- Pre-Crime Is Upon Us – "Schools Assess Students' Threat Level" From Kindergarten Up
Submitted by Mac Slavo via SHTFPlan.com,
Minority Report, eat your heart out. The real system is worse than anyone could have imagined.
By now, everybody knows that the NSA and a host of other alphabet agencies are spying on Americans, collecting virtually every piece of communications data they exchange, regardless of whether or not they are “doing anything wrong.”
But what are they doing with it?
Apart from its value in consumer and marketing fields, the data is used to create “threat assessments” and put a black mark on the record of anyone who the authorities deem troublesome that will follow them throughout their career, and make it harder for individuals to get a job, qualify for a loan, travel, or enjoy the rights of a (now once) free society.
Our government want us to believe that EVERY student is a potential threat and we need threat to stop them.
[…]
Every student is given a “THREAT ASSESSMENT” by police and school administrators!
Schools and police are using V-STAG to assess a ‘threat level:
“The Virginia Student Threat Assessment Guidelines (V-STAG) is a school-based manualized process designed to help school administrators, mental health staff, and law enforcement officers assess and respond to threat incidents involving students in kindergarten through 12th grade and prevent student violence.”
The war on terror is out of control! Watch out that kindergarten kid could be a threat!
This program and others like it have been developed at the federal level, with FBI involvement, and coordinated across local, state and private organizations. The idea, unfortunately, is to implement this watch-and-flag surveillance grid across the system at every level, and with every institution that people must participate in.
Hey, if it works for prisoners, it would be great for a once free society.
The intent of schools to nurture children and help them to learn and grow into responsible adults has been subverted by an intrusive and paranoid surveillance system that considers every mistake to be a warning of crimes and misdeeds to come.
And by treating everyone as a criminal before they even do anything, it probably creates a self-fulfilling prophecy.
The Secret Service has the audacity to call threat assessing of kindergarten students a safety concern. “The Final Report And Findings Of The Safe School Initiative.”
“The Safe School Initiative” was implemented through the Secret Service’s National Threat Assessment Center and the Department of Education’s Safe and Drug-Free Schools Program.
Every student is being PROFILED and given a risk assessment rating, according to the Secret Services article titled “Evaluating Risk For Targeted Violence In Schools: Comparing Risk Assessment, Threat Assessment and Other Approaches.”
What’s really being said is police and school administrators can put your kid(s) into mental health counseling which will follow them throughout their adult lives! Oddly there isn’t any mention of the school-to-prison pipeline!
Meanwhile, this system is designed to expand throughout a student’s life and merge with other emerging “threat assessment” systems that follow adults in the general population as well.
Colleges nationwide are using ‘Campus Teams’ to give their students sexual threat assessments, there is a “Legal Compliance and Sexual Violence Prevention Training” being held in Boston this July 27, 28th.
“This training will address the critical intersection between compliance with federal laws to address sexual and intimate partner violence, and the role that threat assessment can play in effectively addressing these issues.”
In adulthood, police departments and private employers are now also using threat assessment scores to profile and target against individuals who have raised red flags.
Think it’s just those have committed crimes and demonstrated what bad people they can be? Think again. Dissidents, outspoken critics, competitors and opponents will all get flagged as the system is abused by its controllers and used to hammer down any nail that dares to stick up.
This system will create a society of compliance and fearful people, not a free society free of crime and trouble.
Whether or not this system can actually prevent crime remains unproven, but its ability to tarnish the record of individuals and place entire populations under preemptive suspicion is certain… and likely dangerous.
- SHINZORHEA
- The Meaning Of 'Trust'
- Should You Buy A House?
Submitted by Ramsey Su via Acting-Man.com,
Why Buy a House?
Examining the reasons to buy a house today may give us some idea where the housing market is heading in the future.
There are three reasons to buy a house:
Reason 1 – Utility
A house (any dwelling) is a shelter. It provides enjoyment, a home to raise one’s family, or just a place to watch that big screen TV. Utility is not quantifiable and it differs from household to household.
Reason 2 – Savings
If financed, a mortgage is a way of saving something every month until the mortgage is paid in full. If paid for, the savings come in the form of “owners’ equivalent rent”, which is what the census bureau uses to measure inflation in housing.
Reason 3 – Asset appreciation
At 5% appreciation per year, a $100k house today will be worth $412k in 30 years. Even a more modest 3% appreciation would result in better than a double.
Why Not to Buy a House
Based on the reasons above, it appears to be a slam dunk decision. Why would anyone not want to buy a house? There are three obstacles:
Obstacle 1 – Affordability
Housing, as a percentage of household income, is too expensive. A decade of ill-conceived government intervention and Federal Reserve accommodations prevented natural economic forces from driving house prices to equilibrium. As a result, not only is entry difficult, but many are struggling and are stuck in dire housing traps. Corelogic estimated that as of the 1st quarter of 2015, 10.2% of mortgages are still under water while 9.7 million households have less than 20% equity.
Obstacle 2 – High Risk
Say you are young couple that purchased a home two years ago, using minimal down financing. The wife is now pregnant and the husband has an excellent career opportunity in another city. The couple has insufficient savings and the house has not appreciated enough to facilitate a sale, which results in negative equity after selling expenses. The house can become a trap that diminishes a life time of income stream.
Obstacle 3 – “Dead zones”
Say you live in the middle of the country, in Kane County Illinois. For the privilege of living there, you pay 3% in property taxes. That is like adding 3% to a mortgage that never gets paid down. Your property would have to appreciate 3% per year just to break even. By the way, “appreciation” is unheard of in Kane County, good times or bad. There are many Kane Counties in the US. Real estate in these counties should be named something else and should not be co-mingled with other housing statistics. Employment is continuing to trend away from these areas. What is going to happen to real estate in these markets?
The Kane County court house: where real estate goes to vegetate
The factors listed above are nothing new. They provide some perspective as to where are are heading. Looking at each of the reasons and obstacles, they are all trending negatively.
The country is spending too much on housing, a luxury that is made possible by irresponsible Fed policies. 50% debt to income ratios are just insane and Ms. Yellen has the gall to call mortgage lending restrictive. Can we not see what is happening to Greece?
