Today’s News May 30, 2015

• 10 Things We Had To Unlearn That Our Children Won't

  Submitted by The Dissident Dad, via Mike Krieger's Liberty Blitzkrieg blog,

  This list could grow to 1,000 ideas, but I’ve kept it down to ten. In the future, I might update it and add some more.

  There are a lot of bad ideas that dominate the world we live in today, most of which are uncritically accepted as the norm and fully embraced by society.

  As a millennial myself, I’ve noticed my peers seem to accept most of these as conventional wisdom. Hook, line, and sinker.

  Here are some ideas I was propagandized with that I hope my children will never have to “unlearn.”

  1. Violence is normal.

  Presidential candidates today are fighting over who can kill better by using drones or boots on the ground. By constantly threatening the use of violence against other countries, statists have conditioned the population into thinking that killing tens of thousands of people is normal behavior, instead of the immoral, dangerous provocation it is. Rather than being charged with murder, politicians and others that help support this behavior are often paid $250,000 or more a speech after they leave office, and referred to as Mr. President or former Chairman of the Federal Reserve.

  Video games, movies, television shows, and even toys all have a common theme: death and destruction. For example, there’s nothing like teaching your child about policing in 2015 America via these Playmobil toys:

   

  

  This isn’t normal; this is psychotic. And the sociopaths that rule over us are murdering and imprisoning people every day because “we the people” are not only allowing it, but often times, cheering it on.

  Outside of self-defense, respecting other peoples’ property should become the new norm.

   

  2. Political parties govern differently. 

  As a former Republican, I used to hate the Democrats. Now I see these two parties as just two wings on the same beast.

  It’s true that they run with different themes and talking points, but in the end, they govern the same. They share the top donors, vote yes on the same wars, and never roll back a single thing the other does once in power.

  Bush picked Bernanke to run the Fed, and Obama re-nominated him. Republicans like Nixon ran on an anti-war platform during the Vietnam era, until Reagan/Bush took over in the 80’s. Then the Democrats were anti-war in the 2000s, until Obama took over in 2008. Clinton, Bush, Obama… looking back at the last 25 years, I don’t see how anything has changed in the U.S. with regard to foreign policy, spending, or lying about U.S. economic data.

  The oligarchs have us all fooled. Political parties are nothing more than spectator sport for a dumbed down public.

   

  3. Patriotism is a virtue. 

  Why? It was an accident that I was born here. Am I grateful to be living in the U.S., surrounded by family and friends? Yes. All the same, I owe the U.S. government nothing. I am a sovereign man, and shouldn’t have to subscribe to any group or nation just because I happened to be born in a part of the world called North America.

  I love everyone in this world, and I am not going to express loyalty for a specific region like a sports fan who loves his team only because it’s in the same city he resides in.

  Governments are dangerous, and the U.S. is the most dangerous one at the moment. My love for the U.S. is no more than my love for the Bahamas or Europe.

   

  4. Illegal aliens are evil criminals who desire to collect welfare from taxpayers.

  For a long time, I couldn’t stand these people. Nevertheless, if I wasn’t randomly born in Los Angeles and was instead born just 144 miles south, in Tijuana, I would be doing the exact same thing the illegal aliens are doing. I would be attempting to better my life and my children’s lives by migrating north. Humans moving to different regions is a natural event; the only unnatural thing is the imaginary lines we call borders.

  As far as the welfare, that’s a symptom of the disease we call government. It’s like me taking a tax deduction. While I don’t support the income tax, I’m not stupid, and I’m going to do everything I can to game the system and benefit myself.

   

  5. Taxes are justified at gunpoint.

  Taxes with the threat of jail or violence is wrong. I’m sorry, but I don’t owe you or anybody else a portion of the fruits of my labor – especially not under the threat of violence.

   

  6. War is good for the economy.

  I was told at a very young age, and even in high school, that war helped the economy boom. When you think about it, it makes no sense. Using production lines to create products that blow up into nothing is a tremendous waste of resources. Looking back, after WWII the U.S. cut spending by 50% and reduced the military from 12 million to 1.5 million. The evidence from the late 40’s and 50’s is that the economy boomed when we had less war.

   

  7. Terrorists hate our freedom and culture. 

  Are there extremists? Absolutely. But the fact is the U.S. has troops in so many countries (see: The Golden Age of Black Ops – In Fiscal 2015 U.S. Special Forces Have Already Deployed to 105 Nations), and has a horrible track record of toppling democratically elected governments, supporting sociopaths, and arming rebels who later become “terrorists.” It’s no wonder than these policies occasionally come home to roost.

  For one second, imagine that a nation bombed your neighbor and killed your son. What would your reaction be? These are the situations thousands across the world face on a consistent basis.

  What if Iran had troops in Mexico and Canada, ships off our coasts, and drones over our air space? Would we want a nuclear bomb for defense?

  George Washington was a terrorist in the eyes of Great Britain. If you want to know who’s dishing out much of the tyranny and chaos in the Middle East, as an American, you don’t have to look far from home.

   

  8. The U.S. has a free market economy.

  This is seriously stupid, but college professors and politicians repeat this mantra every day. In reality, the economy is so centrally planned that if the Fed alters one sentence in their statement, the Dow Jones could rally or fall by 200 points in an hour.

  Here’s another fact. Nearly 50% of America’s EBT program in Oklahoma went straight to the coffers of one company: Walmart.

  Meanwhile, regulations in some industries have forced business to have an entire division dedicated just to compliance. Even worse, many of these regulations are pushed by the larger corporations in order to drown out the competition with bureaucracy they can’t possibly afford.

  There is no free market in the U.S. – only crony capitalism, manipulation, and a centrally planned system manned by busybodies.

   

  9. U.S. troops are dying for my freedom.

  This is a tough one, because you want to naturally love and respect anyone who does something for you, especially if it’s to protect you from harm. The only reason I even bring this up is because many of the troops are honest, decent young men looking to serve their country or be a part of something greater than themselves. Nevertheless, these men and women are merely being used and abused in a Game of Thrones-esque battle for global wealth and power. They are often just collateral damage for large corporations looking to expand their businesses into territories and countries that, without U.S. military intervention, would likely be thrown out by the locals.

  I genuinely think the troops are willing to die for my freedom, but the corrupt American Empire poses a much greater threat to my freedom than any outside enemy we are constantly taught to fear.

   

  10. My vote matters. 

  Remember in 2006 when the Democrats were going to get our fiscal house in order? Or was that in 2010, when the Republicans were going to do the same? I don’t know, but your vote doesn’t matter. The populace is easily manipulated and/or asleep when it comes to matters of importance, so why bother.

  The vote counters and the media have already decided who’s acceptable and, of course, at the end of those strings are the oligarchs who run the world. See my post from last year: Election 2014 – Why I Opt Out of Voting.

  Edward Snowden sacrificed his freedom to alert voters of high crimes in the U.S government, and many Americans have no idea who he is. Meanwhile, most politicians want to try him for treason.

  *  *  *

  Summary: The good news is that because of the communications revolution we are in right now, I truly feel like there is a great awakening happening. We see it in the alternative media boom, blogs like Liberty Blitzkrieg, ZeroHedge, and others are currently challenging conventional wisdom with ferocity and success.

  We need to keep fighting.

  

  
  
  

  

• How FIFA Makes (And Spends) Its Money

  Following today's "successful" vote confirming Sepp Blatter's 5th term running the farce called FIFA, and amid soccer's governing body being investigated by US and Swiss authorities over claims of corruption, we thought a summary of just where the money comes from and (apart from the $150 million in bribes and kickbacks to 14 executives) where it goes for the Swiss-based entity…

   

  How does the Zurich-based multi-million-pound organisation make its money and what does it spend it on?

  

  The US-led part of the twin investigations is looking at corruption among members of the Concacaf and Conmebol, the confederations that represent national associations across the Americas and the Caribbean, but the entire structure is considerably more broad…

  

  Any uncertainty around the World Cup is a major concern to the organisation. Fifa's own financial reports give a clear indication of how reliant the organisation is on the income each tournament generates.

  The World Cup is the most lucrative sporting event in the world, eclipsing even the Olympics. The 2014 qualifying rounds and final tournament brought in $4.8bn (£3.1bn) over four years and, after costs are taken into account, Fifa made a profit of more than $2bn.

  Profit from the 2014 World Cup

  

  How much money does Fifa hold on to?

  Fifa re-invests the majority of its revenue but it does hold on to a proportion of any profit to create a cash reserve. Fifa says that the reserve is important as it is extremely difficult to find insurance to cover the possible last-minute cancellation of a World Cup.

  The value of this reserve has grown sharply in the last decade from $350m (£228.6m) in 2005 to more than $1.5bn (£1bn) in 2014.

  

  The US indictment alleges over $150m (£97m) in corruption during a period of over 20 years. That currently equates to around 10% of the money Fifa has on hand for emergencies.

  A further worry for FIFA is that its sponsors and "partners" (extra-privileged sponsors) seem displeased by the latest bout of scandals. Coca-Cola are concerned that such accusations have “tarnished” the World Cup. Visa has warned that it may reassess its FIFA sponsorship unless the organisation can come to grips with its internal problems.

  That is money FIFA will not want to lose. Marketing is a cornerstone of FIFA’s swelling balance sheet, accounting for about a third of its $2 billion in yearly revenues.

  

   

  Increased interest in football from Asia and Africa has swelled the flow of money from television-broadcasting rights. A favourable tax status in Switzerland helps too: FIFA only pays around 1% of its income to state coffers. With cash rolling in, the organisation has built up healthy reserves of $1.5 billion, ostensibly for a rainy day.

  At long last the storm clouds appear to be gathering.

  Source: The BBC and The Economist

  *  *  *

  However, the most importantchart for FIFA is the following… Spot The Odd One Out…

  

   

  

  

  
  
  

  

• How US And China Can Avoid A War (Spoiler Alert: The US Won't Like It)

  Authored by John Glaser, originally posted at The Guardian,

  To avoid a violent militaristic clash with China, or another cold war rivalry, the United States should pursue a simple solution: give up its empire.

  Americans fear that China’s rapid economic growth will slowly translate into a more expansive and assertive foreign policy that will inevitably result in a war with the US. Harvard Professor Graham Allison has found: “in 12 of 16 cases in the past 500 years when a rising power challenged a ruling power, the outcome was war.” Chicago University scholar John Mearsheimer has bluntly argued: “China cannot rise peacefully.”

