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Chinese Stocks Tumble In Close Of Trading "Causing Panic", US GDP To Be Revised Higher On Seasonal Adjustments

We start off the overnight wrap up with the usual place, China, where in a mirror image of Wednesday's action, stocks once again started off uneventful, then gradually rose in the afternoon session and meandered near unchanged territory until the last half hour, when out of the blue they tumbled to close near the day's low, some 2.2% below yesterday's closing level.

BREAKING: Shanghai benchmark index mysteriously sinking in last 5 mins of trading, down 2.2% and causing panic again

— George Chen (@george_chen) July 30, 2015

Bloomberg adds that drugmakers and technology companies led declines. A gauge of 100-day price-swings rose to the highest level in six years. Trading volumes in Shanghai have halved from their peaks in June, while margin debt, which had fueled a world-beating rally for China’s stocks, declined to a four-month low.

All 10 industries in the CSI 300 slid more than 2 percent, led by a 4.1 percent slump in the gauge of health-care companies. Lepu Medical Technology Co. plunged 8.3 percent, while Hualan Biological Engineering Inc. slid 5.2 percent. The drug sub-index has been the best performer over the past three month, falling 5.6 percent versus the 20 percent slump for the CSI 300.

Volatility has increased this week as Monday’s 8.5 percent plunge by the benchmark gauge shredded a calm induced by unprecedented state intervention.

“There were no major macro developments,” said Gerry Alfonso, a sales trader at Shenwan Hongyuan Group Co. in Shanghai. “The disconnect with fundamentals continues making trading challenging.”

What caused it? It is unclear why the government would step away from the bid despite the PBOC injecting liquidity for the 11th consecutive day, just as everyone was selling in an attempt to capture the EOD upside as telegraphed the day before, or perhaps the selling was just too violent.

One possible catalyst came from Reuters which reported that that Chinese banks were investigating their exposure to the stock market via wealth management products and loans backed by stock as collateral. If true, since this was the catalyst that also ended the steep ascent of mega fraud Hanergy, one can see why Chinese gamblers would be concerned and rush to take profits.

And with every close on a down tick forcing the PBOC and the polibturo to implement even more "anti-panic" regulations which merely reinforce the lack of faith in a normal market, expect the situation to get worse before it gets bettter.

With China out of the way, it brings us to the main event of the day: the first estimate of US Q2 GDP release which also will incorporate the annual revision to GDP growth with the widely mocked and goalseeked "second seasonal adjustments" part of historical GDP, whose only purpose will be to remove the negative Q1 GDP print from 2014 and 2015.

This is how BofA sees today's GDP release:

  • The first estimate of 2Q GDP is likely to show growth of 3.0%, which would be a bounce from the contraction of 0.2% in 1Q. However, it is important to remember that the history will be revised along with this report. The annual GDP revisions will alter the trajectory of growth, particularly over the past three years. There will be a change to the seasonal adjustment process which should push up growth in 1Q, reflecting stronger seasonal factors, but potentially lower the later quarters. This adds additional uncertainty around forecasting 2Q GDP growth
  • The annual revision to GDP growth on July 30th will adjust estimates of growth over the past few years. If growth is indeed revised higher it would help solve the puzzle of low productivity growth.
  • This will also be the first release of the new GDP and GDI composite. This will show a stronger trend of growth given that GDI has outpaced GDP recently.
  • Taking a step back and examining a range of indicators reveals an economy expanding at a mid-2% pace, largely consistent with the Fed’s forecasts.
  • Although it is hard to say with any certainty, we believe GDP growth is likely to be revised up modestly. This will likely leave the Fed comfortable arguing that the economy is making progress closing the output gap, allowing a gradual hiking cycle to commence.

Actually it is rather easy to say with certainty that this is precisely what will happen, which however may be a clear case of good news is bad news (for stocks), since a substantial upward revision to GDP data will greenlight Yellen to hike rates that much sooner. As a reminder the current Atlanta Fed estimate has Q2 GDP at 2.4%. Will it be the closest forecast again? Find out in just over 90 minutes.

Back to markets where aside from China, Asian equities traded mostly higher following a strong lead from Wall Street, as the Fed failed to yield any definitive clues as to when a Fed rate-lift off would occur. Nikkei 225 (+1.1%) outperformed amid a slew of strong corporate earnings, coupled with Industrial production growing at its fastest rate in a year (2.0% vs. Exp. 1.3%); yet another tumble in the JPY certainly helped push stocks higher. ASX 200 (+0.8%) was led higher by miners after iron ore prices rose 4.6%. Finally, JGB's fell in conjunction with USTs as the demand for safer assets subsided following the broad based gains in Asian indices.
Today has seen the busiest day of earning season so far in Europe and as such company specific news has dictated market movements . A host of large cap names all reported, including heavyweights Siemens (+3.0%), Shell (+2.8%), Deutsche Bank (+2.6%), AstraZeneca (+2.1%), Sanofi (-0.4%) and Santander (-1.9%), with the IBEX underperforming (-0.6%, Euro Stoxx: -0.1%) after being weighed on by Santander, with all other indices trading in the green.

Yesterday saw Facebook Inc (FB) report after the close, with Q2 Adj. EPS USD 0.50 vs. Exp. USD 0.47, CFO says they are affected by currency headwinds. Q2 revenue USD 4.04bIn vs. Exp. USD 3.99b1n. Q2 MAU's 1.49bIn vs. Exp. 1.475bIn Q2 DAU's average of 968m1n vs. Exp. 970.5mln. High profile US earnings include US earnings including P&G, Time Warner Cable and Teva pre-market, while Amgen and Linkedln report after the close.

The USD-index has spent the European morning in positive territory, however coming off its highest levels heading into the North American crossover, with participants initially reacting to the FOMC meeting yesterday, whereby no clear clues were given as to when a Fed rate hike but with the FOMC highlighting that job gains had been 'solid' ., while elsewhere we have seen a spate of German data, with German regional CPIs painting a mixed picture and unemployment change (9K vs. Exp. -5K) coming in marginally higher than expected, with the 9000 unemployed breaking a 9 month run of improvements in employment.

In line with the mixed regional German CPIs, we have seen choppy price action in Bunds, with the German benchmark outperforming its US and UK counterparts following the mixed data with T-Notes lower on the back of the aforementioned Fed statement last night.

USD strength has weighed upon gold, with the yellow metal falling USD 11.00 to break below USD 1185 in early European trade with some attributing the move to a large fund sale after liquidating a position on the back of last night's Fed announcement. WTI and Brent both trade in modest positive territory this morning after seeing strength yesterday on the back of DoE's, with the latest move higher being attributed to reports from WSJ that Saudi Arabia are to lower production from record level.

In summary: European shares remain higher, close to intraday highs, with the oil & gas and tech sectors outperforming and autos, telcos underperforming. Companies including Siemens, Deutsche Bank, Shell, AstraZeneca, Diageo, RBS, BT, ABI, Swiss Re, Sanofi, Infineon, Renault, EDF, Telefonica release  earnings/statements. Spanish 2Q GDP in line with quarterly growth est., Swedish GDP above. Japanese industrial output above estimates. The Dutch and French markets are the best-performing larger bourses, Spanish the worst. The euro is little changed against the dollar. Italian 10yr bond yields fall; French yields decline. Commodities gain, with nickel, zinc underperforming and Brent crude outperforming. U.S. jobless claims, continuing claims, Bloomberg consumer comfort, GDP, personal consumption, core PCE due later.

Market Wrap

  • S&P 500 futures up 0.1% to 2103.2
  • Stoxx 600 up 0.6% to 396.3
  • US 10Yr yield up 2bps to 2.31%
  • German 10Yr yield down 2bps to 0.7%
  • MSCI Asia Pacific unchanged at 140.8
  • Gold spot down 0.9% to $1086.7/oz
  • Eurostoxx 50 +0.5%, FTSE 100 +0.7%, CAC 40 +0.8%, DAX +0.7%, IBEX -0.2%, FTSEMIB +0.6%, SMI +0.6%
  • Asian stocks little changed with the Nikkei outperforming and the Shanghai Composite underperforming; MSCI Asia Pacific up 0% to 140.8
  • Nikkei 225 up 1.1%, Hang Seng down 0.5%, Kospi down 0.9%, Shanghai Composite down 2.2%, ASX up 0.8%, Sensex up 0.5%
  • 7 out of 10 sectors rise with materials, energy outperforming and tech, health care underperforming
  • Euro down 0.09% to $1.0974
  • Dollar Index up 0.28% to 97.25
  • Italian 10Yr yield down 7bps to 1.84%
  • Spanish 10Yr yield down 5bps to 1.9%
  • French 10Yr yield down 3bps to 0.98%
  • S&P GSCI Index up 0.6% to 387.2
  • Brent Futures up 1.5% to $54.2/bbl, WTI Futures up 0.8% to $49.2/bbl
  • LME 3m Copper down 0.8% to $5284/MT
  • LME 3m Nickel down 1.6% to $11075/MT
  • Wheat futures up 0.8% to 500.3 USd/bu

Bulletin headline summary from RanSquawk and Bloomberg:

  • The USD-index has spent the European morning in positive territory as participants react to the FOMC meeting yesterday
  • Today has seen the busiest day of earning season so far in Europe and as such company specific news has dictated market movements
  • Today's US data includes GDP Advanced reading, Core PCE and weekly jobs numbers
  • Treasuries fall for a third day before
    week’s supply concludes with $29b 7Y notes; WI yield 2.055% vs
    2.153% in June.
  • Chinese stocks fell suddenly in the last hour of trading, almost wiping out Wednesday’s rally and leaving investors in the dark about reasons for the moves
  • Trading was almost a reverse image of the previous day, when the Shanghai Composite surged in the last hour to close 3.4% higher
  • Greece’s Prime Minister Tsipras confronted rebels within his own party for not backing him, in a showdown that could put Europe’s most indebted state on course for snap elections
  • Members of German Chancellor Angela Merkel’s coalition are seeking to amend euro-region rules to ensure private investors bear the brunt of an insolvency by a member state of the currency union
  • Euro-area economic confidence hit a four-year high this month; outlook may be bolstered by bailout deal that averted Greece’s exit from euro
  • Saudi Arabia’s recent overtures to other partners suggest the U.S./Saudi relationship is going through another reappraisal because of the landmark accord with regional rival Iran
  • Sovereign 10Y bond yields mixed. Asian stocks mixed; European stocks gain U.S. equity- index futures lower. Crude oil higher, copper and gold lower

US Event Calendar

  • 8:30am: GDP Annualized q/q, 2Q A, est. 2.5% (prior -0.2%)
    • Personal Consumption, 2Q A, est. 2.7% (prior 2.1%)
    • GDP Price Index, 2Q A, est. 1.5% (prior 0%)
    • Core PCE q/q, 2Q A, est. 1.6% (prior 0.8%)
  • 8:30am: New Advance Report on U.S. International Trade in Goods
  • 8:30am: Initial Jobless Claims, July 25, est. 270k (prior 255k)
  • Continuing Claims, July 18, est. 2.205 (prior 2.207m)
  • 9:45am: Bloomberg Consumer Comfort, July 26 (prior 42.4)
  • 1:00pm: U.S. to sell $29b 7Y notes

DB's Jim Reid completes the overnight wrap

If you believed the Fed would raise rates in September before yesterday's FOMC statement then you probably won't have changed your mind. They kept their options open but did add a sentence suggesting that job gains have been "solid" which hinted at their confidence in the economy. However if you're one of the doves then you'll be pleased they removed the phrase “energy prices appear to have stabilized. However if they hadn't it would have been strange given recent moves. The most interesting change from the last statement was the tweak to its forward guidance as it added the word “some” to this sentence - “The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen SOME further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.” Does this mean the bar has been lowered for what they need to see to pull the trigger. It’s still pretty vague and no doubt thousands of analysts around the globe will be spending hours debating the addition of a single word. For us there are still great risks in starting a hiking cycle with the great fragility in the global economy and financial system, however the Fed don't seem to share such a view and it's going to be a close call for September. Much probably depends on the two interim payroll reports and whether commodities stabilise.

