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SocGen Asks The $4.5 Trillion Question

Call it the $4.5 trillion (the size of the Fed's balance sheet) question: in a report released overnight, titled "Reducing Risk in an Expensive World", SocGen strategists ask what is perhaps the most important question right now: "Will the Fed allow Irrational Exuberance, Season 2?" and point out that based on CAPE valuations, the US equity market now has two choices: it will either proceed to another round of irrational exuberance, or it will correct sharpy and dramatically.

 

Then again, perhaps this question should have been asked back in March 2009 when instead of doing the right thing and letting bloated, overindebted companies fail, the Fed decided to fix a record debt problem with even more debt, in the hopes of ultimately spurring just enough inflation to wipe away this massive debt overhang, in the process making equity holders richer than they have ever been, and leading such "establishment" thinkers as Guggenheim's Scott Minerd to declare "The long-term consequences of global QE are likely to permanently impair living standards for generations to come while creating a false illusion of reviving prosperity."

SocGen then tries to answer its own question by pointing out that the future of the market, driven entirely by trillions in excess liquidity, does not look very hot when extrapolating the S&P based on the size of the Fed's balance sheet.

The key assumption above, of course, is that the Fed's balance sheet will contract, which may be a bold assumption: recall that the Climate Contingent Fed may simply opt to do QE during "harsh winters" and then hike rates to 4% in the summer.

Of course, for the full answer we look forward to Ben Bernanke's next blog post. Then again, those impatient for an answer right now, are urged to simply #AskBen.








Federal Agents Investigating Bitcoin Money Laundering Extorted, Stole Over $1 Million In Bitcoin

This is one of those sad times when The Onion realizes it has badly, and permanently, missed its IPO window.

Just released from the Department of Justice

Former Federal Agents Charged With Bitcoin Money Laundering and Wire Fraud

Agents Were Part of Baltimore’s Silk Road Task Force

Two former federal agents have been charged with wire fraud, money laundering and related offenses for stealing digital currency during their investigation of the Silk Road, an underground black market that allowed users to conduct illegal transactions over the Internet.  The charges are contained in a federal criminal complaint issued on March 25, 2015, in the Northern District of California and unsealed today.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Melinda Haag of the Northern District of California, Special Agent in Charge David J. Johnson of the FBI’s San Francisco Division, Special Agent in Charge José M. Martinez of the Internal Revenue Service-Criminal Investigation’s (IRS-CI) San Francisco Division, Special Agent in Charge Michael P. Tompkins of the Justice Department’s Office of the Inspector General Washington Field Office and Special Agent in Charge Lori Hazenstab of the Department of Homeland Security’s Office of the Inspector General in Washington D.C. made the announcement.

Carl M. Force, 46, of Baltimore, was a Special Agent with the Drug Enforcement Administration (DEA), and Shaun W. Bridges, 32, of Laurel, Maryland, was a Special Agent with the U.S. Secret Service (USSS).  Both were assigned to the Baltimore Silk Road Task Force, which investigated illegal activity in the Silk Road marketplace.  Force served as an undercover agent and was tasked with establishing communications with a target of the investigation, Ross Ulbricht, aka “Dread Pirate Roberts.”  Force is charged with wire fraud, theft of government property, money laundering and conflict of interest.  Bridges is charged with wire fraud and money laundering.

According to the complaint, Force was a DEA agent assigned to investigate the Silk Road marketplace.  During the investigation, Force engaged in certain authorized undercover  operations by, among other things, communicating online with “Dread Pirate Roberts” (Ulbricht), the target of his investigation.  The complaint alleges, however, that Force then, without authority, developed additional online personas and engaged in a broad range of illegal activities calculated to bring him personal financial gain.  In doing so, the complaint alleges, Force used fake online personas, and engaged in complex Bitcoin transactions to steal from the government and the targets of the investigation.  Specifically, Force allegedly solicited and received digital currency as part of the investigation, but failed to report his receipt of the funds, and instead transferred the currency to his personal account.  In one such transaction, Force allegedly sold information about the government’s investigation to the target of the investigation.  The complaint also alleges that Force invested in and worked for a digital currency exchange company while still working for the DEA, and that he directed the company to freeze a customer’s account with no legal basis to do so, then transferred the customer’s funds to his personal account.  Further, Force allegedly sent an unauthorized Justice Department subpoena to an online payment service directing that it unfreeze his personal account.

