- Paul Craig Roberts: The Eroding Character Of The American People
Submitted by Paul Craig Roberts,
How can the life of such a man
Be in the palm of some fool’s hand?
To see him obviously framed
Couldn’t help but make me feel ashamed to live in a land
Where justice is a game.—Bob Dylan, “Hurricane”Attorney John W. Whitehead opens a recent posting on his Rutherford Institute website with these words from a song by Bob Dylan. Why don’t all of us feel ashamed? Why only Bob Dylan?
I wonder how many of Bob Dylan’s fans understand what he is telling them. American justice has nothing to do with innocence or guilt. It only has to do with the prosecutor’s conviction rate, which builds his political career. Considering the gullibility of the American people, American jurors are the last people to whom an innocent defendant should trust his fate. The jury will betray the innocent almost every time.
As Lawrence Stratton and I show in our book (2000, 2008) there is no justice in America. We titled our book, “How the Law Was Lost.” It is a description of how the protective features in law that made law a shield of the innocent was transformed over time into a weapon in the hands of the government, a weapon used against the people. The loss of law as a shield occurred prior to 9/11, which “our representative government” used to construct a police state.
The marketing department of our publisher did not appreciate our title and instead came up with “The Tyranny of Good Intentions.” We asked what this title meant. The marketing department answered that we showed that the war on crime, which gave us the abuses of RICO, the war on child abusers, which gave us show trials of total innocents that bested Joseph Stalin’s show trials of the heroes of the Bolshevik Revolution, and the war on drugs, which gave “Freedom and Democracy America” broken families and by far the highest incarceration rate in the world all resulted from good intentions to combat crime, to combat drugs, and to combat child abuse. The publisher’s title apparently succeeded, because 15 years later the book is still in print. It has sold enough copies over these years that, had the sales occurred upon publication would have made the book a “best seller.” The book, had it been a best seller, would have gained more attention, and perhaps law schools and bar associations could have used it to hold the police state at bay.
Whitehead documents how hard a not guilty verdict is to come by for an innocent defendant. Even if the falsely accused defendant and his attorney survive the prosecutor’s pressure to negotiate a plea bargain and arrive at a trial, they are confronted with jurors who are unable to doubt prosecutors, police, or witnesses paid to lie against the innocent defendant. Jurors even convicted the few survivors of the Clinton regime’s assault on the Branch Davidians of Waco, the few who were not gassed, shot, or burned to death by US federal forces. This religious sect was demonized by Washington and the presstitute media as child abusers who were manufacturing automatic weapons while they raped children. The charges proved to be false, like Saddam Hussein’s “weapons of mass destruction,” and so forth, but only after all of the innocents were dead or in prison.
The question is: why do Americans not only sit silently while the lives of innocents are destroyed, but also actually support the destruction of the lives of innocents? Why do Americans believe “official sources” despite the proven fact that “official sources” lie repeatedly and never tell the truth?
The only conclusion that one can come to is that the American people have failed. We have failed Justice. We have failed Mercy. We have failed the US Constitution. We have failed Truth. We have failed Democracy and representative government. We have failed ourselves and humanity. We have failed the confidence that our Founding Fathers put in us. We have failed God. If we ever had the character that we are told we had, we have obviously lost it. Little, if anything, remains of the “American character.”
Was the American character present in the torture prisons of Abu Ghraib, Guantanamo Bay, and hidden CIA torture dungeons where US military and CIA personnel provided photographic evidence of their delight in torturing and abusing prisoners? Official reports have concluded that along with torture went rape, sodomy, and murder. All of this was presided over by American psychologists with Ph.D. degrees.
We see the same inhumanity in the American police who respond to women children, the elderly, the physically and mentally handicapped, with gratuitous violence. For no reason whatsoever, police murder, taser, beat, and abuse US citizens. Every day there are more reports, and despite the reports the violence goes on and on and on. Clearly, the police enjoy inflicting pain and death on citizens whom the police are supposed to serve and protect. There have always been bullies in the police force, but the wanton police violence of our time indicates a complete collapse of the American character.
The failure of the American character has had tremendous and disastrous consequences for ourselves and for the world. At home Americans have a police state in which all Constitutional protections have vanished. Abroad, Iraq and Libya, two formerly prosperous countries, have been destroyed. Libya no longer exists as a country. One million dead Iraqis, four million displaced abroad, hundreds of thousands of orphans and birth defects from the American ordnance, and continuing ongoing violence from factions fighting over the remains. These facts are incontestable. Yet the United States Government claims to have brought “freedom and democracy” to Iraq. “Mission accomplished,” declared one of the mass murderers of the 21st century, George W. Bush.
The question is: how can the US government make such an obviously false outrageous claim without being shouted down by the rest of the world and by its own population? Is the answer that good character has disappeared from the world?
Or is the rest of the world too afraid to protest? Washington can force supposedly sovereign countries to acquiesce to its will or be cut off from the international payments mechanism that Washington controls, and/or be sanctioned, and/or be bombed, droned, or invaded, and/or be assassinated or overthrown in a coup. On the entire planet Earth there are only two countries capable of standing up to Washington, Russia and China, and neither wants to stand up if they can avoid it.
For whatever the reasons, not only Americans but most of the world as well accommodate Washington’s evil and are thereby complicit in the evil. Those humans with a moral conscience are gradually being positioned by Washington and London as “domestic extremists” who might have to be rounded up and placed in detention centers. Examine the recent statements by General Wesley Clark and British Prime Minister Cameron and remember Janet Napolitano’s statement that the Department of Homeland Security has shifted its focus from terrorists to domestic extremists, an undefined and open-ended term.
Americans with good character are being maneuvered into a position of helplessness. As John Whitehead makes clear, the American people cannot even prevent “their police,” paid by their tax payments, from murdering 3 Americans each day, and this is only the officially reported murders. The actual account is likely higher.
What Whitehead describes and what I have noticed for many years is that the American people have lost, in addition to their own sense of truth and falsity, any sense of mercy and justice for other peoples. Americans accept no sense of responsibility for the millions of peoples that Washington has exterminated over the past two decades dating back to the second term of Clinton. Every one of the millions of deaths is based on a Washington lie.
When Clinton’s Secretary of State, Madeleine Albright, was asked if the Clinton’s regime’s sanctions, which had claimed the lives of 500,000 Iraqi children, were justified, she obviously expected no outrage from the American people when she replied in the affirmative.
Americans need to face the facts. The loss of character means the loss of liberty and the transformation of government into a criminal enterprise.
- Aussie Dollar Tests Long-Term Trendline As China Contagion Spreads
Last week, we asked "Is Australia the next Greece?" It appears, judging bu the collapse in the Aussie Dollar, that some – if not all – are starting to believe it's possible after last night's 15-month low in China Manufacturing PMI. As UBS previously noted, China's real GDP growth cycles have become an increasingly important driver of Australia's nominal GDP growth this last decade. With iron ore and coal prices plumbing new record lows, a Chinese (real) economy firing on perhaps 1 cyclinder, and equity investors reeling from China's collapse; perhaps the situation facing Australia is more like Greece than many want to admit.
Australian consumers are more worried about the medium term outlook than at the peak of the financial crisis, and rightfully so…
As China plumbs new depths in manufacturing, just piling on Aussie's woes…
The Dollar is rising this morning but all eyes are on AUD as it tests a very long-term trendline…
h/t @RaoulGMI
* * *
As The Telegraph previously concluded, rather ominously,
The problem is that Australia, after decades of effort to diversify, is looking ever more like a petrodollar economy of the Middle East, but without the vast horde of foreign currency reserves to fall back on when commodity prices fall.
Instead, Australians must borrow to maintain the standards of living that the country has become accustomed to, which even some Greeks will admit is unsustainable.
Charts: Bloomberg
- The Eurasian Big Bang: How China & Russia Are Running Rings Around Washington
Authored by Pepe Escobar, originally posted at TomDispatch.com,
Let’s start with the geopolitical Big Bang you know nothing about, the one that occurred just two weeks ago. Here are its results: from now on, any possible future attack on Iran threatened by the Pentagon (in conjunction with NATO) would essentially be an assault on the planning of an interlocking set of organizations — the BRICS nations (Brazil, Russia, India, China, and South Africa), the SCO (Shanghai Cooperation Organization), the EEU (Eurasian Economic Union), the AIIB (the new Chinese-founded Asian Infrastructure Investment Bank), and the NDB (the BRICS' New Development Bank) — whose acronyms you’re unlikely to recognize either. Still, they represent an emerging new order in Eurasia.
Tehran, Beijing, Moscow, Islamabad, and New Delhi have been actively establishing interlocking security guarantees. They have been simultaneously calling the Atlanticist bluff when it comes to the endless drumbeat of attention given to the flimsy meme of Iran’s "nuclear weapons program." And a few days before the Vienna nuclear negotiations finally culminated in an agreement, all of this came together at a twin BRICS/SCO summit in Ufa, Russia — a place you’ve undoubtedly never heard of and a meeting that got next to no attention in the U.S. And yet sooner or later, these developments will ensure that the War Party in Washington and assorted neocons (as well as neoliberalcons) already breathing hard over the Iran deal will sweat bullets as their narratives about how the world works crumble.
The Eurasian Silk Road
With the Vienna deal, whose interminable build-up I had the dubious pleasure of following closely, Iranian Foreign Minister Javad Zarif and his diplomatic team have pulled the near-impossible out of an extremely crumpled magician’s hat: an agreement that might actually end sanctions against their country from an asymmetric, largely manufactured conflict.
Think of that meeting in Ufa, the capital of Russia’s Bashkortostan, as a preamble to the long-delayed agreement in Vienna. It caught the new dynamics of the Eurasian continent and signaled the future geopolitical Big Bangness of it all. At Ufa, from July 8th to 10th, the 7th BRICS summit and the 15th Shanghai Cooperation Organization summit overlapped just as a possible Vienna deal was devouring one deadline after another.
Consider it a diplomatic masterstroke of Vladmir Putin’s Russia to have merged those two summits with an informal meeting of the Eurasian Economic Union (EEU). Call it a soft power declaration of war against Washington’s imperial logic, one that would highlight the breadth and depth of an evolving Sino-Russian strategic partnership. Putting all those heads of state attending each of the meetings under one roof, Moscow offered a vision of an emerging, coordinated geopolitical structure anchored in Eurasian integration. Thus, the importance of Iran: no matter what happens post-Vienna, Iran will be a vital hub/node/crossroads in Eurasia for this new structure.
If you read the declaration that came out of the BRICS summit, one detail should strike you: the austerity-ridden European Union (EU) is barely mentioned. And that’s not an oversight. From the point of view of the leaders of key BRICS nations, they are offering a new approach to Eurasia, the very opposite of the language of sanctions.
Here are just a few examples of the dizzying activity that took place at Ufa, all of it ignored by the American mainstream media. In their meetings, President Putin, China's President Xi Jinping, and Indian Prime Minister Narendra Modi worked in a practical way to advance what is essentially a Chinese vision of a future Eurasia knit together by a series of interlocking “new Silk Roads.” Modi approved more Chinese investment in his country, while Xi and Modi together pledged to work to solve the joint border issues that have dogged their countries and, in at least one case, led to war.