  But the apparently looming conflict between the US and China is not because of China’s rise per se, but rather because the US insists on maintaining military and economic dominance among China’s neighbors. Although Americans like to think of their massive overseas military presence as a benign force that’s inherently stabilizing, Beijing certainly doesn’t see it that way.

  According to political scientists Andrew Nathan and Andrew Scobell, Beijing sees America as “the most intrusive outside actor in China’s internal affairs, the guarantor of the status quo in Taiwan, the largest naval presence in the East China and South China seas, [and] the formal or informal military ally of many of China’s neighbors.” (All of which is true.) They think that the US “seeks to curtail China’s political influence and harm China’s interests” with a “militaristic, offense-minded, expansionist, and selfish” foreign policy.

  China’s regional ambitions are not uniquely pernicious or aggressive, but they do overlap with America’s ambition to be the dominant power in its own region, and in every region of the world.

  Leaving aside caricatured debates about which nation should get to wave the big “Number 1” foam finger, it’s worth asking whether having 50,000 US troops permanently stationed in Japan actually serves US interests and what benefits we derive from keeping almost 30,000 US troops in South Korea and whether Americans will be any safer if the Obama administration manages to reestablish a US military presence in the Philippines to counter China’s maritime territorial claims in the South China Sea.

  Many commentators say yes. Robert Kagan argues not only that US hegemony makes us safer and richer, but also that it bestows peace and prosperity on everybody else. If America doesn’t rule, goes his argument, the world becomes less free, less stable and less safe.

  But a good chunk of the scholarly literature disputes these claims. “There are good theoretical and empirical reasons”, wrote political scientist Christopher Fettweis in his book Pathologies of Power, “to doubt that US hegemony is the primary cause of the current stability.” The international system, rather than cowering in obedience to American demands for peace, is far more “self-policing”, says Fettweis. A combination of economic development and the destructive power of modern militaries serves as a much more satisfying answer for why states increasingly see war as detrimental to their interests.

  International relations theorist Robert Jervis has written that “the pursuit of primacy was what great power politics was all about in the past” but that, in a world of nuclear weapons with “low security threats and great common interests among the developed countries”, primacy does not have the strategic or economic benefits it once had.

  Nor does US dominance reap much in the way of tangible rewards for most Americans: international relations theorist Daniel Drezner contends that “the economic benefits from military predominance alone seem, at a minimum, to have been exaggerated”; that “There is little evidence that military primacy yields appreciable geoeconomic gains”; and that, therefore, “an overreliance on military preponderance is badly misguided.”

  The struggle for military and economic primacy in Asia is not really about our core national security interests; rather, it’s about preserving status, prestige and America’s neurotic image of itself. Those are pretty dumb reasons to risk war.

  There are a host of reasons why the dire predictions of a coming US-China conflict may be wrong, of course. Maybe China’s economy will slow or even suffer crashes. Even if it continues to grow, the US’s economic and military advantage may remain intact for a few more decades, making China’s rise gradual and thus less dangerous.

  Moreover, both countries are armed with nuclear weapons. And there’s little reason to think the mutually assured destruction paradigm that characterized the Cold War between the US and the USSR wouldn’t dominate this shift in power as well.

  But why take the risk, when maintaining US primacy just isn’t that important to the safety or prosperity of Americans? Knowing that should at least make the idea of giving up empire a little easier.

   

  

  

  
  
  

  

• Europe Has A Solution For The Unemployment Problem: Fake Jobs

  The jobs gap that has characterized the global economy since the crisis has cost some $1.2 trillion in lost wages and nearly $4 trillion in GDP. Employment growth worldwide has been just 1.4% since 2001, well below the 1.7% pace that prevailed prior to 2008. The result: there are 61 million fewer people employed globally than there would have been if pre-crisis trends had prevailed. 

  In the eurozone, where unemployment stands at 11.3% and where some countries — Spain being a prime example — are struggling under unemployment rates that approximate what the US experienced during the Great Depression, the ECB has been forced to effectively abandon its “single mandate” of promoting price stability in favor of a stance that’s more in-line with the Fed’s dual mandate that encompasses both price stability and maximum employment.

  Against this backdrop, many Europeans are struggling to find work, but have no fear, Europe has a solution: fake jobs. The New York Times has more:

  At 9:30 a.m. on a sunny weekday, the phones at Candelia, a purveyor of sleek office furniture in Lille, France, rang steadily with orders from customers across the country and from Switzerland and Germany. A photocopier clacked rhythmically while more than a dozen workers processed sales, dealt with suppliers and arranged for desks and chairs to be shipped.

   

  Sabine de Buyzer, working in the accounting department, leaned into her computer and scanned a row of numbers. Candelia was doing well. Its revenue that week was outpacing expenses, even counting taxes and salaries. “We have to be profitable,” Ms. de Buyzer said. “Everyone’s working all out to make sure we succeed.”

   

  This was a sentiment any boss would like to hear, but in this case the entire business is fake. So are Candelia’s customers and suppliers, from the companies ordering the furniture to the trucking operators that make deliveries. Even the bank where Candelia gets its loans is not real.

  Candelia is one of a number of so-called “Potemkin” companies operating in France. Everything about these entities is imaginary from the customers, to the supply chain, to the banks, to the “wages” employees receive and while the idea used to be that the creation of a “parallel economic universe” would help to train the jobless and prepare them for real employment sometime in the future, these “occupations” are now serving simply as way for the out-of-work to suspend reality for eight hours a day. Here’s The Times again:

  These companies are all part of an elaborate training network that effectively operates as a parallel economic universe. For years, the aim was to train students and unemployed workers looking to make a transition to different industries. Now they are being used to combat the alarming rise in long-term unemployment, one of the most pressing problems to emerge from Europe’s long economic crisis.

   

  Ms. de Buyzer did not care that Candelia was a phantom operation. She lost her job as a secretary two years ago and has been unable to find steady work. Since January, though, she had woken up early every weekday, put on makeup and gotten ready to go the office. By 9 a.m. she arrives at the small office in a low-income neighborhood of Lille, where joblessness is among the highest in the country.

   

  While she doesn’t earn a paycheck, Ms. de Buyzer, 41, welcomes the regular routine. She hopes Candelia will lead to a real job, after countless searches and interviews that have gone nowhere.

   

  “It’s been very difficult to find a job,” said Ms. de Buyzer, who like most of the trainees has been collecting unemployment benefits. “When you look for a long time and don’t find anything, it’s so hard. You can get depressed,” she said. “You question your abilities. After a while, you no longer see a light at the end of the tunnel.”

  This comes as Europe’s long-term employment problem deepens and triggers what we have described as a sell-fulfilling prophecy wherein unemployment leads to lower aggregate wages which in turn spells lower consumer spending, crippling the economy and discouraging companies from hiring:

  Yet long-term unemployment — the kind that Ms. de Buyzer and nearly 10 million others in the eurozone are experiencing — has become a defining reality.

   

  Last year, a staggering 52.6 percent of unemployed people in the eurozone were without work for a year or more, the highest on record, according to Eurostat, and many of those have been jobless more than two years.

   

  “If you have a significant part of the population that’s not integrated, they won’t increase their spending, which dampens a possible recovery,” said Paul de Grauwe, a professor of European political economy at the London School of Economics. When a large number of people go jobless for long stretches, “you also subdue optimism, which will weigh on an economic turnaround”…

   

  “It’s worrisome because we’re talking about many people who have been out of work for a very long time,” said Stefano Scarpetta, the director of employment, labor and social affairs at the Organization for Economic Cooperation and Development. “Their skills can become obsolete. They get stigmatized. They risk being disconnected from the workplace and society, with negative implications for them, their families and the economy.”

  Of course, in today’s global economy, it’s difficult to propser even if you’re a make-believe company which is why it shouldn’t surprise you to learn that “Animal Kingdom”, a fake pet store, is on the verge of fake bankruptcy:

  She looked at a stack of invoices, including some orders from virtual companies that had not been paid. “If this keeps up we’ll go out of business,” Mrs. Banuelos said, handing the papers to two women with instructions to follow up. “What’s our strategy to improve profitability?” she asked the group.

  But never fear Potemkin companies, because you are not alone. There are other entities out there who are going bankrupt on paper while making things up as they go along in a “parallel” universe — those entities are called “central banks.”

  

  

  
  
  

  

• New York Investment Banker Jumps To His Death From Luxury Downtown Building

  Yesterday, New Yorkers walking by the Ocean Luxury Rental apartment building at 1 West St around 10:40am, were greeted with a gruesome sight: a 29-year-old man had just jumped to his death from the 24th floor.

  unclear ID apparent suicide Traffic to Man Bridge on FDR. @NYPD wanted me gone @NYPDAlerts http://t.co/e0K0hfCcw3 pic.twitter.com/cgHdH013eh

  — Todd Maisel (@ToddMaisel) May 28, 2015

  Battery Place near the Tunnel is jammed. Jumper down at 17 Battery Pl @NYPD on scene @NYDailyNews pic.twitter.com/jEa6zm8YD1

  — Todd Maisel (@ToddMaisel) May 28, 2015

  According to initial reports, the man landed on a car that was driving toward the Battery Tunnel at the time. He was pronounced DOA at the scene.

  Today, we learn that the tragic incident was merely the latest banker suicide, when according to the NY Post the still jumper was the latest in a long series of investment bankers who have decided to take their own life.

  The 29-year-old man has been identified as Thomas J Hughes. The youngest of three brothers, Thomas was educated at the $52,000 a year Canterbury School in Milford, Connecticut and graduated with a degree in economics at Northwestern University where he was on the Varsity squash team before heading to Wall St and getting a job with Citibank 

  Most recently he was an associate at investment bank Moelis.

  Hughes plunged from the 24th floor of the luxury Ocean apartment building at 1 West St. at about 10:40 a.m. and landed on a guardrail near the northbound Battery Park Underpass, narrowly missing a black SUV, in what appears to have been a premeditated suicide.

  The man’s body was mangled by the impact, leaving one of the vehicle’s passengers horrified, witnesses said.

   

  “I went outside, and the woman in the car was screaming, ‘I didn’t know where he came from!’ ” said Hans Peler, 48, a manager at the building’s parking garage. “It happened right in front of our guy who waves cars in with the flag. He was so shaken up, I told him to go home.”

  

  A spokeswoman at Moelis & Company shared her condolences according to the Daily Mail: “We are saddened by the news of Tom’s death and send our sincere condolences to his family and friends at this very sad time. “Tom was a talented and valued team member and a positive force in our firm. He will be greatly missed.”

