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Swiss Central Bank Scrambles Against Russian Capital Flight, Joins ECB In Sending Deposit Rates Negative

Everyone thought that any major monetary policy surprises and/or capital controls today would come from Putin during his annual press conference. Boy were they wrong: just after 2 am Eastern, none other than the Swiss National Bank joined the ranks of the ECB in scrambling to stem the wave of capital flight, not to mention the cost of money, when it announced it too would start charging customers for the privilege of holding cash in its banks, when it revealed a negative, -0.25% interest rate on sight deposits: a step which according to the SNB was critical in maintaining the 1.20 EURCHF floor.

From the SNB:

The Swiss National Bank (SNB) is imposing an interest rate of –0.25% on sight deposit account balances at the SNB, with the aim of taking the three-month Libor into negative territory. It is thus expanding the target range for the three-month Libor to –0.75% to 0.25% and extending it to its usual width of 1 percentage point. Negative interest will be levied on balances exceeding a given exemption threshold.


The SNB reaffirms its commitment to the minimum exchange rate of CHF 1.20 per euro, and will continue to enforce it with the utmost determination. It remains the key instrument to avoid an undesirable tightening of monetary conditions resulting from a Swiss franc appreciation. Over the past few days, a number of factors have prompted increased demand for safe investments. The introduction of negative interest rates makes it less attractive to hold Swiss franc investments, and thereby supports the minimum exchange rate. The SNB is prepared to purchase foreign currency in unlimited quantities and to take further measures, if required.

The factors from the "past few days" in question that the SNB was envisioning to justify becoming the latest entrant to the NIRP monetary twilight zone: Russian capital flight. Per Bloomberg, "the SNB move follows Russia’s surprise interest-rate increase this week and hints at the investment pressures that resulted after that decision failed to stem a run on the ruble. Swiss officials acted as the turmoil, along with the imminent threat of quantitative easing from the ECB, kept the franc too close to its 1.20 per euro ceiling for comfort."

“This is not the magic bullet, but will buy them time,” said Peter Rosenstreich, head of market strategy at Swissquote in Gland, Switzerland. “This will relieve pressure from the floor in the short term, but not in the long term.”

The franc weakened after the announcement, trading at 1.2045 per euro at 11:08 a.m. in Zurich. Against the dollar it fell to 97.82 centimes.

To be sure, Russia's recent shocking rate hike to 17% was surely a factor in the Swiss decision. Then again to say that a few Russian billionaires took on the SNB and forced it to do a historic monetary policy move would be just a little naive. Surely, the reason for the capital flight had much more to do with the capital flight from "everywhere" as a result of the latest market turbulence which has seen a major flight out of risk assets and into fixed income assets, and also safe-haven currencies.

What was also left unsaid is that the Swiss central bank is also worried about the pressure from the Eurozone as the ECB launches full-blown QE in 2015. And in a purely reflexive fashion, the SNB move also makes it that much more likely that the ECB itself will have to act even further, as central bank actions have now become a tit for tat exchange with other central banks in creeping global capital controls, even if nobody is willing to call it for what it is.

In any event, at least the Swiss were kind enough to give the Russians an advance notice that their cash is not welcome in the country: Russian billionaires could have been simply Cyprused.

Finally, here is Goldman's take on the SNB move:

Bottom line: The Governing Board of the SNB surprisingly announced this morning that it will introduce a negative rate of -0.25% on sight deposit account balances at the SNB. The SNB's target range for the three-month Libor was also widened from 0.0% - +0.25% to -0.75% - +0.25%. In our view, today's rate decision simply underlines the determination of the SNB to enforce the minimum exchange rate target for the CHF against the Euro.

1. This morning, the SNB surprisingly announced that, on January 22, it will introduce a negative interest rate of -25bp on reserve holdings from banks at the SNB, above a threshold of 20 times the minimum reserve requirement. The SNB's target range for the three-month Libor was also widened from 0.0% - +0.25% to -0.75% - +0.25%. Over the last couple of days, the CHF has traded very close to the 1.20 level on the back of rising market volatility. The subsequent demand for safe investments attracted large capital inflows into Switzerland, eventually prompting the SNB to react.

2. According to the SNB, the measure is aimed at making investments into CHF less attractive. Although it is only banks that will have to pay the negative deposit rate, banks will pass on, to some extent at least, the negative rates to customers. It is noteworthy in that respect that some German banks - in response to the ECB's negative rates - have also started charging some clients negative deposit rates.

3. It remains to be seen how effective this measure will be and the SNB will continue to rely on FX interventions to defend the minimum exchange rate. But the measure in any case shows the determination of the SNB to maintain the lower bound for the CHF against the Euro.

Source: SNB

China Prepares To Bailout Russia

Earlier this evening China's State Administration of Foreign Exchange's (SAFE) Wang Yungui noted "the impact of the Russian Ruble depreciation was unclear yet, and, as Bloomberg reported, "SAFE is closely watching Ruble's depreciation and encouraging companies to hedge Ruble risks." His comments also echoed the ongoing FX reform agenda aimed at increasing Yuan flexibility which The South China Morning Post then hinted in a story entitled "Russia may seek China help to deal with crisis," which which noted that Russia could fall back on its 150 billion yuan ($24 billion) currency swap agreement with China if the ruble continues to plunge, that was signed in October. Furthermore, two bankers close to the PBOC reportedly said the swap-line was meant to reduce the role of the US dollar if China and Russia need to help each other overcome a liquidity squeeze.


As Bloomberg reported, earlier in the evening, China's Wang Yungui noted


Adding that China plans sweeping reforms to promote FX flexibility.

And then The South China Morning Post hints,

Russia could fall back on its 150 billion yuan (HK$189.8 billion) currency swap agreement with China if the rouble continues to plunge.


If the swap deal is activated for this purpose, it would mark the first time China is called upon to use its currency to bail out another currency in crisis. The deal was signed by the two central banks in October, when Premier Li Keqiang visited Russia.


"Russia badly needs liquidity support and the swap line could be an ideal tool," said Bank of Communications chief economist Lian Ping.


The swap allows the central banks to directly buy yuan and rouble in the two currencies, rather than via the US dollar.


Two bankers close to the People's Bank of China said it was meant to reduce the role of the US dollar if China and Russia need to help each other overcome a liquidity squeeze.


China has currency swap deals with more than 20 monetary authorities around the world. Swaps are generally used to settle trade.


"The yuan-rouble swap deal was not just a financial matter," said Wang Feng, chairman of Shanghai-based private equity group Yinshu Capital. "It has political implications as it is a sign of mutual trust."


The rouble has lost more than 50 per cent against the US dollar this year, pushing Russia to the brink of a currency crisis, though measures announced by the central bank helped it recover some ground yesterday.


Li Lifan, a researcher at the Shanghai Academy of Social Sciences, said the swap would not be enough for Russia even if it is used in its entirety. "The PBOC might agree to extend something like 15 billion yuan initially as a way of showing China's commitment to Russia."

*  *  *

As we discussed in October when the swap deal was signed, if to assure all involved parties that there will be enough capital support on both sides, the PBOC released a surprising announcement that the central banks of China and Russia signed a 3-year, 150 billion yuan bilateral local-currency swap deal today, according to a statement posted on PBOC website. Deal can be expanded if both parties agree, statement says. Deal aims to make bilateral trade and direct investment more    convenient and promote economic development in 2 nations.


To be sure, some such as Bloomberg, are skeptical that the unprecedented pivot by Russia toward China as it shuns the west, will merely harm the Kremlin. Others, however, wonder: who will be left standing: Europe, with its chronic deficit of energy and reliance on Russia; or Russia, a country overflowing with natural resources, whose economy is currently underoing a dramatic and painful shift, as it scrambles to dissolve all linkages to the Petrodollar and face the Gas-O-Yuan?

*  *  *

Is 'isolated' Russia about to be bailed out by the world's largest economy China?


Perhaps, they already started...


But then again - with the BRICS currencies all turmoiling... (ZAR -22% not shown)


Perhaps it is not such a surprise as members take advantage of The BRICS Bank's $100 Billion reserve...

The punchline, however, is that using bilateral swaps, the BRICS are effectively disintermediating themselves from a Fed and other "developed world" central-bank dominated world and will provide their own funding.

We are pleased to announce the signing of the Treaty for the establishment of the BRICS Contingent Reserve Arrangement (CRA) with an initial size of US$ 100 billion. This arrangement will have a positive precautionary effect, help countries forestall short-term liquidity pressures, promote further BRICS cooperation, strengthen the global financial safety net and complement existing international arrangements.... The Agreement is a framework for the provision of liquidity through currency swaps in response to actual or potential short-term balance of payments pressures. 

Incidentally, the role of the dollar in such a world is, well, nil.

For those who have forgotten who the BRICS are, aside from a droll acronym by a former Goldman banker, here is a reminder of the countries that make up 3 billion in population.


