- The Superpower Conundrum – The Rise and Fall of Just About Everything
Submitted by Tom Engelhardt via TomDispatch.com,
The rise and fall of great powers and their imperial domains has been a central fact of history for centuries. It’s been a sensible, repeatedly validated framework for thinking about the fate of the planet. So it’s hardly surprising, when faced with a country once regularly labeled the “sole superpower,” “the last superpower,” or even the global “hyperpower” and now, curiously, called nothing whatsoever, that the “decline” question should come up. Is the U.S. or isn’t it? Might it or might it not now be on the downhill side of imperial greatness?
Take a slow train — that is, any train — anywhere in America, as I did recently in the northeast, and then take a high-speed train anywhere else on Earth, as I also did recently, and it’s not hard to imagine the U.S. in decline. The greatest power in history, the “unipolar power,” can’t build a single mile of high-speed rail? Really? And its Congress is now mired in an argument about whether funds can even be raised to keep America’s highways more or less pothole-free.
Sometimes, I imagine myself talking to my long-dead parents because I know how such things would have astonished two people who lived through the Great Depression, World War II, and a can-do post-war era in which the staggering wealth and power of this country were indisputable. What if I could tell them how the crucial infrastructure of such a still-wealthy nation — bridges, pipelines, roads, and the like — is now grossly underfunded, in an increasing state of disrepair, and beginning to crumble? That would definitely shock them.
And what would they think upon learning that, with the Soviet Union a quarter-century in the trash bin of history, the U.S., alone in triumph, has been incapable of applying its overwhelming military and economic power effectively? I’m sure they would be dumbstruck to discover that, since the moment the Soviet Union imploded, the U.S. has been at war continuously with another country (three conflicts and endless strife); that I was talking about, of all places, Iraq; and that the mission there was never faintly accomplished. How improbable is that? And what would they think if I mentioned that the other great conflicts of the post-Cold-War era were with Afghanistan (two wars with a decade off in-between) and the relatively small groups of non-state actors we now call terrorists? And how would they react on discovering that the results were: failure in Iraq, failure in Afghanistan, and the proliferation of terror groups across much of the Greater Middle East (including the establishment of an actual terror caliphate) and increasing parts of Africa?
They would, I think, conclude that the U.S. was over the hill and set on the sort of decline that, sooner or later, has been the fate of every great power. And what if I told them that, in this new century, not a single action of the military that U.S. presidents now call “the finest fighting force the world has ever known” has, in the end, been anything but a dismal failure? Or that presidents, presidential candidates, and politicians in Washington are required to insist on something no one would have had to say in their day: that the United States is both an “exceptional” and an “indispensible” nation? Or that they would also have to endlessly thank our troops (as would the citizenry) for… well… never success, but just being there and getting maimed, physically or mentally, or dying while we went about our lives? Or that those soldiers must always be referred to as “heroes.”
In their day, when the obligation to serve in a citizens' army was a given, none of this would have made much sense, while the endless defensive insistence on American greatness would have stood out like a sore thumb. Today, its repetitive presence marks the moment of doubt. Are we really so “exceptional”? Is this country truly “indispensible” to the rest of the planet and if so, in what way exactly? Are those troops genuinely our heroes and if so, just what was it they did that we’re so darn proud of?
Return my amazed parents to their graves, put all of this together, and you have the beginnings of a description of a uniquely great power in decline. It’s a classic vision, but one with a problem.
A God-Like Power to Destroy
Who today recalls the ads from my 1950s childhood for, if I remember correctly, drawing lessons, which always had a tagline that went something like: What’s wrong with this picture? (You were supposed to notice the five-legged cows floating through the clouds.) So what’s wrong with this picture of the obvious signs of decline: the greatest power in history, with hundreds of garrisons scattered across the planet, can’t seem to apply its power effectively no matter where it sends its military or bring countries like Iran or a weakened post-Soviet Russia to heel by a full range of threats, sanctions, and the like, or suppress a modestly armed terror-movement-cum-state in the Middle East?
For one thing, look around and tell me that the United States doesn’t still seem like a unipolar power. I mean, where exactly are its rivals? Since the fifteenth or sixteenth centuries, when the first wooden ships mounted with cannons broke out of their European backwater and began to gobble up the globe, there have always been rival great powers — three, four, five, or more. And what of today? The other three candidates of the moment would assumedly be the European Union (EU), Russia, and China.
Economically, the EU is indeed a powerhouse, but in any other way it’s a second-rate conglomeration of states that still slavishly follow the U.S. and an entity threatening to come apart at the seams. Russia looms ever larger in Washington these days, but remains a rickety power in search of greatness in its former imperial borderlands. It’s a country almost as dependent on its energy industry as Saudi Arabia and nothing like a potential future superpower. As for China, it’s obviously the rising power of the moment and now officially has the number one economy on Planet Earth. Still, it remains in many ways a poor country whose leaders fear any kind of future economic implosion (which could happen). Like the Russians, like any aspiring great power, it wants to make its weight felt in its neighborhood — at the moment the East and South China Seas. And like Vladimir Putin’s Russia, the Chinese leadership is indeed upgrading its military. But the urge in both cases is to emerge as a regional power to contend with, not a superpower or a genuine rival of the U.S.
Whatever may be happening to American power, there really are no potential rivals to shoulder the blame. Yet, uniquely unrivaled, the U.S. has proven curiously incapable of translating its unipolar power and a military that, on paper, trumps every other one on the planet into its desires. This was not the normal experience of past reigning great powers. Or put another way, whether or not the U.S. is in decline, the rise-and-fall narrative seems, half-a-millennium later, to have reached some kind of largely uncommented upon and unexamined dead end.
In looking for an explanation, consider a related narrative involving military power. Why, in this new century, does the U.S. seem so incapable of achieving victory or transforming crucial regions into places that can at least be controlled? Military power is by definition destructive, but in the past such force often cleared the ground for the building of local, regional, or even global structures, however grim or oppressive they might have been. If force always was meant to break things, it sometimes achieved other ends as well. Now, it seems as if breaking is all it can do, or how to explain the fact that, in this century, the planet’s sole superpower has specialized — see Iraq, Yemen, Libya, Afghanistan, and elsewhere — in fracturing, not building nations.
Empires may have risen and fallen in those 500 years, but weaponry only rose. Over those centuries in which so many rivals engaged each other, carved out their imperial domains, fought their wars, and sooner or later fell, the destructive power of the weaponry they were wielding only ratcheted up exponentially: from the crossbow to the musket, the cannon, the Colt revolver, the repeating rifle, the Gatling gun, the machine gun, the dreadnaught, modern artillery, the tank, poison gas, the zeppelin, the plane, the bomb, the aircraft carrier, the missile, and at the end of the line, the “victory weapon” of World War II, the nuclear bomb that would turn the rulers of the greatest powers, and later even lesser powers, into the equivalent of gods.
For the first time, representatives of humanity had in their hands the power to destroy anything on the planet in a fashion once imagined possible only by some deity or set of deities. It was now possible to create our own end times. And yet here was the odd thing: the weaponry that brought the power of the gods down to Earth somehow offered no practical power at all to national leaders. In the post-Hiroshima-Nagasaki world, those nuclear weapons would prove unusable. Once they were loosed on the planet, there would be no more rises, no more falls. (Today, we know that even a limited nuclear exchange among lesser powers could, thanks to the nuclear-winter effect, devastate the planet.)
Weapons Development in an Era of Limited War
In a sense, World War II could be considered the ultimate moment for both the narratives of empire and the weapon. It would be the last “great” war in which major powers could bring all the weaponry available to them to bear in search of ultimate victory and the ultimate shaping of the globe. It resulted in unprecedented destruction across vast swathes of the planet, the killing of tens of millions, the turning of great cities into rubble and of countless people into refugees, the creation of an industrial structure for genocide, and finally the building of those weapons of ultimate destruction and of the first missiles that would someday be their crucial delivery systems. And out of that war came the final rivals of the modern age — and then there were two — the “superpowers.”
That very word, superpower, had much of the end of the story embedded in it. Think of it as a marker for a new age, for the fact that the world of the “great powers” had been left for something almost inexpressible. Everyone sensed it. We were now in the realm of “great” squared or force raised in some exponential fashion, of “super” (as in, say, “superhuman”) power. What made those powers truly super was obvious enough: the nuclear arsenals of the United States and the Soviet Union — their potential ability, that is, to destroy in a fashion that had no precedent and from which there might be no coming back. It wasn’t a happenstance that the scientists creating the H-bomb sometimes referred to it in awestruck terms as a “super bomb,” or simply “the super.”
