- Brutal Honesty: This Is The Video About Racism They Don't Want You To See
Submitted by Mac Slavo via SHTFPLan.com,
Though Americans were under the impression that race would improve after the election of a half-black man as President of the United States, the last eight years have witnessed a firestorm of assumptions, accusations, lies, division and violence.
Racism, it seems, is not only alive and well, but worse than it has ever been.
Or is it? Could it be that most Americans, regardless of the color of their skin, are perfectly fine having people of other races as their friends, neighbors and colleagues, and that certain people in positions of power are using their influence to manipulate the masses?
This short micro-documentary from Future Money Trends explores a hot button issue and one that is all too often voluntarily ignored by the broader media because it is simply too controversial to admit.
Watch: Real Racism Is Supported By Lies
Excerpt From ‘Real Racism Is Supported By Lies':
Police brutality is real… and racism is real. But they are probably not tied together as closely as much as the media wants you to believe.
Instead of people rallying that ‘all lives matter’ we have organizations like the National Association for Colored People, Congressional Black Caucus, Black Entertainment, and the National Al Sharpton Action Network leading the charge on just who the racists are…carrying signs that say ‘black lives matter.’
Interesting that people who identify their organizations and voting bias off the color of their skin would be given so much credibility as to where the real racism in America is.
I wonder where these groups are when an unarmed white man is shot by a police officer…
- Freedom Of Opportunity, Not Equality Of Opportunity
Submitted by George Reisman via Mises Canada,
This essay shows that the goal of equality of opportunity is both absurd and vicious. Achieving it would require that children all be raised in the same environment and have the same genetic inheritance. In contrast, the essay shows that what we should actually strive for is the freedom of opportunity.
Freedom of opportunity means the ability to exploit the opportunities afforded by reality, without being stopped by the initiation of physical force, in particular the initiation of physical force by the government or that takes place with the sanction of the government.
For example, people are unable to find work not because there is no work for them to do in physical reality, but because government and labor-union interference, based on the initiation of physical force, prices their labor beyond the reach of potential employers. The amount of work that is out there waiting to be done may be gauged by adding up all the goods and services people would like to have but presently can’t afford to buy. The total of such work far exceeds our ability ever to preform it. Physical force, or the threat of physical force, is what stops people from seizing such opportunities to the point of all who want jobs finding jobs. It creates unemployment in violating people’s freedom of opportunity.
The essay shows what opportunities actually are, how they are the product of human thought and effort, and why and how they require individual freedom for their exploitation. The essay upholds the idea of “the self-made man” and demonstrates how and why in later life—in a free society—children born to poor parents can, and again and again do, overtake and surpass the children of far wealthier parents.
The essay is essential reading for anyone who wants to defend not only individual freedom but also economic inequality and the institution of inheritance.
It is available for 99¢ as a Kindle book.
Now, of course, the real fact is that individuals are not born perfectly equal in all respects but the wealth of their parents, and they do not make the same choices in connection with developing their skills and abilities. Time and again, there are individuals born to poorer parents, to parents badly deficient not only in wealth, but in education, knowledge, and even character; individuals whose own endowment at birth or in childhood is not only not exceptional, but possibly deficient in some important respects. Yet, over the course of their lives, these individuals manage to far outstrip in their accomplishments practically everyone else, despite their having begun under such seemingly insuperable disadvantages.
What enables them to do this is making the choice and the effort to exploit as far as they can whatever opportunities present themselves for self-improvement. Once they begin to do this, they actually do begin to improve themselves. And now, when they face the world, they are better equipped than before. And because they are better equipped, there are more opportunities for self-improvement open to them than there were before. They seize these further opportunities, thereby further improving themselves and their subsequent ability to act and to seize opportunities. And so on, year after year.
What happens is that these individuals engage in a personal, internal process very similar to capital formation in the economy of a country. They use the means at their disposal to build the personal attributes—intellectual, psychological, moral, and physical—required for further success. And then they use the personal attributes they have constructed thus far to further construct such attributes. It is similar in principle to the process of a poor farmer scrimping and straining to obtain an additional supply of seed; of then using the larger supply of seed to produce a bigger crop the following year, from which a much greater supply of seed can be obtained for the year after that, and so on. Or to the economy of a whole country working very hard and saving very heavily to be able to make iron and steel available for the construction of the first railroads and steel mills, and then with the aid of those first railroads and steel mills being able to produce more of practically everything, including more and better railroads and steel mills.
Concentration on building up the means of further action, whether internal and personal or external and material, produces exponentially increasing results. Each success serves to increase the capabilities for further action, which makes possible still greater success. Those who concentrate heavily on these efforts rapidly improve, while those who neglect them stagnate or decline. It is on these principles that we can understand both such things as how Japan, so poor and backward a generation or two ago, can now [early 1990s] be within sight of economically overtaking the United States and how Demosthenes the ancient Athenian, who began as a stutterer, could become a great orator, and how, again and again, in a free society, poor boys grow up to become rich and famous.
The secret of the success of the poor boys is contained in that old but very accurate expression that is so seldom heard today: the self-made man. Those poor boys build themselves into the kind of men capable of achieving great success. (While custom and tradition apply the principle to “boys and men,” it should go without saying that the principle applies no less to girls and women. There are self-made women, as well as men.)
The following example, perhaps, can help in understanding how by building themselves into the right kind of men they outstrip even those with the greatest advantages at birth. Thus, imagine two boys—one the newborn son of a highly educated millionaire; the other, the newborn son of a poor, uneducated coal miner. To most people, it seems that the millionaire’s son has such great advantages that he can never be overtaken. But this is not so. And the reason why not can be seen in terms of a few conceptual snapshots, as it were, of the two boys at different stages of their development.
At birth, neither of them is capable of very much of anything. All of their capabilities remain to be developed. The millionaire’s son is not capable of jumping out of his crib and using his father’s millions to make more millions. If he is ever to have that ability, he will first have to develop it.
By age six or seven, say, the two boys have developed certain attitudes toward acquiring knowledge, and other important attributes, too, of course. But, for simplicity’s sake, we will focus just on this aspect and its possible ramifications. If the poorer boy recognizes the value of knowledge and the necessity of making his best effort to acquire it, while the richer boy does not, the poorer boy has gained an advantage that can become of growing significance over the years. By age fourteen or fifteen, perhaps, the poorer boy has acquired an important body of knowledge that the richer boy has not. He understands algebra, trigonometry, and something of physics and chemistry. The richer boy has no real understanding of these subjects. By age twenty or twenty-two, the poorer boy is capable of working as an engineer, say, and making a significant contribution to the profits of anyone who employs him. The richer boy, on the other hand can only be employed either in a menial capacity or at the expense of his father, who must continue to support him under the guise of giving him a salary, or who must provide for some associate to pay a fictitious salary, and compensate that associate in some form.
By age thirty, if he is really talented, the poorer boy has developed some significant ideas which have earned him some significant sums of money and have enabled him to start his own business. He now possesses a capacity for earning money which exceeds the richer boy’s.
The richer boy may still have vastly more money and earn a larger absolute amount, but the poorer boy is in a position to earn it now at a much faster rate. For the poorer boy’s money is under his own, intelligent control and can earn a high rate of profit. The richer boy’s money is either in his own, incompetent hands, in which case he can rapidly lose it, or it is in the hands of others who are more competent but who pay him only a relatively modest rate of interest or dividends. As the years go by, with the poorer boy earning a 50, 75, or 100 percent annual rate of profit, and plowing back almost all of it, while the richer boy earns a 3, 4, or 5 percent rate of interest or dividends and consumes almost all of it, the poorer boy becomes the richer man.
This, in briefest essence, is how it actually happens that in a free society penniless newcomers are able, again and again, to overtake and surpass even those with the greatest inherited wealth.
It cannot be stressed too strongly in this connection how critical is the element of freedom of opportunity. In order to succeed, the poorer boys must have the freedom to earn the highest rates of profit they can and to keep those profits. They must also be free of government controls and regulations, which can easily prevent them from ever getting started, by placing innumerable bureaucratic obstacles in their way—such as causing unnecessary delays, requiring unnecessary staffs of lawyers, accountants, and clerks that they are unable to afford, and by diverting their valuable time and efforts from serious work to contending with the arbitrary power and sheltered incompetence of government officials.
Education and the Freedom of Opportunity
Now it is also true that the success of the poorer boys depends on their being able to obtain education. But this certainly does not mean that a case is made for public education of any kind. The kind of men and boys I have described grasp very early the value of acquiring knowledge and make it their business to find opportunities for acquiring it. Public education, on the other hand, by removing all incentives of profit and loss and all possibility of genuine competition in education, and by thus sheltering inefficiency and incompetence while making improvement almost impossible, creates a system of instruction so poor that compulsion is the only means of keeping most of the students in attendance. And because people, including children, are not automatons programmed by a combination of genes and their environment, the system of forcing books and lectures on unwilling minds simply does not work.
For the kind of men and boys I have described, public education is unnecessary. What is necessary, or, more correctly, would be extremely helpful to them, and would be far more efficient and effective for everyone, is the freedom of education, combined with the availability of private, voluntarily supported merit scholarships and also the freedom of working and earning money to pay for education. People do not generally realize the extent to which the present system of public education destroys the freedom of opportunity with respect to education. By making educational innovations virtually impossible through government controls on curricula, faculty qualifications, and teaching methods, and requiring that competition take place against a subsidized competitor who does not charge, countless educational innovations that might have been made have not been made. People have been prohibited or prevented from exploiting the opportunities they perceive for improvement in education. The further opportunities that those improvements would have constituted for students have thus been prevented from coming into being. We have a situation today where the law both prevents better, more economical forms of education from being offered and prevents students from earning the means of paying for education, by making it almost impossible for anyone under the age of eighteen to obtain any kind of meaningful job. Our present system is one of systematic opposition to the freedom of opportunity with respect to education.
Everyone’s Interest in the Freedom of Opportunity
In general, on an increasing scale, people are prevented from exploiting the opportunities open to them, and thereby prevented from creating further opportunities that would be available not only to them but to those with whom they dealt. I have just shown how this is the case in education. On the basis of what we have seen earlier in this chapter, it is also obvious that in preventing the acquisition of fortunes, our present system prevents the opportunities from coming into being that those fortunes would have afforded to workers and suppliers in the form of a demand for labor and capital goods, and to customers, in the form of more and better products produced.
