- Chinese Stocks Longest Win Streak Since Bubble Peak After CPI, Commodities Tumble; Philippines Exports Crash
A busy night in Asia began with a total collapse in Philippines Exports (-24.7% YoY – the biggest miss since Lehman). This was quickly followed by a 0.3% drop (deflation) in CPI MoM (thanks to a drop in pork -1.9%, eggs -6.9%, and veggies -5.6%) which sparked buying in stocks (because moar stimulus). Chatter of a few large fund houses under investigation stymied the rally quickly but as nobody was summoned stocks recovered, then rallied strongly back into the green on renewed chatter of Stock Connect occurring sooner than expected. With CSI-300 (China's S&P 500), up at the break, this is the longest winning streak since the peak of the bubble in May. And finally Shanghai Copper and Nickel tumbled to new multi-year lows, dragging Bloomberg's Commodity Index to fresh 16-year lows.
Philippines Exports crash, miss by most since Lehman..
Then China inflation data hit… CPI missed +1.3% YoY, the lowest since January (with a 0.3% drop MoM – the most since March) ; PPI tumbled 5.9% – its 44th monthly decline in a row...
A choppy morning in China leaves Shanghai Composite higher at the break…
Leaving CSI-300 set for the longest win streak since the peak of the bubble…
Shanghai Copper hit a new 6-year low (and nickel tumbled)…
Leaving Bloomberg's Commodity Index at fresh 16 year lows…
Charts: Bloomberg
h/t @SimonTing
- JS Kim Issues Critical Warning About Newly Introduced Global Banking "Gold Programs"
JS Kim Issues Critical Warning About Newly Introduced Global Banking “Gold Programs”. Could Bankers Be Duping Us into Yet Another One of Their Reverse Alchemy Schemes?
Indian Prime Minister Narendra Modi launched a 3-pronged scheme to allow gold to become an important part of the Indian economy – a gold monetization and bank deposit scheme, the issuance of bank and federal gold-backed bonds, and a gold coin and bullion selling program, in which an initial 15,000 5gm gold coins, 20,000 10 gm coins, and 3,750 20gm bullion bars will be made available to the Indian public.
The only aspect of this 3-pronged program, however, that I deem trustworthy at this point, until proven otherwise, is the gold coin and bullion selling program. Why? The answer is simple. The other 2-aspects of this 3-pronged program advocate against our advice at SmartKnowledgeU to specifically hold all of your gold in physical form only and outside of the global banking system. Both the gold monetization scheme and the gold-backed bond scheme require depositing physical gold at a bank and receiving digital credits and paper in return. If bankers never commit fraud and always keep 100% of the gold allocated specifically to the depositor, and we can be 100% guaranteed of this stipulation always being enforced at all times, then I would not have a problem with India’s gold monetization program and gold-backed bond program. The only problem is that history tells us that bankers will always commit fraud under these circumstances. Consequently, why should we take their word this time around that they will not commit fraud again and use the gold deposits to undermine and suppress the price of gold against the gold depositors’ best interests?
For example, we already know, beyond a shadow of a doubt, that the gold derivatives futures markets in New York and London are entirely fraudulent and that pricing mechanisms in these markets literally have zero relationship to the supply and demand determinants of physical gold. The UK Financial Conduct Authority fined Barclays Bank £26 million and banned Barclays banker Daniel Plunkett for artificially engineering a gold “puke” in gold futures markets to plunge gold prices on a specific day to ensure that they would cheat their client out of a payment of £2.3 million. Furthermore, this fraud would never have even been exposed had it not been for the client’s sophistication in understanding and identifying the fraud executed by the Barclays banker. I literally have witnessed other bankers execute the exact same pattern of fraud executed by Barclays banker Plunkett dozens of times in the past, and for which no banker was arrested or prosecuted. Given the history of banker fraud in gold paper derivative markets in which banks use paper markets to plunge gold prices, Indian citizens must ask themselves this pressing question, “Do I really want to give up the security of holding my physical gold outside of the banking system and then deposit it with the very bankers that have been repeatedly proven to execute fraud against my best interests?”
A second example of very likely fraud executed by bankers in gold derivatives markets is the gold GLD ETF (along with the silver SLV ETF). Bankers have always refused and/or failed to provide any proof that their paper gold ETF, the GLD, which they claim to be 100% backed by gold, is actually 100% backed by gold instead of just fractionally backed with gold rehypothecated many times, as is almost certain to be the case. And when bankers attempted to assuage concerns of GLD holders that their paper purchases were actually 100% backed by physical gold held in their vaults, as they claimed, they failed miserably, as the serial number of a bullion bar they claimed was part of the vaulted gold that backed GLD purchases failed to match serial numbers of bullion bars contained on the GLD ETF bullion bar list.
In fact, 2 years before the potential scam of the GLD was revealed to the world through this mismatch of gold bar serial number fiasco, I reported on our SmartKnowledgeU blog multiple reasons why people should question the legitimacy of banker claims that the GLD and SLV ETFs were fully backed by physical holdings after I inspected the prospectuses of both paper vehicles that contained a plethora of questionable language and banker claims. By the way, since 2009, bankers have removed a lot of the shady language that was first contained in the original prospectuses of the GLD and SLV. However, just because they have removed the questionable statements that orginally appeared in the prospectuses, this certainly does not mean that bankers are now operating both investment vehicles honestly.
Various Indian government officials are pushing their potential reverse alchemy schemes upon the public, urging them to turnover their physical gold holdings to bankers in exchange for digital credits to bank accounts and the issuance of paper certificates. PM Modri has claimed that gold bonds can “empower women”, a claim that reeks of the 1960s and 1970s women’s liberation “right of women to work” movement that succeeded in doubling the tax base for the Rothschild banking cartel. Finance Minister Arun Jaitley has already announced that interest earned on physical gold deposited into the banking system will be exempt from all taxes. On the surface that appears to be a fantastic benefit to Indian citizens, but before Indians embrace this benefit, they must question whether or not the physical gold they turn over to bankers will actually be kept in bank vaults or if it will be hypothecated hundreds of times and leased into the open market to suppress the price of gold as Central Bankers have historically chosen to do when given access to physical gold. This is a question Germans wished they had asked of themselves before they turned over their physical gold to US Central Bankers for holding.
In 2011, German Central Bankers employed by the Bundesbank announced that they were holding 3,396 metric tonnes of gold on behalf of the German people. They revealed that 45% of these holdings, or 1,536 tonnes, was being held by US Federal Reserve bankers. In 2012, the German government, under extreme pressure from its citizens to prove that US Central Bankers actually still had their gold and had not sold it off in the open market or leased it out to their puppet bullion banks on Wall Street in previous years to suppress the price of gold, demanded the repatriation of just a tiny fraction, or 150 tonnes of the 1,536 tonnes held by US Central Bankers. During the first year after Germany’s repatriation request, US Central Bankers returned a paltry 5 tonnes of gold out of the 150 tonnes requested. After this insult, Germany increased the request for 300 tonnes to be returned by 2020, which was still less than 20% of their gold held by US Central Bankers. In 2014, US Central Bankers returned 85 tonnes to Germany, and earlier this year, an additional 90 tonnes had been confirmed as returned to Germany. Still, there are many questionable irregularities with the return of even this small fraction of Germany’s gold to date thus far.
In 2014, the 5 tonnes of gold returned to Germany came in the form of melted down and recast gold bars, thereby confirming that the gold returned to Germany was not the gold Germany had deposited with US Central Bankers. If this gold was not Germany’s gold, whose was it? Was it gold stolen from Iraq or Libya?
Since Germany only asked for less than 20% of their gold back from US Central Bankers, why is it taking 8 years for US Central Bankers to return it?
Why can it not be returned in a few weeks time, as is entirely logical if the US Federal Reserve bankers actually still have it?
Why has Germany not requested for all of its 1,536 tonnes of gold to be returned, and why did they only ask for a paltry 300 tonnes be returned?
This is not a broke and bankrupt post-WWII Germany of which we are speaking and certainly Germany can build vaults secure enough to store all 1,536 tonnes of its gold. As there is absolutely no reason for Germany not to hold 100% of its gold within its domestic borders, why are they continuing to allow other countries to keep their gold?
Finally, why did the Bundesbank release statements that all of the gold returned to them in 2014 and 2015 matched serial numbers, fineness and weight of bars given to the US Central Bankers for holding when in 2013 none of the bars matched?
Though German Central Bankers released their gold bar list, only because of extreme public pressure to do so, the gold bar list contained bar melt/inventory numbers, fineness, and weight, but still lacked refinery names, refinery numbers and manufactured years. In other words, the bar list released by the Bundesbank was still far from transparent.
So Indian citizens, with tons of historical precedent from which not only to draw, but also from which to learn, one would be advised to weigh bankers’ claims that physical gold deposited with a bank will remain there with extreme skepticism. Unless you can be given written assurances in any contract you sign with a banker that they will expressly not use the gold deposited with them to suppress the price of gold, you should refrain from participating in their physical gold into paper gold programs. With gold bonds ranging from 1-3 years, 5-7 years, and up to a whopping 12-15 years, with penalties for early withdrawals, if I had to guess, I would say there is a 99.9999% chance that your gold is going to be sold off into the open market during the duration of these bonds, even if bankers claim in the bond prospectuses that the gold that backs these bonds will never leave their vaults.
The only way I would trust any “gold program” other than one in which I can buy physical gold coins and bullion and hold it outside the banking system, were if these following conditions existed, in writing, in the contracts that describe these programs and in Indian law:
- (1) the bank keeps the specific allocated gold bullion bars and coins I deposit at a bank in their vaults 100% of the time in my name only, with a way to verify this process, such as serial number engravements on all deposited gold,
- I am allowed to verify the physical location and the purity of said gold bars and coins at any time I desire by means of an independent, not a bank, auditor at the bank’s expense, and
- the punishment to a banker were he to ever violate either of the above two conditions (for both stored coins and bullion) is the same as outlined in the US Coinage Act of 1792 below:
Section 19. And be it further enacted, That if any of the gold or silver coins which shall be struck or coined at the said mint shall be debased or made worse as to the proportion of the fine gold or fine silver therein contained, or shall be of less weight or value than the same out to be pursuant to the directions of this act, through the default or with the connivance of any of the officers or persons who shall be employed at the said mint, for the purpose of profit or gain, or otherwise with a fraudulent intent, and if any of the said officers or persons shall embezzle any of the metals which shall at any time be committed to their charge for the purpose of being coined, or any of the coins which shall be struck or coined at the said mint, every such officer or person who shall commit any or either of the said offenses, shall be deemed guilty of felony, and shall suffer death.