The NDB, the BRICS’ response to the World Bank, was officially launched with $50 billion in start-up capital. Focused on funding major infrastructure projects in the BRICS nations, it is capable of accumulating as much as $400 billion in capital, according to its president, Kundapur Vaman Kamath. Later, it plans to focus on funding such ventures in other developing nations across the Global South — all in their own currencies, which means bypassing the U.S. dollar. Given its membership, the NDB’s money will clearly be closely linked to the new Silk Roads. As Brazilian Development Bank President Luciano Coutinho stressed, in the near future it may also assist European non-EU member states like Serbia and Macedonia. Think of this as the NDB’s attempt to break a Brussels monopoly on Greater Europe. Kamath even advanced the possibility of someday aiding in the reconstruction of Syria.You won’t be surprised to learn that both the new Asian Infrastructure Investment Bank and the NDB are headquartered in China and will work to complement each other’s efforts. At the same time, Russia’s foreign investment arm, the Direct Investment Fund (RDIF), signed a memorandum of understanding with funds from other BRICS countries and so launched an informal investment consortium in which China’s Silk Road Fund and India’s Infrastructure Development Finance Company will be key partners.
Full Spectrum Transportation Dominance
On the ground level, this should be thought of as part of the New Great Game in Eurasia. Its flip side is the Trans-Pacific Partnership in the Pacific and the Atlantic version of the same, the Transatlantic Trade and Investment Partnership, both of which Washington is trying to advance to maintain U.S. global economic dominance. The question these conflicting plans raise is how to integrate trade and commerce across that vast region. From the Chinese and Russian perspectives, Eurasia is to be integrated via a complex network of superhighways, high-speed rail lines, ports, airports, pipelines, and fiber optic cables. By land, sea, and air, the resulting New Silk Roads are meant to create an economic version of the Pentagon’s doctrine of “Full Spectrum Dominance” — a vision that already has Chinese corporate executives crisscrossing Eurasia sealing infrastructure deals.
For Beijing — back to a 7% growth rate in the second quarter of 2015 despite a recent near-panic on the country’s stock markets — it makes perfect economic sense: as labor costs rise, production will be relocated from the country’s Eastern seaboard to its cheaper Western reaches, while the natural outlets for the production of just about everything will be those parallel and interlocking “belts” of the new Silk Roads.
Meanwhile, Russia is pushing to modernize and diversify its energy-exploitation-dependent economy. Among other things, its leaders hope that the mix of those developing Silk Roads and the tying together of the Eurasian Economic Union — Russia, Armenia, Belarus, Kazakhstan, and Kyrgyzstan — will translate into myriad transportation and construction projects for which the country’s industrial and engineering know-how will prove crucial.
As the EEU has begun establishing free trade zones with India, Iran, Vietnam, Egypt, and Latin America’s Mercosur bloc (Argentina, Brazil, Paraguay, Uruguay, and Venezuela), the initial stages of this integration process already reach beyond Eurasia. Meanwhile, the SCO, which began as little more than a security forum, is expanding and moving into the field of economic cooperation. Its countries, especially four Central Asian “stans” (Kazakhstan, Kyrgyzstan, Uzbekistan, and Tajikistan) will rely ever more on the Chinese-driven Asia Infrastructure Investment Bank (AIIB) and the NDB. At Ufa, India and Pakistan finalized an upgrading process in which they have moved from observers to members of the SCO. This makes it an alternative G8.
In the meantime, when it comes to embattled Afghanistan, the BRICS nations and the SCO have now called upon “the armed opposition to disarm, accept the Constitution of Afghanistan, and cut ties with Al-Qaeda, ISIS, and other terrorist organizations.” Translation: within the framework of Afghan national unity, the organization would accept the Taliban as part of a future government. Their hopes, with the integration of the region in mind, would be for a future stable Afghanistan able to absorb more Chinese, Russian, Indian, and Iranian investment, and the construction — finally! — of a long-planned, $10 billion, 1,420-kilometer-long Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline that would benefit those energy-hungry new SCO members, Pakistan and India. (They would each receive 42% of the gas, the remaining 16% going to Afghanistan.)
Central Asia is, at the moment, geographic ground zero for the convergence of the economic urges of China, Russia, and India. It was no happenstance that, on his way to Ufa, Prime Minister Modi stopped off in Central Asia. Like the Chinese leadership in Beijing, Moscow looks forward (as a recent document puts it) to the “interpenetration and integration of the EEU and the Silk Road Economic Belt” into a “Greater Eurasia” and a “steady, developing, safe common neighborhood” for both Russia and China.
And don’t forget Iran. In early 2016, once economic sanctions are fully lifted, it is expected to join the SCO, turning it into a G9. As its foreign minister, Javad Zarif, made clear recently to Russia's Channel 1 television, Tehran considers the two countries strategic partners. "Russia,” he said, “has been the most important participant in Iran's nuclear program and it will continue under the current agreement to be Iran's major nuclear partner." The same will, he added, be true when it comes to “oil and gas cooperation,” given the shared interest of those two energy-rich nations in “maintaining stability in global market prices."
Got Corridor, Will Travel
Across Eurasia, BRICS nations are moving on integration projects. A developing Bangladesh-China-India-Myanmar economic corridor is a typical example. It is now being reconfigured as a multilane highway between India and China. Meanwhile, Iran and Russia are developing a transportation corridor from the Persian Gulf and the Gulf of Oman to the Caspian Sea and the Volga River. Azerbaijan will be connected to the Caspian part of this corridor, while India is planning to use Iran’s southern ports to improve its access to Russia and Central Asia. Now, add in a maritime corridor that will stretch from the Indian city of Mumbai to the Iranian port of Bandar Abbas and then on to the southern Russian city of Astrakhan. And this just scratches the surface of the planning underway.
Years ago, Vladimir Putin suggested that there could be a “Greater Europe” stretching from Lisbon, Portugal, on the Atlantic to the Russian city of Vladivostok on the Pacific. The EU, under Washington’s thumb, ignored him. Then the Chinese started dreaming about and planning new Silk Roads that would, in reverse Marco Polo fashion, extend from Shanghai to Venice (and then on to Berlin).
Thanks to a set of cross-pollinating political institutions, investment funds, development banks, financial systems, and infrastructure projects that, to date, remain largely under Washington’s radar, a free-trade Eurasian heartland is being born. It will someday link China and Russia to Europe, Southwest Asia, and even Africa. It promises to be an astounding development. Keep your eyes, if you can, on the accumulating facts on the ground, even if they are rarely covered in the American media. They represent the New Great — emphasis on that word — Game in Eurasia.
Location, Location, Location
Tehran is now deeply invested in strengthening its connections to this new Eurasia and the man to watch on this score is Ali Akbar Velayati. He is the head of Iran's Center for Strategic Research and senior foreign policy adviser to Supreme Leader Ayatollah Khamenei. Velayati stresses that security in Asia, the Middle East, North Africa, Central Asia, and the Caucasus hinges on the further enhancement of a Beijing-Moscow-Tehran triple entente.
As he knows, geo-strategically Iran is all about location, location, location. That country offers the best access to open seas in the region apart from Russia and is the only obvious east-west/north-south crossroads for trade from the Central Asian “stans.” Little wonder then that Iran will soon be an SCO member, even as its “partnership” with Russia is certain to evolve. Its energy resources are already crucial to and considered a matter of national security for China and, in the thinking of that country’s leadership, Iran also fulfills a key role as a hub in those Silk Roads they are planning.
That growing web of literal roads, rail lines, and energy pipelines, as TomDispatch has previously reported, represents Beijing’s response to the Obama administration’s announced “pivot to Asia” and the U.S. Navy’s urge to meddle in the South China Sea. Beijing is choosing to project power via a vast set of infrastructure projects, especially high-speed rail lines that will reach from its eastern seaboard deep into Eurasia. In this fashion, the Chinese-built railway from Urumqi in Xinjiang Province to Almaty in Kazakhstan will undoubtedly someday be extended to Iran and traverse that country on its way to the Persian Gulf.
A New World for Pentagon Planners
At the St. Petersburg International Economic Forum last month, Vladimir Putin told PBS's Charlie Rose that Moscow and Beijing had always wanted a genuine partnership with the United States, but were spurned by Washington. Hats off, then, to the “leadership” of the Obama administration. Somehow, it has managed to bring together two former geopolitical rivals, while solidifying their pan-Eurasian grand strategy.
Even the recent deal with Iran in Vienna is unlikely — especially given the war hawks in Congress — to truly end Washington’s 36-year-long Great Wall of Mistrust with Iran. Instead, the odds are that Iran, freed from sanctions, will indeed be absorbed into the Sino-Russian project to integrate Eurasia, which leads us to the spectacle of Washington’s warriors, unable to act effectively, yet screaming like banshees.
NATO's supreme commander Dr. Strangelove, sorry, American General Philip Breedlove, insists that the West must create a rapid-reaction force — online — to counteract Russia's "false narratives.” Secretary of Defense Ashton Carter claims to be seriously considering unilaterally redeploying nuclear-capable missiles in Europe. The nominee to head the Joint Chiefs of Staff, Marine Commandant Joseph Dunford, recently directly labeled Russia America’s true “existential threat”; Air Force General Paul Selva, nominated to be the new vice chairman of the Joint Chiefs, seconded that assessment, using the same phrase and putting Russia, China and Iran, in that order, as more threatening than the Islamic State (ISIS). In the meantime, Republican presidential candidates and a bevy of congressional war hawks simply shout and fume when it comes to both the Iranian deal and the Russians.
In response to the Ukrainian situation and the “threat” of a resurgent Russia (behind which stands a resurgent China), a Washington-centric militarization of Europe is proceeding apace. NATO is now reportedly obsessed with what’s being called “strategy rethink” — as in drawing up detailed futuristic war scenarios on European soil. As economist Michael Hudson has pointed out, even financial politics are becoming militarized and linked to NATO’s new Cold War 2.0.
In its latest National Military Strategy, the Pentagon suggests that the risk of an American war with another nation (as opposed to terror outfits), while low, is “growing” and identifies four nations as “threats”: North Korea, a case apart, and predictably the three nations that form the new Eurasian core: Russia, China, and Iran. They are depicted in the document as “revisionist states,” openly defying what the Pentagon identifies as “international security and stability”; that is, the distinctly un-level playing field created by globalized, exclusionary, turbo-charged casino capitalism and Washington's brand of militarism.
The Pentagon, of course, does not do diplomacy. Seemingly unaware of the Vienna negotiations, it continued to accuse Iran of pursuing nuclear weapons. And that “military option” against Iran is never off the table.
So consider it the Mother of All Blockbusters to watch how the Pentagon and the war hawks in Congress will react to the post-Vienna and — though it was barely noticed in Washington — the post-Ufa environment, especially under a new White House tenant in 2017.
It will be a spectacle. Count on it. Will the next version of Washington try to make it up to “lost” Russia or send in the troops? Will it contain China or the “caliphate” of ISIS? Will it work with Iran to fight ISIS or spurn it? Will it truly pivot to Asia for good and ditch the Middle East or vice-versa? Or might it try to contain Russia, China, and Iran simultaneously or find some way to play them against each other?
In the end, whatever Washington may do, it will certainly reflect a fear of the increasing strategic depth Russia and China are developing economically, a reality now becoming visible across Eurasia. At Ufa, Putin told Xi on the record: "Combining efforts, no doubt we [Russia and China] will overcome all the problems before us."