These observations bring out a further important principle pertaining to opportunities that is consistent with our wider, previous discussions both of economic inequality under capitalism and with the synergistic nature of a division-of-labor society in general, especially of private ownership of the means of production: namely, each person’s successful exploitation of the opportunities open to him creates further opportunities not only for himself, but also for those with whom he deals. In other words, with respect to opportunities too, one man’s gain is the gain of others. The losses caused by the violation of freedom of opportunity represent losses to everyone. This is true ranging from the consequences of aborting the earning of great fortunes and the development of major industries all the way down to the level of licensing laws aborting one man’s opportunity to be a cab driver and another’s opportunity to find a cab, or immigration laws aborting one person’s opportunity to be a gardener or a maid and other people’s opportunity of obtaining such services. *
The notion of “equality of opportunity,” however innocent it may sound at first, is actually vicious and absurd. In its logically consistent form, it implies the destruction of the institution of the family, the implementation of a governmental program of eugenics, and the elimination or destruction of every personal attribute that represents an advantage of one person over others.
In a positive vein, what has been shown is that what is actually important in connection with opportunities is the establishment of a free society and its corollary the freedom of opportunity. In such a society, the individual is free to exploit the virtually limitless opportunities offered by the combination of his nature and the nature of the world. He must pick and choose among them. And he progressively creates better and better opportunities for himself by successfully exploiting the best of the opportunities available to him at any given time.
In such a society, the notion of equality of opportunity reveals itself as absurdly irrelevant, as nothing more than an excuse for not taking advantage of the opportunities one has and for not creating better ones. In such a society, everyone can rise no matter what his starting point or present position, and again and again people of the most humble origins overtake and surpass those who began with seemingly insuperable advantages.
What is required for everyone to be able to succeed and, at the same time, represents full justice, is not equality of opportunity, but freedom of opportunity. The successful exploitation of opportunities that freedom makes possible is the basis of each individual being able to rise and create better opportunities not only for himself, but also for those with whom he deals.
- Uber Offices Raided In China After "Illegal Operator" Crackdown
Despite claiming that its “people’s Uber” service in China, involving private drivers, is simply a type of car-pooling service; the bubblicious company continues to burn its series ZZ financings on legal briefs around the world. That appears to be a total waste when it comes to China as IBTimes reports, police, transport and commercial officials in the southern Chinese city of Guangzhou have raided the local offices of online car service company Uber, amid continuing tension in China over the legality of ride-booking apps using private vehicles, which officials say have disrupted the country’s heavily regulated taxi market.
The Guangzhou Daily newspaper published photographs of officials at Uber’s office in the city, and quoted a statement from the city’s transport commission, which said the three departments were currently pursuing a “special campaign” against unlicensed and illegal businesses.
As part of this, it said, officials had “inspected a company which is suspected of organizing private cars which are not qualified to provide passenger services, and of not having registered with the commercial authorities.”
The statement said that a number of mobile phones had been “temporarily confiscated” during the raid, and the investigation was continuing. The transport commission added that apps offering ride services were not allowed to employ private cars and drivers — it said any company offering such vehicles for rent “would be suspected of illegal business activity, and action would be taken.” And it said the Guangzhou police would not relax their “high pressure stance” toward cleaning up “illegal operators who disturb the transport market.”
A spokesperson from Uber’s Guangzhou office later told the Southern Metropolis News that the raid was just a routine check by the government. The spokesperson said there had been no impact on its services in Guangzhou, and added that the company had always cooperated actively with the Chinese authorities, and was now “communicating with and seeking clarification from the government departments concerned.”
Uber, based in the U.S., describes itself as an “information service provider” that “collects fees on behalf of car rental services and drivers.” It has said that its “people’s Uber” service in China, involving private drivers, is simply a type of car-pooling service. However, the company has faced challenges since entering the Chinese market in 2013. Not only is it competing with established Chinese providers, such as Didi Dache and Yidao Yongche, but Chinese authorities have launched a series of crackdowns on app-based car services.
This is not the first time Uber has faced problems in China…
In December last year, police raided an Uber training session for drivers in the central city of Chongqing. And in recent months drivers in many Chinese cities working via Uber and other web platforms have been stopped by police, fined, and have had their vehicles confiscated. The Guangzhou Daily said that the recent crackdown in the city had uncovered many individual cases of illegal car rentals, and that all drivers caught had had to pay a fine of 30,000 yuan (approximately $4,840).
The incidents are a reminder of the tensions caused in China by the arrival of taxi- and car-booking apps in the country. In recent months, taxi drivers have gone on strike in several Chinese cities, in protest both against the high charges they have to pay to the mainly state-run companies that dominate China’s taxi industry, and also against private drivers, who they say are taking away their livelihood. Customers, on the other hand have complained that many taxi drivers themselves have been using apps to take bookings — often for more than the standard taxi fare — thus making it hard for passengers to hail taxis on the street.
The Shanghai government recently restricted the use of apps by taxi drivers during rush hours, in an attempt to tackle this problem.
* * *
While Uber has not been officially banned in China yet… it has here…
- CFTC Helps Deutsche Bank Avoid "Bad Actor" Tag
Last week, Deutsche Bank agreed to pay $2.5 billion (or around $25,000 per employee) in connection with its role in manipulating LIBOR, EURIBOR, and a few other -BORs. Incidentally, the settlement also gave the world a window into just what star prop trader Christian Bittar (to whom we introduced readers in 2012) said to colleagues on the way to ‘fixing’ the fixings so to speak. Here are some highlights:
“My cash desk will be against us so we’ll have to do some lobbying,”
“LETS TAKE THEM ON !!”
“THEY’RE DOIN IT ON PURPOSE BECAUSE THEY HAVE THE EXACT OPPOSITE POSITION.”
As we noted when the news first broke, no one will go to jail for this of course, but theoretically, the settlement (which included payments to the NYDFS, the DOJ, the UK’s FCA, and the CFTC) should have landed Deutsche Bank on the SEC’s “bad actors” list, which is kind of like the Dodd-Frank equivalent of ‘time out’ and restricts the offender from participating in exempt securities offerings. Well as you might imagine, that’s no fun if you’re a Wall Street bank and it could end up costing you quite a bit of money in lost underwriting fees, but fortunately, there’s a way around it — you simply convince the regulator you settle with to exempt you from the SEC “bad actor” ban. Here’s WSJ with more:
Deutsche Bank AG last week was able to avoid the threat of a ban on selling stakes in hedge funds by tucking specific language into an $800 million agreement it reached with a different regulator—the Commodity Futures Trading Commission—to resolve an interest-rate-rigging probe.
Five other banks had similar provisions included in CFTC agreements resolving allegations of currency manipulation in November.
The language allows the banks to avoid asking the SEC for a waiver—a process that has become fraught with uncertainty amid commissioner disagreements over whether to allow financial firms to avoid a “bad actor” ban…
The 2010 Dodd-Frank law imposed certain restrictions on financial firms when they face securities-related criminal convictions or regulatory orders that involve fraud or manipulation charges.
Companies are restricted from selling private offerings for five years unless they get a waiver from the SEC to bypass the ban.
Institutions raised $903 billion in capital in 2012 through the type of offerings the bad-actor bar would impact, according to an SEC study.
But the SEC’s own rule governing the bad-actor ban allows language waiving the disqualification to be included in a regulatory settlement.
Here’s the specific passage in Deutsche Bank’s CFTC settlement which makes the “bad actor” designation null and void:
Of course it’s not just Deutsche Bank…
The same language was used in the settlements the CFTC reached with Citigroup Inc.,J.P. Morgan Chase & Co, Royal Bank of Scotland PLC, UBS AG and HSBC Holdings PLC in November, which together agreed to pay $1.4 billion in penalties to resolve charges that they tried to manipulate global foreign-exchange benchmark rates to benefit trader positions. The firms neither admitted nor denied the allegations.
…and in the final estimation, no bad actors will end up being classified as bad actors…
Some of the same banks are also expected to plead guilty to criminal antitrust charges in the coming weeks to end related Justice Department probes, which are not likely to trigger the bad-actor bar because they won’t involve securities violations. That means many of the institutions are unlikely to face the bad-actor bar at all.
It’s good to be TBTF.
- Are We Being Psychologically Conditioned To Accept Martial Law In America?
Submitted by Michael Snyder of The End of The American Dream blog,
Have you noticed that we are starting to be bombarded with images of troops in the streets? Have you noticed that the term “martial law” is coming up a lot in movies, news broadcasts and even in television commercials? In recent years, it seems like the solution to almost every major crisis involves bringing in troops. In fact, it has already gotten to the point where when something really bad happens a lot of Americans immediately cry out for troops to be brought in. And we are seeing the same patterns over and over again.
Just remember what happened in Ferguson – protesters were whipped up to a frenzy, when the riots began the police were ordered to stand down and not intervene, and finally National Guard troops were brought in as the “solution” to a crisis that had escalated wildly out of control. This is the exact same pattern that we are witnessing in Baltimore, and as you will see below, National Guard troops all over the nation have been training for this exact type of scenario. A couple of decades ago, many Americans would have regarded the notion of “martial law in America” as absolutely unthinkable, but these days the threat of civil unrest is causing an increasing number of Americans to embrace the idea of troops patrolling our city streets.
The anger toward the police that we see in the city of Baltimore is very real, but there also seem to be a lot of signs that the events of the past several days have been orchestrated and manipulated. This is something that I covered in my previous article entitled “12 Unanswered Questions About The Baltimore Riots That They Don’t Want Us To Ask“. But what we have found out since then is that high school kids appear to have been “herded” by the police into the Mondawmin neighborhood in Baltimore when school was let out on Monday…
When school let out that afternoon, police were in the area equipped with full riot gear. According to eyewitnesses in the Mondawmin neighborhood, the police were stopping busses and forcing riders, including many students who were trying to get home, to disembark. Cops shut down the local subway stop. They also blockaded roads near the Mondawmin Mall and Frederick Douglass High School, which is across the street from the mall, and essentially corralled young people in the area. That is, they did not allow the after-school crowd to disperse.
Even though most of the kids did not seem to have any interest in participating in the much-hyped “purge”, it looks like authorities were determined to get their “purge” one way or another. The following was posted to Facebook by a Baltimore teacher named Meghann Harris…
Police were forcing busses to stop and unload all their passengers. Then, [Frederick Douglass High School] students, in huge herds, were trying to leave on various busses but couldn’t catch any because they were all shut down. No kids were yet around except about 20, who looked like they were waiting for police to do something. The cops, on the other hand, were in full riot gear, marching toward any small social clique of students…It looked as if there were hundreds of cops.
