Jul 23

Today’s News July 23, 2015

  • 11 Signs That America Has Already Gone Down The Toilet

    Submitted by Michael Snyder via The End of The American Dream blog,

    Just when you think that the depravity of the United States cannot possibly get any worse, something else comes along to surprise us.  Many of the things that you are about to read about in this article are incredibly disturbing, but it is important that we face the truth about how far this nation has fallen.  There are times when I will be having a conversation with someone else about the state of our country, and the other person will say something like this: “Wow – America is really going down the toilet.”  At one time, I would have totally agreed with that.  But at this point I would have to say that we have already circled the bowl and have made it all the way through to the other end.  Our society is absolutely addicted to entertainment (most of which is utter trash), tens of millions of us are hooked on drugs (both legal and illegal), and we have murdered more than 56 million of our own babies.  Our financial system is consumed with greed, we treat our military veterans like human garbage, and most of our “leaders” in Washington D.C. are deeply corrupt.  In America today, 64 percent of all men view pornography at least once per month, it is estimated that one out of every four girls is sexually abused before they become adults, and we have the highest teenage pregnancy rate in the entire industrialized world.  We like to think that we are an “example” to the rest of the world, but the only example that we are setting is a bad one.  The following are 11 signs that America has already gone down the toilet…

    #1 All over the United States, the body parts of aborted babies are being bought and sold, and the U.S. government gives the organization at the heart of this sick “industry” hundreds of millions of dollars a year.  This week, another incredibly shocking undercover video has been released which has given us even more evidence of what Planned Parenthood is really up to…

    The most recent video shows a luncheon conversation with Dr. Mary Gatter, who currently serves as president of Planned Parenthood’s Medical Directors’ Council and Medical Director of Planned Parenthood’s Pasadena abortion clinic.

     

    In the video, Gatter is heard haggling over the price she will charge for intact fetal body parts and is concerned that she will be “low-balled.” She asks for at least $75 per specimen, but wants to see what other Planned Parenthood abortionists are getting to make sure she gets similar compensation so she can buy an expensive sports car.

     

    “It’s been years since I’ve talked about compensation, so let me just figure out what others are getting and if this is in the ballpark, that’s fine. If it’s still low, we can bump it up. I want a Lamborghini,” Gatter laughed.

    This is wickedness at a level that is almost unspeakable, and it is being bankrolled by the U.S. government.

    Let’s hope that “I want a Lamborghini” gets plastered all over the Internet hundreds of millions of times.  I encourage everyone to get on Facebook and Twitter and start blasting out messages like this one to everyone that they know…

     

    If we cannot even stop the U.S. government from funding this kind of evil, what possible hope is there for the future of this nation?

    According to WND, some members of this “industry” even receive monetary bonuses “based on the baby parts they harvest”…

    StemExpress, which is run by Planned Parenthood abortion doctor Ronald Berman, offers its procurement technicians bonuses based on the baby parts they harvest, according to the Center for Medical Progress. Larger bonuses are offered for more valuable body parts, classified as “Category A” parts, while smaller bonuses are given for “Category C” parts.

    This alone is enough to prove that America has gone all the way down the toilet.  But I will continue with the list…

    #2 Just a few days ago, we learned that hackers had stolen personal information from 37 million users on an adultery website known as Ashley Madison…

    A hacking insider has told Sky News he thinks the people threatening to release personal details of users of an adultery website are bluffing and using the publicity as advertising to sell the data to the highest bidder.

     

    Hackers calling themselves Impact Team have stolen and leaked data from some of the Ashley Madison website’s 37 million users and are threatening to publish more.

    For now the group has released just 40MB of data, including some credit card details and several documents about its parent company Avid Life Media (ALM), it is reported.

    The big story here is not the hacking.

    Rather, the big story is the fact that 37 million of us have signed up to participate on a website that facilitates adultery.

    #3 Rates of violent crime are increasing by double digit percentages in many major U.S. cities in 2015, and some of the crimes being committed are almost too horrible to talk about.  Just consider the following example which comes from the Daily Mail…

    A 22-year-old man and his 21-year-old girlfriend were walking along McNichols Road near Birwood Street on Thursday around 11:30pm when a group of three to six men approached them in the well-lit area, WWJ reported.

     

    The couple was allegedly forced behind a nearby business, where the six men robbed and stripped them of their clothes.

     

    Police say the violent men took turns sexually assaulting the woman and when the attack ended, the victims ran nude to a nearby liquor store for help.

     

    Another couple was attacked just a few hours later at 2:40am when a 21-year-old man and his 19-year-old girlfriend were walking in the area of McNichols Road and Pierson Street.

     

    Four men ordered them to the ground and then took took turns sexually assaulting the woman, forcing her boyfriend to watch, WWJ reported.

    Incredibly, these gang rapes barely made a blip on the news here in the United States.  There are so many similar crimes taking place all around us that there is nothing really “unusual” about these horrific rapes.

    #4 Under the Obama administration, our federal government has become absolutely obsessed with political correctness and is spending money in some of the most bizarre ways imaginable.  For instance, the feds recently spent $125,000 “to study adjectives that could be perceived as sexist or racist“.

    #5 Speaking of pouring money down the toilet, the Obamaphone program is a perfect example.  It turns out that all you have to do to get a free cellphone from the federal government is to show them someone else’s food stamp card…

    The 2014 CBS4 investigation showed repeated instances of fraudulent activity and waste in the Lifeline program in Denver. It’s an FCC administered program designed to provide free monthly cellphone service to the needy so they can have cellphone service allowing them to seek employment or call for emergency help if needed. Recipients are required to show official documentation like Medicaid, housing assistance or food stamp cards verifying their low income status in order to receive the free phone service.

     

    But last year a vendor in Denver working under the FCC program had employees who volunteered to use someone else’s food stamp card to secure a free phone and service for a CBS4 producer who was not eligible for the program.

     

    Vendors typically receive $3 for every phone they are able to give out. In other cases, vendors said a CBS4 producer could simply show someone else’s electronics benefit card in order to secure a free phone and service.

    #6 Meanwhile, the government doesn’t even want to talk to normal, hard working citizens that just need a few questions answered.  According to a report that was just released, the IRS hung up on 8.8 million taxpayers that called in looking for help during this most recent tax season.

    #7 The federal government has made it exceedingly difficult for law-abiding people to immigrate to this nation legally, but meanwhile they have left our borders completely wide open and have actively encouraged people to immigrate illegally.  As a result, large numbers of criminals, drug dealers, gang members and welfare parasites have come pouring in.  According to one recent report, 2.5 million illegal immigrants have entered this country while Barack Obama has been in the White House…

    A new report estimates that 2.5 million illegal immigrants have entered the United States since Barack Obama took office in 2009.

     

    The Center for Immigration Studies released a study Monday citing data from the Center for Migration Studies, Pew Research Center and the Census Bureau that indicates 400,000 illegal immigrants on average have entered the country annually since 2009.

     

    From the middle of 2013 to May 2015 alone, 790,000 illegals have come into the United States. These undocumented individuals entered the country after President Obama unveiled a controversial executive order in 2012 to stop deporting young illegal immigrants who entered the country as children.

    And honestly, that 2.5 million number is probably on the low side.  These illegal immigrants are committing some of the most horrible crimes imaginable, and if you doubt this, just read this article.

    #8 Our society is being transformed into what I like to call “a Big Brother police state control grid”.  Just a few days ago, we learned of another example of this phenomenon.  The following comes from the New York Post…

    A key part of President Obama’s legacy will be the fed’s unprecedented collection of sensitive data on Americans by race. The government is prying into our most personal information at the most local levels, all for the purpose of “racial and economic justice.”

     

    Unbeknown to most Americans, Obama’s racial bean counters are furiously mining data on their health, home loans, credit cards, places of work, neighborhoods, even how their kids are disciplined in school — all to document “inequalities” between minorities and whites.

    What is truly sad is that so few Americans are actually upset that virtually everything we do is being watched, tracked and monitored.  For much more on all of this, please see this article.

    #9 Just recently, I authored a piece which railed about the fact that the average American citizen spends more than 10 hours a day plugged in to some form of media.  Many of us become extremely anxious if something is not playing at least in the background.  We spend endless hours watching television, listening to the radio, going to the movies, playing video games, messing with our smartphones and surfing the Internet.  Sadly, what most people don’t realize is that more than 90 percent of the “programming” that is being continually pumped into our brains through these various media outlets is controlled by just six absolutely enormous media corporations.

    #10 At the same time that the elite are endlessly pumping their twisted messages into all of our minds, they are becoming increasingly obsessed with controlling what the rest of us say.  In one recent article, I explained how support for “hate speech laws” in America is rapidly growing.  Today, 51 percent of all Democrats support these kinds of laws, and it is only a matter of time before liberal politicians start pushing really hard for the same kind of hate speech laws that have already been implemented in Europe and Canada.

    #11 On top of everything else, we have been stealing more than 100 million dollars an hour from future generations of Americans since Barack Obama entered the White House.

    Let that sink in for a moment.

    If someone were to write a movie script about the theft of 100 million dollars from a major financial institution, nobody would ever actually want to make that movie because such an amount would be too hard to believe.

    But this has actually been happening every single hour of every single day while Obama has been in power.

    In a frenzy of insatiable greed, we have been taking trillions of dollars that belong to our children and our grandchildren and spending it ourselves.  When you break it down, it comes to more than 100 million dollars every single hour of every single day.  This is a crime of unimaginable proportions, and if we lived in a just society a whole bunch of our “top politicians” would be going to prison for this.

    I could keep going, but I will stop for today.

  • Obama's Minimum Wage Utopia Just Hit A Brick Wall

    Who could have possibly seen this coming? Almost three years we first detailed how America has become an entitlement nation where "work is punished." It appears President Obama is about to discover this first hand as his populist 'raise the minimum wage' strategy is showing yet another major unintended consequence. On the same day as New York acts to mandate a $15 minimum wage for fast food workers, Seattle's $15 minimum wage law – which is supposed to lift workers out of poverty and off public assistance – has hit a snag. As Fox News reports, evidence is surfacing that some workers are asking their bosses for fewer hours as their wages rise – in a bid to keep overall income down so they don’t lose public subsidies for things like food, child care and rent. So not only is work 'punished' it is now 'disinentivized by mandate' as part-time America toils amid ever-rising costs of living.

     

    As we previously explained,

    This isthe painful reality in America: for increasingly more it is now more lucrative – in the form of actual disposable income – to sit, do nothing, and collect various welfare entitlements, than to work.

     

    This is graphically, and very painfully confirmed, in the below chart from Gary Alexander, Secretary of Public Welfare, Commonwealth of Pennsylvania (a state best known for its broke capital Harrisburg). As quantitied, and explained by Alexander, "the single mom is better off earnings gross income of $29,000 with $57,327 in net income & benefits than to earn gross income of $69,000 with net income and benefits of $57,045."