Read “efforts” as new Silk Roads, that Eurasian Economic Union, the growing BRICS block, the expanding Shanghai Cooperation Organization, those China-based banks, and all the rest of what adds up to the beginning of a new integration of significant parts of the Eurasian land mass. As for Washington, fly like an eagle? Try instead: scream like a banshee.
- US Mint Sells Most Physical Gold In Two Years On Same Day Gold Price Hits Five Year Low
Three weeks ago, we reported that the US Mint had run out of physical silver on the same day silver plunged to its lowest price in 2015. This happened just days after the UK Royal mint announced that “during June, we experienced twice the expected demand for Sovereign bullion coins from our customers based in Greece.”
While the surge in physical demand clearly did not explain the liquidation in the price of “paper” silver, we are still hoping that the OCC writes us back with an explanation why this happened, and maybe it can clarify also just how much more silver the mint will sell before it runs out of silver in inventory again as it did 20 days ago.
We bring all of this up because just like 20 days ago when unstoppable demand for physical silver met an immovable paper silver selling object (with the “object” for now winning), so earlier today the price of gold tumbled to the lowest level in 5 years, some $1,072 per ounce, before it staged a dramatic comeback closing just under $1,100…
… thanks in no small part to the illegal spoofing we noted earlier.
And lo and behold, just like in the case of silver three weeks ago, today’s gold liquidation was not due to selling of physical metal. In fact, quite the contrary: according to the US mint, so far in July the mint has sold a whopping 143,000 ounces of physical gold – the most in over two years, or since April of 2013 – even as the price of gold briefly slid to the lowest level in 5 years.
In other words, retail investors, who have bought over 7 million ounces of gold since January 2008 or the one third the total “held” currently by the GLD ETF, were eagerly buying up all the physical they could get their hands on, or said otherwise, “taking delivery” at the prevailing price, a process which practically assures that the US Mint will be out of gold in the next few days.
We wonder when some central banks, the bulk of whose gold remains in “deliverable” format, decide to do the same? A few more down days in the stock market, coupled with a record high hedge fund short interest, and we just may get our answer.
- The End Of The Supercycle? Commodity "Capitulation" Arrives
In a note by BofA’s Michael Hartnett titled “When Supercycles end”, the bank looks at the latest EPFR fund flows and concludes that the wave of commodity “capitulation” revulsion selling has finally arrived.
Specifically, looking at fund flows, the most recent week saw the biggest outflow from precious metals in four months and emerging market fund outflows reaching $10 billion over the last two weeks leading Hartnett to conclude that “capitulation is beginning in EM/resources/ commodities.”
This is what the most recent flows looked like:
The fund flow details indicate a “Great Rotation” out of commodities, Emerging Markets and, curiously, the US, and into bonds and continued flows into Europe, which has now seen 10 straight weeks of inflows with the latest one of $6.0 billion also the largest in the past 4 months.
Inflows into fixed income have been across the board:
- $1.9bn inflows to IG bond funds (first inflows in 3 weeks)
- $0.5bn inflows to HY bond funds (2 straight weeks)
- $0.3bn inflows to EM debt funds (modest inflows but largest in 11 weeks)
- $2.1bn inflows to govt/tsy funds (3 straight weeks)
- $0.2bn inflows to muni bond funds (first in 7 weeks)
While in equities it has been a tale of two flow directions: out of the US and into Europe (and to a lesser extent Japan):
- Japan: first outflows in 8 weeks ($0.5bn)
- Europe: $6.0bn inflows (10 straight weeks & largest in 4 months)
- EM: $3.3bn outflows (2 straight weeks)
- US: $3.7bn outflows (outflows from both mutual funds & ETFs)
By sector, inflows to secular growth areas of healthcare ($1.3bn) & technology ($0.4bn)
To be sure, the best example of the paper flow capitulation is where else but gold, where in the past week algo, 1% of total gold/silver AUM has been wihdrawn!
But while gold has seen its share of pounding in the past 5 years, it is modest compared to the revulsion experienced by companies that have economic exposure to Emerging Markets. As BofA notes “US companies with high economic exposure to Emerging Markets at close to 13-year lows vs broad US equities.“
The last chart may also explains why Ray Dalio, after largely ignoring the bursting of China’s three bubbles (as shown here previously) finally threw in the towel, became bearish on China and admitted that “There Are No Safe Places Left To Invest.” It also explains why increasingly fewer are “buying the dip” across markets despite one-off superstars like GOOG and AMZN.
- Jim Grant On Gold's Liquidation Sale: A "Vexing But Wonderful Opportunity"
Don’t tell Jim Grant, the publisher of Grant’s Interest Rate Observer, that gold is a hedge.
The author and publisher said the metal is much more dynamic; providing a trifecta of price, value and sentiment, and investors should have exposure to it.
“[G]old is an investment in monetary and financial disorder – not a hedge. You look around the world and you see exchange rates are properly disorderly, when you look around the world of lending and borrowing — we are in a regime of price control by another name, so-called zero percent rates and quantitative easing by the world central banks – we are in one of the most radical periods of monetary experimentation in the annals of money,” Grant told Kitco News Thursday.
Grant added that it could be that it all works out, albeit a very “low probability.”
“You want to have exposure to the reciprocal asset of the paper assets that are the most popular – so gold, to me, is now the conjunction of price, value and sentiment, and I am very bullish indeed.”
Gold prices are on track for its longest run of losses since 1996. After reaching five-year lows this week, the metal was relatively quieter on Thursday with prices slightly rebounding on some bargain hunting in the spot market. Kitco’s spot gold was last up $0.60 at $1094.60 an ounce.
Grant summed up the gold selloff as “Mr. Market having a sale,” and added that the downward spiral is “terrifically vexing but a wonderful opportunity.”
He explained that no one knows the bottom for the metal and that should not be the sole focus.
“The important thing to recall is why those of us who own it, bought it. What is it about gold that ought to make it appealing – when it seems to be absolutely the thing you don’t want to have.” He added that gold thrives in the face of monetary turmoil, disorder and uncertainty, noting, “I think we have all three of these things.”
On the topic of U.S. Federal Reserve rate hikes, Grant said the central bank is in a hurry to raise rates.
“The Fed feels it must act just for institutional pride; but, money supply growth is dwindling, the turnover rate of money likewise, the only thing that is dynamic in the world of money and credit is the issuance of more and more dubiously sourced debt, and more and more lenient terms,” Grant said. “What debt does is two things: it pushes forward consumption and pushes back evidence of business failure,” he added.
Grant said he likes owning physical gold particularly South African Kruggerands. He added he is also the owner of “too many gold mining shares” for which he has, “a great deal of worry for the present but a great deal of conviction for the future.” Mining stocks have suffered even more since lower gold prices means less revenue per ounce of the metal for producers. The Market Vectors Gold Miners exchange-traded fund (GDX), which consists of stocks of gold-mining companies, was down $1.70, or 11%, to $13.72 on Thursday.
- The FBI And DOJ Get Involved: Hillary Clinton Sent Confidential Emails From Her Personal Email Account
It’s not that Donald Trump needed help in his juggernaut campaign across the GOP presidential primary with his lead in the double digits at last check, but moments ago the flamboyant billionaire got an unexpected present from the WSJ which may have just crippled the chances of his biggest democrat competitor as well, Hillary Clinton.
WSJ reports that according to an internal government review Hillary Clinton, as former Secretary of State, “sent at least four emails from her personal account containing classified information during her time heading the State Department.”
This is in reference to the long-standing investigation surrounding whether Clinton i) used bad judgment in opting for a personal, and far less protected, email device as Secretary of State and ii) whether she had – in direct contravention of State Department policies – sent out confidential data on her personal Blackberry.
As a reminder, the Democratic presidential candidate has repeatedly denied sending out confidential emails from her own device, and instead used it purely in a permitted context. She has also repeatedly denied that the emails, which she has since “purged” despite receiving a Congressional subpoena to preserve, contained any sensitive materials, while deleting at least 30,000 emails which she specified were of a personal nature.
“I did not email any classified material to anyone on my email. There is no classified material,” Mrs. Clinton told reporters in March. “I’m certainly aware of the classified requirements and did not send classified material.”
Today’s data confirms that the former first lady lied and has indeed used her email to send out confidential data on at least one occasion, or rather four:
In a letter to members of Congress on Thursday, the Inspector General of the Intelligence Community concluded that Mrs. Clinton’s email contains material from the intelligence community that should have been considered “secret” at the time it was sent, the second-highest level of classification. A copy of the letter to Congress was provided to The Wall Street Journal by a spokeswoman for the Inspector General.
But the shocker is that the 4 emails were revealed when the Inspector General scoured through just 30 of Hillary’s emails, suggeting that based on this random sample, Clinton was sending confidential data well over 10% of the time from her personal account!
The four emails in question “were classified when they were sent and are classified now,” said Andrea Williams, a spokeswoman for the inspector general. The inspector general reviewed just a small sample totaling about 40 emails in Mrs. Clinton’s inbox—meaning that many more in the trove of more than 30,000 may contain potentially secret or top-secret information.
But the worst news for Hillary is that not only the FBI but the DOJ are now getting involved:
As a result of the findings, the inspector general referred the matter to the counterintelligence division of Federal Bureau of Investigation. An official with the Department of Justice said Friday that it had received a referral to open a investigation into the potential mishandling of classified information.
It remains to be seen if anyone in the DOJ will take this case seriously even after these most seriously charges are brought forward, although if so, then the full banana republic farce of a nation where laws are meant only for some, will be exposed to the entire world to marvel at.
As for the final twist, the person who was taked with “identifying and preserving all emails that could potentially be federal records on Benghazi” was none other than Cheryl Mills:
If Congress really wants to get to the bottom of Hillary Clinton’s missing Benghazi and pay-to-play emails, it should call her consigliere Cheryl D. Mills to testify — under oath, and under the klieg lights.
A hearing featuring Clinton will be a wasted show trial with a lot of political grandstanding.
But Mills, who served as the former secretary of state’s chief of staff and counselor, knows where the bodies are buried. After all, Hillary tasked her with “identifying and preserving all emails that could potentially be federal records.”
In short, Mills “is in the middle of it,” Judicial Watch President Tom Fitton said.
The same Cheryl Mills who, as we reported moments ago, is now dictating Clinton’s (and possibly US if Hillary is elected) tax policy and pushing it to be precisely what Blackrock, which is urging Clinton to revamp short-term capital gains taxes to benefit firms like Blackrock at the expense of activist investors, demands for one simple reason: she just happens to be on the Blackrock board of directors!
To summarize: the person who was in charge of combing through all of Clinton’s emails, and who is now on Blackrock’s Board and is telling Hillary what us tax policy should be, either was incompetent or simply lied to her boss, a boss who lied to reporters if not under oath.
- The Casino-fication Of Markets Is Pervasive & Permanent
Submitted by Ben Hunt via Salient Partners Epsilon Theory blog,
My favorite scene from Mad Men is the picnic scene from Season 2. The Draper family enjoys a lovely picnic at some park, and at the conclusion of the meal Don tosses his beer cans into the bushes and Betty just flicks the blanket and leaves all the trash right there on the grass. Shocking, right? I know this is impossible for anyone under the age of 30 to believe, but this is EXACTLY what picnics were like in the 1960’s, even if a bit over the top in typical Draper fashion. There was no widespread concept of littering, much less recycling and all the other green concepts that are second nature to my kids. I mean … if I even thought about Draper-level littering at a Hunt picnic today my children would consider it to be an act of rank betrayal and sheer evil. I’d be disowned before they called the police and had me arrested.
