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For Today's Investors: Ignorance Is Not Bliss - It Is Oblivion

Submitted by Tim Price via The Cobden Centre,

“We’re not gonna make it, are we ? People, I mean.”


“It is in your nature to destroy yourselves.”


“Yeah. Major drag, huh ?”


From James Cameron’s ‘Terminator 2: Judgment Day’.

Here is a thought experiment. It is January 2000. The last wild Pyrenean ibex has been found dead, squashed by a tree. America Online has just announced an agreement to buy Time Warner for $162 billion – the largest corporate merger in history. It is all very exciting. Suddenly, a sourceless wind rises; papers blow across the pavement; windows rattle; the air fills with electrical crackling. Arnold Schwarzenegger emerges from the darkness. “It is 2015,” he tells you in his distinctive Austrian drawl. “The US unemployment rate is 5.4%. The S&P 500 is at a record high. We have record M&A activity. The corporate debt markets are booming. High end real estate is on fire. A Picasso has just broken the record for artwork sold at auction.”

“So where are US interest rates ?” you ask the Austrian Oak. “Where are Fed Funds ?”

He is impassive.

“Fed Funds are at zero. The Fed Funds Target Rate for the upper bound is 0.25%.”

“Wow,” you respond.

Too right. If you could have told anyone back in 2000 just how insane monetary policy would have become by 2015, they probably wouldn’t have believed you.

But it is what it is.

Human beings are suckers for a narrative. We love stories, perhaps more than we like reality itself. A team of equity analysts at Citigroup – no stranger to boom and bust, having gone bankrupt itself at least twice – has just published “It’s bubble time”, a note on the current madness of markets.

Citi identify four key drivers to bubble conditions:

  • A ‘new paradigm’ story with convincing fundamentals
  • Excess liquidity
  • A demand / supply imbalance
  • Business risk amongst asset managers.

Doug Noland takes up the story:

By their nature, the final phase of an epic Bubble will indeed “destroy many contrarian investors.” There’s a confluence of important dynamics at play. First, during final Bubble phases, officials are by then responding to serious fundamental deterioration with heightened policy desperation. So-called “bears” – positioned based on negative fundamental factors – are squashed by the policy whirlwind. Meanwhile, flows gravitate to the most bullish and aggressive (tending to be those content to overlook weak fundamentals and fragilities).


Such a backdrop foments dangerous Bubble Dynamics. “Money” chases inflating risk markets, while a depleting few retain the resources or willingness to take the other side of this “bull” trade. The upshot is a self-reinforcing market supply/demand imbalance. Over time, as bull market psychology and speculative impulses build, unhinged markets succumb to upside dislocation and “melt-up” dynamics: Too many anxious buyers facing a dearth of sellers.”

There is, of course, a crowning irony in the supposed custodian of monetary stability, the Fed, being behind most of the fundamentals (overly easy monetary policy, and huge surplus liquidity), but we’ll pass over that. Janet Yellen is only human too, after all, presumably.

And there’s another gigantic irony at work – the suggestion that the financial services industry is itself hard-wired for the creation of bubbles:

“From Citi: “Business/Career risk: A weary client once defined a bubble to us: ‘something I get fired for not owning’. It is career-threatening for an asset manager to fight a big bubble. For example, the late 1990s TMT bubble almost destroyed the value-based fund management community. Any bond manager hoping that valuations were mean-reverting would have been fired many years ago. Big bubbles are especially dangerous. TMT stocks already represented a large part of equity market benchmarks when they rerated aggressively in the late 1990s. By contrast, Biotech stocks might currently be expensive but their small market cap means they are still not a big benchmark risk.


You don’t get fired for not owning Biotech stocks now, but you did get fired for not owning TMT stocks in the late 1990s. Bubbles are obvious in hindsight, but they are very hard to fight in real time. Indeed, proper bubbles are so overwhelming that they force sceptical fund managers to buy into them in order to reduce benchmark risk and avoid significant asset outflows. As these sceptics capitulate, of course they contribute to the bubble and so force other sceptics to capitulate and so on and on until there are no sceptics left to capitulate. It makes sense for an asset management company to manage its business risk but this can end up contributing to the madness.”

There is a rational question to pose at this point: why follow the benchmark, in anything ? Bond indices allocate the largest weights to the most heavily indebted issuers. From the perspective of quality, this is clearly nonsense. Equity indices allocate the largest weights to yesterday’s winners, which tells you precisely nothing about the future – only that investment policy out of the rear view mirror might not be the best tactic for survival in a world of dynamic change. The rational response is to throw the benchmark out of the window and practise something more sensible.

Doug Noland, again:

I would, however, suggest that it is not so much that “modern fund management is almost hard-wired to produce bubbles” as it is that the entire financial services complex has been transformed by central banks inflating serial Bubbles. Inflation psychology has become deeply, deeply ingrained: everything revolves around purchasing securities that will benefit from ongoing central bank market manipulations and interventions. To survive has meant to climb aboard the great bull. This ensures the entire industry is now on the same side of the “trade” – with functioning “two-way” markets relegated to history. And markets will remain seductively “abundantly liquid” only so long as bullish psychology is sustained.”

There is something exquisitely awful about the whole mess. The central bank is tasked with maintaining monetary stability and yet is in the midst of inflating the most terrifying bubble in history. Fund managers are tasked with shepherding their clients’ assets through this uncertainty and yet they are the very players gate-crashing the party even as the cop cars arrive outside.

From ‘Supermoney’ by Adam Smith:

“We are all at a wonderful ball where the champagne sparkles in every glass and soft laughter falls upon the summer air. We know, by the rules, that at some moment the Black Horsemen will come shattering through the great terrace doors, wreaking vengeance and scattering the survivors. Those who leave early are saved, but the ball is so splendid no-one wants to leave while there is still time, so that everyone keeps asking, “What time is it ? What time is it ?” But none of the clocks have any hands.”

By the time the sequel to ‘Terminator’ has come around, Arnie’s killer cyborg has morphed into an altruist fighting for humanity and not against it. “Come with me if you want to live.” The advice he might give comes straight from the American author Philip Wylie (hat-tip to Rob Chapman):

“Ignorance is not bliss – it is oblivion. Determined ignorance is the hastiest kind of oblivion.”

As investors, we have all been warned. Not by the future, but by the past.

Junk-Rated Chicago Has A Billion Dollar Pension Problem

Last week, Chicago got some bad news from Moody’s. On the heels of an Illinois Supreme Court decision that struck down a pension reform law, the ratings agency cut the city to junk status, triggering some $2.2 billion in accelerated payment rights for the city’s creditors and complicating Mayor Rahm Emanuel’s efforts to refinance nearly a billion in floating rate notes and borrow another $200 million to pay off the accompanying swaps.

The Moody’s downgrade in many ways punctuates what has been a rapid deterioration in state and local government finances across the country, a situation that’s forcing lawmakers to slash budgets and cut funding for a variety of state-funded programs. 

As a refresher, here’s some context on Chicago’s underfunded pension problem:

In downgrading the city, Moody’s said it expected “Chicago's credit challenges will continue, both in the near term and in the long term [as] unfunded liabilities of the Municipal, Laborer, Police, and Fire pension plans grow and exert increasing pressure on the city's operating budget.” That looks to have been an accurate assessment, because as Bloomberg reports, Chicago’s budget gap is set to triple by 2017.

Chicago's budget gap is expected to triple with statutory contributions to pension funds, after the city improved its fund deficit for four straight years to less than $300 million in fiscal year 2015.


"Notwithstanding the gains achieved by the city in recent years in addressing its structural budget deficit, the budget gap in coming years is likely to widen from the 2015 level due largely to growing salaries and wages and funding requirements from city pension plans," Chicago bond documents, released yesterday, said. A budget gap of $430.2 million was projected for 2016 and $587.7 million for 2017. However, "statutory obligations to the [police pension fund] and [firemen's pension fund] will, in the absence of legislation modifying the city's contributions to these funds, increase the projected budget gaps for 2016 and 2017 by more than $500 million," the documents said.


So Chicago taxpayers, get ready to take one for the team, because as one muni bond analyst told the Chicago Tribune earlier this month, “raising taxes is going to have to be a part of the solution.”

*  *  *

Incidentally, this is just one more example of the unintended (we hope) consequences of monetary policy gone ZIRP, because when reality forces you to lower the rate of return you can expect on your investment, your unfunded liabilities balloon, and as you can see from the following table, the assumed rates of return for Chicago’s pension funds are nowhere near the risk-free rate meaning, in short, this could get very, very ugly.

Guest Post: 10 Images That Suggest America Is Becoming A Lot Like Nazi Germany

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

The history books tell us about how evil and wicked the Nazis were, so why aren’t we more alarmed that the United States is becoming more like Nazi Germany with each passing day?  More than three years ago, I wrote an article entitled “25 Signs That America Is Rapidly Becoming More Like Nazi Germany” which got a ton of attention.  Unfortunately, nothing has gotten better since I first published that piece.

Government control freaks are still watching us, tracking us, recording our phone calls and monitoring our emails.  TSA thugs at our airports are still fondling the private parts of our women and children and laughing while they do it.  Our police and our military are still training for civil unrest and martial law in AmericaAnd even though our politicians are socializing our economy and destroying our constitutional freedoms, the American people keep sending most of them back to Washington time after time.  It is an incredibly sad thing to watch the country that you love slowly die right in front of your eyes.

At the heart of Nazism was a desire to control everyone and everything, and that is exactly what we are seeing in America today.  Most of our “leaders” are psychotic control freaks that want to micromanage every aspect of our lives.  For example, a bill that was just introduced in Congress would force all children in public schools nationwide to be vaccinated with no exceptions whatsoever.  Other new legislation that was just introduced would ban all sales of ammunition over the Internet and require ammo dealers to report all bulk sales to individuals to the government.  Our founders intended for this nation to be a place where individual freedom and liberty were maximized, but today we literally have millions of laws, rules and regulations that wrap us so tightly in red tape that we can hardly breathe.

To say that we are becoming just like the Nazis is a very strong statement, but I think that after reviewing the evidence you will agree with me.  The following are 10 pictures that show how America is becoming just like Nazi Germany…

#1 It surprises most people to learn that the Nazis were actually radical leftists that had great animosity for free market capitalism.  For example, National Socialist theologian Gregor Strasser once made the following statement

We National Socialists are enemies, deadly enemies, of the present capitalist system with its exploitation of the economically weak … and we are resolved under all circumstances to destroy this system.