  John Hughes, the father of the investment banker, said that he fears his son turned to drink and drugs to cope with the stress of work. He said Thomas had been under a ‘lot of pressure’ and that he even had to work on a recent holiday in the Bahamas, adding that his son was someone who “liked to work hard and liked to party” and feared that he found release in illegal drugs which turned him suicidal.

  ‘Thomas was a happy, jovial, successful, good looking, very sociable individual.

   

  ‘The only explanation is that I know he’s been working very hard and has been under a lot of pressure.

   

  ‘His work did not leave much time for enjoyment but that’s the nature of the assignment that he chose.

   

  ‘I also know that sometimes when one is in that environment you can turn to alcohol or other types of drugs…

   

  ‘…at a time when he was under stress he probably resorted to illegal drugs, causing this incredibly poor judgement, is probably the best I can say.

   

  ‘He must have had some problems that I was not privy to.’

  Tourists in a nearby open-air bus that was stuck in traffic, saw more than they bargained for when the gruesome scene unfolded right in front of them. Then they quickly found their bearing and realized the tragedy would look perfect on their Instagram profile, and scrambled for their cellphones to snap pictures of the body, said workers at the building.

  “The head hit the railing . . . Half his head is on one side of the railing, half on the other,” recalled Frank Rodriguez, 44, a handyman who was working nearby. “It’s never worth this . . . Life is too precious.”

   

  Sources said the young banker had made several attempts to kill himself earlier in the morning, including cutting his wrists, before making the plunge.

   

  The man — whom police did not immediately identify — was from a wealthy family in Westchester County, sources said. He had apparently become very successful on his own.

   

  He owned his apartment in the 36-story Ocean complex, which overlooks The Battery and New York Harbor, and had just returned from a vacation in the Bahamas, sources said.

  At this point we have lost count of how many bankers have taken their own lives in the past year, despite stocks rising to all time highs and an artificial “wealth effecting” environment which if nobody else, benefits the banker class. We dread to think what happens to New York’s pavements once the central planners finally lose control.

  

  

  
  
  

  

• In Denial: We Pursue Endless Growth At Our Peril

  Submitted by Chris Martenson via PeakProsperity.com,

  As we've been discussing of late here at PeakProsperity.com, humans desperately need a new story to live by. The old one is increasingly dysfunctional and rather obviously headed for either a quite dismal or possibly disastrous future. One of the chief impediments to recognizing the dysfunction of the old story and adopting a new one is the most powerful of all human emotional states: Denial.

  I used to think that Desire was the most powerful human emotion because people are prone to risking everything in their lives – careers, marriages, relationships with their family and close friends – pursuing lust or accumulating 10,000 times more money and possessions than they need in their desire for “more.”

  Perhaps it was my own blind spot(s) that prevented me from really appreciating just how powerful human denial really is. But here we are, 40 years after the Club of Rome and 7 years after the Great Financial Accident of 2008, collectively pretending that neither was a sign warning of the dangers we face — as a global society — if we continue our unsustainable policies and practices that assume perpetual growth.

  Economic Denial

  In the realm of economics, the level of collective denial gripping the earth’s power centers is extraordinary. Perhaps that should be of little surprise, as we're now at the height of the largest set of nested financial bubbles ever blown in world history.

  The bigger the bubble(s) the bigger the levels of denial required to sustain their expansion. These bubbles are doozies, and that explains the massive and ongoing efforts to prevent any sort of reality from creeping into the national and global dialog.

  To understand this pattern of avoidance of unpleasant realities, consider the behavior of cities — even entire nations — which cannot bring themselves to talk openly about their state of insolvency, let alone do something about it.

  Chicago has amassed debt and underfunded liabilities totaling $63 billion, or more than $61,000 per household. Illinois already ‘enjoys’ the second highest property tax rate in the nation at 2.28 percent of a property’s value, which means the average property tax bill for the median home is $5,200 per year. On top of that, Illinois' income tax is a flat 5% and brings in a total of $18 billion from 4.7 million households, or $3,800 per household. Combined, that's $9,000 in taxes per year per average household (which earns $38,625).

  Here's the brutal math: the current city deficit is 675% of current tax receipts. How exactly does Chicago plan to scrape another $61,000 out of each household on top of the existing tax bills? 

  It doesn’t. It has no plan. The plan is to simply remain in denial and ignore everything until it all breaks down. Which it has indeed started to do, with the ever-late, after-the-horse-has-already-left-the-barn downgrade of the city’s debt to junk status by Moodys.

  Or perhaps we could note that of the six mayoral candidates seeking election to run the city of Philadelphia, not one has even talked about its massive $5.7 billion pension shortfall during the campaign, even as they promise expanded pre-kindergarten programs and tax cuts. Not one. Do you think that any of them has an actual plan to address that budget gap's dream-crushing burden?

  They don’t. The only ‘plan’ they have is to remain in denial and ignore everything until it all breaks down. And then, we might guess, blame the prior administrations.

  Japan has the most debt per person of any nation in the world, standing at nearly $100,000 per resident. And that burden is growing every year. Yet in 2005, Japan passed an important milestone as its population peaked at 128 million. It's been declining ever since. Japan lost 244,000 net residents in 2013, and is now trundling on a downwards population trajectory for the next 50-60 years. And at the same time, it is growing older — Japan has the second highest median age in the world.

  Clearly that demographic profile is a recipe for economic shrinkage, not growth. And yet the Japanese central bankers and politicians are hell-bent on creating rapid economic growth via the twin cattle prods of reckless money printing and excessive government borrowing. How is it that the leaders of Japan have convinced themselves that rapid economic growth is what they need (instead of the more rational and opposite case of managed economic shrinkage)? What’s their plan, exactly?

  They have no plan. The plan is to simply remain in denial and ignore everything until it all breaks down.

  The same story is written everywhere, with every example sharing the same common element of presumed perpetual growth. Everybody plans on growing steadily, forever into the future, amen.

  The United States is no different. It's own entitlement shortfalls, pegged at anywhere from $60 trillion to $220 trillion, are themselves still derived with the assumption of future growth.

  Here’s the ‘plan’ for the US according to the CBO:

  

  Yes, the ‘plan’ is for the US to someday have an economy equal to the entire current world GDP as it stands here in 2015. Does that make any sense to anybody at all? Who thinks that’s a realistic plan?

  By 2080 when this is supposed to take place, the entire world will be past the peak of all known sources of energy. And Phosphate. And soil. And fresh water. And oceanic fish biomass. And who knows what else. And yet the CBO blithely assumes that US, all on its own, will be producing and consuming 100% of what the entire world does today.

  The above chart helps us visualize one of the largest and most potentially destructive forms of denial on display. Our collective denial of limits.  It's also good to remember that all of the entitlement shortfalls are 'only' as bad as they because of the assumption of uninterrupted US economic growth.  Should economic growth fall short of that spectacular run that will take the US to a worldly level of consumption and production, then the entitlement programs will prove to be just that much more underfunded.

  Ecological Denial

  Sadly, it's on the natural fronts that human denial seems to be at its most extreme. Hollywood visions and SciFi fantasies aside (where humans live in sealed capsules and subsist entirely on man-made foods), humans are 100% utterly dependent on the natural world for their survival. Food, water, oxygen, and predictable temperatures and rainfall patterns provide the basics of life.

  To focus on just one part, which I also detail in The Crash Course book, humans are rapidly degrading our soils upon which everything depends.

  Not only are we obviously losing topsoil to erosion and generally turning soil into lifeless dirt by stripping out its biological diversity, we are mining these soils for their micro and macro nutrients yet have no coordinated plan for replacing them.

  Obviously if you take minerals like calcium and magnesium out of the soils in the form of harvested grains and vegetables, they'll need to be replaced. Right now they are mainly flushed out to sea, never to be economically recovered.

  The situation is pretty grim as I recently outlined in a recent report on our nation's poor soil management practices. Here’s some more context for that view:

  Britain has only 100 harvests left in its farm soil as scientists warn of growing 'agricultural crisis'

  Oct 20, 2014

   

  Intense over-farming means there are only 100 harvests left in the soil of the UK’s countryside, a study has found.

   

  With a growing population and the declining standard of British farmland, scientists warned that we are on course for an “agricultural crisis” unless dramatic action is taken.

   

  Despite the traditional perception that there is a green and pleasant land outside the grey, barren landscape of our cities, researchers from the University of Sheffield found that on average urban plots of soil were richer in nutrients than many farms.

   

  “With a growing population to feed, and the nutrients in our soil in sharp decline, we may soon see an agricultural crisis,” Professor Dunnett said.

   

  “Meanwhile we are also seeing a sharp decrease in bio-diversity in the UK which has a disastrous knock-on effect on our wildlife Lack of pollinators means reduction in food.

  (Source)

  Scientists in the UK are being matched by scientists elsewhere, noting that humanity’s general approach towards soils and farming are obviously destructive and exceptionally unsustainable. It should be setting off alarm bells that urban plots are found to be more nutrient-dense than many farms.

  The loss of biodiversity is something that we just cannot yet fully comprehend, as all of nature is an enormously intertwined set of complex relationships. Of course, our failure to understand and appreciate the true role(s) of biodiversity will not protect us from the consequences of destroying it.

  Any culture that ruins its soils cannot claim any sort of sophistication at all. That just flunks the basic IQ test. It’s not unlike watching a brilliant piano prodigy starve to death because he can't manage the details of making his own meals despite a well-stocked kitchen. No matter how beautifully he can play, he simply lacks the necessary skills to sustain himself.

  Human security at risk as depletion of soil accelerates, scientists warn

  May 7, 2015

  Steadily and alarmingly, humans have been depleting Earth's soil resources faster than the nutrients can be replenished. If this trajectory does not change, soil erosion, combined with the effects of climate change, will present a huge risk to global food security over the next century, warns a review paper authored by some of the top soil scientists in the country.

   

  The paper singles out farming, which accelerates erosion and nutrient removal, as the primary game changer in soil health.

   

  "Ever since humans developed agriculture, we've been transforming the planet and throwing the soil's nutrient cycle out of balance," said the paper's lead author, Ronald Amundson, a professor of environmental science, policy and management at the University of California, Berkeley. "Because the changes happen slowly, often taking two to three generations to be noticed, people are not cognizant of the geological transformation taking place."

  (Source)

  Notice the shifting baselines phenomenon happening here. Because the changes have taken place over three generations, our culture is incapable of recognizing the threat, let alone properly responding to it.

