned broker limits has likely added somewhere between CNY500 billion and CNY1 trillion to the official (and already stratospheric) CNY2.2 trillion in margin lending that’s poured into the market since last summer. Here’s BofAML on shadow lending and why it’s important going forward.

  Based on limited available data, we estimate that SHCOMP could drop to the 2,500 range (some 40% down from the current level) for large-scale margin call to be triggered at the broker-run margin financing facilities (MFs). However, this doesn’t mean that margin call is not a serious risk right now. In our view, the selling pressure so far has mainly come from stock-related borrowings via various unofficial channels where the leverage is much higher. 

   

  Besides MFs, there are many forms of leverage for stock purchases, including umbrella trust, financing companies, P2P platforms, stock-collateralized loans, wealth management products tied to stocks’ performance, and even some personal, SME and corporate loans might have been diverted to buy stocks. The size of the other forms of leverage can easily be double or triple of that of MFs’ by our estimate (A-share fund flows analysis, Jun 8). In our view, these leverages are more risky than MFs because they are less transparent and lightly regulated, if at all – for example, anecdotally, we saw many cases of 10x leverage vs. less than 1x at MFs; and also unlike MFs, the other borrowings are often used to buy small caps which tend to be more speculative. 

  The “umbrella trusts” mentioned above are a particularly noxious vehicle that effectively allows retail investors to borrow from unsuspecting depositors to make leveraged bets on stocks. As a reminder, here’s how they work: Brokerages are only allowed to facilitate margin trading for investors whose account balances total at least CNY500K, and even then, traders can only lever up 2X. Clearly that’s no fun, so brokerages naturally looked for ways to skirt the rules. Umbrella trusts offered a way around the restrictions and while the mechanics can be made to sound complex, the idea is actually quite simple. An umbrella trust is set up like a CDO. The senior tranche is sold by banks to clients who receive a fixed payout (like a coupon payment), only instead of CDS premiums (in the case of a synthetic structure) or cash flows (from a cash structure), the ‘coupon’ payments are generated by equity investments in the subordinated tranches, which are used by brokerages to skirt margin restrictions. In other words, the guys holding the senior tranches are financing the stock trades of the guys in the junior tranches.

  Late last year, the South China Morning Post described the products as follows: 

  This is how it begins. A trust company sets up an umbrella structured trust to cater to various stock speculators who want more than what the official margin finance limits will allow.

   

  Under the trust are different units that are nothing but stock “pools” managed by the speculators. He or she puts up 40 yuan and gets 100 yuan from some so-called preferred investors to make the bet. That is 250 per cent gearing; it varies with different units.

   

  The unit is then distributed to the man in the street through the banks. An unsuspecting you will become the preferred investor. Your return is capped at 6 per cent and the rest is for the speculator.

   

  The only “protection” you have is the margin call made by the trust company on the speculator in the event of a market fall. He or she is solely responsible for topping up the margin. The so-called protection is, however, false. The product’s documentation provides zero information on the identity of the speculator or his financial strength in case of a margin call. Neither does it detail the stock portfolio nor its liquidity in case of forced sale.

   

  If the market goes south, one will end up with nothing. “I couldn’t even begin to call it a high or low-risk product, as all necessary information is missing,” a private banker in Hong Kong said.

  
  

  

  But umbrella trusts and structured funds aren’t the only way investors can skirt official margin trading restrictions in China. As Bloomberg reports, P2P loans — which have exploded in popularity in the US and are now being securitized — have also become popular among Chinese traders looking to “amplify” their bets.

  Via Bloomberg:

  As more Chinese jumped into the market in the hope of instant wealth, peer-to-peer websites offering loans for stock investing have mushroomed. They are among a multitude of sources of leverage outside of traditional margin financing that threaten to complicate any efforts to prevent an unruly reversal of China’s stock market boom, which is already faltering.

   

  “While we can regulate margin finance within a brokerage, for those financing activities which are not within the securities houses, it’s very difficult to regulate,” said Ronald Wan, the chief executive officer of Partners Capital International, an investment bank in Hong Kong.

   

  The perils of debt-fueled trading were underscored in past weeks, as the unwinding of margin loans helped drive China’s benchmark index into a bear market.

   

  Online peer-to-peer, or P2P, lending accounts for just a small part of total leverage, yet it has expanded rapidly and attracted the type of investors who can least afford losses — those that don’t qualify for traditional margin loans.

