- Chinese Iron Ore Prices Plunge After CISA Warns Of Persistent Overcapacity
Having rebounded along with practically every other risk-asset class in the world over the last month or so, Chinese Iron Ore futures are collapsing tonight. Despite the promise of Chinese LTROs expanding credit (just like they didn’t in Europe), iron ore prices are down around 4% – the biggest drop in over 2 years – to as low as CNY419 (or around $62) as China Iron & Steel Association warns that overcapacity in the seaborne iron ore market will persist through to at least 2019 as the world’s largest suppliers expand production further.
Iron Ore prices are down the most in over 2 years…
“Low-cost seaborne supply entering the market is not only displacing high-cost Chinese production, but also high-cost seaborne supply,” Alan Chirgwin, BHP iron ore marketing vice president, told the conference. Supply will rise by about 100 million to 110 million tons this year, exceeding modest demand growth of about 30 million to 40 million tons, he said.
Major producers remain intent on expansions and a battle for market share is under way as miners attempt to reduce their costs faster than prices are dropping, according to Credit Suisse Group AG.
Source: Bloomberg
- The US Is In Recession According To These 7 Charts
The evidence continues to mount…
"Most since Lehman" has become the new meme for macro-economic data in the US as day after day brings another lacklustre superlative to be dismissed with some excuse by the cognoscenti of sell-side economists…
Of course, that is aside from anything related to aggregate jobs that is spewed by the government's official ministries of truth… (do not look at this chart)
* * *
So here are seven charts that scream "recession" is here…
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…
* * *
But apart from that, given that US equities are at record highs, everything must be great in the US economy…
Wait a minute.
- "We The People" Need To Circle The Wagons: The Government Is On The Warpath
Submitted by John Whitehead via The Rutherford Institute,
“The government is merely a servant?merely a temporary servant; it cannot be its prerogative to determine what is right and what is wrong, and decide who is a patriot and who isn’t. Its function is to obey orders, not originate them.” ? Mark Twain
How many Americans have actually bothered to read the Constitution, let alone the first ten amendments to the Constitution, the Bill of Rights (a quick read at 462 words)?
Take a few minutes and read those words for yourself—rather than having some court or politician translate them for you—and you will be under no illusion about where to draw the line when it comes to speaking your mind, criticizing your government, defending what is yours, doing whatever you want on your own property, and keeping the government’s nose out of your private affairs.
In an age of overcriminalization, where the average citizen unknowingly commits three crimes a day, and even the most mundane activities such as fishing and gardening are regulated, government officials are constantly telling Americans what not to do. Yet it was not always this way. It used to be “we the people” telling the government what it could and could not do. Indeed, the three words used most frequently throughout the Bill of Rights in regards to the government are “no,” “not” and “nor.”
Compare the following list of “don’ts” the government is prohibited from doing with the growing list of abuses to which “we the people” are subjected on a daily basis, and you will find that we have reached a state of crisis wherein the government is routinely breaking the law and violating its contractual obligations.
For instance, the government is NOT allowed to restrict free speech, press, assembly or the citizenry’s ability to protest and correct government wrongdoing. Nevertheless, the government continues to prosecute whistleblowers, persecute journalists, cage protesters, criminalize expressive activities, crack down on large gatherings of citizens mobilizing to voice their discontent with government policies, and insulate itself and its agents from any charges of wrongdoing (or what the courts refer to as “qualified immunity”).
The government may NOT infringe on a citizen’s right to defend himself. Nevertheless, in many states, it’s against the law to carry a concealed weapon (gun, knife or even pepper spray), and the average citizen is permitted little self-defense against militarized police officers who shoot first and ask questions later.
The government may NOT enter or occupy a citizen’s house without his consent (the quartering of soldiers). Nevertheless, government soldiers (i.e., militarized police) carry out more than 80,000 no-knock raids on private homes every year, while maiming children, killing dogs and shooting citizens.
The government may NOT carry out unreasonable searches and seizures on the citizenry or their possessions. NOR can government officials issue warrants without some evidence of wrongdoing (probable cause). Unfortunately, what is unreasonable to the average American is completely reasonable to a government agent, for whom the ends justify the means. In such a climate, we have no protection against roadside strip searches, blood draws, DNA collection, SWAT team raids, surveillance or any other privacy-stripping indignity to which the government chooses to subject us.
The government is NOT to deprive anyone of life, liberty or property without due process. Nevertheless, the government continues to incarcerate tens of thousands of Americans whose greatest crime is being poor and brown-skinned. The same goes for those who are put to death, some erroneously, by a system weighted in favor of class and wealth.
The government may NOT take private property for public use without just compensation. Nevertheless, under the guise of the “greater public interest,” the government often hides behind eminent domain laws in order to allow megacorporations to tear down homes occupied by less prosperous citizens in order to build high-priced resorts and shopping malls.
Government agents may NOT force a citizen to testify against himself. Yet what is the government’s extensive surveillance network that spies on all of our communications but a thinly veiled attempt at using our own words against us?
The government is NOT allowed to impose excessive fines on the citizenry or inflict cruel and unusual punishments upon them. Nevertheless Americans are subjected to egregious fines and outrageous punishments for minor traffic violations, student tardiness and absence from school, and generally having the misfortune of being warm bodies capable of filling privatized, profit-driven jails.
The government is NOT permitted to claim any powers that are not expressly granted to them by the Constitution. This prohibition has become downright laughable as the government continues to claim for itself every authority that serves to swell its coffers, cement its dominion, and expand its reach.
Despite what some special interest groups have suggested to the contrary, the problems we’re experiencing today did not arise because the Constitution has outlived its usefulness or become irrelevant, nor will they be solved by a convention of states or a ratification of the Constitution.
No, as I document in my new book Battlefield America: The War on the American People, the problem goes far deeper. It can be traced back to the point at which “we the people” were overthrown as the center of the government. As a result, our supremacy has been undone, our authority undermined, and our experiment in democratic self-governance left in ruins. No longer are we the rulers of this land. We have long since been deposed and dethroned, replaced by corporate figureheads with no regard for our sovereignty, no thought for our happiness, and no respect for our rights.
In other words, without our say-so and lacking any mandate, the point of view of the Constitution has been shifted from “we the people” to “we the government.” Our taxpayer-funded employees—our appointed servants—have stopped looking upon us as their superiors and started viewing as their inferiors. Unfortunately, we’ve gotten so used to being dictated to by government agents, bureaucrats and militarized police alike that we’ve forgotten that WE are supposed to be the ones calling the shots and determining what is just, reasonable and necessary.
Then again, we’re not the only ones guilty of forgetting that the government was established to serve us as well as obey us. Every branch of government, from the Executive to the Judicial and Legislative, seems to be suffering this same form of amnesia. Certainly, when government programs are interpreted from the government’s point of view (i.e., the courts and legislatures), there is little the government CANNOT do in its quest for power and control.
We’ve been so brainwashed and indoctrinated into believing that the government is actually looking out for our best interests, when in fact the only compelling interesting driving government programs is maintain power and control by taking away our money and control. This vital truth, that the government exists for our benefit and operates at our behest, seems to have been lost in translation over two centuries dominated by government expansion, endless wars and centralized federal power.
Have you ever wondered why the Constitution begins with those three words “we the people”? It was intended to be a powerful reminder that everything flows from the citizenry. We the people are the center of the government and the source of its power. That “we” is crucial because it reminds us that there is power and safety in numbers, provided we stand united. We can accomplish nothing alone.
This is the underlying lesson of the Constitution, which outlines the duties and responsibilities of government. It was a mutual agreement formed by early Americans in order to ensure that when problems arose, they could address them together.
It’s like the wagon trains of the Old West, comprised of individual groups of pioneers. They rarely ventured out alone but instead traveled as convoys. And when faced with a threat, these early Americans formed their wagons into a tight circle in order to defend against invaders. In doing so, they presented a unified front and provided protection against an outside attack. In much the same way, the Constitution was intended to work as an institutionalized version of the wagon circle, serving as a communal shield against those who would harm us.
Unfortunately, we have been ousted from that protected circle, left to fend for ourselves in the wilderness that is the American frontier today. Those who did the ousting—the courts, the politicians, and the corporations—have since replaced us with yes-men, shills who dance to the tune of an elite ruling class. In doing so, they have set themselves as the central source of power and the arbiters of what is just and reasonable.
Once again we’re forced to navigate hostile terrain, unsure of how to protect ourselves and our loved ones from militarized police, weaponized drones, fusion centers, Stingray devices, SWAT team raids, the ongoing military drills on American soil, the government stockpiling of ammunition, the erection of mass detention centers across the country, and all other manner of abuses.
Read the smoke signals, and the warning is clear: It’s time to circle the wagons, folks. The government is on the warpath, and if we are to have any hope of surviving whatever is coming at us, we’ll need to keep our wits about us and present a unified front. Most of all, we need to restore “we the people” to our rightful place at the center of government. How we do that depends largely on each community’s willingness to get past their partisan politics and blind allegiance to uniformed government officials and find common ground.
To put it a little more bluntly, stop thinking like mindless government robots and start acting like a powerhouse of citizens vested with the power to say “enough is enough.” We have the numbers to stand our ground. Now we just need the will
- It's Official: The BoJ Has Broken The Japanese Stock Market
As those who follow such things are no doubt aware, The Bank of Japan often says some very funny things about inflation expectations and monetary policy. Essentially, the bank is forced to constantly defend its QE program because as it turns out, monetizing the entirety of gross JGB issuance and amassing an equity portfolio worth just shy of $100 billion on the way to cornering the ETF market comes across as insanely irresponsible even in a world that is now defined by insanely irresponsible central banks.
