- Time Is Running Out For Pax Americana
Submitted by Rostislav Ischenko via The Oriental Review,
The paradox of the current global crisis is that for the last five years, all relatively responsible and independent nations have made tremendous efforts to save the United States from the financial, economic, military, and political disaster that looms ahead. And this is all despite Washington’s equally systematic moves to destabilize the world order, rightly known as the Pax Americana.
Since policy is not a zero-sum game, i.e., one participant’s loss does not necessarily entail a gain for another, this paradox has a logical explanation. A crisis erupts within any system when there is a discrepancy between its internal structure and the sum total of available resources (that is, those resources will eventually prove inadequate for the system to function normally and in the usual way).
There are at least three basic options for addressing this situation:
- Through reform, in which the system’s internal structure evolves in such a way as to better correspond to the available resources.
- Through the system’s collapse, in which the same result is achieved via revolution.
- Through preservation, in which the inputs threatening the system are eliminated by force, and the relationships within the system are carefully preserved on an inequitable relationship basis (whether between classes, social strata, castes, or nations).
The preservation method was attempted by the Ming and Qing dynasties in China, as well as the Tokugawa Shogunate in Japan. It was utilized successfully (in the 19th century) prior to the era of capitalist globalization. But neither of those Eastern civilizations (although fairly robust internally) survived their collision with the technologically more advanced (and hence more militarily and politically powerful) European civilization. Japan found its answer on the path of modernization (reform) back in the second half of the 19th century, China spent a century immersed in the quagmire of semi-colonial dependence and bloody civil wars, until the new leadership of Deng Xiaoping was able to articulate its own vision of modernizing reforms.
This point leads us to the conclusion that a system can be preserved only if it is safeguarded from any unwanted external influences, i.e., if it controls the globalized world.
The contradiction between the concept of escaping the crisis, which has been adopted the US elite, and the alternative concept – proposed by Russia and backed by China, then by the BRICS nations and now a large part of the world – lay in the fact that the politicians in Washington were working from the premise that they are able to fully control the globalized world and guide its development in the direction they wish. Therefore, faced with dwindling resources to sustain the mechanisms that perpetuate their global hegemony, they tried to resolve the problem by forcefully suppressing potential opponents in order to reallocate global resources in their favor.
If successful, the United States would be able to reenact the events of the late 1980s – early 1990s, when the collapse of the Soviet Union and the global socialist system under its control allowed the West to escape its crisis. At this new stage, it has become a question of no longer simply reallocating resources in favor of the West as a collective whole, but solely in favor of the United States. This move offered the system a respite that could be used to create a regime for preserving inequitable relationships, during which the American elite’s definitive control over the resources of power, raw materials, finance, and industrial resources safeguarded them from the danger of the system’s internal implosion, while the elimination of alternative power centers shielded the system from external breaches, rendering it eternal (at least for a historically foreseeable period of time).
The alternative approach postulated that the system’s total resources might be depleted before the United States can manage to generate the mechanisms to perpetuate its global hegemony. In turn, this will lead to strain (and overstrain) on the forces that ensure the imperial suppression of those nations existing on the global periphery, all in the interests of the Washington-based center, which will later bring about the inevitable collapse of the system.
Two hundred, or even one hundred years ago, politicians would have acted on the principle of “what is falling, that one should also push” and prepared to divvy up the legacy of yet another crumbling empire. However, the globalization of not only the world’s industry and trade (that was achieved by the end of the 19th century), but also global finance, caused the collapse of the American empire through a policy that was extremely dangerous and costly for the whole world. To put it bluntly, the United States could bury civilization under its own wreckage.
Consequently, the Russian-Chinese approach has made a point of offering Washington a compromise option that endorses the gradual, evolutionary erosion of American hegemony, plus the incremental reform of international financial, economic, military, and political relations on the basis of the existing system of international law.
America’s elite have been offered a “soft landing” that would preserve much of their influence and assets, while gradually adapting the system to better correspond to the present facts of life (bringing it into line with the available reserve of resources), taking into account the interests of humanity, and not only of its “top echelon” as exemplified by the “300 families” who are actually dwindling to no more than thirty.
In the end, it is always better to negotiate than to build a new world upon the ashes of the old. Especially since there has been a global precedent for similar agreements.
Up until 2015, America’s elite (or at least the ones who determine US policy) had been assured that they possessed sufficient financial, economic, military, and political strength to cripple the rest of the world, while still preserving Washington’s hegemony by depriving everyone, including (at the final stage) even the American people of any real political sovereignty or economic rights. European bureaucrats were important allies for that elite – i.e., the cosmopolitan, comprador-bourgeoisie sector of the EU elite, whose welfare hinged on the further integration of transatlantic (i.e., under US control) EU entities (in which the premise of Atlantic solidarity has become geopolitical dogma) and NATO, although this is in conflict with the interests of the EU member states.
However, the crisis in Ukraine, which has dragged on much longer than originally planned, Russia’s impressive surge of military and political energy as it moved to resolve the Syrian crisis (something for which the US did not have an appropriate response) and, most important, the progressive creation of alternative financial and economic entities that call into question the dollar’s position as the de facto world currency, have forced a sector of America’s elite that is amenable to compromise to rouse itself (over the last 15 years that elite has been effectively excluded from participation in any strategic decisions).
The latest statements by Kerry and Obama which seesaw from a willingness to consider a mutually acceptable compromise on all contentious issues (even Kiev was given instructions “to implement Minsk “) to a determination to continue the policy of confrontation – are evidence of the escalating battle being fought within the Washington establishment.
It is impossible to predict the outcome of this struggle – too many high-status politicians and influential families have tied their futures to an agenda that preserves imperial domination for that to be renounced painlessly. In reality, multibillion-dollar positions and entire political dynasties are at stake.
However, we can say with absolute certainty that there is a certain window of opportunity during which any decision can be made. And a window of opportunity is closing that would allow the US to make a soft landing with a few trade-offs. The Washington elite cannot escape the fact that they are up against far more serious problems than those of 10-15 years ago. Right now the big question is about how they are going to land, and although that landing will already be harder than it would have been and will come with costs, the situation is not yet a disaster.
But the US needs to think fast. Their resources are shrinking much faster than the authors of the plan for imperial preservation had expected. To their loss of control over the BRICS countries can be added the incipient, but still fairly rapid loss of control over EU policy as well as the onset of geopolitical maneuvering among the monarchies of the Middle East. The financial and economic entities created and set in motion by the BRICS nations are developing in accordance with their own logic, and Moscow and Beijing are not able to delay their development overlong while waiting for the US to suddenly discover a capacity to negotiate.
The point of no return will pass once and for all sometime in 2016, and America’s elite will no longer be able to choose between the provisions of compromise and collapse. The only thing that they will then be able to do is to slam the door loudly, trying to drag the rest of the world after them into the abyss.
- Which Countries Pay The Most For Medicinal Drugs?
USA! USA! USA! Exceptional America is #1 once again… oh wait!
Why does America spend 35% to 90% more per capita than all other developed countries?
There are numerous reasons, as Michael Snyder explains, if you have a health problem, even if it is just an imaginary one, some giant pharmaceutical company out there is probably making a pill for it. According to shocking new research published in the Journal of the American Medical Association, 59 percent of all U.S. adults are on at least one prescription drug, and 15 percent of all U.S. adults are on at least five prescription drugs. These numbers have never been higher, and they tell us that the United States is the most drugged nation on the entire planet. And it turns out that pushing these drugs on the American people is extremely profitable. For instance, Americans spent 100 billion dollars on cancer drugs alone last year. That isn’t “million” with an “m” – that is “billion” with a “b”. The profits that some of these pharmaceutical companies are making are absolutely obscene, and it is our pain and suffering that is making them rich.
So why is prescription drug use rising so rapidly? As noted above, 15 percent of us are now taking 5 or more of these drugs on a regular basis, but back in 1999 that number was sitting at just 8.2 percent.
This newly released report blames much of the problem on obesity…
The population is getting older, but that doesn’t explain it, Kantor said. The pattern looks more related to obesity, which is steadily rising, More than two-thirds of the adult U.S. population is overweight or obese, and many suffer the heart disease, diabetes and other metabolic disorders that go along with being too heavy.
And without a doubt, we have an epidemic of obesity in the United States.
But the truth is that obesity is only part of the story.
Drug use of all types is soaring, and commercials for the latest and greatest drugs seem to run around the clock on virtually every television network. Here are some more specific numbers from this newly released report…
In the study, blood pressure drugs were among the most prescribed, increasing from 20% of adults in 1999-2000 to 27% in 2011-2012.
Statins increased from 6.9% to 17%; antidepressants increased from 6.8% 13%; antidiabetic drugs increased from 4.6% to 8.2%;and tranquilizers and sedatives increased from 4.2% to 6.1%.
The increase in the use of antidepressants really disturbs me. They are often prescribed needlessly, and they can have some extremely negative side effects.
In particular, I think that it is important to mention that nearly every single mass shooter in the United States in recent years has been on antidepressants. The mainstream media never talks about this connection because the pharmaceutical companies purchase gobs of advertising time from them. But the reality of the matter is that these drugs can cause people to behave in extremely irrational ways. Even the Mayo Clinic admits this…
Most antidepressants are generally safe, but the Food and Drug Administration requires that all antidepressants carry black box warnings, the strictest warnings for prescriptions. In some cases, children, teenagers and young adults under 25 may have an increase in suicidal thoughts or behavior when taking antidepressants, especially in the first few weeks after starting or when the dose is changed.
Of course that is a very watered down version of the truth, and if you start seriously digging into this you will soon discover a whole host of absolutely horrifying stories.
Here are some more statistics about the drugging of America that come from one of my previous articles…
–According to the CDC, approximately 9 out of every 10 Americans that are at least 60 years old say that they have taken at least one prescription drug within the last month.
