Today’s News June 1, 2015

• Chinese Stocks Are Surging On Weak Macro Data BTFD-iness

  Having dropped over 10% in the previous 2 days, what better way to get the speculative frenzy of Chinese housewives levered up and buying stocks again than terrible macro data. With China HSBC Manufacturing PMI printing 49.2 (the 3rd monthly contraction in a row) and China's official Services PMI tumbling to its lowest since Dec 2008, the 'bad' news seems to have been greeted wondrously as Chinese stocks are up 2-4% on the news. CHINEXT back to fresh highs, Shenzhen is outperforming, and Shanghai and CSI-300 are all pushing higher. Add to this the news that the CSI-300 its rebalancing some positions and the 'correction' in China is now old news…

   

  Bade news is good news for dip-buying Chinese housewives…

  

   

  Not only is the bad news bad enough to be good, but the rumors of moar stimulus are also present…

  China’s Ministry of Finance may set additional quota of 500b-1t yuan for local governments to swap debt into municipal bonds,  according to people familiar with the matter.

   

  Plan needs State Council approval, according to the people, who asked not to be identified because deliberations are private

   

  Finance ministry said March 8 govt would permit as much as 1t yuan of high-yielding debt to be converted into municipal bonds

  However, while the market is juiced on the apparent weakness, Goldman sees pockets of strengths (for bulls to be worried about)…

  China’s official May manufacturing PMI headline inched up, although it was marginally below market expectations. The breakdowns of the sub-components were more positive than the headline with the two most important components (based on the past correlation with hard data such as IP)–new orders and production–showing more meaningful rebounds (up 0.4 and 0.3 points respectively). These rises were mainly offset by a move in the supplier delivery time sub-index (which we do not generally regard as a particularly useful indicator); the employment sub-index also inched up and the raw materials inventory index held up.

   

  Markit/HSBC manufacturing PMI May final reading was also released this morning. The May final reading was 49.2, up slightly from 49.1 in the flash reading, and also improved compared with April final reading of 48.9.

   

  

   

  Official non-manufacturing official PMI (which covers the construction and service sectors) moderated to 53.2 in May, from 53.4 in April, the weakest reading since the global financial crisis: Service sector PMI decreased to 52.0 from 52.4 in April, while construction PMI increased to 57.9 from 57.5.

   

  

   

  Today's data showed early signs of a recovery in the economy amid continued policy loosening. However, we do not believe these are enough to change the overall policy direction and believe the government will likely release further loosening initiatives in the coming months until there are consistent signs of a significant growth recovery. The recent repo operation by the PBOC (which drained liquidity) likely reflected a fine-turning in controlling the degree of looseness as opposed to a change in policy direction.

  *  *  *

  Meanwhile, in Yunnan Province…

  • CHINA TO HOLD LIVE-AMMUNITION DRILL IN YUNNAN PROVINCE: XINHUA

  During the exercise, all types of aircraft without approval shall not enter the airspace, into Gengma county, vehicle Zhenkang border exercise area, please obey traffic control personnel. Exercise does not affect normal production and life of the masses. To listen to local people and local governments participating troops command, exercise control without approval shall not enter the area. Exercise until further notice.

   

  

   

  In accordance with international practice and the relevant agreements between China and Myanmar armed forces, I informed the Myanmar authorities to matters I organized military exercises.

  *  *  *

  So… bad data, more stimulus, and warmongery… BTFD!

  

  

  
  
  

  

• A First-Hand Account Of The Greek Bank Run

  Submitted by Tom Winnifrith of Share Prophets

  Witnessing the great bank run first hand as I deposit money in Greece

  Jim Mellon says that the Greeks should build a statue in my honour as on Friday I opened a bank account in Greece and made a deposit. Okay it was only 10 Euro, I need to put in another 3,990 Euro to get my residency papers so I can buy a car, a bike and a gun, but it was a start. But the scenes at the National Bank in Kalamata were of chaos, you could smell the panic and they were being replicated at banks across Greece.

  For tomorrow is a Bank Holiday here and if you are going to default on your debts/ switch from Euros to New Drachmas a bank holiday weekend is the best time to do it. And with debt repayments that cannot be met due on June 5 (next Friday) Greece is clearly in the merde. If it defaults all its banks go bust.

  But I had to open an account and make a deposit. Outside the bank in the main street of Kalamata there are two ATMs. The lines at both were ten deep when I arrived and when I left an hour later. Inside I was directed to the two desks marked “Deposit”. You go there to put in money, to open an account or if you are so senile that you cannot do basic admin of your account without assistance. As such it was me depositing cash and four octogenerians who had not got a clue about anything. Actually I lie. These folks may have been gaga but they were not so gaga that they were actually going to deposit cash, I was the sole depositer.

  Friday was also the day when pensions are paid into bank accounts. On the Wednesday and Thursday it was reported that Greeks withdrew 800 million Euro from checking accounts. Friday’s number will dwarf that. Whe you go to a Greek bank you pull off a ticket and wait for your number to be called. The hall in my bank contains about 60 seats all of which were filled. There were folks standing behind the seats and in fact throughout the hall, all wanting to get their cash out before the bank closed at 2 PM.

  At the side of the room, shielded by a glass screen sat a man behind a big desk. He tapped away at his screen and made phone calls. Ocassionally folks wandered over, shook papers in his face and harangued him having got no joy elsewhere. So I guess he was the bank manager. I rather expected him to end one phone call and stand up to say “That was Athens – all the money has gone, its game over folks.” But he didn’t. He may well do so at some stage soon.

  Eventually I got the the front of my five person queue of the senile and opened my account. Passport, tax number, phone number all in order. I handed over a 10 Euro note and the polite – if somewhat stressed – young man gave me about ten pieces of paper to sign and stamped my passbook. I have done my bit for Greece and have given it 10 Euro which I will lose one way or another in due course. So Jim – time to lobby for that statue.

  The Government did not put up a default notice on Friday as I half expected. The can kicking goes on. The ATMs will be emptied this weekend and on Tuesday and in the run up to a potential default day next Friday the banks will be packed again with folks taking out whatever money they can.

  It is not just the bank coffers that are being emptied. To get to The Greek Hovel where I sit now from my local village of Kambos is a two mile drive. On my side of the valley there is some concrete track but it is mainly a mud road. On the other side of the valley there is a deserted monastery so to honour the Church – even if there are no actual monks there – a concrete road was built in the good times. By last summer it was more pothole than road.

  By law, since I have water and electricity, I can demand that the road be mended and so last summer I went to the Kambos town hall (4 full time staff serving a population of 536) and did just that. They said “the steam roller is broken and we have no money but will try to do it in the Autumn.” They did not.

  But last week a gang of men appeared and the road is now pothole free, indeed in some places we have a whole new concrete surface. And as I head towards Kalamta there are extensive road mending programmes. At Kitries, the village has found money to renovate its beach front. It is a hive of activity across the Mani.

  Quite simply each little municipality is spending every cent it has as fast as it can. The Greek State asked all the town halls to hand over spare cash a few weeks ago to help with the debt repayment. The town halls know that next time it will not be a request but an order. But by then all the money they had hoarded will have been spent. That is Greekeconomics for you.

  Everyone knows that something has to give and that it will probanly happen this summer. The signs are everywhere

  

  

  
  
  

  

• Abenomics Fail: Japanese Slack-Jawed At Oral Sex Price Deflation

  Despite proclamations by Kuroda, Abe, and various other elected (and unelected) officials that the 'deflation mindset' is gone from Japan, it appears one segment of the population is keenly aware of the ongoing deflationary market for one staple item. Just as we warned was occurring in America, it appears the cost of blow-jobs has gone from just-plain-cheap to "well, why not?" As one intrepid reporter ventured into the Otsuka red-light district of Toshima Ward discovered, the fee for an oral session at a “pink salon” starts as low as 2,000 yen ($16!).

   

  Japan (Tokyo to be specific) was already at the lower end of the spetrum for hourly rates for such services…

  

   

  But as The Tokyo Reporter blog explains, things have got considerably worse…

  On Friday, data released by the internal affairs ministry indicated that Japan’s annual inflation rate for April was zero. The report showed that Prime Minister Shinzo Abe’s economic revival plan is being hampered by falling prices, particularly for fuel and consumer electronics. The report did not mention blow-jobs, but, according to Takarajima (July), prices for such services in Tokyo remain low as the overall commercial sex industry continues to face hard times.

   

  A writer for the magazine travels to the Otsuka red-light district of Toshima Ward to discover that the fee for an oral session at a “pink salon” starts as low as 2,000 yen.

   

  He enters one particular establishment, which is not named, to find four other customers seated beneath a glitter ball hanging fr0m the ceiling and ’80s music filling the room.

   

  The shop operates on the hanabira kaiten principle. Meaning “flower petal rotation,” the system dictates that each customer is served by girls in shifts. At this shop, it is two rotations.

   

  Akira Ikoma, editor of a guide to the men’s entertainment called Ore no Tabi (My Journey), tells the magazine that the talent level of women employed in Otsuka is on the rise.

   

  “Years ago, Otsuka was known as the place for dirt-cheap pink salons,” says the editor. “But girls are using the Shonan Shinjuku Line” — which runs through nearby Ikebukuro in connecting Saitama and Kanagawa prefectures — “to commute to Otsuka from Utsunomiya and Gunma Prefecture, with the result being a distinct increase in their overall quality.”

   

  After a five-minute wait, Takarajima’s writer is joined by a highly rotund young lass with a pretty face, affectionate personality and — crucially — a supreme technique. After seven minutes, she is rotated out and a woman in her middle 30s takes her place for the final session.

   

  The magazine says that the quality of the ladies at even the low-end joints is maintained at an acceptable level.

   

  “With the impact of the rough economy ongoing, the value afforded (by pink salons) has become very popular,” says Ikoma. “At the high end, one might spend a total of 10,000 yen but he’s going to also be able to drink.”

   

  The industry has been in a tailspin for years, and this is not the first report of a parlor in Otsuka offering an exceptionally low entry fee. In 2011, Fashion Club Hi Hi also provided two rounds for 2,000 yen, which implies that the benefits of the recent economic initiatives behind “Abenomics” have not yet arrived in Otsuka.

   

  A street scout tells the magazine that the girls are attracted to the parlors due to the steady income.

   

  “At a pink salon, the girls are paid by the hour, but at an out-call establishment it is commission-based,” says the scout.

   

  He cites a jukujo “delivery health” business, which dispatches “mature” women to hotel rooms or residences, as an example.

   

  “In one day, a woman might make less than 10,000 yen,” he says. “But at a pink salon, an eight-hour shift at a rate of 3,000 yen per hour translates into more than 20,000 yen a day. So the pink salon is the winner.”

   

  The shop does well, too.

   

  “They may have small margins but the turnover is very, very high,” he says. (A.T.)

   

  Source: “Fuzoku-jo no reberu age no eikyo ha ‘2000en’ pinsaron ni mo atta!?” Takarajima (July, page 37)

  *  *  *

  No wonder household-spending is down 14 months in a row…

  

  

  
  
  

  

• American Police Are Shooting And Killing More Than 2 People Per Day In 2015

  On Saturday we introduced readers to the “Ferguson Effect”. The idea is that the recent spate of prosecutions and instances of social unrest that followed a series of events involving perceived police misconduct directed at African Americans have made police officers gun shy — literally. 

  Here’s what Thomas W. Smith fellow at the Manhattan Institute and author of “Are Cops Racist?” Heather Mac Donald wrote in a WSJ piece:

  This incessant drumbeat against the police has resulted in what St. Louis police chief Sam Dotson last November called the “Ferguson effect.” Cops are disengaging from discretionary enforcement activity and the “criminal element is feeling empowered,” Mr. Dotson reported. Arrests in St. Louis city and county by that point had dropped a third since the shooting of Michael Brown in August. Not surprisingly, homicides in the city surged 47% by early November and robberies in the county were up 82%.

   

  Similar “Ferguson effects” are happening across the country as officers scale back on proactive policing under the onslaught of anti-cop rhetoric. Arrests in Baltimore were down 56% in May compared with 2014.