Perhaps the best example of the BoJ’s absurd rhetoric came in late March when Governor Haruhiko Kuroda said the following about the bank’s 10 trillion yen equity portfolio:
- KURODA: BOJ’S ETF PURCHASES AREN’T LARGE
As we noted at the time, either we don’t know what large means, or Kuroda is simply making things up as he goes along. Meanwhile, the BoJ continues to provide Nikkei plunge protection on an almost daily basis. Here’s what we said in March:
The world has now officially given up any pretensions that Japan’s elephantine QE program isn’t underwriting the rally in Japanese stocks. Not only is the Bank of Japan buying ETFs, they’re targeting their purchases to (literally) ensure that stocks can’t fall by stepping in when things look weak at the open. Unfortunately, Kuroda looks set to run up against the extremely inconvenient fact that while, in his lunacy, he can print a theoretically unlimited amount of money, the universe of purchasable ETFs is limited and so eventually, the BoJ will own the entire market.
As recent gyrations in Bund, Treasury, and JGB markets have made abundantly clear, when central banks corner markets, liquidity suffers and the seeds for sudden spikes in volatility are sown. Given this, and given what we know about the BoJ’s equity buying binge, we were not surprised to learn that now, Kuroda has not only broken the JGB market but the Japanese the stock market as well. Here’s more from Nikkei:
The Bank of Japan’s massive purchases of exchange-traded funds, part of its monetary easing program, could be contributing to sharp stock price swings by draining liquidity from the market…
Though the ETF-buying program had altered the balance by reducing supply, market players are noticing side effects.
Lately, “orders for some stocks have fallen, so it’s gotten harder to complete trades,” observed Kyoya Okazawa at BNP Paribas Securities (Japan).
Fanuc offers one example. The issue’s volatility relative to the Nikkei average on a 25-day moving average basis bottomed out around spring 2013 and has been on an uptrend since. Coincidentally, the BOJ announced its unprecedented easing program in April 2013. The central bank’s ETF purchases may have reduced liquidity, leading to sharper price movements.
Fanuc’s 1.27% climb Tuesday was well above the Nikkei average’s 0.02% increase. Its recent price movements probably have been influenced by growing momentum fueled by the company’s plans to boost shareholder returns.
And here’s a bit of color which explains just how large Kuroda’s “not large” purchases are:
The bank has bought ETFs 32 times so far in 2015. This translates to about once per 2.7 days, compared with 4.3 days in 2013 before the easing began and 11.3 days in 2012 under former Gov. Masaaki Shirakawa. The average amount per purchase also roughly doubled to around 35 billion yen this year from just over 17 billion yen in 2014.
To put the BOJ’s moves into perspective, if a new stock fund raised 35 billion yen, it would be the talk of the market. The central bank is making such purchases once every three days.
Finally, for those wondering whether the bank is still timing its purchases to prop up the market at the first sign of weakness, here is your answer:
The Nikkei Stock Average closed slightly higher Tuesday. Selling prevailed in the morning on weakness in U.S. and European stocks the previous day, but the benchmark index trimmed its losses in the afternoon and moved into positive territory shortly before the closing bell.
After the Nikkei average briefly dropped more than 150 points to fall below 19,500, many market players were certain the BOJ would step in. And after trading closed, the central bank said it had bought 36.1 billion yen ($297 million) in ETFs. These developments signal a growing sense of dependence on the BOJ.
There you have it. The BoJ has officially broken the stock market. The truly alarming part of Kuroda’s endeavor is that the larger the BoJ’s equity portfolio becomes, the more resolute the bank will need to be in terms of preventing stocks from falling because after all, you can’t designate your stock portfolio as “held to maturity.”
We believe the following clip does a nice job of summing up how the BoJ sees its QE program vis-a-vis other central banks:
- Collectivists Hate Individuality, Tribalism, And 'Fast And Furious 7'?
Submitted by Brandon Smith via Alt-Market.com,
Sometimes in the liberty movement — with discussions of potential collapse, war, revolution, social destabilization, etc. — it is easy to get so caught up in the peripheral conflict between the elites and the citizenry that we forget what the whole thing is really about. That is to say, we tend to overlook the very core of the conflict that is shaping our epoch.
Some would say that it is a simple matter of good versus evil. I don’t necessarily disagree, but good and evil are not defined methodologies; rather, they are inherent archetypes — facts born in the minds and hearts of all men. It’s a gift of comprehension from something greater than ourselves. They are felt, rather than defined, and attempts by institutions (religious, scientific, legal or otherwise) to force morality away from intuitive reason and into a realm of artificial hierarchical and mathematical standards tend to lead only to even more imbalance, destruction, innocent deaths and general immorality.
There have been many nightmare regimes throughout history that have claimed to understand and obey moral “laws” and standards while at the same time having no personal or spiritual connection to those standards. In other words, some of the most heinous acts of immorality are often stamped with the approval of supposedly moral social and governmental institutions.
This is why a person who calls himself a moral Christian, a moral Muslim, a moral atheist, a moral legislator, a moral conservative, a moral liberal, a moral social justice warrior, etc. is not necessarily a person who ultimately acts with moral conviction. It is not enough for one to memorize and follow the code of a belief system or legal system blindly. One must also understand the tenets of inborn natural law and of the human soul that make those codes meaningful (if they have retained any meaning), or he will eventually fall prey to the vicious calamities of dogma and the collective shadow.
If I were to examine the core methodologies that are at odds in our society today, I would have to say that the whole fight comes down not only to good versus evil, but to collectivism versus individualism. The same demands of understanding also apply to this dichotomy.
Nearly all human beings naturally gravitate toward social structures. This is not under debate. The best of us seek to work with others for the betterment of our own position in terms of survival and success, but also the betterment of our species as a whole, if possible. Beyond this, people often find solace and a sense of epiphany when discovering connections to others; the act of recognition and shared experience that is in itself a religious experience. This is what I would call “community,” as opposed to “collectivism.”
Collectivism is a bastardization and manipulation of the inherent desire most people have to build connections to those around them. It takes the concept of community to the extreme end of the spectrum, and in the process, removes all that was originally good about it. In a collectivist system, individualism becomes a threat and a detriment to the functionality of society. In a community, individualism is seen as a valuable resource that brings a diversity of ideas, skills and unique views, making the group stronger. Collectivism believes the hive mind is more efficient. Community believes voluntary action and individual achievement makes society healthier in the long run.
Our culture in general today is being bombarded with messages that aggrandize collectivism and stigmatize community and individualism. This is not by mere chance; it is in fact a program of indoctrination. I came across a rather strange and in some ways hilarious example of this while sifting through the propaganda platform known as Reuters.
As most liberty movement activists are well aware, Reuters is a longtime haven for Fabian socialists who despise honest reporting (to them media is a means of controlling the populace, not informing it) and who consistently inject concepts of collectivist (i.e., globalist) ideology into their articles.
The Reuters opinion piece linked here and written by Lynn Stuart Parramore presents itself as a kind of social examination of film and its reflection of the decline of American civilization. Rather oddly, the film chosen as a litmus test was “Fast And Furious 7.” Yes, that’s right. The “Fast and Furious” franchise apparently contains social commentary so disturbing to Reuters’ contributing “cultural theorists” that they felt compelled to write a short thesis on it.
First, I would like to point out that when I first read the article the original title was “‘Fast decline of postwar America & furious desire to cling to ‘family.’”
It appears that Reuters has since “amended” the title to stand out a little less as a collectivist expose. Just to be clear, I have no interest in discussing the content of the “Furious 7″ film. My commentary will focus not on the film but on Reuters’ commentary regarding the film…if that makes sense to you.
So what about the newest Furious film has the collectivists so concerned? As the article states, “something alarming lurks at the heart of ‘Furious 7.'” The film’s depiction of America as an economically wounded nation in which good men cannot find a means to make an honest and adequate living doesn’t seem to bother them as much as the response of the main characters to such circumstances. The article almost revels in the postwar degradation of American living standards, outlining how fiscal decline has led to the disruption of the American family and posits that the golden era of the 1950’s economic boom is a relic, erased by the rise of a severe “haves and have-nots” division in the American class sphere. This is, of course, a decidedly simplistic view that appeals more to Marxists than to anyone with true knowledge of the breakdown of the U.S.
Reuters takes issue with “Furious 7″ because of what it refers to as the “1950’s fantasy” narrative it clings to, in which the heroes long for a return to the middle-class dream, turning away from the corrupt structure of the system and reverting to the “tribalism” of families and posses. The “myth of the posse,” they state, “ignores the interconnectedness of the broader society” and “the idea of a common culture of citizenship recedes into the background, as does faith in a society based on shared principles of justice.”
I find this conclusion rather fascinating in its collectivist bias. We are led to believe by Parramore’s article that it is the “Ayn Randian” code of contemporary economics and market efficiency that has led America astray. To put it simply, the free market did this to us.
