• Paul Craig Roberts: The Rise Of The Inhumanes

  Submitted by Paul Craig Roberts,

  America’s descent into totalitarian violence is accelerating. Like the Bush regime, the Obama regime has a penchant for rewarding Justice (sic) Department officials who trample all over the US Constitution. Last year America’s First Black President nominated David Barron to be a judge on the First US Circuit Court of Appeals in Boston.

  Barron is responsible for the Justice (sic) Department memo that gave the legal OK for Obama to murder a US citizen with a missile fired from a drone. The execution took place without charges presented to a court, trial, and conviction. The target was a religious man whose sermons were believed by the paranoid Obama regime to encourage jihadism. Apparently, it never occurred to Obama or the Justice (sic) Department that Washington’s mass murder and displacement of millions of Muslims in seven countries was all that was needed to encourage jihadism. Sermons would be redundant and would comprise little else but moral outrage after years of mass murder by Washington in pursuit of hegemony in the Middle East.

  Barron’s confirmation ran into opposition from some Republicans, some Democrats, and the American Civil Liberties Union, but the US Senate confirmed Barron by a vote of 53-45 in May 2014. Just think, you could be judged in “freedom and democracy America” by a fiend who legalized extra-judicial murder.

  While awaiting his reward, Barron had a post on the faculty of the Harvard Law School, which tells you all you need to know about law schools. His wife ran for governor of Massachusetts. Elites are busy at work replacing law with power.

  America now has as an appeals court judge, no doubt being groomed for the Supreme Court, who established the precedent in US law that, the Constitution not withstanding, American citizens can be executed without a trial.

  Did law school faculties object? Not Georgetown law professor David Cole, who enthusiastically endorsed the new legal principle of execution without trial. Professor Cole put himself on the DOJ’s list of possible federal judicial appointees by declaring his support for Barron, whom he described as “thoughtful, considerate, open-minded, and brilliant.”

  Once a country descends into evil, it doesn’t emerge. The precedent for Obama’s appointment of Barron was George W. Bush’s appointment of Jay Scott Bybee to the US Court of Appeals for the Ninth Circuit. Bybee was John Yoo’s Justice (sic) Department colleague who co-authored the “legal” memos justifying torture despite US federal statutory law and international law prohibiting torture. Everyone knew that torture was illegal, including those practicing it, but these two fiends provided a legal pass for the practitioners of torture. Not even Pinochet in Chile went this far.

  Bybee and Yoo got rid of torture by calling it “enhanced interrogation techniques.” As Wikipedia reports, these techniques are considered to be torture by Amnesty International, Human Rights Watch, medical experts who treat torture victims, intelligence officials, America’s allies, and even by the Justice (sic) Department. https://en.wikipedia.org/wiki/Jay_Bybee

  Others who objected to the pass given to torture by Bybee and Yoo were Secretary of State Colin Powell, US Navy General Counsel Alberto Mora, and even Philip Zelikow, who orchestrated the 9/11 Commission coverup for the Bush regime.

  After five years of foot-dragging, the Justice (sic) Department’s Office of Professional Responsibility concluded that Bybee and his deputy John Yoo committed “professional misconduct” by providing legal advice that was in violation of international and federal laws. The DOJ’s office of Professional Responsibility recommended that Bybee and Yoo be referred to the bar associations of the states where they were licensed for further disciplinary action and possible disbarment.

  But Bybee and Yoo were saved by a regime-compliant Justice (sic) Department official, David Margolis, who concluded that Bybee and Yoo had used “poor judgement” but had not provided wrong legal advice.

  So, today, instead of being disbarred, Bybee sits on a federal court just below the Supreme Court. John Yoo teaches constitutional law at the University of California, Berkeley, School of Law, Boalt Hall.

  Try to imagine what has happened to America when Harvard and Berkeley law professors create legal justifications for torture and extra-judicial murder, and when US presidents engage in these heinous crimes. Clearly America is exceptional in its immorality, lack of human compassion, and disrespect for law and its founding document.

  Hitler and Stalin would be astonished at the ease with which totalitarianism has marched through American institutions. Now we have a West Point professor of law teaching the US military justifications for murdering American critics of war and the police state. http://www.theguardian.com/us-news/2015/aug/29/west-point-professor-target-legal-critics-war-on-terror Also here: http://www.informationclearinghouse.info/article42758.htm The professor’s article is here: http://warisacrime.org/sites/afterdowningstreet.org/files/westpointfascism.pdf

  William C. Bradford, the professor teaching our future military officers to regard moral Americans as threats to national security, blames Walter Cronkite for loosing the Tet Offensive in the Vietnam War by reporting the offensive as an American defeat. Tet was an American defeat in the sense that the offensive proved that the “defeated” enemy was capable of a massive offensive against US forces. The offensive succeeded in the sense that it demonstrated to Americans that the war was far from over. The implication of Bradford’s argument is that Cronkite should have been killed for his broadcasts that added to the doubts about American success.

  The professor claims to have a list of 40 people who tell the truth who must be exterminated, or our country is lost. Here we have the full confession that Washington’s agenda cannot survive truth.

  I am unaware of any report that the professor has been censored or fired for his disrespect for the constitutionally protected right of freedom of expression. However, I have seen reports of professors destroyed because they criticized Israel’s war crimes, or used a word or term prohibited by political correctness, or were insufficiently appreciative of the privileges of “preferred minorities.” What this tells us is that morality is sidetracked into self-serving agendas while evil overwhelms the morality of society.

  Welcome to America today. It is a land in which facts have been redefined as enemy propaganda, a land in which legally protected whistleblowers are redefined as “fifth columns” or foreign agents subject to extermination, a land in which America is immune from criticism and all crimes are blamed on those whom Washington intends to rule.

  Barron, Bybee, Yoo, and Bradford are members of a new species—the Inhumanes—that has risen from the poisonous American environment of arrogance, hubris, and paranoia.

  

  

  

  

  

• Losing Faith? Traders Dump Japanese Stocks At Fastest Pace In History

  The narrative of the omnipotent central banker continues to be questioned with China's inability to save its own market the latest incarnation of investors losing faith. Nowhere has the religious zealotry been more fervent than in trading Japanese stocks where Abe and Kuroda have broken every independent rule in their manipulation of wealth-giving stocks. However – it appears their time is up, as Bloomberg reports, foreigners dumped 1.43 trillion yen of Japanese equities in the three weeks through Aug. 28, Tokyo Stock Exchange data updated Thursday show. That’s the most for any three-week span on record, overtaking the period when Bear Stearns Cos. collapsed in 2008.

   

  Global investors are pulling money out of Japan’s equity market at the fastest pace since at least 2004, according to Mizuho Securities Co. As Bloomberg details,

  Foreigners last week sold a net 1.85 trillion yen ($15.4 billion) of Japanese stocks and equity index futures, the biggest combined outflow since Mizuho began tracking the data more than a decade ago, said Yutaka Miura, a Tokyo-based senior technical analyst at the brokerage. Investors are fleeing amid concern about China’s economic outlook and the prospect of higher interest rates in the U.S., he said.

   

  “This is a result of investors dumping global risk assets,” said Miura. “Japanese stocks have performed well since the start of the year, so similar to what’s happening in Europe, we’re seeing people take profits.”

   

  Foreigners dumped 1.43 trillion yen of Japanese equities in the three weeks through Aug. 28, Tokyo Stock Exchange data updated Thursday show. That’s the most for any three-week span on record, overtaking the period when Bear Stearns Cos. collapsed in 2008.

   

  

   

  Net stock sales totaled 707 billion yen last week, and investors also reduced positions in index futures by 1.14 trillion yen, exchange data show. Cumulative flows for 2015 are still positive, with foreigners buying a net 1.1 trillion yen of equities through last week.

  As one local broker noted,

  “The sell-off started in China," Clarke said. “Investors couldn’t sell there in the end so selling spread to Asia, and Japan especially as it has a greater liquidity. This eventually spread to Europe and the U.S.”

  Time for some moar QQE Mr. Kuroda? Oh wait – you can't!!

  

  

  

  

  

• Why China Liquidations May Not Spike US Treasury Yields

  Via Scotiabank’s Guy Haselmann

  There has been quite a bit of market chatter this week about how central bank selling of foreign exchange (FX) reserves could cause Treasury yields to soar. The market has branded this action ‘Quantitative Tightening’; borrowing the term from a note written by a London-based markets strategist.  Investors seem quick to conclude that it will result in higher yields on Treasury securities. I disagree with this simplified assumption and will use this note to explain why.

  Yes, I remain bullish on long-dated Treasuries securities.    

  First some facts. No one disputes that central banks have been selling reserves. Aggregate global foreign exchange reserves fell to $11.43 trillion in Q1 from $11.98 trillion last summer. The aggregate amount most likely fell even further in Q2 and Q3 as Chinese economic growth concerns impacted global markets. These reserves are mostly held in G7 currencies, 64% percent of which are held in US dollars. Since the aggregate amount is measured and reported in US dollars, it should be noted that part of the decline is due to the fall in dollar terms of the reserves held in euros and yen. 

  To understand its impact on Treasuries – or German, UK, or Japanese bonds for that matter – it is important to understand why central banks have been selling. The decline (selling) is driven by a combination of factors, such as: a Chinese economic slowdown; the preparation of a looming Fed interest rate hike; the Renminbi devaluation; a depreciating domestic currency; capital outflows; and lower revenues from collapsed commodity prices.

  How do these factors lead to the selling of FX reserves?  Put simply, some countries are selling reserves in an attempt to either support falling local currencies or to offset capital flight. If an investor, for example, sells a Renminbi asset for dollars, China can sell some Treasuries to buy the Renminbi and support its currency and currency peg. If the investor chooses to invest the USD into Treasuries, then there is no net effect.

  More importantly, a probable driving force behind this transaction could be that the outlook for economic growth and inflation has fallen. In addition, there may simply be a flight to the safety of Treasuries in a world of growing central bank and political uncertainty (and one of greater imbalances and instability). Furthermore, as global capital markets have entered a new higher volatility regime, portfolios are forced to decrease risk accordingly.  Any central bank selling will be worse for equities than Treasuries. 

  Admittedly, de-risking is not a one-way bullish bet on bonds since leveraged carry trades and ‘risk-parity’ portfolios will need to do some selling. This is difficult to quantify. In addition, a slower growth world has depressed the price of oil leading to fewer petrol dollars being recycled back into Treasuries.

