Today’s News September 12, 2015

• Paul Craig Roberts: 9/11 Fourteen Years Later

  Authored by Paul Craig Roberts,

  Millions of refugees from Washington’s wars are currently over-running Europe. Washington’s 14-year and ongoing slaughter of Muslims and destruction of their countries are war crimes for which the US government’s official 9/11 conspiracy theory was the catalyst. Factual evidence and science do not support Washington’s conspiracy theory. The 9/11 Commission did not conduct an investigation. It was not permitted to investigate. The Commission sat and listened to the government’s story and wrote it down. Afterwards, the chairman and co-chairman of the Commission said that the Commission “was set up to fail.” For a factual explanation of 9/11, watch this film:

   

  Here is a presentation by Pilots For 9/11 Truth:

  And here is an extensive examination of many of the aspects of 9/11.

  Phil Restino of the Central Florida chapter of Veterans For Peace wants to know why national antiwar organizations buy into the official 9/11 story when the official story is the basis for the wars that antiwar organizations oppose. Some are beginning to wonder if ineffectual peace groups are really Homeland Security or CIA fronts?

  The account below of the government’s 9/11 conspiracy theory reads like a parody, but in fact is an accurate summary of the official 9/11 conspiracy theory. It was posted as a comment in the online UK Telegraph on September 12, 2009, in response to Charlie Sheen’s request to President Obama to conduct a real investigation into what happened on September 11, 2001.

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  The Official Version of 9/11 goes something like this:

  ??Directed by a beardy-guy from a cave in Afghanistan, nineteen hard-drinking, coke-snorting, devout Muslims enjoy lap dances before their mission to meet Allah. ??Using nothing more than craft knifes, they overpower cabin crew, passengers and pilots on four planes.

  ??And hangover or not, they manage to give the world’s most sophisticated air defence system the slip. ??

  Unfazed by leaving their “How to Fly a Passenger Jet” guide in the car at the airport, they master the controls in no-time and score direct hits on two towers, causing THREE to collapse completely. ??

  The laws of physics fail, and the world watches in awe as asymmetrical damage and scattered low temperature fires cause steel-framed buildings to collapse symmetrically through their own mass at free-fall speed, for the first time in history.

  ??Despite their dastardly cunning and superb planning, they give their identity away by using explosion-proof passports, which survive the destruction of steel and concrete and fall to the ground where they are quickly discovered lying on top of the mass of debris.

  Meanwhile in Washington

  ??Hani Hanjour, having previously flunked Cessna flying school, gets carried away with all the success of the day and suddenly finds incredible abilities behind the controls of a jet airliner. ??Instead of flying straight down into the large roof area of the Pentagon, he decides to show off a little. ??Executing an incredible 270 degree downward spiral, he levels off to hit the low facade of the Pentagon. ?Without ruining the nicely mowed lawn and at a speed just too fast to capture on video.

  ??In the skies above Pennsylvania ??

  Desperate to talk to loved ones before their death, some passengers use sheer willpower to connect mobile calls that would not be possible until several years later.

  ??And following a heroic attempt by some to retake control of Flight 93, the airliner crashes into a Pennsylvania field leaving no trace of engines, fuselage or occupants except for the standard issue Muslim terrorist bandana.

  ??During these events

  ??President Bush continues to read “My Pet Goat” to a class of primary school children.?

  In New York

  ??World Trade Center leaseholder Larry Silverstein blesses his own foresight in insuring the buildings against terrorist attack only six weeks previously. ?

  In Washington

  The Neoconservatives are overjoyed by the arrival of the “New Pearl Harbor,” the necessary catalyst for launching their pre-planned wars.

  

  

  

  

  

• Visualizing China's Mind-Boggling Consumption Of The World's Raw Materials

  Over the last 20 years, the world economy has relied on the Chinese economic growth engine more than it would like to admit. The 1.4 billion people living in the world’s most populous country account for 13% of global GDP, which is significant no matter how it is interpreted. However, in the commodity sector, China has another magnitude of importance. The fact is that China consumes mind-bending amounts of materials, energy, and food. That’s why the prospect of slowing Chinese growth is likely to continue as a source of nightmares for investors focused on the commodity sector.

   

  

  Courtesy of: Visual Capitalist

   

  The country consumes a big proportion of the world’s materials used in infrastructure. It consumes 54% of aluminum, 48% of copper, 50% of nickel, 45% of all steel, and 60% of concrete. In fact, the country has consumed more concrete in the last three years than the United States did in all of the 20th century.

   

  China is also prolific in accumulating precious metals – the country buys or mines 23% of gold and 15% of the world’s silver supply.

   

  With many mouths to feed, China also needs large amounts of food. About 30% of rice, 22% of corn, and 17% of wheat gets eaten by the Chinese.

   

  Lastly, the country is no hack in terms of burning fuel either. Notably, China uses 49% of coal for power generation as well as metallurgical processes in making steel. It also uses 13% of the world’s uranium and 12% of all oil.

  These facts really hit home to show how important China is to the global consumption of raw materials. If China is unable to navigate its tricky transition to a consumer-driven economy and has a “hard landing”, it will be unlikely to see any growth in commodity prices triggered from the demand side. That said, supply is equally as important and it tells a different story: with companies like Glencore cutting copper production by 400,000 tons to better service its massive debt, the floor for commodities could be in.

  

  

  

  

  

• The Human Cost Of Socialism In Power

  Submitted by Richard Ebeling via EpicTimes.com,

  The attempt to establish a comprehensive socialist system in many parts of the world over the last one hundred years has been one of the cruelest and most brutal episodes in human history.

  Some historians have estimated that as many as 200 million people may have died as part of the dream of creating a collectivist “Paradise on Earth.” Making a better “new world” was taken to mean the extermination, the liquidation, the mass murder of all those that the socialist revolutionary leaders declared to be “class enemies,” including the families, the children of “enemies of the people.”

  The Bloody Road to Making a New Socialist Man

  We will soon be marking the hundredth anniversary of the Bolshevik Revolution in Russia (November 1917) under the Marxist revolutionary leader, Vladimir Lenin. In Soviet Russia, alone, it has been calculated by Russian and Western historians who had limited access to the secret archives of the Communist Party of the Soviet Union and the KGB (the Soviet secret police) in the 1990s, that around 68 million innocent, unarmed men, women and children were killed over the nearly 75 years of communist rule in the Soviet Union.

  The communist revolutionaries in Russia proudly declared their goal to be destruction and death to everything that existed before the revolution, so as to have a clean slate upon which to mold the new socialist man.

  The evil of the Soviet system is that it was not cruelty for cruelty’s sake. Rather it was cruelty for a purpose – to make a new Soviet man and a new Soviet society. This required the destruction of everything that had gone before; and it also entailed the forced creation of a new civilization, as conjured up in the minds of those who had appointed themselves the creators of this brave new world.

  In the minds of those like Felix Dzerzhinsky, Lenin’s close associate and founder of the Soviet secret police, violence was an act of love. So much did they love the vision of a blissful communist future to come that they were willing to sacrifice all of the traditional conceptions of humanity and morality to bring the utopia to fruition.

  Thus, in a publication issued in 1919 by the newly formed Soviet secret police, the Cheka (later the NKVD and then the KGB), it was proclaimed:

  “We reject the old systems of morality and ‘humanity’ invented by the bourgeoisie to oppress and exploit the ‘lower classes.’ Our morality has no precedent, and our humanity is absolute because it rests on a new ideal. Our aim is to destroy all forms of oppression and violence. To so, everything is permitted, for we are the first to raise the sword not to oppress races and reduce them to slavery, but to liberate humanity from its shackles . . .

   

  “Blood? Let blood flow like water! Let bloodstain forever the black pirate’s flag flown by the bourgeoisie, and let our flag be blood-red forever! For only through the death of the old world can we liberate ourselves from the return of those jackals.”

   

  

  Death and Torture as Tools of Winning Socialism

  The famous sociologist, Pitirim A. Sorokin was a young professor in Petrograd (later Leningrad, and now St Petersburg) in 1920 as the Russian Civil War that firmly established communist rule in Russia was coming to its end. He kept an account of daily life during those years, which he published many years later under the title, Leaves from a Russian Diary – and Thirty Years After (1950).

  Here is one of his entries from 1920:

  “The machine of the Red Terror works incessantly. Every day and every night, in Petrograd, Moscow, and all over the country the mountain of the dead grows higher . . . Everywhere people are shot, mutilated, wiped out of existence . . .

   

  “Every night we hear the rattle of trucks bearing new victims. Every night we hear the rifle fire of executions, and often some of us hear from the ditches, where the bodies are flung, faint groans and cries of those who did not die at once under the guns. People living near these places begin to move away. They cannot sleep . . .

   

  “Getting up in the morning, no man or woman knows whether he will be free that night. Leaving one’s home, one never knows whether he will return. Sometime a neighborhood is surrounded and everyone caught out of his house without a certificate is arrested . . . Life these days depends entirely on luck.”

  This murderous madness never ended. In the 1930s, during the time of the Great Purges instituted by Soviet dictator Josef Stalin to wipe out all “enemies of the revolution” through mass executions, there were also sent millions to the GULAG prisons that stretched across all of the Soviet Union to be worked to death as slave labor to “build socialism.”

  Before being sent to their death or to the forced labor camps, tens of thousands would be interrogated and cruelly tortured to get confessions out of people about non-existent crimes, imaginary anti-Soviet conspiracies, and false accusations against others.

  Stalin personally sent instructions to the Soviet secret police that stated that in obtaining confessions from the accused, “the NKVD was given permission by the Central Committee [of the Communist Party] to use physical influence … as a completely correct and expedient method” of interrogation.

  When Stalin was told that this method was bringing forth the desired results, he told the NKVD interrogators, “Give them the works until they come crawling to you on their bellies with confessions in their teeth.” Then, in another purge, this one after World War II, Stalin simplified the instructions even more: “Beat, beat and, once again, beat.”

  Thousands of the victims wrote letters to Stalin from their exile and hardships in the labor camps, all of them persuaded that it had all been a terrible mistake. If only Comrade Stalin knew, he would set it all right and they would be freed and restored as good, loyal Soviet citizens ready to once again work to “build socialism.”

  

  Stalin’s Personal Hand in Building Socialism Through Blood

  But Stalin knew. He personally signed off on tens of thousands of death warrants and orders for tens of thousands more to be sent to their horrifying fate in the GULAG camps.

  Domitri Volkogonov, a Soviet general-turned-historian, gained access to many of the closed Soviet archives in the 1980s, and wrote a biography of Stalin, entitled, Triumph and Tragedy (1991), meaning Stalin’s “triumph” to power and the resulting “tragedy” for the Soviet people. Volkogonov told a Western correspondent at the time:

  “I would come home from working in Stalin’s archives, and I would be deeply shaken. I remember coming home after reading through the day of December 12, 1938. He signed thirty lists of death sentences that day, altogether about five thousand people, including many he personally knew, his friends . . .

   

  “This is not what shook me. It turned out that, having signed these documents, he went to his personal theater very late that night and watched two movies, including “Happy Guys,” a popular comedy of the time. I simply could not understand how, after deciding the fate of several thousand lives, he could watch such a movie.