This is the great lie promoted ad nauseam by collectivists today — collectivists who would like to divert blame for economic failure on more individualistic market ideals. The reality is that America has NOT supported free market methods for at least a century. The advent of parasitic central banking as an economic core in the Federal Reserve and constant government intervention and regulation that have only destroyed small business rather than kept large businesses in check has caused the very negative financial environment that Parramore at least recognizes as the source of our ills. Corporations themselves exist only because of government regulatory license, after all, but you won’t ever catch Reuters criticizing that.
It was collectivism and the rise of the statist model that bled America dry, not free-market methods that have not existed in this country for more than 100 years. The delusion that free markets are the problem was the same delusion that helped bring down Occupy Wall Street; the movement failed in part because its foundational philosophy was built on disinformation that rang false with otherwise sympathetic people.
So an action movie presents a competing model to collectivism, because collectivism has always been the problem, despite what Reuters has to say. That model is a return to classic human community in the form of family and “tribalism” where regular individuals matter, a point the Reuters article subtly mocks as a “fantasy.” But here we find the collectivists using the kind of rhetoric one would come to expect from social Marxists. The article continues:
"When the personal posse replaces civic spirit, and the us-against-them mentality prevails, monsters can breed…"
"This is what is now happening in many corners of the world, where neglected groups have formed posses positively bloodthirsty in their quest to assert that they matter on the global stage to show they are not just victims of a rigged game…"
I’m not exactly sure what “bloodthirsty groups” Parramore is referring to as “posses,” but I suspect this is a reference to the rise of ISIS, among others. And here we find the Fabian socialist-style propaganda at play.
You see, the Fabian ideology is the driving force behind globalization — the same globalization that triggered the vast downward slide in American prosperity; the same globalization that has generated anger and dissension among the downtrodden and poverty-stricken; the same globalization that has created artificial economic interdependency among nations and the domino effect of fiscal crisis around the globe; and the same globalization that has led to the predominance of covert agencies, covert agencies which have been funding “bloodthirsty posses” like ISIS for decades. And the source philosophy behind globalization has always been collectivism — the “interconnectedness of broader society” that Parramore proclaims as lost in the pages of the “Furious 7″ screenplay.
Parramore ends with a stark warning to us all:
"… a return to tribal instincts and the letting go of the broader common bonds and the welfare of the greater human family has a dark side. It is ultimately a dangerous road to travel."
Those of us who support the idea of localized community (i.e., tribalism) and the value of the individual over the arbitrary collective are, supposedly, playing with fire; and we should be scared, very scared. We would not want to be labeled as “bloodthirsty monsters” hell-bent on disturbing the tranquility of the “greater human family.” Oh, boy.
When I read this kind of agenda-based garbage, I am reminded of the insanity of slightly more open social Marxists, such as feminists, who have through dishonorable tactics conjured an atmosphere of collective and legal pressure designed not to present a better argument, but to make all opposing arguments a sin against the group. That is to say, social Marxists do not have a better argument, so their only option is to make rational counterarguments socially taboo or even illegal.
If you want to know where social Marxism (collectivism) is headed, this is it: the labeling of individualistic philosophies as dangerous thought crimes and tribal communities as time bombs waiting to explode in the face of the wider global village. They desperately hope to conquer the world by dictating not only national boundaries and civil liberties, but the very moral code by which society and individuals function. They wish to bypass natural law with fear, fear that the collective will find you abhorrent and barbaric if you do not believe exactly as they believe. Individualism will one day be the new misogyny.
Think of it this way: If an undoubtedly forgettable movie like “Furious 7″ can’t even portray a fictional step away from the abyss of collectivist cultism without a prophecy of doom from Reuters, then is anyone really safe from these lunatics?
- China Goes "Unconventional" In Effort To Tackle Trillions In Debt, Rescue Economy
Two months ago we first explained why Chinese QE may be inevitable. The Cliff’s Notes version goes like this: Beijing needs to prop up its export-driven economy by devaluing the dollar-linked yuan but that’s a risky move primarily because the country has seen $300 billion in capital outflows over the past four quarters and also because China doesn’t want to be seen as a currency manipulator ahead of an IMF SDR bid.
Conveniently (if you’re a central bank looking to adopt unconventional monetary policy tools), China’s local governments are set to embark on a multi-trillion yuan refi effort aimed at bringing the servicing costs of their mountainous debt pile under control.
The idea is to swap the existing high-interest loans — which are a consequence of localities skirting debt issuance limits by tapping shadow banking conduits for cash — for standard muni bonds which will carry yields that are more inline with the supposed credit-worthiness of the issuer. This all sounded great on paper, but when the provincial early adopters tested the waters they discovered that bank demand for the new bonds was tepid, leaving the PBoC with two options: 1) buy the bonds outright, 2) create demand by allowing banks who purchases the bonds to pledge them for long-term cash loans. Option number one would simply constitute Chinese QE, while option number two is akin to ECB LTROs and in either case, it gives the PBoC an excuse to implement a large-scale easing program and in the case of the latter option, the hope is that banks will use the cash to lend to the broader economy thus kickstarting growth. Here’s a bit of color via SocGen (note the projected size of the program):
The PBoC can do something similar to the ECB’s LTRO or TLTRO, accepting LGBs as collaterals for lending to commercial banks. The PBoC has introduced a tool of such design: Pledged Supplementary Lending (PSL). This structure will provide incentives for commercial banks to load up on LGBs. The mechanism looks like this: commercial banks retire their loans to local government financing vehicles (LGFVs) that earns 6%, buy LGBs with 3-4% yield, go to the central bank and ask for long term credit at 2-3%, and then lend out to corporates at 6%. Hence, banks can earn 1-2ppt more with such a programme than otherwise.
If we are right about PBoC’s intention of helping local government debt restructuring, the total size of this programme may match the total size of local government’s debt stock at the moment. Considering that issuance for the fiscal spending in the coming years may also need some help on attracting demand, we would not be surprised by an eventual size of CNY20tn.
It could take five years or more, depending on the development of the bond market. The hope is that over time more investors will be interested in LGBs for asset allocation or other reasons. Some foreign institutional investors may already be interested if they have access. The idea is for the PBoC to give a jump-start to the LGB market, instead of dominating the market. Therefore, we do not think that the PBoC will commit itself to a targeted size or a fixed pace, unlike the Feb or the ECB. At best, it may announce a maximum volume year by year, and this year it is likely to be CNY2tn – somewhat bigger than the planned amount of new LGB issuance of CNY1.5tn.
The impact of this program shouldn’t be underestimated. Between the initial CNY1 trillion in new local government bonds issued as part of the bond swap initiative and another CNY600 billion in new supply needed to fund budget deficits, local government debt issuance is set to quadruple in 2015 compared to last year, meaning, as SocGen notes above, the PBoC will need to help create demand. Here’s a look at past issuance which should provide a bit of perspective on the relative size of 2015 supply:
As of Monday, this program became official, meaning that LTROs (which can perhaps be described as a QE trial balloon) are now a reality in China.
Via WSJ:
China is launching a broad stimulus to help local governments restructure trillions of dollars in debts while prodding banks to lend more, as fresh data add to signs of a worsening slowdown in the world’s second-largest economy.
In a directive marked “extra urgent,” China’s Finance Ministry, central bank and top banking regulator laid out a package of measures to jump-start one of the government’s most-important economic-rescue initiatives: a debt-for-bond swap program aimed at giving provinces and cities some breathing room in repaying debts.
Central to the directive, which was issued earlier this week to governments across the country and reviewed by The Wall Street Journal, is a plan by the People’s Bank of China that will let commercial banks use local-government bailout bonds they purchase as collateral for low-cost loans from the central bank. The goal is to provide Chinese banks with more funds to make new loans.
In response to the new directive, the prosperous eastern province of Jiangsu this week relaunched a sale of bonds that package the debt of its local governments but that it delayed last month because banks hesitated to buy them…
“The central bank is using this opportunity to provide cheap funding to commercial banks and guide down interest rates,” said China economist Zhu Chaoping at UOB Kay Hian Holdings Ltd., a Singapore-based investment bank. “This will have similar effects as quantitative easing,” Mr. Zhu said, referring to the bond-buying programs used by the U.S. and European central banks to spur economic growth.
Helping the country’s struggling local governments crawl out from under a debt burden that totals 35% GDP and jumpstarting the economy via stepped up lending aren’t the only reasons the program is necessary. Beijing’s currency conundrum has caused the PBoC to rely increasingly on policy rates to stimulate the economy and with two RRR cuts and two benchmark lending rate cuts already in the books and at least three more cuts expected this year, it was becoming quite clear that something else was needed given that economic growth is still decelerating and real interest rates are still elevated:
Here’s WSJ again:
Officials at the central bank have in recent days denied the need to resort to unconventional monetary tools, saying, for example, that interest rates can be further cut, as they were Sunday for the third time in six months. But signs abound that the economy is behaving more sluggishly than the government and economists have expected and that officials are casting about for solutions.
Data released Wednesday show investment in factories, buildings and other fixed assetsrose 12% in the first four months this year from a year earlier, the slowest pace since December 2000. The bigger-than-expected drop was driven by anemic investment in property, which has been a drag on the economy. Meanwhile, factory output and retail sales in April also came in below expectations.
The steeper slowdown is forcing policy makers to devise more aggressive measures to prop up growth, if Beijing is going to reach its already-lowered annual growth target—set at 7% for this year, the lowest level in a quarter century.