With that in mind, I want you to check out the following political cartoon from 1934.  The same kinds of things that helped the communists rise to power in Russia and the Nazis rise to power in Germany are happening in the United States today…


#2 Just like in Nazi Germany, political leaders in America tend to foster cult followings.  At this point, there are millions of Americans that would support Barack Obama and believe whatever he had to say even if he was sacrificing children on the White House lawn.  These kinds of followers are called “sheeple” for a reason…


#3 The Nazis were well known for their brutal police tactics, and that is definitely true of us today.  The following photo is a powerful commentary on the transformation of police in America over the past several decades…

Just recently, representatives from 117 countries confronted the U.S. about all of this police brutality at the United Nations’ Human Rights Council.  Unfortunately, I don’t think that this is actually going to change anything…

The United States was slammed over its rights record Monday at the United Nations’ Human Rights Council, with member nations criticizing the country for police violence and racial discrimination, the Guantánamo Bay Detention Facility and the continued use of the death penalty.


The issue of racism and police brutality dominated the discussion on Monday during the country’s second universal periodic review (UPR). Country after country recommended that the U.S. strengthen legislation and expand training to eliminate racism and excessive use of force by law enforcement.


#4 Why do so many of our police insist on dressing up like Darth Vader these days?  Yes, I know that body armor is called for in certain situations, but many believe that the primary goal of these outfits is to intimidate.  The following photo was submitted to Flickr by Elvert Barnes…


#5 In recent years, the American people have become conditioned to seeing troops in our streets.  This next picture is from the Ferguson protests.  The fact that sharpshooters were deployed on rooftops during the unrest there is more than a little disconcerting…


#6 Just like in Ferguson, when rioting started in Baltimore the police were initially ordered to stand down and allow it to spiral out of control.  Then after a few hours, National Guard troops were finally deployed to help restore order.  We are slowly getting used to the idea that martial law in our cities is a good thing…


#7 Meanwhile, “progressives” continue to use our system of public education to launch a relentless attack on the values that this country was founded upon.  The Nazis were also big believers in “public education”, and they used it with shocking efficiency.  Today, our children are being brainwashed to accept “progressive values”, and most Americans don’t seem to be too concerned about what is happening…


#8 Yes, the Nazis loved gun control In fact, they eventually had everyone in the general population turn in their guns, and that is precisely what the “progressives” would love to see take place in the U.S. today.  But what would this country look like if that actually happened?  I think that this next photo which has been circulating on Facebook gives us a clue…


#9 Under the Nazis, the Germans were taught to salute a new flag and to adopt an entirely new set of values.  In America today, it is not “politically correct” to display the American flag publicly or to show honor for it.  Instead, we are being trained to think of ourselves as “global citizens” and to never question the growing power of international institutions such as the United Nations.  Fortunately, there are many Americans that never plan to accept the “global governance” that the elitists have planned…


#10 In the end, the reason why the Nazis were so successful in Germany was because the vast majority of the German population simply complied with their demands.  As Americans, we are going to be faced with our own choices in the years ahead…

So what do you think?

Is America becoming more like Nazi Germany?

"Strongly Dissatisfied" China Warns US "Accident" Is "Highly Likely" In South China Sea

Things are escalating rapidly in the South China Sea where Beijing has figured out an innovative solution to the notion of “disputed waters.” 

As regular readers are by now acutely aware, China appears to have adopted the maritime boundary equivalent of the old “possession is nine tenths of the law” axiom because Chinese dredgers have been busy for some time now creating islands out of reefs in the Spratly archipelago. Once the islands are complete, China promptly colonizes them. Next comes the construction of cement plants, ports, and 10,000 ft airstrips. 

Not surprisingly, Washington isn’t fond of China’s “sandcastles” and everyone from President Obama to the Pentagon is now shouting from the rooftops about territorial sovereignty and Chinese “bullying.” 

The US took it up a notch this week when it flew a spy plane over Fiery Cross Reef, presumably just to see what would happen. A CNN camera crew went along for the ride. What Washington discovered is that when it comes to protecting its new islands, bashful China is not.  “This is the Chinese Navy… YOU GO!” was the message that came over the radio. 

The rhetoric and sabre rattling haven’t let up a bit since then and in fact, there’s been a steady stream of quotables from both sides over the past 48 hours. Here’s the latest. 

Via Reuters:

The United States vowed on Thursday to keep up air and sea patrols in international waters after the Chinese navy repeatedly warned a U.S. surveillance plane to leave the airspace over artificial islands China is creating in the disputed South China Sea…


The incident, along with recent Chinese warnings to Philippine military aircraft to leave areas around the Spratly archipelago in the South China Sea, suggested Beijing is trying to enforce a military exclusion zone above its new islands there.


Some security experts worry about the risk of confrontation, especially after a U.S. official said last week that the Pentagon was considering sending military aircraft and ships to assert freedom of navigation around the Chinese-made islands.


The senior U.S. diplomat for the East Asia, Assistant Secretary of State Daniel Russel, told a media briefing in Washington the U.S. reconnaissance flight was "entirely appropriate" and that U.S. naval forces and military aircraft would "continue to fully exercise" the right to operate in international waters and airspace.

He said the United States would go further to preserve the ability of all countries to move in international waters and airspace.


"Nobody in their right mind is going to try to stop the U.S. Navy from operating - that would not be a good bet," he said.


Chinese Foreign Minister Wang Yi last week asserted Beijing's right to reclaim the reefs and said China's determination to protect its interests was "as hard as a rock."


China has also said it had every right to set up an Air Defense Identification Zone (ADIZ) in the South China Sea but that current conditions did not warrant one.


ADIZs are used by some nations to extend control beyond national borders, requiring civilian and military aircraft to identify themselves or face possible military interception.

And as if that isn’t enough, here’s more from a separate Reuters piece:

China said on Friday it was "strongly dissatisfied" after a U.S. military plane flew over part of the South China Sea near where China is building artificial islands, and called on the United States to stop such action or risk causing an accident…


Foreign Ministry spokesman Hong Lei said the Chinese military drove away the U.S. aircraft, in accordance with relevant regulations, labeling the U.S. action a security threat to China's islands and reefs.


"Such action is likely to cause an accident, it is very irresponsible and dangerous and detrimental to regional peace and stability. We express our strong dissatisfaction, we urge the U.S. to strictly abide by international law and international rules and refrain from taking any risky and provocative actions," he told a news conference.

It's impossible to overstate the magnitude of what China is attempting here. Beijing has literally created new sovereign territory in the middle of the ocean and is now effectively enforcing a no-fly zone.

And despite the rheotric out of Washington regarding how no one "in their right mind" would try to curtail the movement of American military operations, that is exactly what China did this week when it essentially told the P8-A Poseidon spy plane to either stop it with the spying or become a part of a reef underneath a Chinese sandcastle. 

We can't wait to see what happens next week.

Adult FriendFinder Hacked - Federal Employees Allegedly Among 3.5 Million 'Exposed'

Just two short weeks ago we explained what happened to Tinder's predecessor, Adult FriendFinder, which was a website whose sole purposes was finding, to put it bluntly, a fuck buddy. Just like Tinder currently under IAC's wing, we explained, back in 2011 when the early stages of the current
gargantuan tech bubble were only taking shape, nobody could hide their
enthusiasm about the stock.

So imagine our shock when we see today that Adult FriendFinder has been hacked and, as CNN reports, more than 3.5 million people’s sexual preferences, fetishes and secrets have been exposed...

But it gets better, as Liberty Blitzkrieg's Mike Krieger explains, accusations are emerging that Federal employees used it from government emails.

Before I get into the meat of this story, let’s briefly cover the background of the Adult FriendFinder hack. From CNN:

More than 3.5 million people’s sexual preferences, fetishes and secrets have been exposed after dating site Adult FriendFinder was hacked.


Already, some of the adult website’s customers are being identified by name.


Adult FriendFinder asks customers to detail their interests and, based on those criteria, matches people for sexual encounters. The site, which boasts 64 million members, claims to have “helped millions of people find traditional partners, swinger groups, threesomes, and a variety of other alternative partners.”


The information Adult FriendFinder collects is extremely personal in nature. When signing up for an account, customers must enter their gender, which gender they’re interested in hooking up with and what kind of sexual situations they desire. Suggestions AdultFriendfinder provides for the “tell others about yourself” field include, “I like my partners to tell me what to do in the bedroom,” “I tend to be kinky” and “I’m willing to try some light bondage or blindfolds.”

I don’t relish in the fact that people’s private information is being exposed in this manner; however, if federal employees are using the site via government email addresses, that is newsworthy.

Andrew Auernheimer, a controversial computer hacker who looked through the files, used Twitter to publicly identify Adult FriendFinder customers, including a Washington police academy commander, an FAA employee, a California state tax worker and a naval intelligence officer who supposedly tried to cheat on his wife.


Asked why he was doing this, Auernheimer said: “I went straight for government employees because they seem the easiest to shame.”


Millions of others remain unnamed for now, but anyone can open the files — which remain freely available online. That could allow anyone to extort Adult FriendFinder customers.

Again, I don’t get any pleasure in the public shaming of people for these sorts of things, but RT adds the following to the story:

The men behind the screen names “Eaglesfan_6969” and “Verywilling2011” are looking for sex, and they’re doing it from government-provided email accounts, according to data pilfered from a hacked dating website.


A trove of personal information pertaining to paid account holders of AdultFriendFinder, a website that touts itself as letting users “Find a fuck buddy for online sex,” has surfaced, and its contents suggest employees of local and federal agencies, including law enforcement, the Navy and the Federal Aviation Administration have used their government-provided email addresses to search for partners.


Among account holders identified through the leaked details include individuals with emails linked to the United States Department of Homeland Security, the FAA, the government of Augusta, Georgia; the state of Virginia and the Metropolitan Police Department of Washington, DC.


DHS guidelines prohibit employees from using their government email for “Engaging in any activity that would discredit DHS, including seeking, transmitting, collecting or storing defamatory, discriminatory, obscene, harassing or intimidating messages or material.” The Pentagon says in a 2013 report that “Federal Government communication systems and equipment (including Government-owned telephones, facsimile machines, electronic mail, Internet systems and commercial systems when the federal Government pays for use) shall be for official use and authorized purposes only.” There is an exemption in place for “morale and welfare” communications by employees on extended deployments.