Even if PM Modri and Finance Minister Jaitley’s intentions are pure with their newly instituted gold programs, if they have not instituted severe punishments to uphold the integrity of their gold programs to ensure that fraud does not occur, then their trust that bankers will uphold these gold programs honestly is misplaced and naïve. Without such regulations in place, this leaves their gold programs incredibly open to banker fraud, which history has already informed us will happen. The only way to ensure the integrity of such programs is to adopt the same punishments for banker fraud as contained in the US Coinage Act of 1792. And even so, if such punishments were adopted, I would still have second, third, and fourth thoughts, were I Indian, of willingly putting my physical gold into the hands of bankers. Every time the public has done so, such programs have ended very poorly for the people with no benefit to them despite false and hollow banker promises of many benefits to the people.
Recall that bankers duped South Koreans, including very sadly even my own grandmother, to hand over physical gold in a “Collect Gold for the Love of Korea” campaign during the 1997 SE Asian Financial Crisis. Bankers took advantage of the extreme nationalism of Korean citizens to trick them into willingly handing over 8 tonnes of gold for zero compensation in just the first week of the program. The final amount of collected gold was kept hidden from the public and never revealed after the bankers reached their target early in their campaign and they successfully robbed South Korean citizens of their gold and much of their life savings. Since all the collected gold was sold off and immediately given to IMF bankers to pay down interest on IMF debt, the program would have been much more appropriately called “Collect Gold for the Love of Bankers”. I wonder how much gold Koreans would have willingly donated to “save their country” if they knew they were saving not their country, but only bankers.
In conclusion, even if Modi’s and Jaitley’s intentions are pure, bankers will corrupt their gold programs without severe penalties to discourage this fraud. Of this I have zero doubt. The collective history of banker fraud in LIBOR markets, Forex markets, gold and silver derivative markets, and the resultant billions of Euros and dollars that they have already paid as an indictment for their crimes, has proven to us that there is no fine that can be imposed upon them that will stop their fraud. And if severe punishments are not in place to protect Indian citizens, then Indian citizens, I urge all of you just to continue what you have been doing and to ignore the allure of these newly introduced gold programs. Despite the claims of politicians and bankers of how wonderful it will be for you to convert your physical gold into digital bits on a hard drive on a bank’s server and into paper certificates, keep converting your digital and paper rupees into physical gold and physical silver whenever you can, and keep possession of your family’s wealth outside of the banking system.
Recall that politicians in India have a recent history of colluding with the Reserve Bank of India (RBI) to prevent Indian citizens from converting their digital rupees into physical gold. In early 2012, the Indian government raised import taxes on gold by 900% from a mere 1% to a massive 10% within a little over a year’s time. Furthermore, by 2013, they had raised import taxes on gold jewelry to a stifling 15% in an attempt to stop Indian citizens from converting unsound digitial and paper rupees into the sound money of gold. Politicians, when working with bankers to establish gold programs, do not deserve the benefit of any doubt because of their past history, and unless their gold programs live up to the conditions I’ve stated above, we should be wary to reject them. India may very well be a testing ground for bankers to discover if they can convince people to turn their physical gold into digital and paper gold, and they may very well attempt to spread these programs to other countries worldwide if they achieve success with them in India. If similar “gold programs” are introduced in your country, you now know why you should remain highly skeptical of them as well.
Other related SmartKnowledgeU posts released in the past week:
SKU_Vlog_010: If This Doesn’t Convince You to Exit the Global Banking System, Then Nothing Will
Is This the Gold and Silver Mining Stock Washout For Which We’ve Been Waiting All Year?
SKU-Vlog_002: What is the Fair Value of Gold? Ounces Over Dollars
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About the author: JS Kim is the Managing Director of SmartKnowledgeU, a fiercely independent research, consulting and education company that focuses on analyzing the fraud of the global banking and investment industry to formulate low-risk, high-reward wealth preservation strategies for clients in more than 30 countries worldwide. Our mission is to restore integrity to our monetary system through a return to sound money worldwide. This year, all of our fee-based services have yielded positive returns ytd because of our focus on identifying banker executed fraud in gold and silver markets and of predicting lower trends for gold and silver for the duration of this year.
- When You're Popular, You Don't Need Freedom of Speech
Submitted by Andrew Syrios via The Mises Institute,
Free speech is not something that people would normally see as a realm of economics, but in many ways, an economic understanding of the support and opposition to free speech can shed a lot of light on what’s happening now in the West.
The first thing that needs to be noted is that the left is winning the culture war. Even though more people identify as “conservative” than “liberal” in the United States, more people now identify as “liberal” than in the past by a substantial margin. Attitudes toward gay marriage shifted extremely quickly toward the left while support for legal abortion stayed mostly steady. And obviously the media, academia, and Hollywood are far to the left as a study by the non-partisan political analytics firm Crowdpac found (and as anyone who watches anything other than Fox News can tell after about five minutes).
Now, some of this is certainly good, such as the shifting views on marijuana legalization. Some is troubling, such as the growing popularity of socialism.
Regardless though, the left, having ascended to cultural dominance, is no longer in need of free speech. After all, no one ever got in trouble for agreeing with the conventional wisdom. As Noam Chomsky said, “Even Goebbels was in favor of free speech he liked.”
On the other hand, the right is behind the eight ball in the culture wars and thereby supports the concept of free speech because they need it lest their very opinions be outlawed. In an economic sense, this could be called the “diminishing marginal utility of free speech.”
The law of diminishing marginal utility states that while keeping consumption of other products constant, there is decline in marginal utility that a person derives from consuming an additional unit of that product. In this case, the product is free speech. New leftists may have proposed unfettered free speech back in the early 1960s, but that was just because the right was the one in power culturally at the time. Free speech had a high utility to the left at the time and low utility to the right.
Now the situation has reversed. The right is at the disadvantage so it appeals to free speech. The left is ahead and no longer needs free speech, so it has discarded it.
If that statement sounds hyperbolic, just think of all of the campus speech codes and the ever expanding list of mostly trivial microagressions that can be taken for “hate speech.” Here is just a small sampling of examples to illustrate how absurd this has become:
- Brendan Eich was forced to resign as CEO of Mozilla after a massive backlash for having opposed gay marriage.
- A candidate in the European elections was arrested in Britain for quoting a passage from Winston Churchill about Islam.
- Gert Wilders, a politician in the Netherlands, was tried on five counts including “criminally insulting Muslims because of their religion.”
- Conservative radio host Michael Savage was banned from the airwaves in Britain.
- Both Mark Steyn and Ezra Levant were dragged in front of the Canadian Human Rights Commission on charges of being “Islamophobic.”
- A man was fired because someone eaves dropped on his joke about dongles and caused a fuss about it on social media.
- A group called Color of Change applied enough pressure to get Patrick Buchanan fired from MSNBC for expressing politically incorrect opinions in his book Suicide of a Superpower.
- The “Pickup Artist” Julien Blanc was barred from entering Britain for making sexist comments.
- A student at Purdue University was found guilty of “racial harassment” for reading (yes, reading) a book called Notre Dame Vs the Klan in which — it should be noted — the Klan is the bad guy.
Indeed, the list goes on endlessly, and is perhaps best summed up by the almost unconscionable lack of self-awareness required by University of Manchester feminists who recently censored the anti-feminist columnist Milo Yiannopoulos from participating in a debate on — you guessed it — censorship.
Of course much of this is just social pressure or the decisions of private institutions, which is permissible (albeit not condoned) under a libertarian framework. But much of it does involve outright government force, or the longing to use it. For example, Adam Weinstein wants to literally “Arrest Climate-Change Deniers.”
Indeed, while many believe that the youth of today are the most politically tolerant in history, they are actually the least. As April Kelly-Woessner notes, “political tolerance is generally defined as the willingness to extend civil liberties and basic democratic rights to members of unpopular groups.” Which groups are unpopular, is not the question being asked.
So, for example, someone who believes that a man should be able to marry his pet goat is not necessarily politically tolerant. What would make him tolerant in this sense is whether he is willing to recognize the rights (particularly regarding speech) of those who disagree with him and his marital proclivities.
In this respect, political tolerance has declined substantially. For the first time since it was measured, the political tolerance of young people has fallen below that of their parents and as Kelly-Woessner again notes, “… is correlated with a ‘social justice’ orientation,” at least for those under forty.
Indeed, the inability to tolerate political views that run counter to one’s own, particularly on the left, has become so ridiculous to be comical. Just take, for example, Judith Shulevtiz’s description of the “safe space” set up at Brown University because of a debate between the feminist Jessica Valentia and Wendy McElroy where McElroy was likely to criticize the term “rape culture.”
The safe space … was intended to give people who might find comments “troubling” or “triggering,” a place to recuperate. The room was equipped with cookies, coloring books, bubbles, Play-Doh, calming music, pillows, blankets and a video of frolicking puppies, as well as students and staff members trained to deal with trauma.
Well, at least they actually let the debate happen.
But the left has not always had a monopoly on anti-free speech thought and legislation. Nor does the right seem to be opposed to it when it can push such things through today. Helen Thomas was fired from the White House Press Corps for saying “The Jews should get the Hell out of Palestine.” Shirley Sherrod was fired for allegedly anti-white statements, a Kansas woman was fired for a fifty-word Facebook post that was considered anti-American-soldier, and the right went into a fervor over Jeremy Wright’s “chickens coming home to roost” comment.
Whereas liberals want to ban words such as “slut” and, at least in Sheryl Sandberg’s case, “bossy” too, conservatives used to all but ban those “seven words you couldn’t say.”
When the right had more cultural authority, alleged communists were being dragged in front of the House Committee on Un-American Activities, Civil Rights activists were harassed, and the Motion Picture Production Code banned Hollywood directors from showing things such as miscegenation.
But that was then and this is now. As the pendulum of cultural prominence swung from one side to the other, the left and right swapped their support for free speech.
Nevertheless, I don’t want to draw a false equivalence here and say the right would be just as bad as the left if they were winning the culture wars. Much of the ideology on the left, at least the far left, is derived from the likes of Herbert Marcuse and other cultural Marxists who explicitly wanted to limit the free speech of “oppressor classes.”