Chart: Bloomberg

IMF Now Ready To Slam The Door On The U.S. And The Dollar

Submitted by Brandon Smith via Alt-Market blog,

As I write this, the news is saturated with stories of a hostage situation possibly involving Islamic militants in Sydney, Australia. Like many, I am concerned about the shockwave such an event will create through our sociopolitical structures. However, while most of the world will be distracted by the outcome of this crisis (for good or bad) for at least the week, I find I must concern myself with a far more important and dangerous situation.

Up to 40 people may be held by a supposed extremist in Sydney, but the entire world is currently being held hostage economically by international banks. This is the crisis no one in the mainstream is talking about, so alternative analysts must.

As I predicted last month in “We Have Just Witnessed The Last Gasp Of The Global Economy,” severe volatility is now returning to global markets after the pre-game 10 percent drop in equities in October hinted at what was to come.

We expected such destabilization after the wrap-up of the Fed taper, and the markets have not disappointed so far. My position has always been that the taper of QE3 made very little sense in terms of maintaining the manipulated illusion of economic health — unless, of course, the Federal Reserve was implementing the taper in preparation for a renewed financial catastrophe. That is to say, the central bankers have established the lie of American fiscal recovery and then separated themselves from blame for the implosion they KNOW is coming. If the markets were to collapse while stimulus is officially active, the tragedy would be forever a millstone on the necks of the banksters. And we can’t have that now, can we?

This is not to say that individual central banks and even currencies are not expendable in the grand scheme of things. In fact, the long-term goal of globalists has been to consolidate all currency systems and central banks under the outward control of the International Monetary Fund and the Bank Of International Settlements, as I outlined in “The Economic Endgame Explained.”

That particular article was only a summary of a dangerous trend I have been concerned about for years; namely the strategy by international financiers to create a dollar-collapse scenario that will be blamed on prepositioned scapegoats. I have no idea what form these scapegoats will take - there are simply too many possible triggers for fiscal calamity. What I do know, though, is the goal of the endgame: to remove the dollar’s world reserve status and to pressure the American people into conforming or even begging for centralized administration of our economy by the IMF.

The delusion perpetuated in the mainstream is that the IMF is a U.S.-dominated institution. I have outlined on many occasions why this is false. The IMF like all central banks is dominated by the international corporate banking cartel. Central banks are merely front organizations for globalists, and I am often reminded of the following quote from elitist insider Carroll Quigley when I hear people suggest that central banks are somehow independent from one another or that the Federal Reserve is itself the singular “source” of the world’s economic ills:

It must not be felt that these heads of the world’s chief central banks were themselves substantive powers in world finance. They were not. Rather, they were the technicians and agents of the dominant investment bankers of their own countries, who had raised them up and were perfectly capable of throwing them down.


The substantive financial powers of the world were in the hands of these investment bankers (also called “international” or “merchant” bankers) who remained largely behind the scenes in their own unincorporated private banks. These formed a system of international cooperation and national dominance which was more private, more powerful and more secret than that of their agents in the central banks.

No one can now argue against this reality after we have witnessed hard evidence of Goldman Sachs dictating Federal Reserve policy, as outlined here.

And, most recently, we now know that international bankers control political legislation as well, as Congress passed with little resistance a bill that negates the Frank-Dodd restrictions on derivatives and places the U.S. taxpayers and account holders on the hook for more than $303 trillion in toxic debt instruments. The bill is, for all intents and purposes, a “bail-in” measure in disguise. And it was pushed through with the direct influence of JPMorgan Chase CEO Jamie Dimon.

The Federal Reserve, the U.S. government and the dollar are as expendable to the elites as any other economic or political appendage. And it can be replaced at will with yet another illusory structure if this furthers their goal of total centralization. This has been done for centuries, and I fail to see why anyone would assume that globalists would change their tactics now to preserve the dollar system. They call it the “New World Order,” but it is really the same old-world monetary order out of chaos that has always been exploited. Enter the IMF’s old/new world vision.

While the investment universe has been mesmerized by the deterioration of the Russian Ruble and oil prices, the IMF has been a busy little bee hive...

In articles over the past year, I have warned that the plan to dethrone the dollar and replace it with the special drawing rights basket currency system would be accelerated after it became clear that the U.S. Congress would refuse to pass the IMF reforms of 2010 proclaiming “inclusiveness” for developing economies, including the BRICS nations. The latest spending bill removed any mention of IMF reforms. The IMF, under Christine Lagarde, has insisted that if the U.S. did not approve its part of the reforms, the IMF would be forced to pursue a “Plan B” scenario. The details on this “plan B” have not been forthcoming, until now.

The Financial Times reported on the IMF shift away from the U.S. by asserting the authority to remove the veto power America has always enjoyed over the institution. This action is a stark reminder to mainstream talking heads and to those who believe the U.S. is the core economic danger to the world that the IMF is NOT an extension of American policy. If anything, the IMF and the U.S. are extensions of international banking power, just as the BRICS are nothing more than puppets for the same self-serving financial oligarchy clamoring for the same IMF-controlled paradigm, as Vladimir Putin openly admitted:

"In the BRICS case we see a whole set of coinciding strategic interests. First of all, this is the common intention to reform the international monetary and financial system. In the present form it is unjust to the BRICS countries and to new economies in general. We should take a more active part in the IMF and the World Bank’s decision-making system. The international monetary system itself depends a lot on the US dollar, or, to be precise, on the monetary and financial policy of the US authorities. The BRICS countries want to change this…"

And of course the Chinese have pronounced their fealty to the IMF global currency concept:

The world economic crisis shows the "inherent vulnerabilities and systemic risks in the existing international monetary system," Gov. Zhou Xiaochuan said in an essay released Monday by the bank. He recommended creating a currency made up of a basket of global currencies and controlled by the International Monetary Fund and said it would help "to achieve the objective of safeguarding global economic and financial stability."

The BRICS are not the only nations demanding the U.S. lose its supposed "influence" over the IMF.  Germany, the core economic pillar of the EU, called for America to relinquish its veto power back in 2010 just as the reforms measure was announced.

The IMF decision to possibly eliminate U.S. veto power and, thus, influence over IMF decisions may come as early as the first quarter of next year. This is the great “economic reset” that Largarde has been promoting ad nauseam in multiple interviews and speeches over the past six months. All of these measures are culminating in what I believe will be a more official announcement of a dump of the U.S. dollar as world reserve currency.

Along with the imminent loss of veto power, I have also written on the concerns of the coming SDR conference in 2015. This conference is held only once every five years. My suspicion has been that the IMF plans to announce the inclusion of the Chinese yuan in the SDR basket and that this will coincide with a steady dollar dump around the globe. Multiple major economies have already dropped the dollar in bilateral trade with China, and engineered tensions between the U.S. and the East have exacerbated the issue.

The timing of the SDR conference has now been announced, and the meeting looks to be set for October of 2015. Interestingly, this linked article from Bloomberg notes that China has a “real shot” at SDR inclusion and official “reserve status” next year, but warns that the U.S. “may use its veto power” to stop China’s membership. I have to laugh at the absurdity of it all, because there are many people in the world of economic study who still believe the developments of globalization and fiscal distress are all “random.” I suppose that if it is all random, then it is a rather convenient coincidence that the U.S. just happens to be on the verge of losing veto power in the IMF just before they are about to bring the BRICS into the SDR fold and supplant the dollar.

This is it, folks; this is the endgame right in front of our faces. The year of 2014 is the new 2007, with all the negative potential but 100 times more explosive going into 2015. Our nation has wallowed in slowly degrading financial conditions for years, hidden by fake economic statistics and manipulated stock prices. All of it has been a prelude to a much more frenetic and shocking event. I believe that we will see continued market chaos from now on, with a steep declining trend intermixed with brief but inadequate “dead cat” stock bounces. I expect a hailstorm of geopolitical crises over the next year to provide cover for the shift away from the dollar.

Ultimately, the death of the dollar will be hailed in the mainstream as a “good and necessary thing.” They will call it “karma.” They will call it “progress.” They will even call it “decentralization” and a success for the free market. But it will not feel like a positive development for the American public, who will suffer greatly as the dollar crumbles. Only those educated in the underpinnings of shadow banking will understand the whole thing is a charade designed to hide the complete centralization of sovereign economic governance into the hands of the globalists, using the IMF and BIS as “fiscal heroes,” saving the world from a state of economic destruction the elites themselves secretly created.

The Secular Extinction Of Stock Market Bears

This week's Investors' Intelligence survey responses highlight the unprecedented reluctance of financial advisors to turn bearish...



As the secular extinction of stock market bears continues...


But - as we hear day after day on financial media - there is still a lot of negativity out there (apparently)?