Another teacher seems to confirm the other accounts that you just read…
A teacher at Douglass High School, who asked not to be identified, tells a similar story: “When school was winding down, many students were leaving early with their parents or of their own accord.” Those who didn’t depart early, she says, were stranded. Many of the students still at school at that point, she notes, wanted to get out of the area and avoid any Purge-like violence. Some were requesting rides home from teachers. But by now, it was difficult to leave the neighborhood.
“I rode with another teacher home,” this teacher recalls, “and we had to route our travel around the police in riot gear blocking the road…The majority of my students thought what was going to happen was stupid or were frightened at the idea. Very few seemed to want to participate in ‘the purge.’“
This paints a very different picture than we are getting from the media.
But once the violence and rioting did start, the police were nowhere to be found. In fact, it is being reported that the mayor of Baltimore actually ordered the police to “stand down” and allow the chaos to spiral out of control…
Baltimore Mayor Stephanie Rawlings-Blake ordered the police to stand down as riots and looting broke out across they city, a new report claims.
According to a senior law enforcement source, the embattled mayor effectively told her officers to do nothing as the city began to burn – raising questions as to whether the rioting could have been stopped.
Finally, after several hours of madness, the order was given and the National Guard was brought in to quell the rioting.
And it just so happens to turn out that National Guard troops all over the nation have recently been engaged in something called “civil unrest training”…
Many of the Guardsmen are trained for a situation just like the one in Maryland.
It’s called “civil unrest training,” and it was recently completed in Tennessee with a local police department.
Troops have also trained in Maryland and Colorado.
“It really helped put it into perspective the person we are going to be up against – the rioter, the unruly person,” said one National Guard official.
The training includes gas mask training and practice with shields and batons.
Isn’t that convenient?
There are so many instances in which “training” seems to eerily correspond with actual events. That is one of the reasons why so many people are concerned about Jade Helm and all of the other very elaborate military exercises that are being held around the country in 2015. In fact, there has been so much concern about Jade Helm that the governor of Texas has ordered the Texas Guard to monitor Jade Helm…
Gov. Greg Abbott ordered the Texas Guard to monitor federal military exercises in Texas after some citizens have lit up the Internet saying the maneuvers are actually the prelude to martial law.
The operation causing rampant suspicions is a new kind of exercise involving elite teams such as the SEALs and Green Berets from four military branches training over several states from July 15 to Sept. 15
Called Jade Helm 15, the exercise is one of the largest training operations done by the military in response to what it calls the evolving nature of warfare. About 1,200 special operations personnel will be involved and move covertly among the public. They will use military equipment to travel between seven Southwestern states from Texas to California.
The following is a map from Jade Helm materials, and it designates Utah and Texas as “hostile territory”. Yes, I know that this is supposed to be an “exercise”, but even so this is highly inappropriate to say the least…
Lastly, I want to share with you an AARP commercial that appears to have a subliminal message in the background about martial law.
Why in the world would a television commercial aimed at senior citizens talk about martial law?
I have no idea.
If you listen very carefully to the video posted below, you will hear the following message in the background…
Riots nationwide have prompted local governments to declare martial law.
The President is asking that citizens find safety and remain calm.
Authorities are working to contain the outbreak.
Here is the video. Watch it for yourself and see what you think…
So what in the world are we supposed to make of all this?
- Well That Hasn't Happened Before – Exhibit 6
We have never, ever, seen a larger divergence between long-term earnings growth expectations and equity valuations…
As is extremely evident from the chart above there has historically been a strong relationship between the S&P 500 P/E and 5-year growth estimates. This makes sense as the valuation of the equity market tends to reflect both the short-term (next 12 months) and longer-term growth expectations for corporate earnings.
However, over the past year or so, growth expectations have rolled over dramatically while at the same time valuations (P/Es) have continued to surge ever higher.
The current gap between the two is clearly unprecedented.
For a sense of just how extreme this decoupling is…
Stocks still cheap? Translation – The S&P is about 600 points over-valued currently.
Chart: Bloomberg and @Not_Jim_Cramer
* * *
- "Hedge!!"
Submitted by Adam Taggart via PeakProsperity.com,
Q: How do you make a small fortune on Wall Street?
A: Start with a large fortune.
~ old investing adage
Last fall, I wrote an article titled Defying Gravity that warned of the absurd price levels that stocks and bonds had risen to.
The piece first looked at the unbroken multi-year march upward in prices through the myriad money-printing cycles of the world's central banks, as well as the near-extinction of bearish investors on Wall Street — which it then contrasted with the vast gap between valuations and the underlying weak economic data, deteriorating chart technicals, and evidence that the "smart money" was exiting the market. The takeaway? Prudence strongly recommended moving to cash and hedging one's open market positions.
Less than a month later, the stock market abruptly dropped by 7%. Those who didn't seek safety in advance were left licking their wounds, panicked not knowing if the painful down-draft was over.
Fortunately for them, the Federal Reserve jawboned it's willingness to step in further if needed, the ECB announced a trillion-Euro stimulus program, the Bank of Japan waded into domestic and foreign markets as a buyer of last resort, and China's central bank continued its staggering balance sheet expansion. Collectively, this put a floor on the markets, which soon climbed back to record highs.
Where We Are Now
So here we are roughly six months later, and the same warning bells are ringing — just louder this time.
Yes, stocks recovered from their brief October swoon, and yes, they are at — or very close to — their all-time highs. Indeed, everything is so awesome that investor sentiment has never been more positive. If you worry that having too many people on the same side of the boat is a sign of complacency and over-confidence, the following chart should frighten you:
(Source)
But very importantly, the rate of increase in equity prices is changing. Specifically, it's slowing down. Prices are beginning to compress, forming a classic "wedge" which Charles Hugh Smith warns could break the relentless multi-year uptrend:
This is a dangerous sign at a time when, despite all the central bank stimulus programs raging around the world, economic growth is decelerating. Quartlery GDP growth for both the US and the Eurozone are barley above 0%, and China's recently-reported 7% growth is the lowest reported in over 24 years (and many analysts suspect this reported growth is substantially overstated).
(Source)
Stocks, in theory at least, should be priced based on future earnings expectations. With anemic/moribund/near-recessionary growth numbers like these, what kind of delusional drunken rantings do we need to tell ourselves to justify today's record stock valuations?
Valuations, mind you, that can change on a dime as sentiment shifts. As proof: in the past 48 hours, due to disappointing guidance, Twitter's and Yelp's stock prices have plunged 25%. And as I've been writing this piece, LinkedIn's price has fallen over 22% in the aftermarket, evaporating 2 full years of gains.
Here at Peak Prosperity, we've long forecasted that crashes happen first at the periphery where the weaker players are, and then progresses steadily inward towards the core. The high-flying, unprofitable, dubious-value social media space is exactly where we'd expect to see the early failures occur before the larger market rolls over. That may very well be what we're witnessing now.
And in the age of high-frequency trading (HFT) where the majority of trades and nearly all quotes are generated by algorithms, the speed with which prices can collapse is orders of magnitude faster than what was possible in previous eras. When the market action becomes unfavorable, algos just stop trading — within milliseconds. Since they're responsible for the overwhelming majority of trading in today's markets, price support vaporizes along with the algos. With the instantaneous disapperance of buyers, flash crashes result. HFT expert Joe Saluzzi explains this risk in depth in our upcoming podcast with him — to be released this weekend — in which he states:
The flash crash [of 2010] was caused by a poor market structure that went out of control. Where basically market makers were flipping back and forth and once their inventory positions got exhausted or their risk levels got too high, they were shutting down. And many of them were quoted afterwards explaining that they just stopped trading and exited the market. That’s why you had a flash crash: because it was a void in liquidity.
For Heaven's Sake: Hedge!
All this worrisome data reminds me of another old joke:
A terrible storm came into a town and local officials sent out an emergency warning that the riverbanks would soon overflow and flood the nearby homes. They ordered everyone in the town to evacuate immediately.
A faithful religious man heard the warning and decided to stay, saying to himself, “I will trust God and if I am in danger, I believe God will save me.”
The neighbors came by his house and said to him, “We’re leaving and there is room for you in our car, please come with us!” But the man declined. “I have faith that God will save me.”
As the man stood on his porch watching the water rise up the steps, a man in a canoe paddled by and called to him, “Hurry and come into my canoe, the waters are rising quickly!” But the man again said, “No thanks, God will save me.”
The floodwaters rose higher pouring water into his living room and the man had to retreat to the second floor. A police motorboat came by and saw him at the window. “We will come up and rescue you!” they shouted. But the man refused, waving them off saying, “Use your time to save someone else! I have faith that God will save me!”
The flood waters rose higher and higher and the man had to climb up to his rooftop.
A helicopter spotted him and dropped a rope ladder. A rescue officer came down the ladder and pleaded with the man, "Grab my hand and I will pull you up!" But the man STILL refused, folding his arms tightly to his body. “No thank you! God will save me!”
Shortly after, the house broke up and the floodwaters swept the man away and he drowned.
When in Heaven, the man stood before God and asked, “I put all of my faith in You. Why didn’t You come and save me?”
And God said, “Son, I sent you a warning. I sent you a car. I sent you a canoe. I sent you a motorboat. I sent you a helicopter. What more were you looking for?”
If you still have capital invested in the financial markets and you haven't started moving a sizable portion of it to safety — either into cash or positions that hedge against a correction — what additional warning signs could you possibly be waiting for?
Don't be caught waiting too long to act. Once the next correction is upon us, it will already be too late.
As we originally advised before the market drop six months ago, strongly consider moving more of your paper investments to cash for the time being. This is one of those times when the benefits of safety far outweigh the risks of speculating to catch a few more up days in the market. (Remember, the research definitively proves that we feel much greater mental suffering when we experience a loss than when we miss out on a gain)
And for any capital you decide to keep in the markets, we urge you to explore hedging those positions against a market drop.
"Hedging" is the practice of allocating a minority percentage of your investments to safer or inversely-correlated holdings relative to the majority of what's in your portfolio. So how to do you go about doing it?
In Part 2: How to Hedge Against A Market Correction, we explore the standard range of hedging techniques that are commonly used to offer portfolio protection and/or upside during a market downturn. These include raising cash, using stops, inverse and leveraged securities, shorting, options, and futures.
And for those who choose to forgo hedging, you might want to want to start donating to a wide range of churches, synagogues, temples and mosques. Like our friend in the story, when the next storm hits, divine intervention is going to be your best hope…
Click here to access Part 2 of this report (free executive summary; enrollment required for full access)
- Chief Execution Officers Update: A Fresh Look At The Death Penalty World
In September of last year, we pointed out that contrary to popular belief, ISIS does not have a monopoly on executions. In fact, executions occured in 22 countries in 2013, up 15% from the previous year, with China topping the list and the US coming in a disappointing fourth place (so China wins again).
