May 05

Today’s News May 5, 2015

  • How Chinese Oligarchs Used Fake Trade Invoices To Launder Almost $1 Trillion Globally

    Submitted by Mike Krieger via Liberty Blitzkrieg blog,

    Screen Shot 2015-05-04 at 11.34.56 AM

    Our estimates show that the developing world lost US$991.2 billion in illicit financial flows in 2012, over ten times the amount of official development aid received by these countries in that year, and greater than the amount of net foreign direct investment received. From 2003 – 2012, US$6.6 trillion left developing country economies illicitly.

     

    Illicit outflows from developing countries increased at a trend rate of 9.4 percent per annum in real terms over the time period from 2003 to 2012. Though growth rates of IFFs tended to be higher before the financial crisis, their volume continues to climb. Over this time period, illicit financial flows were equivalent to 3.9 percent of developing world GDP on average.

     

    Save for a brief slowdown during the financial crisis, illicit financial flows have been allowed to grow unchecked over the past decade. In 2012, illicit outflows reached a staggering new peak of US$991 billion.

     

    – From the Global Financial Integrity Report: Illicit Financial Flows from Developing Countries: 2003-2012

    While the U.S. government loves to target and imprison small time so-called “money launderers” such Bitcoin pioneer Charlie Shrem, the real money launderers, the ones who help drug cartels and pump criminally sourced money into foreign real estate thus pricing out domestic populations worldwide, face no consequences whatsoever. I’ve explored this hypocrisy on many occasions, most recently in the post, Some Money Launderers are More Equal than Others Part 2 – CEO of BitInstant is Arrested. Here’s an excerpt:

    Last May, I wrote an article titled: Some Money Launderers are “More Equal” than Others, which likened the U.S. government to the pigs that ruled the roost in George Orwell’s classic novel Animal Farm. In that article, I decided to compare the way the “authorities” used money laundering laws against Liberty Reserve, versus the way they tip-toed around massive money laundering for Mexican drug cartels that HSBC engaged in. Since I wrote that article, JP Morgan has been fined tens of billions of dollars for a cornucopia of criminal activities. Meanwhile, we have yet to see a single executive arrested or put behind bars. Why?

     

    I think it is quite obvious. The United States’ “economy” has devolved into nothing more than a state-sanctioned criminal racket. A handful of oligarchs and the corporations they control, are immune from prosecution no matter what they do. They have a complete and total license to steal with impunity. Meanwhile, if a peasant is caught stealing 10 dollars or found with a dime bag of weed, it is jail for life. ‘Merica.

     

    So now I turn your attention to the breaking news that Charlie Shrem, the impressive, young and very talented kid behind Bitcoin exchange BitInstant, has been arrested.

    Shrem now sits in a prison cell for his victimless non-crime. This is how the United States Attorney’s Office for the Southern District of New York proudly announced the charges against Shrem:

    Screen Shot 2015-05-04 at 10.48.40 AM

    Yes, you read that right. ONE MILLION DOLLARS. Meanwhile, big banks launder billions for drug cartels, and corrupt Chinese launder trillions into overseas real estate, yet take a look at who ends up in prison. A 24-year old innovator and entrepreneur who harmed no one by “laundering” a million bucks. You only need to ask yourself two questions to understand what is going on here:

    1. Who poses a greater risk to society, Charlie Shrem or HSBC executives?
    2. Who poses a greater risk to the status quo’s rigged system, Charlie Shrem or HSBC executives?

    Now you know why one person sits in jail, while the others remain free. The U.S. justice system is a compete and total joke.

    But I digress. This post is supposed to be about illicit Chinese funds and how it’s basically a total free for all. Much of this money has entered U.S. real estate, helping to price out American families who can barely afford rent at this point (see: 1 in 4 Renters Use Half Their Pay for Housing). I’ve focused on this issue often over the past couple of years. For example, in the post, Chinese Purchases of U.S. Real Estate Jump 72% as The Bank of China Facilitates Money Laundering, I wrote:

    American citizens already have a hard enough time affording a home. Squeezed out by financial oligarchs buying tens of thousands of properties for rental income, and faced with real wages that haven’t budged since the mid-1970s, the demographic of U.S. citizens that historically dominated the new home market has been forced to live in their parents’ basements. Just to kick em’ when they’re down, Americans now face the impossible task of competing with laundered Chinese money.

     

    While this trend may not be new, it is certainly accelerating. According to the National Association of Realtors in its annual report on foreign home purchases, transactions from Greater China (includes Hong Kong and Taiwan) were up 72% in the past year to $22 billion. In some California communities, 90% of real estate buyers are from China. Yes, 90%. Naturally, many of them are buying multi-million dollar homes in “all cash” transactions.

    There have been several studies looking at how this money is laundered, but a report from Global Financial Integrity (GFI) released last December points out that fake trade invoices, i.e., misinvoicing trade transactions or trade-based money laundering, seems to be the primary vehicle used. Quartz dug into the data and provided some interesting commentary and telling charts. Here are a few excerpts:

    China’s capital account might be closed—but it’s not that closed. Between 2003 and 2012, $1.3 trillion slipped out of mainland China—more than any other developing country—says a report (pdf) by Global Financial Integrity (GFI), a financial transparency group. The trends illuminate China’s tricky balancing act of controlling the economy and keeping it liquid.

     

    GFI says the most common way money leaks out in the developing world is through fake trade invoices. The other big culprit is “hot money,” likely due to corruption—which GFI gleans from inconsistencies in balance of payments data.

     

    In China, both activities have picked up since 2009. In fact, $725 billion—more than half of the outflows from the last decade—has left since 2009, just after the Chinese government launched its 4 trillion yuan ($586 billion) stimulus package.

     

    Even after that wound down, the government encouraged investment to boost the economy, prodding its state-run banks to lend. Since loan officers dish out credit to the safest companies—those with political backing—this overwhelmingly benefited government officials and their cronies.

     

    That’s left small private companies so starved for capital that they’ll pay exorbitant rates for shadow-market loans, which a lot of China’s sketchy trade invoicing outflows likely sneaked back in to speculate on shadow finance and profit from the appreciating yuan. Corrupt officials, meanwhile, shifted their ill-gotten gains into overseas real estate and garages full of Bentleys.

    The paragraphs above are particularly telling. Just like in the U.S., the so-called government “stimulus” in China achieved nothing more than to stimulate an oligarch crime spree. Hence the global boom in $100 million real estate, art and everything extremely high-end. As intended, the bailouts and stimulus on a global basis went directly to the 0.0001%.

    Finally, here are a couple of choice passages I found from the GFI report itself:

    This report, the latest in a series of annual reports by Global Financial Integrity (GFI), provides estimates of the illicit flow of money out of the developing world–as a whole, by region, and by individual country–from 2003-2012, the most recent ten years of data availability.

     

    The vast majority of illicit financial outflows is due to trade misinvoicing.

    Can you believe it’s not Bitcoin after all!

    Save for a brief slowdown during the financial crisis, illicit financial flows have been allowed to grow unchecked over the past decade. In 2012, illicit outflows reached a staggering new peak of US$991 billion.