Mortgage backed securities held by the Federal Reserve System, a non-market central economic planning institution that is the chief instigator of house price inflation. Still growing, in spite of QE having officially ended – via Saint Louis Federal Reserve Research, click to enlarge.
Real estate is an investment that matures over time. The first few years are the toughest, until equity can be built up. With appreciation slowing, not to mention the possibility of depreciation, it is taking much longer to reach financial safety. The current base is weak, with too high a percentage of low equity and no equity ownership. The stress of a recession, or just a few years of a flat market, can impact the economy beyond expectations. The risks that might have been negligible once upon a time are much higher today. Many who purchased ten years ago are still living with the consequences of that ill-timed decision today.
By stepping back and looking at the big picture, we can see that real estate should be correcting and trending down. The reasons why our grandparents bought their homes have changed. Government intervention cannot last forever. It will change from accommodation to devastation, when they finally run out of ideas.
Conclusion
In summary, my working life had its origins in real estate and I am not trying to bite the hand that fed me. However, the reality is that the circumstances that prevailed when I entered the market are non-existent today. I seriously doubt that I would chose real estate as a career, or as an investment avenue, if I were starting over. As for buying a house, I would consider it more of a luxury as opposed to an investment, and one has to be prepared for the possibility of it being a depreciating asset, especially if one decides to move.
- Presenting The Most Ridiculous Things Ever Bought By Billionaires
Despite the protestations of an indignant Ben Bernanke, seven years of global QE have not only failed to ignite the illusory “trickle down” wealth effect but have in fact served to widen the gap between the rich and the poor the world over.
The explanation for this phenomenon is simple: when you deliberately inflate the value of the assets most likely to be concentrated in the hands of the wealthy, the class divide will grow in lockstep.
Perhaps the best evidence of the above can be found on Wall Street where Jamie Dimon and Lloyd Blankfein have now become billionaires. Because we wanted to do our part to help Jamie and Lloyd decide what to buy now that their wealth is virtually inexhaustible, we present the following video which counts down the 10 most absurd examples of conspicuous consumption in modern history.
Enjoy.
- Corporate Credit Crashing: Waiting On The Rest Of The Herd
Submitted by Jeffrey Snider via Alhambra Investment Partners,
With almost everything turning lower this week under “dollar” pressure, it is imperative to keep in mind the apex asset class. In 2007, it was the ABX indices and various mortgage related structures that signified the how far along everything was; in this cycle it is clearly corporate credit. The disarray starts in the riskiest pieces and then moves inward and eventually, if left unchecked, eroding too much underneath with which to support what was once believed perfectly safe. Once there is no place to hide, the turn really begins.
Leveraged loan pricing, among the riskiest of the corporate bubble, had been somewhat tame, even unexpectedly so, as commodities ran aground under the weight of global “dollar” funding.
In the past few days, however, leveraged loans (at least what is visible and represented by the index; it is very likely that less liquid issues are faring far more poorly) have been sold as have junk bonds. The market value portion of the S&P/LSTA US Leveraged Loan 100 fell 5 points just in the past two days, all the way to 965.
Both junk bonds and leveraged loans are back down to prices far too close to the nadir of the last selloff in mid-December. That would seem to suggest, as UST’s (and the fast again flattening UST curve), that the broad credit and funding environment has turned far more toward that which prevailed in early December than the more benign mid-March to early May “pause.”
Undoubtedly, there are economic concerns playing a significant part of the selloff but it may be liquidity that is the proximate catalyst (which is just another expression of those economic concerns combined with perceptions about the Fed’s proclivity to make it worse).
The combined trend in liquidity and the apparently persistent impulse toward selling is a dangerous combination, as systemic capacity is extremely poor and the incongruence of corporate pricing to actual, non-QE delivered risk is as extreme. The divergence between this heightened form of “reach for yield” and what bearishness that beset the treasury market is beyond remarkable, as if there was open bifurcation in overall credit back in 2013. Dating to right around November 20 that year, all bonds were bid but for very different reasons.
Corporate spreads, especially junk, compressed until the middle of last year – what a difference two years makes, as the corporate bubble is belatedly catching the warning of UST trading.
The rising “dollar” has meant rising spreads, as the junk “curve” has actually retraced the entire taper euphoria. That is certainly a measure of the ongoing systemic reset for risk perceptions, but in the wider context there is perhaps a long way yet to go.
In absolute terms, this move under the “dollar” is almost as severe as that in the middle of 2011…
which triggered the renewed eurodollar decay and eventually two new QE’s: in 2011, this measure of risk spreads jumped 90 bps from February 2011 until the end of that September and the Fed’s renewed “dollar” swaps. The current decompression is already 74 bps dating back to July 2014.
Again, it is the combination of liquidity (restrained and getting worse) and constant selling that ends up taking the next step.
The real danger is if this continues past some unknown critical mass the entire herd will turn and there won’t be much at that point to offer support – the dealers are already out as are banks more generally.
As a reminder, the size of the “herd” really escapes imagination:
- In Key Decision, Junk-Rated Chicago's Pension Reform Bid Ruled Unconstitutional
On Thursday, we previewed a critical court ruling involving Chicago mayor Rahm Emanuel’s effort to cut pension expenses and plug a yawning budget gap. Here’s a brief recap of the story so far:
Back in May, the Illinois Supreme Court set a de facto precedent for lawmakers across the country when a bid to cut pension benefits was struck down in a unanimous ruling. Anyone who might have been confused as to the significance of the decision got a wake up call from Moody’s when the ratings agency, citing the read-through for Chicago’s fiscal situation, downgraded the city to junk. This is part of a larger fiscal crisis in the country which has left almost half of US states facing funding gaps for the upcoming fiscal year. All told, the total pension shortfall across states and cities is anywhere between $1.5 trillion and $2.4 trillion depending on who you ask.
And here’s a recap of what was at stake in Friday’s ruling, courtesy of the Illinois Policy Institute:
A Cook County judge will rule on the legality of a 2014 pension law aimed at reforming two of Chicago’s underfunded city retirement systems. While the pension law included some much-needed reforms, such as an increase in the retirement age, if upheld the law ultimately would put Chicago residents on the hook for millions of dollars of tax increases.