Discerning what exactly free speech is can sometimes be challenging, as in cases of libel, slander, and direct threats. But these are really not the issues at heart here. The vast majority of speech being “regulated” today is simply that of an unpopular opinion. Yes, many ideas are bad. And they should be refuted. Moreover, resorting to the use of political force to silence adversaries is a sign of the weakness of one’s own position. But, in using force to silence others, anti-speech crusaders are making another argument. They’re arguing that political force can and should be used to silence people we don’t like. What idea could be worse than that?
- Sickening Images Of China Plagued By "Extremely Hazardous" Record Smog As Winter Heating Season Arrives
"Today’s haze is pretty severe and choking – when I walked out the door I thought someone’s house was on fire," exclaimed one resident as AFP reports a huge swathe of China is engulfed by acrid smog Monday after levels of dangerous particulates reached around 56 times World Health Organization maximums, in what environmental campaigners said were the highest figures ever recorded in the country.
Spot the 'Winter' difference…
Residents of north-eastern China donned gas masks and locked themselves indoors on Sunday after their homes were enveloped by some of the worst levels of smog on record.
Levels of PM2.5, a tiny airborne particulate linked to cancer and heart disease, soared in Liaoning province as northern China began burning coal to heat homes at the start of the winter.
“The air stings and makes my eyes and throat feel sore when I’m outdoors,” one woman, who had ventured out to buy a face mask, was quoted as saying. “As for what exactly we should do, I don’t know,” she added.
The Associated Press said Sunday’s smog represented one of the worst episodes of air pollution recorded in China since authorities began releasing air quality data in 2013.
There was indignation on social media as China confronted its latest “airpocalypse”.
“The government knows how severe the smog problem is, so why haven’t they tackled it?” one critic wrote on Weibo, China’s Twitter.
“What’s the point of having an environmental protection department? The precondition for developing the economy is not damaging the environment. Our leaders are all well educated. Can’t they understand this simple truth?”
Others reacted with resignation. “Other than reporting it, what can the government do?”
Shenyang, a major industrial centre since the days of Mao Zedong, has been attempting to clean up its act in recent years by relocating factories and starting to use natural gas instead of coal to heat homes.
But on Monday doctors in Shenyang were dealing with the consequences of the latest bout of toxic pollution to hit their city.
Yang Shenjia, who works at the Liaoning Jinqiu Hospital, said there had been a sudden influx of patients suffering from breathing complaints over the past two days. “The respiratory department’s inpatient wards are full,” the doctor told Xinhua.
* * *
Finally, and perhaps the most ironic of all, is the juxtaposition of the images above of a coal-smoke-plagued China with 'official' data that coal usage is collapsing amid China's "successful" reforms of the Coal industry in line with the newly signed Climate Change agreements with President Obama…
Coal consumption is poised for its biggest decline in history, driven by China’s battle against pollution, economic reforms and its efforts to promote renewable energy.
Global use of the most polluting fuel fell 2.3 percent to 4.6 percent in the first nine months of 2015 from the same period last year, according to a report released Monday by the environmental group Greenpeace. That’s a decline of as much as 180 million tons of standard coal, 40 million tons more than Japan used in the same period.
The report confirms that worldwide efforts to fight global warming are having a significant impact on the coal industry, the biggest source of carbon emissions.
Call us old-fashioned but color us skeptical that any of that is true given the record levels of coal pollution that is choking reality out of Chinese lives.
- The Russian Question – How The War Party Has Demonized Putin & Co
Submitted by Justin Raimondo via AntiWar.com,
It’s 2018, and President Hillary Clinton has announced that the Russians have violated her “no fly zone” over Syria. Damascus is about to fall, as jihadists – some armed and supported by the United States – gather in a final assault on the city. In the fog of war, a Russian fighter jet nearly collides with a US warplane sent in to fulfill the US “responsibility to protect” the “moderate” rebels.
Meanwhile, in Ukraine, the newly-elected ultra-nationalist government has declared its intention to take back Crimea, and the freshly-rearmed Ukrainian military – with the neo-Nazi Azov Brigade in the lead – moves into the city of Mariupol, which has just voted to secede from Ukraine and asked for Russian protection. In Kalingrad, the isolated Russian outpost completely surrounded by Poland and Lithuania on the Baltic Sea, groups funded by the EU are staging demonstrations demanding reunification with Germany. In the midst of all this, Vladimir Putin announces Russia’s withdrawal from the INF treaty, Russian forces converge on the border with the Baltic states, and President Clinton puts US nuclear forces in Germany – which have just undergone a second “upgrade” – on high alert.
Since the US-Russian verification and information exchange, mandated by the INF treaty, has been suspended since 2016, both countries are flying blind as far as monitoring the actions and intentions of the other.
It is near midnight in a small town in eastern Germany, as NATO radar picks up indications that what may be a Russian fighter squadron is headed for Kaliningrad, and NATO’s missile defense system – just installed in Poland last summer – readies its response. The world teeters on the brink of World War III, as Hillary Clinton gets that call at 3 a.m.….
Given the resumption of the cold war with Russia, some variation on the scenario described above is not only entirely possible, it is nearly inevitable. The INF treaty signed by Ronald Reagan is in danger of falling apart at the seams as NATO moves its forces ever closer to the Russian border and the Russians respond in kind. The US-EU coup d’etat in Ukraine, Georgia’s imminent entry into NATO, the “upgrading” of US nuclear weapons in Germany, and the radical uptick in anti-Russian rhetoric by US military and political figures has returned us to a danger we thought ended with the implosion of the Soviet empire: the threat of nuclear war.
Accusations that Russia has violated the terms of the INF Treaty are not quite true, but what is clear is that the US and its NATO allies are prepositioning heavy weaponry on their eastern frontier and doubling the size of our “Response Force” in Europe. The Russian response has been largely rhetorical: in terms of facts on the ground, their much-touted nuclear modernization effort still puts them many miles behind the US. As Adam Mount, Stanton Nuclear Security Fellow at the Council on Foreign Relations, puts it:
“Even if Russia were somehow to accelerate its nuclear modernization efforts, the U.S. Department of Defense recognizes that Russia “would not be able to achieve a militarily significant advantage by any plausible expansion of its strategic nuclear forces, even in a cheating or breakout scenario under the New START Treaty.”
“To summarize: Russia could deploy many more missiles and still remain behind the United States in numbers of launchers and under the New START caps. Even if it cheated on the New START treaty and deployed still more, the Pentagon does not believe that this would significantly affect the strategic balance.”
The United States withdrew from the Anti-Ballistic Missile Treaty in 2002, installed anti-ballistic missile systems in two east European countries, and has aggressively moved to expand NATO to the point that they are standing before the gates of Moscow. The Treaty on Conventional Armed Forces in Europe, signed by President George Herbert Walker Bush and then Soviet leader Mikhail Gorbachev in the winter of 1990, was effectively breached by the construction of permanent US military bases in Bulgaria and Romania, and the installation of US ABM facilities: the general atmosphere produced by the new cold war caused the Russians to formally withdraw from the treaty in 2007.
The encirclement of Russia is a key element of Putin’s justified paranoia: not only in Europe but also in Central Asia, the Americans are on the march, as John Kerry’s recent trip to the region demonstrates. There Kerry canoodled with Central Asian despots like Islam Karimov, whose bloody dictatorship is a model for tyrants everywhere, making stops in Kazakhstan, Kyrgyzstan, Tajikistan, and Turkmenistan as well as Uzbekistan, where the USA maintains a military base not far from the Tajikistan border. Manas Air Base, near Bishkek, Kyrgyzstan, has been a key link in the supply chain servicing US troops in Afghanistan. Kerry’s Uzbekistan sojourn was marked by a news conference in which a Washington Post reporter was hustled out of the room by US and Uzbek security for asking inconvenient questions about Karimov’s horrendous human rights record.
But human rights are only an issue for Washington in this context insofar as they can be used to indict Putin: the arrest and imprisonment of, say, journalists in Ukraine for questioning government policies is not even mentioned by our State Department, let alone protested.
The anti-Russian hysteria sweeping Washington doesn’t discriminate as to party: while Hillary Clinton has been vocal about the alleged Russian “threat,” and hasn’t backed down from her “no fly zone” advocacy since the Russian intervention, GOP presidential hopeful Marco Rubio has done her one better by openly coming out for shooting down Russian planes in Syrian skies. Falsely claiming that the US isn’t modernizing its nuclear arsenal, Rubio wants to install more ABM sites throughout eastern Europe, and says Ukraine should be allowed to join NATO – setting the stage for a full-on showdown with the Russians. Rubio’s “vision for Europe” would send us back to the 1950s, when the specter of all-out war between the superpowers haunted the headlines.
This retrograde vision is shared by most of Rubio’s Republican rivals, with the exception of Sen. Rand Paul – who is far behind in most polls. With Mrs. Clinton waxing hawkish when it comes to Putin’s Russia, and even Bernie Sanders echoing cold war propaganda – he supports US aid, including military aid, to Ukraine, and “freezing Russian assets all over the world” – the political atmosphere here in the US does not bode well for Russo-American relations.
With the general collapse of the post-cold war arms agreements with Moscow, and escalating tensions with the Kremlin in eastern Europe and the Middle East, the danger of a military confrontation between the US and Russia is as great as it has ever been. This represents a shift by the Washington elite away from their seemingly eternal “war on terrorism” to a Russia-centric policy targeting Putinism rather than Islamism as the main danger to US interests.
What is needed is a grassroots movement to counter the hysterical cold war propaganda being beamed at us by the “mainstream” media. We’ve been warning against the dangers posed by a new cold war with Russia for years, and the latest developments simply underscore how right we were.
While grassroots campaigns can't hope to match the Washington think-tanks monetarily, it does have one huge advantage, and that is the natural unwillingness of the American people to be drawn into another cold war. Popular support for arming Ukraine and provoking the Russians is very low, and no one wants a nuclear showdown with the Kremlin. Significantly, the less Americans know about Ukraine the more they support US intervention – which just underlines how important our educational campaign is
The demonization of Putin has been relatively successful, but the reality is that Russia has come a long way since the days of Stalin, and the willingness of the American people to engage in another international crusade against the Kremlin is highly problematic, at best. We have enough problems here at home that need addressing.
What is desperately needed is a revived grassroots movement to reduce our nuclear weapons arsenal and rebuild the arms agreements with Russia that have been gathering dust in the wake of the new cold war. Do we really want another version of the Cuban missile crisis?
I was struck by what one participant in the recent “Realism and Restraint” conference, co-sponsored by The American Conservative, the Charles Koch Institute, and the Georgetown University political science department, had to say at the outset of the event. In the first panel, Kori Schake, a research associate at the Hoover Institution who thinks US foreign policy must necessitate the recreation of the British Empire, raised a question that was meant as a litmus test of the other panel members’ views. What, she wanted to know, “should we do about Russia?”