    Read that twice, and then read it again. The banker bailouts bailed out the criminals and their criminal global financial system, which then ramped to new heights of corruption and fraud in the subsequent years.

    Illicit financial flows from developing countries are facilitated and perpetuated primarily by opacity in the global financial system. This endemic issue is reflected in many well-known ways, such as the existence of tax havens and secrecy jurisdictions, anonymous companies and other legal entities, and innumerable techniques available to launder dirty money—for instance, through misinvoicing trade transactions (often called trade-based money laundering when used to move the proceeds of criminal activity).

    Now, here are a couple of the main conclusions from the report:

    Our estimates show that the developing world lost US$991.2 billion in illicit financial flows in 2012, over ten times the amount of official development aid received by these countries in that year, and greater than the amount of net foreign direct investment received. From 2003 – 2012, US$6.6 trillion left developing country economies illicitly.

     

    Illicit outflows from developing countries increased at a trend rate of 9.4 percent per annum in real terms over the time period from 2003 to 2012. Though growth rates of IFFs tended to be higher before the financial crisis, their volume continues to climb. Over this time period, illicit financial flows were equivalent to 3.9 percent of developing world GDP on average.

    That is what Oligarchy looks like.

    *  *  *

    For related articles, see:

    Chinese Purchases of U.S. Real Estate Jump 72% as The Bank of China Facilitates Money Laundering

    Open the Floodgates – Chinese Inquiries on U.S. Real Estate Soar 35% After Easing of Visa Rules

    Corrupt Chinese Politicians are Buying Billions in U.S. Real Estate

    Welcome to Arcadia – The California Suburb Where Wealthy Chinese Criminals are Building Mansions to Stash Cash

    How NYC’s Biggest Real Estate Project in a Generation is Being Financed by Selling Green Cards to the Chinese



  • Federal Reserve 1 – 0 Saudi Arabia

    Since we last updated the state of Saudi Arabia’s reserve stash, things have gone from bad to worse. It appears the battle to crush US Shale producers is taking its toll as The FT reports, Saudi Arabia is burning through its foreign reserves at a record rate as the kingdom seeks to maintain spending plans (and thus social stability) despite lower oil prices. All the time The Fed remains ‘easy’, no matter how negative US Shale cashflows are, the muppets will buy their debt and keep the mal-invested market alive. Saudi reserves are now their lowest in almost 2 years (but they have plenty more to chew through to out-wait The Fed).

    Saudi Reserves have dropped to 2 year lows and fallen by the most ever in the last 2 months…

     

    As The FT reports,

    The central bank’s foreign reserves have dropped by $36bn, or 5 per cent, over the past two months, as newly crowned King Salman bin Abdulaziz al-Saud dips into Riyadh’s rainy-day fund and increases domestic borrowing to fund public sector salaries and large development projects.

     

    The latest data show Saudi’s foreign reserves dropped by $16bn to $698bn in March, driven by public sector bonuses paid by King Salman after he assumed power in January. This follows a fall of $20bn in February. Saudi Arabia has spent $47bn of foreign reserves since October.

     

    As one analyst noted,  “There is a need to rationalise spending,” as King Salman promised a bonus payment for military personnel engaged in the kingdom’s month-long bombardment of Houthi rebels in Yemen, a campaign that itself added pressure to state coffers.

     

    …

     

    “The [military] bonuses are not an encouraging sign,” said Steffen Herthog of the London School of Economics. “It shows the knee-jerk reaction to political challenges is to distribute more money.”

    *  *  *
    The royal family, whose social contract with the people offers cradle-to-grave care in return for loyalty, is seeking to reduce state subsidies without sparking popular anger. But analysts are unclear how quickly the government can move on such a sensitive topic.

    *  *  *

    Simply out, as long as The Fed keeps ZIRP, it will cost Saudi Arabia.



  • Ron Paul Warns The "USA Freedom Act" Is Just Another Name For Lost Liberty

    Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

    Apologists for the National Security Agency (NSA) point to the arrest of David Coleman Headley as an example of how warrantless mass surveillance is necessary to catch terrorists. Headley played a major role in the 2008 Mumbai terrorist attack that killed 166 people.

    While few would argue that bringing someone like Headley to justice is not a good thing, Headley’s case in no way justifies mass surveillance. For one thing, there is no “terrorist” exception in the Fourth Amendment. Saying a good end (capturing terrorists) justifies a bad means (mass surveillance) gives the government a blank check to violate our liberties.

    Even if the Headley case somehow justified overturning the Fourth Amendment, it still would not justify mass surveillance and bulk data collection. This is because, according to an investigation by ProPublica, NSA surveillance played an insignificant role in catching Headley. One former counter-terrorism official said when he heard that NSA surveillance was responsible for Headley's capture he “was trying to figure out how NSA played a role.”

    The Headley case is not the only evidence that the PATRIOT Act and other post-9/11 sacrifices of our liberty have not increased our security. For example, the NSA’s claim that its surveillance programs thwarted 54 terrorist attacks has been widely discredited. Even the president’s Review Group on Intelligence and Communications Technologies found that mass surveillance and bulk data collection was “not essential to preventing attacks.”

    According to the congressional Joint Inquiry into Intelligence Activities before and after the Terrorist Attacks of September 11, 2001 and the 9/11 Commission, the powers granted the NSA by the PATRIOT Act would not have prevented the 9/11 attacks. Many intelligence experts have pointed out that, by increasing the size of the haystack government agencies must look through, mass surveillance makes it harder to find the needle of legitimate threats.

    Even though mass surveillance threatens our liberty, violates the Constitution, and does nothing to protect us from terrorism, many in Congress still cling to the fiction that the only way to ensure security is to give the government virtually unlimited spying powers. These supporters of the surveillance state are desperate to extend the provisions of the PATRIOT Act that are set to expire at the end of the month. They are particularly eager to preserve Section 215, which authorizes many of the most egregious violations of our liberties, including the NSA’s “metadata” program.

    However, Edward Snowden's revelations have galvanized opposition to the NSA’s ongoing violations of our liberties. This is why Congress will soon vote on the USA FREEDOM Act. This bill extends the expiring surveillance laws. It also contains some “reforms” that supposedly address all the legitimate concerns regarding mass surveillance.

    However, a look at the USA FREEDOM Act’s details, as opposed to the press releases of its supporters, shows that the act leaves the government’s mass surveillance powers virtually untouched.

    The USA FREEDOM Act has about as much to do with freedom as the PATRIOT Act had to do with patriotism. If Congress truly wanted to protect our liberties it would pass the Surveillance State Repeal Act, which repeals the PATRIOT Act. Congress should also reverse the interventionist foreign policy that increases the risk of terrorism by fostering resentment and hatred of Americans.

    Fourteen years after the PATRIOT Act was rushed into law, it is clear that sacrificing liberty does little or nothing to preserve security. Instead of trying to fool the American people with phony reforms, Congress should repeal all laws that violate the Fourth Amendment, starting with the PATRIOT Act.



  • "Oh It's Gonna Blow Up Tonight" – Baltimore In Turmoil After Latest Gun 'Incident'

    The latest out of Baltimore appears to be that although police are denying that the man who was taken to the hospital (identified as Robert Tucker) was shot or even injured, no one on the ground trusts anyone else, a situation would has the potential to spontaneously combust at any given time…

    Update: Baltimore police now claim they did not shoot anyone and the person in question was arrested for handgun possession.