  However, I believe demand for Treasuries will more than offset central bank selling. Treasury selling by central banks is temporary, while the economic factors causing the action will be longer lasting. Weaker foreign currencies will mean cheaper goods being sent to the US. This will keep downward pressure on US consumer prices, and the proceeds of which will be recycled into US Treasuries.

  There is no doubt that the Chinese economy is in a material economic slowdown. Policy officials’ aggressive actions and scare tactics against equity short sellers could continue to cause capital flight. However, this does not mean that China is going to sell large quantities of Treasuries. There is too much co-dependency between the US consumer and Chinese exporter. 

  Destabilizing the US Treasury market with large sales would be tantamount to shooting themselves in the foot. Therefore, if capital flows became too large China would rather impose a penalty on outflows, than sell too many Treasury securities. Last week, Beijing imposed a 20% penalty in Renminbi forwards – that bet against currency depreciation.

  There was huge liquidation of FX reverses during the 1997 South East Asian currency crisis. The 10-year Treasury bounced around in a volatile range for many months, only making slow progress to lower yields over time despite scary market conditions. Ironically, it was only after the IMF granted loans, and the selling dissipated as the crisis eased, that Treasury yields fell markedly.

  In addition, demand from private pensions should increase. Penalties for underfunding will rise again on January 1st, so the incentives to expand LDI will increase. There is a shortage of high quality duration.

  Lastly, the Fed may choose a reinvestment schedule for maturing Treasury securities in 2016 that keeps the weighted-average-maturity of its balance sheet stable. If this happens, duration will be extracted from the secondary market to fix the duration of its balance sheet.   

  Foreign Demand for Dollars

  Due to low rates (zero lower bound), the amount of US dollar issuance by foreign corporations has risen from around $2 trillion in 2007 to around $8 trillion today (a 4X increase). I will guess that the average weighted maturity of this new issuance is 6 years. That would mean that any debt issued in 2009 is coming due this year.

  If the money stayed in US dollars, repayment would be less difficult. However, much of the proceeds were repatriated into domestic currencies. Since many foreign currencies have depreciated by 20%-60%, these liabilities have increased significantly in local currency terms. Many companies are scrambling to get dollars or hedge their currency exposures as they prepare to meet their obligations.  

  Central banks may have to find clever ways to offset or smooth these flows. Relative to the size of their economies, $8 trillion in outstanding liabilities is an enormous amount. This is likely one of several forces giving a relentless bid to the USD against certain currencies.

  September FOMC

  A sporting event is most enjoyable when the game is fair and competitive and when referees are rarely noticed. Central Banks should be viewed in the same light. To their dismay, they would admit that they are too visible and the source of daily news.  Part of the problem is that central banks have entered a dangerous cycle of investors expecting more stimuli for each and every economic wobble. (Hope-ium is highly addictive.)

  The markets began today in ‘risk-on’ mode due to ECB quasi-promises of doing whatever it takes.

  The first hike in nine years has been lingering above markets for well over a year.  Rightly or wrongly, there have been reasons and excuses to delay it.   Further delay will be damaging to markets and destructive for confidence.  The time for a hike has arrived. The best way to arrest these unhealthy conditions is to ‘rip the band aid off’ by hiking in two weeks and then sitting back and watching.  

  Elevated market volatility or international fragility should not deter the Fed from hiking.  A pause would actually cause more uncertainty and keep a hike looming over the market for longer. 

  One reason, the US Treasury curve has been steepening is the belief that the Fed will delay hiking rates until 2016. Some investors believe the Fed prefers a steeper curve; thus supporting their expectations for delay. I disagree with that prediction and rationale. 

  I agree that a hike would almost assuredly flatten the curve. This would occur because investors would either think that the Fed made a mistake, or because they would decrease expectations for growth and inflation given the fragility of the international economies. 

  However, I believe the Fed would not be bothered by a drop in long yields, because it would help support the housing market. Moreover, banks (who benefit from a steeper curve) already receive a subsidy (arbitrage) from interest on their excess reserves, and do not receive much margin in loans anyway.

  The bottom line is that I remain a bond bull and advise investors not to give into the hype of Chinese selling. (Moreover, the employment report tomorrow at this point does not matter.)  I expect long-dated yields to fall materially despite an interest rate hike by the FOMC at the September or October meeting. The next 50 basis point move in 10’s and 30’s is to lower yields and likely to happen before the end of the year.  

   “Over investment and over-speculation are often important; but they would have far less serious results were they not conducted with borrowed money.” –Irving Fisher

  

  

  

  

  

• The 2030 Agenda: This Month The UN Launches A Blueprint For A New World Order With The Help Of The Pope

  Submitted by Michael Snyder via The End of The American Dream blog,

  Did you know that the UN is planning to launch a “new universal agenda” for humanity in September 2015?  That phrase does not come from me – it is actually right in the very first paragraph of the official document that every UN member nation will formally approve at a conference later this month.  The entire planet is going to be committing to work toward 17 sustainable development goals and 169 specific sustainable development targets, and yet there has been almost a total media blackout about this here in the United States. 

  The UN document promises that this plan will “transform our world for the better by 2030“, and yet very few Americans have even heard of the 2030 Agenda at this point.  Instead, most of us seem to be totally obsessed with the latest celebrity gossip or the latest nasty insults that our puppet politicians have been throwing around at one another.  It absolutely amazes me that more people cannot understand that Agenda 2030 is a really, really big deal.  When will people finally start waking up?

  As I discussed in a previous article, the 2030 Agenda is taking the principles and goals laid out in Agenda 21 to an entirely new level.  Agenda 21 was primarily focused on the environment, but the 2030 Agenda addresses virtually all areas of human activity.  It truly is a blueprint for global governance.

  And later this month, nearly every nation on the entire planet is going to be signing up for this new agenda.  The general population of the planet is going to be told that this agenda is “voluntary” and that it is all about “ending poverty” and “fighting climate change”, but that is not the full story.  Unfortunately, there is so much positive spin around this plan that most people will not be able to see through it.  Just check out an excerpt from a piece that was published on the official UN website yesterday…

  The United Nations General Assembly today approved a resolution sending the draft ‘2030 Agenda for Sustainable Development’ to Member States for adoption later this month, bringing the international community “to the cusp of decisions that can help realize the… dream of a world of peace and dignity for all,” according to Secretary-General Ban Ki-moon.

   

  “Today is the start of a new era. We have travelled a long way together to reach this turning point,” declared Mr. Ban, recounting the path the international community has taken over the 15 years since the adoption of the landmark Millennium Development Goals (MDGs) towards crafting a set of new, post-2015 sustainability goals that will aim to ensure the long-term well-being of our planet and its people.

   

  With world leaders expected to adopt the text at a 25-27 September summit in New York, the UN chief said Agenda 2030 aims high, seeking to put people at the centre of development; foster human well-being, prosperity, peace and justice on a healthy planet and pursue respect for the human rights of all people and gender equality.

  Who doesn’t “dream of a world of peace and dignity for all”?

  They make it all sound so wonderful and non-threatening.

  They make it sound like we are about to enter a global utopia in which poverty and inequality will finally be eradicated.  This is from the preamble of the official 2030 Agenda document…

  This Agenda is a plan of action for people, planet and prosperity. It also seeks to strengthen universal peace in larger freedom. We recognise that eradicating poverty in all its forms and dimensions, including extreme poverty, is the greatest global challenge and an indispensable requirement for sustainable development. All countries and all stakeholders, acting in collaborative partnership, will implement this plan.

   

  We are resolved to free the human race from the tyranny of poverty and want and to heal and secure our planet. We are determined to take the bold and transformative steps which are urgently needed to shift the world onto a sustainable and resilient path.

   

  As we embark on this collective journey, we pledge that no one will be left behind. The 17 Sustainable Development Goals and 169 targets which we are announcing today demonstrate the scale and ambition of this new universal Agenda.

  If it is a “universal agenda”, then where does that leave those that do not want to be part of it?

  How will they assure that “no one will be left behind” if there are some nations or groups that are not willing to go along with their plan?

  The heart of the 2030 Agenda is a set of 17 Sustainable Development Goals…

  Goal 1 End poverty in all its forms everywhere

  Goal 2 End hunger, achieve food security and improved nutrition and promote sustainable agriculture

  Goal 3 Ensure healthy lives and promote well-being for all at all ages

  Goal 4 Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all

  Goal 5 Achieve gender equality and empower all women and girls

  Goal 6 Ensure availability and sustainable management of water and sanitation for all

  Goal 7 Ensure access to affordable, reliable, sustainable and modern energy for all

  Goal 8 Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all

  Goal 9 Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation

  Goal 10 Reduce inequality within and among countries

  Goal 11 Make cities and human settlements inclusive, safe, resilient and sustainable

  Goal 12 Ensure sustainable consumption and production patterns

  Goal 13 Take urgent action to combat climate change and its impacts*

  Goal 14 Conserve and sustainably use the oceans, seas and marine resources for sustainable development

  Goal 15 Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss

  Goal 16 Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels

  Goal 17 Strengthen the means of implementation and revitalize the global partnership for sustainable development

  Once again, many of those sound quite good.

  But what do many of those buzzwords actually mean to the elite?

  For instance, what does “sustainable development” actually mean, and how does the UN plan to ensure that it will be achieved globally?

  This is something that was discussed in a recent WND article…

  But what is “sustainable development?”

   

  Patrick Wood, an economist and author of “Technocracy Rising: The Trojan Horse of Global Transformation,” says it’s clear the U.N. and its supporters see sustainable development as more than just the way to a cleaner environment. They see it as the vehicle for creating a long-sought new international economic order, or “New World Order.”

   

  Wood’s new book traces the modern technocracy movement to Zbigniew Brzezinski, David Rockefeller and the Trilateral Commission in the early 1970s.

  And Wood is quite correct.  The environment is a perfect vehicle for the elite to use to bring in their version of utopia, because just about every possible form of human activity affects the environment in some way.  Ultimately, they hope to centrally plan and strictly regulate virtually everything that we do, and we will be told that it is necessary to “save the planet”.

  And they will never come out and openly call it a “New World Order” because “sustainable development” sounds so much nicer and is so much more acceptable to the general population.

