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"Global LIBOR Scapegoat" Turns To Public Crowdfunding To Fund Appeal

While UBS agreed to pay $1.5 billion to quickly settle charges that the bank manipulated LIBOR, trader Tom "Libor is too high, 'cos I've kept it artificially high" Hayes wasn't so lucky however. Alas, Hayes' pockets weren't that deep and he was the scapegoat UBS chose to offer up to the masses in the wake of the scandal, eventually being found guilty and sentenced to 14 years in jail (later reduced to 11 years).

Hayes, who was the first individual convicted at trial for manipulating what until recently was the world's most important rate, is now looking to the generosity of the public to help fund his appeal. As Bloomberg reports, the 36 year-old has opened a Fundrazr page in hopes of raising £150,000 enough money to pay for an appeal through with the Criminal Cases Review Commission, an independent organization set up to investigate suspected miscarriages of justice in U.K. courts. According to his lawyer Karen Todner, "Tom's family are now in possession of fresh evidence, some of which Tom requested in his trial but which UBS and the prosecution did not supply. We believe Tom has a strong case, which our submission to the CCRC will demonstrate."

Given the fact that evidence was presented showing UBS actually had a "guide to publishing Libor rates" during his trial and he was still convicted, we suspect that nothing will be able to help the former trader at this point. The fund has raised £3,635, although we're going to go out on a limb and say the trader who cost people and firms a lot of money with his rigging activities, won't win much of sympathy in the court of public opinion, although there is a possibility some of his former superiors who got away scott-free thanks to his incarceration may feel generous and decide to "tip" him. Anonymously of course.

Futures Rebound As Crude Regains $45 On Canada Fears; Turkey Hammered

While markets remain relatively subdued ahead of tomorrow's nonfarm payrolls report, after several days of losses in US stocks, which have taken "sell in May" to heart and pushed the S&P500 to three week lows, overnight markets ignored the latest weak data out of China where the Caixin Services PMI was the latest indicator to disappoint (dropping from 52.2 to 51.8), and instead focused on crude, which rebounded from yesterday's post inventory-build lows and briefly printed above $45/bbl over uncertainty related to the impact of Canada wildfires on production and how long will last. The bounce in WTI has meant Brent briefly traded at parity with West Texas for the first time in 6 weeks. 

It "would appear to be related to outages in production related to the wildfires in Canada - uncertainty of the extent of the outages and how long they will persist," says BNP Paribas energy strategist Gareth Lewis-Davies.

"Move today has to be seen in the context of the last 5 days and we have only recovered half the losses we have seen in that period."

Emboldened by the rise in oil, European stocks rose for the first time in a week as commodity, energy producers lead the rebound from the biggest four-day drop since February, while S&P500 futures rose 0.3%, and was back over 2,050.

As we noted yesterday, Turkish equities and bonds continued to fall amid a political showdown between the president and prime minister.  Turkey’s 10-year bond yields climbed to a one-month high, while the Borsa Istanbul 100 Index dropped 1.6 percent, declining for a fifth day. The clash between Davutoglu and Erdogan threatens to usher in an era of political uncertainty, raising questions ranging from the president’s bid to coalesce power through a constitutional amendment or early elections to the future path of economic policy. The lira gained 1.4 percent after the steepest selloff in eight years yesterday.

Despite the attempt at a rally, sentiment was mixed: "There’s still a very cautious feeling to markets," said William Hobbs, who helps oversee about $150 billion as head of investment strategy at the wealth-management unit of Barclays Plc in London. “The world is growing and is likely to grow a bit quicker as we go through the year and inflation returning and that’s simply not priced in at these levels.”

"The market has been in a consolidation phase as its previous rally, which was based on a rebound in commodity prices and signs of economic stabilization, is starting to taper off,” Audrey Goh, a strategist at Standard Chartered, told Bloomberg. "We are also going into the summer months, when the market tends to be weaker."

Among companies moving in early U.S. trading, Tesla Motors Inc. climbed 3.6 percent after the electric-car maker reaffirmed its deliveries forecast and pulled ahead its plans to produce 500,000 autos annually. Fitbit Inc. tumbled 13 percent after the maker of wearable fitness trackers gave a profit forecast that fell short of the lowest analysts’ estimates.

Market Wrap

  • S&P 500 futures up 0.3% to 2052
  • Stoxx 600 up 0.3% to 333
  • FTSE 100 up 0.2% to 6127
  • DAX up 0.3% to 9862
  • German 10Yr yield up 1bp to 0.22%
  • Italian 10Yr yield up 1bp to 1.52%
  • Spanish 10Yr yield up less than 1bp to 1.61%
  • S&P GSCI Index up 1.3% to 352.2
    MSCI Asia Pacific down 0.2% to 128
  • Nikkei 225 closed
  • Hang Seng down 0.2% to 20485
  • Shanghai Composite up 0.2% to 2998
  • S&P/ASX 200 up 0.2% to 5279
  • US 10-yr yield up 2bps to 1.8%
  • Dollar Index up 0.17% to 93.34
  • WTI Crude futures up 2.9% to $45.07
  • Brent Futures up 2.4% to $45.70
  • Gold spot down less than 0.1% to $1,279
  • Silver spot up 0.3% to $17.42

Top Global News

  • Tribune Board Rejects Gannett’s $815 Million Takeover Bid: Company unveils standalone plan to bolster LA Times globally
  • Goldman, HSBC Said Among Banks on Saudi Exchange IPO Shortlist: JPMorgan, Morgan Stanley also said to be considered for IPO that could raise more than $500m for 30% stake
  • Tesla’s Musk Sleeping Near Factory Floor to Spur Manufacturing Progress: Co. now sees reaching 500,000- vehicle production in 2018, two years earlier than before
  • Turkey PM Said to Give Up as Erdogan Pressure Insurmountable: Prime Minister Ahmet Davutoglu is expected to step down this month after losing power struggle with President Erdogan
  • Synacor More Than Doubles After Winning AT&T Web-Hosting: Contract with carrier will be worth $100m annually
  • Camping World Said to Aim to Raise $350m in IPO: New York Times

Looking at regional markets, Asia stocks traded mostly lower amid holiday-thinned trade and following the losses seen on Wall St. where US stocks declined to 3-week lows, while the region also digests further softer data from China. However, outperformance in energy and financials have capped losses in ASX 200 (-0.2%) after WTI crude futures reclaimed USD 44/bbl while banks were underpinned following NAB's earnings. China saw mild pressure with the Shanghai Comp (-0.2%) negative after Chinese Caixin Services & Composite PMI figures were weaker than prior, although further liquidity injections by the PBoC helped stem losses. As a reminder, Japanese and South Korean markets are closed for public holiday.

Asia Top News

  • China Fertilizer Maker to Default on Bonds Amid Debt Woes: Inner Mongolia Nailun investors opted for early note repayment
  • Yuan’s Losing Streak Signals PBOC Break With Stronger Dollar: Chinese currency may have to drop more quickly vs USD: analyst
  • Fears of China Unrest See Investment Firms Evicted to Preempt It: >1,000 such cos. have failed, with more to come
  • Philip Lowe to Replace Stevens as RBA Governor From Sept. 18: Lowe inherits post with diminished interest rate ammunition
  • National Australia Earnings Rise as Bad-Debt Charges Decline: 1H cash profit A$3.31b vs est. A$3.356b
  • Packer Cuts Macau Stake, Stoking Crown Buyout Speculation: Australia’s Crown to reduce Melco stake to 27% from 34%

Today has seen a quiet start to the morning amid numerous market closures in Europe due to Ascension Day allied with participants remaining cautious prior to the US jobs report tomorrow. As such, volumes have been somewhat on light side, with equities trading modestly higher while notable outperformance has been observed in the FTSE MIB in the wake of source reports that the Italian Treasury is considering investing in the Italians bank rescue fund. Alongside this, similarly to trade overnight, Europe has been bolstered by gains in energy names with WTI crude breaking above USD 45.00/bbl.

European Top News

  • Brexit Uncertainty Drags U.K. Economy to Near Stagnation: Services PMI drops to 52.3 from 53.7, below estimates and weakest since February 2013
  • Centrica Falls Most in More Than a Year on Equity Sale Plan: Company plans to sell 350 million shares to fund acquisitions
  • Repsol Beats Estimates on Surprise Profit From E&P Business: Results reflect lower exploration costs, efficiency savings
  • BT Profit Beats Expectations, Helped by EE Wireless Purchase: Company targets investing GBP6b in network upgrades
  • Barclays Sells 12.2% Stake in African Unit for $879 Million: Stake bought by money managers; Barclays now owns 50.1%

In FX, Australia’s dollar strengthened 0.5 percent versus the USD. The nation’s retail sales increased 0.4 percent in March from the previous month, while the trade deficit was smaller than economists forecast. Reserve Bank of Australia Deputy Governor Philip Lowe will replace Glenn Stevens as head of the monetary authority in September.

The greenback strengthened 0.2 percent to 107.21 yen, building on a 0.6 percent advance over the last two days. The Bloomberg Dollar Spot Index held near a one-week high after the probability that the Fed will raise interest rates this year climbed back above 50 percent. U.S. employers added at least 200,000 workers for a third month in April, according to a Bloomberg survey of economists before data on Friday.  Russia’s ruble climbed 1 percent and the Mexican peso gained 0.7 percent as oil advanced. South Africa’s rand rose 0.6 percent, rebounding from a four-week low.

In commodities, Heading towards the North American crossover, WTI and Brent crude futures continue to extend on its overnight gains with WTI making a break above USD 45.00/bbl. One factor for consideration in regards to the recent upside in oil prices over the past couple of days, is reports of a Canadian wildfire in the Fort McMurray region in which some of Canada's large oil producers are situated, including Canada Oil Sands. As such, around lmin bpd of Canadian Oil Sands production capacity could be affected.

Additionally, Libyan supply disruptions have also added to the strength in oil prices as officials warned that output may decline to around 120k bpd. To put this in some context, Libya currently produces 310k bpd and have a total capacity of 780k bpd. Elsewhere, gold prices have been pressured by the continued recovery in the greenback allied with the modest upside in European equities, subsequently sapping demand from the safe-haven. Elsewhere, copper and iron ore prices were subdued amid holiday thinned trade overnight.