The unimaginable had happened. It turned out that there was such a thing as too much power. What in World War II came to be called “total war,” the full application of the power of a great state to the destruction of others, was no longer conceivable. The Cold War gained its name for a reason. A hot war between the U.S. and the USSR could not be fought, nor could another global war, a reality driven home by the Cuban missile crisis. Their power could only be expressed “in the shadows” or in localized conflicts on the “peripheries.” Power now found itself unexpectedly bound hand and foot.
This would soon be reflected in the terminology of American warfare. In the wake of the frustrating stalemate that was Korea (1950-1953), a war in which the U.S. found itself unable to use its greatest weapon, Washington took a new language into Vietnam. The conflict there was to be a “limited war.” And that meant one thing: nuclear power would be taken off the table.
For the first time, it seemed, the world was facing some kind of power glut. It’s at least reasonable to assume that, in the years after the Cold War standoff ended, that reality somehow seeped from the nuclear arena into the rest of warfare. In the process, great power war would be limited in new ways, while somehow being reduced only to its destructive aspect and nothing more. It suddenly seemed to hold no other possibilities within it — or so the evidence of the sole superpower in these years suggests.
War and conflict are hardly at an end in the twenty-first century, but something has removed war's normal efficacy. Weapons development has hardly ceased either, but the newest highest-tech weapons of our age are proving strangely ineffective as well. In this context, the urge in our time to produce “precision weaponry” — no longer the carpet-bombing of the B-52, but the “surgical” strike capacity of a joint direct attack munition, or JDAM — should be thought of as the arrival of “limited war” in the world of weapons development.
The drone, one of those precision weapons, is a striking example. Despite its penchant for producing “collateral damage,” it is not a World War II-style weapon of indiscriminate slaughter. It has, in fact, been used relatively effectively to play whack-a-mole with the leadership of terrorist groups, killing off one leader or lieutenant after another. And yet all of the movements it has been directed against have only proliferated, gaining strength (and brutality) in these same years. It has, in other words, proven an effective weapon of bloodlust and revenge, but not of policy. If war is, in fact, politics by other means (as Carl von Clausewitz claimed), revenge is not. No one should then be surprised that the drone has produced not an effective war on terror, but a war that seems to promote terror.
One other factor should be added in here: that global power glut has grown exponentially in another fashion as well. In these years, the destructive power of the gods has descended on humanity a second time as well — via the seemingly most peaceable of activities, the burning of fossil fuels. Climate change now promises a slow-motion version of nuclear Armageddon, increasing both the pressure on and the fragmentation of societies, while introducing a new form of destruction to our lives.
Can I make sense of all this? Hardly. I’m just doing my best to report on the obvious: that military power no longer seems to act as it once did on Planet Earth. Under distinctly apocalyptic pressures, something seems to be breaking down, something seems to be fragmenting, and with that the familiar stories, familiar frameworks, for thinking about how our world works are losing their efficacy.
Decline may be in the American future, but on a planet pushed to extremes, don’t count on it taking place within the usual tale of the rise and fall of great powers or even superpowers. Something else is happening on Planet Earth. Be prepared.
- Greeks Turn To Bitcoin To Dodge Capital Controls
There is at least one legal way to get your euros out of Greece these days, to guard against the prospect that they might be devalued into drachmas: convert them into bitcoin. As Reuters reports, although absolute figures are hard to come by, Greek interest has surged in the online "cryptocurrency", as new customers depositing at least 50 euros with BTCGreece, the only Greece-based bitcoin exchange, open only to Greeks, rose by 400% between May and June.
Using bitcoin could allow Greeks to do one of the things that capital controls were put in place this week to prevent: transfer money out of their bank accounts and, if they wish, out of the country.
"When people are trying to move money out of the country and the state is stopping that from taking place, bitcoin is the only way to move any value," said Adam Vaziri, a board member of the UK Digital Currency Association.
"There aren't any other options unless you buy diamonds, and that's very difficult to move."
But Marinos said the bitcoin buyers' main aim was to shield their money against the prospect that Greece might leave the euro zone and convert all the deposits in Greek banks into a greatly devalued national currency. If voters reject the demands of international creditors in a referendum on Sunday, this becomes much more likely.
"A lot of people are keeping all the bitcoins they buy on our platform, until they understand what to do with them," Marinos said. "In their eyes, now they have bitcoins, they're safe."
* * *
With Bitcoin having surged from $238 to $268 in the last few days since Greek PM Tsipras announced Greferendum, it is clear it's not just the Greeks that are losing faith in faith-based fiat currencies.
Ironically, on June 20, Greece got its first bitcoin "ATM", in a family-run bookstore in Acharnes on the outskirts of Athens.
- FBI Admits 11 Attacks Against Internet, Power Grid Lines In California This Year
Submitted by Joshua Krause via SHTFPlan.com,
On Tuesday, someone broke into an underground vault in Sacramento, and cut several high-capacity internet cables. Nobody knows who this person is or why they did it, but since that time the FBI has revealed that it was not an isolated incident. They’ve been investigating 10 other recent attacks on the internet infrastructure of California, and they seem to be deeply troubled by the vulnerability of these cables.
The FBI is investigating at least 11 physical attacks on high-capacity Internet cables in California’s San Francisco Bay Area dating back a year, including one early Tuesday morning.
Agents confirm the latest attack disrupted Internet service for businesses and residential customers in and around Sacramento, the state’s capital.
FBI agents declined to specify how significantly the attack affected customers, citing the ongoing investigation. In Tuesday’s attack, someone broke into an underground vault and cut three fiber-optic cables belonging to Colorado-based service providers Level 3 and Zayo.
The attacks date back to at least July 6, 2014, said FBI Special Agent Greg Wuthrich.
“When it affects multiple companies and cities, it does become disturbing,” Wuthrich said. “We definitely need the public’s assistance.”
A security professional who was interviewed for that article, also suggested something that should perk the ears of any American that hears it.
“When it’s situations that are scattered all in one geography, that raises the possibility that they are testing out capabilities, response times and impact,” Thompson said. “That is a security person’s nightmare.”
The article goes on to compare these incidents to similar attacks that happened in Arizona last year, as well as California in 2009. However, they may be missing the bigger picture. This whole situation reminds me of an article I wrote just over a year ago about several attacks that were carried out against the power grid, which again, occurred in California and Arizona (weird right?). This included the very unsettling attack against a power station in San Jose, which wasn’t revealed until 10 months after the fact, and to date, there has been no explanation for the incident.
Rather than a bomb, the San Jose attack turned out to be a frighteningly coordinated shooting. It’s estimated that 6 individuals approached the facility late at night armed with AK-47’s, and opened fire, but not before sneaking onto the property and disabling the alarm system. The attackers managed to disrupt a total of 10 transformers, and escaped just before police arrived. Investigators would later find more evidence of just how professional the attack was:
“After walking the site with PG&E officials and FBI agents, Mr. Wellinghoff said, the military experts told him it looked like a professional job. In addition to fingerprint-free shell casings, they pointed out small piles of rocks, which they said could have been left by an advance scout to tell the attackers where to get the best shots.”
It should be abundantly clear now that some organization out there is quietly coordinating small-scale attacks against America’s power grid and internet lines. In my previous article, I suggested that they’re probing our infrastructure for weaknesses, and gauging reaction times and security. I still think that may be the case.
It’s possible that these attacks are all unrelated, but it sure doesn’t look like it to me. I won’t suggest who may be doing it since it’s impossible to know for sure, but it definitely looks like there is an organized effort of some kind to disable the electricity and communications of Arizona and California. We probably won’t know who it is until they get around to a full-scale attack, which given the vulnerability of America’s power grid, may be absolutely devastating.
- The $100 Trillion Bond Bubble Just Burst
The big story in the world is the bond bubble.
For over 30 years, sovereign nations, particularly in the West have been buying votes by offering social payments in the form of welfare, Medicare, social security, and the like.
The ridiculousness of this should not be lost on anyone. Politicians, in order to be elected, promise to allocate taxpayer funds on social programs that will benefit said taxpayers down the road (we’re simply talking about social spending, not infrastructure or other costs.
The concept that taxpayers might simply just keep the money to begin with never enters the equation. And because everyone believes that they are somehow spending someone else’s money, they play along.
When you believe that you are spending someone else’s money, it’s very easy to write a blank check, which is precisely what Western nations have been doing for years, promising everyone a safe and secure retirement without ever bothering to see where the money would come from.
When actual bills came due to fund this stuff, Governments quickly discovered that current tax revenues couldn’t cover it… so they issued sovereign debt to make up the difference.
