Today’s News July 28, 2015

• Municipal Madness

  From the Slope of Hope: Only a government employee could point to a 99.5% failure rate and declare it a success.

  Look no farther than my local newspaper this morning: the city of Menlo Park (which is an affluent superb like Palo Alto, but even whiter and more sheltered) spent hundreds of thousands of dollars on equipment to read the license plates of all the cars passing by certain intersections. (We’ll set aside the creepiness of the surveillance and just focus on the economics here.)

  The latest quarterly report came out, and out of 198,286 license plates read, 204 of them were brought to the attention of authorities as “wanted” vehicles. OK, cool. Looks like we’re getting some hits here and and go grab some criminals, right, boys?

  The problem is that 203 of the 204 weren’t “wanted” at all. The plates were all misread. There was one – count ’em, one – license plate out of the 198,286 which was indeed a plate from a stolen car, and the police captain (which, around here, is a quarter-million dollar year salary) assures the public that the license plate readers are “working properly” since, after all, they did button down one vehicle (which, if I may speculate, was probably worth, oh, about ten thousand bucks or so).

  Suffice it to say that the hundreds of thousands spent on the equipment – – to say nothing of the time and effort involved from the police force (each member of which enjoys a six-figure salary) probably is a substantially greater sum than the value of the single vehicle retrieved. Here ya go:

  

  

  

  

  

• Global Plunge Protection Team Rescues Chinese Stocks Back To Unchanged At Break

  In what appears like a coordinated USDJPY-driven intervention, the Panic Plunge Protection Team has swung into action not once but twice tonight so far. After China opened down between 5% and 7%, and initial momentum bounce from USDJPY failed onlyt to be followed by a bigger more energentic push to get Shaghai Composite back to unchanged… but Chinese stocks are once again losing momentum…

  Double PPPT effort tonight…Spot The Difference

  

   

  But it appears to be fading fast… as dip-buyers cover into the government buying

  

   

  We're gonna need moar JPY selling…

  MUST.REGAIN.CONTROL… MUST.SHOW.OMNIPOTENCE… #FAIL

  • *CHINA'S SHANGHAI COMPOSITE FALLS 1% TO 3,688.48 AT BREAK
  • *CHINA'S CSI 300 INDEX FALLS 0.2% TO 3,810.65 AT BREAK

   

  Charts: Bloomberg

  

  

  

  

  

• Introducing "Trickle-Out Oligarch Economics" – How Over $21 Trillion In Wealth Fled Offshore

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  Before I get into the meat of this post, I want to make it clear that just because I point out the following doesn’t mean I like tax and think we need more of it. Rather, there are two main points I want to get across.

  1) Oligarchs create tax loopholes for themselves. Oligarchs control the politicians who write legislation to suit oligarch needs. Whenever you hear politicians talk about taxing the wealthy they mean the suckers in the top 10% who are not politically-connected oligarchs. The super rich will never be touched by such legislation. They will always have loopholes available to them. This is why the statement “we need higher taxes on the rich” is basically a bullshit political talking point.

  2) You’ll notice much of the wealth that has been moved offshore originated from dictators who bled their home countries dry of resources as their populations starved. Many of these dictators had the full support of the U.S. government throughout their decades in power, during which time they plundered and destroyed entire nations.

  Just remember that the next time you hear a super rich person call for more taxes. They never mean on themselves. Second, understand that the root of the problem is systemic. There are no easy fixes, the entire system needs a total reboot.

  From the Guardian:

  The world’s super-rich have taken advantage of lax tax rules to siphon off at least $21 trillion, and possibly as much as $32tn, from their home countries and hide it abroad – a sum larger than the entire American economy.

   

  James Henry, a former chief economist at consultancy McKinsey and an expert on tax havens, has conducted groundbreaking new research for the Tax Justice Network campaign group – sifting through data from the Bank for International Settlements (BIS), the International Monetary Fund (IMF) and private sector analysts to construct an alarming picture that shows capital flooding out of countries across the world and disappearing into the cracks in the financial system.

   

  Using the BIS’s measure of “offshore deposits” – cash held outside the depositor’s home country – and scaling it up according to the proportion of their portfolio large investors usually hold in cash, he estimates that between $21tn (£13tn) and $32tn (£20tn) in financial assets has been hidden from the world’s tax authorities.

   

  “These estimates reveal a staggering failure,” says John Christensen of the Tax Justice Network. “Inequality is much, much worse than official statistics show, but politicians are still relying on trickle-down to transfer wealth to poorer people.

   

  “This new data shows the exact opposite has happened: for three decades extraordinary wealth has been cascading into the offshore accounts of a tiny number of super-rich.”

   

  In total, 10 million individuals around the world hold assets offshore, according to Henry’s analysis; but almost half of the minimum estimate of $21tn – $9.8tn – is owned by just 92,000 people. And that does not include the non-financial assets – art, yachts, mansions in Kensington – that many of the world’s movers and shakers like to use as homes for their immense riches.

  Since this doesn’t include non-financial assets, you can be sure the actual number is multiples higher. We have all seen how oligarchs worldwide are using houses and other tangible assets as overseas bank accounts. Recall:

  Welcome to Arcadia – The California Suburb Where Wealthy Chinese Criminals are Building Mansions to Stash Cash

  Introducing “Freeports” the Latest Way for Oligarchs to Store Their Assets

  Introducing Ghost Skyscrapers – NYC Real Estate Goes Full Retard

  In many cases, the total worth of these assets far exceeds the value of the overseas debts of the countries they came from.

   

  The struggles of the authorities in Egypt to recover the vast sums hidden abroad by Hosni Mubarak, his family and other cronies during his many years in power have provided a striking recent example of the fact that kleptocratic rulers can use their time to amass immense fortunes while many of their citizens are trapped in poverty.

  Mubarak, a close ally of the U.S. government all the way until he was toppled.

  The world’s poorest countries, particularly in sub-Saharan Africa, have fought long and hard in recent years to receive debt forgiveness from the international community; but this research suggests that in many cases, if they had been able to draw their richest citizens into the tax net, they could have avoided being dragged into indebtedness in the first place. Oil-rich Nigeria has seen more than $300bn spirited away since 1970, for example, while Ivory Coast has lost $141bn.

   

  Assuming that super-rich investors earn a relatively modest 3% a year on their $21tn, taxing that vast wall of money at 30% would generate a very useful $189bn a year – more than rich economies spend on aid to the rest of the world.

   

  The sheer scale of the hidden assets held by the super-rich also suggests that standard measures of inequality, which tend to rely on surveys of household income or wealth in individual countries, radically underestimate the true gap between rich and poor.

   

  Milorad Kovacevic, chief statistician of the UN Development Programme’s Human Development Report, says both the very wealthy and the very poor tend to be excluded from mainstream calculations of inequality.

   

  “People that are in charge of measuring inequality based on survey data know that the both ends of the distribution are underrepresented – or, even better, misrepresented,” he says.

  What we need is fundamental systemic change. This means truly restructuring the entire financial system, from Central Bank power, to Wall Street funding both political parties, to lengthy jail sentences for financial criminals. If we do that, oligarchs won’t be able to parasitically amass billions so easily in the first place.

  

  

  

  

  

• BuY THe PeoPLe'S DiP!

  

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• UK Government Admits 250,000 Porn Websites Visited On Parliament PCs

  Prime Minister David Cameron vowed in 2013 to block pornographic material from "the darkest corners of the internet."

  Cameron announced in July that most households in the UK would have pornography blocked by their internet provider unless they chose to receive it.

  Online pornography was "corroding childhood" and "distorting" children's understanding of sex and relationships, he argued.

   

  The UK's biggest internet service providers have agreed to the filters scheme meaning it should cover 95% of homes.

   

  But one of Mr Cameron's advisers, Wikipedia co-founder Jimmy Wales, said the plans were "absolutely ridiculous".

  It appears he better start at home…

  Thanks to a Freedom of Information request by the Daily Express, RT reports, over 247,000 attempts were made to visit X-rated websites from the UK Parliament’s computer network last year, with the numbers spiking during parliamentary recess in April…

  Attempts to access more than 42,000 sites classed as pornographic were made during April alone last year, totaling more than 1,300 each day.

   

  

   

  The Freedom of Information request by the Daily Express found the second most active month was October 2014, where there were more than 30,000 attempts to access porn sites.

   

  The figures don’t show which sites were accessed or how long was spent on the pages.

   

  The findings add to the previous total of 350,000 in 2013.

   

  Taxpayers’ Alliance Chief Executive Jonathan Isaby said of the figures: “Some of these ‘visits’ are no doubt the product of pop-ups beyond anybody’s control, but the number is absolutely staggering.

   

  “One would hope that those attempting to access these sites at Parliament could keep their extra-curricular activities safely within their own four walls, as it’s not an appropriate use of time when it’s on the taxpayers’ tab,” he added.

   

  Speaking about the 2013 results, a House of Commons spokeswoman said: “We do not consider the data to provide an accurate representation of the number of purposeful requests made by network users due to the variety of ways in which websites can be designed to act, react and interact and due to the potential operation of third party software.”

  *  *  *

  Rather stunningly, it also emerged that sexymp.co.uk, a site where you can you rate the looks of members of parliament, was the most popular banned site at Britain’s Parliament.