  Instead of a bucolic pastime, farming has become just another mirror reflecting our destructive ways. Rather than carefully working within natural cycles, the average farming practice seeks to dominate and override nature.

  Just spray and you’re done! Easy-peasy. Of course, this has the chance of knocking out your birds and your bees as well as the butterflies and who knows what other essential and beneficial insects as I recently laid out in the report: Suicide By Pesticide.

  Pesticides kill the bugs we don’t want and many more besides. Herbicides knock out weeds, but also lots of other life-forms we do need and want kept alive. Fungicides knock out bad funguses and good ones alike.

  This lazy approach to farming, although chemically sophisticated, lacks any real connection to the cycles of nature the most obvious one being the strip-mining of the macro and micro nutrients.

  There was a reason that the herbivores roamed over the same grounds for hundreds of thousands and even millions of years. That worked to keep everything in balance and led to the creation of the thickest and healthiest soils imaginable when the American West was first plowed not all that long ago (by historical standards).

  Horribly bleak study sees ‘empty landscape’ as large herbivores vanish at startling rate

  May 4, 2015

   

  They never ateanybody — but now, some of planet Earth’s innocentvegetarians face end times.Large herbivores — elephants, hippos, rhinos and gorillas among them — are vanishing from the globe at a startling rate, with some 60 percent threatened with extinction, a team of scientists reports.

   

  The situation is so dire, according toa new study, that it threatens an “empty landscape” in some ecosystems “across much of the planet Earth.”

   

  The authors were clear: This is a big problem — and it’s a problem with us, not them.

   

  This slaughterand its consequences are not modest, the article said. In fact, the rate of decline is such that “ever-larger swaths of the world will soon lack many of the vital ecological services these animals provide, resulting in enormous ecological and social costs.”

   

  Herbivores, it turns out, don’t just idle about munching on various green things. They play a vital role as “ecosystem engineers,” the paper said — expanding grasslands for plant species, dispersing seeds in manure, and, in the ultimate sacrifice, providing food for predators.

  (Source)

  It’s the last paragraph that’s essential to understand.

  Nature is so subtle and complex, that we have only recently learned that wolves shape rivers. Or perhaps the Native Americans knew that and it is our ‘modern’ culture that is only re-figuring all this out. I was confused by the thought of wolves shaping rivers the first time I heard it too, but it’s all laid out in this handy 4 minute video:

  The loss of large herbivores will re-shape the landscape in ways that we do not yet understand and therefore cannot appreciate. But they are certainly ‘ecosystem engineers’ and the loss of those services, to put it in transactional terms that economists might relate to, will lead to a whole host of as-yet-undefined changes some of which we will regret.

  We're Not At The Tipping Point; We've Already Past It

  The roles of eating, digesting and spreading seeds and manure seem like things we can make do without, here at the apex of the petroleum age, but in a few short decades we will understand just how much energy was necessary and how much value was created by the actions of these herbivores.

  In Part 2: Life Beyond The Tipping Point we look at the looming net energy crisis is mathematically certain to place increasing limits on the modern way of life, in our lifetime — likely much sooner than we want or are prepared for. In sum, despite the intent of world leaders to blindly deny the economic, ecological and energetic cliffs we are hurdling towards, society has already long past the point where painful ramifications can be avoided. At this stage, destiny will be determined at the individual level, depending on what steps each of takes now, before those ramifications arrive in force. 

  Click here to read Part 2 of this report(free executive summary, enrollment required for full access)

   

  

  

  
  
  

  

• China Deploys Artillery On "Sand Castles" In South China Sea

  When last we checked in on what has to this point been a war only of words (although that could change quickly) between the US and China over the latter’s island-building efforts in the South China Sea, Beijing had just issued its 2015 defense white paper which signaled a shift in focus from “offshore waters defense” to “open seas protection” and also indicated that the PLA Air Force would move towards “offensive” strategies. 

  This was essentially a thinly-veiled reference to the country’s intention to set up what will effectively be a no-fly zone over the islands it’s built atop reefs in the Spratly archipelago. Earlier this month, a US spy plane had a close encounter of the PLA kind when a PA-8 Poseidon carrying a CNN crew was told to “Go Now!” by the Chinese Navy when the surveillance aircraft came too close to Fiery Cross Reef.

  Washington has responded with all manner of amusing rhetoric including the characterization of China’s islands as “sand castles”. The US is also set to conduct war games with regional allies in a show of maritime force. 

  Now, the US says it has detected artillery on one of the man-made islands. WSJ has more:

  U.S. surveillance imagery shows China has positioned weaponry on one of the artificial islands it is developing in the South China Sea, American officials said, supporting their suspicions that Beijing has been building up reefs for military purposes.

   

  The U.S. imagery detected two Chinese motorized artillery pieces on one of the artificial islands built by China about one month ago. While the artillery wouldn’t pose a threat to U.S. planes or ships, U.S. officials said it could reach neighboring islands and that its presence was at odds with China’s public statements that the reclaimed islands are mainly for civilian use…

   

  American officials said that the equipment more recently has either been removed or purposely obscured from view by the Chinese. It was unclear how or why the equipment was no longer visible…

   

  A Chinese Embassy spokesman in Washington wouldn’t comment specifically on the weaponry, but said its development work within the Spratly Islands—known by the Chinese as the Nansha Islands—was primarily civilian.

   

  “It needs to be emphasized that the Nansha Islands is China’s territory, and China has every right to deploy on relevant islands and reefs necessary facilities for military defense,” said Zhu Haiquan, the spokesman for the Chinese embassy. “However, the facilities on relevant islands and reefs are primarily for civilian purposes.”

  Of course, China isn’t the only country to have built “sand castles” in the region, but it is the only country to have done so that isn’t a US ally, which Beijing quite plausibly contends is the reason for Washington’s hostility:

  Ms. Hua and other Chinese officials assert that Washington has a double standard, criticizing the U.S. for being “selectively mute” about construction activities carried out by other countries in the region.

   

  She didn’t name those claimants, but Vietnam, Taiwan, Malaysia and the Philippines have also engaged in reclamation and other work in areas they control.

   

  “If it’s not a double standard, then there must be some hidden motives behind that,” Ms. Hua said at a daily media briefing.

  Washington’s response: size matters.

  U.S. officials said the reclamation efforts by those countries are on a far smaller scale than China.

  

  In sum, China has created some 1,500 acres of new sovereign territory this year alone and has indicated it will defend that territory just as it would the mainland. That’s a problem, says US Defense Secretary Ash Carter who told an audience in Hawaii that make “no mistake”, the US intends to “fly, sail, and operate wherever international law allows, as [it] does all around the world.”

  Clearly, Beijing’s position cannot coexist peacefully with Washington’s position which is why we continue to believe a shooting sand castle showdown may be in the cards.

  

  

  
  
  

  

• P2P King Has 'An Offer You Can't Refuse'

  In “Presenting The $77 Billion P2P Bubble” we took a close look at the P2P lending market which is expanding exponentially amid Wall Street’s efforts to securitize the loans on the way to creating a market for P2P-backed ABS. 

  As a reminder, P2P lending allows borrowers laboring under high-interest credit card debt to essentially refi via loans from individual lenders, thus transforming credit card debt into unsecured personal loans. As we noted, this only works if borrowers do not subsequently max out the credit cards they just paid off:

  Consider also that P2P loans create the conditions whereby borrowers can refi high-interest debt via personal loans, transferring credit risk from large financial institutions to private lenders in the process. It’s not entirely clear what the implications of that shift might ultimately be, especially if the market continues to grow rapidly, but one thing is clear: using a relatively low-interest P2P loan to pay off a high-interest credit card is no different in principle than using a new credit card that comes with a teaser rate to pay off an old credit card. The borrower will very often max out the old card again and thus end up with twice the original amount of debt. 

  We were also quick to remark that as long as investors are buying the P2P-backed ABS, demand for the loans will only grow, causing lenders to lower underwriting standards in a repeat of the dynamic that led to the housing crisis:

  It’s not difficult to imagine a scenario where this spins out of control as borrowers refi multiple credit cards with multiple P2P loans, only to run up still more credit card debt. Voracious demand for P2P-backed ABS will provide an incentive for P2P companies to ignore signs of trouble as they profit from providing the loans that feed lucrative securitizations.

  If you needed proof of the above, we bring you the following mailer from the industry’s number-one player, LendingClub, which is now advertising the P2P-credit card refi opportunity to “pre-approved” borrowers who can get up to $35,000 with “no collateral required”:

  

  Whether or not this kind of aggressive advertising is the result of a push to stimulate more demand for P2P loans which will in turn feed Wall Street’s securitization machine we can’t say for sure but it certainly looks as though LendingClub is hunting for more business and it’s probably fair to say that that means the race to the bottom is on in terms of recruiting underqualified borrowers.

  

  

  
  
  

  

• "Welcome To The Contraction": Q1 GDP Drops By 0.7%, Corporate Profits Crash

  And you thought the preliminary 0.2% Q1 GDP print from last month was bad. Moments ago, just as we warned, the BEA released its latest, first, revision of Q1 GDP (pre second-seasonal adjustments of course), and we just got confirmation that for the third time in the past four years, the US economy suffered a quarterly contraction, with the Q1 GDP revised drastically from a 0.2% growth to a drop of -0.7%: the worst print since snow struck, so very unexpectedly, last winter.

  

  Incidentally, there has not been a US “expansion” with three negative quarters in it in the past 60 years.

  Worse, the breakdown shows that far from being a non-core slowdown, consumption rose just 1.8%, below the 2.0% expected, and contributed just 1.23% of the bottom line GDP number. This was the worst Personal Spending contribution since Q1 of last year, when revised GDP dropped by -2.11%.

  

  What is disturbing is that as noted before, inventories contributed the biggest component of Q1 GDP growth, adding $106 billion in nominal “growth.” Without that contribution, annualized GDP would have been worse than -3%!

  

  And worst of all, was the plunge in corporate profits. According to the report:

  Profits from current production (corporate profits with inventory valuation adjustment (IVA) and
  capital consumption adjustment (CCAdj)) decreased $125.5 billion in the first quarter, compared with a
  decrease of $30.4 billion in the fourth.

   

  Profits of domestic financial corporations decreased $2.6 billion in the first quarter, compared with a decrease of $12.5 billion in the fourth. Profits of domestic nonfinancial corporations decreased $100.4 billion, in contrast to an increase of $18.1 billion. The rest-of-the-world component of profits decreased $22.4 billion, compared with a decrease of $36.1 billion. This measure is calculated as the difference between receipts from the rest of the world and payments to the rest of the world. In the first quarter, receipts decreased $28.9 billion, and payments decreased $6.5 billion

  Or visually, here was the third largest corporate profit crash since the financial crisis:

  

  In short: welcome to the recession, which however will soon be double seasonally adjusted into another flourishing, of only stiatistically, “recovery.”