Following yesterday's data deluge, the sole two events on the US calendar are Jobless Claims and Challenger job cuts, while the Fed's Bullard & Kaplan speak. Earnings wise we’ve got 30 S&P 500 companies set to report including Merck, while in Europe we’ve got 15 Stoxx 600 companies due to release their latest quarterlies

* * *

Bulletin Headline Summary from RanSquawk and Bloomberg

  • Today has seen a quiet start for European equities which have spent much of the session in modest positive territory.
  • Crude prices remain elevated amid reports of supply disruptions in Libya, alongside wildfires in Canada potentially harming oil production within the region.
  • Today's highlights include US Jobless Claims, Challenger Job Cuts, EIA Natural Gas, ECB's Visco, Fed's Bullard & Kaplan.
  • Treasuries lower in overnight trading as global equity markets mixed, oil rallies and precious metals drop; economic data today includes jobless claims which are close to four decade lows.
  • The European Central Bank will discontinue production of the 500-euro ($575) banknote in a move that risks tensions with euro-area citizens worried the institution is encroaching on their freedoms
  • U.K.’s Purchasing Managers Index dropped to 52.3 from 53.7 in April, its lowest level in more than three years; Britain goes to the polls in a series of local and legislative elections that will deliver a new mayor for London, continued nationalist government in Scotland and the voters’ first verdict on Jeremy Corbyn’s leadership of the Labour Party
  • China’s authorities, seeking to forestall potential social unrest due to growing failures of investment firms and online lenders, are ordering many to break leases and close their storefronts on busy streets
  • Speculators who traded 1.7 trillion yuan ($261 billion) futures in a single day last month have retreated as fast as they advanced. Trading volumes across the nation’s three biggest exchanges are more than half of what they were at their peak on April 22 and back to levels similar to a year ago
  • Turkish Prime Minister Ahmet Davutoglu is expected to step down after losing a market-roiling power struggle with President Recep Tayyip Erdogan, clouding the country’s economic prospects and imperiling its relations with the European Union
  • Philip Lowe is set to replace Glenn Stevens as governor of Australia’s central bank, inheriting an economy grappling with the onset of disinflation that forced policy makers to cut interest rates to a record low this week
  • Sovereign 10Y yields mixed, Greece rallies 19bp; European and Asian equity markets mixed (Japan closed); U.S. equity- index futures rise. WTI crude oil rallies, precious metals lower

US Event Calendar

  • 7:30am: Challenger Job Cuts y/y, April, no est. (prior 31.7%)
  • 8:30am: Initial Jobless Claims, April 30, est. 260k (prior 257k)
  • 9:45am: Bloomberg Consumer Comfort, May 1 (prior 43.4)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 11:30am: Fed’s Bullard speaks at Santa Barbara Conf.
  • 7:15pm: Fed’s Bullard, Kaplan, Lockhart, Williams speak at Stanford

DB's Jim Reid concludes the overnight wrap

Before we look closer at the rest of the data and price action yesterday, there’s been some data out of China this morning first for us to digest. The private Caixin services PMI for April has softened a touch to 51.8, after printing at 52.2 in March. That largely matches up with the 0.3pt decline in the official reading over the weekend and means that the composite was down half a point this month to 50.8.

Bourses in China have been volatile this morning and have largely swung between gains and losses, but as we type the Shanghai Comp is little changed. Elsewhere the Hang Seng (-0.40%) is in the red for the fourth consecutive session, while the Kospi (-0.49%) is also weaker along with the ASX (-0.25%). Markets in Japan remain shut until tomorrow, while the Yen is unchanged. Just staying with China, overnight our China Chief Economist Zhiwei Zhang published a note highlighting the hidden risks in the financial sector. Zhiwei highlights that China’s recent credit boom has made the financial sector more fragile and monetary policy less effective. He takes a look at what is a widening gap between rapid bank credit growth and moderate M2 growth and that of the credit expansion going to non-bank financial institutions, much of this is in the form of investment rather than loans which are less transparent and potentially more risky. Zhiwei has revised up his probability of the scenario of growth dropping below 6% for 4 consecutive quarters over the period of 2017-19 from 20% to 25%. A link to the note is attached here.

Back to yesterday. It all felt a bit déjà vu in markets with the price action virtually matching that of Tuesday. In Europe we saw the Stoxx 600 close - 1.12% to finish at the lowest level in nearly a month, while markets in the US also edged lower but slightly less so. The S&P 500 ended -0.59% meaning it’s been down in four of the last five sessions. It felt like it was the same culprits yesterday weighing on sentiment too with energy and financials stocks largely leading the bulk of bourses lower. Indeed the Stoxx 600 Banks index was down -1.48% yesterday and has tumbled 9% now in the space of just four sessions. The S&P 500 Energy index was down -1.30% yesterday and is down 4% over the same period.

Credit markets are also having a tougher month in May so far. In the US CDX IG was another 2bps wider yesterday and has now weakened for five consecutive sessions. The iTraxx Main index is also 5bps wider from where we closed April. Meanwhile there was the usual volatility in currency markets in and around the batch of data releases. Ultimately it concluded with a second consecutive stronger day for the US Dollar though with the Dollar index up +0.25% (it’s now up +1.5% from Tuesday’s 18-month low). The Yen traded in another big range but ended up a touch weaker. Finally the closing level for WTI (+0.30% at $43.78/bbl) masked what was actually an intraday range of nearly 4% (it has rebounded 2% this morning though), while it was another rough day for the majority of base metals too (Copper -1.08%, Zinc -0.53%, Iron Ore -5.24%).

Touching on that US data in a bit more detail, in terms of the components of the ISM services reading, employment, new orders and prices paid all rose last month, although there was a slight decline for business activity and new export orders (albeit from recent highs). The spread between the two ISM series is now back to 4.9pts (after being 2.7pts and 3.9pts in March and February respectively) and the most since January. Meanwhile, the March trade deficit narrowed a touch at $40.4bn (vs. $41.2bn expected) and narrowing nearly $7bn from February. The final services PMI was revised up 0.7pts to 52.8 and so resulting in a composite print of 52.4 which is a gain of 0.7pts from March and the second consecutive monthly increase. Elsewhere, factory orders rose a bit more than expected in March (+1.1% mom vs. +0.6% expected), Q1 nonfarm productivity weakened slightly less than expected (-1.0% qoq vs. -1.3% expected) and unit labour costs rose +4.1% qoq. That fall in productivity is the second consecutive negative quarterly reading and leaves YoY growth in productivity at a fairly subdued +0.6%.

The end result of all that data was for the Atlanta Fed to revise down their Q2 GDP forecast by a tenth to 1.7%. That’s still above the forecast of our US economists however who expect only a mild rebound from the weak first quarter and currently have growth pegged at 1.0%.

Elsewhere, during the European session yesterday the main focus was on the release of the remaining PMI’s. For the Euro area we saw the final April services reading revised down a very modest 0.1pts to 53.1, with the composite print of 53.0 effectively unchanged versus the prior two months. Across countries we saw marginal downward revisions to Germany and France while Italy was the positive surprise as its services reading printed ahead of expectations (52.1 vs. 51.9 expected; 51.2 March) much like its manufacturing data earlier in the week. Wrapping up the data, Euro area retail sales declined sharply in March and by more than expected (-0.5% mom vs. -0.1% expected).

Before we look at today’s calendar and just staying in Europe briefly, political fragility has been a big theme of late and we can add Turkey to that list with the news that the power struggle between Turkey’s PM Davutoglu and President Erdogan looks set to end with Davutoglu giving up his premiership. The FT highlighted that despite Erdogan occupying a largely ceremonial post, he has continued to demonstrate enough power to largely influence most aspects of government. According to Bloomberg, Davutoglu’s AK Party is to hold a leadership contest within two weeks with the current Premier not expected to be a candidate. The Turkish Lira weakened nearly 4% yesterday while equity markets in Turkey were generally off at least 2%.

Looking at the day ahead, after the packed calendar that we had yesterday, today looks fairly sparse by comparison. This morning in Europe the only release of note is the April services and composite PMI’s for the UK which is worth keeping an eye on in light of the soft manufacturing print earlier in the week, while in the US the sole release is the latest weekly initial jobless claims data. Away from the data we’re due to hear from the Fed’s Bullard this afternoon (scheduled for 4.50pm BST), while it might also be worth keeping an eye on Japan PM Abe’s press conference today too (due at 2.00pm BST). Earnings wise we’ve got 30 S&P 500 companies set to report including Merck, while in Europe we’ve got 15 Stoxx 600 companies due to release their latest quarterlies.


A Very Bearish Stanley Druckenmiller Blows Up At The Fed; Reveals His Biggest "Currency" Position

If anyone had wondered if Stanley Druckenmiller's recent bearishness had dissipated, or transformed into at least modest bullishness as a result of the market meltup, we have bad news.

Moments ago at the Sohn Conference, Druckenmiller raged at the Federal Reserve's dire monetary policies, saying that low interest rates have caused an environment where "not a week goes by without someone extolling the virtues of the equity market."  The obsession with short term stimulus contrasts with the monetary reform of 80's which led to the bull market, he added. 

The Fed bashing continued when Druck said that "by most objective measures, we are deep into the longest period ever of excessively easy monetary policies. Despite finally ending QE, the Fed’s radical dovishness continues today. By most objective measures, we are deep into the longest period ever of excessively easy monetary policies. In other words, and quite ironically, this is the least ‘data dependent’ Fed we have had in history."

Wrong: this is the most data-dependent Fed ever, only the data is the daily level of the Dow Jones Industrial Average; this is also why as Druckenmiller added, the Fed "causes reckless behavior" and added that "the Fed has no endgame and the end objective seems to be preventing the S&P from having a 20% decline."

"Three years ago on this stage I criticized the rationale of Fed policy but drew a bullish intermediate conclusion as the weight of the evidence suggested the tidal wave of central bank money worldwide would still propel financial assets higher. I now feel the weight of the evidence has shifted the other way; higher valuations, three more years of unproductive corporate behavior, limits to further easing and excessive borrowing from the future suggest that the bull market is exhausting itself."

Repeating something else we have long said, Druckenmiller also correctly said that as a result of the Fed's permissive policies (who can ever forget Chuck Schumer statement to Ben Bernanke: "Get to work, Mr Chairman") means politicians can avoid things like tax reform. Or pretty much anything else.

However, the Fed's action is not without a cost, as "the fed has borrowed from future consumption more than ever before."

He then noted that he is just as concerned about China, also correctly observing that the local "zombie lending" simply can't stop, and adding that Chinese people don't need more debt and houses. Which is true, however when debt and houses are merely financialized instruments, then all is well. 

If it wasn't clear already, Drucknemiller is very bearish stocks: "volatility in global equity markets over the past year, which often precedes a major trend change, suggests that their risk/reward is negative without substantially lower prices and/or structural reform. Don’t hold your breath for the latter."

The former Duquesne hedge fund manager, who averaged annual returns of 30 percent from 1986 through 2010, also agreed that negative rates are "absurd", said that he is bearish stocks, and concluded by revealing what his biggest currency allocation is. "Some regard it as a metal, we regard it as a currency and it remains our largest currency allocation" he said, without naming the metal.

We know what he was talking about. Gold.

A Big Bank Suggests WEALTH Taxation





A Big Bank Suggests WEALTH Taxation

Written by Jeff Nielson (CLICK FOR ORIGINAL)




There is a two-word phrase which is virtually never heard within the vacuous propaganda machine known as the mainstream media: “wealth taxation”. There are very obvious reasons for such conceptual censorship.


To begin with, the corporate media is merely one of the subsidiaries of the financial crime syndicate which readers know as “the One Bank”. The One Bank exists for one purpose, to steal wealth. Any form of wealth-taxation would effectively claw back significant amounts of these ill-gotten gains; therefore, discussion of this concept is verboten.

This is why we have an “income taxation” system, the most inefficient, complex, and economically destructive form of taxation system which could be inflicted upon us. We have income taxation for one, and only one reason: it provides a taxation “free ride” for the Ultra Wealthy, the proprietorsof the One Bank.

How, then, is it possible that Deutsche Bank, one of the Big Bank tentacles of the One Bank, could have recently and openly suggested implementing wealth taxation? It is both a putrid and delicious display of irony.

Our governments have already been bankrupted, and our public treasuries have been emptied (via the “bank bail-outs” of 2008). The masses have already been virtually squeezed-dry of their wealth. Our overall standard of living has already plummeted by more than half. The Middle Class is virtually extinct , having devolved into the Working Poor. But the bankers’ masters are still hungry.