That we need to “do something” about Russia is in itself an assumption that hardly anyone in the foreign policy community “mainstream” questions. Undergoing economic convulsions and suffering from a rapidly falling birth rate, Russia is in no position to challenge the policy of US “primacy” so lovingly advanced by Schake and her fellow neocons. The reality, however, is that the policy of global hegemony pursued by our foreign policy elites requires the subjugation of Russia – which is, after all, a nuclear power. And that represents a dire threat to the peace of the world.
The Russian question is, today, the main issue before us – and how we answer it will make the difference between war and peace.
The War Party never rests: their cold war propaganda campaign is off and running.
- What's Wrong with Class War?
From time to time, I will hear someone on the news cautioning participants in a conversation that they are saying things in support of “class warfare.” Inevitably, that shuts the conversation even quicker than calling someone a racist (or trotting out some stomach-churning childishness like references to ‘the N word”) . Apparently any notion that doesn’t glorify socioeconomic stratification in our society is denigrated as “class warfare”, and all parties go scurrying for cover.
This has irked me for quite some time, but it never occurred to me to mention it on Slope until today, when I saw the following letter to the editor in that centerpiece of superb journalism, the Palo Alto Daily Post. The emphasis in yellow I added, although I encourage you to read the entire letter:
Now, let me say at the outset I understand what this person is saying, and in a certain world, I would actually agree with him. That “world” would have……..
- Had no TARP or any other bailout in 2008;
- Would have allowed any business facing bankruptcy (Goldman Sachs, Morgan Stanley, etc.) to have done so;
- Would have seen hundreds, if not thousands, of white collar zillionaires tossed into prison, led by Lloyd Blankfein and Dick Fuld;
- Would have passed draconian regulation following the financial crisis to assure it never happening again;
- Would provide simple-to-understand information to the public laying out what had happened and who the perpetrators are, just so Joe Six-Pack had a sporting chance of understanding what actually took place (I assure you, in the real world, Mr. Six Pack has no clue)
In case you didn’t notice, we don’t live in a world anything like that. Instead, the rich got richer (much, much richer), none of them went to jail, and it’s as if nothing had ever happened (with the sole exception of Madoff, who was some kind of sacrificial lamb in the whole thing). So the notion that we live in some kind of meritocracy in which everyone plays by the rules is just plain wrong. The game is heavily, heavily, heavily tilted toward the “haves”.
If, in fact, it was pretty much a dog-eat-dog world (even if the “dog” in question is Lloyd
Blankfein or Goldman Sachs), I’d align pretty squarely with the letter writer’s main point, which is not to pick on folks who have made it to to the top. After all, if you’re a so-so actor working at your local playhouse doing musicals in the summer, should you shoot arrows at Kevin Spacey just because he’s a rich, successful actor? No, you shouldn’t. Because he’s undoubtedly a hell of a lot better actor than you are, and he deserves his success.Let’s stay in fantasy world for another moment and pretend there were no bailouts and there was no moral hazard. Should we agitate for punitive taxes against Bill Gates, Warren Buffett, Mark Zuckerberg, and other billionaires, simply because they are billionaires and we are not? Again, no. If we’re all playing by the same rules, and the system is fundamentally fair, then I say: good for you, billionaires! Well-played!
As it is now, though, things are far afield from the level playing field I’m pretending might exist, thus, I really have no beef with someone like Bernie Sanders trying to raise hell and take on the rich corporations and rich individuals as well as specific issues like offshore tax havens and the ridiculous carried interest tax rate.
To compare someone like Bernie Sanders to bloodthirsty monsters like Stalin and Pol Pot is too ludicrous for words. I’ve heard of slippery slopes before, but good lord, this guy must be totally off his rocker. And as for the mewing about how we should never engage in talk that might incite class warfare? My response is: the class war is already started, and it’s the rich that fired the first shots.
- What An Industrial Depression Looks Like: Photos From An Australian Heavy-Machinery Auction
Two weeks ago, when looking at the latest Caterpillar retail sales data…
… we said that “If Caterpillar’s Data Is Right, This Is A Global Industrial Depression.”
Today we get visual evidence of this, courtesy of an Australian heavy industrial equipment auction where machines such as a Caterpillar 992C wheel loader, which normally costs $2.9 million, can now be bought for just $15,000, a 99% discount!
As Australia’s ABC reports, now that the commodity bubble has burst for good, auctioneers are hard at work selling tens of millions of dollars of suddenly useless coal mining machinery for just a fraction of its original market value.
The reason is known: the severe downturn in the Australian resources sector (courtesy of China’s whose commodity imports are declining with every passing month) has led to a massive oversupply of equipment, and much of it is unsuitable for use in any other industry. This means unwanted excavators, trucks and sundry heavy machinery will end up as scrap, if not sold at auction.
ABC’s reporter visited just one such auction in New South Wales, which was owned by Big Rim, a mining services contractor which also collapsed after the miners it serviced also closed.
What he saw was stunning:
“At the moment we’ve probably got the worst downturn I’ve seen in 25 years,” said Chris Hassall, whose company is conducting the auction.
Peter Turner’s Gold Coast company Turner Engineering used to compete for contracts with Big Rim. “I’d be interested in at least 50 per cent of what’s here, and there are at least 100 machines here,” he said.
One of those machines was a large water tanker which Peter Turner was running the ruler over. “It’s not worth a lot. It’s worth $75,000 or something, but you can’t build the tank for that.”
Worse, when the auction began the owners of a once-thriving business were hoping this fire sale would at the very least cover their debts. No such luck as the photos of the epic discounts on the equipment show.
“Some of the old equipment that was working in the last two years is now redundant, won’t go back to work,” said auctioneer Chris Hassall.
“We had 20 trucks in the Hunter Valley recently that 18 months ago were probably worth $600,000 each. We’ve just cut ’em up, returned about $40,000.”
It’s prices like these which help explain why shares of the Kerry Stokes-controlled Seven Group are less than half what they were two-and-a-half years ago. Seven holds the largest Caterpillar franchises in both Australia and China.
Coupled with the mining downturn, with good second hand machinery so cheap, it is little wonder new sales have been hit hard.
For the sellers it was a bloobath; however at least some of the buyers were happy. “Contractor Peter Turner had been hoping to pay $75,000 for a water tanker, and in the end paid a little more at $77,500.”
As ABC concludes, “it was a day which displayed the stark reality of a coal mining industry which has gone from boom to bust in a very short space of time.”
Unless China ravenous appetite for all possible commodities returns, the industrial depression, already the worst Australia has seen in 25 years, will only get worse.
And this is what an industrial depression looks like in numbers:
Was: $2.9m | Now: $15,000: Caterpillar 992C wheel loader
Was: $1.4m | Now: $50,000: Hitachi EX1200 hydraulic excavator
Was: $2.7m | Now: $46,000: Caterpillar D11N crawler tractor
Was: $900,000 | Now: $47,500: Caterpillar 775D rear dump truck
Was: $200,000 | Now: $2,000: Large workshop with water tank
- As Q3 Earnings Season Winds Down, A Summary Of Where We Stand And The 4 Main Themes From Conference Calls
With the third quarter earnings season almost over, and 90% of companies
having reported, here is a quick look at where we stand and what has
emerged as the 4 main themes during earnings calls.As of this moment, 71% of companies have beaten earnings expectations and just 44% have beaten top line estimates. The current consensus estimate is for a 2.2% decline in Q3 EPS across the S&P500.
The improvement in bottom line beats were to be expected: as we showed this summer, the reason why companies aggressively beat expectations is because of the even more aggressive sandbagging and guiding down ahead of earnings. As the following chart shows, since 2011 the average EPS cut prior to reporting has been 4%, while the average beat: 3.3%.
What is far more surprising is why so many companies missed the top line, and as Deutsche Bank says, “that’s a weaker trend compared to what we’ve seen in the last two quarters.” How does Q3 compare to prior quarters: in Q1 earnings and sales beats stood at 73% and 48% respectively, before improving slightly to 75% and 49% in Q2.
If we take a look at the aggregate moves, the obvious weakness is at the sales line where YoY aggregate sales are -5.0%.
And while Q3 will be the first earnings recession with two negative EPS quarters in a row, recall that the S&P500 already is in a revenue recession.
According to FactSet, the blended revenue decline for Q3 2015 is -3.7%. If this is the final revenue decline for the quarter, it will mark the first time the index has seen three consecutive quarters of year-over-year revenue declines since Q1 2009 through Q3 2009. It will also mark the largest year-over-year decline in revenue since Q3 2009 (-11.5%).
Furthermore, it is not just energy: while five sectors are reporting year-over-year growth in revenue, led by the Telecom Services and Health Care sectors, another five sectors are reporting a year-over-year decline in revenue, led by the Energy and Materials sectors.
Should Q4 revenue also post annual declines what then: a revenue depression?
Meanwhile, over in Europe and with 318 Stoxx 600 companies having now reported, 48% have beaten earnings expectations and 45% sales expectations. That’s well down on both Q1 (57% and 72% respectively) and also Q2 (61% and 67% respectively) this year although it’s worth noting that the data is a little less reliable for European companies given not all have earnings expectations are on Bloomberg.
* * *
That’s the quantitative summary. For the qualitative one we go to Goldman Sachs, whose Beige Book summarizes the 4 key themes observed during the numerous earnings calls. Here is the punchline:
- Theme 1: Divergence between consumer and industrial economies Many firms noted that the consumer economy continued to experience steady but unspectacular growth, while pockets of the industrial economy lagged and confronted recession-like conditions.
- Theme 2: Early signs of inflation, particularly in the labor market Consumer-facing firms highlighted upward pressure on wages. Goods and services inflation remained limited, although some companies preemptively initiated price increases.
- Theme 3: Buybacks remain a popular use of cash Use of cash was an important topic of management discussions. Many firms increased buyback authorizations and emphasized plans to return cash to shareholders, while others engaged in M&A.
- Theme 4: Foreign exchange headwinds expected to continue A strong US dollar continued to weigh on earnings, particularly for companies with significant international exposure.
Some additional company-level details.
Theme 1: Divergence between consumer and industrial economies
The economy continued to diverge along two paths: (1) consumer-facing companies experienced steady, positive growth; (2) industrial companies operated in a challenging, low-growth economy. The consumer economy benefited from solid, though not spectacular, US economic growth and an improving labor market. In contrast, the industrial economy experienced some recession-like conditions as a result of low oil prices and weak global demand.