  Needless to say, there wouldn’t be much room for individual liberty, freedom or good, old-fashioned capitalism in the world that the elite are trying to set up.  In fact, the U.N.’s number one sustainable development official has essentially publicly admitted this…

  “This is probably the most difficult task we have ever given ourselves, which is to intentionally transform the economic development model, for the first time in human history,” Figueres, who heads up the U.N.’s Framework Convention on Climate Change, told reporters in February.

   

  “This is the first time in the history of mankind that we are setting ourselves the task of intentionally, within a defined period of time, to change the economic development model that has been reigning for the at least 150 years, since the industrial revolution,” Figueres said.

  They plan to “intentionally transform the economic development model”?

  And so what will this new system look like?

  How will they achieve this “utopia” that they are promising us?

  Sadly, they are just selling the same lies that have been sold to people for thousands of years.  Paul McGuire, the co-author of a new book entitled “The Babylon Code: Solving the Bible’s Greatest End-Times Mystery“, commented on this recently…

  Deep inside every man and woman is the longing for a far better world, a world without war, disease, death, and pain. Our present world is a cruel world in which every life ends in death. From the beginning of time Mankind has sought to use science and technology to create a perfect world, what some would call Utopia or Paradise. As the Human Race began to organize itself, a Scientific or Technocratic Elite rose to power by promising the masses that they could build this perfect world. Ancient Babylon represented the first historical attempt to build paradise on earth.

  In ancient times, Babylon was the very first attempt to create a type of “global government”, and ever since then the global elite have been trying to recreate what Babylon started.

  The promise is always the same – the elite swear that they have finally figured out how to create a perfect society without poverty or war.  But in the end all of these attempts at utopia always end up degenerating into extreme forms of tyranny.

  On September 25th, the Pope is traveling to New York to give the opening address at the conference where the 2030 Agenda will be launched.  He will be urging all of humanity to support what the UN is trying to do.  There are countless millions that implicitly trust the Pope, and they will buy what he is selling hook, line and sinker.

  Don’t be fooled – the 2030 Agenda is a blueprint for a New World Order.  Just read the document for yourself, and imagine what our world would actually look like if they have their way.

  They want to fundamentally transform our planet, and the freedom that you are enjoying today is simply not acceptable.  To the elite, giving people freedom and liberty is dangerous because they believe it hurts the environment and causes societal chaos.  According to their way of thinking, the only way to have the kind of harmonious utopia that they are shooting for is to tightly regulate and control what everyone is thinking, saying and doing.  Their solutions always involve more central planning and more control in their own hands.

  So what do you think?

  Should we hand the global elite that kind of power and control?

  If not, then we all need to start speaking out about this insidious agenda while we still can.

  

  

  

  

  

• US Equity Futures Mini-Flash-Crash As Japanese Econ Minister Opens Mouth

  Just as the machines had learned the “Buy when Japan opens” signal, Japanese leaders unleash their usual stream of utter tripe and break the bid. Tonight’s chosen member was Japanese Economy Minister Amari who said “it is important for markets to act calmly, not move in a volatile manner,” adding “stock markets are not reflecting fundamentals,” reflecting on the fact that G-20 ministers had discussed China and “monetary tightening was likely in some advanced countries.” This sparked a plunge in USDJPY and an instant 100-point plunge in Dow futures.

   

  US equity futures mini-flash-crash

  

   

  Led by USDJPY…

  

   

  It appears the admission that an advanced nation was likely to tighten combined with his calls for calm were seen as increasing the odds of a rate hike being imminent for The Fed.

   

  It looks like The BoJ will have to get back to work tonight, since China is still on holiday. As it appears Kuroda likes this level (the red dashed line)…

  

   

  Charts: Bloomberg

  

  

  

  

  

• Flashpoint: White House Confirms Russian Presence In Syria, Warns It Is "Destabilizing"

  Two days ago we reported something which we had anticipated for a long time but nonetheless did not expect to take shape so swiftly: namely, that with Assad’s regime close to collapse and fighting a war on three different fronts (one of which is directly supported by US air and “advisor” forces), Putin would have no choice but to finally intervene in the most anticipated showdown in recent history as “Russian fighter pilots are expected to begin arriving in Syria in the coming days, and will fly their Russian air force fighter jets and attack helicopters against ISIS and rebel-aligned targets within the failing state.”

  This was indirectly confirmed the very next day when an al-Nusra linked Twitter account posted pictures of a Russian drone and a Su-34 fighter jet – the kind which is not flown by the Syrian air force – flying over the Nusra-controlled western idlib province.

  

   

  Another twitter account said to have captured Russian soldiers in Zabadani “while fighting for Assad”

  

   

  Also, one day after our report, the Telegraph reported that “Syrian state TV reportedly broadcasts footage of Russian soldiers and armoured vehicle fighting alongside pro-Assad troops.” According to the article, “the video footage claimed to show troops and a Russian armoured vehicle fighting Syrian rebels alongside President Bashar al-Assad’s troops in Latakia. It is reportedly possible to hear Russian being spoken by the troops in the footage.”

  It added that “a Russian naval vessel was photographed heading south through the Bosphorus strait carrying large amounts of military equipment, according to social media and a shipping blog” while “an unnamed activist with the Syrian rebel group the Free Syrian Army told The Times: “The Russians have been there a long time.“

  “There are more Russian officials who came to Slunfeh in recent weeks. We don’t know how many but I can assure you there has been Russian reinforcement.” “

  Then earlier today we got the closest thing to a confirmation from the White House itself which confirmed that “it was closely monitoring reports that Russia is carrying out military operations in Syria, warning such actions, if confirmed, would be “destabilising and counter-productive.“

  Obama spokesman Joshn Earnest essentially confirmed Russia was already operating in Syria when he said that “we are aware of reports that Russia may have deployed military personnel and aircraft to Syria, and we are monitoring those reports quite closely.”

  “Any military support to the Assad regime for any purpose, whether it’s in the form of military personnel, aircraft supplies, weapons, or funding, is both destabilising and counterproductive.”

  And another confirmation: “a US official confirmed that “Russia has asked for clearances for military flight to Syria,” but added “we don’t know what their goals are.”

  “Evidence has been inconclusive so far as to what this activity is.”

  Other reports have suggested Russia has targeted Islamic State group militants, who have attacked forces loyal to Russian-backed Syrian leader Bashar al-Assad.

  Both the White House and the Pentagon refused to say whether they had intelligence suggesting the reports were accurate.

  Of course, what is left unsaid is that since Russia is there under the humanitarian pretext of fighting the evil ISIS, the same pretext that the US, Turkey, and the Saudis are all also there for, when in reality everyone is fighting for land rights to the most important gas pipeline in decades, the US is limited in its diplomatic recoil.

  Indeed as we sarcastically said last week: “See: the red herring that is ISIS can be used just as effectively for defensive purposes as for offensive ones. And since the US can’t possibly admit the whole situation is one made up farce, it is quite possible that the world will witness its first regional war when everyone is fighting a dummy, proxy enemy which doesn’t really exist, when in reality everyone is fighting everyone else!”

  * * *

  Which now effectively ends the second “foreplay” phase of the Syrian proxy war (the first one took place in the summer of 2013 when in a repeat situation, Russia was supporting Assad only the escalations took place in the naval theater with both Russian and US cruisers within kilometers of each other off the Syrian coast), which means the violent escalation phase is next. It also means that Assad was within days of losing control fighting a multi-front war with enemies supported by the US, Turkey and Saudi Arabia, and Putin had no choice but to intervene or else risk losing Gazprom’s influence over Europe to the infamous Qatari gas pipeline which is what this whole 3 years war is all about.

  Finally, it means that the European refugee crisis, which is a direct consequence of the ISIS-facilitated destabilization of the Syrian state (as a reminder, ISIS is a US creation meant to depose of the Syrian president as leaked Pentagon documents have definitively revealed) is about to get much worse as 2013’s fabricated “chemical gas” YouTube clip will be this years “Refugee crisis.” It will be, and already has been, blamed on Syria’s president Assad in order to drum up media support for what is now an inevitable western intervention in Syria.

  The problem, however, has emerged: Russia is already on the ground, and will hardly bend over to any invading force.

  Finally, while we have no way of knowing how the upcoming armed conflict will progress, now may be a safe time to take profits on that oil short we recommended back in October, as the geopolitical chess game just shifted dramatically, and with most hedge funds aggressively short, any realization that the middle east is suddenly a far more violent powderkeg – one which may promptly include the Saudis in any confrontation – could result in an epic short squeeze.

  

  

  

  

• Europe's Refugee Crisis "Out Of Control", Hungary PM Rages "This Is A German Problem, Not An EU Problem"

  The current refugee crisis is not an EU problem, but rather "a German problem," according to Hungary's Prime Minister Viktor Orban as his nation's borders are swamped with foreigners seeking to travel on to Germany. "People in Europe are full of fear because they see that the European leaders are not able to control the situation," he exclaimed after a meeting with EU President Schultz. He is right, of course, as we detailed here and here, but the sheer scale of the tragedy is worst than many could imagine. Orban defended his decision to erect a fence along its southern border with Serbia, saying: "we don’t do this for fun, but because it is necessary," adding rather pointedly that his country was being "overrun" with refugees, most of whom, according to the prime minister, were not Christians.

   

  The disturbing image of a drowned Syrian boy has crystallized the crisis across Europe for most of the rest of the world…

  

   

  And this morning's actions…

   

  As refugees flood into Europe from across The Middle East and Africa… (At least 450,000 of Syria’s pre-2011 Christian population of 1.17 million are either internally displaced or living as refugees abroad.)

  

   

  As AFP explains, it shows no signs of abating…

   

  As The FT reports,

  Europe is facing the most serious refugee crisis since the end of the second world war.

   

  In response, EU leaders are acting in very different ways. Angela Merkel, the German chancellor, has taken the humanitarian high ground, declaring that her country will receive up to 800,000 asylum applicants this year and confronting the anti-immigrant voices in her country. By contrast, David Cameron seems to be taking a mean approach, strictly limiting the number of refugees Britain will receive.

  And Hungary's Prime Minister is now daring to speak out – demanding action from his 'colleagues' in The Union…

  "We Hungarians are full of fear, people in Europe are full of fear because they see that the European leaders, among them prime ministers, are not able to control the situation," Orban said on Thursday, after a meeting with European Parliament President Martin Schulz in Brussels.

   

  The prime minister added: "I came here to inform the president that Hungary is doing everything possible to maintain order. We are creating now in the Hungarian parliament a new package of regulations, we set up a physical barrier and all these together will provide a new situation in Hungary and in Europe from September 15. Now we have one week of preparation time."