Well, those residents can relax for now, because as expected, Emanuel’s plan was determined to be unconstitutional by Rita M. Novak of the Cook County Circuit Court. The New York Times has more:
A judge in Chicago ruled on Friday that a plan to change city workers’ pensions was unconstitutional. The case is being closely watched for its effect on the city’s uncertain finances.
“This principle is particularly compelling where the Supreme Court’s decision is so recent, deals with such closely parallel issues and provides crystal-clear direction on the proper interpretation of the law,” Judge Novak wrote. The Constitution of Illinois provides that public pensions “shall not be diminished or impaired.”
Pension costs in many American states and cities are growing much faster than the money available to pay them, causing a painful squeeze. Officials who try to restore balance by reducing pensions in some way are almost always sued; outcomes of these lawsuits vary widely from state to state.
Some of the worst problems have been brewing for years in Illinois, particularly in Chicago, where the city’s pension contributions have long been set artificially low by lawmakers in Springfield, the state capital. With more and more city workers now retiring, a $20 billion deficit has materialized, and Friday’s ruling is seen as a setback to Mayor Rahm Emanuel’s efforts to close this gap and rescue Chicago’s credit rating.
Officials in the mayor’s office said the city would appeal.
“While we are disappointed by the trial court’s ruling, we have always recognized that this matter will ultimately be resolved by the Illinois Supreme Court,” said Chicago’s legal counsel, Stephen Patton, in a statement. “We now look forward to having our arguments heard there.”
While we certainly understand the idea that cutting pension benefits amounts a breach of the so-called “implicit contract” between public sector employees and state and local governments, it seems as though the logic employed both by the workers and by the courts suffers from the same myopia and denial of economic realities that has helped saddle the world with a combined $19 trillion in debt. Put simply: if the pension system isn’t reformed, it will run out of money and no one will get anything. Here’s The Times again:
“All city residents can be reassured that the Constitution — our state’s highest law — means what it says and will be respected, while city employees and retirees can be assured that their modest retirement income is protected,” said Ms. Lynch, the executive director of Afscme’s Council 31 in Chicago.
Chicago said its pension overhaul would provide “massive net benefits” to workers if allowed to proceed. That was because the two pension funds at issue — one for laborers and one for general city workers — were heading toward certain insolvency. An insolvent system would be able to pay retirees only about 30 percent of their benefits.
So for now, delay-and-pray wins and in all likelihood, Chicago will lose on appeal, meaning the city will sink further into insolvency while those that will be most affected when the pension ponzi finally collapses continue to object to the very reform measures that might save them.
Full decision below.
- Iran's Supreme Leader Has A Message For President Obama
Presented with no comment…
US president has said he could knock out Iran’s military. We welcome no war, nor do we initiate any war, but.. pic.twitter.com/D4Co7fVuVg
— Khamenei.ir (@khamenei_ir) July 25, 2015
- Abenomics End Game: Thousands Protest In Downtown Tokyo, Demand Abe's Resignation As PM Disapproval Soars
Considering that Shinzo Abe’s first reign as prime minister of Japan lasted precisely one year from September 26, 2006 until September 26 of the following year, when he voluntarily resigned due to diarrhea, the fact that he has managed to stay in power for nearly 3 years since ascending to power for the second time in December 2012 and unleashing the currency-crushing and market-surging policy of unprecedented debt and deficit monetization known as “Abenomics” is quite impressive.
It also confirms that as long as the stock market keeps going higher politicians have nothing to fear even if it means a total collapse in living standards for the rest of the population.
Yet even with the Nikkei pushing on 18 years highs, it appears that Abe may have reached his rigged market rating benefit cap, because even as the Nikkei was soaring, Abe’s approval rating was plunging.
As we reported a month ago, “Abe Cabinet’s approval rating plunged to 39%, matching a record low, as more than half of voters oppose the new US-sanctioned military/security legislation being debated in the Diet…. As his popularity has waned, Abe has become more and more desperate to keep support and has, for the first time in 70- years, lower the minimum voting age from 21 to 18.”
The overall decline in support was apparently attributable to the fact that 53 percent of the respondents oppose the security bills being deliberated in the Lower House. Only 29 percent support the legislation, the survey showed.
Three constitutional law scholars said in the Lower House Commission on the Constitution on June 4 that the security legislation is unconstitutional. The Abe Cabinet countered their stance by releasing an opinion paper that said the bills do not violate the Constitution.
Since then things have gone from bad to worse for Abe, whose popularity rating last week plunged to a record low, while the number of Japanese citizens who disapprove of his policies has finally surpassed 50%, and rose to 52.6% in a Sankei poll, while the 47news.com poll shown below shows approval at just under 38% while dispparoval at 52%.
It spilled over last night when after years of growing resentment to their premier who panders to the rich, to big exporters, to the Japanese military-industrial complex, and of course, to the US government and Goldman Sachs (whose idea Abenomics was from the very beginning) thousands of protestors rallied Friday night in downtown Tokyo in a campaign of “Say no to the Abe government,” targeting Japanese Prime Minister Shinzo Abe’s “runaway” policy. The protestors gathered at the Hibiya Park, Diet building and the prime minister’s official residence, shouting “Abe step down,” “definitely oppose war” and “protect constitution.”
People hold up signs saying “No to the Abe administration” in a gathering at Hibiya Park in Tokyo on July 24, 2015. They expressed opposition to Prime Minister Shinzo Abe’s policies on a wide range of issues such as national security bills, the Trans-Pacific Partnership free trade initiative and the planned relocation of a U.S. military base within Okinawa Prefecture.
[Photos: Imagine China]
According to CRI, the anger of the Japanese population was sparked ever since the Abe administration started to push forward a series of controversial security-related bills in parliament debates.
On Friday, the Japanese bicameral Diet decided to set up a special panel at the upper house to debate the security bills. The legislation package was rammed through the lower house last week.
The bills, if enacted, will allow Japan’s Self-Defense Forces (SDF) to exercise the right to collective self-defense, but Japan’s war-renouncing constitution bans the SDF from doing so.
Japan’s former prime minister Tomiichi Murayama, who delivered a speech Thursday evening during a rally near the Diet, again participated in Friday’s demonstration, criticizing Prime Minister Abe for carrying out an autocratic politics and defying Japan’s democratic system.