Bridges allegedly diverted to his personal account over $800,000 in digital currency that he gained control of during the Silk Road investigation.  The complaint alleges that Bridges placed the assets into an account at Mt. Gox, the now-defunct digital currency exchange in Japan.  He then allegedly wired funds into one of his personal investment accounts in the United States mere days before he sought a $2.1 million seizure warrant for Mt. Gox’s accounts.    

Bridges self-surrendered today and will appear before Magistrate Judge Maria-Elena James of the Northern District of California at 9:30 a.m. PST this morning.  Force was arrested on Friday, March 27, 2015, in Baltimore and will appear before Magistrate Judge Timothy J. Sullivan of the District of Maryland at 2:30 p.m. EST today.

The charges contained in the complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

The case was investigated by the FBI’s San Francisco Division, the IRS-CI’s San Francisco Division, the Department of Justice Office of the Inspector General and the Department of Homeland Security Office of the Inspector General in Washington D.C.  The Treasury Department’s Financial Crimes Enforcement Network also provided assistance with the investigation of this case.  The case is being prosecuted by Assistant U.S. Attorneys Kathryn Haun and William Frentzen of the Northern District of California and Trial Attorney Richard B. Evans of the Criminal Division’s Public Integrity Section.

* * * * *

Some additional, and simply epic in their stupidity details from the criminal complaint:

The full criminal complaint can be found here.








Reuters Asks "Who Is More Of A Threat: Obama Or Putin", Surprised By The Answer

People in the United States feel under threat, both from beyond our borders and within them and as Reuters reports, when asked about both U.S. President Barack Obama and Russian President Vladimir Putin, it was a pretty darn close call. A new Reuters/Ipsos poll finds a third of Republicans believe President Barack Obama poses an imminent threat to the United States, outranking concerns about Russian President Vladimir Putin and Syrian President Bashar al-Assad.

The blame, according to one sociologist, "the TV media here, and American politics, very much trade on fears."

On the bright side for the Administration, ISIS and Al Qaeda still outrank him as more imminent threats... so that's good (considering he is a Nobel Peace Prize winner).

 

 

A recent Reuters/Ipsos poll asked more than 3,000 Americans what they see as some of the biggest threats to themselves and the country. Overall it was close - 20% saw Putin as an imminent threat compared to 18% who said the same about Obama.

I think it’s safe to say that a national security expert might not agree with the public’s choices.

 

More people fear Boko Haram, a scary but ragged Islamic radical group in Nigeria that might have trouble paying for plane tickets to the United States, than Russia, which recently invaded a major European country. And a whopping 34 percent consider Kim Jong-un, the leader of impoverished North Korea, an imminent threat. Kim may have a couple of nukes, but otherwise his nation is a basket case, so poor that it relies on international aid to feed itself. Though considering how fast Sony Pictures pulled “The Interview” from theaters, I guess the public’s not alone in being afraid of the young man with the unique hairstyle.

 

Perhaps the most disturbing part, however, is how Americans view each other, simply because of the political party they favor. Thirteen percent of us see the Republican and Democratic parties as an imminent threat. That’s the same number who think the Chinese might be.

The Guardian also notes, a third of Republicans believe President Barack Obama poses an imminent threat to the United States, outranking concerns about Russian President Vladimir Putin and Syrian President Bashar al-Assad.

People who were polled were most concerned about threats related to potential terror attacks.

 

Islamic State militants were rated an imminent threat by 58% of respondents, and al Qaeda by 43%. North Korean Leader Kim Jong Un was viewed as a threat by 34%, and Iran’s Ayatollah Ali Khamenei by 27%.

*  *  *
Meanwhile, the world is certainly worried about the United States.

In a Gallup survey of people in 65 countries, about one quarter named the United States as the greatest threat to world peace.

 

Maybe that should not be so surprising, as only about half of Americans know which country was the only one to ever drop a nuclear bomb.

*  *  *








How Many Slots Are Open In The Upper Middle Class? Not As Many As You Might Think

Submitted by Charles Hugh-Smith via OfTwoMinds blog,

Not only are there not that many slots in the upper middle class, the number of open slots is considerably lower.