There was fairly minimal reaction in the Fed Funds market in the aftermath of the statement, although we’ve seen more material moves overnight. Yesterday the Dec15 contract closed unchanged at 0.310% (where it’s been all week) while the Dec16 contract rose 1bp to 1.010%. This morning however we’ve seen the respective contracts move +1.5bps and +4.0bps higher. With that, Bloomberg is now reporting that the probability of a hike by September based on the futures market is priced at 42% (up from 38% on Tuesday) while the probability of a move by December is currently priced at 74% (up 4% from Tuesday).

The main mover yesterday was the Greenback with the broader Dollar index, although plunging 0.3% in the initial moments following the release, bouncing back half a percent to close +0.21% as the market slowly digested some of the minor tweaks in the language. In truth this was the only notable price mover following the statement. 10y Treasury yields closed 3.6bps higher at 2.286% which was where they were leading into the statement. Risk assets had a firmer day all round although again the bulk of the gains had been realized preFOMC with fairly minimal reaction post the statement. A boost from energy and industrials stocks in particular helped the S&P 500 close +0.73% while the Dow (+0.69%) and NASDAQ (+0.44%) also closed up. In credit CDX IG finished three-quarters of a basis point tighter while the CDX HY spread tightened 9bps. In the commodity space meanwhile Gold closed +0.13% at $1097/oz while WTI (+1.69%) and Brent (+0.15%) rebounded off the day’s lows following the latest US inventory data which showed a surprise fall in crude stockpiles.

As well as the move in Fed Funds contracts this morning, 10y Treasury yields have moved 2.7bps higher in the Asia session this morning while the Dollar index is +0.3%. As we hit the midday break in China meanwhile, the Shanghai Comp (-0.04%), Shenzhen (-0.12%) and CSI 300 (-0.19%) are all a touch lower in another choppy session where bourses have swung between gains and losses (albeit in a small range). Elsewhere bourses are generally mixed. The Nikkei (+1.06%) is leading gains on the back of a stronger than expected industrial production reading (+0.8% mom vs. +0.3% expected) while the ASX (+0.68%) is also firmer. The Hang Seng (-0.07%) and Kospi (-0.90%) are lower in trading this morning though.

Earnings yesterday were generally supportive in the US. Gilead Sciences, General Dynamics and Northrop Grumman in particular were some of the more notable beats to lead the gains, although after the closing bell Facebook tumbled 4% in extended trading after a disappointing quarterly report. With 288 companies in the S&P 500 having now reported, earnings beats are unchanged versus Tuesday at 76% while sales beats have ticked up 1% to 51%. M&A activity is also continuing to be supportive for markets on both sides of the pond at the moment. Bloomberg is reporting that $426bn of deals have been announced so far this quarter which, if it continues at the current rate, is set to pass the record for any third quarter set back in 2007 when $983bn of deals were made.

Yesterday’s data flow in the US came in the form of pending home sales for June which disappointed having slumped 1.8% mom during the month (vs. +0.9% expected), the first drop this year. Over in Europe we saw German consumer confidence print in line at 10.1 although there was a modest tick down in consumer confidence in France, falling to 93 (vs. 94 expected). In the UK June mortgage approvals data was supportive at 66.6k (vs. 66.0k expected) while net consumer credit was a touch ahead of expectations (£1.2bn vs. £1.1bn expected). Equity bourses closed broadly higher in Europe yesterday, with the Stoxx 600 (+1.02%), DAX (+0.34%) and CAC (+0.81%) all rising for the second consecutive session. Sovereign bond yields moved steadily higher meanwhile on the back of the generally more positive tone with 10y Bunds in particular finishing +2.7bps at 0.715%.

One event which will be worth keeping an eye on today is in Greece where the Syriza Central Committee is due to meet for the first time since the actual agreement was reached in what will likely be a tense session. It’s expected that the Central Committee is to decide the timing and logistics of an emergency congress on the back of the high number of lawmakers who didn’t back the agreement with the radical members of the committee likely to push for a congress immediately (and so aim to block the agreement). Tsipras has suggested he would want an emergency congress in September (so as to increase the chances of an agreement in the interim) with the possibility of a general election thereafter.

Taking a look at today’s calendar now, it’s going to be a fairly busy day for data and we start this morning in Germany with the July CPI and unemployment reports. Euro area confidence indicators for July are also expected. With the FOMC out of the way the focus this afternoon now turns to the US Q2 GDP reading and the three years’ worth of revisions which are also due to be released and which may partially address the recent historical pattern of weak growth in Q1. Market expectations are currently set at 2.5% for Q2 which is line with the forecast of DB’s Joe Lavorgna while the Atlanta Fed GDPNow model is forecasting for a 2.4% reading. Elsewhere we’ll also get the Core PCE print as well as initial jobless claims. On the earnings front the highlights include Time Warner, ConcoPhillips and Proctor & Gamble.

Affirmatively Destroying America's Neighborhoods In The War On Suburbia

Submitted by Bob Livingston via,

Few of us understand patient gradualism. We live and have our being within a few years and mostly in an unconscious automated state of mind.

But people in power are long-term planners. They absolutely understand human nature and how to channel it to the evolution and refinement of the authoritarian state.

Authoritarianism is based on long-term planning. Authoritarianism is a philosophy of collectivism. Some call it democracy. Some call it communism. Some call it fascism. Some call it National Socialism. But whatever you call it, it is all collectivism or authoritarianism; and in its ultimate form it is globalism.

The goal is perfect docility and perfect harmony with authoritarianism (economic, social and spiritual). Until the people accept collectivism under some pretext, they are not docile and completely subdued. Once they do, rebellion and confrontation are impossible. This is the ultimate goal of the globalists, and the American system is nearing this state.

As I told you last week in “Why is the war on the Confederacy still going on today?,” the dismantling of the middle class has become the appointed, full-time task of the largest government alphabet soup agencies and Wall Street on behalf of globalism. The purpose behind this is that if those big middle-class producers and consumers can be decimated once and for all, then they can join the ranks of low-wage workers and more readily accept government largess and, thereby, become “hooked” on collectivism.

Collectivism is a certain means of social, economic and religious control. Politicians regularly espouse individualism, human liberty and democracy at the same time. Impossible! Individualism and human liberty are opposite to democracy and any other form of collectivism. The collectivist mentality or the mass collective mind is the spirit of the New World Order.

But something is standing in the way. Despite the years of indoctrination through the public (non)education system and mass programming by the national propaganda media and public (i.e., government) policy, rural Middle and Southern middle-class Americans — the “Red States” of “flyover country” — continue to resist the globalists’ dreams of a socialist/Marxist “utopia” and egalitarianism. That’s because they are, by and large, more independent and more self-reliant and also demand equitable reward for their labor and product, placing them in competition for resources and goods with the global elite.

Efforts to remove this obstacle are behind the current war on the middle class and individual liberty and the spirit of individualism through the attempts to whitewash Southern culture from existence and distort the true nature of the Confederate cause by casting it and Confederate symbols as racist and treasonous. The bigoted elites in the District of Criminals and pointy-headed “thinkers” in the prestigious institutes of learning continually promulgate the meme that whites — rural whites in particular and Southern whites specifically — are backward, racist buffoons riding in trucks looking for blacks to lynch while ridiculously clinging to their guns and religion.

The purpose is to stir up racial animosity and manipulate the people against one another. Manipulating minorities who are naturally drawn to socialism is basic political strategy to cover government crime and justify government politics and plunder.

The principle of government is that political power is maximized by forcibly leveling every individual to the same status of conformity, collectivism, egalitarianism and serfdom.

The truth goes deeper. Because of perceived social, cultural, racial and psychic inferiority, minorities desire to parasite on government force and socialism to subvert those they envy and wish to imitate. (This includes all so-called minority groups, not just racial minorities.)

Last summer, there was an invasion of illegals from Central and South America stemming from the immigration policies and statements of President Barack Obama. Over the ensuing months, the Obama regime shipped those illegals into communities and cities across the country and immediately began efforts to grant them some sort of legal status in order to ultimately provide them with voting rights in a back-door effort to change the local demographics and, therefore, the voting outcomes in these communities from a conservative bent to one more socialistic.

Third World immigrants are attracted to cradle-to-grave nanny state socialism because it is what they know and all they have known. They are also more accepting of gun control and the police state. They have no understanding of or experience with individual liberty or the concept of natural rights.

Gaining voting “rights” for non-citizens is the main driver of the federal opposition to voter ID laws.

The Obama regime attempted but failed with a mass social re-engineering scheme in 2010. That effort, fueled by corruptocrat Sen. Chris Dodd (D-Conn.), sought to fulfill the United Nation’s Agenda 21 plan, adopted at the Earth Summit in Rio de Janeiro in 1992 and signed onto by “New World Order” President George H.W. Bush.

Using a typical government “carrot-and-stick” policy, the bill sought to award or deny grants from the federal treasury to cities based on their compliance with amending or passing zoning laws to restrict housing in rural areas and force the residents into city centers.

The stick, in addition to denial of the funds, would be bad publicity generated by “Green” organizations working on behalf of the federal government criticizing local government officials for turning down free money and neglecting so-called “Green” initiatives.

Now comes Obama’s speciously titled Affirmatively Furthering Fair Housing edicts from the Department of Housing and Urban Development. This extra-constitutional rule change has been in the works for more than two years, but has been largely glossed over by the MSM. It seeks to do the reverse of the Dodd bill. That is, rather than drive the suburbanites into the cities, it seeks to move inner-city minorities into the suburbs.

The AFFH will have the federal government imposing preferred racial and ethnic composition on neighborhoods in exchange for federal funds provided or denied. It will change zoning laws, require a certain amount of government-subsidized housing in rural areas in order to achieve “racial balance,” control transportation and business development and remove the authority of state and local governments in the areas of zoning, transportation and education.

As National Review’s Stanley Kurtz writes:

Fundamentally, AFFH is an attempt to achieve economic integration. Race and ethnicity are being used as proxies for class, since these are the only hooks for social engineering provided by the Fair Housing Act of 1968. Like AFFH itself, today’s Washington Post piece blurs the distinction between race and class, conflating the persistence of “concentrated poverty” with housing discrimination by race. Not being able to afford a freestanding house in a bedroom suburb is no proof of racial discrimination. Erstwhile urbanites have been moving to rustic and spacious suburbs since Cicero built his villa outside Rome. Even in a monoracial and mono-ethnic world, suburbanites would zone to set limits on dense development. Emily Badger’s piece in today’s Washington Post focuses on race, but the real story of AFFH is the attempt to force integration by class, to densify development in American suburbs and cities, and to undo America’s system of local government and replace it with a “regional” alternative that turns suburbs into helpless satellites of large cities. Once HUD gets its hooks into a municipality, no policy area is safe. Zoning, transportation, education, all of it risks slipping into the control of the federal government and the new, unelected regional bodies the feds will empower. Over time, AFFH could spell the end of the local democracy that Alexis de Tocqueville rightly saw as the foundation of America’s liberty and distinctiveness.