     

     

    And the video:

     

    Broadcast live streaming video on Ustream

     

    And then this:

    So a gun did go off after all?

    * * *

    Just as things in Baltimore were quieting down, here is McClatchy’s reporter Hannah Allam with an update on what may likely rekindle local violence and push the local riots to the next level.

    * * *

    Perhaps just to make sure CNN’s ratings spike again, here is the president with a little racially-unifying helping hand:

    • OBAMA: MEN OF COLOR TOO OFTEN FIND INJUSTICE IN LAW ENFORCEMENT

    Well…



  • How The Shanghai Composite Can Rise 461% From Here

    If there’s one capital markets-related story that just never seems to get old it’s the unrelenting rally in Chinese stocks. The country’s equity mania truly is the gift that keeps on giving, and not just for those who are riding the wave, but also for those who, like us, appreciate the humor in a giant, margin-fueled bubble that’s captivated millions upon millions of semi-literate housewives and banana vendors turned day traders. Unfortunately, Chinese regulators threw a bit of cold water on the party last month, suggesting a move to curb margin lending may be in the cards. 

    Nevertheless, a new note from Macquarie suggests the margin madness may be just getting started. Because investors can borrow 86 yuan for every 100 yuan they have in collateral, margin debt could “theoretically” balloon from 1.7 trillion yuan to a hilarious 9.4 trillion yuan, a 461% increase. Here’s more via Bloomberg:

    Openings of Chinese brokerage accounts have surged in recent months as has the take-up of margin accounts which offer investors the ability to borrow against their stock portfolios…

     

    How high could the whole thing go, you ask? The Macquarie analysts estimate that, at an extreme, investors could borrow RMB 85.7 for every RMB 100 of collateral in their portfolios. That suggests the theoretical ability to increase margin finance loans from the current 1.7 trillion yuan to as much as 9.4 trillion yuan, or 461 percent higher than the current level. While it’s doubtful that would ever happen (banks, after all, do not have unlimited lending capacity and the government has already instituted some curbs on margin lending) even a moderate increase in margin borrowings could be meaningful. At 3.2 percent of total market cap, China’s margin debt has already eclipsed bubble-era Japan as well as pre-Asian Financial Crisis Korea…

    One word: parabolic:
    *  *  *
    And, as if on cue, Shanghai Securities News is reporting that some Chinese brokers are set to raise their margin trading requirements: 

    Huatai Securities and Tebon Securities raised margin requirement for margin trading and short selling to control risks, Shanghai Securities News reports, without citing anyone.
    Haitong Securities cut the amount that clients could use securities as collateral for margin trading and short selling.
    We suspect this will not be welcome news to China’s legion of rabid day traders.



  • Stephen Roach Derides Central Bankers' Mass Delusion

    Authored by Stephen Roach, originally posted at Project Syndicate,

    The world economy is in the grips of a dangerous delusion. As the great boom that began in the 1990s gave way to an even greater bust, policymakers resorted to the timeworn tricks of financial engineering in an effort to recapture the magic. In doing so, they turned an unbalanced global economy into the Petri dish of the greatest experiment in the modern history of economic policy. They were convinced that it was a controlled experiment. Nothing could be further from the truth.

    The rise and fall of post-World War II Japan heralded what was to come. The growth miracle of an ascendant Japanese economy was premised on an unsustainable suppression of the yen. When Europe and the United States challenged this mercantilist approach with the 1985 Plaza Accord, the Bank of Japan countered with aggressive monetary easing that fueled massive asset and credit bubbles.

    The rest is history. The bubbles burst, quickly bringing down Japan’s unbalanced economy. With productivity having deteriorated considerably – a symptom that had been obscured by the bubbles – Japan was unable to engineer a meaningful recovery. In fact, it still struggles with imbalances today, owing to its inability or unwillingness to embrace badly needed structural reforms – the so-called “third arrow” of Prime Minister Shinzo Abe’s economic recovery strategy, known as “Abenomics.”

    Despite the abject failure of Japan’s approach, the rest of the world remains committed to using monetary policy to cure structural ailments. The die was cast in the form of a seminal 2002 paper by US Federal Reserve staff economists, which became the blueprint for America’s macroeconomic stabilization policy under Fed Chairs Alan Greenspan and Ben Bernanke.

    The paper’s central premise was that Japan’s monetary and fiscal authorities had erred mainly by acting too timidly. Bubbles and structural imbalances were not seen as the problem. Instead, the paper’s authors argued that Japan’s “lost decades” of anemic growth and deflation could have been avoided had policymakers shifted to stimulus more quickly and with far greater force.

    If only it were that simple. In fact, the focus on speed and force – the essence of what US economic policymakers now call the “big bazooka” – has prompted an insidious mutation of the Japanese disease. The liquidity injections of quantitative easing (QE) have shifted monetary-policy transmission channels away from interest rates to asset and currency markets. That is considered necessary, of course, because central banks have already pushed benchmark policy rates to the once-dreaded “zero bound.”

    But fear not, claim advocates of unconventional monetary policy. What central banks cannot achieve with traditional tools can now be accomplished through the circuitous channels of wealth effects in asset markets or with the competitive edge gained from currency depreciation.

    This is where delusion arises. Not only have wealth and currency effects failed to spur meaningful recovery in post-crisis economies; they have also spawned new destabilizing imbalances that threaten to keep the global economy trapped in a continuous series of crises.

    Consider the US – the poster child of the new prescription for recovery. Although the Fed expanded its balance sheet from less than $1 trillion in late 2008 to $4.5 trillion by the fall of 2014, nominal GDP increased by only $2.7 trillion. The remaining $900 billion spilled over into financial markets, helping to spur a trebling of the US equity market. Meanwhile, the real economy eked out a decidedly subpar recovery, with real GDP growth holding to a 2.3% trajectory – fully two percentage points below the 4.3% norm of past cycles.

    Indeed, notwithstanding the Fed’s massive liquidity injection, the American consumer – who suffered the most during the wrenching balance-sheet recession of 2008-2009 – has not recovered. Real personal consumption expenditures have grown at just 1.4% annually over the last seven years. Unsurprisingly, the wealth effects of monetary easing worked largely for the wealthy, among whom the bulk of equity holdings are concentrated. For the beleaguered middle class, the benefits were negligible.

    “It might have been worse,” is the common retort of the counter-factualists. But is that really true? After all, as Joseph Schumpeter famously observed, market-based systems have long had an uncanny knack for self-healing. But this was all but disallowed in the post-crisis era by US government bailouts and the Fed’s manipulation of asset prices.

    America’s subpar performance has not stopped others from emulating its policies. On the contrary, Europe has now rushed to initiate QE. Even Japan, the genesis of this tale, has embraced a new and intensive form of QE, reflecting its apparent desire to learn the “lessons” of its own mistakes, as interpreted by the US.

    But, beyond the impact that this approach is having on individual economies are broader systemic risks that arise from surging equities and weaker currencies. As the baton of excessive liquidity injections is passed from one central bank to another, the dangers of global asset bubbles and competitive currency devaluations intensify. In the meantime, politicians are lulled into a false sense of complacency that undermines their incentive to confront the structural challenges they face.

