- MaRaTHoN MeNSCH-auBLe
- They Want To Use "Hate Speech Laws" To Destroy Freedom Of Speech In America
Submitted by Michael Snyder via The End of The American Dream blog,
Hate speech laws are going in all around the world, and progressive activists in the United States want to use these kinds of laws to destroy free speech in America. You see, the truth is that these hate speech laws that are being implemented all over the planet are not just about preventing speech that promotes violence or genocide against a particular group of people. Instead, these laws are written in such a way that anyone that says something that “offends” or “insults” someone else is guilty of “hate speech”. Even if you never intended to offend anyone and you had no idea that your words were insulting, in some countries you can be detained without bail and sentenced to years in prison for such speech. Today, there are highly restrictive hate speech laws in Canada, in Mexico and in virtually every single European nation. The United States is still an exception, but the truth is that our liberties and freedoms are being eroded every single day, and it is only a matter of time until “hate speech laws” are used to take away our freedom of speech too.
If you don’t think that this could ever happen in America, you should consider what the American Bar Association has to say on the matter. This is the national organization that represents all of our lawyers, judges, etc. So when the ABA speaks on legal matters, it carries a significant amount of weight. The following is how the American Bar Association defines “hate speech”…
Hate speech is speech that offends, threatens, or insults groups, based on race, color, religion, national origin, sexual orientation, disability, or other traits.
Did you catch that?
If I say something that offends or insults you, there is a very good chance that I have just committed “hate speech” according to the ABA.
And support for these kinds of laws is growing. In fact, one survey found that 51 percent of all Democrats now support hate speech laws. It is only a matter of time before progressives start pushing for them in a big way.
Sadly, many of these progressives don’t even understand that our Constitution protects free speech. Just consider what CNN anchor Chris Cuomo recently had to say about this…
Hate speech is not the same thing as free speech, wrote CNN anchor Chris Cuomo on the ultimate forum for public discourse: Twitter.
Amid debate about free speech after a shooting at an anti-Muslim protest in Texas , a user tweeted at Cuomo: “Too many people are trying to say hate speech (doesn’t equal) free speech.”
In response, Cuomo, who has a law degree, said, “It doesn’t. Hate speech is excluded from protection. Don’t just say you love the Constitution … read it.”
No, I think that it is Cuomo that needs to read the Constitution. The fact that he gets to deliver “the news” to millions upon millions of Americans is absolutely frightening.
But without a doubt, we do need to have a conversation about “hate speech” in the United States. If I offend or insult you, that does not mean that I “hate” you. And if I disagree with you, that does not mean that I “hate” you either.
Some of the things that are considered to be “offensive speech” these days are absolutely ridiculous. For example, just consider the following excerpt from a recent article by Paul Joseph Watson…
Here’s an actual list of things that according to the University of Wisconsin are racist:
– Asking someone where they are from or where they were born.
– Telling someone they speak good English.
– Telling someone that you have several black friends.
– Saying that you’re not a racist.
– Complimenting an Asian person by telling them they are very articulate.
– Asking an Asian person for help with science or math.
– Uttering the phrase “There is only one race, the human race.”
– Saying that you think America is a melting pot and that when you look at someone you don’t see race.
– Believing that the most qualified person, regardless of race, should get the job.
– Thinking that every person, regardless of race, can succeed in society if they work hard enough.
– Telling a black person who is being too loud to be quiet.
– Telling an Asian or Latino person who is too quiet to speak up.
– Mistaking a person of color for a staff member when you’re in a store.
– Calling something “gay”.
– Doing an impression of someone’s dialect or accent.
Could you imagine going to prison for any of those “offenses”?
But this is where our country is heading if we don’t stand up for our rights.
Right now, the progressives are on a roll. In the wake of the recent Supreme Court decision on same sex marriage, some progressives are already talking about going after the tax exemptions of churches that oppose it. In fact, the New York Times recently published an article entitled “Now’s the Time To End Tax Exemptions for Religious Institutions“.
But of course the ultimate goal is far more insidious. In the end, they want to shut down all speech that offends them in any way…
The American Unity Fund is a heavily funded new super-PAC looking to blanket the country with LGBT anti-discrimination laws. In effect, those laws aim to wipe out any alternative voice to the LGBT agenda. The effort is being spearheaded by billionaire hedge fund manager Paul Singer and another wealthy hedge fund manager, Tim Gill.
Gill’s operations—the Gill Foundation and Gill Action—have been dedicated to “nonpartisan” gains for the LGBT lobby on the legislative and judicial fronts.
Those that do not believe that this could ever possibly happen in “the land of the free” should consider what has already happened in our neighbor to the north…
Anyone who is offended by something you have said or written can make a complaint to the Human Rights Commissions and Tribunals. In Canada, these organizations police speech, penalizing citizens for any expression deemed in opposition to particular sexual behaviors or protected groups identified under ‘sexual orientation.’ It takes only one complaint against a person to be brought before the tribunal, costing the defendant tens of thousands of dollars in legal fees. The commissions have the power to enter private residences and remove all items pertinent to their investigations, checking for hate speech.
Of course the same kind of thing is already happening over in Europe as well. For instance, one Christian pastor in Northern Ireland is being prosecuted for calling Islam “a doctrine spawned in hell”…
An evangelical pastor in Northern Ireland is under fire and will be prosecuted after calling Islam “satanic” and claiming that its doctrine was “spawned in hell” during a controversial 2014 sermon that streamed over the Internet.
Pastor James McConnell, 78, of Whitewell Metropolitan Tabernacle in Belfast, Northern Ireland, made his comments — which included calling Islam “heathen” — in a sermon delivered last May, the BBC reported.
“The Muslim religion was created many hundreds of years after Christ. Muhammad, the Islam Prophet, was born around the year A.D. 570, but Muslims believe that Islam is the true religion,” he preached. “Now, people say there are good Muslims in Britain. That may be so, but I don’t trust them.”
McConnell continued, “Islam’s ideas about God, about humanity, about salvation are vastly different from the teaching of the holy scriptures. Islam is heathen. Islam is satanic. Islam is a doctrine spawned in hell.”
Once such laws are in place in the United States, it won’t be difficult for the government to find you if you are committing “hate speech”. As I have written about repeatedly, the U.S. government already monitors virtually everything that is said and done on the Internet. The following is an excerpt from an article that was recently authored by Micah Lee, Glenn Greenwald, and Morgan Marquis-Boire…
The sheer quantity of communications that XKEYSCORE processes, filters and queries is stunning. Around the world, when a person gets online to do anything — write an email, post to a social network, browse the web or play a video game — there’s a decent chance that the Internet traffic her device sends and receives is getting collected and processed by one of XKEYSCORE’s hundreds of servers scattered across the globe.
In order to make sense of such a massive and steady flow of information, analysts working for the National Security Agency, as well as partner spy agencies, have written thousands of snippets of code to detect different types of traffic and extract useful information from each type, according to documents dating up to 2013. For example, the system automatically detects if a given piece of traffic is an email. If it is, the system tags if it’s from Yahoo or Gmail, if it contains an airline itinerary, if it’s encrypted with PGP, or if the sender’s language is set to Arabic, along with myriad other details.
And as I wrote about yesterday, western governments are already using paid trolls to identify and combat “extremists” on social media websites such as YouTube, Facebook and Twitter.
We are rapidly becoming a “Big Brother” society, and if we don’t stand up for our freedoms and liberties now, it is inevitable that we will eventually lose just about all of them.
Unfortunately, most of the population is absolutely clueless about all of this. In fact, as Mark Dice demonstrated the other day, many Americans don’t even know what we are celebrating on the 4th of July. As a society, we have become extremely “dumbed down”, and we have lost connection to the values and principles that this country was founded upon.
- This Is Why The Euro Is Finished
Submitted by Raúl Ilargi Meijer of The Automatic Earth
This Is Why The Euro Is Finished
The IMF Debt Sustainability Analysis report on Greece that came out this week has caused a big stir. We now know that the Fund’s analysts confirm what Syriza has been saying ever since they came to power 5 months ago: Greece needs debt relief, lots of it, and fast.
We also know that Europe tried to silence the report. But what’s most interesting is that this has been going on for months, as per Reuters. Ergo, the IMF has known about the -preliminary- analysis for months, and kept silent, while at the same time ‘negotiating’ with Greece on austerity and bailouts.
And if you dig a bit deeper still, there’s no avoiding the fact that the IMF hasn’t merely known this for months, it’s known it for years. The Greek Parliamentary Debt Committee reported three weeks ago that it has in its possession an IMF document from 2010(!) that confirms the Fund knew even at that point in time.
That is to say, it already knew back then that the bailout executed in 2010 would push Greece even further into debt. Which is the exact opposite of what the bailout was supposed to do.
The 2010 bailout was the one that allowed private French, Dutch and German banks to transfer their liabilities to the Greek public sector, and indirectly to the entire eurozone‘s public sector. There was no debt restructuring in that deal.
Reuters yesterday reported that “Publication of the draft Debt Sustainability Analysis laid bare a dispute between Brussels and [the IMF] that has been simmering behind closed doors for months.
But that’s not the whole story. Evidently, there was a major dispute inside the IMF as well. The decision to release the report was apparently taken without even a vote, because it was obvious the Fund’s board members wanted the release. The US played a substantial role in that decision. Why the timing? Hard to tell.
The big question that arises from this is: what has been Christine Lagarde’s role in this charade? If she has been instrumental is keeping the analysis under wraps, she has done the IMF a lot of reputational damage, and it’s getting hard to see how she could possibly stay on as IMF chief. She has seen to it that the Fund has lost an immense amount of trust in the world. And without trust, the IMF is useless.
And while we’re at it, ECB chief Mario Draghi, who is also a major Troika negotiator, made a huge mistake this week in -all but- shutting down the Greek banking system, a decision that remains hard to believe to this day. The function of a central bank is to make sure banks are liquid, not to consciously and willingly strangle them.
How Draghi, after this, could stay on as ECB head is as hard to see as it is to do that for Lagarde’s position. And we should also question the actions and motives of people like Jean-Claude Juncker and Jeroen Dijsselbloem.
They must also have known about the IMF’s assessment, and still have insisted there be no debt relief on the negotiating table, although the analysis says there cannot be a viable deal without it.
One can only imagine Varoufakis’ frustration at finding the door shut in his face every single time he has brought up the subject. Because you don’t really need an IMF analysis to see what’s obvious.
Which is exactly why there is a referendum tomorrow: Alexis Tsipras refused to sign a deal that did not include debt restructuring. It would be comedy if it weren’t so tragic, most of all for the people of Greece. Here’s from Reuters yesterday:
Europeans Tried To Block IMF Debt Report On Greece
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. The document released in Washington on Thursday said Greece’s public finances will not be sustainable without substantial debt relief, possibly including write-offs by European partners of loans guaranteed by taxpayers. It also said Greece will need at least €50 billion in additional aid over the next three years to keep itself afloat. Publication of the draft Debt Sustainability Analysis laid bare a dispute between Brussels and the IMF that has been simmering behind closed doors for months.
Greek Prime Minister Alexis Tsipras cited the report in a televised appeal to voters on Friday to say ‘No’ to the proposed austerity terms, which have anyway expired since talks broke down and Athens defaulted on an IMF loan this week. It was not clear whether an arcane IMF document would influence a cliffhanger poll in which Greece’s future in the euro zone is at stake with banks closed, cash withdrawals rationed and commerce seizing up. “Yesterday an event of major political importance happened,” Tsipras said. “The IMF published a report on Greece’s economy which is a great vindication for the Greek government as it confirms the obvious – that Greek debt is not sustainable.”
At a meeting on the IMF’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 reason why all Troika negotiators should face very serious scrutiny is that they have willingly kept information behind that should have been crucial in any negotiation with Greece. The reason is obvious: it would have cost Europe’s taxpayers many billions of euros.
But that should never be a reason to cheat and lie. Because once you do that, you’re tarnished for life. So in an even slightly ideal world, they should all resign. Everybody who’s been at that table for the Troika side.
And I can’t see how Angela Merkel would escape the hatchet either. She, too, must have known what the IMF analysts knew. And decided to waterboard the Greek population rather than be forced to explain at home that her earlier decisions (2010) failed so dramatically that her voters would now have to pay the price for them. No, Angela likes to be in power. More than she likes for the Greeks to have proper healthcare.