If true, I’m sure nothing will happen to them, as federal employees, like bankers, are essentially above the law.

*  *  *

Given this, however, one wonders just how exuberant IAC is over its valuation of Tinder now? ...and how fast people will be logging off...


Still, all that really matters for the current generation of sophisticated
investors is eyeballs (or in this case some other anatomical organ).


A Vision of Monetary Hell Troubles Our Sleep...

Submitted by Bill Bonner via Bill Bonner & Partners,

A vision of Hell troubles our sleep.

It is the vision of what the United States will be like when the authorities have obliterated almost three millennia of monetary progress and have their boots on our necks.

Here’s Peter Bofinger, a leading German Keynesian economist, in Der Spiegelmagazine:

With today’s technical possibilities, coins and notes are in fact an anachronism. They made payments incredibly difficult, with people wasting all sorts of time at the cashier as they wait for the person ahead of them to dig through their belongings to find some cash, and for the cashier to render change (rather than, for example, waiting for someone to find the right credit card, complete the transaction, and wait for approval)




But the additional time is not the largest benefit of the elimination of cash. It dries out the markets for moonlighting and drug trafficking. Almost a third of the euro cash in circulation consists of 500-euro notes. No one needs those for shopping; light-shy figures use them for their activities. [Also] it would be easier for central banks to impose their monetary policies. At this time, they cannot push interest rates appreciably below zero because the savers would hoard cash. If there is no cash, the zero bound is eliminated.

A Slide Back into Prehistory

Yes, dear reader, it seems to be coming – a dreadful slide back beyond the darkest ages and into the mud and slime of prehistory. Back then, modern “money” had not been invented. Using rudimentary credit and barter systems, you could only trade with people you knew – and on a limited scale. Capitalism was impossible. Progress was unattainable. Wealth couldn’t be accumulated.

Then in India, in about the sixth century B.C., came silver coins – real cash. You didn’t need to know the person you were trading with. You didn’t know his family. Or his motives. Or his balance sheet.

And you didn’t have to keep track of who owed what to whom. You could just settle up – in specie. This made modern commerce and industry possible.

This new wealth also provided people with a new kind of liberty. They could travel – and pay for food and lodging with this new money. They could invest… and use this new, private wealth to create even more wealth.

They could even raise armies… build fortifications… and challenge the power of the ruling elites.

“Suspicious Activities”

But now, governments are trying to abolish cash.

Leading economists want it banned, too. Limits on cash use are already in place in many countries. In France, for instance, a law will come into force in September that will limit cash payments to €1,000 ($1,115). And in the U.S., having a large amount of cash is already considered “suspicious activity,” subject to forfeiture without due process. That’s right: Thanks to civil forfeiture laws, the feds can seize your property without having to convict you of a crime. As the Washington Post reported here last year, police made 61,998 cash seizures – totaling $2.5 billion since 9/11 – without search warrants or indictments.

Why do the feds want to eliminate cash? Isn’t it obvious? They want to control you and your money. Where did you get it? They’ll want to know. What will you do with it? They’ll want a say. Couldn’t you use it for something “bad”?

Heck, you might support “terrorists”… evade taxes… or buy a pack of cigarettes.

The possibilities are too rich to ignore. And the arguments are too persuasive to stop. Zero Hedge summarizes the “pros”:

•  Enhance the tax base, as most/all transactions in the economy could now be traced by the government
•  Substantially constrain the parallel economy, particularly in illicit activities
•  Force people to convert their savings into consumption and/or investment, thereby providing a boost to GDP and employment

Feeling the Feds’ Lash

The arguments are hollow… but they’ll probably be convincing. And for the first time in history, rulers will have a way of controlling people by cutting off their money. Electronic money, run through a government-controlled banking system, allows the feds to put us where they want us – with bars on our cages and whips on our backs. All transactions could be subject to approval. And every person would know that he could feel the feds’ lash at any time.

Under Argentina’s military dictatorship, about 13,000 people “disappeared.” That is, they were rounded up by government death squads, interrogated, murdered, and then thrown from planes into rivers.

How much easier it will be – and more humane – simply to cut off their money? With modern face-recognition technology, the feds could identify almost anyone in any setting – at a café, a public meeting, or an ATM. Then with a couple of strokes on a keyboard, the accounts could be frozen… or confiscated. The poor citizen would “disappear” in seconds – unable to participate in public life and forced to scrounge through trash cans to stay alive.

Who would dare to help him? Who would dare to support him? Who would dare to speak out against this new diabolical system? They, too, would be marked as undesirable… and disappeared.

Imagine the political candidate who suddenly discovers his backers have no money? Imagine the whistle-blower who suddenly has no whistle to blow?

A Warning from Argentina

Are we hallucinating? Are we worrying about nothing?

In Argentina, following a coup d’état in 1976, the military junta first targeted leftist revolutionaries – who may have posed some real threat to the nation. Then, in what became known as the “Dirty War,” the targets grew more diverse – with students, political adversaries, intellectuals, trade unionists, and anyone the junta wanted to get rid of caught in the net. This period of terror only came to a close in 1983, after the generals unwisely invaded the Falkland Islands and proclaimed Argentine sovereignty over a British overseas territory.

The plain people are easily led into war – no matter how moronic the pretense. As they had hoped, the Argentines rallied behind their soldiers. But the British, led by the “Iron Lady,” Margaret Thatcher, did not play the role the generals had expected. Rather than negotiate a settlement, they sent a task force to the South Atlantic, including a nuclear submarine, two aircraft carriers, 42 fighter jets, a brigade of Royal Marine commandos, and an infantry brigade. In a matter of weeks, the British submariners had sunk Argentina’s World War II-era cruiser the General Belgrano… as the Royal Marines, the soldiers of the 5th Infantry Brigade, and the RAF hammered away at the ill-prepared and ill-equipped Argentine troops shivering out in the South Atlantic.

This was too great a humiliation for the Argentines to take. The Union Jack went up once again over the Falklands, the military junta was thrown out of office, and the disappearances stopped.

Are Americans smarter than Argentines? Are their politicians more honest or more faithful to the rule of law? Does power corrupt less in the Northern Hemisphere than it does south of the equator?

We doubt it.

The US Department Of Commerce Officially Jumps The Shark, Will "Double Seasonally Adjust" GDP Data

It's official: after seeing it work so well for years in China, the US Department of Commerce's Bureau of Economic Statistics has officially replaced all of its excel models with just one function. The following:

As Steve Liemsan hinted a few days ago, in what we thought was a very belated April fools joke, th eBEA has finally thrown in the towel on weak seasonally-adjusted US GDP data, and as a result has decided to officially proceed with a second seasonal adjustment: one which will take all the bad data, and replaced it with nice and sparkly, if totally fake and goalseeked, GDP numbers.

As Bloomberg reports, "the way some parts of U.S. gross domestic product are calculated are about to change in the wake of the debate over persistently depressed first-quarter growth. In a blog post published Friday, the Bureau of Economic Analysis listed a series of alterations it will make in seasonally adjusting data used to calculate economic growth. The changes will be implemented with the release of the initial second-quarter GDP estimate on July 30, the BEA said."

In other words, as of July 30, the Q1 GDP which will have seen its final print at -1% or worse, will be revised to roughly +1.8%, just to give the Fed the "credibility" to proceed with a September rate hike which means we can now safely assume not even the Fed will launch a "hiking cycle" at a time when the first half GDP will print negative (assuming the Atlanta Fed's 0.7% Q2 GDP estimate is even modestly accurate).

Will abnormally "good" data be revised lower, or whether labor market data, which is already manipulated beyond comparison by the BLS will also be adjusted due to "residual seasonality"? Don't hold your breath.

And since economists pride themselves in giving complex names to what even 5 years olds now grasp is open data manipulation, the technical term the BEA will use to goalseek historical data is now also clear: "residual seasonality"

Although the agency adjusts its figures for seasonal variations, growth in any given first quarter still tends to be weaker than in the remaining three, economists have found, a sign there may be some bias in the data. It’s a phenomenon economists call “residual seasonality.”

More details on how economics has just devolved into a complete farce on a scale that even the Chinese Department of Truth will find laughable:

“BEA is aware of the potential for residual seasonality in GDP and its components, and the agency is looking for ways to minimize this phenomenon,” the division said in the post. More information will be available in a BEA Survey of Current Business report scheduled for mid-June publication.


The agency is exploring ways to address possible issues in measures of federal government defense spending, where research has shown that first- and fourth-quarter growth rates are lower on average, the BEA said, reiterating a statement given to Bloomberg published May 18.


It will also start seasonally adjusting some inventory components that currently aren’t, and also some data from the U.S. Census Bureau’s quarterly services survey, it said. The latter should boost the accuracy of consumer spending estimates, it said. The changes to the calculations will cover the period from 2012 to the present.


Additionally, the BEA is reviewing all series that figure into the GDP calculations to find and fix any leftover biases that exist within its current methodology.

And to complete the total collapse of US reporting integrity, here is the full BEA blog post on the topic of goalseeked data, aka "residual seasonality."

* * *

BEA Works to Mitigate Potential Sources of Residual Seasonality in GDP

The Bureau of Economic Analysis (BEA) is working on a multi-pronged action plan to improve its estimates of gross domestic product (GDP) by identifying and mitigating potential sources of “residual” seasonality. That’s when seasonal patterns remain in data even after they are adjusted for seasonal variations.

Each spring, BEA conducts an extensive review–receiving updated seasonally adjusted data from the agencies that supply us with data used in our calculation of GDP. Most of the data the feeds into GDP is seasonally adjusted by the source agency, not BEA. At the same time, BEA examines its own seasonal factors for those series that BEA seasonally adjusts itself. All that work takes place in preparation for BEA’s annual revision to GDP and its major components, which will be released on July 30.

As a result of this ongoing work, BEA is aware of the potential for residual seasonality in GDP and its components, and the agency is looking for ways to minimize this phenomenon.

• One of the areas we’re currently reviewing is possible residual seasonality in measures of federal government defense services spending. Initial research suggests that the first and fourth quarter growth rates are lower on average than those of the third and second quarters. BEA is developing methods for addressing what it has found.