  

  

  
  
  

  

• Ross Ulbricht, Founder Of Bitcoin Bazaar Silk Road, Sentenced To Life In Jail

  Bitcoin was supposed to be perfectly anonymous and completely untraceable: so much so that its true believers, such as libertarian Ross Ulbricht, aka Dread Pirate Roberts, felt empowered to launch the Silk Road, an underground online shopping bazaar similar to Amazon only one selling drugs and various other illegal paraphernalia.

  

  The Silk Road quickly became massively successful and extremely profitable: so much so that Ulbricht promptly forgot the idealism that made him launch the project and quickly subverted the power and wealth it provided him for his own selfish ways, among which ordering the assassinations of subordinates who crossed him.

  It turned out neither Bitcoin, nor the project, were as safe and anonymous as Ulbricht had hoped, and moments ago the Dread Pirate was sentenced to life in prison: a heavy sentence which according to the WSJ signals “the government’s seriousness in combating Internet crime.”

  The Silk Road founder faced a mandatory minimum of 20 years in prison, but federal prosecutors asked the judge to give him “substantially” more than that, arguing that a harsh sentence is necessary to deter others from following in Mr. Ulbricht’s footsteps.

  The punishment is a heavy price to pay for the 31-year-old, who had pleaded with the judge to spare him his old age and “leave a small light at the end of the tunnel.”

  The sentence handed down by U.S. District Judge Katherine Forrest followed an emotional three-hour hearing. Judge Forrest said she spent more than 100 hours grappling with the appropriate sentence, calling the decision “very, very difficult.”

   

  But ultimately, she gave Mr. Ulbricht the harshest sentence allowed under the law, saying Silk Road was “an assault on the public health of our communities” by making it easy for people around the world to buy illegal drugs.

   

  “What you did with Silk Road was terribly destructive to our social fabric,” Judge Forrest said.

   

  Judge Forrest said Mr. Ulbricht was “no better a person than any other drug dealer” and that his high education and privileged upbringing didn’t put him above the law.

  Silly pirate: in America the only companies that are allowed by law to sell you drugs are the ‘legal’ pharmaceutical corporations, whose dealers owners use all those Obamacare-funded reimbursements from selling FDA approved anti-depressants and other mind-altering substances, to then go ahead and buy back their own stock.

  And yet, it is a little troubling:

  For manipulating “markets”, rigging and defrauding tens of billions from ordinary investors many of whom lost their life savings because they trusted regulators would do their duty and keep “markets” honest and efficient, the US Department of Justice arrested precisely zero bankers.

  For granting the 2018 World Cup to Russia, the same Department of Justice decided to make a loud political statement and arrest virtually the entire pinnacle of FIFA, even if the harshest sentence that will be handed down is some deferred prosecution settlement.

  For creating his own marketplace outside the domain of the conventional monetary regime, the US unloaded a ton of bricks on a 31 year old and sentenced him to life behind bars. Because, you know, it will deter all illegal transactions hereafter.

  For those who are interested in the full story of the Silk Road and how a 29-year-old revolutionized drug distribution, the following 2-part mini series by Wired is a must read.

  The Rise and Fall of Silk Road: Part 1

  The Rise and Fall of Silk Road: Part 2

  

  

  
  
  

  

• America The Obese: Is There A Multibillion Dollar Conspiracy To Make Sure Americans Stay Overweight?

  Submitted by Michael Snyder via The End of The American Dream,

  According to Gallup, America is now fatter than it has ever been before.  But how can this possibly be?  After all, Americans spend an astounding 60 billion dollars a year on weight loss programs and products.  After putting so much time, effort and energy into losing weight, shouldn’t we be some of the healthiest people on the entire planet?

  Sadly, the truth is that obesity has become a national epidemic, and we are known around the globe for our huge size.  The term “fat Americans” has become synonymous with overweight tourists, and other cultures mock us for our apparent sloth.  But could there be more to this than just the fact that we eat too much?  Could it be possible that we have been fattened up by design?

  Before we get to that, let’s take a look at some of the cold, hard numbers.  The following are some of the statistics from the Gallup survey that I mentioned above…

  -The national rate of obesity has risen to an all-time high of 27.7 percent. That is up from 27.1 percent in 2013, and it is much higher than the 25.5 percent number that we were sitting at in 2008.

  -At 19.0 percent, Hawaii has the lowest rate of obesity in the entire country.

  -At 35.2 percent, Mississippi has the highest rate of obesity in the entire country.

  -The rest of the top 10 includes West Virginia, Louisiana, Arkansas, Oklahoma, Alabama, Kentucky, Indiana, Iowa and Missouri.

  And remember, those numbers just cover obesity.  You can definitely be overweight without meeting the official criteria for being “obese”.  According to CNN, 70 percent of all Americans are overweight at this point.  To say that we have a national crisis on our hands is a huge understatement.

  One of the primary reasons why most of us are overweight is due to how our food is made.  The American diet is highly processed and it is absolutely packed with obesity-causing ingredients such as sugar and high fructose corn syrup.  And it is well documented that some of the additives that they put into our food are highly addictive and actually make you want to eat more.  In fact, it has been reported that some of the additives are about as addictive as “opiates“, “heroin” and “cocaine“.  The big food corporations want us to eat as much as possible, because when we eat more of their food they make more money.

  Unfortunately, being overweight is not just an issue of not looking as good as we could.  As Gallup explained, a whole host of health problems are related to obesity…

  The national obesity rate in 2014 was the highest that Gallup and Healthways have measured since starting to track this measure in 2008. In a handful of states, more than a third of the population is obese.

   

  Residents in these areas are less likely to eat healthily and exercise, and are more likely to suffer from chronic diseases like high blood pressure, high cholesterol, depression, diabetes, cancer and heart attacks.

   

  Obesity-related health problems could drive up healthcare costs and potentially have larger economic implications for states that suffer most.

   

  The strong relationship between obesity and overall well-being suggests that interventions geared toward encouraging exercise and healthy eating, while important, may not be enough to reverse the upward trend in obesity. Gallup has found that Americans’ desire to lose weight is not matched by their efforts. The mismatch between desired weight loss and weight loss efforts may stem from deficits in other areas of well-being. For instance, if residents don’t have a strong sense of purpose, struggle financially or lack supportive relationships, it will be much more difficult for them to buy healthy food, exercise regularly and achieve their weight loss goals.

  Cancer, heart disease and diabetes are all huge money makers for the medical establishment.  If you can believe it, 100 billion dollars was spent on cancer drugs last year alone.  So there are people out there that are becoming exceedingly wealthy from all of our misery.

  In addition, it is a fact that being overweight shaves years off of our lives.  Just consider the following information that was shared by Natural News…

  Published in the journal The Lancet Diabetes & Endocrinology, a study comparing young men and women of healthy weights to young obese individuals found that those who were overweight lost about 8.4 years off of their lives if they were men and 6.1 years off of their lives if they were women.

   

  Similarly, the young obese men suffered 18.8 more years of poor health leading up to their early deaths compared to men of healthy weight, while young obese women suffered 19.1 years of poor health. Even when obesity emerged just in old age, both men and women were found to lose years off of their lives: for men, an average of 3.7 years and for women about 5.3 years.

  So why doesn’t the medical establishment do more to help us lose weight and keep it off?

  Well, if we were all at a healthy weight they would lose a tremendous amount of money.  Right now, if the U.S. health care system was a separate country, it would be the 6th largest economy on the entire planet.  The sicker that all of us are, the more money the medical establishment makes.

  And then of course there is the massively bloated weight loss industry.  As I mentioned above, 60 billion dollars a year is spent on weight loss programs and products in the United States.  If we were all at a healthy weight, we wouldn’t need to spend all of that money.

  Tragically, most of those programs don’t work in the long run anyway.  At least that is what one scientific study discovered…

  In the end, the advice and products offer virtually no long-term return on investment—measured, of course, in pounds permanently lost. According to a 2006 study reported in The New England Journal of Medicine, most people who participate in weight-loss programs “regain about one-third of the weight lost during the next year and are typically back to baseline in three to five years.”

  So what is the solution?

  The key is to make healthy choices a lifestyle and not just a one time event.

  If you “go on a diet” or you “do a cleanse”, but then you just go back and do the same things that you did before, you are going to end up at the exact same place you started.

  If we want to be healthy, what we need to do is to design our lives so that we are doing the right things consistently.  We need to be physically active, we need to eat healthy (lots of fruits and vegetables), and we need to avoid the things that we know will make us fat.

  In the end, it isn’t that complicated.  Thanks to the Internet, there is lots and lots of great health information out there that you can access for free.  But you have got to be willing to make the right choices and to do the right things consistently.

  

  

  
  
  

  

• Robert Shiller: Unlike 1929 This Time Everything – Stocks, Bonds And Housing – Is Overvalued

  Robert Shiller is a professor of economics and finance at Yale University. He is the author of Irrational Exuberance, which in 2000 predicted the collapse of the tech bubble and is now in its third edition. He was awarded the Nobel Prize in Economic Sciences in 2013 for his work on asset prices and financial market behavior.

  In the attached interview he observes that the recent equity run-up seems to be driven more by fear than by exuberance, as a lack of confidence in the future prompts investors to save more and thereby bid up asset prices.

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

  Allison Nathan: Are US stocks overvalued today?

  Robert Shiller: I think that compared with history, US stocks are overvalued. One way to assess this is by looking at the CAPE (cyclically adjusted P/E) ratio that I created with John Campbell, now at Harvard, 25 years ago. The ratio is defined as the real stock price (using the S&P Composite Stock Price Index deflated by the CPI) divided by the ten-year average of real earnings per share. We have found this ratio to be a good predictor of subsequent stock market returns, especially over the long run. The CAPE ratio has recently been around 27, which is quite high by US historical standards. The only other times it has been that high or higher were in 1929, 2000, and 2007—all moments before market crashes.