   

  “But I was beginning to realize that morality plays no role for dictators. That’s when I understood why my father was shot, why my mother died in exile, why millions of people died.”

  Soviet central planning even had quotas for the number of such enemies of the people to be killed in each region of the Soviet Union as well as the required numbers to be rounded up to be sent to work in the labor camps in the frigid waste lands of the Siberia and the Arctic Circle or the scorching deserts of Soviet Central Asia.

  A Russian lawyer who had access to some of the formerly closed Soviet archives of the Central Committee of the Communist Party of the Soviet Union in the 1990s told at the time:

  “Recently I read a Central Committee document from 1937 that said the Voronezh secret police, according to the ‘regional plan,’ repressed in the ‘first category,’ nine thousand people – which means these people were executed. And for no reason, of course.

   

  “Twenty-nine thousand were repressed in the ‘second category – meaning they were sent to labor camps. The local first secretary [of the Communist Party], however, writes that there are still more Trotskyites and kulaks who remain ‘unrepressed.’

   

  “He is saying that the plan was fulfilled but the plan was not enough! And so he asked that it be increased by eight thousand. Stalin writes back, ‘No increase to nine thousand!’ The sickness of it. Its’ as if they were playing poking [and upping the ante in tragic human lives].”

   

  

  The Victims of Socialism Literally Reduced to Burnt Ash

  In the last years of the Soviet Union, a Russian historian took The New York Times correspondent, David Remnick, to the Donskoi Monastery in Moscow, which in the 1930s was used as a burial ground for the thousands regularly killed on Stalin’s orders in the capital of the Red Empire. In his book, Lenin’s Tomb: The Last Days of the Soviet Empire (1993), Remnick told what the Russian historian explained:

  “See this gate? . . . Well, every night trucks stacked with bodies came back here and dumped them in a heap. They’d already been shot in the back of the head – you bleed less that way . . . They stacked the bodies in old wooden ammunition crates.

   

  “The workers stoked up the underground ovens – right in through the doors – to about twelve thousand degrees centigrade. To make things nice and official they even had professional witnesses who counter-signed the various documents.

   

  “When the bodies were burned they were reduced to ash and some chips of bone, maybe some teeth. They then buried the ashes in a pit . . . When the purges [of the 1930s] were at their peak . . . the furnaces worked all night and the domes of the churches were covered with ash. There was a fine dust of ash on the snow.”

  The Kalitnikovsky Cemetery in Moscow also served as dumping ground for thousands of tortured and executed bodies in the 1930s. That same Russian historian told David Remnick:

  “In the purges, every dog in town came to this place. That smell you smell now was three times as bad; blood was in the air. People would lean out of their windows and puke all night and the dogs howled until dawn. Sometimes they’d find a dog with an arm or a leg walking through the graveyard.”

   

  

  Enemies of Socialism Sent to Torture in the Mental Ward

  The nightmare of the socialist experiment, however, did not end with Stalin’s death in 1953. Its form merely changed in later decades. As head of the KGB in the 1970s, Yuri Andropov (who later was General Secretary of the Communist Party of the Soviet Union after Leonid Brezhnev’s death in 1982), accepted a new theory in Soviet psychiatry that said that opposition to the socialist regime was a sign of mental illness.

  Why? Because only the mentally disturbed would resist the logic and the truth of Marxian dialectical determinism and its “proof” that socialism and communism were the highest and most humane stage of social development. Those who criticized the system, or who wanted to reform or overthrow the Soviet socialist regime were mentally sick and required psychiatric treatment.

  In his book, Russia and the Russians (1984), former Moscow correspondent for the Washington Post, Kevin Klose, told the story of Alexei Nikitin, a coal mine worker who complained to the Soviet government about the safety and health environment in the mines of the Soviet Union. He was arrested, tried, and found guilty of subversion and committed to a Soviet mental institution.

  Various drugs were proscribed as treatment to bring him to his proper socialist senses. Explained Kevin Klose:

  “Of all the drugs administered [at the mental institution] to impose discipline, sulfazine stood at the pinnacle of pain . . . ‘People injected with sulfazine were groaning, sighing with pain, cursing the psychiatrists and Soviet power, cursing with everything in their hearts,’ Alexei told us. ‘The people go into horrible convulsions and get completely disoriented. The body temperature rises to 40 degrees centigrade [104 degrees Fahrenheit] almost instantly, and the pain is so intense they cannot move from their beds for three days. Sulfazine is simply a way to destroy a man completely. If they torture you and break your arms, there is a certain specific pain and you somehow can stand it. But sulfazine is like a drill boring into your body that gets worse and worse until it’s more than you can stand. It’s impossible to endure. It is worse than torture, because, sometimes, torture may end. But this kind of torture man continue for years.’

   

  “Sulfazine normally was ‘prescribed’ in a ‘course’ of injections of increasing strength over a period that might last up to two months . . . The doctors had many other drugs with which to control and punish. Most of them eventually were used on Alexei . . . At the end of two months, Nikitin was taken off sulfazine but regular doses of . . . other disorienting drugs continued the entire time he was imprisoned.”

  The significance of these accounts is not their uniqueness but, rather, their monotonous repetition in every country in which socialism was imposed upon a society. In country after country, death, destruction, and privation followed in the wake of socialism’s triumph. Socialism’s history is an unending story of crushing tyranny and oceans of blood.

  

  Socialism as the Ideology of Death and Destruction

  As the Soviet mathematician and dissident, Igor Shafarevich, who spent many years in the GULAG slave labor camps for his opposition to the communist regime, said in his book, The Socialist Phenomenon (1980):

  “Most socialist doctrines and movements are literally saturated with the mood of death, catastrophe, and destruction . . . One could regard the death of mankind as the final result to which the development of socialism leads.”

  That twentieth century socialism would lead to nothing but this outcome was understood at the time of the Bolshevik victory in Russia. It was clearly expressed by the greatest intellectual opponent of socialism during the last one hundred years, the Austrian economist, Ludwig von Mises.

  Near the end of his famous 1922 treatise, Socialism: An Economic and Sociological Analysis, Mises warned that:

  “Socialism is not in the least what is pretends to be. It is not the pioneer of a better and finer world, but the spoiler of what thousands of years of civilization have created. It does not build, it destroys. For destruction is the essence of it. It produces nothing, it only consumes what the social order based on private ownership in the means of production has created . . . Each step leading towards Socialism must exhaust itself in the destruction of what already exists.”

  When voices are raised today calling for socialism in America, including by those attempting to win a major party candidacy to run for the presidency of the United States, it is important – no, it is crucial – that the history and reality of socialism-in-practice in those parts of the world in which it was most thoroughly imposed and implemented be remembered and fully understood. If we do not, well, history has its own ways of repeating itself.

  

  

  

  

  

• The Petroyuan Cometh: Launch Of Renminbi-Denominated Oil Futures Contract Imminent

  Whenever one talks about the death of the petrodollar, the unspoken question lurking just beneath the surface is this: is the rise of the petroyuan just around the corner?

  This year, we’ve gotten quite a bit of evidence to suggest that the answer to that question may indeed be a resounding “yes.” In May for instance, Russia surpassed Saudi Arabia as the largest oil supplier to China and what’s especially notable there is that beginning in 2015, Gazprom began settling all of its crude sales to China in yuan meaning that, at least partly, the petrodollar was supplanted just as soon as its death became inevitable.

  

  Now, just as China has moved to play a greater role in determining the price of gold by participating in the LBMA auction and by establishing a yuan-denominated fix, it’s moving quickly to create a yuan-denominated oil futures contract. Here’s Reuters:

  China’s push to establish a crude derivatives contract has been met with early scepticism, but oil executives say the country’s growing economic influence means a third global crude benchmark is inevitable.

   

  A derivatives contract would give the Shanghai International Energy Exchange, known as INE, a slice of an oil futures market worth trillions of dollars, offering a rival to London’s Brent and U.S. West Texas Intermediate (WTI).

   

  And while others have tried and failed, China brings its might as the world’s biggest oil buyer, a strong dose of political will and the alignment of its financial and banking system for a yuan-denominated contract.

   

  “The energy industry is still manned, literally, by people from the West. But the world moves on, and there’s a change of guard,” said a senior market executive, speaking on the sidelines of a major industry gathering in Singapore this week, at which delegates spoke on condition of anonymity.

   

  “China has become the world’s biggest oil trader, and that means that an oil price will be set there, like it or not.”

  To be sure, some people do not and China’s recent adventures in propping up both the stock market and the yuan have, in the minds of many, served to reinforce the notion that when things aren’t going Beijing’s way, it will simply force the issue. Some fear the same thing could well happen with RMB crude futures:

  “The market doesn’t like the idea of a benchmark dominated by the world’s biggest consumer, where the regulator is suspected of having the goal of lowering prices,” said an executive with a non-Chinese exchange in Asia, speaking at the same event.

  But skeptics may have to choose between the lesser of two (perceived) evils because as we saw last month in Singapore, pricing off Dubai leaves everyone subject to perplexing anomalies like what happens when mysterious trading between two Chinese SOEs ends up throwing the market into backwardation at a time when common sense dictates that everyone should be doing the contango tango.

  The current benchmark for pricing oil in Asia in the absence of a derivatives contract is the Dubai crude assessment, run by Platts, part of McGraw Hill Financial, where trading in a specified time-frame is used to assess a daily price.

   

  Yet traders have been concerned at heavy trading by China’s state-owned Chinaoil and Unipec, which pushed up Middle East grades even as other grades were being pressued lower, and left other companies struggling to take part.

  Essentially, it looks like Chinaoil and Unipec may be gaming the Platts Dubai MoC (although no one knows exactly why) and that has implications for all kinds of people including (obviously) Saudi Arabia, Iran, and Iraq, as well as refiners and traders like Mercuria and Glencore. The hope is that a RMB contract will help solve the “problem.”

  In any event, it makes no more sense to exclude the world’s largest oil buyer from crude benchmarking than it does to keep the world’s largest producer and consumer of gold out of the gold price-setting process, which is why, in short order, China will be heavily involved in both. And as for widespread adoption of the new contract, that, like the internationalization of the yuan and the demise of the petrodollar, is only a matter of time:

  “One-by-one, the oil-majors will start to participate, then others will follow,” said an executive with a Western oil major. “While it might take some time to establish itself due to choppy markets and regulatory hurdles as well as the fact that it would introduce a foreign exchange element to crude futures, it is overdue for a Chinese contract to established.”