–There is an unintentional drug overdose death in the United States every 19 minutes.
–In the United States today, prescription painkillers kill more Americans than heroin and cocaine combined.
–According to the CDC, approximately three quarters of a million people a year are rushed to emergency rooms in the United States because of adverse reactions to pharmaceutical drugs.
–The percentage of women taking antidepressants in America is higher than in any other country in the world.
–Children in the United States are three times more likely to be prescribed antidepressants as children in Europe are.
–A shocking Government Accountability Office report discovered that approximately one-third of all foster children in the United States are on at least one psychiatric drug.
–A survey conducted for the National Institute on Drug Abuse found that more than 15 percent of all U.S. high school seniors abuse prescription drugs.
–Many of these antidepressants contain warnings that “suicidal thoughts” are one of the side effects that should be expected. The suicide rate for Americans between the ages of 35 and 64 rose by close to 30 percent between 1999 and 2010. The number of Americans that are killed by suicide now exceeds the number of Americans that die as a result of car accidents every year.
But the pharmaceutical companies are never going to stop what they are doing, because it is making them exceedingly wealthy.
- Rethinking Money As The Greater Depression Deepens
Submitted by Doug Casey via InternationalMan.com,
We talk a lot in these pages about what to do with one’s money, but I question whether most subscribers (forget about the public at large) have an adequate grasp of the basics. Without it, much of what we say may seem capricious or outlandish, crazy ideas readers tolerate only because we’ve been so right about the big trends. But the basics in speculating and investing are like the basics in martial arts: Just remembering them isn't enough; they need to be second nature. That means reviewing and practicing over and over.
It's not an accident that we usually make good investment calls; the selections arise from a constant awareness of the basics. So I want to briefly review those fundamentals. Let’s start with gold. We’re very gold-oriented around here.
You undoubtedly have a good position in gold. Many of your friends are aware that you’re a gold bug, and more than a few of them question your wisdom. Are you able to give them a succinct and cogent explanation not just for why gold is cyclically a good speculation, but why it’s money? I’ll wager the answer in many cases is, “No.”
I say that because when I give a speech, I often offer a prize to the audience member who can tell me the five classical reasons gold is the best money. Quickly now; what are they? Can’t recall them? Read on, and this time, burn them into your memory.
Money
If you can’t define a word precisely, clearly, and quickly, that's proof you don’t understand what you’re talking about as well as you might. Here, we talk a lot about money, so it only makes sense to know the subject completely. So, what is money? The proper definition of money is: Something that functions as 1) a medium of exchange and 2) a store of value.
Government fiat currencies can, and currently do, function as money. But they are far from ideal. What, then, are the characteristics of a good money? Aristotle listed them in the 4th century BCE. A good money must be all of the following:
- Durable: A good money shouldn’t fall apart in your pocket nor evaporate when you aren’t looking. It should be indestructible. This is why we don’t use fruit for money.
- Divisible: A good money needs to be convertible into larger and smaller pieces without losing its value, to fit a transaction of any size. This is why we don’t use things like porcelain for money; half a Ming vase isn’t worth much.
- Consistent: A good money is something that always looks the same, so that it's easy to recognize, each piece identical to the next. This is why we don’t use things like oil paintings for money; each painting, even by the same artist, of the same size and composed of the same materials, is unique.
- Convenient: A good money packs a lot of value into a small package and is highly portable. This is why we don’t use water for money, as essential as it is. Just imagine how much you’d have to deliver to pay for a new house, not to mention all the problems you’d have with the escrow.
- Intrinsically valuable: A good money is something many people want or can use. This is critical to money functioning as a means of exchange; even if I'm not a jeweler, I know that someone, somewhere wants gold and will take it in exchange for something else of value to me. This is why we don’t, or shouldn’t, use things like scraps of paper for money, no matter how impressive the inscriptions upon them might be.
Gold is uniquely well qualified for use as money. No other substance meets those five characteristics so well. Gold’s main use, contrary to the belief of some, isn't in jewelry or dentistry, although those uses are important. Its main use has almost always been as money. But gold's ancillary uses are growing in importance, because, given its physical characteristics, it’s a high-tech metal. Of the 92 naturally occurring elements, it’s the most resistant to chemical reaction, the most ductile, and the most malleable of all the elements. It's also highly reflective, and an exceptional conductor of both heat and electricity.
There are lots of other advantages to gold as money. It’s by far the most private kind of money; gold coins, unlike paper currency, don't even carry serial numbers. That makes it truly untraceable. At current prices, it's more portable than cash, even in the form of $100 bills. It doesn’t retain traces of drugs, as does currency, which makes it less liable to arbitrary confiscation. Although efforts have been made to counterfeit gold bars, with tungsten filler and such, it’s much easier to authenticate than currency.
And it’s becoming increasingly apparent to all the world that paper currencies are nothing but floating abstractions; they will not hold value. Paradoxically, gold is now far more useful as money than it was at $35, and becoming more useful than $100 bills. That will be even truer as it goes to $5,000 (my current guess) in terms of today’s dollars.
Until quite recently, 90% of the world’s people were either flat-out prohibited from owning gold (Russia, China and the rest of the ex-communist world) or simply too poor to consider it (most Indians and other residents of the Third World). But these people are now allowed to own gold and have a fast-increasing ability to buy it. And they’re rapidly doing so. Their cultures have long histories with the metal and recent histories of living in a police state; they understand the value of real money. Although common people are now the biggest gold buyers, many governments and central banks are accumulating it as well.
I expect that gold will soon become the preferred medium of exchange for many. Early adopters will include dealers in drugs, armaments, and other prescribed merchandise; these folks are very security conscious. They will be joined by all manner of people who just want to do business below government radar. And in the years to come, paper currency is gradually going to be eliminated by governments in favor of debit cards, credit cards, and other media of electronic transfer. Governments prefer these things, for obvious reasons; they make anything you buy or sell a matter of permanent record. People, therefore, are going to need a private way to trade when paper cash is unavailable.
It’s not just that cash will be harder to come by and harder to use. People won’t want to hold it as inflation gets serious; as U.S. dollars are increasingly viewed as hot potatoes, people around the world will gradually go to gold. In 100 or so countries, the dollar is already the de facto currency for large purchases and long-term saving. What will people in these countries do as the dollar starts losing value rapidly? They won’t go back to their untrustworthy local currencies; their only reasonable alternative is gold. All these things will add to demand for the metal. This is good news for those who own gold in size now.
The downside, of course, is that these same things will draw more attention to gold from the state, which doesn’t like to see competition to its currency. Will they, therefore, attempt to outlaw gold again? Or, more likely, regulate its use; perhaps by requiring all gold owners to register it and/or store it in approved facilities? Anything is possible.
Right now, you can still move coins across most borders with relatively little risk or aggravation. There’s the $10,000 declaration rule, of course. But U.S. Eagles, for instance, have a $50 face value, and 200 of them are worth several hundred thousand dollars; although I don't suggest you carry anything like that with you for lots of reasons, even though it may be technically within the law. My guess is the rules will soon be modified to encompass market value and will be more strictly enforced. Already you can find jump-suited imperial troopers on the jetways of many international flights, ready to interrogate you and search your carry-on luggage for violations.
You may be thinking to yourself, “I already know this stuff; I don’t need to hear it again.” That would be missing the point. Almost everybody, even gold bugs, has far too little gold to buy more. Most people have none at all. Pity the poor fools. Gold is going to be reinstituted as money within our lifetimes, simply out of necessity. But that can only happen at higher prices, since only about six billion ounces exist above ground in the entire world.
Here’s the bottom line: Forget those ridiculous nostrums about having 5% of your portfolio in physical gold, for insurance. I’d say, have a very significant portion of your net worth in gold. And if you can manage it, keep most of it outside your home country. And get working on it as soon as you finish reading this.
Debt
Now that we’ve defined what money is, let me further define what money is not: Debt. All U.S. dollars, which is to say Federal Reserve Notes, are debt. They are neither redeemable for anything by their issuer, nor is there a limit on how many can be created. They represent only a vague claim against the “good faith and credit” of the United States government, which is to say the government's ability to extract taxes from its subjects. But Uncle Sam has shown himself to be remarkably lacking in good faith and is currently embarked on a course to destroy his credit.
Remember that the dollar is literally an “IOU nothing.” It’s true that your grocer and your barber have to accept the dollar because of “legal tender” laws, and because they currently wouldn’t know what else to take in payment. But that’s not true of foreigners, who own something like $10 trillion; they’re starting to look at them more and more as “trading sardines.”
That’s a simple fact, and it has economic and investment implications we’ve written about extensively. Other currencies are no better; most are worse, and many of them are backed largely by dollars. Most countries’ currencies have only very little value outside of their issuer’s borders. Be glad you don’t have too many Zambian kwacha or Burmese kyat…
Governments, however, are not the only ones who think that debt is money. It seems that many people who get a bunch of credit cards, enabling them to spend beyond their means, imagine that they have money. And they also think that owning the debt of others, like government bonds, means they have money. A bank deposit isn’t really cash; it’s a debt of the bank. There are several trillion dollars in money market funds; 100% of that money is invested in the short-term debt of banks, corporations and governments. I would be very leery of these things. Debt is not always repaid. Money, which is to say gold, simply “is.” That distinction is lost on almost everyone. Don’t be among them.
Here, I want to emphasize something else you certainly know but may not have acted on. You not only want to own gold, you want to “short” the dollar. But trying to trade currencies and interest rate futures is not the way to do it; that approach is risky and entirely too focused on the short term.
Here’s the smartest thing you can do with debt: Take out the largest, longest-term, fixed-rate mortgage you can on your home, especially with rates near all-time lows. You’ll win as the dollar is destroyed, and you’ll win as interest rates eventually go to the moon. And you’ll win as the asset you place the proceeds in appreciates.