   

   

  On Thursday, Hungarian police allowed hundreds of migrants inside Budapest's main railway station, but then the authorities canceled all trains to Western Europe, causing chaos.

   

  Hundreds of people, many of them fleeing conflicts zones in the Middle East with their children, took a waiting train by storm, trying to push kids through open windows, hoping they would be allowed to continue their journey west to Austria, Germany and further afield. But signs in Hungarian said there were no west-bound trains, Reuters reported. It's unclear why the police had suddenly withdrawn, having stopped more than 2,000 migrants from entering for two days.

   

  Hungary is currently building a 3.5 meter-high fence on its southern border with Serbia designed to deter migrants. So far this year, 140,000 have been caught entering the country.

   

   

  Following talks with the president of the European Parliament Martin Schulz, Orban noted the current refugee crisis was not an EU problem, but rather "a German problem," as he put it.

   

  According to Orban, none of the migrants want to "stay in Hungary."

   

  "All of them want to go to Germany," the Hungarian prime minister said.

  *  *  *

  As we concluded previously,

  The refugee issue can and will not be solved by the EU, or inside the EU apparatus, at least not in the way it should. Nor will the debt issue for which Greece was merely an ‘early contestant’. The EU structure does not allow for it. Nor does it allow for meaningful change to that structure. It would be good if people start to realize that, before the unholy Union brings more disgrace and misery and death upon its own citizens and on others.

   

  However this is resolved and wherever the refugees end up living, we, all of us, have the obligation to treat them with decency and human kindness in the meantime. We are not.

  Russia appears to get it…

  Refugee crisis in Europe reaches “catastrophic” level as result of “irresponsible” approach to provoking regime change, Russian Foreign Ministry spokeswoman Maria Zakharova tells reporters in Moscow.

  Which means this is the tip of iceberg compared to what is coming…

  The media focus on a truck in Austria where 70 human beings died, and on a handful of children somewhere who were more dead than alive when discovered. These reports take away from the larger issue, that there are dozens such cases which remain unreported, where there are no camera’s present and no human interest angle to be promoted that a news outlet thinks it can score with.

   

  Brussels and Berlin must throw their energy and their efforts at ameliorating the circumstances in the countries the refugees are fleeing. They need to acknowledge the role they have played in the destruction of these countries. But the chances of any such thing happening are slim to none. Therefore countries like Greece and Italy must draw their conclusions and get out, or they too will be sucked down into the anti-humanitarian vortex that the EU has become.

   

  Europe needs to look at the future of this crisis in very different ways than it is doing now. Or it will face far bigger problems than it does now.

   

  Italy’s Corriere della Sera lifted part of the veil when it said last week (Google translation):

   

  The desperation of millions of human beings, manipulated by traffickers and by terrorist groups is also an instrument of disintegration of the countries of origin and of destabilization of the host countries.

   

  It is estimated that sub-Saharan Africa will have 900 million more inhabitants in the next twenty years. Of these, at least 200 million are young people looking for work. The chaos of their countries of origin will push them further north.

   

  That is the future. It will no more go away by itself, and by ignoring it, than the present crisis, which, devastating as it may be, pales in comparison. Europe risks being overrun in the next two decades. And as things stand, it has no plans whatsoever to deal with this, other than the military, and police dogs, barbed wire, tear gas, fences and stun grenades.

  This lack of realism on both the political and the humane level will backfire on Europe and turn it into a very unpleasant place to be, both for Europeans and for refugees. Most likely it will turn the entire continent into a warzone.

  The only solution available is to rebuild the places in Syria and Libya et al that the refugees originate from, and allow them to live decent lives in their homelands. If Brussels, and Washington, fail to realize this, things will get real ugly. We haven’t seen anything yet.

  So far the EU changes have been a disaster…

  

   

  And all this to get a gas pipleine across Syria!!!

  

  

  

  

  

• As China Parks Its Ships Next To Alaska, Here's Obama

  As Xi and Putin stand proudly before the parade of China's military might and Chinese navy ships enter the Bering Sea for the first time ever, President Obama is busy doing other things just a few hundred miles away…

   

  

   

  Ironic really, as Reuters reports,

  The rise of selfie photography in some of the world's most beautiful, and dangerous, places is sparking a range of interventions aimed at combating risk-taking that has resulted in a string of gruesome deaths worldwide.

   

  …

   

  Several governments and regulatory bodies have now begun treating the selfie as a serious threat to public safety, leading them to launch public education campaigns reminiscent of those against smoking and binge drinking.

  *  *  *

  One wonders where Obama will selfie next?

  

  

  

  

  

  

• Why Economics Matters

  Submitted by Jeff Deist via The Mises Institute,

  This article is a selection from a June 19 presentation at a lunchtime meeting of the Grassroot Institute in Honolulu at the Pacific Club. The talk was part of the Mises Institute’s Private Seminar series for lay audiences. To schedule your own Private Seminar with a Mises Institute speaker, please contact Kristy Holmes at the Mises Institute.

  First let me say that what we today call “Austrian economics” flows from the great legacy of classical economics, with the very important modification economists now call the “marginal revolution.” Austrian economics is also a term that describes a healthy and vibrant (though often oppositional) modern school of economic thought. It originated with intellectual giants like Carl Menger and Ludwig von Mises, names I’m sure many of you are familiar with. These economists were from Austria, hence the term.

  There was a landmark conference at South Royalton, Vermont in 1974, attended by the likes of Murray Rothbard and Milton Friedman, that revitalized the Austrian movement and helped it regain prominence in the latter part of the twentieth century. Milton Friedman was in attendance, and that’s when he famously remarked that “There is only good economics and bad economics.”

  And of course that’s true. Schools of thought should not be rigid, or dogmatic, or too narrowly defined. But classifying various economists and theories into groups or family trees does indeed help us make sense of economics. It helps us understand how we arrived at a time and place where Ben Bernanke, Paul Krugman, Thomas Piketty, and Christine Lagarde are viewed as modern mainstream thinkers rather than the radicals they are when compared to the whole history of the field.

  

  Image courtesy of Peter Cresswell.

  We supplied some photocopies that roughly trace the history of economic thought. Notice the split in the 1930s, not coincidentally during the Great Depression, between Mises and John Maynard Keynes. Up until then, from about 1850 forward, Austrian economics was mainstream economics. But as you can see, most of today’s mainstream economists fall somewhere under the umbrella of Keynes, and they tend to focus on variants of Keynes’s ideas about aggregate demand.

  But at least they focus on something!

  Ignorance of Economics Is not Bliss

  Which leads me to my topic today: “Why Any Economics Matters.” I say “any” because at this point the entire subject appears to be lost on the average American. Economics is not a popular topic among the general population, it would seem. When economics is discussed at all, it’s in the context of politics — and politics gives us only the blandest, safest, most meaningless platitudes about economic affairs.

  Bernie Sanders or Hillary Clinton simply are not going to talk much in economic terms or present detailed economic “plans.” On the contrary, they — will assume rightly — that most Americans just don’t have any interest beyond sloganeering like “1%,” “social justice,” “greed,” “paying their fair share,” and the like.

  Candidates on the Right won’t be much better. They’d prefer to talk about other subjects, but when they do broach economics they’re either outwardly protectionist like Donald Trump or deadly dull.  Who is inspired by flat tax proposals?

  Americans simply aren’t much interested in the details, or even the accuracy, of the economic pronouncements of the political class. We want bread and circuses.

  Consider what people talk about on Facebook: lots of posts about family. Lots of posts about celebrities, and sports. Lots of posts about food, health, and exercise. Some posts about politics, culture, race, and sex, but usually only to support one side or bash the other.

  Not much, ladies and gentlemen, in the way of economics. And I submit that might be a very healthy thing. After all — we’re rich! Only a wealthy society does not have to focus on the subsistence-level concerns of adequate food and shelter, hot running water, clothing, electricity, and the like.

  So let’s not be too hard on people for not spending their free time reading economics. Leisure itself is a very important activity, and represents a form of economic trade-off.

  But economics matters very much, and we ignore it at our own peril. Economics is like gravity, or math, or politics — we may not understand it, or even think about it much, but it profoundly affects us whether we like it or not.

  Economics as a subject has been captured by academia, and academics like Krugman are not so subtle when they imply that lay persons should leave things to the experts. It’s like team sports — we may be introduced to it when we’re young, but only the professionals do it for a living as adults.

  Yet once we understand that all human action is economic action, we understand that we can’t escape or evade our responsibility to understand at least basic economics. To think otherwise is to avoid responsibility for our own lives.

  While we shake our heads when twenty year olds can’t read at the college level or do simple algebra, we don’t worry much whether they never take economics. We would be alarmed if our children couldn’t perform basic math to know how much change they should get at a cash register, but we send them out into the world far more susceptible to being cheated by politicians. Why do we want our kids to learn at least basic geography, chemistry, and physics? And grammar, spelling, literature, history, and civics? We want them to know these things so they can navigate their lives properly as adults

  But somehow we’ve come to believe economics should be left to academics and policy wonks. And worse yet, we don’t protest when kids grow up to become adults with little or no knowledge of economics, yet still have strong opinions about economic issues.

  Ignorance of basic economics is so widespread that we ought to have a specific word for it, like we have for illiteracy or innumeracy.  

  The aforementioned Murray Rothbard had this to say: 

  It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a “dismal science.” But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.

  I’m sure we’re all familiar with this phenomenon on social media, which seems perfectly suited to vociferous unfounded opinions.

  Let’s consider the minimum wage issue, as one example that’s been in the news lately:

  Wages are nothing more than prices for labor services. When the price for something rises, demand drops — and you have more unemployed people than you otherwise would. Pure and simple Econ 101.

   

  Yet what percentage of Americans today have even seen a downward sloping demand chart in a high school or college class?

  It is this great and widespread ignorance of economics that plagues our ludicrous political landscape. It allows politicians to attack capitalism, and make demagogues out of entrepreneurs. It allows politicians to blame free markets for the very economic problems caused by the state and its central bank in the first place — like the dot com implosion, like the housing bubble, like the Crash of 2008, like the unsustainable equity prices commanded by US stock markets today.

  In short, ignorance of economics allows some very big falsehoods to be accepted as fact by large numbers of people. And it’s only going to get worse as the presidential election of 2016 unfolds.

  Read the full text here.