The former prime minister, who is famous for his 1995 statement offering an apology to countries that suffered Japan’s wartime atrocities, stressed that it is very proud for Japan to renounce war under the pacifism constitution.
The security bills will be discussed at the upper house special panel from Monday. Latest polls showed that majority of Japanese people opposed the bills and about 90 percent of Japanese constitutional experts said the bills are unconstitutional.
In the immediate aftermath of the forced passage the controversial bills in the lower house Abe’s approval rate tumbled 10 percentage points immediately while the disapproval rate surged to over 50 percent.
So what happens next? Unless Abe relents and pockets his military expansion ambitions, it is very likely that another massive, and career ending, blast of diarrhea is in the prime minister’s immediate future.
But first, as we said one month ago, and now as others admit, Abe will do everything in his power to, well, stay in power. Which is quite limited, i.e., print more.
As Bloomberg reports, expectations for further BOJ easing may increase amid a falling approval rating of PM Abe’s Cabinet, says Daisaku Ueno, Tokyo-based chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities, in an interview. Uen adds that market participants are focusing on whether Cabinet’s approval rating can maintain key 30% level amid possible passage by upper house of security bills this summer and ahead of upper house elections in July 2016.
His assessment: there is rising risk that BOJ will be pressured to ease policy further in autumn when govt is likely to struggle to find funding sources for its budgets.
Which reveals one more important aspect of QE: in addition to being the only catalyst pushing stocks to record highs even as the global economy slides into recession if not outright depression, it has become the new normal politicians’ favorite and only means of holding on to power: if ratings plunge, print; if they continue plunging, print some more.
By the time Abe is finally booted out of power, peacefully or otherwise, the Yen may well be at 200 which in turn will be the catalyst that finally destroys the already careening Japanese economy. But destroyed cataclysm and demographic disaster aside, at least the Nikkei will have hit all time record highs.
- Trump & The Political Risk Of A 3rd Party In 2016
Submitted by Martin Armstrong via ArmstrongEconomics.com,
Historically, it has always been the Republican Party that splits. It has been a odd mixture of liberalism from the viewpoint of citizen rights before those of the government and the original constitutional goal of preserving the sovereignty of the states v the the Federalists. This liberal view has often taken the position of Libertarian whereas the so called “liberal” view of the Democrats is not liberal at all, it is liberal with other people’s money in the battle-cry of Marxism. This Republican “libertarian-ism” is what Trump is tapping into as is Bernie Sanders in the Democratic party. Both the traditional Republicans are owned by the NY banks as is Hillary Clinton, in who more people now distrust Hilary than trust her.
This Republican “libertarian-ism” actually traces back to Thomas Jefferson – the ultimate anti-Federalist. Jefferson championed the Bill of Rights that both the Republicans and the Democrats no longer respect as demonstrated by Obama’s actions being indistinguishable from Bush regarding the NSA and both sides called Snowden a traitor.
The humility of Jefferson further showing his Libertarian views can be demonstrated simply by reading his tombstone. There is no mention of him being President of the United States. His accomplishments regarding liberty and for his home state are duly noted. He omitted any mention of being President since he was an anti-Federalist.
The Party Republicans are dreaming of chasing Donald Trump away since he is dominating the agenda and they want this to be politics as usual. What they fail to grasp is the rising resentment of politicians is the resurgence of Jeffersonian Libertarian-ism. Personally, I seriously doubt that mainstream Republicans will even allow Trump to take their ticket. I cannot imagine John Bohner not engaging in some covert action to try to prevent a Republican Trump ticket.
The Republicans keep publicly rebuking the Trump for his inflammatory comments, yet he climbs in the polls. The very reason the majority of Democrats distrust Hillary Clinton is the foundation as to why Trump is so popular. They at least know he is not beholding to Goldman Sachs as both Bush and Hillary are most assuredly. There is no doubt that a Bush or Hillary victory in 2016 will be indistinguishable for both will represent business as usual.
Where Rand Paul could have been a real contender, he seems to have lost his appeal for he too is trying to stay within the party and play politics as usual. The Republicans could chase Trump out and we could end up with a Trump third-party Libertarian surge. That would be the potential nightmare scenario for the GOP which our computer has been warning about for decades into 2016. NO, we are not advising Trump to answer the questions on this topic.
A populist outsider with unlimited resources attacking the Republican and Democrat nominees in the general election will be perhaps the most interesting presidential election of all time. This will be really raising political hell and our computer has been projecting just that but at the same time a rise in the people voting for 2016 attracting votes from both Democrats fed up with Hillary and Republicans tired of politics as usual.
The Republican Party mainstream establishment are out of touch and are not in tune with what is really happening. They cannot grasp they the emperor has no clothes. They are playing with disaster by trying to go after Donald Trump minimizing him and excluding him. They cannot see that times are changing – out with the old and in with the new.
Trump has become a their favorite punching bag since launching his White House campaign. Questioning Sen. John McCain as a war hero was really spot on. He said:
- Trump: “He’s not a war hero.”
- Frank Luntz, interjecting: “He IS a war hero.”
- Trump, chewing on his words, speaking quickly, with annoyance: “He is a war hero because he was captured. I like people that weren’t captured, OK?”
A person who was a true War Hero did something magnanimous. McCain himself has acknowledged that he was a less-than-stellar Skyhawk pilot. He was a bit too reckless, and, had he made better decisions, might have avoided his shoot-down in 1967. Being captured does NOT make someone a war hero. If that is the standard, then it diminishes all those who received the Congressional Medal of Honor for being a real hero. So Trump was actually very correct and any Vet who respects those who went beyond the call of duty to save their fellow soldiers would agree calling McCain a war hero tarnishes the memory those who died saving their comrades by placing McCain in the same category. Sorry – Trump was right on that one.
Trump has repeatedly declined to rule out a third-party White House run, saying in an interview with CNN’s Anderson Cooper earlier this month that he’s constantly being asked to run as an independent. He has said that his decision to run as an Independent will depend on “how I’m being treated by the Republicans.”
