Today’s News October 28, 2015

• And Now Trucking is Suddenly Slowing Down

  This comes at the totally wrong time. Trucking had been booming. 2014 had been a banner year. Capacity was squeezed, and rates were rising, so trucking companies went on a buying binge, ordering everything in the book in preparation for red-hot demand in 2015 and more banner years down the road. But then came 2015.

  Among businesses, over-ordering and tepid sales caused inventories to rise and the inventory-to-sales ratio to spike to Financial Crisis proportions. And now businesses are trying to bring them down by trimming orders because they’re having trouble selling more to the middle class, the over-indebted modern proletariat whose stagnant incomes are being eaten up by skyrocketing costs of housing, healthcare, college, and the like – and they simply can’t spend that much on shippable items.

  And now this is ricocheting through the industry.

  Monday after hours, the largest US truckload carrier, Swift, announced earnings. And on Tuesday, it clarified the debacle. It’s suffering from indigestion. The high costs from its red-hot capacity increase – average truck count jumped by 831 trucks in the third quarter from a year earlier – are now slamming into swooning freight demand.

  Operating revenue declined 1%, which Swift blamed on the disappearing fuel surcharge, though it didn’t explain why it is getting away with still charging $109 million in fuel surcharges when diesel prices have plunged to rock-bottom.

  So it’s cutting back. In its pervious disclosure, it announced that its average truck count for 2015 would grow by 700-1,100 trucks. Now it cut the growth down to 500-600 trucks, “given that the freight environment is softer than we originally expected, and peak volumes have not yet materialized as in years past,” it said.

  September is the beginning of the holiday shipping season. Volume should be sharply higher. But it’s not happening [read… US Freight Shipments Have Worst September since 2010].

  Now it’s down to cost cutting and focusing on “improved utilization” of the fleet. So it lowered its outlook for 2015 earnings, “in light of the items discussed” on September 25, 2015, which is when it had issued its original earnings warning. Its shares have plummeted 49.6% from their 52-week high in December.

  “Effective immediately we will enter into a zero fleet growth mode,” Swift CEO Jerry Moyes told analysts. The company “will not be adding any new equipment,” he said, and is considering actually reducing its truck count.

  This has already ricocheted to diesel-engine makers: Cummins announced its earnings debacle on Tuesday – revenues down 11%, earnings down 5%. It plans to axe 3.7% of its workforce, or about 2,000 folks. It would whittle down its manufacturing capacity and might have to take more aggressive measures, it said. It lowered its outlook further and expects “challenging conditions to persist for some time.”

  It blamed Brazil and China. In the US, demand for heavy-duty truck engines had been strong, and orders were expected to reach a decade high, as Swift and others had been ordering trucks from truck makers, and they’d been ordering engines from engine makers such as Cummins. But then the third quarter came around; suddenly Cummins’ sales of heavy-duty truck engines fell 9% year-over-year, and orders plunged.

  “It’s evident now that retail sales [of trucks] and production will be down going forward,” explained COO Rich Freeland. Cummins shares, which plunged 8.7% on Tuesday, are down 32.5% from their 52-week high in December.

  In this scenario of overcapacity and slack demand, the critical load-to-truck ratio has collapsed to the lowest level in years.

  Transportation data provider DAT publishes load-to-truck ratios on a weekly and monthly basis. It calls them “a sensitive, real-time indicator of the balance between spot market demand and capacity.” They’re a function of the number of loads for every truck posted on DAT Load Boards. And here is the key: “Changes in the ratio often signal impending changes in rates.”

  Unusually “slack demand” in September – the beginning of shipping season – after “a quiet July and even quieter August,” impacted most of the nation, except in the Pacific Northwest, where “fall harvests of apples, potatoes and onions rolled to market in vans as well as reefers,” explained Mark Montague, a statistician at DAT.

  September looks terrible compared to September in banner-year 2014. It still “looks anemic even when compared to the more typical freight movement of September 2013,” Montague said. This slack demand whacked load-to-truck ratios. And that matters:

  Load-to-truck ratios signal changes in the marketplace that are usually reflected in truckload rates. In the past five years, a change in the load-to-truck ratio has correlated at a rate of 0.8 with an immediate change in spot market rates, and a sustained change in spot market rates is typically followed by a change in contract rates, as well.

  Since late last year, DAT’s van load-to-truck ratios have been on a declining trend. Every month this year, the ratios were below the ratios in 2014. In July, August, and September, the ratios hit 1.8, the lowest in years. In September, the ratio was 42% below a year earlier:

  

  The hump in the chart above in February and March 2014 was caused by the tough winter, which “squeezed truckload capacity in the northern band of U.S. states, and load-to-truck ratios spiked.” This caused an immediate increase in spot market rates, and by April, contract rates began to rise. But by December 2014, the party was over. Spot market rates began to fall. Contract rates eventually followed.

  So far in October, on a weekly basis, the load-to-truck ratio looks even worse. In the week ending October 24 (published October 27), the ratio dropped to 1.3 loads per truck:

  

  Trucking is a thermometer for the merchandise economy. It doesn’t track consumer expenses like rent or college. But it tracks exports and imports, manufacturing, distribution, retail, and other sectors. It tracks a big part of the real economy. And the sudden slowdown in the trucking industry is another wildly flashing signal in our recession watch.

  “It’s been a rotten year for distressed and defaulted loan paper.” That’s how S&P Capital IQ starts out its report on leveraged loans. “Rotten” may be a euphemism. The worst since 2008, as “fear has become a strong undercurrent.” Read… And Now Defaulted “Leveraged Loans” Go Kaboom 

  

  

  

  

• 'Celebrating' 14 Years Since America Kissed Its Freedoms Goodbye

  Submitted by Simon Black via SovereignMan.com,

  If you haven’t already, now’s the time to get out your party hats to celebrate the 14th anniversary of the USA PATRIOT Act.

  You know about the law, I’m sure; passed barely six weeks after the 9/11 attacks, the USA PATRIOT Act is one of the most sweeping, liberty-destroying pieces of legislation in American history.

  Remember the rule of thumb: the more high-sounding the name of a law, the more disastrous its effects. And the USA PATRIOT Act absolutely conformed.

  It stands for Uniting and Strengthening America by Providing Appropriate Tools Required to Interdict and Obstruct Terrorism.

  And this name is truly disingenuous when you think about it.

  Seriously, how was America to become more ‘united’ by allowing warrantless searches, vastly expanding the powers of secret courts, and completely doing away with entire sections of the Constitution?? That’s just absurd.

  The name itself is a cruel joke on liberty.

  At 132 pages, the USA PATRIOT Act was a pretty beefy piece of legislation. But what most people fail to realize is that the law is entirely incomprehensible.

  Instead of simply stating in black & white what the new dark powers of government would be, the USA PATRIOT Act makes obscure modifications to other laws.

  Here’s an example of what I’m talking about, pulled from page 20 of the text of the legislation:

  Section 3123(d)(2) of title 18, United States Code, is amended (A) by inserting “or other facility” after “the line”; and (B) by striking “, or who has been ordered by the court” and inserting “or applied, or who is obligated by the order”

  Is that supposed to mean anything to anyone? The language is completely mystifying.

  Well, as it turns out, this precise section is part of what authorizes the government to monitor your phone and Internet communications.

  This is, of course, one of the primary criticisms of the law: it was rushed through Congress before anyone had a chance to read or understand it, at a time when everyone was scared and willing to give the government any power it wanted.

  The end result was a de facto Police State in the Land of the Free.

  Faceless government agencies now spy on every form of communication, local police turned into federally funded paramilitary forces, and the Fourth Amendment became an endangered species.

  Earlier this year, several key provisions of the USA PATRIOT Act were set to expire. It was an opportunity to take back some of the freedom that had been lost.

  Yet Mr. Hope and Change himself, Barack Obama, signed multiple bills into law to extend, and even expand, the USA PATRIOT Act’s powers.

  It’s amazing when you think about it: a nation that was founded on the principles of personal liberty, which fought the Nazis and built the most powerful economy in the world, is so fragile and afraid of men in caves that it cannot imagine its existence without Orwellian surveillance programs.

  George W. Bush used to famously say that terrorists hated America for its freedoms.

  So he and Barack Obama conveniently solved that problem by eliminating America’s freedoms.

  This is life now in America 2.0; it’s not the America we once knew, and it’s time to adjust accordingly.

  I invite you to listen in to today’s podcast as we discuss some of the most striking differences between now and America’s golden days.

  You won’t believe what once used to be possible in the Land of the Free.

  (click image for podcast)

  

  

  

  

  

  

• Brits Turn To "Sugar Daddy" To 'Date' Their Way Out Of Student Debt

  While record numbers of indebted Americans are increasingly turning to exchanging bodily fluids directly for cash, it appears (by implication) British students are taking a similar (but indirect) path to reducing their debt loads. As Sky News reports, thousands of British students are funding their way through university on so-called "Sugar Daddy" websites. One site, SeekingArrangement.com, claims 12,600 UK students have signed up with proof of university enrolment, with some making over $3,000 per month for her 'arrangement' enabling her to pay off her student loan and travel more. While sex is not 'expected', as one female student explained, "there's a fine line between being a 'sugar baby' and prostitution."

  Well, not really…

  The sites advertise themselves as a way for "beautiful, ambitious people to graduate debt free" through "arrangements" with older "sponsors"…

  "Attending college means you have a choice: take out loans and eat ramen, or get a Sugar Daddy and live the life you always wanted." (on your back?)

  All seems above board?!??

  In an interview with Sky News, Brandon Wade, the founder of SeekingArrangement.com denied it was an escort site but that it enabled "sugar babies" to "upgrade their lifestyle".

  He said sex was never expected, but it is aspired to and that the website had led to countless marriages worldwide.

  "You want to find somebody who is well educated, who can provide for you financially, you know it's sort of the Disney dream so to say," said Mr Wade.

  However, a married 62-year-old sugar daddy who is currently seeing four sugar babies told Sky News:

  "I wouldn't be able to meet girls as young and as beautiful as this through an ordinary dating website".

   

  He also said that "sex is an integral part of the site".

   

  He believed consensual relationships were "really appropriate for students" looking to supplement their bank accounts.

   

  "What a great way to get a little bit of extra pocket money and much better than having to spend eight hours slogging in a bar earning the minimum wage," he added.

  *  *  *

  What better way indeed…

  

  

  

  

  

• 'Untouchables': Obama Cronies "Protected Wall Street's Most Criminal From Prosecution"

  Submitted by Mac Slavo via SHTFPlan.com,

  The slow motion financial holocaust has been underway for some time now.

  Goldman Sach recently commented that we are in the third wave of the great crisis. What happened in 2008 remains directly relevant to the personal financial risk that most Americans face at the brink of the next phase of the collapse.