Consumer Economy
Equity Residential (EQR)
It’s no secret that fundamentals remain very good. Demographic picture is incredibly favorable. The economy continues to improve, perhaps not at the rate many would like, but improve nonetheless, which is generating job growth…
Southern Co. (SO)
Industrial sales are a leading indicator; commercial sales are typically your lagging indicator. Well, it looks as if the leading indicator is slowing and the lagging indicator is what’s really carrying the day.
Ford Motor Co. (F)
…we’re expecting North America to have a very, very strong year with top-line growth and also a full year profit that will be higher than what we achieved last year…so a really strong performance from North America driving the overall company.
Apple Inc. (AAPL)
…our growth in one year was greater than the full year revenue of almost 90% of the companies in the Fortune 500.
Starbucks Corp. (SBUX)
Our fast-growing Americas segment continues to deliver industry-leading growth…and it opened 612 net new stores over the past 12 months.
Industrial Economy
Fastenal Co. (FAST)
The industrial environmental is in a recession. I don’t care what anybody says because nobody knows that market better than we do with the number. We touch 250,000 active customers a month.
Illinois Tool Works (ITW)
…it’s a tale of two economies: industrial and consumer. We continue to see solid organic growth in our consumer-facing businesses, such as Automotive, Food Equipment, and parts of Specialty and Construction, which represents about 60% of our total revenues… on the other hand, our industrial-facing businesses, like Welding, Test & Measurement/Electronics, declined in the high single digits organic.
E.I. du Pont and Co. (DD)
Things have clearly softened up. You just look at every industrial company that’s reported this quarter. Having said that, I don’t think things are in any draconian situation. I think it’s just a low-growth to no-growth environment across some of the industrial spaces.
3M Co. (MMM)
Our U.S. Industrial business, which experienced softer end market conditions and a challenging year-on-year comparison, declined organically.
Caterpillar Inc. (CAT)
We anticipate between now and 2018 about $1.5B of annual cost reduction…we plan on reducing about 4,000 to 5,000 of our non-production workforce before the end of 2016.
American Electric Power (AEP)
Starting with GDP, you can see that the estimated 1.6% growth for the AEP service area is about 0.5% less than the estimated growth for the U.S. This is not surprising considering the impact of falling oil prices, especially in our Western footprint. While the nation benefits from lower fuel prices, the regional economies supporting the shale plays are experiencing the direct impact of lost jobs.
Theme 2: Early signs of inflation, particularly in the labor market [don’t shoot the messenger, it’s Goldman’s propaganda]
Companies continued to see early signs of inflation, particularly in the labor market. Some consumer-facing firms and particularly food and retailing companies responded to mandatory wage changes and provided additional benefits to employees, placing upward pressure on wages. A limited number of companies highlighted preemptive price increases while others raised prices in response to food inflation.
Wage Inflation
Chipotle Mexican Grill (CMG)
Labor costs were 22.2% of sales in the quarter, an increase of 100 basis points from last year, and year-to-date labor costs were up 40 basis points…Labor de-leveraged versus last year by 100 basis points as a result of wage inflation, with our hourly wages up nearly 5% over last year, along with the cost of adding enhanced benefits such as tuition reimbursement, paid sick leave, and increased paid vacation for our hourly restaurant employees as we discussed during our Q2 earnings call.
McDonald’s Corp (MCD)
The incremental labor cost in the U.S. related primarily to our decision to invest in our people by raising wages and providing paid time off for employees at our company-operated restaurants, as well as providing educational assistance to all eligible U.S. restaurant employees effective July 1. These costs, along with wage increases mandated by several states during H1, impacted third quarter U.S. margins by about 400BPS.
Union Pacific Corp (UNP)
Labor inflation was about 4% for the third quarter, driven by agreement wage inflation as well as higher pension and other benefit expense. For the fourth quarter, we expect labor inflation to also be about 4%.
On the other hand, some firms are using technology to reduce wage costs in an attempt to maintain margins:
PepsiCo Inc. (PEP)
…we have installed packaging automation across approximately a third of our snacks plants worldwide, enabling us to reduce packaging labor costs in these facilities by at least 50%.
Goods and Services Inflation
Costco Wholesale (COST)
I think the pressure on the fresh food side is us. When you’ve got some inflation on some of the commodity items like eggs or nuts, you’ve got a – we’re not changing the price of a 16-pack of muffins or a slice of pizza or a hot dog.
FedEx Corp. (FDX)
As we announced yesterday, we’ll be raising rates at FedEx Express, Ground and Freight by an average of 4.9% on January, the 4th of 2016. … we’re also updating certain fuel surcharge tables at FedEx Express and Ground effective November, the 2nd of 2015.
Illinois Tool Works. (ITW)
…the big driver of price here is new products that get launched that solve some pretty challenging problems for sophisticated customers, and then you see that – Food Equipment’s a good example and Automotive and others. That’s really the main driver of price here.
UnitedHealth Group (UNH)
Rather than wait for our own experience with our new members to fully develop, we increased rates and repositioned certain products market-by-market for 2016, and we expect improved performance next year.
Theme 3: Buybacks remain a popular use of cash
Companies continued to contemplate how best to use their cash, as many firms increased buyback authorizations and others engaged in M&A. Increased buyback authorizations were popular, despite some companies reiterating their commitment to other uses of cash. However, some companies paused buybacks as M&A activity also continued at a rapid pace.
Buybacks
United Technologies (UTX)
…we’re going to keep driving the share repurchase agenda as long as we feel that there’s a significant discount between the intrinsic value of UTC and the share price. We continue to see that today, of course, that’s why our board recently authorized a new $12B share repurchase program…
Phillips 66 (PSX)
In addition, we announced an incremental $2 billion of share repurchase authorization. Today, we’ve completed $6 billion of the $9 billion in share repurchases authorized by our board…
Alphabet, Inc. (GOOGL)
As we announced today, our board has authorized us to commence a repurchase of our Class C capital stock of up to $5 billion. This decision is consistent with our overall capital management framework and complements a disciplined capital allocation program. Our primary uses of capital will, of course, remain CapEx and M&A across the breadth of our business.
E.I. du Pont and Co. (DD)
In the quarter, we entered into an accelerated share repurchase agreement to enable our $2B share repurchase commitment for 2015. In the quarter, we received and retired an initial delivery of about 29mm shares, which represents 80% of our $2B commitment.
Johnson & Johnson (JNJ)
Just this morning, we announced a $10 billion share repurchase program. We are very well positioned to drive continued growth in shareholder value with our exceptional financial strength, including our strong balance sheet and cash flow…as we have discussed before, we have a well-known and disciplined capital allocation strategy that starts with paying dividends, followed by value-creating M&A, and then we consider other ways to return value to shareholders, such as through a share repurchase program.
Visa Inc. (V)
Finally, we did not repurchase stock in the quarter due to the Visa Europe conversations that were underway… now that we’ve announced the Visa Europe transaction, we can resume our stock buyback. It is fully our intent to step up the pace of buybacks immediately to make up for buybacks not completed in Q4 FY 2015.
M&A
Aetna, Inc. (AET)
Our ability to repurchase shares was constrained by the proposed Humana acquisition, and we did not repurchase any shares during the quarter. We did, however, distribute $87 million through our quarterly shareholder dividend.
Walgreens Boot Alliance Inc (WBA)
…as we are paying cash for the acquisition, we have taken the decision to suspend our share repurchase program and intend to redeploy that cash to partly fund the transaction. This means that in 2016 we will not enjoy the earnings accretion of the buybacks we originally planned.
Gilead Sciences (GILD)
…I’ve seen these cycles go up and down over the years. And when there’s a deal to be put together and it’s timely, it can be done. And so I don’t think it changes the overall outlook for M&A at all. I just think from my perspective, it’s about the same as it was in the beginning of the year.
Theme 4: Foreign exchange headwinds expected to continue
The strong US dollar continues to be a drag on top- and bottom-line results, particularly for companies with significant international exposure. Managements generally expect the foreign exchange headwinds to persist into 2016.
Johnson & Johnson (JNJ)
…but to give you an idea of the potential impact on earnings per share, if currency exchange rates for all of 2015 were to remain where they were as of last week. Then our reported adjusted EPS would be negatively impacted by approximately $0.60 per share.
Monsanto Co. (MON)
We currently estimate ongoing EPS headwinds of $0.35 to $0.40 from currency, $0.50 to $0.85 from year-over-year Ag productivity pricing declines, and $0.20 to $0.30 from elevated cost of goods for corn and the planned Xtend launch.
Costco Wholesale (COST)
In terms of a year-over-year EPS comparison, a few items of note, and the biggest item of note, FX. In Q4 year over year, the foreign currencies where we operate were weaker versus the U.S. dollar, resulting in our reported foreign earnings this year in Q4 being lower by about $53 million after tax or $0.12 a share than these earnings would have been had FX exchange rates been flat year over year.
PepsiCo Inc. (PEP)
We now expect foreign exchange translation to negatively impact net revenue and core EPS growth by approximately 10 percentage points and 11 percentage points respectively…
Procter & Gamble (PG)
The headwind from foreign exchange has increased since the start of year. We now expect FX will have a five to six percentage point impact on all-in sales growth.
McDonald’s Corp (MCD)
Currency translation is expected to be a headwind for the final quarter of 2015, as the U.S. dollar remains strong against nearly all of the world’s other major currencies. Based on current exchange rates, we expect currency translation to negatively impact fourth quarter EPS by $0.08 to $0.10.
Visa Inc. (V)
The fiscal year 2015 impact of exchange rates was a 2.5 percentage point drag on net revenues, higher than we had anticipated at the start of the year. If we look at where the dollar is today and the basket of currencies we are exposed to, the FY 2016 impact looks to be 3 percentage points.
American Express (AXP)
Like other U.S. companies with a significant global footprint, our reported results are being significantly impacted by changes in foreign exchange rates. Over the past year, the dollar has strengthened significantly year over year against the currencies that we are most exposed to outside the U.S…. The dollar’s strength will have an impact on our performance for the balance of the year and could impact 2016 as well.
3M Co. (MMM)
Foreign exchange impacts reduced sales by 7.4 percentage points, with notable year-onyear declines in the euro, yen, and Brazilian Real. These currencies devalued versus the U.S. dollar by 15%, 14%, and 37% respectively. In dollar terms, worldwide sales declined 5.2% versus the third quarter of 2014.