     

     

    We realize that this is a painful topic in a country in which the issue of welfare benefits, and cutting (or not) the spending side of the fiscal cliff, have become the two most sensitive social topics. Alas, none of that changes the matrix of incentives for most Americans who find themselves in a comparable situation: either being on the left side of minimum US wage, and relying on benefits, or move to the right side at far greater personal investment of work, and energy, and… have the same disposable income at the end of the day.

    And so, as Fox News reports, it is no surprise that the sudden gains in income from a government-mandated $15 minimum wage would tip some over the edge of their handouts entitlement… and thus dicincentize work altogether…

    Seattle’s $15 minimum wage law is supposed to lift workers out of poverty and move them off public assistance. But there may be a hitch in the plan.

     

    Evidence is surfacing that some workers are asking their bosses for fewer hours as their wages rise – in a bid to keep overall income down so they don’t lose public subsidies for things like food, child care and rent.

     

    Full Life Care, a home nursing nonprofit, told KIRO-TV in Seattle that several workers want to work less.

     

    “If they cut down their hours to stay on those subsidies because the $15 per hour minimum wage didn’t actually help get them out of poverty, all you’ve done is put a burden on the business and given false hope to a lot of people,” said Jason Rantz, host of the Jason Rantz show on 97.3 KIRO-FM.

     

    The twist is just one apparent side effect of the controversial — yet trendsetting — minimum wage law in Seattle, which is being copied in several other cities despite concerns over prices rising and businesses struggling to keep up.

     

    The notion that employees are intentionally working less to preserve their welfare has been a hot topic on talk radio. While the claims are difficult to track, state stats indeed suggest few are moving off welfare programs under the new wage.

     

    Despite a booming economy throughout western Washington, the state’s welfare caseload has dropped very little since the higher wage phase began in Seattle in April. In March 130,851 people were enrolled in the Basic Food program. In April, the caseload dropped to 130,376.

     

    At the same time, prices appear to be going up on just about everything.

     

    Some restaurants have tacked on a 15 percent surcharge to cover the higher wages. And some managers are no longer encouraging customers to tip, leading to a redistribution of income. Workers in the back of the kitchen, such as dishwashers and cooks, are getting paid more, but servers who rely on tips are seeing a pay cut.

     

    Some long-time Seattle restaurants have closed altogether, though none of the owners publicly blamed the minimum wage law.

     

    “It’s what happens when the government imposes a restriction on the labor market that normally wouldn’t be there, and marginal businesses get hit the hardest, and usually those are small, neighborhood businesses,” said Paul Guppy, of the Washington Policy Center.

    *  *  *

    As we previously concluded, with more than half of welfare spending going to working families…

    The irony here seems to be that because companies would rather spend their money on raises for "supervisors" and on stock buybacks which benefit the very same supervisory employees who are likey to own stocks (and which artificially inflate the bottom line), everyday taxpayers just like the ones who can't get a raise end up footing the bill via public assistance programs. The companies meanwhile, get to utilize nice little tricks like corporate tax inversions in order to avoid paying their share of the assistance handed out to the very same employees they underpay.

  • Greek Lawmakers Clear The Way For Formal Bailout Discussions

    Update: 36 Syriza lawmakers did not support the bill.

    As expected, the Greek parliament has approved a second set of prior measures, clearing the way for formal discussions on a third bailout program for the debt-stricken country.

    As Bloomberg notes, “several lawmakers of governing Syriza party, including Parliament Speaker Zoi Konstantopoulou, former deputy Finance Minister Nadia Valavani didn’t support bill.”

    As a reminder, Wednesday’s vote was largely a formality as the measures – which included EU rules on bank resolutions and civil justice reform – weren’t expected to be as contentious as those presented to lawmakers last week. Alexis Tsipras is desperately trying to regain the support of Syriza MPs who have refused to support the conditions creditors have attached to the €86 billion ESM aid package.

    Although negotiations will now likely begin within the next few days, another vote (on pensions and taxes for farmers) is expected during the first week of August.

    Earlier today, MNI – citing unnamed sources – reported that Tsipras will look to hold elections as soon as the third bailout is in place. Greek government officials promptly denied the report. 

    As a reminder, here’s what’s next for Greek politics, courtesy of Deutsche Bank.

    *  *  *

    From Deutsche Bank

    Potential political paths ahead

    We see the situation as potentially leading to three different political outcomes over the next few weeks.

    The first is near-term political instability that would put ESM negotiations on hold and return pressure on the Greek banking system ahead of the August 20th ECB bond redemption. This would be provoked by the PM tendering his government’s resignation either by losing additional government MPs in coming parliamentary votes or by losing support in the party’s Central Committee. Either would not necessarily cause a general election, with a government of national unity under very limited SYRIZA MP support possible until ESM talks are concluded (only 48 out of 149 MPs would be needed). Irrespectively, talks would be delayed, and the possibility of a more substantial shift in the SYRIZA position against the agreement could not be ruled out, whether before or after a new general election.

    The second potential outcome is a Greek PM decision to more aggressively position himself against internal party dissent and in favour of program implementation. This would likely involve a request from dissenting MPs to resign their parliamentary seats or, in case of refusal, exclusion from the SYRIZA parliamentary group. Such a decision would aim to consolidate the PM’s influence, with the ultimate aim of moving the party towards a more moderate direction in a future general election. Current electoral law stipulates that a general election within 12 months of the last one takes place under a “list” system, providing the Greek PM with the political cover to steer SYRIZA’s candidate list towards a more moderate direction.

    Still, any such decisions need to be approved by the party’s Central Committee. The latter is similarly responsible for excluding members from the party, even if the PM excludes MPs from the parliamentary group. Any such decision therefore requires the PM to take the risk of more formally splintering the party, with potential unpredictable results given his more uncertain influence over the party’s Central Committee

    The third – and what we believe the most likely outcome in coming weeks – is a continuation of the last few days’ status quo: persistent attempts by the PM to work through internal party dissent as well as the ESM negotiations, but without actively precipitating political change. In this instance the Greek PM would continue to preside over a de facto minority government, even if this is not explicitly acknowledged. A confidence vote may be called but dissenting MPs would still vote in favour and/or opposition parties would abstain. Any eventual ESM agreement would be ratified by a broad parliamentary majority, but with very strong SYRIZA dissents. Early elections could be called after. The benefit to this outcome is that near-term political uncertainty would be avoided, with dissenting and non-dissenting SYRIZA MPs as well as the opposition likely wanting to avoid near-term political instability. The cost would be that government commitment to the agreement would remain weak, maintaining the risk of a breakdown in negotiations as ESM negotiations get under way.

    Whatever the outcome above, events over the next few weeks are most likely to continue to be driven by the PM’s personal decisions as well as internal developments within SYRIZA. This will in turn depend on the ongoing economic and political cost of program implementation, with large upfront fiscal tightening already being legislated but additional fiscal and structural reform commitments needed to conclude the 3rd ESM program negotiations. The PMs own approval ratings will also matter, with opinion polls released after the negotiations continuing to show higher popularity ratings than other political leaders as well as a strong SYRIZA lead over other opposition parties. It remains to be seen how long this persists given the economic costs of the agreement, but the longer support is maintained, the greater the PM’s influence over internal party politics is likely to be.

    The endgame

    Irrespective of the near-term outcomes above, the inherent contradiction of program implementation by a government from within which the bulk of opposition originates will have to be resolved. It is unlikely that uncertainty around the stability of the Greek economy and banking system recedes until this is the case.

    Resolution could be led by Greek PM and current party president Tsipras moving SYRIZA in a more moderate direction followed by an early general election later this year after ESM negotiations have concluded. This would increase the odds of a government with greater commitment to implementation, irrespective of the electoral outcome. It would however risk a major splintering of the party or Tsipras’ own loss of authority in the process. An alternative is that the party retains its own internal contradictions, but that a government of national unity with broader-based participation is formed irrespectively. However, it remains unclear if this could materialize without an early general election, which the opposition may eventually request.

    Either way, implementation risks are likely to remain strong until greater political change materializes, likely driven by the strong internal contradictions within the current ruling party, but ultimately settled by the Greek PMs own political initiatives.

  • A Middle-East Game Of Thrones

    Submitted by Patrick J Buchanan,

    As President Obama’s nuclear deal with Iran is compared to Richard Nixon’s opening to China, Bibi Netanyahu must know how Chiang Kai-shek felt as he watched his old friend Nixon toasting Mao in Peking.

    The Iran nuclear deal is not on the same geostrategic level. Yet both moves, seen as betrayals by old U.S. allies, were born of a cold assessment in Washington of a need to shift policy to reflect new threats and new opportunities.

    Several events contributed to the U.S. move toward Tehran.

    First was the stunning victory in June 2013 of President Hassan Rouhani, who rode to power on the votes of the Green Revolution that had sought unsuccessfully to oust Mahmoud Ahmadinejad in 2009.

    Rouhani then won the Ayatollah’s authorization to negotiate a cutting and curtailing of Iran’s nuclear program, in return for a U.S.-U.N. lifting of sanctions. As preventing an Iranian bomb had long been a U.S. objective, the Americans could not spurn such an offer.

    Came then the Islamic State’s seizure of Raqqa in Syria, and Mosul and Anbar in Iraq. Viciously anti-Shiite as well as anti-American, ISIS made the U.S. and Iran de facto allies in preventing the fall of Baghdad.

    But as U.S. and Iranian interests converged, those of the U.S. and its old allies — Saudi Arabia, Israel and Turkey — were diverging.

    Turkey, as it sees Bashar Assad’s alliance with Iran as the greater threat, and fears anti-ISIS Kurds in Syria will carve out a second Kurdistan, has been abetting ISIS.

    Saudi Arabia sees Shiite Iran as a geostrategic rival in the Gulf, allied with Hezbollah in Lebanon, Assad in Damascus, the Shiite regime in Iraq and the Houthis in Yemen. It also sees Iran as a subversive threat in Bahrain and the heavily Shiite oil fields of Saudi Arabia itself.

    Indeed, Riyadh, with the Sunni challenge of ISIS rising, and the Shiite challenge of Iran growing, and its border states already on fire, does indeed face an existential threat. And, so, too, do the Gulf Arabs.

    Uneasy lies the head that wears a crown in the Middle East today.

    The Israelis, too, see Iran as their great enemy and indispensable pillar of Hezbollah. For Bibi, any U.S.-Iran rapprochement is a diplomatic disaster.

    Which brings us to a fundamental question of the Middle East.

    Is the U.S.-Iran nuclear deal and our de facto alliance against ISIS a temporary collaboration? Or is it the beginning of a detente between these ideological enemies of 35 years?

    Is an historic “reversal of alliances” in the Mideast at hand?

    Clearly the United States and Iran have overlapping interests.

    Neither wants all-out war with the other.

    For the Americans, such a war would set the Gulf ablaze, halt the flow of oil, and cause a recession in the West. For Iran, war with the USA could see their country smashed and splintered like Saddam’s Iraq, and the loss of an historic opportunity to achieve hegemony in the Gulf.