Understandable, perhaps, but unforgivable as well. Someone should take this entire circus of liars and cheaters and schemers to court. They’re very close to killing the entire EU with their machinations. Not that I mind, the sooner it dies the better, but the people involved should still be held accountable. It’s not even the EU itself which is at fault, or which is a bad idea, it’s these people.
But fear not, there’s no tragedy that doesn’t also have a humorous side. And I don’t mean that to take anything away from the Greek people’s suffering.
Brett Arends at MarketWatch wrote a great analysis of his own, and get this, also based on IMF numbers. Turns out, the biggest mistake for Greece and Syriza is to want to stay inside the eurozone. The euro has been such a financial and economic disaster, it’s hard to fathom that nobody has pointed this out before. Stay inside, and there’s no way you can win.
I find this a hilarious read in face of what I see going on here in Greece. It makes everything even more tragic.
Stop Lying To The Greeks — Life Without The Euro Is Great
Will the euro-fanatics please stop lying to the people of Greece? And while they’re at it, will they please stop lying to the rest of us as well? Can they stop pretending that life outside the euro — for the Greeks or any other European country — would be a fate worse than death? Can they stop claiming that if the Greeks go back to the drachma, they will be condemned to a miserable existence on the dark backwaters of European life, a small, forgotten and isolated country with no factories, no inward investment and no hope? Those dishonest threats are being leveled this week at the people of Greece, as they gear up for the weekend’s big referendum on more austerity.
The bully boys of Brussels, Frankfurt and elsewhere are warning the Greek people that if they don’t do as they’re told, and submit to yet more economic leeches, they may end up outside the euro … at which point, of course, life would stop. Bah.
Take a look at the chart. It compares the economic performance of Greece inside the euro with European rivals that don’t use the euro. Those other countries cover a wide range of situations, of course – from rich and stable Denmark, to former Soviet Union countries, to Greece’s neighbor Turkey, which isn’t even in the EU. But they all have one thing in common.
During the past 15 years, while Greece has been enjoying the “benefits” of having Brussels run their monetary policies, those poor suckers have all been stuck running their own affairs and managing their own currencies (if you can imagine). And you can see just how badly they’ve suffered as a result.
They’ve crushed it. Romania, Turkey, Poland, Sweden, Croatia — you name it, they’ve all posted vastly better growth rates than Greece. The data come from the IMF itself. It measures growth in gross domestic product, per person, in constant prices (in other words, with price inflation stripped out). Greece adopted the euro in 2001.
And after 14 years in the same club as the big boys, they are back right where they started. Real per-person economic growth over that time: Zero. Meanwhile Romania, with the leu, has only … er … doubled. Everyone else is up. The Icelanders, who suffered the worst financial catastrophe on the planet in 2008, have nonetheless managed to grow.
Yes, all data points have caveats. Each country has its own story and its own advantages and disadvantages. But the overall picture is clear: The euro has either caused Greece’s disastrous economic performance, or at least failed to prevent it.
What I find amazing about the euro-fanatics is that they just don’t seem to care about facts at all. They carry on repeating the same claims about the alleged miracle cure of their currency, no matter what happens. You can hit them over the head with the latest IMF World Economic Outlook and they carry on droning, unfazed.
I was in England during the 1990s when those people were warning that if the Brits didn’t give up the pound sterling and join the euro, they were doomed as well. For a laugh, I just went through news archives on Factiva and refreshed my memory.
Britain without the euro would be an “orphan country,” petted, humored but ignored, warned one leading figure. Britain would lose all influence and status. It would become a marginal country outside the mainstream of Europe. It would lose “a million jobs.” Factories would close. The car industry would collapse. Foreign investors would walk away because of Britain’s isolation.
Exports would plummet because of exchange-rate fluctuations. The City of London, Britain’s financial district, would lose out to Frankfurt. The London Stock Exchange would be reduced to a local backwater. Tumbleweeds would blow in the streets. (OK, I made that one up.)
And here we are today. Since 1992, when the single currency project began taxiing for takeoff, the countries on board have seen total economic growth of 40%, says the IMF. Poor old Great Britain, stuck back at the departure lounge with its miserable pound sterling? Just 67%. Bah.
This currency that Greece is fighting so hard to be part of is in fact strangling it. The reason for this lies in the structure of the EMU. Which makes it impossible for individual countries to adapt to changing circumstances. And circumstances always change. As a country, you need flexibility, you need to be able to adapt to world events.
You need to be able to devalue, you need a central bank to be your lender of last resort. Mario Draghi has refused to be Greece’s lender of last resort. That can’t be, that’s impossible. there is no valid economic reason for such an action, it’s criminal behavior. But the eurozone structure allows for such behavior.
In ‘real life’, where a country has its own central bank, the only reason for it to refuse to be lender of last resort would be political. And it is the same thing here. It’s about power. That’s why Greece’s grandmas can’t get to their meagre pensions. There is no economic reason for that.
In the eurozone, there’s only one nation that counts in the end: Germany. The eurozone has effectively made it possible for Angela Merkel to save her domestic banks from losses by unloading them upon the Greeks. This would not have been possible had Greece not been a member of the eurozone.
That this took, and still takes, scheming and cheating, is obvious. But that is at the same time the reason why either all Troika negotiators must be replaced, and by people who don’t stoop to these levels, or, and I think that’s the much wiser move, countries should leave the eurozone.
Look, it’s simple, the euro is finished. It won’t survive the unmitigated scandal that Greece has become. Greece is not the victim of its own profligacy, it’s the victim of a structure that makes it possible to unload the losses of the big countries’ failing financial systems onto the shoulders of the smaller. There’s no way Greece could win.
The damned lies and liars and statistics that come with all this are merely the cherry on the euro cake. It’s done. Stick a fork in it.
The smaller, poorer, countries in the eurozone need to get out while they can, and as fast as they can, or they will find themselves saddled with ever more losses of the richer nations as the euro falls apart. The structure guarantees it.
- "The US Needs War Every 4 Years To Maintain Economic Growth"
“This is not a secret,” explains Kris Roman, director of geopolitical research center Euro-Rus, “The whole [US] economy is built on the military theme: to maintain its economic growth, the United States needs a war every 4 years, otherwise the economic growth slows down.” The Belgian expert believes that with the collapse of the USSR, NATO should have stopped existing, but somehow the alliance “has grown to the size of the Universe because the motto ‘The Russians are coming!’ is relevant again.”
In the 25 years since the collapse of the Soviet Union, NATO has not forgotten even for a moment about the idea of an attack on Russia, Belgian political scientist and director of geopolitical research center Euro-Rus Kris Roman tells Sputnik News…
“But they had no pretext. Now, due to the chaos in Ukraine, this opportunity appeared and it is actively developed. The older generation, which had been brought up on the propaganda against the Soviet Union, has already accepted the idea of ??an inevitable conflict with Russia,” Roman said.
…
Roman said that when the Belgian defense minister had announced that 1,000 Belgian soldiers would be sent to the Baltic states in the event of a “potential Russian attack.”
The United States has repeatedly criticized Europe for small contributions to the NATO budget, saying that the EU tries to save money at the expense of its military budget.
“For America, this is unacceptable, because the whole economy of this country is built on the military theme — to maintain its economic growth, the United States needs a war every 4 years, otherwise the economic growth slows down, it’s not a secret. But the United States cannot fight alone, they need puppet-allies, but NATO members, which are suffering a crisis, cannot increase the budget allocations to the military budget, so Europe is under pressure,” Kris Roman said.
Russophobia Reminds a Disease
The Belgian expert noted that Russophobia is like a disease as “once infected, you become incurable.”
The European analyst also commented on the information war aimed against Russia noting that it had been previously used with regard to Iraq and Libya.
“It is no longer possible to lie and not be punished. Our media simply prefers to remain silent in order not to be caught lying. What they can say? That the Russians were right? That the Russian army is not there [fighting in Donbass], while the Ukrainian army is at war with its own people? They cannot say such things. The official motto is to blame Russia.”
“Remember the downed Malaysian Boeing [MH17 that crashed near Donetsk in July 2014]? Our media began screaming that it is Russia’s fault when it was still falling. Now there are facts that the Russians did not do it, and, as a result, we no longer hear about the investigation. Silence says that the truth is not on the side of Belgian and European media. If they ever had something [regarding Russia’s involvement in the crash], they would have shouted it from morning to evening,” he concluded.
* * *
As Americans rest and celebrate their independence from the actions of an oppressively taxing monarchy, perhaps it is worth reflecting on the current oligarchy’s actions, reactions, and proactions.
- Greece, China, & Russia – A Plan B For Tsipras
If the Greeks were to vote ‘No’ what would happen next? Well no one can say. But here is a quick thought on what I hope the Greek government might have been exploring if they are excluded from the euro. It’s just food for thought nothing more.
They have to be prepared to have a currency that does not depend on Europe supplying Euros. So they will need another currency – hopefully their own. I think we can be sure no western company has been printing them. There are few such companies and there is, I think, no possibility that they would be able to keep secret a contract from Greece. But both Russia and China can print notes. So would it not have been prudent to ask Putin to print up plane loads of Drachma and be prepared to fly them in?
Who would back this currency? Greece is not Great Britain with a long established reasonably trusted currency backed by a big slice of global financial trade. So I do not think they could launch an orphan currency which the drachma would be if it did not have some relation to a major clearing or reserve currency.
For all Obama has, apparently, lobbied the EU to be more conciliatory towards Greece I am not sure he would leap at the chance to help Greece with its debt. He might of course. A chance to reenforce US power in that part of the world. But he already has power there so I doubt he would be willing to ‘pay’ much. Russia and China, however would gain much more by having Greece as a beach head in to the EU and, more importantly, into Nato.
Russia has already signed a large gas pipeline deal with Greece. The deal will make Greece the European terminal for the so-called TurkStream which would be a southern counterpart for the NordStream which runs under the Baltic and has its European terminal in Germany. This pipeline would bring Russian gas to Europe cutting out Ukraine. A nice end run around the Western puppet government/influence in Ukraine (you decide which one you prefer). It will also bring closer Russian ability to pipe gas from further east and from Iran. Which would also be an end run round the southern front of the Great Gas War being fought in Syria.
Earlier this year Russian also signed a deal with Cyprus to give Russian ships access to Cypriot ports.
So It would make sense to me that Russia might see advantage in helping Greece in the event of a ‘No’ vote. But I do not think Russia is in much of a position to help financially. Their help can be practical and trade in gas and their reward is military. Greece and Cyprus together could perhaps get themselves a chip in the big game by being the key to allowing Russia to project military power in to Nato.
Which raises the intriguing possibility that Russia might ask Greece is they could station some military hardware in Greece. Not something Greece would lightly say yes to. BUT if there was a ‘no’ vote and then Europe tried to get really vindictive or even started sabre rattling about ‘radical’ possibly ‘illegitimate’ leftist governments (AKA Syriza) might Syriza gain some advantage by letting it be known they might consider letting Russia dock missile carrying warships in their ports, or allow certain early warning systems on their territory? Or if the Great Gas War, which is surely the new Cold War, where Ukraine is the new Germany divided East and West (all we need now is a wall somewhere), heats up and the US does deploy missile systems there, would Russia think it advantageous to befriend Greece so they could ask an indebted Greek government to allow Russia to retaliate with missiles right in the heart of Europe?
I realise this is pure speculation but it’s fun and I think it’s good to think the unthinkable now and again. Our leaders regularly do the unthinkable. We should at least think it.
Anyway, I can see reasons why Russia would think it to their advantage to help Greece and have favours to call in.
Then there is China. China is too far away for military pretensions in the Med. Better to leave that to Russia. What China has is money. Just yesterday the director of the Quantitative Finance Department at China’s Institute of Quantitative and Technical Economics, Mr Fan Mingtao, said in an interview,
“I believe there are two ways to give Greece Chinese aid. First, within the framework of the international aid through EU countries. Second, China could aid Greece directly. Especially considering the Silk Road Economic Belt and the Asian Infrastructure Investment Bank. China has this ability,”
I don’t know if this is pure kite flying but it’s interesting. The Asian Infrastructure Investment Bank (AIIB) is a China led rival to the US led World Bank. America was very against it and hugely put out when various European and other countries defied America and merrily joined it. Led by Britain which is a founder member. This is a major step in China’s policy of projecting power abroad but also a major step in its campaign to either have the Yuan as a new reserve currency or position a new currency in which China and the Yuan are constituent backers.