Simon Property Group (SPG)
And the other impact we’ve had on the negative side is that we’ve lost certain amount of percentage rent from the outlet business because of the fact that the strong dollar has also hurt tourism shopping.
Microsoft Corp. (MSFT)
Based on the current rates and the forecasted geographic mix of revenue, we expect 4 points of negative impact on total revenue in Q2.
Sherwin-Williams (SHW)
Unfavorable currency translation decreased earnings per share, $0.09 in the quarter.
- About That Surge In Retail & Construction Jobs
As one witty observer noted over the weekend, "no one with an IQ greater than their shoe size, save corrupt, captured American economists, buys the fake October unemployment report," and while we agreed with the pretext of his thesis, we thought a quick sanity check on the sudden surges in Retail employment and Construction jobs and wage growth would help clarify a few things for those who 'believe' in miracles. As the following two simple charts show, we have seen this odious pattern of mal-investment, mis-allocation, and erroneous executuve extrapolation before… and it did not end well.
First – Retail..
Something stinks. Retail stock prices have been plunging (despite the promises of increased spending amid expectations of wage growth – which today NYFed admitted was at its lowest on record) and just tonight we see Banana Republic see Same Store Sales collapse 15% and Gap overall down 4%.
We have seen this before…
Coincidence we are sure.
Second – Construction.
Having already pointed out the anomalous surge in construction jobs weekly payrolls print, we thought exposure of the raw underbelly of the construction industry would help. As Framing Lumber prices crash over 21% year-over-year, it just seems odd that construction jobs would keep surging onwards and upwards as if nothing had happened. Of course, this 'confidence' in the face of market-implied doom has been seen before…
And did not end well.
* * *
So apart from Retail and Construction sectors entirely decoupling – in an almost perfect replay of the lead-up to the last crash – it seems everything is on target for a rate hike.
- "Grieving" Mother Of Murdered 9-Year-Old Spends Online Donations On New Car
Having very recently pointed out the growing epidemic of "online begging," seeing a mother use an online donation platform to raise funds to "lay her son to rest" seems like a laudible and donation-worthy cause. However, as ABC7 reports, the 'grieving' mother of murdered Chicago 9-year-old Tysham Lee used the funds to purchase a 2015 Chrysler 200 and after facing a torrent of abuse attempted to defend her seemingly callous act – "Y'all don't know nothing about me."
The mother of a 9-year-old boy fatally shot earlier this week is being accused of spending money donated through a GoFundMe effort intended for funeral expenses on a new car.
Karla Lee strongly denies the claim and commented on those who have taken to social media to criticize her.
The mother of slain Tyshawn Lee says it's simply not true. She said she did not use money donated to help pay for her son's funeral to buy a new car.
Karla Lee posted several videos to Instagram Saturday morning after a flurry of social media posts accused her of using money from her son’s GoFundMe account to buy the car. Lee says she used her own money.
The emotional 26-year-old says she bought the car to protect herself so she wouldn't become a target by walking or taking the bus.
"I told them I was scared and I was fearing," she said. "Too bad if y'all don't understand that."
“I got this s*** for my protection…I’m pretty sure that’s something my son would have wanted me to do,” she said in one of the videos. In another video, she says she was afraid of being targeted if she took public transportation.
"Y'all don't know nothing about me," she said. "For y'all to be bashing me like that, and I just lost my child."
Lee is defending herself after heavy criticism on social media accusing her of using donated money from a GoFundMe page. While she admits to buying a car, she says she used her own money to make the down payment for the 2015 Chrysler 200.
Lee said the controversy began after the dealership where she bought the car posted her purchase on Facebook without her knowledge. The post was deleted after negative reactions by supporters who donated.
"Once again, it just looks offsetting that out of nowhere you're driving around in a new car," said Aundra Lewis.
More than $17,000 was raised in four days through the donation page, which was created by a friend of Lee's to "Help Karla lay her son to rest."
* * *
We have no comment, the story speaks for itself. One can only imagine in this mother's mind, a brand new Chrysler was considered 'deserved, fair' given the loss of her son.
- University Of Missouri President Resigns After Claims He "Enabled A Culture Of Racism"
For months, black student groups have complained of racial slurs and other slights on the overwhelmingly white (79% white and 8% black) flagship campus of the Missouri's four-college system. Today, amid a campus in open revolt and at least 30 black football players announcing that they would not play until the president was gone, AP reports that Mizzou President Tim Wolfe has resigned effective immediately urging students and faculty "to heal and start talking again to make the changes necessary." Protestors demanded that Wolfe "acknowledge his white male privilege," that he is immediately removed, and that the school adopt a mandatory racial-awareness program and hire more black faculty and staff.
Tensions have built dramatically over the past few months…
And now, as AP reports, the president of the University of Missouri system resigned Monday with the football team and others on campus in open revolt over his handling of racial tensions at the school. President Tim Wolfe said his resignation was effective immediately. He made the announcement at the start of what had been expected to be a lengthy closed-door meeting of the school's governing board.
The complaints came to a head a day earlier, when at least 30 black football players announced that they would not play until the president was gone. One student went on a weeklong hunger strike.
Wolfe took "full responsibility for the frustration" students had expressed and said their complaints were "clear" and "real."
"This is not the way change comes about," he said, alluding to recent protests, in a halting statement that was simultaneously apologetic, clumsy and defiant. "We stopped listening to each other."
He urged students, faculty and staff to use the resignation "to heal and start talking again to make the changes necessary."
A poor audio feed for the one board member who was attending the meeting via conference call left Wolfe standing awkwardly at the podium for nearly three minutes after only being able to read the first sentence of his statement.
For months, black student groups have complained of racial slurs and other slights on the overwhelmingly white flagship campus of the state's four-college system. Frustrations flared during a homecoming parade Oct. 10 when black protesters blocked Wolfe's car, and he did not get out and talk to them. They were removed by police.
Black members of the football team joined the outcry on Saturday night. By Sunday, a campus sit-in had grown in size, graduate student groups planned walkouts and politicians began to weigh in.
Until Monday, Wolfe did not indicate that he had any intention of stepping down. He agreed in a statement issued Sunday that "change is needed" and said the university was working to draw up a plan by April to promote diversity and tolerance.
The Tigers' next game is Saturday against Brigham Young University at Arrowhead Stadium, the home of the NFL's Kansas City Chiefs, and canceling it could cost the school more than $1 million.
"The athletes of color on the University of Missouri football team truly believe 'Injustice Anywhere is a threat to Justice Everywhere,'" the players said in a statement. "We will no longer participate in any football related activities until President Tim Wolfe resigns or is removed due to his negligence toward marginalized students' experience. WE ARE UNITED!!!!!"
Head football coach Gary Pinkel expressed solidarity on Twitter, posting a picture of the team and coaches locking arms. The tweet said: "The Mizzou Family stands as one. We are united. We are behind our players."
A statement issued by Pinkel and Missouri athletic director Mack Rhoades linked the return of the protesting football players to the end of a hunger strike by a black graduate student who began the effort Nov. 2 and has vowed to not eat until Wolfe is gone.
"Our focus right now is on the health of Jonathan Butler, the concerns of our student-athletes and working with our community to address this serious issue," the statement said.
After Wolfe's announcement, Butler said in a tweet that his strike was over.
The protests began after the student government president, who is black, said in September that people in a passing pickup truck shouted racial slurs at him.
In early October, members of a black student organization said slurs were hurled at them by an apparently drunken white student.
Also, a swastika drawn in feces was found recently in a dormitory bathroom.
Many of the protests have been led by an organization called Concerned Student 1950, which gets its name from the year the university accepted its first black student. Its members besieged Wolfe's car at the parade, and they have been conducting a sit-in on a campus plaza since last Monday.
Two trucks flying Confederate flags drove past the site Sunday, a move many saw as an attempt at intimidation. At least 150 students gathered at the plaza Sunday night to pray, sing and read Bible verses, a larger crowd than on previous days. Many planned to camp there overnight, despite temperatures that had dropped into the upper 30s.
Also joining in the protest effort were two graduate student groups that called for walkouts Monday and Tuesday and the student government at the Columbia campus, the Missouri Students Association. The association said in a letter Sunday to the system's governing body that there had been "an increase in tension and inequality with no systemic support" since last year's fatal shooting of Michael Brown in Ferguson, which is about 120 miles east of Columbia.
The association said Wolfe heads a university leadership that "has undeniably failed us and the students that we represent."
"He has not only enabled a culture of racism since the start of his tenure in 2012, but blatantly ignored and disrespected the concerns of students," the group wrote.
Concerned Student 1950 has demanded, among other things, that Wolfe "acknowledge his white male privilege," that he is immediately removed, and that the school adopt a mandatory racial-awareness program and hire more black faculty and staff.
One of the sit-in participants, Abigail Hollis, a black undergraduate, said the campus is "unhealthy and unsafe for us."
"The way white students are treated is in stark contrast to the way black students and other marginalized students are treated, and it's time to stop that," Hollis said. "It's 2015."
* * *
A victory for cultural marxism or a righteous move to accelerate an end to serial racism (absent "safe spaces")?
- The Re-Enserfment Of Western Peoples
Authored by Paul Craig Roberts,
The re-enserfment of Western peoples is taking place on several levels.
One about which I have been writing for more than a decade comes from the offshoring of jobs. Americans, for example, have a shrinking participation in the production of the goods and services that are marketed to them.
On another level we are experiencing the financialization of the Western economy about which Michael Hudson is the leading expert (Killing The Host). Financialization is the process of removing any public presence in the economy and converting the economic surplus into interest payments to the financial sector.
These two developments deprive people of economic prospects.
A third development deprives them of political rights. The Trans-Pacific and Trans-Atlantic Partnerships eliminate political sovereignty and turn governance over to global corporations.
These so called “trade partnerships” have nothing to do with trade. These agreements negotiated in secrecy grant immunity to corporations from the laws of the countries in which they do business. This is achieved by declaring any interference by existing and prospective laws and regulations on corporate profits as restraints on trade for which corporations can sue and fine “sovereign” governments. For example, the ban in France and other counries on GMO products would be negated by the Trans-Atlantic Partnership. Democracy is simply replaced by corporate rule.
I have been meaning to write about this at length. However, others, such as Chris Hedges, are doing a good job of explaining the power grab that eliminates representative government.
There is more than enough evidence from past trade agreements to indicate where the TPP — often called "NAFTA on steroids" — will lead. It is part of the inexorable march by corporations to wrest from us the ability to use government to defend the public and to build social and political organizations that promote the common good.