    Also, both Iran and the United States would like to see ISIS not only degraded and defeated, but annihilated. Both thus have a vested interest in preventing a collapse of either the Shiite regime in Baghdad or Assad’s regime in Syria.

    And, thus, Syria is probably where the next collision is going to come between the United States and its old allies.

    For Turkey, Saudi Arabia and Israel all want the Assad regime brought down to break up Iran’s Shiite Crescent and inflict a strategic defeat on Tehran. But the United States believes the fall of Assad means the rise of ISIS and al-Qaida, a massacre of Christians, and the coming to power of a Sunni terrorist state implacably hostile to us.

    Look for the Saudis and Israelis, their agents and lobbies, their think tanks and op-ed writers, to begin beating the drums for the United States to bring down Assad, who has been “killing his own people.”

    The case will be made that this is the way for America to rejoin its old allies, removing the principal obstacle to our getting together and going after ISIS. Once Assad is gone, the line is already being moved, then we can all go after ISIS. But, first, Assad.

    What is wrong with this scenario?

    A U.S. no-fly zone, for example, to stop Assad’s barrel bombs, would entail attacks on Syrian airfields and antiaircraft missiles and guns. These would be acts of war, which would put us into a de facto alliance with the al-Qaida Nusra Front and ISIS, and invite retaliations against Americans by Hezbollah in Beirut, and the Shiite militia in Baghdad.

    Any U.S.-Iran rapprochement would be dead, and we will have been sucked into a war to achieve the strategic goals of allies that are in conflict with the national interests of the United States. And our interests come first.

  • First China Arrests "Sellers", Now Bans "Defaulters" From Traveling

    In consequence-less America, the stigma of defaulting on one's personal responsibilities is a badge of honor for a risk-seeking public. No matter what, the government has your back if you want to buy a fridge, boat, or car – serial defaulter or not. However, hot on the heels of their proclamation that "malicious selling" of stocks is illegal, the Chinese government has extended its punitive measures against defaulting citizens, who are now banned from traveling on high-speed trains.

    • *CHINA BARS DEFAULTERS FROM TAKING HIGH-SPEED TRAINS: XINHUA

    This extends the already significant restrictions on 'defaulters' in place since last year (via Xinhua)…

    People who fail to fulfill court orders will face travel, financial and employment restrictions, said the Supreme People's Court (SPC) here Thursday.

     

    The SPC has signed a memorandum with six central government departments and China Railway Corporation to impose harsher restrictions on defaulters, said Jiang Bixin, vice president of the SPC, at a press conference here.

     

    They will be banned from flying and traveling in upper-class sleeper train compartments, as well as taking positions as legal representative, member of the board, member of the board of supervisors and senior executive of a company, Jiang said.

     

    Besides restrictions on traveling and employment, the defaulters will face constraints when applying for a loan or opening a credit card.

     

    When a corporation becomes a defaulter, its legal representatives, chief executives and those directly responsible for fulfilling the obligation will be subject to the same restrictions as individual defaulters, according to Jiang.

     

    Refusing to implement court judgements has become quite rampant in China, he said.

     

    "About 70 percent of debtors do not willingly fulfill court judgements. This not only harms legal interests of obligees but also social morals and mutual trust among people," he said.

     

    By Wednesday noon, there were 55,920 on the SPC's blacklist of defaulters, about 46,500 individuals and 9,400 corporations.

     

    The SPC will work with police and regulators of banks, state-owned enterprises, civil aviation, and business, Jiang said.

    *  *  *

    So while the Chinese government embraces the painful downside of capitalism in its personal defaults (and recognizes the moral hazrd), it entirely ignores it when it comes to stock market downside… perhaps they are learning from America what really matters after all.

  • US Government Reinstates Arm Sales To Bahrain Despite Rampant Human Rights Abuses

    Submitted by Mike Krieger via Liberty Blitzkrieg blog,

    One of the many destructive myths Americans like to tell themselves is that the U.S. government is a staunch defender of human rights and democracy around the world. In reality, nothing could be further from the truth.

    Yes its true, there are plenty of well intentioned individuals and organizations across America that do care very deeply about such things; the U.S. government just isn’t one of them. The facts on the ground clearly prove this to be the case. The only thing those in charge care about is raw imperial power and money. Of course, they know this. They also know that keeping the myth alive is extremely important in order to maintain the moral high ground and some degree of legitimacy in the eyes of the public.

    The most recent example of what a sham the government’s purported commitment to human rights is, was last week’s revelation that the State Department may be prepared to upgrade Malaysia’s trafficking in persons ranking just to move the TPP forward. Here’s an excerpt from the post, To Pass TPP, U.S. State Dept. Upgrades Malaysia’s Human Trafficking Ranking Despite Discovery of Mass Graves:

    Earlier this week, we wrote about a troubling move by the US State Department to “upgrade” Malaysia from a “tier 3″ country to a “tier 2″ country regarding human trafficking. This move came despite a near total lack of evidence of any improvement by Malaysia. In fact, just two months ago 139 mass graves were discovered for migrant workers who had been trafficked and/or held for ransom. And the US ambassador to Malaysia had publicly criticized the country for failing to tackle its massive human trafficking problem.

    Today, we learn about how the U.S. government has reinstated arm sales to Bahrain despite horrific human rights abuses. From International Business Times:

    “The government of Bahrain has made some meaningful progress on human rights reform and reconciliation.”

     

    With this flexible formulation, the US justified the decision to lift the hold on arms transfers to the Bahrain Defence Force and National Guard, which had been in a place in an effort to pressure the Bahraini regime to reform its violent tactics towards protesters.

     

    But even as State Department employees were drafting and editing the arms-release statement, the government of Bahrain was disabusing the Obama Administration of the notion that it had the slightest interest in human rights protections and political reconciliation.

     

    Two weeks before the decision, a court sentenced Sheikh Ali Salman, head of the opposition society al-Wefaq, to four years in prison for “inciting hatred” and “insulting public institutions” charges which Amnesty International dismissed outright. The day before the U.S. dropped its hold, the government sentenced another opposition leader, Fadhel Abbas, to five years in prison for tweeting his condemnation of the war in Yemen.

     

    Not three days after the statement, authorities arrested Majeed Milad, another participant in the erstwhile National Dialogue, on charges of “instigating hatred of the regime.” Lest a casual observer think this to be all party politics, Nabeel Rajab, the prominent nonviolent and nonpartisan human rights defender, was only just released for unspecified “health reasons” after languishing in prison since 2 April. Authorities also targeted him for unwelcome criticism of the Yemeni conflict.

     

    This, even as the State Department declared that Bahraini officials were “contribut[ing] to an environment more conducive to reconciliation and progress.”

     

    The unkindest cut of all for the State Department, however, came on June 11, when the Bahrain Interior Ministry arrested Ebrahim Sharif. On that day, authorities arrested the former leader of the secular opposition society Wa’ad (“Promise”), for “incitement to overthrow the government”.

     

    As evidence, officials cited a twenty-minute speech Sharif had delivered on 10 July. An examination of Sharif’s words reveals nothing in the way of incitement or coup-plotting, but rather the nonviolent dissidence to which the members of Bahrain’s democratic movement have held for years.

    Well at least they aren’t abusing American citizens or anything. Oh, wait.

    Nevermind that “prisoners,” plural, was a misnomer, that human rights activists like Abdulhadi al-Khawaja and Naji Fateel are still imprisoned. Nevermind that American citizen Taqi al-Maidan remains behind bars, suffering torture and maltreatment on unsubstantiated charges.

  • China's Record Dumping Of US Treasuries Leaves Goldman Speechless

    On Friday, alongside China’s announcement that it had bought over 600 tons of gold in “one month”, the PBOC released another very important data point: its total foreign exchange reserves, which declined by $17.3 billion to $3,694 billion.

     

    We then put China’s change in FX reserves alongside the total Treasury holdings of China and its “anonymous” offshore Treasury dealer Euroclear (aka “Belgium”) as released by TIC, and found that the dramatic relationship which we first discovered back in May, has persisted – namely virtually the entire delta in Chinese FX reserves come via China’s US Treasury holdings. As in they are being aggressively sold, to the tune of $107 billion in Treasury sales so far in 2015.

     

    We explained all of his on Friday in “China Dumps Record $143 Billion In US Treasurys In Three Months Via Belgium“, and frankly we have been surprised that this extremely important topic has not gotten broader attention.

    Then, to our relief, first JPM noticed. This is what Nikolaos Panigirtzoglou, author of Flows and Liquidity had to say on the topic of China’s dramatic reserve liquidation

    Looking at China more specifically, it appears that, after adjusting for currency changes, Chinese FX reserves were depleted for a fourth straight quarter by around $50bn in Q2. The cumulative reserve depletion between Q3 2014 and Q2 2015 is $160bn after adjusting for currency changes. At the same time, a current account surplus in Q2 combined with a drawdown in reserves suggests that capital outflows from China continued for the fifth straight quarter. Assuming a current account surplus in Q2 of around $92bn, i.e. $16bn higher than in Q1 due to higher merchandise trade surplus, we estimate that around $142bn of capital left China in Q2, similar to the previous quarter.

    JPM conclusion is actually quite stunning:

    This brings the cumulative capital outflow over the past five quarters to $520bn. Again, we approximate capital flow from the change in FX reserves minus the current account balance for each previous quarter to arrive at this estimate (Figure 2).

    Incidentally, $520 billion is roughly triple what implied Treasury sales would suggest as China’s capital outflow, meaning that China is also liquidating some other USD-denominated asset(s) at a feverish pace. So far we do not know which, but the chart above and the magnitude of the Chinese capital outflow is certainly the biggest story surrounding the world’s most populous nation: what is happening in its stock market is just a diversion.

    At this point JPM goes into a tangent explaining what the practical implications of a massive capital outflow from China are for the global economy. Regular readers, especially those who have read our previous piece on the collapse in the Petrodollar, the plunge in EM capital inflows, and their impact on capital markets and global economies can skip this part. Those for whom the interplay of capital flows and the global economy are new, are urged to read the following:

    One way that slower EM capital flows and credit creation affect the rest of the world is via trade and trade finance. Trade finance datasets are unfortunately not homogeneous and different measures capture different aspects of trade finance activity. Reuters data on trade finance only aggregates loan syndication deals, which have mandated lead arrangers and thus capture the trends in the large-scale trade lending business, rather than providing an all-inclusive loans database. Perhaps the largest source of regularly collected and methodologically consistent data on trade finance is credit insurers (see “Testing the Trade Credit and Trade Link: Evidence from Data on Export Credit Insurance”, Auboin and Engemann, 2013). The Berne Union, the international trade association for credit and investment insurers with 79 members, includes the world’s largest private credit insurers and public export credit agencies. The volume of trade credit insured by members of the Berne Union covered more than 10% of international trade in 2012. The Berne Union provides data on insured trade credit, for both short-term (ST) and medium- and long-term transactions (MLT). Short-term trade credit insurance accounts for the vast majority at around 90% of new business in line with IMF estimates that the vast majority 80%-90% of trade credit is short term.