  It’s almost like they’re looking for a sacrificial lamb… the banks have gotten away with murder too many times to count. Those who might be tried under a truly fair system instead stand firm with their understanding of impunity, an arrangement befitting their position and stature in society, that they will never be seriously investigated, much less prosecuted, for their role in the manipulation that caused the biggest problems.

  

  Worse, it is utterly clear that Obama’s Justice Department went out of their way to avoid prosecuting Wall Street executives – even despite pressure from Congress’ Oversight Panel, created as a condition of TARP, to do so as a result of piles of evidence that criminal misbehavior was behind the worst of the collapse.

  Attorney General Eric Holder was nominally in charge of the Justice Department’s investigations – and it is well worth pointing out that he spent the entirety of his time after being Clinton’s Deputy Attorney General, at Covington & Burling, a legal firm that specializes in representing top Wall Street institutions. Wikipedia notes:

  In July 2015, Holder rejoined Covington & Burling, the law firm at which he worked before becoming Attorney General. The law firm’s clients have included many of the large banks Holder declined to prosecute for their alleged role in the financial crisis. Matt Taibbi of Rolling Stone opined about the move, “I think this is probably the single biggest example of the revolving door that we’ve ever had.”

  Clearly, with big banks as a client in-waiting and a past benefactor with him his law firm had a deep relationship, Holder was never realistically capable of considering a meaningful prosecution of the banks. Most of the rationale given to the public remained based around the despicable idea that banks were “too big to fail.”

  Investigative journalist Glenn Greenwald – notorious for launchign the first interviews and data dumps with Edward Snowden – taken on the criminality of the Wall Street banks during the period surrounding the 2008 financial crisis, focusing on the obstruction of the Justice Department, who have effectively refused to target higher-ups in any of their probes:

  PBS’ Frontline broadcast a new one-hour report on one of the greatest and most shameful failings of the Obama administration: the lack of even a single arrest or prosecution of any senior Wall Street banker for the systemic fraud that precipitated the 2008 financial crisis: a crisis from which millions of people around the world are still suffering. What this program particularly demonstrated was that the Obama justice department, in particular the Chief of its Criminal Division, Lanny Breuer, never even tried to hold the high-level criminals accountable.

   

  What Obama justice officials did instead is exactly what they did in the face of high-level Bush era crimes of torture and warrantless eavesdropping: namely, acted to protect the most powerful factions in the society in the face of overwhelming evidence of serious criminality. Indeed, financial elites were not only vested with immunity for their fraud, but thrived as a result of it, even as ordinary Americans continue to suffer the effects of that crisis.

   

  […] As “The Untouchables” put it: while no senior Wall Street executives have been prosecuted, “many small mortgage brokers, loan appraisers and even home buyers” have been.

   

  […]  the DOJ’s excuse for failing to prosecute Wall Street executives – that it was too hard to obtain convictions – “has always defied common sense – and all the more so now that a fuller picture is emerging of the range of banks’ reckless and lawless activities, including interest-rate rigging, money laundering, securities fraud and excessive speculation.”

  […]

   

  As former Wall Street analyst Yves Smith wrote: “What went on at Lehman and AIG, as well as the chicanery in the CDO [collateralized debt obligation] business, by any sensible standard is criminal.” Even lifelong Wall Street defender Alan Greenspan, the former Federal Reserve Chair, said in Congressional testimony that “a lot of that stuff was just plain fraud.”

   

  […]

   

  “In 2009… “there was broad support for prosecuting Wall Street.” Nonetheless: “four years later, there have been no arrests of any senior Wall Street executives” … the key point: Obama officials never even tried.

  Now dated by four years, PBS Frontline ran an investigative report on the topic: The Untouchables: How the Obama administration protected Wall Street from prosecutions:

   

  As regular readers already know at SHTF, countless voices have come forward to expose the criminal fraud surrounding the banks, and the bipartisan criminal cover-up taking place in Washington.

  Greenwald noted:

  The reason there have been no efforts made to criminally investigate is obvious. Former banking regulator and current securities Professor Bill Black told Bill Moyers in 2009 that “Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong.” In the documentary “Inside Job”, the economist Nouriel Roubini, when asked why there have been no such investigations, replied: “Because then you’d find the culprits.” Underlying all of that is what the Senate’s second-highest ranking Democrat, Dick Durbin, admitted in 2009: the banks “frankly own the place”.

  Impunity has been the norm. Systemic money laundering for terrorists, gangs and drug cartels, the likes of which has been officially tied to institutions like HSBC and Wachovia – were settled with fines that represent a slap on the wrist to these ‘too big to jail’ globally-linked banks.

  Meanwhile, the next wave is upon us.

  

  

  

  

  

• China Margin Debt Hits 8-Week High, Japan Pumps'n'Dumps As Kyle Bass Fears Looming EM Banking Crisis

  Following Marc Faber's reality check on China recently, Hayman Capital's Kyle Bass took a swing tonight noting that "China's 7% GDP growth is a farce," and adding that, just as we detailed previously, China's credit cycle has begun and non-performing loans will rise rapidly leading to an emerging Asia banking crisis ahead. Japanese markets continue to entertain with "someone" insta-ramping NKY Futs 100 points at the open only to give it all back as USDJPY slides back towards 120.00 (and 10Y JGB yields drop below 30bps for the first time in 6 months).

  Hayman Capital's Kyle Bass discusses China at Sohn San Francisco:

  • *HAYMAN'S BASS SAYS CHINA 7% GDP GROWTH IS A 'FARCE'
    *HAYMAN'S BASS SAYS HE'S ASSUMING CHINA CREDIT CYCLE HAS BEGUN
    *HAYMAN'S BASS: CHINA WILL FACE NPL CYCLE, CREDIT CONTRACTING
    *HAYMAN'S BASS: ASSUMES 8.5%-10% CHINA LOANS NON-PERFORMING
  • *HAYMAN'S BASS SEES EMERGING ASIA BANKING CRISIS AHEAD

  Confirming our previous detailed analysis on China's Banking System's Neutron Bomb.

  China continues to drift quietly under the hammer ofthe Polituburo ahead of The Plenum

  

   

  The Chinese continue to lever up…

  • *SHANGHAI MARGIN DEBT BALANCE RISES TO EIGHT-WEEK HIGH

  

   

  *  *  *

  Japanese markets are once again a farce also…

  A mysterious insta-buyer lifted Nikkei futures 100 points in one big bid at the open, but USDJPY continues to tumble as hopes of moar from The BoJ fade…

  

   

  It's been a ride..

  

   

  10Y JGB yields are back under 30bps – lowest in 6 months…

  

   

  The spread between Offshore an Onshore Yuan continues to widen suggesting outflows are picking up once again.

  

   

  And that appears to be flowing – as we have detailed extensively – to Bitcoin…

  

   

  Charts: Bloomberg

  

  

  

  

  

• Millennials: 70% Want To Be Debt Free, 66% Refuse To "Gamble" In The Stock Market

  Over the past seven years, despite the constant posturing, confused propaganda and endless platitudes about inflation this, and unemployment that, the Fed’s goal has been a very simple one: to get everyone to liquidate their savings and to spend, spend, spend, either on trinkets in the economy, or by “investing” in the “market.”

  The Fed did this by confusing cause and effect, and pushed stocks to record highs thanks to the debt monetization and reserve creation pathway known as Q.E., even as the actual economy was imploding, in the process only enriching the wealthiest asset holders. In doing so it led not only to record inequality, but also unprecedented instability in what was once the discounting mechanism known as the “market”, and now – seven years into the biggest, and final, reflation experiment of all time – not a month passes without some asset classes suddenly flash crashing.

  But that doesn’t matter to the Fed: it is now all-in, and its only purpose is to strip every American of their savings, first “voluntarily” through greed (“oh look at today’s record high in the S&P500 – I wonder how much my neighbor made today”), or suasion (negative rates) until finally actual confiscation (see Executive Order 6102) will be enforced.

  This is the neo-Keynesian prerogative 101.

  Sadly for the Fed, when it comes to the biggest (not to mention most indebted) U.S. generation, the Millennials, the Fed has failed in indoctrinating them with the most basic fallacy of modern and not so modern economics – that one must spend, spend, spend their way to prosperity.

  According to a new survey by Bank of America and USA Today, millennials ages 18 to 34 say they have a clear understanding of their financial situation and 44% are prepared for a rainy day, with three months of living expenses saved up. But 75% say they worry about their finances “often” or at least “sometimes,” with 39% saying they are “chronically stressed” about money.

  All of this is understandable: after all Millennials, as we reported before, have a 50% chance of being found living in their parents basement, as a result of unaffordable housing, gargantuan debt, and terrible job prospects.

  The survey admits as much: “This pressure can be traced back to factors outside of their control, like uncertainty in the job market, a volatile global economy and student loan debt, according to the report.”

  That’s not the bad news, at least not for the Fed.

  The bad news is that according to the BofA survey, the top financial priorities of Millennials are the following:

  • 70% said being debt-free was a top priority
  • 63% said having an emergency savings fund was a top priority
  • 62% said spending less than they earn was a top priority

  These just happen to be, in descending order, the three most hated concepts to every neo-Keynesian. They also explain why the Fed will fail each and every time in its attempt to force an entire generation to lever up when the three things said generation wants more than anything is to have no debt, and to live within its means.

  That’s not all.

  In a separate survey conducted by BlackRock, WSJ reports that the Millennial generation is not only likely to be frugal, it is almost certainly not going to be investing in the so-called HFT-rigged, Fed-manipulated casino known as the “market.”

  Nearly four in 10 people surveyed said they want to make sure they have enough cash saved as a security blanket for an emergency before they save for retirement. And the vast majority said they find it difficult to keep up with bills and save for retirement at the same time.

  That squares with other recent data from U.S. Financial Diaries, a project of the New York University Financial Access Initiative and Center for Financial Services Innovation, which found many households are saving regularly for small, short-term emergencies, such as an unexpected dip in income or a spike in expenses. But those emergencies happen so often it prevents them from building up larger amounts to put toward long-term goals.

  More than a third of respondents in the BlackRock survey also said investing money felt risky, and they were afraid of losing money–even though only 7% said they had actually lost money on a past investment. And a full 72% said they did not see investing as a way to help them reach their financial goals.

  The punchline: nearly half of people ages 25 to 34 agreed that “what you might earn investing isn’t worth the risk of losing your money,” the most of any other generation.

  Two out of three agreed that “investing is like gambling.” And despite having decades to save for retirement, 70% of their portfolios are in cash or cashlike investments, according to BlackRock.

  This is bad news to BlackRock whose entire business model revolves around fooling naive individuals that they can make money participating in a ponzi scheme which only generates commission for the likes of BlackRock; everyone else better pray that Janet Yellen’s next fainting spell isn’t her last.