  But the CAPE ratio is not the only metric I watch. In my book Irrational Exuberance (3rd Ed., Princeton 2015) I discuss several metrics that help judge what’s going on in the market. These include my stock market confidence indices. One of the indicators in that series is based on a single question that I have asked individual and institutional investors over the years along the lines of, “Do you think the stock market is overvalued, undervalued, or about right?” Lately, what I call “valuation confidence” captured by this question has been on a downward trend, and for individual investors recently reached its lowest point since the stock market peak in 2000. The fact that people don’t believe in the valuation of the market is a source of concern and might be a symptom of a bubble, though I don’t know that we have enough data to prove it is a bubble. In general, I try to get a sense of investors’ excitement and anxieties through these kinds of measures and even by just reading the news. You might say that’s very unscientific, but I do what I can to understand the state of mind of investors, which I think is very important in understanding market moves.

  Allison Nathan: Wharton professor Jeremy Siegel argues that using S&P 500 earnings data for the CAPE ratio inflates it. What is your response to this?

  Robert Shiller: Jeremy Siegel’s 2013 paper that makes this argument does say that the CAPE ratio is useful. He just wants to make an improved CAPE ratio. And he proposes an alternative based on National Income and Product Account (NIPA) earnings, which he says yields a CAPE ratio that has predicted returns better, at least over the time period for which he has these earnings data. I think it is an interesting paper. But I am not ready to endorse the switch to NIPA earnings partly because they are conceptually a little different, valuing not just publicly traded stocks but also other companies. But the critical point he makes is that NIPA earnings—at least as of 2013—were higher than S&P 500 earnings, which made the market look less overvalued. Given that market valuations have continued to rise, I think that discussion has faded somewhat.

  

  Allison Nathan: Is the equity market a bubble today?

  Robert Shiller: I define a bubble as a social epidemic that involves extravagant expectations for the future. Today, there iscertainly a social and psychological phenomenon of people observing past price increases and thinking that they might keep going. So there is a bubble element to what we see. But I’m not sure that the current situation is a classic bubble because I’m not certain that most people have extravagant expectations. In fact, the current environment may be driven more by fear than by a sense of a new era. I detect a tinge of anxiety and insecurity now that is a factor in markets, which is quite different from other market booms historically.

  Allison Nathan: How else does this period of apparent equity overvaluation compare to equity booms in the past?

  Robert Shiller: This time around, bonds and, increasingly, real estate also look overvalued. This is different from other over-valuation periods such as 1929, when the stock market was very overvalued, but the bond and housing markets for the most part weren’t. It’s an interesting phenomenon.

  Allison Nathan: What explains this phenomenon of asset valuations looking high across the board?

  Robert Shiller: There are multiple answers to that question. But if I had to oversimplify with just one idea, it would be what I just alluded to a moment ago—that people are not confident in their future. They remember the financial crisis, and they worry. They hear about inequality through the Occupy Wall Street Movement and in many other places, and they worry where they will fall on the inequality spectrum in a decade or so. They observe the amazing but perhaps unsettling rise of information technology (IT), and they worry. As a result of all of this anxiety, they want to save more. But given the lack of options to invest in at a high return, they end up just bidding up the prices of existing assets. That, in turn, creates disappointment, more concern, and perhaps the feeling that they might be too late because of how much the market has already risen. But they still invest in it because of their anxieties.

  Allison Nathan: What does this mean for market stability?

  Robert Shiller: It means that the market could keep going up like this for some time. Its been an amazing run and looks like something that can’t keep going indefinitely, but it might continue for several more years. So market bulls may be right that the market runs further. I think that could happen too. But I take a different view of the drivers of these runs; I tend to view them as more irrational. I just don’t know when this bull market will end. And it might end very badly.

  Allison Nathan: How concerned are you about a meaningful correction in the next six months to a year?

  Robert Shiller: My concern has risen with the market. There could certainly be a correction in the next year. But the problem is that a correction might not come for five years. We just don’t have any way to forecast when it will come.

  Allison Nathan: Was it appropriate for Fed Chair Janet Yellen to express concern about equity valuations?

  Robert Shiller: I think that there is a moral imperative for Fed leadership to express some opinion about the market. They have a staff of experts—a whole research army—to study these issues, and people look to the Fed as an authority. Believers in efficient markets would say that we shouldn’t care about these opinions; that the market is smarter than any individual or any research team. But I disagree. I think that the market is not smart about these sorts of things and that we do need leadership from people who study these questions. And so I applaud Janet Yellen for making that statement, which helped put the current state of the market in perspective. One reason why the boom in the 1990s went on as long as it did is that Fed Chairman Alan Greenspan made very little of worries about the market. At one point he used the term “irrational exuberance,” which led to a sharp drop in markets, but he never came back to that theme.

  Allison Nathan: Of all the expensive asset classes today, which looks the most convincingly like a bubble?

  Robert Shiller: The bond market looks the most unusual relative to history, with real US yields just off record lows of recent years. The difference, though, between the stock market and the bond market is that historically the bond market doesn’t seem to crash like the stock market. Notably, if you go back to 1929, there was a huge crash in the stock market and not much action in the corporate bond market. That might come across as a surprise, but it’s history. We are now in different times, though, with a very long run of very low interest rates that has affected many countries in the world. So there could be a big correction in the bond market. I’m not forecasting that because I don’t like to forecast things that almost never happen. But it could happen. And that’s the problem we face.

  Allison Nathan: What should investors do when so many assets look expensive?

  Robert Shiller: I am not an investment advisor. But I would say that the main implication for most people is that they should save more because their portfolio probably won’t do as well as they imagined. And if they’re saving for some distant goal like retirement, they might be disappointed. People have learned about the power of compound interest. But what they don’t understand is that if interest rates are zero, you don’t get any compound interest. I think that there is complacency among investors today. People have seen how well the stock market has done over the last century. But the market might not do so well the next time. So you have to consider whether you are saving enough.

  And as a general principle, I think people should diversify across assets and geographies because there is no way to predict what any one asset will do with any accuracy. I’ve been talking down US stocks because of their high valuation, but I would invest something into US stocks; I would just put a heavier contribution in stocks around the world, where CAPE ratios look lower. I keep coming back to the theme that there are lots of places outside of the US to invest. And I would also own bonds, real estate and commodities. Commodities are overlooked by many investors but they are an important part of an investing portfolio.

  The reality is that people are not very good at diversifying. This has been documented in studies. They tend to be distracted, and focus too much on one sector or one thing that they have heard. They also tend to focus on their own country. There’s no reason why one should invest only in one’s own country. Quite the contrary, some people make the extreme statement you should short your own country and invest only elsewhere. I wouldn’t go to that extreme, but it is a plausible argument.

  Allison Nathan: But is the strong US growth story relative to elsewhere enough to warrant buying US stocks?

  Robert Shiller: The US looks pretty good and in some ways brilliant. The exciting news about technology seems to come largely from the US. For example, fracking, which is predominantly a US technology, transformed the energy market, and just within the last five years or so. And many electronics and IT advances are also coming from the US. So there is reason to believe in this country.

  But I think that we also have to understand that we tend to be biased. One sees and appreciates one’s own country; that’s human nature that one has to correct for. Amazing things can happen elsewhere as well. You see that in much of the developing world; over the last half-century, there’s been remarkable economic progress and growth. And we’re going to see more and more advancement in those countries. So maybe the high US CAPE ratio is partly justified. But I think we have to nourish a healthy skepticism as investors and not get swayed too much by the idea that we’re living in a new era here.

   

  

  

  
  
  

  

• The End Of Markets: Central Banks Took Over Everything, Changed Everything

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  Previously we looked at funding markets and currency proxies for detecting the end to the “dollar” pause that began on March 18. Broader credit markets agree with that assessment so far, as nominal yields and the UST curve shape have started, at least, to be redrawn back into the tightening format. Nominal yields and inflation breakevens turned right at May 6 when Janet Yellen spoke more of the common sense that should be the default setting for monetary everything.

  

  

  

  The yield curve overall across the bulk of it has moved flatter, mostly within the past two weeks. Since May 14, the 5s10s has flattened rather sharply (an appropriate oxymoron) dropping from 72 bps all the way down to 60 bps Tuesday and 61 bps yesterday. The 30-year end fell from 248 bps against the 2s down to 224 bps yesterday; from 152 bps against the 5s down to 135 bps.

  

  

  As noted previously, it isn’t so much that these moves are especially established in order to confirm an actual inflection but rather that everything has started moving again in the opposite direction at largely the same time. That would tend to rule out random volatility in various components which was at least arguable from May 6 at first. With the entire credit and funding markets turning now together, it increases the likelihood that this is something meaningful.

  And that is what makes this all the more important, as if I am using the correct interpretation credit and funding markets are all backward in relation to where orthodox narratives suggest and often demand they be. If Yellen’s speech alluding to a stock bubble on May 6 turned the “exit” to ZIRP back on, then credit and funding should be behaving in the same manner as the middle of 2013 – rising nominal yields and a steeper yield curve (eurodollars too). But that was the behavior of the period just prior to May 6, when it was quite clear that credit was taken with the belief, of March 18, that the FOMC had changed its mind away from the exit.

  That has really been the persistent trend since November 2013, where the more the FOMC talks about being convinced of a full economic recovery, and thus gets closer, in their collective mind, to an exit from ZIRP, the more upside down these markets get. The only way to explain that is what I alluded to also yesterday, namely that credit and funding are finding “there will not be any normalcy and any attempt to go backward undertakes what amounts to incalculable risk of being disastrous.” In this view, “backward” applies to the idea of financial (and economic) normalcy when operative financial conditions completely prevent that:

  I personally find way too much complacency in blindly believing that going from B to C will be only a minor inconvenience. It would be dangerous even under the circumstances where the system shifted from the dealers to the Fed and back to the dealers, with an infinite series of potential dangers even there. But to undertake a total and complete money market reformation from dealers to the Fed to money funds? There are no tests or history with which to suggest this is even doable under current intentions. Poszar and Mehrling’s contributions more than suggest that difficulty, but I think that still understates whether or not we ever get that far.

  That, I believe, describes this upside down nature coursing through credit and funding at the moment. Whenever the Fed or its top officials (they call themselves, often, thought leaders without ever demonstrating the capacity for wide-ranging curiosity) get back to this aching, nagging fear of not confirming their past success, eight years is a long time to be in an “emergency” after all, credit markets reciprocate with their irritating fear of centrality in these paradigm shifts themselves.

  You could make the case that this is one instance, spread among many facets, where “markets” are just throwing a tantrum having become used to, and dependent on, central banks. There is undoubtedly some of that at work, as certain parts of the financial markets are unduly comfortable with the way things are at this moment, but that is much more so related to the risky parts of finance than the basis here. Funding markets, in particular, are the most closely associated with the changes to come (if, once more, we ever get that far) very much aware that this all amounts to a change not just in interest rates but in the very character of operation. That is far different than just being emotional over the Fed no longer babying and nursing closely financialist components (a reception carried more much openly by stocks).