  

  

  

  

  

• Fourth Turning: Crisis Of Trust

  Submitted by Jim Quinn via The Burning Platform blog,

  “Imagine some national (and probably global) volcanic eruption, initially flowing along channels of distress that were created during the Unraveling era and further widened by the catalyst. Trying to foresee where the eruption will go once it bursts free of the channels is like trying to predict the exact fault line of an earthquake. All you know in advance is something about the molten ingredients of the climax, which could include the following:

  • Economic distress, with public debt in default, entitlement trust funds in bankruptcy, mounting poverty and unemployment, trade wars, collapsing financial markets, and hyperinflation (or deflation)
  • Social distress, with violence fueled by class, race, nativism, or religion and abetted by armed gangs, underground militias, and mercenaries hired by walled communities
  • Cultural distress, with the media plunging into a dizzying decay, and a decency backlash in favor of state censorship
  • Technological distress, with cryptoanarchy, high-tech oligarchy, and biogenetic chaos
  • Ecological distress, with atmospheric damage, energy or water shortages, and new diseases
  • Political distress, with institutional collapse, open tax revolts, one-party hegemony, major constitutional change, secessionism, authoritarianism, and altered national borders
  • Military distress, with war against terrorists or foreign regimes equipped with weapons of mass destruction” 

   The Fourth Turning – Strauss & Howe – 1997

  September 2015 marks the seventh anniversary of this Fourth Turning Crisis. The economic, social, cultural, ecological, political, and military distress propagates by the minute as the globe is besieged by economic turmoil, increased human suffering, and endemic corruption of the political and ruling classes. The Federal Reserve/Wall Street created global economic implosion was the spark which catalyzed this fourth Crisis period in U.S. history in September 2008. Neil Howe in a 2012 essay assessed the beginning of this Fourth Turning and why 9/11 was not the catalyst:

  “Pending stunning new developments, I believe the catalyst occurred in 2008.  It’s a date that is looking better and better as time goes by.  The year 2008 marked the onset of the most serious U.S. economic crisis since the Great Depression.  It also marked the election of Barack Obama, which could yet turn out to be a pivotal realignment date in U.S. political history. In fact, if I had to give the catalyst a month, I would say September of 2008.  The global Dow was in free fall.  Banks were failing.  Money markets froze shut.  Business owners held their breath.

  9/11 will go down as one of the more famous crisis precursors in American history.  A crisis precursor is an event that foreshadows a crisis without being an integral part of it.  Other such precursors in American history include the Stamp Act Rebellion (1765), or Bleeding Kansas (1856), or perhaps the Red Scare (1919).”

  The initial spark has triggered a chain reaction of unyielding responses by those in power, including: handing $700 billion of taxpayer funds to the Wall Street bankers whose reckless pervasive greed and fraudulent derivative products caused the worldwide conflagration, 0% interest rates for the last seven years, a quadrupling of the Federal Reserve balance sheet to $4 trillion through QE to infinity, government stimulus spending which increased the national debt from $10 trillion to $18 trillion in seven years, ongoing $600 billion annual deficits, using fraudulent accounting to disguise the insolvency of the Too Big To Fail Wall Street banks, and a conscious choice by corrupt politicians and captured government regulators to not prosecute one criminal banker.

  None of these initial responses have solved any of our pervasive problems or averted further emergencies. Not only haven’t these responses resolved the intractable economic conundrums facing the world, but they have exacerbated the next round of monetary disasters rapidly approaching. Strauss and Howe predicted the initial catalyst event would not worsen into a full-fledged catastrophe because the powers that be would find a way to avert the initial danger and stabilize the situation “for a while”. The key point was those benefiting from the existing corrupt world order would do whatever it took to temporarily forestall a calamity which would result in their downfall, loss of power, and ultimate imprisonment. They have successfully delayed the regeneracy phase of this Fourth Turning by turning on the monetary debt spigot full throttle.

  

  It is highly unlikely we will have a resolution to this Crisis period for at least another ten years, so if you think the worst is over you are badly mistaken. If the climax is somehow accelerated like the Civil War, it will likely result in bloody wars, with a horrific death toll. The five year lull can be viewed as the world passing through the eye of an immense hurricane. There will always be ebbs, flows and lulls within a 20 year long Crisis, as seen in previous Fourth Turnings.

  The Boston Tea Party catalyst spark occurred in December 1773, but the fireworks didn’t get going until 1775 and the regeneracy Declaration of Independence event in 1776. The Civil War Fourth Turning had no lulls. The catalyst election of Abraham Lincoln to the regeneracy event of the First Battle of Bull Run was only nine months. The acceleration did not allow for cooler heads to prevail. The result was ghastly death and destruction. The 1929 Stock Market Crash catalyst was followed by a three year lull until FDR’s election and New Deal programs marked the regeneracy.

  

  In my previous four part article Fourth Turning – The Shadow of Crisis Has Not Passed written early in 2015 I attempted to explain generational theory, provided evidence we are still early in this Crisis, pondered the potential clash between the citizens and our debased, dysfunctional, captured government, and contemplated the kind of war which will thrust the world through the gate of history towards an uncertain future. The misconceptions regarding generational theory and the Fourth Turning keep a vast swath of otherwise lucid thinkers from understanding the implications of generational mood changes which drive the cyclical nature of history. The cognitive dissonance and normalcy bias of most Americans blinds them to the lessons of history and leaves them vulnerable to the winter that has beset the nation.

  The Fourth Turning is not a prophecy or some Nostradamus like predictions. It’s a logical theory based upon the average time span of a long human life and the four phases of that life: childhood, young adulthood, mid-life, and old age. The interaction of generations during their phases of life is what produces the profound mood changes throughout history. The dramatic events during the course of antiquity are less important than how society responds to them. The reaction is substantially determined by the season of the saeculum and the generational mood that aligns with that season. We’ve entered the Winter season, with bitterly cold days ahead and intense blizzard-like conditions forecast for the next decade.

  

  The ignorance of linear thinking advocates regarding the cyclical nature of history is either due to their “progressive” public educational brainwashing or their intellectual inability to grasp the obvious. Our daily existence is cyclical with 24 hours in a day, 365 days in year based upon earth’s orbiting the sun, 12 months divided into four seasons, and the circle of life – birth through death is the ultimate cycle perpetuating life on this planet. There are dozens of astronomical, mathematical, religious, sleep, agricultural, social, economic and war cycles known to man. Martin Armstrong has a cycle theory predicting the collapse of government between 2016 and 2020. The Kondratiev Wave theory and Elliott Wave Theory are preached by “experts” and followed by millions. Of course, many of these “experts” are busy selling their predictions in newsletters to make a buck.

  The thought leaders in academia, politics, business, and mass media perpetuate the myth of never ending linear progress created by technological advances and the ever increasing intellectual evolution of mankind. The hubris of these people is incomprehensible when viewing history. The myopic delusions of these arrogant egotists are easily shattered by the horrific regressions of history. Were the Great Depression and the 65 million people killed during World War II progress for mankind? Was Stalin’s murder of 20 million Russian peasants a linear progression? Was Mao’s Great Leap Forward murder of 45 million Chinese peasants really a leap forward? Was the death of 5% of the U.S. male population in the space of four years during the Civil War really progress?

  Mankind and civilization do not advance in a straight line. Progression and regression alternate in a cyclical fashion. As generations die out, memories of the previous cycle are forgotten, and the mistakes are repeated again. Human nature does not change. Good, evil, greed, fear, bravery, honesty, arrogance, sacrifice, and truth intermingle to drive humans through the cycles of history.

  

  Strauss & Howe were economists and historians who attempted to make some sense out of the seemingly convoluted twists of history. They deciphered a pattern which could be traced back for centuries based upon the age and alignment of generations throughout history. They never attempted to capitalize on their work by selling newsletters or peddling their predictions about the future. When they published their work in 1997 they couldn’t predict the exact events which would drive the next Fourth Turning, but they could estimate the general timing and the core elements which would drive the crisis: debt, civic decay, and global disorder. These areas were neglected, denied, and unaddressed during the Unraveling period from 1984 through 2008. To read their words now, eighteen years after they were written and eleven years before this Fourth Turning struck, is haunting, as they describe precisely where we stand today:

  “As the Crisis catalyzes, these fears will rush to the surface, jagged and exposed. Distrustful of some things, individuals will feel that their survival requires them to distrust more things. This behavior could cascade into a sudden downward spiral, an implosion of societal trust.”

  “But as the Crisis mood congeals, people will come to the jarring realization that they have grown helplessly dependent on a teetering edifice of anonymous transactions and paper guarantees. Many Americans won’t know where their savings are, who their employer is, what their pension is, or how their government works. The era will have left the financial world arbitraged and tentacled: Debtors won’t know who holds their notes, homeowners who owns their mortgages, and shareholders who runs their equities – and vice versa.”

  The Fourth Turning – Strauss & Howe – 1997

  

  Regeneracy – Where Art Thou?

  The regeneracy during a Fourth Turning is when a sense of urgency about institutional dysfunction and civic vulnerabilities coalesce the nation or large blocs of the homeland behind a strong leader to tear down the existing social, economic and cultural order and replace it with something different. The different can be better or far worse. The Declaration of Independence, First Battle of Bull Run, and election of FDR marked the regeneracy in prior American Fourth Turnings. They all occurred within four years of the initial catalyst. It is now seven years into this Fourth Turning and a clear regeneracy event has not materialized. This has been a frustrating development for those who are impatient to get this Fourth Turning moving at a quicker pace. But, each Fourth Turning will proceed at its own pace dependent upon events, the country’s reaction to those events, and the leaders we choose during the Crisis.

  Neil Howe, in his 2012 essay pondered the regeneracy issue and described it more as an era than an event. It requires something dramatic that unifies the country or causes the people to break into separate unified factions.

  “I think it’s pretty obvious that the regeneracy has not yet started.  So how long do we need to wait for it?  And how will we know when it starts?  Those are good questions.  I recently went back over The Fourth Turning to recall how we dated the stages of the each of the historical 4Ts.  And I found that we were very explicit about dating the other three stages (catalyst, climax, and resolution) for each 4T.  But we were always a bit vague about dating the regeneracy, treating it more like an era than a date.  There is a reason for this.  We may like to imagine that there is a definable day and hour when America, faced by growing danger and adversity, explicitly decides to patch over its differences, band together, and build something new.  But maybe what really happens is that everyone feels so numb that they let somebody in charge just go ahead and do whatever he’s got to do.  I’m thinking of how America felt during the bleak years of FDR’s first term, or during Lincoln’s assumption of vast war powers after his repeated initial defeats on the battlefield.

  The regeneracy cannot always be identified with a single news event.  But it does have to mark the beginning of a growth in centralized authority and decisive leadership at a time of great peril and urgency.  Typically, the catalyst itself doesn’t lead directly to a regeneracy.  There has to be a second or third blow, something that seems a lot more perilous than just the election of third-party candidate (Civil War catalyst) or a very bad month in the stock market (Great Power catalyst).

  We are still due for such a moment.  We have not yet reached our regeneracy.  When it happens, I strongly suspect it will be in response to an adverse financial event.  It may also happen in response to a geopolitical event.  It may well happen over the next year or two.  Given the pattern of historical 4Ts, it is very likely to happen before the end of the next presidential term (2016).”

  As previously stated, The Fourth Turning does not predict what series of events will trigger a regeneracy. It lays out a generational framework regarding how generations will react to the events. As Howe points out, the regeneracy requires a 2^nd or 3^rd blow which seems even more perilous than the initial shock. His suspicion that it will be in response to an even worse financial debacle than 2008 and very likely to happen before the next election in 2016 appears to be dead on. The oblivious trusting masses will again be shocked and bewildered when the second devastating shock wave of this Crisis strikes in the next twelve months. The next global financial meltdown, caused by the Federal Reserve, along with central bankers in Europe, Japan and China, will create a fearful panic and an intense urgency for a strong self-assured leader who promises to rescue the nation from peril. The panic will coincide with the presidential election in November 2016.