Source: @Not_Jim_Cramer

Previewing Putin's "Moment Of Truth" Annual Press Conference And Address To Russia

For those wondering how Russia managed to contain the rout in its currency today, when it dropped from highs of USDRUB 80 yesterday to about 60, and leading to the biggest stock market surge in decades, the answer will be revealed tomorrow at noon Moscow Time, when Putin's annual address press conference will take place. As the rumor goes, both the central bank, the finance ministry and the Prime Minister, did everything in their power to stabilize the Ruble ahead of Putin's appearance, both through direct sales of dollars as well as with the already noted 7 measures to stabilize the financial system.

And this year, perhaps more than ever, Putin's role will be simple: restore confidence.  As Bloomberg reports, citing Mashla Lipman a political analyst in Moscow,  "This is a moment of truth. It’s no longer possible to go on in the same fashion. The economy is tumbling. The time has come for a definitive choice. Doing nothing won’t solve the problem."

However with the live webcast starting at 4 am Eastern, it is unlikely that many Americans will be awake to watch it. So for those who are willing to wait for the cliff notes, and are happy with the preview, here are two clips prepared specifically for Putin's annual press conference. In lieu of the just cancelled The Interview, these may be a good replacement considering their Hollywood-worthiness as dubbed by the Telegraph.

As caught earlier by Marketwatch, here’s the video that’s been running on Russia 1 television station’s website.

The narrator’s line, "A year of tough decisions," is interjected as Putin intones, “We took upon ourselves enormous responsibilities and risks,” Again, the narrator: “And long-awaited victories” — against a backdrop of Olympic winners. And then more tough talk about “politically motivated sanctions represent a mistake and they [the West] should not have broken a mechanism of checks and balances.” And a menacing note: “Our American friends are cutting off the branch they are sitting on.”

Scenes of Ukraine, flags flying, world leaders, terrorists, explosions, missiles firing out of the ocean, a polar bear.

And in case the dramatic effect was lost with the first clip, here is another.

So the tension and the dramatic build up is there: the question is can Putin live up to it at a time when he may have no choice but to step up to the plate.

Veteran EM Fund Manager Warns "The Youngsters Are About To Be Schooled"

With Emerging Market debt, equity, and FX rates coming under significant pressure once again, 48-year-old veteran EM fund manager Stephen Jen has a message for the new breed of EM fund managers, brace for more pain. As Bloomberg reports, with echoes of 1997-98's crisis at hand, Jen explains, "many [current managers] became EM specialists after the term ‘BRIC’ was coined in 2001 and don’t know any serious crisis," adding "they are about to be schooled."


The hopeful bounce early this year after the Taper Tantrum collapse last year, has once again disintegrated....


As Bloomberg reports,

Stephen Jen landed in Hong Kong in early January 1997 as Morgan Stanley’s newly minted exchange-rate strategist for Asia.




If the 48-year-old native of Taiwan, with a PhD from Massachusetts Institute of Technology, sounds a little jaded now, it’s not without some reason. He says he worries that many emerging-market analysts are too young to remember the late 1990s. Instead they learned the ropes in an era dominated by the rise of Brazil, Russia, India and China -- a supposed one-way bet to prosperity.


“Many became EM specialists after the term ‘BRIC’ was coined in 2001 and don’t know any serious crisis,’’ says Jen, who now runs the London-based hedge fund SLJ Macro Partners LLP.


The youngsters are about to be schooled. Jen says echoes of 1997-1998 may be at hand.


Investors woke up today to Russia’s 1 a.m. interest-rate increase to defend the ruble. There’s the mounting likelihood of a Venezuelan default. Stocks from Thailand to Brazil are reeling. The Fed hasn’t even begun raising interest rates.


Jen is bracing for more pain.


“At some point, the risk of fractures in parts of EM will rise sharply,” said Jen.




“My long-standing view on EM currencies is that they could melt down because there has simply been way too much cumulative capital flows,” said Jen. “Nothing the EM economics can do will stop these potential outflows as long as the U.S. economy recovers.”

*  *  *

We suspect this is the case for many fund managers currently who have been around a fe wshort years and experienced nothing but a market where every dip is to be bought...


Every year looks like an EM crisis as we see above, yet ever year it's rescued in the minds of 'young' managers. What Jen fears is the melt-down a la 1997-98 that none of the new breed have experienced.

"Neoconica" - America For The New Millennium

Submitted by Thad Beversdorf via First Rebuttal blog,

I recently wrote an piece on the comprehensive breakdown of America.  In it I laid out, from an analytical perspective, the things that are leading America to an economic collapse.  But it might be interesting to take a look at a broader view of American life today.  Policy and economic discussions are useful but in them we can lose the tangibility of what it all comes back to, which is the well being of Americans.  Whether or not the national budget is 190% of GDP and whether interest rates will rise or not are important issues but only so far as they will impact the quality of life of the people.  And so let’s have a look at the lives of the American people.  Have the policies over the past 15 to 50 years led to substantial improvements in the day to day real lives of Americans?  Let’s have a look.  And while we’ve seen a couple of these more economic charts think about them in context of the other charts or other sides of life.

The above charts inform us that the bottom 80% of income households are making less than they did in the early 1980′s, and remember the number of two income households today is far greater than it was in 1980 making this a staggering reality.  However the top 20% and especially the top 1% have seen incredible income gains since the early 1980′s.  Total net worth for the bottom 80% of Americans has also been crushed.  Since 2001 median net worth for the bottom 80% is down some 30% and this is during a period where stocks have reached all time highs.  How could this be you ask??  Well this is not happenstance or simple unexplainable market forces.  Those things do not exist in today’s world.  These results are by design.

I get frustrated hearing, even from the most intelligent of people that the Fed is doing its best and that given enough time this will work out for everyone.  And that everyone is better off today than they used to be because this is America and that’s just the way America works.  But when we let the empirical data drive our perspective rather than our blind loyalty we see a very different story.  The data tells a story of a political class that has been implementing programs and policies that are making the working class sick.  We are given all sorts of medicines in the form of social programs and infinite debt to mask the symptoms but when we look at the actual medical test results we are not getting any better.  In fact, our condition continues to worsen.  Yet so many of us continue to listen to our political and economic shaman’s.  We have such faith.  And it is that faith that people like Ayn Rand recognized would be the death of America.  So let’s continue on our journey through the life of the working class American today.

What’s interesting here is to note that the significant increase in incarceration rates of black men began just as LB Johnson’s ‘Great Society’ program went into effect in the late 1960′s.  Do you think there is relationship between taking an entire demographic’s sense of purpose and ambition away by handing them money each month and the degradation of that demographic?  This is not conjecture, look at the chart.  Black men, specifically inner city black mean where high school drop out rates are the highest, have been decimated since the mid 1960′s.

Our leaders have failed to acknowledge let alone implement policies to improve this situation.  One needs to ask why?  When a large portion of society is so obviously spiraling out of control, why is it that our policymakers have been either absent on the issue or incapable of developing policies to improve the situation?  Behaviour is logical.  If it appears illogical one of your premises is invalid or unsound.  What I mean by that is if policymakers fail to change a policy that is leading to what we assume is an unwanted result then we must consider if it is truly unwanted.  Politicians are very quick to change things that don’t benefit them.  And so if a policy is not changing it is likely because it is seen as serving their own interests in some way.

And let’s not miss the fact that it isn’t just blacks that are being incarcerated at much higher rates.  It seems the trend is higher incarceration rates for all.  That seems to conflict with the idea of a vastly improving quality of life in the land of the free.  In fact, have a look at the following figures.

Considering China’s population is 5x that of the US, our prison population relative to other countries is pure insanity.  How can this be??  Either our society is failing to appropriately raise it’s children or our incarceration policies are completely out of line with the world.  Interesting that the private prison industry spent $45 million on lobbying efforts last year while the Correction Corp of America (CCA), which is the correction officers union, spent an additional $14 million.  Remember they lobby for legislation that keeps vacancy rates low.  One has to wonder, do our policymakers actually intentionally skew laws to ensure higher numbers of society lose their freedom?  Why why else would $60 million be spent on lobbying??  But let’s carry on with our journey through the life of the American working class.

With all of the technological breakthroughs and improvements in nutrition how is it that obesity and cancer have gone to full blown epidemic status in this country?  Somebody understands this problem.  Someone has the answer.

I believe most would agree the ideal environment for a child is in a well functioning two parent home.  Not to say good kids cannot come from single parent households, they can, however, the ideal is a healthy two parent household.  As such, the above trends are disturbing.  How could such ugly longterm trends be taking place in an improving society if we know the ideal is the opposite?  This means we are moving, at an accelerating rate, away from the ideal.  This does not appear to be a relatively new phenomenon either.  Yet it continues to worsen a quickening pace.

With the rise in GDP and total earnings over the past 50 years why is that poverty is as high as it’s been since the mid 1960′s?  In terms of number of poor, we are actually setting records every year.

Why is it that while the wealthy have gotten so filthy rich the working class has been devastated as the above charts highlight?  Should we not look to make a change in our policies? Clearly the policymakers are idiots or assholes for if both were untrue the policies would change.  So while they could be both, they cannot be neither.  One cannot argue against that proposition whilst looking at the above charts.  Yet we the people still refuse to force our political class to answer for these realities!!  The above charts lead to the following penury….