Again this is all speculation. But China is sick of America excluding it from governance of the World Bank and the IMF. Plus China will soon need – not just want – but need the Yuan to be at the very least a much more widely used settlement currency if not a full blown reserve currency. The reason I suggest this, is because of China’s ballooning domestic debt problem. Back in 2011 I wrote about the way regional governments were largely outside of direct and effective central control particularly their issuance of debt (Making the New Sub Prime – Backdoor to China) and how that debt was going bad (China – 10.7 trillion Yuan of debt going bad).
That analysis is, I think, now vindicated. That regional debt has now blown up and is on the point of taking many of China’s banks down with it. The central chinese government now has, I think, little choice but to backstop all that regional debt. The hope is that this will save their regional governments from defaulting and also bail out all the banks that are holding that debt and would be bankrupted by such a default. Essentially this is a colossal bank bail out much like they were obliged to do back in the 90′s and we did a decade later. I am not alone in thinking this is the dynamic at play. As reported in the Wall Street Journal and ZeroHedge,
“The debt swap is effectively a debt restructuring for banks,” said Zhu Haibin, J.P. Morgan Chase & Co.’s chief China economist.
How big might this bail out get?
Because the central government is ultimately responsible for guaranteeing local government debt, and because yields on the new muni bonds are so close to those on treasurys, the newly issued local government bonds are really just treasury bonds, meaning that, in essence, the supply of Chinese government bonds is set to jump by CNY2 trillion in the coming months. If all of the local government debt ends up being refinanced, the end result will be the equivalent on CNY20 trillion in additional treasury supply.
What I foresee is that China’s new regional debt and bank bail out is forcing it in to what is essentially QE. The flow of Yuan is going to be vastly increased. A good idea would be to have lots of people ‘need’ these yuan and be keen to soak them up. That is what would happen if the Yuan becomes a new reserve currency or, failing that, if there is at least a greater use of the Yuan as a settlement currency for major international trades.
Which brings me to my speculation about Greece and the report quoted above about China helping Greece via the new AIIB. Might it not suit China, with its coming flood of new Yuan, to offer Greece a hand with a few Yuan. Greece might offer to conduct all its foreign trade in Yuan rather than dollars or Euros. Greece would benefit because it would not be beholden to America or Europe for a flow of their currencies. It could look to China instead. Russian would be happy with this because it has a settlement agreement with China. Any gas pipeline work could be financed in Yuan with chinese government backed Yuan loans. The AIIB could help Greece out with a loan to allow it to operate. Such a loan would not be blockable from Europe or America. Greece could default and still have operating money. China could spin it as almost humanitarian aid: The Chinese people reaching out to the desperate, impoverished but brave Greeks when the wicked capitalist Europeans would not.
Greece would survive, have new powerful friends, have bargaining chips that neither Europe nor America could ignore , China would have projected the use of the Yuan right in to Europe and Russia would have more than a toe-hold for military power right inside NATO.
If I was Tsipras or Varoufakis I would be on the phone right now.
- A 21-Year-Old Greek Unloads: "I Am Terrified Of Tomorrow…It Feels Like An End"
A letter to The FT… Presented with no comment…
Sir,
Memory. No memory of life before the financial crisis; politics has dominated it ever since. But now I can hardly remember life before Friday night. Fear. I am terrified of tomorrow, all I now see is black. Uncertainty, leading us through our days, every remainder of hope for a brighter future being destroyed by the minute. I look at my three-year-old niece, I envy her ignorance, I envy her age. I am 21 years old and the past few days I feel tired by life. A referendum that supposedly gives me the right to define my future, seems to have taken it away.
There are hundreds of people queueing at the ATMs and petrol stations, there is silence in the streets, people’s faces are frozen. This is the reality since Friday night. There are, and have been for a long time, people literally starving. However, it seems that instead of their situation improving, the rest of us will have no different a fate.
Families and friends divide in Yes and No camps. We are called to exercise our democratic right by voting on a referendum while having no tangible explanation of what will follow each decision. I see everyone I know ready to take this huge responsibility without even being prepared to do so. I notice us, arguing endlessly, everyone supporting their stance fervently, ego dominating minds and words, while having no clue as to what is really at stake.
We all want the crisis to end, we all crave growth and happiness. I do not remember my parents being free of stress and anxiety in the past years. I do not remember not noticing shops closing every month, or the rapid increase of beggars in the streets. People that, before the financial crisis, never had to beg for anything. However, the past five days have been worse than all that has been so far. They say that all we hear is propaganda; but we have lost our trust in all sides, now everything seems to be lies.
It feels like an end. The end of our lives as we knew them. Yes, the lives that, before Friday, we already thought could be better; now we realise they were better then. The only thing we truly wish for is that the worst is not yet to come.
Iliana Magra
Thessaloniki, Greece
- Nomi Prins: In A World Of Artificial Liquidity – Cash Is King
Submitted by Nomi Prins via PeakProsperity.com,
Global central banks are afraid. Before Greece tried to stand up to the Troika, they were merely worried. Now it’s clear that no matter what they tell themselves and the world about the necessity or even righteousness of their monetary policies, liquidity can still disappear in an instant. Or at least, that’s what they should be thinking.
The Federal Reserve and US government led policy of injecting liquidity into the US and then into the worldwide financial system has resulted in the issuance of trillions of dollars of debt, recycling it through the largest private banks, and driving rates to 0% — or below. The combined book of debt that the Fed and European Central Bank (ECB) hold is $7 trillion. None of that has gone remotely into fixing the real global economy. Nor have the banks that have ben aided by this cheap money increased lending to the real economy. Instead, they have hoarded their bounty of cash. It’s not so much whether this game can continue for the near future on an international scale. It can. It is. The bigger problem is that central banks have no plan B in the event of a massive liquidity event.
Some central bank entity leaders have admitted this. IMF chief, Christine Lagarde for instance, warned Federal Reserve Chair, Janet Yellen that potential US rate hikes implemented too soon, would incite greater systemic calamity. She’s not wrong. That’s what we’ve come to: a financial system reliant on external stimulus to survive.
These “emergency” measures were supposed to have healed the problems that caused the financial crisis of 2008 — the excessive leverage, the toxic assets wrapped in complex derivatives, the resultant credit and liquidity crunch that occurred when banks lost faith in each other. Meanwhile, the infusion of cheap money and liquidity into banks gave a select few of them more power over a greater pool of capital than ever. Stock and bond markets skyrocketed as a result of this unprecedented central bank support.
QE-infinity isn’t a solution — it’s a deflection. It’s a form of financial subterfuge that causes extra problems. These range from asset bubbles to the inability of pension and life insurance funds to source longer term less risky long-term assets like government bonds, that pay enough interest for them to meet liabilities. They are thus at risk of rapid future deterioration and more shortfalls precisely because they have nothing to invest in besides more risky stock and lower-rated bond markets.
Even the latest Bank of International Settlement (BIS) 85th Annual Report revealed the extent to which global entities supervising the banking system are worried. They harbor growing fears about greater repercussions from this illusion of market health (echoing concerns I and others have been writing about for the past seven years.)
The BIS, or bank for the central banks was established during the global Great Depression in 1930 in Basel, Switzerland, when bank runs on people’s deposits were the norm. The body no longer buys into zero-interest rate policy as an economic cure-all. In their words, “Globally, interest rates have been extraordinarily low for an exceptionally long time, in nominal and inflation-adjusted terms, against any benchmark. Such low rates are the remarkable symptom of a broader malaise in the global economy.”
They go on to note the obvious, “The economic expansion is unbalanced, debt burdens and financial risks are still too high, productive growth too low, and the room for maneuvering in macroeconomic policy too limited. The unthinkable risks becoming routine and being perceived as the new normal.”
These are troubling words coming from an organization that would have much preferred to deem central bank policies a success. Yet the BIS also states, “Global financial markets remain dependent on central banks.” Dependent is a strong word. How quickly the idea of free markets has been turned on its head.
Further, the BIS says, “Central bank balance sheets remain at unprecedented high levels; and they grew even larger in several jurisdictions where the ultra low policy rate environments were reinforced with large purchases of domestic and foreign assets.”
Central banks are not yet there, but rising volatility is indicative of the accelerating approach to the nowhere left to go mark from a monetary policy perspective. This, after seven years of a reckless Anti-Main Street, inequality and instability inducing, policy.
Not only have the major banks been the main recipient of manufactured liquidity, they have also received consolidated access to our deposits, which they can use like hostages to negotiate future bailout situations. Elite bankers moan about the extra regulations they have had to endure in the wake of the financial crisis, while scooping up cash dispersed under the guise of stimulating the general economy.
Central banks seek fresh ways to keep the party going as countries like Greece shut down banks to contain capital flight, and places like Puerto Rico and multiple states and municipalities face economic ruin. But they are clueless as to what to do.
In this cauldron of instability and lack of leadership, cash is the one remaining financial possession that Main Street can translate into goods, services and security. That’s why private banks want more control over it.
Banks Want Your Cash For Their Latent Emergencies
One of the most inane reasons cited for restricting cash withdrawals for normal people is that they all might turn out to be drug dealers or terrorists. Meanwhile, drug-dealing-money-laundering terrorists tend to get away with it anyway, by sheer ability to use a plethora of banks and off shore havens to diffuse cash around the globe.
Every so often, years after the fact, some bank perpetrators receive money-laundering fines. For average depositors though, these are excuses for a bureaucracy built upon limiting access to cash whether from an ATM (many have $500 per day limits, some have less) or an account (withdrawals above a certain level get reported to the IRS).
As Charles Hugh Smith wrote at Peak Prosperity recently, there’s a difference between physical cash (the kind you can touch and use immediately) and the electronic kind, associated with your bank balance or credit card cash advance limit. If you hold it, you have it – even if keeping it in a bank means it’s probably slammed with various fees.
Banks, on the other hand, can leverage your deposits or cash, even while complying with various capital reserve requirements. That’s not new. But the expanding debates about how much of your cash you get to withdraw at any given moment, is.
The notion of a bail-in, or recourse to people’s deposits, is related to the idea of restricting the movement, or existence, of physical cash. Bail-ins, like any cash limitations, imply that if a bank needs emergency liquidity, your deposits are the place to find it, which has negative repercussion on your own solvency. This is exactly what the Glass-Steagall Act of 1933, coupled with the creation of the FDIC sought to avoid – banks confiscating your money at the worst possible times.
The ‘war on cash’ is thus really a war on the difference between the money you can hold on to and the money the banks can take away from you. The existence of this cash debate underscores the need for a personal policy of cash extraction from the big banks. Do you have one?
In Part 2: They're Coming For Your Cash we detail out the growing threats to the liquidity that sustains the modern global banking system, and why it's more crucial than ever for people to consider extracting a portion of cash from their bank accounts. As existing liquidity streams dry up (as they are beginning to around the world), increasingly desperate banks will turn to the largest and most convenient source they know of: the collective cash savings we have on deposit with them.
Click here to read Part 2 of this report (free executive summary, enrollment required for full access)
- The Greek Bluff In All Its Glory: Presenting The Grexit "Falling Dominoes"
Earlier today, Yanis Varoufakis reiterated his core thesis driving the entire Greek approach from day 1 of its negotiations with the Eurogroup: “Europe [stands] to lose as much as Athens if the country is forced from the euro after a referendum on Sunday on bailout terms.”
This is merely a recap of what we said 4 years ago when in July of 2011 we explained “How Euro Bailout #2 Could Cost Up To 56% Of German GDP“, recall:
the bottom line is that for an enlarged EFSF (which is what its blank check expansion today provided) to be effective, it will need to cover Italy and Belgium. As AB says, “its firepower would have to rise to €1.45trn backed by a total of €1.7trn guarantees.” And here is where the whole premise breaks down, if not from a financial standpoint, then certainly from a political one: “As the guarantees of the periphery including Italy are worthless, the Guarantee Germany would have to provide rises to €790bn or 32% of GDP.” That’s right: by not monetizing European debt on its books, the ECB has effectively left Germany holding the bag to the entire European bailout via the blank check SPV. The cost if things go wrong: a third of the country economic output, and the worst case scenario: a depression the likes of which Germany has not seen since the 1920-30s. Oh, and if France gets downgraded, Germany’s pro rata share of funding the EFSF jumps to a mindboggling €1.385 trillion, or 56% of German GDP!