    What will it take to break this daisy chain? As Chinese Premier Li Keqiang stressed in a recent interview, the answer is a commitment to structural reform – a strategic focus of China’s that, he noted, is not shared by others. For all the handwringing over China’s so-called slowdown, it seems as if its leaders may have a more realistic and constructive assessment of the macroeconomic policy challenge than their counterparts in the more advanced economies.

    Policy debates in the US and elsewhere have been turned inside out since the crisis – with potentially devastating consequences. Relying on financial engineering, while avoiding the heavy lifting of structural change, is not a recipe for healthy recovery. On the contrary, it promises more asset bubbles, financial crises, and Japanese-style secular stagnation.



  • BaSiC INKSTiNCT…



  • Peak Oil Optimism

    Speculative bets on rising Brent crude oil prices reached a new record last week but under the surface futures and options market positioning among managed money accounts is flashing a very red warning signal…

     

    As Saxobank's Ole Hanson notes, the long/short ratio has reached 6.4 meaning that for each lot of shorts more than 6 lots are long.

    Historically, this looks extreme and on three previous occasions since early 2013 a reading above 6 subsequently triggered sell-offs of which the most recent was last June when the price peaked at $115.

     

     

    While the focus remains on geopolitical worries the speculative data are pointing to an increased risk of a setback. A gross long of 322 million barrels only requires a small change in the fundamental or technical picture to turn into a rout. 

    Speculative position in Brent Crude

    *  *  *

    Shortly after this note, it appears Goldman also sees the same thing…

    Goldman strategists John Marshall and Katherine Fogertey, in note, say have seen evidence from option markets that energy/oil positioning has “moved overly bullish in recent days.”

     

    Investors willing to pay increasingly high prices for calls relative to puts, citing decline in put-call skew

     

    Sees shift as “sharp contrast” vs overly bearish positioning from March 18

    *  *  *

    Trade accordingly.



  • Ira Sohn Conference Picks And Pans Summary

    In what was perhaps the most uneventful Ira Sohn book-talking conference in years, some of the biggest hedge fund names came, and as expected, talked their book. There were few surprises, perhaps with the exception of David Einhorn who may have pulled an Ackman and revealed his disdain for Pioneer Natural Resources, which sent the name and the fracking sector lower if only briefly. Indicative of the broader state of the “market” Einhorn was also the only person who pitched a short.

    Einhorn’s problem, perhaps in line with all those who hated Chesapeake in 2012 is that he still thinks fundamentals matter when in reality a money-losing corporation can exist in perpetuity if it merely finds enough yield-starved junk bond investors – those who bought the Greek 5 year bonds a year ago shoud suffice – to fund the endless cash drain with other people’s money.

    It remains to be seen if the Pioneer will now surge in an attempt to force squeeze Einhorn, the way Icahn did with Herbalife over Ackman’s infamous short.

    Corvex’ Keith Meister pushed for a breakup of Yum Brands Inc. and Jeffrey Gundlach pitched buying Puerto Rican bonds.

    The following table is a 1 minute summary of what all the market participants pitched or panned.

    Curious for more? Both Reuters, and WSJ’s Moneybeat did a comprehensive update for those who still believe alpha exists in centally-planned markets.



  • Gates Says Bet On Yuan As IMF Calls Currency Fairly Valued

    We’ve talked extensively about China’s currency conundrum which has put Beijing between a rock and a hard place as it seeks to combat rapidly decelerating economic growth (which, according to some estimates, is running as low as 3.8%). Facing rising capital outflows (totalling $300 billion over the past four quarters alone) on the one hand and falling exports on the other, there appears to be no ‘right’ answer, as devaluing the yuan to prop up exports risks throwing gasoline on the capital outflow fire, but failing to devalue in the face of a dramatic slowdown in the export-driven economy may ultimately prove to be completely untenable. This is all complicated by recent strength in the dollar and perpetual pressure on the euro and yen exerted by the potent one-two monetary insanity punch from the Draghi-Kuroda tag team. Meanwhile, China is keen to give the yuan a more prominent role in the global economy via the AIIB and Silk Road Fund and is also pushing for SDR inclusion by the end of the year. 

    Against this backdrop, the IMF is out suggesting that the currency — which, as we have noted on multiple occasions over the past several months, has appreciated to the tune of 14% on a REER basis in the last 12 or so months — is closing in on being fairly valued. Predictably, Washington does not agree. Here’s more from WSJ:

    The International Monetary Fund is close to declaring China’s yuan fairly valued for the first time in more than a decade, a milestone in the country’s efforts to open its economy that would blunt U.S. criticism of Beijing’s currency policy.

     

    The fund’s reassessment of the yuan—set to be made official in IMF reports on China’s economy due out in the coming months—follows years of IMF censure of Beijing’s management of the currency.

     

    The IMF’s latest view undermines the Obama administration’s pressure on China over its management of the currency and could undercut congressional efforts to inject yuan concerns into pending trade legislation.

     

    “It takes the rug out from under the feet of U.S. critics of Chinese currency policy,” saidEswar Prasad, a Cornell University economist and former China official at the IMF. “The U.S. relied to a significant extent on what was seen as the IMF’s objective assessment.”

     

    The Obama administration disagrees with the IMF, maintaining a view that the yuan, also called renminbi, remains “significantly undervalued.”

     

    The shift at the IMF comes as Beijing is increasingly challenging the established global order. In recent months, China has won broad support for its new Asian Infrastructure Investment Bank, an entity that would rival the World Bank, the IMF’s sister institution. China is also pushing plans to create a modern “Silk Road” by better connecting its economy with those in the rest of Asia, the Middle East, Africa and Europe. Chinese officials have asked the IMF to include the yuan in the elite basket of currencies that comprise the fund’s emergency-lending reserves, a decision the fund will consider later this year.

     

    The yuan is roughly pegged to the dollar, and as the U.S. currency has appreciated against most other major currencies, it has helped push up the value of the yuan. In nominal terms, the yuan’s appreciation has leveled off. But accounting for inflation, the value of the currency has risen by more than 10% in the past year alone.

     

    As China’s economy cools, some economists don’t rule out Beijing depreciating the yuan again to help juice exports and prop up its expansion.

     


     

    Here’s a bit of color from Barclays on what SDR inclusion means for Beijing in terms of flexibility to devalue…

    On a fundamental basis, the case can be made that China’s “reluctant easing” should include a more significant move in the currency, but our view is that, ahead of the SDR review later this year, China will refrain from devaluing the CNY and even from moving USDCNY fixings notably higher. Such moves might not be welcomed by China’s major trade partners, who might be inclined to see it as currency manipulation. 

    …and here’s a look at the yuan’s rising importance in global trade…

    What the above underscores is that although Beijing faces some tough choices in terms of whether or not China will eventually be forced, by slumping economic growth, to devalue, the evidence continues to mount that the yuan will play an increasingly important role in the world economy going forward, an eventuality that try as it may, the US will not be able to head off by branding the country a “currency manipulator.”