Our corporate masters seek to turn the natural world and human beings into malleable commodities that will be used and exploited until exhaustion or collapse. Trade agreements are the tools being used to achieve this subjugation. The only response left is open, sustained and defiant popular revolt.
The corporations are buying power cheaply. They bought the entire US House of Representatives for just under $200 million. This is what the corporations paid Congress to go along with “Fast Track,” which permits the corporations’ agent, the US Trade Representative, to negotiate in secret without congressional input or oversight.
Corporations are taking control of what policies are approved or blocked in the U.S.
We cannot sit around while corporations decide what is "good" for America or not! This is a democracy, not a plutocracy! Contact your representatives and let them know that you do not want them to vote in favor of TPA!
In other words, a US corporate agent deals with corporate agents in the countries that will comprise the “partnership,” and this handful of well-bribed people draw up an agreement that supplants law with the interests of corporations. No one negotiating the partnership represents the peoples’ or public’s interests. The governments of the partnership countries get to vote the deal up or down, and they will be well paid to vote for the agreement.
Once these partnerships are in effect, government itself is privatized. There is no longer any point in legislatures, presidents, prime ministers, judges. Corporate tribunals decide law and court rulings.
It is likely that these “partnerships” will have unintended consequences. For example, Russia and China are not part of the arrangements, and neither are Iran, Brazil, India, and South Africa, although seperately the Indian government appears to have been purchased by American agribusiness and is in the process of destroying its self-sufficient food production system. These countries will be the repositories for national sovereignty and public control while freedom and democracy are extinguished in the West and the West’s Asian vassals.
Violent revolution throughout the West and the complete elimination of the One Percent is another possible outcome. Once, for example, the French people discover that they have lost all control over their diet to Monsanto and American agribusiness, the members of the French government that delivered France into dietary bondage to toxic foods are likely to be killed in the streets.
Events of this sort are possible throughout the West as peoples discover that they have lost all control over every aspect of their lives and that their only choice is revolution or death.
- Obama's Trade Deal Will Bankrupt Canada's Farming Industry "Overnight", Expert Says
Earlier this month, in “Forget China: This Extremely “Developed” Country Just Suffered Its Biggest Money Outflow Ever,” we took a close look at Canada, where slumping crude prices are beginning to take a serious toll. As we noted, citing BofAML, Canada’s basic balance – a combination of the capital and the current account: a measure of national accounts that spans everything from trade to financial-market flows – swung from a surplus of 4.2% of GDP to a deficit of 7.9% in the 12 months ending in June. That’s the fastest one-year deterioration among 10 major developed nations.
Citing Sharma’s data Bloomberg wrote that “money is flooding out of Canada at the fastest pace in the developed world as the nation’s decade-long oil boom comes to an end and little else looks ready to take the industry’s place as an economic driver.” In fact, based on the chart below, the outflow is the fastest on record.
Well now, on the heels of the Obama administration’s rejection of the “dangerous” Keystone Pipeline (which comes as oil tankers continue to derail across the country), some critics say The White House’s controversial new trade deal could end up costing beleaguered Canada massive job along with the “overnight” collapse of their agriculture industry. Here’s more, from Sputnik:
There are also major concerns over the effects the trade deal will have on Canadian agriculture industries.
Dr Sylvain Charlebois, professor of distribution and food policy at the University of Guelph’s Food Institute in Canada, told Sputnik there were many unanswered questions in the deal.
“I think overall, reading the deal, there are some very strong elements to support Canada’s membership into this partnership. However, there are a lot of unknowns unfortunately, particularly in the area of agriculture.”
Dr Charlebois said that Canada’s protectionist supply management scheme, which works to protect local industries, would be thrown out under the TPP, with concerns over how this would impact local producers.
“Canada has supply management, particularly with poultry, milk and eggs, so we basically produce what we need in Canada. Now the Trans-Pacific Partnership would compromise the equilibrium we have between supply and demand domestically […] allowing milk from other member countries to come into the Canadian market.”
“What would happen to quotas for example? But most importantly, what would happen to processing? So there’s lots of questions being asked by farmers and processors, and now with the changing government, hopefully we’ll get some clarity on these issues.”
Charlebois goes on to say that the dairy, egg, and poultry sectors may indeed collapse “overnight”:
The supply management scheme has been in place since the mid-60s in order to protect Canadian agricultural sectors from larger US corporations.
As a result, Dr Charlebois says the local industries have become complacent and inefficient, and would not be able to survive under the TPP if it was implemented immediately. “Overnight if we were to eliminate tariffs on imports, we would likely see the dairy sector in Canada, and perhaps the poultry and egg sectors, collapse overnight.
“We’re just not competitive so we need to give it some time for these sectors to adapt and change their modus operandi to make sure they do become more productive and efficient over the next 15 years or so.”
So, with Canada already stinging from plunging crude, some are now suggesting that TPP could be set to cripple the country’s economy even further. Meanwhile, Jim Balsillie, former co-CEO of BlackBerry – which is of course “dominating” the global smartphone market – thinks this is the “worst thing Canada has ever done”:
“I’m not a partisan actor, but I actually think this is the worst thing that the Harper government has done for Canada… I think in 10 years from now, we’ll call that the signature worst thing in policy that Canada’s ever done. It’s such brilliantly systemic encirclement.
I’m just in awe at its powerful purity by the Americans… We’ve been outfoxed.”
Yeah ok, maybe, but let’s just be honest, the Obama administration has never “outfoxed” anyone on anything. In fact, if recent geopolitical outcomes have taught us anything, Obama and Kerry couldn’t “outfox” their way out of a wet paper bag, so to the extent they’ve designed some kind of cunning trade policy with the aim of bankrupting the Canadian dairy industry it would out of character, but again, stupidity sometimes produces unpredictable outcomes.
Anyway, incompetence and naïvety do have a way of creating unexpected consequences so we hope, for Canada’s sake, that the The White House doesn’t end up bankrupting everything chicken-related north of the border but if it does, don’t worry, because that same incompetence will invariably end up starting a world war in Syria which will swiftly drive crude prices through the roof and then it’s problem solved for the Canadians…
- Ron Paul: Does The Bell Toll For The Fed?
Submitted by Ron Paul via The Ron Paul Institute for Peace & Prosperity,
Last week Federal Reserve Chair Janet Yellen hinted that the Federal Reserve Board will increase interest rates at the board’s December meeting. The positive jobs report that was released following Yellen’s remarks caused many observers to say that the Federal Reserve’s first interest rate increase in almost a decade is practically inevitable.
However, there are several reasons to doubt that the Fed will increase rates anytime in the near future. One reason is that the official unemployment rate understates unemployment by ignoring the over 94 million Americans who have either withdrawn from the labor force or settled for part-time work. Presumably the Federal Reserve Board has access to the real unemployment numbers and is thus aware that the economy is actually far from full employment.
The decline in the stock market following Friday’s jobs report was attributed to many investors’ fears over the impact of the predicted interest rate increase. Wall Street’s jitters about the effects of a rate increase is another reason to doubt that the Fed will soon increase rates. After all, according to former Federal Reserve official Andrew Huszar, protecting Wall Street was the main goal of “quantitative easing,” so why would the Fed now risk a Christmastime downturn in the stock markets?
Donald Trump made headlines last week by accusing Janet Yellen of keeping interest rates low because she does not want to risk another economic downturn in President Obama’s last year in office. I have many disagreements with Mr. Trump, but I do agree with him that the Federal Reserve’s polices may be influenced by partisan politics.
Janet Yellen would hardly be the first Fed chair to allow politics to influence decision-making. Almost all Fed chairs have felt pressure to “adjust” monetary policy to suit the incumbent administration, and almost all have bowed to the pressure. Economists refer to the Fed’s propensity to tailor monetary policy to suit the needs of incumbent presidents as the “political” business cycle.
Presidents of both parties, and all ideologies, have interfered with the Federal Reserve’s conduct of monetary policy. President Dwight D. Eisenhower actually threatened to force the Fed chair to resign if he did not give in to Ike's demands for easy money, while then-Federal Reserve Chair Arthur Burns was taped joking about Fed independence with President Richard Nixon.
The failure of the Fed’s policies of massive money creation, corporate bailouts, and quantitative easing to produce economic growth is a sign that the fiat money system’s day of reckoning is near. The only way to prevent the monetary system’s inevitable crash from causing a major economic crisis is the restoration of a free-market monetary policy.
One positive step Congress may take this year is passing the Audit the Fed bill. Fortunately, Senator Rand Paul is using Senate rules to force the Senate to hold a roll-call vote on Audit the Fed. The vote is expected to take place in the next two-to-three weeks. If Audit the Fed passes, the American people can finally learn the full truth about the Fed’s operations. If it fails, the American people will at least know which senators side with them and which ones side with the Federal Reserve.
Allowing a secretive central bank to control monetary policy has resulted in an ever-expanding government, growing income inequality, a series of ever-worsening economic crises, and a steady erosion of the dollar’s purchasing power. Unless this system is changed, America, and the world, will soon experience a major economic crisis. It is time to finally audit, then end, the Fed.
- Venezuela Default Countdown Begins: After Selling Billions In Gold, Caracas Raids $467 Million In IMF Reserves
In late October, when describing Venezuela’s desperate steps to keep itself afloat for a few more months, we reported that in order to fund $3.5 billion bond payments in early November, Maduro’s government had engaged in something that is the very definition of insanity: selling the country’s sovereign (and pateiently repatriated by his deceased predecessor) gold to repay creditors.
Specifically, in the past several months, Caracas has quietly parted with 19% of its gold holdings: “Central bank financial statements posted this week on its website show monetary gold totaled 91.41 billion bolivars in January and 74.14 billion bolivars in May. At the strongest official exchange rate of 6.3 bolivars per U.S. dollar, which the bank uses for its financial statements, that decline would be equivalent to $2.74 billion.”
But while ridiculous, Venezuela’s decision to liquidate some of its gold is perhaps understandable under the circumstances: Venezulea relies on crude oil for 95% of its export revenue, and with prices refusing to rebound, the only question is when do all those CDS which price in a Venezuela default finally get paid.
What is even more understandable is what Venezuela should have done in the first place before dumping a fifth of its gold, but got to do eventually, namely raiding all of the IMF capital held under its name in a special SDR reserve account.
Recall that this is precisely what Greece did in July when everyone was speculating when it would default. Now its Venezuela’s turn.