This last part is critical. Borrowing $500,000 and then frittering it away will only leave you renting in a trailer park. Take the money and buy gold. Or, perhaps, just leave it in secure short-term instruments that will earn the high interest rates that are always the companion of high inflation. That money also will be safest in a foreign jurisdiction, but if you keep it in the U.S., consider keeping it in an IRA or other tax-sheltered vehicle.
Yes, I know it’s a comfort living in a debt-free home. But even if it appears debt-free, your ownership is no more than an ambiguity. Try not paying the property taxes, and you’ll find out who really owns it. The bottom line is that, in a few years, as interest rates and inflation go up, you’ll see that mortgage as a gift.
This relates to the issue of “cash” in dollars. There’s something to be said for being very liquid today and holding dollars, even though the dollars are a ticking bomb. But that’s simply because almost everything else in the world is overpriced.
That sounds paradoxical, or perhaps even metaphysically impossible. How can “everything” be overpriced? It’s happening because trillions of currency units have been created all over the world in the last few years, and other asset bubbles are in process of inflation. People are holding dollars only because they’re liquid and they see no bargains elsewhere.
Large, successful corporations, like Intel, Apple, Microsoft, and Exxon, each has scores of billions of dollars. The cash holdings of U.S. corporations are in the trillions. When the dollar starts losing value rapidly, the people running those corporations will panic and look for a place to hide from inflation. Many will buy their own stock, try to take over other companies, or buy raw materials for their own business. Others will just be deer in the headlights. (I don’t want to get into a discussion of where the stock market is going; there are titanic forces pulling it down as well as pushing it up. That’s a subject for a future article.)
Let me reemphasize that the Greater Depression is still in its early stages. The low interest rates and relatively low inflation rates we’ve had recently aren’t going to last. They will soon be replaced by wildly fluctuating markets and rapidly depreciating currencies. We could have a catastrophic deflation, where trillions of currency units are wiped out. Or we could have a hyperinflation, as governments create trillions more of them. Or both phenomena in sequence.
But, as bad as they are, those are just financial phenomena; what will be much, much more serious are things looming on the political, economic, social, and military fronts of the Greater Depression. These things are why I suggest you own more gold, even though it runs counter to my instincts as a bottom fisher to buy something that’s no longer cheap.
The bottom line is that you want to get out of the dollar before everyone else does. Now is an excellent time to short the dollar with a long-term, fixed-rate mortgage. And put the proceeds in gold.
* * *
Editor’s Note: Most people have no idea what really happens when a currency collapses, let alone how to prepare…
Owning gold is essential.
But there’s more to do to make sure your wealth doesn’t get wiped out in the coming financial tidal wave.
How will you protect your savings in the event of a currency crisis?
This video we just released will show you exactly how. Click here to watch it now.
- Can "SPECTRE" And Trillions In Free Money Finally Save The Global Economy?
It’s certainly no secret to anyone who frequents these pages that trillions in global QE have failed to engineer a robust worldwide economic recovery. Aggregate demand is still soft and global trade is stuck in what amounts to neutral.
But the world’s central planners have a penchant for Einsteinian insanity and despite the glaringly obvious fact that QE long ago began to succumb to the law of diminishing returns, most DM central banks are ready to enact still more stimulus and persist in ZIRP (and NIRP) in what might as well be perpetuity in a race to the bottom of the effective lower bound and the top of central bank balance sheet lunacy.
In his latest missive, Grant Williams takes a look at the dynamic described above and how “SPECTRE”, “The Special Executive for Continually Trying to Resuscitate the Economy” (an amusing take on the villainous cabal from the Bond films) has gone about trying to “fix” it for going on seven years now.
* * *
From Grant Williams
Ladies and gentlemen, I give you SPECTRE – The Special Executive for Continually Trying to Resuscitate the Economy.
This shady organization operates in plain sight but wholly above the law and, though the international flavour of its executive board is consistent with Fleming’s criminal franchise, the public face of SPECTRE shifts regularly.
In short, not the sort of people you’d choose to do business with.
Back in 2008, in the midst of a crisis of global proportions, Ernst Stavro Paulson and the enigmatic Dr.Yes brought SPECTRE out of the shadows and into the collective conscious of the world. They did so by seemingly offering a cunning solution to the fears that gripped mankind in the wake of the GFC—free money!
Since then, an ever-widening group of SPECTRE luminaries has worked tirelessly to increase their grip on the world and to achieve their stated aim of world domination resuscitating the global economy.
With Paulson & Dr. Yes now seemingly retired (presumably, the SPECTRE pension plan is both defined benefit and, at the very top levels, extremely generous), it has fallen to the organization’s #3, Emilio Dragho to take the reins—aided and abetted by the fearsome Rosie Outlook—and their lieutenants stationed in places as far-flung as London and Tokyo.
But can the modern-day SPECTRE achieve their aims or will they, like Fleming’s villainous cadre be foiled—not by 007, but rather a global economy that simply refuses to bend to their will and get off its knees?
[…]
Rather than focusing exclusively on ‘growth,’ there are a great many ways of measuring economic ‘health’ and those benchmarks are perhaps a better indication as to what lies ahead.
In the US, for example, the ground level data have been fairly poor.
Manufacturing ISM is barely above recession levels and, while non-manufacturing has been strong in recent months, the divergence between them is a worrying sign given their tight historical correlation.
[…]
It’s beneath the surface where the real disconnects between perception and reality lie and there is nobody better at not only identifying such misalignments, but putting them in the perspective they so desperately need than the brilliant Stephanie Pomboy of MacroMavens who this week has very kindly allowed me to share a few short excerpts from a recent piece she published.
It was Stephanie’s final chart which had me breathing into a brown paper bag like a dowager having an attack of the vapours. Pray silence for the inventory-to-sales ratio:
[…]
[Before] I move a little farther down the list of those economies supposed to do the heavy-lifting in the next couple of decades, a few more observations as to the real health of the US:
Full letter below
- The March Of The Cry-Bullies
Submitted by Ben Garrison via RogueCartoonist.com,
I like the fact that college students are angry enough to revolt against the massive debt being piled on their backs just because they want to get a college degree and a good job. They should be protesting because the expenses involved have gotten ridiculous. Then, if they do graduate, a great many of them can’t find employment. Too many are forced to remain living with their parents without a chance at the American Dream, which has now become just that—a dream.
Unfortunately, too many of these young people are also upset about ridiculous things. They are part of a hypersensitive, hyper-politically correct group known as ‘Social Justice Warriors.’
A few years ago when I first heard the term 'Social Justice Warrior,’ I wasn’t sure what it meant. I thought SJWs were doing some kind of noble, laudable work. I pictured them as volunteers at food banks. Maybe they were trying to help senior citizens get the prescription medicine they couldn’t afford. I pictured them trying to help the downtrodden in society. Instead, SJWs epitomize political correctness gone amuck. They are 'special snowflakes' who are also incredibly thin-skinned. They browbeat and scold others into giving up freedom of speech or expression. Want to wear a Halloween costume? You’d better check with the campus commissar of political correctness first. (Yes, the protesters want some sort of official on campus who will determine what can and cannot be said or done). Don’t want to date a tranny? What a hateful person you are!
Now we hear terms such as ‘micro-agression’ which can mean a tone of voice or expression that might cause slight discomfort to the recipient. Micro-transgressors are vilified, shamed and screamed at. Slights don’t even have to be real—they only need be imagined. Political correctness has now become a form of mass insanity. Do you still say ‘Merry Christmas?’ Watch out! Did you accidentally call a man from China a ‘Chinaman?’ OMG—look out for the pearl clutchers—you’re a horrible human being who needs to be shunned! It doesnt’ matter if the man from China was offended or not. He probably wasn’t. After all, he’s a man and he came from China.
What matters is YOU said the WRONG thing. During the Spanish Inquisition, people who said wrong things were labeled ‘heretics.’ A heretic was seen as someone who was contaminated with erroneous thinking. A heretic was going to go Hell. A heretic could be tortured because such a person had lost a connection with the omniscient church. Now that word is ‘racist.’ A racist can be scolded, driven out of jobs or forced to make a blubbering apology because they are no longer seen as connected with humanity. It doesn’t matter if the person is actually racist or not…all that needs to happen is for a SJW to perceive or imagine such a heinous transgression. It’s not only insanity, it can be amusing at times. The liberal scolds are now themselves being scolded by the generation they mollycoddled.
Please, SJWs, if you really want to do something useful, hold a mass protest calling for the end of the Federal Reserve. You’d be doing all races a favor. It’s also time to END the tyranny of ‘political correctness.'
- The Class War Has Already Started
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
Here's what's obvious, but unacceptable: we need a new system.
Pundits and apologists are quick to chastise anyone who even speaks of class war, as if the words alone might spark what the pundits and apologists fear.
The pundits and apologists dread the words because they know the Class War has already started. The mainstream media's hope is that denial will somehow suppress the broader recognition that the fault lines in American society are cracking wide open.
Last week's entries explained why increasing wealth/income inequality is the only possible output of the current social- political -economic order. All the proposed "fixes"–more regulations, more taxes, more bureaucracies, etc.– will fail because they are merely extensions of a failed system that optimizes inequality, monopoly, cronyism, stagnation, low social mobility and systemic instability.
Here is my delineation of America's nine socio-economic classes:
The Changing World of Work I: America's Nine Classes: Eight of the nine classes are hidebound by backward-looking conventions, neofeudal arrangements and a spectrum of perverse incentives and false choices.
A few commentators see the fault lines and understand the Class War is already rumbling. Correspondent Mark G. submitted these two articles as examples of the widening divides between various classes in the U.S.:
Are We Heading for an Economic Civil War?