Thus, their psychopathic minions have been encouraged to dream up new-and-innovative ways to steal more. One form of systemic theft which has been gaining momentum is “the negative interest rate”: borrowers literally stealing from lenders (and savers). It is in this context that we see the two-word phrase which is a “four-letter word” to all bankers: wealth taxation.

…the ECB and BoJ should move more strongly toward penalizing savings via negative retail deposit rates or perhaps wealth taxes.

Here it is necessary to point out the extreme perversity which is implicit in this suggestion. Why is a Deutsche Bank mouthpiece suggesting “negative retail deposit rates or perhaps wealth taxes”? The answer is to (supposedly) stimulate our economies.

Of course, another, obvious way to characterize negative interest rates on bank deposits is as a tax on bank deposits. That is why negative interest rates are suggested interchangeably along with wealth taxation – they are both a form of taxation.

Do you “stimulate” an economy by raising taxes? No (but with a caveat). Thus any and every time we see a banker, or politician, or mainstream drone suggesting negative interest rates as a means of “stimulating our economies” they are lying. It is merely an utterly absurd pretext to supposedly justify more, naked stealing.

In fact, we already have a general, systemic “tax” inflicted upon everyone (except the Ultra Wealthy). It’s called inflation. Every time that corrupt central banks print up a new unit of their fiat currency funny-money, they create inflation. That is the (correct) definition of inflation.

Here we get more lies and perversity. The bankers, and central bankers in particular, lament that we don’t have enough inflation, because we supposedly need more inflation to “stimulate our economies”. Let’s put aside the first, obvious lie: the ludicrous/mythical “inflation rates” fabricated by our corrupt governments. Let’s deal, instead, with the second lie.

Does inflation “stimulate our economies”? We can answer that question by simply looking back in time, to when we had lots of (official) inflation: the 1970s. In the 1970s, did all the inflation created by our central banks stimulate our economies? No. In fact, it was labeled stagflation, and it was universally recognized that inflation (like any tax) does not stimulate our economies. Thus whenever a banker claims that “we need more inflation”, he/she is also lying.

This brings us to the delicious aspect of Deutsche Bank’s ironic suggestion. Because the Big Bank’s foot soldiers are being encouraged to think of more ways to steal-via-taxation, it was only natural that one of those foot soldiers would eventually blurt out the taboo words “wealth taxation”. What makes this deliciously ironic is that unlike the tax of negative interest rates, and unlike the tax of inflation, wealth taxation would actually serve to stimulate our economies, if we used it to replace our destructive/inefficient income taxation system. How? Why?

First we require a quick summary of the destructiveness of income taxation. We officially dwell in “capitalist” economies: nations whose economic growth is derived from profit. What does income taxation do? It taxes profit. It taxes it in the form of wages. It taxes it in the form of dividends and capital gains. It taxes profit in any-and-all forms from our basic commerce.

In other words, income taxation discourages people from increasing their incomes. It discourages people from reaping dividends and capital gains. It discourages people from generating profits in their business enterprises. This is good for our economies? No. How do you destroy any capitalist system (or at least cripple it)? Tax income.

Conversely, by definition, wealth taxation is the broadest form of taxation in existence: everything is taxed. Because wealth taxation is all-inclusive, any wealth taxation system would automatically have a lower tax rate than any other form of taxation system we could imagine. It is thus less punitive on wages, less punitive on dividends and capital gains, less punitive on profit. Because it is all-inclusive, it replaces all these other forms of taxation.

Income taxation is selective taxation. Worse, as previously noted, it is a form of taxation which automatically under-taxes individuals at the top of the wealth totem-pole. This is a matter of simple arithmetic.

For a poor person (someone with little-to-no-wealth), their annual income is virtually equal to their total wealth. Thus, taxing income provides the maximum “bite” on the wealth of the poor. For the average billionaire, his income is (at most) no more than roughly 1% of his total wealth. Tax that income, even at 100%, and the billionaire hardly notices.

Income taxation is a free ride for those on top. Income taxation is more and more punitive, the farther you descend on the wealth totem-pole. Do our societies benefit, as a whole, from providing a free ride for those on top, light taxation for the rest of the Rich, and extremely punitive taxation for the majority?

No. As a matter of elementary economics, what do we know about the wealth of the wealthy, and in particular, the Ultra Wealthy? They hoard it, almost all of it. Because the Oligarch Trillionaires have been allowed to steal most of the wealth from our societies, most of that wealth (our wealth) is now hoarded. It is idle, useless capital – in a capitalist system. We see how our economies are literally starving to death from lack of capital, via a U.S. chart which is familiar to regular readers.



More and more and more wealth is being sucked (illegally) into the hoards of the Ultra Wealthy, via their Big Bank crime syndicate. Less and less capital is circulating in our economies. How do we reverse the economic starvation of our economies? Tax that stolen wealth.

Unlike the Ultra Wealthy, every time a dollar enters the hands of a poor person, they spend almost all of it. That stimulates our economy. Every time a dollar enters the hands of a Middle Class person, they spend most of it. That stimulates our economies. Every time a dollar enters the hands of a rich person, they hoard almost all of it. No stimulus. No benefit for our economies, in any way/shape/form.

As already noted, introducing wealth taxation would reduce the tax rates for those on the bottom. Conversely, a wealth tax would (for the first time in the history of our societies) tax the Fat Cats in a meaningful way. How much of our wealth are the Fat Cats hoarding? How much of our wealth have they stolen? A single headline says it all.

U.S. Wealth Inequality – top 0.1% worth as much as the bottom 90%

This must be restated, in order for the full monstrosity of this truth to be comprehended. In any average roomful of 1,000 Americans, the one Fat Cat would hold as much wealth as 900 of those people combined. That’s a lot of stolen wealth, as certainly the Fat Cat didn’t earn as much as the other 900 people.

Income taxation fully taxes the wealth of the bottom-90%. Income taxation doesn’t even touch the equal amount of wealth held by the Fat Cat. Introducing wealth taxation would thus double the size of the tax base. For the Fat Cat, this means paying a meaningful level of taxation, for the first time ever. For the bottom-90%, who would no longer shoulder the tax burden alone, it means lower taxes.

Lower taxes for the bottom-90% means more dollars in the hands of the poor. Lower taxes for the bottom-90% means more dollars in the hands of the Middle Class. That stimulates our economies. Since the stolen wealth of the Fat Cats just sits in idle hoards, taxing (i.e. liberating) that stolen wealth would have no detrimental impact on our economies. Wealth taxation is win/win.

Income taxation destroys our economies. Hidden taxation, in the form of inflation, destroys our economies. Hidden taxation, in the form of negative interest rates, destroys our economies. Wealth taxation (i.e. a flat wealth tax, universally imposed) would stimulate our economies.

The genie has now been let out of the bottle.

The question is: are any of the bottom-90% even paying attention?




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




A Big Bank Suggests WEALTH Taxation

Written by Jeff Nielson (CLICK FOR ORIGINAL)

Another Deadlocked Election Coming Up In Spain

Submitted by Mike "Mish" Shedlock

Another Deadlocked Election Coming Up In Spain?

After six months of failed coalition attempts, Spain’s King Felipe dissolved parliament and announced new elections. I reported on this last week, but the official document dissolving parliament was signed today. New elections are on June 26. Will the results be any different?

There are 350 seats in Spain’s parliament. Courtesy of the BBC, the 2015 election went like this (blue highlights mine).

Party Leaders

  • PPOE – Former Prime Minister Mariano Rajoy
  • PSOE – Pedro Sanchez
  • Podemos – Pablo Iglesias
  • Ciudadanos – Albert Rivera

Coalition Problems

  • PSOE and PPOE could have formed a coalition, but the result would not have been stable. The party leaders do not get along and the left and right generally don’t mix.
  • The three leftists parties could have formed a coalition, but Podemos is eurosckeptic and in favor of letting Catalonia have a vote on independence. The other two leftist parties are staunch nationalists as well as staunch euro supporters.
  • Ciudadanos ruled out forming a coalition with Podemos for philosophical reasons noted above.
  • Ciudadanos was formed as an anti-corruption party and wants nothing to do with Mariano Rajoy and his totally corrupt PPOE Popular Party either.

Clash of Ideas

The Financial Times explains the blame game as follows.

  • Mariano Rajoy, the acting prime minister and leader of the conservative Popular party, has repeatedly blamed the Socialists for refusing to form a grand coalition under his leadership. “What happened over the past four months must not repeat itself. Vetoes are bad for democracy,” the prime minister said on Monday.
  • Pedro Sánchez, the Socialist leader, has in turn attacked the anti-austerity Podemos movement for turning down his proposal for a Socialist-led government with the centrist Ciudadanos party.
  • Podemos, meanwhile, has lashed out at the Socialists for declining its invitation to form a leftist government.

“A poll by Metroscopia, published in the El País daily over the weekend, gave the PP 29 per cent of the vote, far ahead of its closest rival, the Socialists, with 20.3 per cent.”

Podemos IU Alliance

Let’s complicate the matter further. Podemos just announced an alliance with Izquierda Unida (IU) United Left.

IU received 3.68% of the vote in 2015.

Via translation from El Pais, please consider Podemos Seeks to Unite All Forces Left of PSOE.

Podemos “We Can” has launched new operations in three communities (Catalonia, Galicia and Valencia) to gather support for the upcoming elections. Now, Podemos seeks to expand these agreements not only IU but a whole series of forces to the left of the PSOE with good territorial projection.

In short, Podemos is going after that block of “other” voters in the above chart. If current results hold, Podemos will oust PSOE from the number two spot.

Political Setup

  1. No party is going to achieve a majority.
  2. PSOE and Podemos unlikely to reach 50%
  3. Ciudadanos will not enter a three-way agreement with PSOE and Podemos
  4. If PSOE and PPOE can muster up 50% combined, there will be intense pressure by the king to form an unstable “grand coalition”
  5. If PSOE and PPOE cannot muster up 50%, another failed election is in store.

Budget Analysis

Spain’s budget is way out of control. No matter who gains control, huge budget cuts are coming up. Won’t that be fun?

I expect an unstable “grand coalition” forms. If so, I doubt it lasts a year. PPOE will not like the budget cuts but will have to keep voting for them for the coalition to “work”.

Podemos is waiting in the wings for the upcoming collapse.


Majority Of Germans Think The Media Is Controlled By Political, Economic Elites

According to a recent survey, the majority of people in Germany view the news media as simply a pillar of the government and the powerfully elite. Only one third of the respondents think that the German news media is truly independent, while the majority view the government and parties as having control over particular policies, and the lobbyists and advertisers having control over the economic news.

More than half of the respondents viewed the news media as controlled by the "powerful" in the country, a view which manifested in recent years in the wake of going through crisis after crisis as the media began to be viewed simply as part of the system, or, the Fourth Estate.

Another major issue brought forth by the respondents is that the media reports only the problems, never presents any solutions, and when it came to consequences of political decisions very little reporting was done on the impacts those decisions had on the people.

It's apparent that the German people know their history (e.g. Joseph Goebbels), and have a healthy skepticism for the media. It would behoove everyone to have a bit (a lot) of skepticism about what the media tells them each day, as there are undoubtedly agendas that don't include simply reporting the truth.

Of course, when even the president of the European Union admits to lying, what hope is there for ever discovering the facts?

Of course, telling the truth in a world hell-bent on papering over issues and serving as many agendas as possible is a very difficult and unpopular thing to do. Sadly, there are even media outlets out there who try to take out any of their competition trying to do so.