And so the bond bubble was created.
The large banks, that have a monopoly on managing sovereign debt auctions, were only too happy to play along with this. The reasons are as follows:
1) They can use these alleged “risk-free” assets as collateral to backstop tens of trillions worth of derivatives trades. A $1 million investment in your typical US Treasury can backstop over $15 million worth of derivatives if not more. The profits from the derivatives markets remains a primary source of revenue for the banks.
2) Sovereign Governments are only too happy to bail out the big banks if the stuff ever hits the fan on the trades that are backstopped by the sovereign debt (see 2006 onwards). Since the banks are the ones holding the sovereign debt, they can always threaten to dump bonds, which would render the whole social welfare Ponzi bankrupt (see what happened in Europe when sovereign bonds collapsed in 2011-2012).
3) In a debt-based financial system such as the current one, sovereign bonds are the senior most assets in the system. Those who own these in bulk are at the top of the financial food chain in terms of financial, economic, and political clout.
Since it was rarely if ever a problem to issue sovereign debt, Governments kept promising future payments that they didn’t have until we reach today: the point at which most Western nations are sporting Debt to GDP ratios well north of 300% when you consider unfunded liabilities (the social spending programs mentioned earlier).
Now, cutting social spending is usually considered political suicide (after all, the voters put you in office in the first place based on you promising to pay them welfare payments down the road). So rather than default on the social contract made with voters, the political class will simply push to issue MORE debt to finance old debt that is coming due.
The US did precisely this in the fourth quarter of 2014, issuing over $1 trillion in new debt simply to pay back old debt that was coming due.
This is how the bond market becomes a bubble. Between 2000 and today, the global bond market has nearly TRIPLED in size. Today, it’s north of $100 trillion in size. And it’s backstopping over $555 trillion in derivatives trades.
There is literally no easy fix to any of this. The pain will be severe. And so everyone in charge of the important decisions (the political elite, the big banks, and the Central Banks) will push this as far as it can possibly go before taking the inevitable hit.
Greece just took a hit… and once again it’s depositors that will take it on the chin. But this process is only just begun. Similar Crises will be spreading throughout the globe in the coming months.
If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis "Round Two" Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.
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Phoenix Capital Research
- BofA's Dire Prediction: Only Direct Government Buying Can Save China Stocks Now
Even after this somewhat catastrophic drop, BofAML warns the Chinese market looks expensive. Deleveraging is likely far from over, they add, concluding that the market is a “falling knife” and only direct buying by the government will mark the bottom.
Via BofAML,
Bottom likely when govt becomes buyer of last resort
After reaching a peak of 5,166 on Jun 12, SHCOMP declined sharply by almost 30% to 3,687 within three weeks. The ferociousness of the sell-off even took us by surprise – although we have a 3,600 target for the index, we thought it would take another six months to get there. Given the momentum, the market bottom is highly unpredictable. As a result, we suggest investors stay on the sidelines for the time being. A few points worth highlighting:
The market is now a “falling knife”: even after all the government directed marketsupporting measures since last Saturday, including comb rate/RRR cuts, CSRC’s loosening of margin lending control & its cracking down on shorting activities, and organized commentaries from high profile local fund managers, the market still dropped sharply on four of the last five trading days and fell decisively through the psychologically important 4,000 level for SHCOMP. The market has clearly lost its nerve and many investors appear to be rushing to exit.
Drastic times calls for drastic measures: the government still has a few policies up its sleeve: it may get affiliated funds such as Huijin and the pension fund to buy, CSRC may suspend IPOs, insurance companies may be encouraged to enter into the market, MoF may cut stamp duty on stock transactions, and PBoC may announce more easing measures, among other possibilities. However, whether or when these policies can stabilize market sentiment is highly uncertain in our view – margin call pressure from unauthorized margin facilities appears enormous; even for those investors not under any immediate margin call pressure, they need to be convinced that the market will go up meaningfully for their leveraged positions to break even (due to high funding costs).
Deleveraging in the market is likely far from over: margin outstanding only declined moderately from the peak of Rmb2.3tr on June 18 to Rmb2.1tr by July 2. Deleveraging from unregulated margin channels is likely to be more substantial. Nevertheless, looking at the relatively subdued turnover in recent days, we doubt a significant portion of the positions had been unwound. The 10% limit-down rule is delaying a market clearance.
The government to become the buyer of the last resort? All the potential measures mentioned above will largely work on sentiment as direct inflows from these government affiliated entities will likely be moderate by our estimate. If the government fails to turn around sentiment quickly, it may have no choice but to become the buyer of the last resort in the market, similar to what HKMA did in 1998. Even then, things can be complicated: much of the unauthorized margins were used to buy small cap stocks. So the authority, with or without PBoC’s direct involvement, may have to buy stocks on a very large & very broad scale. If and when this happens, it will mark the true market bottom in the short term, in our view.
Even after the fall, the market looks expensive: some short term technical bounces aside after things stabilize, we suspect that the A-share market may enter into a multiyear bear market. The large losses could hurt current investors’ psychology severely and it may be years before the pain fades and/or a new generation of investors with no such bad memory emerges. Meanwhile, SHCOMP is still trading at 17x trailing 12M PER (31x ex. banks), with economic growth stalling and market earnings rapidly decelerating.
* * *
As Deutsche adds,
“so large are the losses for the 20 million accounts
opened from mid-April to mid-June that in aggregate no money has been
made for 2 years.”Now who could have seen that coming?
- Sugar Daddies Are Paying Their Share Of The $1.3 Trillion Student Loan Balance
Submitted by Daniel Drew via Dark-Bid.com,
As noted previously, we are in a new dark age where college does not pay. At $1.3 trillion, the student debt balance is not getting any smaller. Facing a lifetime of debt slavery, the millennial generation is doing whatever they can to avoid homelessness. Whether it's stripping or working at Rent A Gent, all options are on the table. Now, they are flocking to Seeking Arrangement to prostitute themselves so they can pay for school. Since 2009, the number of student sugar babies has increased by 1,200%!
The labor force participation rate for college graduates has been on a relentless downtrend.
It is getting even more expensive to go to school. Even after adjusting for inflation, college costs have gone up more than 400% in the last 30 years.
The student loan balance has nearly tripled in the last decade.
Many young people don't see any good alternatives to going to school, so they jump in head first. Facing enormous bills, they turn to sites like Seeking Arrangement for help. These aren't just women either. 15% of student sugar babies are men, and plenty of sugar mommas are on the site too.
Here are the numbers.
And here are the sugar babies by major.
The abundance of nurses on Seeking Arrangement shouldn't be surprising for regular readers. Personal care aides and nurses are the fastest growing jobs in America.
Here are the perks of Seeking Arrangement.
And here are the sugar babies.
Previously, it was common for students to take food and service jobs, but soon, you will hear college students casually sharing their day with their sugar daddy. Welcome to the modern hooker economy.
- Artist's Impression Of A Greek ATM
- Arctic Drilling Future Now Rests On One Well
Submitted by Charles Kennedy via OilPrice.com,
Royal Dutch Shell is nearing a start to drilling in the Arctic, but has run into some hiccups.
The U.S. government decided that Shell cannot actually drill both of its wells in the Chukchi Sea as planned. The Interior Department said that doing so would run afoul of its rules that protect marine life. According to those regulations, which were issued in 2013, exploration companies cannot drill two wells within 15 miles of each other. Shell had planned to drill two wells in the Burger prospect within a 9 mile range.
Environmental groups hoped that the Interior Department would throw out Shell’s drilling plan altogether, owing to the fact that the environmental assessment the agency conducted was based on the two-well drilling plan, according to Jennifer Dlouhy of Fuel Fix. Environmental groups argued that since the Interior Department didn’t actually conduct an assessment of a drilling plan consisting of just one well, the entire drilling program should be scrapped.
Interior didn’t buy these arguments, but still ruled that Shell can only drill one well this summer. Shell reiterated that it would move forward with drilling the lone well in the Arctic this year, having committed around $1 billion for the program.
Shell announced that it expects to be able to begin drilling by the third week in July after sea ice has melted sufficiently. Shell is still awaiting one last federal permit before it can begin drilling, and it is also awaiting the arrival of its second drilling rig in Alaska.
Separately, several oil companies recently announced that they were putting their Arctic plans on ice. A joint venture between Imperial Oil, ExxonMobil, and BP decided to shelve plans for exploration in the Canadian Arctic. They had permits that will expire in 2019 and 2020, and the group says that they will not be able to drill before then. More research is needed and since the companies are running out of time, they have decided to suspend work and lobby the Canadian government for an extension.