How the widening urban-rural divide threatens America
In the first piece, Joel Kotkin describes the political capture of the Status Quo Imperial Democrats by the Left Coast media and tech culture of Silicon Valley and Hollywood, both of which have thrived in our hyper-financialized economy of 95% losers and 5% winners, and the Right Coast financiers, lobbyists, government bureaucrats and Wall Streeters who have benefited so handsomely from the hyper-financialization of the U.S. economy, politics, media and zeitgeist.
This Class War is illustrated by this chart: a tiny financial-political Elite (the top 1/10th of 1%) now own as much wealth as the bottom 90%:
The second piece describes the widening gulf between the wealthy cities vacuuming up global capital (NYC, San Francisco, West LA, Seattle, etc.) and opportunity-impoverished rural America.
But these gaping divides do not fully explain the many fronts of the Class War. We can add another fault line–the one between those exploiting institutions to validate their indignation and victimhood, and those far from the feeding troughs of universities and state bureaucracies.
The divide between those using the media and institutions to reward their indignation and victimhood crosses a variety of ethnic, religious and income lines, and as such it is a Cultural Divide with financial ramifications: one camp sees the Central State as the infinite feeding trough of benefits, lifetime employment, and power, while the other camp sees the Central State's limitless power as the primary threat to the well-being of the economy, nation and culture.
The first camp revels in Bread and Circuses, and demands more; the second camp reviles Bread and Circuses and sees the demanding crowd in the Coliseum as proof the nation is fracturing/falling apart.
Then there's the demographic divide between entitled retirees and the younger workers with stagnant incomes who must support the retirees "pay as you go" social programs (Social Security and Medicare).
As I have tirelessly explained for years, the Social Security/Medicare "Trust Fund" is a fiction, a ledger entry of non-marketable securities. When Social Security runs a deficit, the deficit is filled by selling Treasury bonds– the same way any other program deficit is filled. The only way to pay for these programs is to increase the national debt. The "Trust Fund" is nothing but a propaganda Big Lie.
The younger workers are chained to a system that is completely out of whack with the real-world demographics of an enormous generation of retirees who are living decades longer than the population the system was designed to serve, with medical care costs that are the financial equivalent of a runaway train.
As painful as it might be to retiring Boomers, here's the perspective of those facing decades of taxes to pay for programs that can't possibly fund their retirement in the same fashion:
All of these fault lines result from one basic truth: the system is broken and cannot be reformed/fixed. As the pressures of a system that optimizes inequality, monopoly, cronyism, stagnation, low social mobility and systemic instability build, the fissures in our economy and society will widen.
Here's what's obvious, but unacceptable: we need a new system. Not a system modified with tiny tweaks and a feeding trough filled with borrowed money–an entirely new system designed from scratch to be sustainable and with opportunities to build capital for all.
This is why I wrote A Radically Beneficial World–to start the discussion of what a new system could accomplish, not just for the top .01% or top 10%, but for all of us.
- Goldman's Clients Are Suddenly Very Worried About Collapsing Market Breadth
Three days ago, just before the biggest market drop in weeks, we wrote an article attempting to answer “when does the market breakdown again” where we said the answer is in the advance-decline line….
… for one reason: the absolute collapse in market breadth had become the biggest threat to the rally since late September.
BofA noted that “the rise in the US Dollar has had a bearish impact on global equity market breadth (many equity markets have done much better in local currencies) and this A-D line has not confirmed the global equity market rally. This is a major bearish breadth divergence and a classic sign of diminishing breadth for global equity market indices.”
We added that what this “means that the central banks, whose only mandate is to keep the global market from crashing, is they will have to buy – either directly like the SNB and BOJ or indirectly/spoof like the NY Fed via Citadel – much more than just the E-mini and a handful of stocks to give the impression that the market is healthy when in fact, it is not.”
For now they are failing.
Which explains why suddenly the topic of collapsing market breadth is the biggest concern among Goldman’s clients.
As Goldman’s David Kostin explains, narrow market breadth has been a recent topic of investor discussions.
Clients are quick to point out similarities between the current low breadth environment and the narrow breadth regime that emerged during the tech bubble in the late 1990s. A narrow market exists when a few stocks drive the majority of the index-level return. Five firms – AMZN, GOOGL, MSFT, FB, and GE – totaling 9% of the equity cap of the index have accounted for more than 100% of the S&P 500 YTD return. Stated alternatively, without these stocks the index would have posted a 220 bp lower total return or -2.2% YTD.
We introduce the Goldman Sachs Breadth Index (GSBI) to track market breadth (see Exhibit 1). The index utilizes S&P 500 constituent weights and 6-month returns to assign a market breadth value between 0 and 100. Readings below 5 indicate that market breadth is especially narrow.
Our Breadth index currently equals 1, one of the lowest levels in the 30- year series. The Breadth index has stayed below 5 for at least two consecutive months just 11 times since 1985 (Exhibit 1). The typical episode lasted four months, with past episodes ranging from two months in 2007 to a high of 14 months during the tech bubble. The current exceptionally narrow breadth period is just one month old but is on track for a second month, so this environment could reasonably be expected to persist into early 2016.
Factor analysis shows that high quality stocks tend to outperform in narrow breadth environments, although results were inconsistent. Using our long/short Micro Equity Factors (MEFs), we can evaluate the types of stocks that typically outperform in narrow breadth environments. Firms with strong balance sheets outperformed firms with weak balance sheets in 7 of 11 narrow breadth periods. Low volatility stocks also outperformed their higher volatility counterparts in 7 of 11 episodes. In contrast, the “lower quality” Russell 2000 index outperformed the S&P 500 during 8 of the 11 periods, the best factor hit rate (see Exhibit 3).
The subsequent performance of stocks in a narrow breadth market has been mixed. Factor analysis shows that high momentum stocks outperformed low momentum stocks in 64% of narrow breadth episodes. During the six months leading into the 1994 low breadth episode, the top ten contributing stocks accounted for nearly 90% of the S&P 500 return. However, during the six months following the initial low breadth index reading, the median stock in the list fell by 4% while the S&P 500 returned 3% during the same period. The 1999 episode was a different story: The top 10 contributing stocks accounted for nearly 900% of the S&P 500 return ahead of the first low reading of our breadth index. The median stock surged by 62% during the subsequent six months and accounted for 51% of the index return and pushed the overall S&P 500 index up by 18% during that period.
In other words, BTFD is nothing new.
But is breadth a relevant indicator? That depends: just like there has not been a major market crash without a Hindenburg Omen, so market breadth has collapsed before every single prior recession. However, just like the H-Omen, breadth has had numerous false negatives, and 8 very narrow breadth periods ended without an economic contraction. To wit:
On its own, narrow breadth is an unreliable indicator of a recession or market peak. Breadth was extremely narrow preceding each of the three recessions during the last 30 years, but the remaining eight narrow breadth periods ended in relatively healthy growth environments. While breadth was especially narrow before the market collapses of 2000 and 2007, the S&P 500 exited 7 of the 11 narrow breadth episodes in a positive fashion, with the median episode producing 6- and 12-month returns of 3% and 9%. In short, narrow breadth by itself does not appear to be a cause for investor concern.
And while Goldman is eager to spin the bullish case, its clients are no longer as believing:
On the other hand, clients continue to point to similarities between the current narrow breadth environment and that of the later years of the tech bubble. S&P 500 forward P/E currently equals 16.3x, near the highest level since the tech bubble. Mega-cap growth stocks explain a vast majority of the trailing 6- and 12-month S&P 500 return. Other similarities to the late 1990s provide a persuasive case for why mega cap outperformance will likely persist, at least in the near term. Modest US economic growth and peak margins should put a premium on stocks with perceived high secular growth prospects.
Or, said otherwise, Goldman’s clients are nervous because with just 5 stocks (!) propping up the entire market, the party is to end with a bang (especially for the small and mid-cap momos). And, as the action on Friday confirmed, the “market” is finally getting the memo.
- Senate Quietly Passes Bipartisan Bill To Allow Conquest Of Space
Submitted by Deirdre Fulton via TheAntiMedia.org,
In a bipartisan bid to encourage commercial exploitation of outer space, the U.S. Senate this week unanimously passed the Space Act of 2015, which grants U.S. citizens or corporations the right to legally claim non-living natural resources—including water and minerals—mined in the final frontier.
The legislation – described by IGN‘s Jenna Pitcher as “a celestial ‘Finders Keepers’ law” – could be a direct affront to an international treaty that bars nations from owning property in space. The bill will now be sent back to the House of Representatives, which is expected to approve the changes, and then on to President Barack Obama for his anticipated signature.
Pitcher continued:
The new Space Act allows ventures to keep and sell any natural resources mined on planets, asteroids and other celestial bodies. Commercial operations could reap trillions of dollars from mining precious metals like platinum, common metallic elements such as iron, and water, the “oil of space.”
The vote was celebrated by the Google-backed “asteroid mining company” Planetary Resources, which lobbied hard for the legislation and says “the market in space is ripe to bloom.”
Planetary Resources president and chief engineer Chris Lewicki added: “Throughout history, governments have spurred growth in new frontiers by instituting sensible legislation. Long ago, The Homestead Act of 1862 advocated for the search for gold and timber, and today, H.R. 2262 fuels a new economy that will open many avenues for the continual growth and prosperity of humanity.”
“This off-planet economy,” he said, “will forever change our lives for the better here on Earth.”
But there could be a snag. Along with Britain, France, and Russia, the U.S. is a signatory to the 1967 Outer Space Treaty, which reads in part: “Outer space, including the moon and other celestial bodies, is not subject to national appropriation by claim of sovereignty, by means of use or occupation, or by any other means.”
As Wired noted on Thursday,
“[h]anding out the right to exploit chunks of space to your citizens sounds very much like a claim of sovereignty, despite the Space Act’s direct statement that ‘the United States does not thereby assert sovereignty or sovereign or exclusive rights or jurisdiction over, or the ownership of, any celestial body’.”