Several years later, in anticipation of precisely the predicament Europe finds itself today, the ECB did begin to monetize European debt, which has since become the biggest European risk-shock absorber of all, and the one which the ECB is literally betting the bank on: just count the number of times the ECB has sworn it has the tools and can offset any Greek risk contagion simply by buying bonds.
Unfortunately, it is not that simple.
The reason is precisely in the contagion threat inherent in Europe’s alphabet soup of bailout mechanism as we explained four years ago in the post above, and as Carl Weinberg of High-Frequency Economics did hours ago in today’s edition of Barrons. Here is how the Greek contagion would spread, laid out in all its simplicity, should there be a Grexit, an outcome which the ECB could catalyze as soon as Monday in case of a “No” vote by raising ELA collateral haircuts:
The [Greek] government appears ready to renege on its debt obligations. So Greece’s creditors are going to lose money—a lot of money. Since these creditors are public entities, the losses will be borne, initially, by the public.
This crisis is about managing the resolution of bad Greek assets in a way that inconveniences creditor governments the least, forcing the least net new public borrowing, and minimizing financial system risks. The best way to do that is to avert a hard default, even if it means kicking the can down the road.
That, once again, is the Varoufakis all-in gamble, a gamble which assumes the ECB will be rational enough (in a game theory context) to appreciate the fallout of a Grexit on Europe’s creditors. Here is a qualitative determination:
Consider the ESM, Greece’s biggest creditor. Under its previous name, the European Financial Stability Facility, it loaned Greece €145 billion. If Greece defaults, the ESM, a Luxembourg corporation owned by the 19 European Monetary Union governments, will have to declare loans to Greece as nonperforming within 120 days. Accounting rules and regulators insist that financial institutions write off nonperforming assets in full, charging losses against reserves and hitting capital.
Here’s the rub: The ESM has no loan-loss contingency reserves. Its only assets—other than loans to Greece—are loans to Ireland and Portugal. Its liabilities are triple A-rated bonds sold to the public. How do you get a triple-A rating on a bond backed entirely by loans to junk-rated sovereign borrowers? Well, the governments guarantee the bonds, and because they are unfunded off-balance-sheet liabilities, they aren’t counted in their debt burdens—unless borrowers default.
If Greece defaults hard, governments will be on the hook for €145 billion in guarantees on those loans to the ESM. We expect credit-rating agencies to insist that these unfunded guarantees be funded. After all, unfunded guarantees are worthless guarantees.
And the punchline:
The strength of these guarantees is untested. Would the German Bundestag vote tomorrow to raise €35 billion by selling Bunds, the government debt, to cover Germany’s share of ESM losses on Greek bonds? That seems improbable. Bund sales of that scale, if they did occur, would flood the market, raising yields and depressing prices. If, instead, the Bundestag refused to cover its guarantees, then we would see a legal dust-up on a grand scale. With the presumption of valid guarantees, credit raters would have no choice but to downgrade ESM paper. Then losses would be borne by bondholders, and the ESM—the euro zone’s safety net and backstop—couldn’t raise money in the capital markets.
In other words, Grexit would usher in a pandemonium of unheard proportions because when the ESM, EFSF and countless other bailout mechanism were postulated, none even for a minute evaluated the scenario that is being flouted with ease, and, paradoxically, by the ECB itself most of all: an ECB which stands to lose the most…
A hard default would produce other losses to be covered. The ECB would have to be recapitalized after it writes off the €89 billion it has loaned the Greek banks to keep them liquid. The ECB would need to call for a capital contribution from its shareholders—the governments.
… not to mention any last shred of confidence it may have had.
But wait, there’s more:
And don’t forget that Greek banks owe the Target2 bank clearinghouse, a key link in the interbank payment system, an estimated €100 billion. The governments are on the hook to make good that shortfall, too. The cash required to cover these contingencies would have to be funded with new bond sales.
The conclusion is incidentally, identical to what Zero Hedge said back in the summer of 2011: “the ultimate loser in a Greek default would be the euro-zone sovereign-bond market, which is already vulnerable. ” The only difference is that this time, yields are near all-time lows, and durations are high. Ironically, even the smallest fluctuations in yield mean a volatile response in prices, and an immediate crippling of the bond market. Perhaps most ironic is that Europe’s bond market is far less prepared to deal with Greek contagion now than when Italian bonds were blowing out and trading at 7%, just because everyone has double down and gone all-in that the ECB can contain the contagion. If it can’t, it’s very much game over.
This is what Varoufakis’ likewise all-in gamble on the future of Greece boils down to.
And just so we have numbers to work with, here courtesy of Bawerk’s fantastic summary, is a way to quantify what a Grexit and the resultant falling dominoes would look like for Europe:
Simplistic representation of falling dominos not enough? Then here is the full breakdown of implicit exposure every Euro Area country has toward a Greek exit, because it is not just the EFSF dominoes, it is also SMP, MRO, ELA, Target2, and oh my…
And tying it all together, here is some more from “Eugen von Böhm-Bawerk“:
The Germans, French and IMF alike reluctantly admit so much, but they cannot give the Greeks any debt relief because as soon as Greece starts to default on their obligations on the off-balance sheet guarantees extended by the euro countries the whole system could fall like dominoes.
The problem, however, is that the IMF already did admit that Greece does need at least a 30% haircut, implying that at least one member of the grand status quo, under pressure form the US, already got the tap on the shoulder and has been told to prepare for more falling dominoes. Which leads to even more questions:
What would happen if Italy suddenly got an extra funding requirement of more than €60bn? Every euro apologist point to Italy’s primary surplus, but what good does that do when your debt is over 130 per cent of GDP and rising? The interest payment on that gargantuan debt load means Italy must cough up more than €75bn a year just to service liabilities already incurred. A primary surplus is a useless concept in a situation like the one Italy finds itself in. Adding another €60bn to Italy’s balance sheet could very well be the straw that breaks the Italian camel.
The French would be on the hook for around €70bn just when they have agreed with the European Commission to “slash” spending to get within the Maastricht goal of 3 per cent, in 2017!
Imagine the German peoples wrath when they learn that Merkel defied their sacrosanct constitution; a constitution that clearly state that the German people, through its Bundestag, is the sole arbiter of any act that have fiscal implications regarding the German people. The Bundestag did not approve the €42bn of ECB programs that have funded the Greek states excessive consumption.
All this is purely theoretical. For the practical implications of the above “falling domino” chain, we go back to Carl Weinberg:
What if a downgrade of ESM paper causes a hedge fund to fail, which triggers the demise of the bank that handles its trades? The costs of fixing failed institutions will also, of course, fall on governments. The ultimate cost of Greece’s default is yet to be seen, but it is surely larger than it seems.
Contained? We think not. And neither does Varoufakis, which is why he is willing to bet the fate of the Greek people on that most critical of assumptions. The only outstanding question is what does Mario Draghi, and thus Goldman Sachs, believe, and even more importantly, whether the Greek people have enough faith in Varoufakis to pull it off…
- Whole Foods, Half Lies
Submitted by Salil Mehta via Statistical Ideas blog,
Whole Foods has just been caught ripping-off customers, above and beyond their typical rip-off prices. Whenever I shop at Whole Foods, up and down the Northeast, I observe that more than 2/3 of customers pay with bank cards. Part of the issue with this payment method is that few customers then do what they should be doing. Being a math guy for example, I always add up the prices of anything I am about to buy, before I get to the payment cashier. It's not that hard!
And every couple of weeks, at all sorts of global merchants (from stores, to restaurants, to service companies), I come across price discrepancies. I always feel obligated on behalf of all fellow consumers to notify the business staff (whose only incentive at the counter is to pump you for a loyalty discount card in exchange for your valuable personal data), and most of the time the "mistake" is in their favor. Certainly not in anyone else's. The "mistake" comes down to corporate heedlessness at best, and an obvious lack of respect for their customer's finances. Many times I actually get a dirty look (like I am the jerk for catching their own error!), and only some of the time do I notice businesses promptly take the corrective actions so that no one else would be impacted. If one mindlessly just throws over their bank card and personal data with every purchase, then (as we'll see below) they will often be overcharged.
This particular news is happening with a company that already has a high-profile and checkered track record of doing good. Just before the global financial crisis, CEO Mackey thought it was better to ignore his customers and mask his online identity with the alias "Rahodeb". Squandering his time instead by falsely denigrating Wild Oats, and simultaneously falsely promoting Whole Foods. In a similar playbook as they have today, this insulting set of affairs only came to an abrupt end when Whole Foods was busted.
Also this news is happening with a company that is now suffering intense competition from better-priced competitors. The organic marketplace is well-overdue for price reform. As even billionaire investor Warren Buffett quipped recently "I don't see smiles on the faces of people at Whole Foods." Though on a tangent, we don't see smiles on the faces of his Berkshire stockholders in recent years either (here, here). Particularly if they then shop at Whole Foods afterwards, only to get served a second beat down.
So what does Whole Foods' leadership finally do about the recent pricing scandal? Create a feel-good advertisement! No staff changes nor any attempt at financial regress for the systematic and ongoing misconduct. They've already double bagged and taken home those ill-gains. Here we see Walter Robb, and Rahodeb confusingly justify the "rigorous science" surrounding pricing a fruit in the 21th century:
Straight up, uhhh, we made some mistakes. We want to own that, and tell you what we are going to do about it … We know they are unintentional because the mistakes are both in the customer's favor and sometimes not in the customer's favor. It's understandable that sometimes mistakes are made. They are inadvertent. They do happen.
They also fictitiously blurt out to anyone mathematically illiterate, that in a "very, very small percentage" of times that errors occurred. What's missing is that really in a "very, very, very small percentage" did this ever work in their customer's favor. That's three "very's" using the thumbed-on Whole Foods scale. Which is why eventually they were busted.
This brings us to statistics on our blog, because it would be informative to show people the number of different ways Whole Foods -or similar merchants- can systematically cheat consumers, and still later hole up behind the lawyered company comments above. We'll go through examples, each time merely using two hypothetical products for illustration. We expose in each variation, how even the most fair mis-pricing will generally be "straight up" not fair.
- With 6 Hours Until The Greek Vote, This Is Where We Stand
With just hours to go until Greeks head to the ballot box to decide the country’s fate in the eurozone, the latest polls show a nation divided with only a half percentage point separating the “no” votes from the “yes” votes.
Underscoring the ‘dead heat’ preliminary poll results, the yes’s and the no’s staged dueling protests in the streets of Athens on Friday night. All told, as many as 50,000 people participated in the competing demonstrations with PM Alexis Tsipras making an appearance at the “No” rally.
As a reminder, this is the schedule for the referendum:
WHEN ARE RESULTS DUE
- Polling stations will be open from 7am to 7pm local time and the result may be known before midnight
- Pollsters haven’t confirmed if there will be exit polls; if there are any, they will come immediately after the polls close
- Software distributor SinglularLogic, which has been hired to run the vote counting and data processing, should be able to provide an estimation of the winner a few hours after polls close
- JPMorgan expects ~90% of votes will have been counted by midnight, based on past general elections in Greece; vote counting could be even faster this time as it’s a yes or no question
And this is where things stand:
* * *
As noted earlier today, Athenians are restless and we can’t help but wonder what the scene will be in the streets of Athens on Sunday evening once the results are tallied and one of these two dueling groups is forced to acquiesce to the other’s vision of Greece’s future.
- 5 Things To Ponder: Independence Day Reading
Submitted by Lance Roberts via STA Wealth Management,
This weekend's reading list is a smattering of articles to enjoy between your favorite beverage, grilled meat and really fattening desert. Just remember to go back to the gym on Monday.
1) Grantham: Stocks Will Continue Upward Until The Election by Justin Kermond via Advisor Perspectives
"Jeremy Grantham says equity valuations are heading toward the "two-sigma" level that is the requisite threshold for a true bubble. At some point – which is not imminent – he said a "trigger" will precipitate the reversion back to mean levels. The market will continue to deliver positive returns until the next election, according to Grantham.
Grantham cited two major causes for the looming bubble: post-Bernanke U.S. Federal Reserve policy and a "stock-option culture" that has both elevated corporate margins and stifled normal levels of capital expenditure investment required to grow the economy."