Last year Chevron decided to suspend its plans to drill in the Beaufort Sea after the collapse in oil prices made doing so unattractive. The move by Imperial and its partners likely puts any significant drilling in the Canadian Arctic on hold indefinitely.
As such, Arctic drilling in North America will come down to Shell’s one well in the Chukchi Sea.
- Gold Bullion Dealer Unexpectedly "Suspends Operations" Due To "Significant Transactional Delays"
What makes the current sovereign default episode different from previous ones is the uncanny stability and lack of buying of “fiat remote” assets such as gold and silver, and to a lesser extent, digital currency such as bitcoin. Indeed, all throughout the Greek pre-default escalation and ultimately, sovereign bankruptcy to the IMF, it seemed as if there was an absolute aversion to the peak of Exter’s inverted pyramid.
What is even more surprising about the lack of any gold price upside is that it is not due to lack of demand. Quite the contrary, because as Bloomberg wrote last week, “European investors are increasing purchases of gold as Greece’s turmoil boosts the appeal for an alternative to the euro.”
Demand from Greek customers for Sovereign gold coins was double the five-month average in June, the U.K. Royal Mint said in an e-mailed statement. CoinInvest.com, an online retailer, said sales on Saturday and Sunday were the highest since Cyprus limited cash withdrawals in 2013, driven by a jump in German, French and Greek buyers.
Investors are searching for a safe haven after Greece imposed capital controls, closed banks and stopped selling gold coins to the public until at least July 6. Chancellor Angela Merkel on Monday said Germany is still open to negotiations if Greece wants.
“Most of our common gold coins are sold out,” Daniel Marburger, a director of Frankfurt-based CoinInvest.com, said by phone. “When people learned that the Greek banks will be closed, they started to think that it may not be such a bad idea to have some money in gold.”
The bullion dealers themselves are enjoying a jump in sales to retail customers:
GoldCore Ltd., which buys and sells bullion, reported coin and bar demand rose “significantly” on Monday. Sales to U.K. and Ireland today are about three times the average for the past three Mondays, the Dublin-based firm said in an e-mailed statement.
The U.S. Mint has sold 61,500 ounces of American Eagle gold coins this month, the most since January.
BullionVault, which says it operates the largest online physical gold trading platform, reported a jump in sales during the first half of this year, a sign of a broader increase.
However, it is the “paper” gold market where things were most perplexing in recent months. Recall that, as Zero Hedge broke and first reported, in the first quarter of the year, or the same time the Syriza government took power, something very dramatic took place in the US derivatives market, where first JPM saw an absolute explosion of its commodity derivative holdings (a broad umbrella which is not broken down further):
… coupled wih Citi’s surge in “precious metals” derivatives which soared from $3.9 billion to $42 billion.
But what is most confusing is how even as physical metal demand clearly rose across Europe in the past few months and the price of paper gold actually declined, perhaps facilitated by some “hedged” derivative positions on the short side of precious metals, some bullion dealers have actually found it impossible to survive, and in the last few days at least one major gold bullion dealer, Bullion Direct, greeted customers with the following notice on its website:
Bullion Direct has experienced significant transactional delays. To avoid further inconvenience or other adverse consequences to our customers, Bullion Direct is suspending its operations as it attempts to resolve those issues. We intend to keep you informed at this website. Thank you for your patience.
Just what are “significant transactional delays” and how bad is the physical gold supply-chain if it can put at least one dealer out of business. Another question: is this a solitary failure by gold vendor due to a one-off problem with working capital, or is something more systemic about to be revealed in the gold bullion sales industry?
We look forward to finding out, but in the meantime our advice to buyers of physical precious metals is the same as always: if you purchased it and you can’t hold it in your hand, it isn’t yours.
- While the World Watches Greece THIS is Happening
By Chris at www.CapitalistExploits.at
Watching the ongoing Greek saga unfold is enough to make a blind man grimace. Capital controls which could be seen coming down the track like a freight train are but one more notch on the disaster stick called European Monetary Union.
Why talk of Greek debt negotiations is even taking place at all is the height of absurdity. It’s akin to discussing how large an area of the desert should be dedicated to growing lettuces. The answer which no Eurocrat is prepared to acknowledge is, “Who cares? Nobody should be so daft as to grow lettuces in the desert”.
Let’s all be honest, shall we. What we’re talking about here is foreign aid. It’s not about debt repayments. Nobody is getting repaid. Anyone still clinging to that hope is simultaneously still waiting for Santa to come down the chimney, the Easter bunny to show up and for “liberating” forces to find weapons of mass destruction in Iraq.
Let’s just table debt talks, call them what they are, which is foreign aid, and move this thing along. The problem with acknowledging the ugly truth is that German banks would then have to write down those “assets” on their balance sheets: “Jeez, it’d just be so much easier if we could keep them at par value and ensure we pick up that bonus at year end. And so we must endure more saga and carry on this game of pretense”.
While I could spend time on Greece, what I’m more interested in is what few are paying attention to while this Greek saga unfolds.
That is what is going on with the Chinese yuan.
We’ve recently made the argument for a weakening yuan. My friend Brad and I both went up against the yuan late last year and Brad detailed his thinking in October of last year, then again in December, where he delved into the Chinese banking system, and once again in March of this year.
That, ladies and gentlemen, is our current bias. We’re currently short. It’s important to establish one’s bias early on in order to attempt to understand any argument, so now you have ours. Often fund managers are selling a product which leads them into making decisions which have more to do with an agenda than with sufficient critical thought.
Let me say therefore that we have an opinion right now. But since we are not selling any product, hopefully we can keep our minds open.
Let’s see where we get to and then I’m going to show you why we have a decent crack at making money without having an opinion either way.
By many accounts the yuan is one of (if not THE) most overvalued currencies in the world right now. But there are just as many well thought arguments arguing the opposite saying that it is indeed undervalued.
Both sides have credible and well thought out ideas so let me attempt to summarise the most credible I’ve found.
Why the Yuan will Rise
Chinese policy makers are unlikely to let anything take place which rocks the yuan exchange rate boat.
The yuan fell to 6.28 in early March of this year before the PBOC stepped in and threw $33 billion at the “problem”, reversing the decline and sending it back up to where it trades today around 6.21. They have around $4 trillion in reserves so if, like us, you’re a speculator looking at firepower this is well worth looking at. Clearly the monetary authority is prepared to dip into their vast currency reserves to offset capital outflows and stabilize the yuan.
The IMF discussions around including the yuan into the SDR basket of reserve currencies (currently the dollar, euro, yen and pound) is something which China has long been courting. Right now, the yuan has posted it’s biggest monthly advance since December 2011, on the heels of or in anticipation of inclusion in the SDR basket by the IMF.
Amongst other things, what is required is for the yuan to be “fairly valued”. Wild swings in the yuan – whether up or down – would kill their chances of joining the hallowed ground of the other terrible units of payment.
In order to meet their criteria it’s essential that the yuan remain stable. Another IMF criteria is that the currency is “freely usable”. In other words, free floating. I’ll come back to this in a minute as I think it’s something overlooked by many observers.
Why the Yuan will Fall
On the other side of this argument is the fact that China’s economy is slowing and is facing increased competition from regional players, such as Japan, who are playing the currency card, devaluing their currencies and sucking up export market share.
A weaker exchange rate would help boost exports and while China is certainly moving towards a domestic consumer supported economy, they are not there yet and manufacturing and exporting to the developed world is still their “bread and butter”.
Remember I mentioned that part of the IMF criteria is that the currency float freely?
Well, many believe – and perhaps correctly – that when (or if) the yuan is added and floats freely there will be an almighty rush INTO the yuan. I’ve seen few who believe that this wouldn’t at least in the short-term allow the opposite to happen.
Consider for a moment that most Chinese have been going to great lengths to get OUT of the yuan. Does it not make sense that when they are allowed to do so there will not be a decent amount of them quite excited with the prospect of moving out of yuan?
In the simplest of terms the question boils down to the following…
Upon inclusion into the IMF and a subsequent floating of the yuan, does capital flow into the yuan or out of it?
The problem with China is that nobody knows the real numbers. Nobody!
What are the insiders doing? They’re shoveling their money out of the country so fast it’s going to catch fire from the friction. This is what the insiders are doing. That doesn’t mean that suckers won’t come in the other way and we get a strong yuan rally. It’s certainly possible and maybe it’s even probable.
Fortunately, the market is gifting us an opportunity right now and we don’t have to make that decision.