  The “Great Divider” Barack Obama squandered his chance to be the leader who united the nation when he proved to be nothing more than a captured political hack, bowing down to the corporate fascist establishment, while stirring wide spread resentment with his culture war rhetoric and inability to inspire confidence with his toothless hope and change sloganeering. His failure to reign in or prosecute the greedy sociopathic Wall Street criminals, his acquiescence to the military industrial complex by expanding our war mongering and sowing chaos in the Middle East, and his total disregard for fiscal restraint as the country’s long term financial picture rapidly deteriorates, proved that he would not be the Fourth Turning Grey Champion leader.

  In retrospect, neither McCain nor Romney would have united the country, as they are both crony capitalist establishment figures. The mood of the country has darkened substantially in the last year as people are fed up with their deteriorating economic circumstances, sick of both political parties, and angry at the unrestrained illegal immigrant invasion on our southern border.

  I’m beginning to believe the nation will not be unified behind a common cause when the coming financial eruption unleashes molten lava of chaos, punishing economic distress, civil strife, class warfare, race wars, and ultimately global war. As Strauss and Howe foretold, the establishment (aka corporate fascist military industrial surveillance state) has seen a sequential loss of popular trust as their blatant corruption, sociopathic stranglehold on the levers of power, and unrelenting greed have angered the critical thinking aware citizens of this country. The next leg down in this Greater Depression will sever the remaining trust, disintegrating any remaining support for the existing civic order. What comes next will be heavily dependent upon whether the 5% to 10% of liberty minded believers in the Constitution are able to gain the trust of the masses. The odds will be long, but no longer than they were during that bitter winter at Valley Forge in 1777-1778.

  

  “It could be a series of downward ratchets linked to political events that sequentially knock the supports out from under the residual popular trust in the system. As assets devalue, trust will further disintegrate, which will cause assets to devalue further, and so on. Every slide in asset prices, employment, and production will give every generation cause to grow more alarmed. With savings worth less, the new elders will become more dependent on government, just as government becomes less able to pay benefits to them. Before long, America’s old civic order will seem ruined beyond repair.” – The Fourth Turning – Strauss & Howe – 1997

  In Part 2 of this article I will ponder possible Grey Champion, prophet generation leaders who could arise during the regeneracy, try to assess which channels of distress are likely to burst forth with the molten ingredients of this Fourth Turning, and lastly make some guesses about potential climaxes.

  

  

  

  

  

• Bank Of Japan Buying Power Runs Dry: "If They Don't Increase Now, It's Going To Be A Shock!"

  Since 2010, The Bank of Japan has 'openly' – no conspiracy theory here – been a buyer of Japanese stock ETFs. Their bravado increased as the years passed and Abe pressured them from their independence to 'show' that his policies were working to the point that in September 2014, The BoJ bought a record amount of Japanese stock ETFs taking its holdings to over 1.5% of the entire market cap, surpassing Nippon Life as the largest individual holder of Japanese stocks.

  Having stepped in a stunning 76% of days to ensure the market closed green, it appears, as Bloomberg reports, time (or money) is running out for Kuroda and the BoJ having spent 78 percent of its allotment as of Sept. 7. "They've only got a little bit left in their quota," notes one trader, "The BOJ had a big role in supporting the market," he implored, "if they don’t increase purchases now, it’s going to be a shock."

   

   

  

   

  As Bloomberg reports,

  On Sept. 8, as the stock market slumped, investors were surprised to find the Bank of Japan, normally a buyer of exchange-traded funds on the Tokyo bourse, absent.

   

  What happened? The central bank, which is authorized to purchase about 3 trillion yen ($25 billion) in equity ETFs a year, is running out of ammunition, having spent 78 percent of its total as of Sept. 7. Because the BOJ usually buys on days the market falls, it sped up amid a rout in the Topix index.

   

  Now it must slow down for the rest of 2015 or increase its allotment, according to Mitsubishi UFJ Morgan Stanley Securities Co.

   

  …

   

  “They’ve only got a little bit left in their quota,” said Seiji Arai, a strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo. “I think they’ll vow to increase yearly purchases by 1 or 2 trillion yen in October.”

   

  With just 670 billion yen to go until its limit, the central bank has shrunk the amount it buys each time by 15 percent from its first purchase of the year to 31.7 billion yen in September. It stuck to that amount with a purchase on Thursday.

   

  As the Topix recorded its worst monthly loss since 2012, the central bank purchased 302 billion yen in ETFs. Without that, the rout would have been much worse, according to Arai.

  As he concludes – so perfectly summing up the farce that so many call "markets"…

  “The BOJ had a big role in supporting the market,” he said. “If they don’t increase purchases now, it’s going to be a shock.”

  

  

  

  

  

• It's Official: The Next Recession Will Definitely Not Happen In 2018

  Last month we remarked on PhD economists’ uncanny ability to make bad predictions.

  As a rule, the only people worse at their jobs than weathermen are economists and the only real difference between the two professions is that when the weatherman gets it wrong, you get caught in the rain without an umbrella, but when an economist that someone installed in the Eccles Building gets it wrong, there’s the very real potential for the financial universe to collapse. Here’s how we summed up the profession: 

  If PhD economists were serious about getting things right, they would have a tough job. That goes double for PhD economists charged with making policy decisions based on their conclusions. 

  That’s because economics (like sociology and political science and astrology) isn’t a real science. It’s a pseudo-science. And as is the case with other pseudo-sciences, it’s flat out impossible to discover laws and immutable truths, no matter what anyone told you in your undergrad economics course. 

   

  Of course PhD economists aren’t really serious about getting things right, which means that in reality, their jobs are remarkably easy. Here’s the job description: make predictions that are almost never right and then make up any reason you want to explain away the fact that you were wrong. These explanations run the gamut from intentional obfuscation via opaque statistical tinkering (“residual seasonality”) to comically absurd attempts to turn common sense into an excuse for poor outcomes (“snow in the winter”). 

  We delivered that stinging indictment of the pseudoscience that is economics on the way to noting that back in January, some 75% of experts said the Fed would have hiked by now. Considering that rather abysmal track record, we encourage you to take the following with a grain of salt (or two grains, or a whole shaker full). 

  Via Bloomberg:

  Some advice for President Barack Obama’s successor: bring a plan to fight the next recession.

   

  That’s one conclusion drawn from a survey of economists Sept. 4-9, where the median forecast of 31 respondents has the next downturn occurring in 2018.

   

  

   

  Assuming the collective wisdom of economists is right—which is a generous assumption given that predicting business cycles isn’t exactly a cakewalk (ZH: manipulating business cycles isn’t a “cakewalk” either and economists try that too) —it puts the current expansion on track to have a lifespan of about nine years. That’s a pretty good run, though the honor of the longest expansion on record would still belong to the decade that ended in March 2001.

   

  The survey suggests that the next U.S. president will have just one calendar year to get settled before a downturn occurs. They may want to solicit some advice from Obama, who took office in January 2009, during the deepest recession in the post-World War II era.

  So there you have it, rock solid proof that there will be no recession in 2018. However things are looking pretty scary for 2021 and 2022 because as you can see from the graph shown above, only 1 economist is betting on a downturn in either of those years, meaning a recession is a virtual certainty. 

  As Bloomberg goes on to note, the economists surveyed “said there’s a 10 percent chance of a U.S. recession within the next 12 months,” which is particularly amusing because if anyone was being honest at the BEA (i.e. if someone hadn’t brought out “residual seasonality” to explain why GDP data needs to be double-adjusted), the US would have been one quarter of bad “weather” away from a recession earlier this year.

  It’s also worth noting that the experts polled don’t seem to think much of the myriad risk factors staring them squarely in the face; risk factors like a rapidly decelerating China, slumping global demand, chronically depressed global trade, a worldwide deflationary supply glut, and a veritable meltdown in emerging markets. Indeed some of those factors were recently cited by Citi’s pet rock-hating chief economist Willem Buiter who, as Bloomberg also points out, this week “assigned a 55 percent chance to some form of global recession in the next couple years.” Which brings us to the punchline. The fourth sentence from the top in the Buiter’s note predicting better than even odds for a global recession reads as follows: 

  Economics isn’t rocket science, and even rockets frequently land in the wrong place or explode in mid-air.

  

  

  

  

  

• Inside Ground Zero Of Canada's Recession

  In the past year, we have extensively profiled the collapse of ground zero of Canada’s oil industry as a result of the plunge in the price of oil, in posts such as the following:

  • “Canada Crude Contagion: Calgary Home Prices Drop Most In 2 Years”
  • “Canada’s Biggest Oil Casualty To Date: Calgary’s Nexen Shutters Oil Trading Desk”
  • “The Canadian Housing Bubble Has Begun To Burst”
  • “Canada’s Oil Patch Confidence Crashes“
  • “Canada Mauled by Oil Bust, Job Losses Pile Up – Housing Bubble, Banks at Risk“
  • “The Stage Is Set For A Massive Housing Market Correction in Canada’s Oilpatch“

  Since then it has gotten far, far worse for Canada. In fact, as of September 1 it culminated with the first official recession in 7 years.

  

  And it’s only downhill from there. As Mark Thornton of the Mises Institute points out, in a report from the Financial Post shows that Calgary in Alberta Canada now has 1.7 million square feet of empty office space, the most in North America with another 5.2 million under construction! After years of booming construction, the natural resource rich country is starting to feel the pinch. To wit:

  The number of half-empty office buildings in Alberta is projected to spike, as Colliers International predicts an “ill-timed” building boom should push up vacancy rates in Calgary and Edmonton. In a report released Tuesday, the real-estate brokerage’s chief economist Andrew Nelson said, “the fall in oil prices has had a negative impact on the energy-reliant markets (in Western Canada),” which has contributed to rising vacancy rates and falling rental prices in Alberta’s two largest cities.

   

  Vacancy rates jumped over the course of the second quarter. In Calgary’s case, Colliers reported the downtown vacancy rate rose to 13 per cent from 10 per cent, while Edmonton’s vacancy rate increased to 11.2 per cent from 10.6 per cent.

   

  A glut of new buildings under construction in both cities could push those numbers up even higher. “Canada is also in the midst of an ill-timed supply surge that caused vacancy rates to rise even in markets with positive absorption in (the second quarter),” the report noted.

   

  There are 5.2 million square feet of office space under construction in Calgary right now, which is the largest amount of new commercial space being built in any city in Canada and could further push up vacancy rates.

   

  Edmonton, a city with a current total of 17 million square feet of office space, is in the middle of its own building boom with over 2 million square feet of space under construction.

  There is a silver lining:

  Some observers see at least a partial silver lining in the numbers. In recent years, Calgary Chamber of Commerce director of policy and research Justin Smith said, commercial real estate costs downtown Calgary were “going through the roof” and “accelerating at a pace far beyond the Canadian average.”

   

  He said those escalating costs made it difficult for some companies to stay in downtown Calgary and noted that even large companies like Imperial Oil Ltd. and CP Rail Ltd. moved their head offices to the suburbs.

   

  The uptick in vacancy rates, he said, could provide some relief to smaller companies looking to do business downtown, as rental rates are projected to fall as vacancies rise.

   

  * * *

   

  Weakening demand for office space in both Calgary and Edmonton has resulted in large quantities of commercial real estate coming back on the market this year.