Read Also: The Last Crisis May Cause The Next One by Robert Samuelson via Real Clear Markets
2) Why This Chinese Bubble Is Different by John Authers via FT
"Whatever else, the incident demonstrated that China's market remains dominated by liquidity. It also showed how badly the authorities want an overextended stock market. So, to adapt an old market saw, perhaps everyone should buy A-shares on the basis of "don't fight the PBoC".
Bulls, led by GaveKal Dragonomics, say for global investors, keeping out of China is "the world's most crowded trade". Ever since metals prices turned down four years ago, suggesting slower Chinese growth, western institutions have been wary. They missed out on last year's boom, explaining their reluctance to see A-shares suddenly appear in their benchmarks."
Read Also: Putting The China Drop Into Perspective by Malcolm Scott via Bloomberg Business
Read Also: Maybe It's Not So Different by Streettalklive.com
3) Private Equity Is "Cashing Out" by Leslie Picker and Ruth David via Bloomberg
"When financier Leon Black said his Apollo Global Management LLC was exiting "everything that's not nailed down" amid rising valuations, he made headlines. Two years later, other private-equity firms are following suit — dumping stakes into the markets at a record clip.
Firms including Blackstone Group LP and TPG Capital Management have been capitalizing on record stock markets around the world to sell shares, mostly in their companies that have already gone public. Globally, buyout firms conducted 97 stock offerings in the second quarter, more than in any other three-month period, according to data compiled by Bloomberg."
Read Also: Smart Money Is Cashing Out, What About You? by Tyler Durden via ZeroHedge
4) 15 Problems With Real World Portfolios by Ben Carlson via A Wealth Of Common Sense
"Investment strategies have a tendency to look beautiful on paper and in marketing pitch books. You get to see return numbers, risk-adjusted results and pretty looking graphs that show how great things were in the past. I've yet to come across a strategy that couldn't be dressed up and made to look appealing by a skilled sales team or portfolio manager.
While there's nothing wrong with trying to present your investment process so it stands out from the crowd, investors have to remember that the markets are never quite as easy as they look on paper or with the benefit of hindsight. Here are 15 reasons portfolios are always harder in the real world than what you'll see in a marketing pitch or back-test:"
Read Also: When Market Returns Are Reliant On A Single Word by Jeff Erber via Real Clear Markets
5) The Roseanne Roseannadanna Market by Dr. John Hussman via Hussman Funds
"Much of the investment world seems to view present conditions as a "Goldilocks market" where economic growth is positive enough to avoid recession, but not fast enough to provoke the Federal Reserve to hike interest rates. Even if these views on economic growth and Federal Reserve policy are correct, it hardly follows that stock prices will advance. S&P 500 returns are only weakly correlated with year-over-year GDP growth and have near-zero correlation with year-over-year changes in earnings. Likewise, the stance of the Federal Reserve has much less power to distinguish investment outcomes than investors seem to believe, which they might realize even by remembering that the Fed was easing aggressively and persistently throughout the 2000-2002 and 2007-2009 market collapses.
In contrast, we find profound differences in market outcomes across history depending on the combined status of valuations, market internals, and broader measures of market action (which include, for example, overvalued, overbought, overbullish syndromes)."
Read Also: The Single Most Important Element To Successful Investing by Jesse Felder via The Felder Report
Have Another Slice Of Pie
6 Conditions For A Global Bond Crisis by Bill Gross via Janus Funds
A Compendium Of Tweeted Research by Meb Faber via Meb Faber Research
The Current Oil Price Slump Is Far From Over by Arthur Berman via OilPrice.com
The Whole Story Of Factors + Asset Classes by Jason Hsu via Research Affiliates
"Perhaps it's fate that today is the Fourth of July, and you will once again be fighting for our freedom… Not from tyranny, oppression, or persecution…but from annihilation. We are fighting for our right to live. To exist. And should we win the day, the Fourth of July will no longer be known as an American holiday, but as the day the world declared in one voice: 'We will not go quietly into the night!' We will not vanish without a fight! We're going to live on! We're going to survive! Today we celebrate our Independence Day!" – Pres. Thomas Whitmore, Independence Day
Have a great 4th of July holiday.
- The Template for the End Game: Lies and Fraud Followed by Bail-Ins
The Cyprus bank bail-in committed of early 2013 may seem like small deal to most US investors.
After all, most Americans probably couldn’t even find Cyprus on a globe. And with the mainstream media spreading the narrative that the Cyprus bail-in was a one-time event that was meant to support the bank while punishing tax-dodging crooks, 99% of folks won’t think twice about the situation.
However, the reality of what happened in Cyprus is a far different matter. And the reason that this reality has not been featured as headline news is because doing so would reveal the following:
1) European politicians are both corrupt and incompetent.
2) Those meant to assess the risk of any financial institutions don’t know what they’re talking about.
3) The average citizen will be screwed while politically connected insiders will be given the means to circumvent the law.
Let’s assess these issues one by one.
First off, the Cyprus bank “bail-in” was not some sudden event. The country first asked for a bail-out in JUNE 2012. Here’s the timeline.
· June 25, 2012: Cyprus formally requests a bailout from the EU.
· November 24, 2012: Cyprus announces it has reached an agreement with the EU the bailout process once Cyprus banks are examined by EU officials (ballpark estimate of capital needed is €17.5 billion).
During the period of late June 2012 until November 2012, Cyprus’s problems were allegedly being assessed and nothing more. Throughout this period, NO ONE in a position of significant political or financial power suggested to Cypriots or anyone else who had money in the Cyprus banks that their money would be STOLEN.
Instead, numerous bureaucrats came out to assure the public that this situation was under control and that the risks to the Cyprus banks would be carefully assessed.
Then, in the span of a single week, a bank holiday was declared, bank accounts were frozen, and deposits were stolen.
Here’s the specific sequence of events:
· March 16 2013: Cyprus announces the terms of its bail-in: a 6.75% confiscation of accounts under €100,000 and 9.9% for accounts larger than €100,000… a bank holiday is announced.
· March 17 2013: emergency session of Parliament to vote on bailout/bail-in is postponed.
· March 18 2013: Bank holiday extended until March 21 2013.
· March 19 2013: Cyprus parliament rejects bail-in bill.
· March 20 2013: Bank holiday extended until March 26 2013.
· March 24 2013: Cash limits of €100 in withdrawals begin for largest banks in Cyprus.
· March 25 2013: Bail-in deal agreed upon. Those depositors with over €100,000 either lose 40% of their money (Bank of Cyprus) or lose 60% (Laiki).
The most critical item to note about this timeline is that while the general public was assured that all was well, politically connected insiders were warned to get their money OUT OF THE BANKS
One hundred and thirty-two companies reportedly had inside knowledge of Cyprus’ impending levy tax as they withdrew deposits worth US$916 million in the run-up to the bailout deal.
The companies withdrew their savings in the two week period (between March 1 to March 15) leading up to the rescue deal that enforced heavy losses on wealthy depositors in Cypriot banks, according to Greek newspaper Proto Thema.
Shortly after this the EU ministers and the IMF hammered out a 10-billion-euro (US$13 billion) bailout agreement with Cyprus, which included a one-time tax on deposits held in Cypriot banks.
In the meantime all banks in Cyprus temporarily froze the amounts required to pay the tax on their clients’ deposits and stopped all transactions while the government negotiated the details of the agreement.
The companies on the list withdrew their deposits in euro, USD, GBP and Russian rubles and later transferred to banks outside of Cyprus. The total amount withdrawn comes to US$916 million.
http://rt.com/news/cyprus-companies-withdraw-money-218/
So, nearly $1 billion worth of insider money escaped the Cyprus confiscation scheme. NONE of it was retiree savings. Ordinary individuals got screwed while politically connected insiders were able to get out scot-free.
Now what’s truly amazing is that the Cyprus bank that collapsed was actually AWARDED BEST BANK for Private Banking by EUROMONEY Magazine. What was hailed as the BEST bank for private banking ended up being totally insolvent with 47% of deposits above €100,000 being converted into bank equity.
Bank of Cyprus has been named as the Best Bank for Private Banking in Cyprus, by the internationally acclaimed magazine EUROMONEY
Bank of Cyprus Private Banking ranked first among Cypriot, Greek and other international financial institutions operating in Cyprus in the Private Banking sector. This accolade classifies the Bank among the leading financial institutions offering Private Banking services and is yet another important international distinction for the Bank of Cyprus Group…
This recognition by EUROMONEY is ever more important in today’s macroeconomic environment as it reaffirms the Bank’s ability to safely and successfully respond to its clients’ financial needs and emphasizes its clients’ loyalty and trust.
http://www.bankofcyprus.com.cy/en-GB/Cyprus/News-Archive/Best-Bank-for-Private-Banking/
Now, the political and financial elite in Cyprus and the EU will argue that bank deposits were not STOLEN because they were converted into equity in the bank at a rate of €1 per share. But being forced to change cold hard cash for equity in an insolvent bank is hardly cause for excitement.
Indeed, the market, now well aware that the Bank of Cyprus is insolvent, has been dumping shares. So those depositors whose deposits were converted into equity are watching their savings evaporate as shares dive.
Moreover, it’s not as though they were given the means to get their other deposits out of the bank:
Last year, thousands of customers with money in Bank of Cyprus, including many British and Russians, became unwilling shareholders in the lender when their deposits were turned into equity as part of a controversial €10bn emergency rescue.
Depositors saw 47.5 per cent of their money above a €100,000 threshold turned into equity.
More than a third of their cash was then locked into six, nine and 12-month accounts. Shares in Bank of Cyprus have been suspended on the Athens and Nicosia stock exchanges since early 2013 and only one of the fixed term cash accounts has released all of the money due to customers.
Éxito’s Ben Rosenberger and Michele Del Bo, who have previously arranged the sale of Lehman Brothers and Icelandic bank distressed debt, said that sellers had so far been mostly international clients who wanted to extract their money from the island by selling their deposits and shares to distressed debt funds.
http://www.ft.com/intl/cms/s/0/89351ec8-f223-11e3-9015-00144feabdc0.html#axzz38Iy371O0
So when the bank wants to raise capital, which would dilute the equity holdings for former depositors. What were savings are now not only subject to the whims of the market, but can be actively diluted by capital raises.
Again, we refer to the list we began this article with:
1) European politicians are both corrupt and incompetent.
2) Those meant to assess the risk of any financial institutions don’t know what they’re talking about.
3) The average citizen will be screwed while politically connected insiders will be given the means to circumvent the law.
Cyprus matters because while countries may differ in specific cultural components, the monetary system in place is by and large the same around the world. And what happened in Cyprus should be seen as a template for what can happen elsewhere.
Indeed, this is now playing out in Greece today.
Greece’s current leadership was elected back in January. Since that time the country has been in an ongoing negotiation concerning its debt issues. Everyone knew Greece was broke, but again the process was dragged out.
Then in the span of a single weekend, a bank holiday was declared… and now suggestions of a 30% haircut on deposits are being floated. And once again, it’s ordinary citizens who are being screwed.
This process will be spreading throughout the globe going forward. Indeed, the FDIC has proposed precisely the same “bail-in” program if a “systematically important financial institution” were to go belly-up in the US.
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- Will Greek Depositors Under €100,000 Be Spared In Case Of A "Bail-In"
One week ago, we first explained that as the Cyprus bail-in “blueprint” scenario unfolds, the one final, and most important, remaining variable in the ongoing Greek drama, soon to devolve to tragedy, is how big the ECB’s ELA haircuts would be in the case of a No vote, which would be the first catalyst of a depositor haircut.
Then, overnight, in a report since denied by both the Greek finance ministry and by the European Banking Authority Plan, the pro-Europe FT did yet another hit piece on Greece desperate to push those Greek voters on the fence ahead of tomorrow’s referendum to vote “Yes” (just think of the lost advertising revenue if say Deutsche Bank were to go under).
Greek banks are preparing contingency plans for a possible “bail-in” of depositors amid fears the country is heading for financial collapse, bankers and businesspeople with knowledge of the measures said on Friday.
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.
Ignoring whether the FT is now merely a venue used by conflicted parties to publish pro-Europe, anti-Syriza hit piecestthat benefit “bankers and businesspeople with knowledge of the measures” and are promptly refuted, the article does bring up a relevant point: if the ECB does escalate the ELA collateral haircuts, something we analyzed in our own piece last week, what kind of haircut scenarios are possible, and will “insured” deposits under €100,000 be indeed made whole, or will the bail-in affect, as the FT suggested, everyone with over €8,000 in savings?