• Time frame to implement: Improvement will take place with the release of second quarter GDP on July 30. Period covered: 2012, 2013, 2014, and forward.

• BEA also will begin adjusting certain inventory investment series that currently aren’t seasonally adjusted.

• Time frame to implement: Improvement will take place with the release of second-quarter GDP on July 30. Period covered: 2012, 2013, 2014, and forward.

• Also as part of this year’s seasonal adjustment review, BEA is planning to seasonally adjust a number of series from the Census Bureau’s quarterly services survey that now have sufficient time spans to which seasonal adjustment techniques can be applied. Currently, these series are smoothed using a four-quarter moving average to attempt to smooth out seasonal trends in the data. While BEA’s review had not identified residual seasonality in the PCE services estimates, applying statistical seasonal adjustment techniques to these indicators will improve the accuracy of the underlying trends in PCE estimates.

• Time frame to implement:  Improvement will take place with the release of second quarter GDP on July 30.  Period covered 2012, 2013, 2014, and forward.

• BEA will review all series entering the GDP calculations to identify, and where feasible, mitigate any residual seasonality within its existing seasonal adjustment methodologies.

• Time frame to implement: Review will take place with the release of second-quarter GDP on July 30. Period covered: 2012, 2013, 2014, and forward.

• Longer term–beyond July 30–BEA will continue looking at components of GDP to determine if there are opportunities to improve seasonal adjustment methodologies.  Should BEA identify other areas of potential residual seasonality, BEA will develop methods to address these findings. If research suggests that residual seasonality originates with already seasonally adjusted source data, BEA will work alongside its source data agencies to determine the appropriate course of action.

* * *

Some further thoughts: when, not if, the Fed's rate hike leads to a recession, that too will be seasonally adjusted away. And QE4 will be called tightening in the name of "residual seasonality."

And, of course, once the Fed's credibility finally crashes, its seasonally adjusted credibility will be at an all time high.

In No State Can A Minimum Wage Worker Afford A One Bedroom Apartment

Earlier this month we learned that in 21 out of the 26 OECD member countries that have a minimum wage, working 40 hours per week at the pay floor would not be sufficient to keep one's family out of poverty. That rather stunning revelation comes as Democrats in the US push for a $12 minimum wage by 2020 and as pressure grows on companies like McDonald’s to raise wages for its lowest-paid employees. 

Of course rising minimum wages can also have the rather counterintuitive side effect of harming those they’re meant to help because after all, when the cost of labor goes up, employers may simply fire people or, as we saw yesterday when McDonald’s pledged to reduce the number of company-owned restaurants by 10% over the next several years, resort to other measures aimed at getting around pay floor hikes.

So while one can debate pros and cons of addressing abysmal wage growth by legislating a non-market-driven solution, what is not up for debate is this: it’s getting harder and harder to subsist above the poverty line for low-income workers.

In fact, as the following map shows, in no state can a minimum wage worker afford a one bedroom apartment.


Here’s some color from a study by the National Low Income Housing Coalition:

Rents for apartments have risen nationally for 23 straight quarters. As of the third quarter of 2014, rents were 15.2% higher than at the tail end of the Recession in 2009. Rising rents are an outcome of increased demand for rental housing. One recent study of 11 major cities found double-digit growth in the number of renters in nine of the 11 cities between 2006 and 2013. In the fourth quarter of 2014, the homeownership rate dropped to its lowest rate in twenty years and the rental vacancy rate fell to 7% as more households sought rental units. The downward pressure on vacancy rates directly impacts the rental housing market, making landlords less willing to offer rent concessions and more likely to increase rents. The tightening rental market has the most significant impact on low income renters. 

So thank you Wall Street (and a hat tip to Alan Greenspan as well) for creating an entirely unsustainable housing bubble which finally collapsed on itself, turning a nation of homeowners into a nation of renters many of whom will now have to pony up everything they make each month to someone who may have gotten a landlord loan from Wall Street to buy up rental properties from home flippers who also got loans from Wall Street where some very clever investment bankers are busy securitizing these landlord and home flipper loans in order to sell billions in new ABS on the way to recreating the very same bubble only to have it burst all over again. 

It Is Mathematically Impossible To Pay Off All Of Our Debt

Submitted by Michael Snyder via The Economic Collapse blog,

Did you know that if you took every single penny away from everyone in the United States that it still would not be enough to pay off the national debt?  Today, the debt of the federal government exceeds $145,000 per household, and it is getting worse with each passing year.

Many believe that if we paid it off a little bit at a time that we could eventually pay it all off, but as you will see below that isn’t going to work either.

It has been projected that “mandatory” federal spending on programs such as Social Security, Medicaid and Medicare plus interest on the national debt will exceed total federal revenue by the year 2025.  That is before a single dollar is spent on the U.S. military, homeland security, paying federal workers or building any roads and bridges.  So no, we aren’t going to be “paying down” our debt any time in the foreseeable future.  And of course it isn’t just our 18 trillion dollar national debt that we need to be concerned about.  Overall, Americans are a total of 58 trillion dollars in debt.  35 years ago, that number was sitting at just 4.3 trillion dollars.  There is no way in the world that all of that debt can ever be repaid.  The only thing that we can hope for now is for this debt bubble to last for as long as possible before it finally explodes.

It shocks many people to learn that our debt is far larger than the total amount of money in existence.  So let’s take a few moments and go through some of the numbers.

When most people think of “money”, they think of coins, paper money and checking accounts.  All of those are contained in one of the most basic measures of money known as M1.  The following definition of M1 comes from Investopedia

A measure of the money supply that includes all physical money, such as coins and currency, as well as demand deposits, checking accounts and Negotiable Order of Withdrawal (NOW) accounts. M1 measures the most liquid components of the money supply, as it contains cash and assets that can quickly be converted to currency.

As you can see from the chart below, M1 has really grown in recent years thanks to rampant quantitative easing by the Federal Reserve.  At the moment it is sitting just shy of 3 trillion dollars…

So if you gathered up all coins, all paper currency and all money in everyone’s checking accounts, would that even make much of a dent in our debt?


We’ll have to find more “money” to grab.

M2 is a broader definition of money than M1 is, because it includes more things.  The following definition of M2 comes from Investopedia

A measure of money supply that includes cash and checking deposits (M1) as well as near money. “Near money” in M2 includes savings deposits, money market mutual funds and other time deposits, which are less liquid and not as suitable as exchange mediums but can be quickly converted into cash or checking deposits.

As you can see from the chart below, M2 is sitting just short of 12 trillion dollars right now…

That is a lot more “money”, but it still wouldn’t pay off our national debt, much less our total debt of 58 trillion dollars.

So is there anything else that we could grab?

Well, the broadest definition of “money” that is commonly used is M3.  The following definition of M3 comes from Investopedia

A measure of money supply that includes M2 as well as large time deposits, institutional money market funds, short-term repurchase agreements and other larger liquid assets. The M3 measurement includes assets that are less liquid than other components of the money supply, and are more closely related to the finances of larger financial institutions and corporations than to those of businesses and individuals. These types of assets are referred to as “near, near money.”

The Federal Reserve no longer provides charts for M3, but according to John Williams of, M3 is currently sitting somewhere in the neighborhood of 17 trillion dollars.

So even with the broadest possible definition of “money”, we simply cannot come up with enough to pay off the debt of the federal government, much less the rest of our debts.

That is not good news at all.

Alternatively, could we just start spending less than we bring in and start paying down the national debt a little bit at a time?

Perhaps that may have been true at one time, but now we are really up against a wall.  Our rapidly aging population is going to put an enormous amount of stress on our national finances in the years ahead.

According to U.S. Representative Frank Wolf, interest on the national debt plus “mandatory” spending on programs such as Social Security, Medicare and Medicaid will surpass the total amount of federal revenue by the year 2025.  That is before a single penny is spent on homeland security, national defense, paying federal workers, etc.

But even now things are a giant mess.  We are told that “deficits are under control”, but that is a massive hoax that is based on accounting gimmicks.  During fiscal year 2014, the U.S. national debt increased by more than a trillion dollars.  That is not “under control” – that is a raging national crisis.

Many believe that that we could improve the situation by raising taxes.  And yes, a little bit more could probably be squeezed out of us, but the impact on government finances would be negligible.  Since the end of World War II, the amount of tax revenue taken in by the federal government has fluctuated in a range between 15 and 20 percent of GDP no matter what tax rates have been.  I believe that it is possible to get up into the low twenties, but that would also be very damaging to our economy and the American public would probably throw a huge temper tantrum.

The real problem, of course, is our out of control spending.

During the past two decades, spending by the federal government has grown 63 percent more rapidly than inflation, and “mandatory” spending on programs such as Social Security, Medicare and Medicaid has actually doubled after you adjust for inflation.

We simply cannot afford to keep spending money like this.

And then there is the matter of interest on the national debt.  For the moment, the rest of the world is lending us gigantic mountains of money at ridiculously low interest rates.  However, if the average rate of interest on U.S. government debt was just to return to the long-term average, we would be spending more than a trillion dollars a year just in interest on the national debt.

So the best possible environment for “paying down our debt” that we are ever going to see is happening right now.  The only place that interest rates on U.S. government debt have to go is up, and our population is going to just keep getting older and more dependent on government programs.

Meanwhile, our overall debt continues to spiral out of control as well.  According to CNBC, the total amount of debt that Americans owe has reached a staggering 58.7 trillion dollars…

As the nation entered the 1980s, there was comparatively little debt—just about $4.3 trillion. That was only about 1.5 times the size of gross GDP. Then a funny thing happened.


The gap began to widen during the decade, and then became basically parabolic through the ’90s and into the early part of the 21st century.


Though debt took a brief decline in 2009 as the country limped its way out of the financial crisis, it has climbed again and is now, at $58.7 trillion, 3.3 times the size of GDP and about 13 times what it was in 1980, according to data from the Federal Reserve’s St. Louis branch. (The total debt measure is not to be confused with the $18.2 trillion national debt, which is 102 percent of GDP and is a subset of the total figure.)

As I discussed above, there isn’t enough money in our entire system to even pay off a significant chunk of that debt.

So what happens when the total amount of debt in a society vastly exceeds the total amount of money?

Is there any way out other than collapse?