Financial stress is a killer.  Just google “effects of financial stress” and see what you find.  It’s ugly and as the above charts so clearly depict, financial stress is rampant in our country.  That said, if you believe the folks on television, and if you’re an American you probably do, then be happy because they have assured us everything is fine and they have the US stock markets at all time highs to prove it.  These TV talking heads will even tout piss poor economic indicators as good.  But it’s like touting stage 3 cancer because it’s better than stage 4 cancer.  Yet if we hear it enough times in combination with a completely manipulated but all time high stock market we begin to believe the lies.

But what about our future?  Perhaps we’re just setting up for a big acceleration of good times ahead.  Does it look like our coming generations are going to hit it out of the park?

Well the costs for educating our children has doubled but our kids are not any smarter.  When compared to the rest of the world we have fallen way behind.

In fact, we just fell below Iran.  I’d love to hear the spin on that one.

Well this is not looking great for our future generations….  What about that nation’s fiscal state though I’m sure we’re wiser to the woes of overspending right??

That does not seem to depict sound financial management.  In fact, that looks ridiculously irresponsible.  How is it that we can forecast spending more than we take in, forever?  Ah yes the magical money machine and the wonderful world of debt monetization.  At least it’s a plan eh?  Thing is, if your budgets simply forecast an ever increasing deficit meaning the plan is simply to print money going forward then, 1. why have a budget? 2. why are any of us paying taxes? 3. why are any of us working?.

You see if we can print infinite amounts of money with no expected consequence then just print a little extra and we can all spend our days at the mall.  Think about how much bigger the economy would be if we had all day to go shopping, not just on weekends.  I think we’re on to something.

Leading cause of bankruptcies in America is healthcare you say, eh?  Can’t see why that would be.

$1.5 trillion in student loans outstanding.  Well 60% of those are currently in arrears so very likely won’t be paid back.  That said, students’ losses are gains for someone.  So maybe we needn’t worry about this one.

Ah yes, war.  War is one thing we do very well here in America.  Well we start wars very well.  But we seem to have a very difficult time ending wars.  Perhaps because we fight concepts.  We have wars on drugs, terrorism, obesity, etc.  And well wars on bad things just sound so good during election campaigns.   The obvious downside being fighting something that is not an animate enemy means it cannot be defeated, making it incredibly tough to end such a war.  This then results in endless amounts of money being put toward the war effort.  I wonder if these policymakers understand that such things require very large budgets that end up going to just a few companies that tend to donate very generously to both parties.  Oh and then there’s the ubiquitous fear mongering to sustain public support not that public support is required to fight wars anymore but it sure is useful in superseding the Constitution with legislation like the Patriot Act.

I feel this kind of represents how happy and well adjusted our children are today.  Very cheery chart that one is particularly wouldn’t you say?  Incident rates having doubled since the 1980′s.

Here’s our well adjusted healthy households.  Again this is likely a factor of day to day difficulties overwhelming any sense of peace in the home.

The above 3 charts show just how much input the will of the American people has on American policy.  Our legislators and policymakers have absolutely no regard for the will of the people.  We are 100% irrelevant in terms of legislating.  They use our money and our young veterans to throw their weight around the world to serve their own interests while, it is becoming apparent, not serving the interests of the American people.

And so with all of this great progression and improvement in the day to day lives of the American people surely we see a trend toward embracing life, looking forward to each new day and all of the joy it will bring, no?

The charts above are intended to ascertain whether or not things are improving in America these days.  From finances to health to education to family, the above charts attempt to present a picture of an improving nation.  A nation that is continually striving to improve the lives of its citizens.  What we find is a nation decaying with each new year.  A nation surviving on debt and government handouts with costs of imperative services rising faster each year while incomes continue to decline each year.  Health of our bodies and our families is fading while the number of wars we start accelerates.  And so it would seem that life is not improving in America.  Quite the opposite when one looks at a broad overview of American life.

But perhaps the charts are missing some intangible variable that gets lost in empirical data.  So perhaps Americans will provide us a different conclusion.  Perhaps Americans would tell us that despite all that we’ve shown above their lives actually have been getting better over the years.  I think it’s worth a shot and really it’s our last hope of making an argument that America is not sliding down the slope of its denouement but still a country on the rise.  Let’s have a look at what Americans are saying about the direction of the nation.

What we find is exactly what one would expect having looked through the many charts above.  Not sure it could be any clearer than all of that above.  While the political class continue to serenade us with songs of rainbows and butterflies the real world is kicking Americans square in the ass.   Despite all of this evidence to suggest a deteriorating nation the prominent message from the political class and their media muppets is that things are great.  We’re always just a few months from Utopia but beware because, at the same time, there are evildoers out to kill us.  Our policymakers are both liars and criminals.  That’s just a fact.  They perpetually lie to us (all of us could provide and endless list of lies just over the past 10 years) and they breach the constitution every day while attempting to sell us that they have the authority to do so when we know nothing trumps the Constitution.  Yet we refuse to challenge them.

And so we must ask ourselves why.  Why is it that despite knowing our politicians lie to us as the norm and break the law as part of their daily legislating that we the people do nothing about it?  One theory I have is that people honestly do not know what to do.  In fact, I hear this a lot.  I am often asked what we can actually do to materially change the way politicians behave?   And regrettably I do not have a good answer.   But I am certain that doing nothing will result in even more grotesque behavior by this political class.

Now when the constitution was followed the majority of legislative power was at the state level and because of that people had the power of propinquity.  That is when you can get in the face of your representative you can hold him accountable.  Also, citizens used to get very involved in the primary elections because it is where most of the individual’s voting power rests.  It is in the primary round that citizens can affect the end result by affecting who makes it to the final running.   Further when media was not just a tool of government as it is today given the mass amount of campaign money that ends up on the income statement of major mainstream media, public could drive the media message rather than the media message driving the people.  You see these are just the tip of the iceberg in terms of how the system has been slowly redesigned so as to avoid an impact by the will of the people.

The political class do not want our involvement.  There is a tremendous amount of power and money on the line.  Far too much to leave it to the will of the American people as too often our will conflicts with the objectives of our ‘representatives’ and their benefactors.  And so it is very true that it is much more difficult to affect change to the system today because it has been redesigned as such.  I don’t have a good solution but perhaps if enough people begin acknowledging the problem then American ingenuity and innovation will rise to the occasion and an equally powerful concentrating force for the will of the people will be created.  Then the American people can impose its will onto our policies that will then once again benefit we, the people rather than we, the slaves.

I say that in the technical sense, for the working class is being used to generate profits and to act as soldiers for the ruling class.  If we refuse to pay our hard earned profits we go to prison.  The vast majority of our armed forces come from very deprived socio-economic communities with essentially no other option but to sign up to soldier for a living.  While our lives continue to spiral downward, as evident in the charts above, this ruling class throws trillions of dollars around to facilitate their own interests.  Iraq, Syria and now Russia are all wars to satisfy the unrelenting thirst for power and money of this small group of horrible men.  They pay for such personal conquests by sacrificing the children of our nation’s poorest families and by suffocating our future generations in debt before they’re even out of the womb.  Yet we are told it is for our own good and despite our calls not to get involved in such things, these men do as they please.

However, so many of us still maintain that America is the greatest nation in the world.  We swear that America represents all that is good; freedom, democracy, merit based capitalism and the rights of the individual.  That is true America does represent such things.  However, I’ve made the suggestion many times that it is fraudulent to consider our current nation America.  America was a concept that promoted all that is good.  And so it would seem that the nation in which we find ourselves cannot be America.  Our nation today represents the will of the political class at all costs, period.  Their sole motivation is themselves.  Very different from America.  And so perhaps we need a renaming of our nation, at least until or if we the people decide to take it back and reintroduce the world to the concept that is America for as we discussed above you cannot destroy a concept and so there is hope to bring her back.  But until then we need a name for this geographic region and its new societal system.  I expect Neoconica is a fitting name.  But I’d certainly be interested to hear some other suggestions.

How To Save Up To 100% On "Purchases"

While likely considered blasphemy in America, land of the free-to-consume-moar, there is another way...



h/t @L_E_Ba

A Pessimist's Guide To The World In 2015

Skirmishes in the South China Sea lead to full-scale naval confrontation. Israel bombs Iran, setting off an escalation of violence across the Middle East. Nigeria crumbles as oil prices fall and radicals gain strength. Bloomberg News asked foreign policy analysts, military experts, economists and investors to identify the possible worst-case scenarios, based on current global conflicts, that concern them most heading into 2015.