  If America is the Land of Opportunity, why are so many parents worried that their princeling/princess might not get into the "right" pre-school, i.e. the first rung on the ladder to the Ivy League-issued "ticket to the upper middle class"? The obsessive focus on getting your kids into the "right" pre-school, kindergarten and prep school to grease the path to the Ivy League suggests there aren't as many slots open as we're led to believe.   Let's set aside the endless debate over what qualifies a household to be "middle class." Most people define themselves as middle class, with little regard for their income. Let's cut to the chase and ask: how many young people aspire to joining this ill-defined middle class? Does this mean a rising standard of living and security? Not any more.   If you want those things, you must aspire to join the upper middle class.   So the more fruitful question is: what qualifies as upper-middle class? Here's a handy line in the sand: Stanford University covers the tuition for all incoming undergraduates whose household income is less than $125,000.   According to the U.S. Census Bureau data (here displayed on Wikipedia), $125,000 is right about the 85% line--only the top 15% households make $125,000 and up annually:Household income in the United States.   For context, median household income in the U.S. is around $52,000 annually.   A few years ago, I calculated What Does It Take To Be Middle Class? (December 5, 2013) and came up with an absolute minimum of $111,000 for two self-employed wage earners, as this includes the cost of healthcare insurance and the employer's share of Social Security and Medicare taxes. This was bare-bones.   Since employees of the government or Corporate America receive healthcare and retirement benefits (matching contributions to employee 401K plans, etc.), these can be subtracted from the $111,000. But this didn't allow for vacations or any of the finer things in life, so if we are talking about a truly comfortable household income, around $105,000 for state/corporate employed people sounds right and $125,000 for self-employed people is more or less the minimum required.   (Obviously, money goes further in the Midwest and not very far on the Left and Right coasts.)   Stanford's cutoff of $125,000 isn't as outlandish as it might seem at first glance.See where your household income fits in the spectrum with this online tool: What Is Your U.S. Income Percentile Ranking? (This confirms that an income of $125,000 puts the household in the top 15%.) Meanwhile, wages for every category of worker, from the highly educated to the high school graduate, have been declining:     How many slots are there in this upper middle class? A household income of $190,000 is in the top 5% nationally. According to the Social Security Administration data for 2013 (the latest data available), Wage Statistics for 2013, individuals who earn $125,000 or more are in the top 5% of all earners. Two such workers would earn $250,00 together. The 2.8 million households with incomes of $250,000 or more are in the top 2.5%. If we define the top few percent as upper middle class, then who qualifies as wealthy? Only the top 1%?   I think it is reasonable to define the 10% of households earning between $125,000 (top 15%) and $190,000 (top 5%) as upper middle class. This is around 12 million households, out of a total of 121 million households.   Most of those jobs are already held by people with years of experience and abundant social and human capital. Yes, there are plenty of wastrels living off trust funds and free-riders doing as little as possible in their guaranteed government jobs, but by and large the people earning these incomes are working hard and will do whatever it takes to maintain their current incomes for the sake of their kids and their own security.   This explains the frantic drive to be one of the 2,100 students accepted by Stanford out of 42,000 applicants. These low admission numbers reflect the admission realities in the upper crust of Ivy league universities, both public and private.   The assumption is the few open slots in the upper middle class (or dare we hope, the 1%) will disproportionately go to those who have the credentials that signal they have the social breeding and brains to fit the corporate culture and they're willing to work hard and make their bosses lots of money.   Meanwhile, the top 5% of households in San Francisco earn a whopping $423,000 annually. (brookings.edu)   This is enough to put those households in the top 1% of California residents, roughly $433,000 annually: 10 States Where You Need The Most Money to Be In the 1 Percent   If you're curious what jobs those living in top 1% households have, check out this chart: Explore the occupations and industries of the nation's wealthiest households (NY Times).   4,575 writers (out of 92,000 nationally) are in top 1% households. Where do I sign up? Another 10,134 writers in "other industries" (out of 465,000 people claiming this employment category) are also in top 1% households. 15,000 retail clerks also live in top 1% households.   Perhaps the trick is not to make a lot of money writing or selling accessories, but to marry a top-level attorney, doctor, business owner, dot-com millionaire, lobbyist or trust funder?   (You can look up what qualifies as a 1% household income in this link, which has a chart of all 50 states and Washington D.C.)   Not only are there not that many slots in the upper middle class, the number of open slots is considerably lower. No wonder so many parents are desperate for an insider's pathway for their offspring.