“[O]n the one hand Congress is saying to these companies, ‘Go get these rights and we’ll defend you,’ and at the same time saying, ‘We’re making no sovereign claim of ownership’,” space lawyer Michael Listner told the Guardian.
“They’re trying to dance around the issue,” he said of U.S. lawmakers. “I tend to think it doesn’t create any rights because it conflicts with international law. The bottom line is before you can give somebody the right to harvest a resource you have to have ownership.”
* * *
How long before the US begins counting future net present vale of mined resources from Mars as current GDP? And will The ECB accept water-rights on Venus as collateral?
- France's Far-Right Party Calls For Nation To "Re-Arm Itself", Revoke Muslims' Passports, "Eradicate" Radical Islam
If there is one 'winner' from last night's terrible events in Paris, it is France's anti-EU, anti-immigration far-right wing Front Nationale party leader Marine Le Pen. Having already ascended to the lead in yet another poll ahead of France's 2017 elections, Le Pen came out swinging this morning call for France to "re-arm itself," stating that radical Islam must be "eradicated" from France. She further demanded that border controls be made "permanent" and binational Islamists must be depreived of their French passport.
As Bloomberg notes:
- *FAR RIGHT PARTY LEADER MARINE LE PEN COMMENTS IN TV SPEECH
- *LE PEN SAYS FRANCE NEEDS TO CONTROL ITS BORDERS PERMANENTLY
- *LE PEN CALLS FOR PERMANENT BORDER CONTROLS
- *LE PEN CALLS FOR 'ERADICATION' OF RADICAL ISLAMISM IN FRANCE
- *LE PEN: FRANCE IS 'VULNERABLE', 'MUST RE-ARM ITSELF'
- *LE PEN: FRENCH PEOPLE ARE NO LONGER SAFE
- *LE PEN: BI-NATIONAL ISLAMISTS MUST DEPRIVED OF FRENCH PASSEPORT
Which is all fine if this was some extreme and unpopular party, but in fact…
Marine Le Pen Tops Another French Presidency Poll
The Front National party in France are moving one step closer to seriously challenging for the country’s presidency. A new opinion poll reveals that their leader, nationalist firebrand Marine Le Pen, has topped yet another poll ahead of the elections in 2017.
The IFOP poll in conjunction with Sud Radio and Lyon Capitale gives Ms. Le Pen a lead under three different scenarios, reflecting the panic setting into the French political establishment which is considering a ‘grand coalition’ of centre-left and centre-right parties to keep the Front National out.
According to IFOP, if centrist politician Francois Bayrou and centre-right Nicolas Sarkozy ran, Ms. Le Pen would top the first choice in the multi-round election with 28 per cent of the votes. In second, the Republican Party’s Sarkozy (23), and in third, current president, socialist Francois Hollande (21).
As John Rubino noted previously, there are two reasons for the rise of National Front and other anti-euro parties:
1) The adoption of a common currency hasn’t delivered the broad-based prosperity that was promised. Instead, Germany has entered a golden age of soaring exports, massive trade surpluses and balanced budgets while most other eurozone countries have been unable to function with a currency they can’t devalue at will.
2) The European Union’s decision to counter falling birthrates with rising immigration from Africa and the Middle East has, in the opinion of a growing number of Europeans, produced a two-tiered society in which a shrinking layer of liberal, pacifist, aging “natives” sits atop a growing, restless layer of newcomers who instead of assimilating are trying to impose their culture on traditional Europe.
And then came the Paris attacks. The perps are Middle Eastern though it’s not clear what group they’re affiliated with. But no one seems to care whether it’s ISIS or al-Qaeda. Their ancestry is all that will matter in the next election, and any politician with an anti-euro, anti-immigrant platform will find a suddenly very receptive audience.
- The Cost Of China's "Manipulated Market Stability" May Be Too High, BofAML Warns
In August, we learned that even spending CNY1 trillion in plunge protection to prop up an equity market reeling from the unwind of a bevy of backdoor margin lending channels was woefully insufficient. The reason (or one of the reasons): the millions of semi-literate retail investors, housewives, and farmers that had poured money into the market and had previously been inclined to buy every last dip were suddenly selling every last rip in a desperate attempt to recoup their savings which had just been vaporized before their very eyes.
Ultimately, once Beijing had tried halting three quarters of the market and then throwing more than a trillion yuan at the “problem”, Chinese authorities just started arresting people. First short-sellers, then brokers, then journalists, and finally, just plain old sellers.
True, that’s not good for China’s international reputation from a kind of human rights/freedom of speech perspective, but when it comes to showing the world that you’re committed to liberalizing capital markets, it sure beats effectively nationalizing a whole collection of equities and halting 75% of trading. Not to mention the fact that when you’re trying to execute a “controlled” currency deval on your own terms and there’s already quite a bit of downward pressure, it’s not entirely clear that you want to be printing too many more trillions of yuan.
Of course even though China may have succeeded in “arresting” some of the pressure with its “kill the chicken to scare the monkey” witch hunt and thereby might possibly have avoided having to dump still more money into buying shares, to a certain extent the reputational damage was done from June-July when CSRC bought some CNY900 billion in shares. As we’ve put it before, that falls outside the bounds of manipulated market decorum even in a world that’s used to central banks providing plunge protection.
On Friday, BofA’s David Cui is out with a look back at China’s Q3 plunge protection and a look forward at what the numbers mean for the effort’s future.
* * *
From BofA
Largely based on top-10 shareholder information disclosed by A-share companies, we estimate that the government likely spent at least Rmb1.5tr in Q3 to support the market (Table 1). Given the potential damage to the PBoC’s and RMB’s reputation, economic growth and long-term financial system stability, we think it unlikely that the government has the resolve to keep buying if heavy selling pressure in the A-share market resumes at certain point.
The prices paid so far
Excluding ETF positions, the government and affiliated funds bought shares in at least 1,365 A-share companies in 3Q, representing 49% of the total number of A-shares and roughly 7% of the A-share market’s free float. Of this, by number of stocks, 58% are listed on the Main Boards, 26% on SME and 16% on GEM (Table 2); by market value, close to 90% is on the Main Boards, 7% SME and 3% on GEM (Table 3); by market cap in value, about 60% are in stocks with Rmb50bn+ market cap (Table 4); by sectors in value, some 40% are in financials and 20% in industries (Table 5); by trailing 12-month PE, about 30% is at 40x+ or loss-making and 20% at is 20-40x (Table 6); by yield, about half is at 0-1% (Table 7). We estimate that the government’s position, including ETFs, incurred a Rmb220bn loss as of Sept 30, but the loss had turned into a small gain by Nov 11, after the recent market rebound (Table 1).
The unintended consequences Leaving aside damage to its reform credentials, the government’s stock-buying program may negatively impact the economy and financial system: few central or commercial banks lend money to fund stock purchases, especially at this expensive valuation – this cannot be enhancing investor confidence in RMB; the related lending had contributed to an acceleration in M2 growth (13.5% YoY in Oct vs. 6.2% nominal GDP growth in 3Q); this excessive liquidity appears to be rushing into the tier-1 city housing market and the bond market.
* * *
Right, so nothing particularly new in the first few sentences there. China will be unwilling to continue the plunge protection because, i) it damages their reputation in terms of liberalizing capital markets, ii) printing trillions of yuan in the middle of an uncertain FX enviornment is probaby not the best idea, especially when you’re trying to “control” the deval, iii) there are potentially dangerous spillover effects into other “assets.”
What is interesting is that CSRC had incurred a CNY200 billion loss as of the end of September. Although that loss appears to have been recouped, that speaks to the potential for disaster here should the A-share market take another turn for the worst. Consider one more table which shows that nearly a quarter of the national team’s massive portfolio was purchased at a PE of 40 or greater:
Which brings us to BofA’s conclusion:
Selling pressure likely to resume This is because the A-share market is expensive and leverage in the market is still high.
Ex. banks, the A-share market is trading at 32.4x trailing 12-month earnings. On leverage, we estimate that approximately Rmb8.9tr market value, including all the government’s positions, is either partially funded by borrowing or pledged for lending (Table 8). This is equivalent to around 43% of the A-share market’s free float. Given the high financing cost of these positions and the expensive valuation, we suspect that it could be a matter of time before heavy selling resumes.
In other words, the CNY220 billion paper loss the CSRC was staring down at the end of September could end up looking small by comparison should things take a turn for the worst given valuations and given the amount of leverage still built into the market.
Should massive losses materialize, we imagine the Politburo will be arresting a lot more Yao Gangs and other CSRC officials for “graft”…
- 2008 Flashback: The Risk Of Redefining Recession
Submitted by Lakshman Achuthan via The Economic Cycle Research Institute,
Ignorance about recessions has taken hold because of a simplistic idea that a recession is two successive quarterly declines in GDP or, more broadly, a situation where we see some, but not all, of the typical markers of recession.
Recession? Or just a slowdown? Some will tell you it doesn't much matter – that it's a distinction without a difference. Nothing could be further from the truth – or as dangerous a delusion.
Ignorance about recessions has taken hold because of a simplistic idea that a recession is two successive quarterly declines in growth domestic product, a measure of the nation's output.
The idea originated in a 1974 New York Times article by Julius Shiskin, who provided a laundry list of recession-spotting rules of thumb, including two down quarters of GDP. Over the years the rest of his rules somehow dropped away, leaving behind only "two down quarters of GDP."
Like most rules of thumb, it's far from perfect. It failed in the 2001 recession, for example. At the time and until July 2002, data showed just one down quarter of GDP, leading policy makers to claim there had been no recession. Yet, later that month, revisions showed GDP down for three straight quarters. Complicating matters further, with the benefit of time, we now know that GDP actually zigzagged between negative and positive readings, never showing two negative quarters in a row.
The far more important issue in 2001 was the loss of 2.7 million jobs – more than in any postwar recession. Even taking into account labor force growth, those job losses were greater than in most recessions over the past 50 years.