Source: Bloomberg News

This Wasn't Supposed To Happen: 7 In 10 Americans To Save, Spend Gas "Tax Cut" On Bills Not Gifts

The lower-gas-price-tax-cut is "unequivocally good" meme is becoming more and more full of holes by the day. All that extra disposable income means moar iPhones, moar dining-out, and moar GDP... right? Wrong! As CBS reports, a new poll finds 73% of Americans will not use any extra cash from lower gas prices to buy additional gifts. What is even worse for America's credit-growth-dependent economy - 69% of Americans will use this extra disposable income to pay down outstanding bills and expenses. The final nail in the coffin of exuberance, two-thirds of Americans say they see no benefits from lower gas prices. But apart from that... keep the narrative going...


While "common knowledge" is that lower gas prices must be good for everyone, as CBS reports, this is not the windfall of disposable income-driven GDP-boosting exuberance so many extrapolating Keynesian economists are hoping for...

Despite a recent drop in the price of gas, 45 percent of Americans still think the price is too high. Thirty-nine percent of Americans think gas prices will go up, while 40 percent think they will go down.



Sixty-three percent of Americans say lower gas prices have not had any effect on their financial situation, but for a third, the price drop has been beneficial.



Majorities say they will use any savings from lower gas prices to pay bills or save; fewer will pay off credit cards, do home repairs, spend more on holiday gifts, or travel more.



Americans are now more skeptical that the president can have an impact on the price of gas. Most Americans - 53 percent - think the price of gas is beyond the control of the president.

*  *  *

So of course - these facts about American consumers do not compute with how the textbooks say it should all work... but we should ignore reality and believe in hope for now.

Socialist On The Line Caption Contest

A busy day for The White House phone lines... If Cuba is "good" socialism and Venezuela is "bad" socialism, what does that make America?


The Fracturing Energy Bubble Is the New Housing Crash

Submitted by David Stockman via Contra Corner blog,

Let’s see. Between July 2007 and January 2009, the median US residential housing price plunged from $230k to $165k or by 30%. That must have been some kind of super “tax cut”.

In fact, that brutal housing price plunge amounted to a $400 billion per year “savings” at the $1.5 trillion per year run-rate of residential housing turnover. So with all that extra money in their pockets consumers were positioned to spend-up a storm on shoes, shirts and dinners at the Red Lobster.

Except they didn’t.  And, no, it wasn’t because housing is a purported  “capital good” or that transactions are largely “financed” at upwards of 85% leverage ratios. None of those truisms changed consumer incomes or spending power per se.

Instead, what happened was the mortgage credit boom came to a thundering halt as the subprime default rates became visible. This abrupt halt to mortgage credit expansion, in turn, caused the whole chain of artificial economic activity that it had funded to rapidly evaporate.

And it was some kind of debt boom. The graph below is for all types of mortgage credit including commercial mortgages, and appropriately so. After all, the out-of-control strip mall construction during that period, for example, was owing to the unsustainable boom in home construction—especially the opening of “new communities” in the sand states by the publicly traded homebuilders trying to prove to Wall Street they were “growth machines”.

Soon Scottsdale AZ and Ft Myers FL were sprouting cookie cutter strip malls to host “new openings” for all the publicly traded specialty retail chains and restaurant concepts—–along with those lined-up in a bulging IPO pipeline. These step-children of the mortgage bubble were also held to be mighty engines of “growth”.  Jim Cramer himself said so—-he just forgot to mention what happens when the music stops.

A similar kind of credit bubble chain materialized in the hospitality segment. As the mortgage debt spiral accelerated, households began tapping their homes ATM machines through a process called cash-out finance or MEW (mortgage equity withdrawal).  At the peak of the borrowing frenzy in 2006-2007, the MEW rate was in the order of $500-$800 billion annually. Accordingly, upwards of 10% of household DPI (disposable personal income) was accounted for not by rising wages and salaries or even by more generous taxpayer financed transfer payments from Washington.

Actually, it was far easier than that.  American families just hit their home ATM cash button , and applied the proceeds to bigger, better and longer vacations, among other things. Soon, hotel and vacation resort “revpar”  (revenue per available room) was soaring owing to surging occupancy and higher room rates.

On the margin of course, the incremental demand that sent hotel revpar soaring was derived from mortgage credit confected out of thin air by the financial system. Yet in the short-run is was a strong signal for more investment in hotel rooms and that’s exactly what materialized.

As it happened, of course, the revpar surge was a false signal and the hotel room building spree was a giant malinvestment. Construction spending on new hotels exploded from $10 billion to $40 billion annually during the 70 months after early 2003. Except….except that when  the mortgage boom stopped and the frenzied MEW extraction halted, revpar plunged and the hotel room construction boom retraced back below the starting line in barely 20 months.

In all, between Q4 2000 and Q4 2007, US mortgage credit expanded by the staggering sum of $8 trillion. “Staggering” is not hyperbole. The growth of mortgage debt outstanding during that 84 month period exceeded by nearly 20% all of the mortgage debt that existed at the turn of the century.  The CAGR for that period was 12% annually or orders of magnitude higher than the sustainable growth capacity of output and incomes. So mortgage credit went from 65% of GDP to 100% in an historical flash.

The tsunami of mortgage credit exceeded anything previously imaginable by even the most egregious “easy money” populists. But here’s the preposterous part. The monetary politburo watched this tidal wave rising and did not become alarmed in the slightest. Indeed, Greenspan and Bernanke thought MEW was a wonderful tool to goose household spending and thereby justify its spurious belief that a handful of central bankers could deftly guide the $14 trillion US economy to the nirvana of permanent full employment prosperity.

The above parabolic curve by no means represents the free market at work. For that kind of borrowing explosion to occur without causing interest rates to soar sky-high (and thereby soon choke off the borrowing spree), there would need to have occurred a powerful upsurge in the US savings rate, permitting the market to clear at prevailing interest rates.

It does not take much deep historical research to remind that didn’t happen. Not in the slightest. Indeed, the US household savings rate had been sinking ever since the Greenspan money printing regime got off the ground in response to the 25% stock market crash in October 1987. And once the Maestro went all-in opening up the monetary spigots in January 2001, thereby driving money market rates from 6% to 1% during the next 30 months, household savings resumed their tumble into the sub-basement of history.

As shown below, by the peak of the mortgage boom when demand for savings was at high tide, the savings rate had actually vanished, reaching hardly 2.5% of personal income. That compared to pre-Greenspan rates of 10-12.5% (based on current NIPA measurement concepts), meaning that the US economy was parched of savings at the very time it was bursting with new mortgage debt issuance.

Stated differently, the mortgage credit boom exploded uncontrollably in the run-up to the financial crisis because free market pricing of debt and savings had been totally distorted and falsified by the monetary central planners at the Fed. The resulting $8 trillion eruption of mortgage credit, in turn, funded bubble style spending and investment throughout the warp and woof of the US economy—–setting the stage for the subsequent painful liquidation and reversal.

The housing bubble and bust, in fact, was a dramatic if painful lesson on the danger of central bank generated financial repression. Drastic mispricing of savings and mortgage debt in this instance touched off a cascade of distortions in spending and investment that did immense harm to the main street economy because they induced unsustainable economic bubbles to accompany the financial ones.

The boom and bust of residential construction and the related whip-sawing of employment and supplier industry production is obvious enough.  But the violent surge and plunge pictured below is not some unique artifact of a once-in-100-years housing anomaly. Instead, it was a predictable and generalizable effect of central bank driven mispricing of debt and equity capital and the availability of vast gobs of fiat credit.

The only way to describe the above happening is that it represents the violent liquidation of bubble economics. After doubling between mid-2000 and mid-2006 owing to the home price and mortgage bubble,  residential construction spending plunged by 65% during the next 36 months. That was not exactly Bernanke’s “Great Moderation” so insouciantly pronounced in March 2004—hardly 24 months before the above cliff dive commenced.

And its not a matter purely for future study by the Princeton economics department, either. As President Obama would be wont to say, “some folks” got hurt along the way. In fact, nearly 50% of all employees in residential construction at the 2006 peak were out of work a few years after the bust.

Substitute the term “E&P expense” in the shale patch for “housing” investment and employment in the sand states, and you have tomorrow’s graphs—–that is, the plunging chart points which are latent even now in the crude oil price bust.  But the full story of the housing bust also reminds that the long caravans of pick-up trucks which will soon be streaming out of the Bakken in North Dakota will represent only the first round impact.

The real problem with central bank financial repression is that it plants financial land-mines in hidden places throughout the financial system and real economy. Indeed, the one thing that the Keynesian money printers are correct about is that a “multiplier” effect is actually operative. That is, the chain of distortions which results from the mispricing of capital and the ballooning of fiat credit multiplies many times over as it cascades through the economic system.

So that is why its important at this juncture to review the Maestro’s favorite chart during the housing boom. During the better part of three years more than one-half trillion dollars per year entered the household spending stream right out of home equity piggybanks. By some estimates the peak rate was nearly $800 billion annualized or, as indicated above, upwards of 10% of total disposable income.

Needless to say, this artificial spending boom washed through the length and breadth of the US economy, generating sales of Coach handbags, pilates equipment, big screen TVs, time-share resort units and countless more that would otherwise not have happened. So when the air came out of the mortgage debt bubble, real PCE dropped for 20 straights months—–unlike anything previously experienced in the post-war era.