Like many of us who were children in a Mad Men world, I can remember the moment when littering became a “thing”, with the 1971 public service commercial of an American Indian (actually an Italian actor) shedding a tear at the sight of all the trash blighting his native land. Powerful stuff, and a wonderful example of the way in which Narrative construction can change the fundamental ways our society sees the world, setting in motion behaviors that are as second nature to our children as they were unthinkable to our parents. It’s barely noticeable as it’s happening, but one day you wake up and it’s hard to remember that there was a time when you didn’t believe that littering was a crime against humanity.
This dynamic of change in meaning is rare, but it takes place more often than you might think. Dueling and smoking are easy examples. Slavery is, too. Myths and legends turned into nursery rhymes and fairy tales is one of my favorite examples, as is compulsory public education … a concept that didn’t exist until the Prussian government invented it to generate politically indoctrinated soldiers who could read a training manual. Occasionally – and only when political systems undergo the existential stress of potential collapse – this dynamic of change impacts the meaning of the Market itself, and I think that’s exactly what’s taking place today. Through the magic of Narrative construction, capital markets are being transformed into political utilities.
It’s not a unique occurrence. The last time investors lived through this sort of change in what the market means was the 1930s, and it’s useful to examine that decade’s events more closely, in a history-rhyming sort of way. What’s less useful, I think, is to spend our time arguing about whether this transformation in market meaning is a good thing or a bad thing. It is what it is, and the last thing I want to be is a modern day version of one of those grumpy old men who railed about how Roosevelt was really the Anti-Christ. What I will say, though (and I promise this will be my last indication of moral tsk-tsking, for this note anyway), is that I have a newfound appreciation for why they were grumpy old men, and I feel keenly a sense of loss for the experience of markets that I suspect my children will never enjoy as I have. I suspect they will never suffer in their experience of markets as I have, either, but there’s a loss in that, as well.
It’s totally understandable why status quo political interests would seek to transform hurly-burly capital markets into a stable inflation-generation utility, as summed up in the following two McKinsey charts.
Both of these charts can be found in the February 2015 McKinsey paper, “Debt and (not much) deleveraging”, well worth your time to peruse. Keep in mind that the data used here is from Q2 2014, back when Greece was still “fixed”, the Fed had not proclaimed its tightening bias, and China was still slowing gracefully. All of these numbers are worse today, not better.
So what do the numbers tell us? Two things.
First, there’s more debt in the world today than before the Great Recession kicked off in 2008. All the deleveraging that was supposed to happen … didn’t. Sure, it’s distributed slightly differently, both by sector and by geography – and that’s critically important for the political utility thesis here – but whatever overwhelming debt levels you thought triggered a super-cyclical, structural recession then … well, you’ve got more of it now.
Second, it’s impossible to grow our way out of these debt levels. Japan, France and Italy would have to more than double their current GDP growth rates (and again, these are last year’s more optimistic projections) to even start to grow their way out of debt. Right. Good luck with that. Spain needs a triple. Even the US, the best house in a bad neighborhood, needs >3% growth from here to eternity to start making a dent in its debt. Moreover, every day you don’t achieve these growth levels is a day that the debt load gets even larger. These growth targets are a receding target, soon to be well out of reach for every country on Earth.
The intractable problem with these inconvenient facts is that there are only three ways to get out from under a massive debt. You can grow your way out, you can inflate your way out, or you can shrink your way out through austerity and/or assignment of losses. Door #1 is now effectively impossible for most developed economies. Door #3 is unacceptable to any status quo regime. So that leaves Door #2. The ONLY way forward is inflation, so that’s what it’s going to be. There is no Plan B. What sort of inflation is most amenable to modern political influence? Financial asset inflation, by a wide margin. Inflation in the real economy depends on real investment decisions by real businesses, and just as in the 1930s most business decision makers are sitting this one out, thank you very much. Or just as in the 1930s they’re “investing” in stock buy-backs and earnings margin improvement, which doesn’t help real world inflation at all. What political institutions are most capable of promoting inflation? Central banks, again by a wide margin. Just as in the 1930s, almost every developed economy in the world has a highly polarized electorate and an equally polarized legislature. The executive may be willing, but the government is weak. Far better to wage the inflation wars from within the non-elected walls of the Eccles Building rather than the White House.
Now … how to wage that inflation war with the proper Narrative armament? No one wants inflation in the sense of “runaway inflation”, to use the phrasing of doomsayers everywhere. In fact, unless you’re speaking apparatchik to apparatchik, you don’t want to use the word “inflation” at all. It’s just like Roosevelt essentially banning the word “regulation” from his Cabinet’s vocabulary. Don’t call it “regulation”. Call it “cooperation”, Roosevelt said, and even the grumpy old men will applaud. So today China calls it a “market malfunction” when their stock market deflates sharply (of course, inflating sharply is just fine). Better fix that malfunctioning machine! How can you argue with that language? But at least the political mandarins in the East are more authentic with their words than the political mandarins in the West. Here we now call market deflation by the sobriquet “volatility”, as in “major market indices suffered from volatility today, down almost one-half of one percent”, where a down day is treated as something akin to the common cold, a temporary illness with symptoms that we can shrug off with an aspirin or two. You can’t be in favor of volatility, surely. It’s a bad thing, almost on a par with littering. No, we want good things and good words, like “wealth effect” and “accommodation” and “stability” and “price appreciation”. As President Snow says in reference to The Hunger Games version of a political utility, “may the odds be always in your favor”. Who doesn’t want that?
There are two problems with the odds being always in your favor.
First, the casino-fication of markets ratchets up to an entirely new level of pervasiveness and permanence. By casino-fication I mean the transformation of the meaning of market securities from a partial ownership interest in the real-life cash flows of real-life companies to a disembodied symbol of participation in a disembodied game. Securities become chips, pure and simple. Now there’s nothing new in this gaming-centric vision of what markets mean; it’s been around since the dawn of time. My point is that with the “innovation” of ETF’s and the regulatory and technological shifts that allow HFTs and other liquidity game-players to dominate the day-to-day price action in markets, this vision is now dominant. There’s so little investing today. It’s all positioning. And in a capital-markets-as-political-utility world, the State is now actively cementing that view. After World War I, French Prime Minister Georges Clemenceau famously said that war was too important to be left to the generals, meaning that politicians would now take charge. Today, the pervasive belief in every capital in the world is that markets are too important to be left to the investors. These things don’t change back. Sorry.
Second, if you’re raising the floor on what you might suffer in the way of asset price deflation, you are also lowering the ceiling on what you might enjoy in the way of asset price inflation. That’s what investing in a utility means – you’re probably not going to lose money, but you’re not going to make a lot of money, either. So to all of those public pension funds who are wringing their hands at this fiscal year’s meager returns, well below what they need to stay afloat without raising contributions, I say get used to it. All of your capital market assumptions are now at risk, subject to the tsunami force of status quo politicians with their backs up against the debt wall. Their market-as-utility solution isn’t likely to go bust in a paroxysm of global chaos, any more than it’s likely to spark a glorious age of reinvigorated global growth. Neither the doomsday scenario nor the happy ending is likely here, I think. Instead, it’s what I’ve called the Entropic Ending, a long gray slog where a recession is as unthinkable as a 4% growth rate. It’s a very stable political equilibrium. Sorry.
We’ve been down this road before in the 1930s. But the historical rhyming I see is not so much in the New Deal policies that directly impacted the stock market as it is in the policies that established a real-life utility, the Tennessee Valley Authority (TVA). That’s because the nature of the existential threat posed by overwhelming debt to the US political system was different in the 1930s than it is today. When FDR took office, the flash point of that systemic threat was the labor market, not the capital market. Sure, the stock market took its hits in the Great Depression, but the relevance of the stock market to either the overall economic health of the country or – more importantly to FDR – his ability to remain in office was dwarfed by the relevance of the labor market. It’s another one of those changes in meaning that seems bizarre to the modern eye or ear. What, you mean there wasn’t 24/7 coverage of financial markets in 1932? You mean that most Americans didn’t really know what a stock certificate was, much less own one? To succeed politically, Roosevelt had to change the meaning of the labor market, not the capital market, and that’s exactly what he did with the creation of the TVA.
The TVA was only one effort in an alphabet soup of New Deal policies that FDR rammed through in his first Administration to change the popular conception of what the labor market meant to Americans. Other famous initiatives included the National Recovery administration (NRA) and the Civilian Conservation Corps (CCC), and the common thread in all of these efforts was a VERY active Narrative management embedded in their process from the outset, with photographers and journalists hired by the White House to document the “success” of the programs. Everything I write in Epsilon Theory about today’s pervasive Narrative construction also took place in the 1930s, in amazingly similar venues and formats, down to the specific words used.
The Narrative effort worked. Not necessarily in the permanence of the institutions FDR established (the Supreme Court declared the NRA unconstitutional in 1935, and the CCC faded into obscurity with the outbreak of World War II), but in the complete reshaping of what the labor market meant to Americans and what government’s proper role within the labor market should be. Yes, there were important things lost in FDR’s political achievements (and plenty of grumpy old men to complain about that), but let’s not forget that he was re-elected THREE times on the back of these labor market policies. If that’s not winning, I don’t know what is. And if you don’t think that lesson from history hasn’t been absorbed by both Clinton™ and Bush™, you’re living in a different world than I am.
One last point on the TVA. It’s still around today as a very powerful and oddly beloved institution, and I think its lasting political success is due in large part to the fact that it – unlike the other alphabet soup institutions – was explicitly a utility. Who doesn’t like the stability of a utility in the midst of vast inequality? Who doesn’t like the odds being ever in their favor? The more that I see today’s policy impact on markets described in utility-like terms – words like “stability” and notions like “volatility is bad and a thing to be fixed” – the more confident I am that the TVA political experience of the 1930s is coming soon to the capital markets of today. Scratch that. It’s already here.
So, Ben, let’s assume you’re right and that current events are rhyming with the historical events of the last time the world wrestled with an overwhelming debt load. Let’s assume that a politically popular shift in the meaning of markets to cement its public utility function is taking shape and won’t reverse itself without a political shock of enormous proportions. What’s an investor or allocator to do, other than become a grumpy old man? Look, the hardest thing in the world is to recognize structural change when you’re embedded in the structure. If reading Epsilon Theory has given you a new set of lenses to see the relationship between State and Market, then you’ve already done the heavy lifting. From here, it’s a matter of applying that open-eyed perspective to your portfolio, not of buying this or selling that! Everyone will be different in their particular application, but I think everyone should have three basic goals:
- shake out the category errors in your investment assumptions, understanding that we humans are terrible judges of causality, particularly when something has worked recently;
- re-evaluate your capital market assumptions for a further transformation of those markets into state-run casinos and political utilities, understanding that whatever crystal ball you’ve used in the past is almost certainly broken today;
- adopt an investment process or find investment strategies that can adapt to the structural changes that are already underway in capital markets, understanding that the patterns of belief and meaning we think are “natural” today can change in the blink of a central banker’s eye.