    And meanwhile…

    • BILL GATES SAYS `PROBABLY WOULD PICK’ CHINESE CURRENCY: CNBC
    • GATES SAYS HE LOVES DOLLAR, WOULD PUT HIS BET ON YUAN



  • The Financial System Broke Last Year… We've Just Yet to Feel It

    Global Central banks’ reputations are on borrowed time.

     

    ALL of the so called, “economic recovery” that began in 2009 has been based on the Central Banks’ abilities to rein in the collapse.

     

    The first round of interventions (2007-early 2009) was performed in the name of saving the system. The second round (2010-2012) was done because it was generally believed that the first round hadn’t completed the task of getting the world back to recovery.

     

    However, from 2012 onward, everything changed. At that point the Central Banks went “all in” on the Keynesian lunacy that they’d been employing since 2008. We no longer had QE plans with definitive deadlines. Instead phrases like “open-ended” and doing “whatever it takes” began to emanate from Central Bankers’ mouths.

     

    However, the insanity was in fact greater than this. It is one thing to bluff your way through the weakest recovery in 80+ years with empty promises; but it’s another thing entirely to roll the dice on your entire country’s solvency just to see what happens.

     

    In 2013, the Bank of Japan launched a single QE program equal to 25% of Japan’s GDP. This was unheard of in the history of the world. Never before had a country spent so much money relative to its size so rapidly… and with so little results: a few quarters of increased economic growth while household spending collapsed and misery rose alongside inflation.

     

    This was the beginning of the end. Japan nearly broke its bond market launching this program (the circuit breakers tripped multiple times in that first week). However it wasn’t until late 2014 that things truly became completely and utterly broken.

     

    We are, of course, referring to the Bank of Japan’s decision to increase its already far too big QE program, not because doing so would benefit the country, but because it would bring economists’ forecast inline with governor Kuroda’s intended inflation numbers.

     

    This was the “Rubicon” moment: the instant at which Central Banks gave up pretending that their actions or policies were aimed at anything resembling public good or stability. It was now about forcing reality to match Central Bankers’ theories and forecasts. If reality didn’t react as intended, it wasn’t because the theories were misguided… it was because Central Bankers simply hadn’t left the paperweight on the “print” button long enough.

     

    At this point the current financial system was irrevocably broken. We simply had yet to feel it.

     

    That is, until, January of 2014, when the Swiss National Bank lost control, breaking a promise, and a currency peg, losing an amount of money equal to somewhere between 10% and 15% of Swiss GDP in a single day, and showing, once and for all, that there are problems so big that even the ability to print money can’t fix them.

     

    Please let this sink in: a Central bank lost control last week. This will not be a one-off event. With the Fed and other Central banks now leveraged well above 50-to-1, even those entities that were backstopping an insolvent financial system are themselves insolvent.

     

    The Big Crisis, the one in which entire countries go bust, has begun. It will not unfold in a matter of weeks; these sorts of things take months to complete. But it has begun.

     

    If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis "Round Two" Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.

     

    You can pick up a FREE copy at:

     

    http://www.phoenixcapitalmarketing.com/roundtwo.html

     

     

    Best Regards

     

    Phoenix Capital Research

     

     

     



  • Hillary Loves Bill

    …lots of bills…

     

     

    Source: Townhall



  • Two-Thirds Of US Millionaires Fear "They Will Lose It All" If The Market Crashes

    It’s not easy being a millionaire in the New Normal.

    No really, because even though over the past 7 years every single Fed action has catered exclusively to the wealthiest 1% within polite US society, desperate to make them wealthier in hopes their combined trilions in net worth will magically “
    “trickle down”, according to another voyeristic UBS study into America’s high net worth public, while “millionaires enjoy a great deal of happiness and appreciation for what they’ve earned… many feel compelled to strive for more, spurred on by their own ambition, their desire to protect their families’ lifestyle and an ever-present fear of losing it all. With memories of the financial crisis still lingering, most millionaires don’t have enough wealth to feel secure. As a result, many feel stuck on a treadmill, without a real sense of how much wealth would make them satisfied enough to get off.”

    It gets better.

    UBS observers that “Millionaires’ constant striving comes mainly from pressure they feel to maintain the high standard of living they have established for their families, whom they value above all else. At the same time, millionaires worry this very lifestyle may be spoiling their children, causing them to lack motivation and feel entitled.”

    And so the Fed is also to blame for a whole generation of spoiled Millennials. But the punchline: “Millionaires feel stuck on a treadmill they can’t get off…” The reason:

    Though two-thirds of millionaires say achieving financial security is the whole point of working to build wealth, only the very wealthy (those with $5 million or more) feel they have enough to be secure. Half of millionaires with less than $5 million—and 63% of those working with children at home—believe that one wrong move, such as a job loss or market crash, would have a major impact on their lifestyle. For individuals with at least $5 million, only 34% feel they couldn’t withstand a setback.

     

    And so perhaps the biggest irony of the New Paranormal is revealed, one on which the entire failed central planning experiment was built on: by making the wealthy wealthier by means of a rigged, broken, manipulated market which everyone now realizes has zero basis in reality (stocks jump on bad econ data, soar on catastrophic data out of hopes of even more central bank liquidity), or fundamentals (not a day passes without the CFTC, SEC, or some other regulators humiliated by constant HFT spoofing or quote stuffing), they feel compelled to save even more than if the bulk of their wealth had been accumulated using honest means and ways.

    In other words, instead of facilitating some mutated trickle down, the Fed succeeded in forcing the most upwardly mobile segment of society to spend as little as possible! And then the St. Louis Fed wonders why the US middle class is disappearing, something we first predicted would happen in 2009.

    But what if millionaires had nothing to worry about: what if the Fed could guarantee that the stock market which it nearly singlehandedly tripled from its March 2009 lows would never crash, what would the millionaires above do with all that free time and disposable income?

    UBS’ answer: “the overwhelming majority of millionaires (87%) would do things differently. As much time and energy as they spend on their careers, they would rather enjoy a wider range of experiences, such as traveling and spending time with family. They would also be more likely to take chances, since many regret not taking enough chances in the past. Ultimately, millionaires are unlikely to step off the treadmill unless faced with a major life event (e.g., a health scare, retirement).”

     

    Unclear which of these is “blow it all on hookers.”

    Oh wait, for the answer we go to the next panel of questions in which we find that “They regret relationship mistakes and not spending enough time with family”

    And there it is: if the Fed wants to boost the sagging Vice index which consists of such components as hookers, booze and gambling – which is precisely what the above millionaires would first and foremost spend their money on – all it has to do is assure America’s depressed millionaires that the market will never again drop. Ever. Pretty much precisely what it has been doing for the past 7 years.



  • Leaking Las Vegas: Forced Rationing Looms As Lake Mead Faces Federal "Water Emergency"

    Submitted by Wolf Richter via WolfStreet.com,

    Leak Mead – on your left, when you drive from Las Vegas across the Hoover Dam – is the largest reservoir in the country when at capacity. It’s fed by the Colorado River which provides water for agriculture, industry, and 40 million people in Nevada, Arizona, California, and Mexico, including Los Angeles, San Diego, Phoenix, and Las Vegas. Now after 15 years of drought, the “lake” – a mud puddle surrounded by a huge chalky bathtub ring – is threatening to run dry.