  Critics of the massive interventions (including institutions like the BIS) spawned since late 2008 have maintained that eventually they produce a market system that no longer operates like a market system. We have seen that in some moments as stocks will behave contrary to how they used to, “risk off” on seemingly good news and such, all in the view of monetary policy with usurped primacy. In the case of credit and funding, I think it is actually worse than that as it is the investors and financial agents playing the role of realism, literally making for this upside down re-arrangement. That is why November 2013 looms over everything, as the financial system peered closely at what the “exit” might look like and recoiled drastically in rejection of it.

  Central banks took over everything and thus changed everything; they cannot simply declare themselves successful and just give it all back. That might (stress might) have been possible had it actually worked, a true and robust economic recovery to smooth the shift, but the majority part of that November 2013 recoil was the growing acceptance, throughout 2014 and into 2015, that it was never coming in the first place.

  

  

  
  
  

  

• A Generation Of Rate-Hike Rookies Makes Jeff Gundlach Nervous

  With the BEA set to double-adjust GDP prints in an effort to help eliminate the kinds of economic contractions “residual seasonality” that showed up in Q1, the statistically flourishing US economy should be deemed healthy enough to withstand the dreaded “liftoff” which, as Janet Yellen gingerly confirmed in a speech last Friday, is still on track for later this year. This sets up a potentially interesting  situation because frankly, no one quite knows what will happen when someone actually moves to tighten policy. As we mentioned last week, global central banks have cut rates 572 times since Lehman or, once every three days.

  

  Even the mere mention of less-accommodative monetary policy by everyone’s favorite bearded bureaucrat back in May of 2013 was enough to trigger EM carnage and as we’ve outlined ad nauseam, it’s hard to say what effect a rate hike cycle will have on credit markets that are devoid of liquidity, although we’ve seen a few examples lately (i.e. the bund VaR shock) of just how quickly things can go awry in broken markets.

  Indeed, rates have been so low for so long, that many of the traders who will be on the front lines if and when the Fed ever does decide to start down the long path to normalizing policy have never, in their professional careers, seen a rate hike. Bloomberg has more:

  This youth brigade — call it Wall Street’s class of 2009 – – is about to learn what higher rates from the Federal Reserve look like first hand. Their inexperience has left older, more experienced colleagues wondering how these relative youngsters will fare…

   

  While the average Wall Street trader is 30 years old, about 30 percent started within the past five years, according to Emolument.com, a salary comparison website, which compiles data from its 50,000 financial services users. And two-thirds of traders have never seen a full Fed tightening cycle.

   

  “What we’ve been through the past four years has been ‘what is the fastest, easiest money to find?’” said El Mihdawy, who studied economics at Columbia University. “If one day that narrative changes and investors no longer believe in the omnipotence of central banks, then it will bring back what was old school — fundamental analysis and really caring about what’s going on.”

  While we certainly doubt that anyone will go back to “caring about what’s going on” anytime soon, what with the Mario Draghis and Haruhiko Kurodas of the world still knee deep in trillion-euro and trillion-yen debt monetization programs, and while we’ll be the first to acknowledge that even the industry’s most revered vertans are prone to making mistakes in markets which have been rendered completely inefficient (take the Bill Gross bund experience for example), one might still argue that when one in three traders started their careers in the post-crisis monetary twilight zone ,surviving a rate hike cycle in today’s mangled markets could prove to be quite the trial by fire.

  Then again, as Bloomberg goes on to note, many Wall Street newcomers simply function as the carbon-based switch flippers for the algos which are actually running the show which sets up an even more frightening scenario wherein those with no experience operating in a normal economy with functioning capital markets are in control (or, perhaps more appropriately, “are being controlled by”) a legion of stop-hunting, vacuum tubes:

  El Mihdawy, who once dreamed of becoming a professional tennis player, now works on Cantor Fitzgerald LP’s equity derivatives desk after joining the firm in 2009. That’s the same year Harvard University graduate Ezra Rapoport was venturing into finance, signing on with Transmarket Group to automate the firm’s bond-trading platform.

   

  Rapoport embodies Wall Street’s evolution in more ways than one, including how computers dominate functions that used to be done by humans. Now 31, he’s a trader at Flammarion Capital Partners, a New York-based firm that makes markets in fixed-income futures through automated programs.

   

  Everyone at Flammarion is in their 20s or 30s, he said.

  Just as we noted back in December, this is the future of “trading”: 25-year-olds mining data faster than a fat finger can press buy. Draw your own conclusions about what this means for volatility in a rising rate environment.

   

  For more perspective on rising rates and inexperienced traders, see the following interview with DoubleLine’s Jeff Gundlach. Here are a few excerpts:

  “I became really interested in how wealth is destroyed and how people extrapolate environments forward.”

   

  “Understanding the debt pyramid got me to a place that maybe will work in the future”

   

  “There’s often one really big issue around which everything else ultimately seems to center.”

   

  “More recently I’ve been thinking about two things, [first is] demographics which will help me think about Europe and China and Japan and places like that where the demographic tilt is at historic proportions.”

   

  “The second is rising interest rates. The experience that many investment operations have with rising rates for most of us is very low for some it’s nonexistent.”

  (Click image for video from Real Vision TV)

  

  

  

  
  
  

  

• 5 Things To Ponder: Is The Stock Market Rational Or Nuts?

  Submitted by Lance Roberts via STA Wealth Management,

  This past week, Houston, where I live, was flooded by a torrential down pour. However, it was not the rain itself that was the problem, it was the surge in rivers that flow through Houston. As far away as Austin and Dallas, rainfall had already began to flow into the San Jacinto and Colorado rivers which eventually culminated in rising water levels in Houston. Furthermore, Houston is designed so that water flows into the streets and eventually into the bayou and rivers out to the Gulf of Mexico. It didn't take much more rainfall to send the rivers cresting over their banks creating a castastrophe following Memorial Day.

  Like Houston, the financial system has been flooded with liquidity over recent years which has ultimately only had one place to flow – the financial markets. That excess liquidity has sent prices soaring to record highs despite weakting macro economic data. While many hope that the Central Banks can somehow figure out how to keeps the rivers of liquidity from overflowing their banks, history suggests that eventually bad things will happen. Of course, for investors, that translates into a significant and irreperable loss of capital.

  As I discussed earlier this week, the next decade will likely be rather disappointing for investors. To wit:

  "When using a relative comparison, in this case 10-years, what Shiller's data does provide is a key understanding as to what market returns should be. The chart below compares Shiller's 10-year CAPE to 10-year actual forward returns from the S&P 500."

  

  "From current levels history suggest that returns to investors over the next 10-years will likely be lower than higher. We can also prove this mathematically as well as shown.

   

  Capital gains from markets are primarily a function of market capitalization, nominal economic growth plus the dividend yield.  Using John Hussman's formula we can mathematically calculate returns over the next 10-year period as follows:

   

  (1+nominal GDP growth)*(normal market cap to GDP ratio / actual market cap to GDP ratio)^(1/10)-1

   

  Therefore, IF we assume that GDP could maintain 4% annualized growth in the future, with no recessions, AND IF current market cap/GDP stays flat at 1.25, AND IF the current dividend yield of roughly 2% remains, we get forward returns of:

   

  (1.04)*(.8/1.25)^(1/10)-1+.02 = 1.5%

   

  But there're a "whole lotta ifs" in that assumption. More importantly, if we assume that inflation remains stagnant at 2%, as the Fed hopes, this would mean a real rate of return of -0.5%. This is certainly not what investors are hoping for."

  But despite the math, historical precedence or statistical tendancies, hopes run high that "this time is different."

  This weekend's reading list explores the current state of the markets – is it rational or is it just nuts?

  ---

  1) Markets Are Correct More Than Economists by Joe Calhoun via Alhambra Partners

  "Perhaps the best method for observing the economy though is to forget the statistically massaged economic data and just look at it through the lens of the market. I am not a believer in a strong version of the efficient market hypothesis but there is a wisdom of crowds and markets are right a heck of a lot more often than economists (even a clowder of economists; apparently their performance doesn't improve when their predictions are aggregated). And so, while I do find some uncomfortable year over year comparisons in some of the economic data, it is hard to square with what is happening in the currency, commodity, bond and stock markets."

  Read Also: Why The Efficient Market Hypothesis Is Useless by Cullen Roche via Pragmatic Capitalist

   

  2) Proof The Stock Market Has Gone Nuts by Herb Greenberg via CNBC

  "In 1841, Scottish journalist Charles Mackay wrote the classic, 'Extraordinary Popular Delusions and the Madness of Crowds.'

   

  If he were alive today, Mackay would likely have had a field day with the new website, Mergerize, which by its own description, 'crowdsources predictions on mergers and acquisitions.'

   

  It's only a matter of time before those crowdsourcing M&A speculation have their day of reckoning, as well. In the meantime, might as well play the slots. More fun and better odds."

  Read Also: El-Erian: Correction In Stocks Could Happen If… by Matthew Belvedere via CNBC

   

  3) The Fed's Next Bubble by John Hussman, Ph.D. via Hussman Funds

  "Unfortunately, the Federal Reserve has now created the third financial bubble in 15 years. Focusing on two variables – inflation and unemployment – the Fed has missed the most important consideration: the risk to financial stability. It is the same mistake the Fed made during the housing bubble. This mistake will ultimately end just as tragically. The only question is how much worse the Fed makes the situation in the interim. If investors develop a fresh preference for risk-seeking (which we can never rule out), we would observe that shift through the behavior of market internals, and we would expect to dial back our concerns about immediate market risk (though we would encourage a material safety net in any event). Even if that occurs, don't think for a second that the eventual outcome for the financial markets or the economy would ultimately be better for it."

  

  Read Also: Bill Gross Thinks The End Is Near by Andrew Ross Sorkin via NYT

   

  4) Expensive Is the New "Cheap" For Bull Market by Joseph Ciolli via BloombergBusiness

  "'Investors are being dragged kicking and screaming into the stock market because, while valuations are not cheap, there really aren't any better options,' Tom Mangan, who helps oversee about $6.4 billion as a money manager at James Investment Research in Xenia, Ohio, said by phone. 'Investors will have to identify undervalued stocks individually, not by sector.'

  While elevated, the U.S. stock market's overall valuation isn't far from its historical average. The S&P 500's price-earnings ratio is 18.8, about 2.4 points above the 10-year mean and 38 percent below its 1999 record."