   

  About 40 online lenders helped arrange more than 7 billion yuan of loans for stock purchases in the first five months of 2015, according to Shanghai-based Yingcan Group, which tracks China’s more than 1,500 such credit providers. Lending volumes surged 44 percent in May from April, Yingcan estimates.

   

  The sites are popular because they allow high levels of leverage, and lack the restrictions brokers impose on margin finance accounts, such as high deposits and limits on the types of stocks against which clients can borrow.

   

  “The threshold for lending on peer-to-peer websites is lower, this suggests that investors who borrow through these sites tend to be weaker financially,” said Shen Meng, a Beijing-based director at Chanson & Co., an investment bank.

   

  Zhang the investor says he can borrow up to five times his capital using P2P sites, while brokers only allow leverage of up to three times. He can also take positions in an almost unlimited number of stocks, while brokers only extend margin finance for 900 of the shares traded in Shanghai and Shenzhen.

  As should be abundantly clear from the above, China’s equity miracle is in large part attributable to the leverage employed by retail investors who have used a bewildering variety of unofficial channels to avoid margin restrictions. As the market cracks and as the media shines new light on the shadowy vehicles investors use to pyramid risk, the unwind appears to have begun. In a testament to just how determined China is to keep the bottom from falling out, the China Securities Regulatory Commission is now racing to implement new margin trading rules and cut fees. From Bloomberg again:

  China announced additional steps aimed at boosting equity markets, including speeding up the introduction of new margin-trading rules and cutting stock-transaction fees, after markets tumbled again on Wednesday.

   

  The China Securities Regulatory Commission will no longer require brokerages to force the sale of stock held by clients with insufficient collateral, and will allow “reasonable rollover” in margin trading, it said on its microblog on Wednesday. China’s two bourses will reduce the fees by 30 percent starting Aug. 1, the Shanghai Stock Exchange said on its microblog the same day.

   

  “While the reduction in transaction fee is symbolically supportive, easing margin requirements is more significant potentially as it may reduce the level of margin calls and forced selling,” Tony Hann, who manages $350 million as head of emerging markets at Blackfriars Asset Management Ltd. in London, said by e-mail.

   

  Brokerages can securitize the right to profit from margin trading and short selling operations, the CSRC said. The regulator also said it will also let all brokerages sell short-term bonds, expanding a pilot program.

   

  China Securities Depository & Clearing Co. will trim transaction fees by 33 percent on Aug. 1, it said in a statement on its website.

  So, Beijing is set to “rollover” margin trading much as it does NPLs, which is simply another attempt on the part of the Politburo to forestall the deleveraging process, only this time the kick-the-can approach is being applied to brokerages as opposed to bank balance sheets.

  Meanwhile, it appears as though the country’s securities regulator is set to support the issuance of what amount to brokerage fee-backed securities, a structured credit abomination insane enough to make even the most corrupt Wall Street trading desks cringe. 

  “Leverage your dream“…

   

  
  

  

  

  

  

  

• U.S. Admits Paying Terrorists For Services Rendered In Syria

  Submitted by Brandon Tourbeville via ActivistPost.com,

  When researchers such as myself have reported that the United States is funding al-Qaeda, Nusra, ISIS and other related terror organizations in Syria, we were not kidding. Still, despite the fact that even the U.S. government itself has admitted that it was funding terrorists– directly and indirectly through Saudi Arabia, the suggestion was met with disbelief, ridicule, or either entirely ignored.

  Now, however, the United States government has admitted that it funds terrorists on the ground in Syria yet again, this time placing an individual dollar amount on the assistance provided.

  According to the Pentagon, Syrian “rebels” being trained and “vetted” by the United States are receiving “compensation” to the tune of anywhere between $250 to $400 per month to act as America’s proxy forces in the Middle East. Reuters reports that the payment levels were confirmed by the Pentagon and also that the Secretary of Defense Ashton Carter and Navy Commander Elissa Smith both separately admitted the fact that these “new” terrorists are receiving a stipend.

  Reuters also reported on alleged obstacles the Pentagon claims it is facing regarding the ability to train the death squad volunteers due to a lack of ability to “vet” them appropriately as well as a bizarre incident where fighters abandon the mission after having received training from the US military. The reason provided by the Pentagon was that the fighters did not want to sign a contract to avoid fighting Assad. But, in the same report, the Pentagon states that there was no such contract – only one requiring them to “respect human rights” and “the rule of law,” so the reason provided for the disappearance of these fighters lacks legitimacy. One can only speculate as to where these “trainees” disappeared to.