Guest Post: The Great Western Retreat

Submitted by Giulio Meotti via The Gatestone Institute,

  • Of all French soldiers currently engaged in military operations, half of them are deployed inside France. And half of those are assigned to protect 717 Jewish schools.

  • This massive deployment of armed forces in our own cities is a departure from history. It is a moral disarmament, before a military one.

  • Why does anyone choose to fight in a war? Civilized nations go to war so that members of today's generation may sacrifice themselves to protect future generations. But if there are no future generations, there is no reason whatever for today's young men to die in war. It is "demography, stupid."

On March 11, 2004, 192 people were killed and 1,400 wounded in a series of terrorist attacks in Madrid. Three days later, Spain's Socialist leader, José Luis Rodríguez Zapatero, was elected prime minister. Just 24 hours after being sworn in, Zapatero ordered Spanish troops to leave Iraq "as soon as possible."

The directive was a monumental political victory for extremist Islam. Since then, Europe's boots on the ground have not been dispatched outside Europe to fight jihadism; instead, they have been deployed inside the European countries to protect monuments and civilians.

"Opération Sentinelle" is the first new large-scale military operation within France. The army is now protecting synagogues, art galleries, schools, newspapers, public offices and underground stations. Of all French soldiers currently engaged in military operations, half of them are deployed inside France. And half of those are assigned to protect 717 Jewish schools. Meanwhile, French paralysis before ISIS is immortalized by the image of police running away from the office of the satirical magazine Charlie Hebdo during the massacre there.

French soldiers guard a Jewish school in Strasbourg, February 2015. (Image source: Claude Truong-Ngoc/Wikimedia Commons)

You can find the same figure in Italy: 11,000 Italian soldiers are currently engaged in military operations and more than half of them are used in operation "Safe Streets," which, as its name reveals, keeps Italy's cities safe. Italy's army is also busy providing aid to migrants crossing the Mediterranean.

In 2003, Italy was one of the very few countries, along with Spain and Britain, which stood with the United States in its noble war in Iraq -- a war that was successful until the infamous US pull-out on December 18, 2011.

Today, Italy, like Spain, runs away from its responsibility in the war against the Islamic State. Italy's Defense Minister Roberta Pinotti ruled out the idea of Italy taking part in action against ISIS, after EU defense ministers unanimously backed a French request for help.

Italy's soldiers, stationed in front of my newspaper's office in Rome, provide a semblance of security, but the fact that half of Italy's soldiers are engaged in domestic security, and not in offensive military strikes, should give us pause. These numbers shed a light not only on Europe's internal terror frontlines, from the French banlieues to "Londonistan." These numbers also shed light on the great Western retreat.

US President Barack Obama has boasted that as part of his legacy, he has withdrawn American military forces from the Middle East. His shameful departure from Iraq has been the main reason that the Islamic State rose to power -- and the reason Obama postponed a military withdrawal from Afghanistan. This US retreat can only be compared to the fall of Saigon, with the picture of a helicopter evacuating the U.S. embassy.

In Europe, armies are no longer even ready for war. The German army is now useless, and Germany spends only 1.2% of GDP on defense. The German army today has the lowest number of staff at any time in its history.

In 2012, Germany's highest court, breaking a 67-year-old taboo against using the military within Germany's borders, allowed the military to be deployed in domestic operations. The post-Hitler nation's fear that the army could develop again into a state-within-a-state that might impede democracy has paralyzed Europe's largest and wealthiest country. Last January, it was revealed that German air force reconnaissance jets cannot even fly at night.

Many European states slumber in the same condition as Belgium, with its failed security apparatus. A senior U.S. intelligence officer even recently likened the Belgian security forces to "children." And Sweden's commander-in-chief, Sverker Göranson, said his country could only fend off an invasion for a maximum of one week.

During the past ten years, the United Kingdom has also increasingly been seen by its allies -- both in the US and in Europe -- as a power in retreat, focusing only on its domestic agenda. The British have become increasingly insular - a littler England.

The UK's armed forces have been downsized; the army alone is expected to shrink from 102,000 soldiers in 2010 to 82,000 by 2020 - its smallest size since the Napoleonic wars. The former head of the Royal Navy, Admiral Nigel Essenigh, has spoken of "uncomfortable similarities" between the UK's defenses now and those in the early 1930s, during the rise of Nazi Germany.

In Canada, military bases are now being used to host migrants from Middle East. Justin Trudeau, the new Canadian prime minister, first halted military strikes against ISIS, then refused to join the coalition against it. Terrorism has apparently never been a priority for Trudeau -- not like "gender equality," global warming, euthanasia and injustices committed against Canada's natives.

The bigger question is: Why does anyone choose to fight in a war? Civilized nations go to war so that members of today's generation may sacrifice themselves to protect future generations. But if there are no future generations, there is no reason whatever for today's young men to die in war. It is "demography, stupid."

Spain's fertility has fallen the most -- the lowest in Western Europe over twenty years and the most extreme demographic spiral observed anywhere. Similarly, fewer babies were born in Italy in 2015 than in any year since the state was founded 154 years ago. For the first time in three decades, Italy's population shrank. Germany, likewise, is experiencing a demographic suicide.

This massive deployment of armed forces in our own cities is a departure from history. It is a moral disarmament, before a military one. It is Europe's new Weimar moment, from the name of the first German Republic that was dramatically dismantled by the rise of Nazism. The Weimar Republic still represents a cultural muddle, a masterpiece of unarmed democracy devoted to a mutilated pacifism, a mixture of naïve cultural, political reformism and the first highly developed welfare state.

According to the historian Walter Laqueur, Weimar was the first case of the "life and death of a permissive society." Will Europe's new Weimar also be brought down, this time by Islamists?

What We REALLY Know About the 9/11 Defendants

The government pretends that it’s giving the surviving 9/11 masterminds a fair trial, and that justice will prevail.

The truth may be a wee bit different …

Kangaroo Court Show Trials

Buzzfeed reported yesterday:

The Defense Department has farmed out to a private company much of the criminal investigation and trials of the men accused of plotting the 9/11 attacks on the World Trade Center and the Pentagon, according to federal records and sources affiliated with the trials who spoke to BuzzFeed News.


What’s more, the government has hired the same firm, SRA International, to serve both the prosecution and defense teams, sparking concerns of a conflict of interest that could undermine the integrity of one of the most significant terrorism cases in modern history.

Sound a little odd?  It’s not the only fishy thing about the 9/11 trials …

In 2008, the former chief prosecutor for Guantanamo’s military commissions disclosed that the trials have been rigged to prevent any possibility of acquittal.

Specifically, the head of the Guantanamo tribunal — who is actually in charge of both prosecuting and defending the suspects — told the former chief prosecutor:

Wait a minute, we can’t have acquittals. If we’ve been holding these guys for so long, how can we explain letting them get off? We can’t have acquittals, we’ve got to have convictions.

In addition, three other Guantanamo prosecutors — Maj. Robert Preston, Capt. John Carr and Capt. Carrie Wolf — “asked to be relieved of duties after saying they were concerned that the process was rigged. One said he had been assured he didn’t need to worry about building a proper case; convictions were assured.”

Another former Guantanamo prosecutor resigned, saying in a sworn declaration that the government pulled all sorts of shenanigans in one case.

The head of the tribunal also said that — even if the defendants are somehow acquitted — they may not be released from Guantanamo.

No wonder the American Bar Association, “which the Pentagon had said would help arrange such representation, has refused to participate because it objects to the trial procedures.”

And no wonder the defense attorneys who have agreed to represent the defendants say that the process is completely unfair. See also this interview.

Both the 9/11 Trials and the 9/11 Commission Investigation Were Based on Unreliable Evidence Produced by Torture

The CIA videotaped the interrogation of 9/11 suspects, falsely told the 9/11 Commission that there were no videotapes or other records of the interrogations, and then illegally destroyed all of the tapes and transcripts of the interrogations.

9/11 Commission co-chairs Thomas Keane and Lee Hamilton wrote:

Those who knew about those videotapes — and did not tell us about them — obstructed our investigation.

The chief lawyer for Guantanamo litigation – Vijay Padmanabhan – said that torture of 9/11 suspects was widespread. And Susan J. Crawford, the senior Pentagon official overseeing the military commissions at Guantánamo — the novel system of trials for terror suspects that was conceived in the wake of the 9/11 attacks — told Bob Woodward:

We tortured Qahtani. His treatment met the legal definition of torture.

Moreover, the type of torture used by the U.S. on the Guantanamo suspects is of a special type. Senator Levin revealed that the the U.S. used Communist torture techniques specifically aimed at creating false confessions. (and see this, this, this and this).

And according to NBC News:

  • Much of the 9/11 Commission Report was based upon the testimony of people who were tortured
  • At least four of the people whose interrogation figured in the 9/11 Commission Report have claimed that they told interrogators information as a way to stop being “tortured.”
  • One of the Commission’s main sources of information was tortured until he agreed to sign a confession that he was NOT EVEN ALLOWED TO READ
  • The 9/11 Commission itself doubted the accuracy of the torture confessions, and yet kept their doubts to themselves

In addition, one of the two main "sources" of information for the 9/11 Commission Report - Abu Zubaydah - was touted by the government as one of Al Qaeda's top 3 leaders ... an Al Qaeda mastermind, general,  and terror coordinator. But the government was later forced to admit that Zubaydah wasn't even connected with Al Qaeda at all.

Zubaydah was also literally nutty as a fruitcake years before 9/11, and yet the CIA kept on torturing him until he totally lost his mind and became like a brain-dead, trained dog. And the government touted his information gained from torture as if it were vital fact.

The other main "source" for the 9/11 Commission Report – alleged 9/11 mastermind Khalid Sheikh Mohammed – said that he gave the interrogators a lot of false information – telling them what he thought they wanted to hear – in an attempt to stop the torture. We also know that he was heavily tortured specifically for the purpose of trying to obtain false information about 9/11 – specifically, that Iraq had something to do with it.

9/11 Commissioners Slam Blatant Obstruction of Justice

The 9/11 Commissioners publicly expressed anger at cover ups and obstructions of justice by the government into a real 9/11 investigation:

  • The Commission’s co-chairs said that the CIA (and likely the White House) “obstructed our investigation”
  • The Senior Counsel to the 9/11 Commission (John Farmer) – who led the 9/11 staff’s inquiry – said “At some level of the government, at some point in time…there was an agreement not to tell the truth about what happened“. He also said “I was shocked at how different the truth was from the way it was described …. The tapes told a radically different story from what had been told to us and the public for two years…. This is not spin. This is not true.”

And the Co-Chair of the official Congressional Inquiry Into 9/11 – and former head of the Senate Intelligence Committee – has called for a new 9/11 investigation.

Some examples of obstruction of justice into the 9/11 investigation include:

  • An FBI informant hosted and rented a room to two hijackers in 2000. Specifically, investigators for the Congressional Joint Inquiry discovered that an FBI informant had hosted and even rented a room to two hijackers in 2000 and that, when the Inquiry sought to interview the informant, the FBI refused outright, and then hid him in an unknown location, and that a high-level FBI official stated these blocking maneuvers were undertaken under orders from the White House. As the New York Times notes:

Senator Bob Graham, the Florida Democrat who is a former chairman of the Senate Intelligence Committee, accused the White House on Tuesday of covering up evidence ….The accusation stems from the Federal Bureau of Investigation’s refusal to allow investigators for a Congressional inquiry and the independent Sept. 11 commission to interview an informant, Abdussattar Shaikh, who had been the landlord in San Diego of two Sept. 11 hijackers.