  In an environment where cash is paying nothing, and bond yields are well below where they were for the past 40 or 50 years, Mr. Koesterich argued younger workers will need to embrace the volatility of the stock market if they want to generate the returns they need to live comfortably for decades in retirement.

   

  “The math is what it is, and it’s hard to get around it,” he said.

  Well, Russ, the math on a world that has $200 trillion in debt and $50 trillion in GDP is even worse, and yet everyone is getting around it.

  But this is the worst possible news for the Fed because after the baby Boomers grow tired of flipping stocks, and cash out their securities to the Fed and the primary dealers and retire, suddenly all those trillions in “paper wealth” will be totally worthless to their holders as they will have nobody to sell to. And a market, especially one as rigged as this one, only works if there is at least one sucker on the table.

  Surprisingly, perhaps because they lived in their parents basement for too long, the Millennials simply refuse to be that “last sucker on the table” one last time.

  

  

  

  

  

• Free Trade Vs. American Jobs

  With half of all 25-year-olds living with their parents as Zero Hedge reports, it is the perfect time to enact a mystery trade agreement that increases unemployment and puts pressure on already stagnant wages. 

  Free Trade Vs. American Jobs

  Courtesy of Dr. Paul Price at Market Shadows

  Thursday’s Wall Street Journal included a feature article on the Trans-Pacific Partnership, commonly called the TPP. The headline read, “TPP is a surprising vote of confidence in globalization.”

  The WSJ’s subtitle spoke about the bill’s limitations on national sovereignty. Member countries would give up control of their own laws while subjugating decision-making to unelected officials and business groups with vested interests in the results. The WSJ noted that political support for the TPP was strong, except here in the USA.

  Americans should be opposed to this secretive, Wall Street-promoted trade agreement. Here’s why:

  Tariffs and patent protection periods would be reduced while most rules and regulations would be set and enforced by outsiders. Many of the new terms will be in conflict with exisiting American laws, but they will take preference.

  The advertised intent of the TPP is to make international trade cheaper and easier. And it probably will — for large, international corporations. Some business will benefit, but others will lose. Not surprisingly, Wall Street strongly supports the agreement.

  All the negotiations have been done behind closed doors. The public cannot see what is actually being agreed to. There has been no opportunity to openly debate the terms of the agreement and the likely effects of the TPP on the American economy. We are being asked (or ordered), once again, to approve a massive change in our economic system without knowing what we will be encumbered with. 

                  

   Nancy Pelosi’s line on March 10, 2010, when speaking about the Affordable Care Act (a.k.a. Obamacare).

  There is one thing we know, however, and that is that historically agreements like the TPP have not benefitted the public.

  The General Agreement on Tariffs and Trade (GATT) was hammered out and implemented between 1947 and  1956. Its tariff reductions jump-started the rise of international trade as a percentage of global GDP. It also facilitated the offshoring of US manufacturing jobs to lower wage areas.

  The North American Free Trade Agreement (NAFTA) kicked in after 1992. Presidential candidate Ross Perot warned of the “giant sucking sound” from Mexico as US jobs migrated to south of the border.

  The Canadian-US Free Trade Agreement brought more competition for American workers. Each expansion of ‘free trade’ gave US companies larger incentives and greater ease in moving jobs out of America. 

  

  China was given World Trade Organization (WTO) privileges early in this century. Through permanently normalized trade relations and lower tariffs, China gained easier access for exporting goods to America. NAFTA was bad but the setting the Chinese free to sell goods here with little restriction was the final nail in the coffin for domestic manufacturing jobs.

  It is not a coincidence that our own labor participation rate (the percentage of all working age people who actually hold jobs) peaked in the mid-to-late 1990s. As of Sep. 30, 2015, that very important measure had retreated to 62.4%, a 38-year low. 

  Seeing the WSJ’s  “Path to Free Trade” and America’s Labor Participation Rate together shows how much damage was done to our industrial job base since the most significant [red framed on the chart below] trade agreements were put into force. 

   

  You don’t need to be Einstein, or an economist, to realize that lowering trade barriers reduces domestic manufacturing jobs on a continual basis.

  

  The chart below from The Atlantic shows that US manufacturing jobs have been starting to slowly improve since the 2008 financial meltdown. But the TPP will likely work against an already weak recovery. Considering that there has been no recovery in wages, further outsourcing will only add to the pressure on wages in the US:

  Scott, of EPI, worries that the biggest damage from TPP could be to U.S. wages. The trade pact will increase the importation of competing goods, which will drive down the cost of U.S.-made goods, putting downward pressure on wages. It will open up countries such as Malaysia and Vietnam to foreign direct investment. It may be good for certain businesses and holders of intellectual property patents, but that doesn’t mean it’s going to be good for everyone.

   

  “Make no mistake, it’s certainly going to increase income inequality, and it will, in all likelihood, lead to offshoring a job loss,” Scott said.

   

  Perhaps what is most worrying, though, is the potential that TPP, or any trade agreement, could slow the reshoring of American jobs, especially in some fields such as auto-parts manufacturing, which states in the South such as Tennessee and South Carolina are competing to attract.

  […]

   

  U.S. Manufacturing Jobs, in Thousands

   

   

  There are many reasons to oppose the TPP including the likelihood of more job losses in the US, further eroding of the US middle class, the strong potential for increasing inequality, stronger intellectual property protections for pharmaceuticals, looser restrictions on corporations polluting the environment, and the undermining of democracy in favor of corporate rule. But the chart above is a powerful reason alone to reject the TPP.

  

  

  

  

• Leaked TAFTA/TTIP Chapter Shows EU Breaking Its Promises On The Environment

  By Glyn Moody of TechDirt

  Leaked TAFTA/TTIP Chapter Shows EU Breaking Its Promises On The Environment

  As far as trade agreements are concerned, the recent focus here on Techdirt and elsewhere has been on TPP as it finally achieved some kind of agreement — what kind, we still don’t know, despite promises that the text would be released as soon as it was finished. But during this time, TPP’s sibling, TAFTA/TTIP, has been grinding away slowly in the background. It’s already well behind schedule — there were rather ridiculous initial plans to get it finished by the end of last year — and there’s now evidence of growing panic among the negotiators that they won’t even get it finished by the end of President Obama’s second term, which would pose huge problems in terms of ratification.

  One sign of that panic is that the original ambitions to include just about everything are being jettisoned, as it becomes clear that in some sectors — cosmetics, for example — the US and EU regulatory approaches are just too different to reconcile. Another indicator is an important leaked document obtained by the Guardian last week. It’s the latest (29 September) draft proposal for the chapter on sustainable development. What emerges from every page of the document, embedded below, is that the European Commission is now so desperate for a deal — any deal — that it has gone back on just about every promise it made (pdf) to protect the environment and ensure that TTIP promoted sustainable development. Three environmental groups — the Sierra Club, Friends of the Earth Europe and PowerShift — have taken advantage of this leak to offer an analysis of the European Commission’s real intent in the environmental field. They see four key problems:

  The leaked text fails to provide any adequate defense for environment-related policies likely to be undermined by TTIP. For example, nothing in the text would prevent foreign corporations from launching challenges against climate or other environmental policies adopted on either side of the Atlantic in unaccountable trade tribunals.

  The environmental provisions are vaguely worded, creating loopholes that would allow governments to continue environmentally harmful practices. The chapter lacks any obligation to ratify multilateral agreements that would bolster environmental protection and includes a set of vague goals with respect to biological diversity, illegal wildlife trade, and chemicals.

  The leaked text includes several provisions that the European Commission may claim as “safeguards,” such as a recognition of the “right of each Party determine its sustainable development policies and priorities” but none would effectively shield environmental policies from being challenged by rules in TTIP.

  There is no enforcement mechanism for any of the provisions mentioned in the text. Even if one were included, it would still be weaker than the enforcement mechanism provided for foreign investors either through the investor-state dispute settlement mechanism or the renamed investment court system.

  The environmental groups have produced a detailed five-page document (pdf) that goes through each of these points in turn, and it’s well-worth reading. But it’s striking that the central problem is Techdirt’s old friend, corporate sovereignty, aka investor-state dispute settlement (ISDS):

  Nothing in the text would prevent foreign corporations, on either side of the Atlantic, from challenging climate or other environmental policies via an “investor-state dispute settlement” (ISDS) mechanism or via the European Commission’s proposed “Investment Court System.” Both enable foreign investors to challenge environmental policies before a tribunal that would sit outside any domestic legal system and be able to order governments to compensate companies for the alleged costs of an environmental policy. While the Commission claims that its new investment “reforms” would protect the right to regulate, States could still be “sued” if foreign investors considered that a policy change violated the broad, special rights that the Commission’s “reformed” investment proposal would give them.

  In other words, at the heart of the European Commission’s philosophy is the implicit acceptance that investors’ rights take precedence over the public’s rights — in this case, those concerning the environment. Everything in the leaked sustainable chapter is couched in terms of aspirations — the US and EU are encouraged to do the right thing as far as sustainable development is concerned, but there are few, if any, obligations or enforcement mechanisms. When it comes to protecting investors, on the other hand, everything is compulsory, backed up by supranational tribunals that can impose arbitrarily large fines, payable by the public. Although it is true that governments are given the “right” to legislate as they wish when it comes to the environment, investors are given the “right” to sue those governments black and blue if they attempt to do so.

  Nor is this mere theory. Research carried out last year by Friends of the Earth Europe shows that of the 127 known ISDS cases that have been brought against 20 EU member states since 1994, fully 60% concern environment-related legislation. In other words, if the European Commission’s proposals or something like them became part of the final TTIP agreement, it would almost guarantee a torrent of litigation aimed at blocking or neutering environmental legislation on both sides of the Atlantic.

  This is an important leak because it reveals, once more, that a central problem of TAFTA/TTIP is the corporate sovereignty that is inherent in ISDS — the fact that companies are allowed to place the preservation of their future profits above any other consideration, such as the environment, health and safety or social goals. The EU’s sustainability chapter — an area that is widely recognized as increasingly important in a world where lack of sustainability poses all kinds of problems — is framed entirely in outdated, 20th-century terms: boosting trade and maximizing profits are the only metrics that matter. The European Commission’s willing embrace of that approach confirms both its contempt for the 500 million Europeans it supposedly serves, and the fact that, far from protecting the environment, TAFTA/TTIP is shaping up to be a very toxic trade deal.

  

  

  

  

  

• The Calm Before The Storm

  Submitted by Michael Snyder via The Economic Collapse blog,

  Have you noticed that things have gotten eerily quiet in the month of October?  After the chaos of late August and early September, many had anticipated that we would be dealing with a full-blown financial collapse by now, but instead we have entered a period of “dead calm” in which things have become exceedingly quiet in almost every way that you can possibly imagine.  Other “watchmen” that I highly respect have made the exact same observation.