But as shown below, that was not due to some mysterious disappearance of Keynesian “aggregate demand”. Consumption spending faltered because America’s home ATM’s went dark.

Here’s the point. In an honest free market for debt and capital there would have been no MEW eruption in the first place. The incipient boom in mortgage credit would have throttled itself. That is, had the Fed not had its big fat thumb on the price of debt, interest rates would have soared, and American households would have been incented to add cash to their nest eggs, not strip mine the equity from their homes.

And that leads exactly to the next bubble——the energy boom that is now hitting the wall. The trillions of MEW that US households falsely extracted from the inflated equity value of their homes did not stay within the confines of a closed model US economy. Instead, over the decade or so before the financial crisis a goodly portion flowed into demand for shirts, shoes, electronics and other gadgets from Mr. Deng’s export factories in East China.

And during that debt-fueled US consumption boom, interest rates did not remain low because the workers in China’s new sweatshops had an outsized appetite for savings, as per the sophistry spewed out by Greenspan and Bernanke. No, it was the People’s Printing Press of China that had an humongous appetite—–that is, for mercantilist economic growth obtained by pegging their exchange rates at artificially low levels in order to keep their export factories booming.

So countering the Fed’s fat thumb on the domestic cost of debt in the US, the PBOC keep its thumb on the RMB exchange rate, thereby flooding its domestic economy with the most fantastic expansion of credit fueled investment in industrial capacity and internal infrastructure that the world had ever seen. Between 2000 and 2014, China’s credit outstanding soared from $1 trillion to $25 trillion. Consequently, its credit swollen GDP expanded from $1 trillion to $9 trillion in a comparative heartbeat; and its crude oil consumption soared from 2 million barrels per day to 8 million.

In short, the Fed exported bubble finance to the entire world, but most especially China and the EM. The upshot was an extended era of booming but phony global growth, and a consequent artificially high oil prices at $115 per barrel.

When central bank inflated oil prices were coupled with lunatic junk bond yields in the US shale patch at barely 300 bps over the central bank repressed yield on the US treasury note, the result was the same old bubble thing. Namely, a half trillion dollar flow of high yield bonds and loans to the energy sector, and a wholly artificial explosion of US shale liquids production from 1 million to more than 4 million barrels per day.

Like in the case of the housing bubble, the energy boom was an accident waiting to happen— testimony to another even grander experiment by the madmen running the world’s central banks.  It is now exploding right on schedule. The plunging graphs subsequent to the housing bust are now being re-gifted to the energy patch and all the bloated, unstable chains of finance and real economic activity which flow from it.

The graph below which shows that every net job created in the US during the last seven years is attributable to the shale states will be one of the first to morph into a less happy shape.


But there is something else even more significant. The global oil price collapse now unfolding is not putting a single dime into the pockets of American households - the CNBC talking heads to the contrary notwithstanding.  What is happening is the vast flood of mispriced debt and capital, which flowed into the energy sector owning to the Fed’s lunatic ZIRP and QE policies, is now rapidly deflating.

That will reduce bubble spending and investment, not add to economic growth. It’s the housing bust all over again.

Russian Food Suppliers Have Begun Halting Shipments

Until now, when it comes to the fallout in the Russian economy from the crude price plunge leading to a collapse in the Russian currency, most of the interest has been on how the Russian financial system recovers and/or survives and just as importantly, what Putin's response would be. Just yesterday, we wrote that as a result of capital controls fears, many western banks led by Goldman Sachs had halted liquidity to Russian clients and other local entities.

However while the adverse impact on the Russian banking system has been mostly confined to the upper class - since there is virtually no middle class in the country to speak of - the second cold war of words, which rapidly morphed into a very hot financial war, is about to hit the very ordinary Russian on the street, because as Russia's Vedomosti reports, citing vegetable producer Belaya Dacha, juice maker Sady Pridoniya and others, Russian suppliers are suspending food shipments to stores because of unpredictable FX movements. And it is about to get worse: very soon Russians may have to live without imported alcohol because at least on supplier of offshore booze, Simple, halted shipments in "a two-day pause” to see what happens with the ruble, Vedomosti reports.

The full story from Vedomosti:

Food retailers are faced with a halt in the supply of deliveries, according to both suppliers and retailers. The main reason - the jumps in the currency jumps and the devaluation of the ruble, which makes it impossible to plan activities in the current environment.


The largest domestic producer of juices "Gardens of the Don" has suspended shipment of products at the old prices to a number of trading companies due to the sharp depreciation of the ruble, the company said. The reason is that the cost of its products is more than 70% denominated in foreign currencies.

Gardens of the Don will ship products "first of all to all network companies who understand the situation and accept the new prices." From 16 to 21 December 2014 the company has suspended shipping to merchants who did not give a definitive answer on the adoption of higher prices, explained the producer of such juices as "Gardens of the Don" "Golden Russia" "My" "Juicy world" and others.


Shipments were also stopped by a major distributor and importer of alcohol, Simple, told "Vedomosti" an employee of a major retailer. He was informed yesterday that the Simple warehouse would be closed. A company representative confirmed the suspension: the company took "a two-day pause."


"We, as a company that depends on the value of currencies, can do nothing in this situation. We are putting prices in rubles, prices in Uslovniye Yedintsy (UY) or 'conditional units' are not acceptable under the current laws - reported a representative Simple CEO Maxim Kashirin. "Buying the currency now or taking out a bank loan, is impossible: banks will not finance receivables ".


According to him, restaurants and retailers will pay with a long delay, the federal network - up to several months.


Kashirin says that Simple hopes to resume the next day delivery, but "The decision will largely depend on what will happen on the foreign exchange market." "If everything will fluctuate with the speed with which fluctuates now, we will not be able to give a long delay, great discounts. Most likely, we will be forced to sell, let's say, on a prepaid basis" he fears.


Large fish suppliers that operate on imported raw materials, have also begun to suspend deliveries. December 16 during the "Orgy" period in the foreign exchange market, the company suspended shipments to counterparties for one day, told "Vedomosti" employee of a large fishing company. According to him, the company now operates in normal mode, the issue of increasing prices is discussed. However, due to the sharp depreciation of the ruble with all counterparties company now works exclusively on a prepaid basis: "There are no delays."

And so on.

Which is why tomorrow's annual address by Putin to the nation will be, as has been dubbed, his "moment of truth" because while patriotic fervor is still high and the population is willing to suffer runaway inflation for a short period of time, even the greatly suffered Russian population will meet its breaking point. The question is when, and whether that will take place before or after the US shale industry reaches its own breaking point, at which point Saudi Arabia will finally release the price of oil which it has, according to all the "supply-siders", been holding back. Alas, as we and others have demonstrated, that breaking point will most certainly not come for many more months to come. Which means that Putin better find an alternative soon, because if and when the food (and vodka) of Russians' is impaired, then things have a tendency to get very bad.

Mortgage Applications Tumble As Citi Warns Oil-Drop Risks Housing/Jobs Slump

Mortgage applications for home purchases fell almost 7% last week, fading recent gains and hovering once again back at 20 year-lows (entirely unable to reflect the housing 'recovery' for the average joe). The plunge in applications comes as mortgage rates crash back to 4% - the lowest in 19 months. The reason - apart from unaffordability - is explained by Citi's Will Randow who notes the spillover effects of the "unequivocally good for everyone" drop in oil prices has a dramatic effect on both jobs (prolonged price drop means a loss of ~200k jobs) and housing (starts expected to drop 100k if oil prices remain low). Maybe talking-heads should reconsider that "unequivocally good" narrative.


Mortgage applications tumble back near 20-year lows...


And Architect activity is plunging...


Even as Mortgage rates near record lows...


*  *  *

As Citi explains, the drop in oil could be responsible for the apparent lack of demand...

The upstream oil & gas industry (i.e. extraction, support activities for operations, and related machinery manufacturing) has added roughly ~0.2M jobs since nonfarm payrolls bottomed in July 2010 (TTM avg), which represents 16% of goods producing jobs added and 2% of total jobs added since then. Assuming a prolonged decline in oil prices below $60 per barrel causes the ~0.2M jobs added to cease, our sensitivity analysis leads us to believe that ~0.1M cumulative US Housing Starts are potentially at risk, factoring in that ~0.2M jobs are eliminated at the current ~1.7 jobs per US household ratio.



Among US homebuilder end-markets, Houston and other parts of Texas appear to have the largest potential risk associated with lower oil prices and related job losses. The last time oil prices sustained (current dollar) price levels below $60 per barrel, annual TX housing permits bottomed at ~40K homes (TTM) versus ~160K homes in October 2014 (TTM), but did eventually recover, even at sustained lower oil price levels. So, similarly, it appears downside risk is near ~0.1M in incremental lost Housing Starts, predominantly in Texas.