To accomplish its goals, HUD will dig into the racial balance ZIP code by ZIP code looking for areas of segregation, with the segregation threshold being nonwhite populations of 50 percent or more. Federally funded cities deemed overly segregated will be pressured to change their zoning laws to allow construction of more subsidized housing in affluent areas in the suburbs and relocate inner-city minorities to those predominantly white areas. HUD’s maps, which use dots to show the racial distribution or density in residential areas, will be used to select affordable-housing sites, according to the New York Post.

To employ this policy, the federal government has undertaken a massive Orwellian-style data collection initiative, prying into the medical records, credit card purchases, mortgage business records, IRS filings, employment records, educational records and local government policy initiatives searching for racial “inequalities” for the Justice Department to prosecute.

The only way to resist this tyranny is for local governments to eschew all federal monies including Community Development Block Grants going forward. Of course, local residents always pressure their community leaders to accept government monies under the auspices that they have paid their “taxes” and want a return on their “investment.” But once the Feds get their hooks into the local community through the distribution of money from the federal treasury, they can exert total control over local government’s functions regarding housing, zoning and regulations far more than they do already.

The globalist agenda is the most comprehensive program for world fascism and world collectivism ever conceived. Its basis is esoteric deception, as carried out pragmatically by mass politics, international mass banking and the mass media. It operates as a whole — as an organism. Today’s democratic globalists make the communists and the Nazis look like amateur totalitarians.

Hackers Claim John McCain Knew ISIS Execution Videos Were Staged

In a rather stunning note, CyberBerkut, a Ukrainian group of hackers, claims to have hacked John McCain’s laptop while he was in the Ukraine, and as Techworm reports, what they have released from his June visit appears to be a fully staged production of an ISIS execution video...


As Techworm reports, according to the hackers, they broke into the laptop of one of the American politicians, Senator McCain and after found a video with staged IS execution, which they decided to show to the world community.

It so happened that Senator John McCain had visited Ukraine on a official visit somewhere in the first week of June 2015. The hacktivists belonging to CyberBerkut somehow managed to access his laptop.

Here is what CyberBerkut said to John McCain...

“We CyberBerkut received at the disposal of the file whose value can not be overstated!


Dear Senator McCain! We recommend you next time in foreign travel, and especially on the territory of Ukraine, not to take confidential documents. In one of the devices of your colleagues, we found a lot of interesting things. Something we decided to put: this video should become the property of the international community!

According to the hackers, they broke into the laptop of one of the American politicians, Senator McCain and after found a video with staged IS execution, which they decided to show to the world community.

The video they released is below..

From the video it can be seen that the entire set including the hostage is stage managed.  An actor dressed as an executioner of IS is holding a knife to behead the prisoner, and the “victim” depicts to be suffering.

It may be recalled that IS have been repeatedly publishing the videos of the executions of hostages and if this video is true, the victims may in fact be alive.

The authenticity of this video has not been independently verified.

*  *  * has attempted to debunk the hacker's claims...

The video shows a very brightly lit stage with simulated desert floor and a greenish backdrop. A film crew and multiple lights surround the stage, but they are strongly backlit. The video has no audio, and is very low resolution so no details can be made out. The kneeling man wears a head cover, to suggest that the head could be replaced by a computer generated image, or separately recorded video.


The video appears to be an attempt to replicate one of the "Jihadi John" beheading videos of 2014. In particular it appears to be an attempt to replicate the video of James Foley. None of those videos show actual beheadings, and instead show Jihadi John sawing at the neck with no apparent blood, and then they cut to a shot of a decapitated head posed on top of a body. This led to speculation that the videos were faked.


However we can tell it is not a video of the faking of any of the Jihadi John videos for a number of reasons.


*  *  *

While it is easy to point the finger at the pro-Russian hacker collective (and consider their motives in damaging US - especially McCain - influence) and deny the video's truth, one can't help but wonder - given just how well produced the final videos were in many cases, just who is behind the scenes of the widely known to be funded by US sources ISIS... just another conspiracy theory?

Chinese Stocks Open Lower As Margin Debt Tumbles To 4-Month Lows, Regulators Probe Officials' Sales

Following last night's afternoon session melt-up at the hands of a $100bn injection into China's sovereign rescue fund, Chinese stocks opened higher but faded fast, with no follow-through from yesterday's farce. With Warren Buffett's favorite indicator flashing red for China (and US) stocks, and so many rural Chinese citizens "just hoping to get out at breakeven," any assistance in levitating the nation's stocks are simply being sold into as margined traders unwind their positions. One such leveraged 'citizen' is none other than State-Owned-Enterprise GM Yang Shengjun, whose firm was ironically among the most vocal in blaming the crash on "malicious foreign sellers trying tio start an economic war" and is now under investigation for dumping his own shares... do as I say Chinese people, not as I do.

A reminder of last night's farce...

The good news...


So at least - whether through forced liquidation or common sense - the leverage is being unwound.

*  *  *

And tonight, for now...

  • *CHINA'S CSI 300 INDEX SET TO OPEN DOWN 0.4% TO 3,915.78

with no follow-through from yesterday's excitment...


But, as Forbes notes, Chinese stocks are as bubblicious as US stocks (or vice versa) according to Warren Buffett's favorite indicator of equity market valuation...


And do not forget the most important chart in China right now.... just as in The US - must keep stocks above 200DMA at all costs...

There was at least one malicious seller... (as WSJ reports)

A listed arm of China’s state-owned aerospace and defense company and its two largest shareholders are under investigation for potential violation of stock-selling rules, according to the securities regulator.

AVIC Heibao Co., a manufacturing subsidiary of Aviation Industry Corp. of China, known as AVIC, said Wednesday that shareholders Jincheng Group and AVIC Investment Holdings had received notice of the investigation from the China Securities Regulatory Commission. The regulator didn’t disclose further details of the investigation.

In addition, AVIC Capital Co., AVIC Heibao’s trading arm, dismissed General Manager Yang Shengjun on Wednesday, after AVIC Capital told the Shanghai Stock Exchange that AVIC Heibao is being probed by the regulator for selling shares on Tuesday.

The massive irony is...

The investigation comes after AVIC Chairman Lin Zuoming this month criticized foreign short sellers for deliberately instigating “an economic war against China” and pledged to prop up the market by buying shares. Short sellers bet that a stock’s price will fall. AVIC couldn’t immediately be reached for comment.


AVIC Heibao said on June 30 that its top shareholder, Jincheng Group, had sold 3.39 million shares in the company for 78.8 million yuan ($12.7 million), while AVIC Investment Holdings, its second-largest shareholder, had shed all of its 16.8 million shares for 431.4 million yuan from June 5 to June 29. The two shareholders dumped a combined 5.86% of the company’s total issued shares.

Do as your leaders say Chinese people... not as they do.

And amid all this carnage... USDCNY has been deadstick...

Charts: Bloomberg

If Spending Is Our Military Strategy, Our Strategy Is Bankrupt

Submitted by Mark Mateski via The Mises Institute,

Even today, few deny the long arm of US military might. After all, the US military exhausted the Soviet Union, crushed Saddam Hussein, and drove Osama bin Laden’s al Qaeda into hiding.

To what should we attribute these triumphs? Some would say US planning and foresight. Others would mention the hard work and dedication of US soldiers, sailors, and airmen. Still others would point to the application of superior technology. All would be correct to some degree, but each of these explanations disregards the fact that for more than a lifetime, the United States has wildly outspent its military competitors.

For many years, the United States spent more on defense than the next ten big spenders combined. It turns out that’s no longer true, according to Jane’s and PPGF. But whether the current count is seven or nine, we must acknowledge that US dominance was purchased at a high cost.

The High Cost of Big Debts

The first cost is the accumulation of debt. While many will admit to the numbers, few will publicly concede the long-term threat they pose to national and international security. Among the few, Admiral Mike Mullen, former chairman of the Joint Chiefs of Staff, has for several years consistently declared that “The single biggest threat to national security is the national debt.” While US defense spending is currently declining, these charts illustrate that the US share of global defense spending has remained strong (1) regardless of the irregular ups and downs of external events and (2) largely independent of the debt burden.

The second cost is the accumulation of commitments and expectations. Despite the drawdown of troops from Iraq and Afghanistan, senior US policy makers remain staunchly determined to maintain a high level of global engagement. If you doubt it, read the recently published 2015 U.S. National Military Strategy. Among other things, it underscores the US commitment to countering agents of instability, whether “violent extremist organizations (VEOs)” or nation states, the standout examples being Russia and China. Not surprisingly, the strategy has prompted headlines such as “China Angered by New U.S. Military Strategy Report,” “Pentagon Concludes America Not Safe Unless It Conquers the World,” and “Pentagon’s New Military Strategy Calls for Preserving US Dominion of the World.”

Yes, these criticisms arrive from predictable quarters, but in this case the perception is reality, and the reality is that US policy makers continue to pursue a strategy laden with unavoidably expensive commitments — commitments guaranteed to antagonize Russia and China. (All of which stimulates a risky reinforcing feedback loop.) As Patrick Tucker at Defense One quipped, “The United States is preparing for never-ending war abroad.” Despite this, don’t expect to find any references in the published strategy to “debt,” an oversight that ignores Mullen’s warning and validates David Stockman’s statement that “We’re blind to the debt bubble.”

Our Military “Strategy” Amounts to Little More than Big Spending Plans

The third cost — one we rarely discuss — is the dangerous yet unspoken conceit held by a generation of senior US officers and policy makers: the belief that they are innately superior strategists. Just ask the Soviet Union, Saddam Hussein, and Osama bin Laden! But what if in reality spending was the primary driver and arbiter of these outcomes?

It is suggestive that in cases where the sheer weight of US firepower proved unable to secure a decisive victory (Korea and Vietnam are canonical examples), the United States’s cash-poor but tactically savvy opponents still managed to frustrate and confound front-line US forces. As H. John Poole, a retired Marine colonel, combat veteran, and prolific author, has remarked:

For America’s wartime units, firepower has been and still is the name of the game. This game has some less-than-ideal ramifications. Since WWI, far too many units have not matched up well — tactically — with their Eastern counterparts. As unlikely as this may seem to today’s active-duty community, it is nevertheless well documented. (Global Warrior, 2011, p. xxii)

On this count, “cyberwar” is a prime illustration of another domain in which spending doesn’t guarantee proportional dominance. The recent OPM hack is a painful example, and if practitioners like Richard Stiennon (There Will Be Cyberwar) are correct, more is coming.

As a rule, US policy makers minimize these counterexamples. Commentators like John Poole who point out weaknesses and alternatives tend to be written off by Washington apparatchiks as well-meaning but misguided zealots. And to be fair, from the mainstream perspective Washington’s argument in support of the status quo is actually quite strong — as long as the money continues to flow. For those who discern the uncomfortable truth that the US debt addiction is unsustainable, the picture looks very different. Alternatives to spending-as-strategy exist, but they require policy makers and strategists to rethink their dearly held assumptions of economic and strategic superiority. It requires a unique mind and stout internal mettle to do this, and so far this decade, we have seen little evidence in Washington of this type of insight and character. Let’s hope that the anticipation of crises yet-to-be pushes hitherto overlooked reformers to the front of the national security debate.