Clearly, there are times when the reality of the economy outside your window is harsher than GDP might imply.
In fact, if you insist on using a rule of thumb, you're better off "defining" recession as a period when the economy sees four straight months of job losses, since that rule has been much more accurate. However, like the GDP-based definition, even that is too narrow a rule.
Any trustworthy definition of recession needs to encompass the key elements of the recessionary vicious cycle – output, employment, income and sales.
While all government data are subject to revision, simultaneous reliance on all four of these aspects of the economy produces judgments that can stand the test of time.
To appreciate why, we must first understand what a recession really is.
A recession is a self-reinforcing downturn in economic activity, when a drop in spending leads to cutbacks in production and thus jobs, triggering a loss of income that spreads across the country and from industry to industry, hurting sales and in turn feeding back into a further drop in production – in effect a vicious cycle.
That's why the proper definition of recession cannot be limited to GDP and industrial production, but must also include jobs, income and spending, all spiraling down in concert.
To keep it simple, just look for the "Three P's" – a pronounced, pervasive and persistent downturn in the broad measures of those factors.
Are we there yet?
Having established the facts about recession, we'd like to offer our opinion about where we are in this business cycle.
While GDP has yet to decline, we have already seen four straight months of payroll job losses. That suggests that the economy is on a recession track. And it implies that either one or both of the recent, slightly positive GDP estimates will be revised down to negative readings by next year. Or, we will see a negative GDP quarter or two later this year.
But while the final determination of recession might be delayed by a year of more, our leading indexes have never been this weak outside a recession. If this is indeed a recession, policy makers would be remiss in assuming that this is an economic slowdown rather than a recessionary vicious cycle.
Japan is a case in point. Not many know that Japan didn't experience sustained deflation until nine years after its asset bubble burst in 1989. Because of their misguided belief in the "two down quarters of GDP" recession definition, Japanese officials only belatedly recognized the reality of their 1997-1999 recession 15 months after it had begun, when that "rule" was finally satisfied.
This enabled wrong-footed economic policy, resulting in a prolonged, severe recession that set off years of deflation. It's easy to see how definitional delusions can cause a lot of damage.
Simply put, if an economy is in recession, economic stimulus can be provided without much concern about inflation, since recession always kills inflation. But if this were just a slowdown, such stimulus could set off an inflationary spiral.
That's why it is essential not to be misled by a flawed rule of thumb, or imagine that it makes no difference to policy whether or not we are in a real recession. This is even truer in an election year, when politically expedient policy prescriptions are all the rage.
This was originally published by CNN on May 6, 2008… and seemed rather appropriate once again.
- Passport Found Next To Paris Suicide Bomber Belongs To Syrian "Political Refugee" Who Entered Greece
Exactly two months ago we reported that as Europe’s biggest refugees crisis since World War II was getting worse with each passing day, suddenly Europe was flooded with reports of “ISIS Terrorists” posing as refugees.
What we said we disturbingly prophetic when looking at the immediate consequences of Europe’s “infiltration” by the CIA-crated fighters meant to overthrow Assad’s regime, also known as ISIS. Specifically, we said “focus on the propaganda, [which] is in full crisis mode: A recent article in the UK Express Daily claimed that IS “smuggled thousands of covert jihadists into Europe.” It cited a January BuzzFeed interview with an IS operative who said the militants have already sent some 4,000 fighters into Europe under guise of refugees.
This was the first of two punchlines, underlined for effect:
“These speculations have not been confirmed by Western security officials, although that’s only temporary: as the need to ratchet up the fear factor grows, expect more such reports of asylum seekers who have penetrated deep inside Europe, and whose intentions are to terrorize the public. Expect a few explosions thrown in for good effect.”
The second:
“And since everyone knows by now “not to let a crisis go to waste” the one thing Europe needs is a visceral, tangible crisis, ideally with chilling explosions and innocent casualties. We expect one will be provided on short notice.”
Overnight we got both numerous “chilling explosions” as well as “innocent casualties” on a sufficiently short notice, just as predicted.
Just one thing was missing: a link between the Paris suicide bombers (for whose actions ISIS has already claimed responsibility) and refugees.
That missing link appeared earlier today today, when the Greek government said that not only was a Syrian passport found next to the body of one of the suicide bombers in Paris yesterday, but that passport was registered on the Greek island of Leros, suggesting that the holder came into Europe claiming to be a political refugee according to Bloomberg.
The passport was recorded by Greek officials on Oct. 3, Greek Deputy Citizen Protection Minister Nikos Toskas said on a statement posted on the ministry’s website Saturday. Toskas said he didn’t know whether the passport was later processed by other authorities elsewhere in Europe.
The full statement, google translated:
Statement by the Deputy Minister of Citizen Protection Nikos Tosca on terrorist attacks in Paris
The Deputy Minister of Citizen Protection Nikos Toskas announces the following:
“On the case of the Syrian passport found at the scene of the terrorist attack.
We announce that the passport holder, had passed from Leros on 03.10.2015 where identified based on EU rules, as decided at the Summit on the refugee issue.
We do not know if the passport was checked by other countries which are likely to be passed by the holder.
We will continue the painstaking and persistent effort under difficult circumstances to ensure the security of our country and Europe, insisting on complete identification of passing through the refugee stream. ”
A tangential point, and one again pointing to motive, is that also just two months ago, the Greek defense minister threatened that Greece would open borders to jihadis and other mideast terrorists, if there was no deal.
On 9/3/15, Greek defence minister @PanosKammenos threatened that Greece would open borders to jihadis if no € deal pic.twitter.com/otBYrlxL8H
— The Konstantinos (@cocodinos) November 14, 2015
And just to cement the “refugee link”, French newspaper Liberation also reported that an Egyptian passport was also found on one of the attackers the Stade de France.
Now, we admit to not being experts on the nuances, or even basics, of “suicide bombing for terrorists 101“, but is bringing your own passport to an event that will be your last, really that crucial, especially when the passport is such a critical smoking gun?
Also, if a suicide bomber blows up while carrying the passport, does the passport survive intact every single time or just on specific occasions?
Whatever the reason, the trifecta has emerged: just as expected, the link between Syrian refugees, ISIS, and Terrorism has now been set in stone. And Marine Le Pen could not be any happier…
What happens next?
One possible chain of events involves Syria suddenly finding full-blown NATO support for a renewed attack on Syria and, of course, Assad.
France is in a military driving seat now if it wanted to invoke NATO’s article 5 it could – and the ‘State’ of IS could be the target
— Phillip Blond (@Phillip_Blond) November 14, 2015
And with the only French aircraft carrier already en route to Syria, and meant to support to mission against Assad ISIS, France is oddly prepared for an all out attack to take out the Syrian president. Most importantly, it now has the outraged, incensed public’s blessing to do just that.
The second path of future events goes back to what we said on September 11 of this year when we predicted the French terrorist attacks:
… the second key role of ISIS is also starting to emerge: the terrorist bogeyman that ravages Europe and scares the living daylight out of people who beg the government to implement an even more strict government apparatus in order to protect them from refugees ISIS terrorists.
…
Certainly expect a version of Europe’a Patriot Act to emerge over the next year, when the old continent has its own “September 11” moment, one which will provide the unelected Brussels bureaucrats with even more authoritarian power.
So far things are panning out precisely as we expected they would; we expect this chain of events to continue.
- In Oregon There Are Now More Marijuana Shops Than Starbucks Or McDonalds
Submitted by John Vibes via TheAntiMedia.org,
In the state of Oregon, where marijuana for recreational purposes was legalized just over a month ago, there are already more retail marijuana shops than there are McDonald’s or Starbucks.
According to Oregon’s Health Authority, there are 281 marijuana businesses in the state due to the fact that there was already a vast network of medical dispensaries there. When legalization kicked in, these dispensaries were able to quickly repurpose themselves as retail outlets. This allowed the industry to grow much quicker in Oregon than it did in Colorado or Washington.
In Oregon, there were over 250 medical marijuana dispensaries that were immediately able to sell to recreational customers, while in Colorado there were just 24 retailers open on the first day of legalization — and Washington had only four.
In fact, in Oregon, the cannabis industry is already becoming as visible as major fast food corporations, with more locations in the state than both Starbucks and McDonald’s. They have 248 and 205 locations, respectively.
It is important to mention that many different businesses and owners make up the 281 marijuana shops across the state, while Starbucks and McDonald’s are individual businesses. For example, the total number of marijuana shops are not being compared to the total number of fast food or coffee shops, but to specific fast food and coffee corporations. However, it still shows how marijuana is quickly becoming a very important part of the economy and of pop culture.
According to Business Insider, Oregon already has the second-highest number of medical marijuana patients, running close behind Colorado.
The state sold over $11 million dollars worth of marijuana in the first week of legalization. The sales in Oregon in the first week actually outshined both Colorado and Washington.
In Colorado, sales reached nearly $5 million in the first week, while Washington retailers made just $2 million in that state’s first week of sales.
As with the retail locations in Colorado and Washington, many of Oregon’s shops are concentrated in major cities like Portland, with only a few locations in rural areas.
The growing marijuana industry is not only extremely lucrative, but it is also a more gender-equal environment than many other businesses. As we reported last month, there are more female executives in the marijuana industry than there are in any other industry.
- Who Said This On Friday? "ISIS Is Not Getting Stronger, We Have Contained Them"
President Barack Obama seemingly downplayed the threat of ISIS in an interview with ABC’s George Stephanopoulos that aired on Friday’s broadcast of “Good Morning America.”
Stephanopoulos asked Obama if ISIS was gaining in strength, to which Obama denied they were.
“I don’t think they’re gaining strength,” Obama responded. “What is true is that from the start, our goal has been first to contain and we have contained them.”
via ABC…
“Contained” – we are not sure that word means what you think it does.
h/t @Jeff_Poor
- A Storm Of Bad "Incoming Data" Strikes As The World Economy Rolls Over
Submitted by John Rubino via DollarCollapse.com,
Brutal news is pouring in from pretty much everywhere.