  Even though the economic numbers are screaming that we have entered a global recession, they aren’t really making any headline news.  A whole host of major financial institutions around the planet are currently in danger of collapsing and creating the next “Lehman Brothers moment”, but none of them has imploded just yet.  And of course Barack Obama seems bound and determined to start World War III.  On Monday, it was announced that he is sending a guided missile destroyer into Chinese waters in the South China Sea.  The Chinese have already stated that they might just start shooting if this happens, but Barack Obama doesn’t seem to care.  But until the shooting actually begins, that is not likely to upset the current tranquility that we are enjoying either.

  To me, what we are experiencing at the moment would best be described as “the calm before the storm”.  If you are not familiar with this concept, this is how it is defined by How Stuff Works…

  Have you ever spent an afternoon in the backyard, maybe grilling or enjoying a game of croquet, when suddenly you notice that everything goes quiet? The air seems still and calm — even the birds stop singing and quickly return to their nests.

   

  After a few minutes, you feel a change in the air, and suddenly a line of clouds ominously appears on the horizon — clouds with a look that tells you they aren’t fooling around. You quickly dash in the house and narrowly miss the first fat raindrops that fall right before the downpour. At this moment, you might stop and ask yourself, “Why was it so calm and peaceful right before the storm hit?”

  Like so many others, I believe that a great storm is coming, and yet right at this moment things seem so peaceful.

  Unfortunately, this period of peace and quiet is not going to last for long, and most Americans know deep down that something is seriously wrong with our nation.  In fact, a new WND/Clout poll has found that 85.3 percent of all likely voters in the United States believe that our country is going in the wrong direction…

  The poll found 92.6 percent of those who identified themselves as conservative believe the nation is on the wrong track. Among those who call themselves liberal, 90.9 percent said it is going the wrong direction.

   

  When asked what they think of the American economy after seven years of Obama’s leadership and economic policies, nearly 80 percent described it as “very fragile” or “somewhat fragile.”

   

  Self-identified Democrats, Republicans, liberals and conservatives were in general agreement, with about 75 percent to 80 percent describing the economy as “somewhat fragile” or “very fragile.”

  But even though we are steamrolling in the wrong direction, we haven’t suffered any incredibly serious consequences for it yet.

  For the moment, this is allowing the mockers to have a field day.  They are fully confident that Barack Obama and the Federal Reserve knew what they were doing after all, and they are gleefully taunting those of us that have been warning of the great disaster that is heading our way.

  However, those that are wise are getting prepared.

  I think that we could all learn some lessons from what Overstock.com Chairman Jonathan Johnson is doing. The following is an extended excerpt from a recent Zero Hedge article…

  *****

  One week ago Johnson, who is also candidate for Utah governor, spoke at the United Precious Metals Association, or UPMA, which we first profiled a month ago, and which takes advantage of Utah’s special status allowing the it to use gold as legal tender, offering gold and silver-backed accounts. As a reminder, the UPMA takes Federal Reserve Notes (or paper dollars) which it then translates into golden dollars (or silver). The golden dollars are based off the $50 one ounce gold coins produced by the Treasury of The United States. They are legal tender under the law and are protected as such.

  What did Johnson tell the UPMA? Here are some choice quotes:

  We are not big fans of Wall Street and we don’t trust them. We foresaw the financial crisis, we fought against the financial crisis that happened in 2008; we don’t trust the banks still and we foresee that with QE3, and QE4 and QE n that at some point there is going to be another significant financial crisis.

   

  So what do we do as a business so that we would be prepared when that happens. One thing that we do that is fairly unique: we have about $10 million in gold, mostly the small button-sized coins, that we keep outside of the banking system. We expect that when there is a financial crisis there will be a banking holiday. I don’t know if it will be 2 days, or 2 weeks, or 2 months. We have $10 million in gold and silver in denominations small enough that we can use for payroll. We want to be able to keep our employees paid, safe and our site up and running during a financial crisis.

   

  We also happen to have three months of food supply for every employee that we can live on.

  *****

  Why would such a seemingly intelligent and successful CEO of a large Internet company do such things?

  It is because he can see the writing on the wall.

  This period of calm will not last.  A great storm is coming, and when it does arrive those that have not prepared for it are going to suffer tremendously.

  Most people have no idea just how fragile our system really is.  Today, some of these “too big to fail” banks supposedly have trillions of dollars in assets, but if you want to withdraw $10,000 or more in cash you have got to give them 24 hours notice to get enough money…

  This is just the beginning. As anyone can tell you, it’s all but impossible to move large amounts of money into cash in the US. Even the large banks will routinely ask you for 24 hours notice if you need $10,000 or more in cash. These are banks will TRILLIONS of dollars worth of assets on their books.

  And with each passing day we see even more signs of the global economic slowdown that is emerging all around us.  For example, we just learned that the China Containerized Freight Index has dropped to the lowest level ever recorded.  China accounts for more global trade than anyone else, and so this is a very clear sign that global economic activity is slowing down dramatically…

  By early July, the index dropped below 800 for the first time in its history, which started in 1998 when the index was set at 1,000. It soon recovered to about 850. And just when bouts of hope were rising that the worst was over, it plunged again and hit even lower levels.

   

  

   

  The latest weekly reading dropped another 1.7% from the prior week to 752.21, the worst level ever. The CCFI is now 30% below where it had been in February this year and 25% below where it had been 17 years ago at its inception.

  But for those that don’t want to believe that hard times are on the way, they can take comfort in the eerie period of calm that we are experiencing right now.

  What they don’t realize is that this truly is “the calm before the storm”, and the global economic crisis that is ahead of us is going to be far beyond what most people ever dared to imagine was possible.

  

  

  

  

  

• Chewbacca Arrested Driving Darth Vader To Polls In Ukraine

  As much as we’d like to believe in the fairytale that the seeds of democracy can take root anywhere in the world at any time as long as the will of the people is strong, that just isn’t the case. 

  Sometimes, the circumstances surrounding “elections” just aren’t conducive to the perpetuation of the democratic process and attempts to derive anything meaningful in terms of divining the preferences of the electorate are hopelessly complicated by questions about the integrity of the polling process. 

  Take Syria for instance, where some are now suggesting that Bashar al-Assad may hold elections even as the country’s years-old civil war still rages. And then there is of course Turkey, where President Recep Tayyip Erdogan has done virtually everything in his power to subvert the democratic process on the way to ensuring that one way or another, AKP will win an absolute majority in parliament. 

  Well, now that Syria has become the mainstream media’s geopolitical topic du jour, Ukraine has faded into the background but on Sunday, the country held local elections which served as a kind of referendum on where Ukrainians stand in terms of i) the current government in Kiev, ii) the nationalist movement as embodied by the various “volunteer” battalions fighting in the east, and iii) the pro-Russian separatist movement. Here’s a bit of color from AP for what it’s worth:

  Four exit polls from Ukraine’s local elections released Monday indicated the governing coalition would retain its dominant position in the west and center of the country despite widespread disappointment with the government of President Petro Poroshenko.

   

  In the south and east, voters favored the Opposition Bloc, formed from the remnants of the party of the former pro-Russia president, who was overthrown in early 2014 after months of street protests.

   

  The Central Election Committee said it had received data from only 30 percent of the vote by Monday morning, reflecting the challenge of calculating the results of elections for more than 10,700 local councils as well as mayors.

   

  More than 130 parties fielded candidates. Complete results were expected Nov. 4.

   

  Sunday’s elections were held nationwide, except for parts of the Donetsk and Luhansk regions of eastern Ukraine controlled by Russia-backed rebels. In eastern areas recaptured by government forces, former separatists ran for office as candidates from the Opposition Bloc.

   

  Poroshenko’s party and others in his coalition had hoped to expand their influence through the local elections, but this proved not so easy to do, political analyst Vladimir Fesenko said. “The disposition of forces shows that the country is divided,” he said.

  Despite the fact that the US State Department says “these elections largely reflected the will of the Ukrainian people and generally respected democratic process,” The Guardian contends that “the elections were marked by traditional dirty tactics such as voter-buying, spoiler candidates and backroom deals, leading many observers to claim that the new Ukrainian government has not yet managed to introduce the ‘new kind of politics’ promised after the Maidan revolution last year.”

  And the “dirty tactics” aren’t limited to vote-buying and backroom deals. 

  Ukrainian police have also resorted to forcibly preventing voters from making it to the ballot box. Case in point: Chewbacca was on his way to deliver one of several Darth Vaders running for local office to a polling station when the Wookiee was arrested for having “improper papers.”

  Here’s The Guardian: 

  The Star Wars character Chewbacca has been dragged before a court in Odessa, in perhaps the most surreal episode in local elections across Ukraine that have been both hotly contested and full of dirty tricks.

   

  The man inside the costume was fined 170 hryvnia (£5) for the “administrative offence” of not being able to produce identification documents.

   

  A statement posted on the official Instagram account of the Ukrainian police read: “Nothing unusual here, just Chewbacca detained for being without documents while driving Darth Vader to the elections in Odessa. The Sith Lord has already claimed this was illegal as Chewbacca is his pet and general servant and thus does not require documents.”

   

  Police had earlier dragged Chewbacca from a polling station and put him in a van after accusing him of disrupting proceedings. Chewbacca said he had been there to support Darth Vader, who was attempting to vote.

   

  Darth Vaders have been frequent candidates at Ukrainian elections, with a reported 16 of them taking part in last year’s parliamentary vote. The Vaders, many of whom have changed their names legally, usually campaign in full costume.

  Chewbacca appeared in court today in Odessa and was fined $7.50. Ukraine: never boring. (via @ItsBorys) pic.twitter.com/uo57cdJl6H

  — Shaun Walker (@shaunwalker7) October 26, 2015

  And before you ask yes, there is a video… or two… or three… 

  But try as they might, the Ukrainian authorities were unable to undercut the will of the people which explains why Emperor Palpatine won nearly 55% of the vote and a seat on the on Odessa City Council.

  We close with a quote from Odessa mayoral candidate Aleksandr Borovik and a classic video clip which we’re reasonably sure readers will appreciate in the context of everything outlined above.

  “A cartoon comrade of Darth Vader – Palpatine – received 54.4 percent of votes in Poselok Kotovskogo [one of Odessa’s neighborhoods]. Palpatin Dmitry, born in 1990, who works as an emperor at ‘LLC Palpatine Finance Group’ makes it to the city council on the Trust Affairs party list.”

  

  

  

  

• The Military Industrial Complex 'Unicorn': Former NSA Chief Raises $32.5 Million For "Startup"

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  

  Former head of the NSA, Keith Alexander, has been a busy guy since he left government. Having avoided any accountability whatsoever despite systematically using the U.S. Constitution as toilet paper, Mr. Alexander is doing what every government official does upon leaving office. He’s trying to grab as much money as possible.