  Of course, “human rights” and the “rule of law” have never been concerns before, even as the United States has funded, armed, trained, and directed jihadists on the ground from the very beginning of the Syrian crisis. Neither has there been any concern over the presence of “moderate” rebels that have never actually existed in Syria. After all, it should be remembered that the United States own Defense Intelligence Agency was recently forced to release and declassify documents which admitted that not only did the US know that the “rebellion” was made up of al-Qaeda and Nusra forces but that these organizations and similar groups were attempting to create a “Salafist principality” in the east of Syria and West of Iraq. The DIA docs also show that the US was supporting all of these efforts. In reality, of course, the US was directing these efforts.

  Make no mistake, the United States is not funding “moderate vetted rebels” to fight ISIS or al-Qaeda. The US is funding jihadist terrorists and mercenaries to work alongside ISIS and al-Qaeda (if they are not members of these organizations already) to overthrow the secular government of Bashar al-Assad. Virtually every person of a moderate persuasion in Syria has long come over to the side of the Syrian government. Indeed, there was never such a thing as a moderate rebel in Syria to begin with and the reality on the ground has not changed since.

  Thus, revelations that the United States is funding a mercenary army to overthrow Assad is nothing new. The only revelation contained in these recent reports are the chicken feed denominations of money that the terrorist savages are accepting for their services in barbarity and treason on behalf of the agenda of the Anglo-American world order.

  

  

  

  

  

• Desperate Greeks Resort To Scavenging Through Garbage To Find Food

  Earlier today we documented the “heartbreaking” plight of Greece’s retirees who have been reduced to lining up in front of Greek banks hoping for a chance to collect a portion of their pensions. Some went away empty handed (there were reports that only those whose last names began with “A” through “K” were paid on Wednesday) and those who did manage to leave with cash were only allowed to access a third of their usual payouts. 

  This comes as Greeks may (and we emphasize “may”, because nothing is certain and the Greek government has bent over backwards to claim that deposits are “safe”) face a Cyprus-like depositor bail-in in the weeks ahead. 

  But as bad as all of the above is, it gets still worse, because as The Telegraph reports, the beleaguered Greek populace has been reduced to collecting scrap metal and scavenging for food.

  Here’s more:

  Piled high with rubbish congealing in the summer heat, municipal dustbin R21 on Athens’ Sofokleous Street does not look or smell like a treasure trove.

   

  But for Greece’s growing army of dustbin scavengers, its deposits of rubbish from nearby stores and grocery shops make it a regular point of call.

   

  “Sometimes I’ll find scrap metal that I can sell, although if I see something that looks reasonably safe to eat, I’ll take it,” said Nikos Polonos, 55, as he sifted through R21’s contents on Tuesday morning. “Other times you might find paper, cans, and bottles that you can get money for if you take them back to the shops for recycling.”

   

  
  

   

  One reason for R21’s popularity is because it is just down the road from a church soup kitchen, where the drug-addicted, the poor and homeless queue up for meals three times daily.

   

  Mr Polonos, a quietly spoken man of 55, is typical of the new class of respectably destitute. He lost his job as a construction worker three years ago, when Greece’s building boom dried up, and in the current climate, cannot see himself finding paid work in the foreseeable future.

   

  Yet he dresses as smartly as he can in second-hand trousers and shirt, and does not see himself as any kind of vagrant.

   

  “I don’t want to ever look like him,” he said, gesturing to a tousle-haired drug addict slumped in a doorway near the soup kitchen. “I never believed I would end up like this, but as long as Greece is in this terrible situation, my construction skills are not in demand. A lot of my friends are doing what I do now, and some people I know are even worse off. They have turned to drugs and have no hope at all.”

   

  Perhaps the most tragic thing about the above is that, as noted in the video, this is hardly a recent development in Greece.

  High unemployment has plagued the country for years and has indeed become endemic, relegating many Greeks to a life of perpetual and severe economic hardship. One can only hope that whatever the outcome of this weekend’s referendum turns out to be, both Athens and Brussels will recognize the need to arrest what has become an outright humanitarian crisis.

  

  

  

  

  

• What If Gold Is Declared Illegal?