If Trump took up a Third-Party, it might be the biggest shot we have at saving the country insofar as it would at least turn Capitol Hill into a new playing field. It really would not matter who the Third-Party candidate would be, Washington needs to be shaken and stirred vigorously to let these people know being a “representative” is supposed to be OF THE PEOPLE, not of yourself, the Party, and government. Whatever it takes to upset the apple-cart, at this point, we need rather desperately for we are headed in a direction that will destroy our future and these morons are demonstrating that they do not get it and are pissed off at Trump for not playing their game of never telling anything the way it is, sugar coat everything, promise the moon, and deliver nothing.
- Took 'Em Long Enough
Barron’s just now, some 4+ years after Zero Hedge first called it out, presented with no further comment:
ZH Note: From “fringe bloggers” in August 2011
- How Janet Yellen Is Orchestrating Her Own 'Big Crisis' Moment
Janet Yellen seems to be absolutely obsessed with increasing the benchmark interest rates in the USA as she desperately tries to put her stamp on her legislature as Chairwoman of the Federal Reserve. Even though the American economy definitely isn’t as strong as she thinks it is – the increases in employment are mainly due to part-time jobs which aren’t even sufficient to cover the costs of life – Yellen is determined to increase the interest rate which has been at a historical low since the Global Financial Crisis erupted (see next image).
This could have a devastating effect and in this article we will investigate the impact on a) the government finances and b) the stock market as a whole.
But first, allow us to start with a general remark. The past few chairmen of the Federal Reserve have always created their own crises during their tenure, only to try to solve those crises themselves to go out with a bang. Ben Bernanke said there was no bubble in the housing prices and a few decades before Alan Greenspan had to ‘solve’ the 1987 crash, only to create his own technology bubble in the 2000’s.
But, let’s go back to today’s situation. The Fed Funds Rate is at an all-time low and this results in lower borrowing costs for both the US government and the companies as the cost of debt is going down due to a lower risk-free interest rate. The interest expenses for the US government are now only marginally higher than 5 years ago, even though its total government debt has increased by 80% to $18T. The symbolic barrier of the government debt/GDP ratio of 100% has been reached a while ago, and now the risk of the snowball-effect is very realistic.
Source: ibidem
So, let’s keep it realistic and assume the total borrowing cost for the US government will increase by 1%. Nothing shocking, just one miserable percent. That’s absolutely not outrageous as the current interest on the 10 year government bond is 2.27%, but was more than twice as high in 2007, when it topped the 5%.
If the interest rate increases by one measly percent, the US will have to pay $180B in additional interest expenses. $180B. That’s approximately $560 per American citizen but as not every American pays taxes (kids for instance have no income and can’t pay taxes), it might be a more useful exercise to see what the impact would be per American.
According to the St Louis Fed, there are approximately 205 million Americans in the ‘working age population’ category. So if the US government would push the higher cost of debt on the taxpayers, a working American would have to pay almost $900 per year in additional taxes. And that’s just to cover the increased interest rate and doesn’t contribute a single dollar to reduce the government’s budget deficit.
The $900 per working person will have to come from somewhere, so it means the consumption pattern will change resulting in a lower purchasing power per person, lower demand for products and this a higher unemployment rate. A higher unemployment rate would mean those who still are working would see their taxes increase once again, and yes, a vicious circle is born!
And it’s not just the public debt that is worrying us, but the corporate debt is also on the rise. Due to the low interest rates, companies have issued a record amount of debt. Not to make smart and strategic acquisitions, no. The majority of the debt was used to reward their shareholders with special dividends and share repurchases.
Source: FactSet
Not only will that debt have to be repaid, it will very likely have to be refinanced as well. And yes, once the interest rates start to increase again, it will be much more expensive to refinance that existing debt. We tried to find out how much debt the S&P500 will have to repay before the end of this decade, and the results are shocking.
Source: JP Morgan and Bloomberg
As you can see on the previous image, S&P 500 members will have to refinance approximately $2.5 TRILLION in the 2016-2020 timeframe. So if the interest rate increases by 1%, it will cost them $25B in additional interest expenses. But as the interest rates on corporate bonds usually increases faster than on government bonds, the damage will be much higher. A 1.75% yield increase means the S&P 500 companies will have to cough up almost $45B in interest expenses. Per year.
Let’s single out one company as an example. According to the most recent balance sheet, General Electric has $250B in debt on its balance sheet. If the company would see the cost of debt increase by just 100 base points, it would result in an $2.5B higher interest expense. If you’d use an 1.75% higher cost of debt, General Electric would lose an additional $4.4B per year in interest expenses, resulting in a 25% drop in the pre-tax profit! And how do you think the market will react if companies would start to report double-digit net profit drops?
Our bet: Janet Yellen is so obsessed with increasing the interest rates she doesn’t look at the bigger picture. The profit increases at the stock markets will come to a screeching halt and once the increased interest rate trickles down to the corporate debt market, most companies will see their profits drop by a double digit percentage.
Yellen will push the domestic economy over a cliff, will then do her best to save the world right before the end of her tenure to start a successful career in giving lectures, at $200,000 a pop.
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- "Jihadi John" Fears "Jealous" Terrorists Will Kill Him, Leaves ISIS
When Top Gear front man Jeremy Clarkson left the show, the crowds of fanatical followers faded fast. When Zayn left One Direction, the band's insatiable devotees started to question their faith in the boy band's message. And so, as IB Times reports, the exodus of ISIS front-man "Jihadi John" from the terror group – citing irreconcilable differences with his "jealous" former terrorist colleagues – one wonders if the cracks of caliphate are starting to show…
Britain's notorious, Kuwaiti-born, terrorist Mohammed Emwazi – known as Jihadi John – is on the run in Syria fearing the Islamist regime is going to kill him. As IB Times reports, Emwazi, from west London, is said to have been terrified by the publicity after he was identified as the murderer of British and American hostages.
He may have joined a less well-known jihadist group somewhere in Syria, to try to keep a low profile.
The Mirror reports that Emwazi is scared that "jealous" members of Islamic State may attack him, as well as being frightened of the British and US special forces hunting for him in the Middle East.
The extremist is wanted for the gruesome killings of journalists and aid workers Stephen Sotloff, James Foley, David Haines, Alan Henning and Peter Kassig.
Members of the SAS and US special forces have reportedly been given orders to capture Emwazi so he can be placed on trial, or to kill him if taking him prisoner is not practical.