  So, first The SEC and now UK Parliament… is it any wonder the world is turning to shit if every 'official' is 'busy' all day with other more uplifting things…

  

  

  

  

  

• The Irony Of Market Manipulation

  Having gazed ominously at the extreme monetary policy smoke-and-mirrors intervention in bond markets, and previously explained that "the stock market is to important to leave to the vagaries of an actual market." While the rest of the world's central banks' direct (BoJ) and indirect (Fed, ECB) manipulation of equity markets, nobody bats an eyelid; but when PBOC steps on market volatility's throat (like a bull in a China bear store), people start complaining… finally. There is no difference – none! And no lesser Asian expert than Stephen Roach warns that we should be afraid, very afraid as he states, the great irony of manipulation, he explains, is that "the more we depend on markets, the less we trust them."

   

  BoJ is directly buying Japanese Stocks and the rest of the world's central banks are buying bonds with both hands and feet… for the first time ever, central banks are set to monetize all global government debt, something we showed previously…

  

   

  But with China's heavy handed "measures" seemed to save the world (until the last 2 days)…

  9-Jul-15 Thurs CSRC:
  1) suspended reviews of IPOs & other secondary market fundraising activities from Jul 9;
  2) asked listcos to choose 1 out of 5 measures (including share buyback by major shareholders, companies and senior executives, employee stock buyback
  incentive & employee stock ownership) to protect share price.
  China Banking Regulatory Commission (CBRC):
  1) allowed banks to roll over matured loans pledged by stocks;
  2) encouraged banks to provide liquidity to China Securities Finance Corp Ltd. (CSFC) & offer financing to listed companies to buy back shares.
  China Insurance Regulatory Commission (CIRC): insurance asset mgt companies should not demand early repayment from brokers for debt products on margin financing.
  Minister of Public Security & CSRC: to investigate malicious short selling activities on Jul 9.
  State-Owned Assets Supervision & Admin Commission (SASAC): asked provincial SASACs to submit daily report if local SOEs’ increased stock holdings starting Jul 9.
  CSFC: issued Rmb80bn short-term note in interbank market on Jul 9, yield at 4.5% p.a., duration at 3 months; and will purchase mutual fund products to stabilize liquidity.

  8-Jul-15 Weds PBOC: vowed to maintain market stability and avoid systematic financial risk. It will provide ample liquidity to CSFC via interbank lending, financial bond, pledge financing, and relending facilities.
  CSFC
  1) granted Rmb260bn credit quota to 21 brokers via pledged stocks to allow them buy more equities.
  2) by people close, CSFC is looking for >=Rmb500bn liquidity support from the PBOC.
  3) CSFC Chairman said it has sufficient liquidity to stabilize the market.
  4) CSFC to subscribe Rmb200bn active funds from 5 mutual funds to invest in smid cap stocks.
  5) CSFC to intensify efforts to buy small to mid-cap stocks.
  SASAC & MOF ordered central-owned SOEs and financial companies not to cut existing equity holdings and all central owned SOEs soon echoed with SASAC’ instruction.
  Huijin vows not to reduce existing securities holdings and will continue to buy ETFs.

  7-Jul-15 Tues CIRC: to allow insurers to invest more in blue chips stocks: 1) investment in a single blue chip will be capped at 10% of the insurers’ total assets as of last quarter, vs. the previous 5%; 2) equity investment will be capped at 40%, vs. 30%, but the 10% difference must be invested in blue chips. CSFC said it will buy more smid-cap stocks Several joint stock banks resumed funding to umbrella trust; but have lowered leverage to 1x vs previous 3x.

  6-Jul-15 Mon CFFEX took more measures to restrict index future trading by 1) capping the number of withdrawal of a single contract to 500/account/day; 2) raising margin for selling index futures of CSI500 from Jul 8 to 20% of contract price from 10% and up to 30% from Jul 9. CSFC to use Rmb120bn funds contributed by various brokers to buy ETFs. Social Securities Fund (SSF) vowed not to reduce existing equity positions in its portfolio.

  3 to 5-Jul-15 Fri-Sun Huijin purchased Rmb12bn ETFs

  • Margin financing: some brokers lowered threshold and loosened related policy.
  • Short selling: 1) several brokers suspended the business; 2) multiple unauthorized margin financing institutions said their total funding size was no more than Rmb200bn, and denied their involvement in short selling.
  • Index futures: 1) CFFEX suspended many shorting accounts; 2) will make transaction fees progressive based on transaction volume; bigger volume, higher fee rate.
  • Capital market fundraising: 1) State Council decided to suspend IPO and any secondary market fundraising above Rmb5bn until SHCOMP returns to 4,500 level; 2) CIRC required insurers to keep net buying stocks; 3) 21 brokers will invest Rmb120bn (15% of their net assets by 1H15) in blue chips ETFs and would not reduce their proprietary book if SHCOMP stays below 4,500; 4) 94 mutual fund management companies vowed to stabilize the market.
  • Disciplines: 1) Police is investigating three media outlets for spreading rumors; 2) the government vows to impose heavy penalties on cross-market manipulation activities. Government mouthpiece: Xinhua and People’s Daily both published articles today to call for investors’ confidence.

  2-Jul-15 Thurs CSRC said to investigate and “strictly” punish manipulations; Bloomberg reported CSRC has conducted examination on recent stock index future short selling activities. Brokers: some brokers loosened margin financing requirements eg cut margin ratio; extend margin financing duration period; raise collaterals discount ratio etc. Insurers have been buying blue chips stocks and ETFs since last Friday; though pace has moderated somewhat on Jul 2. Media reported that many mutual funds and privately raised funds also increased equity holdings.

  1-Jul-15 Weds Shanghai Stock Exchange (SHEX), Shenzhen Stock Exchange (SZEX) & CSDC will cut transaction fees by 30% effective on Aug 1. CSRC granted brokers new financing channels, including: 1) All brokers, not limited to the trial 20 ones, can issue short-term bonds; 2) brokers can securitize their beneficiary rights of margin financing. Margin trading: loosened requirement that a margin account will be liquidated if the leverage ratio drops below 130%; brokers will have more liberty in such cases. CFFEX checked index futures trading by 38 QFII investors and 25 RQFII investors and it didn’t find “large scale” short selling activities in the market.

  30-Jun-15 Tues Asset Management Association of China (AMAC): 1) requested investors and fund managers to stay rational & not to panic; 2) quoted 13 leading private funds' heads to advocate A-share investment. Bloomberg first reported CSRC may suspend IPO to stabilize the market.

  29-Jun-15 Mon SSF: MOHRSS and MOF circulated a draft policy to allow basic pension fund to invest up to 30% into the A-share market; the consultation will end on 13 Jul 2015. People’s Daily said pension fund’s stock investment will be no more than Rmb150bn. CSFC said risks of margin financing & margin calls are relatively small.

  27-Jun-15 Sat PBOC cut interests rate by 25bps and cut targeted RRR for selected FIs, effective on 28 June.

   

  To July 7th… when selling was made "illegal"

  

   

  and since…

  • 22-Jul-15 China's Securities Finance Corp is now among the top 10 shareholders of at least 8 firms.
  • 21-Jul-15 Capital injection of $109b into 3 policy banks ($48b to China Development Bank, $45b to Export Import Bank, and $16 to Agricultural Development Bank).
  • 19-Jul-15 Increased regulations on internet financing and P2P lending. Client funds must be parked at established banks, and more disclosure and clearer warnings about risks required.
  • 16-Jul-15 Thurs China Securities Regulatory Commission (CSRC) requests brokers’ proprietary trading to maintain net purchase on daily basis and it will allow brokers equity investment to exceed risk limit during special period. Report that roughly $483 billion was made available to China Securities Finance Corp to support the stock market was leaked ($209b of which from China's biggest banks).
  • 15-Jul-15 Weds China Securities Depository and Clearing Co., Ltd (CSDC) to extend business hours for major shareholders to increase their own companies stock holdings.
  • 13-Jul-15 Mon CSRC probed a leading vendor of trading system Hundsun Tech (600570 CH) for its possible facilitation of OTC margin financing; several large OTC margin financing lenders suspended businesses. China Financial Future Exchange (CFFEX) further tightened control over financial futures' trading: 1) if the market moves one-way for two consecutive trading days, it may tighten the trading via raising the margin, adjusting the trading limits and forcing account liquidation; 2) daily one-way trading of SH000905 Index will be capped at 1,200 bills.
  • 10 to 12-Jul-15 Fri-Sun CSRC instructed brokers to regulate external access to trading systems on Jul 12. Police: found clues that some trading companies might have manipulated stock futures. Cyberspace Admin: banned all advertisements illegally promoting unauthorized margin loans.
     

  So why did we not see this?

  

   

  Simple, because China just exposed the rest of the world's manipulation is not omnipotent. As Stephen Roach, writing at Project Syndicate, notes, market manipulation has become standard operating procedure in policy circles around the world. All eyes are now on China’s attempts to cope with the collapse of a major equity bubble. But the efforts of Chinese authorities are hardly unique. The leading economies of the West are doing pretty much the same thing – just dressing up their manipulation in different clothes.

  Take quantitative easing, first used in Japan in the early 2000s, then in the United States after 2008, then in Japan again beginning in 2013, and now in Europe. In all of these cases, QE essentially has been an aggressive effort to manipulate asset prices. It works primarily through direct central-bank purchases of long-dated sovereign securities, thereby reducing long-term interest rates, which, in turn, makes equities more attractive.

   

  Whether the QE strain of market manipulation has accomplished its objective – to provide stimulus to crisis-torn, asset-dependent economies – is debatable: Current recoveries in the developed world, after all, have been unusually anemic. But that has not stopped the authorities from trying.