The details: Reuters reports that Venezuela withdrew some $467 million from an IMF holding account in October, according to information posted on the fund’s web-site, as the OPEC nation seeks to improve the liquidity of its reserves amid low oil prices and a severe recession.
Venezuela holds part of its reserves with the International Monetary Fund in an instrument called Special Drawing Rights (SDR), a basket of international currencies made up of the euro, Japanese yen, pound sterling and U.S. dollar.
The withdrawal will allow Venezuela to use the funds for imports or debt service, but does not change its total reserve holdings as SDRs are already accounted for.
Needless to say, it is far wiser to use up all paper “assets” to repay “paper” liabilities, before resorting to hart money. By then, it is usually game over anyway, so our advise to Mr. Maduro: just default now, and save your gold.
Referentially, the country’s international reserves as of Thursday stood at $14.819 billion: and dropping fast. At this rate of depletion, we give Venezuela a few more months before the army takes over.
Finally, the central bank’s most recent financial statements as of May, showed that 58% of reserves were held in gold. It is unclear how much, if any, were held in “toilet paper”.
- EM Exodus: Emerging Economies See Half Trillion In Capital Flight
When Janet Yellen and the rest of the Eccles cabal decided to stay on hold in September, the “new” reaction function was all anyone wanted to talk about.
Of course, the idea that the Fed was to that point “data dependent” (versus market dependent) was something of a joke in the first place, but the specificity the FOMC employed when referring to global financial markets still took some observers off guard. The worry for the Fed revolved primarily around the possibility that a hike could accelerate EM capital outflows at a time when a series of idiosyncratic factors (like a civil war in Turkey, a political crisis in Brazil, and the 1MDB scandal in Malaysia) had already pushed the emerging world to the brink of crisis. Enormous outflows from China as a result of the yuan deval didn’t help.
In short, the theory was that even a “symbolic” 25 bps hike had the potential to trigger an EM exodus that would make the taper tantrum look like a walk in the park as a soaring dollar exacerbated an already tenuous scenario playing out across the space.
Now, as we look back at Q2 and Q3, we learn that all told, well more than a half trillion in capital fled EM over six months.
Here’s JP Morgan who calls the capital flight “unprecedented”:
Recent capital outflows from EM have raised fears of a potential credit crunch, which if it materializes, could exacerbate the economic downshifting of EM economies. On our estimates $360bn of capital left China during the previous two quarters and an additional $210bn left from the rest of EM.
This of course led directly to a massive FX reserve drawdown and indeed, over the past 18 or so months, the end of the so-called “Great Accumulation” of USD assets has come to a rather unceremonious end. Here are two graphics from Goldman which demonstrate the scope of build and subsequent unwind:
But for anyone who’s concerned about the effect this might have on tightening global monetary conditions or otherwise amplfying a “liftoff”, don’t worry because while QT may indeed be QE in reverse, Goldman thinks it can’t possibly be as “negative” as QE was “positive”given the fact that it’s inherently limited by how much EMs have to sell whereas QE is only limited by central planners’ collective imagination:
Countering widespread worries about QT, Zach Pandl of our US Economics Research team argues that the impact of EM reserve selling does not amount to QE in reverse. Even if the pace of dollar-denominated asset sales lines up roughly with the Fed’s Treasury purchases over the main phase of QE, the former won’t pack the same punch.
Specifically, QT lacks the signaling value of QE, actually works to weaken the dollar (as does QE), and is finite because reserves can only decline to zero (in contrast to theoretically unlimited asset purchases—a key source of QE’s potency).
Or, summed up…
- Video: U.S. Apache Attack Helicopter Follows Behind ISIS Convoy … Doesn’t Fire a Single Shot
This video from LiveLeak purports to be an Apache attack helicopter following a huge ISIS convoy of white pickup trucks crossing from Iraq to Syria … and – instead of attacking – more or less "escorting" it across the border:
What do you think?
- The Courage To Print Money
Submitted by Tim Price via SovereignMan.com,
If you’ve seen the movie The Usual Suspects, you know that wonderful line “The greatest trick the Devil ever pulled was convincing the world he didn’t exist.”
We believe the greatest trick central bankers ever pulled was convincing the world they were acting in the interests of anyone other than the banks.
With that in mind, it’s almost surreal to see former Fed Chairman Ben Bernanke making victory laps around the world to celebrate the launch of his new book, curiously entitled The Courage to Act.
Does it really take courage for unelected economic bureaucrats to print up trillions of dollars of taxpayers’ money in order to bail out Wall Street banks?
I’m sure it will certainly take courage if the taxpayer finally wakes up to the ruse before it fails.
And sooner or later, every ruse does fail, even when run by the world’s most powerful cartel.
The Fed, along with its cousins in Europe and Asia, is up against a force of nature in the form of the free market. A banking cartel can clearly achieve a lot in its own interest, but in the fullness of time, the market will win out.
To suppose otherwise is to believe that central planning works. As if putting Janet Yellen in charge of the Soviet Empire would have somehow averted the fall of Communism.
Here in the UK, we have a crime known as High Treason: the crime of disloyalty to the Crown. “Adhering to the sovereign’s enemies, giving them aid or comfort” is a High Treason offence.
So is “counterfeiting money”.
Destabilizing the monetary system to the point of potential collapse would probably qualify, we think, perhaps on both grounds.
So the next time a central banker (the Bank of England’s Chief Economist), or one of their banker buddies, proposes that the abolition of physical cash or the introduction of negative interest rates, is in the best interests of the taxpayer and not the banks, they should be grateful that we no longer have the death penalty for High Treason.
- Shares Of World's Largest Miner Plunge To Seven-Year Low After Massive Toxic Mudslide Engulfs Brazilian Village
Ok, so if you’re the world’s largest mining company, one thing you don’t want is a global deflationary supply glut brought on by depressed demand from China and a worldwide excess capacity problem.
Another thing you don’t want is for a tailings dam to burst, sending a river of toxic mud into a nearby village in South America.
Well, BHP Billiton is now dealing with both of those issues and the market is punishing the stock, which hit a seven-year low on Monday as analysts and investors alike attempt to figure out how the company intends to clean up a spectacular (in a bad way) mess in Minas Gerais.
Here’s what happened, in BHP’s words:
The Samarco operations include a three tiered tailings dam complex. Within this complex, the Fundão dam failed and the downstream Santarém dam has been affected. This resulted in a significant release of mine tailings, flooding the community of Bento Rodrigues and impacting other communities downstream. The third dam in the complex, the Germano dam, is being monitored by Samarco. At this time, there is no confirmation of the causes of the tailings release.
Samarco is jointly operated with Brazilian giant Vale and BHP has been keen to note that the joint venture is “responsible for the entirety” of the Minas Gerais operations. After the company’s operating license was revoked on Monday, its debt plunged, with some $2.2 billion in paper due 2022, 2023, and 2024 hitting record lows.
For those who might have missed it, the following images will tell you pretty much all you need to know about what happened:
And here’s Deutsche Bank’s take, which underscores the significance:
BHP and Vale’s 30Mtpa Samarco iron ore mine in Southern Brazil (50/50 JV) has suffered a catastrophic tailings dam failure. The mine represents c. 10% of our BHP earnings and 3% of NPV, we now assume the mine is shut until FY19. Pellet production was recently expanded to 30Mtpa at a cost of US$3.2b. Media reports have stated that there is a significant and tragic loss of life. Based on public images of the failure we estimate that the dam contained over 300Mt or 150Mm3 of tailings and Samarco could be down for years while the clean-up costs may exceed US$1b. This accident will add further pressure to BHP’s cash flow, growth and safeguarding of the progressive dividend
At around 0530am AEST on Nov 6, Samarco’s largest tailings facility failed causing slurry to race through the open pit and down the valley into the local village of Bento Rodrigues and into local waterways. The media is reporting that between 15 and 17 people have died and 45 others are missing. Samarco states in its FY14 sustainability report that it employs a management system referred to as “Failure Modes and Effects Analysis (FMEA) system” to control tailings dam failure risks. It could be months before Vale, BHP, State and Federal governments complete their assessment of the incident. The clean-up, community support, litigation and rebuilding of the tailings dam (if approved and deemed feasible) could mean that Samarco is shut for years. The mine employs 3,100 people and is one of the largest employers in the region. Samarco contributed US$369m to BHP earnings in FY15 and before this incident we estimated it would contribute US$308m in FY16. We have assumed the mine is shut until FY19, the workforce remains employed, and BHP’s share of the clean-up and dam rebuild costs US$500m. We have excluded any recouping of costs from insurance at this stage.
Of course this is the sellside penguin brigade so naturally, all of that somehow translates to a “Hold“:
As WSJ notes:
Brazilian officials on Sunday raised the death toll to three people, two of whom were found in the path of the mud flow, and a third who died while receiving medical treatment. That number is expected to rise, as at least 28 people are now confirmed missing.
“BHP Billiton will continue to work with Samarco, Vale, the local communities, local authorities, regulators and insurers to assess the full impact of this tragic incident,” BHP said.
The shutdown will reduce BHP’s iron-ore production this fiscal year—cutting into profit when falling commodity prices already are already making it more difficult for the company to keep its promise to maintain or lift shareholder dividends. Samarco last year accounted for roughly 3% of BHP’s underlying earnings.
Right, so in other words, this is an unmitigated disaster.
On the “bright” side, the fallout could take some excess supply offline, and could impact prices. Here’s more, via Bloomberg:
- Deactivation of production at Samarco Mineracao mine, a JV between BHP Billiton and Vale, is likely to pressure iron-ore prices, Christopher Tuck, mineral commodity specialist at U.S. Geological Survey’s National Minerals Information Center, says in interview in Rio.
- “Any deactivation, on this scale, will have an impact on seaborne trade. The varying factor that would affect prices is the length of time this mine remains inoperable. The larger time it remains idled, the greater the likelihood it will have an impact on prices’’
- Potential impact on price of pellets much more significant than effect on overall market
- Short-term idling could level off prices through end of 2015; if output is halted long-term, prices could increase slightly
We suppose the takeaway here is that an already abysmal backdrop for BHP just got a lot worse, which means you may want to brace yourself if you’re a shareholder and if you’re a Brazilian villager, just hold your breath and wait for your compensatory check from Samarco – we’re sure it’s in the mail.
- Deactivation of production at Samarco Mineracao mine, a JV between BHP Billiton and Vale, is likely to pressure iron-ore prices, Christopher Tuck, mineral commodity specialist at U.S. Geological Survey’s National Minerals Information Center, says in interview in Rio.
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