  Note this passage: “Cops are disengaging from discretionary enforcement activity and the ‘criminal element is feeling empowered.’” That, according to Mac Donald, is why crime is up across many American cities.

  A second set of data casts considerable doubt on that thesis. According to The Washington Post, fatal police shootings have doubled with law enforcement now killing more than two people every day. 

  Via WaPo:

  [At least] 385 people [have been] shot and killed by police nationwide during the first five months of this year, more than two a day, according to a Washington Post analysis. That is more than twice the rate of fatal police shootings tallied by the federal government over the past decade, a count that officials concede is incomplete.

   

  “These shootings are grossly under­reported,” said Jim Bueermann, a former police chief and president of the Washington-based Police Foundation, a nonprofit organization dedicated to improving law enforcement. “We are never going to reduce the number of police shootings if we don’t begin to accurately track this information.”

  That doesn’t sound too much like a police force that is now “disengaging from discretionary enforcement.” Here are some of WaPo’s findings from an ongoing investigation:

  About half the victims were white, half minority. But the demographics shifted sharply among the unarmed victims, two-thirds of whom were black or Hispanic. Overall, blacks were killed at three times the rate of whites or other minorities when adjusting by the population of the census tracts where the shootings occurred.

   

  The vast majority of victims — more than 80 percent — were armed with potentially lethal objects, primarily guns, but also knives, machetes, revving vehicles and, in one case, a nail gun.

  Forty-nine people had no weapon, while the guns wielded by 13 others turned out to be toys. In all, 16 percent were either carrying a toy or were unarmed.

  So America’s “disengaged” police are shooting to kill at twice the rate they were in previous years and unsurprisingly, you are far more likely to be a victim if you are black or Hispanic. Further, the majority of cases involving the death of unarmed “suspects” involved minorities. 

  Here are the visuals…

  

  

  As for Mac Donald’s implicit contention that a looming increase in police prosecutions is likely discouraging officers from doing their jobs, it seems like the jury is out on that as well (no pun intended):

  Police are authorized to use deadly force only when they fear for their lives or the lives of others. So far, just three of the 385 fatal shootings have resulted in an officer being charged with a crime — less than 1 percent.

   

  The low rate mirrors the findings of a Post investigation in April that found that of thousands of fatal police shootings over the past decade, only 54 had produced criminal ­charges. Typically, those cases involved layers of damning evidence challenging the officer’s account. Of the cases resolved, most officers were cleared or acquitted.

  At the end of the day, the “Ferguson Effect” may indeed exist, but the above seems to indicate that it operates in exactly the opposite way as its proponents suggest.

  

  

  
  
  

  

• NSA Surveillance To Lapse At Midnight Although Extension Imminent With Obama's Signature

  “This is a debate over the Bill of Rights," exclaimed Rand Paul before this evening's rare Sunday Senate vote which secured NSA Reform (but leaves a brief window of NSA shutdown before Obama signs the bill), adding, now seemingly falling on the most-bribed and deafest ears, that "this is a debate over the Fourth Amendment. This is a debate over your right to be left alone.”

  In two speeches (one before the vote and one after), Paul implored reason among his colleagues.

  Following John McCain's jab that "the senator from Kentucky needs to learn the rules of the Senate,” Paul raged "are we going to so blithely give up our freedom? Are we going to so blindly go along and take it?" The short answer, yes! The longer answer may well be summed up his defiant comment that “I’m not going to take it anymore,” and with his voice rising to a shout, "I don’t think the American people are going to take it anymore."

  So rest easy America… you're safe again!

  

  *  *  *

  As The Hill reports, The Senate voted on Sunday to advance legislation reforming National Security Agency surveillance programs in a 77-17 vote…

  The bipartisan approval sets up a vote on final passage that will send the legislation to the White House, where President Obama has vowed to sign it. Sixty votes were needed to move forward.

   

  But the legislation will not reach Obama’s desk until after midnight, when Patriot Act provisions authorizing the NSA programs expire.

   

  That means there will be a lapse of the programs until the Senate can take a final vote on the legislation.

   

  Sen. Rand Paul (R-Ky.), who has made the spying programs unearthed by former government contractor Edward Snowden a central part of his presidential candidacy, has vowed to force the expiration of the Patriot Act.

   

  Paul argues the USA Freedom Act approved by the House does not go far enough to rein in spying programs that he and his allies argue are unconstitutional.

   

  “Are we going to so blithely give up our freedom? Are we going to so blindly go along and take it?” Paul said in heated remarks on the Senate floor before the vote. 

   

  “I’m not going to take it anymore,” he declared, as his voice rose to a shout. “I don’t think the American people are going to take it anymore.”

   

  Paul’s comments came during a rare Sunday session of the Senate that was scheduled because of the deadline.

   

  Tensions between Paul and other Senate Republicans were evident throughout Sunday’s proceedings — particularly when the Kentucky Republican sought to speak in opposition to the bill when Sens. Dan Coates (R-Ind.) and John McCain (R-Ariz.) were holding the floor.

   

  “The senator from Kentucky needs to learn the rules of the Senate,” McCain said. “Maybe the senator from Kentucky should know the rules of the Senate.”

  *  *  *

  Here is the "defense" for continued bulk surveillance…

  “He obviously has a higher priority for his fundraising and political ambitions than for the security of the nation,” Sen. John McCain (R., Ariz.) said of Mr. Paul on Sunday.

  Perhaps this will help explain McCain's anger…
   

  

  *  *  *

  Rand Speech 1 (before the vote)

   

  Speech 2 (post vote)

  "Some of the people here hope there is an attack on the United States so they can blame it on me"

  *  *  *

  This is already being spun as 'victory' for Obama by the mainstream media…

  The Senate on Sunday advanced legislation ending the National Security Agency’s collection of millions of Americans’ telephone records in a key test vote, setting up its passage later this week, in a reversal for Senate Majority Leader Mitch McConnell (R., Ky.) and a victory for the White House.  

   

  The National Security Agency began shutting down the bulk-data collection program Sunday afternoon, administration officials said. The program would be dormant at midnight and take a day to reboot after President Barack Obama signed legislation authorizing it, officials said. 

  But, as Rand Paul exclaimed

  "The Patriot Act will expire tonight but they will ultimately get their way… But if you go into the general public you will find that over 80% of people over ago 40 think that the government collecting your phone records is wrong and shouldn't occur"

  *  *  *

  So tonight for the first time in over a decade, iPhones will not be auto-backup'd to the NSA…

  @RT_America Stoppage irreversible from 8:00pm – even if the Senate votes to extend the program, it will take hours for the system to restart

  — RT America (@RT_America) June 1, 2015

  *  *  *

  We note that NBC News reports, thousands of sites are blocking Congress from viewing their webpages in an online demonstration against data-collection provisions of the Patriot Act.

   

  The websites — nearly 15,000 of them as of Saturday morning — are redirecting computers from Congress to BlackOutCongress.org, where users are greeted with a stark black and white warning that reads, "We are blocking your access until you end mass surveillance laws."

   

  "You have conducted mass surveillance of everyone illegally and are now on record for trying to enact those programs into law," the warning continues. "You have presented Americans with the false dichotomy of reauthorizing the PATRIOT Act or passing the USA Freedom Act. The real answer is to end all authorities used to conduct mass surveillance."

  *  *  *

  Edward Snowden perhaps summed it all up best for the nonchalant Americans watching Dance Moms…

  

  

  
  
  

  

• Five Reasons Why America Is Done

  Submitted by Karl Denninger via Market-Ticker.org,

  That's done.  As in baked, cooked, finis.

  Let's just look at the charges and specifications of late, shall we?

  • Big US and Global Banks have admitted (that is, have been convicted) of multiple criminal offenses over the last several years.  A partial list can be found here; let me remind everyone that an ordinary person who commits three felonies, even if some of them are very minor in comparison to any of the listed ones here in impact and they take place over a period of decades, goes away for life under long-existing three strikes laws.  All four of the banks listed in that dissent have three or more "convictions" and thus all of them should be dissolved as they are obviously incapable of modifying their behavior.  Nonetheless literally tens of millions of Americans and American corporations not only refuse to stand and demand that these charters be revoked they voluntarily do business with one or more of these firms!
     
  • We have a medical and insurance industry in this country that routinely, on a daily basis, engages in behavior that can easily be described as meeting the criteria for fraud, bid-rigging, racketeering and routinely uses the threat of both bankruptcy and violence by government goons to get what it wants.  This "industry" routinely, for example, bills for things they didn't actually do, sends people bills for hundreds or thousands of dollars for someone sticking their head in a door and saying "Hello", allows "off-plan" doctors to treat people without their consent exposing them to thousands (or tens of thousands!) in unauthorized charges and then enforces those "charges", takes drugs off the market that they produce so that the only remaining options are those made by the same company but are under patent and more.  The single most-common cause of bankruptcy in this country is medical debt incurred as a direct result of these practices and these practices are where the so-called "need" for Obamacare, that is now resulting in demands for 50% premium hikes in some markets for the next year, came from.  Yet we, as a nation and as a people, routinely consent to this crap and allow these corporations, institutions and individuals to continue their outrageous acts of pillage daily.
     
  • We have a former Secretary of State who now wants to be President but while Secretary of State her private family foundation took tens of millions of dollars in donations from foreign governments that were, at the same time, lobbying the very State Department she was in charge of for permission to buy over a hundred billion dollars worth of weapons.  How this fails to qualify as a federal crime is beyond me given that a foreign agent is unable to buy a Senator lunch.  Irrespective of whether this leads to indictments it is outrageous that such a person can be considered as fit to be President by anyone irrespective of party or other affiliation; that any material percentage of our voting population would cast a vote for such a person proves beyond any doubt that the majority of voters in this country are literally suicidal.
     
  • We have law enforcement agencies that actually claim in court through filed, sworn documents that when they throw a bomb into a baby's crib as they attempt to raid a house and the person they are seeking isn't there (because they didn't bother to confirm he was there), leading to the infant being critically injured, that it is the infant's fault that its face was blown off because it failed to move out of the way of said thrown bomb while it was sleeping in its crib.  In other words we, as a nation, sit silently while government agencies claim the right to blow the face off innocent infants because they are too lazy to bother with ordinary police work.  We could indict the government goons who refuse to wait for the person they want to arrest to depart wherever they are and thus make it possible for the police to arrest them without grievously injuring innocent children who had exactly nothing to do with the acts the accused is alleged of committing, but instead we allow innocent children to be grievously injured or killed due to the laziness and malfeasance of these so-called "boys in blue" and even allow to go unchallenged claims that said goons are there to "protect and serve" the public!
     
  • We have entire legislatures that engage with lobbyists to let them write and vote on laws they then rubber stamp. When caught by the press (good work, by the way) the members of the press who catch them are literally thrown out of a hotel they paid to stay at by men with firearms who are in fact off-duty cops — cops that, I remind you, draw their salaries directly and indirectly from that same legislature!

  I could go on, but why?

  Until and unless we at least resolve all five of the above, and everyone involved wears an orange jumpsuit and has their corporate and institutional edifices closed down with the ill-gotten gains disbursed back to their victims we are, as a nation, DONE.

  And more to the point we have all collectively consented as well.

  

  

  
  
  

  

• The 10 Most Important Themes To Watch This Summer

  As Deutsche Bank notes poetically, “April showers brought May flowers” but adds “Watch out for June thunder storms.” Why the caution?

  “Because S&P reached a new high of 2130 last Thursday on an 18 trailing PE, the highest since 2010 despite anemic EPS growth expected this year. Both EPS and GDP are struggling to expand in 1H, putting the burden for a decent year on 2H. A 2H rebound is likely, but trend growth is very uncertain. Given the growth outlook, it will take long-term Treasury yields staying very low when the Fed starts hiking to support an 18 or higher trailing S&P PE. This moment of truth for long-term yields upon Fed signals of a Sept hike is crucial for summer stock  performance, but we also see other important summer issues to watch.”