I just got off the phone with Brad who told me about me the below pricing of an at the money call option on the yuan (or the offshore yuan, to be more specific). Currently, you’re paying 2.5% premium for a 12-month call option.
Now, take a look at the below chart. You’ll see that buying a 12-month at the money put we’re paying just 0.3%. You can buy 100,000 USD/CNH puts for 12 months at the money and it’ll cost you a mere $300!
To break even on the first trade we need the currency pair to move by 2.5% in our favour within 12 months and on the second trade we need the pair to move by just 0.3% to break even. Pardon me for saying so but that is almost as insane as the Eurocrats discussing Greek debt.
Buying both is what traders term a “straddle” but don’t get hung up on terminology. The point is that for a 2.8% premium (2.5% + 0.3%) we can hold both positions. We don’t much care which way it moves but simply that it MOVES!
What could make it move? Well, inclusion at the hallowed table of disreputable currencies currently making up SDRs or of course non-inclusion.
Either of these events have the potential to create capital flows one way or the other causing the USD/CNH pair to move substantially more than a mere 2.8%.
Or any of the reasons we delved into in our USD Bull Market report where we detailed why we are short the yuan.
I’d suggest we’re likely to see MORE not LESS volatility over the next 12 months and the current lack of volatility being priced into the market is just the sort of golden gift which Brad looks for.
– Chris
“Eppur si muove (And yet it moves).” – Galielo Galilei
- Egypt Is On The Edge Of Full Blown Civil War
In the last few days there were dozens of separate attacks in Egypt from the Sinai up to Cairo. Probably more than 60 people died while the Egyptian army used F16 attack plains to protect itself against it disgruntled population. It is clear that the Egyptian rulers will not be able to contain the current situation, today could be marked as the start of Egypt’s civil war.
Democratic elected governments were violently overthrown, in Algeria, Egypt and Palestinian territories. In Algeria the FIS had won the first held elections with a convincing majority in 1990 and 1992. It has been removed from power in 1992 by a coup d’etat that was highly approved by the West. Probably 150.000 people died in the civil war that followed these events up.
HAMAS winning the 2006 elections in the Palestinian territories resulted in a war among Palestinians and ended up with a split of Gaza and the West Bank
In 2011 Morsi, leader of the Muslim Brotherhood won the first free elections in Egypt.
In 2013 the first elected president of Egypt was removed by the army. There are clear signs that anti-democratic forces were deliberately destabilizing Egypt before the coup d’etat in 2013. In the running up of the July 3th coup by General Sisi an artificial oil shortages was created that contributed to the mass protest against the elected president of Egypt.
The new army coup was financially supported by the Saudi rulers while the West was mute, the only vocalized opposition came from Turkey’s ruler MrErdo?an.
Washington was silent about Egypt’s coup and even resumed the delivery of military hardware to the Egyptian rulers, at the same moment Morsi received the dead penalty during a mock process. The situation in Egypt will be much worse than the situation that we saw in Algeria in 1992.
Libya has been split in 3 parts, the by the West installed and recognized government in Tobruk could be seen as a supporter of the rulers in Cairo. The government in Tripoli is allied with the Muslim Brotherhood party and sees the government in Cairo as a threat to its existence. Both Governments do not rule Libya completely, big parts of Libya are under control of ISIS and other unregulated Islamist groups.
The war that is coming to Egypt will not be limited to Egypt and will be an extend to Libya’s war, for the sole reason that a lot of fighters and weapons will come over from Lybia.
The substantial amount of impoverished Egyptians are lacking any perspective and have nothing to lose. It is their party that has been removed from power in 2013.
The Egyptian army is heavenly weaponized by the USA, there will not be any doubt that those weapons will end up in the hands of Islamist groups. The Egyptian conscript army will be a huge risk for the country’s leaders as army units might switch loyalty.
Experienced fighters from Syria and Iraq will actively support their brothers in Egypt.
The new generation of Islamist’s will utilize the internet in their advantage. They will use it to mobilize their supporters and build their case against the Egyptian army and their backers in Riyadh and Washington.
The Internet will also be used for advanced communications and “crowd reconnaissance”. In Ukraine we have already seen how YouTube and mobile phones were used to pass on enemy’s positions. Modern professional armies are not prepared for new agile tactics that will be utilized by a new Islamic internet generation.
As the Muslim Brotherhood is enjoying massive amounts of support we are expecting that the situation in Egypt will deteriorate at the same pace as we have seen in Syria.
The Egyptian rulers will not be able to contain the current situation, today could easily be recorded as the start of Egypt’s big civil war.
* * *
Sources:
Algerian Civil War Source Wikipedia
Bouteflika said in 1999 that 100,000 people had died by that time and in a speech on 25 February 2005, spoke of a round figure of 150,000 people killed in the war.[5] Fouad Ajami argues the toll could be as high as 200,000, and that it is in the government’s interest to minimize casualtiesEgypt’s Gas Shortage Fuels June 30 Protests Al Monitor June 2013
The latest gas crisis falls prior to the highly anticipated June 30 protests called by the Tamarrud movement demanding that Morsi step down for his failure to achieve any of the revolution’s goalsLibya supreme court rules anti-Islamist parliament unlawful Source The Guardian 6 November 2014
In a blow to anti-Islamist factions, Libya’s highest court has ruled that general elections held in June were unconstitutional and that the parliament and government which resulted from that vote should be dissolved.Mohammed Morsi death sentence upheld by Egypt court Source BBC 16 June 2015
The sentence was initially passed in May, but was confirmed after consultation with Egypt’s highest religious figure, the Grand Mufti. The death sentences of five other leading members of the Muslim Brotherhood, including its supreme guide Mohammed Badie, were also upheld.Egypt Officially Announces ‘State Of War’ Source Egyptian Streets 1 July 2013
In an official statement released by the Egyptian Armed Forces, 17 Egyptian soldiers were reported killed, in addition to 13 more who were injured. The statement added that 100 militants have been killed, in addition to destroying 20 of the militants’ vehicles.Sheikh Zuweid Death Toll: Egyptian Police Kill 9 In Cairo Suburb Raid As Assault On Sinai Town Comes To An End Source International Business Times 1 July 2015
Egyptian police raided a home in a western suburb of Cairo on Wednesday, killing nine men who they said were armed and plotting a terrorist attack. The killings happened the same day an ISIS-affiliated group launched a major assault on Sheikh Zuweid, an Egyptian city in the Sinai Peninsula, resulting in at least 100 casualties. The assault ended Wednesday evening.Two Bomb Explosions Resonate Through Cairo Source Egyptian Streets 30 June 2015
In an official statement, the Director of Civil Protection in Cairo, Magdy al-Shalaqany has confirmed that two bombs have detonated in Cairo’s 6th of October city, with a five minutes gap between the two explosions, reported AMAY.Islamist Blitz in Sinai Kills 64 as Egypt Sends Fighter Jets. Source Bloomberg 1 July 2015
Egypt’s army struck at militants with fighter jets and attack helicopters after 64 security personnel were killed in Sinai on the bloodiest day of the country’s escalating war with Islamist insurgents.
- Greece Has Spent A Half-Century In Default Or Restructuring
On Thursday, we highlighted the pitiable plight of Greek businesses which, facing an acute cash crunch and suppliers unwilling to provide credit ahead of the country’s weekend referendum, are being forced to close the doors.
The country’s banks are set to run out of physical banknotes “in a matter of days” according to a “person familiar with the situation” who spoke to WSJ and Constantine Michalos, the president of the Athens Chamber of Commerce, fears the country’s stock of imported goods will only last for two or three more weeks.
Meanwhile, Greeks have resorted to scavenging for food and picking through dustbins for scrap metal and as we noted on Wednesday, this is hardly a recent development in Greece. High unemployment has plagued the country for years , becoming endemic and relegating many Greeks to a life of perpetual and severe economic hardship.
Indeed, as BofAML notes, a look back at the country’s history shows that Athens has been in default or some manner of debt rescheduling for nearly a quarter of the past two centuries.
The bank goes on to make a rather unflattering comparison between the implied market cap of Greek stocks on Monday and a certain US-based bath towel supplier: “The announcement of a bank holiday & capital controls caused a 20% drop in the local equity market (as implied by ETFs), putting the market cap of MSCI Greece on a par with that of Bed, Bath & Beyond.”
But Athenians are in no mood for backhanded humor, because as one 83-year old told WSJ this week, “Tsipras has turned this country into North Korea.”