  • The chairs of both the 9/11 Commission and the Official Congressional Inquiry into 9/11 said that Soviet-style government “minders” obstructed the investigation into 9/11 by intimidating witnesses
  • The 9/11 Commissioners concluded that officials from the Pentagon lied to the Commission, and considered recommending criminal charges for such false statements
  • As reported by ACLU, FireDogLake, RawStory and many others, declassified documents shows that Senior Bush administration officials sternly cautioned the 9/11 Commission against probing too deeply into the terrorist attacks of September 11, 2001

So how much do we really know about the 9/11 defendants?

Notorious Hacker Makes 'Bombshell' Claim: "I Got Inside Hillary's Completely Unsecured Server"

In a dramatic development that could lead to renewed focus on Hillary Clinton's email server scandal, NBC reports that the Romanian hacker who first exposed Hillary Clinton's private email address is making a "bombshell" new claim: that he also gained access to the former Secretary of State's "completely unsecured" server.

"It was like an open orchid on the Internet," Marcel Lehel Lazar, who is better known by his handle Guccifer which he used when he first unveiled the formerly unknown domain name of Hillary personal server one year ago, told NBC News in an exclusive interview from a prison in Bucharest. "There were hundreds of folders."

Cynthia McFadden, right, with the Romanian hacker Guccifer in Romania

As previously reported, Lazar was extradited last month from Romania to the United States to face charges he hacked political elites, including Gen. Colin Powell, a member of the Bush family, and former Clinton advisor Sidney Blumenthal.

NBC further reports that according to a source with knowledge of the probe into Clinton's email setup told NBC News that with Guccifer in U.S. custody, investigators fully intend to question him about her server.

To this point Lazar, 44, has not provided documentation to back up his claims, nor has he released anything on-line supporting his allegations, as he had frequently done with past hacks. The FBI's review of the Clinton server logs showed no sign of hacking, according to a source familiar with the case.

Brian Fallon, national press secretary for Clinton's presidential campaign, said Guccifer's claims were baseless. "There is absolutely no basis to believe the claims made by this criminal from his prison cell," said Fallon. "In addition to the fact that he offers no proof to support his claims, his descriptions of Secretary Clinton's server are inaccurate. It is unfathomable that he would have gained access to her emails and not leaked them the way he did to his other victims.

"We have received no indication from any government agency to support these claims, nor are they reflected in the range of charges that Guccifer already faces and that prompted his extradition in the first place," Fallon added. "And it has been reported that security logs from Secretary Clinton's email server do not show any evidence of foreign hacking."

That strawman, of course, now puts Hillary in harms way as it redoubles attention on a scandal that many had decided was likely going to blow over. All that Trump will have to do now is find confirmation that Lazar is telling the truth and suddenly Clinton's email transgressions will get a renewed lease on life at the worst possible moment, just as a federal judge opened the door to interviewing Hillary Clinton as part of a review into her use of a private email server while secretary of State.

All this is happening just as as Hillary thought she had managed to put her email scandals behind her.

According to The Hill, Judge Emmet Sullivan of the U.S. District Court for the District of Columbia laid out the ground rules for interviewing multiple State Department officials about the emails, with an eye toward finishing the depositions in the weeks before the party nominating conventions.

Clinton herself may be forced to answer questions under oath, Sullivan said, though she is not yet being forced to take that step.

“Based on information learned during discovery, the deposition of Mrs. Clinton may be necessary,” Sullivan said in an order on Wednesday. [READ THE ORDER BELOW] Discovery is the formal name for the evidence-gathering process, which includes depositions.

“If plaintiff believes Mrs. Clinton’s testimony is required, it will request permission from the Court at the appropriate time.

In his order, Sullivan pointed to revelations from the emails appearing to show officials trying to evade demands of FOIA.


In one email, for instance, Mull told Abedin that Clinton’s emails “would be subject to FOIA requests” if she used a department-issued BlackBerry, even though her identity would remain secret. Abedin responded that the idea “doesn’t make a whole lot of sense.”


In February, Sullivan ruled that the evidence-gathering process could proceed, and the two sides have been haggling since then.


Sullivan had previously suggested that Clinton could be forced to respond to questions, but his order on Wednesday offered the clearest indication that it remains a real possibility.

The order comes in the course of a lawsuit from conservative watchdog group Judicial Watch, and leaves open the possibility that Clinton will be forced to answer detailed questions on the eve of her formal selection as the Democratic presidential nominee about her creation of the server.

While it is unclear yet if Hillary will be deposed, Sullivan ordered at least six current and former State Department employees to answer questions from Judicial Watch, which has filed multiple lawsuits over the Clinton email case. Among these are longtime Clinton aide Huma Abedin, former chief of staff Cheryl Mills, under secretary for management Patrick Kennedy, former executive secretary Stephen Mull and Bryan Pagliano, the IT official believed to be responsible for setting up and maintaining the server. The judge also ordered the State Department to prepare a formal answer
about Clinton’s emails. Donald Reid, a senior security official, may
also be asked to answer questions, if Judicial Watch so decides.

More importantly, that process is scheduled to be wrapped up within eight weeks, putting the deadline in the final week of June, and well ahead of the presidential election.

* * *

Judicial Watch brought suit against the State Department under the Freedom of Information Act (FOIA) in an effort to bring Abedin’s emails to light. The lawsuit has since evolved into a battleground over Clinton’s use of the private server.

Judicial Watch President Tom Fitton called Wednesday’s order “a significant victory for transparency and accountability,” and promised that it would shine a light on Clinton’s email practices.

“Judicial Watch will use this discovery to get all of the facts behind Hillary Clinton’s and the Obama State Department’s thwarting of FOIA so that the public can be sure that all of the emails from her illicit email system are reviewed and released to the public as the law requires,” he said in a statement.

* * *

Any deposition would surely roil the presidential race and force her campaign to confront the issue, which has dogged her for a year. Once again, this is precisely what Trump will pounce on and will be sure to make it the centerpiece of all his upcoming debates with

Air Freight Volumes Across Largest Global Market Tumble 15% In First Quarter

For years, our biggest lament and recurring confirmation that
unorthodox monetary policies are simply not working, has been tracking
global trade - the lifeblood of any properly functioning global economy - which has not only failed to reach its pre-crisis growth rates, but especially over the past 2 years, has seen slowing dramatically. The latest evidence of this slowdown came earlier today when the International Air Transport Association (IATA) reported that demand
for global air freight, measured in freight tonne kilometres, fell another 2% in March on subdued growth in world trade.


Specifically, the IATA said that air freight volumes declined in annual terms for the second consecutive month in March 2016, and rounded out the weakest opening quarter of the year since 2012.

While the IATA is somewhat hopeful that growth should pick up in the coming months as the US seaport disruption drops out of the annual comparison, it notes that the "broad signs of softness mean that 2016 is shaping up to be another weak year for air freight." Even muted optimism was hard to find in the statement of  IATA Director General Tony Tyler who said that "expectations
of purchasing managers gives little optimism for an early uptick. The
combination of fierce competition, capacity increases and stagnant
demand makes this a very difficult environment in which to generate

The reason for ongoing deterioration in trade - lack of demand: industry-wide capacity has continued to grow strongly as demand has fallen, keeping intense pressure on yields. Available
capacity rose 6.9% in the month, meaning that load factors - how
full planes are - fell by 4.0 percentage points to 43.5%. 

Some highlights:

  • Global air freight volumes fell by 2.0% year-on-year in March 2016, and by a similar amount across the first quarter of the year combined. (Note that the latter period includes a boost from the leap year: adjusting for the extra day in February,  freight volumes in Q1 this year were closer to 3% lower than in Q1 2015.)
  • The annual decline in volumes in Q1 was driven overwhelmingly by North American and Asia Pacific carriers, both of whom enjoyed strong boosts to transpacific air freight at the time of the US west coast seaport disruption in early 2015. (See Chart 1.)  Modest year-on-year increases in FTKs flown by European and Middle Eastern carriers provided a partial offset for total FTKs. (Again, see Chart 1.)


But the punchline, and the main driver for the global trade slowdown, is mostly one. Yes, everyone knows it is the result of major economic problems in China which have depressed Asian trade with North America, but we doubt anyone knew just how bad it was. According to IATA, the latest available data by route show that air freight
volumes across the Pacific – the largest market in terms of air freight
tonne kilometres (FTKs) – were almost 15% lower during the start of
this year compared to the same period in 2015
(Chart 2.)

Some other observations: the underlying backdrop for air freight remains weak – not least because wider global trade growth remains subdued. World trade volumes have grown by just 0.8% in annual terms so far this year. Admittedly, annual trade growth may pick up sharply over the coming months, as the annual comparison is flattered by the downward trend in volumes seen during the first half of 2015. But the key point is that the current upward trend in global trade volumes is very modest (around 1.5% in annualized terms since the middle of last year). Tellingly, world trade volumes in February were only 0.4% higher than at the end of 2014. Moreover, the export orders component of the global  Purchasing Managers’ Index – a closely watched business survey which has a long-standing relationship with growth in air freight volumes – remained in contractionary territory for the second consecutive month in March.

IATA's conclusion:

All told, 2016 is shaping up to be another year of disappointing growth for air freight. Even if FTKs grow in line with their five-year average rate of around 1.5% over the rest of this year, given the poor start, overall volumes would still only expand by 0.6% in 2016 as a whole.

Unfortunately, that priced to perfetion 0.6% trade growth in 2016 - which is a borderline contraction if even one exogenous shock kicks in- will not support the much needed 3.0% global growth, and means that

Source: IATA

They're Bringing Back Feudalism... And Nobody Seems To Notice

Submitted by Nick Giambruno via,

You’ve likely heard that unknown hackers recently attacked Mossack Fonseca, a law firm in Panama that helps people set up offshore companies and bank accounts. They later leaked 11.5 million documents.

Almost immediately, central economic planners at the G20 and OECD—international organizations of the world’s largest economies—took advantage of the “Panama Papers” incident to shove GATCA down the world’s throat.

GATCA is a new “global standard” for the automatic exchange of financial information between governments. It’s modeled on an overreaching U.S. law, FATCA, which forces every financial institution on earth to give the IRS information.

Think of GATCA as FATCA on steroids. If countries widely adopt it, GATCA will deliver the final deathblow to financial privacy.

The G20 and OECD are even threatening to blacklist and sanction countries that don’t sign up for their privacy-killing scheme. Most have already caved. Notable holdouts include Panama, Lebanon and Bahrain.

Ramon Fonseca, a founder of the hacked Panama law firm, has said, “We believe there’s an international campaign against privacy. Privacy is a sacred human right (but) there are people in the world who do not understand that.”

I think Fonseca is absolutely correct.

When Privacy Dies

George Orwell once wrote, “If you want a picture of the future, imagine a boot stamping on a human face—forever.”

Not exactly a cheery thought, I know. But this dark future is, unfortunately, where we may be headed…and soon.

It’s a world where privacy is dead, where the government knows everything about you.

And we’re already almost there.

Today, the government knows what you watch on TV, what you read on the Internet, whom you call, and everything you do on your smart phone and computer. It has a record of every penny you’ve ever earned, saved, borrowed or spent. It knows where you’ve been, where you are and where you’re going.

All this government tracking is possible thanks to the mountain of laws and regulations that sprouted from the war on (some) drugs, the war on terror and so forth. Over the years, these schemes have incrementally destroyed privacy. Now, they’re going in for the kill.