  Liberty Blitzkrieg readers will recall the 2014 post, Ex-NSA Chief Keith Alexander is Now Pimping Advice to Wall Street Banks for $1 Million a Month, in which I introduced his firm, IronNet Cybersecurity Inc. Fast forward a year, and Silicon Valley is chomping at the bit to embrace a company headed by a man who by all accounts should be in prison.

  From the Wall Street Journal:

  The former head of the National Security Agency has attracted funding for his cybersecurity startup from a prominent venture-capital firm, highlighting the continuing ties between Silicon Valley and Washington despite recent tensions.

   

  Kleiner Perkins Caufield & Byers is among the investors providing a $32.5 million infusion to IronNet Cybersecurity Inc., which aims to help companies fight computer hackers with software.

   

  IronNet was founded by Keith Alexander, who was NSA director in 2013 when former agency contractor Edward Snowden revealed that the NSA had snooped with help from technology firms. Since then, government officials and tech executives have clashed over the proper limits of encryption technology.

   

  As IronNet builds its technology, officials such as Mr. Olsen have offered consulting services to bring in extra revenue. Mr. Alexander said he has been boning up on how to run a startup, such as drafting term sheets for investors.

   

  “It’s been a good year,” Mr. Alexander said of IronNet in an interview. “I’m not going to say it’s been an easy year.”

   

  It also hasn’t been without controversy. Some critics accused Mr. Alexander of too quickly cashing in or potentially relying on classified intelligence to turn a buck.

  Banana Republic justice.

  

  

  

  

  

  

• "Everything We Know" About Russian Intervention In Syria: The Infographic

  Over the course of the past four weeks, Russia has captured the world’s attention with Moscow’s “unexpected” intervention in Syria’s protracted civil war. 

  While it wasn’t difficult to predict some manner of intervention by The Kremlin (the world has long known Putin to be a staunch Assad ally and both Russia and China have voted together on the Security Council to prevent the conflict from being referred to The Hague), what was surprising to some observers was the rapidity and efficiency with which Moscow deployed to Latakia. 

  Russia’s swift buildup and subsequent air campaign took the West completely off guard as Washington and its European and regional allies apparently assumed Moscow would adopt a similar strategy to that pursued in eastern Ukraine where Kremlin support has been more tacit than explicit. 

  For those interested, we present the following infographic which endeavors to outline “everything we know” about Russia’s deployment in Syria from sorties flown out of Latakia, to overflight denials, to cruise missile strikes.

  

  

  

  

  

  

• China Unleashes The Jingoist Rhetoric: "If U.S. Ships Stop, We Should Lock Them By Fire-Control Radar"

  Now that the U.S. has sailed the guided missile destroyer USS Lassen within 12 miles of the disputed islands in the South China Sea as “an assertion of freedom of navigation and as a means to balance power in the region”, it was time for China to offer its “diplomatic” response.

  

  And the best place to do that would be ultranationalistic Global Times, a newspaper described as “a Chinese tabloid under the auspices of the People’s Daily newspaper, focusing on international issues at a communist Chinese perspective. The Global Times differentiates itself from other Chinese newspapers in part through its more populist approach to journalism, coupled with a tendency to court controversy.”

  Here is what the editors said in an agitated, jingoist Op-Ed published earlier today.

  After the show, it’s time for US destroyer to leave

  According to Reuters and the Wall Street Journal, the US Navy sent the guided-missile destroyer USS Lassen within 12 nautical miles of islands built by China in the South China Sea. US officials claimed that the action is aimed at safeguarding the freedom of navigation and did not target China. The patrols could also be conducted around features that Vietnam and the Philippines have built up in the South China Sea. According to the US side, the action has been approved by President Barack Obama, but with no notification for China.

  Washington hinted long ago that it would send ships within 12 nautical miles of China’s islands, but it didn’t say explicitly what it would do. The US said the action would last several hours. According to Western media, Chinese navy ships are closely watching the Lassen. The Pentagon is obviously provoking China. It is time to test the wisdom and determination of the Chinese people.

  We should stay calm. If we feel disgraced and utter some furious words, it will only make the US achieve its goal of irritating us.

  We should analyze the actual condition of the US harassment. It seems that the US only wants to display its presence as it didn’t raise the imprudent demand that China stops island-building. It has no intention to launch a military clash with China. It is just the US’ political show. The UN Convention of the Law of the Sea provides three categories. The first is islands, which are naturally formed, habitable areas above water at high tide, and are therefore entitled to 12 nautical miles of territorial waters and a 200 nautical mile exclusive economic zones (EEZs). The second is reefs that have portions above water at low tide, and are uninhabitable, which have territorial waters but no EEZs. Finally, completely submerged “low tide elevations” have no territorial waters.

  The islands and reefs in the Nansha Islands under the control of the Chinese mainland belong to the latter two categories. China did not elaborate whether it will expand its territorial seas after land construction. This is where the ambiguity of the international law. In addition, China hasn’t announced its territorial baseline in the South China Sea, making the legal meaning of Sino-US contention in the South China Sea vague.

  China and the US have no conflicting views over the international law. Instead, the two are competing with each other over the rules and orders in the South China Sea. Beijing’s construction work in the area is completely legal, and there is nothing Washington can blame it for. Yet, from Washington’s perspective, the geopolitical situation in the area will be changed following China’s island reclamation. Beijing may seize the advantage to control the Nansha Islands and their adjacent seas. The US also conjectures that China will gain strategic pivots for power projection to the south in the future. Therefore, Washington, annoyed and anxious, has taken actions in order to balance Beijing’s clout and to consolidate its dominance in the South China Sea.

  It has to be noticed that China has already carried out construction work in the area. This is the concrete achievements Beijing has gained. Completing building the islands still remains as a major task for China in the future. At present, no country, the US included, is able to obstruct Beijing’s island reclamation in the region.

  In face of the US harassment, Beijing should deal with Washington tactfully and prepare for the worst. This can convince the White House that China, despite its unwillingness, is not frightened to fight a war with the US in the region, and is determined to safeguard its national interests and dignity.

  Beijing ought to carry out anti-harassment operations. We should first track the US warships. If they, instead of passing by, stop for further actions, it is necessary for us to launch electronic interventions, and even send out warships, lock them by fire-control radar and fly over the US vessels.

  Chinese should be aware that the US harassment is only a common challenge in China’s rise. We should regard it with calm and be confident of our government and troops. It is certain that the Chinese government, ordering the land reclamation, is able and determined to safeguard the islands. China is gradually recovering its justified rights in the South China Sea. China has not emphasized the “12 nautical miles.” It is the US that helps us to build and reinforce this concept. Then, it is fine for us to accept the “12 nautical miles” and we have no intention to accept 13 or more than 13 nautical miles.

  

  

  

  

  

• Why Are Half Of All 25-Year-Olds Living With Their Parents? The Federal Reserve Answers

  Back in 1999, a quarter of all 25-year-olds lived with their parents. By 2013 this number has doubled, and currently half of young adults live in their parents home.

  While the troubling implications for the economy from this startling increase are self-evident, and have been extensively discussed both here and elsewhere (and are among the key factors pushing both the US and global economy into secular stagnation), a just as important question is why are increasingly more young adults still living at home.

  

   

  While we admit there is something morbidly grotesque in none other than the Fed taking an active interest in this most devastating development (for the simple reason that it has been the Fed’s own policies that have unleashed not only the $1.3 trillion wave of student debt but an army of Millennials in their parents’ basement), it is the Fed itself that has been the latest to attempt an answer.

  Here is the Fed’s response to “Why Are More Young Adults Still Living at Home?”

  Economist Maria Canon and Regional Economist Charles Gascon noted that many factors have been suggested for why young adults return to or continue living at home, including significant student debt, weak job prospects and an uncertain housing market. The table below breaks down the percentage of 25-year-olds who were living at home for the period 2012-2013 in each state in the Federal Reserve’s Eighth District as well as in the country as a whole.

  

  Labor Market and Higher Education

  One potential reason for the increase in young adults living with their parents is the labor market. The authors highlighted research showing that individuals at the beginning of their careers often need more time to transition into the labor market. This is reflected in the unemployment rates of those between 21 and 27, which are often higher than for other age groups.

  Earning a college degree can help with labor market outcomes, as young adults with a college degree are more likely to live independently. However, additional research has shown that the underemployment rate for recent graduates was about 40 percent during the Great Recession. Canon and Gascon noted: “An implication is that a significant portion of recent graduates were earning lower wages than what they should have been, given their education.”

  Also affecting many young adults is that they started their post-education careers during a recession. Canon and Gascon discussed a study noting that those entering the job market during a recession pay a price for about a decade. They wrote: “That’s because they start work for lower-paying employers and slowly work their way up toward better-paying jobs.”

  Housing Market

  The nation’s recovery may also play a role in young adults remaining at home. As the economy has grown, so have house prices. Canon and Gascon pointed out that national house prices have increased 21 percent since 2012, and rental prices have grown even faster in many areas. They wrote: “Because most youth would be first-time homebuyers, they have no housing equity to regain from the rebound in house prices after the housing crash.”

  In the Eighth District, housing generally remains more affordable. The authors noted that the median house costs 3.3 times the median household income nationally, but less than 3 times the median household income in most District states.

  Student Debt

  According to a 2014 survey, more than half of first-time homebuyers said student loan debt was delaying saving for a down payment for a house. A 2015 report from the Federal Reserve Bank of New York found that a $10,000 increase in a student’s average debt increases the probability of living with parents or other family members by the age of 25 by about 2 percentage points.

  * * *

  To all the 25-year olds out there reading this from their parents’ basement, all we can add is that these are actually all correct. There is just one thing left to add: for all of the above you can thank, who else, the Fed for blowing the biggest debt-funded asset bubble in history.

  

  

  

  

  

• Guest Post: Donald Trump Says The U.S. Should Have Stolen Iraqis' Oil After Destroying Their Country

  Authored by Eric Zuesse,

  On Sunday the 25th of October, Republican U.S. Presidential aspirant Donald Trump was interviewed on CNN’s “State of the Union” show, and was asked about Iraq. He said, "I told you very early on, if we're going to leave, take the oil.” He then repeated this theme again, in this CNN interview: “And I said, take the oil when we leave. But we shouldn't have really left.”

  So: he thinks that the U.S. occupation of Iraq should have continued on, and should be continuing, and that the U.S. should have “taken” Iraq’s oil. But he added that, “We shouldn’t have gotten in” to Iraq in the first place. This latter opinion from him was purely a retrospective comment, and Trump had never even expressed himself publicly about the invasion until it had already been done. He had said at that time (August 2004) only that it was a mess and had been done incompetently.