     

     

    Figure 4 shows both the Reuters (quarterly) and the Berne Union (annual) data on trade finance loan syndication and trade credit insurance volumes, respectively. The quarterly Reuters data showed a clear deceleration this year from the very high levels seen at the end of last year. Looking at the first two quarters of the year, Reuters volumes were down by 25% vs. the 2014 average (Figure 4). The more comprehensive Berne Union annual volumes are only available annually and the last observation is for 2014. These data showed a very benign trade finance picture up until the end of 2014. Trade finance volumes had been trending up since 2010 at an annual pace of 8.8% per annum (between 2010 and 2014) which is faster than global nominal GDP growth of 6% per annum, i.e. the trend in trade finance had been rather healthy up until 2014, but there are indications of material slowing this year. This is also reflected in world trade volumes which have also decelerated this year vs. strong growth in previous years (Figure 5).

    Summarizing the above as simply as possible: for all those confounded by why not only the US, but the global economy, hit another brick wall in Q1 the answer was neither snow, nor the West Coast strike, nor some other, arbitrary, goal-seeked excuse, but China, and specifically over half a trillion in still largely unexplained Chinese capital outflows.

    * * *

    But wait, because it wasn’t just JPM whose attention perked up over the weekend. This morning Goldman Sachs itself had a note titled “the Curious Case of China’s Capital Outflows“:

    China’s balance of payments has been undergoing important changes in recent quarters. The trade surplus has grown far above previous norms, running around $260bn in the first half of this year, compared with about $100bn during the same period last year and roughly $75bn on average during the previous seven years. Ordinarily, these kinds of numbers would see very rapid reserve accumulation, but this is not the case. Partly that is because China’s services balance has swung into meaningful deficit, so that the current account is quite a bit lower than the headline numbers from trade in goods would suggest. But the more important reason is that capital outflows have become very sizeable and now eclipse anything seen in the recent past.

     

    Headline FX reserves in the second quarter fell $36bn, from $3,730bn at end-March to $3,694bn at end-June. While we estimate that there was a large negative valuation effect in Q1 (due to the drop in EUR/$ on the ECB’s QE announcement), there was likely a positive valuation effect in Q2, which we put around $48bn. That means that our proxy for reserve accumulation in the second quarter is around -$85bn, i.e. the actual “flow” drop in reserves was bigger than the headline numbers suggest because of a flattering valuation effect. If we put that number together with the trade surplus in Q2 of $140bn, net capital outflows could be around -$224bn in the quarter, meaningfully up from the first quarter. There are caveats to this calculation, of course. There is obviously the services deficit that we mention above, which will tend to make this estimate less dramatic. It is also possible that our estimate for valuation effects is wrong. Indeed, there is some indication that valuation-related losses in Q1 were not nearly as large as implied by our calculations. But even if we adjust for these factors, net capital outflows might conceivably have run around -$200bn, an acceleration from Q1 and beyond anything seen historically.

    Granted, this is smaller than JPM’s $520 billion number but this also captures a far shorter time period. Annualizing a $224 billion outflow in one quarter would lead to a unprecedented $1 trillion capital outflow out of China for the year. Needless to say, a capital exodus of that pace and magnitude would suggest that something is very, very wrong with not only China’s economy, but its capital markets, and last but not least, its capital controls, which prohibit any substantial outbound capital flight (at least for ordinary people, the Politburo is clearly exempt from the regulations for the “common folk”).

    Back to Goldman:

    The big question is obviously what is driving these flows and how long they are likely to continue. We continue to take the view that a stock adjustment is at work, although it is clear that the turning point is yet to come. We will look at this in one of our next FX Views. In the interim, we think an easier question is what this means for G10 FX. This is because this shift in China’s balance of payments is sure to depress reserve accumulation across EM as a whole, such that reserve recycling – a factor associated with Euro strength in the past – is unlikely to be sizeable for quite some time.

    In other words, for once Goldman is speechless, however it is quick to point out that what traditionally has been a major source of reserve reflow, the Chinese current and capital accounts, is no longer there.

    It also means that what may have been one of the biggest drivers of DM FX strength in recent years, if only against the pegged Renminbi, is suddenly no longer present.

    While the implications of this on the global FX scene are profound, they tie in to what we said last November when explaining the death of the petrodollar. For the most part, the country most and first impacted from this capital outflow will be China, something its stock market has already noticed in recent weeks.

    But what is likely the take home message for non-Chinese readers from all of this, is that while there has been latent speculation over the years that China will dump US treasuries voluntarily because it wants to (as punishment or some other reason), suddenly China is forced to liquidate US Treasury paper even though it does not want to, merely to fund a capital outflow unlike anything it has seen in history. It still has a lot of 10 Year paper, aka FX reserves, left: about $1.3 trillion at last check, however this raises two critical questions: i) what happens to 10 Year rates when whoever has been absorbing China’s Treasury dump no longer bids the paper and ii) how much more paper can China sell before the entire world starts paying attention, besides just JPM and Goldman… and this website of course.

    Finally, if China’s selling is only getting started, just what does this mean for future Fed strategy. Because one can easily forget a rate hike if in addition to rising short-term rates, China is about to dump a few hundred billion in paper on a vastly illiquid market.

    Or let us paraphrase: how soon until QE 4?

  • "It's Laughable Really": Why No One, Especially Not Jamie Dimon, Will Be Held Accountable For London Whale

    A few weeks back, Bruno Iksil, the man whose name shall live in CDX trading infamy and whose nicknames will forever haunt the desks at JP Morgan’s taxpayer-sponsored, London-based hedge fund (known in polite circles as “CIO”), got a break when the UK’s financial watchdog dropped its investigation saying it didn’t have a strong enough case. 

    Apparently, the fact that Iksil was the driving force (if not the most senior of the employees involved) behind a trade so large it noticeably displaced the market doesn’t count as a “strong case.” Indeed, the simple fact that Iksil was known across trading desks as “Voldemort“, “The London Whale“, and perhaps most telling, “He Who Must Not Be Named,” might fairly be said to constitute a compelling bit of anecdotal evidence. Alas, the whale is now scott-free, having secured immunity in the US in exchange for cooperating with the investigation and having been exonerated in the UK. 

    As we noted in “Free Willy: FCA Drops Case Against London Whale,” junior trader Julien Grout and Iksil’s boss Javier Martin-Artajo are still theoretically on the hook for the trade which, as a reminder, saw CIO sell massive amounts of protection on IG.9 back in Q1 of 2012 in what ultimately became a rather poignant example of the old adage “if you find yourself in a hole, stop digging.”

    We say “theoretically on the hook”, because in all likelihood, Grout and Martin-Artajo will never have to face the music either. Here’s NY Times with more on why “in all likelihood, no one will be held legally accountable”:

    The case of the London Whale has ended — with a whimper.

     

    Last week, Britain’s Financial Conduct Authority took the unusual step of announcing that it was dropping its investigation and would take no further action against Bruno Iksil, whose risky bets on complex derivative contracts ended up costing JPMorgan Chase $6.2 billion in losses.

     

    Today Mr. Iksil, 48, faces no charges. He does not even face civil claims, which have a much lower standard of proof. Preet Bharara, the United States attorney in Manhattan, disclosed in August 2013 that the government had entered into a nonprosecution agreement with Mr. Iksil, and that he would not be required to plead guilty to any crime. The Securities and Exchange Commission took no action against him. And now British regulators have dropped the case.

     

    The result has left many white-collar defense lawyers mystified, even as they profess admiration for Mr. Iksil’s lawyers. While Mr. Iksil has emerged scot-free, his immediate boss, Javier Martin-Artajo, a Spanish national, and Mr. Iksil’s lower-ranking assistant, Julien Grout, who is French, face criminal charges and civil claims. But Mr. Martin-Artajo is in Spain, where a court has refused to extradite him, and Mr. Grout is in France, which typically does not extradite its own citizens. Although the investigation in the United States officially remains open, it appears no one, in all likelihood, will be held legally accountable.

     

    (Martin-Artajo)

    And while it’s easy to write this off as yet another example of how no humans are ever held accountable for what happens when TBTF banks (with the implicit blessing of the US government via FDIC insurance) go all-in at the derivatives baccarat tables, the London Whale may also represent the tendency for regulators and prosecutors to place the blame on anyone but those who ultimately deserve it. Here’s the Times again:

    Far from being the rogue trader portrayed in early news coverage, Mr. Iksil emerges in government documents and interviews with people familiar with much of the evidence as a conflicted figure on the trading floor, troubled by conscience, even as he tried to please his bosses. They pushed him to undertake the risky derivatives trading that proved his undoing and caused the great losses. Then, as the losses mounted, he repeatedly warned his colleagues that they should be more forthcoming about their extent, to no avail.

     

    “It’s laughable, really, that so many banks have been prosecuted and it’s always the fault of a rogue trader, or an isolated trading desk,” said Brandon L. Garrett, a law professor at the University of Virginia and author of the book “Too Big to Jail.” “But when risky behavior is repeatedly tolerated or concealed, you have to wonder if higher-ranking people should have been targeted.”

    Yes, you do have to wonder about that.

    But as the ridiculous witch-hunt against flash crashing “mastermind” Nav Sarao proves, vested interests and well paid lobbyists will everywhere and always trump the truth, which is why, through it all, Jamie Dimon has not only managed to escape blame for the CIO fiasco, but has in fact become a billionaire in the interim. 

  • Peter Schiff: Currencies Depend On Faith, Gold Doesn't

    Submitted by Peter Schiff via Euro Pacific Capital,

    In his July 17th Blog, Let's Get Real About Gold, author and Wall Street Journal columnist Jason Zweig likened investor interest in gold with the "Pet Rock" craze of the 1970's, when consumers became convinced that a rock in a box would provide continuous companionship, elevate their social standing, and give them something hip to talk about at parties. Zweig asserts that investor faith in gold, which he argues is just another inert mineral with good marketing, is similarly irrational, and has kept people from putting money in the much more lucrative stock market.

    First off, Zweig's comparison of gold to equities as an investment vehicle sets up a false dichotomy. Gold is not an investment. It is, as Zweig indicates, nothing but a rock. But it is a rock that is extremely scarce, with highly desirable physical properties that have resulted in its being used as money for all of recorded human history. As a result, it should not be compared to stocks or real estate, but to other forms of money, such as any one of a number of fiat currencies now in circulation. Ironically, in a world awash in fiat currencies that are created at an ever increasing pace, and whose value is solely derived from faith in the issuing state, gold is the only form of money whose value does not require a leap of faith.

    I have no emotional attachment to gold. I don't use it to cover my walls, I don't run my fingers through it and laugh, I don't ask my wife to paint herself with it. What I do know is that before the world moved to a fiat monetary system in the latter half of the 20th Century, gold had become the money of choice for nearly every major culture in every age. This supremacy was based on gold's scarcity, its versatility as a metal, its unique and useful properties, its beauty, and its wide cultural acceptance as a hallmark of love, permanence, wealth and success. There can be little doubt that people will always be willing to desire and accumulate gold…for any of a variety of reasons. The only question is how much they will be willing to pay. On that point, reasonable minds can differ. But to imply that gold has no more intrinsic value than a pet rock, is to recklessly ignore reality.