  Submitted by Bill Bonner of Bonner & Partners (annotated by Acting-Man.com's Pater Tenebrarum),

  The Beginning of the End

  Over the weekend, the lines in Greece stretched along the street. Around the corner. Down the block. Lines to get cash. Lines to buy gas. Lines of people eager to get their hands on something of value. Food. Fuel. Cash. Pity the poor guy who was last in line …

  … the poor taxi driver, for example, standing behind 300 other people, trying to get 200 lousy euros out of an ATM. Like a tragic nightclub customer … among the last to smell the smoke. By the time he headed for the exit, it was clogged with desperate people, all struggling to get through the same narrow door at the same time.

   

  

  Being the last in line usually means you have waited too long.

  Image via archives.gov, Al Capone’s Soup Kitchen, Chikago 1931

  Remember: When a bear attacks in the woods, you don’t have to be faster than the bear. You just have to be faster than at least one other hiker…

  Likewise, you don’t have to be the first one to get your money out of an ATM. You just want to be sure you get your money before the machine runs out of cash. And when a bear attacks Wall Street, you don’t have to be the first to sell. But you definitely don’t want to be the last.

   

  

  People storming a bank in Shanghai in December 1948. The paper currency had just crashed, and the Kuomintang decided to make a distribution of 40 grams of gold per person. People desperately wanted to obtain their gold before the banks ran out.

  Photo credit: Henri Cartier-Bresson

   

  The Dow lost 350 points on Monday – its biggest point drop in two years. On Tuesday, Greece was expected to default on a $1.7-billion payment to the International Monetary Fund (IMF). And on the other side of the planet, analysts are looking at “the beginning of the end for Chinese stocks.”

  We doubt it is the beginning of the end. More likely, it is just the end of the beginning. On Friday, the People’s Bank of China cut rates to a record low, after stocks in Shanghai slipped 7% in a single day (the equivalent of about 1,300 points on the Dow).

  Analysts expected a big rally in response to the rate cut. Instead, the Shanghai Index plunged again on Monday, dropping 3%. Greece… China… said one commentator interviewed by Bloomberg: “You have a potentially very ugly situation this week.”

  Our guess: Stocks in the U.S. and China have topped out. Old-timer Richard Russell, who has been studying markets since 1958, agrees:

  “I believe the top has appeared, like the proverbial thief in the night. The Dow has fallen below the 18,000-point level, and is now negative for the year.

  The Transports, which have led the way recently, are down triple digits for today and are only 89 points above the critical level of 8,000. The Nasdaq has closed under 5,000. At the market’s close, gold was up 5.3 at 1,179.”

   

  

  Dow Transports Average and Industrial Average – the trannies have been declining for months, and following this big divergence, a first Dow Theory sell signal has now been given with the Industrials undercutting their previous reaction low as well, via StockCharts, click to enlarge.

   

  When Gold Is Declared Illegal …

  But wait … What about silver and gold? As regular readers know, we recommend having some cash on hand in case of a monetary emergency. But a reader asks:

  “In the same vein as your reader’s question as to what good cash is when it’s declared illegal, what good is gold when gold is declared illegal?”

  First, precious metals aren’t illegal, so far. Second, making something illegal doesn’t necessarily make it unpopular. President Roosevelt banned gold in 1933. The feds wanted complete control of money. The dollar was backed by gold. So getting control of the dollar meant getting control of gold.

  Once the feds had the gold, they could devalue the dollar by resetting the dollar-gold price from $20 to $35. In an instant, people lost more than 40% of their wealth (as measured by gold).

   

  

  FDR’s infamous gold grab. Under the cover of an economic emergency, the government executed one of the most brazen acts of theft yet witnessed in a democracy.

   

  That ban lasted for 42 years. It ended in 1975, largely because of our old friend Jim Blanchard. Jim set up the National Committee to Legalize Gold and worked hard to get the ban lifted.

  Today, the feds don’t need to outlaw gold. It is regarded as “just another asset,” like Van Gogh paintings or ’66 Corvettes. Few people own it. Few people care – not even the feds. They are unlikely to pay much attention to it – at least, for now.

  That could change when the lines begin to grow longer. Smart people will turn to gold… not just in time, but just in case. It is a form of cash – traditionally, the best form. You can control it. And with it, you can trade for fuel, food, and other forms of wealth. Lots of things can go wrong in a crisis. Cash helps you get through it.