   

  The report showed that 1.7 million square feet of office space has become available in Calgary’s downtown core, thanks in part to thousands of layoffs in the oil patch and a decline in the need for commercial space.

   

  That is the largest quantity of newly empty space in any downtown in North America, including Houston, an oil and gas town where 1.6 million square feet have become available this year.

  Who said deflation is a bad thing? Well, all the rich people for one, whose liabilities are denominated in fixed value debt, yet whose equity value and whose cash flow has just crashed through the floor, forcing them liquidate assets.

  Which means that for all the pain in the oil sector, one industry is booming: pawn shops.  As CBC reports, “some of the newly rich and long time wealthy in Calgary’s once hot economy are now looking for fast cash because of the economic downturn, and they’re turning to pawn shops.”

  ?”Right now we have one, two…10 Rolexes for sale, two Panerais, a few Tag Heuers,” said John Sanford, one of the owners of Rocky Mountain Pawn on Macleod Trail, as he counts the luxury watches in a glass case.

   

  He has 100 more in a back room. He will have many more because “the economy has changed his clientele too, as formerly well-paid people are telling him they’ve been laid off or plan to leave town.”

  “People have come in and they’ve said, ‘That’s it, I’m heading back to Ottawa, Montreal,'” he said.

  About six months ago, high-end items started rolling in to his shop, such as a 5.1-carat diamond — a $200,000 stone — and designer hand bags “whether it be Louis Vuitton, Chanel or Gucci.”

  

  Some of the items Calgarians are pawning to weather the recession.
  (Kate Adach/CBC)

  For some the current recession, Canada’s second since the great financial crisis, is already worse than the last one: “in the 2008 recession, some pawn shops had to close because they were giving out more money than they were able to make up in sales, Sanford says.” Not this time, though: this time, Sanford is being careful about the items he takes in because fewer people are buying.

  “And whether it be Louis Vuitton, Chanel or, you know, Gucci, it’s special and sometimes the person is pawning it, getting that $400 or $500, and they truly are going to be back for it.”

  

  Gucci and Louis Vuitton goods are just some of the designer items at
  Calgary pawn shops. (Kate Adach/CBC)

  And this is what it looks like when recent millionaires are scrambling for any source of cash: there has been a steady stream of customers, including a woman pawning Vera Wang earrings for about $3,000, or a man who can’t find steady work as a truck driver so he’s putting some art work on loan for short-term cash.

  “That’s a good grocery bill for a month, so — yeah — it’s very important to get that $200,” said Robert Huntington, who has used the pawn shop for the third time this year. He intends to pay back the money he borrowed from the pawn shop, plus rent, and eventually get his art work back — one of the many customers hoping to reclaim their items when things turn around, says Sanford.

  Good luck to him, and in retrospect perhaps deflation isn’t good for everyone: certainly not those whose cash outflows are greater than their current inflows, and have debt. They may not survive.

  For everyone else in Canada’s recessionary ground zero, strap in because it is only going to get worse. And if Goldman’s $20 oil price target is correct (unlike its $200 price target 7 years ago) it will get a lot worse.

  

  

  

  

  

• $20 Oil? Goldman Says It's Possible

  We’ve long framed collapsing crude prices as a battle between the Saudis and the Fed. 

  When Saudi Arabia killed the petrodollar late last year in a bid to bankrupt the US shale space and secure a bit of leverage over the Russians, the kingdom may or may not have fully understood the power of ZIRP and the implications that power had for struggling US producers. Thanks to the fact that ultra accommodative Fed policy has left capital markets wide open, the US shale space has managed to stay in business far longer than would otherwise have been possible in the face of slumping crude. That’s bad news for the Saudis who, after burning through tens of billions in FX reserves to help plug a yawning budget gap, have now resorted to tapping the very same accommodative debt markets that are keeping their competition in business as a fiscal deficit on the order of 20% of GDP looms large.

  But even with a gaping hole in the budget and an expensive proxy war raging in Yemen, it’s not all bad news for Saudi Arabia as evidenced by King Salman’s lavish Mercedes procession upon arrival in DC last week and as evidenced by the fact that, as The Telegraph reports, non-cartel output is beginning to fold under the pressure of low prices. Here’s more: 

  Oil produced outside the Orgainsation of the Petroleum Exporting Countries (Opec) is slowing at its fastest rate in 20 years as lower prices hit higher cost producers such as the North Sea and US shale drillers, a leading energy think tank has warned.

   

  The Paris-based International Energy Agency (IEA) has said that lower production in the US, Russia and the North Sea would result in output outside Opec dropping to 57.7m barrels per day (bpd) in 2016. The majority of the declines would come from US light crude, which is expected to decline by 400,000 bpd.

   

  “The steep declines in US crude oil production seen since the end of June has created some optimism that we are now finally seeing that start of a steep decline,” said Bjarne Schieldrop, chief commodities analyst at SEB.

   

  Oil prices have plunged 50pc this year with Brent crude trading well below $50 per barrel, a level which makes it uneconomical for many producers. Opec, under pressure from Saudi Arabia, has allowed oil prices to fall in an effort to protect its shrinking market share especially from the rise of shale oil drillers in the US.

  So mission (partially) accomplished we suppose, and with banks set to reevaluate credit lines to US producers next month (i.e. the revolver raids are coming), it likely won’t be long before the competition starts to dry up. The only remaining question then, is how low will oil go in the near- and medium-term and on that point we go to Goldman for more:

  Oil prices have declined sharply over the past month to our $45/bbl WTI Fall forecast. While this decline was precipitated by macro concerns, it was warranted in our view by weak fundamentals. In fact, the oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in 2016 on further OPEC production growth, resilient non-OPEC supply and slowing demand growth, with risks skewed to even weaker demand given China’s slowdown and its negative EM feedback loop. 

   

  
  

  So a persistent global deflationary supply glut driven by lackluster demand. Nothing new there, and in fact, that exact confluence of factors was tipped to send oil to $25 in these very pages more than nine months ago. Now back to Goldman:

  Given our updated forecast for a more oversupplied oil market in 2016, we are lowering our oil price forecast once again. Our new 1-, 3-, 6- and 12-mo WTI oil price forecast are $38/bbl, $42/bbl, $40/bbl and $45/bbl. Our 2016 forecast is $45/bbl vs. $57/bbl previously and forwards at $51/bbl. As we continue to view US shale as the likely near-term source of supply adjustment given the short cycle nature of shale production, we forecast that US Lower 48 crude & NGL production will decline by 585 kb/d in 2016 with other non-OPEC supply down 220 kb/d to end the oversupply by 4Q16.

   

  
  

  Got it. And just how low, in a worst case scenario, could crude go? 

  This creates the risk that a slowdown in US production takes place too late or not at all, forcing oil markets to balance elsewhere or as they have historically cleared, through a collapse to production costs once the surplus breaches logistical and storage capacity. Net, while we are increasingly convinced that the market needs to see lower oil prices for longer to achieve a production cut, the source of this production decline and its forcing mechanism is growing more uncertain, raising the possibility that we may ultimately clear at a sharply lower price with cash costs around $20/bbl Brent prices, on our estimates. While such a drop would prove transient and help to immediately rebalance the supply and demand for barrels, it would likely do little for the longer-term capital imbalance in the market with only lower prices for longer rebalancing the capital markets for energy. 

  So there you have it, a collapse to $20 Brent, but while the Saudis may have won the battle, the war is not yet over:

  The levers to force HY producers into lower production, such as borrowing basis redeterminations, debt maturities and hedge coverage, are significantly less binding for IG E&Ps. It is instead management’s focus on balancing capex and cash flow and investors’ willingness to finance funding gaps that are the levers of adjustments for this cohort of companies. And while HY debt markets may be once again shutting, tentative signs of greater discipline by US IG E&Ps have so far only translated in stabilizing production guidance rather than pointing to the decline that our global oil balance requires.

   

  As a result, the sharp intensification in producer financial stress observed recently – with forward oil prices and energy equity share prices at multi-year lows (and credit spreads at highs) – is unlikely to yield sufficient financial stress in the short-term. So while this deterioration in financial conditions is finally reflecting the markets’ decreasing confidence in a quick rebound in prices and a recognition that the rebalancing of supply and demand will likely prove to be far more difficult than previously expected, we now believe that such stress needs to remain in place well into 2016 and up until evidence emerges that US shale production growth is actually required.

   

  

  And speaking of war, the obvious risk to any forecast that calls for sharply lower crude is that some mid-air “accident” in Syria takes the “proxy” out of “proxy war”, in which case crude soars as Russia and Iran square off against a US coalition that would swiftly include Saudi Arabia in what would very likely be the precursor to a wider conflict the scope of which we haven’t seen since 1939. 

  Oh, and for all the muppets out there, Goldman has upgraded European oil producers:

  Dividends may be cut, but with over coverage now yielding 6% on average this is becoming priced in. We expect returns and FCF to trough in 2016, and improve in 2017/18 driven by higher oil prices and falling costs. Even with this, valuations do not yet look compelling, but we move to a Neutral Coverage View from Cautious.

  

  

  

  

  

• It Begins: Europe Flooded With Reports Of "ISIS Terrorists" Posing As Refugees

  While the US is looking back at the 14 year anniversary of what is widely accepted as the biggest terrorist event in modern US history, in Europe it is time to look forward to what may be the advent of domestic “terrorism” in the coming months, whether real or false flagged.

  Earlier this week, one of our contributors Erico Tavares pointed out something disturbing, namely that in Europe’s perpetual search for “crises” on which to capitalize in its relentless encroachment to a European superstate, the current migrant crisis may be a blessing in disguise (assuming, of course, it wasn’t premeditated from day one as others have suggested).

  Why blessing? Because just like the US Patriot Act which allowed a massive expansion of the US government apparatus while obliterating civil and privacy rights (highlighted earlier today), confirmed a decade later by Edward Snowden, was a regulation in search of a terrorist event, so Europe’s next superstate expansion will require a comparable anti-terrorism “rush” in which the population voluntarily hands Europe’s supra-government even more rights to centrally-plan as it sees fit.

  Which means that as part of the refugee crisis in which tens of thousands of innocent Syrians have been displaced and seeking European asylum, it was only a matter of time before one or more was “found” to be ISIS terrorists in order to perpetuate the fear and crisis narrative. A crisis which Brussels would never go to waste.

  That time has arrived following a report by German RTL and carried by NewObserver that “an ISIS terrorist posing as an “asylum seeker” has been arrested by German police in a “refugee” center in Stuttgart, and German customs officers have seized boxes containing Syrian passports being smuggled into Europe.”

  So it begins.

  According to RTL, the terrorist is a 21-year-old Moroccan using a “false identity” who had registered as an asylum seeker in the district of Ludwigsburg. He was identified after police linked him to a European arrest warrant issued by the Spanish authorities. He is accused of recruiting fighters for ISIS, where he acted as a contact person for fighters who wanted to travel to Syria or Iraq.

  This arrest of the alleged bogus “asylum seeker” comes at the same time that a German finance ministry spokesman said that
  “boxes” of fake Syrian passports, destined for sale and distribution to the hordes of nonwhite invaders seeking to settle in Europe as bogus “war refugees,” had been seized.”