I’ll close by restating the problem via analogy: US global superiority in military affairs is actually the superiority of a rich kid who thinks he’s really smart but in reality is merely just rich. When the seemingly endless flow of money slows (as it inevitably will), the mask of cleverness will fall. Everyone who resented the kid will be waiting at the edge of the playground for this day of reckoning, and because no one else will have been so dependent on spending-as-strategy, the erstwhile rich kid will find it tough going.

In Latest Market-Rigging Scandal, ITG Busted For Frontrunning Clients In Its Dark Pool

Last year, first in the aftermath of NYAG's lawsuit against Barclays followed promptly by Michael Lewis' "Flash Boys" (which over a year later is still a better seller than "GS Elevator's" attempt to be this generation's Tucker Max) exposing High Frequency Trading for being nothing more than a sophisticated gimmick enabling market rigging and bulk order frontrunning while pretending to "provide liquidity", the revulsion against HFTs hit a fever pitch that forced Virtu to postpone its IPO.

Several months later, because the market kept going higher, people quickly forgot why they were angry at a bunch of vacuum tubes, and Virtu not only re-IPOed (adding another year without a single trading day loss to its roster) but it was taken public by that "humanitarian" protagonist of Flash Boys, Goldman Sachs itself (which was so aghast at the scourge that is HFT it almost, almost, ended its own dark pool and HFT ambitions... before it decided to double down on HFT).

However, since the market is once again on the verge of a terminal liquidity seizure with its associated side-effects (see China for details), the authorities needed to remind the "market" just who the scapegoat will be when the next crash finally does come. Which is why earlier today in an unexpected "preliminary second quarter guidance" release, ITG, owner of the Posit dark pool, was just busted with a $22.6 million potential SEC settlement for what appears to have been blatant frontrunning of company clients in its own prop trading pod.

From the release:

During the second quarter of 2015, ITG commenced settlement discussions with the Staff of the Division of Enforcement of the SEC (the “SEC Enforcement Division”) in connection with the SEC’s investigation into a proprietary trading pilot operated within ITG’s AlterNet Securities, Inc. (“AlterNet”) subsidiary for sixteen months in 2010 through mid-2011. The investigation is focused on customer disclosures, Form ATS regulatory filings and customer information controls relating to the pilot’s trading activity, which included (a) crossing against sell-side clients in POSIT and (b) violations of ITG policy and procedures by a former employee. These violations principally involved information breaches for a period of several months in 2010 regarding sell-side parent orders flowing into ITG’s algorithms and executions by all customers in non-POSIT markets that were not otherwise available to ITG clients.

This would not be the first time a dark pool was busted for admitting it abused fragmented markets to frontrun clients. As Bloomberg reminds us, last year, the agency fined Liquidnet Holdings Inc. $2 million for not living up to client secrecy standards. In 2011, Pipeline Trading Systems LLC agreed to pay $1 million, in part because it had a proprietary trading unit that was secretly trading against client orders. Then there was of course NY AG Schneiderman's lawsuit against Barclays alleging the UK bank which has been busted for manipulating pretty much everything under the sun at least once falsely claimed that it closely monitored and shut off certain types of traders.

Still, the $22 million proposed settlement would be a record for a private Wall Street trading platform, surpassing the $14.4 million that UBS Group AG agreed to pay in January. More importantly, as Bloomberg also observes, the latest lawsuit "shows the steps authorities are taking against alternative trading systems such as dark pools."

In other words, everyone now knows HFTs are fair game for rigging and manipulation, and with the banks having already been bled dry by over a quarter trillion in litigation charges, it is now the HFTs' turn to pay their kickbacks to the government for allowing them to frontrun sheep for 7 years since the advent of Reg NMS.

What is particularly amusing in this case is that while everyone knows that when it comes to HFT's, it is never called "rigging" - the proper nomenclature is "glitch", so now we learn a new term to use instead of "criminal frontrunning" - drumroll... trading experiment, or as it is known in legal parlance "proprietary trading pilot."

From Bloomberg:

ITG disclosed the discussions and potential fine in a statement Wednesday, saying the situation concerned an experimental market-making unit that a subsidiary ran in 2010 and 2011. The division traded using information not available to other customers of ITG’s private stock-trading system, which is against Securities and Exchange Commission rules.


ITG Chief Executive Officer Bob Gasser said the firm shut the trading experiment and hasn’t run a similar one since.

So let's get this straight: ITG had an in house prop trading group, or "pilot", which operated for nearly two years, whose only signal was client order flow, which it would frontrun, and make millions in profits. In other words, once again precisely what we have claimed since 2009. But oh yes, not everyone is guilty of such manipulation. Only Liquidnet... and Pipeline... and ITG... and countless other ATS and HFT firms for whom clients are better known as either "easy money" or muppets.

And yes, we get the "trading experiment" narrative: calling it "criminal market manipulation and order frontrunning scheme" just does not sound like something the Modern Markets Initiative would spend millions of dollars to get Congressmen to agree on.

But where the ITG client frontrunning case goes truly surreal and takes the cake, is that in addition to the fine, it also announced that one of its directors, Kevin O'Hara resigned effective immediately. This is what he said:

Dear Maureen:

This letter serves to inform you that, effective immediately, I resign from the Board of Directors (“Board”) of Investment Technology Group, Inc. (“ITG”), and the attendant Board committees of which I am a member: Compensation, Technology, and Capital.


It has been my pleasure and an honor to serve the shareholders, clients, and employees of ITG, and to work alongside fellow directors over the last number of years. And, those years have witnessed ITG weather the slings and arrows of existential challenges: the 2008-09 financial crisis (and, subsequent, “Great Recession”), industry hyper-competition, and a highly dynamic regulatory environment.


However, as you know, over the last several months, continuous fundamental, strategic and vital differences of opinion and direction have transpired at the Board level and, in particular, between me and the Board’s leadership. Although I believe in the importance of the governance concept of “loyal opposition,” alas, to everything there is a season. I do hope that my service in such role has, at the very least, furthered and continues to further the breadth of substantive deliberation and the process of decision-making by the Board.


I wish the very best for ITG and its employees.


Best Regards,


Kevin J.P. O'Hara

So some board member quit the day his company was busted by the SEC for more market rigging and frontrunning its clients. Is that the punchline?

No. This is:

Mr. O’Hara worked in the Division of Enforcement of the U.S. Securities and Exchange Commission and as Special Assistant United States Attorney at the U.S. Department of Justice


And now proceed to laugh, or cry.

4 Mainstream Media Articles Mocking Gold That Should Make You Think

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

For those of you who have been reading my stuff since all the way back to my Wall Street years at Sanford Bernstein, thanks for staying along for the ride. I appreciate your support immensely considering that I essentially no longer write about financial markets at all, and for many of you, that remains your profession and primary area of interest.

There are many reasons why I stopped commenting on markets, but the main reason is that I started to recognize I wasn’t getting it right. In fact, in some cases I was getting it spectacularly wrong. Whenever this happens, I try to isolate the problem and fix it. In this case there was no fix, because much of why I was no longer getting it right was rooted in the fact that my heart, soul and passion had moved onto other things. My interests had expanded, and I started a blog to express myself on myriad other matters I deemed important. Providing relevant market information needs intense focus, and my focus had shifted elsewhere. I recognized that I wasn’t intellectually interested enough in centrally planned markets to provide insightful analysis, and so I stopped.

This doesn’t mean I won’t start up again. When central planners do lose control, I may indeed become far more interested in opining on such matters. Time will tell. In the interim, financial markets do still play an important role in the bigger picture of social, political and economic trends I passionately care about. The stability and increase in financial assets (stocks and bonds) is of huge importance to the propaganda machine, in particular keeping the non-oligarchic, non-politically connected 1% in line and believing the hype (see: The Stock Market: Food Stamps for the 1%).

So while I won’t claim to know when the paradigm shift will begin in earnest, I do rely on people who have gotten macro forecasts right, and there is no one better than Martin Armstrong. Years ago, he was saying that nothing goes up in a straight line and that gold would experience a severe correction before beginning its real bull market. We are seeing his prediction unfold before our very eyes. What he also said is that as gold approached the $1,000 per/oz mark or even below, everyone would proclaim that “gold is dead” and start making comically bearish statements. In a nutshell, negative sentiment would plunge to levels not seen in years, if not more than a decade. We are starting to see this now.

Here are four mainstream media articles that provide some evidence we may be approaching a sentiment low. Some of them I’m sure you’ve seen, others perhaps not. What amazes me is how they’ve all come out within the last two weeks.

1) From the Wall Street Journal: Let’s Be Honest About Gold: It’s a Pet Rock 

Here are a few choice excerpts:

Gold is supposed to be a haven amid hard times and soft money. So why, even as Greece has defaulted, the euro has sunk against the dollar, and the Chinese stock market has stumbled, has gold been sitting there like a pet rock?


Many people may have bought gold for the wrong reasons: because of its glittering 18.7% average annual return between 2002 and 2011, because of its purportedly magical inflation-fighting properties, because it is supposed to shine in the darkest of days. But gold’s long-term returns are muted, it isn’t a panacea for inflation, and it does well in response to unexpected crises—but not long-simmering troubles like the Greek situation. And you will put lightning in a bottle before you figure out what gold is really worth.


With greenhorns in gold starting to figure all this out, the price has gotten tarnished. It is time to call owning gold what it is: an act of faith. As the Epistle to the Hebrews defined it forevermore, “Faith is the substance of things hoped for, the evidence of things not seen.” Own gold if you feel you must, but admit honestly that you are relying on hope and imagination.


Recognize, too, that gold bugs—the people who believe in owning the yellow metal no matter what—often resemble the subjects of a laboratory experiment on the psychology of cognitive dissonance.


So, if buying gold is an act of faith, how much money should you put on the line?


Anything much above that is more than an act of faith; it is a leap in the dark. Not even gold’s glitter can change that.

Think about some of the words and phrases used in this WSJ article:

“Pet rock.”


“Greenhorns in gold (greenhorn means a person who lacks experience and knowledge).


“It is time to call owning gold what it is: an act of faith.”


“Gold bugs often resemble the subjects of a laboratory experiment on the psychology of cognitive dissonance (this is actually true in many ways).”

Condescending as the entire article is to gold owners, he even goes so far to quote the Hebrew Bible!

Moving on.

2) From the Washington PostGold is Doomed

When you think about it, a bet on gold is really a bet that the people in charge don’t know what they’re doing. Policymakers missed yesterday’s financial crisis, so maybe they’re missing tomorrow’s inflation, too. That, at least, is what a cavalcade of charlatans, cranks, and armchair economists have been shouting for years now, from the penny ads that run on the bottom of websites — did you know that the $5 bill proves the stock market is on the cusp of crashing? — to Glenn Beck infomercials and even hedge fund conferences. Indeed, John Paulson, who made more fortunes than you can count betting against subprime, has been piling into gold for six years now, because he thinks “the consequences of printing money over time will be inflation.” They all do. Goldbugs act like the Federal Reserve’s public balance sheet is a secret only they have discovered, and that it’s only a matter of time until prices explode like they did in the 1970s United States, if not 1920s Germany.