With that, China has officially entered the realm of “unconventional” monetary policy, joining the Fed, the ECB, the BoJ, and a whole host of other global central banks in an attempt to bring the supposedly all-mighty printing press and the unlimited balance sheet that goes with it to bear on subpar economic growth. We suspect the results will be characteristically underwhelming (at least in terms of lowering real interest rates, although in terms of boosting risk assets, the results may be outstanding) meaning it’s likely only a matter of time before LTRO becomes QE in China just as it did in Europe.
- Caught On Tape: Moment Of Deadly Amtrak Train Crash
Amtrak Regional 188, with over 200 passengers aboard, was traveling at 106 mph just before "the entire train derailed" in Philadelphia, federal investigators said Wednesday, according to NBC News, more than twice the speed limit at the curve where it hurtled off the tracks. With the death toll now raised to seven, and officials still unable to account for everyone on board, Philadelphia Mayor Michael Nutter exclaimed, "I don't believe that anyone standing here today has any memory of a derailment of this kind in 50 years," and judging by the following clip – we are stunned the fatality count was so low.
The locomotive and all seven passenger cars of the train went off the tracks at a tight curve at Frankford Junction, just northeast of center city Philadelphia. As The Wall Street Journal details, multiple cars overturned, severely injuring some passengers and pinning others.
At least seven were killed, and more than 200 passengers were injured, including eight who were in critical condition Wednesday afternoon. The seven dead comprised four people whose bodies were found inside the train, two who were found outside and one who died at a hospital, police Lt. John Walker told NBC Philadelphia.
The northbound train was carrying 238 passengers and five crew members when it derailed about 9:30 p.m. Tuesday on its way to New York.
The National Transportation Safety Board, the main federal agency investigating the derailment, said preliminary data put the train’s speed above 100 miles an hour.
According to the Federal Railroad Administration, the speed limit drops from 80 mph to 50 mph at the curve where the train derailed. But the train was hurtling along at 106 mph when the engineer slammed the emergency brake — slowing the train only to 102 mph when its recorders stopped recording data, said Robert Sumwalt, a member of the National Transportation Safety Board.
At that point, "the entire train derailed," Sumwalt said.
Dozens of people were still being treated in Philadelphia hospitals with injuries ranging from cuts and broken bones to head trauma.
Chief Medical Officer Herbert Cushing said Temple University Hospital, where many of the most seriously injured were being treated, had eight patients in critical condition, who he said "are going to do just fine."
"Almost everyone has rib fractures," Cushing said, which indicates that "they rattled around in the train car a lot."
All of the patients at Temple are adults ranging in age from their early 20s to their 80s, Cushing said. Patients from Spain, Belgium, Germany, India and Albania are among those involved.
The engineer of the train was also injured and gave a statement to police, Nutter said.
The derailment damaged all seven cars of the train, including some that were overturned and one that was mangled. Passengers and luggage were tossed around inside, and survivors described having to force doors open or clamber through windows to safety.
Grainy security footage from a nearby camera captured several flashes of bright light as the train crashed.
Eye witness accounts are terrifying…
Andrew Brenner, 29, a public-relations expert who lives in Washington, said he was relaxing and texting in the last car with his shoes off. He said he noticed that the train seemed to be taking a curve rather fast, but it didn’t cause much alarm. Then, the train jolted and swayed. Within moments, Mr. Brenner said he and other passengers were tossed around cars as seats were ripped from the train floor.
“I got thrown like a penny,” said Mr. Brenner, who said he weighs 250 pounds. “That is how violent this was.”
After the crash, Mr. Brenner said he was taken along with other passengers by bus to a hospital, where X-rays showed damage to his vertebrae.
Brooklyn, N.Y., resident Beth Davidz, 35, said she remembered only a hard turn and a jerk. “Then it was just blackness. I was bouncing up and down in blackness,” she said.
Although she tried not to look at the wreckage as she left the train, she noticed the first and second cars looked badly damaged. “I didn’t see anyone getting out,” said Ms. Davidz, a project director with a Philadelphia-based startup.
More than 120 firefighters and 200 police responded to the chaotic scene that included several badly mangled railcars, officials said.
* * *
US Passenger train injries are on the rise…
Amtrak suspended service between New York and Philadelphia on its Northeast Corridor, the busiest stretch of track in the country for passenger travel. The section of track where the train derailed will have to be rebuilt.
* * *
The engineer of the derailed Amtrak train has been identified as 32 year old Brandon Bostian…
- London Housing Bubble Watch: $630/Month For A Bed "In" A Shared Kitchen!
You know it’s a bubble when… A listing has appeared online advertising a single bed in a house in London where the mattress is located in the kitchen.
“Please notice is not a room,” the listing on SpareRoom read. “Is a single bed in shared kitchen,” continued landlord Joe.
For £400 ($630) a month “you can use your own entrance from the garden, if you wish,” he continued.
The advert claims it is a five to 10 minute bus ride to the station. Although putting the approximate location into Google Maps, as reported by the Independent, also shows that it’s in fact a 27-minute walk away to the nearby overground.
SpareRoom’s “early bird” system means only those with a premium account can get in touch for the first seven days of the listing’s time on the site.
If it’s not a hoax it exemplifies the rising rents in London with tenants unable to to buy a property and a lack of new stock to meet demand.
The advert has now been deleted by “landlord Joe” but was thought by Spareroom to be serious.
Matt Hutchinson, director of flat and house share site SpareRoom.co.uk, said:
“This is another sign of how bad the housing crisis has become. This isn’t just one of the most bizarre ads we’ve seen, it’s also a huge invasion of privacy. No one should have to sleep in a kitchen, and no one should have to pass through a bedroom to get to a communal area. This ad has been removed.”
* * *
Welcome to the new normal!On the bright-side, it’s great for breakfast in bed…
- What Peter Schiff Said To Ben Bernanke
Last week, a photo of the oddest couple in finance, Peter Schiff and Ben Bernanke together “celebrating the economic recovery”, promptly went viral.
As it turns out there was more to the story.
On his Friday podcast, Peter Schiff told the story of his encounter with Ben Bernanke at the SALT Conference last week where he took the photo above. Peter talks about his close encounter of the Bernanke kind 13:30 into the podcast.
Below is a transcript of the relevant section:
“Speaking of a clueless Federal Reserve, I happened to have an encounter the other day with former Federal Reserve Chairman Ben Bernanke. Many of you may have seen the picture of me and the former Chairman. We were at a cocktail party, and I posted that picture on my Facebook page…
“I’ll give you all of the details. So first of all, Ben Bernanke was there to speak at the SALT Conference… He was paid, I believe, somewhere between $200-250,000 to basically hit the soft balls that were lobbed to him by Anthony Scaramucci, who was the host of this conference… At least make the guy do something for $200,000 – let me question him. In any event, he probably wouldn’t agree to that…
“I was watching from the speaker’s lounge… He walks out, and he’s accompanied by his secretary. He doesn’t have a big entourage… I see him and I come right up to him and I say, ‘Mr. Bernanke.’ I put my hand out and I say, ‘Peter Schiff.’ I can sense from his body language and the way he looked that the name was familiar. I think he knew something about me, but he didn’t necessarily acknowledge it. I think he said something like, ‘Oh sure.’ But I was pretty sure he knew who I was at that point. I wanted to make sure, because I didn’t want to have a conversation under false pretense.
“So the first thing I said to him, ‘Look, I gotta let you know, full disclosure, I’m probably your biggest critic.’ To which Ben Bernanke replied, ‘Well, you got a lot of competition.’ It’s probably true. There is a lot of competition. There are a lot of people who criticize Ben Bernanke. But I think I am his biggest critic. I’ve been criticizing him for longer than most people, and I certainly do it more often and more loudly.
“After that brief exchange I said, ‘Do you have a moment to chat? I’d love to talk to you.’ He said, ‘No, I don’t, I really got to go.’ I said, ‘Alright, how about a quick picture then?’ But that was it. He was gone. He was whisked away by his female handler, and I thought, ‘Well that was it. I’m not going to see that guy again.’ He was rushing to deposit his check, right?
“Later that evening, they have a cocktail party for the speakers. I get to the cocktail party, and who do I see standing there all by himself but Ben Bernanke. I got a drink and then went over to Mr. Bernanke who was still standing by himself, surprisingly. I said, ‘Mr. Bernanke, I thought you had to leave.’ He said, ‘No, I’m still here. I’ve got time for that picture now, if you want to take one. Which I thought was quite nice of him, because he remembered that I wanted a photograph, and he didn’t have time for it. Now he sees me and he asks if I would like to take a photograph…
“Initially I was thinking what do I do to spice this photograph up? Just a photo of me and Ben Bernanke. What’s the big deal? I thought maybe I should do the rabbit ears behind his head, but I felt kind of awkward doing that considering he had so graciously reminded me that I wanted a photograph and offered to pose with me. I felt that would be inappropriate of me to take advantage of him or make fun of him, so it was just a normal photograph…
“We got the photograph out of the way. Then I wanted to talk to him. The first thing I wanted to do was I wanted to give him my version of why the economy is so screwed up and why everything in it is wrong. The last thing he wanted to get was a lecture from me, but that’s what I tried to give him. But I tried to give him the Cliff Note version. I did want to ask him some questions, but I wanted to get his reaction to my take.