   

  In their defense, central banks make the unsubstantiated claim that things would have been much worse had they not pursued QE. But, with now-frothy manipulated asset markets posing new risks of financial instability, the jury is out on that point as well.

   

  China’s efforts at market manipulation are no less blatant. In response to a 31% plunge in the CSI 300 (a composite index of shares on the Shanghai and Shenzhen exchanges) from its June 12 peak, following a 145% surge in the preceding 12 months, Chinese regulators have moved aggressively to contain the damage.

   

  Official actions run the gamut, including a $480 billion government-supported equity-market backstop under the auspices of the China Securities Finance Corporation, a $19 billion pool from major domestic brokerages, and an open-ended promise by the People’s Bank of China (PBOC) to use its balance sheet to shore up equity prices. Moreover, trading was suspended for about 50% of listed securities (more than 1,400 of 2,800 stocks).

   

  Unlike the West’s QE-enabled market manipulation, which works circuitously through central-bank liquidity injections, the Chinese version is targeted more directly at the market in distress – in this case, equities. Significantly, QE is very much a reactive approach – aimed at sparking revival in distressed markets and economies after they have collapsed. The more proactive Chinese approach is the policy equivalent of attempting to catch a falling knife – arresting a market in free-fall.

   

  There are several other noteworthy distinctions between China’s market manipulation and that seen in the West.

   

  First, Chinese authorities appear less focused on systemic risks to the real economy. That makes sense, given that wealth effects are significantly smaller in China, where private consumption accounts for just 36% of GDP – only about half the share in more wealth-dependent economies like the US.

   

  Moreover, much of the sharp appreciation in Chinese equity values was very short-lived. Nearly 90% of the 12-month surge in the CSI 300 was concentrated in the seven months following the start of cross-border investment flows via the so-called Shanghai-Hong Kong Connect in November 2014. As a result, speculators had little time to let the capital gains sink in and have a lasting impact on lifestyle expectations.

   

  Second, in the West, post-crisis reforms typically have been tactical, aimed at repairing flaws in established markets, rather than promoting new markets. In China, by contrast, post-bubble reforms have a more strategic focus, given that the equity-market distress has important implications for the government’s capital-market reforms, which are viewed as crucial to its strategy of structural rebalancing. Long saddled with a bank-centric system of credit intermediation, the development of secure and stable equity and bond markets is a high priority in China’s effort to promote a more diversified business-funding platform. The collapse of the equity bubble calls that effort into serious question.

   

  Finally, by emphasizing a regulatory fix, and thereby keeping its benchmark policy rate well above the dreaded zero bound, the PBOC is actually better positioned than other central banks to maintain control over monetary policy and not become ensnared in the open-ended provision of liquidity that is so addictive for frothy markets. And, unlike in the West, China’s targeted equity-specific actions minimize the risk of financial contagion caused by liquidity spillovers into other asset markets.

   

  With a large portion of China’s domestic equity market still closed, it is hard to know when the correction’s animal spirits have been exhausted. While the government has assembled considerable firepower to limit the unwinding of a spectacular bubble, the overhang of highly leveraged speculative demand is disconcerting. Indeed, in the 12 months ending in June, margin financing of stock purchases nearly tripled as a share of tradable domestic-equity-market capitalization.

   

  While Chinese equities initially bounced 14% off their July 8 low, the 8.5% plunge on July 27 suggests that that may have been a temporary respite. The likelihood of forced deleveraging of margin calls underscores the potential for a further slide once full trading resumes.

   

  More broadly, just as in Japan, the US, and Europe, there can be no mistaking what prompted China’s manipulation: the perils of outsize asset bubbles. Time and again, regulators and policymakers – to say nothing of political leaders – have been asleep at the switch in condoning market excesses. In a globalized world where labor income is under constant pressure, the siren song of asset markets as a growth elixir is far too tempting for the body politic to resist.

   

  Speculative bubbles are the visible manifestation of that temptation. As the bubbles burst – and they always do – false prosperity is exposed and the defensive tactics of market manipulation become both urgent and seemingly logical.

   

  Therein lies the great irony of manipulation: The more we depend on markets, the less we trust them. Needless to say, that is a far cry from the “invisible hand” on which the efficacy of markets rests. We claim, as Adam Smith did, that impersonal markets ensure the most efficient allocation of scarce capital; but what we really want are markets that operate only on our terms.

  Read more here…

  *  *  *

  As we concluded previously,

  The stock market is just too important to leave to the vagaries of an actual market now. Too much depends on good-looking numbers now. It must be guided and controlled, or else the stilts on which our global financial system balances become shakier and more visible. The market must be rendered increasingly meaningless simply because it's too meaningful to our current economic system.

  

  

  

  

  

• China Carnage Continues; Investors "Lost & Concerned" Despite PBOC Reassurance

  “China’s market is so distorted, you can’t sell short very confidently and you can’t buy up very confidently either," warns one Hong Kong-based asset manager as despite massive "measures" and manipulation, Chinese stocks extend yesterday's stunning losses (CSI-300 -5% at the open, Shanghai -4.1%). As Bloomberg reports, investors “are concerned and lost," although government officials tried to claim the situation by explaining they will "continue efforts to stabilize market and investor sentiment, and prevent systemic risk." As stocks continued to fall, the market is summed up by the opposing views of one broker noting "China won't tolerate a worsening stock market, so those state-backed financial institutions may start buying," and another who warned "it's hard to start a new up move after a bubble bursts… I don't think they are able to prevent it falling."

  The PBOC is desperate to reasure on the fundamentals backing the bubble:

  • *PBOC SAYS POSITIVE CHANGES SHOWN IN ECONOMY
  • *CHINA PBOC REITERATES TO PURSUE PRUDENT MONETARY POLICY IN 2H
  • *PBOC TO KEEP SUPPORTING REAL ECONOMY DEVELOPMENT
  • *PBOC TO CUT FINANCING COSTS

  But even after that, the market keeps crashing…

  • *CHINA'S CSI 300 STOCK-INDEX FUTURES FALL 4% TO 3,611..
  • *CHINA SHANGHAI COMPOSITE SET TO OPEN DOWN 4.1% TO 3,573.14 and more…

  

   

  BREAKING: Shanghai benchmark index down over 4% at opening; tech-focused ChiNext down 5%; over 200 stocks already down 10% limit at opening

  — George Chen (@george_chen) July 28, 2015

   

  

  Bloomberg quotes another analyst who perfectly sums up the world…

  “The markets in China now are not really markets,” Donald Straszheim, head of China research at New York-based Evercore ISI, said on Bloomberg Television last week.

   

  “They are government operations.”

  But as one manager concluded, if state-run funds withdrew support to test whether shares could stabilize at current levels on their own, the resulting retreat may prompt the government to step back in immediately to prop up prices, said Hann, who oversees about $350 million. On the other hand, if policy makers are starting to unwind support measures to let the market play a bigger role, shares may have further to fall, he said.

  And here is CNBC from June 10th proclaiming how awesome the Chinese Stocvk Bubble was…

  Farmers are eschewing crops to plough their cash into the booming stock market, a journey by CNBC into the heart of rural China discovered

   

   

  Six months ago, apple farmer Liu Jianguo invested $8,000 into the Shanghai Composite, a big chunk of his life savings.

   

  "It's a lot easier to make money from stocks than farm work," he told CNBC's Eunice Yoon.

   

  …

   

  The investment craze in Chinese rural areas comes as more retail investors play a bigger role in the market, encouraged by the Shanghai Composite rally which has risen 110 percent since last November.

   

  Moreover, the country's high degree of financial literacy is a key factor; China ranked first in the investment component of the MasterCard Financial Literary Index Report this April.

   

  "China is just beginning to catch up. In the United States 50 percent of families are investing in stock markets [whereas] in China, it's less than 9 percent," said Uwe Parpart, MD and head of research at Reorient Financial Markets.

  Maybe farmwork is better after all?

  As we noted earlier, clearly, this is has the potential to exacerabte capital outflows given the pressure it could put on the yuan. Nevertheless, "stabilizing" the market is likely to take precedence in the short-term which is why you should expect the plunge protection headlines to come fast and furious. And sure enough, just moments ago:

  • CHINA TO CONTINUE STABILIZING MARKET, SENTIMENT, PREVENT RISKS
  • CHINA SEC. FIN. CORP. HASN’T EXITED STOCK MARKET: CHINA’S CSRC

  And for comic relief, we'll leave you with the following comment from Finance vice-minister Zhu Guangyao, also from July 18: 

  "[The turmoil] has come to an end."

  Umm no, not so much!

  *  *  *

  There is only one thing left…

  China preparing internment camps for malicious sellers.

  — zerohedge (@zerohedge) July 28, 2015

   

  Charts: Bloomberg

  

  

  

  

  

• Elon Musk Is Preparing For The Killer Robot Wars Of Tomorrow

  “Starting a military AI arms race is a bad idea,” an open letter presented at the International Joint Conference on Artificial Intelligence in Buenos Aries and signed by such luminaries as Stephen Hawking and Elon Musk says.

  The letter looks to be an effort to dissuade governments from developing weapons systems with offensive capabilities that can operate “without human intervention.” The plea comes as the world begins to ask tough questions about AI amid frightening portrayals in cinema (Ex Machina) and real world (if rudimentary) efforts to build killer robots reminiscent of the T-1 terminator. 