How China's (Formerly) Richest Man Destroyed His Own Fortune When He Tried To Sell A Stock

On Wednesday, we reported on what was certainly the biggest market news of the week when in under one second, Chinese solar company Hanergy Thin Film crashed by nearly 50% due to what are still unknown reasons. As a reminder, before its crash and indefinite trading suspension, Hanergy’s market value was higher than all other listed Chinese solar companies combined and six times the value of First Solar, the biggest producer of thin-film solar panels.

Aside from the dramatic move, the reason why the wipeout of this tightly held stock was particularly memorable is because it took with it some $14 billion or nearly half of majority owner Li Hejun's $30 billion fortune, who as we reported previously, is China's richest man, having recently overtaken Alibaba's Jack Ma. Or rather was.

A quick tangent into how Li built up his stratospheric paper wealth on very short notice.

As noted above, the bulk of Li's fortune comes from his 80.8% stake in Hanergy, whose market cap had topped at approximately $40 billion, or greater than the market cap Sony and Twitter. Even more notable, is that the bulk of the appreciation in the stock took was a result of what appears to have been an aggressive buying campaign by none other than Li himself, who as Bloomberg recounts, was the single biggest buyer in the name as it soared since the start of January, becoming "wealthier" (on paper) by buying ever more stock, thus pushing his own net worth every higher!

From April 30, three weeks before the crash:

Hanergy Thin Film Power Group Ltd.’s executive chairman raised his stake in the Chinese solar equipment maker this  month, buying 53.9 million shares as the company’s market value surged.


Li Hejun bought the shares in seven transactions at prices of HK$6.90 to about HK$6.95, with the latest purchase on April 23, according to transaction details filed in statements to the Hong Kong Stock Exchange. The company closed at a record HK$7.88 on April 23.


Hanergy has surged more than six-fold in the past year to a market value of about $39 billion amid questions about its valuation and revenue.

What is certainly peculiar is that even as Li was aggressively single-handedly pushing the price of the stock, thre were many questions about the company's operations. Of note, about 61% of the company’s revenue was sourced from sales it made to its own parent company Hanergy Group, and its affiliates.

The relationship was laid out by Bloomberg as follows: "The publicly traded entity makes factory equipment that produces thin-film solar panels. Closely held Hanergy Group makes the panels and installs them, though it has never disclosed its production output. Hanergy Thin Film also buys PV panels from its parent company to make into finished solar parks."

As the FT reported first 5 months ago, Hanergy "has been racking up enviable revenues largely through sales between its listed subsidiary, HTF, and itself." No wonder the company has been desperate to distract attention from its cooked books, and instead had focused on pure marketing, pitching itself as a company that promises to revolutionize solar power and to become the Apple of green energy.

Perversely, it was on January 28 when the Financial Times first raised questions about the incestuous relationship between the two entities: since then, the stock of Hanergy had risen 86%... until it crashed.

It wasn't just Apple: Hanergy needed more buzzwords and tried to be like that other famous "alternative energy" unicorn, Tesla: a whole lot of "story" fluff, much hype and no substance. Because lacking from its earnings report was an overall estimate for how much equipment it will ship or install this year, a figure that’s prominent in the reports of panel makers such as Trina Solar and Yingli Green Energy.

There were many other flashing red warnings: Hanergy Thin Film’s receivables surged 86 percent last year to HK$4.3 billion, with the parent company responsible for about half of the outstanding sum.

And another: a year ago, the Kowloon headquarters of Hanergy Thin Film housed a little-noticed subsidiary of Li’s Hanergy Holding, which initially was a hydroelectric-dam operator with more than 6 gigawatts of projects.

And another: not content with being a Tesla-clone, the company was also a Valeant-style "rollup": the company has been investing in thin-film technology since 2009. It’s bought four overseas companies since 2012 -- the U.S. producers Global Solar Energy Inc., Miasole Inc. and Alta Devices and the Solibro unit of Germany’s Q-Cells.

And another: when the FT wrote another story on March 25 showing that Hanergy’s shares listed in Hong Kong tend to rise in the final 30 minutes of the trading day, the company issued a statement dismissing the story as “innuendo.”

Not everyone was fooled by the epic lie: as Bloomberg also reports, on February 27, analysts Charles Yonts and Johnny Lau at CLSA Asia-Pacific Markets in Hong Kong issued a report saying the stock was wildly inflated. Jenny Chase, lead solar industry analyst at Bloomberg New Energy Finance, published a note on March 6 saying Hanergy is working with “unproven” technology and that it hasn’t detailed a level of installations that would help justify its valuation.

Paradoxically, the more public caution about Hanergy's parabolic, circular surge there was, the higher the stock traded... until the morning of May 20, when Li's was suspiciously absent from the company's annual meeting.  

On that day, as the WSJ recalls, heavy trading in Hanergy’s stock began shortly before said annual general meeting began at 10 a.m. in Hong Kong on Wednesday. "At the time, trading in the stock was furious, with traders offering to buy and sell millions of shares at a time. Eventually, there were far more shares being offered for sale than there were buyers."

As the WSJ further reports, "at 10:17 a.m. and 23 seconds, a large 426,000 share sell order piled up at the current market price of HK$6.80. Two small trades were done at slightly lower prices, but then the price at which traders were willing to buy the shares fell to HK$3.45, 48% below the market’s price."

The instantaneous collapse at precisely 10:17:23 am in the Hanergy stock price can be seen on the following Nanex chart.

Such market microstructure airpockets are very familiar to frequent Zero Hedge readers, appearing periodically and unexpectedly in virtually all HFT-traded stocks, and occasionally, such as on May 6, 2010, in the entire market.

As Nanex' Eric Hunsader notes, "a large seller exhausted liquidity and tipped the market over.. boom."

WSJ's take:

This low bid showed that there weren't many buyers in the market, potentially setting the stage for a big share decline. Computer algorithms, which trade automatically based on current market data, likely detected the sudden shift and reacted by selling more or pulling out of the market altogether.


Nearly 16 hundredths of a second later, a series of smaller buy orders ranging from 8,000 to 30,000 shares trades were made at rapidly declining prices. The first buy order was priced at HK$6.69, and four tenths of a second later, a trade occurred at HK$6.10. Once that trade occurred, the next highest bid became HK$3.45 and over the next several hundredths of a second, the price that people were willing to sell shares fell to HK$4.50.


A trade occurred at HK$4.50, meaning the official market price had fallen by 26% in fractions of a second. Hanergy shares briefly recovered but then sold off again. They were trading at HK$3.91 when the shares were suspended at 10:40 after falling 47% and wiping out $20 billion worth of market value.

Cited by the WSJ, Hunsader said the collapse "could have been caused by high-speed traders pulling out of the market due to heavy selling by an investor looking to unload a large chunk of stock."


Because as it turns out, after accumulating a gargantuan position in the stock in order to diffuse speculation that his primary investment vehicles is a fraud, Mr. Li decided he had had enough. And decided to sell.

He did this at first by shorting several billions shares of the stock in which he had built up an 80% stake.

According to the WSJ, "on Friday in a filing with the Hong Kong Stock Exchange, Mr. Li disclosed he went short 759.7 million shares in Hanergy on Monday, two days before the annual meeting. This represented 1.9% of the company and about 5.3 times that day’s trading volume of Hanergy shares."

Bloomberg adds that Li "also increased his short position to 7.71 percent of Hanergy’s issued share capital from 5.81 percent on the same day."

The following Bloomberg screenshot reveals the original 5.81% short stake between China Geiko Investments and Hanergy Invest Ltd, both shell companies controlled by Li: an amount equal to about 2.4 billion shares.  The problem: at the same moment he was also long some 30.6 billion shares.


Yet something must have provoked Li to switch his posture from a chronic buyer to an acute shorter/seller.

That something was a very fundamental factor, the most fundamental of all - the company had run out of money.

As Caixin reported, "the solar panel manufacturer whose listed subsidiary has suffered a sell-off of shares in Hong Kong failed to repay bank loans, sources close to the parent company say."

Worse, the selling avalanche and the subsequent suspension of trading means that all hell may be about to break loose according to Caixin, Hanergy had "used shares in its listed unit to take out bank loans, but has been unable to repay some of them. The share sales escalated after debtors made little progress in negotiations with the company over the defaults, those sources said."


Hanergy secured loans from Jinzhou Bank, in the northeastern province of Liaoning, in the second half of last year after the bank gave it an 8 billion yuan credit line, other people close to the firm said. In January last year, Hanergy reached a deal with China Minsheng Bank and a credit consortium the bank leads to provide the company with loans of no less than 20 billion yuan.

In other words, the stock price itself had become the collateral against which the company was borrowing cash. So once the long-overdue selling finally started, the margin calls become a self-sustaining feedback loop and would flood the company with demands for ever more cash, and lead to a prompt and painful collapse.

And nobody knew this better than the man who had orchestrated this entire Ponzi scheme: Mister Li himself.

In other words, having sunk billions in real cash to generate paper profits against which to take out loans, Li tried to cash out. The problem - and one which we warn day after day when we point out the ever declining volume of the market on the way up - is that while there was no shortage of willing sellers as the stock was rising, once he pushed the bid a little too aggressively to accelerate his exit, he found just one thing: a bidless vacuum.

What happened next? This.


Don't expect the company to rebound promptly when it reopens for trading. If it ever reopens, as by then the banks will have sent some of their less reputable "collection agents" to make sure they "collect" the money owed them by Mister Li, especially since they can't sell a halted stock which serves as collateral for their loans.

As for Li, all of this could have been avoided: he merely had to keep bidding a worthless stock to infinity. Sadly for him, unlike central banks, he does not have access to infinite cash with which to do so.

Incidentally, all of this should remind regular readers of an almost identical example on this side of the Pacific.

Remember CYNK: the illiquid stock of a company which did not even exist, and yet whose market cap rose to several billion, before a bout of selling wiped out all the equity holders, and forced the regulators to halt it and delist it, in the process wiping out its entire "value" built up courtesy of gullible idiots believing in "get rich quick" Ponzi schemes.

This is what we wrote last July, in a post titled "How The Market Is Like CYNK." In retrospect, our prediction is becoming painfully accurate, if only to billionaires willing to monetize their "paper" profits.