  Here are Deutsche Bank’s 10 themes and “summer issues” to keep an eye on as we leave May behind and enter June:

  1. Is Fed a “go” or “no-go” for Sept liftoff? We expect a Sept hike on falling unemployment even if US GDP growth stays slow. We think the Fed will issue more guidance that the FF rate is unlikely to exceed 2% over the next 2 years.
  2. What does this mean for the dollar? We expect further dollar appreciation, DXY ~100 and Euro down to near $1.00 by yearend, but not much stronger than that if Fed hikes appear likely to stay slow and plateau at 2% in 2017.
  3. How do long-term Treasury yields react to the start of Fed hikes? Long-term yields could spike up to about 2.8% this summer upon strong job reports, but should stabilize there if the dollar climbs and unit labor costs don’t accelerate.
  4. Will US GDP bounce back with ~3% growth for the rest of 2015 after 1Q’s contraction? What is a realistic est of trend US growth for the next few years? We see a moderate bounce and 2.0-2.25% trend assuming better productivity.
  5. Has the low in oil prices been set or need to be retested or new lows? We think WTI is capped at $70 through 2016 provided no geopolitical flare-ups. Oil prices are likely to drift down near-term as US and int’l producers vie for share.
  6. Greece? Is Europe prepared to pull the plug if no agreements by June end?
  7. US Supreme Court ruling on plan subsidies on federally set up exchanges? The law says subsidies can only be paid through state established exchanges. A decision is expected in June and if disallowed the Administration will need to turn to Congress to pass a law allowing such subsidies and this will open the door to other ACA modifications and maybe a foreign earnings repatriation holiday comes along with this legislation. There are risks to managed care stocks in this process and it is the only industry we are not OW within HC.
  8. Does the US put boots on the ground in Iraq again to deal with ISIS? This is becoming a problem for President Obama, but we doubt any ground action.
  9. China and other EM economies? US, Europe and Japan might be in a long lasting period of synchronized slow growth, but EM deceleration seems likely to continue and thus moderate global growth with vulnerability to shocks.
  10. US Presidential election. By late 2015 a republican favorite should emerge. This could be a very heated campaign even if Hillary leads. It will raise uncertainties on many US policies including corporate taxes, healthcare, banks and energy, and it might politicize issues related to the Fed and the dollar.

  

  

  
  
  

  

• There Is A Disturbing Anti-Freedom Trend Sweeping Across The West

  Submitted by Simon Black via Sovereign Man blog,

  I came across an interesting story from India recently. In a landmark animal rights case, the High Court there ruled that birds can no longer be kept in cages. The judges asserted that birds have a fundamental right to live with dignity and be free.

  Incredible. If only we humans had the same fundamental right.

  Many of us come from a country that claims to be free. We grow up singing songs about our freedom, and we are told by our governments that evil men in caves hate us because we are so free. This is powerful propaganda that starts practically from birth and stays with us for our entire lives. Even Hollywood does its part with heroic action movies portraying the homeland as strong and free, with evil villains who invariably have foreign accents.

  But it’s all a ruse.

  Most of us don’t even have the most basic freedom to choose what we can / cannot put in our own bodies, or decide how to educate our children.

  The volume of rules, regulations, and laws is so vast now that you can hardly breathe without committing a crime.

  And when they’re not busy confiscating private property through ‘civil asset forfeiture’ or shooting defenseless citizens, police now drive around shutting down children’s lemonade stands for failing to have the appropriate permit.

  Just this morning the US government’s publication of all the new rules, laws, and regulations totaled 313 pages.

  And that’s just for today. Tomorrow there will be more.

  Each of these new rules covers the most ridiculous topics – like regulating the way that dishwashers can be sold. I’m sure we can’t even begin to imagine how horrifying life would be with a rogue dishwasher salesman on the loose.

  And many of them come with severe penalties for non-compliance. You can’t even apply for a passport in the Land of the Free anymore without being threatened with fines and imprisonment.

  That’s not freedom. Not even close.

  Nowhere is this more clear than with the USA PATRIOT Act, the freedom-destroying law from 2001 that authorized all sorts of unconstitutional government powers.

  Some of the worst provisions from the USA PATRIOT Act are set to expire this weekend. But the Obama administration doesn’t want that. And they’ve channeled their inner-Cheney to roll out the same fear-mongering tactics that got this law passed 14 years ago.

  Without sweeping powers to spy on Americans, the administration claims that the country would be left utterly defenseless against terrorists.

  They have suggested that any dissent to the provisions is “playing national security Russian roulette”, and that the opposition will be blamed *when* there’s another terrorist attack in America.

  What’s incredible is how many people believe them… how many people are so afraid of the boogeyman that they support extending the most destructive legislation of their time.

  This was a huge litmus test for liberty in America. And I’m dismayed at how little people seem to care about privacy and freedom anymore.

  Across the Atlantic, things aren’t looking much better.

  In the UK, Prime Minister David Cameron recently stated:

  “For too long, we have been a passively tolerant society, saying to our citizens: as long as you obey the law, we will leave you alone.”

  Apparently leaving law-abiding citizens alone is being ‘too tolerant’.

  Cameron then unveiled a number of new measures to combat “extremism”, including putting people on a government watch list to have their Tweets approved by the police before being posted.

  We’re no longer talking about actual terrorist activity, but so-called extremist thought.

  It took 31 years, but it appears that the origins of 1984 are finally upon us. It’s happening all across the West at an alarming pace, and people are willing to allow it.

  That’s the funny thing about freedom.

  True freedom means that you are free to be an idiot. That people are free to make the greatest mistake of all and trade their liberty for security.

  And that’s their choice. But they’re not free to trade mine.

  What I do with my liberty is my choice. Not anyone else’s. And I have no desire to trade it away for excessive government power masquerading as fake security.

  Each of us has that choice.

  Unfortunately most people in the West are caged birds. It might be a nice cage with plenty of Starbucks and Bed, Bath, and Beyond megastores.

  But it’s a cage… filled with clueless birds chirping away about how free they are.

  The truth is that there’s still freedom to be found in the world. No one is going to give it to you. You have to break your own chains, seek it out, and plan for it.

  But it’s there. It’s still possible to deliberately live free.

  So if you’re one of the few people who still cares about personal liberty and living with dignity, never forget that the cage door is wide open for anyone paying attention.

  And that you can fly.

  

  

  
  
  

  

• The Other Mission Accomplished?

  “…leaving behind a sovereign, sustainable, and self-reliant Iraq,” or not…

   

  

   

  

   

  Source: Townhall

  

  
  
  

  

• Hysterical (Or Historical) Blindness

  Authored by Mark St.Cyr,

  Another week, another slew of disappointing (if not outright pathetic) macroeconomic data releases. From revisions of first quarter GDP now printing negative, to a weekly “jobs” report that was heralded as “fantastic” because once again – they dodged the bullet of printing anything at or above 300K. (albeit the miss was only by 15K, a rounding error in any of the calculus)

  Once again all this bad was spun throughout the financial media as to imply “good.” The reasoning for all this optimism being proclaimed was spouted as “Hey, it’s another print below 300K, this shows the economy is on track!” Even though this latest report is once again showing movement growing closer to 300K, rather than what would truly show improvement. Moving away from 300 and more towards 200K. However the hilarity didn’t stop there.

  When the pending home sales report was released showing an improvement in April of 3.4% vs consensus of 0.09? You could almost hear the champagne corks going off behind the eyes of every next in rotation economist, fund manager, analyst, or professorial academic as they took to the airwaves to shout “See, see!”

  I believe the real cause of their celebration was (just like the jobs report) they too dodged a bullet by once again having just enough specious data signals to shift perception away from a faltering and stagnating economy and “set the table” once again via their now well-worn version (or illusion) of: Three Card Monty economic reporting and analysis.

  So indoctrinated does this now seem to be within the so-called “smart crowd” I wouldn’t be surprised to soon read of an Ivy Leagued institute of “learning” offering it by name as an accredited study and degree costing 6 figures in the coming future. That’s how emblematic this charade now become.

  Today, anyone owning a business, or thinking about creating one outside of Unicorn Silicon Valley doesn’t need to hold some Ph.D in duh to understand there are still far more troubling issues within this economy.

  Currently there are more and more businesses not only struggling, they are also needing to spend ever more scarce and valuable resources competing with companies that should be – out of business. Unlike other businesses (i.e., Where a company needs to actually make a net profit, meaning, there’s something left over to reinvest once all the bills and salaries are paid.) these “companies” are being kept alive only by the financial engineering made possible since the outright adulteration of the capital markets via the Federal Reserve and its continuation of its insidious monetary policy. This unfair competitive advantage has to constantly be circumvented requiring allocation of scant resources. Or worse for far too many – completely unavailable.

  Today, a great many businesses that should, and want to compete are finding it harder, and harder to do just that. Innovation; along with market realignment can not only stagnate, but it can kill the next phase or wave of entrepreneurs or innovators that may hold the subsequent set of solutions an economy in entropy needs. All this is because of the markets (all markets) inability to clear.

  Please don’t tell me about all the innovation happening within “The Valley” as if that is your version of the “See, see!” argument.

  Yes, the innovation emanating there and around the country has been breathtaking. However: much of that innovation as of late I’ll contend is for the direct usage for, and application of businesses and entrepreneurs to utilize! e.g., You can now build an e-commerce website and begin selling, shipping, serving customers world-wide and more. That’s great, and yes it’s innovative – but there’s a problem nobody seems willing, or able to see. You now must have customers that have money to buy! Customers that can generate a net profit for what ever it is you are now selling to make the whole thing work.

  Let’s use an oversimplified yet illustrative scenario to put some perspective into this.

  If you’ve just innovated or “hacked” making a better “mousetrap” a few things according to the fundamentals of real, or true business have to take place. First, you need a customer that can afford to buy and use your product at a price you can make a net profit at. Second, the entity that purchased your product also needs to find customers they can do the same with. And Third: What ever company or provider previously supplying the now inefficient product or service – needs to be allowed to wither or cease freeing up the market place for potential customer acquisitions. And there lies the issue.

  If the last line it the above progression is not allowed, or, the process is adulterated (i.e., crony capitalism) all the preceding is for naught. And the resulting consequences are far greater to an economy than any pretend they’re avoiding.  i.e., “saving jobs” argument et al.

  The dirty little secret along with the blind eyes put to the above by all the academic and professorial “smart crowd” is this: The adherence to remain at the zero bound is doing nothing but providing the fuel for financial engineering for those that shouldn’t be able to compete to not only do just that, but at prices bastardizing the true price discovery level where honest profits can be made and utilized. But that’s not all. It also has another insidious effect not understood by those whom never had to run a business but just remained in school and now teach how they “think” the real business world operates.

  People want to point and shout, “Look at the funding and investing and entrepreneurship creation going on in the Valley! What do you mean innovation is being hurt? Are you blind?!” To which I’ll state again, “Yes, there’s funding and innovation. But (and it’s a very big but) the allocation of capital is now a numbers game as opposed to a more careful consideration to pure business fundamentals. Just as in times past. (does “sock puppet” ring any bells?)

  Let’s say a hypothetical fund may have $10MM to invest. What they’ll more than likely do today is to put $X amount across the next 100 pitches evenly. Regardless of business fundamentals. The rationale to this is a pure odds play. i.e., Maybe 1 or 2 will hit. Who cares what the business is or most other considerations. When the “free money” is flowing – it’s all a percentage game rather than taking the time needed for due diligence and investing in truly promising upstarts.

  In other words what doesn’t happen is: Invest in the 1, 2. or more out of the 100 adequately. The ones that shows real promise, innovation, and business fundamentals. Then use that partnership as to help ensure they have the best chance of becoming all they can. This model (the model where true business acumen is needed) is now shunned.

  Yes, it’s an over simplification. Sounds a little too altruistic? Again, yes. However, that’s because it’s up against the backdrop of what’s now taking place in response to “cheap money” via the current state of macro monetary policy.

  When money and investing is no longer rewarded by business acumen and prowess – rather it’s “Here’s a boatload of cheap money. Throw as much as you can, as fast as you can, at as many as you can, and see what, if any sticks” – that is when you should be looking for where the lifeboats are hanging. Rather, than hanging around on the poop-deck waiting to see if it’s all about to hit a fan.