    Up until 1971, the U.S. dollar was backed by the faith that the government would redeem its notes in gold. But, since then, that faith has been replaced by a simpler faith that others will always accept U.S. dollars in exchange for goods and services of real value. The transformation put the U.S. dollar in the same basket as all the other fiat currencies in the world whose value stems from the faith in the issuing government. In his piece, Zweigseems to assume that holding currencies is not an act of faith. But clearly this too involves a question of degree.

    Most investors would certainly prefer gold to Argentine Pesos, Ghanaian Cedis, or Venezuelan Bolivars. In reality, what Zweig is saying is that good fiat currencies (the U.S. dollar being the gold standard of fiat currencies) require no faith to buy and hold. But why is that?

    But the dollar's strength is supposed to derive from faith that the U.S. government will remain fiscally sound. There is little evidence that this will be the case. All of the traditional factors that determine a currency's value, i.e. trade balances, interest rates, government debt levels, economic growth, etc. should be putting downward pressure on the dollar. The U.S. government has done nothing to solve the nation's long-term debt crisis. Even the Congressional Budget Office admits that the Federal deficit will increase by an average of $35 billion annually until the end of the decade. By 2025, Trillion dollar plus deficits become entrenched (and those projections are based on economic growth assumptions that currently have proven to be far too optimistic.)

    Despite all this, the dollar has surged close to a 10-year high, based on the Bloomberg Dollar Spot Index. Wall Street has explained the dominance by pointing to troubles in Europe and Asia, saying that the dollar has its problems, but it is the "cleanest dirty shirt in the hamper." Analysts pointed to the expected higher interest rates from the Fed that would under-gird demand for the dollar as other central banks around the world were lowering rates. But that outcome has yet to materialize.

    At the end of 2014 most investors had assumed that the Fed would begin raising rates in the First Quarter of 2015. But disappointing economic growth has led the Fed to continuously delay lift off. Nevertheless, investors still think that the hikes are just around the corner. In reaching this conclusion, they blindly accept that our economy can survive higher rates when all the objective evidence leads to the conclusion that it can't.

    In reality, faith in the dollar is based solely on the belief that the U.S. dominance of the global economy will continue indefinitely, no matter how deeply we go into debt, how low our interest rates remain, and how unbalanced our trade becomes.

    We have seen this movie before. When confidence in the infallibility of central bankers is high,mainstream voices tend to cast aside gold and put their faith in the judgment of man. In 1999, New York Times columnist Floyd Norris penned an article entitled, "Who Needs Gold When We Have Alan Greenspan?" Despite Norris' dismissal, the real answer to that question was "everyone". In the following 12 years, at its high, gold rallied 650%.

    From my perspective, the markets are now placing more misplaced faith in the wisdom of Janet Yellen than they had in Greenspan. As a result, gold is being shunned as it was back in 1999. Alan Greenspan's penchant for easing monetary policy to prop up financial markets led to the creation of two dangerous bubbles, the first in stocks in 2000, and then in real estate, which finally burst in 2007, leading to the Great Recession. Given that the easing of monetary policy made by Greenspan's successors has been much larger, one can only imagine what may be the enormity ofan economic disaster that looms on the horizon.

    So yes, in a way my investment decisions are based on faith, but not the same type of faith that the Wall Street Journal assumes. My faith is that governments and central banks will continue to run up debt and debase currencies until a crisis brings the whole experiment to a disastrous conclusion. There is simply no historical precedent to reach any other conclusion. I also have faith that human beings will always prefer a piece of gold to a stack of paper. Separate a paper currency from its perceived value and you just have a stack of paper and ink. However, if they would just print it on softer and absorbent stock and put it on rolls, it might have some intrinsic value if we run out of toilet paper.

  • What Do Greece and Louisiana Have in Common? The War on Cash

    More and more institutions are trying to make it harder for you to move your money into cash.

     

    Globally, over $5 trillion in debt currently have negative yields in nominal terms, meaning the bond literally has a negative yield when it trades. In the simplest of terms this means that investors are PAYING to own these bonds.

     

    Bonds are not unique in this regard. Switzerland, Denmark and other countries are now charging deposits at their banks. In France and Italy, you are not allowed to make cash transactions above €1,000.

     

    This sounds laughable to most people, but it is a reality in Europe… and in the US, in some regions. Louisiana has made it illegal to purchase second hand goods using cash.

     

    This is just the beginning. The War on Cash will be spreading in the coming weeks.

    The reasoning is simple. Most large financial entities are insolvent. As a result, if a significant amount of digital money is converted into actual physical cash, the firm would very quickly implode.

     

    This is precisely what happened in 2008…

     

    When the 2008 Crisis hit, one of the biggest problems for the Central Banks was to stop investors from fleeing digital wealth for the comfort of physical cash. Indeed, the actual “thing” that almost caused the financial system to collapse was when depositors attempted to pull $500 billion out of money market funds.

     

    A money market fund takes investors’ cash and plunks it into short-term highly liquid debt and credit securities. These funds are meant to offer investors a return on their cash, while being extremely liquid (meaning investors can pull their money at any time).

     

    This works great in theory… but when $500 billion in money was being pulled (roughly 24% of the entire market) in the span of four weeks, the truth of the financial system was quickly laid bare: that digital money is not in fact safe.

     

    To use a metaphor, when the money market fund and commercial paper markets collapsed, the oil that kept the financial system working dried up. Almost immediately, the gears of the system began to grind to a halt.

     

    When all of this happened, the global Central Banks realized that their worst nightmare could in fact become a reality: that if a significant percentage of investors/ depositors ever tried to convert their “wealth” into cash (particularly physical cash) the whole system would implode.

     

    None of these issues have been resolved. The big banks remain as leveraged as ever and at risk of implosion should a significant percentage of capital get pulled into physical cash.

     

    European banks as a whole are leveraged at 26 to 1. In simple terms, this means they have just €1 in capital for every €26 in assets (bought via borrowed money).

     

    This is why whenever things get messy in Europe, the ECB and EU begin implementing capital controls.

     

    Consider what recently happened in Greece. Depositors began to flee the banks in droves, so they declared a bank holiday. This holiday included safe deposit boxes… so all the bullion or physical cash Greeks had stashed there remained locked up… just like the “digital” money in their savings accounts.

     

    Again, it was impossible to get cash out of the banks… even cash that technically wasn’t “in the system” anymore but sitting in safe deposit banks.

     

    The US financial system isn’t any better. Indeed, the vast majority of it is in digital money. Actual currency is just a little over $1.36 trillion. Bank accounts are $10 trillion. Stocks are $20 trillion and Bonds are $38 trillion.

     

    And at the top of the heap are the derivatives markets, which are over $220 TRILLION.

     

    If you think the banks aren’t terrified of what this market could do to them, consider that JP Morgan managed to get Congress to put the US taxpayer on the hook for it derivatives trades.

     

    Mind you, this is the same bank that is now refusing to let clients store cash in safe deposit boxes.

     

    This is just the tip of the iceberg. As anyone can tell you, it’s all but impossible to move large amounts of money into cash in the US. Even the large banks will routinely ask you for 24 hours notice if you need $10,000 or more in cash. These are banks will TRLLLIONS of dollars worth of assets on their books.

     

    This is just the beginning.

     

    Indeed, we've uncovered a secret document outlining how the Fed plans to incinerate savings.

     

    We detail this paper and outline three investment strategies you can implement

    right now to protect your capital from the Fed's sinister plan in our Special Report

    Survive the Fed's War on Cash.

     

    We are making 1,000 copies available for FREE the general public.

     

    To pick up yours, swing by….

    http://www.phoenixcapitalmarketing.com/cash.html

     

    Best Regards

    Phoenix Capital Research

     

     

     

  • "Two-Faced" Japan Accuses China Of Stealing Gas With Sea Rigs

    Over the course of the last several months, China has found itself at the center of a rather spirited international “debate” over the country’s land reclamation efforts in the disputed waters of the South China Sea. 

    To recap, Beijing has created more than 1,500 acres of sovereign territory in the Spratly archipelago by using dredgers to construct man-made islands atop reefs. Although China isn’t the first country to embark on reclamation efforts in the region, its projects have been described by the US and its allies as far more ambitious than those of its neighbors.

    The situation escalated rapidly when the Chinese Navy threatened a US spy plane with a CNN crew aboard. Shortly thereafter, the US claimed to have spotted artillery on one of the islands and the entire situation culminated in a hilarious propaganda campaign by the Chinese apparently designed to show that life on its new islands was really all about girls, gardening, pigs, and puppies. 

    Now, China finds itself at the center of yet another maritime dispute, this time over the construction of oil and gas platforms in the East China Sea. Reuters has more:

    China reserves the right to a “necessary reaction” after Japan issued a defense review that called on Beijing to stop building oil and gas exploration platforms close to disputed waters in the East China Sea, the Defense Ministry has said.

     

    In the paper issued on Tuesday, Tokyo expressed concern that Chinese drills could tap reservoirs that extend into Japan’s waters.

     

    “This kind of action completely lays bare the two-faced nature of Japan’s foreign policy and has a detrimental impact on peace and stability in the Asia Pacific region,” China’s Defense Ministry said in a statement issued late on Tuesday.

     

    China would further evaluate Japan’s defense review, or white paper, when the full text is issued and would then make a “necessary reaction depending on the situation”, it said.

     

    In an escalation of the spat, Japan released aerial photos of China’s construction activities in the area, accusing Beijing of unilateral development and a halfhearted attitude toward a 2008 agreement to jointly develop resources there.

     

    “China’s development activities in the East China Sea have shown no signs of ceasing. Given rising concerns within and outside of Japan over China’s various attempts to change the status quo, we have decided to release what can be released in an appropriate manner,” Chief Cabinet Secretary Yoshihide Suga told a regular news conference.

    Apparently “what can be released” are the following images:

    And here is a map showing where the rigs are located in relation to a demarcation line that separates the two countries’ exclusive economic zones.

    So what’s the problem, you ask? It seems as though all of the structures are on China’s side of the line. Here’s Bloomberg with more:

    Japan’s foreign ministry unveiled a map and photographs of what it said were 16 Chinese marine platforms close to Japan’s side of the disputed East China Sea.

     

     

    The platforms are on the Chinese side of a geographical median line that Japan contends should mark the border between their exclusive economic zones. Japan has long expressed concern that such developments could siphon gas out of undersea structures that extend to its own side.

    So essentially, Japan believes that China may be attempting to steal from Japan by building rigs right next to the line and sucking undersea gas back to the Chinese side. Or, in other words:

    As for Beijing’s take on the matter, the foreign ministry says its exploration activities are “justified, reasonable and legitimate.”

    Whatever the case may be, the dispute won’t do anything to help Sino-Japanese relations and although Suga claims the issue won’t derail diplomatic progress, one has to imagine that Beijing has had just about enough of being told what it can and can’t do in what it considers to be territorial waters. 