- Greek Banks Considering 30% Haircut On Deposits Over €8,000: FT
Last week in “For Greeks, The Nightmare Is Just Beginning: Here Come The Depositor Haircuts,” we warned that a Cyprus-style bail-in of Greek depositors may be imminent given the acute cash crunch that has brought the Greek banking sector to its knees and forced the Greek government to implement capital controls in a futile attempt to stem the flow.
The depositor “haircut” would be a function of the staggered ELA haircut that the ECB could impose to escalate the rhetoric between the two sides, and could take place with as little as a 10% increase in the ELA collateral haircut from its current 50% level.
Unfortunately for Greeks, the ECB has frozen the ELA cap, meaning that as of last Sunday, Greek banks were no longer able to meet deposit outflows by tapping emergency liquidity from the Bank of Greece.
Now, with ATM liquidity expected to run out by Monday and with the country’s future in the Eurozone still undecided, it appears as though Alexis Tsipras’ promise that “deposits are safe” may be proven wrong.
According to FT, Greek banks are considering a depositor bail-in that could see deposits above €8,000 haircut by “at least” 30%.
Via FT:
Greek banks are preparing contingency plans for a possible “bail-in” of depositors amid fears
The plans, which call for a “haircut” of at least 30 per cent on deposits above €8,000, sketch out an increasingly likely scenario for at least one bank, the sources said.
A Greek bail-in could resemble the rescue plan agreed by Cyprus in 2013, when customers’ funds were seized to shore up the banks, with a haircut imposed on uninsured deposits over €100,000.
It would be implemented as part of a recapitalisation of Greek banks that would be agreed with the country’s creditors — the European Commission, International Monetary Fund and European Central Bank.
“It [the haircut] would take place in the context of an overall restructuring of the bank sector once Greece is back in a bailout programme,” said one person following the issue. “This is not something that is going to happen immediately.”
Greek deposits are guaranteed up to €100,000, in line with EU banking directives, but the country’s deposit insurance fund amounts to only €3bn, which would not be enough to cover demand in case of a bank collapse.
With few deposits over €100,000 left in the banks after six months of capital flight, “it makes sense for the banks to consider imposing a haircut on small depositors as part of a recapitalisation. . . It could even be flagged as a one-off tax,” said one analyst.
Earlier, via Bloomberg:
Liquidity for Greek bank ATMs after Monday will depend on the ECB decision, National Bank of Greece Chair Louka Katseli tells reporters in Athens.
Meanwhile, Yanis Varoufakis swears this is nothing but a “malicious rumor”:
FT report of a Gk Bank Bail In is a malicious rumour that the Head of the Greek Banks Association denied this morning http://t.co/3xtnQvpS7R
— Yanis Varoufakis (@yanisvaroufakis) July 3, 2015
And moments ago Bloomberg reported that according to an emailed statement by the Greek finance ministry, the “FT report on deposits bail in is outright lie, provocative, and targets undermining July 5 referendum” and as a resultt the “finance ministry demands Financial Tines to retract report.“
- Barack Obama Tells Another Whopper – He Did Not Create 12.8 Million Jobs
Submitted by David Stockman via Contra Corner blog,
America is better off when President Obama is out on the stump bloviating and boasting rather than in Washington actively doing harm. But the whoppers he just told the students at the University of Wisconsin are beyond the pale. Said our spinmeister-in-chief:
And the unemployment rate is now down to 5.3 percent. (Applause.) Keep in mind, when I came into office it was hovering around 10 percent. All told, we’ve now seen 64 straight months of private sector job growth, which is a new record — (applause) — new record — 12.8 million new jobs all told.
That’s a pack of context-free factoids. There is still such a thing as the business cycle, and only economically illiterate hacks—-like those who work on the White House speech writing staff—-would measure anything from the deep V-shaped but momentary bottom that happened to occur during Obama’s second year in office. What counts is not that we’ve had a bounce after a terrible bust, but where we are now on a trend basis.
The answer is absolutely nowhere!
We are now 29 quarters from the pre-crisis peak and total non-farm labor hours utilized by the US economy are no higher than they were in Q4 2007. In other words, if you use a common unit of measure—–labor hours rather than job slots which treat coal-miners and part-time pizza delivery boys alike—–there have been no new units of employment at all. Our teleprompter reading President is actually tooting his own horn about recycled hours and “born again” jobs and doesn’t even know it.
And, no, he can’t take credit for digging us out of the hole created by the Great Recession, either. The long, slow climb back to square one shown in the chart above was due to the natural resilience of our capitalist economy—notwithstanding the tax, regulatory and massive debt hurdles that Washington policies have thrown at it.
The truth of the matter is that America’s employment machine has been failing for this entire century. As shown below, the number of non-farm labor hours utilized during the most recent quarter was only 1% higher than in the spring of 2000—-way back when Bill Clinton still had his hands on things in the Oval Office.
In short, we have gone through two business cycles and have essentially added zero new employment inputs to the US economy. And that marks a sharp and devastating reversal of previous trends. In fact, the BLS’ own data convey an out-and-out crisis that the President should have been lamenting, not a cherry-picked simulacrum of growth based on born-again, apples-and-oranges jobs slots.
Thus, during the comparable 29 quarters after the 1990 business cycle peak (Q2 1990 to Q3 1997) non-farm labor hours had increased by 12% and during the same period of time after the 1981 peak (Q3 1981 to Q4 1988) labor hours expanded by 17 percent. That’s what employment growth used to look like, and absolutely nothing like that has happened on Obama’s watch.
When you get right down to it, however, even labor hours do not fully capture the actual jobs disaster happening in America. That’s because we keep shedding high productivity hours in the full-time jobs sector in favor of low-skill, low-pay gigs in bars, restaurants, Wal-Marts and temp agencies.
So notwithstanding another month of 200,000 plus headline job gains, here’s where we actually are. The number of breadwinner jobs—–full-time positions in energy and mining, construction, manufacturing, the white collar professions, business management and services, information technology, transportation/distribution and finance, insurance and real estate—-is still 1.7 million below the level of December 2007; in fact, it is still lower than it was at the turn of the century.
Breadwinner Jobs- Click to enlarge
There is no mystery as to how the White House and Wall Street celebrate year after year of “jobs growth” when the long-term trend of full-time, family-supporting employment levels is heading south. Its called “trickle-down economics”, and not of the good kind, either.
What is happening is that the Keynesian money printers at the Fed are fueling serial financial bubbles. This generates a temporary lift in the discretionary incomes of the top 10% of households, which own 85% of the financial assets, and the next 10-20% which feed off the their winnings. Accordingly, the leisure and hospitality sectors boom, creating a lot of job slots for bar tenders, waiters, bellhops, etc.
I call this the “bread and circuses economy”, but it has two problems. Most of these slots generate only about 26 hours per week and $14 per hour. That’s about $19,000 on an annual basis, and means these slots constitute 40% jobs compared to the breadwinner category at about $50,000 per year. Besides that, a soon as the financial bubble goes bust, these jobs quickly disappear.
Bread and Circuses Jobs – Click to enlarge
This is reason enough for Obama to pipe down on the boasting, but he actually went in the opposite direction claiming a big recovery in manufacturing jobs.
And after a decade of decline, thanks to some of the steps we took…….we’ve added nearly 900,000 new manufacturing jobs. Manufacturing is actually growing faster than the rest of the economy. (Applause.)
But that one is not even a whopper; its a bald-faced lie. There has not been one “new” manufacturing job created during Obama’s term in office; and, in fact, the 12.3 million manufacturing jobs reported for June was still 10% below the level of December 2007, and nearly 30% lower than the 17.3 million manufacturing jobs reported in January 2000.
So the actual facts are not evidence of a trend reversal; they’re an exercise in political hogwash.
Indeed, if you take the entire high-productivity, high-pay goods production sector—-energy, mining, manufacturing and construction—the trend is even worse. As shown below, the 19.6 million goods producing jobs in June was 5 million lower than in January 2000. Is there any wonder that the median real household income has declined by 7% over the last 15 years?
Goods Producing Jobs – Click to enlarge
Here’s the real truth beneath the bloviation issuing from stumping politicians and Wall Street stock touts alike. The June BLS report showed that the HES Complex (health, education and social services) generated another 48,000 jobs in June. This figure is nearly dead on the 42,000 monthly average for this sector since the turn of the century.
The minor problem with that trend is these jobs pay on average only $35,000 per year—–a level that does not remotely support a middle class standard of living, especially after payroll and income taxes are extracted from this gross pay figure.
The much bigger skunk in the woodpile, however, is that these jobs are almost entirely “fiscally dependent”. Yet the public sector in America is broke, and the total public debt just keeps on climbing higher.