 








Broke? You May Now Be Entitled To a Free Home

It’s been seven years since the epic collapse of the US housing market, and there’s never been a better time to buy your first home. In Denmark for instance, the bank will tax depositors in order to pay you to take out a home loan. But before you move to a European country operating in NIRP-dom, consider Florida and New Jersey first because as Susan Rudolfi recently discovered, you can actually get a house for free by simply not making your mortgage payments. Here’s more via NY Times:

She is like a ghost of the housing market’s painful past, one of thousands of Americans who have skipped years of mortgage payments and are still living in their homes.

 

Now a legal quirk could bring a surreal ending to her foreclosure case and many others around the country: They may get to keep their homes without ever having to pay another dime.

 

The reason, lawyers for homeowners argue, is that the cases have dragged on too long.

 

There are tens of thousands of homeowners who have missed more than five years of mortgage payments, many of them clustered in states like Florida, New Jersey and New York, where lenders must get judges to sign off on foreclosures.

 

However, in a growing number of foreclosure cases filed when home prices collapsed during the financial crisis, lenders may never be able to seize the homes because the state statutes of limitations have been exceeded, according to interviews with housing lawyers and a review of state and federal court decisions.

It should come as no surprise that the free house legal loophole comes courtesy of the always dangerous and extraordinarily unpredictable combination of government ineptitude and TBTF inefficiency, and thanks to the fact that the Fed-sponsored, investment bank securitization-fee-fueled real estate bubble was allowed to inflate to the point where it swallowed the entire US economy, tens of thousands of borrowers may ultimately become owners by virtue of remaining resolute when it comes to not making payments:

It is difficult to know for sure how many foreclosure cases are still grinding through the court systems since the financial crisis. It is even harder to say how many of those borrowers are still living in their homes.

 

Bank of America, for example, has initiated the foreclosure process on roughly 20,000 mortgages that have not been paid in at least five years. The bank estimates that 90 percent of those homes are still occupied.

 

The courts are not the only source of delay. Over the years, the federal government has made 69 changes to its mortgage modification programs, forcing lenders repeatedly to scrap previous offers to homeowners and extend new terms.

 

Of course, the banks have also dragged out this reckoning through shoddy paperwork, botched modifications and general dysfunction as they struggled to cope with a flood of soured mortgages. Many cases were passed among lawyers like hot potatoes and lay dormant on court dockets.

This arrangement works out particularly well if the property you now own (because it’s cheaper to pay a lawyer than it is to pay the mortgage) can be used to generate rental income: 

[Rudolfi’s] working-class neighborhood is a short drive from Coconut Grove, a wealthy waterfront enclave of Miami. Her bedroom opens up onto a pool, shaded by palm trees. Outside her house, she parks a small motorboat she named Mermaid. The property includes an adjoining house that she rents out…

 

In November 2009, her mortgage servicer at the time, Aurora Loan Services, a unit of the now-defunct Lehman Brothers, filed to foreclose on her house.

 

Instead of making her roughly $1,300 monthly mortgage payment, she pays her lawyer $500 a month to represent her in court.

 *  *  *

So a bit of poetic justice we suppose for an investment banking community and a complicit Federal Reserve who facilitated the creation of a modern day tulip mania which lined Wall Street’s pockets even as it put Main Street (which was itself all too eager to finance a McMansion and a Hummer) on a path to ruin. But in the end, the Susan Rudolfis of the world ask: "What are you gonna do?"...

“I screwed up and they screwed up, so now what?” she said.








What’s REALLY Going On In Yemen

Confused about the war in Yemen?

Here’s what’s really going on …

Yemen – previously called “Aden” – has one of the oldest civilizations in the Middle East.  But it has been racked with violence for a long time.

In the 1960s, a pro-Arab nationalist faction clashed with the British – who wanted Yemen to become a Western-controlled natural resource hub – and devolved into brutal fighting, with both sides using terrorism.

Yemen’s first president – Saleh – was in power from 1990 to 2012.  The U.S supported Saleh, but Saleh was a double-dealing scoundrel.

The Arab Spring protests ousted Saleh, and America helped broker immunity for prosecution in return for his leaving office.

Saleh was corrupt and tyrannical.   As the Telegraph reports:

For years, the Americans saw President Ali Abdullah Saleh as a key ally in the fight against al-Qaeda. He allowed his air bases to be used by US drones to strike at the movement’s operatives, and gladly received Western aid in development cash and arms supplies.