  That news, carried in a report by the German Tagespiegel newspaper, also revealed that 10,000 fake Syrian passports were seized by police in Bulgaria, on their way to Germany.

  The finance ministry official said both genuine and forged passports were in the packets intercepted in the post. Possession of these passports is a vital part of claiming “asylum” as “war refugees.”

   

  The Tagespiegel also revealed that the fake Syrian passports are being sold for about $1,500 each—and the fact that many of the “refugees” can afford to buy multiple passports is yet another indication of the bogus nature of their claims to be “asylum seekers.”

   

  Significantly, the Tagespiegel article continued, “It is not only Syrians who are interested in Syrian passports. Refugees from Iraq, Afghanistan, and Pakistan want to become Syrian in order to secure their recognition as asylum seekers in Western Europe. According to press reports, nine out of ten refugees who came from Macedonia to Serbia claimed they were Syrians.”

  Setting the expectations was the head of the EU frontier police, Fabrice Leggeri, who in a recent interview with the Europe 1 TV station said that the trade in fake Syrian passports originated in Turkey. “There are people who are now in Turkey, buying false Syrian passports because they have obviously realized that it is a windfall since Syrians get asylum in all Member States in the European Union,” he said. “People who use false Syrian passports often speak in Arabic. They may originate in North Africa or the Middle East, but have the profile of economic migrants.”

  And then just to ratchet the fear factor, earlier this week Hungary’s most watched national TV channel, M1, reported Tuesday that at least two “terrorists” were uncovered via photographs on social media after entering Europe as refugees.

  RT has more:

  “Islamist terrorists, disguised as refugees, have showed up in Europe. [The] pictures were uploaded on various social networks to show that terrorists are now present in most European cities. Many, who are now illegal immigrants, fought alongside Islamic State before,” the report said.

  The Hungarian channel broadcasted collections of photographs of the two men from social media. The first set depicted two individuals with weapons and the second set showed them smiling as they arrived in Europe.

  A breach in the “terrorism has arrived” narrative emerged it was revealed that the man claimed to be an Islamic State militant had previously given an interview to AP, saying that he was a former Syrian rebel commander. “The AP reported that his name was Laith Al Saleh, 30, and he “led a 700-strong rebel unit in Syria’s civil war.” The news agency’s photos taken on August 15 showed Al Saleh among other refugees waiting to board an Athens-bound ferry on the Greek island of Kos.”

  And then it gets awkward: AP reported that he was a member of the Free Syrian Army, which is fighting against the Syrian government forces of President Bashar Assad, as well as against terrorist groups in the region.

  Actually, the US-funded and supported FSA’s only purpose was the same as that of ISIS – to crush the Syrian army and overthrow the elected president so Qatar can break Gazprom’s monopoly on European gas imports.

  But now the second key role of ISIS is also starting to emerge: the terrorist bogeyman that ravages Europe and scares the living daylight out of people who beg the government to implement an even more strict government apparatus in order to protect them from refugees ISIS terrorists.

  But ignore the facts, and focus on the propaganda, which as RT further adds is in full crisis mode: A recent article in the UK Express Daily claimed that IS “smuggled thousands of covert jihadists into Europe.” It cited a January BuzzFeed interview with an IS operative who said the militants have already sent some 4,000 fighters into Europe under guise of refugees.

  These speculations have not been confirmed by Western security officials, although that’s only temporary: as the need to ratchet up the fear factor grows, expect more such reports of asylum seekers who have penetrated deep inside Europe, and whose intentions are to terrorize the public. Expect a few explosions throw in for good effect.

  Certainly expect a version of Europe’a Patriot Act to emerge over the next year, when the old continent has its own “September 11” moment, one which will provide the unelected Brussels bureaucrats with even more authoritarian power.

  And since everyone knows by now “not to let a crisis go to waste” the one thing Europe needs is a visceral, tangible crisis, ideally with chilling explosions and innocent casualties. We expect one will be provided on short notice.

  

  

  

  

  

• "They're Making Idiots Of Us!": Eastern Europe Furious At West For Doing Gas Deals With Russian Devils

  Back in June, when Greece was still predisposed to waving around an MOU for participation in the Turkish Stream natural gas pipeline in a desperate attempt to play the Russian pivot card and force Brussels to blink, we remarked that the Turkish Stream MOU with Greece wasn’t the only preliminary energy deal Gazprom inked at the St Petersburg International Economic Forum. 

  The company also signed a memorandum of intent with Shell, E.On and OMV to double the capacity of the Nord Stream pipeline — the shortest route from Russian gas fields to Europe — to 110bcm/year.

  That, we said, proves Russia is making progress in efforts to facilitate the unimpeded flow of gas to Europe even as the crisis in Ukraine escalates.

  Nearly three months later and Ukraine isn’t happy. Neither is Slovakia. Here’s Bloomberg:

  Eastern European nations set to lose billions of dollars in natural gas transit fees are lambasting western Europe for striking another pipeline deal with Russia that will circumvent Ukraine.

   

  The prime ministers of Slovakia and Ukraine criticized an agreement between western European companies from Germany’s EON AG to Paris-based Engie with Russian pipeline gas export monopoly Gazprom PJSC to expand a Baltic Sea link. Western European leaders and companies are “betraying” their eastern neighbors, Slovakia’s

   

  Robert Fico said after meeting Ukraine’s Arseniy Yatsenyuk in the Slovak capital of Bratislava on Thursday.

   

  Gazprom and EON, Engie, Royal Dutch Shell Plc, OMV AG and BASF SE signed an agreement last week to expand Nord Stream by 55 billion cubic meters a year, or almost 15 percent of current EU demand. Ukraine, already struggling to avoid a default amid a conflict with Moscow-backed separatists in its east, is set to lose $2 billion a year in transit fees while Slovakia would lose hundreds of millions of euros, the leaders said.

   

  Russia is trying to cut how much gas it ships via Ukraine’s Soviet-era pipelines as international courts arbitrate in pricing disputes between the nations, echoing spats that caused supplies to Europe to halt several times during the past decade. Russia currently ships about a third of its Europe-bound gas via Ukraine, down from about two-thirds in 2011, when the Nord Stream pipeline under the Baltic Sea started supplying Germany directly.

   

  
  

   

  Nord Stream-2, set to start supplying Europe in 2019, completely neglects Polish interests and hurts the EU’s unity in the face of Russian President Vladimir Putin’s “aggression” in Ukraine, Polish President Andrzej Duda said on Wednesday. Ukraine’s Yatsenyuk called the project “anti-Ukrainian and anti-European” on Thursday.

   

  “They are making idiots of us,” Fico said. “You can’t talk for months about how to stabilize the situation and then take a decision that puts Ukraine and Slovakia into an unenviable situation.”

  Well, sure you can.

  In fact, when it comes to making grand public declarations about “stabilizing” unstable geopolitical situations and then turning around and doing something completely destabilizing, the West (and especially the US) are without equal, as evidenced by all manner of historical precedent including Washington’s efforts to help sack Viktor Yanukovych whose ouster precipitated the conflict in Ukraine in the first place. And make no mistake, to the extent there’s energy and money involved, that’s all the more true which is why it isn’t at all surprising that Western Europe would facilitate a deal that lets Gazprom bypass a war zone if it means getting natural gas to countries that “matter” in a more efficient way.

  Now that doesn’t mean the EU won’t cover its tracks by filing anti-trust charges against Gazprom or by publicly decrying the Kremlin’s alleged role in fueling Ukraine’s civil war, but what it does mean is that the interests of war-torn nations and their beleaguered masses simply don’t matter when there’s natural gas involved.

  Just ask a Syrian refugee.

  

  

  

  

  

• More American Cronyism: US Government Selling Visas To Fund Luxury Apartment Buildings

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  Merging, on paper, the affluent midtown neighborhood and the struggling one uptown placed Hudson Yards in a community with an overall high unemployment rate, positioning developer Related Cos. to gain low-cost financing from foreigners seeking green cards.

   

  The program through which that happens, known as EB-5, enables foreign nationals to obtain U.S. permanent-resident status by putting up money for new business ventures that create American jobs. It gives ventures in high-unemployment and rural areas a special status to encourage investment. But as the program’s popularity has soared in recent years, the bulk of immigrant investment is going to projects that are located, like $20 billion Hudson Yards, in prosperous urban neighborhoods.

   

  At least 80% of EB-5 money is going to projects that wouldn’t qualify as being in Targeted Employment Areas without “some form of gerrymandering,” estimates Michael Gibson, managing director of USAdvisors.org, which evaluates projects for foreign investors.

   

  Increasingly, the money appears to be flowing to the flashiest projects, which the investors often see as safest, EB-5 professionals say. Among those getting EB-5 money are an office building set to host Facebook Inc. near Amazon.com Inc.’s Seattle headquarters, a boutique hotel in high-end Miami Beach, and a slim Four Seasons condo-hotel in lower Manhattan that sports a penthouse with an asking price above $60 million. In all of them, geographic districts were crafted to include higher-unemployment areas.

   

  – From the Wall Street Journal article: How a U.S. Visa-for-Cash Plan Funds Luxury Apartment Buildings

  Another day, another story highlighting just how completely corrupt and sleazy the U.S. economy has become.

  I’ve covered the issue of EB-5 visas before, and how a program that was initially supposed to help high unemployment neighborhoods attract investment, has become another scheme to further enrich America’s crony capitalist class.

  Before we get into the meat of this post, here are a few excerpts from last year’s piece, How NYC’s Biggest Real Estate Project in a Generation is Being Financed by Selling Green Cards to the Chinese:

  Developer Related Cos. says it has raised roughly $600 million from the families to build the foundation for three skyscrapers at the West Side project, a 17-million-square-foot colossus of office, retail and residential space set to open over the next decade.

   

  To finance the concrete-steel platform, Related tapped a little-known and at times controversial federal visa program known as EB-5, which offers green cards to foreign families who invest at least $500,000 in U.S. projects that create at least 10 jobs per investor.

   

  At times the program has invited scrutiny. The U.S. Securities and Exchange Commission last year warned of “fraudulent securities offerings” related to the EB-5 program, in which investors put money into nonexistent projects. The program also has come under fire because it can be difficult for investors overseas to discern safe investments from risky ones, and if the investment fails to create the required jobs, they don’t get a green card. In addition, claims of jobs created are difficult to verify and the program administrator has been criticized for not having an effective system for doing so.

   

  Developers are embracing the program largely because it provides low-cost capital. Money borrowed through the EB-5 program carries much lower interest rates, sometimes half of what companies typically pay, executives said. That is because investors are primarily seeking green cards, not a profit, and generally are willing to accept low returns, EB-5 advisers said.

  While that article explained the recent explosion in EB-5 visa popularity, it failed to highlight the fact that this money was supposed to disproportionately help struggling areas. In reality, it’s all being funneled to luxury construction. Here’s how.

  Also from the Wall Street Journal:

  NEW YORK—The cluster of luxury apartment buildings and office towers rising in a development west of midtown called Hudson Yards seems a world apart from the low-income housing projects of upper Manhattan.

   

  But for purposes of an immigration program that helps finance Hudson Yards, it and Harlem’s Manhattanville public-housing towers are in the same district: a stringy one connected by three Census tracts that run along the Hudson River.