There’s not much about your life the government doesn’t know already. The last vestiges of privacy may vanish very soon. Once that happens, governments will have almost unbreakable control over the individual.

This is exactly the opposite of how a free society works.

This meddling is not about protecting you from drug dealers or terrorists, it’s about the government seizing more power. This is why proponents of big government invariably support measures that kill privacy.

There’s also a psychological aspect to this relentless anti-privacy campaign. The government and its media allies have convinced the average person that “privacy” is a dirty word.

They’ve duped people into believing that only criminals and wrongdoers want privacy. “If you have nothing to hide, you have nothing to worry about,” as the popular, but wrongheaded, adage goes.

Many have forgotten that privacy is fundamental to preserving human dignity and protecting individuals from government overreach.

Financial Privacy and the New Feudalism

Financial privacy is by far the most demonized aspect of privacy. This is a huge clue. Governments wouldn’t hate financial privacy so much if it weren’t so important to individual liberty.

Politicians around the world see citizens as milk cows…they merely exist to be squeezed to the last drop. That’s why politicians are so eager to kill financial privacy. They’re building a giant tax farm and erecting electric fences to keep the cows and their milk from escaping.

Overzealous governments have been attacking financial privacy for decades. Now, they’re within striking distance of killing it once and for all.

I think they’ll use the suspicious Panama Papers incident as the pretext for their final push.

The death of privacy in general, and financial privacy in particular, will have far-reaching sociopolitical consequences. It will irrevocably skew the balance of power in favor of the government and against the individual.


I call it “the new feudalism.”

A world without privacy is a giant step backward for human freedom. It’s the new Dark Ages that George Orwell grimly predicted.

It’s Not Over Yet

While the forces pushing to centralize power have won battle after battle, their victory isn’t yet complete.

Technologies that empower the individual and push toward decentralization—including the Internet, encryption, 3D printing and cryptocurrencies—offer a powerful ray of hope. There are reasons to be optimistic about the future.

So, the tug of war continues…

Politicians around the world are working hard to make the new feudalism a reality. But it’s still possible to escape.

Citi Asks: "Are Investors Beginning To Price In QE4?"

While many investors and analysts are asking when the Federal Reserve will decide to hike rates again, Citi's Global Head of FX Strategy Steven Englander asks a rather different question: Are investors beginning to price in QE4?

He points out that economic data in the U.S. hasn't been very good (sans unemployment headline data), and that for every one positive data release, a series of disappointments follow. He points to the fact that Citi's economic surprise indicator has been dropping since mid-April as reflecting that reality.

US economic data have been soggy, other than labor market data, which means that we get one positive data release a month followed by a series of disappointments. This is reflected in the Citi economic surprise index (Figure 1), which has been dropping since mid?April and where a 0 level would be considered strong outperformance.

The note goes on to say that if investors are starting to price out a June/July rate hike, and are beginning to think that a hike is not likely until May 2017, then that would mean implicitly there is a probability that the economy is bad enough where a rate cut would be warranted. Incidentally, this is precisely what we warned about last August in "Japan's Dire Message To Yellen: "Don't Raise Rates Soon." It appears that Citi has finally gotten the message; we wonder how long until Yellen gets it too.

Considering the Fed downplays every time someone asks about negative rates, a return to the tried and true playbook and pulling out a "hail mary" quantitative easing program, or "QE4" would be the next logical step to get the economy going (in the minds of PhD's sitting in the Eccles Building that is).

My conjecture is that investors have begun to price out June/July hiking risk they are beginning to reject the view that there is a high?probability fed funds path that is as shallow as the market is pricing in. If you really think that a full hike is not likely until May 2017 (as is now priced in), you have to think there is a non?negligible probability that the economy is so bad that you would want to cut. Fed officials turn purple whenever anyone suggests that they might be facing negative rates and indications are that it would be supremely unpopular with the public.


Before you get to negative rates you would have the hail Mary of QE4 which would act mainly to push down long term yields. In the past the prospect of QE supported equity markets, but there is so much skepticism at this point that the equity market reaction is negligible and the brunt of the concerns are falling on USD and long?term yields.

The underlined is actually critical because it goes to the point made earlier by another team at Citi which asked what happens if the Fed did QE4 and nobody bought stocks. That, right there, would be the moment the Fed effectively priced itself out of both credibility and market manipulation; it would also be the beginning of the end for the current iteration of financial markets.

In any event, Englander he's still in the camp that believes there will be two rate hikes, he is a bit "puzzled" as to why others don't see things setting up for further rate hikes. Englander admits that if the data is so soft that investors can only justify one hike a year, there is also a probability that the Fed would want to implement QE4 as a tool to push rates down as a method of stimulating the economy.  

I am still in the two hike camp (along with Lockhart it seems) but am trying to puzzle through what the market sees that is so different. Bottom line if investors see the data as so soft as to justify only one hike a year, they also see the probability distribution of outcomes as encompassing negative rates in theory and QE4 in practice. The implications of this perceived risk are playing out in FX and FI markets.

Recently the DXY broke its 100dma to the downside, reinforcing the above point.

And relative to Japan, who is actively pursuing NIRP, U.S. yields have quite a bit of room to fall further if a veiled NIRP is unleashed in the U.S. via a QE4 program, which as so many "leaders of thought" in the US have already opined is a much more preferable way of pushing if not earnings then at least P/E multiples higher.

With persistently soft economic data, and with Citi themselves warning that there could be even further weakness to come, it would come as no surprise to anyone (at least for those that read Zero Hedge) if the Federal Reserve reversed course and unveiled NIRP in QE4's clothing, while simultaneously ridding banks of those risky energy loans the Dallas Fed claims nobody is worried about.

Freedom Isn't Free: It Costs Taxpayers $700 Billion Per Year

Submitted by Ryan McMaken via The Mises Institute,

In his article on conscription today, Ron Paul writes:

Some proponents of a military draft justify it as “payback” for the freedom the government provides its citizens. Those who make this argument are embracing the collectivist premise that since our rights come from government, the government can take away those rights whether it suits their purposes. Thus supporters of the draft are turning their backs on the Declaration of Independence.

In his use of the Declaration of Independence, Paul is likely referring specifically to Jefferson's core argument found in the second paragraph:

[...Persons] are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it. [Emphasis added.]

These lines are so often blithely and casually quoted that they've become cliché. Nevertheless, a mindful reading of the text shows there is a specific logical argument here:

1. Humans have rights, including life and liberty. (The list provided by Jefferson is explicitly stated to not be an exhaustive list of rights.)


2. The rights do not come from governments, but from some other source that precedes governments and are separate from them.


3. Governments exist for a specific purpose: to secure rights.


4. The governments are instituted by the governed, and the legitimacy of the government depends on the consent of the governed.


5. If the government fails to secure rights, the governed are entitled to abolish or alter the government.

Although the text of the Declaration likely strikes many Americans as rather prosaic, it represents a historically radical strain of thought within the liberal tradition that significantly limits the prerogatives of states. 

Civil Government Has a Very Specific Purpose 

Predating Jefferson by centuries, the liberal ideas behind the Declaration go back even to medieval Thomist thought which regarded civil government as an institution designed to accomplish very specific ends. Thus, the state was limited in its authority to those specific activities necessary to achieve the ends. 

Later, British liberals like John Locke limited civil governments to the realm of protecting "life, liberty, and property." 

In practice, therefore, institutions for policing and security (i.e., military and law enforcement institutions) exist for a single purpose: to secure property rights. If these institutions fail at their jobs, or if the governed withdraw their consent for any reason, military and law enforcement institutions cease to be legitimate. 

Property Precedes States and their Military Power 

This bourgeois liberal emphasis on property hints at other implications for the liberal view of the state: the state only has value insofar as it protects the property that is the state's raison d'etre. Without property, states and their agents — namely, military personnel — have no legitimate value or function. 

In this way then, the liberals understood that the taxpayers, property owners, and citizens of a society are not in debt to the military, which is simply the enforcement arm of the state. Things are in fact the other way around. It is the private property owners who provide the military with a reason to exist, and who also provide it with its funding, its materiel, and — preferably — it's marching orders. Rightly understood, the military is nothing more than the "hired help" for the taxpayers/property owners. 

This is why it is so odd and disordered, as Paul noted in his comments on conscription, to claim that the taxpayers and citizens owe some kind of "payback" to the state or its military arm. In reality, it is the state and its military that should be thanking the private sector for deigning to provide the military and the state with legitimacy and funding. 

And yet, persistent social conventions today encourage the taxpayers to thank the government employees for their "service" in spite of the fact that the taxpayers pay handsomely, and in recent years, the taxpayers have been shelling out over $700 billion dollars in per year in military spending. (That's $5,600 per household per year, not including any state or local law enforcement.) The rest of the federal government, of course, costs even more than that. 

Source: Office of Management and Budget, Table 4.1

Moreover, without the high worker productivity and long hours worked by average Americans, the US government would not have the state-of-the-art equipment and relatively safe conditions it now enjoys. 

The Military Should Be Thanking the Taxpayers

Instead of citizens thanking the military for allowing the taxpayers of the privilege of giving the military arm of the state hundreds of billions of dollars each year, the military should be thanking the taxpayers instead. The taxpayers should be regularly approached on the street by soldiers and other government agents saying things like: 

But don't expect to hear much of this any time soon. Instead, we'll be told how the taxpayers owe it to the government to give even more in terms of labor and freedom via conscription, should the government decide conscription is necessary. 

If you're a young person in America today, you can already look forward to decades of paying thousands every year to support an enormous military, and you'll have virtually no say whatsoever over how those dollars are spent, where they are spent, or even whether or not they'll be used to further tax and regulate your daily life. 

But, that's not enough. "Freedom isn't free," you'll be told, but this isn't in reference to the enormous tax bill you're paying every year. No, this slogan is actually a veiled threat against you and a claim that however much you're paying now in terms of dollars or personal freedom, you should be ready and willing to give even more. 

(NB: In this article, I've assumed that what much of the US military does (i.e., the 2003 invasion of Iraq, which cost the taxpayers $1 trillion) actually has something to do with protecting the property of American citizens. That's an extremely generous assumption, and one rather divorced from reality. But, we'll have to address that at another time.)

"We'll Respond Totally Asymmetrically" - Russia Answers NATO With Three New Deployments

Russia has wasted no time in responding to NATO's decision to deploy 4,000 troops to Russia's border. Defense Minister Sergey Shoigu announced that Russia will be deploying two new divisions to the West, and one to the South (reportedly with 10,000 troops each) in order to counterbalance NATO's increased military presence.

"The Defense Ministry is taking a number of measures to respond to the NATO military buildup at the Russian border. Before the year's end two new divisions will be formed in the Western Military District and one in the Southern Military District." Shoigu said.

Aleksandr Grushko, Russia's envoy to NATO said in response to NATO's plan "we are not passive observers, we consistently take all the military measures we consider necessary in order to counterbalance this reinforced presence that is not justified by anything. Certainly we'll respond totally asymmetrically."

Regarding NATO's confrontational approach, Grushko said "cooperation will be possible only when NATO countries start realizing that the policy of confrontation contradicts their own national interests."

Grushko also warned the U.S. about flying reconnaissance missions over Russia, something they followed through on twice over the past month, as the U.S. continues to push the limits.

"It seems to me that these [reports on potential resumption of flights by US reconnaissance planes] are nothing more than another propaganda volley, but made with an intent. Reconnaissance aircraft will not fly over Russia."