But economists do, for the most part, know what they’re doing. Sure, they missed the crash coming in 2008, but that wasn’t because they didn’t understand how bank runs work. It was because they didn’t understand that unregulated lenders had become vulnerable to runs. And the economists who haven’t forgotten their history knew that this inflation fear mongering was all wrong too. Specifically, there’s a difference between the central bank buying bonds, a.k.a. printing money, when interest rates are zero and when they’re not. In the first case, money and short-term bonds both pay the same amount of interest — none — so, as Paul Krugman has explained over and over again, printing one to buy the other won’t change anything. Banks won’t lend out any new money, and will just sit on it as a store of value instead. That’s what happened when interest rates fell to zero in 2000s Japan, and it’s what is happening now in the U.S., U.K., Japan, and Europe.


It almost makes you feel bad for the goldbugs, until you remember that some substantial number of them are just trying to scare seniors out of their money. But the ones who aren’t really thought the 1970s showed that gold went up when inflation did, so the fact that gold was going up now meant inflation couldn’t be far behind. They didn’t understand that the price of gold doesn’t depend on how much inflation there is, but rather on how much inflation there is relative to interest rates. So now that rates are rising, gold, as you can see below, is falling. Wait a minute, rates are rising? Well, yes. The Federal Reserve hasn’t actually raised rates yet, but it has talked about it enough that markets have reacted as if it already did. That’s been enough to make real rates positive again.

While I agree that many gold bugs do deserve the criticism they get, it’s interesting to see the way in which the Washington Post demonizes them as:

“Just trying to scare seniors out of their money.” 

But the purpose of the above article is less about demonizing gold bugs, and more about praising the existing system of crank central planners that no one other than starry eyed pundits and thieving oligarchs actually support (see: Revolution is Coming” – The Top 20 Responses to Jon Hilsenrath’s Idiotic WSJ Article).

Here are some examples:

But economists do, for the most part, know what they’re doing.


Paul Krugman has explained over and over again, printing one to buy the other won’t change anything. 

This story is far from over, as the Fed has yet to raise interest rates. Talk to me about victory when rates normalize.

Moving along to the next article:

3) From BloombergGold Is Only Going to Get Worse

The problem for gold isn’t just that prices are dropping. For many, the metal also has lost its charisma.


Prices will drop to $984 an ounce before January, according to the average estimate in a Bloomberg News survey of 16 analysts and traders. That would be the lowest since 2009 and a 10 percent retreat from Tuesday’s settlement. Speculators are shorting the metal for the first time since U.S. government data began in 2006, and holders of exchange-traded products are selling at the fastest pace in two years.


“Gold is out of fashion like flared trousers: no one wants it,” said Robin Bhar, an analyst at Societe Generale SA in London. “It’s not going to collapse, but we think it is going to be at a lower level in the not-too-distant future.”


“Gold is a weird relic of antiquity,” said Brian Barish, who helps oversee about $12.5 billion at Denver-based Cambiar Investors LLC. “It’s not a commodity that has much fundamental demand. It’s pretty, so people use it for jewelry. But it’s unlike iron ore or oil, or copper, or corn. There’s not specific end-use for it. People just like it, so it becomes a discussion about fervor.”

Let’s once again highlight some of the terminology used.

The metal also has lost its charisma

So now it’s magically turned into a human being as opposed to a pet rock.

Speculators are shorting the metal for the first time since U.S. government data began in 2006


“Gold is out of fashion like flared trousers: no one wants it.


“Gold is a weird relic of antiquity.”

Finally, for the last article. This one takes on more of the tone from the WSJ article, basically just calling gold buyers imbeciles.

4) From Market WatchTwo Reasons Why Gold May Plunge to $350 an Ounce.

CHAPEL HILL, N.C. (MarketWatch) — Gold bugs, who have just begun to digest bullion’s more than $100 drop over the past month, need to prepare for the possibility of an even bigger decline.

That, at least, is the forecast of Claude Erb, a former commodities manager at fund manager TCW Group, and co-author (with Campbell Harvey, a Duke University finance professor) of a mid-2012 study that forecast a plunging gold price. They deserve to be listened to, therefore, since — unlike many latter-day converts to the bearish thesis — they forecast a long-term gold bear market when it was only just beginning.


You might think that, with gold now trading more than $500 lower than when the study was released, Erb would declare victory and leave well enough alone. But Erb is doing nothing of the sort. Earlier this week, he told me that the gold community now needs to consider the distinct possibility that gold will trade for as low as $350 an ounce.


Erb uses the five well-know stages of grief to characterize where the gold market currently stands. Those stages are denial, anger, bargaining, depression and acceptance, and he argues that the gold-bug community currently is in the “bargaining” stage.


Erb imagines them saying the functional equivalent of: “So long as gold stays above $1,000 an ounce, I’ll go to church every Sunday.”


Over shorter terms measured in years, according to their research, you must take seriously the possibility that gold won’t just drop below $1,000 an ounce but, eventually, to a far, far lower price as well.

Some choice quotes to think about:

The gold community now needs to consider the distinct possibility that gold will trade for as low as $350 an ounce.


Erb uses the five well-know stages of grief to characterize where the gold market currently stands.


“So long as gold stays above $1,000 an ounce, I’ll go to church every Sunday.”

This is pretty much peak condescension, and once again, notice the religious imagery.

Gold won’t just drop below $1,000 an ounce but, eventually, to a far, far lower price as well.

I didn’t write this article to “call the bottom in gold” or anything like that. I merely want to flag these four articles due to the hyperbolic nature of some of the statements made (they are exhibiting pretty much exactly the same behavior as the gold bugs they mock do). I do think that something is happening on the sentiment front that warrants we are closer to the bottom that the mid-stages of a bear market.

While I certainly accept that gold prices could fall further from here, I don’t think they will go anywhere near $350/oz, or $500/oz. If Claude Erb cares to make a public bet with me on that, he can find me here.

Presenting Jeremy Grantham's "10 Topics To Ruin Your Summer"

When last we checked in with Jeremy Grantham, the GMO co-founder was still bubble watching, reiterating his outlook from November that although stocks can always go higher in the "strange, manipulated world" that we call the "new paranormal", "bubble territory" probably isn’t far off given that the Yellen Fed is "bound and determined" to facilitate the inexorable rise of asset prices. 

More specifically, bubble territory for Grantham is around S&P 2250, and because "the Greenspan/ Bernanke/Yellen .. Fed historically did not stop its asset price pushing until fully- fledged bubbles had occurred, as they did in U.S. growth stocks in 2000 and in U.S. housing in 2006," there’s no good reason to think we won’t reach a bubble-defining two sigma event before all is said and done, even if that means launching QE4 in the event liftoff's first 25bps baby steps result in a 1937 redux.

Grantham also bemoaned the lack of capex spending and the myopia exhibited by corporate management teams, noting the "current extreme reluctance to make new investments in plant and equipment (how old-fashioned that sounds these days) rather than [plowing money] into stock buybacks, which may be good for corporate officers and stockholders, but bad for GDP growth and employment."

In GMO’s latest quarterly missive, Grantham is back with another dose of inconvenient truthiness, this time in the form of "ten quick topics to ruin your summer."

In short, this is a list of what Grantham - who points out how fortunate he is to "have an ideal job [with] no routine day-to-day responsibilities [which leaves him] free to obsess about anything that seems both relevant and interesting" - thinks you should worry about going forward:

  1. A new era of lower trend GDP growth
  2. Resource scarcity
  3. Oil
  4. The environment
  5. Food shortages
  6. Income inequality
  7. The death of “majoritarian electoral democracy” 
  8. The Fed
  9. Asset bubbles
  10. The limits of humankind 

Here are some excerpts from Grantham’s thoughts on each topic:

*  *  * 

From GMO

1. Pressure on GDP growth in the U.S. and the balance of the developed world: count on 1.5% U.S. growth, not the old 3% 

  • Factors potentially slowing long-term growth:
  • Slowing growth rate of the working population
  • Aging of the working population
  • Resource constraints, especially the lack of cheap $20/barrel oil
  • Rising income inequality
  • Disappointing and sub-average capital spending, notably in the U.S.
  • Loss of low-hanging fruit: Facebook is not the new steam engine
  • Steadily increasing climate difficulties

Partially dysfunctional government, particularly in economic matters that fail to maximize growth opportunities, especially in the E.U. and the U.S.

Mainstream economists, with their emphasis on highly theoretical models, have been perplexed by the recent chain of disappointments in productivity and GDP growth and would disregard all or most of these factors as theoretically unsatisfactory. 

2. The age of plentiful, cheap resources is gone forever

After every historical major rally in commodity prices, there has been the predictable reaction whereby capacity is increased. Given the uncertainties of guessing other firms’ expansion plans, the usual result is a period of excess capacity and weaker prices as everyone expands simultaneously. 

In agriculture, we also had a global sell-off following three consecutive years in which extremely hostile grain-growing weather had driven prices to panic levels of triple and quadruple their previous lows. 

All in all I am still very confident, unfortunately, that the old regime of irregularly falling commodity prices is gone forever.

3. Oil

Among commodities, oil has been king and still is. For a while longer. Oil has driven our civilization to where it is today. It created the surplus in our economic system that allowed for scientific research and rapid growth. Now, as we are running out of oil that is cheap to recover, the economic system is becoming stressed and growth is slowing.

4. Climate Problems

Both the actual climate and the associated politics seem to be changing more rapidly these days, with the seriousness of the situation becoming better appreciated. Visible changes in the climate have also been accelerating, with many more records than normal of droughts, floods, and, most particularly, heat. Last year was the hottest year ever recorded, and this year, helped by an El Nin?o, has gotten off to a dreadful start. January was the second hottest January ever. February and March were outright records. April was in third place, but both May and June were back in first place. This consistency with volatile climate is unusual and ominous. If kept up, 2015 will be the hottest by a lot.

5. Global food shortages

The world’s population continues to grow, and the increasing middle class of the emerging countries, especially China, is rapidly increasing its meat consumption. Both trends put steady pressure on our grain and soy producing capabilities at a time when productivity gains have been irregularly slowing for several decades and show every sign of continuing to slow.7 Both overland and underground water supplies are stressed. Weather for farming becomes increasingly destabilized with increased droughts and radically increased flooding events. Flooding particularly increases soil erosion, which still continues at 1% a year, close to 100 times natural replacement rates. Insects and weeds are apparently becoming resistant to chemicals faster than chemists can respond. 

6. Income inequality

Over the last few years, we have been presented with data showing that the U.S. is the most unequal society (or one of the two or three worst) in both income and wealth in the developed world. It is also one of the less economically mobile ones, especially for mobility out of the poorest quintile. Neither situation applied or even nearly applied 40 years ago.

7. Trying to understand deficiencies in democracy and capitalism


"The central point that emerges from our research is that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while mass-based interest groups and average citizens have little or no independent influence." This is the killer conclusion of a paper last fall by Gilens and Page.11 Based on the study of almost 1,800 policy issues for which income breakdowns were available, and defining the “Elite” generously as those above the 90th percentile, it finds that “majoritarian electoral democracy” is largely a thing of the past. 