For all the drama and comedy surrounding the epic idiocy in which a bunch of "investors" took the price of non-existent company CYNK from essentially zero to a market cap of over $5 billion in under a week, most people missed the key message here: the stock is a harbinger of what is happening to the entire market. Because while those defending what is clear irrational exuberance, scratch that, irrational idiocy are quick to point out that CYNK's epic surge took place on less than 0.1% of its outstanding shares, these are the same people to say precisely the opposite about the S&P 500. "Ignore the collapsing volumes sending the stock market to all time high - it's perfectly normal" is an often repeated refrain by the permabullish crowd. Just not when it involves case studies in market insanity like CYNK apparently.


Perhaps ironically, it was the concurrent most recent crisis in Europe, that involving Portugal's cryptic Espirito Santo group, whose top-most HoldCo is largely shrouded in secrecy yet which somehow is not a deterrent to the sellside community to issue one after another "all is clear; don't pull your deposits please" note, that confirmed not only that nobody has any idea what the real situation of European banks is, but how the entire capital market has now become nothing more than one glorified CYNK penny-stock turning into a mid-cap.


Deutsche Bank's Jim Reid explains:


Whatever one feels about financials and the wider financial system, credit markets did arguably get a small glimpse of what things will be like when this cycle does actually end as the structurally impaired liquidity that exists in credit caused a small amount of panic yesterday morning before markets recovered in the European afternoon session. Liquidity is really poor in credit these days which doesn't matter when markets are in buy only mode as they have been for many quarters now, but it does matter on the days when you get a negative story.


In other words, just like the CEO of CYNK who promptly "made" a few billion in paper profits, it feels great to "make" money on virtually no volume. The problem arises when one tries to cash out of paper and into all too real profits.


And here is what happens when one does finally try to book profits: moments ago the OTC BB just announced that, finally, CYNK was finally halted.


Increasingly we are witnessing how this "market", if this rigged, illiquid, central-bank manipulated cesspool can be called a market, is precisely like CYNK.

And as of this moment, Mister Li and Javier Romero, the President, CEO and secretary, in fact the only employee, of CYNK certainly have much in common: they see what happens when you levitate a company to mindblowing extremes on no volume and when you own the bulk of the float... and what happens when you try to offload it.

Sadly, this is a lesson which the entire market, and all those who are buying on the way up, and confusing paper profits with actual wealth, will also learn the hard way.

Because between CYNK and now Hanergy, we have had a very clear glimpse of the endgame: and as of this moment nobody can say they were not warned about how this most manipulated of asset bubbles ever, ends.

Our Crazy-Making Economy's Endgame: Festering Frustration Seeking An Outlet

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The consequence of policies that exacerbate injustice, inequality and double-bind demands is a madness that will find a social and economic outlet somewhere, sometime.

We all know crazy-makers: people who make contradictory claims about reality, who say one thing and do another, who change their stories constantly to justify their own pursuit of self-interest, who demand the impossible of others while giving themselves unlimited excuses.

When they can't change reality to suit their purposes, they change their accounts of reality, and stick with the revised stories even when they are contradictory.

This describes the entire financial structure of the U.S.: crazy-making.

We all know the U.S. economy is diseased, and the Powers That Be are attempting to mask the sickness with contradictory accounts of reality.

To get ahead, you need a 4-year college diploma. But oops, the student debt you'll need to shoulder acts as a brake on getting ahead. And it turns out many of those who became debt-serfs to get a diploma actually end up in jobs that don't require a college education.

One reality--soaring student loan debt and diminishing value of the product, a college diploma--and two contradictory stories.

Systems theorist/anthropologist Gregory Bateson developed (with others) the concept of double bind, a psychological and social conflict in which contradictory demands generate a form of schizophrenia:

Unlike the usual no-win situation, the subject has difficulty in defining the exact nature of the paradoxical situation in which he or she is caught. The contradiction may be unexpressed in its immediate context and therefore invisible to external observers, only becoming evident when a prior communication is considered. Typically, a demand is imposed upon the subject by someone who they respect (such as a parent, teacher or doctor) but the demand itself is inherently impossible to fulfill because some broader context forbids it. For example, this situation arises when a person in a position of authority imposes two contradictory conditions but there exists an unspoken rule that one must never question authority.

Consider the schizophrenia-generating contradictions underpinning all U.S. economic policy.

We have to keep interest rates near-zero forever because the economy is weak, but the economy is strong--look at the low unemployment rate.

Well, which one is it? The official answer: both. The U.S. economy is both strong and weak at the same time. Interestingly, it's strong in terms of official measures of employment and jobs, but weak in financial terms.

This means there's nothing to be fixed for those working for a living, and everything to fix for financiers and banks, who are struggling due to weak financial fundamentals.

Meanwhile, corporate and financier profits are soaring to record levels and wages have stagnated for years. Wait a minute--weren't we just told that the financial fundamentals are weak, hence the need for zero interest rates for ever, and that job growth was strong?

These are internally inconsistent accounts of reality, i.e. crazy-making. Here are corporate profits--to the moon, baby:

Here are wages/salaries: going nowhere for 15 years (or 40 years, if we go back to the 1970s):

Financialization has enriched the few with access to free money for financiers and those who own assets favored by the Fed and left everyone earning a living in the dust:

The Federal Reserve insists on maintaining this crazy-making double bind because the stock market depends on both conditions being true at the same time: the economy must be expanding so profits can loft ever higher, but the economy must also be weak and ill so the Fed will continue its policies of zero interest rates (ZIRP) and free money for financiers that have pumped trillions of dollars into "risk-on" assets like stocks.

If either of these contradictory conditions is erased, the stock market will tumble, as neither a weak economy nor zero interest rates (ZIRP) alone is sufficient to maintain the stock market's current sky-high valuations: profits must continue rising and rates must stay zero to enable carry trades, stock buy-backs, and all the other financial finagling that has driven stocks into the stratosphere.

In effect, the Fed and all the other organs of propaganda are telling the American public:don't you dare trust your lying eyes, ears, mind and awareness of rising insecurity--believe us.

Crazy-making contradictions generate free-floating anxiety, frustration and rage that then seek an outlet. The essence of official crazy-making is that dissent--protests that the official stories are patently false--is suppressed, marginalized or ridiculed. This is the purpose of a militarized Police State--to suppress anything that questions authority and that might undermine the schizophrenic policies and propaganda.

The endgame of crazy-making is that just about anything can suddenly become an outlet for the rage, frustration and anxiety that is the only possible output of schizophrenic policies. A minor civil disturbance morphs into a major riot; a limited melee at a sports event metastasizes into a destructive free-for-all, and a peaceful gathering turns ugly seemingly without cause.

These are expressions of the social and economic double-binds that are being imposed on the citizenry as the last-ditch method of retaining control of the nation's wealth and power--both of which are flowing into the hands of the few at the expense of the many.

You can impose crazy-making policies and propagandize a schizophrenic economy, but you can't bottle up the resulting frustration, anxiety and rage forever. Our oligarchic Elite reckons it can suppress anything and everything with Police State tactics, but the madness they have created will not be so easily controlled.

The consequence of policies that exacerbate injustice, inequality and double-bind demands is a madness that will find a social and economic outlet somewhere, sometime, and probably at a moment when few in the Power Elite expect it.

Apple Watch: Epic Dud?

With Apple Watches still on back-order (due to defective supply, not abundant demand) and the sell-side confused as to whether it will be a great success (Morgan Stanley's exuberant extrapolation of Google searches) or a damp squib (KGI cut estimates on demand slowing), the latest projections from Slice Intelligence suggest things are definitely going so well for the world's largest gadget-maker.

After the first minute of the first day's initial (and oh so American short-attention-span-confirming) burst of buying...


Things have tailed off dramatically... averaging under 30k per day being ordered (according to Slice Intelligence projections)

Slice Intelligence's projections are based on data that it tracks from US consumer spending through e-commerce email receipts.

As QZ reports,

Apple has taken orders for almost 2.5 million watches in the US through Monday, May 18, according to Slice’s projections, which are based on more than 14,000 online shoppers.


More than half of those orders were placed on April 10, the first day Apple accepted watch pre-orders in the US and eight other countries, according to Slice.

*  *  *

Perhaps, The Daily Mash's satirically-conjured man's perspective of his first day wearing the device is closer to home after all...

Sales manager Tom Logan’s new Apple Watch has been unexpectedly ridiculed by his work colleagues.


32-year-old Logan felt confident that his futuristic timepiece would attract admiring glances rather than unflattering Knight Rider comparisons.



He said: “I had it all planned out – not saying anything about it, but then somebody just notices and goes ‘is that the new Apple Watch?’. I would respond simply with a wry Clooney-esque smile and they would mouth the word ‘awesome’.


“What actually happened is somebody said ‘what the fuck’s that weird-looking thing?’


“I explained that it was the brand new Apple Watch and they went ‘HAHAHA’ in a really deliberately hurtful way. The accounts assistant said it was the opposite of a fanny magnet and everyone cracked up.


“Then everyone started pretending to talk into their watches, saying things like ‘come in KITT, I am a massive tosser, please help’.”


By 10am Logan had removed the watch. He explained: “It wasn’t because people were being sarcastic, I just had a hot wrist, everyone gets a hot wrist sometimes.


“People get jealous of early adopters.”


5 Things To Ponder: Everybody's Got One

Submitted by Lance Roberts via STA Wealth Management,

Over the last couple of months, I have regularly updated the ongoing consolidation process in the S&P 500. As I noted earlier this week, that consolidation was completed confirming the current bull trend in the market. To wit:

 "I stated previously that I expected the consolidation to resolve itself to the upside due to the underlying momentum in the markets. As I discussed in this past weekends newsletter (subscribe for free e-delivery), the resolution of that consolidation has now been achieved."

"This [breakout] suggests that portfolios should remain FULLY ALLOCATED to equities for the time being as the tendency for the markets remains upwardly biased.


WARNING: This does NOT mean that this will be the case for the next three (3) months or the next year. It just means that the markets are still moving higher at the current time. However, investors should continue to monitor portfolios and manage risk going forward as things will change. As I have discussed previously, this does NOT mean that all market risk is now resolved,  or that investors should return to their complacent slumber. See "Bull Market Most Overbought/Leveraged In History."