    It’s considered “operationally full” when the water level is at 1,229 feet elevation above sea level. On May 2, the water level was down to 1,078.9 feet above sea level, the lowest since it was being filled in May 1937. It’s down 15 feet from the same day a year ago. Over the last 36 months, the water level has dropped 44.8 feet. It’s down 150 feet from capacity.

    If the water level is below 1,075 feet elevation – 4 feet below today’s level – by January 1, 2016, it will trigger a federal water emergency. And water rationing. Las Vegas Review Journal reported that forecasters expect the level to drop to 1073 feet by June, before Lake Powell would begin to release more water. Assuming “average or better snow accumulations in the mountains that feed the Colorado River – something that’s happened only three times in the past 15 years,” the water level on January 1 is expected to be barely above the federal shortage level.

    Even with these somewhat rosy assumptions of “average or better than average snow accumulations,” the water level would begin set new lows next April. But if the next winter is anything like the last few, all bets are off.

    If the level drops below 1050 feet, one of the two intake pipes for the Las Vegas Valley, which gets 90% of its water that way, will run dry. A new $817-million tunnel is being built by the Southern Nevada Water Authority to create a new drain to get the last drop out of the bathtub. It should be ready by September.

    The LA Times explains what water rationing would mean for the states:

    Las Vegas has long been at a disadvantage when it comes to Lake Mead water. A 1922 Colorado River water-sharing agreement among seven Western states — one still in effect nearly a century later — gives southern Nevada the smallest amount of all; 300,000 acre-feet a year, compared with California’s 4.4 million annual acre-feet. An acre-foot can supply two average homes for one year.

     

    This summer, officials will make their projection for Lake Mead water in January 2016. If the estimate is below 1,075 feet, rationing kicks in: Southern Nevada would lose 13,000 acre-feet per year and Arizona would lose 320,000 acre-feet. California’s portion would not be affected.

    Note the last sentence – that California would not be affected. Keeping lawns green in LA is top priority.

    “Between Lake Mead and Lake Powell, you have over 50 million acre feet in storage when they’re full,” explained Pat Mulroy, former general manager of the Southern Nevada Water Authority from 1991 until she retired in 2014. “To have them both go down to a quarter of their capacity is a pretty scary proposition,” she said.

    Here she is, via Brookings, on the water crisis at Lake Mead, with ghostly images of the lake and of Hover Dam sitting high and dry:

     

    To get through the drought, residents and growers in California’s Central Valley have been pumping water from aquifers to take a shower, fill a glass with water, irrigate almond orchards, or do a million other things. But now, it turns out, even those aquifers, whose water levels are already dropping, are threatened by something else.



  • Fed Admits Yellen "Met With" FOMC Leaker In 2012, DOJ Probe Begins

    Just two weeks ago we pointed out the fact that The Fed had seemingly ignored Congressional demands for details with regard the 2012 FOMC Statement leak. Now we know why they missed the deadline:

    • *YELLEN SAYS SHE MET WITH MEDLEY GLOBAL ANALYST IN JUNE 2012
    • *YELLEN SAYS SHE DIDN'T GIVE MEDLEY CONFIDENTIAL INFORMATION

    So she met with the analyst that leaked the statement… but didn't say anything?

     

    *  *  *

    Some background…as a reminder, ProPublica explains the leak…

    The Federal Reserve sprung a previously unreported leak in October 2012, when potentially market-moving information about highly confidential monetary deliberations made its way into a financial analyst's private newsletter.

     

    The leak occurred the day before the scheduled public release of meeting minutes that shed new light on the Fed's decision to embark on a third round of bond buying to boost the economy, ProPublica has learned.

     

    …

     

    The newsletter containing the leaked material came from an economic policy intelligence firm called Medley Global Advisors whose clients include hedge funds, institutional investors and asset managers. On Oct. 3, 2012, Regina Schleiger, an analyst with the firm, sent clients a "special report" titled "Fed: December Bound."

     

    The report focused on the Sept. 12-13 open market committee meeting, where the panel had approved what's called "QE3," a new program of large-scale purchases of mortgage-backed and Treasury securities.

     

    Typically, the Fed chairman holds a news conference following the meetings to help explain the committee's actions. But when Bernanke did this on Sept. 13, he did not reveal the depth of disagreement within the committee about how effective the bond-buying program would be and whether it was worth the cost.

     

    Schleiger wrote, however, that the minutes due out the next day would reveal "intense debate between Federal Open Market Committee participants."

     

    Schleiger also revealed that the Fed would likely continue buying longer-term Treasury bonds beyond December. As part of a program dubbed Operation Twist, the Fed had been selling short-term Treasuries to buy longer-term ones.

     

    Schleiger wrote that the committee would likely continue buying long-term bonds even after it sold all the shorter-term Treasuries. This information was not contained in the minutes and proved to be accurate.

     

    Her newsletter also explained in uncommon detail both how Fed staff constructed the minutes and various policy options that were recommended and the thinking of the leadership – Bernanke and vice chairs Janet Yellen and Bill Dudley.

     

    "It's not unusual for board staff to pull all-nighters working on the final draft of the policy recommendations, once these has [sic] been commented on," Schleiger wrote. "This one took until after midnight."

    Which resulted in an internal probe ordered by Bernanke that inevitably found no wrongdoing.. and so Congress took up the matter.

    But now, as The Wall Street Journal reports, The Fed has ignored that request…

    The Federal Reserve has not replied to a lawmakers’ request that it identify the individuals who had contact with a private consulting firm that published a report on the central bank’s market-sensitive internal policy deliberations.

     

    In October 2012, the day before the Fed released its minutes of its September 2012 policy meeting, Medley Global Advisors, sent a report to its clients with several sensitive details that subsequently appeared in the minutes. A central bank probe found  a “few” Fed staffers had contact with Medley before the report, but did not identify them.

     

    Rep. Jeb Hensarling (R., Texas), Chairman of the House Financial Services Committee, sent a letter to Fed Chairwoman Janet Yellen on April 15 asking the Fed to name them by 5 p.m. EDT April 22.

     

    The deadline passed without any response by the Fed, a committee spokesman said Wednesday.

     

    The Fed declined to comment. Medley did not respond to a request for comment.

    *  *  *

    And now we know why they delayed (as Bloomberg adds),

    Federal Reserve Chair Janet Yellen said on Monday that the U.S. Department of Justice has joined the investigation into a leak of confidential monetary-policy information in 2012.

    “The Board’s Inspector General and the Department of Justice are in the midst of an investigation into this matter,” Yellen said in a letter to Representative Jeb Hensarling, chairman of the House Financial Service Committee.

    “We are cooperating fully with them and look forward to the results of their investigation,” she said.

    Yellen said she would also provide the names of Fed personnel who had contact with Medley Global Advisors, which published a report on deliberations of a September 2012 closed door meeting of the Federal Open Market Committee, one day before minutes of the meeting were made public.
     

    *  *  *

    The Justice Department has opened a formal investigation into the FOMC leak (and we suspect sworn testimony coming).

    Full letter below:



  • One Man's Message To Americans – "Start Giving A Damn!"