Now, courtesy of Amnesty International and The Economist, we have the latest data (current through Wednesday) which shows that although China is still in the lead in terms of total executions since 2007 (amusingly the data for China is, much like economic data, just an estimate as official figures are hard to come by), Pakistan and Saudi Arabia look to be the most prolific executioners YTD.
More from The Economist:
On April 29, Indonesia executed eight people convicted of drug trafficking. Despite concerns over legal failings and the mental health of one prisoner, four Nigerians, two Australians, a Brazilian and an Indonesian were put to death by firing squad. A ninth, a Filipina, was granted a surprise last-minute reprieve…
The Indonesian government is less keen on seeing its own citizens meet the same fate. Between 2011 and 2014, 240 out of 570 Indonesians facing the death penalty abroad had their sentences commuted. And of the remainder, 130 were charged with drug offences in countries where the war on drugs is being waged with greater enthusiasm. In China, by far the most prolific executioner and where numbers are shrouded in secrecy, around 8% of judicial killings in 2014 were for drug crimes. In Iran, almost half of the 278 people executed in 2014 were for drug offences. But this year alone, 241 traffickers have been put to death.
- PLaNeT OF MiSTaKeS…
- Dear CFTC, The Market Is Still Broken
Dear regulators, and commodity futures exchanges.
While we are delighted that you take advantage of the daily posts on Zero Hedge detailing flagrant spoofing across various asset classes (which you used to promptly ban two low-level gold manipulators yesterday), the reality is that with every passing day the market becomes more disjointed, more fragmented, more broken.
Here are today’s numerous examples which stretch far beyond mere spoofing and which we leave in your capable hands to ignore until such time as the entire market ultimately collapses under its own weight.
First, here is the NYSE breaking:
NYSE has a disproportionately high number of market structure failures. This is $EOG (blue is NYSE) pic.twitter.com/9nt9yFyQ2J
— Eric Scott Hunsader (@nanexllc) May 1, 2015
Then just before the close, as the ETF closing auctions tried to balance off the buyers with the sellers on the “market on close”, first we got a flash crash in LLY:
$LLY just flash crashed – all exchanges participated pic.twitter.com/IYFq0vFwty
— Eric Scott Hunsader (@nanexllc) May 1, 2015
… followed by a flash smash then crash in SAP:
Double market structure fail in $SAP 1st up, then down! (gray dots): pic.twitter.com/ZuIFNKG5yn
— Eric Scott Hunsader (@nanexllc) May 1, 2015
… and then, just to punctuate how broken it all really is, the entire Russell 2000 ETF, the IYR, flash crashed.
$IYR had a mini flash crash in the last few seconds: pic.twitter.com/SKsNq6Suc0
— Eric Scott Hunsader (@nanexllc) May 1, 2015
… concluding with a flash smash in none other than the world’s most valuable company, AAPL.
Chart of $AAPL showing those rogue trades (connected by lines) pic.twitter.com/QHRbGSzHii
— Eric Scott Hunsader (@nanexllc) May 1, 2015
- "Too Big To Fail Is A License For Recklessness" America's Banking System Is A "Fragile House Of Cards"
Submitted by Lynn Parramore via The Institute for New Economic Thinking,
Anat Admati teaches finance and economics at the Stanford Graduate School of Business and is co-author of The Bankers' New Clothes, a classic account of the problem of Too Big to Fail banks. On May 6th, at the Finance and Society Conference sponsored by the Institute for New Economic Thinking, she will join Brooksley Born, former chair of Chair of the Commodities Futures Trading Commission, to discuss how effective financial regulation can make the system work better for society. Seven years after the worst financial crisis since the Great Depression, Admati warns that we are not doing nearly enough to confront a bloated, inefficient, and dangerous financial system. The system can't fix itself. Here's what you need to know.
Lynn Parramore: How would you describe the problem of Too Big to Fail banks. Whey does it matter to an ordinary person?
Anat Admati: Too Big to Fail is a license for recklessness. These institutions defy notions of fairness, accountability, and responsibility. They are the largest, most complex, and most indebted corporations in the entire economy.
We all have to be really alarmed by the fact that not only do we still have such institutions, but many of them are ever-larger and more complex and at least as dangerous, if not more so, than they were before the financial crisis.
They are too big to manage and control. They take enormous risks that endanger everybody. They benefit from the upside and expose the rest of us to the downside of their decisions. These banks are too powerful politically as well.
As they seek profits, they can make wasteful and inefficient loans that harm ordinary people, and at the same time they might refuse to make certain business loans that can help the economy. They can even break the laws and regulations without the people responsible being held accountable. Effectively we're hostages because their failure would be so harmful. They're likely to be bailed out if their risks don't turn out well.
Ordinary people continue to suffer from a recession that was greatly exacerbated or even caused by recklessness in the financial system and failed regulation. But the largest institutions, especially their leaders — even in the failed ones — have suffered the least. They're thriving again and arguably benefitting the most from efforts to stimulate the economy.
So there's something wrong with this picture. And there's also increasing recognition that bloated banks and a bloated financial system – these huge institutions—are a drag on the economy.
LP: Have we made any progress in dealing with the problem?
AA: The progress has been totally unfocused and insufficient. Dodd-Frank claims to have solved the problem and it gives plenty of tools to regulators to do what needs to be done (many of these tools they actually already had before). But this law is really complex and the implementation of it is very messy. The lobbying by the financial industry is a large part of the reason that the law has been implemented so poorly and inefficiently with so much difficulty. We are failing to take simple steps and at the same time undertaking extremely costly steps with doubtful benefits.
So we've had far from enough progress. We are told things are better but they are nowhere near what we should expect and demand. Much more can be done right now.
LP: Banks, compared to other businesses, finance an enormous portion of their assets with borrowed money, or debt – as much as 95 percent. Yet bankers often claim that this is perfectly fine, and if we make them depend less on debt they will be forced to lend less. What is your view? Would asking banks to rely more on unborrowed money, or equity, somehow hurt the economy?
AA: Sometimes when I don't have time to unpack everything I use a quote from a book called Payoff: Why Wall Street Always Wins by Jeff Connaughton. He relates something Paul Volcker once said to Senator Ted Kaufman: "You know, just about whatever anyone proposes, no matter what it is, the banks will come out and claim that it will restrict credit and harm the economy…It's all bullshit."
Here's one obvious reason such claims are, in Volcker's vocabulary, bullshit: Lending suffered most when banks didn't have enough equity to absorb their losses in the crisis — and then we had to bail them out. The loss they suffered on the subprime fiasco was relatively small by comparison to losses to investors when the Internet bubble burst, but there was so much debt throughout the system, and indeed in the housing markets, and so much interconnection that the entire financial system almost collapsed. That's when lending suffered. So lending and growth suffers when the banks have too little equity, not too much.
Now, banks naturally have some debt, like deposits. But they don't feel indebted even when they rely on 95 percent debt to finance their assets. No other healthy company lives like that, and nobody, even banks, needs to live like that — that's the key. Normally, the market would not allow this to go on; those who are as heavily indebted feel the burden in many ways. The terms of the debt become too burdensome for corporations, and reflect the inefficient investment decisions made by heavily indebted companies. But banks have much nicer creditors, like depositors, and with many explicit and implicit guarantees, banks don't face trouble or harsh terms. They only have to convince the regulators to let them get away with it. And they do.
So the abnormality of this incredible indebtedness is that they get away with it. There's nothing good about it for society. If they had more equity then they could do everything that they do better —more consistently, more reliably, in a less distorted fashion.
Today's credit market is distorted. A key reason is that bankers love the high risk and chase returns. They are less fond of some of the lending where they are needed the most — like business lending, for example. Instead, most people get many credit cards in the mail and too many people live on expensive revolving credit. Effectively, the poor may end up subsidizing the credit card of the person who pays on time and has zero interest (and we all end up paying the enormous fees merchants are charged). So we can have too much or too little lending and live through inefficient booms and busts. Part of the reason for that is that banks are continually living on the edge in a way that nobody else in the economy would, and regulations meant to correct it are insufficient and flawed in their design.
LP: Banking has been a very profitable business. Is it profitable because the risks are born by the taxpayer? Do you think the bank bonus system is part of the problem?
AA: Yes, banking is partly profitable because of subsidies from taxpayers. There are probably other reasons, and not all of them good ones, in terms of the way competition works and other things. The bonus system encourages recklessness, and recklessness increases the value of the subsidies from taxpayers. Bankers are effectively paid to gamble.
It is profitable for the banks to become big even when this is inefficient, because they can do so with subsidized borrowing on easy terms. Guarantees, explicit and implicit, are a form of free or subsidized insurance. We don't control whether what banks do with the cheap funding benefits the economy or just bankers and some of their investors. We must reduce these large subsidies that end up rewarding recklessness and harming us. (See Admati's July 2014 testimony before Congress on bank subsidies).
LP: We often hear about financial innovations that helped bring the global economy to its knees in 2008. Back in December, Congress rolled back a key taxpayer protection concerning derivatives, which Robert Lenzner of Forbes Magazine called a "Christmas present for the banks." What do Americans need to know about derivatives? How do they affect the Too Big to Fail problem?
AA. The Christmas present was just one more small thing in a much bigger problem. The largest financial firms in America can hide an enormous amount of risk in derivatives. That's very dangerous because it makes banks more interconnected, since much of the derivatives trading happens within the financail system. It creates a house of cards — a very fragile system.
We also have bankruptcy laws in this country that perversely give unusual priority to derivatives contracts and other reckless practices.
Derivatives exacerbate Too Big to Fail dramatically because there's so much opacity in the system. Policy-makers get scared into bailing our or guaranteeing a lot of their commitments made in those markets because they won't quite know the consequences of letting them fail. It's very intimately related to Too Big to Fail. It's as if they hold a gun to your head. You don't konw whether they have bullets so you may get scared into paying the ransom.
LP: Is breaking up the banks is a solution?
AA: People say those words but what does it mean? How would you do it? That's the big problem. Banks are multiple times bigger than most of the corporations you think of as big. I once made a mistake rushing through a HuffPost piece in 2010 saying that Jamie Dimon wants to be as big as Walmart. Well, at the time, JP Morgan was already 10 times bigger than Walmart by assets! When it comes to the financial sector, big is really big. People don't even appreciate how big we're talking about. Nobody else gets to be as big, and in fact, In other parts of the economy, companies that get so big often break up on their own. But that doesn't happen in banking partly because of the perverse subsidies taxpayers provide.