Regarding the first part of the question, what are the possible scenarios, JPM had this to say yesterday when evaluating the history of bail-ins in Europe in recent years:
If the deterioration in asset quality means there is no sufficient collateral to cover ELA claims, either the ECB (via its ELA residual claim) or domestic depositors will have to suffer a loss. Our understanding is that there are no clear rules on whether this ELA residual claim will be ranked above depositors or not. In fact EU policymakers adopted different and inconsistent approaches in the past when faced with bank insolvencies:
- In the case of Cypriot banks, depositors were hit while senior bond holders were spared, so seniority was not respected. ELA claims were also protected.
- Deposits of foreign branches were protected in the case of Cyprus while deposits of domestic branches were hit. This is the opposite of what happened to Iceland.
- In the case of Ireland, which also had a big banking system relative to the size of its economy, only sub debt holders, accounting for a very small portion of total creditors, were hit. No depositors were hit, in either domestic or foreign branches.
- In the case of SNS, sub debt holders were wiped out and reports suggest that the Dutch government came close to imposing losses on senior bond holders and was only prevented from doing so because of unsecured intergroup loans between SNS bank and Reaal insurance that would be subjected to the same losses as senior bond holders.
In other words, Europe will do what it always does: make it up as it goes alone. However, one notable difference between Cyprus and Greece is that the former held the deposits of a number of wealthy Russian oligarchs, which skewed the deposit distribution a la the 80/20 rule, and permitted smaller depositors to be saved while the Russians took the bulk of the hits (an outcome which according to some led to the suicide of Russian billionaire in exile, Boris Berezovsky).
Unlike Cyprus, Greece does not have the luxury of several massive depositors. In fact, according to JPM, the distribution of deposits appears to be relatively flat. JPM continues:
… under a stress scenario of prolonged impasse, Greek depositors will be likely hit while ELA claims are protected. There is currently €120bn of deposits with Greek banks. A haircut increase on ELA collateral assets from our currently estimated level of 43% to 60%, for example, would require a €26bn deposit haircut or 20% of outstanding bank deposits assuming for simplicity no available buffer from shareholders or bond holders. A bigger increase in the collateral haircut, for example to 75%, would require a €50bn deposit haircut or 40% of outstanding bank deposits.
Whereas we disagree with JPM’s calculation due to our baseline assumption that the current haircut level is more in the 48% region, we do agree with the directionality. As a reminder, this was our own math as laid out last week:
But what does this mean for ordinary Greeks, those who have negligible amounts still held by Greek banks despite our recurring pleas to withdraw their funds ahead of just this eventuality? Sadly, nothing good. Here is JPM’s conclusion:
Could deposits below €100k be protected as it happened in Cyprus? The answer depends on the total amount of deposits above €100k. If there are enough of these large deposits above €100k, then most likely any required deposit haircut will be inflicted on these depositors only. There are no recent data on how big this universe of large deposits is. The most recent data from the European Commission suggest that at the end of 2012, covered (i.e. those below €100k) represented 75% of eligible Greek deposits. We suspect this number is now significantly higher leaving little room for depositors with less than €100k to be spared. And the reserves that the Greek state has to back its bank deposit guarantee are miniscule, likely not more than a couple of billions euros.
Which means that unlike Cyprus, which was mostly a targeted punitive bail-in aimed almost entirely at Russian oligarchs, should the ECB indeed enact ELA haircuts which it may have to do as soon as Monday in the case of a No vote, it will be the ordinary Greeks who will see their already meager savings get haircut even more, anywhere between 30%, potentially up to 100% if the ECB were to announce the entire ELA no longer legal, pulls all funding and locks up Greek bank collateral.
Will the ECB do that? We don’t know, however Varoufakis’ gambit is simple: should the ECB engage the full Greek haircut it will incite an immediate panic and risks a run on other peripheral banks and the true spread of Greek contagion to Italy, Spain, Portugal and all other economically crushed countries where an anti-austerity politician is a frontrunner for the next leadership position. Such as France.
- The Surprising Demise of Reddit
Well, it seems Ellen Pao managed to step in yet another bucket of syrup.
This is going to require a bit of back-story……….
Some people on the Internet really go for quantity. On their Twitter account, they follow hundreds of people. On Facebook, they connect with thousands of “friends.” And in their browser, they visit dozens of web sites each day.
I tend to be a minimalist. I have precisely 100 friends on Facebook. If I decide I really want someone to be a friend, well, someone else is going to get the boot. On Twitter, even though I have over 13,000 followers, I follow only 8. And as for web sites, there are only three sites I visit repeatedly each day: Slope of Hope, ZeroHedge, and Reddit.
In case you’ve been hiding in a cave somewhere, Reddit is one of the most frequently-visited sites on the web, and it was recently valued at half a billion dollars. It consists of myriad “subreddits” which focus on particular topics of interest, each of which is managed by unpaid (and evidently very dedicated) moderators. Readers can upvote and downvote tidbits of the web, bringing to the front page of reddit itself, or any particular subreddit, the most interesting articles and curiosities.
There isn’t a day that goes by where I’m not entertained and better-informed thanks to reddit and the millions of people who make it possible. Similar to Wikipedia, it’s one of those delightful free gems on the web which isn’t slathered with advertising and is made possible mostly by the heart and hard work of its community. Slope of Hope, in a miniscule way, is very much like that.
None of this would be especially interesting were it not for the shitstorm taking place at this very moment in the usually placid world of Reddit. To wit:
As you’ve gathered from the above, a woman named Victoria Taylor was fired for reasons that have not been explained, and Redditors are absolutely freaking out about it.
Victoria, pictured here, was the director of communications for the past couple of years. It strikes me as odd that the firing of one individual would cause such a revolt, but I don’t consider myself a “deep” Redditor at all. I have a parasitic relationship with the site, similar to “lurkers” on any site (including Slope). I contribute nothing to it. I don’t even upvote/downvote stuff. I just go there to read. So I don’t pretend to “get” the subculture there at all.
But for some of the folks there, I’m sure this weekend is one they’ll remember on their deathbed. The Reddit community has never been particularly keen on the company’s Interim (and everyone emphasizes Interim) CEO, Ellen Pao, about whom I wrote a number of articles here on Slope regarding her widely-publicized sex discrimination lawsuit. In fact, they really, really, really hate her.
It would be sort of like if every Sloper really couldn’t stand me, but they tolerated me only because my friend Dutch did such a great job – – – and then I fired Dutch. That’s sort of what’s going on.
Now keep in mind Reddit isn’t some weird, edgy, nobody-ever-heard-of-it site like Slope. It’s a big, big site (which is why the likes of Time magazine are writing about what’s going on right now). The Reddit community is upvoting anything they can that has to do with (a) other companies that pissed off their customer base and lived to regret it (b) getting rid of Pao (c) general castigation of Pao.
Want to know the real shame of this? A missed opportunity. And as a former Internet entrepreneur myself, I can’t help but shake my head at this one……….
About a year ago, a couple of guys put together a site that does exactly the same thing as Reddit called Voat. The thing with communities is – – – once a community has a home, it stays there. Reddit is ranked as the 32nd most popular web site in the world. Want to know Voat’s rank? 20,100.
So there’s no way Voat would have ever amounted to anything, because there’s no reason for anyone to leave reddit and go to Voat…………until this weekend. Suddenly everyone agitated to basically jump ship and make Voat the new Reddit. And while it’s virtually out of the question that this would have happened, Voat had an amazing opportunity to capture a meaningful chunk of those users. Even if it was only 5%, that would have make Voat a real business.
But what folks are getting instead when they try to go to Voat is this:
Thus, one of the top links on Reddit is this:
The sad thing for Voat’s founders is that once they’ve finally got their infrastructure act together and can actually handle the traffic coming their way, this whole Reddit thing will have blown over. So they’ll have invested in a bunch of equipment and bandwidth, only to see themselves vault from 20,100th place to 19,900th. It’s a damned shame, and frankly, they’ve blown the opportunity of a lifetime.
The most amusing subreddit of all right now is PaoYongYang. (Someone even made a painstaking claymation of Ellen Pao singing “Why Don’t You Go Over to Voat?”) Here’s what it looks like; you, uhhh, can kind of get the idea:
There’s even a petition going around to dump Ellen Pao from Reddit which has garnered 100,000 signatures as of this writing. (“A vast majority of the Reddit community believes that Pao, “a manipulative individual who will sue her way to the top”, has overstepped her boundaries and fears that she will run Reddit into the ground”) Again, the community really, really hates her. Partly because of her sketchy husband. Partly because of the Kleiner lawsuit. But mostly because of the perception of how she treats the community.
And that, frankly, is the principal point of this post (I’m not looking for excuses to put up pictures of Pao’s peculiar countenance). Community matters. Indeed, in this hyper-interconnected world in which we live, it matters more than ever. If you’re involved in any kind of Internet business, the relationship not only with your users but between your users is the glue that holds your enterprise together.
The thing is, humans are a tribal lot, and they will gladly band together and turn against the people or institutions they feel have wronged them. On this day (I’m writing this on July 4), look no further than these lines from a document you may have heard about:
….all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.
Personally, I found Ms. Pao singularly unlikeable, based on everything I’ve read, and just as I hope our friends in Greece throw off the EU shackles with a resounding “Oxi!” vote on Sunday, I hope the Redditors succeed in their quest to kick Pao to the curb and send her back to Buddy Fletcher, where husband and wife can romantically contemplate whom they’d like to sue next.
- Fed's Full Normalization Will Crush The Casino
Submitted by Adam Hamilton via GoldSeek.com,
The US Federal Reserve has been universally lauded for the apparent success of its extreme monetary policy of recent years. With key world stock markets near record highs, traders universally love the Fed’s zero-interest-rate and quantitative-easing campaigns. But this celebration is terribly premature. The full impact of these wildly-unprecedented policies won’t become apparent until they are fully normalized.
Back in late 2008, the US stock markets suffered their first full-blown panic in 101 years. Technically a panic is a 20% stock-market selloff in a couple weeks, far faster than the normal bear-market pace. In just 10 trading days climaxing in early October 2008, the US’s flagship S&P 500 stock index plummeted a gut-wrenching 25.9%! It felt apocalyptic, the most extreme stock-market event we’ll witness in our lifetimes.
This once-in-a-century fear superstorm terrified the Fed’s elite policymakers on its Federal Open Market Committee. As economists, they are well aware of the stock markets’ powerful wealth effect. With equities cratering, Americans could dramatically slash their spending in response to that devastating loss of wealth and the crippling fear it spawned. And that could very well snowball into a full-blown depression.
Consumer spending drives over two-thirds of all US economic activity, it is far beyond critical. So the Fed felt compelled to do something. But like all central banks, it really only has two powers. It can either print money, or talk about printing money. The legendary newsletter guru Franklin Sanders humorously labels these “liquidity and blarney”. With stock markets burning down in late 2008, the Fed panicked too.
Led by uber-inflationist Ben Bernanke, the Fed embarked on the most extreme money printing of its entire 95-year history to that point. The FOMC cut its benchmark Federal Funds Rate by 50 basis points at an emergency unscheduled meeting on October 8th. It lopped off another 50bp a few weeks later on October 29th. And then on December 16th, it slashed away the remaining 100bp to take the FFR to zero.
The federal-funds market is where banks trade their own capital held at the Fed overnight. It’s that supply and demand that determines the actual FFR, so the Fed can’t set it directly by decree. Instead the Fed defines an FFR target, and then uses open-market operations to boost funds supplies enough to force the FFR down near its target. The Fed creates new money out of thin air to oversupply that market.
When central banks force their benchmark rates to zero through money printing, economists call it a zero-interest-rate policy. Once ZIRP is implemented, a central bank’s conventional monetary-policy tools are exhausted. Once zero-bound, central banks can’t really manipulate short-term interest rates any lower. So they continue printing money, but use it to purchase bonds to force long-term interest rates lower as well.
Historically this was called monetizing debt, and was only seen in small countries that were economic basket cases. Expanding the money supply so rapidly to buy government bonds naturally led to ruinous inflation. But today this exact-same practice is euphemistically known as quantitative easing. QE is truly the last resort of central banks once they succumb to ZIRP, the treacherous final frontier of money printing.