Put simply, it’s time for some good new thinking on some good old ideas like diversification. It’s time to recognize the world as it is rather than lose ourselves in nostalgia for the world that was. Most of all, it’s time to call things by their proper names and stop demonizing words like “leverage” and “volatility”. These are tools, for god’s sake, neither good nor bad in and of themselves, and they’re tools we are all going to need to learn how to use if we want to be survivors in the Golden Age of the Central Banker. It’s time to get to work.
- Did The Canary In The Credit Coalmine Just Croak: Capital One Credit Loss Provisions Soar By 60%
Everyone knows Capital One’s trite soundbite: “What’s in your wallet?”
Overnight, the market found out what’s in Capital One’s balance sheet, and it didn’t like it one bit.
Yesterday, Capital One Financial reported earnings that fell well short of consensus: the $311 billion-company’s Q2 profit was $863 million, down 28% Y/Y. EPS was an ugly $1.50, $0.47 cents below the consensus estimate. Surprisingly this earnings plunge took place even as overall revenue rose 4% to $5.7 billion.
So what gives: a closer read through the numbers reveals that while average wages across the US are barely rising enough to cover inflation, Capital One felt the need to really incentivize its workfore with an increase in salaries and benefits 10 times higher than the national average, up 21%, to $1.4 billion, while marketing costs increased 16%, and professional-services fees grew 13%.
At the same time headcount increased 7%, to 47,500 even though COF concurrently took a $147 million charge for the restructuring its benefits plan “as a result of the realignment of our workforce.” COF did not provide details on the workforce changes that led to the charge.
End result: in moments, the stock wiped out all of its hard-earned gains for the year, and then some:
But the biggest shocker was something else found between COF’s top and bottom line: a surge in provisions for credit losses: at $1.1 billion this was a jump of 21% from Q1 and up a whopping 60% from the year prior. It was also the biggest credit loss provision the credit card company has taken since Q2 2012.
So the question: is this dramatic deterioration in COF’s loan book specific to the financial company which is nowhere near having a balance sheet big enough to mask its deteriorating loan book (or quality it for Too Big To Prosecute and/or Fail status), or is this a very loud, and very dead, canary in the credit coalmine, suggesting US consumers are suddenly unable to repay even their most basic purchases on credit?
As for Capital One, we wonder: “Is that a blowing up loan book in your wallet”? We hope to have the answer over the next several quarters, especially if as the Fed’s leak today suggested, a rate hike, which will lead to even greater credit losses, is imminent.
- It Cost The Koch Brothers Only $299,000 To Block Labeling Of Genetically Modified Foods
In what may have been the most underreported event overnight, the House quietly passed legislation that would keep states from issuing mandatory labeling laws for foods that contain genetically modified organisms, often called GMOs. The Safe and Accurate Food Labeling Act of 2015, as the law is formally known, passed 275-150, creating a federal standard for the voluntary labeling of foods with GMO ingredients. And since clearly nobody wants to advertise they are using GMOs in their food, the number of “volunteers” will be precisely zero.
As the Hill reports, Rep. Mike Pompeo (R-Kan.), who authored the bill, called mandatory labeling laws — which have already passed in Vermont, Connecticut and Maine — unnecessarily costly given that GMOs have been deemed safe by the Food and Drug Administration (FDA).
“Precisely zero pieces of credible evidence have been presented that foods produced with biotechnology pose any risk to our health and safety,” Pompeo said. “We should not raise prices on consumers based on the wishes of a handful of activists.”
Well, sure. Then there is the curious case of a lobbyist who back in March proclaimed that Monstanto’s weedkiller “won’t hurt you”, only to promptly refuse drinking it on live it adding “I’m not stupid.”
Somehow we doubt Mike Pompeo is stupid either, which is why he will use all his hard-earned lobby dollars to only purchase organic foods which do not have GMO ingredients, and which happen to be a premium food category, precisely for that reason. Which makes Pompeo’s statement even odder, considering the prices of non-GMO foods are already substantially higher.
And while a minority was not willing to trade off healthy food for higher food prices, the victorious majority claimed a patchwork of labeling laws at the state level would drive up food costs.
Citing a study from a Cornell University professor, the Grocery Manufacturers Association said state-level GMO labeling mandates would increase grocery prices for a family of four by as much as $500 per year and cost food and beverage manufacturers millions of dollars to change food labels and supply chain systems.
Actually, where it would hurt manufacturers would be in the public’s revulsion to eating foods clearly labelled as being genetically modified, leading to a collapse in sales in this high margin food category, and forcing even higher non-GMO prices. Outcomes that would lead to a dramatic erosion in shareholder value for the owners of those companies who stood to lose the most should the Labeling act not pass in its current form.
Owners such as the Koch Brothers and Monsanto.
Last night’s passage of the anti-labeling law was the culmination of a very long and tedious process, one which started well over a year ago. In fact, as Andrea Germanos recalls, it all started last April, when in a move slammed as sealing “an unholy alliance between Monsanto and Koch Industries,” a Kansas congressman submitted legislation that would ban state-level GMO labeling laws.
Called the Safe and Accurate Food Labeling Act of 2014, the industry-supported legislation sponsored by Republican Rep. Mike Pompeo would “amend the Federal Food, Drug, and Cosmetic Act with respect to food produced from, containing, or consisting of a bioengineered organism, the labeling of natural foods, and for other purposes.”
At least between its 2014 name and the final 2015 version Pompeo and his backers added “Safe” to the front just in case the irony was lost on someone.
Which brings us to the biggest winners from this law, and how Rep. Pompeo made a few very rich people even richer.
Starting with the Grocery Manufacturers Association (GMA).
According to The Center for Food Safety: “Koch Industries’ subsidiary, Georgia-Pacific, is a member of the Grocery Manufacturers Association, which donated more than $7 million against the recent Washington State ballot initiative to label GE foods. Monsanto, another GMA member, was the single largest contributor to that campaign. Between Washington State and California, Monsanto, GMA (including Georgia-Pacific), and others, have contributed over $67 million to keep consumers in the dark about GE foods.”
Others quickly jumped onboard, especially those who would reap the biggest incremental profits such as biotech companies, and now the GMA and other industry groups like the Biotechnology Industry Organization are cheering Pompeo’s legislation.
At the time, many were livid that a full-court press by a few corporations and even fewer billionaires would keep Americans in the dark as to the genetic content of the food they eat:
“GMA’s selection of Congressman Pompeo as their champion shows how extreme the proposal really is,” stated Colin O’Neil, director of government affairs for Center for Food Safety. “Selecting Pompeo creates an unholy alliance between Monsanto and Koch Industries…”
Well, today the unholy alliance won, and the GMA was delighted:
“Today’s bipartisan passage of the Safe and Accurate Food Labeling Act (HR 1599) clearly demonstrates the growing support for this critically important legislation,” said Pamela G. Bailey, president and CEO of the Grocery Manufacturers Association. “We thank the sponsors of this bill, Congressmen Mike Pompeo (R-KS) and G.K. Butterfield (D-NC), along with Congressmen Mike Conaway (R-TX), Collin Peterson (D-MN), Fred Upton (R-MI) and the other members who supported it for standing on the side of consumer choice, science and fact-based labeling. We now call on the U.S. Senate to move quickly on a companion bill and pass it this year.”
Finally, the question everyone is dying to get the answer to: how much did it cost the Koch Brothers to purchase Mike Pompeo and his bipartisan congressional peers, both republicans and democrats, and pass a law that would save the company billions in profits?
Which is why the stock market with its annual return of 7% is for chumps. If you want to make the kinds of quadruple digit returns on investment, you better buy yourself a congressman.
As for the general American population, well: your food may be every so slightly more mutated, but the good news is that it will remain as cheap and unhealthy as always.
- Attention America's Suburbs: You Have Just Been Annexed
Submitted by Stanley Kurtz via NationalReview.com,
It’s difficult to say what’s more striking about President Obama’s Affirmatively Furthering Fair Housing (AFFH) regulation: its breathtaking radicalism, the refusal of the press to cover it, or its potential political ramifications. The danger AFFH poses to Democrats explains why the press barely mentions it. This lack of curiosity, in turn, explains why the revolutionary nature of the rule has not been properly understood. Ultimately, the regulation amounts to back-door annexation, a way of turning America’s suburbs into tributaries of nearby cities.
This has been Obama’s purpose from the start. In Spreading the Wealth: How Obama Is Robbing the Suburbs to Pay for the Cities, I explain how a young Barack Obama turned against the suburbs and threw in his lot with a group of Alinsky-style community organizers who blamed suburban tax-flight for urban decay. Their bible was Cities Without Suburbs, by former Albuquerque mayor David Rusk. Rusk, who works closely with Obama’s Alinskyite mentors and now advises the Obama administration, initially called on cities to annex their surrounding suburbs. When it became clear that outright annexation was a political non-starter, Rusk and his followers settled on a series of measures designed to achieve de facto annexation over time.
The plan has three elements: 1) Inhibit suburban growth, and when possible encourage suburban re-migration to cities. This can be achieved, for example, through regional growth boundaries (as in Portland), or by relative neglect of highway-building and repair in favor of public transportation. 2) Force the urban poor into the suburbs through the imposition of low-income housing quotas. 3) Institute “regional tax-base sharing,” where a state forces upper-middle-class suburbs to transfer tax revenue to nearby cities and less-well-off inner-ring suburbs (as in Minneapolis/St. Paul).
If you press suburbanites into cities, transfer urbanites to the suburbs, and redistribute suburban tax money to cities, you have effectively abolished the suburbs. For all practical purposes, the suburbs would then be co-opted into a single metropolitan region. Advocates of these policy prescriptions call themselves “regionalists.”
AFFH goes a long way toward achieving the regionalist program of Obama and his organizing mentors. In significant measure, the rule amounts to a de facto regional annexation of America’s suburbs. To see why, let’s have a look at the rule.
AFFH obligates any local jurisdiction that receives HUD funding to conduct a detailed analysis of its housing occupancy by race, ethnicity, national origin, English proficiency, and class (among other categories). Grantees must identify factors (such as zoning laws, public-housing admissions criteria, and “lack of regional collaboration”) that account for any imbalance in living patterns. Localities must also list “community assets” (such as quality schools, transportation hubs, parks, and jobs) and explain any disparities in access to such assets by race, ethnicity, national origin, English proficiency, class, and more. Localities must then develop a plan to remedy these imbalances, subject to approval by HUD.
By itself, this amounts to an extraordinary takeover of America’s cities and towns by the federal government. There is more, however.
AFFH obligates grantees to conduct all of these analyses at both the local and regional levels. In other words, it’s not enough for, say, Philadelphia’s “Mainline” Montgomery County suburbs to analyze their own populations by race, ethnicity, and class to determine whether there are any imbalances in where groups live, or in access to schools, parks, transportation, and jobs. Those suburbs are also obligated to compare their own housing situations to the Greater Philadelphia region as a whole.
So if some Montgomery County’s suburbs are predominantly upper-middle-class, white, and zoned for single-family housing, while the Philadelphia region as a whole is dotted with concentrations of less-well-off African Americans, Hispanics, or Asians, those suburbs could be obligated to nullify their zoning ordinances and build high-density, low-income housing at their own expense. At that point, those suburbs would have to direct advertising to potential minority occupants in the Greater Philadelphia region. Essentially, this is what HUD has imposed on Westchester County, New York, the most famous dry-run for AFFH.