Capitalism: a failure to be inclusive (and feathering the corporate officers’ nests)

I have previously gone on at length about the critical, perhaps even deadly, deficiency in capitalism in dealing with long-term issues of the commons – damages to our common air, water, and soil. I would now like to take a swipe at capitalism’s increasing failure to be inclusive. Capitalism has steadily dropped its baggage of stakeholders, with the exception of senior corporate officers in first place and stockholders in second. Interest in local communities, cities, states, and countries of origin has been largely put aside as has the previous jewel in the crown of responsibilities to workers, the defined benefit pension fund. At a time of provable abnormally high corporate profits as a percent of GDP, corporations have argued that defined benefit pensions are not affordable. That they are dropping them should come as no surprise, for defined contribution plans (in general less attractive to employees than defined benefit plans) are much cheaper and easier on accounting predictability. What is surprising is why they adopted defined benefit plans in the first place, when they did not have to. And why did they have, in the 1935 to 1985 window, a sense of a social contract, suggesting that other things mattered besides maximizing short-term profits? Good ethics but bad capitalism? Actually, my colleague, James Montier, argues that a single-minded emphasis on relatively short-term share value maximization is a bad business idea; and I agree. Loyalty from workers, community, and country and an image as a company with worthwhile values is very probably a better business proposition. A longer-term focus certainly is. The best strategy, as Montier argues, is probably to concentrate on the highest possible customer satisfaction at a reasonable profit.

8. Deficiencies in the Fed

A counter-productive job description, badly executed. 

9. Investment bubbles in a world that is, this time, interestingly different

Two significant items seem to be different this time. First, profit margins in the U.S. seem to have stopped mean reverting in the old, normal way, and second, some real estate markets have bubbled up and then stayed there at high prices. Both seem surprising events, even against what I would call “the laws of nature,” or at least the usual laws of capitalism. What is going on? 

10. Limitations of homo sapiens 

After reading all of this you may think that I am particularly pessimistic. It is not true: It is all of you who are optimistic! Not only does our species have a strong predisposition to be optimistic (or bullish) – it is probably a useful survival characteristic – but we are particularly good at listening to agreeable data and avoiding unpleasant data that does not jibe with our beliefs or philosophies. Facts, whether backed by 97% of scientists as is the case with man-made climate change, or 99.9% as is the case with evolution, do not count for nearly as much as we used to believe.

For that matter, we do a terrible job of planning for the long term, particularly in postponing gratification, and we are wickedly bad at dealing with the implications of compound math. All of this makes it easy for us to forget about the previously painful market busts; facilitates our pushing stocks and markets on occasion to levels that make no mathematical sense; and allows us, regrettably, to ignore the logic of finite resources and a deteriorating climate until the consequences are pushed up our short-term noses. 

Full letter (PDF)

Hillary Saves Capitalism!

Submitted by Bill Bonner via Bonner & Partners,

The Fed’s EZ money is creating hard times. It led to overconsumption… then overproduction… and now to a big bust.

Just what you’d expect.

And what you’d expect next is more crashing, sliding, and busting up in the world’s markets… followed by more EZ money.

Eventually, it will explode into consumer price inflation. But that could still be far in the future.

*  *  *

We keep our political coverage balanced at the Diary. On the Republican’s side, there is an unusually rich assortment of fools and knaves. And on the Democrat’s side, there is Ms. Clinton.

We don’t know what we would do without her.

How would we know, for example, how long we should hold an investment without her to tell us?

She seems to believe that today’s average holding period is too short. It causes an obsession with short-term results that she calls “quarterly capitalism.”

CNBC reports:


How will “working to end short-termism” help working families?

How many months of holding an investment is acceptable to the Democratic Party’s front-runner?

A Crony Unmasked

Why would anyone even think that Ms. Clinton – who has never held an honest job in the private sector – could possibly have any idea about how to save capitalism… or how long an investment should be held?

These questions leave us panting, sweating… and in need of a drink.

All Ms. Clinton knows about capitalism is what the cronies tell her when they are slipping her cash. Wall Street is a major financial contributor to her campaign. They know she can be bought. She won’t disappoint them.

Hillary still has to grandstand for the benefit of the Democratic masses. But she’s clearly on the side of the cronies and the zombies. And they both hate capitalism.


Because capitalism is a zombie killer.

Capitalism is not a wealth distribution system, as supply-side economist and techno-utopian guru George Gilder makes clear in his latest book, Knowledge and Power. It’s an information system… a knowledge system… in which entrepreneurs take risks and find out what works.

They learn how to build better things… putting old zombie manufacturers out of business. They figure out how to cut costs and increase quality, too… squeezing out the cronies and forcing the zombies to get to work.

They discover the knowledge that makes us wealthier.

Naturally, the zombies and cronies try to put capitalism out of business. Typically, their candidates claim to be “improving” or “saving” capitalism from itself.

What they are really doing is saving the crony lobbyists and zombie voters from real capitalism.

Hillary Does It Again: What "Everyday American" Would Pay $600 For This Haircut?

There are plenty of 'everyday Americans' out there with perfectly good haircuts, styled by perfectly good hairdressers, in perfectly good Main Street salons... so why is self-proclaimed populist person-of-the-everyday-American Hillary Clinton getting a $600 haircut at Bergdorf Goodman's Fifth Avenue store in NYC?


As PageSix reports,

Hillary Clinton put part of Bergdorf Goodman on lockdown on Friday to get a $600 haircut at the swanky John Barrett Salon.


Clinton, with a huge entourage in tow, was spotted being ushered through a side entrance of the Fifth Avenue store on Friday.


A source said, “Staff closed off one side of Bergdorf’s so Hillary could come in privately to get her hair done. An elevator bank was shut down so she could ride up alone, and then she was styled in a private area of the salon. Other customers didn’t get a glimpse. Hillary was later seen with a new feathered hairdo.”


Clinton regularly sees salon owner John Barrett, who charges regular mortals $600 for a cut and blow-dry. Hair color can cost an extra $600.


And let’s not forget that her husband, Bill Clinton, was famously caught up in a 1993 controversy known as “Hairgate” when he got a $200 haircut on Air Force One as it was idling for an hour at LAX, shutting down two runways and diverting numerous flights.


Read more here...

*  *  *

Maybe she should ask for her money back?


The "Something About Mary" look?


Still could be worse...

1 In 5 US Stocks Now In Bear Market

With the major US equity markets within 1-2% of their record highs, Gavekal Capital notes that underneath the headline indices, stock markets are extremely tumultuous. Rather stunningly 21% of MSCI USA stocks are at least 20% off their recent highs, and 68% of Canadian stocks are in bear markets, but the real carnage is taking place in Emerging Markets.

This is only the third time since the summer of 2012 that this many stocks are in a bear market. The most interesting aspect of this internal correction is the fact that the headline index is a mere 1.8% off the 200-day high. On October 10, 2014 when 21% of MSCI USA stocks were in a bear market, the headline MSCI USA index was 5.4% off the 200-day high. And on November 8, 2012 when 21% of the MSCI USA stocks were in a bear market, the headline index was 6% off the 200-day high.

The pain felt in US stocks is nothing compared to many markets around the world. Just a reminder that this all based on USD performance.

Canadian stocks have been getting pummeled. 68% of Canadian stocks are in a bear market. This is the greatest percentage of stocks in a bear market since 2011.

30% of MSCI Hong Kong stocks are in a bear market and 29% of MSCI Singapore stocks are in a bear market as well.

The true carnage is taking place in the emerging markets, however, where nearly 2/3 of all EM stocks are at least 20% off its 200-day high.

Some of the worst countries in EM are Brazil (82%), China (82%), Indonesia (77%), and Russia (81%).



Source: Gavekal Capital

The War On Cash: Why Now?

Submitted by Charles Hugh-Smith via The Mises Institute,

You’ve probably read that there is a “war on cash” being waged on various fronts around the world. What exactly does a “war on cash” mean?

It means governments are limiting the use of cash and a variety of official-mouthpiece economists are calling for the outright abolition of cash. Authorities are both restricting the amount of cash that can be withdrawn from banks, and limiting what can be purchased with cash.

These limits are broadly called “capital controls.”

Why Now?

Before we get to that, let’s distinguish between physical cash — currency and coins in your possession — and digital cash in the bank. The difference is self-evident: cash in hand cannot be confiscated by a “bail-in” (i.e., officially sanctioned theft) in which the government or bank expropriates a percentage of cash deposited in the bank. Cash in hand cannot be chipped away by negative interest rates or fees.

Cash in the bank cannot be withdrawn in a financial emergency that shutters the banks (i.e., a bank holiday).

When pundits suggest cash is “obsolete,” they mean physical paper money and coins, not cash in a bank. Cash in the bank is perfectly fine with the government and its well-paid yes-men (paging Mr. Rogoff and Mr. Buiter) because this cash can be expropriated by either “bail-ins” or by negative interest rates.

Inflation and Negative Interest Rates

Mr. Buiter, for example, recently opined that the spot of bother in 2008–09 (the Global Financial Meltdown) could have been avoided if banks had only charged a 6 percent negative interest rate on cash: in effect, taking 6 percent of the depositor’s cash to force everyone to spend what cash they might have.

Both cash in hand and cash in the bank are subject to one favored method of expropriation, inflation. Inflation — the single most cherished goal of every central bank — steals purchasing power from physical cash and digital cash alike. Inflation punishes holders of cash and benefits those with debt, as debt becomes cheaper to service.

The beneficial effect of inflation on debt has been in play for decades, so it can’t be the cause of governments’ recent interest in eliminating physical cash.

So now we return to the question: Why are governments suddenly declaring war on physical cash, the oldest officially issued form of money?

Why They Hate Cash in Hand

The first reason: physical cash has the potential to evade both taxes as well as officially sanctioned theft via bail-ins and negative interest rates. In short, physical cash is extremely difficult for governments to steal.

Some of you may find the word theft harsh or even offensive. But we must differentiate between taxes — which are levied to pay for the state’s programs that in principle benefit all citizens — and bail-ins, i.e., the taking of depositors’ cash to bail out banks that became insolvent through the actions of the banks’ management, not the actions of depositors.

Bail-ins are theft, pure and simple. Since the government enforces the taking, it is officially sanctioned theft, but theft nonetheless.

Negative interest rates are another form of officially sanctioned theft. In a world without the financial repression of zero-interest rates (ZIRP — central banks’ most beloved policy), lenders would charge borrowers enough interest to pay depositors for the use of their cash and earn the lender a profit.

If borrowers are paying interest, negative interest rates are theft, pure and simple.

Why are governments suddenly so keen to ban physical cash? The answer appears to be that the banks and government authorities are anticipating bail-ins, steeply negative interest rates and hefty fees on cash, and they want to close any opening regular depositors might have to escape these forms of officially sanctioned theft. The escape mechanism from bail-ins and fees on cash deposits is physical cash, and hence the sudden flurry of calls to eliminate cash as a relic of a bygone age — that is, an age when commoners had some way to safeguard their money from bail-ins and bankers’ control.

Forcing Those With Cash To Spend or Gamble Their Cash

Negative interest rates (and fees on cash, which are equivalently punitive to savers) raise another question: why are governments suddenly obsessed with forcing owners of cash to either spend it or gamble it in the financial-market casinos?

The conventional answer voiced by Mr. Buiter is that recession and credit contraction result from households and enterprises hoarding cash instead of spending it. The solution to recession is thus to force all those stingy cash hoarders to spend their money.

There are three enormous flaws in this thinking.

One is that households and businesses have cash to hoard. The reality is the bottom 90 percent of households have less income now than they did fifteen years ago, which means their spending has declined not from hoarding but from declining income.

While corporate America has basked in the glory of sharply rising profits, small business has not prospered in the same fashion. Indeed, by some measures, small business has been in a six-year recession.

The bottom 90 percent has less income and faces higher living expenses, so only the top slice of households has any substantial cash. This top slice may see few safe opportunities to invest their savings, so they choose to keep their savings in cash rather than gamble it in a rigged casino (i.e., the stock market).