  Today, far too many businesses are being created, and funded to do nothing more than survive longer cash burn periods to beat out your competitor (not business rival but next inline for funding competition) as to move it closer, and closer to the now coveted unicorn status. (e.g., $1 BILLION market cap potential) And profits, customers, or anything else fundamentally business related be damned. It’s all about getting to IPO and VC cash-out. Period. And the destruction left in the wake of this type of activity at one of the most important levels in the business food chain this time will be even more devastating than it was in the ’90s in my opinion.

  Just imagine the way this period of market mania will be looked back upon. When one of the reasons cited as a clue of a “bubble” will be how many businesses found themselves unable to compete not because of anything fundamental to business processes. Rather, it was due to the fact they had to use 1+1=2 math – as compared to their competition which was not only sanctioned – but encouraged, and rewarded via their stock price because of their ability to make 1+1=__________(what ever you want) via the non-GAAP methodology. Where unprofitable was turned into “We’re killing it!” with a keystroke in a spreadsheet.

  There’s this and a whole lot more being perpetuated within the corporate elite via the cheap money and funding made possible by the Federal Reserve’s reluctance to get off the zero bound. Small business that don’t have the luxury of this accounting methodology as to be rewarded by the capital markets for using it find themselves not only at an uncompetitive advantage – they find themselves out of business sooner – than later. All while the academics scratch their chins and wonder why the issue is getting perpetually worse, not better. It’s near maddening to the business sane. And the ramifications for staying this low for this long are going to be more than profound in my estimation.

  It also shouldn’t be lost on anyone that the financial media is once again in near hysterical jubilation as they’ve announced merger after merger of companies “Getting it done with M&A!” Those companies?

  Time Warner™ once again the focal point of a merger. AOL™ once again in the spotlight for its impending merger. Add to this SalesForce™ another company that without the benefit of non-GAAP reporting can’t make or show a profit is said to be acquired by none other than the “innovation” juggernaut of the last decade – Microsoft™. And last but not least: Housing just reported its best rebound print in over 3 years – as more and more perspective home-buyers without the ability to pay cash outright or make a substantial down-payment are unable to qualify. Not withstanding how fragile the complete structure of the markets in total has now become to just the sheer mention, let alone actual increase of just 1/4 or 1%. Talk about hysteria!

  I guess we’re just back to the old turn a blind eye to anything historical. Remember “It’s different this time.” Nothing to see here, move along, don’t fret, no need for concern. Just remember and repeat three times every time there’s reason for concern when the market drops 200 or 300 points out of the blue only to recover all if not more the next day…

  “The Fed’s got your back, the Fed’s got your back, The……”

  

  

  
  
  

  

• This Is How Little It Cost Goldman To Bribe America's Senators To Fast Track Obama's TPP Bill

  It took just a few days after the stunning defeat of Obama’s attempt to fast-track the Trans Pacific Partnership bill in the Senate at the hands of his own Democratic party, before everything returned back to normal and the TPP fast-track was promptly passed. Why? The simple answer: money. Or rather, even more money.

  Because while the actual contents of the TPP may be highly confidential, and their public dissemination may lead to prison time for the “perpetrator” of such illegal transparency, we now know just how much it cost corporations to bribe the Senate to do the bidding of the “people.” In the Supreme Court sense, of course, in which corporations are “people.”

  According to an analysis by the Guardian, fast-tracking the TPP, meaning its passage through Congress without having its contents available for debate or amendments, was only possible after lots of corporate money exchanged hands with senators. The US Senate passed Trade Promotion Authority (TPA) – the fast-tracking bill – by a 65-33 margin on 14 May. Last Thursday, the Senate voted 62-38 to bring the debate on TPA to a close.

  Those impressive majorities follow months of behind-the-scenes wheeling and dealing by the world’s most well-heeled multinational corporations with just a handful of holdouts.

  Using data from the Federal Election Commission, the chart below (based on data from the following spreadsheet) shows all donations that corporate members of the US Business Coalition for TPP made to US Senate campaigns between January and March 2015, when fast-tracking the TPP was being debated in the Senate.

  The result: it took a paltry $1.15 million in bribes to get everyone in the Senate on the same page. And the biggest shocker: with a total of $195,550 in “donations”, or more than double the second largest donor UPS, was none other than Goldman Sachs.

  

  The summary findings:

  • Out of the total $1,148,971 given, an average of $17,676.48 was donated to each of the 65 “yea” votes.
  • The average Republican member received $19,673.28 from corporate TPP supporters.
  • The average Democrat received $9,689.23 from those same donors.

  The amounts given rise dramatically when looking at how much each senator running for re-election received.

  Two days before the fast-track vote, Obama was a few votes shy of having the filibuster-proof majority he needed. Ron Wyden and seven other Senate Democrats announced they were on the fence on 12 May, distinguishing themselves from the Senate’s 54 Republicans and handful of Democrats as the votes to sway.

  • In just 24 hours, Wyden and five of those Democratic holdouts – Michael Bennet of Colorado, Dianne Feinstein of California, Claire McCaskill of Missouri, Patty Murray of Washington, and Bill Nelson of Florida – caved and voted for fast-track.
  • Bennet, Murray, and Wyden – all running for re-election in 2016 – received $105,900 between the three of them. Bennet, who comes from the more purple state of Colorado, got $53,700 in corporate campaign donations between January and March 2015, according to Channing’s research.
  • Almost 100% of the Republicans in the US Senate voted for fast-track – the only two non-votes on TPA were a Republican from Louisiana and a Republican from Alaska.
  • Senator Rob Portman of Ohio, who is the former US trade representative, has been one of the loudest proponents of the TPP. (In a comment to the Guardian Portman’s office said: “Senator Portman is not a vocal proponent of TPP – he has said it’s still being negotiated and if and when an agreement is reached he will review it carefully.”) He received $119,700 from 14 different corporations between January and March, most of which comes from donations from Goldman Sachs ($70,600), Pfizer ($15,700), and Procter & Gamble ($12,900). Portman is expected to run against former Ohio governor Ted Strickland in 2016 in one of the most politically competitive states in the country.
  • Seven Republicans who voted “yea” to fast-track and are also running for re-election next year cleaned up between January and March. Senator Johnny Isakson of Georgia received $102,500 in corporate contributions. Senator Roy Blunt of Missouri, best known for proposing a Monsanto-written bill in 2013 that became known as the Monsanto Protection Act, received $77,900 – $13,500 of which came from Monsanto.
  • Arizona senator and former presidential candidate John McCain received $51,700 in the first quarter of 2015. Senator Richard Burr of North Carolina received $60,000 in corporate donations. Eighty-one-year-old senator Chuck Grassley of Iowa, who is running for his seventh Senate term, received $35,000. Senator Tim Scott of South Carolina, who will be running for his first full six-year term in 2016, received $67,500 from pro-TPP corporations.

  “It’s a rare thing for members of Congress to go against the money these days,” said Mansur Gidfar, spokesman for the anti-corruption group Represent.Us. “They know exactly which special interests they need to keep happy if they want to fund their reelection campaigns or secure a future job as a lobbyist.

  “How can we expect politicians who routinely receive campaign money, lucrative job offers, and lavish gifts from special interests to make impartial decisions that directly affect those same special interests?” Gidfar said. “As long as this kind of transparently corrupt behavior remains legal, we won’t have a government that truly represents the people.”

  In other news, following last week’s DOJ crackdown on now openly criminal FX market manipulation and rigging by the big banks, in which precisely zero bankers have been arrested, we are happy to announce that “transparently corrupt behavior” in the Senate, and everywhere else, will remain not only legal, but very well funded.

  But what is truly scariest, is just how little it costs corporations to bribe America’s “elected” politicians, and make them serve the best interests of a few billionaire shareholders over the grave of what once used to be America’s middle class.

  

  

  
  
  

  

• How The US Indirectly Armed ISIS With Over 2,300 Humvees

  Curious how and why the US is “boosting” US GDP by selling over $4 billion worth of weapons to Israel, Iran and Saudi Arabia, ostensibly to provide these countries with protection against ISIS (the same ISIS, incidentally, which a leaked document last week admitted had been effectively created by the US)?  Simple: by first “losing” a billion dollars worth of Humvees so that, drumroll, ISIS can be the best-armed “terrorist” force in the middle east, a force whose mere presence will demand billions in subsequent military orders from the US military-industrial complex by all those who are threatened by ISIS.

  AFP reports that Iraqi security forces lost 2,300 Humvee armored vehicles when ISIS overran the northern city of Mosul, Prime Minister Haider al-Abadi said on Sunday.

  “In the collapse of Mosul, we lost a lot of weapons,” Abadi said in an interview with Iraqiya state TV. “We lost 2,300 Humvees in Mosul alone.”

  While the exact price of the vehicles varies depending on how they are armored and equipped, it is clearly a hugely expensive loss that has boosted ISIS’s capabilities.

  Last year, the State Department approved a possible sale to Iraq of 1,000 Humvees with increased armor, machineguns, grenade launchers, other gear and support that was estimated to cost $579 million.

  It is therefore safe to say that 2,300 Humvees would be worth a little over $1 billion: a great investment considering now the US can sell over $4 billion in weapons to countries “terrorized” by those same weapons!

  As AFP reminds us, clashes began in Mosul, Iraq’s second city, late on June 9, 2014, and Iraqi forces lost it the following day to ISIS, which spearheaded an offensive that overran much of the country’s Sunni Arab heartland.

  It was as if ISIS came out of nowhere, and nobody – certainly not the infamous NSA that knows everything that happens in the US but “nothing” of what goes on in the world – had a clue. Not one person.

  The militants gained ample arms, ammunition and other equipment when multiple Iraqi divisions fell apart in the country’s north, abandoning gear and shedding uniforms in their haste to flee.

   

  Iraqi security forces backed by Shiite militias have regained significant ground from ISIS in Diyala and Salaheddin provinces north of Baghdad.

   

  But that momentum was slashed in mid-May when ISIS overran Ramadi, the capital of Anbar province, west of Baghdad, where Iraqi forces had held out against militants for more than a year.

  Best of all, ISIS is literally the gift that will keep on giving: as the CIA director said earlier today “This is going to be a long fight.”

  And if the fight ever seems like it is about to end, well… the US will just “give” ISIS another 2,300 Humvess. 

  

  

  
  
  

  

• How Much More Extreme Can Markets Get?

  Submitted by Charles Hugh-Smith of OfTwoMinds blog,

  These charts help us understand that a top is not just price, but a reversal in extremes of margin debt, valuation and sentiment.

  In blow-off tops, extremes of valuation, complacency and margin debt can always shoot beyond previous extremes to new extremes. This is why guessing when the blow-off top implodes is so hazardous: extreme can always get more extreme.
   

  Nonetheless, extremes eventually reverse, and generally in rough symmetry with their explosive rise. Exhibit 1 is margin debt: NYSE Margin Debt Hits a New Record High (Doug Short)

  Note the explosive rise in margin debt in the past few months:

  

  At tops, soaring margin debt no longer pushes stocks higher. I've marked up an excellent chart by Doug Short to highlight the diminishing returns of more margin debt at tops.
   

  

  It's clear this same dynamic of diminishing returns is in play now, as margin debt has skyrocketed while the S&P 500 has remained range-bound, with each new high being increasingly marginal.
   

  Exhibit 2 is China's Shenzhen stock exchange. The price-earnings ratio (PE) is a useful gauge of sentiment: when sentiment reaches extremes of euphoria, PEs go through the roof:
   

  

  It appears that the Shenzhen bubble has burst. Latecomers to the bubble party will continue to buy the dips, but the ADX (a measure of trend strength) has been diverging for quite some time, and the MACD is rolling over into a sell signal.
   

  

   

   

  These charts help us understand that a top is not just price, but a reversal in extremes of margin debt, valuation and sentiment. Many observers have an unyielding faith that central banks will never let markets decline ever again. There are four flaws in this blind faith:
   

  1. Central banks did not want bubble markets in 2000 and 2008 to burst, either, but the bubbles popped despite central bank interventions.
   

  2. Extremes can only get more extreme for a limited time. margin debt cannot rise from $507 billion to $5 trillion and then on to $50 trillion (three times the size of the U.S. GDP). The Shenzhen PE ratio cannot rise from 70 to 700.
   