  

  Although the letter notes that the world’s top AI researchers have no interest in unleashing Skynet, that’s precisely what will happen once an enterprising nation kicks off the “inevitable” AI arms race, experts say. Once these weapons find their way to the battlefield, the letter continues, it would then be only a matter of time before they hit the black market, at which point they would wind up in the hands of terrorists and all sorts of other unsavory individuals including dictators and tribal warlords. 

  Ultimately, the note is a call to action and suggests a ban on “offensive autonomous weapons.”

  The authors cite similar international agreements on chemical and biological weapons, space nukes, and lasers that blind people. But for everyone out there who enjoys a good drone strike debacle every now and again, don’t worry because the signatories (which also include Steve Wozniak and Noam Chomsky) are just fine with real-life Carrie Mathisons incinerating “terrorists” from the stratosphere (just forget about the occasional collateral damage).

  *  *  *

  Full letter

  Autonomous Weapons: an Open Letter from AI & Robotics Researchers

  Autonomous weapons select and engage targets without human intervention. They might include, for example, armed quadcopters that can search for and eliminate people meeting certain pre-defined criteria, but do not include cruise missiles or remotely piloted drones for which humans make all targeting decisions. Artificial Intelligence (AI) technology has reached a point where the deployment of such systems is — practically if not legally — feasible within years, not decades, and the stakes are high: autonomous weapons have been described as the third revolution in warfare, after gunpowder and nuclear arms.

  Many arguments have been made for and against autonomous weapons, for example that replacing human soldiers by machines is good by reducing casualties for the owner but bad by thereby lowering the threshold for going to battle. The key question for humanity today is whether to start a global AI arms race or to prevent it from starting. If any major military power pushes ahead with AI weapon development, a global arms race is virtually inevitable, and the endpoint of this technological trajectory is obvious: autonomous weapons will become the Kalashnikovs of tomorrow. Unlike nuclear weapons, they require no costly or hard-to-obtain raw materials, so they will become ubiquitous and cheap for all significant military powers to mass-produce. It will only be a matter of time until they appear on the black market and in the hands of terrorists, dictators wishing to better control their populace, warlords wishing to perpetrate ethnic cleansing, etc. Autonomous weapons are ideal for tasks such as assassinations, destabilizing nations, subduing populations and selectively killing a particular ethnic group. We therefore believe that a military AI arms race would not be beneficial for humanity. There are many ways in which AI can make battlefields safer for humans, especially civilians, without creating new tools for killing people.

  Just as most chemists and biologists have no interest in building chemical or biological weapons, most AI researchers have no interest in building AI weapons — and do not want others to tarnish their field by doing so, potentially creating a major public backlash against AI that curtails its future societal benefits. Indeed, chemists and biologists have broadly supported international agreements that have successfully prohibited chemical and biological weapons, just as most physicists supported the treaties banning space-based nuclear weapons and blinding laser weapons.

  In summary, we believe that AI has great potential to benefit humanity in many ways, and that the goal of the field should be to do so. Starting a military AI arms race is a bad idea, and should be prevented by a ban on offensive autonomous weapons beyond meaningful human control.

  *  *  *

  And while we certainly agree that no one wants to live in a world where autonomous marauding robots roam the earth indiscriminately eliminating targets of their own choosing, we fear the revolution may have already begun… in Connecticut:

  

  

  

  

  

• Chess Vs Checkers – John Kerry Edition

  Presented with no comment…

   

  

   

  Source: Townhall.com

  

  

  

  

  

• Beware, The Disappearing Retirement Fund

  Submitted by Jeff Thomas via Doug Casey's InternationalMan.com,

  As a general principle, I’ve always tended to avoid entrusting others with my money. I’ve avoided funds, as they are often based upon investments that are peaking or close to peaking. I’ve avoided pension funds, as they’re often structured in a similar manner.

  And whenever by law I’ve been required to be invested in such funds, they’ve rarely been successful over the long term. In the end, I would invariably have made more money by pursuing those investments that had great promise but at the time were unpopular (and therefore underpriced).

  As dubious as I tend to be of conventional investment schemes (and those who broker them), I am doubly dubious of any government-run scheme. Governments, historically, have proved to be poor money managers, and politicians tend to place more value on big promises that garner votes than on delivering on those promises.

  And so, I’m predictably biased as to the likelihood of any form of fund that any government may be involved in. Even if it’s structured well, which it may well not be, governments, if they have the power to do so, will tap into the fund, draining it of the intended recipient’s contributions, leaving the fund exposed, should a crisis occur.

  And, periodically, crises do occur. Presently, the First World is facing an economic crisis of unprecedented proportions.

  As someone who advises on internationalisation (the practice of spreading one’s self both physically and economically over several jurisdictions in order to avoid being victimised by any one jurisdiction), I’m regularly asked what the optimum level of diversification might be for an individual in a given situation.

  Whilst many of these individuals can unquestionably benefit from such diversification, there are quite a large number of people who are in the age sixty-and-over category who state that they’re hoping to get by solely on their Social Security and their pension. (If the investor is an American citizen, this often means a 401(k) or similar fund.)

  For these individuals, I’m afraid it’s difficult to provide encouraging advice, as their retirement is rooted in what I consider to be dead-end investments that will diminish drastically, or disappear, long before the individual reaches his own demise.

  Social Security

  The Social Security fund of virtually every country that has one is woefully underfunded. Typically, these funds have relied on the next generation’s contributions to pay for the benefits to those presently retired or retiring.

  Unfortunately, the original premise, back when Social Security was introduced, was that the population would always increase. During the baby-boomer years, benefits were ramped up dramatically, as there were so many younger workers per retiree.

  But now, that relationship has reversed. The baby-boom generation lasted for 18 years, so each year, for 18 years, the ratio of working people will diminish against those who have retired.

  Ergo, each year, those working will need to be taxed more heavily if the system is to continue. Unfortunately, at some point, we reach the tipping point and the concept itself is no longer viable. After that point, benefits will be reduced and, possibly, eliminated altogether.

  When retirees first hear this, their reaction is usually, “But that’s not fair. I paid in, all my life. They can’t do this to me.” Unfortunately, it is not a question of “fair”. It’s a question of arithmetic. The promised benefits will decline. As a result, those who are counting on Social Security to sustain them in their retirement will find themselves short.

  Pension

  Similarly, pensions are at risk. Most pensions are invested, to a greater or lesser degree, in the stock market. Most funds pride themselves on being “diversified”, by which they mean that they are invested in a variety of stocks.

  Unfortunately, when a stock market crashes, good stocks often head south along with failing stocks, as brokers seek to save their skin by unloading portfolios. (This does not mean that some potentially solid stocks will not experience a recovery in time, but few will ride out a crash unaffected.)

  At present, the stock market is being propped up artificially and is overdue for a crash. Although it would be impossible to predict a date, a crash, if it occurs, would have a major and permanent effect on a pension scheme.

  But, wait… there’s more.

  As if these threats to planned retirement were not enough, there’s a further threat. As previously stated, many governments are financially on the ropes, and historically, when governments find themselves on the verge of insolvency, they invariably react the same way: go back to the cash cow for a final milking. Each of the jurisdictions that is in trouble at present, has, in its playbook, the same collection of milking techniques.

  One of those will have a major impact on pensions: the requirement that pension plans must contain a percentage of government Treasuries.

  Political leaders have already announced that there’s uncertainty in the economic system and pensioners may be at risk. Therefore, whatever else happens to their plans, it’s essential that a portion of them be guaranteed against failure. Therefore, legislation will be created to ensure that a percentage be in Treasuries, which are “guaranteed”.

  Sounds good. And people will be grateful. Unfortunately, the body that is providing the guarantee is the same body that has created the economic crisis. And if the government is insolvent, the “guarantee” will become just one more empty promise.

  Recently, the US Supreme Court ruled that employers have a duty to protect workers invested in their 401(k) plans from mutual funds that perform poorly or are too expensive. By passing this ruling, the US government has the power to seize private pension funds “to protect pensioners”. It also has the authority to dictate how funds may be invested.

  The way is now paved for the requirement that 401(k)s be invested heavily in US Treasuries. (Some are already voluntarily invested, as much as 80%.)

  Game Over

  And so, those who hope to fund their retirements primarily with Social Security and 401(k)s, may well find themselves virtually without retirement income.

  The question is whether this means “Game Over” for millions of Americans (and since similar developments are taking place in many other countries in the world, millions more in the EU, Canada, etc.)

  And, yes, it does mean “Game Over” for many, unless they choose to exit a system that is set to collapse like an old mine shaft, trapping its occupants.

  Still, there remains a brief window of opportunity, and that opportunity is to pay the penalty for exiting the system and internationalising whatever level of wealth can be salvaged.

  Ideally, this means physically moving to a jurisdiction where such conditions do not exist, but a more limited escape may be created by removing as much money as possible from the retirement fund, moving it to a less risky jurisdiction and converting it to those forms of wealth storage that are least likely to be targeted by rapacious governments and corrupt banks.

  Accepting the realization that the piggy bank will be less full is a painful one but is far less painful than to face the day when the piggy bank is all but empty.

  

  

  

  

  

• Commodity Carnage Will Hurt These 10 States The Most

  As we’ve seen in Louisiana and West Virginia, the commodities downturn has had a real impact on state budgets. 

  Back in April for example, we explained how a sharp decline in oil tax revenue helped push LSU to the brink of bankruptcy and in West Virginia, the impact of falling coal prices has put significant pressure on the state’s books. 