I want to be quite clear about my comments. My job is to manage portfolios in a manner to participate in markets when they are rising and protect capital when they are not. Therefore, focusing on WHY markets are rising is of little importance because portfolios are already invested. My attention needs to be directed toward WHAT may cause markets to buckle unexpectedly. It is because of that analysis that I am often viewed as a "bear." In reality, I am agnostic, and because I am discussing the markets bullish breakout it does NOT mean that I have somehow changed my views.


IT IS WHAT IT IS. Denying the fact markets are rising, and failing to participate in the short term, is just as damaging as participating in a sharp market decline. In BOTH events, I am destroying client capital."

This weekend's reading list is a compilation of opinions on the current state of the makrkets and investing. And as the old saying goes - "opinions are like ***holes, everybody's got one."

1) Investors Need To Face The Possibility Of A "Great Reset" by Mark Hulbert via MarketWatch

"Watch out if corporate-profit margins narrow to their long-term average share of gross domestic product. If so, the S&P 500 Index would trade at less than 1,700 in five years, a decline of more than 20%.

I'm not necessarily forecasting such a dismal eventuality, though it's in the realm of possibility. I merely point it out to illustrate how dependent the stock market is on wide profit margins.


Few seem to be focusing on this vulnerability."

Read Also: A Stock Market Top Is Likely Near by Mark Hulbert via MarketWatch


2) Monetary Movements & Economic Mirage by Gavekal via Gavekal Capital Blog

"If the Fed has quietly decided to not only abandon any prospect of rate increases, but begin expanding its balance sheet again (in some stealth QE), stocks probably do propel out the year long relative strength consolidation with bonds. But, if not, then stock managers should be particularly attuned to monetary movements and the economic mirage in the US. Our simple model of the change in Fed asset compared to the total return of stocks vs. bonds, suggests the potential for significant bond outperformance if the Fed sticks to its plan of a 2015 lift-off."

Read Also: Lower Earnings, Higher Stock Prices by Charlie Bilello via Pension Partners


3) Valuation & The Fed Model by Dr. Yardeni via Dr. Ed's Blog

"Valuation like beauty is in the eye of the beholder. With bond yields at historical lows, why shouldn't valuation multiples be at historical highs? At 2%, the 10-year Treasury bond yield has an effective forward P/E of 50, implying that stocks trading at a forward earnings yield of 5.9% and a multiple of 17 are grossly undervalued by as much as 62%. Of course, this "Fed Model," as I first named it back in July 1997, has been showing that stocks are undervalued since the Tech bubble burst. Furthermore, historically low interest rates may be a sign of secular stagnation, which isn't particularly bullish."

Read Also: Market Is Becalmed, No Reason To Rally Or Sell by AP via NYT

Read Also: The Fallacy Of The Fed Model by Lance Roberts via


4) Liquidity Starved Markets Fear The Worst by Simon Nixon via WSJ

"The optimistic view is that over time the market will innovate its way around the liquidity squeeze. Perhaps trading will migrate to the futures market and new fixed- income indices, allowing investors to gain exposure to price moves without having to own the underlying asset. Or perhaps new private pools of capital such as hedge funds will take the place of bank-based market makers in providing daily liquidity, although currently they show little appetite to do so. Or maybe longer-term investors such as insurers and pension funds will simply step in and hold less liquid assets to maturity, although this may require a change in the way these businesses are regulated.


An alternative view is that the liquidity squeeze is symptomatic of less benign changes in the financial landscape. In the 30 years since the Big Bang reforms in the City of London and the repeal of the Glass-Steagall Act in the U.S., capital markets have provided the motor for globalization, underpinned by the liquidity provided by banks. If banks stop making markets, the risk is that this process goes into reverse: As investors discover they can't sell their assets, they may stop buying too, pushing up the cost and reducing the supply of capital to the primary market."

Read Also:  This Chart Gets Us To 2425 On The S&P by Sam Ro via Business Insider


5) The Debate Of Tobin's Q Ratio

"If you sold every share of every company in the U.S. and used the money to buy up all the factories, machines and inventory, you'd have some cash left over. That, in a nutshell, is the math behind a bear case on equities that says prices have outrun reality."


Read: Nobel Winner's Math Is Showing Market Unhinged From Reality via Bloomberg


""But how useful is this ratio in reality? In my view, not very. And the problem, as I've explained before, is that it tries to apply a historical concept of mean reverting "value" in a world where the concept of value could be (and likely is) totally dynamic."


Read: Thoughts On Tobin's Q by Cullen Roche via Pragmatic Capitalism


""I'm usually very skeptical of these market models. For one reason, just because the market is over-valued doesn't mean that it won't become even more richly valued."


Read: Don't Fret About Tobin's Q by Eddy Elfenbein via Crossing Wall Street


Meb Faber's April Tweets via Meb Faber Research

A veritable smorgasbord of great data points worth your time to review. Great stuff Meb.

4 Factors Signaling Volatility Will Return With A Vengence by Nomi Prins via ZeroHedge

"No one could have predicted the sheer scope of global monetary policy bolstering the private banking and trading system. Yet, here we were - ensconced in the seventh year of capital markets being buoyed by coordinated government and central bank strategies. It's Keynesianism for Wall Street."

Is This The Top? by Ben Carlson via Wealth Of Common Sense

"Here are some better questions to be asking yourself."

These Are The 10 Things That You Will Do That Will Kill Your Returns by The Irrelevant Investor

No matter what investors SAY they will do, they will almost always succumb to the emotional investment mistakes caused by being human. Might as well understand them up front.

Have a great weekend.

The Fed Hasn't Solved Anything… All It's Done Is Set Up an Even Bigger Crisis

The 2008 Crisis was caused by too much debt/ leverage, particularly in the form of illiquid derivatives (mortgage backed securities get the most attention, but the derivatives market was well over $800 trillion at the time of the crisis).


To combat the financial crisis, the Fed did three things:


1)   Cut rates to zero.

2)   Abandon accounting standards.

3)   Engage in Quantitative Easing/ QE.


None of these policies represented “solutions” to the crisis. In fact, you couldn’t even accurately argue that they represented “containment.” What the Fed did was permit the very cancerous securities that nearly imploded the Wall Street banks to spread beyond from the private sector onto the public’s balance sheet.


You cannot cure cancer by letting it spread from one area of the body to the next. You cannot solve a termite problem by letting the termites move somewhere else in a house. So how could one argue that you could solve a financial crisis by letting the problems spread elsewhere in the financial system?


Consider mere leverage levels. Going into the 2008 crisis, the investment banks sported leverage levels in the 30-40s. Lehman was leveraged at 31 to 1. Morgan Stanley was leveraged at 30 to 1. Merrill Lynch peaked out in the low 40s.


Today, the Fed’s has $57.6 billion in capital and $4. 4 TRILLION in assets. That represents a leverage level of 75 to 1.


The Fed will argue that this leverage does not matter because it can print money to increase its leverage levels. This is technically true, but doesn’t alter the fact that the Fed has backed itself into a corner by buying up over $3.5 trillion worth of stuff... which the Fed has no idea how to exit.


Indeed, we know that Janet Yellen was “somewhat concerned about exit strategies” back in 2009 when the Fed’s balance sheet was $2 trillion or so. Today it’s more than TWICE that. One wonders just how “concerned” she is today, with the Fed’s balance sheet larger in size than the GDP for most developed countries.


Even more absurd is the Fed’s ongoing issue with interest rates. Never before in history has the Fed kept rates at zero for 5+ years. But then again, never before has the Fed’s real taskmasters, the TBTFs, been sitting on over $180 trillion in interest rate based derivatives.


Those who shrug off these issues are overlooking the fact that the treasury dept. has ordered survival kits for employees at the TBTFs… while the New York Fed, has been boosting its satellite office in Chicago in preparation for potential market dislocations when the inevitable interest rate hike hits.


Indeed, nothing exposes the fallacies of the Fed’s policies of the last five years like its horror at the prospect of raising rates even a little bit. Rates have been effectively zero for five years. Today, the Fed is so concerned about what even ONE rate hike would do that it is actively preparing for potential systemic risk.


A second round of the great crisis is coming. The Fed didn’t fix 2008.; it simply set the stage for something even worse.


If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis "Round Two" Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.


You can pick up a FREE copy at:


Best Regards

Phoenix Capital Research



Sudden Selling Panic Sends Stocks Reeling On Dollar's Best Week Since Lehman

VIX Smashed, Euro Trashed, Bonds Cashed, Stocks Dashed... and Markets BREAK!!! 1517ET BATS BYX HAS DECLARED SELF-HELP AGAINST NASDAQ


In case it was unclear from all the positive spin post-Yellen speech... (h/t @jonvthvn)


On the day - it was very quiet with some excitement around a hot CPI and not-hot Janet Yellen


Everything might have been awesome for The Nasdaq and Small Caps high-beta buffonery, but Trannies werer trounced on the week...


Sectors were very mixed on the week...


While cash looks relatively stable... the serious swings in the equity markets are much clearer when looking at futures...

NOTE - just look again at the week in cash and the week in futures... now look at VIX!


VIX was smashed to an 11 handle - lowest since early December...


Before it started to rip back higher and so th emarket broke...


Treasury yields ended the week higher - jumping notably after today's CPI data...(but note the flattening of the curve - 5Y notably underperforming 30Y)


The USDollar rose well over 3% this week - its best week since Lehman...


Led by a 4%-plus collapse in the Euro - its worst since Lehman...


The USD strength kept commodities under pressure (with copper worst)... higher than expected inflation - sell Gold!


Crude had another magical v-shaped recovery week...


Charts: Bloomberg

Bonus Chart: Did the Microsoft curse strike again?

Bank Of England Accidentally E-mails Top-Secret Brexit Plan To Newspaper

The first rule of “Project Bookend” is that you don’t talk about “Project Bookend.”

In retrospect, maybe the first rule should have been “you don’t accidentally e-mail ‘Project Bookend’ to a news agency”, because as the Guardian reports, one of its editors opened his inbox and was surprised to find a message from the BOE’s Head of Press Jeremy Harrison outlining the UK financial market equivalent of the Manhattan project. 

Project Bookend is a secret (or ‘was’ a secret) initiative undertaken by the BOE to study what the fallout might be from a potential ‘Brexit’, but if anyone asked what Sir Jon Cunliffe and a few senior staffers were up to, they were instructed to say that they were busy investigating “a broad range of European economic issues.”