  Read Also: Irrational Exuberance Is Dooming The Stock Market by Mark Hulbert via MarketWatch

  

  5) Stock Market Complacency Is Back by Sam Ro via Business Insider

  "From Bianco's note: 'Our PE/VIX market emotion indicator climbed to 1.3 on S&P trailing PE of 18 and 3m avg VIX of 14. A level between 1.2-1.5 signals complacency. There was similar complacency going into summer last year, with S&P trailing PE at 17.5 and a calm market kept VIX at 10-14. The complacency persisted to July but then faded as the risk of higher yields came on falling unemployment, but yields ultimately stayed subdued preventing any major summer sell-off. Yet a selloff began in late Sept as oil prices started cracking and the dollar climbing.'

  Bianco illustrated this in a pair of charts, the bottom one decomposing the PE/VIX to its various components.

  As you can see, this measure signaled similar warnings ahead of the dotcom bubble bursting the global financial crisis coming to a head."

  

  Read: HSBC Fears World Recession With No Lifeboats Left by Ambrose Evans-Pritchard via The Telegraph

  ---

  OTHER STUFF OF INTEREST

  19 Things That Actually Happened In 1999 by Michael Johnston via Poseidon Financial

  "Although the events of 1999 are ancient history by many standards, some very clear memories no doubt remain for many investors. With technology and biotech stocks once again hot, a number of comparisons to the last bubble have been made. But the current environment can't come close to matching 1999, either in terms of valuations or in the sheer madness of the markets."

  About Bulls, Bears & Pigs by Lvaylo Ivanov vis Ivanhoff.com

  "The first thing I heard when I got in the business, not from my mentor, was bulls make money, bears make money, and pigs get slaughtered. I'm here to tell you I was a pig. And I strongly believe the only way to make long-term returns in our business that are superior is by being a pig. I think diversification and all the stuff they're teaching at business school today is probably the most misguided concept everywhere."

  7 Lies Investors Tell Themselves by Jonathan Clements via MarketWatch

  "'In a bull market, there's a tendency for investors to think they're brilliant,' says Brad Barber, a finance professor at the University of California, Davis, and an expert in behavioral finance. Indeed, as share prices climb, investors' confidence grows and they start making all kinds of dubious claims.

  Here are seven comments you have probably heard from friends—and that may have escaped your own lips."

  ---

  "Because 'normal people' just do not think like this…" Tyler Durden via Zerohedge

  

  Have a great weekend.

  

  

  
  
  

  

• Worst Economic Data Day Of 2015 Ends With Some Folks Selling In May

  If ever there was a day (or week) for this clip, today is it… "we got this… yay record highs…oh wait…"

   

  First things first…  "sustainable"

  

   

  This was the worst week for US Macro in 5 weeks and today was the worst day for US Macro since last Thankgiving!

  

  *  *  *

  May ends with Silver best (+3.7%), bonds worst (-2%), with stocks just outperforming gold…

  

   

  Treasury yields rose on the month with 30Y up 12bps, 2Y up around 4bps – but the last 10 days or so have seen notable strength…

  

   

  "Sell (Trannies) In May" appears to have worked and the rest of the major indices scarped out small gains… (Trannies down 5 of the last 6 months and over 11% off the November highs)

  

   

  Energy stocks were the worst in May and healthcare surged thanks to a huge squeezeback higher in Biotechs…

  

   

  On the week, Trannies were also worst (down 4 of the last 5 weeks) making it the worst 3-week run (-5.4%) since Oct 2014 – notice the S&P managed to very briefly tag green for the week before tumbling back..

  

   

  The last 6 weekly closes on the S&P (from oldest to most recent) are 2117, 2108, 2116, 2122, 2126, 2115 – less than 1%!

  

   

  And finally, Trannies were the worst performer today also…and an ugly close

  

   

  To round out the equity excitement – here are futures from Friday's close showing all the volatility away from US sessions…

  

   

  Treasury yields and stocks decoupled mid-week – but stocks wanted to catch back down…

  

   

  But in the week Treasury yields collapsed…led by the long-end…with some month-end, week-end profit taking at the close

  

   

  With a dramatic 13bps flattening in 2s30s…the biggest weekly flattening since April 2013…

  

   

  The USDollar fell for the 3rd day in a row but ended the week higher by around 0.7% – Aud was the weakest of the majors and Swissy strongest

  

   

  Despite the swings in the dollar, gold continued to go absolutely nowhere (as did Silver) but copper tumbled as crude soared…

  

   

  And finally crude… What is there to say when production in Russia, America, and OPEC are all at record highs on a day when growth is shown for its weakness. This is Crude's best day in 7 weeks! Epic short squeeze into last trading day of the month and ahead of next week's OPEC meeting

  

   

  and your guess is as good as ours as to what stocks think of oil…

  

   

  Charts: Bloomberg

  Bonus Chart: Because well, you have to laugh really…

  

  

  
  
  

  

• The 2016 Presidential Campaign Begins (In 2 Cartoons)

  The lessor of two evils…

  The Many…

  

  or The One

  

   

  Source: Investors.com and Townhall

  

  
  
  

  

• The Most Confusing Reason Why Millennials Aren't Buying Houses

  In “This Is What Happens When Millennials Try To Find A Job,” we discussed high youth unemployment rates and the difficulty many recent college graduates have in finding a job in today’s double-adjusted US economic “recovery.” We also noted that a lack of gainful employment opportunities and stagnant (at best) wage growth are forcing some millennials to delay “important life decisions … like buying a house.”

  So while we were certainly not surprised to learn that excessive student loan and credit card debt were responsible for keeping many of America’s youth from buying their first home, we were surprised to discover that for millennials in around one third of US states, the chief impediment is apparently “not knowing how to start”…?

  

  Source: Carrington Home Loans

  Draw your own conclusions.

  

  
  
  

  

• Biker Breastaurant Shootout Arrests Threaten To Blow Hole In County Budget

  On Thursday evening we outlined what we called the “pension ponzi”, whereby state and local governments resort to the issuance of pension obligation bonds to plug underfunded pension liabilities. The idea is to arbitrage the spread between coupon payments and what the pension funds can presumably expect to make by investing the proceeds from the bond issue. Here’s a refresher:

  Much like transferring a balance on a high interest credit card onto a new card with a teaser rate, this gimmick only works if you do not max out the original card again, because if you do, all you’ve done is doubled your debt burden. As it relates to pension liabilities, this means that what you absolutely cannot do is use the cash infusion as an excuse to get lax when it comes to pension funding because after all, that’s what caused the problem in the first place.

   

  Aside from the rather obvious fact that borrowing huge sums of money to paper over problems has a tendency to promote the very same type of irresponsible behavior that got the borrower into trouble in the first place thus setting the stage for a scenario that ends up being twice as bad as it was initially, there’s also the fact that, as documented in these pages extensively, investment return assumptions for public pension plans are often at odds with reality. That is, projecting a 7% return in a world governed by ZIRP and NIRP means that in the best case scenario you are being absurdly optimistic and in a worst case scenario you’re likely taking greater risks in an effort to maximize returns.

  The reason why officials are resorting to pension obligation bonds is that state and local governments in the US are finding themselves mired in fiscal crises, some of which are the result of poor policy decisions and others stem primarily from exogenous factors such as slumping oil prices. Compounding the problem was an Illinois Supreme Court decision which struck down a pension reform bid. That effectively set a legal precedent and left states and municipalities with fewer options when it comes to closing funding gaps.

  We’ve covered all of this extensively and we thought we had likely seen it all when it comes to excuses for state and local budget gaps but in fact we have discovered yet another way for local governments to find themselves fiscally challenged: “true biker shootouts.” 

  The now infamous biker breastaurant shootout that unfolded two Sundays ago in the parking lot of a Waco, Texas Twin Peaks Sports Bar And Grill led to the arrest of more than 170 bikers and as you might imagine, that type of influx into the prison and legal system doesn’t come cheap. Here’s The Waco Tribune-Herald with more:

  As lawyers threaten civil rights lawsuits, seek bond reductions and clamor that their biker clients have done nothing wrong, McLennan County is spending $7,958 a day to house those jailed in the May 17 Twin Peaks shootout.

   

  According to county records, 173 of the 175 people who were arrested in the wake of the deadly brawl, which left nine dead and 18 wounded, remain jailed. Two bonded out with ankle monitors.

   

  The mass arrests are presenting unprecedented challenges to the county’s criminal justice system and have McLennan County officials keeping a close eye on the potential devastating budgetary fallout from the incident. A week and a half after the shooting, the county has spent upward of $80,000 just to house the inmates.

   

  “We’ve never had an issue of this magnitude, but another thing is all the other business here at the courthouse is still going on,” said 19th State District Judge Ralph Strother, the county’s senior judge who presides over one of McLennan County’s two primary felony courts.

  It’s not just the cost of jailing the bikers that’s taking a toll, but the cost of litigation as at least 63 bikers have requested court-appointed attorneys:

  Cathy Edwards, the county’s indigent defense coordinator, said of the 175 bikers at the county jail she interviewed, 63 have requested court-appointed attorneys. Edwards said she appointed 14 attorneys Wednesday to represent the bikers, including attorneys from Waco, Corsicana, Temple and Copperas Cove…

   

  Court-appointed defense attorneys are paid $750 for a guilty plea in a first-degree felony case, $500 for a second-degree felony and $400 for third-degree and state jail felonies. They are paid the same fee if cases are dismissed.

   

  If they itemize their time and prefer to be paid hourly, they are paid $75 for out-of-court preparation and $80 an hour while in court.

   

  With the influx of new cases, county officials are keeping a close eye on how the cases are affecting budgets.

  And although officials believe the current budget can withstand the pressure, country commissioner Ben Perry admits that “adjustments” may be necessary:

  Stan Chambers, the McLennan County auditor, said if many of the bikers are released in coming days or weeks, the current county budget should be sufficient to handle the increased costs

   

  “The commissioners court obviously has to support the decisions that law enforcement and the district attorney’s office make, and any adjustments that need to be made to the budget, we will do so,” Perry said.

  So, in a hilariously absurd twist of fiscal fate, we can now add “incarcerated bikers” to the list of things which are imperiling state and local government finances in America. 

  It should also be noted that this serves to validate an important point we made earlier this month. Namely, that when it comes to true biker shootouts, accurately assessing the fallout ahead of time is virtually impossible.

  

  

  
  
  

  

Digest powered by RSS Digest