 

Yet according to claims in a United Nations report last month, one of the first things Mr Saleh did when his three-decade rule was threatened by the 2011 Arab Spring was strike a secret deal to give an entire southern province to al-Qaeda. The more he could portray Yemen as falling into militant hands, he calculated, the more the West want to keep him in office at all costs.

The U.S. brokered Saleh’s replacement by Yemen’s current president, Hadi. Hadi was a long-time high-level assistant to Hadi.

The presidential election “ballot” had only one choice … Hadi:

The opposition which took over the country – the Houthis (also called “Zaydis”) – are violent fundamentalist idiots. Yes, they are closer to Shiites (like the majority in Iran) than Sunnis (like Saudi Arabia).  But they are virtually indistinguishable from Sunni fundamentalist terrorists in their behavior:

Although a Shi’a group, Zaydi theological differences with Sunnis are few ….

Hadi is such a traitor to his own Yemeni people that he is calling for a foreign power – Saudi Arabia – to keep bombing Yemen until his opposition is defeated.

But – here’s the kicker – guess who is behind the Houthi revolt that led to the taking over Yemen from Hadi?

If you guessed Iran, you’re wrong.

It's deposed president Saleh!   He's baaaaaaack!

Indeed, the reason that the Houthis were able to take over the country so quickly is that many of the troops and police are still loyal to Saleh.  So – at Saleh’s instruction – while the Houthis advanced, the soldiers and guards simply walked away from their posts when Saleh told them to scram.

Bottom line: There are no saints in this conflict …

Many are calling this a proxy war between Saudi Arabia and Iran. But it’s not.

Initially, Saudi Arabia is directly bombing Yemen. It’s not doing so through a  proxy.

Moreover, while Iran is sending the Houthis some money, this is really a power struggle between two corrupt idiots:   Saleh and Hadi.  Iran is not very involved.








Big Brother Is Here: Facebook Reveals Its Master Plan - Control All News Flow

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

In recent months, Facebook has been quietly holding talks with at least half a dozen media companies about hosting their content inside Facebook rather than making users tap a link to go to an external site.

 

The new proposal by Facebook carries another risk for publishers: the loss of valuable consumer data. When readers click on an article, an array of tracking tools allow the host site to collect valuable information on who they are, how often they visit and what else they have done on the web.

 

And if Facebook pushes beyond the experimental stage and makes content hosted on the site commonplace, those who do not participate in the program could lose substantial traffic — a factor that has played into the thinking of some publishers. Their articles might load more slowly than their competitors’, and over time readers might avoid those sites.

 

- From the New York Times article: Facebook May Host News Sites’ Content

Last week, I came across an incredibly important article from the New York Times, which described Facebook’s plan to provide direct access to other websites’ content in exchange for some sort of advertising partnership. The implications of this are so huge that at this point I have far more questions than answers.

Let’s start with a few excerpts from the article:

With 1.4 billion users, the social media site has become a vital source of traffic for publishers looking to reach an increasingly fragmented audience glued to smartphones. In recent months, Facebook has been quietly holding talks with at least half a dozen media companies about hosting their content inside Facebook rather than making users tap a link to go to an external site.

 

Such a plan would represent a leap of faith for news organizations accustomed to keeping their readers within their own ecosystems, as well as accumulating valuable data on them. Facebook has been trying to allay their fears, according to several of the people briefed on the talks, who spoke on condition of anonymity because they were bound by nondisclosure agreements.

 

Facebook intends to begin testing the new format in the next several months, according to two people with knowledge of the discussions. The initial partners are expected to be The New York Times, BuzzFeed and National Geographic, although others may be added since discussions are continuing. The Times and Facebook are moving closer to a firm deal, one person said.

 

Facebook has said publicly that it wants to make the experience of consuming content online more seamless. News articles on Facebook are currently linked to the publisher’s own website, and open in a web browser, typically taking about eight seconds to load. Facebook thinks that this is too much time, especially on a mobile device, and that when it comes to catching the roving eyeballs of readers, milliseconds matter.

 

The Huffington Post and the business and economics website Quartz were also approached. Both also declined to discuss their involvement.