In other words, by obligating all localities receiving HUD funding to compare their demographics to the region as a whole, AFFH effectively nullifies municipal boundaries. Even with no allegation or evidence of intentional discrimination, the mere existence of a demographic imbalance in the region as a whole must be remedied by a given suburb. Suburbs will literally be forced to import population from elsewhere, at their own expense and in violation of their own laws. In effect, suburbs will have been annexed by a city-dominated region, their laws suspended and their tax money transferred to erstwhile non-residents. And to make sure the new high-density housing developments are close to “community assets” such as schools, transportation, parks, and jobs, bedroom suburbs will be forced to develop mini-downtowns. In effect, they will become more like the cities their residents chose to leave in the first place.
It’s easy to miss the de facto absorption of local governments into their surrounding regions by AFFH, because the rule disguises it. AFFH does contain a provision that allows individual jurisdictions to formally join a regional consortium. Yet the rule leaves it up to local authorities to decide whether to enter regional groupings — or at least the rule appears to make participation in regional decision-making voluntary. In truth, however, just by obligating grantees to compare their housing to the demographics of the greater metropolitan area, and remedy any disparities, HUD has effectively turned every suburban jurisdiction into a helpless satellite of its nearby city and region.
We can see this, because the final version of AFFH includes much more than just the provisions of the rule itself. The final text of the regulation incorporates summaries of the many public comments on the preliminary rule, along with replies to those comments by HUD. This amounts to a running dialogue between leftist housing activists trying to make the rule more controlling, local bureaucrats overwhelmed by paperwork, a public outraged by federal overreach, and HUD itself.
Read carefully, the section of the rule on “Regional Collaboration and Regional Analysis” (especially pages 188–203), reveals one of AFFH’s key secrets: It doesn’t really matter whether a local government decides to formally join a regional consortium or not. HUD can effectively draft any suburb into its surrounding region, just by forcing it to compare its demographics with the metropolitan area as a whole.
At one point (pages 189–191), for example, commenters directly note that the obligation to compare local and regional data, and remedy any disparities, amounts to forcing a jurisdiction to ignore its own boundaries. Without contradicting this assertion, HUD then insists that all jurisdictions will have to engage in exactly such regional analysis.
Comments from leftist housing activists repeatedly call on HUD to pressure local jurisdictions into regional planning consortia. At every point, however, HUD declines to demand that local governments formally join such regional collaborations. Yet each time the issue comes up, HUD assures the housing activists that just by compelling local jurisdictions to compare their demographics with the region as a whole, suburbs will effectively be forced to address demographic disparities at the total metropolitan level (e.g., page 196).
When housing activists worry that a suburb with few poor or minority residents will argue that it has no need to develop low-income housing, HUD makes it clear that the regulation as written already effectively forces all suburbs to accommodate the needs of non-residents (pages 198–199). Again, HUD stresses that the mere obligation to analyze, compare, and remedy demographic disparities at the local and regional levels amounts to a kind of compulsory regionalism.
HUD’s language is coy and careful. The Obama administration clearly wants to avoid alarming local governments, so it underplays the extent to which they have been effectively dissolved and regionalized by AFFH. At the same time, HUD wants to tip off its leftist allies that this is exactly what has happened.
At one level, then, the apparatus of formal and voluntary collaboration in a regional consortium is a bit of a ruse. AFFH amounts to an annexation of suburbs by cities, whether the suburbs like it or not. Yet the formal, regional groupings enabled by the rule are far from harmless.
Comments from housing advocates (pages 194–197), for example, chide HUD for failing to include a mention in AFFH of the hundreds of federally-funded regional plans already being developed by leftist activists across the country (the “Sustainable Communities Regional Planning Grant” program). These plans entail far more than imposing low-income housing quotas on the suburbs. They embody the regionalist program of densifying housing in suburb and city alike, and they structure transportation spending in such a way as to make suburban living far less convenient and workable. HUD replies that these plans can indeed be used by regional consortia to fulfill their obligations under AFFH.
So a city could formally join with some less-well-off inner-ring suburbs and present one of these comprehensive regionalist dream-plans as the product of its consortium. At that point, HUD could pressure reluctant upper-middle-class suburbs to embrace the entire plan on pain of losing their federal funds. In this way, AFFH could force the full menu of regionalist policies—not just low-income housing quotas—onto the suburbs.
There are plenty of ways in which HUD can pressure a suburb to bend to its will. The techniques go far beyond threats to withhold federal funds. The recent Supreme Court decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project has opened the door to “disparate impact” suits against suburbs by HUD and private groups alike. That is, any demographic imbalance, whether intentional or not, can be treated by the courts as de facto discrimination.
Just by completing the obligatory demographic analysis demanded by AFFH—with HUD-provided data, and structured according to HUD requirements—a suburb could be handing the government evidence to be used in such a lawsuit. Worse, AFFH demands that suburbs account for their demographic disparities, and forces them to choose from a menu of HUD-provided explanations. So if a suburb follows HUD’s lead and formally attributes demographic “imbalances” to its zoning laws, the federal government has what amounts to a signed confession to present in a disparate-impact suit seeking to nullify local zoning regulations. With a (forced) paper “confession” from nearly every suburb in the country in hand, HUD can use the threat of lawsuits to press reluctant municipalities to buy into a regional consortium’s every plan.
Regionalists consider the entire city-suburb system bigoted and illegitimate, so there are few local governments that HUD would not be able to slap with a disparate-impact suit on regionalist premises. It’s unlikely that any suburb has a perfect demographic and “asset” balance in every category. All HUD has to do is decide which suburban governments it wants to lean on. With every locality vulnerable to a suit, every locality can be made to play the regionalist game.
Leftist housing activists worry that AFFH never specifies the penalties a suburb will face for imbalances in its housing patterns. These activists just don’t get it. A thoughtful reading of AFFH, including its extraordinary “dialogue” section, makes it clear that HUD can go after any suburb, any time it wants to. The controlling consideration will be politics. HUD has got to boil the frog slowly enough to prevent him from jumping.
It will take time for the truth to emerge. Just by issuing AFFH, the Obama administration has effectively annexed America’s suburbs to its cities. The old American practice of local self-rule is gone. We’ve switched over to a federally controlled regionalist system. Now it’s strictly a question of how obvious Obama and the Democrats want to make this change — and when they intend to bring the hammer down. The only thing that can restore local control is joint action by a Republican president and a Republican congress to rescind AFFH and restrict the reach of disparate impact litigation. We’ll know after November 8, 2016.
- Howard Marks Interviewed: "There’s No Free Market Today"
Earlier this year, Oaktree Capital Management’s Howard Marks asked what is perhaps the most important question for capital markets: “What would happen if a large number of holders decided to sell a high yield bond ETF all at once?”
The answer, of course, is that fund managers would be left with a massive, non-diversifiable, unidirectional flow which would force them to either tap emergency liquidity lines with banks to meet redemptions or else risk selling the underlying bonds into an increasingly thin secondary market for corporate credit; the former option is a delay-and-pray scheme while the latter has the potential to trigger a sum-of-all-fears scenario wherein illiquidity quickly begets a fire sale.
“The ETF can’t be more liquid than the underlying, and we know the underlying can become highly illiquid,” Marks warned.
Recently, the “lonely contrarian” spoke to Goldman on topics ranging from manipulated markets to investor psychology. Here are some notable excerpts.
* * *
From Goldman’s “Fortnightly Thoughts”
How can we understand investor psychology and use it to make investment decisions?
It’s the swings of psychology that get people into the biggest trouble, especially since investors’ emotions invariably swing in the wrong direction at the wrong time. When things are going well people become greedy and enthusiastic, and when times are troubled, people become fearful and reticent. That’s just the wrong thing to do. It’s important to control fear and greed.
Why do behaviour patterns and mistakes recur despite the plethora of information available now? Are we doomed to repeat our mistakes?
The bottom line is that even though knowing financial history is important, requiring people to study it won’t make a big difference, because they’ll ignore its lessons. There’s a very strong tendency for people to believe in things which, if true, would make them rich. Demosthenes said, “For that a man wishes, he generally believes to be true” Just like in the movies, where they show a person in a dilemma to have an angel on one side and a devil on the other, in the case of investing, investors have prudence and memory on one shoulder and greed on the other. Most of the time greed wins.
Is it volatility that’s made people scared of equity markets, particularly since 2000?
Volatility goes in both directions but it’s declines that people dislike, not volatility. In 2000, people pursued growth but forgot to ask themselves ‘at what price?’ And in recent years they’ve been pursuing safety and income while ignoring the same question. Today the price being paid for the safety and income of bonds is among the highest in history.
How do you think about the current very low interest rate regime?
Yes. The point is that today you can’t make a decent return safely. Six or seven years back, you could buy three to five-year Treasurys and get a return of 6% or so. So you could have both safety and income. But today, investors have to make a difficult choice: safety or income. If investors want complete safety, they can’t get much income, and if they aim for high income, they can’t completely avoid risk. It’s much more challenging today with rates being suppressed by governments. This is one of the negative consequences of centrally administered economic decisions. People talk about the wisdom of the free market – of the invisible hand – but there’s no free market in money today. Interest rates are not natural. They are where they are because the governments have set them at that level. Free markets optimise the allocation of resources in the long run, and administered markets distort the allocation of resources. This is not a good thing… although it was absolutely necessary four years ago in order to avoid a complete crash and restart the capital markets.
Looking at the current scenario, is your level of caution and concern as high as it was during 2006-07?
The worst things that occurred in 2006-07 are not happening as much today. But currently I’m just cautious, like I was in 2004-05. And some people might easily argue that I turned cautious too early.
If it’s human nature that causes the bubbles and crashes, do you think asset management should be done with more machines and fewer people?
No, I disagree strenuously. People who doubt the existence of inefficient markets and the ability to profit from them may disagree with me. But if you think you’re operating in an inefficient market like I try to do, a lot can be accomplished by getting great people, developing an effective investment approach, hunting for misvaluations, keeping psychology under control, and understanding where you are in the cycle. I am not saying that everyone should try this. In fact, an algorithm or an index fund may work best for a lot of people. But at Oaktree, we don’t make heavy use of machines. We are fundamentalists and ours is a “non-quant shop.” As long as there are people on the other side making mistakes – failing to fully understand assets, acting emotionally, selling too low and buying too high – we’ll continue to find opportunities to produce superior risk-adjusted returns. This is something I’m very sure of.
- Fed "Accidentally" Released Dovish Confidential Market-Moving Forecasts, Blames "Glitch"
First The ‘unaudited’ Fed leaks its FOMC minutes. Then they leak ‘inside-information’ to Nikkei’s latest addition, Medley Global advisors (and remain “above the law” with regard consequences. And now, The Fed admits it leaked full blown confidential economic projections (due to a code glitch), whose summary assessment is shown below as per the leaked file.
While superficially, and as expected, the Fed is assuming a 1.26% fed funds rate in one year, suggesting about 3-4 rate hikes until then, with the first one according to the leaked documents taking place in Q3:
… the overall strength of the economy is well weaker, and thus more dovish, than many of the permabulls had expected.