The second flaw is that hoarding cash is the only rational, prudent response in an era of financial repression and economic insecurity. What central banks are demanding — that we spend every penny of our earnings rather than save some for investments we control or emergencies — is counter to our best interests.

A War on Cash Is a War on Capital

This leads to the third flaw: capital — which begins its life as savings — is the foundation of capitalism. If you attack savings as a scourge, you are attacking capitalism and upward mobility, for only those who save capital can invest it to build wealth. By attacking cash, the central banks and governments are attacking capital and upward mobility.

Those who already own the majority of productive assets are able to borrow essentially unlimited sums at near-zero interest rates, which they can use to buy more productive assets. Everyone else — the bottom 99.5 percent — is reduced to consumer-serfdom: you are not supposed to accumulate productive capital, you are supposed to spend every penny you earn on interest payments, goods, and services.

This inversion of capitalism dooms an economy to all the ills we are experiencing in abundance: rising income inequality, reduced opportunities for entrepreneurship, rising debt burdens, and a short-term perspective that voids the longer-term planning required to build sustainable productivity and wealth.

Physical Cash: Only $1.36 Trillion

According to the Federal Reserve, total outstanding physical cash amounts to $1.36 trillion.

Given that a substantial amount of this cash is held overseas, physical cash is a tiny part of the domestic economy and the nation’s total assets. For context: the US economy is $17.5 trillion, total financial assets of households and nonprofit organizations total $68 trillion, base money is around $4 trillion, and total money (currency in circulation and demand deposits) is over $10 trillion (source).

Given the relatively modest quantity of physical cash, claims that eliminating it will boost the economy ring hollow.

Following the principle of cui bono — to whose benefit? — let’s ask: What are the benefits of eliminating physical cash to banks and the government?

Benefits To Banks and the Government of Eliminating Physical Cash

The benefits to banks and governments by eliminating cash are self-evident:

  1.  Every financial transaction can be taxed.
  2.  Every financial transaction can be charged a fee.
  3.  Bank runs are eliminated.

In fractional reserve systems such as ours, banks are only required to hold a fraction of their assets in cash. Thus a bank might only have 1 percent of its assets in cash. If customers fear the bank might be insolvent, they crowd the bank and demand their deposits in physical cash. The bank quickly runs out of physical cash and closes its doors, further fueling a panic.

The federal government began insuring deposits after the Great Depression triggered the collapse of hundreds of banks, and that guarantee limited bank runs, as depositors no longer needed to fear a bank closing would mean their money on deposit was lost.

But since people could conceivably sense a disturbance in the Financial Force and decide to turn digital cash into physical cash as a precaution, eliminating physical cash also eliminates the possibility of bank runs, as there will be no form of cash that isn’t controlled by banks.

So, when the dust has settled who ultimately benefits by this war on cash, government and the central banks, pure and simple.

What Is The Fair Value Of Gold?

Having detailed yesterday the manipulation in the precious metals markets that implies the bear market in bullion is an artificial creation, we thought the following 'rational' chart effort at 'valuing' gold may provide some frame of reference for the level of riggedness occurring...

Gold fair value, measured by a GDP-weighted average of global central bank's balance sheet expansion, as of Jul 2015

Source: @CarpathiaCap


As we concluded previously,

Clearly the demand for physical metal is very high, and the ability to meet this demand is constrained. Yet, the prices of bullion in the futures market have consistently fallen during this entire period. The only possible explanation is manipulation.


The manipulation of the gold price by injecting large quantities of freshly printed uncovered contracts into the Comex market is an empirical fact.


The sudden debunking of gold in the financial press is circumstantial evidence that a full-scale attack on gold’s function as a systemic warning signal is underway.

It is unlikely that regulatory authorities are unaware of the fraudulent manipulation of bullion prices. The fact that nothing is done about it is an indication of the lawlessness that prevails in US financial markets.

Today, there is no “official” price for gold, nor any “gold-exchange standard” competing with a semi-underground free gold market.

There is, however, a material legacy of “real versus pseudo” gold that remains a terrible menace. Buyer beware of the pivotal difference between the two.

Congress Proposes Fraudulent New Law To "Fix" Social Security

Submitted by Simon Black via,

On January 31, 1940, the very first Social Security check ever delivered went to Ms. Ida May Fuller, a former legal secretary who had recently retired.


Ms. Fuller had spent just three years paying into the system, contributing a total of $24.75 to Social Security.


Yet her first check was for nearly that entire amount. Quite a return on investment.


She went on to live past 100, collecting a total of $22,888.92, over 900 times the amount she contributed to the program. Her story is quite the metaphor.

If you’re not familiar, Social Security is comprised of two primary trust funds: Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI).

Essentially, all of the taxes paid in to Social Security end up in one of these two trust funds.

The trust funds then ‘manage’ the money to generate a rate of return, and then pay out distributions to program recipients.

Now, the funds are overseen by a Board of Trustees which is obliged to submit an annual report on the fiscal condition of the program. It ain’t pretty.

The Disability Insurance (DI) fund is particularly ugly. In fact, the trustees themselves wrote in the 2015 annual report that

“[T]he DI Trust Fund fails the Trustee’s short-range test of financial adequacy. . .”




“The DI Trust Fund reserves are expected to deplete in the fourth quarter of 2016…”

In other words, one of the two Social Security trust funds is just months away from insolvency.

When people think about Social Security, they think that all the problems are decades away.

Wrong. This is next year.

The other trust fund, OAS, is projected to “become depleted and unable to pay scheduled benefits in full on a timely basis in 2034.”

Which means that if you’re 47 or younger, you can kiss Social Security goodbye.

Bear in mind, these aren’t my calculations. Nor are they any wild assertions. They’re direct quotes from the trustees themselves.

And, just who are these trustees? The Secretary of the Treasury of the United States of America. The Labor Secretary. The Secretary of Health and Human Services.

Some of the most senior officials in the US government sign their name to an official report stating that these funds are nearly insolvency– one of them even NEXT YEAR.

Not to worry, though. Congress is on the case.

Late last week, several dozen members of Congress introduced the “One Social Security Act”, HR 3150, to solve this problem.

And let me tell you, their solution is bold. Fearless. And brilliant.

HR 3150 attacks the looming insolvency of Disability Insurance by eliminating the fund altogether.

So instead of having two separate funds for two distinct purposes of Social Security, the legislation aims to combine them into one unified fund.

That way, with just one fund, there won’t be any separate reporting about DI’s insolvency.

It’s genius! They make the problem go away by eliminating the requirement to report it.

There’s just one small issue. Legally, they have a word for this. It’s called fraud.

You and I would go to prison if we commingled funds like this. But in the hallowed halls of Congress, this is what passes as a solution.

This is so typical– solving problems by pretending that they don’t exist and destroying any element of transparency and accountability.

This pretty much tells you everything you need to know about government.

Look, it’s a hard reality to swallow. But the government’s own data show that these programs are not going to be there for you.

And the story smacking us in the face right now demonstrates precisely how politicians intend on ‘solving’ the problems.

These people aren’t the solution. They’re the problem.

And don’t think that ‘voting the bums out’ will affect anything. Elections merely change the players, not the game.

The only way forward is to invest in yourself, particularly in your business and financial education. Make plans based on the assumption that Social Security doesn’t exist.

And if, by some miracle, it’s still there by the time you retire, you won’t be worse off for having built a larger nest egg thanks to the financial acumen you developed.

If Varoufakis Is Charged With Treason, Then Dijsselbloem Should Be As Well

In the aftermath of this weekend's infamous leak of Yanis Varoufakis audio recording with members of OMFIF in which the former finmin admitted to asset managers that in his tenure as a finmin he had engaged in preparations for a return to the Drachma, Greece has been gripped by a media frenzy debating whether Varoufakis will be charged with treason for daring to even contemplate how an exit from the EMU would take place.

To be sure, Varoufakis may have poured the initial gasoline on the fire when he admitted to Ambrose Evans-Pritchard shortly after the recording surfaced that "the context of all this is that they want to present me as a rogue finance minister, and have me indicted for treason. It is all part of an attempt to annul the first five months of this government and put it in the dustbin of history."

His concerns were certainly justified: yesterday Kathimerini reported that Greek Supreme Court prosecutor Efterpi Koutzamani on Tuesday took two initiatives in the wake of revelations by former Finance Minister Yanis Varoufakis that he had planned a parallel banking system: she forwarded to Parliament two suits filed against the former minister last week by private citizens and she appointed a colleague to determine whether any non-political figures should face criminal charges in connection with the affair.

The legal suits were filed last week by Apostolos Gletsos, the mayor of Stylida in central Greece and head of the Teleia party, and Panayiotis Giannopoulos, a lawyer. Giannopoulos is suing Varoufakis for treason over his handling of talks with Greece’s creditors. Gletsos, for his part, accuses Varoufakis of exposing the Greek state to the risk of reprisals.


As there is a law protecting ministers, the judiciary cannot move directly against Varoufakis. It is up to Parliament to decide whether his immunity should be lifted so he can stand trial. The first step would be to set up an investigative committee.


A third suit was expected to go to Parliament after a group of five lawyers said they were seeking an investigation into whether any non-political figures should face criminal charges in connection with the Varoufakis affair. The charges would involve violation of privacy data, breach of duty, violation of currency laws and belonging to a criminal organization. It was the lawyers’ move that prompted Koutzamani to order an investigation.

As a further reminder, during the telephone call Varoufakis detailed his plan for a parallel banking system, which would involve a childhood friend, a professor at Columbia University, to hack into the ministry’s online tax system.

Varoufakis did not name the head of the General Secretariat for Information Systems, Michalis Hatzitheodorou, but the description of his role at the ministry and his background suggested he was referring to him.


In a statement on Tuesday, Hatzitheodorou rebuffed as “absolutely false” reports regarding any type of intervention in the ministry’s information systems. The GSIS, and the current general secratary, have not planned much less attempted any type of intervention in its systems, the statement said. It added that the GSIS has enacted procedures with strict specifications which guarantee the security of personal data and make such interventions by anyone impossible.

What makes matters confusing, is that the core allegation made by Varoufakis, namely that the Troika controls Greece tax revenues and had to be sabotaged, was strictly denied: European Commission spokeswoman Mina Andreeva on Tuesday described as “false and unfounded” Varoufakis’s claims that Greece’s General Secretariat for Public Revenues is controlled by the country’s creditors.

In other words, if Andreeva is right, then Varoufakis' transgression of threatening to hijack the Greek tax system was merely hot air, and the former finmin is guilty of nothing more than self-aggrandizement.

On the other hand, if Greece does find it has a legal basis to criminally charge Varoufakis with treason merely for preparing for a Plan B, then it brings up an interesting question: if Varoufakis was a criminal merely for preparing for existing the Euro, then comparable treason charges should also be lobbed against none other than Varoufakis' nemesis - Eurogroup president and Dutch finance minister Jeroen Dijsselbloem.

Recall from the November 28 post that "Netherlands, Germany Have Euro Disaster Plan - Possible Return to Guilder and Mark", to wit:

The Dutch finance ministry prepared for a scenario in which the Netherlands could return to its former currency - the guilder. They hosted meetings with a team of legal, economic and foreign affairs experts to discuss the possibility of returning to the Dutch guilder in early 2012.


At the time the Euro was in crisis, Greece was on the verge of leaving or being pushed out of the Euro and the debt crisis was hitting Spain and Italy hard. The Greek prime minister Georgios Papandreou and his Italian counterpart Silvio Berlusconi had resigned and there were concerns that the eurozone debt crisis was spinning out of control - leading to contagion and the risk of a systemic collapse.