The Fed formally launched QE for the first time ever on November 25th, 2008. That was several weeks before ZIRP was born. Because of intense political opposition to direct monetization of US government debt, the Fed initially started with mortgage-backed bonds. But what later became known as QE1 was expanded to include US Treasuries in mid-March 2009. This marked a watershed event in Fed history.
By conjuring money out of thin air to buy up US Treasuries, the Fed was directly subsidizing the Obama Administration’s record deficit spending. As it purchased Treasuries and transferred brand-new dollars to Washington, the federal government spent this money almost immediately. That injected this vast new monetary inflation directly into the underlying US economy, creating tremendous market distortions.
Nowhere was this more pronounced than in the US stock markets. As the Fed expanded the money supply to buy bonds, its holdings rapidly accumulated which ballooned its balance sheet dramatically. Even though this new inflation was flowing into the bond markets, it had a dramatic impact on the stock markets. Since mid-2009, the S&P 500’s powerful bull market has perfectly mirrored the Fed’s balance sheet!
Whenever one of the Fed’s three QE campaigns was in full swing, the stock markets rose in lockstep with bond purchases. But whenever the Fed’s debt monetizations slowed or stopped, the stock markets consolidated or corrected. This tight relationship between stock-market levels and the Fed’s balance sheet is incredibly important for investors and speculators to understand, as it has serious implications.
In the coming years, the Fed is going to have to normalize both ZIRP and QE. If the Fed drags its feet too long, the global bond markets will force it to act. Normalizing ZIRP means dramatically hiking the Federal Funds Rate, and normalizing QE means selling trillions of dollars of bonds. And only after both interest rates and the Fed’s balance sheet return to normal levels will ZIRP’s and QE’s impact become apparent.
Today’s euphoric and complacent stock traders assume that the first measly quarter-point rate hike will end ZIRP, and that QE concluded in late October 2014 when the FOMC ended its QE3 campaign. But nothing could be farther from the truth! We are only at half-time for the most extreme experiment in US monetary policy in the Fed’s entire history. The fat lady won’t have sung until ZIRP and QE are fully unwound.
This full normalization is epic in scope, and will take the Fed years to accomplish. Stock traders don’t appreciate how extremely anomalous both interest rates and the Fed’s balance sheet are today. This chart reveals the scary truth. It looks at the Federal Funds Rate and yields on 1-year and 10-year US Treasuries over the past 35 years or so. And the Fed’s balance sheet since it was first published in 1991.
The inflection points in interest rates and money supplies driven by the advent of ZIRP and QE are just massive beyond belief. Short rates totally collapsed near zero, and the Fed’s balance sheet skyrocketed into the stratosphere. The most extreme monetary policies in US history aren’t going to normalize easily. And this process is going to cause great financial pain as stock and bond markets are forced to mean revert lower.
Through its overnight Federal Funds Rate, the Fed utterly dominates the short end of the yield curve. Note above how yields on 1-year US Treasuries track the FFR nearly flawlessly. So just like during past Fed rate-hike cycles, the rising FFR is going to push up the entire spectrum of short-term interest rates. And this normalization process will require a long series of rate hikes, not just today’s popular “one and done” fantasy.
The very word normalization denotes something manipulated away from norms returning back to those very norms. So defining “normal” FFR levels is important to get an idea of how high the Fed is going to have to hike. Since late 2008’s stock panic scared the Fed into going full-on ZIRP for the first time ever, everything since is definitely not normal. Nor were the super-high rates of the early 1980s, the opposite extreme.
But between those two FFR anomalies was a 25-year window running from 1983 to 2007. This quarter-century span is the best measure of normal we can get in modern history. It encompasses all kinds of economic and stock-market conditions, including multiple severe crises. Throughout all of it, the Federal Funds Rate averaged 5.5% on a weekly basis. That is normal, where the Fed will eventually have to return.
While today’s hyper-complacent stock traders are fixated on the Fed’s first rate hike in 9 years, that’s only 25 basis points. The Fed needs to do a full 550bp of hikes! At a mere quarter-point at a time, a full normalization would take 22 hikes! And that’s probably how it will play out, as the Fed is too scared of roiling stock traders to hike faster. The last Fed rate hike exceeding 25bp happened way back in May 2000.
The Fed’s policy-deciding Federal Open Market Committee meets 8 times a year, and only raises rates at those scheduled meetings to minimize the risk of shocking the markets. So the 22 quarter-point rate hikes required for full normalization would take nearly 3 years without any interruptions! That’s an awfully-long time for higher rates and the resulting bearish psychology to weigh heavily on lofty stock markets.
Despite the one-and-done hopes of stock traders today, it’s really risky for the Fed to start and stop rate hikes in an erratic fashion. The more unpredictable any tightening cycle is, the more damage it will do to stock-market sentiment. So this coming rate-hike cycle is likely to play out like the last one between June 2004 to June 2006. Over that 2-year span the Fed hiked 17 times more than quintupling the FFR to 5.25%!
While slashing the FFR to zero manipulated the short end of the yield curve, the Fed’s utterly-monstrous purchases of US Treasuries actively manipulated the long end. The FOMC was very open about this mission, including a sentence about QE in its meeting statements that read “these actions should maintain downward pressure on longer-term interest rates”. Excess bond demand forces long rates lower.
Since the dawn of the ZIRP and QE era in early 2009, the yield on benchmark US 10-year Treasuries has averaged just 2.6%. This rate is exceedingly important to US economic activity, as it determines the pricing of mortgages. Artificially-low long rates have led to artificially-low mortgage rates, which fueled a boom in housing-related activity just as the Fed intended. A full normalization will totally wipe this out.
In that quarter-century span between the early 1980s rate spikes and the 2008 stock panic’s introduction of ZIRP, yields on 10-year Treasuries averaged 6.9%. That is fully 2.6x higher than today’s manipulated levels! As the Fed normalizes its balance sheet by letting its QE-purchased bonds mature and roll off, long rates will absolutely return to normal levels. And the market and economic impacts will be adverse and vast.
In mid-June, 30-year fixed-rate mortgage pricing climbed back over 4.0% as 10-year Treasury yields regained 2.4%. That’s a 1.6% premium over what the US government can borrow for. So when 10-year Treasury yields are fully normalized in the coming years, 30-year mortgage rates will likely soar to at least 8.5%! That’s certainly not unprecedented, these rates averaged 8.1% throughout the entire 1990s.
That wealth effect the Fed fears slowing consumer spending applies to housing prices even more so than stock-market levels, since far more Americans have most of their wealth in houses than in stocks. Mortgage prices more than doubling would have a drastic impact on house prices, since people could only afford to borrow much less. So the debt-fueled real-estate boom is going to collapse as rates normalize.
Bond prices will crater too. Regardless of the yields bonds were originally issued at, they’re bought and sold in the marketplace until their coupon yields equal prevailing rate levels. So traders will dump bonds aggressively as rates mean revert higher, leading to steep losses in principal for the great majority of bonds that are not held to maturity. And the Fed’s selling as it normalizes its balance sheet will exacerbate this.
As the chart above shows, the Fed’s balance sheet naturally rises over time as this central bank inflates the supply of US dollars. But its pre-QE trajectory was well-defined and relatively mild. Once the Fed reached ZIRP and could cut no more, it launched QE which led to a balance-sheet explosion. This too will have to mean revert dramatically lower in the Fed’s full normalization, with terrifying bond-market implications.
In the first 8 months of 2008 before that once-in-a-century stock panic, the Fed’s balance sheet was averaging $849b. At its recent peak level in mid-February 2015, all those years of QE bond buying had mushroomed it to $4474b! That’s a 5.3x increase in just 6.5 years. The great majority of that has to be unwound, or that vast deluge of new dollars will eventually lead to massive and devastating inflation.
If the normal trajectory of the Fed’s balance sheet before the stock panic is extended to today, it suggests a normal balance-sheet level of around $1100b. To return to there from today’s incredibly-high QE-bloated levels would require a staggering $3329b of bond selling from the Fed! Even though it will take years for this to unfold, $3.3t of central-bank bond selling will force bond prices much lower. And thus rates higher!
Higher rates won’t just decimate the bond markets, but also wreak havoc in today’s super-overvalued and radically-overextended stock markets. Higher rates hit stocks on multiple fronts. They make shifting capital out of stocks into higher-yielding bonds more attractive, leading to capital outflows from the stock markets. The higher debt-servicing expenses also directly erode corporate profits, leaving stocks more overvalued.
But today’s main stock-market threat from rising rates is their impact on corporate buybacks. These are the primary reason why the S&P 500 level so perfectly mirrored the ballooning Fed balance sheet of recent years. American companies took advantage of the artificially-low interest rates to borrow vast sums of money not to invest in growing their businesses, but to use to buy back and manipulate their stock prices.
Last year for example, stock repurchases by the elite S&P 500 companies ran a staggering $553b! That was their highest level since the last cyclical bull market was peaking in 2007. Since these buybacks are largely financed by cheap money courtesy of ZIRP and QE, the Fed’s normalization is going to just garrote buybacks. And they are the overwhelmingly-dominant source of capital chasing these lofty stock markets.
So the massive coming normalization of interest rates and the Fed’s bond holdings are very bearish for stocks as well as bonds. That’s one reason why traders are so pathologically fixated on the next rate-hike cycle. The smart ones know full well that it will end this Fed-conjured market fiction and lead to enormous mean reversions lower in both stock and bond prices. Full normalization will spawn a bear market.
Ironically the asset class that will benefit most from rate hikes is the one traders least expect, gold. The conventional wisdom today believes gold is going to get wrecked by rising rates since it has no yield. But just the opposite has proven true historically! Gold is an alternative asset, and demand for these critical portfolio diversifiers soars when conventional stocks and bonds are struggling. Like during rate hikes.
During the Fed’s last rate-hike cycle between June 2004 and June 2006 where the Federal Funds Rate was more than quintupled to 5.25%, gold actually soared 50% higher! And in the 1970s when the Fed catapulted its FFR from 3.5% in early 1971 to a crazy 20.0% by early 1980, gold skyrocketed an astounding 24.3x higher! Higher rates really hurt stocks and bonds, rekindling investment demand for alternatives.
The Fed’s inevitable coming full normalization of ZIRP and QE is going to be vastly more impactful than traders today appreciate. When interest rates rise and the Fed’s bond holdings fall, there’s no way that stock and bond prices are going to remain anywhere near today’s lofty artificial central-bank-goosed levels. The full normalization is going to greatly alter the global investing landscape, creating a minefield.
The bottom line is the Fed’s post-stock-panic policies have been extreme beyond belief. They have led to epic distortions in the global markets. These markets are going to force the Fed to fully normalize the wildly-anomalous conditions it created with ZIRP and QE. And with interest rates and the Fed’s balance sheet at such extreme levels today, the coming normalization will be very treacherous and take years to unfold.
Today’s euphoric stock traders believe ZIRP and QE have been huge successes, but the jury is still out until they’ve run their courses and been fully unwound. The most-extreme monetary experiment by far in US history is just at half-time now, the fat lady hasn’t even taken the stage. The full normalization of ZIRP and QE is likely to be as negative for stock and bond prices as its ramping up proved positive for them.
- A Pledge Of Allegiance For The New Normal America
For the new normal America…
I pledge allegiance to no flag, but to truth and morality…
…which doesn’t seem to exist in the Divided States of America.
And to no republic, for it stands for nothing; One nation, under surveillance,
completely divided
with Liberty and Justice destroyed
and inalienable rights taken from us all.
Source: ArmstrongEconomics.com
* * *
However, there should be hope… As STA Wealth Management's Lance Roberts notes, as you celebrate the 4th of July with your family and friends, it is vitally important to remember exactly what we are supposed to celebrating. The following excerpts are from the Independence Day speech given by John Fitzgerald Kennedy (then just a candidate for Congress) on July 4, 1946. I encourage you to read the speech in its entirety.
On The Religious Element
"The informing spirit of the American character has always been a deep religious sense.
Our government was founded on the essential religious idea of integrity of the individual. It was this religious sense which inspired the authors of the Declaration of Independence: 'We hold these truths to be self-evident: that all men are created equal; that they are endowed by their Creator with certain inalienable rights.'
Our earliest legislation was inspired by this deep religious sense: 'Congress shall make no law prohibiting the free exercise of religion.'