  3. Complex systems cannot be beaten into submission by two simple sticks (central bank liquidity and zero interest rates) forever. Extremes give rise to dislocations that cannot be beaten into submission by central banks for this reason: it is the nature of complex systems to break at the very points that cannot be strengthened or defended by simplistic manipulation.
   

  4. When the speculative frenzy dissipates, central banks will be the only buyers left. Unless the Fed increases its balance sheet from $4.5 trillion to $14.5 trillion in a matter of months, even central bank manipulation will be swamped by sellers exiting bursting-bubble markets.

  

  

  
  
  

  

• "The Fed Has Been Horribly Wrong" Deutsche Bank Admits, Dares To Ask If Yellen Is Planning A Housing Market Crash

  The reason why Zero Hedge has been steadfast over the past 6 years in its accusation that the Fed is making a mockery of, and destroying not only the very fabric of capital markets (something which Citigroup now openly admits almost every week) but the US economy itself (as Goldman most recently hinted last week when it lowered its long-term “potential GDP” growth of the US by 0.5% to 1.75%), is simple: all along we knew we have been right, and all the career economists, Wall Street weathermen-cum-strategists, and “straight to CNBC” book-talking pundits were wrong. Not to mention the Fed.

  Indeed, the onus was not on us to prove how the Fed is wrong, but on the Fed – those smartest career academics in the room – to show it can grow the economy even as it has pushed global capital markets into a state of epic, bubble frenzy, with new all time highs a daily event across the globe, while the living standard of an ever increasing part of the world’s middle-class deteriorates with every passing year. We merely point out the truth that the propaganda media was too compromised, too ashamed or to clueless to comprehend.

  And now, 7 years after the start of the Fed’s grand – and doomed – experiment, the flood of other “serious people”, not finally admitting the “tinfoil, fringe blogs” were right all along, and the Fed was wrong, has finally been unleashed.

  Here is Deutsche Bank admitting that not only the Fed is lying to the American people:

  Truth be told, we think the Fed is obliged to talk up the economy because if they were brutally honest, the economy what vestiges of optimism remain in the domestic sectors could quickly evaporate.

  But has been “horribly wrong” all along:

  At issue is whether or not the Fed in particular but the market in general has properly understood the nature of the economic problem. The more we dig into this, the more we are afraid that they do not. So aside from a data revision tsunami, we would suggest that the Fed has the outlook not just horribly wrong, but completely misunderstood.

   

  … the idea that the economy is “ready” for a removal of accommodation and that there is any sense in it from the perspective of rising inflation expectations and a stronger real growth outlook is nonsense

  And the kicker: it is no longer some “tinfoil, fringe blog“, but the bank with over €50 trillion in derivatives on its balance sheet itself which dares to hint that in order to make a housing-led recovery possible, the Fed itself is willing to crash the housing market!

  … if the single objective was to reduce inflation, regardless of where it came from, then crashing the housing market is certainly one way of going about it…. The dilemma for the Fed is of course that it is precisely the decision not to crash the housing market by doing extraordinary stimulus in the first place that has led to the current outcome of weak ex housing demand and strong housing inflation. The decision is akin to embracing financial repression as an alternative to the uncertainty of asset price deflation and a debt default cycle. If we could reset house prices 30 percent lower and fast forward a few years, the economy would probably be meaningfully more dynamic but it is those few years that might be hairy and no one let alone the Fed would likely stomach the risks.

  Here is the full note from Deutsche Bank which we expect every other primary dealer to copycat in the coming weeks and months now that the truth among the “very serious people” is finally out.

  * * *

  At issue is whether or not the Fed in particular but the market in general has properly understood the nature of the economic problem. The more we dig into this, the more we are afraid that they do not. So aside from a data revision tsunami, we would suggest that the Fed has the outlook not just horribly wrong, but completely misunderstood. And here’s why.

  For many years we have focused on the poor supply side dynamics of US growth and more recently have recognized it as much a global phenomenon when it comes to productivity. And as we know supply always equals demand so invariably there is some “disappointment” in demand side metrics. What we haven’t dwelt on much is whether demand creates supply or, as in Say’s world, does supply create demand. It is very easy to see through the latter’s linkages. Companies have to meet a given demand say but choose to use cheap labor rather than invest for productivity. Productivity may be weaker for longer. Perhaps there is a lack of innovation so a lesser requirement to invest. Perhaps there’s greater depreciation so investment spend may be less impressive on a net basis. Since it takes a while for wages to pick up (need to be nearer full employment), demand doesn’t really strengthen much. Global issues may depress pricing, so this is an additional constraint for the investment outlook. But over time the hope is that under an accommodative monetary policy, full employment is reached, wages rise and companies are encouraged to substitute capital for labor thus boosting productivity and there is a virtuous cycle of rising demand, strengthening expected returns on investment so encouraging still stronger growth. It is not clear that pricing power returns but the profit cycle is supported nevertheless through higher productivity. Now it could be debated that this is just as much about demand driving supply in the sense of the investment cycle. At least though in the context of weak underlying demographics, initially sluggish associated demand plus the lack of innovation explaining weak investment and productivity, it can also be a supply led story.

  However there is also a whole different demand side angle to this that is less to do with the wage-productivity nexus but more to do structural weak consumer demand and the hangover from the housing crisis. This of course will tie out to weaker productivity and therefore weaker wages as well. It starts with the recognition that since the crisis or at least a few years after the initial rebound, consumer demand is decidedly weaker than it was pre crisis. As we highlighted last weak using log real retail sales we can observe a distinct weakening in the post crisis trend, especially in the past couple of years that’s worth almost up to 1 percent. Taking a broader look at consumption, the weakness however is even more protracted in housing services and especially in owner occupied housing. The latter is particularly important because it is the germ of demand for other consumption. Owners typically will furnish their home, buy more “stuff”, maintain the property through other services more aggressively etc. than say tenants. The “multiplier” effects of home ownership are almost certainly stronger than for tenant homes, controlling for age etc. It is therefore concerning that while household formation may be rising, homeownerships rates are still falling.

  What is then striking of course is that if housing consumption is unusually weak, why are housing components of inflation so strong? As the charts show it is quite striking that overall housing inflation in the PCE is almost 3 percent year over year (2.7 percent for owner occupied component) but for owner occupied housing consumption it is the most chronically divergent weaker than all other major consumption categories. Tenant home consumption is in line with trend despite also having a very strong deflator. Effectively we can think of housing as being in “stagflation”.

  Of course the obvious conclusion is that it is precisely because owner occupied housing is expensive in absolute terms that there is limited consumption in absolute terms that drives rental consumption relatively higher with also higher rents. The imputed rental for owner occupied housing comes from an adjusted rental series for tenancies so the results are consistent i.e. expensive rents and owner occupied, trend consumption for tenant housing consumption and below trend for owner occupied. In turn this then spills over into below trend for consumption ex housing. Note that weak consumption ex housing then also implies weak inflation in those sectors.

  

  The actual numbers are impressive. Owner occupied consumption in the PCE is almost half the trend since 2010 compared with the whole sample period 1990-2015q1. Annualized it is growing around 0.8 percent compared with over 2.5 percent for the whole period. It represents around 11 percent of total consumption, so alone shaves 0.1 to 0.15 percent off the trend realized real GDP growth. For the rest of consumption, including the other components of housing the trend is better but still disappointing since 2010. It drops from around 3 percent to 2.4 percent so in GDP terms effectively shaving 0.4 to 0.5 percent from trend GDP. Note that for tenant housing the trend is stronger, as we would expect but quite volatile. Currently running around 2.6 percent versus the whole sample trend of only 1.8 percent. However, interestingly recently the rental  trend seems to be a little weaker, suggesting high rents themselves are exerting a downward pressure on housing consumption.

  

  There are other interesting observations to note. For example, goods PCE alone isn’t too far off trend but is a little lower, around 3.2 percent versus 3.6 percent for the whole sample, while healthcare consumption is bang on an unchanged trend.

  

  The next charts show the housing and inflation ex housing deflators. Core CPI ex shelter is pretty much still at post crisis lows, less than 1 percent year over year. Consistent with the PCE analysis above, the PCE ex housing the deflator is zero. The deflator ex housing, ex energy is less than 1.2 percent year, but falling. The housing deflators, in line CPI housing and OER are close to 3 percent year over year.

  

  This brings us to the crux of the analysis. If the inflation “problem” or risk is in housing but the weakness in demand also stems from housing, what on earth is the Fed, or anyone for that matter, thinking in terms of the logic for removing accommodation? The inflation problem is not being created by excess demand for housing i.e. a housing boom because that would show up in terms of excess demand for consumption ex housing. Instead it is the quirky result of owner occupied housing being too “expensive” relative to rental housing which pushes up overall housing inflation via rents.

  Of course if the single objective was to reduce inflation, regardless of where it came from, then crashing the housing market is certainly one way of going about it; but it would only work if it forced homeowners to sell their homes and become renters, assuming house prices did actually fall in the process. Simply keeping house prices elevated and having new supply come onto the market even if it all goes into the rental sector won’t necessarily help if house prices are  lofty since rents may stay robust. This is effectively what has been going on anyway.

  

  The dilemma for the Fed is of course that it is precisely the decision not to crash the housing market by doing extraordinary stimulus in the first place that has led to the current outcome of weak ex housing demand and strong housing inflation. The decision is akin to embracing financial repression as an alternative to the uncertainty of asset price deflation and a debt default cycle. If we could reset house prices 30 percent lower and fast forward a few years, the economy would probably be meaningfully more dynamic but it is those few years that might be hairy and no one let alone the Fed would likely stomach the risks.

  

  The alternative is to accept elevated house prices as a byproduct of the stimulus and look to the supply side of housing to address high rents. If we consider housing completions as our supply of housing variable, it is clear that the only thing that really correlates with new supply is the change in the debt income ratio of the household sector. Balance sheet expansion is good for housing supply. Importantly, affordability doesn’t just have no relationship with, but if anything, is inversely correlated with supply. Housing affordability does not solicit new supply.

  Higher house prices do solicit some new supply, although there is a very large gap now in that supply has been very slow to respond to higher prices. The real issue is that housing supply is linked to household balance sheet expansion- proxied by the change in the debt income ratio. Since this has been growing slowly, so has supply been slow to come back on tap.  Households are still feeling balance sheet constrained.

  So that leaves two policy choices. One is to wait much longer for supply to catch up with elevated house prices but “hope” that prices don’t become further elevated. (We can give a nod to the financial stability camp; there is a case for no more QE and maybe at some point the odd rate hike). The second would be to wait longer for further improvements in the debt  income ratio i.e. the propensity for households to resume some re-leveraging. Now of course that can come from stronger incomes but there seems to be a little of a catch- 22 embedded in that. The other, is to give some regulatory relief to  encourage more mortgage lending, even rolling back on the 80 percent LTV formula for example. However that is about as likely as getting a GDP forecast correct.

  Either way, the idea that the economy is “ready” for a removal of accommodation and that there is any sense in it from the perspective of rising inflation expectations and a stronger real growth outlook is nonsense. There is some logic in giving up on expecting normalization to previous growth trends as a prelude to any rate rise (Yellen’s 2.5 percent threshold). This is reflected in what was then but not now a stronger supply side economy and a matching demand side, consistent with a greater share of consumption in owner occupied housing. But then rates are naturally very constrained in the normalization process and type 2 errors abound if the objectives of any lift off are not clearly understood. Note that Yellen’s 2.5 percent seems low in that all you need on a year over year basis is 2.5 percent quarterly growth for 2015h2 based on the Atlanta Fed’s current tracking for q2 GDP. However if the above analysis is right, this may still be too high. Moreover, note that for the past five years 2 ½ percent has been somewhat elusive anyway with the average through to 2015q2 being 2.2 percent and only above 2 ½ percent 9 out of 22 quarters, albeit 4 of them in the last 8 quarters. But please let’s not call this transitory! (Truth be told, we think the Fed is obliged to talk up the economy because if they were brutally honest, the economy what vestiges of optimism remain in the domestic sectors could quickly evaporate).