“I started talking about the housing bubble and the financial crisis and how the Federal Reserve caused that with its low interest rates. He said that no, it wasn’t that; that the interest rates had nothing to do with it. He first told me that the housing bubble was caused by Fannie and Freddie. At least he’s trying to blame the government. I said, ‘Look, Fannie and Freddie have been around since the 30s. We didn’t have that big housing bubble until the Fed happened to have interest rates at 1%, and then raised them very slowly. That wasn’t a coincidence.’ He said, ‘Well, it was subprime mortgages that did it.’ I said, ‘Subprime mortgages? But do you understand how subprime mortgages worked? They were all adjustable rates, and the most popular feature, what made them so enticing and affordable was the teaser rate. The fact that you can get a low rate of interest for the first few years. That was all because of the Fed. So if you’re going to blame subprime, you’ve got to blame the Fed, because the Fed is what gave life to subprime. It made subprime affordable.’ He also blamed regulation. He said regulation first before he said Fannie and Freddie. I said, ‘Well what regulations are you talking about?’ And he said Fannie and Freddie, which weren’t really regulations, they’re agencies. But he was really trying to lay the blame on the housing bubble on capitalism, because of subprime, and on the government, because of Fannie and Freddie.
“I said, ‘Wait a minute. If regulation and subprime and Fannie and Freddie – if that’s what caused the housing bubble, why didn’t you warn us about that in advance? Why didn’t you go in 2004, ‘Hey, we got a problem. We got these bad regulations, we got Fannie and Freddie, we got subprime , they’ve created a housing bubble! This is going to be a disaster!’’ He didn’t say any of that. He said the opposite of that. In fact, when he was asked specifically about the housing bubble, he denied that it existed. If it was being caused by the things that he said, why didn’t he warn about it? Because it wasn’t caused by those things…
“I tried to ask him some questions and that’s when he really wanted to end the conversation. The first question I said, ‘Mr. Bernanke, you’re so sure that you’re right. I don’t know how you can be so sure, because interest rates are still at zero and the Fed’s balance sheet hasn’t shrunk. You said you weren’t monetizing the debt when you talked to Congress. You said the Fed was going to sell the bonds, but none of them have been sold. They’ve all been rolled over. So how are you claiming victory when you haven’t exited? You haven’t raised rates, you haven’t shrunk the balance sheet. You were wrong in the past. You didn’t see the financial crisis coming. You told us there was no housing bubble. You said subprime was contained. So you were certainly wrong then. So how do you know you’re not wrong now? Is there anything that might change your opinion and get you to rethink and maybe admit that your outlook is wrong?’ I forget the exact words.
“Instead of answering the questions, he just patted me on the shoulder… And just kind of gave me a little smile and that was it. He kind of turned. By then there was a couple other people around us. He started talking to somebody else. It was clear to me that he didn’t want to answer the questions. After all, I’m not paying him $200,000, so why should he answer my questions. I don’t know, maybe he didn’t want to answer them. I didn’t get the sense when I talked to him that he was lying to me. I thought he really believed what he believed. He seemed that way. i’m sure all the praise has gone to his head. He thinks he’s save the world. So he did seem sincere… Who am I? I’m just this guy trying to talk to the former Fed Chairman and tell him what a lousy job he did. He probably doesn’t want to hear that. He wants to talk to somebody who will tell him how great he is. That was the last I talked to him.
“Later on that day, somebody came up to me… I was on a panel for forty minutes. The first ten minutes were the former Prime Minister of Greece talking to Steve Forbes… The highlight was me arguing with Gene Sperling. That’s where I got all my applause. Gene didn’t get any. He was the former economic advisor to President Obama. He got no applause. I got all of the applause. I even got laughter… I was saying some funny things. Funny, because they were true…
“This guy comes up to me. He says, ‘I was talking with Ben Bernanke. He was saying some bad things about you.’ So he’s already talking smack behind my back. I don’t blame him. I got no problem with Ben Bernanke saying bad things about Peter Schiff, because I say bad things about him all the time. What’s fair is fair…”
- America (Summed Up In 1 Strip Mall Sign)
- Water Wars Officially Begin In California
A century of government meddling has turned the issue of water rights on its head, and further centralized control of waterways in local, state, and federal governments; and, as Acuweather reports, with the state of California mired in its fourth year of drought and a mandatory 25% reduction in water usage in place, reports of water theft are becoming increasingly common. With a stunning 46% of the state in 'exceptional' drought, and forecast to worsen, huge amounts of water are 'going missing' from the Sacramento-San Joaquin Delta and a state investigation was launched. From illegally tapping into hydrants in order to fill up tanks to directly pumping from public canals, California continues to formulate new strategies to preserve as much water as possible and fight the new water wars that are emerging.
Homeowners in Modesto, California, were fined $1,500, as Accuweather reporrs, for allegedly taking water from a canal. In another instance, thieves in the town of North San Juan stole hundreds of gallons of water from a fire department tank.
In Madera County, District Attorney David Linn has instituted a water crime task force to combat the growing trend of water theft occurring throughout the state and to protect rightful property owners from having their valuable water stolen.
The task force will combat agriculture crime through education by instructing farmers how to prevent crime before it occurs, Linn said in a news release back in March.
"Since the business of Madera is agriculture, I intend to make its protection a top priority," he said.
Jennifer Allen, spokesperson for the Contra Costa Water District in Concord, about 45 minutes from San Francisco, said it's not uncommon for her agency to receive reports of water theft, but as the drought has continued, she said there has been an uptick in reports.
"I believe during drought times people's sensitivities are certainly raised to any instances of water theft going on and so probably that's where we've been contacted," Allen said. "We would assume that more people are feeling the need to report out anything they've witnessed of somebody stealing water from a hydrant or from a neighbor."
To deter thieves, Allen said the CCWD Board of Directors has increased the fine for first-time offenders from $25 to $250. For any following offenses, the fine goes up to $500.
Primarily the CCWD has received reports of people illegally tapping into hydrants in order to fill up a tank or another sort of receptacle to store water. Additionally, Allen said that some contractors have targeted water pipes laid for new developments that may not have a meter attached to them or found a way to circumvent the meter.
Other water agencies are ramping up enforcement against water crime as well. The East Bay Municipal Utility District (EBMUD), headquartered in Oakland, has enacted a new ordinance that would allow them to "fine persons for stealing water or making unauthorized use of a public fire hydrant," according to its website. According to the EBMUD, violators would be fined $500 for the first offense and $1,000 for a second violation. But, as AP reported recently, the problems are far bigger (and deeper)…
As California struggles with a devastating drought, huge amounts of water are mysteriously vanishing from the Sacramento-San Joaquin Delta — and the prime suspects are farmers whose families have tilled fertile soil there for generations.
A state investigation was launched following complaints from two large agencies that supply water to arid farmland in the Central Valley and to millions of residents as far south as San Diego.
Delta farmers don't deny using as much water as they need. But they say they're not stealing it because their history of living at the water's edge gives them that right. Still, they have been asked to report how much water they're pumping and to prove their legal rights to it.
At issue is California's century-old water rights system that has been based on self-reporting and little oversight, historically giving senior water rights holders the ability to use as much water as they need, even in drought. Gov. Jerry Brown has said that if drought continues this system built into California's legal framework will probably need to be examined.
Delta farmer Rudy Mussi says he has senior water rights, putting him in line ahead of those with lower ranking, or junior, water rights.
"If there's surplus water, hey, I don't mind sharing it," Mussi said. "I don't want anybody with junior water rights leapfrogging my senior water rights just because they have more money and more political clout."
The fight pitting farmer against farmer is playing out in the Delta, the hub of the state's water system.
* * *
A century of government meddling has turned the issue of water rights on its head, and further centralized control of waterways in local, state, and federal governments. Just as the residents of Los Angeles fought over water with local farmers, the residents of Las Vegas will soon find themselves fighting with surrounding states over what’s left of Lake Mead. None of the power players seem to care that the current population settlements of the southwestern United States cannot last. One day the water will run out. The sooner this reality is confronted, the better.
Admittedly, the ownership of water and its various bodies is a difficult topic. Rivers and tributaries don’t flow by man’s commands. They can be directed, but never fully controlled. Privatization of water rights would be a good start for restoring sane usage of natural resources. Don’t expect as much to happen though. Government control is far too entrenched in the process to be removed easily.
* * *
Finally, some context, that old axiom that the earth is 75% water is wrong. In reality, water constitutes only 0.07% of the earth by mass, or 0.4% by volume.
This is how much we have, depicted graphically:
As we discussed previously, Water scarcity is, of course, not just a domestic issue. It is far more critical in other parts of the world than in the US. It will decide the fate of people and of nations. Worldwide, we are using potable water way faster than it can be replaced.
- A Generational Storm Is Coming
Submitted by Bill Bonner via Bonner & Partners,
Yesterday, we began our high-minded graduation speech to the Class of 2015.
We explained how the young graduates were not only the most heavily indebted in history, but also the least likely to be able to pay their debts. Median wages have been going down since these graduates were about five years old … So have economic growth rates.
Today, we continue the speech no one wants us to give …
You are heirs to claptrap, nonsense, bogus theories, and trillions of dollars in debt. The systems, programs, and institutions your parents set up are mostly worthless scams. Worse, they produce outcomes contrary to their stated goals.
Welfare programs do not help people escape poverty; they keep them mired in it. Health care programs do not make them healthy; they make them dependent on the drug industry.
Defense industry spending doesn’t make us safer; it funds drones, bumbling interventions, and assassinations… and it creates more foreign enemies. We end up not only poorer, but also less secure.