Charts: Bloomberg

The Terrorist Hackers Win: Sony Pulls Release Of "The Interview" Due To Fears Of "9/11-Style Retaliation"

Update: and moments after we wrote this, Sony itself decided to cancel the release of the movie.

Sony Pictures says it cancels release of 'The Interview'

— WSJ Breaking News (@WSJbreakingnews) December 17, 2014

Straight to "must watch" Netflix it is.

* * *

One of the biggest conspiracy theories in recent weeks has nothing to do with the stock market and the Fed, or with HFT manipulation, or with Ukraine's gold, or with who brought down the two Malaysian airliners, but whether the now beyond ridiculous drama surrounding Seth Rogen and James Franco's latest movie, The Interview, which has its very own cast of C-grade characters, including an alleged furious North Korean dictator and his hacker disciples, a mega corporation whose servers were hacked releasing the content of thousands of emails into the open, and of course, delighted marketing stuiod execs, has been staged and planned from the beginning. Because the latest development in this soap opera is almost as surreal as today's shocking detente with Cuba: as the Hill reports, America's top five movie theater chains have decided to pull the Sony Picture's comedy "after cyberattackers on Tuesday threatened Sept. 11-style attacks against any theater showing the movie."

Regal Entertainment, AMC Entertainment, Cinemark, Carmike Cinemas and Cineplex Entertainment will all withhold the film from their lineups, meaning “The Interview” will not appear in thousands of theaters nationwide, according to The Hollywood Reporter.

More for those who are, blissfully, unaware of the stupidity behind this latest contrived escalation, from The Hill:

A hacking group going by “Guardians of Peace” infiltrated Sony in late November, stealing massive amounts of data. The group has since been slowly leaking Sony’s internal documents, including unreleased films and Hollywood executives’ emails.

But on Tuesday, the group upped its rhetoric, threatening violence against any theater showing the film and even against any person in the vicinity of one of the theaters.


Many have speculated the cyber offensive is a North Korean retaliation for film, which depicts the fictional assassination of Kim Jong Un. Pyongyang has denied involvement in the hack but praised the action as “a righteous deed.”


Sony on Tuesday reached out to theater chains to reaffirm it would be releasing the film on Dec. 25, but said it would respect any decisions about pulling the now-controversial movie.


The National Association of Theatre Owners said Wednesday it was working with law enforcement to investigate possible threats.

“We are encouraged that the authorities have made progress in their investigation and we look forward to the time when the responsible criminals are apprehended,” the group said in a statement.


Thus far, federal officials have said there is “no credible intelligence” of an active plot.


“Individual cinema operators may decide to delay exhibition of the movie so that our guests may enjoy a safe holiday movie season,” the association said.


Regal Entertainment said in a statement it had decided to "delay the opening of the film" because of Sony's "wavering support of the film" and "the ambiguous nature of any real or perceived security threats."


The Hollywood elite quickly lashed out against the decision to pull “The Interview.”


“I think it is disgraceful that these theaters are not showing The Interview. Will they pull any movie that gets an anonymous threat now?” tweeted Judd Apatow, producer and writer of such films as “Knocked Up,” “Pineapple Express” and “Funny People.”

What goes unsaid is that as Judd Apatow, and Sony, and Sony's marketing execs know all too well, there is nothing to boost interest in a movie, especially a movie that is a spoof from the beginning, and one which certainly did not get glowing pre-release reviews, if regular viewers have i) already heard so much about it and ii) are at least indirectly prohibited from watching it.

So the question remains: is the entire drama surrounding The Interview legitimate, or is it the biggest publicity stunt in movie history?

The American Public Supports Torture … Because They Don’t Know THIS

New polls show that – even after the Senate torture report showed that torture is unnecessary and doesn’t work – Americans still think torture is necessary and works.


Because they still don’t know the truth … because the mainstream media has hidden it from them.

Americans wouldn’t support torture if they knew the following facts, proven beyond any doubt:

  • The detainees held up as “poster boy” justifications for torture actually prove the opposite

(Note: Other polls reach very different conclusions about Americans' acceptance of torture.)

The End Of Exuberance?

Submitted by Sean Corrigan via True Sinews blog,

Back in the halcyon days of summer, it seemed nothing could go wrong.

Commodities were still things it was not utterly disreputable to own. Base metals had shaken off a springtime swoon to hit 18 month highs. Though still suffering from that enervating, post-bubble flatness, precious metals had just enjoyed a neat little 10% rally. Energy was threatening to print new 2 ½ year highs as WTI sold for more than $107 at the front and $86 at the back of the curve. Nor were people much interested in paying for downside protection: across the complex, options premia were as low as ever they had been in recent years.

Volatility – and risk measures in general – were drifting ever southwards, everywhere you looked. The US equity market’s VXO index was being quoted in single figures, the lowest in its 29-year history. As a percentage of the underlying equity level, it was barely still on the chart – 16 standard deviations below the mean and under one fifth of the median. Germany’s VDAX was doing its best to keep up (down, in fact) touching its lowest in 18 years at just over half the 23-year median reading. Emerging markets? Got it. Price high, vols low, the ratio between the two at an extreme, and the VIX-VXEEM spread less than 2% – around a fifth of that typical over its short 4-year track record.

In the fixed income market, swaption vol was back in the low 20s – a level not undercut since the Lehman crisis exploded and, adjusted for yield, the level was actually in the very first percentile of the past 18 years’ range. Baa bond spreads were down at 135bps over Treasuries, the smallest premium since early 2005, while junk bond equivalents were the lowest on record, their 220bps reading less than half the 27-year median of 460bps. Even Greece was trading a relatively rich 415bps over Bunds, their best since the T2 blow-up in 2010.

Nor was forex immune. JPM’s G7 volatility gauge stood at 5.2%, just more than half the 22-year median and – you guessed it – a record low. The EM equivalent? Yes. A record 14-year series low some 40% below the median.

Leverage is a little harder to measure since much of who borrows what and to buy what is not available for public scrutiny. Suffice it to say that not only was US margin debt printing new outright highs at $466 bln, it also set a new high water mark as a percentage of market cap. The real leverage, though, is that internal to the corporate sector itself. Taking just the US as an example, the period since 2010 (inclusive) has seen non-financial corporates retire almost $1.8 trillion in equity despite the fact that they have only had $480 billion in own funds to disperse after paying taxes and dividends and making capital outlays. This means that they have simultaneously borrowed $1.3 trillion simply in order to juice the EPS ratio – a move they have accomplished by issuing a like amount of bonds for a sum which equates to around 10% of aggregate book value.

No-one watching these markets will need to be told that, just six months on, we live in a very different world, indeed. Suffice it to say that bond vol is 10% higher, FX vol has more than doubled to Taper Tantrum levels, junk is trading not 220bps over, but 500 – half way back to the climax of the Euro storm of 2011 before Draghi uttered the magic words ‘whatever it takes’. Outright panic is a very real possibility, especially in today’s lightly buffered, Volcker rule markets.

Coming in the final quarter of the year, the tumult has also upset that cosy if cynical compression of positioning into window-dressed winners and universally-shunned losers. Everyone who was anyone was long the Nikkei, short the yen, didn’t you know, Dahlings? Rates in the US were obviously headed higher, so both percentage and absolute eurodollar shorts were respectively close to and at record levels and net note and bond positions were similarly bearish. The dollar index – having finally steamrollered the last reluctant sceptic of its rise – had garnered spec longs to the tune of three-quarters of all-time high O/I. The euro net spec short was half of record O/I, the yen equivalent accounted for 70%.

Everyone with the same viewpoint, far too many interlinked positions, far too much lazy consensus. And now – BANG! No wonder the reaction has been savage.

Look at the graphs. Since 2008, US break-even inflation has wiggled up and down in a broad consonance with the price of crude. Given such behaviour from a flawed, market-generated reading conferred with far too much significance by a Fed desperate to pretend it is at least partly deterministic in its actions, it should not be hard to imagine how much the deflationistas are bleating now that the black stuff is spiralling earthward out of its SuperCycle pretensions like an overeager Icarus cursed with Virgin Group sponsorship.


Courtesy Bloomberg


Junk was likewise in loose synch with the same gyrations, long before every newly-born shale doubter became an expert on the drillers’ credit ratings. Likewise, FX vol followed much the same beat, partly because anxiety tends to rise when the greenback, too, is on the up. Weaker commodity prices also go in the market’s mind with demand side weakness, especially in China, and with knock-on export earnings effects in producers like Brazil and South Africa and so link back to EM valuations that way, too.


Courtesy Bloomberg


Similarly, after a long time in the doldrums, gold has been relatively – if not yet absolutely – perky of late as that classic ‘bird of ill omen’ ratio – the price of the metal in terms of a basket of industrial commodities – is starting to rise along with that of a long bond not a million miles away from testing its 2.45/50 double bottom. And this, in the case of bullion, despite an almost overnight shift in tin-hat theorising from thinking that the very tight cash market of a week or so ago was all due to Moscow’s anti-dollar acquisition to fretting that its latest reversal is all down to that same Moscow frantically unloading the stuff once more.