US retail sales are flat and wholesale prices are falling. Big retail chains are missing on earnings and seeing their shares plunge.
Chinese nonperforming loans are soaring while imports, car sales and steel production are way down.
Oil is flirting with multi-year lows as tankers wander the ocean with nowhere to offload their crude. Other commodities like aluminum and copper are back at 2009 levels and still falling.
A general strike has paralyzed Greece and a far-left coalition is taking power in Portugal. Middle Eastern refugees keep pouring into Europe and no one seems to know where to put them. Eurozone growth is sliding back towards zero and the once-bulletproof Scandinavian countries are now the “sick men” of the region.
Argentine inflation is 35%, Brazil’s political/economic crisis is threatening to topple the government, and a giant copper mine just dumped millions of gallons of toxic sludge on some Brazilian villages.
Equities in Asia, Europe and the US are getting whacked as the sheer volume of bad news swamps the hope that European and Chinese QE programs will keep the asset price party going.
The world, in short, is rolling over. Debt monetization on the scale so far attempted has failed to stop the implosion of tens of trillions of dollars of bad paper, growth has stalled and geopolitics has begun to resemble the parking lot of a British soccer match, with scary people doing random, incomprehensibly violent things and no generally recognized authority able to impose control. Elections are now fearful rather than hopeful prospects and anti-status quo parties in France, Britain, Italy and Spain have become serious contenders.
And none of this is a surprise. It’s just what you get when you put monetary printing presses in the hands of governments and/or big banks. That is, soaring debt, increasing corruption and inequality as newly-created currency flows to the already-rich, political instability as the have-nots of the world decide they’ve got nothing to lose, and uncomprehending paralysis among sitting leaders who have only ever known easy money.
It’s time for us all to go back and read Friedrich Hayek’s Road To Serfdom and to pay renewed attention to the relative handful of people who got it right, such as Ludwig von Mises…
There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
…Hyman Minsky…
Stability leads to instability. The more stable things become and the longer things are stable, the more unstable they will be when the crisis hits.
… and of course Ron Paul:
You cannot print money forever and deceive the markets forever. Eventually, the markets will rule and it’s only a question of when that will happen. Gold is your defense against the policies of the Fed.
- Assad Condemns "Savage" Paris Attacks, Blames French Foreign Policy
On the morning after the stunning and tragic wave of terror attacks that turned the streets of Paris into a veritable warzone on Friday evening, the French (not to mention the world) are searching for answers.
And we don’t mean in terms of assigning blame. ISIS has claimed responsibility and indeed, despite some early suggestions by terrorist “experts” that the attack looked more like the work of al-Qaeda, there was never any real question as to who would be blamed and who would take “credit.”
Rather, the questions now revolve around how it could have come to this. Between last night’s massacre in the streets of Paris and a refugee crisis that to most Europeans probably seems to have come out of nowhere, it must appear to some as if the world has inexplicably descended into chaos over the past six or so months.
Of course that’s not the case. The events that ultimately led to the enormous people flows into Europe and to Friday’s attacks in Paris have been unfolding in Syria for the better part of five years and because this probably isn’t the time for a scathing Western foreign policy critique on our part, we simply present comments below from Syrian President Bashar al-Assad with not further comment. The first passages are from mid-September, the second from today.
* * *
From September
(via CNN)
Syrian President Bashar al-Assad is blaming Western nations for fueling the refugee crisis by supporting opposition groups in his country’s bloody civil war.
“If you are worried about them, stop supporting terrorists,” he said in an interview with Russian news organizations. “That’s what we think regarding the crisis. This is the core of the whole issue of refugees.”
“Europe is responsible because it supported terrorism,” he said in the interview at his home in Damascus, the capital.
The European Union in May 2013 ended an arms embargo on rebel groups fighting the Syrian government. The United States, meanwhile, has been offering limited support to moderate Syrian rebels in the fight against ISIS.
“Can you feel sad for a child’s death in the sea and not for thousands of children who have been killed by the terrorists in Syria?” al-Assad said, referring to images of a dead Syrian boy that shocked the world. “And also for men, women, and the elderly? These European double standards are no longer acceptable.”
Despite his bitter accusations, al-Assad said he was willing to shake hands with any leader who would join the fight against ISIS and hoped to cooperate with the West and Saudi Arabia in building a “real antiterrorist coalition,” the Russian news agency Interfax reported.
He said his forces weren’t communicating or cooperating tactically with the U.S.-led coalition that’s carrying out airstrikes against ISIS positions in Syria and Iraq.
“They cannot accept the reality that we are the only power fighting ISIS on the ground,” he said in reference to the United States. “For them, maybe if they cooperate with the Syrian Army, this is like a recognition or our effectiveness in fighting ISIS.”
He accused the U.S. government of “willful blindness” on the matter.
* * *
From today
Syrian President Bashar al Assad condemned Friday’s attacks in Paris and said that such acts of terror were similar to what his people had faced in years of violent civil war.
“What France suffered from savage terror is what the Syrian people have been enduring for over five years,” the Syrian President was quoted as saying on state media and Lebanese TV station al Mayadeen
(via AFP)
Syrian President Bashar al-Assad said Saturday that French policy had contributed to the “spread of terrorism” that culminated in attacks claimed by the Islamic State group which killed 128 people in Paris.
In a meeting with a delegation of French lawmakers in Damascus, Assad said France’s “mistaken policies… had contributed to the spread of terrorism.”
“The terrorist attacks that targeted the French capital Paris cannot be separated from what happened in the Lebanese capital Beirut lately and from what has been happening in Syria for the past five years and in other areas,” he said.
Assad was referring to twin bombings claimed by IS which killed 44 people on Thursday in the southern suburbs of Beirut, a stronghold of his Lebanese ally, Shiite militant group Hezbollah.
Assad regards all the rebel groups fighting his forces inside Syria as “terrorists”, not just IS.
Assad said he had “warned against what would happen in Europe for the past three years.”
“We said, don’t take what is happening in Syria lightly. Unfortunately, European officials did not listen,” he said, in comments to the delegation broadcast by France’s Europe 1 radio.
He said French President Francois Hollande “should change his policy.”
“The question that is being asked throughout France today is, was France’s policy over the past five years the right one? The answer is no.”
- Peter Schiff Warns "The Shadow Rate" Casts Gloom
Submitted by Peter Schiff via Euro Pacific Capital,
Nearly 92% of economists surveyed this week by the Wall Street Journal expect that our eight-year experiment with unprecedented monetary easing from the Federal Reserve will come to an end at the next Fed meeting in December. Since we have had the monetary wind at our back for so many years, at least a few have begun to question our ability to make economic and financial gains against actual headwinds. But in reality, the tightening cycle that the forecasters are waiting for actually started last year. Sadly, the markets and the economy are already showing an inability to handle it.
While it’s true that we have yet to achieve “lift-off” from zero percent interest rates, rates have not been the only means by which the Fed has provided stimulus. We also have to account for the effects of Quantitative Easing (QE) and forward guidance of the Fed. Changes in those inputs over the past year have already created conditions of monetary tightening.
QE has been the process by which the central bank expands its balance sheet (otherwise known as printing money) to buy government and asset-backed bonds on the longer end of the duration spectrum. In so doing, it is able to help hold down long-term interest rates, a result that it would be difficult to achieve by changes in the federal funds rate. Zero percent interest rates represent a loose monetary policy, but once at the zero lower bound, QE is the way the bank eases even further.
Another big input is Fed “forward guidance.” This comes in the form of official and unofficial pronouncements from top Fed policy makers as to the possible trajectory of rates in the future. If the Fed communicates that rates will stay low, or QE will remain in place, for some time, then policy becomes looser still. Such assurances effectively remove near term interest rate risk, which stimulates financial activity. Ever since the Financial Crisis of 2008, the Fed has engaged in unprecedented forward guidance, without which monetary conditions could have been expected to be tighter.
To account for these important factors, University of Chicago professors Cynthia Wu and Fan Dora Xia, constructed a model for the “Shadow Rate.” While the fed funds rate has remained between 0.0% and 0.25% ever since November of 2008 (Federal Reserve Board), the Shadow Rate moved much lower, factoring in the effects of QE and forward guidance. That rate got as low as -2.99% in May of 2014. (Federal Reserve Bank of Atlanta, CQER, Shadow Rate)
But the Fed’s QE tapering campaign, which gradually reduced the amount of securities purchased monthly by the Fed, effectively began a campaign of monetary tightening that helped push up the Shadow Rate sharply even as the fed funds rate itself did not budge. After QE was officially wound down in October 2014, the Fed began to change its forward guidance to actively suggest that a long-term campaign to lift interest rates would begin in 2015. This also worked to help tighten monetary conditions. As a result, the Shadow Rate moved up from -2.99% in May of 2014 to just -.74% in September of 2015, (FRB Atlanta, CQER, Shadow Rate) an increase of 225 basis points in just over a year.
This is a fairly robust tightening trajectory that can be said to have clearly taken a toll. Since January of this year, the major market index, the S&P 500, has essentially been flat. While in contrast, it had been up by double-digits in five of the last six calendar years. Similarly, GDP growth has slowed considerably in the months since the QE program was finally tapered down to zero in October of 2014.
U.S. stock investors may be complacent regarding the ability of the stock market to withstand higher interest rates. Their confidence may come from the fact that, historically, markets have not peaked until 12-24 months after the Fed begins to tighten. This assumes the tightening cycle begins with the first official rate hike. But if it really began with the increase in the Shadow Rate, then a December rate hike will already be 19 months into the tightening cycle! Plus, given how overvalued stocks may currently be, and the amount of corporate debt accumulated to finance share buybacks, this bull market may be far more vulnerable than most to higher interest rates.