   

  

  

  

  

  

• Turkey Arrests Journalists, Sets Up Terrorist "Tip Line" As Currency Plunges, Violence Escalates

  Last month, Turkey’s central bank had a chance to give the plunging lira some respite by preempting the Fed and hiking rates.

  Only they didn’t.

  And not only did they not hike, they made it clear that tightening would only occur once the Fed tightened and then made matters immeasurably worse by proceeding to stumble through a “roadmap” of how they planned to deal with DM policy normalization. That, combined with political turmoil, an escalating civil war (and yes, that’s what it is), and pressure on EM in general has led directly to further weakness for TRY:

  

  We bring this up because Turkey, like Brazil, is a country to keep an eye on and not only because of the prominent role it will ultimately play in deciding the fate of Syria’s Bashar al-Assad, but because much like Brazil, things seem to get worse by the day both economically and politically. Take Thursday for instance, when inflation came in hot, prompting Goldman to suggest that the central bank had indeed missed its window. Here’s Goldman:

  Headline and core inflation accelerated sequentially in August, on broad-based price increases. This trend will likely continue, as renewed exchange rate weakness passes through to domestic prices in the coming months, and food disinflation loses momentum. We continue to forecast end-2015 CPI at 8.2% but with moderate upside risks.

   

  In our view, the CBRT may have missed an opportunity to start normalising/simplifying its policy framework by keeping all policy rates unchanged in the August MPC meeting. This raises the risk of earlier and more aggressive rate hikes than we have been forecasting. We reiterate our long-held Conviction View to own Turkey protection, through 5-year CDS spreads.

  And a bit more from Credit Suisse:

  We are revising our headline inflation forecasts higher. Following the lira’s depreciation in August and the recent upside surprises to food price inflation, we are revising our end-2015 inflation forecast to 8.6% from 7.8% previously and our end-2016 inflation forecast to 7.4% from 7.2% previously. 

  And for a more general assessment of the growing economic malaise we got to BofAML: 

  Turkish macro seems to be facing a perfect storm as both domestic and external uncertainties are weighing down on GDP growth. The run rate of GDP growth has slowed down to 2%, TRY weakness keeps CPI inflation sticky close to 8%, weak FX revenues and consumption driven GDP growth keeps CAD around 6% of GDP, and CBT is unlikely to deliver market’s expectation of sharply higher TRY rates to put an end to TRY weakness. Since TRY is still not at oversold levels and further EMFX cannot be ruled out, we believe macro will not be supportive of Turkish asset prices in the near-term. In the meantime, we expect some populism in macro policies until the November elections, as stakes are high. 

  So all around bad. Of course one of the main drivers of the market’s declining confidence in Turkey is the political turmoil that’s gripped the country since June when AKP lost its parliamentary majority for the first time in over a decade throwing President Recep Tayyip Erdogan’s plan to transform the country’s political system into an executive presidency into doubt. Not one to give up easily (especially when it comes to consolidating his power), Erdogan proceeded to launch an ad hoc military offensive against the PKK in an attempt to undermine support for the pro-Kurdish HDP ahead of new elections. Now, with elections set for November, the witch hunt has officially kicked into high gear. 

  Earlier this week, in a move dubbed “unsubstantiated, outrageous and bizarre” by Amnesty International, Turkey arrested three Vice News journalists (two British citizens and an Iraqi) for allegedly “engaging in terror activity” on behalf of ISIS. This is of course just the latest example of Ankara using the NATO-backed ISIS offensive as an excuse to eradicate pro-Kurdish sentiment. According to The New York Times (and according to common sense) the reporters’ only real “crime” was “covering the conflict between Kurdish separatists and the Turkish state.” The British journalists were reportedly released on Thursday while Mohammed Ismael Rasool (the Iraqi) was not.

  But the media crackdown didn’t stop there. On Tuesday, Turkish police raided Koza-Ipek Media which, as AFP notes, “owns the Turkish dailies Bugun and Millet, the television channels stations Bugun TV and Kanalturk and the website BGNNews.com and is close to Erdogan’s political rival, the US-based Muslim cleric Fethullah Gulen.” 

  “I’m worried that operations targeting the media will create great concern across the world about the state of democracy in Turkey,” Turkey’s new EU affairs minister and HDP member Ali Haydar Konca said.

  Indeed. Perhaps even more alarming were reports that Ankara will now set up a terrorist tip hotline, complete with monetary awards. “Turkey to reward informants on tips about ‘terrorists'”, Bloomberg reported on Monday, citing Gazette. 

  It also looks like Erodgan will station soldiers at the polling stations when Turkey goes back to the ballot box in November – you know, for “security” purposes. Here’s Hurriyet:

  Security forces will take all necessary measures to ensure election safety on Nov. 1 in a bid to avoid the repetition of problems that allegedly occurred in the June 7 polls, President Recep Tayyip Erdo?an has said.

  Yes “the problems”, namely that AKP lost its parliamentary majority. But that’s nothing the military can’t solve. Here’s Erdogan himself (note the chilling passage in bold):

  “I believe our government, our Armed Forces and Interior Ministry will take all measures for election safety so that we’ll get through [the polls] with minor damage. I presume that what happened in the June 7 [elections] will not be repeated on Nov. 1 as part of election safety.”

  And because that still isn’t enough, Turkey is now arresting the relatives of its own (dead) soldiers for criticizing Erdogan:

  From Bloomberg, citing Anadolu Agency:

  Turkey arrests relative of killed soldier on Erdogan insult. Man allegedly insulted President Tayyip Recep Erdogan during memorial ceremony for Turkish soldier killed in roadside bombing last month.

  In this type of environment – that is, in a country where the President is not only willing to start a civil war to regain an absolute majority in parliament on the way to forcibly changing the constitution, but also willing to throw journalists in prison for attempting to cover said civil war – it becomes difficult to distinguish real escalations from potential false flags. After all, the more “attacks” blamed on PKK, the less voter support for HDP, which is why it’s easy to cast a wary eye towards Wednesday’s Molotov cocktail attack on an AKP district branch, an attack which was promptly blamed on “a group of PKK supporters” by AKP mouthpiece Daily Sabah:

  A goup of PKK supporters have attacked an AK Party district branch with Molotov cocktails on Wednesday night in the eastern Bitlis province’s Hizan district. No one was injured in the attack but the branch office was reportedly left unusable.

   

  The district firefighters immediately intervened and managed to extinguish the fire in the building. 

   

  AK Party Provincial Head Nesrullah Tanglay told the state-run Anadolu Agency reporters: “Through these attacks, they are trying to downbeat our party’s organizations before the elections on November 1.”

   

  

  Bear in mind that this is all being carried out with the explicit blessing of Washington and NATO thanks to the fact that Erdogan has managed to trade a brutal crackdown not only on his political rivals (on the way to negating the results of a free election and thereby completely undermining the democratic process), but now also on the press (who are apparently only allowed to cover the story if they’re willing to parrot the AK Party line), for a promise to assist in the campaign against ISIS which is of course really nothing more than a thinly veiled effort to invade a sovereign country and overthrow its government. And as if that weren’t enough, Anakara will now pay the public for terrorist “tips” dialed in to a dedicated hotline.

  What absolutely must not be lost in all of this is that this is i) a NATO member and ally of The White House, and ii) an investment grade country. 

  And because, when taken together, all of the above is somewhat disconcerting for all kinds of reasons, we’ll close with a bit of comic relief, via Bloomberg:

  Erdogan to set up Presidential TV channel before election. 24-hr news channel to broadcast Turkish President Recep Tayyip Erdogan’s speeches and events Zaman reports, without saying where it got the information.

  

  

  

  

  

• Peak Obedience

  Submitted by Paul Rosenberg via FreeMansPerspective.com,

  Warnings about Peak Oil have circulated widely in recent years, and if accurate, they are important. Peak oil, however, pales in comparison to something that’s happening right in front of us… and something that is a good deal more dangerous: Peak Obedience.

  If that concept strikes you as odd, I can understand why: We’ve all been living inside of an obedience cult. (And I choose these words carefully.)

  In our typical “scary cult” stories, we find people who have given up their own functions of choice and who then do crazy things because they are told to by some authority. While inside their cult, however, it all makes sense; it’s all self-reinforcing.

  So, inside a cult of obedience, obedience would seem proper; it would seem righteous; and more than anything else, it would seem normal. And I think that very well describes the Western status quo.

  Obedience, however, should not seem normal to us. Obedience holds our minds in a “child” state, and that is not fitting for any healthy person past their first few years of life. It also presupposes that the people we obey have complete and final knowledge; and in fact, they do not: politicians, central bankers, and the other lords of the age have been wrong – obviously and publicly wrong – over and over.

  So, obedience is not a logical position to take. But we all know why we take it; and that reason is fear. The mass of humanity obeys because they are afraid to do otherwise. All the “philosophy of governance” explanations are merely attempts to distract us from the truth: people believe they’ll be hurt if they don’t obey.

  We are taught not to think in such stark terms, of course. Those “philosophy of governance” explanations give us reasons to believe that obedience is the good and heroic thing to do. Still, we know the truth.

  But that truth about fear, even though important, is not the point I’d like you to take away from this article. My primary point is this:

  When we obey, we make ourselves less conscious; we make ourselves less alive.

  Why Obedience Is Peaking

  I covered this in far more depth in issue #40 of my subscription letter, but I would like to provide a brief explanation here.

  Over the past two centuries, authority has benefitted from a perfect storm of influences. There was never such a time previously, and there probably will never be another. Briefly, here’s what happened:

  Morality was broken

  For better or worse, Western civilization had a consistent set of moral standards from about the 10^th century through the 17^th or 18^th century. Then, through the 20^th century, those standards were broken.

  Note that I did not say morality was changed. The cultural morality of the West was not replaced, but broken. The West has endured a moral void ever since.

  Previously, people routinely compared authority’s decrees to a separate standard (most often the Bible), to see if they held up. But with Western morals broken, authority was freed from restraint.

  Economies of scale

  Factories made it much cheaper to produce large numbers of goods than the old way, in individual workshops. Economists call this an economy of scale. Thus a cult of size began, making “obedience to the large” seem normal.

  Fiat currency

  Fiat currency has allowed governments to spend money without consequences. It allowed politicians to wage war and to provide free food, free education, and free medicine… all without overtly raising taxes. Fiat currency made it seem that politics was magical.