   

  Merging, on paper, the affluent midtown neighborhood and the struggling one uptown placed Hudson Yards in a community with an overall high unemployment rate, positioning developer Related Cos. to gain low-cost financing from foreigners seeking green cards.

   

  The program through which that happens, known as EB-5, enables foreign nationals to obtain U.S. permanent-resident status by putting up money for new business ventures that create American jobs. It gives ventures in high-unemployment and rural areas a special status to encourage investment. But as the program’s popularity has soared in recent years, the bulk of immigrant investment is going to projects that are located, like $20 billion Hudson Yards, in prosperous urban neighborhoods.

   

  A primary concern is that the use of EB-5 financing for high-price condo and office towers sops up the program’s capacity and leaves poorer communities out in the cold. No more than 10,000 visas that lead to permanent-resident status can be given out each year under the program. It hit the limit in the fiscal year ended Sept. 30, 2014.

   

  Though statistics aren’t made public on individual projects, a recent paper by two New York University professors tracked 25 large business startups that have turned to the EB-5 program to raise a total of more than $4.5 billion in financing. Twenty-two were urban real-estate projects, including 14 in prime Manhattan neighborhoods and others in Seattle and on the Las Vegas Strip.

   

  Related is the single largest user of EB-5 financing. By its own measure, it accounts for about 20% of the dollars being raised through the program today. The closely held company used the program to raise $600 million for a first phase of Hudson Yards last year and is in the process of raising another $600 million for a new office tower and a retail hub.

   

  The coming debate in Congress stands to bring the program its greatest scrutiny since it was created in 1990.

   

  Things began to change in 2009, amid two shifts. The agency overseeing the program—the U.S. Citizenship and Immigration Services unit of the Department of Homeland Security—let the job-creation tally count more construction jobs if they last at least two years. And banks all but shut off credit for construction projects amid the economic slump.

   

  Real-estate developers discovered EB-5. Money from foreign investors, primarily Chinese, began to pour into major developments around the U.S., typically supplementing more-senior debt. A hotel and apartment project in Washington raised more than $40 million through the program. A W hotel in Hollywood raised $20 million. A planned 16-tower apartment project connected to Brooklyn’s Barclays Center basketball arena took in $229 million.

   

  Lenders have since returned to real estate, but developers are attracted by another aspect of EB-5 financing: low cost. Because the foreign investors are after a green card, they have been willing to accept very low interest rates on money they lend, typically for four or five years. Developers save even though they face other costs to use the program.

   

  Many of such projects could easily have been financed on the private market, according to Gary Friedland, who wrote the NYU paper with fellow professor Jeanne Calderon. “It’s a profit enhancement,” he said. “The original argument was more of a ‘but for’ argument,” in which EB-5 was meant to spur projects that wouldn’t otherwise have happened. “That focus has been lost.”

   

  At least 80% of EB-5 money is going to projects that wouldn’t qualify as being in Targeted Employment Areas without “some form of gerrymandering,” estimates Michael Gibson, managing director of USAdvisors.org, which evaluates projects for foreign investors.

   

  Increasingly, the money appears to be flowing to the flashiest projects, which the investors often see as safest, EB-5 professionals say. Among those getting EB-5 money are an office building set to host Facebook Inc. near Amazon.com Inc.’s Seattle headquarters, a boutique hotel in high-end Miami Beach, and a slim Four Seasons condo-hotel in lower Manhattan that sports a penthouse with an asking price above $60 million. In all of them, geographic districts were crafted to include higher-unemployment areas.

   

  Meanwhile, some wanting to raise money for projects in rural areas and low-income parts of cities say they find it increasingly hard to compete. Evan Daniels has been trying for four years to raise about $40 million through the EB-5 program for a door-manufacturing plant in the rural southwestern Missouri town of Lamar.

   

  “The harder we worked on this, the more we found the money was going to L.A. and New York,” he said.

   

  In China, one pitch is speed in obtaining green-card approvals from U.S. Citizenship and Immigration Services. Related’s main broker has advertised that EB-5 investors receive initial approvals 11 months faster than the standard wait. That would mark a big advantage, because the average wait is about 14 months. It is unclear how its applications would be processed so quickly. USCIS declined to comment on Related’s applications.

  So the U.S. government is subsidizing the wealthiest developers to build projects for the wealthiest Americans. Someone must have taken a class taught by the Federal Reserve.

  Recall the post from earlier this year: Number of NYC Apartments for Rent Above $50k/Month Triples Since ’08; 82% of U.S. Construction = Luxury Units. Now we know why.

  

  Just another day in the imperial Banana Republic.

  

  

  

  

  

• To Hike Or Not To Hike (Fed, Economists, & Market Divided)

  No matter what, it's going to be a close-call…

  Fed members notably split

  

   

  And investors’ conviction of rate hikes in 2015 has been drifting…

  

   

  Market pricing of the timing of lift-off has fluctuated in a wide range this year:

  • Market has priced 20-100% hike odds by Sept.
  • Odds of 2015 hike fluctuated between 50-100%

  Key data releases have led to big shifts in market pricing as Fed emphasised data dependence

  • Strong January employment data led markets to fully price hike by September
  • Dovish March and June FOMC meetings led to lower odds of a hike this year

  Current market pricing suggests 30% odds of a hike in September and 75% chance of lift-off this year

  Low market pricing likely lowers chances of a hike in September

  • Fed would like to avoid surprising the market
  • Hiking against market expectations in September means greater volatility and more tightening of financial conditions than desired

  Economisseds remain split…

  

   

  But then again – they have been clueless…

  

   

  And as Ransquawk notes, the various banks are also split down the middle on whether The fed should hike or not next week…

  NO HIKE: BarCap, BNP, Credit Ag, Credit Suisse, HSBC, GS

   

  HIKE: BoFA, Deutsche Bank, JPM, RBS, Wells Fargo

  Here's why Deutsche Bank thinks they should raise rates in September…

  

  *  *  *

  Finally, this is the most important chart for the next few days…

  

  h/t @Not_Jim_Cramer

   

  Simply put – The more you buy stocks, the higher the probability of a turmoil-creating rate-hike next week – that's the Dow-Data-Dependent Fed at work folks!!

  

  

  

  

• Wal-Mart Wage Hike Debacle Continues As Suppliers Forced To Layoff Employees Amid New Fees

  Earlier this year, in “What Happens After A Mega Corporation Raises Its Workers’ Wages,” we detailed the plight of Wal-Mart’s supply chain in the wake of the retailer’s decision to raise the pay floor for its lowest-paid employees. Here’s a recap: 

  When mega-corporations such as WalMart and McDonalds, whose specialties are commoditized products and services and who have razor thin margins, yet which try to give an appearance of doing the right thing, by raising minimum wages, they start flexing their muscles, and in the process trample all over the companies that comprise their own cost overhead: their suppliers and vendors. Take the case of WalMart: the world’s biggest retailer “is increasing the pressure on suppliers to cut the cost of their products, in an effort to regain the mantle of low-price leader and turn around its sluggish U.S. sales.” 

   

  What WalMart is doing is borderline illegal: it is explicitly telling its vendors “this is what you will do with your excess cash.” Of course, we say borderline because WMT’s action is perfectly legal in the confines of the pure law. However, in the context of an economy that is sputtering, WMT’s vendors have no choice but to comply or risk losing what is certainly their largest revenue stream and risk bankruptcy. 

   

  The irony is that while WMT (or MCD or GAP or Target) boosts the living standards of its employees by the smallest of fractions, it cripples the cost and wage structure of the entire ecosystem of vendors that feed into it, and what takes place is a veritable avalanche effect where a few cent increase for the lowest paid megacorp employees results in a tidal wave of layoffs for said megacorp’s vendors.

  As those who frequent these pages are no doubt aware, quite a bit has happened in Wal-Mart world since we penned those words. First there were “plumbing” problems which, for at least five locations, were so intractable as to necessitate store closures. Then came the mid-level management rumblings as the rest of Wal-Mart’s employees suddenly realized that an across-the-board wage hike for the lowest-paid workers meant the wage hierarchy was suddenly and irreversibly distorted. Shortly thereafter, a memo circulated at an Arkansas recruiting firm indicated a raft of layoffs could be in store for the Bentonville home office. Finally, unable to make up the $1 billion cost of the wage hikes and unable to pass that cost on to customers without surrendering the “low price leader” crown, Wal-Mart began cutting hours. 

  Now, we get still more evidence that the world’s largest physical retailer is attempting to make up for the cost of hiking wages by pressuring its suppliers only this time, the supply chain is pushing back. Here’s Bloomberg with more:

  After years of meeting demands for ever cheaper prices, many Wal-Mart Stores Inc. suppliers are saying no to new margin-squeezing storage fees and a payment schedule that could delay for months how quickly some are paid.

   

  The world’s largest retailer says the changes, laid out for vendors starting in June, reflect a push to simplify its relationships with suppliers, put them all on the same footing and reduce costs so it can offer customers the lowest prices. But some vendors see the new policy as an attempt by Wal-Mart to fatten its margins and offset wage hikes for store workers earlier this year.

  And whereas before, Wal-Mart was “merely” asking suppliers to do everything possible to lower prices (i.e. dictating how vendors will use FCF), this time, Wal-Mart is actually adding new fees:

  Vendors were already feeling added pressure from Wal-Mart to cut costs after the retailer told them earlier this year to dial back on marketing and promotions and use the savings to lower their prices, he said.

   

  Traditionally Wal-Mart has largely avoided the extra fees some other retailers charge, so the policy change was a surprise, said Leon Nicholas, a senior vice president at Kantar Retail, which advises dozens of Wal-Mart suppliers.

   

  “What is so shocking this round is that they are being aggressive not in asking suppliers to take costs out of the system so the supplier can lower prices, but instead adding cost into the system,” Nicholas said. “It looks as though they are trying to have it both ways and trying to pad their own margins where they are facing cost pressure.”

  As for suppliers who don’t comply, well, they’ll be “punished”:

  Wal-Mart could punish suppliers that don’t agree to all or some of the new terms by cutting back shelf space for a product, giving it less favorable placement in the store or dropping a supplier all together.

  Just as we predicted back in April, the end result of Wal-Mart’s push to score public opinion points by making the meager wages of its lowest paid workers look a little less meager will be the elimination of jobs along the supply chain:

  A smaller supplier, notified of the fees late last month and given two weeks to accept, said it won’t be able to make a profit on its Wal-Mart business under those terms unless it fires workers or cuts wages and benefits.

  So there, once again, is economics 101 at work and as we noted late last month, it should have been abundantly clear from the start that if ever there were an employer that could ill-afford a $1 billion across-the-board pay raise without immediately making up the difference by either firing some employees, cutting hours, or squeezing the supply chain it’s Wal-Mart, because after all, they’re the “low price leader”, and you don’t hold on to that title by passing labor costs on to customers. 

  In the end, suppliers may be trying to push back, but they’re unlikely to cut their noses of to spite their faces by creating a contentious relationship with the company that’s responsible for their largest revenue stream which is why ultimately, it’s vendors’ employees who will suffer so that Wal-Mart’s cashiers can make $9/hour instead of $8. We’ll close with the following lament from Leon Nicholas (quoted above): 

  “You can push and push, but at the end of the day you know where the power lies.”