    *  *  *

    Full statement from Japanese Ministry of Foreign Affairs (Google translated): 

    In recent years, China has to revitalize the resource development in the East China Sea, as a government, the Chinese side of the geographic middle line during the day, it has been confirmed a total of 16 groups structures so far. 2 East China Sea exclusive economic zone and continental shelf boundary is is not yet defined, Japan is in a position of that should be carried out the demarcation that is based on the median line during the day. In this way, in a situation that is not yet defined boundaries, although the middle and at the Chinese side of the median line the day, it is extremely regrettable that the Chinese side has promoted the unilateral development activities. The government, for the Chinese side, it is possible to stop the unilateral development activities, it was consistent for the cooperation between Japan and China on the resource development of the East China Sea “in June 2008 agreement,” As to respond to early resumption of negotiations on the implementation of, it is where you are asking once again strongly. 

    Japan’s legal position on resource development in (Reference) East China Sea both in one day, based on the relevant provisions of the United Nations Convention on the Law of the Sea, has the title of the exclusive economic zone and continental shelf from the territorial sea baseline to 200 sea miles . Since the distance between each of the territorial sea baseline during the day when you are face to face across the East China Sea is less than 400 sea miles, for the part of the exclusive economic zone and continental shelf up to 200 nautical miles both overlap, bounded by day intermediate agreement there is a need to define a. In light of the relevant provisions and international precedents UNCLOS, in order to define the boundary in such waters may define the boundaries based on the intermediate line is a the equitable solution. (Note: one sea mile = 1.852 km, 200 sea miles = 370.4 km) for two (1) this, the Chinese side, the demarcation in the East China Sea, a natural extension of the continental shelf, the East China Sea of characteristics such as mainland and the island of contrasts Based in and are going to should be carried out, after the demarcation is not recognized by the intermediate line, without the Chinese side shows the assumed specific boundary line, claim that the are naturally extended to the Okinawa Trough for the continental shelf doing. (2) On the other hand, it is a natural extension theory, in the 1960s, such as that used in the case law on the demarcation of the adjacent country continental shelf, is a concept that has been taken in the past of international law. Based on the relevant provisions and the subsequent international precedents of the United Nations Convention on the Law of the Sea, which was adopted in 1982, upon the distance between the opposing countries to define the boundaries in waters of less than 400 nautical miles, the room found a natural extension theory rather, also, there is no legal meaning in the seabed terrain, such as the Okinawa trough (groove of the seabed). Therefore, the idea that can claim a continental shelf up to the Okinawa Trough, lacks evidence In light of the current international law. 3 standing on such premise to this, our country is, the border has been taken the position of the course and that our country has the ability to exercise sovereign rights and jurisdiction in the Japanese side of the body of water from at least the middle line in the waters of non-defined . This thing is totally without that abandoned the title of intermediate line beyond, last until the boundary is defined is for the time being that the exercise of the sovereign rights and jurisdiction in the waters to the middle line. Therefore, day middle of demarcation has not been made ??in the East China Sea, and, in a situation where the Chinese side does not recognize any claims relating to the middle line of our country, and exclusive economic zone of our country up to 200 sea miles from Japan’s territorial waters baseline no different in fact that has the title of continental shelf.

  • 'Trump'ing Political Success Through An Irate Silent Majority

    Submitted by Ben Tanosborn,

    Four years ago Tony Bennett and Lady Gaga rebirthed the musical-cicada of the 1937 song, “The Lady Is a Tramp”… which makes me think that maybe we could be facing in 2016 a reenactment of the 1968 presidential election, this time Donald Trump taking the role of George Wallace; a political musical that could appropriately be given the lyrical title, “The Politician Is a Trump.”

    Alabama’s Gov. Wallace, unable to represent the Democratic Party in the presidential election, created back then his own party: The American Independent Party; a party that by embracing Wallace’s views on segregation gave Richard Nixon ease-of-entry to the White House.  Donald Trump, with his equally verboten stand on immigration as Geo. Wallace was on segregation, is not likely to receive the seal of approval from the old guard in the Republican Party, which brings the possibility that Mr. Trump, in boastful arrogance, might decide to invest a few of his many millions in a third party candidacy which could add a new chapter to his book, “The Art of the Deal,” if elected; or create fresh material for his television pseudo-business repertoire, if turned down by the electorate.         

    Richard Nixon made hay of the term “Silent majority” back in November 1969 to defend his Vietnam War policy.  It has since been used by American politicians to legitimize and expand the nature of a non-descript huge following they claim as their own, quite often asserting the existence of magnified populism and an implied democracy.  Nixon’s baton seems to have been now passed to Donald Trump, as he submits his candidacy for the highest political office in the land, and grabs the microphone to broadcast his unfiltered stand on immigration.  A message that questionably-qualified experts in the media are quick to devour, then defecate, on a public more receptive to shallow issues dealing with celebrities than anything of social significance or depth.  

    In truth, there is no silent majority in the United States of America, and there has never existed one other than that represented by the number of converted-to-dust ancestors.  A collection of vocal minorities, yes; but most definitely not a political silent majority! [Oftentimes, however, low voter turnout may confuse us to the possible existence of a silent politically-indifferent majority; a topic worthy of study by our social scientists.]

    There are, nonetheless, silent substantial minorities bordering the majority rim on some specific critical issues that affect the body politic; their standing on those issues not adopted or represented by either of the two ruling parties openly because of political “incorrectness” or unsavory bigotry which politicians prefer to overlook or deny.  These days, the unwillingness, or incapacity, of the government to secure the nation’s borders from waves of economic invaders, negatively tagged as illegals by some, and positively by others as undocumented immigrants, is an issue not being properly, or directly, addressed politically by America’s Tweedledee and Tweedledum parties.

    It should come as no surprise when a politician, or would-be politician, unceremoniously breaks ranks with the party to claim leadership on a specific issue that overshadows the rest, and immigration seems to be one in our current political cycle, that such individual is going for broke, either because of his moral standing on such issue, or because he is powerful enough, usually through wealth, where personal risk is minimal or nonexistent.  Enter billionaire Donald Trump.  He may appear as a clown to the more sedate segment of the US population, but he’s nobody’s fool and can also break the straightjacket of an imposed political correctness simply because his wealth and power permit it.

    For all the polls taken on how Americans feel about almost any issue under the sun, a number of topics or issues seem out-of-bounds for pollsters; and how Americans in their diversity feel about immigration is one of them, remaining closeted so as not to create additional problems for an already fragmented society.  Trump, just like many others, senses that the majority of rank-and-file Republicans resent the do-nothing approach to resolve the ever-increasing number of illegal, or undocumented, residents, possibly exceeding 7 percent of the nation’s population.  And that the non-Latino rank-and-file Democrats probably hold a similar majority.

    Piling on by the dozen-and-a-half declared Republican candidates against outspoken Trump who’s now leading the pack might not be the best strategy for keeping the GOP whole.  And a rebuke by the Bobbsey Twins, war hawk senators Lindsey Graham and John McCain, will only fuel the existing party dissension.

    Much of Europe is facing the socio-economic-political reality of a Sub-Saharan economic invasion, just like the US is facing in its border with Mexico.  Politicians, whether in the EU or the US, must confront and resolve the problems created by such reality; and must do so at their career-peril… or a Trump-brand politician will replace them.

  • Americans Are Fleeing These US Cities In Droves

    What do El Paso, New York, and Chicago have in common? They are among the top 20 cities from which Americans are fleeing in droves…

    The map below shows the 20 metropolitan areas that lost the greatest share of local people to other parts of the country between July 2013 and July 2014, according to a Bloomberg News analysis of U.S. Census Bureau data. The New York City area ranked 2nd, losing about a net 163,000 U.S. residents, closely followed by a couple surrounding suburbs in Connecticut. Honolulu ranked fourth and Los Angeles ranked 14th. The Bloomberg calculations looked at the 100 most populous U.S. metropolitan areas.

     

    So what's going on here? As Bloomberg notes, Michael Stoll, a professor of public policy and urban planning at the University of California Los Angeles, has an idea.

    Soaring home prices are pushing local residents out and scaring away potential new ones from other parts of the country, he said. (Everyone knows how unaffordable the Manhattan area has become.)

     

    And as Americans leave, people from abroad move in to these bustling cities to fill the vacant low-skilled jobs. They are able to do so by living in what Stoll calls "creative housing arrangements" in which they pack six to eight individuals, or two to four families, into one apartment or home. It's an arrangement that most Americans just aren't willing to pursue, and even many immigrants decide it's not for them as time goes by, he said.

     

    El Paso, Texas, the city that residents fled from at the fastest pace, also saw a surprisingly small number of foreigners settling in given how close it is to Mexico.

     

    "A lot of young, reasonably educated people are having a hard time finding work there," Stoll said. "They're not staying in town after they graduate," leaving for the faster-growing economies."

    Source: Bloomberg

  • Kiwi Pops After RBNZ Cuts Rates, Citing Commodity Price Pressures

    While we know now that Greece is irrelevant, and China is irrelevant (fdrom what we are told by talking heads), it appears the commodity carnage of the last few months is relevant for at least one nation. Having already warned about Australia, it appears New Zealand has got nervous:

    • *NEW ZEALAND CUTS KEY INTEREST RATE TO 3.00% FROM 3.25%, FURTHER EASING LIKELY AT SOME POINT

    The Central bank blames softening economic outlook driven by commodity price pressures. Kiwi interestingly popped on the news to 0.66 before fading back a little, despite RBNZ noting a further NZD drop is necessary.

    *  *  *

    • *RBNZ SAYS SOME FURTHER EASING SEEMS LIKELY
    • *RBNZ SAYS FURTHER NZD DROP IS NECESSARY
    • *RBNZ: FURTHER NZ$ DEPRECIATION NECESSARY GIVEN COMMOD PRICES

    and finally…

    • *RBNZ SAYS FURTHER NZD DROP IS NECESSARY

    Disappointly, Kiwi is rallying…

     

    RBNZ Governor Graeme Wheeler Cuts Key Rate to 3.0%: Statement

    The Reserve Bank today reduced the Official Cash Rate (OCR) by 25 basis points to 3.0 percent.
     
    Global economic growth remains moderate, with only a gradual pickup in activity forecast. Recent developments in China and Europe led to heightened uncertainty and increased financial market volatility. Particular uncertainty remains around the impact of the expected tightening in US monetary policy.
     
    New Zealand’s economy is currently growing at an annual rate of around 2.5 percent, supported by low interest rates, construction activity, and high net immigration. However, the growth outlook is now softer than at the time of the June Statement. Rebuild activity in Canterbury appears to have peaked, and the world price for New Zealand’s dairy exports has fallen sharply.
     
    Headline inflation is currently below the Bank’s 1 to 3 percent target range, due largely to previous strength in the New Zealand dollar and a large decline in world oil prices. Annual CPI inflation is expected to be close to the midpoint of the range in early 2016, due to recent exchange rate depreciation and as the decline in oil prices drops out of the annual figure. A key uncertainty is how quickly the exchange rate pass-through will occur.
     