  Meanwhile in the medium term it is possible that if there is an exogenous positive productivity shock, consumption ex housing trend can bump higher, perhaps even bumping owner occupied consumption higher too via the improved debt income dynamic. Though, our indicators suggest that too is still not on the horizon.

  In general the Fed is necessarily bound to do very little, if anything. And if they insist on tying policy blindly to ill defined expectations on say inflation or full employment, the danger of a gross policy error builds. In the extreme imagine that core CPI was 2 ½ percent but it was all in housing inflation at 4 percent with full employment would they really think it a good idea to remove all “accommodation” with rates at 2 -3 percent. The scary thing is some people would say yes. The scarier thing would be the resulting economic crisis.

   

  ---

   

  Deutsche Bank continues, but this is the punchline. And all of this, of course, is or at least should be well known to Zero Hedge readers. As for the key message here is, it is simple: it is not just the “fringe blogs” who are telling the truth anymore, it is now the turn of the “very serious people”, and as everyone knows, once one dares to call the emperor naked, soon everyone else does. Which, incidentally, would be the final disaster for the Fed, which for the past several years has had just two things: a printer and “credibility”… if only among the “very serious people.”

  Now, the latter is about to evaporate. Which means all the Fed will soon have is a printer, which it will have no choice but to operate on turbo until such time as the residents of the Marriner Eccles building are driven out by angry, if armed, citizens.

   

  ---

   

  And perhaps just to confirm once again we were right all along, in yet another amusing incident involving a Federal Reserve economist, yesterday none other than St. Louis Fed’s David Andolfatto, in an oddly defensive moment, had this to tweet yesterday:

  

  David, of course, is the same St. Louis Fed career economist who in November accused Zero Hedge of being “dickheads“, something for which he promptly apologized thereafter.

  Our response to the St. Louis Fed economist is simple:

  No, just the collapse of the US economy https://t.co/lBochpOR5q

  — zerohedge (@zerohedge) May 30, 2015

  The problem for Andoflatto, and his equally clueless peers across the US central planning bureau also known as the Fed, is that what has been obvious to us from day one, is finally spreading among the very people whom the Fed decided to bail out while crushing the middle class it was supposed to protect.

  As for Andolfatto’s latest tweet faux pas, he promptly deleted it. Because that’s how the Fed rolls.

  

  

  
  
  

  

• The New Normal Graduate's Survival Guide

  The American Dream…

   

  

   

  Source: Townhall via Sunday Funnies

  

  

  
  
  

  

• And Now The Bull's Turn: Jeremy Siegel Explains "No Way There Is A Bubble, No Signs Of Recession"

  Having detailed the less status-quo-sustaining side of things, thanks to some frankness from Nobel Prize winner Robert Shiller, who warned "unlike 1929, this time everything – Stocks, Bonds and Housing – is overvalued," we thought it only fair-and-balanced to illustrate the alternative perspective and who better than Jeremy Siegel to deliver it. In his anti-thesis of Shiller's facts, Siegel unleashes textbook dogma to pronounce, "in no way do current levels quality as a bubble", that stock returns should remain supported by fundamentals, there is no sign of a recession in the next 18 months, The Dow's fair-value currently is 20,000, and "not much" could dissuade him from holding stocks.

  Below is an interview he gave to Goldman Sachs' Allison Nathan

  Allison Nathan: You have long argued the benefits of a buy-and¬hold strategy for stocks. But do stocks look overvalued today?

  Jeremy Siegel: Looking at current P/E ratios and interest rates, I find that stocks are only slightly above their historical valuations today. The average long-run P/E ratio of the S&P 500, going back to the 19th century, is about 15.0x earnings. Over the last 60 years, in the post-war period, the S&P 500 has averaged around 16.5x earnings. Today it is between 17.5 and 18x. So it is just a bit above its historical level. That level is completely justified; in fact, even perhaps a higher level is justified, given the low level of interest rates.

  Allison Nathan: What is your response to those who say the US equity market is in a bubble or on its way?

  Jeremy Siegel:   I completely disagree. A bubble implies a very significant overvaluation. The stock market was most certainly in a bubble in March of 2000, when the S&P 500 was selling at 30x earnings, and the technology sector of the S&P 500 was selling at nearly 100x earnings. In no way do current levels that are nowhere near those highs qualify as a bubble.
    
  Allison Nathan: The CAPE ratio created by your longtime friend and colleague—Robert Shiller—and often viewed as a useful valuation tool is showing material overvaluation. What are your thoughts?

  Jeremy Siegel: I have great respect for Bob Shiller and his CAPE ratio, which uses a 10-year average of earnings against price to assess the valuation of a company. The problem is that starting in the late 1990s, Standard & Poor's changed the way that it computed earnings; it went to a mark-to-market orientation, which sharply depressed earnings in recessions. Since the last ten years of earnings encompass the Great Recession, when earnings plunged close to zero, earnings appear far below what I think they should be, which inflates the CAPE ratio way above what I think is the true value. To adjust for this problem, I have done some work instead using a 10-year average of the National Income Product Accounts (NIPA) income estimates rather than the S&P's earnings estimates. Once you make that substitution you get far less overvaluation of the market now than you do under Shiller's valuation.

  {ZH: It's Different This Time… "the old metrics don't work…"]

  

  Allison Nathan: Is the real bubble in the bond market?

  Jeremy Siegel: With interest rates generally at all-time low levels and likely set to rise, I think it is fair to say that bonds are now overvalued and much more so than stocks. However, I do not see short or long-term interest rates returning to anywhere near their post-World War II average. In fact, it's my feeling that we will see rates remain around 2.0% on the short end, maybe even a little less; and 3.0 to 3.5% on the long end. Given that there are some very persuasive reasons why interest rates are low and will stay relatively low in the future, I wouldn't necessarily call the bond market a bubble.

  Allison Nathan: To what extent does valuation impact future equity returns?

  Jeremy Siegel: I find that the future real returns on stocks are linked to the earnings yield on the market. And the earnings yield on the market is nothing more than the reciprocal of the price/earnings ratio, E over P. So a P/E of 18 suggests a 5.5% earnings yield or real return; a P/E of 20 suggests a 5.0% real return. So as stocks sell for higher prices, it does mean their forward-looking returns will fall short of the long-term average, which I have found to be about 6.5% per year after inflation.

  Allison Nathan: How much more will multiples expand?

  Jeremy Siegel: That depends on what happens to interest rates. Although interest rates are going to rise, I think that rise will be moderate. And therefore I expect equities to continue to sell above their long-term average valuation ratios. I definitely think that a 20 P/E ratio is justified by the current level of interest rates. That does not mean these levels will be reached anytime soon; it may take a year or two to reach that level. But I do still see upside to the stock market from expanding P/E ratios over the next 12 months.

  Allison Nathan: Does the fact that US profit margins are at all-time highs concern you?

  Jeremy Siegel: It doesn't really worry me. There are several reasons for very high profit margins, which actually did decline a bit last quarter. One is the increased percent of foreign sales of US corporations. Because tax rates are lower outside of the United States, higher foreign sales raise profit margins. Also, the technology sector, which has a high profit margin because of the intellectual capital involved, is becoming a bigger part of the S&P 500. Very low interest rates and relatively low leverage at firms has also helped profitability. In most cases, these factors completely explain the record-high profit margins and are unlikely to reverse anytime soon. I think that we will see secularly higher margins because of the interest rate structure and the percent of foreign sales for many years to come.

  Allison Nathan: How much upside to stock index levels do you expect?

  Jeremy Siegel: I think that the fair market value of the Dow, given current circumstances, is about 20,000. We are at roughly 18,000 today, which implies more than a 10% increase in prices. Again, we may not get that in the next six or even 12 months. But I do think that given the likely persistence of relatively low interest rates over the next several years, a 20,000 level on the Dow can certainly be justified.

  Allison Nathan: If interest rates stayed where they are today, and the Dow reached 20,000 within a couple of months—crazier things have happened—would you advise investors to sell their stocks?

  Jeremy Siegel: I think that you would need an improvement in what have been some very disappointing earnings numbers over the last six months in order to see that kind of move. But even if we did, I would not recommend that people sell. At that point, you would have only reached fair market value, depending on your expectations for interest rates and earnings into the future. So I don't think we would be in a dangerous or bubbly situation. Of course, stocks can be tremendously volatile in the short run. So even though the fair value might be 20,000, the index may fall to 17,000, or may rise to 23,000 in the short run. There can be a lot of variation around the justified market value.

  Allison Nathan: How concerned are you about the prospect of a meaningful correction in the near term, perhaps triggered by the approach of US rate hikes?

  Jeremy Siegel: The market has pushed off its expectations for Fed liftoff to September. Any news that the Fed will hike earlier will be disturbing to the market. And we have not had a correction in the market—meaning 10% or more—for many, many years. I would not have been altogether surprised if one had happened in the first half of this year, but so far we have held in very well. Investors are looking forward to an earnings improvement, getting out of the relative slump that we saw in the first quarter. And so as long as the Fed's timetable does not seem to accelerate to a June increase, I would not expect a 10% correction in the near term. But if we did see a correction, I would view it as a buying opportunity.

  Allison Nathan: What else might trigger a correction beyond interest rate risk?

  Jeremy Siegel: Another significant leg of appreciation in the US dollar would be bearish for US equities, which are already contending with a 20% increase over the last year. OH prices have also started to rise again. If Brent crude oil stays in the $60 to $70 range, I think that would be healthy for the market in the long run. But there has been so much volatility in the oil price that that could also foster volatility in the equity market.

  Allison Nathan: What about a scenario of continued weak economic growth and rate hikes pushed off into 2016? How vulnerable would that leave the equity market?

  Jeremy Siegel: In that scenario, the risk would be on the profit side rather than on the interest rate side. The impact on the US equity market would depend on the source of the disappointment and whether it was just a US slowdown or a global slowdown. But if the Fed recognizes the slowdown and pushes off tightening, that would obviously moderate any correction in the equity market. Certainly a recession would drive down equity prices. But there are just no signs at all that I see of a recession in the next 12 to 18 months.

  *  *  *

  [ZH: nope none at all…]

  Retail Sales are weak – extremely weak. Retail Sales have not dropped this much YoY outside of a recession…

  

   

  And if Retail Sales are weak, then Wholesalers are seeing sales plunge at a pace not seen outside of recession…

  

   

  Which means Factory Orders are collapsing at a pace only seen in recession…

  

   

  And Durable Goods New Orders are negative YoY once again – strongly indicative of a recessionary environment…

  

   

  Which is not going to improve anytime soon since inventories have not been this high relative to sales outside of a recession

  

   

  In fact, the last time durable goods orders fell this much, The Fed launched QE3 – indicating clearly why they desperately want to raise rates imminently… in order to have some non-ZIRP/NIRP ammo when the next recession hits.

  And just in case you figured that if domestic prosperity won't goose the economy, Chinese and Japanese stimulus means the rest of the world will save us… nope!! Export growth is now negative… as seen in the last 2 recessions.

  

   

  And deflationary pressures (Import Prices ex-fuel) are washing upon America's shores at a pace not seen outside of a recession…

  

  *  *  *
  Allison Nathan: What do you make of the boost to equity prices from large share buyback programs? Does that concern you at all?

  Jeremy Siegel: I am very favorable towards buybacks. I think they tell you that firms are making good profits, which they want to return to shareholders. It also means that firms don't see a lot of very profitable opportunities to invest in right now, given slow global GDP growth. But that's not necessarily bad. Giving cash back to shareholders is a very effective way to generate value in the equity market. And with the substantial amount of slack in the global economy today, I would worry that expansion in plant equipment would be overinvesting, which would not be a good use of shareholder money. The reality is that there is not a lot of persuasive technology for firms to invest in today. But I view that as a temporary pause and not necessarily detrimental; if world demand expands or new technologies emerge that would be profitable for companies, I am confident that they would deploy cash effectively for shareholders.

  Allison Nathan: Do you find foreign equity markets even more compelling than the US market?