* * *
It appears, perhaps, that Emwazi, who changed his name via deed poll, got too big for the ISIS 'band' and has not appeared in an Islamic State propaganda video, since Japanese journalist Kenji Goto was executed.
- It's Official: The Bar Can No Longer Be Lowered
Via The New Yorker’s Andy Borowitz,
A group of scholars who have been monitoring the descent of the bar over the past few decades have concluded that the bar can no longer be lowered, the scholars announced on Friday.
The academics, led by Professor Davis Logsdon, of the University of Minnesota, published their conclusion after their research definitively found that the bar had finally dropped to its lowest possible position.
“For those who thought the bar still had room to be lowered, our findings resoundingly contradict that assumption,” Logsdon said. “The bar is now essentially flush with the ground.”
Logsdon acknowledged that he and his fellow scholars have come under fire in the past for claiming that the bar could not be further lowered, specifically when they issued a paper to that effect after the selection of the Republican Vice-Presidential nominee in 2008.
“We got that one wrong,” he said. “Clearly, the bar still had a way to go.”
Now that the issue of whether the bar can be further lowered has been settled, Logsdon and his colleagues plan to examine the question of whether there is anything left to scrape at the bottom of the barrel. “Our findings are preliminary, but it appears that the answer is no,” he said.
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- The Junk Bond Heatmap Has Not Been This Red In A Long Time
It has been a tough year for equity investors: nearly seven months in and the S&P 500 has been caught in what may be its narrowest trading range in history, fluctuating between unchanged and up 4% for the year for the past 6 months (which is not unexpected for those who have said the only thing that matters for the US market is the growth, or lack thereof, of the Fed’s balance sheet).
But while stock investors have nothing to write home about, and even less to expect in year-end bonuses (at least until Yellen inevitably launches QE4), for junk debt investors, especially those still holding energy bonds, the last 8 months has been a horrific roller coaster as can be seen on the chart below, which shows that energy credit spreads are once again on the verge of blowing out through 1000 bps.
But for those equity investors caught in the artificial glare of the goalseeked stock market to appreciate how truly ugly it has gotten in the junk bond space, here is a heat map showing the YTD change in junk bond prices (relative box size indicates total outstanding debt amount) when seen in terms of either the 31 subsectors.
… or the 805 issuer companies that make up Citi’s junk bond tracking universe.
At some point, investors (using other people’s money) will tire of throwing good money after bad hoping to time the bottom tick in oil just right (and if oil tumbles in the $30, that may be just that moment) at which point the commodity capitulation which we noted previously, will spread away from just commodities and junk bonds, and spread to all sectors and products, including stocks. We can only hope this does not coincide with the Fed’s increasingly more amusing desire to rate hike imminently.
- BRICS Bank, AIIB Pledge Partnership, Loans To Be Issued In Yuan
Over the first half of the year, we’ve built on several narratives that we believe are critical when it comes to understanding how the intersection of geopolitics and economics is set to shape the world going forward.
One of these narratives revolves around the extent to which three China-led ventures are set to supplant traditionally dominant supranational lenders on the way to embedding the yuan in international trade and investment.
The new ventures are the BRICS bank, the Asian Infrastructure Investment Bank, and the Silk Road Fund. We’ve discussed each of these at length and we’ve also shown that in one way or another, they all represent a shift away from the multilateral institutions that have dominated the post-war economic order.
In short, they are a response not only to the IMF’s failure to provide the world’s most important emerging economies with representation that’s commensurate with their economic clout, but also to the perceived shortcomings of the IMF and ADB. In other words, they are far more than a new foreign policy tool for Beijing to deploy on the way to cementing its status as regional hegemon.
The role of these new institutions in helping the yuan to replace the dollar as the world’s reserve currency (something which many still claim is an absurd proposition despite all evidence to the contrary) was made clear when, in April, we noted that although Beijing has sought to play down the degree to which the ventures will serve to help establish a new world economic order with China at the helm, the fact that Beijing “may encourage the $100b AIIB and $40b Silk Road Fund to issue loans directly in yuan” (via Bloomberg) and the fact that “the AIIB will establish a currency basket with China set to push for the yuan to take a prominent role” (via The South China Morning Post) suggested otherwise.
Now that the AIIB and the BRICS bank have officially launched (see here and here) and are expected to begin operations soon, it appears that not only will the yuan play a key role for both lenders, but in fact, the two development banks may effectively merge. Here’s more via The BRICS Post:
The BRICS New Development Bank will name its first investment in April next year and the first loan will be issued in yuan not dollar, top officials confirmed.
The first president of the Bank, Kundapur Vaman Kamath said in Shanghai that the new lender will work closely with the China-led Asian Infrastructure Investment Bank.
“We have partnerships that we will forge with the AIIB, the national loan banks and indeed, the existing market loan banks,” he said.
The NDB with about $50 billion in capital to invest in public infrastructure will compete with institutions where the US has considerably more influence—organizations such as the World Bank and the International Monetary Fund.
The paid-in reserves are planned to be denominated in each country’s currency. The Chinese renmimbi is also expected to replace the dollar at the BRICS Bank, especially for projects in Asia.
And that is your de-dollarization du jour. While the IMF (and by extension, Washington) bickers with Berlin about just what went wrong with Greece’s first two bailouts and whether or not the third iteration is feasible without massive writedowns, the world’s new multilateral institutions are busy planning to make development loans in yuan. We’ll close with the following quote from Nomura’s Richard Koo:
It is difficult to say at this point whether the AIIB will have a negative or a positive impact on the global economy. At the very least, however, the emergence of an international institution with a viewpoint different from that of western creditors will help enhance the quality of debate over emerging economies’ debt problems.
- Venezuela's Hyperinflation Crack-Up Boom On Its Way To Outer Space
Submitted by Pater Tenebrarum via Acting-Man.com,
Why Stock Markets Are Not an Indicator of the Economy
In a free unhampered market economy based on a sound monetary system – this is to say a market-chosen monetary system with a free banking industry and no central planning institution that is manipulating interest rates and determining the size of the money supply – the gains and losses of shares prices in the stock market will simply be a reflection of entrepreneurial profits achieved in the past, plus embedded expectations of profits likely to be achieved in the future.