The most sensible approach is to force banks and other financial institutions to have more equity, which is actually going to expose their inefficiencies and bring more investor pressure for a break-up to happen naturally without us doing it actively. Regulators can also put significantly more pressure on banks to simplify their structure and divest unnecessary lines of businesses such as commodities (energy, aluminum, etc.). The size appears unmanageable and makes regulation difficult.
LP: What would make banking regulation more effective?
AA: First of all there could be simpler regulation in some places and some cost-ineffective things could be used a bit less. Right now, we know too little about the risk and we have too little margin for error. We must reduce the opacity and increase the safety margins dramatically. Regulators make it complicated because we are unnecessarily living at the edge of a cliff all the time. We live so dangerously! There's no need for that. We are told that we have to live like that, but it's that's completely false. The system has to be made a lot more resilient. Then we can worry less and sleep better.
In addition to making things simpler, it's very important that we are able to see more of the risk and then to enforce much stronger and simpler rules. And, of course, regulators need to be watching where the risks are going. They should not believe that just because the risks are off the accounting balance sheets that they are gone. That was a trick to get around regulations and get around accounting rules in cases like Enron. A lot of the risks were hiding — but they can be traced. Some laws that are counterproductive and make regulation harder should also be examined, including the tax code that encourages debt over equity, and the bankruptcy law that overly protects certain financial practices.
LP: If we don't deal with the problem of Too Big to Fail, what happens?
AA: An ordinary person doesn't realize it, but the impact of this unhealthy system on them happens every day. It's doesn't feel as acute as something like leakage from a nuclear facility because harm from the financial system is a little more abstract. You only see it when it blows. But it's an unhealthy, inefficient, bloated and dangerous system. Because this system is so fragile, it can implode again, and our options next time will be dire again. We will either suffer a lot or bail out the system to suffer a little bit less.
I recently shared with my students a quote by the Rothschild brothers of London, writing to associates in New York in 1863: "The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests."
This is a great quote! We get tricked into thinking that we have a great financial system because we have our credit cards and whatnot. We don't see the enormous risks that are taken in derivatives markets and some of the other practices that can topple the entire system again and which extracts fees and bonuses. The truth is that we can have a safer system that serves the economy and society better. But getting there requires that better laws and regulations are implemented and enforced. The system will not correct itself; we must demand that policymakers do a better job for the public.
* * *
But apart from that, everything is awesome!??
- 6 Baltimore Cops Charged After MD Attorney Finds Them "Grossly Negligent…Freddie Gray's Death Was A Homicide" – Live Feed
It appears the situation in Baltimore just got a lot more serious as MD State Attorney Marilyn Mosby states:
- *CHARGES FILED AGAINST 6 BALTIMORE PD POLICE OFFICERS
- *MARYLAND ATTNY: "WE HAVE PROBABLE CAUSE TO FILE CRIMINAL CHG"
- *MARYLAND ATTNY: "GRAY'S DEATH WAS A HOMICIDE''
Furthermore:
- *MARYLAND ATTNY: GRAY INDICATED HE COULDN'T BREATHE WHEN CUFFED
- *MARYLAND ATTNY: GRAY HAD LAWFULLY POSSESSED KNIFE
- *BALTIMORE CITY STATE'S ATTORNEY MARILYN MOSBY SPEAKS W/PRESS
- *MARYLAND ATTNY: POLICE FAILED TO ESTABLISH PROBABLE CAUSE
- *MARYLAND ATTNY: GRAY ILLEGALLY ARRESTED
- *GRAY WASN'T SEAT BELTED WHEN PLACED IN POLICE WAGON
- *MARYLAND ATTNY: GRAY HAD FLEX CUFFS PUT ON, NO SEAT BELT
- *GRAY SUFFERED NECK INJURY AS A RESULT OF BEING UNRESTRAINED
- *MD ATTNY: POLICE DIDN'T RENDER, REQUEST MEDICAL ATTN. FOR GRAY
- *MD ATTNY: POLICE GROSSLY NEGLIGENT WHEN MAKING OTHER STOP
- *MD ATTNY: GRAY UNRESPONSIVE ON FLOOR; MEDICAL HELP NOT PROVIDED
- *MD ATTNY: 2ND DEGREE MANSLAUGHTER CHARGES, OTHERS, FILED
- *MD ATTNY MOSBY APPEALS FOR PEACE
Mosby's announcement on the steps of the War Memorial Building was greeted with cheers and applause. She said she told Gray's family that "no one is above the law," and so as The Baltimore Sun details, the six Baltimore police officers involved in the arrest of Freddie Gray – who died last month after being injured in police custody – have been charged criminally, State's Attorney Marilyn Mosby announced Friday.
Officer Caesar Goodson Jr., 45, who was the driver of a police van that carried Gray through the streets of Baltimore, was charged with second-degree murder, manslaughter, second-degree assault, two vehicular manslaughter charges and misconduct in office.
Officer William Porter, 25, was charged with involuntary manslaughter, second-degree assault and misconduct in office.
Lt. Brian Rice, 41, was charged with involuntary manslaughter, second-degree assault and misconduct in office.
Sgt. Alicia White, 30, was charged with involuntary manslaughter, second-degree assault and misconduct in office.
Officer Edward Nero, 29, was charged with second-degree assault and misconduct in office.
Officer Garrett Miller, 26, was charged with second-degree assault, misconduct in office and false imprisonment.
Warrants were issued for the arrest of all six officers. It wasn't immediately clear where the officers were on Friday morning.
Mosby said Gray was improperly arrested on April 12 because officers had no probable cause to detain him.
In a detailed recounting of the events, Mosby described Gray being repeatedly denied medical attention by police officers, even as he asked for medical help and later was unresponsive in a police van.
Gray suffered a "severe and critical neck injury" as a result of being handcuffed, shackled and being unrestrained in the van.
Mosby said an investigation found officers bound Gray's wrists and ankles and left him stomach-down on the floor of a police van as they drove around West Baltimore. Despite his repeated requests for medical attention, they did not provide it and continued to drive without securing him in the van, she said.
Officers on at least five occasions placed Gray in the van or checked on him and failed to secure him, she said. By the time they reached the Western District police station, he was not breathing and in cardiac arrest, she said.
Mosby said her office did a "comprehensive, thorough and independent" investigation that began April 13, the day after Gray was injured.
"My team worked around the clock, 12- and 14-hour days," she said.
Mosby called on the public to remain calm.
"I heard your call for 'no justice, no peace,'" she said. "Your peace is sincerely needed as I work to deliver justice on behalf of this young man."
* * *
The Statement:
Here is a full list of charges, as released by the Office of the State's Attorney for Baltimore City.
Officer Garrett E. Miller
- Assault/second degree (10 yrs.)
- Assault/second degree (10 yrs,)
- Misconduct in office (8th Amendment*)
- Misconduct in office (8th Amendment* )
- False imprisonment (8th Amendment* )
Sgt. Alicia D. White
- Manslaughter (involuntary) (10 yrs.)
- Assault/second degree (10 yrs.)
- Misconduct in office (8th Amendment*)
Officer Caesar R. Goodson Jr.
- Second degree depraved heart murder (30 yrs.)
- Manslaughter (involuntary) (10 yrs.)
- Assault/second degree (10 yrs.)
- Manslaughter by vehicle (gross negligence) (10 yrs.)
- Manslaughter by vehicle (criminal negligence) (3 yrs.)
- Misconduct in office (8th Amendment* )
Officer William G. Porter
- Manslaughter (involuntary) (10 yrs.)
- Assault/second degree (10 yrs.)
- Misconduct in office (8th Amendment*)
Lt. Brian W. Rice
- Manslaughter (involuntary) (10 yrs.)
- Assault/second degree (10 yrs.)
- Assault/second degree (10 yrs.)
- Misconduct in office (8th Amendment*)
- Misconduct in office (8th Amendment*)
- False imprisonment (8th Amendment*)
Officer Edward M. Nero
- Assault/second degree (10 yrs.)
- Assault/second degree (10 yrs.)
- Misconduct in office (8th Amendment*)
- Misconduct in office (8th Amendment* )
- False imprisonment (8th Amendment*)
- Gold Manipulators Busted After Zero Hedge Report On Flagrant Gold Spoofing
In the aftermath of the Nav Sarao scapegoating farce, one week ago Zero Hedge decided to give the confused CFTC a helping hand and launched a daily series highlighting the constant spoofing and “manipulation” (in the CFTC and DOJ’s own words) that takes place in every asset class, but mostly in the E-mini futures (“Dear CFTC: This Is The Market Manipulating “Spoofing” Taking Place In The E-Mini Just Today“). Virtually every day since then we presented the “regulators” at the commodity trading commission a clear example of stock market manipulation, with the exception of Tuesday, when with the exclusive help of Nanex, we showed a clear case of gold spoofing.
This is what we said on April 28:
Here (courtesy of Nanex) are several examples in the June 2015 Comex Gold Futures this morning. All times are Eastern Daylight. In each of these cases, no trades (or a tiny few) executed against the large “spoof” order. You can see how prices were influenced by the sudden appearance (and disappearance) of these large, outsized orders.
1. June 2015 Comex Gold
Note how large buy and sell orders push prices up and down.
2. Another set of instances appear about 50 minutes after the first set (shown in chart 1).
3. Another set of spoofing instances appear about an hour after the second set (shown in chart 2).
You’re welcome CFTC — it’s the least we can do.
Best wishes,
Zero Hedge
Reminder: We won’t stop this until you are forced to address the glaring hypocrisy and utter incompetence of everyone involved in the regulation of market microstructure.
Much to our dismay, overnight we learned that while the CFTC continues to be very, very confused and challenged by all those lobby payments by the world’s “liquidity providing” HFTs and ignores all documented evidence of manipulation, the Chicago Mercantile Exchange – owner of the futures exchange wheer the bulk of modern manipulation takes place – did read this evidence of manipulation, and decided to immediately take action, suspending two traders for placing the manipulative “spoofing and layering” trades profiled here three days ago which were virtually identical to the ones that got Navinder Singh Sarao into headlines around the world last week. Except, of course, the asset class manipulated was gold. And, perhaps what’s far worse, the manipulation sent the price of gold briefly higher.