  This new retrospective evaluation by Trump of the invasion of Iraq, now on CNN, sparked from the interviewer, questions about whether Trump thinks that “the world would be better off with Saddam Hussein” in power in Iraq. Trump answered directly, “A hundred percent.” He added: "They're worse now than they ever were. People are getting their heads chopped off. They're being drowned. They're — right now, they are far worse than they were ever under Saddam Hussein.” And, in fact, no reasonable person can doubt the truth of that statement. The recently released "Gallup 2015 Global Emotions Report” interviewed a thousand citizens of each of 148 countries and found: "Iraqis Are the Saddest & One of the Angriest Populations in the World.” Furthermore, Iraqis were found to have the world’s “Highest Negative Experience Scores,” which is a misery-index. Therefore, Trump is accurate to say that the American government did such a thing as that, to the people of Iraq. 

  So: he thinks the U.S. destroyed the lives of the Iraqi people, but that “we” (no one asked him who, or how) should have taken their "oil when we leave” (would it go to Exxon, the Kochs, the U.S. government that invaded Iraq — whom, and how?) — and that American occupiers shouldn’t have left Iraq, that the U.S. military should instead still be occupying their country.

  On 11 April 2011, he had told the Wall Street Journal

   

  (8:05– on their video): “I always heard that when we went into Iraq we went in for the oil. I said, ‘oh, that sounds smart.’ But, we never did. …

  (8:35-) I would take the oil. … You know, we have thousands of people that died, our great soldiers, they died. … I would not want to be the one that would tell their [U.S. soldiers who had fought in Iraq] parents that your son or daughter has died in vain, been wounded in vain.”

  Then, he said (9:30-): “I’d give plenty to Iraq [first he’d steal all of it from them, then he’d generously let them have some of it back], I’d keep plenty for us, I’d pay back Britain, I’d pay back everybody that was involved. …

  (10:35): We will make a fortune. They have fifteen trillion dollars worth of oil. … We are not going to hand that oil to Iran.” He was saying that it’ll go to either Iran or “us.” It won’t go to Iraq, except for what “we” will give to Iraq, of Iraq’s oil. Also, he mentioned China many times there as being an enemy-nation, which now is getting oil from both Iraq and Libya, and he said that he wants China to have to pay “us,” for all of that oil, too.

  *  *  *

  This interview was by Ms. Kelly Evans, and her name didn’t even appear in the blogpost (Rupert Murdoch’s print newspaper didn’t publish it) except at the end, but she performed such a superb job of interrogating a Republican Presidential candidate (against Romney in 2012), that this, which is still the best-ever interview of Trump, got buried by Rupert Murdoch’s operation, as a mere blogpost, headlined "Trump Will ‘Probably’ Run as Independent If He Doesn’t Win GOP Nomination.” From then, till now, Trump revealed more than he has yet revealed in his 2016 Presidential run. And what he revealed there was buried, and has largely remained buried, for the past four years.

  So: Trump would want the U.S. something-or-others (Exxon? Koch? He has always refused to say who “we” are) to “take their oil” in order for U.S. warriors not to have “died in vain.” He also said in his interview with Kelly Evans (7:55– and repeated by him at 11:20-), “I’m only interested in Libya if we take the oil. If we don’t take the oil, I have no interest in Libya.” He wants to steal Iraq’s oil “for our great soldiers, they died.” But why he’d want to steal Libya’s  oil? He said in that 2011 interview, that the reason is because (11:25-) “China gets its oil from Libya; we get nothing from Libya.” So: “we” should steal Libya’s oil because China wants it.

  Months after that WSJ-blog-video interview, Reuters headlined on 18 December 2011, “Last U.S. troops leave Iraq, ending war.” Iraq had not handed its oil over to the United States. This fact continued to disturb Trump. On 16 August 2015, he told “Meet the Press”: “Take back the oil. We take over the oil which we should have done in the first place. … And what I would do with the money that we make, which would be tremendous, I would take care of the families of the soldiers that were killed, the families of the soldiers, the wounded warriors that I see. I love them.”

  So: somehow, he’d give them a chunk. Who would get the rest? He didn’t say. He wasn’t asked. He has never been asked, beyond what Kelly Evans extracted from him — and even she could have drilled much farther than she did.

  What’s refreshing about Trump is the directness with which he expresses his psychopathy. For example, candidates such as Hillary Clinton sugar-coat theirpsychopathy, or even find ways to get their interviewers to join eagerly in their expressions of it (camaraderie with power-holders), but they don’t say such blatant things as (to paraphrase Trump here), “After we raped them — which we shouldn’t have done — we should have stolen from them, and we should still be  stealing from them.”

  The delight that Trump gives his Republican admirers might be due to his "F-U!” responses to politicians such as Clinton, Obama, and other conservative Democrats, and to liberal commentators who support them (including most media other than Fox ‘News,’ etc.), for those liberals’ hypocrisies. Even blatant psychopaths can take delight in knocking down the hypocritical moralisms of liberals.

  As for progressives such as Bernie Sanders — they’re not really conservatives of either the overtly conservative type (Republicans), or the covertly conservative type (almost all Presidential-level Democrats, plus the national ‘news’ media). Sanders is trying to shoehorn himself into the Democratic Party at the Presidential level, but at his heart he’s a progressive, who’s trying to restore the Democratic Party to the progressivism that it was under President Franklin Delano Roosevelt. Sanders calls that (and the existing versions of it in Scandinavia) “socialism.”

  Trump is certainly no progressive (no “socialist,” to use Sanders’s term for progressivism). But he’s more than just an “entertainer” (to employ the characterization of his political involvement, from Arianna Huffington). Among Republicans and other psychopaths, his political appeal is very real, and is hardly “entertainment.” It’s revenge and anger against liberal hypocrites. Among Republicans, life is a blood-sport, not just dripping blood. It’s all “red in tooth and claw.” To them, that’s what business should be all about; and government is just the CEO who’s the king of the hill. Successful people in business tend to have that attitude, but so too do fundamentalists and true-believers in any religious faith — everything’s either “us” or “them”; and everyone’s goal is that, as much as possible, all of the blood that’s on the floor will be “theirs,” not “ours.”

  Crusades and jihads can be in business and government, not merely in religions. Donald Trump is a warrior, and he has now seriously entered the political battlefield, claiming to be the most effective warrior for “us.”

  *  *  *

  Investigative historian Eric Zuesse is the author, most recently, of  They’re Not Even Close: The Democratic vs. Republican Economic Records, 1910-2010, and of  CHRIST’S VENTRILOQUISTS: The Event that Created Christianity.

   

  

  

  

  

  

• Pentagon: Ready For Direct Ground Action In Syria, Iraq

  Update: While it’s not entirely clear whether this represents an explicit pivot or simply amounts to a reiteration of comments US defense officials made in the wake of the ISIS prison raid that freed some 70 captives in Iraq and led to the first US casualty in ground combat since 2011, the media is alive with reports this evening which indicate that Defense Secretary Ash Carter may be set to send more spec ops ground troops to Iraq and “engage directly” in Syria. Here’s CNN with the official White House-approved line:

  The U.S. is considering increasing its attacks on ISIS through more ground action and airstrikes, Defense Secretary Ashton Carter said Tuesday.

   

  Carter told the Senate Armed Services Committee that the U.S. “won’t hold back” from supporting partners carrying out such attacks or from “conducting such missions directly, whether by strikes from the air or direct action on the ground.”

   

  The White House, however, has yet to make a decision on the options for upping the campaign against ISIS, according to defense and administration sources. They said that further involvement on the ground was one of the possibilities being presented.

   

  The ground option Carter mentioned to the committee was part of a three-prong effort — which he dubbed the “three Rs” — to adapt the U.S. policy on countering ISIS.

  Meanwhile, a few notable US lawmakers had some colorful remarks for Carter. First there was uber hawk John McCain insisiting that the Russians and the Assad regime are “slaughtering” the moderates:

  Committee Chairman John McCain of Arizona peppered Carter with questions about how the U.S. would protect forces as Russia carries out airstrikes that have been hitting forces opposed to Syrian President Bashar al-Assad.

   

  “Are we going to protect them from being barrel bombed by Bashar Assad and protected from Russia?” McCain asked.

   

  “We have an obligation to do that. We made that clear right from the beginning of the train-and-equip program,” Carter said.

   

  “We haven’t done it. We haven’t done it,” McCain disagreed.

   

  Carter said to date, no forces that have been part of the U.S. training program have come under attack from Russian forces, but McCain once again disagreed.

   

  “I promise you they have,” McCain said. “You will have to correct the record. … These are American-supported and coalition-supported men who are going in and being slaughtered.”

  And here’s Lindsey Graham’s assessment:

   “This is a half-assed strategy at best.”

  On that point will not protest.

  *  *  * 

  Earlier

  In addition to increased ground action and airstrikes, or “raids,” Carter also spoke of the need to increase pressure around the ISIS stronghold of Raqqa in Syria, where “we will support moderate Syrian forces” fighting the terror organization there.

  When analyzing geopolitics it’s important to try and skate ahead of the puck, so to speak. That is, while it’s useful to understand what’s going on now, it’s even more imperative to analyze the situation in an attempt to understand how the situation is likely to evolve going forward. 

  As it relates to the Mid-East, that means looking past Syria and on to Iraq. As we’ve outlined in great detail of late, there’s every reason to suspect that Russia will expand its airstrikes across the Syrian border and indeed, Baghdad has reportedly given Moscow the go-ahead to hit ISIS convoys fleeing Syria into Iraqi territory. This is in direct contradiction to what PM  Haider al-Abadi told Gen. Joseph Dunford last week and suggests that Baghdad is about to pivot East, after becoming frustrated with a lack of results stemming from more than a year of US airstrikes against Islamic State targets. 

  It’s critical to note that Iran (via the IRGC and, more specifically, the Quds Force) controls Iraqi politics and the Iraqi armed forces. This means that Russia will find an extremely receptive environment when it comes to expanding the air campaign beyond Syria. We won’t get into the details here, but we do encourage you to review the whole story as detailed in “Russia Takes Over The Mid-East: Moscow Gets Green Light For Strikes In Iraq, Sets Up Alliance With Jordan” and “Who Really Controls Iraq? Inside Iran’s Powerful Proxy Armies.” 