  Generally, the price of gold rises with uncertainty and desperation. Gold is useful. Like Bitcoin and dollars in hand (as opposed to dollars the bank owes you), gold is not under the thumb of the government … or the banks. You don’t have to stand in line to get it. Or to spend it.

  Yes, as more and more people turn to gold as a way to avoid standing in lines, the feds could ban it again. But when we close our eyes and try to peer into a world where gold is illegal, what we see is a world where we want it more than ever.

   

  

  Buy it as long as nobody cares about it. By the time they care, you’ll want to have as much as possible.

  

  

  

  

  

• NSA Leak: "Washington Is Negotiating With Every Nation That Borders China… So As To 'Confront' Beijing"

  Another “Wikileak” of a confidential NSA intercept, and yet another crucial insight into the vision not only behind the Obama administration’s desperate push for the Trans Pacific Partnership, but the strategic thinking – if one may call it so – when it comes to the entire US approach to global trade and commerce. Which may well explain why global trade has been imploding in recent years, masked first by just US QE and then by QE from all “developed” central banks.

  The synopsis:

  Intercepted communication between French Minister-Counselor for Economic and Financial Affiars Jean-Francois Boittin and EU Trade Section head Hiddo Houben, reveals Boittin’s discontent with U.S. approach towards a WTO pact. Additionally Houben stated that the TPP (being an American initiative) seems devised as a confrontation with China.

  EU Officials Perceive Lack of U.S. Leadership on Trade Issues, Skeptical of Pacific Initiative (TS//SI//OC/NF)

   

  (TS//SI//OC/NF) Washington-based EU trade officials ascertained in late July that the U.S. administration is severely lacking in leadership when it comes to trade matters, as shown by the absence of a clear consensus on the future course of the WTO Doha Development Agenda (DDA). French Minister-Counselor for Economic and Financial Affairs Jean-Francois Boittin expressed astonishment at the level of “narcissism” and wasteful contemplation currently on display in Washington, while describing the idea of scrapping the DDA in favor of another plan–which some U.S. officials are seen to favor–as stupefying. The Frenchman further asserted that once a country makes deep cuts in its trade barriers, as the U.S. has done, it no longer has incentives to offer nor, as a consequence, a strong position from which to negotiate with emerging nations. Boittin’s interlocutor, EU Trade Section head Hiddo Houben, after noting the leadership void in the Office of the U.S. Trade Representative, declared that with regard to the disagreement within his host government on DDA, a political decision must be made about what direction is to be followed. On another subject, Houben insisted that the Trans-Pacific Partnership (TPP), which is a U.S. initiative, appears to be designed to force future negotiations with China. Washington, he pointed out, is negotiating with every nation that borders China, asking for commitments that exceed those countries’ administrative capacities, so as to “confront” Beijing. If, however, the TPP agreement takes 10 years to negotiate, the world-and China-will have changed so much that that country likely will have become disinterested in the process, according to Houben. When that happens, the U.S. will have no alternative but to return to the WTO. Finally, he assessed that this focus on Asia is added proof that Washington has no real negotiating agenda vis-a-vis emerging nations, including China and Brazil, or an actual, proactive WTO plan of action.

   

  Unconventional

   

  EU diplomatic

   

  Z-3/OO/531614-11, 011622Z

  Source: Wikileaks

  

  

  

  

  

  

• Athens On The Potomac – It Could Never Happen Here, Right?

  Submitted by John Gabriel via Ricochet.com,

  Financial experts in New York, London, and Brussels have tut-tutted Greece’s economic travails as Athens considers its future with the European Union. Why did they borrow so much money? How can they ever pay it back? Do they think that much debt is sustainable?

  Instead of pointing fingers at the innumerates running Athens, they should consider our own situation. Jason Russell of the Washington Examiner shows how America’s debt projections look suspiciously like Greece’s recent history.

  With all the chaos unravelling in Greece, Congress would be wise to do what it takes to avoid reaching Greek debt levels. But it’s not a matter of sticking to the status quo and avoiding bad decisions that would put the budget on a Greek-like path, because the budget is on that path already.

   

  A quarter-century ago, Greek debt levels were roughly 75 percent of Greece’s economy — about equal to what the U.S. has now. As of 2014, Greek debt levels are about 177 percent of national GDP. Now, the country is considering defaulting on its loans and uncertainty is gripping the economy.