All of those assertions take more time to explain and prove than we have time for now. But here’s a little example that you will appreciate…
25 Years of Poverty
Under President Johnson, the government set up the Federal Direct Student Loan Program to provide “low-interest loans” (back then, “low” meant 8%) to students.
Private lenders make the loans, but they receive the full backing of the feds.
The idea was to help you afford higher education… and earn larger salaries as a result. And with your increased earnings you were supposed to be able to pay off the loan. But at over 11% of outstanding debt, the Student Loan Program now has the highest delinquency rate of all forms of household debt (mortgage loans, auto loans, credit cards).
And it will probably go much higher… as students take on more debt. Total outstanding student debt is expected to bubble up to $3.3 trillion by 2025. What do you do if you can’t pay? Well, the feds have a solution for you. The trouble is, it turns you into the very thing the program was meant to avoid. Here’s how it works…
As long as your income is low, you are allowed to make small token payments every month. Keep this up for 300 payments and your debt is considered satisfied, no matter how little you paid. In other words, the Student Loan Program encourages you to live in poverty for a quarter of a century to get rid of your student debt. Most likely, this will be easy for you to do anyway.
Ideal living arrangements to avoid liability for one’s student debt. You only need 25 years of this …
First, because most college degrees do little to make you more valuable to employers. Second, because your parents’ rigging of the economy will make it difficult to make any financial progress anyway. The median household income – after you account for inflation – has been falling since the late 1990s. And good jobs are hard to get. There are fewer “breadwinner” jobs today in America than there were in 1999.
And you can forget about starting your own business. The rate of new start-ups is collapsing. (Remember from last week that the U.S. ranks 46th on the World Bank’s list of the easiest countries in which to start a business.) You can thank your parents for that, too. The system is designed to protect them, their Social Security benefits, their health care, their stock market portfolios, and their businesses. Protect them against what? Against you!
You are the future. You are the competition. You are the ones who should want to shake things up and tear down the walls of bureaucracy, taxes, paperwork, and regulation that make it so difficult for you to start new businesses, get good jobs and build real wealth.
You should be talking revolution – overthrowing your parents’ multitrillion-dollar debts and pulling out of their wars on poverty, illiteracy, Iraqis, Afghans… you name it. You need to stop these silly, pointless, and expensive programs so you can have the resources to pay for your own programs and launch your own stupid wars.
You need to get rid of your parents’ zombies – the millions of unproductive people who get money from the government – so you can afford your own families … your own pet projects … and zombies of your own.
A Suicidal System of Credit
You need to stop your parents’ suicidal credit-based money system, too. You don’t know about this, do you? Your professors of government, politics, economics, and finance didn’t mention it, did they?
Well, the system is corrupt and self-destructive. It works only by increasing the amount of debt in the society – including student debt. And it works only until the debt bubble gets so big it blows up. But there’s a logic to it… a sinister logic that turns you into chumps for older generations. Spending on credit favors the existing owners of capital … and people who have existing claims on the government money. Let me explain …
When the government borrows money it gives the money to a zombie to spend, or it spends it directly. Usually, the money goes to an older person – your parents or grandparents – in some form of social welfare subsidy, pension, job, contract, or support program. When they spend the money, it goes into the coffers of corporations. This increases profits… and share prices. Who owns those corporations? Do you? You don’t? Then who does?
Your parents and grandparents benefit again. They are the owners of the nation’s financial assets. By increasing credit, they shift real wealth from the future to the present … and from you to them. This is the money you haven’t earned yet.
I’ll spell it out for you: The government borrows a dollar. It gives the dollar to one of its pet zombies. (It could be a health researcher, a drug addict, or somebody who makes bombs.) The money goes – one way or another – to a corporation, which registers it as a sale.
If it has a 10% profit margin, 10 cents is recorded as a profit. If it sells at a price-to-earnings ratio of 20 times, its stock price goes up $2. This makes the owner of the stock – it could be one of your parents – $2 richer. (I’m oversimplifying … but you get the point.)
But the government now owes $1 more. And who’s going to pay it? You are! Your parents and grandparents are retiring… and collecting their Social Security and health care benefits. They think they will be able to sell their stocks, too … and their houses … and have even more money to spend.
Time to Wipe the Slate Clean
Now, it’s up to you …
You need to get a job so you can pay for their health care benefits. You need to pay your taxes so they can keep their wars going. You need to buy a house, too, so they can move to Florida and retire. You need to vote for their candidates … work for their companies … and pay their bills.
This is the test you face. You are arriving in the economy at the tail end of a 60-year credit expansion. Debt has boomed. The economy has boomed. We, your parents, enjoyed an economic expansion that began when we were born and continued, with only short interruptions, until we retired.
We got out of school with little or no student debt. We could start businesses with fewer impediments. We could borrow money to fund our businesses and our lives. We could hire, fire, switch jobs… buy and sell houses… move from place to place.
We were freer – and richer – than you will be …
… unless you can wipe the slate clean of our debts … our foolish wars and dumbbell programs … and our attempts to hold back the future and prevent you from living rich, full, free lives of your own.
If you don’t rise to this challenge, you will inherit our bills, our regulations, our restrictions, our obligations, our delusions, our prejudices, and our vanities. You will also inherit a financial crisis – worse than the crisis of 2008 – and a long and grinding economic slump.
The debt expansion of the last 60 years will turn into a dreary debt contraction, possibly dragging the economy into another Great Depression. Either you find a way to shuck off, default on, or inflate away your parents’ debts… or you’ll stagger under the weight of them for the rest of your lives.
Either you break free from the jackass things your parents have done to you … or you deserve what you get.
Congratulations, chumps.
- 45% Of US Voters Are Worried The Government Will Use Military Training Exercises For Power Grab
Submitted by Mike Krieger via Liberty Blitzkrieg blog,
As usual, recent mainstream media reporting on the controversy over the Jade Helm 15 military exercises, set to take place over eight weeks across several U.S. states, completely missed the point. Mainstream media focus was primarily about characterizing and demonizing Texans concerned about the exercises as backwater, paranoid rednecks with wild fantasies about an imminent government takeover. While exercises like these will always cause the imagination of some to run amok, the key point here is this: concerns that U.S. military exercises will be used to exert more power over states is not a fringe view.
In a bizarre contradiction, a new Rasmussen Poll shows that while 65% of U.S. voters favor the U.S. military conducting training exercises in their state, “45% of voters are concerned that the government will use U.S. military training operations to impose greater control over some states, with 19% who are Very Concerned.” Those are very big numbers.
Even if you ignore the 45% number, 19% are very concerned. That’s tens of millions of Americans who are so distrustful of government they think the U.S. military could be used to subdue states’ rights.
Personally, I think this is encouraging since the American public should have absolutely no reason whatsoever to trust the status quo due to the string of criminal actions they have taken in the post 9/11 period. So while the mainstream media smugly mocks the crazies in Texas, they fail to admit they have a serious problem which is not getting better. The American public’s trust in government is collapsing. When the next economic downturn hits and a tipping point is reached, distrust will morph quickly into outright dissent across the land.
From Rasmussen:
Eight weeks of U.S. military exercises this summer in several southwestern states – dubbed Jade Helm 15 – have some wondering if the government is preparing for martial law. Most voters don’t oppose such exercises, but a surprising number worry about what the federal government is up to.
A new Rasmussen Reports national telephone survey finds that 65% of Likely U.S. Voters favor the U.S. military conducting training exercises in their state. Just 16% are opposed, but slightly more (19%) are undecided. (To see survey question wording, click here.)
But 45% of voters are concerned that the government will use U.S. military training operations to impose greater control over some states, with 19% who are Very Concerned. Just over half (52%) are not concerned that the government has an ulterior motive for the training exercises, including 26% who are Not At All Concerned.
This level of concern is perhaps less surprising given that 62% of Americans believe there is too much government power and too little individual freedom in the United States today.
Just 20% of voters now consider the federal government a protector of individual liberty. Sixty percent (60%) see the government as a threat to individual liberty instead. Only 19% trust the federal government to do the right thing all or most of the time.
The only reason these numbers haven’t yet resulted in outright rebellion is because the population that distrusts the government has been so skillfully divided and conquered. See: Charting the American Oligarchy – How 0.01% of the Population Contributes 42% of All Campaign Cash.
But 56% of conservative voters are concerned that the training exercises will lead to greater federal control over some states. Fifty-eight percent (58%) of moderates and 67% of liberal voters are not concerned.
I find it very bizarre, and very interesting that “liberals” are least concerned about military exercises in the U.S.
- America's Class Segregation Problem In 4 Charts
One surreal night of mass chaos, indiscriminate pillaging, violent street clashes, and widespread arson notwithstanding, race relations in America have generally improved over the last five or so decades. Even as the nation’s focus has shifted back to the issue of racial discrimination on the heels of several high profile incidents of apparent police misconduct, America has at least managed to overcome overt racial segregation and steer generally (but not always) clear of the types of egregious civil rights violations that still existed a century after the Emancipation Proclamation.
However, one type of segregation that has certainly not disappeared but has instead only grown is class-based segregation. The following four charts demonstrate how the interplay between income and education has served to exacerbate the class divide among America’s youth, curtailing opportunities for the poor in the process.