Here’s more from The Guardian:

Bank of England officials are secretly researching the financial shocks that could hit Britain if there is a vote to leave the European Union in the forthcoming referendum.


The Bank blew its cover on Friday when it accidentally emailed details of the project – including how the bank intended to fend off any inquiries about its work – direct to the Guardian.


According to the confidential email, the press and most staff in Threadneedle Street must be kept in the dark about the work underway, which has been dubbed Project Bookend…


MPs are now likely to ask whether the Bank intended to inform parliament that a major review of Britain’s prospects outside the EU was being undertaken by the institution that acts as the UK’s main financial regulator. Carney is also likely to come under pressure within the Bank to reveal whether there are other undercover projects underway.


Officials are likely to have kept the project under wraps to avoid entering the highly charged debate around the EU referendum, which has jumped to the top of the political agenda since the Conservatives secured an overall majority. Many business leaders and pro-EU campaigners have warned that “Brexit” would hit British exports and damage the standing of the City of London.


The email indicates that a small group of senior staff are to examine the effect of a Brexit under the authority of Sir Jon Cunliffe, who as deputy director for financial stability has responsibility for monitoring the risk of another market crash. 


Cunliffe also sits on the board of the City regulator, the Prudential Regulatory Authority.


The email from Cunliffe’s private secretary to four senior executives, was written on 21 May and forwarded by mistake to a Guardian editor by the Bank’s head of press, Jeremy Harrison.

It says: “Jon’s proposal, which he has asked me to highlight to you, is that no email is sent to James’s team or more broadly around the Bank about the project.”


It continues: “James can tell his team that he is working on a short-term project on European economics in International [division] which will last a couple of months. This will be in-depth work on a broad range of European economic issues. Ideally he would then say no more.”

*  *  *

In sum: Mark Carney accidentally pulled a Coeure who intentionally pulled a Yellen

On the bright side for Carney, it looks like he’s making big strides when it comes to his goal of providing “greater transparency over [the BOE’s] decision-making.”

And The Market Breaks (As VIX Hits 2015 Lows)


VIX hit 2015 lows and started to rip higher...


So something had to be done...




When Nasdaq goes dark, #HFT machines freak out ("Mommy!") and the % of non-NBBO quotes goes wild

— Eric Scott Hunsader (@nanexllc) May 22, 2015

Clinton Benghazi E-mails Released, Show "Sensitive" Information Was Sent From Personal Server

The State Department has released 850 pages of e-mails from Hillary Clinton’s private e-mail address. Clinton has been under fire for using a private e-mail server (as opposed to an official government account) to discuss potentially sensitive matters of national security and foreign policy during her tenure as the nation’s top diplomat. Specifically, there are big questions about who knew what and when about an attack on US outposts in Benghazi that killed US ambassador J. Christopher Stevens. 

Clinton has said she wants the e-mails to be released and The State Department is using this as a “we told you so” moment as you can see from the following statement:

“The emails we release today do not change the essential facts or our understanding of the events before, during, or after the attacks, which have been known since the independent Accountability Review Board report on the Benghazi attacks was released almost 2½ years ago.”

Nevertheless, the release isn’t likely to impress Clinton’s critics who note that the now-public documents represent but a small fraction of the 55,000 pages turned over to Congress and even though the rest of e-mails are set to be released on a “rolling basis”, what the public sees is ultimately filtered through Clinton’s attorneys so you can be absolutely certain that there will be no Seymour Hersh moments to be had by sifting through the pile. Here’s Rep. Trey Gowdy who heads the House Select Committee on Benghazi:

“State Department transferred 300 messages exclusively reviewed and released by her own lawyers. These lawyers, it must be noted, owed and continue to owe a fiduciary responsibility to Secretary Clinton to protect her interests. To assume a self-selected public record is complete, when no one with a duty or responsibility to the public had the ability to take part in the selection, requires a leap in logic no impartial reviewer should be required to make and strains credibility.”

It sure does, but be that as it may, there were a few interesting things to be gleaned from perusing the documents. The first batch of e-mails released to the NY Times on Thursday do not seem to suggest that Clinton received or transmitted any classified information on her personal e-mail server, but that isn’t the interesting part because after all, if there’s evidence she did transmit such information, the lawyers would make sure those e-mails didn’t see the light of day. What is interesting though is that there’s a whole lot of SBU flying around. SBU stands for “sensitive but unclassified”, and as you’ll see from the below, some of the information probably shouldn’t have been sent from a private account:

Via NY Times:

The day after the Sept. 11, 2012, attacks on American outposts in Benghazi that killed Mr. Stevens and three other Americans, Mr. Blumenthal sent Mrs. Clinton a memo with his intelligence about what had occurred. The memo said the attacks were by “demonstrators” who “were inspired by what many devout Libyan viewed as a sacrilegious internet video on the prophet Mohammed originating in America.” Mrs. Clinton forwarded the memo to Mr. Sullivan, saying “More info.” (Pages 193-195)..


The next day, Mr. Blumenthal sent Mrs. Clinton a more thorough account of what had occurred. Citing “sensitive sources” in Libya, the memo provided extensive detail about the episode, saying that the siege had been set off by members of Ansar al-Shariah, the Libyan terrorist group. Those militants had ties to Al Qaeda, had planned the attacks for a month and had used a nearby protest as cover for the siege, the memo said. “We should get this around asap” Mrs. Clinton said in an email to Mr. Sullivan. “Will do,” he responded. That information contradicted the Obama administration’s narrative at the time about what had spawned the attacks. Republicans have said the administration misled the country about the attacks because it did not want to undermine the notion that President Obama, who was up for re-election, was winning the war on terrorism. (Pages 200-203)..


Mrs. Clinton’s emails show that she had a special type of government information known as “sensitive but unclassified,” or “SBU,” in her account. That information included the whereabouts and travel plans of American officials in Libya as security there deteriorated during the uprising against the leadership of Col. Muammar el-Qaddafi in 2011. Nearly a year and a half before the attacks in Benghazi, Mr. Stevens, then an American envoy to the rebels, considered leaving Benghazi citing deteriorating security, according to an email to Mrs. Clinton marked “SBU.”

So nothing “classified” there which should perhaps raise questions in and of itself because if top level discussions about what might have caused the death of a US diplomat in a country that was (and still is) engulfed in a civil war, doesn’t constitute “classified” information, then one shudders to think what does. 

Further, the fact that Clinton was exchanging mails on her private server that revealed the whereabouts and travel plans of the very same ambassador who was later killed is a bit disconcerting, as is the fact that apparently, the travel itinerary of diplomats in conflict zones is apparently not top secret enough to be deemed classified. Of course we guess the latter point there makes sense, considering that government officials probably only have so much mental bandwidth when it comes to “classified” things before it becomes impossible to keep up with all the lies and when you’re busy doing things like crafting complex narratives to justify overthrowing a dictator so you can help your Middle Eastern friends help you by piping natural gas to Europe in an effort to cripple Russia, small-ish things like telegraphing the whereabouts of ambassadors might have a tendency to fall through the classified cracks by being judged to be merely “sensitive.” 

Finally, it does look like there may have been an effort (although it's not clear, and probably never will be, how concerted the effort was), to delay going public with the whole "it was actually terrorists who killed him" bit, but then again who knows because when it comes to the government's relationship with militants fighting to usurp regimes in strategic and/or oil-rich Middle Eastern countries, all bets are off and the public will likely never read an e-mail that contains anything that even approximates the real story. 

Read and draw your own conclusions...


China's Tulipmania Full Frontal: Shenzhen's Parabolic Stocks Just Hit 67x P/E

Forget Shanghai and its roaring stock market, there's a new centre for speculative excess in China. Nothing says sustainable capital formation like a stock index that trades at a valuation of 67.2 times earnings, is up 166% in the last year and whose components regularly see 500% rallies (and recently epic collapses). Welcome to Shenzhen.



With margin debt hitting new records and with over 20 million new retail trading accounts opened in the last 9 weeks alone, China has - without any doubt - gone full tulip-tard...



But, as Bloomberg reports, the greatest fools can be found not in Shanghai, but in Shenzhen, home of China’s hottest stock market, rallies of more than 500% aren’t unusual.

In Shenzhen, there are 103 stocks that rallied that much this year, compared with only four in the former British colony.


Among the 1,721 stocks on the Shenzhen Composite Index, four have declined this year.

The Shenzhen benchmark jumped 12 percent this week, the most since 2008, as turnover topped trading in both Shanghai and Hong Kong. Investors have piled into the non-state companies that dominate the Shenzhen bourse after the government pledged to support developing industries, including technology and health care, to shift the economy away from manufacturing and property development.




The 103 stocks in the Shenzhen 500 percent club trade at an average 375 times reported earnings, while their average market capitalization has risen to $3.5 billion, according to data compiled by Bloomberg. Many of them recently sold shares for the first time.

But it gets better... as the IPO bandwagon has created a monster bubble...

As we previously discussed, the best performer is Beijing Baofeng Technology Co., a developer of online movie players, which has jumped 3,822 percent since its initial public offering two months ago and made its chairman Feng Xin a billionaire.



Zhejiang Longsheng Auto Parts Co., which makes car-seat parts, has climbed about 1,600 percent in the past year to trade at almost 600 times profits.


Wanda Cinema Line Co.’s 1,047 percent rally since its January IPO turned it into a $22.1 billion company.


While moves in Hong Kong stocks aren’t limited by trading caps, companies on mainland bourses are only allowed to gain or fall by a maximum of 10 percent on a daily basis -- except on the first day of trading, when the shares can rise as much as 44 percent.

But - as many have discovered in recent days - it's not all ponies and unicorns,

What goes up... crashes to floor in a wealth-destroying frenzy...



It was all going so well, and then...


“Hanergy and Goldin are a good reminder for investors in China,” Ronald
Wan, chief executive at Partners Capital International Ltd. said in Hong


“They have a close similarity with many stocks in Shenzhen which have rallied based on speculation rather than fundamentals.”

*  *  *

In conclusion:

“Valuations are ridiculously high,” Castor Pang, the head of research at Core Pacific-Yamaichi in Hong Kong, said by phone.


“The stocks surged too much and no one knows why.”

*  *  *

But - who could have seen this coming - especially with these avid traders watching over these markets...