  Jeremy Siegel: I think that European equities are persuasive right now. I do believe that Euro depreciation is largely over; I expect the EUR/$ to trade in the 1-1.10 range in the future. And European equity valuations have increased dramatically. They were selling 10-12x earnings, and are now selling around 15¬17x. But that is still about 10% below US levels. Japan also looks relatively attractive. Although Japanese stock prices have increased tremendously, so have earnings. So Japanese P/E ratios remain around 15-17x earnings, which is a compelling range given current interest rates. And emerging markets in particular could be the best performing markets in the next three to five years given that their valuations have declined significantly in recent corrections and that their currencies are now selling at a very reasonable price relative to the dollar.

  Allison Nathan: So would you recommend investors overweight emerging markets and/or foreign equity markets in their portfolios today?

  Jeremy Siegel: It depends on risk preferences. But I would still generally recommend an allocation of roughly 50% US, 25% non-US developed market and 25% emerging markets.

  Allison Nathan: What—if anything—would dissuade you from holding equities over the medium term?

  Jeremy Siegel: Not much. There is always the potential for unexpected shocks such as terrorist attacks or natural disasters that could hit stocks dramatically. That is one of the reasons why many people shy away from them. But it is also the reason why investors who are brave enough to hold them through tough times end up with superior returns. And today I believe that prices are low enough that investors will likely be paid quite handsomely over time to hold risk in equities.

  [ZH: yep, everything looks good here…]

  

  

  

  
  
  

  

• John Kerry Goes Biking In France, Hits Curb, Breaks Leg; Will Fly Back To US In "Specially Outfitted Aircraft"

  Over the years, many have tried to prevent John Kerry from inserting his foot in his mouth and failed. Today, none other than Kerry himself achieved just that, both literally and metaphorically. America’s Secretary of State went biking in the French Alps when he hit a curb, and broke his femur. Not to worry: he is expected to make a full recovery and was in good spirits, according to John Kirby. And just to make sure of that, US taxpayers will be invoiced a little over a million so that a specially equipped airplane picks up the SecState “to ensure he remains comfortable and stable throughout the flight.”

  

  The accident took place in Scionzier, France, some 40km (25 miles) south-east of the Swiss border.

  The Dauphine Libere, a local newspaper, said Kerry fell near the beginning of his ride to the famed mountain pass called the Col de la Colombiere, which has been a route for the Tour de France more than a dozen times.

  

  It appeared Kerry is just as biking challenged as he is at negotiating international politics: according to the AP, he broke his leg after striking a curb, and scrapped the rest of a four-nation trip that included an international conference on combating the Islamic State group.

  “Paramedics and a physician were on the scene with the secretary’s motorcade at the time of the accident,” the state department said.

  “The secretary is stable and never lost consciousness, his injury is not life-threatening and he is expected to make a full recovery,” Kirby said in a statement.

  This is not the first time the 71 year old Kerry has seemingly risked his life by going on a bike ride: Kerry’s cycling rides have become a regular occurrence on his trips. He often takes his bike with him on the plane and was riding that bicycle Sunday.

  During discussions in late March and early April between world powers and Iran, Kerry took several bike trips during breaks. Those talks were in Lausanne, Switzerland, and led to a framework agreement.

  Even better: the “threat” of loose gravel had been telegraphed prior to Kerry’s big ride:

  Right around the time of his fall, a Twitter feed about local driving conditions warned of the danger due to gravel along the pass. But U.S. officials said there was no gravel on the road where the accident occurred. According to the newspaper, some Haute Savoie officials were with Kerry at the time, including the head of the region.

  The top diplomat, however, was above such petty warnings. And now, US taxpayers will have to shelve out a couple extra million because the banged up SecState is now has to fly back to the US aboard a specially eqipped plane “to ensure he remains comfortable and stable throughout the flight,” Kirby said. “Its use is nothing more than a prudent medical step on the advice of physicians.”

  Why the need to spend millions more? Because Kerry’s regular plane was returning to the United States carrying much of his staff and reporters who accompanied on the trip. And now, that plane too will have to fly back again. One way trip cost to US taxpayers: a little over $1 million.

  As a result of Kerry’s dramatic self-inflicted injury, the world just may be clueless how to defend itself against the persistent, ubiquotous threat of a US-created ISIS.

  The prospect of a lengthy rehabilitation could hamper the nuclear talks and other diplomatic endeavors. Even if Kerry does not need surgery, it was not immediately known when he could fly again after returning to the United States.

   

  Kerry has been the lead negotiator in several marathon sessions with Iran going back to 2013. The injury could affect other potential trips, such as one to the Cuban capital to raise the flag at a restored U.S. Embassy.

   

  As for the current trip, Kerry had planned to travel to Madrid on Sunday for meetings with Spain’s king and prime minister, before spending two days in Paris for an international gathering to combat IS.

   

  He will participate in the Paris conference remotely, Kirby said.

  At least the Iran “nuclear deal” which was going nowhere fast, and was certainly not going to have a conclusion by June 30, will have an official excuse to be extended indefinitely once again.

  As for the added expenditures from the cost of the Kerry emergency “airlift” which the US government could have used to actually benefit humanity in a myriad of other ways, just consider it a boost to double-seasonally adjusted GDP.

  

  

  
  
  

  

• Defiant Tsipras Warns European Leaders They Are "Making A Grave Mistake"

  We’ve said repeatedly that negotiations between Greece and the troika are just as much about politics as they are about economics although, in the final analysis the two are inextricably related especially as it relates to the anti-austerity contagion in the EU. In “Democracy Under Fire: Troika Looks To Force Greek Political ‘Reshuffle’” we said the following about the “institutions’” bargaining stance:

  It is becoming increasingly clear that the Syriza show will ultimately have to be canceled in Greece (or at least recast) if the country intends to find a long-term solution that allows for stable relations with European creditors, but as we’ve noted before, it may be time for Greeks to ask themselves if binding their fate to Europe is in their best interests given that some EU creditors seem to be perfectly fine with inflicting untold economic pain upon everyday Greeks if it means usurping the ‘radical leftists.’ 

  We also highlighted the following set of possible outcomes projected by Barclays:

  Political change could emerge through: 1) a government re-shuffle with more radical members exiting; 2) a referendum; or 3) snap elections. We think that the first scenario is the most likely, which would seem the least disruptive, allowing Greece to ‘return’ to a programme agreement before end-June. Importantly, we think that the Eurogroup could find ways to bridge temporary funding gaps (eg, by disbursing SMP profits or raising the T-bill ceiling), if it deemed the prospects for successfully finalising programme negotiations were good.

  With negotiations running into the eleventh hour ahead of a Friday IMF payment and with everyone’s patience running dangerously thin, it appears as though the situation described above is playing out almost to a tee. 

  On Sunday, PM Alexis Tsipras penned a lengthy statement expressing his frustration at creditors’ insistence on presenting what he calls “absurd proposals” even as the Greek delegation has gone most of the way towards meeting the troika’s demands. He also questions the utility of the “coordinated” leaks from certain EU and IMF officials regarding a lack of progress, hitting back against those who have in the past advised the Greek government against leaking statements to the press and tacitly suggesting that there is indeed a behind-the- scenes effort to spark a terminal bank run in order to force Syriza into conceding its entire mandate (something we’ve said time and again). Here are the highlights:

  On 25th of last January, the Greek people made a courageous decision. They dared to challenge the one-way street of the Memorandum’s tough austerity, and to seek a new agreement. A new agreement that will keep the country in the Euro, with a viable economic program, without the mistakes of the past…

   

  Doing so requires a mutually beneficial agreement that will set realistic goals regarding surpluses, while also reinstating an agenda of growth and investment. A final solution to the Greek problem is now more mature and more necessary than ever…

   

  Many, however, claim that the Greek side is not cooperating to reach an agreement because it comes to the negotiations intransigent and without proposals…

   

  Let’s be clear:

   

  The lack of an agreement so far is not due to the supposed intransigent, uncompromising and incomprehensible Greek stance.

   

  It is due to the insistence of certain institutional actors on submitting absurd proposals and displaying a total indifference to the recent democratic choice of the Greek people, despite the public admission of the three Institutions that necessary flexibility will be provided in order to respect the popular verdict.

   

  What is driving this insistence?

   

  My conclusion…  is that the issue of Greece does not only concern Greece; rather, it is the very epicenter of conflict between two diametrically opposing strategies concerning the future of European unification.

   

  The first strategy aims to deepen European unification in the context of equality and solidarity between its people and citizens.

   

  The second strategy seeks precisely this: The split and the division of the Eurozone, and consequently of the EU.

   

  The first step to accomplishing this is to create a two-speed Eurozone where the “core” will set tough rules regarding austerity and adaptation and will appoint a “super” Finance Minister of the EZ with unlimited power, and with the ability to even reject budgets of sovereign states that are not aligned with the doctrines of extreme neoliberalism.

   

  For those countries that refuse to bow to the new authority, the solution will be simple: Harsh punishment. Mandatory austerity. And even worse, more restrictions on the movement of capital, disciplinary sanctions, fines and even a parallel currency.

   

  Judging from the present circumstances, it appears that this new European power is being constructed, with Greece being the first victim. To some, this represents a golden opportunity to make an example out of Greece for other countries that might be thinking of not following this new line of discipline.

  If you think that sounds like precisely what we have been saying in these pages for months you’d be right.

  Tsipras concludes as follows:

  Which strategy will prevail? The one that calls for a Europe of solidarity, equality and democracy, or the one that calls for rupture and division?

   

  If some, however, think or want to believe that this decision concerns only Greece, they are making a grave mistake. I would suggest that they re-read Hemingway’s masterpiece, “For Whom the Bell Tolls”.

  Tsipras is thus acutely aware of the fact that the negotiations between his government and the troika are now considered by both creditors and by sympathetic political parties across the EU periphery as a testing ground for the notion that threatening the idea of euro indissolubility can be used as a bargaining chip on the way extracting austerity concessions from the IMF and Brussels. 

  So what happens next? As Barclays notes, a government reshuffle could be the most likely scenario with the more radical members of Syriza staging an open revolt and forcing Tsipras to form a new government, an outcome which would suit the troika just fine and which would prove that despite the PM’s extreme misgivings about the subversion of the democratic process, the country’s creditors will ultimately succeed in forcing Greeks to decide between an economic catastrophe that will likely be orders of magnitude greater than what they faced in the past and remaining free to decide for themselves how they want to be governed. 

  Or, visually…

  

  Indeed, this scenario has already begun to play out. The Telegraph has more:

  Greek prime minister Alexis Tsipras is facing open rebellion in his ruling Syriza party over Greece’s future in the eurozone, raising the spectre of snap elections being called as early as this month.

   

  The extreme “Left Platform” faction of Syriza, who make up a third of the party’s membership, have promised to defy creditor powers, and called for a reinstitution of the drachma, as the government enters its fifth month of arduous bail-out negotiations.

   

  Syriza member Stathis Kouvelakis, who has led the insurrection, has vowed to end his country’s ritual “humiliation” at the hands of the International Monetary Fund, European Commission, and European Central Bank.

   

  “It has become now clear that the ‘institutions’ are not striving for what some are calling an ‘honourable compromise’” said Mr Kouvelakis, in a statement…

   

  Latest polling shows that 58pc of Syriza supporters would prefer to return to the drachma rather than continue implementing Troika austerity measures…

   

  The insurrection poses a domestic headache for Mr Tsipras, who will have to pass any bail-out agreement though his country’s 300-member parliament.

   

  Holding only a 12-seat majority, failure to ratify an agreement would trigger a snap election and likely lead to an extreme Left breakaway, said Miranda Xafa, a Greek economist and senior scholar at the Center for International Governance Innovation.

   

  “There are indications that Mr Tsipras is ready to ditch his extremists should he lose a vote, but it will be very hard for him to come up with a face saving deal,” said Ms Xafa…

   

  “In any new election scenario, Syriza would be split and the Left wing would likely break off to form a separate party. Mr Tsipras would have to find new coalition partners,” added Ms Xafa.  

  As a reminder, it was just last week that the country came within 20 votes of backing a euro exit. 