To wit, the 32.2 million jobs in the HES Complex are funded by $1.5 trillion annually of Medicare, Medicaid and other health and social services entitlements. On top of that there is also about $1 trillion of public sector education funding, $200 billion per year of government guaranteed student loans and $250 billion annually in tax subsidies for employer provided and individual health insurance plans and Obamacare tax credits.
HES Complex Jobs – Click to enlarge
In effect, the public sector borrows and taxes to create low productivity jobs within the nation’s highly inefficient, wasteful and monopolistic health and education cartels—- but in the process squeezes everything else. In fact, there have been virtually no new jobs—even on a headcount basis—–outside of the HES Complex during the entirety of the 21st Century to date!
Nonfarm Payrolls Less HES Complex Jobs – Click to enlarge
One of these days the public sector is going to exhaust its capacity to tax and borrow, and to thereby finance job growth even in the HES Complex. Needless to say, Washington and Wall Street will be as clueless then as they are now.
Meanwhile, the White House whoppers will keep on coming.
- Fearing Spillover, ECB Moves To Shield Neighboring Banks From Greek Meltdown
On Monday, in “Beggar Thy Neighbor? Greece’s Battered Banks Beget Balkan Jitters,” we took an in depth look at the potential for the Greek banking crisis to infect Bulgaria, Romania, and Serbia, where Greek banks control a substantial percentage of total banking assets.
We noted that yields on the country’s bonds had spiked in the wake of capital controls in Greece and the ensuing ATM run, a reflection of souring investor sentiment despite assurances from local banking officials that there was no risk of similar measures being implemented outside of Greece.
“Any action by the Greek government and the central bank to impose measures in the Greek financial system have no legal force in Bulgaria and can in no way affect the smooth functioning and stability of the Bulgarian banking system,” Bulgaria’s central bank said, in a statement.
Still, as Morgan Stanley pointed out nearly two months ago, “the risk is that depositors who have their money in Greek subsidiaries in Bulgaria, Romania and Serbia could suffer a confidence crisis and seek to withdraw their deposits. Although well capitalised and liquid, Greek subsidiaries in the SEE region may see difficulties providing enough cash if withdrawals are intense and become problematic. In case of a liquidity shortage, Greek subsidiaries in Bulgaria, Romania and Serbia would probably create the need for local authorities to step in. Local central banks and governments would most probably provide additional liquidity, but if panic behaviour develops it would mean that certain banks would either have to find a buyer or be nationalised. In this case, the national deposit guarantee schemes will have to repay guaranteed deposits and, in case of insufficient funds, the government will have to provide them.”
Now, with Greece’s future in the EMU hanging in the balance, Bloomberg says the ECB has stepped up its efforts to shield Bulgaria from any fallout. Here’s more:
The European Central Bank is set to extend a backstop facility to Bulgaria and is ready to assist other nations in the region to ward off contagion from Greece, according to people familiar with the situation.
The ECB would provide access to its refinancing operations, offering euros to the banking system against eligible collateral, the people said, asking to remain anonymous because the matter is confidential. The ECB and the Bulgarian central bank declined to comment.
Eastern Europe is at risk of tremors from Greece via ties ranging from trade to finance, with lenders from the debt-ridden country owning almost a third of banking assets in Bulgaria. The possibility of Greece abandoning the euro after shutting banks and imposing capital controls has left eastern European currencies among this week’s worst emerging-market performers.
“The threat of ‘Grexit’ has understandably cast a dark cloud over the outlook,” for the region, London-based Capital Economics said last week in a note. “Ties with Greece are sizable in a few places, including Bulgaria and Romania.”
Bulgaria and its banks have been a main focus of concern for European Union officials looking at potential fallout from the Greek crisis in the region, according to people familiar with their thinking. The yield on euro-denominated Bulgarian government debt due 2024 has jumped 25 basis points this week to 2.61 percent.
It certainly appears as though the whole “Greece is contained” line is yet another example of a vacuous attempt to calm a panicked public by issuing hollow assurances from on high and compelling the media to parrot them to the masses in order to obscure the real risks — a strategy which works until the soup line photos start showing up on social media.
- What It All Comes Down To On Sunday
As expected (and as tipped here on Thursday immediately after news broke that an IMF study conducted prior to the imposition of capital controls in Greece suggests debt relief for Athens is necessary if anyone hopes to create some semblance of sustainability), Greek PM Alexis Tsipras is now leaning hard on voters to carefully consider the fact that one-third of the troika has effectively validated the Greek government’s position on creditor writedowns.
“This position was never proposed to the Greek government over the five months of negotiations, wasn’t included in final offer tabled by creditor institutions, on which people are going to vote on July 5,” Tsipras said in a televised address, making it clear to Greeks that the proposals they are voting on effectively do not reflect the views of the institution that is perhaps the country’s most influential creditor.
“This IMF report justifies our choice not to accept an agreement which ignores the fundamental issue of debt,” he added, driving the point home.
Clearly, this puts Europe, and especially Germany, in a rather unpalatable position. Many EU officials have for months insisted that IMF participation is critical if the Greeks hope to secure a third bailout. The IMF meanwhile, has stuck to a position first adopted years ago (something we’ve noted in these pages multiple times of late); namely that official sector writedowns will ultimately be necessary if Brussels hopes to finally put the Greek tragicomedy to bed. This means Brussels (and Berlin) will now be forced to choose between IMF involvement (which the EU says is a precondition for a deal) and haircuts (which the EU says aren’t possible).
Here’s Barclays – a major investment bank – with its own confirmation that the IMF may have assured a No vote over the weekend.
The document basically argues that OSI is a necessary condition in order to secure sovereign solvency with a high probability. This means that before the IMF re-engages in any lending activities with Greece, OSI will be required in the form of NPV debt relief.
The timing of the publication of this report it is very important. Debt relief is something that the Greek authorities have repeatedly demanded; therefore, in a way this report can be interpreted as the IMF backing the Greek government’s demands. By extension, it could also be interpreted as supportive of a ‘No’ vote, which is what the Greek government is campaigning for.
We agree broadly with the analytical content of the report and the need for further OSI. This is in fact hardly new news. Europe has recognized since November 2012 that Greece needs further OSI to make debt dynamics sustainable with high probability. The IMF advice of an NPV haircut via a debt maturity extension (to 40 years) is in line with expectations.
However, the critical point is that the IMF now requires debt-relief before it engages in a new programme, which confronts Europeans with a tough political decision. Many in Europe, including Germany, considered OSI as a future carrot in exchange for reforms today following good programme execution. Debt relief was conceived as a part of a third programme to be negotiated possibly with a new Greek government.
At the same time, Germany has been adamant about the importance of IMF involvement in any financial support programme for Greece. Thus, Germany will now be confronted with a tough choice: to deliver on the IMF’s demand, ie to engage in OSI negotiations in the form of NPV debt relief, or give up on IMF involvement. We believe that there is mounting support across other member states for the OSI discussion, therefore, we believe that Germany may not be able to resist such discussions any longer.
“I am guessing that this is a negotiating tactic ahead of the negotiations for a new programme for Greece. The IMF very well knows that a debt write-off is out of the question,” one unnamed EU official told MNI.
“The numbers are quite high, not in line with our assessment and our baseline scenario. We are examining different scenarios for the day after the referendum and provided the vote is Yes, we are ready to come up with solutions. But it is not going to be easy to agree. Certainly this report does not make it any easier,” another source said.
It’s easy to see why Europe is reluctant to accept the IMF’s assessment. As discussed at length on Thursday, were Europe to go down the OMI road, Brussels would be opening Pandora’s Box. Here’s why:
By now it should be clear to all that the only reason why Germany has been so steadfast in its negotiating stance with Greece is because it knows very well that if it concedes to a public debt reduction (as opposed to haircut on debt held mostly by private entities such as hedge funds which already happened in 2012), then the rest of the PIIGS will come pouring in: first Italy, then Spain, then Portugal, then Ireland.
The problem is that while it took Europe some 5 years to transfer a little over €200 billion in Greek private debt exposure to the public balance sheet (by way of the ECB, EFSF, ESM and countless other ad hoc acronyms) at a cost of countless summits and endless negotiations, which may or may not result with the first casualty of the common currency which may prove to be reversible as soon as next week, nobody in Europe harbors any doubt that the same exercise can be repeated with Italy, or Spain, or even Portugal. They are just too big (and their nonperforming loans are in the hundreds of billions).