Here’s more, from WSJ:
Even as Americans have become less segregated across racial and religious lines than they were a generation ago, they have grown more segregated along class lines. Americans are much less likely to go to school, live with, or marry people from different socioeconomic backgrounds, Harvard political scientist Robert Putnam says.
“More and more young people aren’t meeting across class lines,” said Mr. Putnam, raising troubling questions about the implications for the next generation of Americans.
The wealthiest parents have spent more than double on their kids what they did a generation ago, even as spending by poorer parents has edged up only slightly..
Mr. Putnam also shows a clear increase in single-parent households for parents who haven’t gone to college. For college-educated parents, the rate of single-parenthood rose until the early 1990s, when it crested and then declined slightly. For those with a high school diploma or less, rates of single-parenthood have climbed without slowing..
Participation in high school sports and other extracurricular activities also signals fraying social bonds. Those activities, Mr. Putnam said, provide important soft skills, such as teamwork, or “what my mother would have called ‘gumption.’”
Most sobering, Mr. Putnam said, are data from a 2000 analysis showing that that a family’s socioeconomic status has become more important than their educational aptitude in predicting whether an eighth-grader would graduate from college.
* * *
Don’t worry America, we’re sure the “wealth effect” from QE will start to trickle down to the lower tax brackets any day now and when that day comes all your problems will be solved at which point you can write to PIMCO and explain how great of a man their newest adviser is.
- Former U.S. Government Official: U.S. Is ALREADY at War with China and Russia
Top economic and political experts say we're drifting towards World War 3. And see this.
We noted in March that we're already at war with Russia. Many experts agree …
Former White House official Dr. Philippa Malmgren – former presidential adviser and member of the U.S. President's Working Group on Financial Markets – said last December that the United States is already at war with China and Russia:
I was recently at a meeting with a lot of very senior people from the defense community, and their view is that we are already in a nose-to-nose confrontation (war) with China and Russia. But these (wars) are being conducted through cyberspace rather than through traditional conventional weapons.
An advisor to the US government – Scott Borg, CEO of US Cyber Consequences Unit – says that the United States has already started launching widespread hostile cyber warfare against Russia, China and Iran.
Indeed, the U.S. has admitted that it deployed cyber-warfare against Iran's nuclear power plant.
Paul Craig Roberts – former Assistant Secretary of the Treasury under President Reagan, former editor of the Wall Street Journal, listed by Who’s Who in America as one of the 1,000 most influential political thinkers in the world – says that U.S. war against Russia has already begun.
Mark Galeotti – a Full Professor of Global Affairs at the Center for Global Affairs at New York University, and a prominent expert on modern Russia – says "the West and Russia are already at war".
Ron Paul says that sanctions are an act of war … and we've had sanctions on Russia and Iran for some time now. And see this.
And the U.S. is threatening military confrontation in the South China Sea. China is taking the threat seriously.
Remember, Russia and the U.S. each have enough nuclear weapons to wipe each other out … and American, British, Polish and Russian Experts warn that continued fighting in Ukraine could lead to nuclear war.
The Pentagon reports that China now had ballistic missiles which can hit nearly the entirety of the U.S. with nuclear warheads.
Russia and China are in a military alliance, and are conducting joint military exercises.
China has warned the U.S. to stop its Ukranian proxy war against Russia.
China and Russia have both said that an attack on Iran – or Syria – will be considered an act of war against the Bear and the Dragon. We're already in Syria trying to overthrow Assad, and we've been supporting terrorists in Iran for many years.
On the other side of the coin, a former high-level Commander in the German Army warns:
NATO is formed out of 28 states, if just one of them gets involved into a conflict with Russia, the contract obliges all of them to assist. And out of a sudden we get a third world war. The only way to prevent it is if the people rise and say: Russia had to mourn more than enough victims in WWII, do you really want to start a war again?
What could possibly go wrong?
- The History Of Treasury Market Liquidity (And Lack Thereof) In One Chart
While we completely disagree with Credit Suisse about the reasons for the total collapse in bond market liquidity (as readers know we blame the Fed – as does the TBAC – and HFTs, while Credit Suisse accuses regulations, even though banks now hold a record amount of fungible bonds implying that unless bank prop desks can trade as FDIC-backstopped hedge funds once again it is simply impossible to have a stable, liquid bond market which is idiotic), we agree about one thing – the same thing we warned many years ago would happen: the total evaporation of liquidity in what was once the world’s deepest, most liquid market.
Case in point:
Remember, in any market and certainly bonds, volume is not liquidity or depth. Some more thoughts from Credit Suisse:
Shallower depth at times of higher volatility is at once a symptom and a source of the extreme price moves. Historically, market depth – which we measure as the aggregate bid and ask size for the on-the-run 10y note within 2.5 ticks of best on the other side – has ebbed and flowed with volatility. Surges in volatility typically cause depth to dissipate, whereas stable markets tend to be deeper.
While the core of this inverse depth/volatility relationship has remained in place, the last two years seem to have witnessed somewhat of a break, coinciding more or less with 2013’s taper tantrum. While delivered vol moderated in the aftermath of the mid-2013 selloff, depth has failed to return and at this point appears to have been structurally reduced. Early indications are that this has only become worse in the months since the October 15 “flash rally.” The only period that saw comparably low depth persist over the last four years was amid 2011’s debt ceiling and ratings downgrade in the US and the eurozone crisis (Exhibit 4).
One might be tempted to be long volatility to protect against the possibility for extreme price moves as market depth remains challenged. The risk of doing so is that one will bleed carry, however, as we have seen that there may be long periods of relatively stable markets interrupted by unexpected dramatic moves during extreme illiquidity.
Of course, one may simply be unable to trade out of any profitable volatility hedges if, say, the CME or Nasdaq Options Market decided to close just as the collapse began. Then said “hedges” would be worth precisely, pardon the pun, zero.
And then there is the most famous example of a sudden and total loss of Treasury liquidity: October 15, 2014. Here is what happened.
Still fresh in many participants’ minds, October 15 provides a recent illustration of the flighty nature of liquidity and the illusion of market depth. The post-retail sales rate rally that ultimately saw a ~36bp yield range in 10s on the day accelerated as depth disappeared. As some market makers stepped back to avoid being put into significant risk positions, those that continued to provide quotes widened bid/offer spreads, sharply curtailing the depth within a “normal” width of the other side of the market.
Volume spiked at the same time just as market depth was truly beginning to collapse. This resulted in an outsized surge in the number of trades, meaning a diminished average transaction size. That there were more, smaller trades concurrent with the rapid yield move underscores the impact that a collapse in depth has on the magnitude and speed of market reactions.
Finally, whatever the cause, our advice is just to sit back and await the next Treasury flash crash (or smash) because with no change possible, things can and will only get worse.
- Less 'Goldilocks', More 'Three Bears': Bullion Bid As Stocks & Bonds Skid
The correlation between stocks and bond yields continues to have regime-shifted to approach -1 (not 1 – as is more 'normal') confounding asset allocators and risk parity funds across the market…
This seemed appropriate…
If that analogy didn't help, maybe this will clear things up…
Small investor, shown here on right, with cash on the sidelines, waiting to dip her toe into the stock market waters. pic.twitter.com/3oNwFej4Rj
— Rudolf E. Havenstein (@RudyHavenstein) May 13, 2015
Gold and Silver were the big movers today… Gold's highest close in 3 months (3rd biggest day of the year), Silver highest close in 6 weeks (3rd biggest day of the year)
But stocks and bonds continue to be sold…
Leaving Trannies ugly for the week…
After decoupling today once again…hugging the flatline from shjortly after the open…
Futures show the real volatility took place before the open…
On the week, Treasury yields are dramatically higher (thioug below yesterday's peaks) though we note the significant title in the curve with 2Y -2bps, and 30Y +6bps…
Which sent curves soaring…
The USDollar legged notably lower on the poor retail sales data extending its losses to over 1.1% for the week… (worst day for the USD since 3/20)
JPY had its strongest day (carry unwinds continue) in 2 months…
Here's why… (via none other than Gartman)
To end our discussion of the forex markets, we think it is time to return to an old friend: long of the English speaking currencies/short of the Yen and we shall do so en masse this morning, buying the US, the Canadian, the Aussie and the Kiwi dollars against the Yen upon receipt of this commentary. We shall have stops on the trades individually in tomorrow’s TGL, but we’ll give them 2% against us as an initial stop point.
Commodities very mixed with oil down,copper flat…
With crude pumped after another draw but dumped after production rose once again…
* * *
Gold and silver had quite a day – pushing the former above stocks YTD and the latter best for the year…
and bonds are having their worst year since 2009…
Charts: Bloomberg
Bonus Chart: ETSY! bwuahahah…. From $35.74 highs, down 45% now to today's low of $19.50 (on its way to the $16 IPO price)
- ETF Issuers Quietly Prepare For "Market Meltdown" With Billions In Emergency Liquidity
Between the dramatic sell-off in German Bunds that unfolded over the course of three weeks beginning on April 21 and the erratic trading that ensued on Tuesday following the weakest JGB auction since 2009, the chickens, as they say, have come home to roost in government bond markets where thanks the ECB, the Fed, and the BoJ’s efforts to monetize anything that isn’t tied down, the market has become hopelessly thin.