The names of the perpetrators: perhaps not surprisingly, Heet Khara and Nasim Salim. Extend to Navinder Sarao and a pattern emerges…
This is the full CME release:
NOTICE OF SUMMARY ACCESS DENIAL ACTION: COMEX 15-0103-SA-1
NON-MEMBER:
NASIM SALIM
CME RULE: 413. SUMMARY ACCESS DENIAL ACTIONS (in part)
A. The Chief Regulatory Officer or his delegate, upon a good faith determination that there are substantial reasons to believe that such immediate action is necessary to protect the best interests of the Exchange, may order that: 1) any party be denied access to any or all CME Group markets; 2) any party be denied access to the Globex platform; 3) any party be denied access to any other electronic trading or clearing platform owned or controlled by CME Group; or (4) any Member be immediately removed from any trading floor owned or controlled by CME Group.
FINDINGS
On April 30, 2015, CME Group’s Market Regulation Department (“Market Regulation Department”), through its Chief Regulatory Officer, summarily denied Nasim Salim (“Salim”) direct and indirect access to all CME Group markets, the CME Globex electronic trading platform, any other electronic trading or clearing platform owned or controlled by CME Group, and all trading floors owned or controlled by CME Group. The summary access denial prohibits trading, placing orders, and controlling or directing the trading for any person or entity in any CME Group exchange product. The summary access denial further prohibits the affiliation or business dealing with any member or member firm of CME, CBOT, NYMEX, or COMEX.
CME Group’s Chief Regulatory Officer’s summary access denial of Salim was based upon the findings of an investigation conducted by the Market Regulation Department, which revealed that on multiple trade dates during the time period of March 1, 2015 through April 28, 2015, Salim engaged in a pattern of activity in which he repeatedly entered orders or layered multiple orders for Gold and Silver futures contracts without the intent to trade. Specifically, Salim entered these orders or layered multiple orders to encourage market participants to trade opposite his smaller orders resting on the opposite side of the book. After receiving a fill on his smaller orders, Salim would then cancel the resting order or layered multiple orders that he had entered on the opposite side of the order book.
Salim introduced Heet Khara (“Khara”), who is also the subject of a summary access denial action, to his first FCM and Salim had an account at the second FCM at which Khara traded in a disruptive manner. Further, it appears that on multiple occasions Salim and Khara coordinated efforts to engage in disruptive activity. In an example from April 28, 2015, Salim entered small-lot orders on one side of the market in Gold futures, after which Khara entered large orders on the opposite side. When Salim’s small orders were filled, Khara canceled the large orders. Salim has not responded to correspondence from the Exchange.
The foregoing conduct, as well as Salim’s failure to cooperate with the Exchange, present a good faith determination that there are substantial reasons to believe that such immediate action is necessary to protect the best interests of the Exchanges and the marketplace.
ACCESS DENIAL:
Pursuant to Rule 413, this access denial will remain in effect for 60 days, commencing on the effective date below and continuing through and including June 29, 2015, unless the Chief Regulatory Officer or his delegate provides written notice that this access denial will be extended for an additional period of time.
We expect the CFTC and the DOJ to unleash the wrath of god now that the CME showed them how gold manipulation works, something they figured out by looking a this article.
And while we are delighted that yet one more alleged case of gold manipulation is now confirmed, we are curious if the CME, CFTC and DOJ will also prosecute instances of gold manipulation when the ultimate outcome is the price of gold going lower instead of higher, such as the one documented in “Vicious Gold Slamdown Breaks Gold Market For 20 Seconds“, “Stop Logic” Gold Slam Was So Furious It Shut Down CME Trading Again” and on countless other occasions most of which have been duly documented on this website.
Finally, we wonder: will the CME, CFTC, DOJ, and FBI pursue as promptly all those instances of constant S&P 500 manipulation and spoofing we profiled over the past week in particular, and over the past 6 years in general? Or was this merely another “Sarao” case when several (non-Caucasian) traders are scapegoated by the regulators, with the naive expectation that investors will suddenly assume the market – in this case that of gold – is no longer rigged?
- We Just Broke 2008's Record For The Fastest Economic Unraveling!
Submitted by Thad Beversdorf via FirstRebuttal.com,
In my last piece I provided a technical analysis that signaled we are entering the first stage of a bursting bubble that we’ll call the Fed Bubble. Now while I do believe technicals provide good insight to the economic landscape I see them as a necessary rather sufficient qualifier. In order to be truly confident that our technicals are providing an accurate story we need to understand the fundamentals behind the charts, as we often find the engine light comes on due to a loose wire rather than a problem with the engine.
The final Q1 GDP revision was just released and we saw that GDP has again missed expectations by such a large margin that 2015 is another write off for a 3% growth year. Almost comically we heard the same excuses we got last year. “Weather was wintery and next year is going to be the turnaround year”. So in order to explain to these supposed economic and market ‘experts’ who seem wholly incapable of understanding economic and market forces with any sense of accuracy, let’s run through a few fundamentals.
I want to hone in on the category of consumer spending that is first to go away so that we may capture the first signals of a consumer spending pull back. A good proxy for this is the Johnson Redbook Chain Store yoy sales. This captures the consumer spending taking place at large department stores (Macy’s, Kohls, Walmart, Kmart, etc). This is going to be where the real discretionary retail spending takes place, as in do I have enough space on my credit card for that sassy blue dress and groceries or just groceries? And don’t think that is just a theatrical example. I remember the days of asking myself those very same questions (ok maybe not the blue dress but you get the idea). That is just real life here in the US (and Canada for that matter).
So this category does well to target the true discretionary spending. Now if the chart trend appears strong or even flat then we can be confident consumers have not yet pulled back on even the most discretionary of items and so any variations in the overall spending patterns are likely not worrisome. However, if we see a sharp pull back here it is indicative that a downturn in the overall spending trend is likely substantive rather than nuance. Let’s have a look.
What we find is that over the past 6 months we had a tremendous drop in true discretionary consumer spending. Within the overall downtrend we do see a bit of a rally in February but quite ominously that rally failed and the bottom absolutely fell out. Again the importance is it confirms the fundamental theory that consumer spending is showing the initial signs of a severe pull back. A worrying signal to be certain as we would expect this pull back to begin impacting other areas of consumer spending. The reason is that American consumers typically do not voluntarily pull back like that on spending but do so because they have run out of credit. And if credit is running thin it will surely be felt in all spending.
But one chart doesn’t a story tell, and so we must continue in our quest to determine whether or not we are on the precipice of another crisis. Another early indicator I like to look at is wholesale trade. If any sector has its finger on the pulse of the consumer it’s the wholesale/distribution sector. These guys are constantly talking to retailers to gauge where the consumer is at any given time. So let’s have a look to see if wholesale trade is giving out any clues.
Currently we find ourselves on the bottom of the latest peak to trough draw down which has given up more than $100B in wholesale trade. Interestingly we should note that the last time we saw a $100B peak to trough draw down was between June 2008 and January 2009. However, while it took 7 months to give up $100B in wholesale trade during the Credit Crisis, we’ve just done it in only 4 months. What this means is that the wholesale trade sector has recognized what the chain store yoy sales chart above depicts, namely that the US consumer has begun to max out. This is further supported by the inventory levels as per the latest GDP print, which made up 1.24% of the .2% print (wait doesn’t that mean then…. yes you get it).
If I haven’t convinced you yet that we are entering the final phase before the Fed Crash well let’s carry on. Again, we’re looking for early indications as to what we can expect in output (economic activity) going forward. So why don’t we have a look at manufacturing new orders to gauge what’s going in the pipeline because that should tell us how much output to expect over the rest of this year.
The above chart depicts an ugly story if we’re hoping for an increase in output with just 1 of the past 7 months having had positive growth in new orders for US manufacturing. That is something we simply have not seen before, not even during the second half of ’08 and all of 09 in the darkest of period of the Credit Crisis. That fact alone should send a shiver down your spine.
Now it’s not like any of the above just happened yesterday so why is it that month on month and quarter on quarter we continue to hear that “well we failed again to reach the highly touted expectations for economic growth but all the signals are there for next quarter”? Shouldn’t we be hearing that there has now been a real downward shift in what was already a flat lined economy at best? Yes of course but unfortunately the media refuses to do its job as challenger to the status quo and our policy making economists are frauds. They are nothing more than puppets for the global powers that be. And the longer they can keep us from the truth the more well positioned they can be for the inevitable collapse.
But that doesn’t excuse we the people for so readily accepting the Fed’s extreme view that the US plummeting economy equates to “transitory weakness”. Although in fairness, we are hearing the economic news with the backdrop of a scorching equities market and so we kind of just go along with the Fed’s extreme message because it seems harmless enough so long as the market is still roaring. The same thing happens in all bubble cycles. That is, the Fed denies there is a material problem up to the point that they are scrambling to convince everyone that either it was impossible to see it coming or that they actually had warned everyone but it went unnoticed.
Have a look at the following excerpt from the March 28, 2007 Bernanke Economic Outlook, before the Joint Economic Committee (US Congress) and tell me if it sounds familiar despite you likely never having read or heard this previously.
“Business spending has also slowed recently. Expenditures on capital equipment declined in the fourth quarter of 2006 and early this year. Much of the weakness in recent months has been in types of capital goods used heavily by the construction and motor vehicle industries, but we have seen some softening in the demand for other types of capital goods as well. Although some of this pullback can be explained by the recent moderation in the growth of output, the magnitude of the slowdown has been somewhat greater than would be expected given the normal evolution of the business cycle. In addition, inventory levels in some industries–again, most notably in industries linked to construction and motor vehicle production–rose over the course of last year, leading some firms to cut production to better align inventories with sales. Recent indicators suggest that the inventory adjustment process may have largely run its course in the motor vehicle sector, but remaining imbalances in some other industries may continue to impose some restraint on industrial production for a time.
Despite the recent weak readings, we expect business investment in equipment and software to grow at a moderate pace this year, supported by high rates of profitability, strong business balance sheets, relatively low interest rates and credit spreads, and continued expansion of output and sales.”
Sound familiar?? It sure as hell does! This is exactly what we are being told now. Inventories are up, business spending has slowed, Capex is down but despite all of this recent economic weakness the Fed (and all mainstream economists) expect moderate growth this year. Additionally that the economy will be supported by high profitability, strong corporate balance sheets and low interest rates. Absolutely mind blowing how similar the storyline was back in March 2007 to today’s storyline. Let’s see if we can’t find some other similarities.