And finally, Russian Foreign Minister Sergey Lavrov sums up what Russia is thinking, which is that NATO is approaching Russia, not the other way around.

"NATO military infrastructure is inching closer and closer to Russia’s borders. But when Russia takes action to ensure its security, we are told that Russia is engaging in dangerous maneuvers near NATO borders. In fact, NATO borders are getting closer to Russia, not the opposite."

Here is a map of Russia's regional military commands. Two divisions will be sent to the Western District, and one to the Southern District.

Incidentally, as joint U.S. military drills began today in Moldova, which is virtually bordering Russia, lawmakers from the Party of Socialists of the Republic of Moldova and other protestors rallied to try and block U.S. military vehicles from crossing the border into Moldova..

Igor Dodon, the leader of the Party of Socialists of the Republic of Moldova called the drills a military occupation.

"Carrying out a march of NATO vehicles in Moldova can only be described as the military occupation of the country. It is a rough slap to the Constitution of the Republic and to the Parliament that adopted the declaration on permanent sovereignty and neutrality of Moldova"

* * *

With tensions already rising between the U.S. and Russia already, one incident in this newest development in the clash of militaries could very well lead to war. Furthermore, in the event of the U.S. electing a President Trump, with his shoot first, ask questions later attitude; or a President Clinton, with her neocon hawk backers pushing and prodding the world to the brink, may take the world there anyway.

Breaking Down Warren Buffett's Rosy Outlook For America

Submitted by Simon Black via,

There’s something about being insanely rich that people will believe every word that comes out of your mouth no matter how bizarre.

And no, I’m not talking about Donald Trump. Warren Buffett is an even better example.

As one of the richest men in the world, Buffett’s opinions carry almost Biblical impact, even when they might be completely ridiculous.

Just a few days ago, for instance, he quipped that drinking Coca Cola is better for him than eating broccoli.

He’s also famously expressed contempt for owning gold, suggesting instead that people should simply own a US stock market index fund (like the S&P 500) and hold it for 50 years.

Curiously, though, gold has vastly outperformed both the S&P 500 and Dow Jones Industrial Average over the past half-century.

While the S&P 500 index is up 24.3x in that period and the Dow Jones Industrial Average is up 18.2x, gold has appreciated 36.6x.

Even when taking into account the effects of dividends, fund expenses, cash drag, taxes, etc. the evidence still doesn’t support Buffett’s assertion. Yet people believe him.

But perhaps one of Buffett’s most popular opinions is that America is simply awesome and will only get better.

He’s spoken and written extensively in his annual reports that America is the #1 place to be in the world, that the massive opportunity in the Land of the Free will only get better, and that the United States has “never been greater”.

Buffett is right that the United States is an amazing place.

It was founded as a land of opportunity where hard work, risk taking, and a little bit of luck resulted in incredible prosperity.

And some of those elements do still exist.

But Warren Buffett’s outlook on the United States is underpinned by an assumption that the next 50 years will look like the previous 50 years.

That’s clearly not the case.

When Warren Buffett’s company Berkshire Hathaway was rapidly expanding in the 1960s and 1970s, the US government’s debt level was low and the dollar was strong.

Since then there have been MILLIONS of pages of regulations created in the Land of the Free, trillions of dollars worth of debt accumulated, and countless dollars conjured out of thin air.

Buffett is well known for having a very long-term view on things. For him, the typical holding period for owning stocks is ‘forever’.

And that’s a great outlook to have when the fundamentals are in your favor, i.e. if you own shares of a great company with honest, competent management.

But you can’t hold the view that in the long-run everything will always be better.

15 years ago Yahoo, Motorola, and Nokia were three of the top technology companies in the world.

Apple was still years away from launching the iPhone. Few people had heard of Google. And Mark Zuckerberg was still in high school.

But these circumstances changed. Quickly.

Nations and economies also change. History is very clear on this point: wealth and power shift.

Just because a country might be at the top today doesn’t mean it will be that way forever, especially when the nation’s fundamentals and economic headwinds grow worse each year.

So with due respect to Warren Buffet’s investment acumen, there are decades of economic trends, millions of pages of regulations, and thousands of years of human history proving that his outlook on America is wrong.

This matters. It’s important to look at the world with full view of objective data.

And being objective doesn’t mean that you’re pessimistic or negative.

It means that you can make plans and draw rational conclusions based on facts, not based on propaganda or the way we wish things could be.

China Warns 'Will Respond To Trump Presidency'

Speaking through its mouthpiece Global Times, China has published its first reaction to "unpredictable" Trump's position as presumptive Republican nominee and their expectations of a Trump vs Clinton fight for The White House...

The GOP presidential front-runner Donald Trump won a sweeping victory in the Indiana Republican primary on Tuesday, dealing a heavy blow to his rival Ted Cruz, who dropped out of the race later that night. Trump cleared his way to the Republican nomination for the 2016 US presidential election. Chairman of the Republican National Committee Reince Priebus declared Trump to be the party's "presumptive" presidential nominee and called for unity against Hillary Clinton.


Trump's breakthrough in the Republican primaries has caused a sensation in US politics, public discourse and the international community. At the beginning of the race, most analysts and observers believed that Trump was no more than a clown. A few months ago, few people believed that the endgame would be between Trump and Clinton.


Although many analysts still insist the odds are in favor of Clinton, they are somewhat uncertain about the final result. Trump's performance in the primaries has proven them wrong. Why can't the unstoppable candidate prove them wrong again?


If Trump really captures the White House, what will it mean? This scenario is becoming increasingly serious.


The US traditional political elite and media have long ignored the drastic changes in US society. Rising against the repression of the GOP establishment and the mockery of US mainstream media, Trump will substantially shake the conventional US' way of operation. Acquiring more authority from US society, he will be expected to bring in more reforms, that might change many established policies.


According to Trump's current policy proposals, a Trump-led US might be inclined to isolationism and attach more importance to "America First," and American economy. Ideology will be downplayed. Washington might engage in more squabbles with its free-riding allies, and tighten up its immigration policy which as a result will upset the Latin Americans. After enjoying massive trade surplus from the US for years, China and Japan will be demanded by Washington to widen market access.


If Clinton is elected, the US politics will be more predictable and revolve around the previous orbit. Although Washington is expected to be tougher on Beijing, its policies are controllable. While Trump represents pragmatism, Clinton prioritizes ideology in political affairs. To China, this distinction is more important. Clinton sees the Sino-US relationship from a traditional perspective, and Trump from a much newer viewpoint. The latter will bring changes to the Sino-US relationship.


However, a single individual is unable to dictate the Sino-US relationship and the US domestic issues. If elected, Trump will be restricted by interior and exterior realities. As a result, he will be subject to "transformation." In fact, the "transformation" is an interaction between Trump and the US. He will be more prudent if taking office in the White House. In fact, compared with the past, Trump has become more attentive to his words.


If elected as the president, Trump's ability to take action and make change will not be as great as suggested by his unrestrained performances. He has already "created history" today. Even if he is defeated by Clinton, Trump has deeply impressed the US politics.


The US election pattern is basically finalized: Trump versus Clinton. It will be a super political show, attracting unprecedented attention and closely bound up to the world interests. While Trump is a practical business tycoon subverting US political correctness, Clinton is a former secretary of state and former first lady, representative of US political correctness and the mainstream thoughts.


Improving strength is the most reliable way to respond to the US uncertainties. We believe that no matter Trump or Clinton, they will see a "China with strength" from different perspectives.

*  *  *

So it would appear China favors the "status quo" of Clinton and while not fearing a Trump presidency, is more than willing to respond to any isolationist actions with "strength."

Watch Live: John Kasich Announces End Of His Presidential Campaign

It's all over but the press conference (and perhaps elbowing his wife in the face). Watch John Kasich announce he is taking the exterminaTed way out, and also suspending his presidential campaign one day after Ted Cruz did the same, and leaving Donald Trump the official GOP candidate.

Update: as expected, Kasich's announcement will be that he is indeed suspending his campaign, and with that Trump is the official presidential candidate of the Republican party.

BREAKING: John Kasich to suspend his campaign for president, senior campaign adviser says - @mitchellreports

— NBC Nightly News (@NBCNightlyNews) May 4, 2016

* * *

It appears that less than one day after Ted Cruz announced he is quitting the race, the last hurdle to Donald Trump becoming the official GOP candidate instead of just the "presumptive" one, is about to fall: according to CNN's Phil Mattingly the republican challenger has just cancelled a press conference in Virginia and will make a statement in Ohio this afternoon at 5pm. We assume it is to announce he too is withdrawing from the race.

Kasich press conference in Virginia has been canceled. Statement in Columbus at 5pm.

— Phil Mattingly (@Phil_Mattingly) May 4, 2016

More from The Hill which effectively confirms the speculation that Kasich is finally out.

Republican presidential hopeful John Kasich canceled a planned Wednesday morning news conference outside Washington D.C., and now plans to address the media in Ohio later Wednesday afternoon.


A campaign aide told a group of reporters awaiting the Ohio governor in Dulles, Va., that he will will instead make "an announcement" at 5 p.m.


The cancelation stokes speculation that Kasich will drop out of the race, the morning after Ted Cruz withdrew his presidential bid.

Odds Are Stacked Against Equity Investors

Authored by's Michael Lebowitz, via,

While there is no doubt that patience is a virtue for investors, exercising prudence is equally important. In our prior article “Limiting Losses”, we examined how taking prudent measures, at certain times, can enhance your ability to create wealth over the long-term for your clients.  Despite basic math and historical evidence proving its usefulness, investors typically ignore prudence, especially when it is required most. The siren’s song of a rallying market inevitably proves too compelling for many investors.

On the heels of the first quarter’s GDP release we share our concern that the probability of a recession continues rising while stock prices remain at historically high valuations. Now may be a good time to heed history’s warnings. The focus of this article rests on one simple fact- recessions are not good for stock prices.



In the most recent GDP release the Bureau of Economic Analysis (BEA) reported 0.50% annualized economic growth, a sharp departure from the 1.40% annualized growth of the prior quarter.  Economic growth is now running below a 1.00% annualized rate for the last two quarters and has been trending lower for the last two years as graphed below.

Economists consider this quarter an anomaly as judged by their forecasts for a rebound in the second quarter. The current consensus projection for the second quarter ending June 30, 2016, is 2.50%.  Despite a secular trend of slowing domestic economic growth and global economic weakness, few economists are predicting a recession this year. Then again, few have ever correctly forecast a recession.

The graph below highlights the slowing secular trend in GDP growth and the series of cycles through which the U.S. economy tends to move. Note that five of the last seven economic cycles have progressively peaked at lower levels. If the current cycle peaked in mid-2015 (labeled “peak?”), a multi-year decline in GDP growth is likely. The average decline in economic growth from peak to trough for the seven cycles has been -4.3%, with -3.0% being the smallest decline.  A 3.0% decrease from the current level of 2.3%, implies that the U.S. economy will have a three-year period averaging -0.7% growth.

If economists are correct and economic growth in the second quarter remains true to forecasts, the economy will avoid a recession in the first half of the year. That said, we must consider that while economists foresee a pickup in economic activity, relying on their forecasts is dangerous. On February 14, 2016, the Atlanta Federal Reserve was forecasting first quarter economic growth of 2.7%, and a consensus of economists expected 2.1% growth. Based on the recent GDP data, those forecasts were grossly off the mark, leaving one to question the integrity of second quarter forecasts.