  

  

  

  

  

• Weekend Reading: Rooting For The Bull?

  Submitted by Lance Roberts via STA Wealth Management,

  This past week has seen a continuation of market volatility unlike anything witnessed over the last several years. Of course, this volatility all coincides at a time where market participants are struggling with a global economic slowdown, pressures from China, collapsing oil prices, a lack of liquidity from the Federal Reserve and the threat of rising interest rates.  It is a brew of ingredients that would have already likely toppled previous bull markets, and it is only by a hairsbreadth the current one continues to breathe.

  However, as I addressed yesterday:

  “Since the ‘debt ceiling debt default’ crisis in 2011, the markets have traded within a much defined bullish trend.

   

  That trend was decisively broken this summer, and the market has yet to regain its footing. While the market ‘bulls’ expect the markets to recover and move back to all-time highs, there is also a possibility of failure that should not be ignored."

  

  "If the market rallies back to the bullish trend channel, and fails, it will likely lead to a continuation of the current correction.

   

  Could the market re-establish a new bullish trend channel at a lower level? Yes. However, as discussed in Tuesday’s missive, the internal deterioration in the market is more consistent with the development of more major bull market peaks rather than just a correction within a bullish trend. 

   

  In every market cycle throughout history, there have been times where it was vastly more beneficial to “err to the side of caution.

   

  This is very likely one of those times.”

  This weekend’s reading list is dedicated to the views on the issues surrounding the current market environment and the Fed. While it is always more fun to root for a continuation of the bull market, it is a far different matter to bet on it and be wrong. 

  ---

  THE LIST

  1) Monetary Policy Lags – Fed Must Act Soon by Richard Fisher via The Financial Times

  “Policymakers should focus on the direction of price changes over the medium term. This is easier said than done; you cannot be certain whether the latest inflation numbers reflect a long-running trend or a passing storm. The Fed tries to get around this by focusing on “core” inflation measures that leave out food and energy prices, which are volatile in the short term. The idea is to silence the noise in the inflation numbers, while leaving the signal.

   

  But the Fed’s favored measure does not do as good a job as it could; while less noisy than the headline inflation rate, it has also been persistently low. Over the past 10 years, looking only at data that would have been available to policymakers in real time, conventional core PCE inflation has averaged 1.65 per cent, nearly 30 basis points below headline inflation’s 1.94 per cent average. Setting policy using this measure is like navigating using a compass: it has a systematic bias and is influenced by local anomalies in the earth’s magnetic field.”

  Read Also: What Jackson Hole Missed On Inflation by Bob Eisenbeis via Cumberland Advisors

   

  2) The Fed Is About To Unleash Deflation by Deutsche Bank via ZeroHedge

  “Breaking down the breakeven and real yield components verifies that central bank liquidity has been more associated with real yields then breakevens, however the relationship is perverse! Real yields have tended to fall when balance sheet expansion is slowing while breakevens have generally been stickier. This suggests that risk assets drive (real) yields and that breakevens anticipate a (delayed) liquidity injection.

   

  Right now the decline in Central Bank liquidity suggests 5y5y should be closer to 2 percent or below not 3 percent or above. And this is before the Fed has tightened and China has potentially ‘finished’ its adjustment.”

  

  VIDEO: David Stockman: Why Fed Reserve Actions Will Have Disastrous Long-Term Consequences.

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  3) The Stock Market’s Wake Up Call by Eric Nelson via Servo Wealth Management

  “Until recently we had gone several years without a double-digit decline in US stocks.  For long-term investors, that length of time can lead to a false sense of security and entitlement—believing that stocks should always go up and they have a right to consistently-positive returns.  But that has never been the case; if it were, long-term historical and future returns wouldn’t be as high as they have been or are expected to be.  The chart below looks at the periodic returns of stocks, bonds and balanced portfolios from 1928-2014, net of inflation.”

  

  Read Also: 5 Reasons The Markets Are Going Haywire by Matt Turner via Business Insider

   

  4) The Stock Market Is In All-Or-Nothing Mode by Matt Egan via CNN Money

  “Investors have been taken on a wild ride this summer that's been nearly unprecedented.

   

  The craziness was punctuated by the Dow's 1,000-point nosedive on August 24, its largest intraday point decline on record.

   

  But here's an even more telling sign of the swings: Bespoke Investment Group tracks "all or nothing days," which occur when at least 80% of the S&P 500 advances or declines. In other words, herd mentality drags nearly the entire market in one direction or the other.

   

  During the 12 trading sessions between August 20 and September 4, there were eight all or nothing days, according to Bespoke. There have only been two other times since 1990 that there were as many all or nothing days in that short of a period. These events have been extremely rare.”

  Read Also: Use The Coming Stock Market Rally To Sell by Ken Goldberg via TheStreet.com

   

  5) Baby, It’s Cold Outside by Doug Kass via Kass’ Korner

  “As for Wall Street, baby it’s really cold outside these days – and the market appears to me to have pneumonia. But it’s not as if this brutal season came upon us without warning, as there were clear indications of a blizzard ahead… 

  • Market leadership was narrowing and breadth was deteriorating.
  • Transports, cyclical and industrials had already entered a bear market.
  • The price of numerous forward-economic-looking commodities (i.e.. copper and oil had plunged.
  • Volatility had exploded in many asset classes (stocks, bonds, currencies and commodities).
  • Signposts of slowing global economic growth were numerous, led by moderating growth in China, the current engine of worldwide growth.
  • Corporate profit-growth expectations were steadily eroding.
  • Credit spreads were widening.
  • Easy U.S. monetary policy was losing its impact, and inertia on our leaders’ part was the mainstay of fiscal policy.
  • Malinvestment and overvaluations were sprouting up in many different asset classes.
  • Despite all of these fundamental and technical faults, sentiment was unaffected and the “bull market in complacency” continued as valuations rose ever higher.
  • The chasm between financial asset prices and the real economy widened. “

  Read Also: Where Is The S&P 500 Heading Now?by J C Parets via All-Star Charts

  ---

  Other Reading

  • What You Witnessed Wasn’t A Crash by John Hussman via Hussman Funds
  • Rates Sadly Reflect The Fed, Not The Economy by Joseph Calhoun via Alhambra Partners
  • The Corporate Revenue Recession Spreads by Wolf Richter via Naked Capitalism
  • The Best Investment For The Next 12-Months by Jesse Livermore via Philosophical Economics
  • If It Looks Like A Bear… by Jesse Felder via The Felder Report
  • Definitions Every Investor Should Know (Funny)by Ben Carson via A Wealth Of Common Sense

  ---

  “Perhaps the foremost lesson which I have learned is that emotions rule the world, rather than statistics, information, or anything else.” – Roger Babson

  Have a great weekend.

  

  

  

  

  

• Stocks & Bond Yields Surge'n'Purge Thanks To "Asian Intervention Week"

  In case you were unaware of what happened this week… this should explain it… The 3 Storms of Li, Zhou, and Kuroda stepped in!!

   

  Before we get started – let's get this off our chest:

  Asia Intervention Week anyone?

  • ChiNext (+11.1%) – best week in 4 months
  • Shenzhen Composite (+6.4%) – best week in 2 months

  It looks like they finally killed it…

  

   

  Yes – Yes you did!

  

  • Nikkei 225 (+2.7%) – best week in 2 months
  • Copper (+6%) – best week in 4 months
  • Offshore Yuan (+0.9%) – best week in 6 months
  • USDJPY (+1.3%) – biggest jump (JPY's biggest weakening) in 4 months
  • USD Index down 6 days straight – longest streak in 5 months

  That bled over into some US markets:

  • VIX (-11.6%) – biggest weekly drop in 2 months
  • Dow Transports (+3.1%) – biggest week since last week of July
  • S&P Tech Sector (+2.75%) – best week in 2 months
  • S&P Biotechs (+5.5%) – best week in 2 months

  *  *  *

  Equity futures markets provide perhaps the most clarity on the week's swings (since most of the action takes place before and after the US sessions)…

  

   

  An afternoon ramp dragged everything green for the day… Of course – we warned the bears!!!

  

   

  And so from Friday, cash equity indices all closed green for the week… Trannies and Small Caps soared over 3 weeks – the easiest to short squeeze!!

  

   

  Energy was the week's loser while Tech and homebuilders surged…

  

   

  Once again VIX was plugged into the close to ensure a green close…

  

   

  Once again though, The VIX Slam has lost its momo mojo…

  

   

  Put-Call ratios (average over the last 2 weeks) are at their hghest since March 2007

  

   

  Treasusry yields massively round-tripped on the week… 2Y yields ended very modestly lower with 30Y up just 7bps (well off its 3.037% highjs on 9/9)

  

   

  The USD Index has fallen for 6 straight days – its longest streak since April… as EUR (and AUD) strength handily beat JPY weakness…

  

   

  With a 'Death Cross' looming amid a coiling USD Index making lower highs…

  

   

  Despite the week's USD weakness, commodities (in general) were lower (with WTI worst)… Gold down 3rd week in a row.

  

   

  Oil and Vol remains notably decoupled post-Andy-Hall's month-end malarkey…

  

   

  The exception being copper… Which lifted thanks to China intervention early in the week…notice anything odd?

  

   

  Copper had its best week (up almost 6%) in 4 months… the last time it had a rip-fest week like this marked the early May highs and led to a serious decline…

  

   

  Charts: Bloomberg

  Bonus Chart: Brazil Banged Back To 2005…

  

  

  

  

  

• Friday Humor: Instructions To Traders In The Event Of A Cyber Attack

  Presented with no comment…

   

  

   

  h/t @Erdal_Ozkaya

  via ModernTrader.com

  

  

  

  

• Interbank Credit Risk Is Rising Ominously Again In America

  We have been anxiously reminding investors of the drip-drip-drip increases in market-perceived credit risk for US financials for much of 2015. Having risen to almost 90bps amid the chaos of 2 weeks ago (almost double the lowest levels post-Lehman hit in June of last year), it appears systemic counterparty risk is very much on the rise. What is more concerning however, as Alhambra's Jeffrey Snider notes, the TED spread has exploded higher (since China's devaluation) indicating, as convention has it, a marked increase in perceptions of interbank credit risk.

  "Credit" risk perceptions have risen rapidly…

  

   

  And now the ominous TED Spread is flashing warning signals about the US Financial system…

  

   

  As Alhambra's Jeffrey Snider notes:

  With t-bills settled down again (another clue as to how disruptive the “dollar” run became at its worst), the TED spread has exploded higher indicating, as convention, a marked increase in at least perceptions of interbank credit risk.

   

  The TED spread now is where it was in the weeks just following the flash crash (Greece/euro) in later May 2010, and equal to October 2011 after the SNB pegged to the euro and the Fed reproduced dollar swaps globally.

   

  This is significant and seems to be underappreciated everywhere but places like VIX (and especially longer VIX futures).

  *  *  *

  Despite some modest amelioration in the last week – after massive seemingly coordinated intervention, perhaps, investors will start paying attention now.

  

  

  

  

  

• The Iran Deal (In Perspective)

  Presented with no comment…

   

  

   

  Source: Investors.com

  

  

  

  

  

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