Now remember 2007 was just a precursor for the real wealth transfer that took place in H2 08. But as you can see in the above chart while the two periods depict very similar market movements, 2015 has generated the same pattern in a much more accelerated time frame. From this chart and the excerpt above I have a couple points. First is that we cannot listen to the Fed or any mainstream economists because we know they will be the last ones to realize or at least to acknowledge that a severe problem exists. So please don’t ever think things are ok because you’ve heard it so from Stevel Liesman or some other clown pretending to be an economist on television. The second point is that according to the excerpt above from Bernanke’s 2007 Economic Outlook, the fundamental landscape directly ahead of the Credit Crash appeared almost identical to what we are experiencing here in 2015. I would caution you not to quickly write it off as just a coincidence.
If you take the technical piece I wrote a week ago in conjunction with this more fundamental analysis, the economic storyline describes a precarious environment for equities certainly, but for our general quality of life too. If things do breakdown as they did in 2008 the pain and suffering will be much worse this time around. The reason is that median net worth is down 40% from where it was just before the last collapse. U6 unemployment is already twice what it was prior to the last downturn. Debt levels, both individual and public are at record highs. All of that means a much worse bottom than last time.
But probably the most disheartening aspect of the coming reset is that almost every retiree or soon to be retired household has just about 100% of their nest egg currently in equities. This means a significant market crash will create the largest single wealth transfer in the history of the world. I cannot stress enough that this is the time to be exiting equities altogether. There is very little if anything that could push equity valuations higher right now and a strong likelihood for markets to revert back in line with the still very broken economy. Protect yourself and preserver your family’s interests.
- "Peak" Clinton?
- 5 Things To Ponder: GDP – Love It Or List It
Submitted by Lance Roberts via STA Wealth Management,
My wife is a huge reality television show junkie, and despite male macho commentary to the contrary, every "happily" married man knows that it is "she" who controls the remote. Therefore, as a consequence of remaining "happily" married, I wind up watching more reality television than I would like. I reserve the hope that at some point we, as American's, will learn to STOP making stupid people famous.
There is a particular show that my wife likes to watch called "Love It or List It" where an interior designer and a realtor go head-to-head over a particular couple's housing related issue. That got me to thinking about the latest GDP report.
As discussed yesterday, the data trends on many fronts suggest that the current weakness is more than just weather related:
"The problem with the "weather excuse" is that temperatures were only "much below normal" in a relatively few states. The map below shows average temps across the U.S. for the 2014 winter period. Importantly, three of the most populous states – Texas, Florida, and California had normal to above normal temperatures for the winter period. But then again, maybe it was just "too hot" for shoppers as well."
"However, and importantly, this is why the Bureau of Economic Analysis "seasonally adjusts" the data to account for winter weather that tends to, surprisingly enough, happen during the winter.
Lastly, let's not forget that while economists are blaming the weather for weak first quarter GDP growth, they were also the ones that said GDP should get a boost from lower gas prices. So, assuming they right, then the savings from lower gas prices on a national basis should have offset any drag from weather related issues. Right? (Read this for why that didn't happen.)"
As I reviewed much of the commentary relating to the latest GDP report and economic outlook, the question that we must answer as investors is: Should we "love it or list it?"
1) Ignore The "Whiff Of Panic" As Economy Stall by Ambrose Evans-Pritchard via The Telegraph
"The US economy has suddenly stalled. A blizzard of shockingly weak figures raise the awful possibility that America's six-year growth cycle since the Great Recession has already rolled over, with unsettling implications for the world.
We should not ignore his warnings lightly, yet for once I am an optimist, clinging to the belief that the US will recover from the strange "air pocket" of early 2015. A siege of snow and ice across the North East over the late winter – for the second year in a row, and some say evidence of a drastically slowing Gulf Stream – has obscured the picture. The first flash of data is often wrong, in any case."
Read Also: The Economy's Biggest Weakness Is…Winter? by Matt O'Brien via The Washington Post
2) Another Winter Of Discontent by Matthew C. Klein via FTAlphaVille
"First off, investment spending, excluding inventory accumulation, knocked off about 0.4 per cent from total GDP growth last quarter — the worst performance since the recession ended (all rates are annualised). Had investment spending increased at its average rate since the start of 2011, excluding the first quarter of this year, then GDP growth would have been about 1.5 per cent in the past quarter, rather than 0.2 per cent. (And if my grandmother had wheels she’d be a wagon, but still…)."
Read Also: Another Lousy GDP Number To Forget by Richard Moody via Regions Bank
3) The Step Down In Long-Term Growth Rates Breaks Lower by GaveKal via Gavekal Capital Blog
"From 1974 to 2007, the long-term US growth rate in real GDP generally fell between 3-3.5% on annualized basis (excluding the v-shaped bounce from 1982-1984). We define long-term here by looking at the 10-year annualized percentage change. With the 1Q now in the books, this series just dropped to an all-time low of 1.46%."
Read Also: What's Driving The Economic Slowdown by Dr. Ed Yardeni via Dr. Ed's Blog
4) Be Skeptical Of The Weather Excuse by Chico Harlan via The Washington Post
"To be sure, the weather in some parts of the country between January and March was really bad. Boston got crushed by snow. So did Chicago. In the Northeast, this was the coldest winter in 30 years.
But the tie between weather and economic performance is often overstated, according to the small number of experts who’ve searched for a correlation. In fact, the data shows that only a few slices of the economy — manufacturing and construction, namely — can be hurt by a brutal winter. Retail sales, to a much lesser extent, can also feel a pinch. But weather alone won’t bring a humming economy to a halt."
Read Also: America's Risky Recovery by Martin Feldstein via Project Syndicate
5) The Harsh Winter Actually Boosted US Economy by Tyler Durden via ZeroHedge
"Which is why a quick look at what said Joe spent in the harsh winter reveals something stunning: no, not that the most consumed "service" was again healthcare – mandatory spending on Obamacare will be with us for a long, long time, "boosting" the US economy by this mandatory spending item.
No, what surprised even us is that far from subtracting from GDP growth, the harsh winter actually boosted consumption, in the form of Utility (i.e., heating) spending, which made up the second largest increase in personal consumption in the first quarter. Because, to every economist's cries of horror, freezing weather while perhaps reducing discretionary spending actually boosts spending on such mundane, if very expensive, tasks as utilities which, to the same economists, also translates into growth."
BONUS READS
It's Going To Take A Major Bear Market To Meet Investor Expectations? by Jesse Felder via The Felder Report
"What investors need to know today is that they are currently priced just as high as they were back then! The problem is they once again want their cake and to eat it, too. Despite paying an extremely high price for stocks today they also expect a high rate of return. A few recent polls show investors expecting to get 10% per year from their equity investments right now. Some are even expecting to generate twice that much and there’s just no chance it’s going to happen."
Things People Say During A Bull Market by Ben Carlson via Wealth Of Common Sense
"On Fair Value:
Bears: We think the market’s fair value is much lower than current levels. (Translation: We have to say it’s way lower than the level where we called for a crash four years ago.)
Bulls: We think the market is fairly valued at current levels. (Translation: I have no idea what the fair value of the market is and neither does anyone else.)
Investment Strategists: If earnings grow at a consistent rate forever into the future and you slap a P/E ratio of 16x on the market we think stocks will rise 8-10% this year. (Translation: Stocks are up 3 out of every 4 years so if I keep predicting this I’m bound to be right eventually.)
Value Investors: The market is overvalued but our stocks are trading at a 30-40% discount to fair value.
Growth Investors: The monthly active user numbers are off the charts for this 3 person company that’s worth $50 billion."
"They say that it was so hot in the city today, grown men were walking up to cops on street corners begging them to shoot them.” – Glengarry Glen Ross
Have a great weekend.
- Muted May-Day Volume Sparks Hey-Day For Stocks
We are up today because we were down yesterday… and every data item today was completely abysmal! Only one way to play…
With most of the rest of the world enjoying "May-Day", volumes were dismal as it seemed the machines had no one to play with… S&P e-mini volume 30% below recent (weak) average! And half yesterday's
Happy May Day, from your Federal Reserve! #FedHistory pic.twitter.com/BlJXongaft
— Rudolf E. Havenstein (@RudyHavenstein) May 1, 2015
Which can only mean one thing!!! From Wednesday's FOMC, the S&P shows that The Fed knows what it is doing and closes green just
All surging today, led by Trannies but notice Small Caps went nowehere from the opening ramp…
On the week – eveything was red but Small Caps stood out – worst week in over 6 months
What Really Matter Though!! Dow 18,000; S&P 2,100; and Nasdaq 5,000 – Mission Accomplished into a sports-frenzied weekend
There was some ugliness… Flash Crashes this afternoon…
$LLY just flash crashed – all exchanges participated pic.twitter.com/IYFq0vFwty
— Eric Scott Hunsader (@nanexllc) May 1, 2015
Social Media Carnage…
But today everyone loved Biotechs…
Credit markets were considerably less excited than stocks today
Treasury yields were extremely ugly this week – 3rd worst week of the year…
The dollar's early weakness today rebounded as the buying frenzy ensued in stocks… still a notably weak week for the USDollar. (4th worst week in 2 years)…
Commodities were mixed today with gold and silver smacked early on (and crude) but copper just kept soaring as China reflation is back in vogue (gold ended lower for the 3rd week in a row) – it's pretty clear what time of day to be trading…
Copper's biggest week since 2011…
Some context for all of this…
Charts: Bloomberg
Bonus Chart: WTF! A new 6 year low in US Macro and Fwd EPS stagnant
- What Happens When You Hand Over Your Gold To The Bank Of England For "Safekeeping"
“The Bank for International Settlements is the bank which sanctions the most notorious outrage of this generation— the rape of Czechoslovakia.”
— George Strauss, Labor MP, speaking in the House of Commons, May 1939
“the Bank for International Settlements should be liquidated before it
furnished any more sinews of war to Germany, and that the odd
relationship between the British government and the Bank of England
should be re-examined without delay.”— “Sees British Hands Tied on Czech Gold,” New York Times, June 6, 1939
When Nazi Germany annexed the Czechoslovak border province of the Sudetenland in September 1938, it immediately absorbed a good part of the country’s banking system as well as most of Czechoslovakia’s strategic defenses. By then the country’s national bank had prudently transferred most of its gold abroad to two accounts at the Bank of England: one in the name of the BIS, and one in the name of the National Bank of Czechoslovakia itself. (Countries had deposited some of their gold reserves in a sub-account at the BIS account in London to ease gold sales and purchases.) Of the 94,772 kilograms of gold, only 6,337 kilograms remained in Prague. The security of the national gold was more than a monetary issue. The Czechoslovak reserves, like those of Republican Spain, were an expression of nationhood. Carved out of the remains of the Austro-Hungarian Empire in 1918, the Czechoslovak Republic was a new and fragile nation. A good part of the gold had been donated by the public in the country’s early years. Josef Malik, the governor of the national bank, and his fellow Czechs believed that, even as the Nazis’ dismembered their homeland, if the national gold was safe, then something of the country’s independence would endure.