  Over the weekend we brought you helmet cam footage which purported to depict a US/Peshmerga raid on an ISIS prison. The operation allegedly freed some 70 hostages whose graves Islamic State had (literally) already dug. For those who missed it, here’s the video:

  And here was our assessment: 

  Now obviously, there’s no telling what actually went on here, nor is there any telling what 30 members of Delta Force were doing running around with the Peshmerga in northern Iraq, but one thing is for sure: the US media seems to be trying to counter the Russian propaganda blitz by holding up the Huwija raid and the death of Master Sgt. Joshua L. Wheeler as proof that Washington is serious about battling ISIS. We are of course not attempting to trivialize the death of Joshua Wheeler by writing this off as some kind of publicity stunt aimed at countering the Russian media blitz. In fact, the opposite is true. If the US is now set to ramp up the frequency with which the Pentagon puts American lives at stake by inserting spec ops in ground operations just so Washington can prove to the world that America is just as serious as Russia is about fighting ISIS, well then that’s a crying shame for US servicemen; especially considering the role the US and its regional allies had in creating the groups that Delta Force and other units are now tasked with countering.

  Sure enough, others are now beginning to ask questions about the timing of the raid and subsequent release of battlefield footage. Here’s Sputnik, citing China’s CCTV: 

  Russian-led counterterrorism efforts are so successful that they are “unnerving” Washington, CCTV reported. As a result, last week US leadership decided to act so as to prevent Iraq from fostering ties with Moscow.

   

  The Chinese media outlet believes that the operation to free hostages in Northern Iraq followed this new logic. Last Thursday, US and Kurdish forces managed to free 70 people from a prison located to the west of Kirkuk. The operation saw the United States lose its first soldier in combat since Obama launched the campaign to degrade and ultimately destroy Islamic State. 

   

  This mission raised questions over Washington’s plans in Iraq. On Friday, US Defense Secretary Ashton Carter tried to dispel fears of the possible  mission creep by saying that the US was not “assuming a combat role” and the operation was “a continuation of our advise-and-assist mission.”

   

  However, Carter stated that similar missions, which redefine assistance if not blur the line between combat and training, could be conducted in the future.

   

  CCTV believes that the US-led hostage rescue operation was a show of force aimed at Iraq’s leadership. The mission was meant to send a clear message to Baghdad, which is rumored to be planning to ask Moscow for greater assistance in its fight against Islamic State.

  Of course we need to consider the sources here (i.e. this is Russian media quoting Chinese media) but nevertheless, this is precisely consistent with the assessment we offered immediately after the helmet cam footage was released. 

  In short, it seems entirely possible that the presence of Delta Force in the ISIS prison raid might well have been premeditated by the Pentagon. The official line is that 30 US commandos where present in an advise and assist role to the Peshmerga and once the Kurds started to take losses, Delta Force decided to intervene.

  But is that the real story, or did Washington deliberately send spec ops into a battle the US knew they would win so that The White House could trot the “successful” operation out to Baghdad as evidence of why Iraq shouldn’t turn to Moscow for help?

  We’ll let readers decide that for themselves and simply close with the following bit from Reuters which pretty clearly indicates that suddenly, the US has had a change of heart about putting boots on the ground in Iraq…

  The top U.S. military officer said on Tuesday he would consider recommending putting U.S. forces with Iraqi troops to fight Islamic State if that would improve the chances of defeating the militants.

   

  “If it had an operational or strategic impact and we could reinforce success, that would be the basic framework within which I’d make a recommendation for additional forces to be co-located with Iraqi units,” Marine General Joseph Dunford told a Senate hearing.

   

  Dunford, the chairman of the Joint Chiefs of Staff, outlined four reasons it might be useful to put U.S. troops with Iraqi forces: increasing the coherence of the military campaign, ensuring logistics effectiveness, boosting intelligence awareness and improving combined arms delivery.

  

  

  

  

  

• Oct 28 – White House, Congress reach tentative U.S. budget deal

  EMOTION MOVING MARKETS NOW: 63/100 GREED

  PREVIOUS CLOSE: 60/100 GREED

  ONE WEEK AGO: 51/100 NEUTRAL 
  ONE MONTH AGO: 18/100 EXTREME FEAR

  ONE YEAR AGO: 13/100 EXTREME FEAR

  Put and Call Options: GREED During the last five trading days, volume in put options has lagged volume in call options by 30.42% as investors make bullish bets in their portfolios. However, this among the lowest levels of put buying seen during the last two years, indicating greed on the part of investors.

  Market Volatility:  NEUTRAL The CBOE Volatility Index (VIX) is at 15.43. This is a neutral reading and indicates that market risks appear low.

  Stock Price Strength: EXTREME GREED The number of stocks hitting 52-week lows is slightly higher than the number hitting highs but is at the upper end of its range, indicating extreme greed.

   

  PIVOT POINTS

  EURUSD | GBPUSD | USDJPY | USDCAD | AUDUSD | EURJPY | EURCHF | EURGBP| GBPJPY | NZDUSD | USDCHF | EURAUD | AUDJPY 
  

  S&P 500 (ES) | NASDAQ 100 (NQ) | DOW 30 (YM) | RUSSELL 2000 (TF) | Euro (6E) |Pound (6B)

  EUROSTOXX 50 (FESX) | DAX 30 (FDAX) | BOBL (FGBM) | SCHATZ (FGBS) | BUND (FGBL)

  CRUDE OIL (CL) | GOLD (GC) | 10 YR T NOTE | 2 YR T  NOTE | 5 YR T NOTE | 30 YR TREASURY BOND| SOYBEANS | CORN

   

  MEME OF THE DAY – IT’S THE JERKS

   

  UNUSUAL ACTIVITY

  RAD NOV 10 Call Activity on the name

  CHK OCT WEEKLY5 Put Activity 14960 block @$.40 on offer

  BABA 25120 block PUT Activity @$.25 on offer

  TSN JAN 50 CALL ACTIVITY 9K+ @$.65 on offer

  JAKK 10% Owner Oasis Management Co Ltd. P 245,000 @ $ 8.08

  FLWS SC 13D Filed by Matthew McCann 2005 Trust 6.1%

  More Unusual Activity…

  HEADLINES

   

  Atlanta Fed GDPNow Forecast: 0.8% (prev. 0.9%)

  White House, Congress reach tentative U.S. budget deal

  House Speaker Boehner: House To Vote On 2-Yr Budget Deal Tmrw

  BoC’s Lane: Bar for any change to inflation targeting framework is high – BoC

  ECB’s Nowotny: QE To Last At Least Until Inflation Is Close To Target

  US Durable Goods Orders (MoM) Sep: -1.2% (est -1.5%; rev prev -3.0%)

  US Consumer Confidence Index Oct: 97.6 (est 102.9; prev 103, rev 102.6)

  Markit US Services PMI Oct P: 54.4 (est 55.5; prev 55.1)

  Pfizer Tops Expectations, Lifts Outlook

  Ford doubles profits on booming US sales

  Comcast’s Earnings Get Some Help from ‘Minions’

  UPS Reports Surprise Revenue Decrease

  BP shrinks again to weather extended oil slump

   

  GOVERNMENT/CENTRAL BANKS

  Atlanta Fed GDPNow Forecast: 0.8% (prev. 0.9%)

  Fed’s Yellen to appear before congressional committee Nov. 4 –Rtrs

  White House, Congress reach tentative U.S. budget deal –Rtrs

  US House Speaker Boehner: House To Vote On 2-Year Budget Agreement Tomorrow – Yahoo

  BoC’s Lane: Bar for any change to inflation targeting framework is high – BoC

  ECB’s Nowotny: QE To Last At Least Until Inflation Is Close To Target – ForexLive

  EU’s Dombrovskis: Inflation in the Euro area is still significantly below ECB target: BBG

  ECB almost certain to ease in Dec by boosting QE, cutting deposit rate – Rtrs poll

  ECB: FX Reserves Fell To EUR 262.7bln, Down EUR 100mln

  Greek Bank Recapitalisation Law To Be Submitted To Parliament By Friday – Banking Source, Rtrs

  German trade body sees record exports in 2015 despite China, VW –Rtrs

  Portuguese President Agrees To Coelho’s Government Proposal – Diario

  IMF: Japan Needs 2017 Sales Tax Hike For Fiscal Sustainability – RTRS

  FIXED INCOME

  U.S. Government Bonds Climb on Weak Economic Data –WSJ

  Treasury Bill Rates Slide Below Zero After Debt-Ceiling Deal –BBG

  Procter & Gamble Sells Euro-Denominated Bond –WSJ

  Arch Coal Ends Debt Exchange, Restructuring Talks Continue –BBG

  Debt Totaling $345 Billion Says ECB to Cut Deposit Rate to -0.3% –BBG

  FX

  Dollar steady ahead of Wednesday’s Fed statement –Rtrs

  AUD/NZD: Aussie Posts Steep Losses Against Kiwi –WBP

  USD/CAD rises to nearly 1-month highs –Investing

  USD/CHF: Dollar Spikes to 2-Mth High, Seeks Even More –WBP

  Sterling remains lower after UK growth slows –Investing

  EUR/JPY: Euro Plummets Further Against Strengthening Yen –WBP

  COMMODITIES

  Oil falls to multi-week lows on persistent supply glut –Rtrs

  US crude futures settle at $43.20/bbl, down 1.77%

  Brent crude futures settle at $46.81/bbl, down 1.54%

  U.S. natural gas falls below $2 for the first time in three years –BBG

  Iran’s Rouhani: Sees Nuclear Sanctions Lifted By End-2015 – Rtrs

  Gold steadies above $1,160/oz ahead of Fed meeting

  EQUITIES

  INDICES: Wall Street drifts lower as earnings, crude weigh –Rtrs

  INDICES: Europe Stocks Fall for a Second Day as Earnings Miss, Oil Drops –BBG

  M&A: Cisco Announces Intent to Acquire Lancope – Cisco

  M&A: SABMiller Said to Seek More Time for AB InBev’s Formal Bid –BBG

  M&A: DuPont in M&A talks with rivals for farm unit – Rtrs

  EARNINGS: DuPont’s profit nearly halves on strong dollar – CNBC

  EARNINGS: Baxter profit declines, but beats expectations – MktWatch

  EARNINGS: Merck Profit Jumps, Prompting Higher Annual Forecast – WSJ

  EARNINGS: Pfizer Tops Expectations, Lifts Outlook – WSJ

  EARNINGS: Reynolds American meets 3Q profit forecasts – CNBC

  EARNINGS: Ford doubles profits on booming US sales – FT

  EARNINGS: Comcast’s Earnings Get Some Help from ‘Minions’ – WSJ

  EARNINGS: Coach Rises as Profit Tops Estimates, Showing Revival on Track – BBG

  EARNINGS: Gorilla Glass maker Corning’s revenue falls 5 pct – Rtrs

  EARNINGS: Bristol-Myers Tops Estimates on Cancer, Hepatitis C Sales – BBG

  EARNINGS: UPS Reports Surprise Revenue Decrease – WSJ

  EARNINGS: Cummins to cut jobs as weak global economy hurts sales – Rtrs

  ENERGY: BP shrinks again to weather extended oil slump –Rtrs

  FINANCIALS: Netherlands gives go-ahead to ABN Amro flotation, likely by year-end –Rtrs

  FINANCIALS: Deutsche Bank reviews future of Italian business –Rtrs

  TECH: IBM is under S.E.C. investigation over accounting –Fortune

  TECH: IBM announce quarterly cash dividend of $1.30/share and a $4bln stock repurchase plan – ZDNet

  EMERGING MARKETS

  Angry China shadows U.S. warship near man-made islands –Rtrs

  New Brazil rules key for any merger, Telecom Italia CEO says –Rtrs

  Saudi Stocks Tumble as Government Studies Cutting Fuel Subsidies –BBG

  IMF Says Africa Must Enable Weak Currencies to Absorb Shocks –BBG

   

  Israeli Bonds Gain to Five-Month High as Flug Signals Rate Cuts –BBG

  

  

  

  

  

• OECD Chief Economist: It's Time To "Temper The Frothiness" In Markets

  Excerpted from MarketWatch's Greg Robb's interview with Catherine Mann, a former Fed staffer and current chief economist at The Organisation for Economic Co-operation and Development, who is concerned the Fed is "crying wolf," always threatening a rate hike but not moving. Simply put, The Fed’s inaction is fueling unproductive moves in asset markets, Mann said.