  Mass conditioning

  Built on the factory model, massive government institutions undertook the education of the populace. And more important than their overt curriculum (math, reading, etc.) was their invisible curriculum: obedience to authority. Here, to illustrate, is a quote from the esteemed Bertrand Russell, who is himself quoting Johann Gottlieb Fichte, the founding father of public schooling:

  Education should aim at destroying free will so that after pupils are thus schooled they will be incapable throughout the rest of their lives of thinking or acting otherwise than as their school masters would have wished.

  Mass media

  Mass media turbocharged authority and obedience in the 20^th century. It was authority’s dream technology.

  All of these things, and others, created an unnatural peak for authority. But now, this perfect storm is receding.

  Peak Obedience Is Brittle

  Through the 20^th century, the people of the West built up a very high compliance inertia. They complied with the demands of authority and taught their children to do the same, until it became automatic. People obeyed simply because they had obeyed in the past.

  Authority quickly became addicted to this situation, basing their plans on receiving every benefit of the doubt.

  Automatic obedience, however, is a brittle thing. Economies of scale are failing, the money cartel has been exposed, government schools have lost respect, mass media is fading away, and the game continues because the populace is distracted and afraid. And that will not last forever.

  The ‘walls’ of reflexive compliance are growing thinner. Any serious break may ruin the structure.

  And Then?

  It has long been understood that complex systems breed more complexity, and eventually break themselves. As central authorities try to solve each problem they face, they inevitably create others. Eventually the system becomes so complex, and its costs so much, that new challenges cannot be solved. Then the system and its authority fail, as they did recently in the Soviet Union.

  Sooner or later, this is going to happen here. (If that seems impossible to you, please reflect on the current state of the mighty Roman Empire.) But again, that’s not my primary point. Obedience matters to you right now: today and every other day.

  Obedience turns the best parts of you off. It degrades and kills your creativity; it undercuts your effectiveness and especially your sense of satisfaction.

  Don’t sign away your life, no matter how many others do. Live consciously.

  

  

  

  

  

• FX Traders Fear "Worst Case Scenario" For Brazil As FinMin Cancels Travel Plans, Rousseff Meets With Lula

  It’s not that we want to pick on Brazil, it’s just that simply put, it’s one of the most important emerging markets in the world, which means that when depressed demand from China, plunging commodity prices, a shock devaluation from the PBoC, and the generally lackluster pace of global trade conspire to trigger an emerging market meltdown, Brazil is very likely to end up at the center of it all and sure enough, that’s exactly what’s happened. 

  Late last week, we noted that Brazil officially entered a recession in Q2, a quarter which also ushered in the worst stagflation in a decade and saw unemployment rise to five-year highs. Then on Monday, the government officially threw in the towel on running a primary surplus (striking a major blow to market confidence in the process) and then yesterday, we got a look at industrial production in July which missed wildly, coming in at -1.5% m/m versus consensus of -0.01%. Meanwhile, exports cratered 24%.

  We could go on. And bear in mind that the budget issue is complicated by the fact that Rousseff’s political woes are making budget cuts next to impossible to pass. As Italo Lombardi, senior LatAm economist at StanChart told Bloomberg earlier this week, the admission that the country would likely miss its primary surplus target underscores the trouble “Finance Minister Joaquim Levy faces in winning congressional approval for austerity measures and pushes Brazil’s credit rating closer to junk status.” “Politics are making Levy’s life very difficult,” Lombardi added.

  So difficult in fact, that he may now resign and that, according to at least one trader, would be the worst scenario possible. Here’s Bloomberg with more:

  Brazil’s real declined for a fifth straight day and fell to a new 12-year low as speculation grew that Finance Minister Joaquim Levy is closer to leaving his post amid budget turmoil.

   

  A gauge of the rout’s momentum rose to a five-month high as a Valor Pro newswire columnist, citing unidentified people at presidential palace, reported that Levy canceled a trip to the Group of 20 meeting in Turkey and planned to talk with President Dilma Rousseff later Thursday. In a setback for Brazil, the Treasury scrapped an auction of local fixed-rated government bonds for the first time in 19 months as yields at a six-year high made borrowing expensive.

   

  “Seeing Levy leave would be worse than Rousseff stepping down or even her impeachment,” Guilherme Esquelbek, a currency trader at Correparti Corretora de Cambio, said from Curitiba, Brazil. “His departure is the worst scenario we can have right now.”

  Meanwhile, Copom is stuck between a rock and a hard place – that is, they can’t hike to support the currency because the economy is in such terrible shape. Here’s Goldman on Wednesday’s MPC decision to hold Selic at 14.25%:

  One could argue that given the drifting currency (approximately 20% since June) it would even demand additional rate hikes if the monetary authority’s objective is still to, with reasonable confidence, drive inflation to the 4.50% target by end-2016. However, given the rapidly deteriorating real activity picture and heightened political/institutional noise and uncertainty, near-term rate hikes are unlikely.  

   

  

   

  And in the wake of last week’s GDP data and Monday’s confirmation of the budget blues, Barclays is out with a bit of decisively negative commentary both on the outlook for the economy and for the fiscal situation. Here’s more:

  We now forecast a 3.2% fall of real GDP in Brazil in 2015, to be followed by a 1.5% contraction the next year. The downside surprise in Q2 and the deeper recession in the second half of this year also imply a negative contribution to next year’s growth. Household consumption should continue contributing negatively to headline growth, together with fixed asset investment. 

   

  

   

  The disappointment with fiscal execution, coupled with the lack of capacity of the government to negotiate structural changes in how expenditures grow, leads us to expect a fiscal primary deficit for this year and next of 0.3% and 0.5% of GDP, respectively. For 2015, the fiscal measures approved in Congress were reduced meaningfully from the original proposal and are contributing with only 0.53% of GDP to the fiscal balance. Even including those, we forecast total real fiscal revenues to fall 3.2%, as the growth slowdown is having the biggest negative contribution on this year’s result.

   

  

   

  And the inevitable result (as we’ve been saying for months): 

  The implication is a downgrade in less than one year. We believe the rating agencies will take off the investment grade rating in H1 16, starting likely in April by S&P, given the increased pace of deterioration of the macroeconomic juncture and the disappointment relatively to the agencies’ forecasts. Moody’s could follow suit in the second half of the year, if it becomes clear that the country will fail to achieve real GDP growth and the primary surplus as percentage of GDP near 2%, as the agency expects for 2017. At this point, it is very hard to foresee any meaningful change in the political and/or economic scenario that could avoid such an outcome.

   

  

  Finally, in what is always the surest sign that a market-moving rumor is probably true, we got the official government denial this afternoon:

  • LEVY SAYS HAS NO PLANS TO LEAVE BRAZIL GOVT: EL PAIS

  Underscoring how serious the situation truly is, the headlines are still coming in with Bloomberg reporting that former President Luiz Inacio Lula da Silva “will travel to Brasilia tonight to meet with President Dilma Rousseff” for a one-on-one where the two will discuss “higher pressure on Finance Minister Joaquim Levy, 2016 budget proposal and possible restoration of CPMF tax.” 

  Clearly, this is bad news. All sarcasm and jokes aside, it looks as though Brazil may be about to step off the ledge here. You now have a President with an approval rating of just 8% convening an emergency meeting with the former President, a finance minister on the verge of pulling a Varoufakis, a plunging currency, a hamstrung central bank, and a nightmarish fiscal situation. 

  So… who wants tickets to next summer’s Olympic games in Rio? 

  

  

  

  

  

  

• Ask The Expert – Ted Butler

   

   

  Hold your real assets outside of this system in a private non-government controlled facility   –>  http://www.321gold.com/info/053015_sprott.html

   

   

   

  Ask The Expert – Ted Butler

  (Click For Original & Transcript)

   

   

   

  Ted Butler is one of the world’s most respected precious metals analysts. His perspective is highly valued by the everyday investor as well as large stakeholders in the investment world.Ted started as a broker in the early 1970’s but began his journey as an independent analyst over 20 years ago. Today, Ted’s writings are renowned for their formidable insights, particularly into the silver market where he has garnered significant acclaim for his knowledge of price manipulation by big banks.

   

   

   

   

   

   

  
  

  Please email with any questions about this article or precious metals HERE

  

  

  

  

• 4 Charts Show Why This Rally May Become A Rout!

  Submitted by Harry Dent via EconomyandMarkets.com,

  There’s a reason why I warn you to get out of a bubble a little early rather than a little late. It’s because the first wave down tends to happen in a matter of a few weeks or months, sometimes days. It’s fast and furious.

  I know this because I’ve studied every major bubble in modern history – all the way back to the infamous tulip bubble in 1637, when a single tulip cost more than most people made in a single year! And what I’ve seen in each case, without exception, is that bubbles do not correct in nice stair steps when they’re coming off their highs. They burst, crash, collapse, clatter, clang – however you want to say it!

  When the bubble deflates, it typically crashes 50% minimum to as high as 90%. But it’s that first wave down that can wipe out 20% to 50% right off the bat!

  Below I have four charts that make the argument for me.

  They show the 1929 bubble burst… the 1987 crash… the 2000 “Tech Wreck”… and the latest of 2015 from the Red Dragon itself – China’s Tsunami.

  In each case, the fact that these bubbles were destined to burst were only obvious to the few that weren’t in denial. Most give into the bubble logic that new highs are the new norms. They think: “This time is different.” It’s not! It never is.

  It’s always hard to predict exactly when bubbles will peak and crash. It’s like dropping grains of sand on the floor. A mound will build up – becoming like a Hershey’s kiss that grows more narrow at the top. At some point, one grain of sand will cause the avalanche. Who knows which grain of sand that one will be!

  Here are those charts. Like I said, they speak for themselves!

  

  What does that tell you!? EVERY bubble bursts. Bam, pow – no exceptions! So hopefully you understand why I keep harping on about this.

  I’m just as amazed as anyone that this global bubble has gone on as long as it has. But it’s finally started to crash.

  You can tell by following a series of recent tops in major markets:

  Transports in November…

   

  Utilities in January…

   

  Germany’s DAX index and Britain’s FTSE in April…

   

  What looks to be the Dow and S&P 500 in May…

   

  China’s Shanghai index in June…

   

  And the Nasdaq looks to have peaked in July.

  Now that we’re in the classic “crash season,” the situation only looks worse. This season technically started in mid-August, and won’t end until mid-October. This is not to say the chaos won’t continue later on into the end of this year. It just means the worst decline, this first wave down, is likely to come in the next several weeks.