 

Facebook declined to comment on its specific discussions with publishers. But the company noted that it had provided features to help publishers get better traction on Facebook, including tools unveiled in December that let them target their articles to specific groups of Facebook users, such as young women living in New York who like to travel.

 

The new proposal by Facebook carries another risk for publishers: the loss of valuable consumer data. When readers click on an article, an array of tracking tools allow the host site to collect valuable information on who they are, how often they visit and what else they have done on the web.

 

And if Facebook pushes beyond the experimental stage and makes content hosted on the site commonplace, those who do not participate in the program could lose substantial traffic — a factor that has played into the thinking of some publishers. Their articles might load more slowly than their competitors’, and over time readers might avoid those sites.

 

And just as Facebook has changed its news feed to automatically play videos hosted directly on the site, giving them an advantage compared with videos hosted on YouTube, it could change the feed to give priority to articles hosted directly on its site.

Let me try to address this the best I can from several different angles. First off, what’s the big picture plan here? As the number two ranked website in the world with 1.4 billion users, Facebook itself is already something like an alternative internet where a disturbing number of individuals spend a disproportionate amount of their time. The only thing that seems to make many of its users click away is content hosted on other people’s websites linked to from Facebook users. Other than this outside content, many FB users might never leave the site.

While this is scary to someone like me, to Facebook it is an abomination. The company doesn’t want people to leave their site ever — for any reason. Hence the aggressive push to carry outside news content, and create a better positioned alternative web centrally controlled by it. This is a huge power play move. 

Second, the New York Times righty asks the question concerning what will publishers get from Facebook for allowing their content to appear on the site seamlessly. Some sort of revenue share from advertisers seems to be an obvious angle, but perhaps there’s more.

While Facebook isn’t a huge traffic driver for Liberty Blitzkrieg, it isn’t totally irrelevant either. For example, FB provided about 3% of the site’s traffic over the past 12 months. This is despite the fact that LBK doesn’t even have a Facebook page, and I’ve never shared a link through it. Even more impressive, Facebook drove more traffic to LBK over the same time period than Twitter, and I am very active on that platform. So I can only imagine how important FB is to website editors who actually use it.

This brings me to a key point about leverage. It seems to me that Facebook has all the leverage in negotiations with content providers. If you’re a news website that refuses to join in this program, over time you might see your traffic evaporate compared to your competitors whose content will load seamlessly and be promoted by the FB algorithm. If a large percentage of your traffic is being generated by Facebook, can you really afford to lose this?

One thing that FB might be willing to offer publishers in return other than advertising dollars, is increased access to their fan base. For example, when I try to figure out through Google analytics who specifically (or what page) on Facebook is sharing my work, I can’t easily do so. Clearly this information could prove very useful for networking purposes and could be quite valuable.

Looking for some additional insight and words of wisdom, I asked the smartest tech/internet person I know for his opinion. It was more optimistic than I thought:

This could be a huge shaper of news on the internet. or it could turn out to be nothing.

 

Other than saying that I don’t really know how to predict what might or might not happen, and I sort of don’t care much because it is in the realm (for now at least) of stuff that I don’t read (mainstream news), on a site that I never see (Facebook). However, the one thing I wonder in terms of the viability of this is whether in the end it may drive people away from FB.

 

Back in the day, probably when you weren’t so aware of the nascent net, there were two giant “services” on the Internet called Compuserve and America Online. They were each what you are thinking that Facebook is heading toward; exclusive, centralized portals to the whole net. They were also giant and successful at the time. Then people outside of them started doing things that were so much more creative and interesting. At the same time, in order to make everything fit inside their proprietary boxes and categories, they were making everything ever more standardized and boring. Then they just abruptly died.

Given the enormity of what Facebook is trying to achieve, I have some obvious concerns. First, since all of the leverage seems to reside with Facebook, I fear they are likely to get the better part of any deal by wide margin. Second, if they succeed in this push, this single company’s ability to control access to news and what is trending and deemed important by a huge section of humanity will be extraordinary.








"The Risks Are Very High" Swiss Billionaire Warns "Global Financial Markets Have Never Been This Distorted Before"

Submitted by Frank Suess via Acting Man blog,

Risks and Opportunities

Investors started off 2015 with a slow global economy, low oil prices, a strong Dollar, and a deflationary Europe with great uncertainties on the progress of the US economy and the recent launch of Europe’s quantitative easing. The question is, what opportunities lie ahead? This article highlights the main topics covered in an interview between Mr. Frank Suess, CEO and Chairman of BFI Capital Group, with the globally renowned Swiss fund manager, Mr. Felix Zulauf. Mr. Zulauf currently heads Zulauf Asset Management, a Switzerland-based hedge fund and has forty years of experience with global financial markets and asset management. He has been a member of the Barron’s Roundtable for over twenty years.