  The commodities rout can be at least partly explained by a combination of two factors. Slumping demand from China (i.e. a cessation of the bid which, in the pre-crisis world, producers assumed would exist in perpetuity) and easy access to capital markets (thanks to ZIRP) have helped create a global deflationary supply glut which will likely put continued pressure on prices for the foreseeable future. Underscoring the depth of the downturn is the following table from Morgan Stanley:

  

  Amid the carnage, Bloomberg is out with a look at which US states will be hurt the most by the commodities “meltdown.” The following map shows what percentage of each state’s GDP is derived from energy, mining, and agriculture:

  

  Here’s more color from Bloomberg:

  In the brutal commodities meltdown, all U.S. states are not created equal.

   

  In fact, the impact has been vastly different. The Bloomberg Commodity Index last week reached a 13-year low and has plunged 61 percent since its peak in 2008. That matters a lot in, say, Wyoming, Louisiana, Texas and Nebraska. Not so much in New Jersey or Massachusetts, for example. 

   

  Wyoming is home to most of the top producing coal mines in the U.S. Its mining and agriculture industries generated 36 percent of its economic output in 2014, more than any other state, according to Moody’s Analytics’s calculations using Commerce Department data. 

   

  The top nine states on the map got  at least 10 percent of their gross state product from energy, mining and agriculture last year: Wyoming, Alaska, North Dakota, West Virginia, Oklahoma, Texas, New Mexico, Louisiana and South Dakota. Another six got more than 7 percent, compared to just 3.9 percent for the U.S. as a whole.

   

  New Jersey, Massachusetts, New York, Rhode Island and Connecticut have almost none of their economies in those industries, just 0.3 percent or less.

   

  A year ago, Federal Reserve policy makers and many private economists viewed falling oil prices as an economic boom that would boost consumer confidence and spending. While there’s been some evidence of that in restaurant sales for example, it’s been partly offset by the slowdown in mining and farming that has reduced employment in a checkerboard of states.

   

  The commodities collapse has cut monthly employment gains in the U.S. by around 50,000 a month this year, estimates Mark Zandi, Moody’s chief economist in West Chester, Pennsylvania.

   

  

  

  

  

• Why China Will End Up Like Japan

  Submitted by Eugen von Bohm-Bawerk via Bawerk.net,

  When Nixon took the dollar off gold on August 15th 1971 he did not end the Bretton-Woods arrangement. On the contrary, he exacerbated the very same destructive effects that had forced him to renege on the promise to pay gold at a fixed exchange rate to the dollar in the first place. To fund wars and an ever expanding welfare state the custodian of the global reserve currency had fallen for the almost irresistible temptation to print excess dollars above and beyond what was prudent relative to bullion levels.

  After closing the gold window no such restrictions were there to notionally hold back the Americans. As long as international producers were and are willing to accept dollars as final payment for their goods and services the exorbitant privilege can continue.

  While it may seem like a boon for the US to be able to consume globally produced goods more or less for free it does come with nasty side effects. In essence, the exchange of something for nothing consumes- and misallocates capital on a grand scale. US producers, which must pay their suppliers and workers with real goods and services, cannot compete with foreigners that charge nothing more than a change in some electronic ledger somewhere in the fuzzy world of global banking.

  It is true that these changes charged for goods and services are claim on future US production, but that is a problem for tomorrow, not today, and tomorrow someone else will have to deal with it.

  We argue that tomorrow is getting real close, but that will be a discussion for another day. Here and now we will focus on global economic ramifications from American dollar emission.

  In the Bretton-Woods period dollars were pyramided on top of reserve gold holdings while another layer of fiduciary dollar claims were pyramided on top of the issued dollars in a fractional reserve banking system. In addition to this, Eurodollar claims abroad added another layer to the pyramiding of fiat money in the global reserve system. While a Eurodollar is in itself 100 per cent backed by actual dollars, further fiduciary claims to dollars, for which no dollars actually exists, are bread and butter in this system; hence the need for Federal Reserve SWAP lines in times of stress in financial markets.

  Bretton-Woods did pay lip service to gold as a monetary metal, but after 1971 even this loose connection was dissolved completely. There was nothing but a shortage of collateral to hold back an enormous expansion of various dollar claims all over the world; and with securitization only limited to the imagination of Wall Street, collateral shortages turned out to be mere illusory. In other words, limited financialisation in the decades during the Bretton-Woods and centuries of capital accumulation turned out to be a match made in heaven which spewed out collateral babies en masse as soon as the shackles from the barbarous relic was severed once and for all; setting the perfect stage of massive dollar claim issuance.

  As a side-note, we do not regard the so-called deregulation of the banking system from the 1980s as deregulation in the proper sense, but rather a Faustian Bargain between a state sponsored banking cartel and the state itself, in a ill-fated attempt to increase money velocity to fund pet projects and make credit readily available for the unworthy borrower (credit is not something that can be given to anyone, but something they already have through prior actions, deed and reputation).

  Needless to say, a profligate state with a printing press coupled together with a “deregulated” banking system financialising collateral as never before to expand dollar claims on top of the freshly printed money created excesses unimaginable under the proper Bretton-Woods system. In short, Nixon took the problems with Bretton-Woods and brought them to a completely new level.

  With nothing holding them back, dollar claims grew and grew as can be represented in the global current account chart below. From the early 1980s the US started to accumulate an increasing current account deficit, and Japan was the willing recipient of global dollar claims. The US manufacturing base got hollowed out in competition with the Japanese and domestic calls for unfair competition through Japanese currency manipulation grew ever louder due to the fact that global faith in the US dollar was restored after Volker successfully fought the great inflation from the 1970s; leading to a 50 per cent appreciation of the US dollar from 1980 to 1985. However, concerted action by France, the UK, the US and West Germany and Japan to depreciate the US dollar in relation to Japanese Yen and German Deutsche Mark signed September 22, 1985 at the Plaza Hotel in NYC reversed the five year old trend.

  The US dollar depreciated by 51 per cent from 1985 to 1987 and looked like it would break the back on the Japanese export miracle of the early 1980s. Not coincidentally, the global current account imbalance peaked in 1985 as the Plaza Accord got going.

  Japanese authorities panicked as their export dependent economy essentially came to a halt in the first half of 1986 with the economy in recession and the exchange rate appreciating rapidly. A sizeable Keynesian “stimulus” package was introduced to substitute domestic demand for waning foreign demand. Policy interest rates were reduced by about 3 percentage points; a large fiscal package was introduced in 1987, despite the fact that the economy showed signs of a robust recovery. In response to free money and centralised demand management the economy was actually booming again by 1987. Unsurprisingly, the free money found its way into existing assets as investing for an uncertain future was less of an option. In any case, the once lucrative export sector had accumulated massive overcapacity so there were few easy profit opportunities to be found.

  Stocks and urban land prices tripled between 1985 and 1989 as a constant stock of assets were chased by in increasing level of money. Speculation and flipping houses suddenly became the easy route to riches; even the stoic Mrs. Watanabe jumped the speculative bandwagon.

  The whole edifice obviously collapsed on the weight of its own absurdity and the Japanese, with firsthand experience of the wonders of Keynesian demand management, thought they could pull off the same trick again. New stimulus packages was tried, interest rates were dropped to the ZLB and early versions of quantitative easing all failed to reinvigorate the once mighty Japanese economy. All the pundits that had used their ruler’s on Japan’s GDP to claim it would be the world’s largest by 1999 were ridiculed and soon forgotten.

  Japan did everything wrong. They should allow bankruptcies, defaults, resource reallocation and unemployment. The dollar demand would not come back to support the export sector to the extent it had before the Plaza Accord. It was time to readjust the whole economic structure, but that would be painful in the short term, and the Japanese did not allow that to happen creating a zombie economy instead.

  

  Source: International Monetary Fund (IMF), Bawerk.net

  In 2008 the global financial crisis hit the world economy after a massive build-up of financial imbalances again rooted in dollar claim issuance. While global imbalances “only” reached about 1.5 per cent of global GDP in 1985 it had reached more than 2 per cent in 2008. Even worse, imbalances had been allowed to build up over almost 10 years, as opposed to only four back in 1985.

  Just as in 1985, political pressure on China to revalue its exchange rate was growing, and the Chinese responded accordingly, though more reluctantly than the Japanese did in 1985. When the bubble burst Chinese authorities had the option of going all in, or accept failure and massive social unrest. The choice was simple; an unprecedented monetary and fiscal “stimulus” package was the favoured option. By substituting domestic demand for collapsing foreign demand the Chinese believed they could avoid the consequences of years of market/reality suppression.

  It appeared to work just as it did in Japan, as the Chinese economy steamed ahead for several more years after 2008. Continued demand from China also helped desperate commodity producers which were set to years of pain after 2008. Instead, excess capacity continued to be piled on top of already malinvested resources for seven more years making the problems that much larger.

  It is all a mirage though. Just as in Japan, the Chinese will not allow the market process to do its magic to get the economy back on a stable footing. Draconian measures to stop the recent stock market rout are a clear testimony of that. In other words, the Chinese economy will resemble that of Japan, and it will do so very soon, if it is not already there. Global commodity producers will be crushed and once again all the pundits proclaiming Chinese global dominance with the Yuan as the new world reserve currency will be put to shame. It will not happen; the “miracle” will turn into a nightmare.