Regardless of whether or not the first half of 2016 will be labeled a recession, one prudently should consider that the current period of economic growth, following the great financial crisis, is long in the tooth.  The current economic expansion is now the second longest period of sustained economic growth in over 65 years. Suggesting that the economy is due for a recession is not an overstatement.



Equity valuations are higher than average by many measures. In “A Bug in Search of a Windshield” we gave one example- “The current P/E is 55% above the historical mean and surpasses 92% of all P/E data. Only multiples from the 2000 and 2008 bubble periods were higher than today”. Doug Short created a simple model that averages four common equity valuation techniques. Based on his analysis, the market is 76% overvalued as compared to the average dating back to 1900. According to his analysis (link), current valuations are only surpassed by the exuberant markets leading into the depression of the 1930’s and the tech crash of the early 2000’s. Suggesting that equities are at lofty valuations and prices is not an overstatement.


GDP and Valuations

The possibility of a recession while equity valuations are extreme is deeply troubling.  Since 1929, there have been 14 recessions. All but one, in 1945, coincided with a period of negative returns for stocks. Included in this data, as shown in the table below, are periods when stock valuations ranged from greatly undervalued to extremely overvalued. Data and Table Courtesy Doug Short

Most concerning to us are the top four rows. During these three historic periods and the current one, (“We are here”) valuations were/are extreme as shown in the middle column. The average stock market decline of the three historical periods was 62%. Based solely on historical data and current valuations versus the mean, a 50%+ drawdown would follow historical precedence.  Suggesting that a severe drawdown could occur is not hyperbole or an overstatement.



This article provides more supporting evidence that the odds are stacked against equity investors. That does not mean the market cannot go higher and exhibit even greater speculative fervor. However, as fiduciaries, we must consider the long-term benefit of limiting drawdowns, especially when there is historical reason to believe they could be extreme. While it is not easy going against popular wisdom, we recommend exercising prudence and taking some chips off the table.

We end with an interesting fact. The current stock market is in the midst of the second longest bull market since the great depression, only surpassed in duration by the 4,495-day bullish run of the 1990’s.

"Nothing Has Been Fixed" - Citi's Five Reasons Why This Sucker Is Going Down

As a result of the dramatic surge in the S&P500 from its February lows, which erased the worst ever start to a year, and nearly regained the all time highs in the US stock market on a combination of a central bank scramble to reflate, the "Shanghai Accord", and the most violent short squeeze in history, coupled with a historic credit injection by China which as we first reported amounted to a record $1 trillion in just the first three months of the year...


... economists have shelved discussions about the threat of a US recession.

That is a mistake.

According to Citi, the Q1 2016 stabilization in Chinese, EM and global growth looks fragile and is likely to be temporary. In other words, nothing has been fixed. In fact, Citi goes on to say precisely that:

In particular, none of the structural headwinds that seem to have plagued the global economy in recent years (a mix of excessive indebtedness, deteriorating demographics, rising political uncertainty as well as the end of the China growth miracle and the commodity supercycle) have been resolved.

Looking forward, these are the four key risks that keep Citi up at night "in the near term."

  • The Chinese stabilization could be even more short-lived than we currently expect. As noted above, the duration of China’s old-style investment-led fiscal stimulus and credit binge may prove rather short, as Chinese policymakers pivot back and forth between supporting growth and supporting reform and rebalancing. In the light of the evident imbalances and excesses in the Chinese economy, the Chinese stimulus may also prove to be less effective in sustaining aggregate demand – even in the short run – than hoped for.
  • One contributor to the potential stabilization in China’s and EM activity has been the weaker US dollar and receding expectations of a US rate hike. But these may well prove temporary. In particular, financial markets probably currently underprice the risk of Fed rate hikes over the next year or two (our US team currently expects one more hike in 2016, probably in September, but the next hike could also happen in June or, more likely, July). It remains to be seen whether EM financial conditions and the tentative stabilization in EM economic activity would prove resilient to renewed Fed tightening and dollar strength.
  • A US downturn could threaten. The recent weakness in the US data, continued cautious behavior of US consumers, and the lack of "animal spirits" to raise investment spending leave questions as to whether there may be further economic weakness to come.
  • Political risks in Europe are high and rising. The UK’s upcoming EU referendum (June 23) remains a key uncertainty for the coming months and we believe Brexit, if it happens, would be a major negative in economic and political terms for the UK and EU as a whole. We still put the probability that the UK votes to leave the EU at 30-40% – i.e. not our base case but by no means a trivial risk – but there are some reasons to think that the risk may be even higher. And Brexit is by no means the only source of political uncertainty and risk in Europe, with new elections due in Spain, high support for non-mainstream parties in many countries including Austria, France, Italy, the Netherlands, Sweden, Denmark, Hungary, Poland and Slovakia, and rising non-mainstream support even in Germany.

But what may be the biggest concern to Citi is that the credibility - and ability - of central banks, to effectively prop up the system is now openly in question:

The recent IMF-World Bank Spring Meetings made clear that the perceived reduction in global recession risk was greeted with a major sigh of relief from policymakers around the world. This is in at least part because it may not be straightforward to come up with an appropriate policy response in the event of a major downturn. Of course, there are still various options for stimulus in most economies. On the monetary side, the ECB highlighted that a pivot towards more domestically-oriented easing (including credit easing implemented through purchases of corporate bonds and subsidized (negative interest rate) loans to banks) is possible; the BoJ has shown that purchases of equity ETFs and REITs are among the tools of policymakers; and for both the BoJ and ECB, there is probably some more room to lower policy rates (including offering (more) negative interest rates on loans to banks) and to increase purchases of public assets. Yet it is almost universally acknowledged that the incremental boost to demand from monetary stimulus is diminishing and the side-effects (including political side-effects) may be rising.


If monetary options are limited, the obvious alternatives would be stronger fiscal or quasi-fiscal support or, indeed, the much-heralded ‘three-pronged strategy’ of combining monetary and fiscal stimulus with structural reforms. But even though, at least in the advanced economies, fiscal policy is slowly and gradually turning less procyclical and more supportive of economic activity, hurdles (legal, ideological, political or reflecting (lack of) fiscal space) to timely and sizable fiscal stimulus remain relatively high in most economies. Meanwhile, prospects of structural reform remain rather limited across both DMs and EMs. The limited likelihood of effective policy stimulus in the event of a downturn therefore adds to the potential fragility of the recent more positive developments in financial markets and real activity, if sentiment (business, consumer or financial market) were to turn more pessimistic again and /or if one or more of the adverse contingencies listed above were to materialize.

Which is ironic, because now that asset prices and thus the market is the only real mandate of the Fed, the moment there is an uncontrolled drop in the S&P500 or any other global market, is when the global central bank put will finally be put to the test, and if Citi is right, it will be exposed as the bluff it was all along.

Which incidentally explains why the SF Fed's John Williams just two days ago explained what he thinks may be the biggest systemic risk factor: dropping asset prices. From Reuters:

San Francisco Federal Reserve President John Williams reiterated Monday his view that the U.S. economy is ready for higher interest rates, but flagged the risk of broad-based declines in asset prices as a result


Speaking at a panel on systemic risk at the Milken Institute Global Conference, Williams said the biggest systemic financial risk currently is the possibility that "broad sets of assets are going to see big movements downward" as interest rates rise. "That's an area that I think is a potential risk."

Ignoring the insanity that the Fed now has to warn that a market selloff is a "systemic risk", it also exposes not only the weakest link in the modern financial system, namely artificially inflated prices, but by definition confirms that just like in China where having a bearish opinion is now officially prohibited, it reveals that the market is only where it is due to constant and unrelenting central bank intervention, something "conspiracy theory" fringe blogs have been saying for nearly a decade.

For those wondering how to trade this, we unfortunately have no advice: because if one is buying puts on expectations of the Fed losing control, we have bad news: the market will simply be shut down and all capital flows will be halted indefinitely before true price discovery is allowed. As such those hoping to be paid when all central bank control is lost will be disappointed. It is also why none other than JPM warned last Thursday that the best option is not to bet on financial assets, either long or short, but to move into physical assets among which, JPMorgan listed, gold.

Three In A Row...

Two days ago, when looking at the latest "Senior Loan Officer Opinion Survey on Bank Lending Practices", we showed that Fed lending standards had tightened for the third quarter in a row, and pointed out that in recent history this has never happened without either a default cycle, or a recession, following immediately after.


Today, as part of its brand new daily report "Credit Bites" titled "3 in a row..." Deutsche Bank takes on the same subject, and notes that the April survey showed that on balance, banks tightened lending standards on commercial and industrial loans during Q1, even if lending standards on loans to households were said to have eased. It then updates a couple of charts DB uses to show the correlation between the C&I Loan Standards and US HY defaults (12 months on) and also that the yield curve is a good lead indicator of the direction of lending standards around 18 months in advance.

From the note:

We've now seen three consecutive quarters of net tightening of C&I lending standards in the US (Figure 1, left) and previously whenever this has happened it has ultimately led to a full blown default cycle – albeit with only three cycles of data to examine. The series does tend to exhibit sweeping cyclical tendencies with momentum and is not prone to random fluctuations. So it's a worry that we've entered the net tighten stage and have stayed there for three quarters now. The good news is that although it points to a continuation of the rising default trend over the next 12 months, the net tightening (+12) is still relatively mild.



The shape of the yield curve suggests more tightening to come though (Figure 1, right). A reminder that we like the yield curve as a lead  indicator as it is in our opinion a very good proxy for animal spirits. When the yield curve is steep, animal spirits should be high as the risk rewards to investing out the curve are high. The opportunity costs of being defensive at the front of the curve are potentially very high. When the yield curve flattens the risk/reward reduces and animal spirits should fade and lending standards should gradually tighten. To exaggerate to illustrate when we have an inverted yield curve animal spirits should be severely curtailed as any kind of lending/investing out the curve carries a poor risk/reward profile and potentially negative carry.


To date the US yield curve hasn't yet indicated a full blown default cycle but
the momentum remains worrying. The debate still rumbles on as to whether
this cycle is different given the artificial nature of both ends of the major global yield curves. Although the last 4 US recessions have been preceded by an inverted yield curve, not all post WWII recessions saw an inversion beforehand but all saw a flattening of the curve (Figure 2). Maybe we won't see an inversion this time round prior to the next recession due to the extremely low Fed funds rate.


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Or maybe it is all a matter of how one looks at the yield curve: recall that as we showed 3 months ago using a BofA adjustment to the OIS curve to factor in the Fed's interventions, the curve is already inverted:

Applying our methodology to the OIS curve, we found that the adjusted 3m5s OIS curve at -30bp is already inverted. This suggests that the curve already could be priced for a recession (Chart 12). Granted, our methodology signaled a false alarm in 2012 when the curve was also inverted but a recession did not follow (Chart 12). However, at that time the curve flattened to extreme levels because of the forward guidance, an unprecedented event in the history of US monetary policy. In contrast, this time the curve flattened following the Fed hike, which looks more like a typical curve inversion episode. In fact, the Fed was hiking in all previous historical episodes where the curve inverted ahead of US recessions (Chart 8). From this point of view, the current curve flattening may be more worrisome.

In any event, it is now up to the Fed to pull an ECB -perhaps in the form of monetizing corporate debt and/or loans- and to find a way to open up credit channels, as otherwise it will be very difficult for cash strapped companies to avoid both a default cycle and the recession that - at least bast on historical data - will follow.