Nicolas Maduro, the hapless president of socialist Venezuela, here seen hung with all sorts of bling supposed to testify to his achievements.
Photo credit: Prensa Presidencial
Under the assumption that such a free market money system would be largely non-inflationary, this mixture of “historical record” and expectations would primarily be expressed by the relative prices of shares. The bulk of the returns achieved by investors would come from dividend payments, as a general inflation of “the market” would be nigh impossible.
And yet, although the stock market as a whole would barely appreciate in price in nominal terms, the gains achieved in real terms as well as real economic growth, would be far stronger than they are under our current, centrally planned system of constant inflation. Moreover, economic progress would be far more equitable as well, as the reverse redistribution of wealth caused by inflationary policy wouldn’t exist.
This is why a rising stock market tells us absolutely nothing about the state of the underlying economy in the present inflationary system. In fact, we once again have a real life example providing ample empirical confirmation of this assertion. Venezuela’s economy is in free-fall. Its desperate socialist government, in an attempt to satisfy the masses of voters who have voted for it in order to receive handouts, is resorting to ever more repressive economic policy and money printing on a truly gargantuan scale to at least keep up the appearance that bread and circuses will continue. It has long lost the last shred of credibility, as shortages of basic goods have become the major hallmark of the country’s economy.
However, amid capital controls and a collapse of Venezuela’s currency on the “black” market, the country’s stock market is soaring:
The IBC General Index in Caracas, monthly, log scale – click to enlarge.
Since the beginning of 2015, the Caracas stock market is up by more than 300% – note that this index was trading at a mere 6 points in 2002 and currently stands at nearly 15,000 points. This is what is indicative of a crack-up boom – as the currency system implodes, a flight into real assets is underway and titles to capital are soaring in value when measured in terms of the currency that is about to cease functioning as a medium of exchange. This is happening in spite of the fact that most of the businesses behind the stocks listed on the exchange are in fact consuming their capital and are no longer making any real profits.
A linear chart of the index shows the size of recent advance even more starkly:
IBC General Index monthly, linear chart – click to enlarge.
Currency Collapse
With oil prices under great pressure, the government of Venezuela can no longer finance its socialist program. Having nationalized countless companies and replaced their managers with cronies of the ruling party, while restricting the remaining private sector in every imaginable way – de facto creating a full command economy that is a mixture of the Marxist and fascist economic models, i.e. a mixture of Marxist state-ownership of the means of production with a fascist Zwangswirtschaft (literally: “coerced economy”) for what remains of the market economy – there is no way for the government to obtain the revenue it needs to keep its socialist system funded.
Consequently, the only source of revenue for the government is the printing press of its central bank, which it is abusing quite liberally. There are several fixed exchange rates for the Venezuelan bolivar, which have long ceased to make even the faintest shred of sense. The reality is better reflected by black market exchange rates. Dolartoday.com keeps data on the black market in US dollars in the border town of Cucuta, which we are charting further below. In recent months, the bolivar has been in free-fall.
Headquarters of the Central Bank of Venezuela in Caracas
Photo credit: Caracasapie
The plunge in the currency’s external value has become relentless:
Black market rate of the Venezuelan bolivar against the US dollar in the border town of Cucuta. The collapse of the currency is accelerating – click to enlarge.
Venezuela’s official inflation data lack credibility, but even so they are giving an idea of how quickly the currency is depreciating internally as well. Below we show a chart of the official consumer price index from late 2007 to the end of 2014, based to 100 in December of 2007:
Venezuela’s official consumer price index between December 2007 (=100) to December 2014. More recent data are not available yet (it is probably no surprise that there is some foot-dragging with respect to these data releases). In December 2014, the official annualized inflation rate had accelerated to a new high of 68.5%. We imagine that even the official rate of change of CPI must by now be well over 100% – click to enlarge.
We don’t know what the actual rate of price inflation is at this time, but it seems likely that is is a multiple of the official rate. The recent increase in stock prices is in fact providing us with a good hint.
Conclusion
Venezuela’s hyperinflation is reaching its final stages. It is probably already far too late for the government to stop the complete collapse of its currency. The bolivar is in the process of transforming from a medium of exchange to tinder for wood-stoves. Venezuelans who had the presence of mind to convert their savings into gold or foreign currency in good time are likely to survive the conflagration intact.
Those who bought stocks on the Caracas stock exchange seem to have successfully side-stepped the effects of the devaluation as well, but they need a plan for the post-inflation adjustment crisis, which will bankrupt a great many companies very quickly. Also, the government can simply close the market down at any time if it doesn’t like what is happening there, so there is the ever-present danger of even more government interference as well.
It is quite fascinating to see that in spite of numerous examples throughout history, governments never seem to learn. They all believe they can somehow overrule economic laws by diktat. This is not only true of Venezuela’s government, but of practically every government in today’s world. Central planning of money has been adopted everywhere. Venezuela merely shows us what the end game for every fiat money system looks like.
At some point the State is overwhelmed by the promises it has made to its citizens. When it can no longer pay by means of confiscating private wealth, the printing press is always the last resort. Recently one actually gets the impression that it is often the first, rather than the last resort.
In developed countries, people believe that the planners have everything in hand, and that their “price stabilization” rules will protect them from such outcomes. However, it should be clear that these rules will simply be abandoned in extremis. The independence of central banks exists only on paper – it will mean nothing in a perceived “emergency”. It is almost comical in this context that gold is being sold while most of the world’s major central banks are seemingly hell-bent on aping John Law’s Banque Générale Privée.
Paper money endorsed by John Law – the grand-daddy of the hoary inflationism that has become the economic orthodoxy of modern times.
- Hillary Agrees To Testify Publicly Over Benghazi Deaths
With the FBI and DoJ now involved in yet another Hillary Clinton scandal – that she sent confidential emails from her personal email server – it seems the 'presidential' former Secretary of State has felt pressured to come somewhat clean. While some might argue "what difference does it make?" The Washington Post reports that Hillary Rodham Clinton will testify on Oct. 22 before the House select committee investigating her role in connection with the deaths of four Americans in Benghazi, Libya. The testimony – before the committee formed last year – will be in a open setting (apparently against the wishes for privacy that committee chairman, Rep. Trey Gowdy initially requested).