  

  Source: Bureau of Economic Analysis (BEA), International Monetary Fund (IMF), Bawerk.net

  Concluding remarks

  Global “dollar” issuance looks like genuine demand based on prior production but it is not. Export powerhouses fall into the trap and think the domestic boom they are living through is because they are exceptional. Old socialist are celebrating the fact that alternative growth “models” can outpace freer societies in the west, but these are often nothing more than pragmatic command economies with little ability to change in times of hardship. Just as Japan thought they could go back to pre-Plaza Accord growth rates by holding on to the old ways in the 1990s, the Chinese will expect the growth miracle to return in 2016 with the “right” policies. It will not. China is heading straight into a zero growth environment, and will be mired there for years to come.

  

  

  

  

  

• Majority Of Americans Now See Guns As The Solution To Mass Shootings

  Obama failed: in the aftermath of the 2012 Newtown, CT school massacre which left 26 unarmed, defenseless people dead, the president pushed as hard as he could to pass legislation that would enact strict gun control and further limit the applicability of the Second Amendment. Not only did he not succeed, but according to a 2014 Pew Research Poll there has been a 9% rise in the number of Americans who think gun ownership could “protect people from becoming victims of crime.”

  

   

  Incidentally, this conforms with what former Texas governor Rick Perry, and a 2016 GOP presidential candidate, said after last week’s deadly shooting at a Lafayette, La., movie theater when he claimed that Americans should be allowed to bring guns into movie theaters – and everywhere else – to prevent such crime.

  It is also a recapitulation of what NRA head Wayne LaPierre has said in the past: “The only thing that stops a bad guy with a gun is a good guy with a gun.”

  According to Pew, the recent shift was driven by republicans who have become even more convinced their outlook is correct: in the two years since the Newtown attack,  rose from 63 percent to 80 percent.

  The poll also marked the first time in two decades of Pew surveys that more Americans supported gun rights rather than gun control (though public opinion had been shifting that way for years).

  

   

  Incidentally, WaPo which caught these revelations first, despite its anti-gun bias was largely accurate in its conclusion: the findings “likely won’t move the needle on gun debate. Both sides can — and are — using these two most recent incidents to argue their points: Gun-control supporters say they prove that the background check system needs to be revamped and expanded, while gun-rights supporters say a slip in the system does not a trend make.

  It’s even clearer that gun laws likely won’t change when you zoom out to Americans’ overall feelings on guns; with every mass shooting, in fact, we seem to be embracing the idea of more guns rather than fewer.

  Which means that the biggest loser is none other than the president, for whom his way of gun-control was one of the key targets, so to say, of his tenure.

  It also means that current and future mass shootings will do nothing to change public opinion but merely further solidify beliefs. And while politicians debate who is right or wrong, and for what reason, many more innocent Americans will be, for whatever the reason may be, innocent casualties of what has become a very lethal political war.

  

  

  

  

  

• A Philadelphia Story – 30 Blocks Of Squalor & Government Incompetence

  Submitted by Jim Quinn via The Burning Platform blog,

  

  There were two accidents on the Schuylkill Expressway last Monday morning. You know what this meant. I had the pleasure of traveling to work on the scenic 30 Blocks of Squalor. The 30 blocks from 69th Street in Upper Darby to 39th Street in West Philly is a tribute to government incompetence, failed government policies, shoddy union labor practices and fiscal mismanagement.

  This entire thirty block trek could be completed in 5 to 10 minutes if the hundreds of union government drones in the Philadelphia Streets Department would get off their fat asses and timed the lights. The blocks are identical in distance. They don’t need advanced degrees in physics or calculus to set the lights to go green every ten seconds in order. They were timed in the 1970s and 1980s. Would smoothly flowing traffic be such a bad thing? Do they not care or are they really this incompetent? The first light at 61st Street was red when I arrived. It turned green and before you could touch the gas, it immediately turned yellow and red again. I wondered how long they’d allow this to go on. My guess would be days.

  I’ve noted in previous 30 Blocks screeds that Philadelphia put a thin veneer of blacktop on the entirety of Chestnut Street about two years ago. I’ve also detailed the dozens of water main breaks that occur on a regular basis under the streets of Philadelphia, causing tens of millions in property damage. This is how corrupt incompetent government drones run the show. They gloss over the long-term real structural problems with a thin veneer of cheap half assed faux solutions that provide the false appearance of fixing something.

  Ignoring the deeply rooted fundamental issues like crumbling hundred year old pipes and dangerous disintegrating Amtrak traintracks, while throwing down some blacktop, painting white bike lanes on streets where no one in their right mind would ride a bike, and installing wheel chair ramps on every corner even though a wheel chair could never navigate the crumbling trash strewn sidewalks, is the height of willful dishonesty and incompetence. Two years after smoothing over the bumps and potholes on Chestnut Street with tons of blacktop, driving the 30 Blocks of Squalor is now like driving in downtown Baghdad after a Sunni/Shia family reunion.

  

   

  There are gaping craters dotting the landscape along the entire putrid route of boarded up hovels, dying businesses with bars on every window, collapsing porches, sidewalks strewn with trash & debris, and murals of black people doing great things. The streets are literally collapsing into the rat infested sewers below. There is an occasional orange cone in front of the gaping holes, but most are unidentified until your car blows a tire or ruins their alignment. Cars come to sudden stops if they recognize the danger ahead. If the lights were timed this would be a real bummer. Luckily the average speed is 10 miles per hour, so you can usually survive the trek.

  

  What is the point in spending millions of taxpayer dollars blacktopping streets which are crumbling from below? Why not fix the problems below before applying the blacktop above? Because the city is bankrupt. The infrastructure isn’t crumbling because they don’t have enough money. It’s crumbling because they have chosen to spend taxpayer money on gold plated pensions and health benefits for union government workers and teachers. They’ve wasted hundreds of millions on public schools that only graduate 50% of those entering and most of those graduates are functionally illiterate. They spend millions painting murals, giving tax breaks to mega-corporations like Comcast, and building sports stadiums for billionaires. The corruption, mismanagement, incompetence and stupidity of politicians, government bureaucrats, and union officials is breathtaking to behold.

  Building 101 luxury low income townhouses in the midst of squalor, depravity, drugs, crime, and welfare mentality, with $27 million of taxpayer funds is the kind of waste created by liberal do-gooder politicians like Michael Nutter and Barack Obama. The $27 million should have been spent replacing ancient water mains before they burst and destroyed businesses and homes, costing the city and its citizens millions in lost business and property damage. The Mantua Square debacle gets better by the day. It was built using Obama’s $900 billion porkulus funds. It sits within one of Obama’s Promise Zones in the Mantua section of West Philly. Last month they found a dead body on the same block as Mantua Square. Ten people were shot a few blocks away on the same night. Does it sound like this low income housing estate has upgraded the neighborhood?

  I’ve previously noted the eight retail store outlets built into the project remain vacant three years after their construction. It seems if you build it in West Philly they won’t come. Not one black entrepreneur has launched the next Google or even a new hip hop clothing store. Mayor Nutter said these retail outlets would revitalize the neighborhood. This is how liberal lunatic politicians think. They actually think a business would open in a neighborhood where median household income is $18,000, drugs and crime are rampant, the population is uneducated and unemployed, and the city taxes are outrageously high. The mind of a liberal is a waste of brain cells.

  But the story has gotten even better in the last month. This gated monument to liberal waste has now proven to be another testament to government incompetence. It is located on Wallace Street between 35th and 36th Street. Virtually every morning, I make a right turn at 34th and Wallace and then make a left turn onto 36th to get to my job. The street began to sink at 34th and Wallace about a month ago. Someone put up three orange cones, but nary a government union drone from the Streets Department has arrived to fix it. Of course, this is just a minor pothole compared to the moon sized crater at 35th and Wallace. It began to sink months ago. Someone eventually filled it with some blacktop, but it now has grown to approximately 5 feet in circumference  and three feet deep. The residents have filled it with crates and miscellaneous debris. Multiply this one block by hundreds to get a feel for the deterioration of this city.

  In the last few weeks it seems the taxpayer is getting the opportunity to pay union construction workers more money to fix the incompetent shoddy work they did when building this low income paradise. The picture below, besides showing the vacant retail outlets, emphasizes the protruding windows on each unit. Keep in mind you paid $245,000 per townhouse, just three years ago. The union construction workers are now ripping off the facings of every protruding window section and replacing them. Evidently, every one must be leaking. You can be sure the place was originally built with requirements that minority contractors must be used. I’m sure the taxpayer is paying a 40% union labor premium for more shoddy repair work. But at least they’ll be slow so they can milk this job for a few months. Incompetence abounds in Philadelphia. There is no accountability, no brains, no common sense, and when they are done – no money.

  

  Into this crumbling city of bumbling fools we have Pope Francis arriving in late September. The city will be overwhelmed with 2 million more people than normal. It’s a gridlocked shitshow on a normal day. It will become an epic clusterfuck during this week. I will either use vacation time or work from home. The incompetence of government was on full display last week as SEPTA announced to great fanfare that people would need a special Pope Pass to ride SEPTA during his visit. They hired a vendor with $500,000 of taxpayer funds to build a website where people could purchase a pass. The site crashed 15 minutes after it was launched and hasn’t been back up since. I wonder if the taxpayer will get a refund.

  It seems the politicians, government bureaucrats, union bosses, school board, and civic leaders of Philadelphia have achieved hierarchical nirvana.

  “In a hierarchy, every employee tends to rise to his level of incompetence.”

  Laurence J. Peter, The Peter Principle

  

  

  

  

  

• When Scary Headlines Don't Scare – Climbing The Wall Of Complacency

  From "Scary Headlines Don't Deter Investors" by Bernard Condon, originally posted by Associated Press,

  The U.S. economy is growing at a painfully slow pace. Greece still threatens the euro. Chinese stocks have just pulled out of a frightening free-fall. Big companies in the U.S. are struggling to boost profits.