As Bloomberg notes,
- *FED SAYS IT INADVERTENTLY RELEASED STAFF ECONOMIC PROJECTIONS
- *FED SAYS PROJECTIONS POSTED TO PUBLIC WEBSITE ON JUNE 29
The leaked projections were:
- *FED STAFF PROECTIONS SHOW YEAR-END FED FUNDS OF 0.35% 2015
- *FED STAFF PROJECTIONS SEE FED FUNDS AT 1.26% 4Q 2016
- *FED STAFF PROJECTIONS SEE GDP 2.31% 2015, 2.38% 2016
And these are the key projections as revealed in the leaked file (ZIP file can be found here). Note that the Fed expects a long-term 10Y rate of 4.25%, and potential GDP output to renormalize by 2020.
Or in other words, quite more dovish than anyone expecting a strong, “escape velocity” surge in the economy had hoped for: certainly far weaker than what an imminent rate hike suggests.
The impact of the “glitch” on the bond market can be seen the moment it hit by this dramatic move in the 2Year:
As for the reason for the leak – simple – same as every other leak – a technical “glitch“:
Economic projections prepared by Federal Reserve Board staff as background for the June 16-17, 2015, meeting of the Federal Open Market Committee (FOMC) were inadvertently included in a computer file posted to the Board’s public website on June 29. Because the information has already been released, the Federal Reserve is today providing general public notification and making those projections more easily accessible on our website within the FRB/US model package (ZIP) data folder.
Approximately every three months, Federal Reserve Board staff update and publish on the Board’s website a package of computer code of the Board staff’s FRB/US model of the U.S. economy, including a set of illustrative economic projections based only on publicly available information.
On June 29, an updated package of code was posted that inadvertently included three files containing staff economic forecasts that are confidential FOMC information. Two files contained charts of the staff’s projections for economic variables such as the unemployment rate, the core inflation rate, and gross domestic product growth as well as the staff’s assumption for the path of the federal funds rate target selected by the FOMC. Another file contained computer code used to generate a table displaying staff economic projections.
The projections that were inadvertently released are staff projections that do not incorporate policymakers’ views, including their views on monetary policy. Policymaker views were set forth in the monetary policy statement and projection materials released on June 17 and in the minutes of the June FOMC meeting and the Summary of Economic Projections published on July 8.
Consistent with the procedures in the FOMC’s Program for Security of FOMC Information, this matter has been referred to the Board’s Inspector General.
But do not worry – despite the fact that they cannot upload a zip file in a timely manner, they are fully in charge of the world’s economic future.
- What's Really Killing Capitalism
Submitted by Bill Bonner via Bonner & Partners,
Stifling Growth
Zombies and cronies stifle the process of growth and wealth creation.
To add wealth, you have to add knowledge. That is, you have to learn to do things better.
The trouble with zombies is that they don’t want to learn. Learning is hard. And costly. Zombies just want to take the fruits of someone else’s learning.
Likewise, cronies try to freeze the process of accumulating knowledge.
New knowledge – accumulated by others – is threatening. It is what causes disruption. And what economist Joseph Schumpeter called “creative destruction.”
Cronies fear this new knowledge and try to block it from ever happening – with subsidies, licensing requirements, and other regulatory impediments.
George Gilder, in his latest book, Knowledge and Power: The Information Theory of Capitalism and How It Is Revolutionizing Our World, is that an economy is fundamentally a learning system, not a way for distributing wealth, believes that this obstructionism is a bigger threat to prosperity than debt.
When Capitalism Fails
Information, says Gilder, is always surprising. It tells us things we didn’t know.
In an economy, the person who is the source of most important new information is the entrepreneur. He is the fellow who takes risks, builds a new business, and then – surprise, surprise – it works!
The cronies want to stop him, before he undermines the value of their old assets and old business models with new information.
The zombies want to drag him down, leeching on him so greedily that he runs out of energy.
But without the entrepreneur, capitalism fails.
Capitalism also fails when the information the entrepreneur relies upon is distorted.
When the feds fiddle with interest rates, for example, they turn the most important signal in capitalism into misleading noise. Gilder:
[I]nterest rates are noise, rather than signal. Interest rates near zero cause finance to hypertrophy, as privileged borrowers reinvest government funds in government securities. Only a small portion of these funds goes to useful “infrastructure,” while the rest is burned off in consumption beyond our means.
Gilder believes the signals must move through channels – secured, but not corrupted – by government!
Yes, government exists. It is going to provide “channels” – laws, property protection, speed limits, and so forth – whether we like it or not. And it will be better for us all if it just keeps the channels open and free from twists and tolls.
But that is very different from providing “guidance.” Politicians don’t have the information or experience to provide guidance. They are zombies. They don’t want to learn the nitty-gritty details of real wealth building. They should just make sure basic laws – against murder, theft, and fraud – are enforced.
And otherwise butt out.
- Iran – Before & After The Nuclear 'Deal'
- Another VA Scandal: GI Bill Funnels Taxpayer Money To Masturbation Classes, "Hate Churches" & More
Submitted by Mike Krieger via Liberty Blitzkrieg blog,
Iraq War veteran David Rodriguez steps into a softly lit classroom at the Institute for Advanced Study of Human Sexuality in San Francisco, crosses his legs and sits on a pillow in front of an altar decorated with a rope, a model of a penis and a statue of a Hindu god.
Rodriguez, a retired Navy lieutenant commander who led an engineering battalion that dismantled roadside bombs, is here for a class on “sexual bodywork.” When instruction begins, he will join his classmates in practicing different forms of masturbation.
“They do vulva massage and penis massage and anal massage,” said instructor Ariadne H. Luya, who holds a Ph.D. from the institute, an unaccredited graduate school founded in 1976 by an iconoclastic Methodist minister who amassed a large collection of erotic art and pornographic films, including child pornography, that is kept at the school.
“We want to get people out of their ruts. Have you been masturbating the same way for 20 years?” she asked rhetorically. “How’s that going for you? Would you like to try something new?”
Rodriguez is funding his studies with the GI Bill, which means taxpayers are covering his tuition to pursue a doctorate in human sexuality – more than $20,000 over the past two years.
But in the absence of strong government oversight, Reveal has found a gold rush of 2,000 schools cashing in on the exemption. The list includes schools set up to make a profit by teaching blackjack, scuba diving, dog grooming, taxidermy and yoga. Many are owned by individuals who’ve gone bankrupt or failed to pay their taxes. A handful are owned by convicted felons…
Back at the Institute for Advanced Study of Human Sexuality in San Francisco, the Rev. Ted McIlvenna, the school’s president, walks down a narrow hallway cluttered with erotic paintings and sculptures, pornographic magazines and reel after reel of pornographic films.
“This is where we keep the kiddie porn,” he said, pointing at a 10-foot-long locked cabinet. “You have to have a doctorate to open it.”
– From the Reveal article: GI Bill Pays for Unaccredited Sex, Bible and Massage Schools
If you feel you’ve had enough Department of Veteran’s Affairs (VA) related scandals for one lifetime, you’ve come to the wrong place. I’m sure all Liberty Blitzkrieg readers will recall the huge outcry last year when it was revealed that some of those unfortunate Americans who sacrificed themselves in wars for imperial dominance and overseas profits, were left hung out to dry by the VA. So much so, that some vets even died while waiting for healthcare within the VA system.
Not to worry though. Under the GI Bill, taxpayers are funding all sorts of “learning” at unaccredited schools, including masturbation classes at San Francisco’s Institute for Advanced Study of Human Sexuality, hate sermons at places such as the Oklahoma Baptist College and Institute, and all sorts of other scams run by convicted felons. I wish I was making this up.
From the Center for Investigative Reporting’s Reveal:
Iraq War veteran David Rodriguez steps into a softly lit classroom at the Institute for Advanced Study of Human Sexuality in San Francisco, crosses his legs and sits on a pillow in front of an altar decorated with a rope, a model of a penis and a statue of a Hindu god.
Rodriguez, a retired Navy lieutenant commander who led an engineering battalion that dismantled roadside bombs, is here for a class on “sexual bodywork.” When instruction begins, he will join his classmates in practicing different forms of masturbation.
“They do vulva massage and penis massage and anal massage,” said instructor Ariadne H. Luya, who holds a Ph.D. from the institute, an unaccredited graduate school founded in 1976 by an iconoclastic Methodist minister who amassed a large collection of erotic art and pornographic films, including child pornography, that is kept at the school.
“We want to get people out of their ruts. Have you been masturbating the same way for 20 years?” she asked rhetorically. “How’s that going for you? Would you like to try something new?”
Rodriguez is funding his studies with the GI Bill, which means taxpayers are covering his tuition to pursue a doctorate in human sexuality – more than $20,000 over the past two years. He says he wants to counsel veterans with sexual problems.
Opinions may differ about whether Rodriguez’s degree is more or less valuable than other academic pursuits. But one thing is clear: His school does not meet the minimum standards that the U.S. Department of Education requires for receipt of other federal funds.
The institute is eligible to receive money directly from the U.S. Treasury because the GI Bill does not require schools to be accredited – a formal process that typically includes extensive site visits and audits by an independent organization charged with upholding academic standards.
But in the absence of strong government oversight, Reveal has found a gold rush of 2,000 schools cashing in on the exemption. The list includes schools set up to make a profit by teaching blackjack, scuba diving, dog grooming, taxidermy and yoga. Many are owned by individuals who’ve gone bankrupt or failed to pay their taxes. A handful are owned by convicted felons.
The cost to taxpayers: more than $260 million from the time the new GI Bill took effect in 2009 until the end of 2014.
Dozens of unaccredited Bible colleges benefit from the loophole, including one, the Oklahoma Baptist College and Institute, that is part of a church that was placed on the Southern Poverty Law Center’s list of hate groups. Its president, the Rev. Tom Vineyard, once declared that “50 to 60 percent of homosexuals are infected with intestinal parasites” and that “homosexuals account for half of the murders in large cities.” In December, Vineyard shot and killed a 14-year-old boy during what police said was an attempted burglary at his home. No charges were filed.
“It boils down to this,” Van Buren said. “Your tax money paid me to fight a war and to sacrifice my family. For the rest of my life, I’ll be feeling the weight of that war. The education benefit I receive is part of that package, that I have the liberty to go where I want to go.”
But some veterans advocates say such choices run counter to the purpose of the GI Bill, which is designed to help veterans succeed in civilian life.
Reveal conducted extensive background checks on 100 unaccredited schools in 10 states that receive GI Bill money, including all of the top recipients and a sampling of others. More than a third were owned or run by individuals who had declared bankruptcy or failed to pay their taxes.
In Georgia, GI Bill funds flowed to a construction academy whose president has declared bankruptcy twice and been arrested for assault. In New Jersey, they funded a for-profit nursing program whose president has faced five liens for unpaid taxes. In Pennsylvania, taxpayers paid for Iraq and Afghanistan veterans to attend a commercial trucking program whose president has lodged eight guilty pleas in traffic court, including driving an unregistered vehicle, driving a vehicle without proper inspection and speeding in a school zone.
A handful of unaccredited schools are owned by convicted felons, including Royal Image Barber College, a Chicago-area beauty school whose founder, Corey Lewis, served four years in prison on charges of vehicular invasion and aggravated robbery. He also has declared bankruptcy twice in the past four years.
The VA declined to discuss specific problems with any school, but in a statement, the agency argued that the “law sets no specific prohibitions against approving a program due to a school’s owner having declared bankruptcy, owed back taxes, or having been convicted of a crime in the past.”