    House prices in Auckland continue to increase rapidly, but, outside Auckland, house price inflation generally remains low. Increased building activity is underway in the Auckland region, but it will take some time for the imbalances in the housing market to be corrected.
     
    The New Zealand dollar has declined significantly since April and, along with lower interest rates, has led to an easing in monetary conditions. While the currency depreciation will provide support to the export and import competing sectors, further depreciation is necessary given the weakness in export commodity prices.
     
    A reduction in the OCR is warranted by the softening in the economic outlook and low inflation. At this point, some further easing seems likely.

    *  *  *

  • $900 Million Payday Is Billionaires' Reward For Crushing Twinkie-Maker's Labor Unions

    Two days ago we reported that according to the new Chief Restructuring Officer of America’s “first national supermarket chain”, Great Atlantic & Pacific, also known as A&P, Superfresh and Pathmark supermarkets, which just filed its second chapter 11 bankruptcy protection in 5 years, it did so for one main reason: unions, and specifically legacy Collective Bargaining Agreements which made profitability for the (heavily levered) company impossible.

    While that argument is debatable, and as we said “if it wasn’t for unions, it would be something else, like loading up on massive amounts of debt to repay Yucaipa’s equity investment, which would then be unsustainable once rates rose and once interest expense became so high it soaked up all the company’s cash flow” one thing that is absolutely certain is that what A&P just did is a flashback to what Twinkies’ maker Hostess itself did as part of its November 2012 Chapter 7 bankruptcy liquidation.

    Then, too, the company sought to crush labor unions who “refused to negotiate in good faith”, and as a result the company went bankrupt, thereby ending all of its legacy labor agreements once and for all.

    Sure enough, freed of its cash-draining labor obligations, Hostess suddenly became a very attractive target and not only did it survive but it fourished when in 2013 Private Equity titan Apollo Global Management and billionaire investor C. Dean Metropoulos acquired the maker of Twinkies from liquidation.

    Very shortly thereafter, the equity investors did everything they could to reward themselves for an investment in the newly labor union-free company, which was quite viable as a standalone entity because demand for its products was as high as ever (the US will never have a problem with lack of obesity) and tried first to sell the company and then to take it public. They were unable do achieve either, so they decided to take a third route, one which takes advantage of the unprecedented debt bubble.

    As Bloomberg reports, “Hostess is selling $1.23 billion of term loans. Of that, $905 million will be used to pay a dividend to its shareholders, according to Standard & Poor’s. That’s more than double what they paid for the business.“

    Translated: after investing $410 million in March 2013, two billionaires are about to make a $500 million return an investment they have held just over two years, with the blessing of a whole lot of debt investors. And all they had to do was pick up the carcass of a company which did nothing more than crush its unions.

    Somewhat snydely, we hope, Bloomberg adds that “the deal is just the latest example of how record-low borrowing costs from the Federal Reserve are encouraging risky companies to add cheap debt — sometimes to enrich private-equity firms — as investors clamor for yield.”

    Not sometimes: every time there is a bond bubble resulting from years of ruinous monetary policy and cheap rates, it is the equity backers who are left with all the profits. In this case, Apollo and Metropolous will make a more than 100% return over a holding period of less than two years.

    They are not alone: “So-called dividend deals reached almost $16 billion in the second quarter, the most in a year, according to Bloomberg data. The downside of the loans is they can increase a borrower’s risk of default by piling on debt, without any of the cash going to improving operations or boosting revenues.”

    “Dividends aren’t designed to create value for the company,” Moody’s Investors Service analyst Brian Weddington said by phone. “This is a return of capital and profits to the founding investors.”

    No, the value for the company, its equity sponsors will claim, came from their involvement, and indeed company operations did pick up modestly:

    Business at Hostess has improved since the buyout. Earnings have increased “substantially,” said S&P’s Chiem. Revenue has risen to more than $600 million, and earnings before interest, taxes, depreciation and amortization to nearly $200 million, according to S&P. The snack business was able to cut costs by storing its products in a warehouse rather than delivering them directly to stores from where they’re made, according to Chiem.

    Happy with their achievement, which was only made possible as a result of the unbundling of the underlying business from its labor union ties, barely one year after their involvement, the billionaire owners sought to capitalize on their investment and Hostess began considering a sale last year, with sources saying in November that the business could fetch as much as $1.6 billion.

    The sale process went nowhere, as did a subsequent attempt to take Hostess public.

    So, why not follow the path of least resistance, and present credit investors using “other people’s money” with the chance to repay them. This is precisely what they did about to happen courtesy of Credit Suisse which is the lead underwriter on the new debt financing.

    Credit Suisse is leading the financing, which consists of an $825 million first-lien loan and a $400 million second-lien offering, according to data compiled by Bloomberg. It has asked investors to commit by July 30.

    But don’t say the new creditors, secured by a whole lot of Twinkies and Ho-Hos in company inventory, did not put up a fight demanding fair terms: “At a July 16 meeting held at Credit Suisse Group AG’s New York offices, potential investors were offered treats including Hostess orange cupcakes, according to three people with knowledge of the meeting. They were also offered an interest rate of as high as 7.75 percentage points” above LIBOR.

    End result: a company that went from 2x EBITDA leverage to an eye-popping 6x!

    For Hostess, the deal will triple debt levels to about six times a measure of earnings, according to an S&P report this month. Regulators including the Federal Reserve and the Office of the Comptroller of the Currency said in their 2013 leveraged lending guidance that debt levels exceeding six times raise concern as they seek to curb risky underwriting.

    The irony is that Apollo would have pulled out even more cash if there wasn’t a leverage cap. Still, even with “only” 6 turns of EBITDA in debt, most know how this deal will end:

    The dividend demonstrates “a very aggressive financial policy,” S&P analyst Bea Chiem said in the report. The credit grader is keeping Hostess’s corporate rating at B, or five levels below investment-grade, on the view that the baker’s operating performance will continue improving. The junior-ranked loan being marketed is rated CCC+, or seven levels below investment grade.

    In short: we give Hostess about 1-2 years before it files Chapter 33: it third bankruptcy a first one in 2004 and the second one in 2012.

    Only this time there will be no unions left to blame: it will be all about the insurmountable leverage, and the rapacious greed of its PE sponsors to strip the company of all pledgeable assets and extract as much cash as possible in the shortest possible time, while layering what the IMF would clearly dub is insurmountable debt.

    But before you blame them, blame the creditors who made it possible: all those “investors” who were tempted with “Hostess orange cupcakes” to dump billions of other people’s money entrusted to then, just so they could generate a modest return.

    And before you blame these individuals who are merely looking after their year-end bonus which is contingent on beating some risk (or rather return)-free benchmark, blame the Fed whose 7 years of ZIRP has made this kind of asset strip-mining not only possible but an acceptable, daily occurrence.

    Because the end result is clear: after the unions were crushed, and Hostess emerged with a clean balance sheet, the fact that it already has 6x debt guarantees it will be bankrupt once again. The only question is when.

    The losers will be the thousands of non-unionized full and part-time workers at the company.

    The only winners: the billionaire investors who are about to get even richer thanks to none other than the Federal Reserve and an entire world filled with lunatic central bankers who have clearly taken over the asylum.

  • 12 Ways The Economy Is In Worse Shape Now Than During The Depths Of The Last Recession

    Submitted by Michael Snyder via The Economic Collapse blog,

    Did you know that the percentage of children in the United States that are living in poverty is actually significantly higher than it was back in 2008?  When I write about an “economic collapse”, most people think of a collapse of the financial markets.  And without a doubt, one is coming very shortly, but let us not neglect the long-term economic collapse that is already happening all around us.  In this article, I am going to share with you a bunch of charts and statistics that show that economic conditions are already substantially worse than they were during the last financial crisis in a whole bunch of different ways.  Unfortunately, in our 48 hour news cycle world, a slow and steady decline does not produce many “sexy headlines”.  Those of us that are news junkies (myself included) are always looking for things that will shock us.  But if you stand back and take a broader view of things, what has been happening to the U.S. economy truly is quite shocking.  The following are 12 ways that the U.S. economy is already in worse shape than it was during the depths of the last recession…

    #1 Back in 2008, 18 percent of all Americans kids were living in poverty.  This week, we learned that number has now risen to 22 percent…

    There are nearly three million more children living in poverty today than during the recession, shocking new figures have revealed.

     

    Nearly a quarter of youngsters in the US (22 percent) or around 16.1 million individuals, were classed as living below the poverty line in 2013.

     

    This has soared from just 18 percent in 2008 – during the height of the economic crisis, the Casey Foundation’s 2015 Kids Count Data Book reported.

    #2 In early 2008, the homeownership rate in the U.S. was hovering around 68 percent.  Today, it has plunged below 64 percent.  Incredibly, it has not been this low in more than 20 years.  Just look at this chart – the homeownership rate has continued to plummet throughout Obama’s “economic recovery”…

    Homeownership Rate 2015

    #3 While Barack Obama has been in the White House, government dependence has skyrocketed to levels that we have never seen before.  In 2008, the federal government was spending about 37 billion dollars a year on the federal food stamp program.  Today, that number is above 74 billion dollars.  If the economy truly is “recovering”, why is government dependence so much higher than it was during the last recession?

    #4 On the chart below, you can see that the U.S. national debt was sitting at about 9 trillion dollars when we entered the last recession.  Since that time, the debt of the federal government has doubled.  We are on the exact same path that Greece has gone down, and what you are looking at below is a recipe for national economic suicide…

    Presentation National Debt

    #5 During Obama’s “recovery”, real median household income has actually gone down quite a bit.  Just prior to the last recession, it was above $54,000 per year, but now it has dropped to about $52,000 per year…

    Median Household Income

    #6 Even though our incomes are stagnating, the cost of living just continues to rise steadily.  This is especially true of basic things that we all purchase such as food.  As I wrote about earlier this year, the price of ground beef in the United States has doubled since the last recession.

    #7 In a healthy economy, lots of new businesses are opening and not that many are being forced to shut down.  But for each of the past six years, more businesses have closed in the United States than have opened.  Prior to 2008, this had never happened before in all of U.S. history.

    #8 Barack Obama is constantly telling us about how unemployment is “going down”, but the truth is that the  percentage of working age Americans that are either working or considered to be looking for work has steadily declined since the end of the last recession…

    Presentation Labor Force Participation Rate

    #9 Some have suggested that the decline in the labor force participation rate is due to large numbers of older people retiring.  But the reality of the matter is that we have seen a spike in the inactivity rate for Americans in their prime working years.  As you can see below, the percentage of males between the ages of 25 and 54 that aren’t working and that aren’t looking for work has surged to record highs since the end of the last recession…

    Presentation Inactivity Rate

    #10 A big reason why we don’t have enough jobs for everyone is the fact that millions upon millions of good paying jobs have been shipped overseas.  At the end of Barack Obama’s first year in office, our yearly trade deficit with China was 226 billion dollars.  Last year, it was more than 343 billion dollars.