The last three times that the Fed had conducted a rate tightening cycle (1986-1989, 1994-2000 and 2004-2006), the increases in rates averaged 388 basis points. But those moves upward occurred when QE did not exist and when forward guidance was hardly a factor (the Fed only started doing press conferences in the last few years). So the tightening that has occurred to the Shadow Rate in the last year is already 58% of the size of the average of the last three tightening cycles.
Created by Euro Pacific Capital with Data from Bloomberg
If the Fed does as it has suggested it will, and takes fed funds up to 2.6% by the end of 2017 (which is the Fed’s own median forecast), then the total effective move (that includes the tightening of the Shadow Rate) would be a tightening of 559 basis points, well larger than the average of the last three tightening cycles. Does anyone really believe that our fragile and slowing economy can deal with that kind of headwind?
Generally, the Fed tends to wait until the economy is on solid footing before tightening. For instance, in the 12 months prior to the 390 basis point tightening that occurred between 1986-1989, real GDP was 3.2%. GDP was 2.65% in 1993, the year before a six-year tightening cycle raised rates by 350 basis points. GDP was a solid 4.3% in 2003, the year before Alan Greenspan began raising rates in 2004, a move that took up fed funds by 425 basis points. But current GDP, which is somewhere around 2.0% over the past four quarters, is not nearly as robust. (Bureau of Economic Analysis)
But what’s more concerning is the magnitude of the easing cycle that has gotten us to this point. It began in 2007, lasted a full 80 months, and took the effective fed funds rate (accounting for the Shadow Rate) down by 825 basis points. In contrast, the prior two easing cycles averaged 612 basis points and 34.5 months. This huge dose of stimulus is certain to have caused distortions in the economy that won’t be seen until we get more normalized levels of monetary policy. As Warren Buffet has most famously quipped, “We have to wait till the tide goes out before we see who has been swimming without bathing suits.”
Since the Second World War, recessions have begun, on average, every seven years. Since the current recovery is already seven years old, how much longer should we expect this historically anemic recovery to last? If the slowdown occurs next year, can we really expect the Fed to remain on the sidelines and risk the possibility that the economy goes into a recession leading into a presidential election? Both the chairperson and vice chairman of the Fed are solidly associated with the left side of the political spectrum. Should we expect that they would be hesitant to support the markets and the economy and thereby create conditions that might help Republicans take the White House?
Nevertheless, most people assume that rates are on the way up to 2% or more. But from my perspective it’s much more likely that the rates never get close to that level. I would argue that any positive rate of interest would be enough to stop this economy cold. Years of negative rates have so corrupted our economy that I believe it is now fully addicted and cannot survive under any other condition.
Since this historically weak recovery is already decelerating, one might expect the removal of stimulus could cause the next recession to start quicker and be far deeper than any experienced in the past. Since the Fed may recognize this, the next easing cycle could likely start much sooner, and the accompanying monetary stimulus be much larger than just about anyone believes.
Each of the last three easing cycles took rates lower than where they were at the end of the prior easing cycle. Given that the fed funds rate is at zero (and the Shadow Rate got to as low as -2.99%), one shudders to think how low the Fed is prepared to go the next time around. As a result, investors may want to consider re-positioning their assets for another period of possible monetary easing not a period of tightening, which I believe, in fact, is already well underway and will soon be a thing of the past. December is far less significant than what almost everyone has been led to believe.
- Russian Track And Field Athletes Banned From International Competition
Earlier this week, the “independent” anti-doping commission WADA found that Russia engaged in state-sponsored doping and more importantly, recommended that Russia’s track and field athletes be suspended from Olympic competition in 2016. Apparently, the corruption was “on a whole different scale” that involved extorting athletes and ultimately ended up “significantly changing the actual results and final standings of international athletics competitions.”
The report includes allegations that Russian security services interfered with the Moscow doping lab ahead of the Sochi Winter Olympics as part of a conspiracy that involved all levels of Russian sport. During the Sochi Games, Russia pulled off a stunning turnaround from its performance in Vancouver in 2010, where it won 3 gold medals and 15 overall. In 2014 Russia won 13 gold medals and 33 overall, an unprecedented level of improvement.
As we noted on Monday, “in the event that IAAF were to adopt the commission’s recommendation, Russia could be excluded from major competitions including the Olympics.”
Well, as it turns out, that’s exactly what happened because as WSJ reports, “track and field’s world governing body provisionally suspended Russia’s athletes from international competition indefinitely,” late on Friday evening. Here’s more:
The suspension, which was expected, was approved by a vote of 22 to 1 by the international federation’s ruling council and takes effect immediately. It will prevent Russian track-and-field athletes from participating in all international events, including—as of now—the 2016 Rio Olympics in August.
While condemning the Russians, Sebastian Coe, the newly elected president of the IAAF, said the federation had to work to fix a broken system.
“We discussed and agreed that the whole system has failed the athletes, not just in Russia, but around the world,” Mr. Coe’s statement read. “This has been a shameful wake-up call and we are clear that cheating at any level will not be tolerated.”
The Russians will be able to appeal, possibly in time to win back the “privilege” of competing in beautiful Rio where hopefully, the scent of feces will no longer linger in the air by the time the games roll around (of course giant public works projects don’t look to be in the cards given Brazil’s insistence on running a primary surplus):
However, as often happens in international sports when countries or teams are sanctioned, the International Association of Athletics Federations will set terms for what the Russians must do to have the suspension lifted, perhaps even in time for the Rio Olympics.
The Russian federation can appeal the ban during the next month, with a ruling coming shortly after that. The federation could also take its case to the international Court of Arbitration for Sport.
For their part, the Russians have taken steps to “clean up” the situation, while Putin and several individual athletes claim the ban punishes all of the nation’s participants for the actions of a few bad actors:
Russian officials have urged international authorities not to punish a broad swath of athletes for the sins of a smaller group. President Vladimir Putin called on Russian authorities to hold people personally responsible rather than making innocent athletes pay for the wrongdoing of others.
Russian pole-vaulting champion Yelena Isinbayeva, who has won two Olympic gold medals, called the situation sad in a statement released Friday by the All-Russia Athletics Federation.
“The situation that the Russian team has ended up in is sad. But I urge against painting all athletes with the same brush,” Ms. Isinbayeva said, describing all of her own victories as honest, clean and deserved. “Taking away the right of innocent and uninvolved athletes to participate in international competitions under the auspices of the IAAF and at the 2016 Olympic Games in Rio de Janeiro is unjust and unfair.”
Of course this is just another example of the fox guarding the hen house. As WSJ goes on to point out, it was just last week when French authorities unveiled an nvestigation into the IAAF’s recently retired leadership, including its former president for various alleged criminal behavior including accepting bribes to cover up Russian doping results.
And if they were doing that, then who knows what else they were doing which in turn means that yes, this was probably exaclty what the Russians said it was initially, which is politically motivated move that’s inextricably related to a variety of geopolitical issues and you can probably put in the same file as the deliberate suppression of oil prices by the Saudis, economic sanctions, and the anti-trust suit against Gazprom.
That’s not to say there wasn’t doping going on here, but just like all organizational corruption, everyone has something on everyone else and it’s just a matter of politics when someone’s card gets pulled.
In a supremely amusing bit of irony, The Guardian notes that in 1980, the abovementioned Sebastian Coe “a charismatic, supremely talented runner but yet to win a major championship medal, was approached privately by the British government and asked to boycott the Moscow Olympics in protest at the Soviet invasion of Afghanistan. Coe refused. He went to Russia. He won gold, ignited his own personal legend and has ridden the wave ever since.”
History may not repeat itself, but it does often rhyme.
- About 38% Of All The COMEX Gold In Hong Kong Left The Warehouses Yesterday
Roughly 21 tonnes, or 685,652 troy ounces of gold in .999 fine kilo bars, was withdrawn, net of a small deposit of 27,328 ounces, from the Brinks warehouse in Hong Kong yesterday.
To put that into some perspective, that is the same amount of all gold in the entire JPM warehouse in the US.
Now compared to the Comex US, in which very little gold bullion actually changes hands or goes anywhere, that is a huge number. But Hong Kong is typically seeing large inflows and outflows of gold. Because that is how the precious metals market has been manifesting in Asia since about 2007: not with endless chains of paper just changing hands in a grand game of liar's poker, but with the physical exchange of bullion.
And most of that bullion leaves the warehouse and does not come right back, as Koos Jansen has explained repeatedly about the operations on the Shanghai Gold Exchange. It is being accumulated on the mainland, and this probably does not include the PBOC official purchases.
The point of this is that the price discovery in New York is becoming increasingly distinct from the actual physical supply and demand flows of bullion which are taking place in Asia. As I have said, gold is 'trading like a modern currency' without respect to its nature as a commodity bound by physical supply. The Fed et al. can print money, but they cannot print bullion. That is the point of it.
And that is a potentially dangerous development, especially with respect to a commodity that is being traded at a leverage in excess of 200:1. And in the face of shrinking inventories of gold available for delivery at current prices in both New York and London.
I have put the most recent report for all the US warehouses registered with Comex below that of Hong Kong.
As the Comex told Kyle Bass, 'price' will take care of any imbalances. Yes, just as smoothly and seamlessly as it did when the price of highly levered and risky paper corrected back to reality in 2008. Ba-boom!
Are you kidding me? That is what Kyle Bass said, not me. "Just give me the gold."
And if people should choose to stand for physical delivery given the relative scarcity, how much of a price adjustment might be required if they could even find any to be had without an onerous delay and in sufficient numbers?
How many people, once again, are going to be allowed to walk blindly into another financial buzz saw caused by reckless gambling on Wall Street? Are we willing to repeat the folly of MF Global on a grand scale? Will the rest of the world be so cowed by the Banks as its investors?
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