They were wrong. The Czechoslovaks’ faith in the probity of the BIS and the Bank of England was tragically misplaced. The gold was sacrificed, with barely a second thought, to the needs of transnational finance and the Third Reich.
The Nazis’ first demand came in February 1939 when Berlin ordered Prague to transfer just over 14.5 metric tons of gold, supposedly to back the German currency now circulating in the Sudetenland. This was certainly an innovative idea— first invade a neighboring country, annex part of it, and then demand that the newly truncated state supply the gold to pay for the loss of its territory.
The following month the question became academic. On March 15 the Wehrmacht marched into Prague. The German protectorate of Bohemia and Moravia was declared, and Czechoslovakia no longer existed. But the gold reserves did. Three days later a Reichsbank official was dispatched to the National Bank of Czechoslovakia and ordered the directors, under the threat of death, to issue two orders. Thanks to diligent detective work by Piet Clements, the BIS archivist, we have a clear picture of what happened next. The first order instructed the BIS to transfer the 23.1 metric tons of Czechoslovak gold held at the BIS account at the Bank of England to the Reichsbank BIS account, also held at the Bank of England. The second order instructed the Bank of England to transfer almost 27 metric tons of gold held in the National Bank of Czechoslovakia’s own account to the BIS’s gold account at the Bank of England.
Malik and his fellow directors hoped that it would be obvious that the instructions had been issued under duress and so would not be implemented. The Nazis had just invaded Czechoslovakia and would obviously target the national gold reserves. But Malik had not reckoned on Montagu Norman. The governor of the Bank of England had no interest in whether Czechoslovakia was free or a Nazi colony. “Political” considerations must not affect the BIS’s transactions. The transfer order, he said, must go through.
Meanwhile, in Basel, Johan Beyen, the Dutch president of the BIS, wavered. Beyen discussed the matter with the BIS’s legal adviser, Felix Weiser. But like Norman, Weiser took the most formalistic approach possible. As long as the paperwork was in order, the monies must go through. Weiser argued, somewhat bizarrely, that there could be no legal grounds to claim that the transfer order had been issued under duress, as such a plea could be brought before a Swiss court only by the persons who had acted under duress. Clearly, the directors of the National Bank of Czechoslovakia were unlikely to travel to Switzerland to present their case. Therefore any decision not to authorize the transfer would be one of BIS policy, rather than administration. The board of the BIS made policy. Thus Beyen would have to consult the board to stop the payment. (This was poor advice for another reason— under the terms of the BIS statutes the Swiss authorities anyway had no jurisdiction over gold transfers between states.)
Beyen was unwilling to take a decision without authorization. But who could he ask? The chairman of the BIS board, Sir Otto Niemeyer, of the Bank of England, was traveling to Egypt and so was incommunicado. At 6 p.m. on March 20, Roger Auboin, the bank’s general manager, told Beyen that the governor of the Bank of France had discussed the matter with London. The Bank of England and the Bank of France would not be taking any action to stop the transfer, because they felt that there were no grounds for action. The BIS transfer order went through.
With London, Paris, and Basel’s compliance, Nazi Germany had just looted 23.1 metric tons of gold without a shot being fired. More than two-thirds of that gold was traded with the Dutch and Belgian national banks and was eventually transported from Amsterdam and Brussels to the Reichsbank’s vaults in Berlin. Czechoslovakia’s diligent planning to safeguard its national gold reserves, together with its misplaced faith in the integrity of the new international financial system, had come to nothing. The second transfer order for the 27 metric tons held in the National Bank of Czechoslovakia’s own account at the Bank of England did not go through. Sir John Simon, the chancellor of the Exchequer, had instructed banks to block all Czechoslovak assets. But Czechoslovak gold held in a BIS account at the Bank of England, it seemed, was not defined as a national asset and was beyond the reach of UK laws.
Norman and Beyen’s decision caused despair and incomprehension in Prague and uproar in London. The loss of the Czechoslovak gold was all “Norman’s fault,” exclaimed the Daily Herald. Paul Einzig, of the Financial News, ran a stream of stories exposing the complicity of both the treasury and the Bank of England in the affair. Einzig demanded to know why the treasury had not stopped the transfer, as it was in clear violation of the law known as the Czechoslovakia Act. Brendan Bracken, a journalist and ally of Winston Churchill, declared in the House of Commons that “the Bank of England after what has happened may no longer be looked on as the safest place in the world and the phrase ‘Safe as the Bank of England’ may no longer apply.” Churchill himself demanded to know how the government could urge people to enlist in the military when it was “so butter-fingered that six million pounds of gold can be transferred to the Nazi government.”
The real villain of the affair was Norman. Beyen, who later served as Dutch foreign minister and as executive director of the International Monetary Fund, was an ineffectual bureaucrat, paralyzed by the idea that he might have to take responsibility for a decision. Norman could have stopped the transfer immediately. He was the governor of the Bank of England, which held the two BIS accounts involved. At the very least he could have asked for the transfer to be referred to the BIS board for a decision, which would also have been a face-saving measure. He chose not to do so. It was clear that war was coming, one that Britain would have to fight. The Nazi invasion of Czechoslovakia had destroyed the last hopes of peace. That country’s gold reserves, held in London, were now a British national security issue.
Yet Norman’s priority was not the best interests of his homeland, but rather the independence of his beloved BIS. Even as the shells were loaded into the German tanks, Norman still believed that for the bankers it could be business as usual. Nothing could interfere with the bankers’ sacred neutrality and gentlemanly trust in one other, not even the coming conflagration with a regime whose evil was now plain to see. The Bank of France had refused to stop the transfer but had also asked Norman to block it. Norman was adamant. There could be no political interference in the operations of the BIS, even, it seemed, when they were ordered at gunpoint.
Norman did not express any regret at all over the Czech gold transfer. In fact, he was positively indignant at the very idea that the British government might have some say in the bank’s actions. He wrote, “I can’t imagine any step more improper than to bring government into the current banking affairs of the BIS. I guess it would mean ruin. I imagine the Germans would never have paid any interest to the BIS, and at the board we would have then likely have found the Germans, Italians, and Japs standing together!” Norman then lied to Sir John Simon, the chancellor of the Exchequer, albeit with a very telling falsehood. Simon asked Norman if he could not have warned the government that, thanks to the BIS, Germany was about to acquire “large additional financial strength.” Norman told Simon that while the Bank of England held gold for the BIS, it did not know if the gold was actually owned by the BIS or was held by the BIS for other central banks. This was untrue, as Norman later admitted. Norman then made a significant, even shocking, admission. He told Simon that “he was very doubtful that he would have thought it his duty, as Director of the BIS, to make a statement about its transactions to the British government.”
Norman even wrote to Beyen to clarify the matter and to assure the BIS president where his ultimate loyalties lay in Basel. Norman did not want to publicly correct the minutiae of what was being reported in the press and Hansard, the British parliamentary journal— that the Bank of England did not know whose gold was held in the BIS accounts— as that would expose him. “The difficulty is that if I point out to the Treasury that this is incorrect, I lay myself open to being asked details of BIS transactions, which I do not consider the Treasury are entitled to know.” This was little short of treason. As Norman’s compatriots were enlisting in the military, preparing to risk their lives for the freedoms and luxury that he enjoyed, as his country prepared for the war against the Nazis that all knew was coming, Norman blithely announced that his primary loyalty was not to Britain, but to a hyper-privileged, international bank that was not even a decade old.
The mistake of Malik, the director of the National Bank of Czechoslovakia, was to believe that either Norman, Beyen, or indeed any of the BIS management could conceive of any moral or political dimension to their decisions. The world’s most powerful international bankers were not only unwilling to obstruct the Nazi seizure of Czechoslovak— or Austrian— assets. They simply could not conceive of any reason why they should do so. As long as the formalities were observed, the necessary papers were stamped and the gold was re-assigned. Norman’s precious independence for both the Bank of England and the BIS had been bought at a high price— in mountains of gold ingots to pay for steel to build bombs that would soon rain down on London.
* * * * *
… the affair had highlighted the deeply unsettling connections between the Bank of England, the British government, and the BIS. There was a good deal of cross-party feeling in Britain, reported the New York Times, that “the Bank for International Settlements should be liquidated before it furnished any more sinews of war to Germany, and that the odd relationship between the British government and the Bank of England should be re-examined without delay.” The New York Times then was able to assume that its readers would understand a classical allusion. The word “sinews” was a reference to an epithet of Cicero, the Roman philosopher, who had said, “The sinews of war are infinite money.” Cicero’s observation was as prescient then as during the late 1930s. But those who wanted the BIS to be liquidated were too late. Thanks to the BIS the “sinews of war” and the flow of near-infinite money were about to be immeasurably strengthened.
Source: TOWER OF BASEL: The Shadowy History of the Secret Bank that Runs the World by Adam LeBor.
- Five Charts Showing the US is Back in Recession
The US economy is veering towards recession.
The ”official” GDP growth number is so heavily massaged that it borders on fiction. So as far as economic growth goes, if you want a clear picture, you need to look at nominal GDP growth. The reason for this is that because the Fed greatly understates inflation, the official GDP numbers are horribly inaccurate.
By using nominal GDP measures, you remove the Feds’ phony deflator metric. With that in mind, consider the year over year change in nominal GDP that has occurred.
Historically, anytime the chart drops to 4, the US has been in recession. It’s been around this number ever since the recession “ended” in 2009. Small wonder this “recovery” feels like a recession to most Americans.
However, even in this weak climate, we are getting signs that the US economy is rolling over.
Consider the recent rejections of credit applications data:
Then there is the collapse in corporate profits. (h/t Societe General)
Indeed, annual corporate profits fell in 2014. The last time profits fell like this was in 2008, when the US was already in recession.
We also have the Regional Manufacturing Surveys and Dallas Fed Inventory (both H/T Not Jim Cramer) hitting levels associated with recessions.
Numerous data points are showing the economy is approaching if not already in recession. And yet stocks are pricing in economic perfection. By the time they catch on… we’ll see a serious market correction.
If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis "Round Two" Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.
You can pick up a FREE copy at:
http://www.phoenixcapitalmarketing.com/roundtwo.html
Best Regards
Phoenix Capital Research
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