    #11 Thanks to all of these factors, the middle class in America is dying.  In 2008, 53 percent of all Americans considered themselves to be “middle class”.  But by 2014, only 44 percent of all Americans still considered themselves to be “middle class”.

    When you take a look at our young people, the numbers become even more pronounced.  In 2008, 25 percent of all Americans in the 18 to 29-year-old age bracket considered themselves to be “lower class”.  But in 2014, an astounding 49 percent of all Americans in that age range considered themselves to be “lower class”.

    #12 This is something that I have covered before, but it bears repeating.  The velocity of money is a very important indicator of the health of an economy.  When an economy is functioning smoothly, people generally feel quite good about things and money flows freely through the system.  I buy something from you, then you take that money and buy something from someone else, etc.  But when an economy is in trouble, the velocity of money tends to go down.  As you can see on the chart below, a drop in the velocity of money has been associated with every single recession since 1960.  So why has the velocity of money continued to plummet since the end of the last recession?…

    Velocity Of Money M2

    If you are waiting for an “economic collapse” to happen, you can stop waiting.

    One is unfolding right now before our very eyes.

    But what most people really mean when they ask about these things is that they are wondering when the next great financial crisis will happen.  And as I discussed yesterday, things are lining up in textbook fashion for one to happen in our very near future.

    Once the next great financial crisis does strike, all of the numbers that I just discussed above are going to get a whole lot worse.

    So as bad as things are now, the truth is that this is just the beginning of the pain.

  • Ottawans Outed – 1 In 5 Found To Be "Cheating Dirtbags Who Deserve No Discretion"

    Canada's capital city, Ottawa, is, as MSN reports, also it's most potentially adulterous. Around 1 in 5 of the population is registered on Ashley Madison – the recently hacked social network for married people looking for an affair. The hotbed of infidelity was also the seat of power: The top postal code for new members matched that of Parliament Hill, according to Avid Live chief executive Noel Biderman in a newspaper report published earlier this year.

    As Reuters reports,

    Canada's prim capital is suddenly focused more on the state of people's affairs than the affairs of the state.

     

    One in five Ottawa residents allegedly subscribed to adulterers' website Ashley Madison, making one of the world's coldest capitals among the hottest for extra-marital hookups – and the most vulnerable to a breach of privacy after hackers targeted the site.

     

    The hackers, who referred to customers as "cheating dirtbags who deserve no discretion," appear uninterested in blackmailing individual clients, unlike an organized crime outfit.

     

    The website's Canadian parent, Avid Life Media, said it had since secured the site and was working with law enforcement agencies to trace those behind the attack.

     

    "Everybody says Ottawa is a sleepy town and here we are with 200,000 people running around on each other," said municipal employee Jon Weaks, 27, as he took a break at an outdoor cafe near the nation's Parliament.

     

    "I think a lot of people will be questioned tonight at dinner," added colleague Ali Cross, 28.

     

    Some 189,810 Ashley Madison users were registered in Ottawa, a city with a population of about 883,000, making the capital No. 1 for philanderers in Canada and potentially the highest globally per capita, according to previously published figures from the Toronto-based company.

    However, Canada may have bigger problems…

    The hotbed of infidelity was also the seat of power: The top postal code for new members matched that of Parliament Hill, according to Avid Live chief executive Noel Biderman in a newspaper report published earlier this year.

     

    Biderman said capital cities around the world typically top subscription rates, a phenomenon he chalks up to "power, fame and opportunity," along with the risk-taking personalities that find themselves in political cities.

     

    The Ottawa mayor's office and city council either declined to comment or did not return emails.

    *  *  *

     

     

    We suspect 'overweighting' Canadian divorce lawyers and 'undereweighting' Canadian hotels would be the optimum pair to profit from this…

  • "Far Worse Than 1986": The Oil Downturn Has No Parallel In Recorded History, Morgan Stanley Says

    On Tuesday the market got yet another reminder of just how painful the “current commodity price environment” has been for producers when Chesapeake eliminated its common dividend in order to conserve cash.

    After noting the plunge in Chesapeake’s shares (to a 12-year low) we subsequently outlined why the US shale “revolution” is now running out of lifelines as hedges roll off and as the next round of credit line assessments looms in October.

    A persistent theme here – as regular readers are no doubt aware – has been the extent to which an ultra-accommodative Fed has contributed to a deflationary supply glut by ensuring that beleaguered producers retain access to capital markets. In short, cash-strapped companies who would have otherwise gone out of business have been able to stay afloat thanks to the fact that Fed policy has herded investors into risk assets.

    In a ZIRP world, there’s plenty of demand for new HY issuance and ill-fated secondaries, which means the digging, drilling, and pumping gets to continue indefinitely in what may end up being one of the most dramatic instances of malinvestment the market has ever seen. 

    Those who contend that the downturn simply cannot last much longer – that the supply/demand imbalance will soon even out, that the market will clear sooner rather than later, and that even if the weaker hands are shaken out, the pain for the majors will be relatively short-lived – are perhaps ignoring the underlying narrative that helps to explain why the situation looks like it does. At heart, this is a struggle between the Fed’s ZIRP and the Saudis, who appear set to outlast the easy money that’s kept US producers alive.

    Against that backdrop, and amid Wednesday’s crude carnage, we turn to Morgan Stanley for more on why the current downturn will be “worse than 1986.” 

    From Morgan Stanley

    Worse than 1986? Really?


    We have been expecting the current downturn to be as severe as the one in 1986 – the worst for at least 45 years – but not worse than that. Still, if oil prices follow the path suggested by the forward curve, our thesis may yet prove too optimistic.

    Our constructive stance on the majors is based on four factors: 1) supply – we expected production growth to moderate following large capex cuts and the sharp decline in the rig count; 2) demand – we anticipated that the fall in price would boost oil products demand; 3) cost and capex – we foresaw both falling sharply, similar to the industry’s response in 1986; and 4) valuation – relative DY and P/BV indicated 35-year lows.

     

    So far this year, we can put a tick against three of them [but] our expectation on supply has not materialised: US tight oil production growth has started to roll over, but this has been more than offset by OPEC, which has added ~1.5 mb/d since February. 


    On current trajectory, this downturn could become worse than 1986: An additional +1.5 mb/d is roughly one year of oil demand growth. If sustained, this could delay the rebalancing of oil markets by a year as well. The forward curve has started to price this in: as the chart shows, the forward curve currently points towards a recovery in prices that is far worse than in 1986. This means the industrial downturn could also be worse. In that case, there would be little in analysable history that could be a guide to this cycle. 

     

     

    [There are] strong similarities between the current oil price downturn and the one that occurred in 1985/86. The trajectory of oil prices is similar on both occasions. There were also common reasons for the collapse. 

     

    A high and stable oil price in the preceding four years stimulated technological innovation and led to a high level of investment. This resulted in strong production growth outside OPEC, exceeding the rate of global demand growth. When it became clear that OPEC would no longer rein in production to balance the market (as it did during both the Nov 1985 and Nov 2014 OPEC meetings) the price collapsed. 

    And although MS notes that similar to 1986, costs and capex are likely to come in sharply while demand growth should materialize, the supply side of the equation is not cooperating thanks to increased output from OPEC. 

    Due to the sharp slowdown in drilling activity and the high decline rate of tight oil wells, we expected production in the US to flatline and start declining in 2H. This seems to be happening: according to the US Department of Energy, tight oil production in June was 94 kb/d below the April level, and it forecasts further falls of 90 kb/d in both July and August.

     

    Now that capex is falling, we anticipated non-US production to be flat at best. Still, this has not yet been the case. At the time of our ‘Looking Beyond the Nadir’ report in February, OPEC production stood at ~30.2 mb/d. This increased substantially to 31.3 mb/d in May and 31.7 mb/d in June, i.e. OPEC has added 1.5 mb/d to global supply in the last four months alone.

     

    Our commodity analyst Adam Longson argues that the oil market is currently ~800,000 b/d oversupplied. This suggests that the current oversupply in the oil market is fully due to OPEC’s production increase since February alone. 


    We anticipated that OPEC would not cut, but we didn’t foresee such a sharp increase. In our view, this is the main reason why the rebalancing of oil markets had not yet gained momentum.



    If oil prices follow the path suggested by the forward curve, and essentially remain rangebound around levels seen in the last 2-3 months, this downturn would be more severe than that in 1986. As there was no sharp downturn in the ~15 years before that, the current downturn could be the worst of the last 45+ years.

     

    If this were to be the case, there would be nothing in our experience that would be a guide to the next phases of this cycle, especially over the relatively near term. In fact, there may be nothing in analysable history. 


     

    Needless to say, this does not bode well for everyone who has unwittingly thrown good money after bad on the assumption that the Saudis will cut production and trigger a rebound in crude.

    In addition to the immense pressure from persistently low prices, US producers also face a Fed rate hike cycle and thus the beginning of the end for easy money.

    Of course, the more expensive it is to fund money-losing producers, the less willing investors will be to perpetuate this delay-and-pray scheme, which brings us right back to what we’ve been saying for months: the expiration date for heavily indebted US drillers is fast approaching, and if Morgan Stanley thinks the oil downturn has no parallel in “analysable history,” wait until they see the carnage that will unfold in HY credit when a few high profile defaults in the oil patch send the retail crowd running for the junk bond ETF exits.

  • Commodisaster

    "Peak" Apple?

    And a quick message for Caesar's shareholders… (and AAPL Call buyers)…

    Stocks legged lower overnight on AAPL and MSFT, USDJPY helped them stage a rampaplooza as cash markets opened managing to get the S&P unahcnged for a brief moment…

     

    Cash indices on the day saw Small Caps (who have been big losers recently) outperform but the rest ended red..

     

    On the week, Trannies crept back into the green but The Dow remains the biggest loser as CAT, IBM, UTX, MSFT and AAPL weight it down

     

    Leaving The Dow back in the red for 2015…

     

    But that was not acceptable and so VIX was whacked to ensuire The Dow closed green for 2015…

     

    52 Week Lows continue to rise…

     

    As AAPL bounced off the 200DMA again

     

    Stocks decoupled from bonds early on – thanks to JPY – but recoupled later in the day…

     

    Treasury yields were mixed with the long-end testing down to 3.02% and the short-end selling off…

     

    As The Dollar bounced back…

     

    Commodities all suffered…

     

    Though silver held its own…

     

     

    Gold continues to tumble – 10 down days in a row is now the longest losing streak since 1996…

     

    Crude was clubbed over 3% on the day – testing a $48 handle and back at its lowest in 3 months… down 16 of the last 20 days

     

    Copper clubbed like a baby seal – down 7 of lats 9 days , hovering at cycle lows…

     

    Charts: Bloomberg

    Bonus Chart: Even more ominously for Copper – physical demand for withdrawals from inventory have collapsed…

     

    Bonus Bonus Chart: Lumber smashed again today and as a leading indicator is flashing red for new home sales…

     

    Bonus Bonus Bonus Chart: Any day now – clicks will beat bricks…

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