  …we argued that September would have been a good idea because it would have put behind us and behind the emerging markets and behind the markets, the timing of the first move.

   

  …

   

  Now going forward, we continue to have uncertainty about global trade, about the magnitude of global trade — it is quite low compared to global GDP— but this is something that the U.S. economy has been dealing with for a while. That is not new. Commodity prices? Again this is not new. We’ve been dealing with this for a while.

   

  …

   

  What is a new dimension between September and October is, that unfortunately, there is a lot of speculative capital that had been repositioning itself all summer for the expectation of a September hike. Now, since that didn’t happen, all that capital starts running back to where it was before, creating some problems in emerging markets with basically the most speculative money going for six weeks more of higher yields. So that is the unfortunate new aspect, I think, of where the global economy is. And that, again, would suggest that the best thing to do is to take the first move off the table by doing it, and then being very clear about the shallow slope of the trajectory of interest rates going forward.

  How can the Fed raise rates when inflation is not on horizon?

  I go back to a paper that Ben Bernanke gave at the Jackson Hole conference in 2012 where he set out in really very clear terms about the pros and cons of quantitative easing, which of course we were still in the process of doing at the time.

  • The pros were you want to lower interest rates, reduce the slope of the yield curve, get the credit channel moving, use the wealth effect to bolster consumption and business investment.
  • The cons were, what would we need to know when it was time to kind of take the foot off the accelerator, and it had to do with disruptions in the Treasury market and it had to do with a change in the nature of asset markets.

  So when I look at the Treasury market functioning, I see some problems there, with liquidity, some spiking. So, some disruptions or malbehavior in the Treasury market, I see as one indicator, that even though the objectives of inflation and unemployment have not been reached.

  The second indicator that was outlined in the Bernanke speech was concerns about what was going on in asset markets – housing markets but also in equity markets.

  But if you look at the equity markets and you look at what is supporting equity prices — how much of that support is coming from real economic activity versus from using stock buybacks, using cash on balance sheet for stock buybacks, or mergers and acquisitions, to reduced competition in the marketplace.

   

  These are the sort of stories that if there were a small increase in interest rates, you would temper some of that frothiness. Is this really a thing you want to be going on in asset markets? Is this really representative of the kind of asset-market activity that is supportive of the foundations for more robust growth in the U.S. economy? The answer has to be no. And so a small change in interest rates would temper some of that activity in the asset markets. So I go back to the Bernanke speech — it was a cost-benefit speech, and I look at those two elements and I say: well, the cost-benefit equation has shifted.

   

  …

   

  You’ve got the market participants with the shortest horizon having the greatest incentive to do what they want to do for six weeks at a time. That is not productive activity, whether it be in emerging markets or in the U.S. marketplace, these are not productive investments.

   

  Eliminating the incentive to engage in that kind of activity seems to me to be a good idea. We know that 25 basis points is not going to do that much, on the margin, to affect business decisions on whether to undertake real investment or not.

   

  …

   

  there is a possibility that you will see some equity market correction, but since I see a fair underpinning of where we are in equity right now is based on some of these not-really conducive to real economic activity anyway — stock buybacks, the mergers and acquisitions – taking a little bit of the top off of that is not something that is going to negatively affect the economy.

   

  There would be a proportion of the population that would have less capital gains — but they’ve been enjoying very big capital gains, and it is a narrow segment of the population. And for firms, for those who are in the equity markets, the bulk of them have a lot of ammunition to work with on their own balance sheets, so 25 basis points is not going to make a difference to them.

  I think it is hard to argue that [the economy] is overheating, but my argument for having the first interest rate rise has very little to do with the inflation target. It has a lot to do with unproductive use of resources in asset markets and so that’s my story, not the one that is the argument for the inflation target.

  Read more here at MarketWatch…

  

  

  

  

  

• Yes, A New Crisis is Coming – And Here's Why

  Submitted by Saxobank's Dembik Christopher via TradingFloor.com,

  • Shortening economic cycle means more frequent crises
  • 'Great Divergence' model saw China assuming the US' leadership role
  • We have likely reached the limits of adjusting monetary policy
  • States have compromised a return to growth due to debt

  

  Occupy Wall Street may been been a popular response to the financial crisis, but Wall Street was never actually occupied and business largely continued as usual. Photo: iStock 

   

  The oracles predicting an impending new global crisis are countless. Over the last two decades, economic cycles have been shortened due to deregulation, the financialisation of the economy, trade globalisation, and the acceleration of innovation cycles. During the last 25 years, the US economy has experienced three recessions: in 1991, 2001 and 2009. The outbreak of a new crisis in the coming years is inevitable. To forecast it amounts to acknowledging that capitalism now moves in cycles shorter than 10 years. There is no glory in that.

   

  Here are four macroeconomic scenarios for 2016: 

   

  

   

   

  Until recently, the consensus assumed a strengthening of the global economy in 2016. Various downward revisions of growth forecasts by major international organisations, however, confirm that this assumption is becoming less and less likely. 

   

  Gross domestic product growth momentum, particularly in the US, is still the main driver of global growth. It is also weaker than it used to be during the previous recoveries, as shown by potential GDP growth which has been reduced to 2% for the 2015-2015 period, compared to 3% for 2000-2007. 

   

  The weakness of this recovery can be seen in the substantial slowdown of international trade growth. The increase of global imports in volume is significantly lower compared to the years from 1992 to 2008. The adverse effects of the subprime crisis still influence global dynamics.

   

  

   

  The prospect of a new crisis brought the Great Divergence theory back to life. However, this circumstance has failed to materialise. In 2008, this model was steadily evoked but didn’t happen because it is based on the illusion that Asia, and particularly China, will prove able to take over from the US. 

   

  Still the bridesmaid

   

  Beijing’s economic influence is clearly on the rise: the yuan is the fourth most exchanged currency in the world – ahead of the Japanese yen – and should overtake the British pound in financial transactions before the end of 2016. 

   

  The “new Silk Road” strategy, which aims to build an economic bridge between Europe and the South China Sea, is an incredible tool for providing leverage to develop the country and take a leadership role in international business. 

   

  Nevertheless, the emerging yuan zone is not able to compete with the large dollar zone's hegemony. Any deterioration of the American economic outlook will have extended consequences on Asia and the whole emerging world.

   

  The possibility of a Chinese monetary bazooka cannot be overlooked in the first half of 2016. Expectations regarding new stimulus are much likely to increase in the coming months as Western central banks’ monetary policy become less clear every day. 

   

  Still, there is no emergency given the stabilisation of the Chinese stock exchange and the macroeconomic evolution of the country, which does not indicate any worrying deterioration even if it is disappointing compared to the years between 1979 and 2012. 

   

  The Chinese central bank could lower its rates and it could also act on banks' required reserve ratio – an oft-favored tool – to revive credit. With its $3.56 trillion in foreign exchange reserves (as of the end of August), China still maintains an unprecedented level of force. 

   

  Along with a dovish monetary policy, China could launch a Keynesian stimulus programme, relying on the already-expected bond issue plan which could raise 1 billion yuan. Even though president Xi Jinping proved reluctant to introduce massive economic stimulus package since coming into office in November 2012, preferring case-by-case adjustments, he won’t be able to avoid this option very long if he wants to meet the country's official macroeconomic targets. 

   

  A Chinese monetary bazooka could temporarily reassure world markets but believing it would save the global economy if developed countries sink into crisis would be a bridge too far.

  

  The Chinese economy may be big, but it is not yet ready 

  to take the reins from the US. Photo: iStock

   

  Everybody thought the global economy was on its way to a sustainable growth but more and more leading indicators (Empire Manufacturing in the US, industrial output and business sentiment in Japan, Canadian GDP, copper prices, etc.) raise concerns about a global recession. 

   

  Emerging countries are the first in line. Brazil opened the way and Turkey could be next. The increasing risk of recession should put further pressure on central bankers to keep providing liquidity. 

   

  The end of policy

   

  The Federal Reserve's possible announcement of negative rates would be seen as a desperate action with major negative consequences as rates below zero would emphasise financial distortions. Such behavior would confirm that it is impossible to get out of accommodating monetary policies. 

   

  This headlong rush will last as long as will central bankers’ credibility. But this credibility has already been damaged, particularly following the Swiss National Bank’s unexpected decision to abandon the Swiss franc’s cap earlier this year, as well as Fed chair Janet Yellen’s hesitation during the press conference held on September 17. 

   

  It is just a question of time before markets realise that the limits of monetary policy have been reached. 

   

  The crisis that never ended

   

  The weakness seen in world economic activity is partly the result of the lack of a real purge of the financial system in 2008. It has become unimaginable to let entire parts of the system collapse, and the titling of some financial institutions as “systemic” is part of this logic. 

   

  Policymakers attempting to keep unhealthy economic and financial institutions alive are making a mistake. The very essence of capitalism lies in the process of creative destruction. If companies prove unable to innovate when confronted to new competitors or if they take disproportionate financial risks, they should bear the consequences . 

   

  In 2008, public authorities refused to take responsibility for the social cost of widespread bankruptcies. Despite their role as "lender of last resort", however, states couldn’t avoid mass unemployment. 

   

  In refusing to reform the system they have compromised the prospects of a sustainable return to growth, and this is due to excess debt. Over the last seven years, private and public debt has increased by $57 billion – a figure near-equivalent of global GDP. 

   

  What we see here is not a way out of the crisis. Instead, we are on the edge of a new financial disaster.

   

  

   

  The world's financial districts are beginning to form a new consensus, and it's a gloomy one.

  

  

  

  

  

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