As for the IMF’s position, Barclays notes that a permanent default by Greece would not be a trivial event, thus providing further incentive for the Fund to push for EU writedowns:
With the IMF’s total resources being roughly USD760bn – USD420bn of which are considered the ‘forward commitment capacity’ – the IMF has the firepower to ‘survive’ a permanent default of Greece while maintaining sufficient resources to be able to lend out fresh credit for countries in need. However, it would make a significant dent in the ongoing IMF finances – eg, the interest paid on IMF loans is used to cover IMF’s operational cost – and would very likely create intense debate about Europe’s relationship with the IMF and the balance of power between DM and EM members. One question could also be whether or not the euro area IMF members should not in some way be liable for the outstanding Greek debts. In turn, this would also intensify a debate about the sharing of liabilities/solidarity within the euro area and the EU.
So, thanks to a well-timed IMF report, Tsipras can now frame Sunday’s plebiscite as a simple Yes/No vote on Greece’s debt pile, which makes it far easier to vote “no.”
“Do you think Europe should forgive your debt, check box ‘Yes’ or ‘No’.”
That should be an easy choice, although it depends upon the Greek public understanding the significance of the IMF’s position which, as indicated above, Tsipras is doing his very best to facilitate. The bottom line: Sunday’s vote is about whether Greece will agree to remain a debt colony of Germany, pardon Europe, even as the IMF (and, paradoxically, Germany) agrees with Athens that the country’s debt is unsustainable.
“No” means a lot of pain now and recovery later.
“Yes” means less pain now but no hope of recovery ever.
* * *
Choose wisely…
- US Pushed For IMF Greek Haircut Study Release After Euro 'Allies' Tried To Block
The timing of the release of The IMF’s ‘Greece needs a debt haircut no matter what’ report this week was odd to say the least. Being as it confirmed everything the Greek government has been saying and provided the perfect ammunition for Tsipras to spin Sunday’s Greferendum as a Yes/No to debt haircuts – something everyone can understand (and get behind). It is understandable then that, as Reuters reports, Greece’s eurozone allies tried to block the release of the damning report this week but the Europeans were heavily outnumbered and the United States, the strongest voice in the IMF, was in favor of publication, sources said. While The IMF concluded, “Facts are stubborn. You can’t hide the facts because they may be exploited,” one wonders if this move merely reinforces Goldman’s concpiracy theory.
Euro zone countries tried in vain to stop the IMF publishing a gloomy analysis of Greece’s debt burden which the leftist government says vindicates its call to voters to reject bailout terms, sources familiar with the situation said on Friday. As Reuters reports, publication of the draft Debt Sustainability Analysis laid bare a dispute between Brussels and the Washington-based global lender that has been simmering behind closed doors for months.
At a meeting on the International Monetary Fund’s board on Wednesday, European members questioned the timing of the report which IMF management proposed at short notice releasing three days before Sunday’s crucial referendum that may determine the country’s future in the euro zone, the sources said.
There was no vote but the Europeans were heavily outnumbered and the United States, the strongest voice in the IMF, was in favor of publication, the sources said.
The Europeans were also concerned that the report could distract attention from a view they share with the IMF that the Tsipras government, in the five months since it was elected, has wrecked a fragile economy that was just starting to recover.
“It wasn’t an easy decision,” an IMF source involved in the debate over publication said. “We are not living in an ivory tower here. But the EU has to understand that not everything can be decided based on their own imperatives.”
The board had considered all arguments, including the risk that the document would be politicized, but the prevailing view was that all the evidence and figures should be laid out transparently before the referendum.
“Facts are stubborn. You can’t hide the facts because they may be exploited,” the IMF source said.
* * *
Quite simply this should be horrifying to not just The Greeks (who just discovered their supposed ‘allies’ tried to hide the truth from them and in fact negotiated in bad faith) but to all Europeans who by now must realize the union is not for them, it is for the few ruling elite and their corporate and banking overlords.
Isn’t it time to Just Say No, if not to anything else than to being controlled by an unelected cabal of oligarchs whose only interest is making sure the wealthy get wealthier?
Of course, taking a step back from the table, it is clear that a forced decision by Washington against the interests of its European allies – that is likely to engender more chaos and strengthen Greece’s ability to destabilize Europe – must have been done for ‘another reason’. Perhaps after all is said and done, the powers that be need chaos, need instability, need panic in order to ensure the public gratefully accept the all-in QE-fest that they want.
- Do Share Buybacks Create Value? (Spoiler Alert: No)
Submitted by Omid Malekan via OmidMalekan.com,
Stock buybacks have been in the news lately, as their growing size has lead to criticism, especially from politicians who believe they contribute to economic inequality. But the simplest critique of the practice of buybacks can be made on economic grounds, in terms of value created or destroyed.
If you ask a seasoned investor to boil success down to one sentence, they’ll probably say “buy low and sell high.” Ask them to simplify even more, and they’ll say “buy value” – which usually correlates with buying something when its cheap. If we flip these maxims around then the worst kind of investing is to buy high. Expensive things do occasionally become more expensive – but with greater risk.
I have always been weary of buybacks, going all the way back to the last buyback boom before the financial crisis. My concern then was that by purchasing shares management was making a declaration, that this is a good time to buy our stock, as opposed to the past or the future. But if management knows that then it knows how to time the market, and if management knows how to time the market, then it’s better off running a hedge fund. Since management is instead running a company, it should focus on what it was hired to do and leave the stock market alone.
Taking the practice to a more extreme measure, many large companies today are tapping the debt markets, borrowing money at record low rates and using the proceeds for buybacks. The practice is popular among blue chip companies like Apple and Microsoft, who despite their cash heavy balance sheets prefer the tax efficiency of financing buybacks with debt. The old me would find such a practice even more unwise, as it entails timing two markets at once, a feat even a seasoned hedge fund manager would have trouble pulling off. But the old me didn’t understand how buybacks really work.
To call an action market timing is to imply participants care about price. They are buying today because today offers a good price whereas tomorrow might not. But executives doing buybacks don’t care about price. We know this because new buybacks are not announced with any limitations on share price. We are going to buy back $2 Billion worth of shares in the next quarter. What happens if share prices rises drastically beforehand? Management doesn’t care.
We also know this because currently, with the stock market at all time highs, new buyback announcements have gone parabolic to amounts never seen before. The current level of buying recently surpassed that of 2007, at the previous peak of the market.
But the buying has not been continuous, as companies took an extended break during the financial crisis while stock prices fell drastically. If you chart buybacks versus the overall stock market in the past 10 years you’ll find a neat correlation.
For over a decade now corporate management has been doing the exact opposite of what constitutes good investing. If you include the fact that some of the companies buying back shares before the crisis were selling shares to raise capital during the crisis, and are now buyers again, then management has been buying high to sell low to buy high again.
If you acted similarly in any other walk of life you would be the subject of ridicule and featured in finance books on what not to do. Imagine walking into a dealership and saying “I am going to buy this car, regardless of what price you quote me.” Then imagine selling that car at half the price, only to eventually buy it back at a premium.
On Wall Street however such behavior is now the norm. Take the example of Royal Dutch Shell, which recently announced the acquisition of BG Group. The deal is mostly financed by Shell issuing new shares. It’s said to be accretive next year, as in increasing the company’s earnings and presumably its stock value. It also comes with a plan by Shell to buy back millions of its own shares in 2 years. So the company has promised to sell something today, drive up its value tomorrow and then buy it back next week.
All of this would be laughable if not for the consequences. The net amount of buybacks executed in recent years has now surpassed $2 trillion. That’s $2 trillion in capital spent on an activity that at best creates no value and historically has destroyed it. As our business leaders continue to speculate on why the current recovery refuses to kick into high gear, they should look at wasteful buybacks as one possible impediment.
- Massive "No" Demonstration Floods Athens' Syntagma Square As Tsipras Speaks – Live Webcast
Shortly before Greek PM Tsipras spoke at today’s huge “No” rally on Syntagma square, scuffles in the crowds of protesters broke out and police have resorted to stun grenades and tear gas.
As Reuters reported, “Greek police threw stun grenades and scuffled with protesters in central Athens on Friday, as a rally got under way in support of a ‘No’ vote in a Sunday referendum on whether to endorse an aid deal with creditors. The scuffles involved a few dozen people, many dressed in black and wearing helmets but quickly appeared to calm.”
Luckily, the violence was scattered and promptly dissipated.
Instead it has been replaced with one of the biggest people gatherings on Syntagma square in history:
I’ve stood on this roof a few times over the years – and this is as big a crowd as I can remember. #oxi #greece pic.twitter.com/1vzUlEd2FH
— Mark Lowen (@marklowen) July 3, 2015
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