A TV documentary broke the story last Tuesday. The rumours were confirmed on Thursday by the current Dutch minister of finance, Jeroen Dijsselbloem, and the current President of the Eurogroup of finance ministers in a television interview which was covered by EU Observer and Bloomberg.


“It is true that [the ministry of] finance and the then government had also prepared themselves for the worst scenario”, said Dijsselbloem.

This is precisely what Varoufakis was doing too.

“Government leaders, including the Dutch government, have always said: we want to keep that eurozone together. But [the Dutch government] also looked at: what if that fails. And it prepared for that.”


While Dijsselbloem said there was no need to be “secretive” about the plans now, such discussions were shrouded in secrecy at the time to avoid spreading panic on the financial markets.

Again, precisely like in the Greek scenario.

In fact, if throwing people in jail, may round up Wolfi Schauble as well:

Jan Kees de Jager, finance minister from February 2010 to November 2012, acknowledged that a team of legal experts, economists and foreign affairs specialists often met at his ministry on Fridays to discuss possible scenarios.


“The fact that in Europe multiple scenarios were discussed was something some countries found rather scary. They did not do that at all, strikingly enough”, said De Jager in the TV documentary. “We were one of the few countries, together with Germany. We even had a team together that discussed scenarios, Germany-Netherlands.”


When the EU Observer requested confirmation from Germany, the German ministry of finance did not officially deny that it had drawn up similar plans, stating simply: “We and our partners in the euro zone, including the Netherlands, were and still are determined to do everything possible to prevent a breakup of the eurozone.”


* * *


This is quite a revelation. At that time the German finance minister Wolfgang Schauble had said that the Euro could survive without Greece. Whether it could survive without the Dutch is another matter entirely.

Fast forward 3 years when Greece, too, was making preparations for "preventing the breakup of the eurozone" in doing precisely what Schauble wanted as recently as three weeks ago: implementing a parallel currency which would enable Greece to take its "temporary" sabbatical from the Eurozone.

So one wonders: where are the legal suits accusing Dijsselbloem and Schauble of the same "treason" that Varoufakis may have to vigorously defend himself in a kangaroo court designed to be nothing but a spectacle showing what happens to anyone in Europe who dares to give Germany the finger, either literally or metaphorically.

The answer: nowhere, and they will never appear, because if Varoufakis is indeed sued it will not be because he did something that other much more "serious" Eurocrats haven't considered or done before, but simply to crucify the Greek and make him into a dramatic example for any other "peripheral" (or even core, ahem "Madame Frexit") European who would even consider taking a comparable action on their own and pushing Europe's artificial, and now expiring, monetary union to the edge of collapse.

Then again, considering just how badly Europe misjudged the third season of the Greek bailout tragicomedy, it may want to be careful: the last thing it wants is to create a martyr against what increasingly more are calling a fascist oligarchy operating, conveniently enough, out of Belgium, Frankfurt and Berlin, one whose next item on the agenda is taking advantage of the Greek crisis and finally doing away with European state sovereignty altogether handing over control of Europe to a "parliament", one which if the ECB is any indication, will also be run by a few Goldman bankers.

China Rescue, VIX Crash, & Fed Pump Squeeze Shorts Most In 6 Months, Trannies Bounce Most Since 2011

Summing up the talking heads opinions on China, Twitter, Yelp... and so on..


Overnight exuberance in the afternoon session in China....

China market makes me laugh $ASHR $SHSZ300 @prchovanec

— Walt Hudson (@WaltHudson) July 29, 2015

Provided the first momo pump in US stocks (but that faded back to unch ahead of the open and dismal housing data), FOMC prep sent us spiking before investors realized that while dovish it basically suggests the economy is crap...


Cash indices never looked back with a small pump'n'dump after the Fed statement...


This is Trannies best 2-day ramp since 2011...


Leaving everybody happy since Friday...


All about avoiding a red print Year-To-Date...


TWTR was clubbed like a baby seal...


VIX crushed to 11 handle briefly...The Matterhorn Pattern completed...


Which is no big surprise...


Treasury yields ended the day higher, with the curve steepening modestly... initialk kneejerk was bonds rallied after FOMC...


The US Dollar surged after FOMC - despite its dovish tone...


Silver jumped but gold was flat as copper and crude popped...


Saudi rumors on production cuts, US inventory draws, and the biggest US production drop since Oct 2013 sent crude soaring but The Fed pissed in the pool party arguing that things are not quite as awesome as they hoped...



Charts: Bloomberg

Bonus Chart: Data Dependent Fed misses window...

Bonus Bonus Chart: Remember this...

Economists in the latest WSJ survey expect the Fed to raise interest rates around Sept. 2010.

— Rudolf E. Havenstein (@RudyHavenstein) July 29, 2015

This Is The Reason Why Facebook Is Sliding After Hours, Dragging Nasdaq Futures Lower

Moments ago, Facebook reported Q2 earnings and just like Twitter, it beat across all key financial metrics:

  • Revenues of $4.04 billion beat consensus $3.99 billion
  • Non-GAAP EPS of $0.50 also beat consensus of $0.47 (GAAP EPS was a different story, at half the non-GAAP).
  • Monthly active users (MAUs) - MAUs were 1.49 billion as of June 30, 2015, an increase of 13% year-over-year, and above the 1.475billion expected.

So all is well, and FB stock should be soaring. Alas for FB longs it isn't and at last check the stock was down by $5 or about 5% after hours, because algos were focused on one particular user growth metric:

  • Daily active users (DAUs) - DAUs were 968 million on average for June 2015, an increase of 17% year-over-year.

This number was a fraction less than the 970.5 million consensus estimate, and because it brought up nightmare visions of what happened to Twitter stock overnight, which since earnings has plunged to near all time lows, is forcing traders to sell or short, if only now, and ask questions later.


Ironically, the one chart the algos should be looking at is the one showing the Y/Y decline in real operating income, masked by the endless fudging of non-GAAP adjustments...


... an dthe collapse in GAAP operating margins:


The reason for this massive divergence? Some 19% of Facebook revenues are stock-based compensation: magically everyone continues to pretend this is irrelevant.

Whatever the reason, the stock is not happy...


And since FB, with its $270 billion market cap, has become a huge component of the Nasdaq, the broader tech index is not too happy either.


That said, we wouldn't be at all surprised if there is a complete kneejerk reversal during the conference call: yesterday TWTR had spiked 10% on the initial results, only to crash today. Perhaps Facebook will pull a mirror image...

Currency Devaluation: The Crushing Vice Of Price

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Devaluation has a negative consequence few mention: the cost of imports skyrockets.

When stagnation grabs exporting nations by the throat, the universal solution offered is devalue your currency to boost exports. As a currency loses purchasing power relative to the currencies of trading partners, exported goods and services become cheaper to those buying the products with competing currencies.

For example, a few years ago, before Japanese authorities moved to devalue the yen, the U.S. dollar bought 78 yen. Now it buys 123 yen--an astonishing 57% increase.

Devaluation is a bonanza for exporters' bottom lines. Back in late 2012, when a Japanese corporation sold a product in the U.S. for $1, the company received 78 yen when the sale was reported in yen.

Now the same sale of $1 reaps 123 yen. Same product, same price in dollars, but a 57% increase in revenues when stated in yen.

No wonder depreciation is widely viewed as the magic panacea for stagnant revenues and profits. There's just one tiny little problem with devaluation, which we'll cover in a moment.

One exporter's depreciation becomes an immediate problem for other exporters: when Japan devalued its currency, the yen, its products became cheaper to those buying Japanese goods with U.S. dollars, Chinese yuan, euros, etc.

That negatively impacts other exporters selling into the same markets--for example, South Korea.

To remain competitive, South Korea would have to devalue its currency, the won. This is known as competitive devaluation, a.k.a. currency war. As a result of currency wars, the advantages of devaluation are often temporary.

But as correspondent Mark G. recently observed, devaluation has a negative consequence few mention: the cost of imports skyrockets. When imports are essential, such as energy and food, the benefits of devaluation (boosting exports) may well be considerably less than the pain caused by rising import costs.

Japan is a case in point. The massive devaluation of the yen was designed to boost Japan's exports and rocket-launch corporate profits, which was then supposed to drive a virtuous cycle of higher wages and increased employment.

But the benefits of the massive devaluation have been underwhelming. Some exporters have seen profits soar, helping to push Japan's stock market to post-1990 highs, but the effect is not universally positive.

Consider the plight of companies that must buy soybeans from the U.S. to make their food products. The cost of their raw materials just increased 50%, as a $1 of soybeans now costs 123 yen rather than 78 yen.

Given that major exporters of goods and services like China and Japan are importers of oil and food, devaluation is a ticking time bomb in terms of the cost of liquid fuels and food. The looming global recession and overinvestment in commodity production--driven by the zero-interest rate policies of the central banks--has created a temporary glut in oil and other commodities.

But as marginal producers are driven into bankruptcy or cut production, supply and demand will realign at some point. Somewhere not that far down the line, exporting nations that devalued their currency for the crack-cocaine hit of soaring revenues and profits in their home currencies will find the cost of essential imports will skyrocket while the benefits of their devaluation fade in the currency wars they instigated.

Authorities pushing currency devaluation as a cure for their stagnating economies might want to study Frederic Bastiat's insight into the eventual cost and consequences: "For it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa.”


Meanwhile In Venezuela... The Socialist Paradise Has Arrived

As we recently warned, the hyperinflationary collapse in Venezuala is reaching its terminal phase. With inflation soaring at least 65%, murder rates the 2nd highest in the world, and chronic food (and toilet paper shortages), the following disturbing clip shows what is rapidly becoming major social unrest in the Maduro's socialist paradise... and perhaps more importantly, Venezuela shows us what the end game for every fiat money system looks like (and perhaps Janet and her colleagues should remember that).



As we previously concluded, and seemingly confirmed by the above video,

Venezuela’s hyperinflation is reaching its final stages. It is probably already far too late for the government to stop the complete collapse of its currency. The bolivar is in the process of transforming from a medium of exchange to tinder for wood-stoves. Venezuelans who had the presence of mind to convert their savings into gold or foreign currency in good time are likely to survive the conflagration intact.


Those who bought stocks on the Caracas stock exchange seem to have successfully side-stepped the effects of the devaluation as well, but they need a plan for the post-inflation adjustment crisis, which will bankrupt a great many companies very quickly. Also, the government can simply close the market down at any time if it doesn’t like what is happening there, so there is the ever-present danger of even more government interference as well.


It is quite fascinating to see that in spite of numerous examples throughout history, governments never seem to learn. They all believe they can somehow overrule economic laws by diktat. This is not only true of Venezuela’s government, but of practically every government in today’s world. Central planning of money has been adopted everywhere. Venezuela merely shows us what the end game for every fiat money system looks like.


At some point the State is overwhelmed by the promises it has made to its citizens. When it can no longer pay by means of confiscating private wealth, the printing press is always the last resort. Recently one actually gets the impression that it is often the first, rather than the last resort.

In developed countries, people believe that the planners have everything in hand, and that their “price stabilization” rules will protect them from such outcomes. However, it should be clear that these rules will simply be abandoned in extremis. The independence of central banks exists only on paper – it will mean nothing in a perceived “emergency”. It is almost comical in this context that gold is being sold while most of the world’s major central banks are seemingly hell-bent on aping John Law’s Banque Générale Privée.