As we’ve documented exhaustively — and as every pundit and Wall Street CEO is now suddenly screaming about — the secondary market for corporate credit faces a similar dearth of liquidity and at just the wrong time. Issuance is at record levels and money is pouring into IG and HY thanks to CB-induced herding (i.e. quest for yield) and record low borrowing costs (again courtesy of central planners), but thanks to the new regulatory regime which ostensibly aims to curtail systemic risk by cutting out prop trading, banks are no longer willing to warehouse corporate bonds (i.e. dealer inventories have collapsed), meaning that in a rout, investors will be selling into a thin market. The result will be a firesale.
So while policymakers are still willfully ignorant when it comes to honestly assessing the effect their actions are having on government bond markets, the entire financial universe seems to have recently become acutely aware of the potentially catastrophic conditions prevailing in corporate credit. These concerns have now officially moved beyond the realm of lip service and into the realm of disaster preparedness because as Reuters reports, some of the country’s largest ETF providers are arranging billion dollar credit lines that can be tapped to keep illiquidity from turning an ETF sell-off into a credit market meltdown:
The biggest providers of exchange-traded funds, which have been funneling billions of investor dollars into some little-traded corners of the bond market, are bolstering bank credit lines for cash to tap in the event of a market meltdown.
Vanguard Group, Guggenheim Investments and First Trust are among U.S. fund companies that have lined up new bank guarantees or expanded ones they already had, recent company filings show.
The measures come as the Federal Reserve and other U.S. regulators express concern about the ability of fund managers to withstand a wave of investor redemptions in the event of another financial crisis.
They have pointed particularly to fixed-income ETFs, which tend to track less liquid markets such as high yield corporate bonds or bank loans.
“You want to have measures in place in case there are high volumes of redemption so you can meet those redemptions without severely impacting the liquidity of the underlying securities,” said Ryan Issakainen, exchange-traded fund strategist at First Trust…
Under the Wall Street reform act known as Dodd-Frank, banks have been shedding their bond inventories, resulting in less liquidity in fixed-income markets. Because there are fewer bonds available for trading, a huge selloff in the bond markets could worsen the effect of a liquidity mismatch in bond ETFs.
Vanguard, the second-largest U.S. ETF provider, lined up its first committed bank line of credit last year and now has a $2.89 billion facility backed by multiple banks and accessible to all of Vanguard’s funds, covering some $3 trillion in assets, the Pennsylvania-based fund company told Reuters. The new setup is to “make sure that funds will be available in time of market stress when the banks themselves may have liquidity concerns,” Vanguard said.
Essentially, ETF providers are worried that in a pinch (i.e. when ETF sellers outnumber ETF buyers), they will be forced to liquidate assets into structurally thin markets at fire sale prices in order to meet redemptions, triggering a collapse in the underlying securities (like HY bonds). In the pre-crisis days, this would have been mitigated by banks’ willingness to purchase what the ETF providers are looking to sell, but in the post-Dodd-Frank world this isn’t the case so the idea now is that bank credit lines will essentially allow the ETF providers to become their own dealers, meeting redemptions with borrowed cash while warehousing assets and praying waiting for a more opportune time to sell.
In case it isn’t clear enough from the above that ZIRP is in large part responsible for this, consider the following:
“These funds offer daily or even intraday liquidity to investors while holding assets that are hard to sell immediately, thus making the funds vulnerable to liquidity risk,” U.S. Federal Reserve Vice Chair Stanley Fischer said in a speech in March in Germany, pointing directly to ETFs and saying they have mushroomed in size while tracking indexes of “relatively illiquid” assets.
That is all exacerbated because investors have been pouring money into bond ETFs, while banks, under regulatory pressure to limit their own holdings, have been slashing their bond inventories.
Growth in fixed-income ETFs also means there are now more products tied to corners of the bond market previously untapped by ETFs. Assets in U.S.-listed fixed-income ETFs are up nearly six-fold since 2008, to $335.7 billion at the end of April, according to Thomson Reuters Lipper data.
And why, one might ask, are investors suddenly interested in exploring “corners” of the bond market where they had previously never dared to tread thus creating demand for ever more esoteric ETF products? Because when risk-free assets are at best yielding an inflation-adjusted zero and at worst have a negative carry, investors are forced into credits they would have never considered before just so they can squeeze out some semblance of yield without simply dumping everything into equities.
Of course liquidity protection comes at a cost:
Banks facing their own reserve requirements against these lines are charging commitment fees that can range from 0.06 percent to 0.15 percent, according to company filings. If a line is actually drawn upon, there would be additional interest charged on any amount borrowed. In many cases, these costs are included in the ETF’s annual expense ratio, and borne by the funds’ investors.
To recap: central banks have created a hunt for yield that’s driven investors into fixed income categories they wouldn’t have normally considered, creating demand for ever more esoteric ETF products. Thanks to curtailed prop trading, the market for the underlying assets is even thinner than it would have otherwise been, meaning fund managers would be forced into a firesale should a wave of redemptions suddenly rear its ugly head. To mitigate this, ETF issuers are setting up credit lines with the very same banks who in the pre-crisis world would have acted as liquidity providers. The cost of these credit lines is passed on to investors via higher expense ratios meaning fund holders can go ahead and shave another 15bps off of their fixed income ETF returns which are already pitifully low thanks to ZIRP.In the final analysis, these liquidity lines are essentially distressed loans when drawn down, and the effect is to create yet another delay-and-pray ponzi scheme whereby liquidation is temporarily forestalled by borrowed money.
Recall that Howard Marks recently warned investors against ignoring the fact that an ETF can’t be more liquid than the underlying assets and the underlying assets can be highly illiquid. So while Marks may have wondered rhetorically what could happen in a worst case scenario, the market is itself now quietly taking steps to avoid that moment as long as possible
- Consequences? Barclays Exec Involved In LIBOR Fixing Becomes Bank's Head Of Asia-Pac
Although it now appears that the logos of several large US banks are set to plead guilty to rigging FX markets, we’re still fairly certain that the post-crisis policy of never sending any actual people to jail for their role in rigging every single market and fixing every single fix on the face of the planet will persist.
As unfortunate as that is, what’s worse is the fact that many of the traders involved in the egregious manipulation of the world’s benchmark rates not only escaped without prison time and with their accumulated fortunes largely intact, but in fact found lucrative employment opportunities at places like BlueCrest Capital Management, where LIBORgate participant Christian Bittar ended up following his dismissal from Deutsche Bank.
Of course rate-rigging derivatives traders need not necessarily flee to the buyside should they find themselves in the unfortunate position of having to take one for the team and admit their complicity in seeking to game the market, because as Bloomberg reported earlier today, not only can you remain employed at the firm from which you operated when you were engaged in illegal collusion, you can in fact get promoted.
Via Bloomberg:
Mark Dearlove, a Barclays Plc executive who was involved in the manipulation of the London interbank offered rate, was named as the U.K. lender’s head of markets for Asia-Pacific.
The banker will relocate to Tokyo from London, replacing Conor Brown, who’s taking a sabbatical, the company said in a memo confirmed by Hong Kong spokesman Allister Fowler.
Dearlove, an almost 20-year veteran of Barclays, will be responsible for the firm’s equities, credit and so-called macro unit, which comprises currencies, commodities and rates in the region. He was most recently head of treasury execution services, the memo said.
The banker accepted that he was involved in manipulating Libor, a U.K. judge said at a court hearing in January 2014, citing Dearlove’s witness statement.
Former Barclays Chief Operating Officer Jerry Del Missier told lawmakers in July 2012 that he instructed Dearlove to submit artificially low rates, after being instructed to do so by former Chief Executive Officer Robert Diamond. Del Missier and Diamond both resigned at the height of the Libor scandal.
Dearlove will begin his transition to the new role on June 1, while Brown is expected to return to the bank in 2016, according to the memo. Dearlove will join Barclays’ Asia Pacific executive committee and markets executive committee with immediate effect.
Here’s more on Mark, again via Bloomberg (from January 2014):
Today’s witness statement, which won’t be made public until a trial, isn’t the first time Dearlove’s role in the submission of Libor rates was discussed in court documents in the case.
Dearlove told another executive, Jonathan Stone, he’d received complaints about the bank’s submissions from an employee of JPMorgan Chase & Co., according to a December 2007 transcript released by the court in October.
He told Stone the bank’s submissions were “all wrong” and wanted to escalate the complaint, according to the transcript.
Dearlove was investigated by Barclays over his conduct and received a written warning from the bank in October 2012, Guardian Care Homes said in court documents today.
Dearlove reported his concerns about Libor to compliance officers, the head of the legal department and other senior management, the documents released today show.
Naturally we wanted to hear more about Dearlove’s new position at Barclays, expecially given the fact that he’ll be overseeing the bank’s Asia-Pac rates unit, but unfortunately when we clicked through to the Bloomberg article this is what we found:
Fortunately, WSJ has more:
Mr. Dearlove was one of the Barclays executives involved in the investigation into the bank’s role in the Libor rate-rigging scandal. It was Mr. Dearlove, who was then head of Barclays’ money market desk, who received instructions from bank management to send in a lower, false submission as part of the Libor setting process, according to U.K. parliamentary hearings. Mr. Dearlove could not be reached for comment.
Barclays in July 2012 settled $450 million of penalties with the U.S. and U.K. regulators for “significant failings” related to Libor and its European equivalent Euribor.
The U.K. bank said in a statement Wednesday: “Following the settlements, the issues regarding Mark’s involvement in the Libor matter have been resolved from the Bank’s perspective.”
Well in that case, we suppose everything is fine.
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