   

  In 25 years, U.S. debt levels are projected to reach 156 percent of the economy, which Greece had in 2012. That projection comes from the Congressional Budget Office’s alternative scenario, which is more realistic than its standard fiscal projection about which spending programs Congress will extend into the future.

   

  If Congress leaves the federal budget on autopilot, debt levels will soar. Instead, spending must be reined in to avoid a Greek-style meltdown.

  While we’re right to be concerned about 2040, the U.S. is in deep trouble now. Yet if you mention the debt to most Americans, they’re either confused or indifferent. “But Obama lowered the deficit.” “Just print more money.“ “It’s Reagan’s fault!”

  Since most graphs look like this, I created my own user-friendly debt chart focused on three big numbers: Deficit, revenue and debt. (My first version was published a couple of years ago. This one is updated with the most recent figures).

  

  It’s an imperfect analogy, but imagine the green is your salary, the yellow is the amount you’re spending over your salary, and the red is your MasterCard statement.

  The chart is brutally bipartisan. Debt increased under Republican presidents and Democrat presidents. It increased under Democrat congresses and Republican congresses. In war and in peace, in boom times and in busts, after tax hikes and tax cuts, the Potomac flowed ever deeper with red ink.

  Our leaders like to talk about sustainability. Forget sustainable — how is this sane?

  Yet when a conservative hesitates before increasing spending, he’s portrayed as a madman. When a Republican offers a thoughtful plan to reduce the debt over decades, he’s pushing grannies into the Grand Canyon and pantsing park rangers on the way out. While the press occasionally griped about spending under Bush, they implore Obama to spend even more.

  When I posted the earlier version of this chart, the online reaction was intense. A few on the right thought I was too tough on the GOP while those on the left claimed it didn’t matter or it’s all a big lie. Others told me that I should have weighted for this variable or added lines for that trend. They are free to create their own charts to better fit their narrative and I’m sure they will. But the numbers shown above can’t be spun by either side.

  All of the figures come from the U.S. Treasury and math doesn’t care about fairness or good intentions. Spending vastly more than you have, decade after decade, is foolish when done by a Republican or a Democrat. Two plus two doesn’t equal 33.2317 after you factor in a secret “Social Justice” multiplier.

  If our current president accumulates debt at the rate of his first six-plus years, the national debt will be nearly $20 trillion by the time leaves office. That is almost double what it was when he was first inaugurated.

  Like many Americans, I haven’t had the privilege of visiting Greece. Unfortunately, Greece will be visiting us unless we change things and fast.

  

  

  

  

  

• Stocks Surge Despite Dashed Hellenic Hope, Crude Carnages

  Seems appropriate once again…

   

  China did not help..

  

   

  But today was all about Greece again, and CNBC's Michelle Caruso-Cabrera summed it up perfectly:

  "Stocks are rallying on hopes of a deal. There is no deal! There will be no deal! Everyone's gone home"

  Another day, another hope-driven spike that ends in tears and recriminations… The Dow got a lift as it broke stops through its 200DMA and Nasdaq back above 5000

  

   

  The late day ramp was all machines ramping VWAP – as volume utterly collapsed…

  

   

  VIX was clubbed like a baby seal… (notice the flash crash early on seemed to signal again) because why not sell Vol ahead of NFP

  

   

  On the week, stocks remain driven by Greece and nothing else – not even today's mixed data (maybe NFP tomorrow will change that)

  

   

  Futures show the mess more clearly…

  

   

  The extent of hope is seemingly impossible to comprehend as GREK – the Greek ETF – manage to get all the way back to unchanged on the week!!!! Before giving up all its gains on the day…

  

   

  Airlines were Baumgartner'd on news of a DoJ collusion probe…trading at the lowest since October 2014…

  

   

  Depsite the carnage in crude to 11-week lows…

  

   

  High Yield bonds and stocks did not play well with each today…

  

   

  Treasury yields rose notably (seemingly led by Bunds weakness as Europe rallied into its close on hope of Greek deal)…

  

   

  The US Dollar Surged today led by EUR weakness (but where were all the talking heads today about how EURUSD is showing how GREXIT doesn't matter?)

  

   

  For some context on Crude's move today, Silver slipped but copper and gold were flat…

  

   

  Charts: Bloomberg

  Bonus Chart: Ahead of tonight's China open, some food for thought…

  

  

  

  

  

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