    Submitted by Thad Beversdorf via FirstRebuttal.com,

    I find it shocking how often I have people tell me the Constitution is out of date and is no longer relevant or necessary.  Then there are the vast majority of people that think about the Constitution the same way they think about religion; it makes us feel good to believe in it and we’ll even worship it on a holiday or two   The reality is that those who seem to get very worked up to the point that they are willing to act in defense of the Constitution even against the highest levels of government make up a very small minority of Americans.  This is a real problem.

    You see if people gave a damn the government couldn’t get away with negating the Constitution.  But the vast majority of people just don’t give a damn and so the government very easily provides ridiculous and false legal sounding arguments to explain away why they have become a higher law than the Constitution. Now I’ve tried to understand why it is that we Americans are so damn apathetic about everything the government and government officials do.

    Let me give a couple examples for which our apathy just boggles my mind.   We know they took us into wars on false pretenses resulting in the wrongful deaths of thousands of American soldiers and hundreds of thousands of innocent civilians and yet we’ve prosecuted no one.  Hell they’ve admitted to hacking into millions of our home webcams and downloading videos and pictures of us in our most private moments and maintaining those downloads on government servers and then sharing these files with foreign governments.

    But because today’s American is simply a shell of a citizen none of the criminal atrocities creates even a stir from us.  Sure we all read about these atrocities and we are angered in the moment but it passes rather quickly and we fall back into our self induced ignorant bliss.  Only two things can get Americans to formidably rise up.  The first is a very direct and immediate impediment to our comfort.  For example try cutting back on the monthly social welfare checks.  You’ll have riots.   The second way is if the mainstream media relentlessly instructs us to be upset about a particular issue.  Outside of that there is absolutely nothing the new American won’t move past like water off a duck’s back.

    What we’re finding out is that, and it sounds slightly over-dramatic but isn’t at all, unless we are willing to fight and die to win back the freedom our forefather’s fought and died to secure for us and all future generations we will continue to feel our chains grow heavier and shorter.  The simple reason is because our government is very much willing to kill to keep its ever encroaching control.  A free population is the antithesis to a political class.  And make no mistake the American federal government is the largest and most powerful group of aristocrats the world has known.

    This group of traitors (and I mean that in the very technical sense of the word) not only behave according to a separate set of laws they have actually gone so far as to legislate a separate set of laws.  This in itself is a direct breach of the very Constitution they swear to defend.  Their intent is clear and that my friends is treason.  They are directly negating the very basis of the American concept for their own personal self interest and they are doing so by defrauding American citizens into believing their intent is to represent the will of their constituents.  Treason, Treason, Treason!  What else would you call it?

    Now are you ready to fight and die to win the freedoms back for your children and grandchildren?  Hell No!  No, not at all!  And that’s kinda the problem because again the government is willing to kill to ensure your kids and grandkids don’t have the freedoms Americans were guaranteed.  The fuck of it is Americans have become so damn brainwashed that despite the founding fathers telling us explicitly our government would end up enslaving the rest of us to solidify their own power and wealth we ignore it. These were the guys that figured out the British were effectively enslaving us and decided to rise against it and create the greatest damn nation the world has ever known.  They literally created fucking America!!!  I mean holy shit, imagine having that on your CV.  And we pay them no mind, like they’re bat shit crazy and not relevant in our intellectual new world.

    Today’s legislators rarely discuss the founding fathers or the Constitution beyond the very thin idea that they know we expect them to defend it.  That is, like freedom and apple pie, they love it during the campaign cycle.  However, ask them why then they continue to legislate against the Constitution and well they don’t want to talk about the Constitution anymore.  And we the people ,like apathetic morons , buy into the bullshit they feed us because we simply don’t care.  It’s to the point they can pretty much do anything knowing they can bullshit us with any damn nonsense that pops into their swollen heads.  And so they do things like hack into our webcams, take nude pictures of us and send them to foreign governments and tell us it’s for our own good.  We don’t give a shit because 1. it doesn’t impede our immediate comfort and 2. the press isn’t telling us it’s something to be concerned about.

    The danger of being apathetic until it impacts our immediate day to day is that we allow the government to take away all the freedoms we are not currently using.  What I mean by that is we so far have not had to face what it means to be powerless and in chains.  But only because we haven’t yet ventured out far enough so as to reach the end of our chains.  Like a sleeping dog that isn’t aware he’s been shackled until he wakes and tries to chase a bird, we are asleep and unaware of the shackles placed around our ankles.

    Some will say “wait, it isn’t apathy it is a trade off between safety and freedom”.  But the truth is freedom and safety are not conflictual we’ve only been led to believe so.  Fear has replaced freedom here in America and that is not by chance but by strategy of a government that has its own agenda, separate from its oath to uphold and defend the Constitution.  So while we should have prosecuted these recent governments for treason we’ve instead rewarded them the rights of dictatorship.

    The Constitution is our freedom keeper but once the Constitution is made subordinate the precedent is set and in our legal system precedence is king.  The strength in the Constitution is just that, it’s strength.  Once we allow an exception to the Constitution’s superseding authority it no longer has any authority.  Unfortunately that exception has already been made.  With it, the destruction of the Constitution and the end to a guaranty of freedom.  Our corrupt government has created ‘legislation’ providing them a legal basis to imprison us without due process.  This is a fact.

    This desecrates one of the most important axioms of America, in fact, due process is the very idea we are sold to spend $1 trillion per year fighting multiple simultaneous major theatre wars.  Yet here at home it no longer exists.  But remember our loss of due process is for our own good.  Giving a federal legislator or policy maker absolute discretion over our fate is in our best interest.  You and I have agreed with these propositions.  And you and I will have to adhere to being placed in prison for life if that is the will of our president or any delegate who will benefit by accusing us of being a national security threat.

    Just by the fact the threat exists fulfills its objective.  People will not want to bring attention to themselves and thus will avoid protesting the wants of those who now have the authority to impede their freedom.  That in itself impede’s their freedom.  This is the one thing I really wish people could see.  What seem like issues too narrow or small to get worked up over are just marks of the snake bite.  Two very small holes in the skin but those holes are the gateway for the real killing agent to spread and overtake the whole system.

    In March alone our beefed up and militarized public service workers killed more than 180 citizens they were meant to serve and protect on American soil.  That makes them an infinitely higher risk to our safety than the foreign terrorists to whom we’ve handed our Constitution.  That’s exactly what we’ve done.  If you listen to the terrorists’ videos that was their goal.  They wanted to end the freedom and free will that America seems to be jamming down the throats of societies around the world.  And so they won the moment Americans accepted to trade away its freedoms for safety.  That was their goal and they have achieved it.

    Let’s look at Edward Snowden’s situation to see how one loses one’s freedom.  Snowden is a man that knowingly sacrificed his own freedom to expose the corruption and criminality of our policy makers and their respective agencies.  He is also a citizen that has been deemed a threat to national security.  Why would a man who exposed the criminal enslavement of Americans and citizens around the world be deemed a terrorist rather than a hero??  Because he is a threat to the power and control and really the entire system of those who can now legally classify him as a threat, removing his right to due process.