Back at the Institute for Advanced Study of Human Sexuality in San Francisco, the Rev. Ted McIlvenna, the school’s president, walks down a narrow hallway cluttered with erotic paintings and sculptures, pornographic magazines and reel after reel of pornographic films.
“This is where we keep the kiddie porn,” he said, pointing at a 10-foot-long locked cabinet. “You have to have a doctorate to open it.”
McIlvenna, who has been in business since 1976, says he will never seek accreditation from an organization approved by the Department of Education.
“Accreditation is a bunch of crap,” he said. “They would never let me keep my library.”
“We don’t take any federal money,” he said, “except for the veterans,” he quickly added – because it comes with no strings attached.
Your taxpayer money at work. Speechless.
- Syriza "Rebels" Planned To Ransack Greek Mint, Seize Cash Reserves, Arrest Central Bank Governor
Earlier this week, in an FT op-ed, Eurointelligence’s Wolfgang Münchau said that in his estimation, an EMU exit remains the most likely outcome for Greece. The reason, Münchau explained, is that “[Greek PM Alexis] Tsipras ended up with another very lousy bailout deal. And this one suffers from the same fundamental flaws as its predecessors.” Münchau went on to describe, in vivid detail, how he believes a Grexit would unfold:
My own most likely Grexit scenario is a different one yet again. Donald Tusk, the president of the European Council, hinted at this in his interview with the Financial Times last week when he said that he felt “something revolutionary” in the air. He is on to something. The most probable scenario for me is Grexit through insurrection.
Whether he knew it when he penned those words or not, Münchau’s vision for Greece nearly unfolded just over a week ago when, according to FT, Syriza’s Left Platform (led by outspoken former Energy Minister Panayotis Lafazanis) met in at the Oscar hotel in a “shabby” downtown district of Athens and plotted to ransack the Greek mint, seize the country’s currency reserves, and arrest central bank chief Yannis Stournaras.
It’s not entirely clear from the piece what the conspirators – who FT makes sure to mention included “supporters of the late Venezuelan president Hugo Chávez” and “old-fashioned communists” – planned to do next, but it certainly seems likely that if what you’re about to read is true, Greece came dangerously close to civil war last Wednesday.
Via FT:
Arresting the central bank’s governor. Emptying its vaults. Appealing to Moscow for help.
These were the elements of a covert plan to return Greece to the drachma hatched by members of the Left Platform faction of Greece’s governing Syriza party.
They were discussed at a July 14 meeting at the Oscar Hotel in a shabby downtown district of Athens following an EU summit that saw Greece cave to its creditors, leaving many in the party feeling despondent and desperate.
The plans have come to light through interviews with participants in the meeting as well as senior Greek officials and sympathetic journalists who were waiting outside the gathering and briefed on the talks.
“Obviously it was a moment of high tension,” a Syriza activist said, describing the atmosphere as the meeting opened. “But you were also aware of a real revolutionary spirit in the room.”
Yet even hardline communists were taken aback when Mr Lafazanis proposed that the Syriza government should seize control of the Nomismatokopeion, the Greek mint, where the bulk of the country’s cash reserves are kept.
“Our plan is that we go for a national currency. This is what we should have done already. But we can do it now,” he said, according to people present at the meeting.
Mr Lafazanis said the reserves, which he claimed amounted to €22bn, would pay for pensions and public sector wages and also keep Greece supplied with food and fuel while preparations were made for launching a new drachma.
Meanwhile, the central bank would immediately lose its independence and be placed under government control. Its governor, Yannis Stournaras, would be arrested if, as expected, he opposed the move.
As the details of the Left Platform meeting have leaked out, some political opponents are demanding an accounting.
“Members of this government planned a trip to hell for Greeks,” said Stavros Theodorakis, leader of the pro-EU To Potami party. “They planned to raid the vaults of the people and invade the mint as if it were a Playmobil game. Alexis Tsipras must tell us the truth about what happened.”
While the plan might have seemed straightforward enough on paper, and likely sounded like a good idea in the heat of the moment (assuming the meeting happened when FT says it did, Tsipras had betrayed the referendum outcome and agreed to hand over the country’s sovereignty to Berlin less than 48 hours earlier), it turns out that simply seizing the physical bank notes in the vault and firing up Greece’s euro printing presses wasn’t actually a viable option. “Anyone who tried to buy something with [those euros] would be at risk of being arrested for forgery,” one unnamed ECB official told FT, rather flatly.
Recall that just days before Tsipras arrived in Brussels for his “mental waterboarding”, Lafazanis had enthusiastically laid out the plans for Greece’s partnership with Russia on Gazprom’s Turkish Stream pipeline, exclaiming in the process that “Greece is no one’s hostage” and that “the Greek people’s No vote is not going to become a humiliating Yes.”
(Follow me to the mint!)
Lafazanis, FT notes, “visited Moscow three times as Mr Tsipras’s envoy after Syriza came to power in January. In return for signing up to a new gas pipeline project, he hoped for at least €5bn in prepayments of gas transit fees, according to people briefed on the initiative. But the Russians rejected the deal the week before the EU summit.” Some reports have also suggested that Moscow backed out of a deal to provide Athens with a loan to launch the new drachma.
We’ll leave it to readers to digest the above and determine how close the Greek mint was to being commandeered by bloodthirsty (politically speaking that is) communists, but it’s worth noting that according to one bank official who spoke to FT, “it was all a fantasy.”
- 5 Things To Ponder: Shades Of Risk
Submitted by Lance Roberts via STA Wealth Management,
Is it just me? Last week while on vacation, the markets surged back to all-time highs as the Greek and China problems were solved. Unfortunately, as I left white, sandy beaches and clear ocean waters behind me to return to reality – so did the markets. Either it is purely coincidental or I should head back to Mexico. Personally, I am hoping for the latter.
As I discussed earlier this week (chart updated through Thursday's close):
"While the prices did manage to break out of the downtrend that has contained the market since mid-May, so far that rally has failed to attain new highs. Furthermore, the previous oversold condition that acted as the "fuel" for the recent rally has been exhausted with the markets are now back to an extreme overbought condition. This suggests that there is likely very little upside currently and that investors should consider using this opportunity to engage in prudent portfolio management practices such as taking profits, reducing laggards, and rebalancing allocations."
That advice has played out well as the markets have continued to deteriorate, along with a vast majority of internal measures. The question is now, and is the subject of this weekend's reading list, is the correction over? Or, is this just the beginning of something bigger?
1) The Thinnest New High In Stock Market History? by Dana Lyons via Dana Lyon's Tumbler
"When we posted yesterday's piece on the stock market's weak internals (If Beauty's On The Inside, This Market Wins The Ugly Contest), we weren't sure if things could get any worse – and by how much – with the major averages still able to hold near 52-week highs. Well, the answers were 'yes' and 'a lot'."
Read Also: What Do 1987, 2003, 2009 And 2015 Have In Common by Chris Ciovacco via Ciovacco Capital
2) Doubling Down On A Summer Correction by Michael Gayed via MarketWatch
"This is not about opinion, and this is not a call. The odds simply favor some kind of heightened volatility, and volatility tends to coincide with corrections in stocks. Much like in July 2011 when stocks rallied and all seemed well before the Summer Crash of 2011 took place, so too a similar pattern and complacency is under way.
Perhaps this is precisely how it needs to happen — suck everyone in, and then refresh the fear when it seems like all is well, and when no one expects it."
Read Also: What's The Biggest Risk To Investors by Ben Carlson via A Wealth Of Common Sense
3) The Nasdaq Is Flashing A Dot-Com Era Signal by Anthony Mirhaydari via The Fiscal Times
"But beneath the surface, the situation is more vulnerable than it seems: By one measure, the Nasdaq is getting ahead of itself in a way not seen since just days before the dot-com bubble burst.
On the Nasdaq 100, this was only the second time that the index was up 1 percent or more to a new 52-week high amid net declining issues. The other day was March 23, 2000, just days after the dot-com bubble peaked."
Read Also: The Market Doesn't Care About Your Opinions by Joe Calhoun via Alhambra Partners
Read Also: The Most Boring Stock Market In Decades by Michael Driscoll via WSJ MoneyBeat
4) Magical Thinking Divorces Markets From Reality by James Grant via Financial Times
"The modern financial animal is wont to assume that he or she lives in an age of science. Just peruse the economic research that the great central banks produce. Even the titles of the papers are incomprehensible. Surely, the wit of man and woman has conquered the mysteries of money.
So much for appearances. The truth is we live in an age of pseudoscience. The central banks' forecasting models have failed to predict the future. Quantitative easing and zero per cent interest rates — policy centrepieces of the post-2008 era — have failed to restore what we used to call prosperity."
Read Also: Market Deterioration & Full Cycle Investing by Dr. John Hussman via Hussman Funds
5) China's Record Dumping Of US Treasuries by Tyler Durden via ZeroHedge
"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.
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)."
Read Also: Investors Can't See Through Market Froth by John Plender via FT
Other Interesting Reads
Oil Warning: Crash Could Be Worst In 45 Years by Tom Randall via Bloomberg
The Buffett Ratio Is Bearish by Ed Yardeni via Dr. Ed's Blog
A Warning Signal For Growth Investors by Cam Hui via Humble Student Of The Market
Are Stocks Overvalued? A Survey Of Equity Valuation Models by Chris Brightman via Research Affilliates
"It wan't raining when Noah built the ark." – Howard Ruff
Have a great weekend.
- Stocks Suffer Worst Week Of Year Amid Biotech Bloodbath, Commodity Carnage, & Bond Buying
This seemed appropriate…
But "everything was awesome"?
- Russell 2000 -3.1% – worst week since Oct 2014 (Bullard)
- Dow -2.8% – worst week since Dec 2014
- S&P -2.1% – worst week since Jan 2015
- Trannies -2.8% – worst week since Mar 2015
- Nasdaq -2.2% – worst week since Mar 2015
Who is to blame for all this?
@InEgo_ I'm holding him accountable pic.twitter.com/KeNNDewp70
— StockCats (@StockCats) July 24, 2015
Leaving The Dow comfortably red year-to-date…
This is notable.. VIX was pressed notably lower into the close and stocks went nowhere – either Kevin Henry just lost his mojo OR traders are unwinding hedges and underlying exposures at the same time.. in other words – derisking in size!
The Nasdaq tumbled to its 50DMA, Small Caps broke below 50DMA & 100DMA, pressing 200DMA, S&P broke its 50DM And 100DMA, pushing towards its 200DMA, Dow smashed below its 200DMA, Trannies back near 9 month lows.
Ugly day…
AMZN retraced over half its overnight gains…
Biotechs… worst week/day in 3 months
Buggered… 50 Biotech names (1/3rd) dropped over 4%
After Biogen was battered… down 22% (worst day since July 2008)
Treasury yields plunged on the week (except 2Y which inched higher)… 30Y yield's biggest drop since March
The massive flattening in the yield curve (2s30s -27bps) is the biggest 2-week flattening since Sept 2011 (and biggest weekly drop since The Taper Tantrum)…
The Dollar has been relatively quiet for the last 3 days as AUD plunges and EUR strengthens…
Commodities were whacked all week but Friday afternoon saw gold & silver bid as Crude tumbled to 4-month lows…
Crude crashes for 4th week in a row… (down 20%)
Commodity carnage… year-to-date…(except higher gas prices!!)
On the week: Bonds good, Stocks bad, Gold ugly…
Charts: Bloomberg
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