  In a surprisingly close vote showing just how deeply the ruling Greek Syriza party has splintered, the hard line “Left Platform” a faction within Syriza, proposed that Greece stop paying its creditors if they continue with “blackmailing tactics” and instead seek “an alternative plan” for the debt-racked country. Its motion called for the government to default on the IMF loans rather than compromise to creditor demands. The proposal was narrowly rejected with 95 people voting against and 75 in favor. With a vote as close as that, the genie of the full-blown dissent within Syriza, which has a tiny majority of just 12 seats in Greece’s 300 seat partliament, is out of the bottle which could mean that the Troika’s long sought after goal of pushing Greece into a political crisis, may be just around the corner.

  What seems clear from the above is that this situation cannot be resolved without some manner of political (and possibly social) upheaval in Greece. While we do not yet know what Greek citizens will do in the event Tsipras strikes a deal that entails more austerity but averts a euro exit, what we do now know is that some members of Syriza are determined to stick to the campaign promises that got them elected in January and given that those promises have proven utterly incompatible with what the troika wants to hear on the way to bailing the country out (again), a political shakep seems virtually assured as it is unlikely Tsipras will risk an outright default and the economic consequences that will invariably accompany it. 

  Here’s a useful flow chart that maps the possibilities…

  

  …and here’s the latest opinion poll…

   

  Stay tuned — things just got a lot more interesting in Athens. 

  *  *  *

  Full statement from Tsipras:

  On 25th of last January, the Greek people made a courageous decision. They dared to challenge the one-way street of the Memorandum’s tough austerity, and to seek a new agreement. A new agreement that will keep the country in the Euro, with a viable economic program, without the mistakes of the past.

  The Greek people paid a high price for these mistakes; over the past five years the unemployment rate climbed to 28% (60% for young people), average income decreased by 40%, while according to Eurostat’s data, Greece became the EU country with the highest index of social inequality.

  And the worst result: Despite badly damaging the social fabric, this Program failed to invigorate the competitiveness of the Greek economy. Public debt soared from 124% to 180% of GDP, and despite the heavy sacrifices of the people, the Greek economy remains trapped in continuous uncertainty caused by unattainable fiscal balance targets that further the vicious cycle of austerity and recession.

  The new Greek government’s main goal during these last four months has been to put an end to this vicious cycle, an end to this uncertainty.

  Doing so requires a mutually beneficial agreement that will set realistic goals regarding surpluses, while also reinstating an agenda of growth and investment. A final solution to the Greek problem is now more mature and more necessary than ever.

  Such an agreement will also spell the end of the European economic crisis that began 7 years ago, by putting an end to the cycle of uncertainty in the Eurozone.

  Today, Europe has the opportunity to make decisions that will trigger a rapid recovery of the Greek and European economy by ending Grexit scenarios, scenarios that prevent the long-term stabilization of the European economy and may, at any given time, weaken the confidence of both citizens and investors in our common currency.

  Many, however, claim that the Greek side is not cooperating to reach an agreement because it comes to the negotiations intransigent and without proposals.

  Is this really the case?

  Because these times are critical, perhaps historic–not only for the future of Greece but also for the future of Europe–I would like to take this opportunity to present the truth, and to responsibly inform the world’s public opinion about the real intentions and positions of Greece.

  The Greek government, on the basis of the Eurogroup’s decision on February 20th, has submitted a broad package of reform proposals, with the intent to reach an agreement that will combine respect for the mandate of the Greek people with respect for the rules and decisions governing the Eurozone.

  One of the key aspects of our proposals is the commitment to lower – and hence make feasible – primary surpluses for 2015 and 2016, and to allow for higher primary surpluses for the following years, as we expect a proportional increase in the growth rates of the Greek economy.

  Another equally fundamental aspect of our proposals is the commitment to increase public revenues through a redistribution of the burden from lower and middle classes to the higher ones that have effectively avoided paying their fair share to help tackle the crisis, since they were for all accounts protected by both the political elite and the Troika who turned “a blind eye”.

  From the very start, our government has clearly demonstrated its intention and determination to address these matters by legislating a specific bill to deal with fraud caused by triangular transactions, and by intensifying customs and tax controls to reduce smuggling and tax evasion.

  While, for the first time in years, we charged media owners for their outstanding debts owed to the Greek public sector.

  These actions are changing things in Greece, as evidenced the speeding up of work in the courts to administer justice in cases of substantial tax evasion. In other words, the oligarchs who were used to being protected by the political system now have many reasons to lose sleep.

  In addition to these overarching goals that define our proposals, we have also offered highly detailed and specific plans during the course of our discussions with the institutions that have bridged the distance between our respective positions that separated us a few months ago.

  Specifically, the Greek side has accepted to implement a series of institutional reforms, such as strengthening the independence of the General Secretariat for Public Revenues and of the Hellenic Statistical Authority (ELSTAT), interventions to accelerate the administration of justice, as well as interventions in the product markets to eliminate distortions and privileges.

  Also, despite our clear opposition to the privatization model promoted by the institutions that neither creates growth perspectives nor transfers funds to the real economy and the unsustainable debt, we accepted to move forward, with some minor modifications, on privatizations to prove our intention of taking steps towards approaching the other side.

  We also agreed to implement a major VAT reform by simplifying the system and reinforcing the redistributive dimension of the tax in order to achieve an increase in both collection and revenues.

  We have submitted specific proposals concerning measures that will result in a further increase in revenues. These include a special contribution tax on very high profits, a tax on e-betting, the intensification of checks of bank account holders with large sums – tax evaders, measures for the collection of public sector arrears, a special luxury tax, and a tendering process for broadcasting and other licenses, which the Troika coincidentally forgot about for the past five years.

  These measures will increase revenues, and will do so without having recessionary effects since they do not further reduce active demand or place more burdens on the low and middle social strata.

  Furthermore, we agreed to implement a major reform of the social security system that entails integrating pension funds and repealing provisions that wrongly allow for early retirement, which increases the real retirement age.

  These reforms will be put into place despite the fact that the losses endured by the pension funds, which have created the medium-term problem of their sustainability, are mainly due to political choices of both the previous Greek governments and especially the Troika, who share the responsibility for these losses: the pension funds’ reserves have been reduced by 25 billion through the PSI and from very high unemployment, which is almost exclusively due to the extreme austerity program that has been implemented in Greece since 2010.

  Finally–and despite our commitment to the workforce to immediately restore European legitimacy to the labor market that has been fully dismantled during the last five years under the pretext of competitiveness–we have accepted to implement labor reforms after our consultation with the ILO, which has already expressed a positive opinion about the Greek government’s proposals.

  Given the above, it is only reasonable to wonder why there is such insistence by Institutional officials that Greece is not submitting proposals.

  What end is served by this prolonged liquidity moratorium towards the Greek economy? Especially in light of the fact that Greece has shown that it wants to meet its external obligations, having paid more than 17 billion in interest and amortizations (about 10% of its GDP) since August 2014 without any external funding.

  And finally, what is the purpose of the coordinated leaks that claim that we are not close to an agreement that will put an end to the European and global economic and political uncertainty fueled by the Greek issue?

  The informal response that some are making is that we are not close to an agreement because the Greek side insists on its positions to restore collective bargaining and refuses to implement a further reduction of pensions.

  Here, too, I must make some clarifications:

  Regarding the issue of collective bargaining, the position of the Greek side is that it is impossible for the legislation protecting employees in Greece to not meet European standards or, even worse, to flagrantly violate European labor legislation. What we are asking for is nothing more than what is common practice in all Eurozone countries. This is the reason why I recently made a joint declaration on the issue with President Juncker.

  Concerning the issue on pensions, the position of the Greek government is completely substantiated and reasonable. In Greece, pensions have cumulatively declined from 20% to 48% during the Memorandum years; currently 44.5% of pensioners receive a pension under the fixed threshold of relative poverty while approximately 23.1% of pensioners, according to data from Eurostat, live in danger of poverty and social exclusion.

  It is therefore obvious that these numbers, which are the result of Memorandum policy, cannot be tolerated–not simply in Greece but in any civilized country.

  So, let’s be clear:

  The lack of an agreement so far is not due to the supposed intransigent, uncompromising and incomprehensible Greek stance.

  It is due to the insistence of certain institutional actors on submitting absurd proposals and displaying a total indifference to the recent democratic choice of the Greek people, despite the public admission of the three Institutions that necessary flexibility will be provided in order to respect the popular verdict.

  What is driving this insistence?

  An initial thought would be that this insistence is due to the desire of some to not admit their mistakes and instead, to reaffirm their choices by ignoring their failures.

  Moreover, we must not forget the public admission made a few years ago by the IMF that they erred in calculating the depth of the recession that would be caused by the Memorandum.

  I consider this, however, to be a shallow approach. I simply cannot believe that the future of Europe depends on the stubbornness or the insistence of some individuals.

  My conclusion, therefore, is that the issue of Greece does not only concern Greece; rather, it is the very epicenter of conflict between two diametrically opposing strategies concerning the future of European unification.

  The first strategy aims to deepen European unification in the context of equality and solidarity between its people and citizens.

  The proponents of this strategy begin with the assumption that it is not possible to demand that the new Greek government follows the course of the previous one – which, we must not forget, failed miserably. This assumption is the starting point, because otherwise, elections would need to be abolished in those countries that are in a Program. Namely, we would have to accept that the institutions should appoint the Ministers and Prime Ministers, and that citizens should be deprived of the right to vote until the completion of the Program.

  In other words, this means the complete abolition of democracy in Europe, the end of every pretext of democracy, and the beginning of disintegration and of an unacceptable division of United Europe.

  This means the beginning of the creation of a technocratic monstrosity that will lead to a Europe entirely alien to its founding principles.

  The second strategy seeks precisely this: The split and the division of the Eurozone, and consequently of the EU.

  The first step to accomplishing this is to create a two-speed Eurozone where the “core” will set tough rules regarding austerity and adaptation and will appoint a “super” Finance Minister of the EZ with unlimited power, and with the ability to even reject budgets of sovereign states that are not aligned with the doctrines of extreme neoliberalism.

  For those countries that refuse to bow to the new authority, the solution will be simple: Harsh punishment. Mandatory austerity. And even worse, more restrictions on the movement of capital, disciplinary sanctions, fines and even a parallel currency.

  Judging from the present circumstances, it appears that this new European power is being constructed, with Greece being the first victim. To some, this represents a golden opportunity to make an example out of Greece for other countries that might be thinking of not following this new line of discipline.

  What is not being taken into account is the high amount of risk and the enormous dangers involved in this second strategy. This strategy not only risks the beginning of the end for the European unification project by shifting the Eurozone from a monetary union to an exchange rate zone, but it also triggers economic and political uncertainty, which is likely to entirely transform the economic and political balances throughout the West.

  Europe, therefore, is at a crossroads. Following the serious concessions made by the Greek government, the decision is now not in the hands of the institutions, which in any case – with the exception of the European Commission- are not elected and are not accountable to the people, but rather in the hands of Europe’s leaders.

  Which strategy will prevail? The one that calls for a Europe of solidarity, equality and democracy, or the one that calls for rupture and division?

  If some, however, think or want to believe that this decision concerns only Greece, they are making a grave mistake. I would suggest that they re-read Hemingway’s masterpiece, “For Whom the Bell Tolls”.

  

  

  
  
  

  

• What's Currently For Sale On The "Amazon For The Super Rich"

  There’s Amazon, and then there’s the aptly named “Posh” – Bloomberg’s own internal Craigs List-type marketplace, open only to terminal subscribers. From a “spectacular” new construction French manor in Greenwich, CT, to a $4.3 million “Inside deal, won’t last”) 3 bedroom loft in Greenwich Village, to countless Aston Martins, Ferraris, Porsches, if the rich (and Libor, equity, gold and FX-manipulating) are selling it, you will find it on Posh.

  Here are the most expensive items currently for sale by and for Bloomberg terminal users.

  

   

  Want a new build mansion? It’s for sale:

  

   

  Or maybe just a 2500 square foot Village loft:

  

   

  Over $4 million for an apartment too much? Then how about just $2.8 million for a 2 bedrom condo in Chelsea.

  

   

  Concerned about a lack of real estate supply in NYC? Don’t be: for a price, everything can be bought.

  

   

  And on the off chance you can’t find what you’re looking for, contact Bloomberg@tengroup.com as the selected concierge for Bloomberg POSH. Because no price is too big when one “trades” rigged markets.

  

  

  

  
  
  

  

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