  You might think it's been a rough year for investors, but it's mostly been a smooth ride – and a profitable one.

  Money is flowing into bonds issued by the riskiest of companies, home prices in some big U.S. cities are soaring, shares of technology companies are still near all-time highs – even after a drop this week – and auction houses are enjoying record sales of art. A Picasso painting sold at Christie's for $179 million in May, the highest ever for an artwork at auction, prompting one dealer to exclaim, "I don't really see an end to it."

  …

  Jack Ablin, chief investment officer of BMO Private Bank, thinks people have faced so many crises that they have become numb to fear. "Things have worked out," he says, "and that has emboldened investors."

  Maybe too much.

  For years, U.S. companies have kept profits rising by cutting costs to overcome slow sales. But they're lean now and it's getting harder to do that. In the past week, IBM, United Technologies, Caterpillar and Union Pacific fell after posting disappointing earnings or revenue for the latest quarter.

  "Ultimately, there comes a point where you can't cut more," says Kevin Dorwin, managing principal of San Francisco-based financial planner Bingham, Osborn & Scarborough. "You've got to grow the top line."

  After all results for the April-June period are tallied, analysts expect earnings per share for companies in the Standard and Poor's 500 index to drop from a year earlier, the first decline since 2009, according to financial data provider S&P Capital IQ. Revenue is forecast to fall for a second quarter in a row, nearly unheard of outside a recession, as Americans still hold back on spending six years after the financial crisis.

  It's gotten to the point that even the biggest bulls are conceding that, yes, after a tripling of prices since 2009, stocks are getting a tad expensive or, to use their delicate phrase, "fully valued."

  Homes in hot markets like Miami and Seattle are looking pricey, too. In San Francisco, prices have jumped 61 percent in just three years, according to the Standard & Poor's/Case-Shiller index.

  People are also putting money into "high yield" bonds, so called because the iffy companies that sell them must offer fat interest payments to get you to open your wallet. Or at least they used to. So heavy has been demand for the bonds, that these companies are paying interest of 6.6 percent, versus 10 percent four years ago.

  James Abate, chief investment officer of Centre Funds, thinks investors are too confident, and maybe a little blind.

  Earnings per share jumped in previous quarters, he notes, partly because earnings were spread over fewer shares after companies bought back billions of dollars of them. He also complains that financial analysts have focused too much on "adjusted" earnings that leave out all types of one-time costs. That makes companies look more profitable than they are.

  He's bracing himself for disappointing earnings from many companies. "I think we're on the verge of an earnings recession," he says.

  Or maybe just a recession.

  Most economists scoff at the idea, but David Levy, one of the few who called the last global recession in 2007-2009, thinks another one is likely. Since he made that prediction, China has slowed dramatically, Brazil has fallen into recession, and five of the 10 biggest global economies are either in one or teetering on the edge. The economy of Canada, America's biggest trading partner, has shrunk for four straight months.

  Financial analysts are largely shrugging off the fears. They like that stocks in the S&P 500 index are trading at 17.6 times their expected earnings for the next 12 months, according to S&P Capital IQ. That earnings multiple, as it's called, is only slightly higher – meaning more expensive – than the 15-year average of 16 times.

  But that assumes the analysts are correct and profits will start growing again this year, then leap by double-digit percentages the next. It also assumes that the companies' versions of earnings, the "adjusted" ones that Abate so distrusts, are reliable.

  Of course, it might all work out in the end.

  U.S. employers are hiring at a solid pace, so it's possible all those extra paychecks will spark more spending and higher revenue and profits.

  History also suggests it's unwise to bet against a bull market that has stretched into a seventh year. Prices have kept rising despite two Greek debt crises, a near debt default by the U.S. government, and, recently, Beijing's failed efforts to avert a crash in its stock market.

  "You can always tick off a list of worries," says one optimist, Mike Ryan, chief investment strategist at UBS Wealth Management Americas, "but markets tend to climb a wall of worry."

  Or is it a wall of complacency?

  You'd have to go back 3 1/2 years to find the last time investors got really scared, selling enough to push the S&P 500 index into a "correction," or drop of at least 10 percent.

  Abate, of Centre Funds, thinks stocks will soon fall by that much, possibly more, and so he's bought an insurance contract for his fund that will pay off when they do. "We're not complacent," he says, "about the complacency."

  *  *   *

  Source: @BernardFCondon

  

  

  

  

  

• Meanwhile, In Ethiopia

  China crashing, commodities plunging, emerging currencies imploding to levels last seen when LTCM blew up, Greece on the verge of deposit confiscations, the Apple Sachs Industrial average well in the red for the year, the US economy on the verge of an industrial recession, junk bonds bloodbathing, Donald Trump pulling ahead of Hillary… Meanwhile the president is in China’s African slave colony of Ethiopia… prioritizing.

  It’s the final week of #NationalIceCreamMonth—better take advantage. pic.twitter.com/WQk1T37XhU

  — Barack Obama (@BarackObama) July 27, 2015

  Obama visits “Lucy” remains as researcher points out that even Trump shares human ancestry: http://t.co/oCwYWxX4HN pic.twitter.com/zfnmuVtnjV

  — The Hill (@thehill) July 27, 2015

  

  

  

  

  

• "The Bucks Stop Here": Why Keynesian Economics Will Get Blamed For The Crash

  Submitted by Gary North via GaryNorth.com,

  For as long as the present economic system lumbers along, Keynesians will control the levers of power and influence. But when at last the system goes down in a heap, and central banks cannot restore the system, there will be a quest for answers.

  Keynesians have the long-run disadvantage of being in control of the tax-funded educational system. They are in charge of the major economic institution of our day, the Federal Reserve System. They will get blamed. When people's retirement plans are smashed, they are going to look for somebody to blame. That means Keynesians. The Keynesians will not be able to transfer this responsibility to somebody else. When you are in charge, the buck stops on your desk. In the case of Federal Reserve policy, it's not just the buck that stops on your desk. It's trillions of bucks.

  Academic economists never want to take responsibility for the outcome of their recommended policies. They always try to blame somebody else for not having implemented what the recommended. But when you come to the 14 people who are on the Federal Open Market Committee, which sets policy for the Federal Reserve, there is no place to hide. The FOMC almost always is unanimous in its policy recommendations. There may be one dissenter, but that's about it. So, there really is no place to hide. When the Federal Reserve finally is not in a position to restore economic growth by means of inflating the currency, Keynesians are going to get blamed.

  When you live by the Federal Reserve, you die by the Federal Reserve.

  HOW KEYNESIANS CONQUERED

  I first began reading economics in 1958. Like so many of my contemporaries who began to study free market economics in that era, I was introduced to economics by The Freeman. The editor was a good writer, and he did not let bad writers' articles into the magazine.

  In 1960, I took my first course in college-level economics. The instructor seemed incompetent to me. In reviewing his economic textbook 55 years later, I am still convinced that he was indeed incompetent. He was never famous. He never got tenure. He disappeared into academic oblivion. He was a Keynesian.

  I understood from my time in that class that academic economics is not based on any kind of logic that the average person can follow. This is one of the advantages that free market economists have. John Maynard Keynes could write cogent prose, but The General Theory (1936) is incoherent. Yet it gained an army of academic followers. It is the classic case of the emperor who had no clothes.

  How did Keynes get his followers? Because he defended what the academic world wanted in 1936. It defended government intervention. Governments had been intervening for five years by the time the book was published. There was no academic defense of this intervention. Younger economists had become disillusioned with free market economics, because free market economists, with the exception of the Austrians, could not explain why the depression in 1936 was as bad as it was in 1931.

  In other words, there was a loss of faith among younger economist regarding the academic establishment of 1936. The older academic economists in 1936 could not avoid this responsibility. The buck stopped there. They never recovered. By 1946, the year of Keynes's death, among younger economists, Keynesianism was becoming dominant. With the publication of Samuelson's textbook in 1948, it became dominant. By 1950, Keynesians dominated the economics profession, and the old-timers who may not have agreed were unable to follow the logic of Keynesianism. They were unable to do the mathematics that Samuelson was able to do. They looked like old fogies. They in fact were old fogies. They were not Austrian fogies. They could not defend their position.

  Today, the Keynesians are in the position of the non-Austrian economists in 1930. Things look shaky, but not out of control. The Federal Reserve seems to be beyond criticism. Central banking runs the world, but the world is obviously in trouble.

  ACADEMIC SCREENING

  Keynesians are not good writers. When it gets down to explaining economic cause-and-effect to the average person, the Keynesians helpless. The average person cannot follow Keynesian logic. There is a reason for this: there is no logic to it. The General Theory is illogical.

  Most critics inside the academic establishment had been fearful of saying this directly. They may refer to the dense text of the book, but they do not come out and say that the book was completely illogical. That would mean that their colleagues are holding to a system that is, at bottom, illogical. This would be true, but would keep you from getting tenure.

  Outside of the Keynesian academic establishment, there have been a few people who have said that Keynes's book is incoherent, and there is no logic to his system. The best example is Henry Hazlitt, but he only said it in 1959, and almost nobody read the book: The Failure of the "New Economics." The book is never footnoted by scholars. It is a fine book, but it was not written for an academic audience. It was not written in academic jargon. This is why it had zero influence in academia. It never had enough book sales within the conservative movement to gain a reputation.