As The Washington Post details,
Hillary Rodham Clinton will testify on Oct. 22 before the House select committee investigating her role in connection with the deaths of four Americans in Benghazi, Libya, Clinton campaign spokesman Nick Merrill said Saturday.
The testimony will be public, Merrill said. It follows months of wrangling between the Republican-led committee and Clinton, whose allies accuse the panel of conducting a fishing expedition for damaging material that might be used against her as she runs for president in 2016.
Clinton had long offered to testify in public, but the committee chairman, Rep. Trey Gowdy, had initially said he preferred a private interview. Although he said he was trying to keep the session from becoming a circus, Clinton's team objected on grounds that a closed session could allow Republicans to selectively leak unflattering details.
Clinton's lawyer has also accused the committee of trying to drag out its investigation into 2016, the better to use it as a cudgel against the Democratic front-runner.
U.S. Ambassador J. Christopher Stevens and three others were killed when militants overran two U.S. compounds in the restive Libyan city in September 2012, in the waning months of Clinton's term as secretary of state. She has long said she had no direct role in security decisions surrounding the U.S. facilities, but Republican critics claim that her State Department denied protections that might have prevented the attack.
A spokesman for the committee said Clinton's lawyer sent a message last night to negotiate Clinton's appearance before the panel, requesting that the questioning be limited to the events surrounding the Benghazi attack.
The committee says it disagrees, arguing that Clinton's email arrangement is relevant to the inquiry.
Statement from Select Committee Communications Director Regarding Clinton Testimony
Washington, DC— The Select Committee Communications Director Jamal Ware released this statement regarding reports about for Secretary Clinton’s testimony before the Committee:
“Secretary Clinton's campaign may want to reach out to her lawyer, Mr. David Kendall, with whom the Committee has had ongoing conversations. As of last night, Mr. Kendall was still negotiating conditions for her appearance, writing: "The first is that, on the grounds of simple fairness and in order to make appropriate preparation possible, the scope of the questioning be consistent with the scope set forth in the resolution establishing the Select Committee on the Events Surrounding the 2012 Terrorist Attack in Benghazi (H.Res. 567 (113th Cong. 2013-14))." The second condition was that despite the fact that the Department of State has been woefully recalcitrant in producing relevant documents, the hearing date would not change.
“Previously, Mr. Kendall had agreed, while insisting she would appear only a single time before the Committee, that Secretary Clinton would answer all questions the Committee had about Libya, Benghazi, and her unusual email arrangement with herself.
“Her email arrangement clearly falls within the scope of the Select Committee's jurisdiction, which is charged by the House under the Resolution to look at Executive Branch efforts to comply with congressional oversight as well as the administration's response in the aftermath of the tragic attacks in Benghazi.
“The Committee will not, now or ever, accept artificial limitations on its congressionally-directed jurisdiction or efforts to meet the responsibilities assigned to the Committee by the House of Representatives. Accordingly, once there is an agreement on the date and a better understanding of how, if at all, Secretary Clinton's lawyer's latest writing differs from previous ones, the Committee will announce said hearing date.”
Of course, given that she already lied…
“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."
How can we trust that she will not simply lie once more…under oath.
- Bubble, Bubble, Toil, & Trouble: When Authorities Buy Assets To Prop Up Markets
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
The Central Planners who thought that buying shares to prop up the stock bubble was an excellent fix are about to find out the true meaning of toil and trouble.
The actual line from Shakespeare's Macbeth is double, double, toil and trouble, fire burn, and cauldron bubble but for the purposes of analyzing what happens when authorities prop up market bubbles by directly buying assets, bubble, bubble, toil and trouble is also appropriate.
China's authorities seem to have chanted Shakespeare's magical incantation nonstop this year, as the Shenzhen and other Chinese stock market indices have more than doubled. This chart illustrates what the Chinese authorities were aiming for: a bubble that just keeps expanding and never pops:
But what actually happened was predictable: China's stock bubble burst. In response, Chinese authorities threw everything within reach into the market to stem the decline: criminalizing negative comments about stocks, loosening credit, enabling greater fools to post their homes as collateral for margin accounts, and the last and chillingly irreversible tool in the Central Planning Bubble Inflation Tool Kit, direct purchases of stocks: China Spends 10% Of GDP On "All Bark, No Bite" Stock Bailout:
In gambling parlance, Chinese authorities doubled-down on their bet (there's your double, double) that they could save their bubble, bubble.
The problem is that double, double leads to bubble, bubble which leads to double trouble, because once you start down the path of buying assets to prop up bubbly markets, there is no exit.
As Sartre noted in No Exit, Hell is other people, which in the case of China's imploding stock bubble includes all the banana vendors who are now itching to sell Centrally Planned rallies to get their borrowed money off the table before the ball drops into a slot on the roulette wheel and they lose everything.
Having accepted the poisoned chalice of buyer of last resort, Central Planners have no choice but to buy every share sold by every banana vendor who wants out.
In other markets, the sellers might be hedge funds, private equity funds, pension funds or insurance companies. But the dynamic of private sellers realizing it's time to get out while the getting's good is the same in all post-bubble markets.
That leaves Central Planners in a world of toil and trouble that is much like a financial Roach Motel–you can go in but you can't get out. The Central Planning fantasy is that after buying a huge chunk of the market to stabilize the bubble, private buyers will rush back in, allowing Central Planners to distribute (sell) their shares to the credulous banana vendors, pension funds, towns in Norway still sitting on the mortgage-backed securities they bought in the previous bubble, etc.
This fantasy overlooks human psychology. A bubble is not just financial; it is a bubble of euphoria, confidence and greed. Once that bubble pops and is replaced by caution and fear, people want out–not just fickle banana vendors but professional asset managers.
Central Planners have taken on an impossible task once they become the buyer of last resort: they have to keep buying to prop up valuations, but the pool of greater fools willing to take the inflated shares off the central planners is shrinking.
The Central Planners can keep the market cauldron bubbling by buying assets hand over fist, but once they lower the fire of their buying, the bubbling stops and the market crashes.
The Central Planners who thought that buying shares to prop up the stock bubble was an excellent fix are about to find out the true meaning of toil and trouble. Double, double, bubble, bubble, double trouble. The magical incantation isn't about saving markets, it's about destroying them.
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