    In effect, these political criminals can now legally lock away any prosecutor at will.   This is a gross conflict of interest and the hero that exposed this conflict of interest is now a victim of it.  Edward Snowden not only informed America, he recognized that he would be the first example so that Americans would see, first hand, the sort of corruption that has infected our system.  I can only infer he made himself known because he believed seeing it actually happen would get Americans to rise up and correct the moral transgression.  And what did we the people do in response to Snowden’s incredibly brave and patriotic action?  Absolutely nothing!!!  We force this hero to live in exile.  We don’t even demand the corruption to stop.  We do nothing.  How very American of us.  And why do we do nothing?  Because it doesn’t impede our immediate comfort and the media hasn’t told us we need to be concerned about the issue.

    The lives of Americans have become so easy and so secure that we no longer recognize living in a utopia of freedom comes not with costs but with obligations.  We seem to believe that paying taxes indemnifies us of our real obligations as citizens who have been handed a beautiful gift and who are responsible for passing on that precious gift to future generations of Americans.   And that is a mistake that will have historians writing of us as we write of Eve in the garden of Eden.  Our lack of principles resulting in the suffering of all future generations having destroyed a gift we obviously didn’t deserve.



  • When Not To Go To Court (Spoiler: When The Judge Is Hungry)

    With social unrest on the rise, knowing more about the judicial system is crucial for everyone…

     

    In the following chart, the dotted line represent food breaks.

    As is very clear, the best time to go to court is right after a food break (the circled points below indicate the first decision in each session)

     

    And the worst time to face the judge for your latest ‘strike’ – when he is hungry…

     

    Source: Extraneous Factors In Judicial Decision – PNAS



  • ADB "Boosts Firepower" As China-Led Bank Grabs Center Stage

    “I don’t think there will be major change to the world of development finance [because of the creation of the AIIB], although there can be interpretations as to the symbolic meaning of this.”

     — Takehiko Nakao, Japanese head of Asian Development Bank 

     

    One can hardly blame Nakao for putting on a brave face. After all, the China-led Asian Infrastructure Investment Bank represents not only a major shift away from the multilateral institutions that have dominated the post-war global economic order, but also a move by Beijing to establish what we have described as a Sino-Monroe Doctrine. Speaking to the latter point, President Xi Jinping’s recent pledge to invest $46 billion in Pakistan (53% more than the US has invested in 13 years) as part of Beijing’s Silk Road initiative, gives us a window into what the future may hold in terms of China’s growing regional influence.

    But as Washington learned in March, belittling China’s power grabs is a fool’s errand, especially when they are disguised as infrastructure development initiatives. In the end, resistance is futile, but old habits die hard, which is why it’s not surprising that the ADB is now beefing up its lending capacity while simultaneously paying lip service to the AIIB. 

    Via Bloomberg:

    The Japan-led Asian Development Bank unleashed measures that could help it hold its ground as a resource for regional economies, even as China’s Asian Infrastructure Investment Bank gains prominence.

     

    The ADB overhauled a four-decade-old development fund to boost its annual lending and grant approvals by 50 percent, to as much as $20 billion, the bank said at its annual meeting in Baku, Azerbaijan that started May 2. It will also set aside money to support public-private partnership projects and work with the AIIB “for Asia,” the ADB said.

     

    “Now that the China-led AIIB is becoming a reality, the Japan-led ADB wants to ensure that it will still remain a key funder for infrastructure programmes in less developed Asia,” said Wai Ho Leong, a 

     

    Singapore-based economist at Barclays Plc. “Given the development needs across Asia, there is sufficient room for both players.”

     

    For almost 50 years, Asian nations from India to Vietnam and Indonesia have benefited from funding from the ADB, which is dominated by Japan and the U.S. That relationship is set to change as the rise of the AIIB, the first major multilateral development bank in a generation, provides an avenue for China to strengthen its presence in the world’s fastest-growing region.

     

    On its side, the ADB is boosting its own firepower.

     

    In a move it described as “groundbreaking,” the lender said it will combine the lending operations of the bank’s Asian Development Fund with its ordinary capital resources balance sheet, with the merger taking effect in 2017. The fund was established in 1973 to provide concessional loans and grants to poorer countries, while OCR loans are provided to middle-income countries at market-based rates.

     

    The initiative will increase ADB assistance to poor countries by as much as 70 percent, and together with cofinancing, enable the bank’s annual assistance to reach as high as $40 billion in the coming years from $23 billion in 2014, it said.

    Clearly, this looks quite a bit like an institution trying to play catch up now that a competing player has entered the market. Similarly, The White House is now scrambling to correct the ‘misconception’ that Washington tried to demean the initiative and worked behind the scenes to discourage US allies from supporting Beijing. 

    Via WSJ:

    The U.S. never opposed a new China-led infrastructure bank, President Barack Obamasaid Tuesday, challenging a common narrative that Beijing out-maneuvered Washington by persuading key U.S. allies to sign up as founding members.

     

    “We’re all for it” if the Asian Infrastructure Investment Bank incorporates strong financial, social and environmental safeguards, Mr. Obama said…

     

    “Let me be very clear and dispel this notion that we were opposed or are opposed to other countries participating in the Asia infrastructure bank,” he said at a press conference with Japanese Prime Minister Shinzo Abe. “That is simply not true.”

    With that in mind, we’ll leave you with the following quote provided to NY Times last October by a senior Treasury official:

    “How would the new institution add value? How would the Asian Infrastructure Investment Bank be structured so that it doesn’t undercut the standards with a race to the bottom?” 

    Doesn’t sound too much like an administration that was “all for it” to us. 

    *  *  *

    As a reminder, here are all of the countries that have signed on to participate in the China-led institution:



  • Volumeless Stocks Test Record Highs On Downbeat Data

    Last week's message to TPTB… (appears to have been heard loud and clear)…

     

    Another day, another rally on even weaker volume (with UK and Japan away on holiday) and shitty data… Spot The Difference…

     

    Who could have seen this coming?

    But the best news is twofold: volumes continue to be lethargic with both the UK (May Day bank holiday) and Japan closed until Thursday (Golden Week), while the bulk of the S&P500 has now exited the stock buyback quiet period. As such, ignore record equity outflows – all the matters is that corporate CFOs, flush with brand news bond issuance cash, will tell their favorite Wall Street trading desk to buy stocks at just the right inflection point sending the market surging just as shorts once again test the downtrend and the 50 DMA.

    after China's dismal data, Germany's surprise, and US Factory Orders printing weakest YoY growth run since 2008…

     

    Small Caps spurted higher at the open – thanks to Gartman's suggestion of shorting – but the excitement faded back as the day wqore on…

     

    Social Media never bounced…

     

    And Shale plays stumbled on Einhorn but that was an awesome opportunity to BTFD!

     

    Credit markets remain less exuberant…

     

    Treasury yields ended the day higher once again with the selling poressure coming (once again) during the US session

     

    (even as Bunds sold off during the EU session)

     

    The dollar closed modestly higher with EUR fading 0.5% – note just how dead USDJPY was – with Japan on Golden Week…

     

    Chaos in commodities early on left gold and silver up, crude and copper down

     

    From the 8amET "moment" – once again…

     

    Some context for Silver's move…

     

    Charts: Bloomberg



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