Courtesy Bloomberg


So now it is all starting to unravel. Since OPEC’s demarche last month, as we know oil has plunged $50/bbl at the front, $20 at the back and could well be heading for $40 a pop, both on current technicals and on historical precedent (see chart). Gulf stock markets – especially that serial bubble-blower, Dubai – have strongly felt the chill. Across the Atlantic and even reckoned with its frankly unreal official peso rate, the Merval is off 45% when translated back into dollars, the Bovespa and the Colcap have shed 40%, while the Bolsa is down 25%, all on the same basis.


Courtesy Bloomberg


Russia is another case entirely. After several uneasy months, confidence has finally crumbled with CDS spreads soaring from 100 to fast approaching 600, while both the RTS index and the ruble have lost around three-fifths of their value, a calamitous move for the latter not a world away from the three-quarter loss it suffered during the nation’s bankruptcy in 1998. Though the causation may be working in reverse today – and though Russia was not alone in toppling into the financial abyss back then – no-one will wish to dwell on what happened to the price of oil ($10/bbl), gold ($250/oz), or copper ($1,400/tonne) in the aftermath of that particular implosion!

Eastern Europe as a whole is beginning to wobble. Budapest in USD has touched a 5 ½ year low, leading the MSCI regional index to another slide of 40% from those late June highs. Raiffeisen Bank – notable for its lending into and beyond the hinterland of the old Austro-Hungarian empire – has come under the cosh as a result, the shares suffering a black run descent of 60% since June to a suffer the ignominy of hitting a post-flotation low. More and more, the dreaded word ‘contagion’ is beginning to be whispered.

Courtesy of the discussion of it in the BIS’ latest quarterly, the focus has also been on the high volume of cross-border leverage prevailing – much of it hidden away from regulatory fiat and popular consciousness in offshore borrowing via foreign non-bank subsidiaries. The price action so far shows that to the extent this has been a feature, it has been mostly about unwinding yen carry trades, the unit having retraced as much as six big figures versus the US, much to the chagrin of those arch competitive devaluers, Kuroda and Abe, no doubt.

What has not yet begun to be priced in, however, is the possible cost of Russia succumbing to either an involuntary default or a deliberate moratorium. Even to suggest that latter might seem a step too far, but there must surely be limits to the sphinx-like patience of even a Putin or a Lavrov.

Between them, these two have so far striven hard to present, especially to the emerging nations, a front of international respectability and reasonableness and to portray their land as the victim of a concerted attempt at destabilization launched by the hardliners in the America foreign affairs hierarchy. Thus, the only pre-emptive action they have taken to date in the wholly unnecessary conflict with the Ukraine has been to secure their strategic – and, they would add, historic – foothold in the Crimea. Even here, they then arguably secured the mandate of the overwhelming majority of the people for their intervention.

But now the stakes have been raised by the acute financial disruption they are suffering, perhaps to the point where it may no longer be wise to play their long, patient game of waiting for the regime in Kiev to collapse of its own accord and for Europe to baulk at the costs of underwriting American Full Spectrum Dominance. Moreover, the US congress has just passed – in the most morally questionable, if procedurally correct, fashion – a bill which several major figures at home and abroad have stated is tantamount to a declaration of war on Russia, a bill to which it appears the Nobel Prize winner manqué in the White House will append his signature this week.

If so, how might the Kremlin respond? Well, certainly not with military force. But it could impose a grain embargo, a disruption which would serve additionally in reserving the harvest for its own people at lower cost than the crop would now bring on world markets. It could perhaps demand payment for gas deliveries in rubles, not dollars, thus forcing the Europeans to take up the defence of the currency on its behalf. But beyond all this, it might impose capital controls in such a manner as to lock Western funds in place and to suspend all payments of principal and interest thereon until a wider settlement of the dispute was achieved.

In this context, it helps to be aware that, at end June, the BIS says that member state banks with money out to the country stacked up as follows:-

France, $51 bln; Italy, $29 bln; USA, $23 bln; Germany, $22 bln; Japan, $19 bln; NL, $17 bln; UK, $15 bln; Sweden, $10.5 bln; Swiss, $6 bln – in a total of $235 bln. Then there was the matter of the $253 bln in international bond issuance by Russia, $180 bln in the name of banks and other financial institutes, $39 bln raised by non-financial corporates and $35 bln by the government.


[In passing, consider that each of these figures individually were comparable in scale to the domestic security market which stood at $286 bln while banks’ domestic claims amount to around $500 bln].

Clearly such sums are subject to downward revision in light of the withdrawals that presumably lay behind the currency moves but, nevertheless, they must remain sizeable. Were they to be frozen, then in place of some of the Western chickenhawks puffing up their chest feathers about excluding the Russians from SWIFT, the latter would have thrown a rather large spanner of their own into the international plumbing in anticipation. After all, financial warfare can be a two-edged sword, can it not?

Suffice it to say in conclusion that the uncertainties presently being generated have the potential to undermine two crucial kinds of trust – that one must have in the merits of one’s own exposure and that equally critical faith in the reliability of one’s counterparties. If it does, the third great bull run of the 20-year age of Irrational Exuberance could well reach its culmination, after a rally of almost exactly the same magnitude as and of similar duration to the one which ushered it in, all those years ago.


Courtesy Bloomberg


Santa Yellen Arrives: Stock Buying-Panic Sparks Biggest Short Squeeze In Over 3 Years

More crazy pills...


Another day, another face-ripping short squeeze... this was the biggest day for "most shorted" stocks in over 3 years!!!!


eMini net change from 9:30 open to close today (black line) was 2nd highest since 1/2012 $ES_F

— Eric Scott Hunsader (@nanexllc) December 17, 2014

...that lifted stocks magnificently from last night's closing lows to the week's highs...


Small Caps rip in a massive short squeeze... up 2% on the week now!!!


Broken Markets

6000 busted trades and counting - about 3 to 5 each second

— Eric Scott Hunsader (@nanexllc) December 17, 2014


S&P's best day since Jan 2013... ripping back above the 50DMA and 100DMA


Don't get too excited...


Ruble rallied...


Oil roundtripped...


Energy credit did indeed raly on the day - how could it not - but we suspect stocks are getting a little ahead of themselves


Treasury yields rose on the FOMC


rates decoupled from stocks


The USDollar surged...


Silver was relatively flat (but down hard on the week), goldslipped lower after FOMC, oil pumped and dumped...





Charts: Bloomberg

Will Putin's Next Step Be To Sell Gold?

"Russia is at a critical juncture and given the sanctions placed upon them and the rapid decline in oil prices, they may be forced to dip into their gold reserves, if it happens it will push gold lower." That is what, according to some people Bloomberg has quoted, is in the cards.

As Bloomberg reports,

Russia’s surprise interest-rate increase failed to stop the plummeting ruble. Another tool available to repair economic havoc caused by sanctions and falling oil prices: selling gold.


Russia holds about 1,169.5 metric tons of the precious metal, the central bank said last month. That’s about 10 percent of its foreign reserves, according to the London-based World Gold Council. The country added 150 tons this year through Nov. 18, central bank Governor Elvira Nabiullina told lawmakers. The Bank of Russia declined to comment on its gold reserves.


Russia’s cash pile has dropped to a five-year low as its central bank spent more than $80 billion trying to slow the ruble’s retreat. The currency’s collapse combined with more than a 40 percent tumble in oil prices this year is robbing Russia of the hard currency it needs in the face of sanctions imposed after President Vladimir Putin’s annexation of Crimea. A fall in gold prices signals that traders are betting that the country will tap its reserves, according to Kevin Mahn, who oversees $150 million at Parsippany, New Jersey-based Hennion & Walsh Asset Management.


“Russia is at a critical juncture and given the sanctions placed upon them and the rapid decline in oil prices, they may be forced to dip into their gold reserves,” Mahn said. “If it happens it will push gold lower.”

But others are less convinced.

“There are a number of ways that they could use their gold,” Robin Bhar, an analyst at Societe Generale SA in London, said today by phone. “They could use it as collateral for bank loans, or for loans from multi-lateral agencies. They could sell it directly in the market if they want to raise foreign-exchange” reserves, including to get more dollars, he said.


If Russia decides to sell, the figures to confirm the move wouldn’t be available for a few months, Bhar said.


Selling gold is usually “one of the last weapons” for central banks because some use the metal to help back their currencies, George Gero, a precious-metal strategist at RBC Capital Markets in New York, said in a telephone interview. “They are probably still accumulating gold and keeping it for a bigger crisis,” he said.

While some suggest the accumulation was "tradition" it is still nonetheless an impressive aggregation of the barbarous relic:

So given the efforts to build this gold-backing for their nation's currency, do we really expect Putin to now dump his physical: or perhaps more strategically suggest a true gold-backed currency and jawbone the currency that way?