  So consider this current bounce a gift. The signs are all there that this global bubble is done. Use this time to get out of any passive investments in stocks.

   

  

  

  

  

  

• Bridgewater's 'All-Weather' Fund Goes Negative For 2015 After Risk-Parity's Worst Quarter Since Lehman

  The $80 billion Bridgewater All Weather Fund, a risk-parity model managed by hedge fund titan Ray Dalio, was down 4.2% in August, according to Reuters citing two people familiar with the fund's performance. This leaves the fund down 3.76% for 2015 as the frameworks for these funds are forced mechanically to reposition as correlations and volatilities across asset classes break down. Just as we saw in the summer of 2013's Taper Tantrum, the last 2 weeks have seen 4 to 5 sigma swings in daily returns and 'generic' risk-parity funds have suffered the biggest 3-month losses since the financial crisis.

   

  And here is the simple reason why these funds 'broke'… China selling Treasuries to meet liquidity needs as global carry trades were unwound and smashed stocks lower 'broke' the historical relationship between stocks and bonds. Since the so-called "risk parity" strategy is supposed to make money for investors if bonds or stocks sell off, though not simultaneously.

  

   

  And this did not help the multi-asset funds – the USD-Commodity correlation regime flipflopped…

  

   

  Simply put, the historical relationships between asset classes (volatilities and correlations) that are used to construct optimal "risk-parity" funds in order that 'risk' is balanced and hedged across bonds and stocks (for example) broke down dramatically:

  First, realized volatilities exploded relative to historical (or even forecast volatilities) that are used to weight exposures; and

   

  Second, the correlation regime entirely flipped for multiple asset classes – entirely breaking any 'expected' diversification or hedges.

  And the result…based on Salient Risk's Risk Parity fund index, the last 3 months have seen a 10.7% drop – the most since the financial crisis (and worse than the mid 2013 plunge). Some context for the recent moves may help:

  • Friday August 21st – 4 Sigma plunge
  • Monday August 24th – 5 Sigma crash
  • Thursday August 27th – 5 Sigma Spike
  • Tuesday September 1st – 4 Sigma collapse

  Risk manage that!

  

   

  Which explains why we also saw the big drop in mid 2013 (Taper Tantrum) when – just as this past 2 weeks – bonds sold off and stocks sold off…before a complete flip-flop right aftre the June FOMC meeting.

  

   

  We asked in August 2013 – When Will Risk Parity Funds Blow Up Again? – it appears we have our answer.

  As UBS' Stephane Deo noted then (and JPMorgan has confirmed now), that in a rising rate environment, so-called risk-parity portfolios were susceptible to draw-down as yields 'gap' higher.

  As UBS noted at the time, which seems just as crucial now, it is not the actual rate increases (or decoupling) but the "speed limit" or velocity of the moves and with liquidity either 'on' of 'off' now, the gappiness of moves increased the potential threat from risk-parity funds.

  And as JPMorgan's head quant noted today, the management of this exposure (i.e. the selling) is only half-way through.

  Risk Parity strategies de-lever when asset volatility and correlation increase. In our report last week, we estimated that risk parity outflows from equities may total $50-100bn on account of the increase in market volatility and risky asset correlations. These rebalances have started, but, given their typically slower rebalance frequency (e.g. monthly), are largely incomplete. We believe the bulk of the risk parity flows are yet to come, and this may add selling pressure to equities over the next 1-3 weeks. To illustrate this point, one can look at a sample multi-asset Risk Parity strategy such as the Salient Risk Parity index. The beta of this index to the S&P 500 (shown in the figure above) reached highs of 60% in early August, and has dropped to about 45% currently (compared to a beta of 0% during some of the previous episodes of market volatility).

  Charts: Bloomberg

  

  

  

  

  

• Sep 4 – ECB's Draghi: Greece Not Ready Yet For ECB To Buy Its Bonds
  Follow The Market Madness with Voice and Text on FinancialJuice

   

  EMOTION MOVING MARKETS NOW: 11/100 EXTREME FEAR

  PREVIOUS CLOSE: 10/100 EXTREME FEAR

  ONE WEEK AGO: 12/100 EXTREME FEAR

  ONE MONTH AGO: 21/100 EXTREME FEAR

  ONE YEAR AGO: 48/100 NEUTRAL

  Put and Call Options: EXTREME FEAR During the last five trading days, volume in put options has lagged volume in call options by 24.35% as investors make bullish bets in their portfolios. However, this is still among the highest levels of put buying seen during the last two years, indicating extreme fear on the part of investors.

  Market Volatility:  NEUTRAL The CBOE Volatility Index (VIX) is at 26.09. This is a neutral reading and indicates that market risks appear low.

  Stock Price Strength: EXTREME FEAR The number of stocks hitting 52-week lows is slightly greater than the number hitting highs and is at the lower end of its range, indicating extreme fear.

  PIVOT POINTS

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

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

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

  CRUDE OIL (CL) | GOLD (GC) 

   

  MEME OF THE DAY – DUBAI GOLD DEALER OLYMPICS

   

  UNUSUAL ACTIVITY

  MBLY SEP 55.5 PUT ACTIVITY 1500 @$2.90 on offer

  TSM OCT 20 CALLS 4694 block @$.95 right by offer

  RAD JAN 9 CALLS 3K @$.54 on offer

  SAEX 10% Owner P 11,394 A $ 3.02 P 17,693 A $ 2.95

  TBPH .. SC 13G Filed by GlaxoSmithKline .. 24.5%

  More Unusual Activity…

   

  HEADLINES

   

  ECB’s Draghi Unveils Revamped QE Program

  ECB’s Draghi pledges more QE if needed

  ECB’s Draghi: Greece not ready yet for ECB to buy its bonds

  ECB Keeps All 3 Main Rates Unchanged As Expected

  US ISM Non-Manf. Composite (Aug): 59.0 (est 58.2, prev 60.3)

  US Trade Balance (USD) (Jul): -41.86B (Est -42.20B, Rev Prev -45.21B)

  US Initial Jobless Claims (Aug 22): 282K (Est 275K, Rev Prev 270K)

  US Markit Services PMI (AUG F): 56.1 (Est 55, Prev 55.2)

  Atlanta Fed Q3 GDPNow Forecast Updated +1.5% (Prev +1.3%)

  US Tsy Sec Lew: No concern yet in financial institutions from market turmoil

  IMF Official: Fed Can Keep Their Rates Low Until Wage/Price Inflation Is Seen

  Greek leftists put on brave face as poll shows conservatives pulling ahead

  U.S. stocks lose steam as oil prices pull back

  Oil futures mark 5th gain in 6 sessions

   

  GOVERNMENT/CENTRAL BANKS

  ECB’s Draghi Unveils Revamped QE Program –BBG

  ECB’s Draghi pledges more QE if needed –CNBC

  ECB Main Refinancing Rate (Sep 3): 0.05% (Est 0.05%, Prev 0.05%)

  ECB Deposit Facility Rate (Sep 3): -0.20% (est -0.20%, prev -0.20%)

  ECB Marginal Lending Facility (Sep 3): 0.30% (est 0.30%, prev 0.30%)

  Atlanta Fed Q3 GDPNow Forecast Updated +1.5% (Prev +1.3%)

  US Tsy Sec Lew: No concern yet regarding financial institutions from market turmoil –Rtrs

  IMF Official: Fed Can Keep Their Rates Low Until Wage/Price Inflation Is Seen –RTE

  IMF: Market volatility alone not reason for concern over yuan –Rtrs

  EZ official: G20 discussing China, Fed rates and will not discuss Greece

  Greek leftists put on brave face as poll shows conservatives pulling ahead –Rtrs

  GEOPOLITICAL

  China flexes muscles with World War II military extravaganza –CNN

  Iran supreme leader: Sanctions must be lifted, not suspended –Israel Times

  Migrant crisis ‘a German problem’ – Hungary’s Orban –BBC

  FIXED INCOME

  Treasury prices edge higher on dovish ECB, U.S. jobs data eyed –RTRS

  Portugal’s Bonds Lead Gains In Periphery as ECB Raises QE Asset-Buying Limit –BBG

  US Tsy Reduces Size of Next Week’s Bill Sales –Tsy

  ECB’s Draghi: Greece not ready yet for ECB to buy its bonds –Rtrs

  FX

  EUR: Dovish Draghi hits euro and Bund yields –FT

  USD: Dollar Mixed As Investors Await August Employment Report –RTT

  CAD: Loonie Climbs on Positive Trade Data, Higher Oil Prices –WBP

  Yuan pessimism eases on China central bank efforts, Asia FX sentiment less bearish –Rtrs poll

  COMMODITIES/METALS

  Oil futures mark 5th gain in 6 sessions –MktWatch

  Saudi Aramco Cuts October Crudes to U.S. as Refinery Demand Falls –BBG

  US EIA Natural Gas Storage Change (Aug 28): 94 (est 90, prev 69)

  Gold plunges nearly 1% as ECB lowers inflation, GDP forecasts –Investing.com

  Copper Prices Climb Amid Respite From Chinese Selling –WSJ

  Anglo American in talks to sell troubled platinum mines –FT

  EQUITIES

  INDEX: U.S. stocks lose steam as oil prices pull back –MktWatch

  INDEX: Eurozone stocks rally after Draghi comments –Rtrs

  INDEX: ECB bond buying hint lifts FTSE higher –BBC

  EARNINGS: Medtronic profit and sales beat expectations –MktWatch

  EARNINGS: Campbell Soup Sales Fall Due to Strong Dollar, Weak Demand –Fox

  BANKING: UniCredit weighing 10,000 job cuts in revamp –BBG

  AUTOS: VW’s finance chief set to become new chairman –Rtrs

  TECH: Microsoft has acquired VoloMetrix –MsftNews

  TECH: Japan Display CEO hints at strong Apple orders ahead of new iPhone launch –Rtrs

  MEDIA: AOL to buy Millennial Media at a 31% premium –MktWatch

  MINING: Joy Global cuts guidance as profit, sales miss –MktWatch

  CONSUMER GDS: General Mills sellS Green Giant to B&G Foods for $765mln –USAToday

  CONSUMER GDS: Genesco profit, sales rise above expectations –MktWatch

  CONSUMER GDS: Lululemon’s stock up after Wedbush puts it on a ‘best ideas’ list –MktWatch

  HEALTHCARE: CVS: tobacco ban led to a decrease in cigarette purchases –MktWatch

  EMERGING MARKETS

  Lira Weakens After Turkey Inflation Miss as Rates Seen Too Low –BBG

  Brazilian Real Drops for Fifth Day as Levy Seen Closer to Exit –BBG

  Rand Leads Emerging-Currency Declines as Economic Data Weighs –Rtrs

  Indian Stocks Rebound From 13-Month Low as Metalmakers Advance –BBG

   

  Ruble Holds Firm as Official Moots Return of Dollar Purchases –BBG

  

  

  

  

  

• Is This Where The US Recession Is Hiding?