  By 1959, Keynesianism was dominant in academia. In fact, it had been dominant for at least a decade. Hazlitt was truly John the Baptist, crying in the wilderness. So, in the year of my high school graduation, there was virtually nothing available that anyone had heard of to refute Keynesian orthodoxy. It was like some freshman college student trying to find out what was wrong with Freud. Orthodoxy was entrenched in academia.

  Nevertheless, the Keynesians' dominance in academia does not make the system coherent. It only enables members of the academic establishment to lord it over outsiders and amateurs who did not pass the screening process that academia imposes on candidates for the classroom.

  The Keynesians have always made a point never to mention Austrian economics. This was true in the late 1940's. It was true in my days in the 1960's. It is also true today. Keynesians do not introduce students to the most consistently anti-Keynesian materials. In the classroom, students might get a cursory reference to Marx, but nobody ever makes students study Marx's theory of surplus value, and certainly nobody is ever asked to read Baohm-Bawerk's refutation. In the early 1960's, almost nobody in the classroom ever mentioned Milton Friedman. Today, I suspect that Friedman and the monetarists do get some attention, but the Keynesians control the departments, and therefore they control the selection of the textbook for the undergraduate course in economics.

  They control the certification process. Monetarists can get through, as long as their mathematics is good enough. Keynesians use mathematics to screen candidates for the M.A.. Mathematics inherently is not applicable to economic theory, for the assumption that makes math applicable is market equilibrium: human omniscience. Only the Austrians maintain that mathematics is inherently inconsistent with economics. They defend this as an issue of epistemology, but no other school of opinion believes this.

  This is why there was no way to get from The Freeman in 1958 to a Ph.D. There still isn't. The academic guild screens out most people who believe in the unhampered free market. But in doing this, they also screen out people who can communicate well. This is the Achilles heel of academic economics today.

  SALVATION BY JARGON

  The students who get through the screening process have been forced to go through Keynesian economics and high-level mathematical training, neither of which leads to anything resembling the ability to communicate in English to an audience outside the academic guild.

  In other words, these people talk only to each other. Most professors in every field are tempted to enter into the world of jargon. They get tenure in a research university only by being able to communicate in this jargon. They have to get articles published in journals that are edited by specialists in the guild's jargon. At no stage of the academic process above the master's degree is there any attempt to communicate the truth of the guild to the public. Actually, there is almost no training in communications at all, at any level, but certainly above the freshman level. The materials introduced thereafter are designed to screen out people who can communicate to the general public.

  From the point of view of communicating to the general public, Keynesianism is at a distinct disadvantage. Keynesians espouse slogans. They tell us their goals. They insist that the government is capable of achieving these goals. But, as we look around ourselves, we see signs that the government is faltering.

  Back in the early 1970's, I met a very bright young man who was about 19 years old. He had become enamored with the free market by reading The Freeman. I was then on the staff of the Foundation for Economic Education, which published The Freeman.

  He told me that he had gone through an intellectual crisis. He had begun to doubt Austrian economics. He was told in college about the Keynesian system. So, he decided he would test the two theories of economics. He sat down to read Hayek's Road to Serfdom. Then he read Keynes's General Theory. He said that this exercise had cured him of Keynesianism.

  I think it would cure anybody who can think straight. Anyone who sits down to read Rothbard's Man, Economy, and State, and then reads the latest addition of Samuelson's economics textbook, is likely to come to the conclusion that he is not going to commit his life to defending Keynesianism.

  When you cannot communicate the logic of your position to an intelligent decision maker, and the key institution that you have defended has failed to deliver the goods, you are in trouble. So is the ideology you defend.

  The academic economists can get away with this, because funding is provided by taxpayers. Taxpayers have no say in any of this. The guild exists because of tax-funded education. This is true in every field. But in some fields, it is expected that you have the ability to communicate to the general public. The field of history is one of these. There are academic journals, and the journals are filled with narrowly focused articles. But historians are expected to be able to communicate the broad sweep of history to freshman students, which means that they have to be able to stand in front of a group and discuss historical cause-and-effect.

  THE AUSTRIANS' ADVANTAGE

  Today, unlike 1958, there is a huge body of supporting material, both academic and popular. This material is available free of charge on the website of the Mises Institute. This is why I am optimistic about the long run future of economic discussion. Austrians are trained to discuss. Keynesians are not.

  The Austrian School has a tremendous advantage over Keynesians. In fact, it has an advantage over virtually all other schools of opinion. The Austrians can communicate in simple terminology the basic truths of their position. The graduate school level of communication is still accessible by people who read The Freeman, as long as they read carefully. The topics of the graduate school are probably not interesting to people who can read The Freeman, but if they ever do get interested, they have access to this body of material.

  The Ludwig von Mises Institute is proving this on a regular basis. It has a lot of Internet traffic. It has more traffic by far than the website of the American Economics Association. The reason for this is obvious: the authors write in order to be understood. They want intelligent laymen to be able to follow their arguments.

  There will come a time when it will pay to be able to communicate. In a time of economic crisis, which is surely coming, the economist who can communicate the logic of his position, and then persuade people to take action in terms of this position, is going to have an advantage over any economist who does not have this ability. It is a matter of both logic and rhetoric. The Keynesians are short on both.

  

  

  

  

  

• Why Greece May Want To Reconsider Reopening Its Stock Market

  As The Greek government presses The ECB for 'permission' to reopen its stock market, it may want to reconsider. GREK, the Greek Stock Index ETF trading in US markets, is down over 3% today and has plunged to its lowest since the peak of the crisis in 2012 (near its lowest since 1989). Just as in China, The ECB (who is now very much in charge) seems to believe that if markets are not open for locals, then they have no 'real' idea just how bad things are.. and with National Bank of Greece stock trading at record lows (below $1), and the expectations of bail-ins looming, that is not what The ECB wants the people to see…

  Greece appears not to be 'fixed'…

  

   

  as Greek Stocks near their lowest since 1989

  

   

  As we noted previously,

  However, to understand what really happened, one should read the Bloomberg explanation, according to which it was the ECB which rejected proposals by Greek authorities to reopen country’s financial markets with no restrictions in place for both Greek and foreign traders, citing an Athens Exchange spokeswoman.

   

  Ministerial decree is now expected, setting some restrictions in use of money from Greek bank accounts for trading.

   

  And just like that, we wave goodbye to the Hellenic Republic, and greet the Mediterranean Vassal Province of Mario and Merkel. Because as of this moment, no Greek decision can be taken without the direct or indirect express prior approval of either the ECB and/or Berlin.

   

  And once the locals can finally cash out of the local banks which as we explained are an assured "doughnut" for existing equity investors pending either bankruptcy or massive dilution which will wipe out all existing stakeholders (the fate of depositors depends on whether a €25 billion source of liquidity can be found in very short notice) they will, which in turn will lead to another market closure for Greek stocks, only this time it will most likely be permanent.

  Charts: Bloomberg

  

  

  

  

  

• Putin Trolls Obama, Says FIFA's Blatter Deserves A Nobel Prize

  For FIFA’s Sepp Blatter it has not been a good year thanks to the US Department of Justice which in May, years if not decades after the entire world knew full well that FIFA is the second most corrupt and criminal organization in the world after Wall Street, decided to step in and spoil the racketeering and bribery party of 79-year-old Swiss.

  

   

  It is not clear why the DOJ, which has trillions in overt and covert criminality still left to tackle just on the island of Manhattan (or perhaps not, now that the statute of limitations on virtually all crimes has run out) decided to crack down on football, although according to many the ultimate target of this particular crackdown was none other than Russia’s hosting of the 2018 World Cup, and therefore Obama’s arch nemesis, Vladimir Putin.

  So earlier today, it was Putin’s turn to troll not only the DOJ, but also Barack Obama who is currently in Ethiopia as part of his African tour when in an interview aired by Swiss broadcaster RTS on Monday Putin said that Sepp Blatter deserves a Nobel Prize for his stewardship of soccer’s governing body.

  

  On Saturday, at a meeting with Putin in St Petersburg, Blatter said that FIFA, facing a major bribery scandal, had passed a resolution offering full support for holding the 2018 World Cup in Russia.

  “We all know the situation developing around Mr Blatter right now. I don’t want to go into details but I don’t believe a word about him being involved in corruption personally,” he said.

   

  “I think people like Mr Blatter or the heads of big international sporting federations, or the Olympic Games, deserve special recognition. If there is anyone who deserves the Nobel Prize, it’s those people.”

  Putin’s position is not surprising: in May, when the scandal broke, Putin harshly criticized the U.S. investigation into FIFA as meddling in matters that were outside its jurisdiction.

  He rekindled that criticism in the interview broadcast on Monday, and widened it to include Britain, noting that those two countries had bid to host the 2018 and 2022 World Cups.

  “The way there is this fight against corruption makes me wonder if it isn’t a continuation of the bids for 2018 and 2022.”

  It is, of course.

  As for Putin’s observation about Blatter’s Nobel price eligibility, he clearly is qualified for the “Peace” version – after all he hasn’t even droned thousands of innocent women and children to death – and considering how much Keynesian reconstruction, destructive as it may have been in the long-run, his World Cup awards have generated, not to mention illegal kickbacks for corrupt incompetent politicians, his “contribution” to the global economy and some of its most prominent thieves is well greater than that of Paul Krugman who is a mere op-ed scribbling dwarf by comparison.

  As such, it is about time the Nobel prize farce finally made a full circle, and award Blatter the Nobels for both Peace and Economics, two fields which in the New Paranormal are anything but what they seem.

  

  

  

  

  

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