Today these basic religious ideas are challenged by atheism and materialism: at home in the cynical philosophy of many of our intellectuals, abroad in the doctrine of collectivism, which sets up the twin pillars of atheism and materialism as the official philosophical establishment of the State.
Inspired by a deeply religious sense, this country, which has ever been devoted to the dignity of man, which has ever fostered the growth of the human spirit, has always met and hurled back the challenge of those deathly philosophies of hate and despair. We have defeated them in the past; we will always defeat them.
On The Idealistic Element
"In recent years, the existence of this element in the American character has been challenged by those who seek to give an economic interpretation to American history. They seek to destroy our faith in our past so that they may guide our future. These cynics are wrong, for, while there may be some truth in their interpretation, it does remain a fact, and a most important one, that the motivating force of the American people has been their belief that they have always stood at the barricades by the side of God.
It is now in the postwar world that this idealism–this devotion to principle–this belief in the natural law–this deep religious conviction that this is truly God's country and we are truly God's people–will meet its greatest trial.
Our American idealism finds itself faced by the old-world doctrine of power politics. It is meeting with successive rebuffs, and all this may result in a new and even more bitter disillusionment, in another ignominious retreat from our world destiny.
But, if we remain faithful to the American tradition, our idealism will be a steadfast thing, a constant flame, a torch held aloft for the guidance of other nations.
It will take great faith."
On The Patriotic Element
"From the birth of the nation to the present day, from the Heights of Dorchester to the broad meadows of Virginia, from Bunker Hill to the batteries of Saratoga, from Bergen's Neck, where Wayne and Maylan's troops achieved such martial wonders, to Yorktown, where Britain's troops surrendered, Americans have heroically embraced the soldier's alternative of victory or the grave. American patriotism was shown at the Halls of Montezuma. It was shown with Meade at Gettysburg, with Sheridan at Winchester, with Phil Carney at Fair Oaks, with Longstreet in the Wilderness, and it was shown by the flower of the Virginia Army when Pickett charged at Gettysburg. It was shown by Captain Rowan, who plunged into the jungles of Cuba and delivered the famous message to Garcia, symbol now of tenacity and determination. It was shown by the Fifth and Sixth Marines at Belleau Wood, by the Yankee Division at Verdun, by Captain Leahy, whose last order as he lay dying was "The command is forward." And in recent years it was shown by those who stood at Bataan with Wainwright, by those who fought at Wake Island with Devereaux, who flew in the air with Don Gentile. It was shown by those who jumped with Gavin, by those who stormed the bloody beaches at Salerno with Commando Kelly; it was shown by the First Division at Omaha Beach, by the Second Ranger Battalion as it crossed the Purple Heart Valley, by the 101st as it stood at Bastogne; it was shown at the Bulge, at the Rhine, and at victory.
Wherever freedom has been in danger, Americans with a deep sense of patriotism have ever been willing to stand at Armageddon and strike a blow for liberty and the Lord."
On The Individualistic Element
"The American Constitution has set down for all men to see the essentially Christian and American principle that there are certain rights held by every man which no government and no majority, however powerful, can deny.
Conceived in Grecian thought, strengthened by Christian morality, and stamped indelibly into American political philosophy, the right of the individual against the State is the keystone of our Constitution. Each man is free.
- He is free in thought.
- He is free in expression.
- He is free in worship.
To us, who have been reared in the American tradition, these rights have become part of our very being. They have become so much a part of our being that most of us are prone to feel that they are rights universally recognized and universally exercised. But the sad fact is that this is not true. They were dearly won for us only a few short centuries ago and they were dearly preserved for us in the days just past. And there are large sections of the world today where these rights are denied as a matter of philosophy and as a matter of government.
We cannot assume that the struggle is ended. It is never-ending.
Eternal vigilance is the price of liberty. It was the price yesterday. It is the price today, and it will ever be the price.
May God grant that, at some distant date, on this day, and on this platform, the orator may be able to say that these are still the great qualities of the American character and that they have prevailed."
May you have a happy, safe and blessed "Independence Day."
- Athenian Democracy vs. Neoliberal Gods
Authored by Pepe Escobar, originally posted at SputnikNews.com,
Prime Minister Alexis Tsipras allows the Greek people to decide their own fate via a democratic referendum. That’s enough to send the troika – the European Central Bank (ECB), the European Commission (EC), and the International Monetary Fund (IMF) – into a paroxysm of rage. Here, in a nutshell, is everything one needs to know about the EU “dream”.
Tsipras is, of course, right; he had to call a referendum because the troika had delivered “an ultimatum towards Greek democracy and the Greek people.” Indeed, “an ultimatum at odds with the founding principles and values of Europe.”
But why? Because the apparently so sophisticated politico-economic web of European “institutions” – the EC, the Eurogroup, the ECB – had to come up with a serious political decision; and due, essentially, to their nasty mix of greed and incompetence, they were incapable of making it. At least EU citizens now start to get the picture on who their enemy is: the non-transparent “institutions” who supposedly represent them.
The – so far — 240 billion euro bailout of Greece (which featured Greece being used to launder bailouts of French and German banks) has yielded a whole national economy shrinking by over 25%; widespread unemployment; and poverty soaring to unprecedented levels. And for the EU “institutions” – plus the IMF – there was never any Plan B; it was the euro-austerity way – a sort of economic Shock and Awe — or the (desperation) highway. The pretext was to “save the euro”. What makes it even more absurd is that Germany simply couldn’t care less if Greece defaults and a Grexit is inevitable.
And even though the EU operates in practice as a clumsy, reactionary behemoth, the puzzling spectacle remains of otherwise reputable intellectuals, such as Jurgen Habermas, denouncing the Syriza party as “nationalistic” and praising former Goldman Sachs golden boy, ECB president Mario Draghi.
Waiting for Diogenes
The July 5 referendum goes way beyond Greeks responding whether they accept or reject more humongous tax hikes and pension cuts (affecting many that are already below the official poverty line); that’s the sine qua non by the troika — qualified as “barbaric measures” by many a Greek minister — to unblock yet another bailout.
A case can be made that a more pertinent referendum on July 5 would be posing this question: “What is the red line for Greece to remain part of the euro?”
Prime Minister Tsipras and Finance Minister Varoufakis turned upside down insistent rumors that they would accept any humiliation to remain in the eurozone. That only served to radicalize even more the German politico-economic elite – from Iron Lady Merkel to Finance Minister Schauble. Their not so hidden “secret” is that they want Greece out of the euro now.
And that is leading quite a few Greeks — who still believed in the benefits of a supposedly common financial house – to slowly start accepting a Grexit. With their heads held high.
The ECB has not gone totally nuclear – yet, crashing the whole Greek banking sector. But by de facto capping the Emergency Liquidity Assistance (ELA) this past weekend, all hell will break loose if millions of Greeks decide to withdraw all their savings early this week, ahead of the referendum.
The Bank of Greece, “as a member of the Eurosystem”, as a communiqué stressed, “will take all measures necessary to ensure financial stability for Greek citizens in these difficult circumstances.” This implies serious limits on bank withdrawals – thus allowing Greece to survive until referendum day.
Still, no one knows what happens after July 5. Grexit remains a distinct possibility. Projecting further, and taking a leaf from Wagner’s Ring, it also seems clear that the euro “institutions” themselves have been adding fuel to the fire that may eventually consume the eurozone – a direct consequence of their zeal to immolate the Greeks just like Brunnhilde.
What Greece – the cradle of Western civilization — has already shown the world should make their citizens proud; nothing like a shot of democracy to make the Gods of Neoliberalism go berserk.
One may be tempted to invoke a post-modern Diogenes, the first homeless philosopher, with a lantern, looking for an honest man (in Brussels? Berlin? Frankfurt?) and never finding one. But instead of meeting the greatest celebrity of the day – Alexander the Great — let’s imagine another encounter as our post-mod Diogenes suns himself in an outdoor court in Athens.
“I am Wolfgang Schauble, the Lord of German finance.”
“I am Diogenes the Cynic.”
“Is there any favor that I may bestow upon you?”
“Yes. Stand out of my light.”
- Citigroup Just Cornered The "Precious Metals" Derivatives Market
One week ago, when we scoured through the latest OCC quarterly derivative report (in which we find that the top FDIC insured 4 US banks continue to account for over 90%, or $185.5 trillion of all outstanding derivatives which as of March 31 amounted to $203 trillion; nothing new here), we found something fascinating: based on the OCC’s derivative update, JPM had literally cornered the commodity derivatives complex, when from “just” $226 billion in total Commodity exposure, JPM’s notional soared by 1,690% in one quarter to $4 trillion, or about 96% of total.
Some, without even bothering to read the article, did what they always do when reacting to Zero Hedge articles: accused it of writing a “wrong” post first and asking questions later and coming up with some utterly incorrect response to show just how wrong Zero Hedge was because, guess what, the Office of the US Currency Comptroller had clearly “fat fingered” trillions in critical data which is far more logical.
As usually happens in these situations, Zero Hedge was right (there was some tongue in cheek apology but hey, at least someone got to boost their traffic briefly by namedropping this web site; incidentally apology accepted), which could have been checked simply just by looking at bank call reports, in this case the quarterly Regulatory Capital report, schedule RC-R, which made it very clear that indeed JPM’s OTC commodity derivatives had exploded to $4 trillion.
For those too lazy to check before tweeting, here is the number of OTC cleared “Other” commodity derivatives for JPM before, as of December 31:
And after, as of March 31:
Furthermore, while we await the OCC to respond to our inquiry (we aren’t holding our breath), nobody has disputed our claim (because it is purely factual) that as of Q1 the OCC decided to exclude Gold as a separate commodity category (see call reports above) and lump it in with Foreign Exchange for some still unexplained reason. It would appear that gold is money after all…
So to summarize: as we reported first (and we would be delighted if other so called financial experts dedicated as much effort to digging through the primary data as they have to desperately try to disprove our article), JPM has indeed cornered the OTC commodity market, with its $4 trillion in “Other” commodity derivatives which amount to 96% of total. We don’t expect anyone to ask Jamie Dimon about this on the quarterly earnings call because this is one of those things one doesn’t want an answer to if one wishes to be invited to the next conference call.
However, another big question remains: just what is Citigroup – not, not JPMorgan – with the Precious Metals category.
Here is the chart showing Citigroup’s Precious Metals (mostly silver now that gold is lumped in with FX), exposure over the past 4 years. Of note: the 1260% increase in Precious Metals derivative holdings in the past quarter, from just $3.9 billion to $53 billion!
For those of a skeptical bent the proof can be found in Citi’s own call report, which can be seen here as of March 31, 2015 vs December 31, 2014.
Another way of showing what Citi just did with the “Precious Metals” derivative category, is the following chart which shows Citi’s total PM derivative exposure as a percentage of total.
Soaring from just 17.4% to over 70%, there is just one word for what Citigroup has done to what the Precious Metals ex Gold (i.e., almost exclusively silver) derivatives market.
Cornering.
So, the question then is: just what is Citigroup doing with its soaring Precious Metals (excluding gold) exposure, and why is such a dramatic place taking place at precisely the time when not only JPM is cornering the entire “Other” Commodity derivatives market in the form of a whopping $4 trillion in derivatives notional, but in the quarter after none other than Citigroup itself was responsible for drafting the swaps push-out language in the Omnibus bill.
And also: how is it legal that JPM is solely accountable for 96% of all commodity derivatives while Citigroup is singlehandedly responsible for over 70% of all “precious metals” derivatives? Surely even by the most lax standards this is illegal, but what makes the farce even greater is that all of this taking place out of FDIC-insured entities!
The final question, which we are absolutely certain will remain unanswered, is whether any of these dramatic surges have anything to do with the recent move in precious metals prices, or rather the complete lack thereof, even as Europe is on the verge of its first member officially exiting the Eurozone, and China’s stock market is suffering its worst market crash since 2008. Oh, and we almost forgot: with both JPM and Citi now well over 50% of the derivatives market in two critical categories, who is the counterparty!?
We have inquired with the OCC about both the derivative moves of both JPM’s “commodity” and Citi “precious metals” surges, both rising by over 1000% in the past quarter. We will promptly inform readers if we hear back, which we won’t.
- Happy Independence Day, Brought To You By The Chinese
Home of the sugar babies and the land of free trade, happy Independence Day America…brought to you by the Chinese.
Source: Daniel Drew’s Dark-Bid.com
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