  On the surface, US industrial production – the most important component of any manufacturing recovery, or alternatively recession – is solid. In August, Industrial Production surged by 0.6% which was the biggest sequential increase since November. Of course, as we have shown, the only reason industrial production is strong is because of subprime debt-funded auto purchases which have sent new motor vehicle production soaring in recent months, but as long as the recovery narrative is intact, what’s another “little” auto subprime bubble: surely the Fed can make it disappear in “15 minutes.”

  On the other hand, there is a huge flashing red light when looking at the entire industrial lifecycle of US manufactured products: while production is brisk, end demand in the form of completed sales, is crashing.

  And this is where the alarm buzzer for the US economy goes off, because while industrial production does suggest the recovery is stable, the ratio of US inventory to sales has tumbled to levels indicative of recession, which also means that while US factories are humming, their output is accumulating in warehouses, overflowing parking lots and storage facilities.

  So to answer the question: yes, the US recession is hiding just under the “question mark” at the unexplained and perplexing divergence between industrial production, and actual end sales…

  

  …. all of which result in a record inventory stockpiling which as we showed before, is what recently boosted Q2 GDP to an unsustainable 3.7% growth rate.

  

  What happens when the inventory liquidation finally arrives as end demand fails to materialize? One word: recession.

  And just to preempt the next question: how much longer can the can be kicked, here is Bank of America’s explanation:

  During the past four US manufacturing recessions (ex-GFC), global EPS has declined by 16% on average peak-to-trough. Since current EPS is already down 8.5% since mid-2014, this suggests another 8-9% downside in this worst-case scenario.

  With China’s help, we are almost there.

  

  

  

  

  

• US To Slap Chinese Hackers With Sanctions Ahead Of Xi Visit

  Early last month, the Obama administration made a bold decision.

  The White House decided, after careful deliberations, that the cyber attack on the Office of Personnel Management was, to quote The New York Times, “so vast in scope and ambition that the usual practices for dealing with traditional espionage cases [do] not apply.” In short:

  This came just days after a “secret” NSA map “leaked” to the press showing the alleged frequency of cyber intrusions emanating from China. Here’s the map:

  

  “The prizes that China pilfered during its ‘intrusions’ included everything from specifications for hybrid cars to formulas for pharmaceutical products to details about U.S. military and civilian air traffic control systems,” intelligence sources told NBC, who broke the story. 

  We summed up six months of ridiculous back-and-forth cyber banter as follows:

  The release of the map marked the culmination of a cyber attack propaganda campaign which began with accusations that North Korea had attempted to sabotage Sony, reached peak absurdity when Penn State claimed Chinese spies had taken control of the campus engineering department, and turned serious when Washington blamed China for what was deemed “the largest theft of US government data ever.” Whether all of this is cause for the Pentagon to activate the ‘offensive’ component of its brand new cyber strategy remains to be seen.

  Now, FT says the US is ready to respond to by “slapping sanctions on Chinese companies connected to the cyber theft of US intellectual property.” Furthermore, the US is apparently prepared to risk announcing the sanctions ahead of Xi Jinping’s first official visit to the US. Here’s FT:

  The Obama administration has for months been preparing a raft of sanctions to respond to mounting commercial espionage from China. Three US officials said the sanctions would probably be unveiled next week, just weeks before Chinese President Xi Jinping makes his first state visit to America.

   

  Officials have been divided over whether the administration should impose the sanctions before the Xi visit. Proponents argue that the US needs to show China that it is serious about tackling cyber espionage. But opponents worry that such timing would seriously damage the visit.

   

  The state department had been pushing for the sanctions to come after it, according to people familiar with the situation. But law enforcement officials argued against waiting because of the serious nature of the cyber attacks.

   

  One official said the move would probably come next week, after the US Labour Day holiday. He said the White House wanted to avoid slapping China with sanctions immediately before the visit, to give China time to cool down before Mr Xi meets President Barack Obama in Washington.

   

  China wants to boost Mr Xi’s status as a global leader, but his visit — which will include a 21-gun salute and a big banquet — will be overshadowed by the Pope’s, which will attract huge media coverage, and also the move to impose sanctions.

   

  One former US official said: “The cyber sanctions could really throw a spanner in things. There is no reason to embarrass the president of China. It would crater the visit.”

  Yes, “no reason to embarrass” Xi, because after all, Xi is not a man who enjoys being embarrassed. Just ask any of the 200 people who were arrested over the past week for conspiring to use the stock market selloff as an “opportunity to maliciously concoct rumors to attack [the] Party and national leaders.” 

  So we will await the details on the first round of US “cyber sanctions” against the legions of Chinese hackers who have apparently stolen everything from the blueprints for electric cars to delicate information about America’s ultra-modern airtraffic control network, and in the meantime, simply ask whether another set of “sanctions” are being prepared in response to the PLA navy’s unprecedented operations off the coast of Alaska.

  And meanwhile, in China…

  

  

  

  

  

  

• Is It Over Yet?

  Submitted by Lance Roberts via STA Wealth Management,

  Could Additional ECB QE Cure The US Market

  This morning the European Central Bank (ECB) seemed forced to "do something" given the recent market weakness. With inflation expectations collapsing, markets declining and economic growth weak, the best hope for market "bulls" at the moment was an expansion of the ECB's current QE program.

  Mario Draghi, head of the ECB, did not fail to deliver by increasing the share limit for QE from 25% to 33% (the size of the program was NOT increased). However, ironically, they also cut inflation forecasts for 2015-2017. I say ironically because the QE program is specifically meant to drive inflation towards to the magical 2% mark. 

  The question is whether an expansion the current QE program will have any real impact on the markets, inflation or economic growth?

  It was just six months ago that the ECB launched their initial quantitative easing program to much fanfare and hopes of a swift economic recovery. So far, results have been disappointing. As noted by The Economist:

  "GDP in the second quarter of 2015 from Eurostat are disappointing. The consensus among economists was that the 19-strong currency club would grow by 0.4%, the same as in the first quarter. Instead the pace of quarterly growth slowed a little, to 0.3%, leaving output 1.2% higher than a year ago."

  Inflation has also been non-existent despite the ECB's monetary interventions. Consumer prices in the Eurozone are barely higher than now than a year ago. As stated above, at just 0.2% currently, the ECB has a long way to go, as does the Federal Reserve, to reach target levels of 2%.

  However, for investors, it is the potential impact of additional ECB QE on the domestic markets that counts. The problem is that all QE programs are not equal. As shown in the chart below, I have noted the Fed's QE programs and the effect on domestic markets and the ECB's program. 

  

  It is clear that the expansion of the Fed's balance sheet, and the subsequent boost to bank reserves, led to immediate impacts to asset prices. When the programs ended, asset prices struggled. As noted, the ECB's current QE program has had little effect on boosting domestic asset prices due to the lack of increase in domestic liquidity. 

  While the ECB's action may stabilize the markets temporarily, it seems unlikely that this action will reverse the current negative trends and momentum in the markets.

  ISM Defies Economic Strength Hopes

  One of the most watched economic reports, besides the monthly employment report, is the Institute of Supply Management (ISM) Manufacturing and Services indices. Currently, there is a very interesting divergence going on between the two with services showing strength while manufacturing wanes. Since both measures are historically correlated, such divergences tend not to last indefinitely. 

  However, since what we are after is a view of the health of the overall economy, we can combine the two into a single index to see the overall trend. 

  

  As I have shown, the composite ISM index has a history of cyclical rebounds and declines primarily driven by inventory restocking cycles caused by the ebb and flow of the real economy. 

  Such a rebound cycle was witnessed during the 2nd quarter of 2015, as inventories were replenished following the exceptionally cold winter season. While pundits were ecstatic over the 3.7% print of GDP in the second quarter, the ISM composite currently suggests the manufacturing rebound has likely concluded. As such, Q3 GDP will likely print well below 2% in the months ahead. 

  We can find further confirmation of that suggestion by looking a core durable goods which excludes aircraft and defense spending.

  

  The most recent report on core durable goods suggests that future ISM reports will likely remain weak and with winter fast approaching puts already weak economic growth at risk. 

  Is It Over Yet?

  It is THE question that is on every investor's mind right now; is the correction over yet? The honest answer is that no one really knows. However, from a technical perspective my suspicion is that current market volatility is likely to be with us for quite some time longer. 

  I discussed earlier this week the technical backdrop of the market currently stating:

  

  "For the first time since 2000 or 2007, the market has now registered a momentum based 'sell' signal. Importantly, this is a very different reading that what was seen during the 2010 and 2011 'corrections' and suggests the current correction may be more significant.

  The chart also confirmed by numerous other indications that also support the 'mark of the bear.'"

  While the rebound over the last two days were certainly welcome, I have suggested over the past two weeks to continue raising cash during such opportunities. The reason is that while August was indeed a weak month, statistically speaking September has often been worse.

  As my friend Anora Mahmudova pointed out recently:

  "In the 11 instances since 1945 when the S&P 500 fell more than 5% in August, September returns were negative 80% of the time, averaging a decline of 4%, said Sam Stovall, U.S. equity strategist at S&P Capital IQ. History is a good guide, but not necessarily a gospel"

  

   "The correction we've had so far, if we assume that was the bottom, was too shallow by historical standards. Especially if you consider that it was the first 10% correction in 44 months. The median decline after going more than 30 months since the prior decline in excess of 10% was 19.9%," Stovall said."

  With earnings declining, economic growth forecasts weak and many mutual funds needing to rebalance portfolios as the end of the quarter approaches, there is sufficient pressure to push stocks lower in the weeks ahead. 

  The REAL RISK currently is not missing some of the upside if the bull market does begin to resume, but rather catching the downside if this correction turns into a full-fledged bear. 

  Just some things worth thinking about.

  

  

  

  

  

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