 

Felix Zulauf, Swiss fund manager and long-standing member of the Barron’s roundtable

 

Frank Suess: Felix, first I would like to thank you for taking the time to speak to us. You are a renowned investor and fund manager with a solid track record over the past 40 years. In those 40 years, you’ve encountered many highs and lows in financial markets and business cycles. What do you think about the current cycle we are in?

Felix Zulauf: The current cycle is very unusual, because never before have we seen authorities, central banks in particular, intervening on such a large scale and pumping so much money into global financial markets. Hence, global financial markets are more distorted than ever before and accordingly, the risks are very high. Investing becomes very difficult in such an unprecedented environment, as it can’t be compared to previous situations.

Frank Suess: When you look at our financial markets today, what would you consider are the most alarming themes? And how can they affect the current situation?

Felix Zulauf: Global demand has weakened due to structural reasons. This is a situation that cannot be improved by pumping liquidity into the system. Zero or even negative interest rates have distorted the valuation and pricing of virtually all assets. We know that the longer a distortion prevails, the more investors get used to it and it becomes the “new normal” to them. That’s where the problem lies!

I see three potential threats:

1) Inflation and bond yields rise and begin to prick asset bubbles;

 

2) The world economy gets hit again by more deflation due to a weaker Chinese currency that would reinforce deflationary pressure, dampen pricing and corporate profits and finally the real global economy; and

 

3) Asset prices continue to rise and finally exhaust on the upside at very high and unsustainable valuation levels.

In my view, #3 will be the most likely outcome.

 

A potential source of trouble: the yuan – click to enlarge.

 

Frank Suess: Central banks, with the US Federal Reserve in the lead, have embarked on a series of quantitative easing and credit stimulus packages. Particularly since the crisis in 2008, central bank influence on financial markets and the global economy has reached an unprecedented level. What is your view on this? Has this huge market intervention been justified? Will central bankers really be able to steer the global economy toward sustainable growth?

Felix Zulauf: Markets are the best capital allocators and capitalism works if the authorities let it take its course. Had they let markets correct all the excesses in previous business cycles instead of printing more and more money, the world would be in a much better shape today. But our authorities had the dream to smooth the business cycle by not allowing the markets and the system to correct itself. It is difficult to correct this in a painless way, which is what the authorities are trying to do. That won’t work.

 

Assorted central planners – no painless way out

 

Frank Suess: How do you see this affecting accumulated wealth, particularly in the US? You were previously quoted as saying that “it will be a trader’s dream, but an investor’s hell”. Could you please explain to our readers what you mean with that statement?

Felix Zulauf: My hunch is that the US market will not make much progress this year but rather go up and down. This may be good for talented traders but bad for investors holding stocks that perform more or less in line with the S&P.

Frank Suess: Following the Americans, and then the Japanese, Europe has now joined the “QE bandwagon”. And, European stock markets, in general, currently look more reasonably priced than those in America. Should we now reallocate a bigger part of our portfolio into European stock markets?

Felix Zulauf: On a relative basis, European markets are now higher priced than in 2007 versus the US. But cyclical forces remain in favor of European stocks due to the highly expansive ECB policies. Europe has zero interest rates or even negative rates in some cases. I wouldn’t even be surprised to see German 10-year Bonds going to negative yields (they are 0.25% at present). There is plenty of liquidity around and the banks cannot lend it out. But still, Draghi wants to flood the market with more than one trillion of newly printed Euros. That is insane! The rationale: Weaken the Euro even further to help the structurally uncompetitive economies like Greece, Italy or France. That is all a very far cry from sound central banking, of course. For a while longer it will be bullish for European stocks, particularly for German equities, as they had already performed well when the EUR/USD was trading at 1.40.

 

10 year Bund yield – just below 20 basis points as of today – click to enlarge.

 

Frank Suess: The slump in the oil price has been a major topic since last summer. Factors include a drop in global manufacturing, America’s increased production of shale oil, lower production by OPEC members. What is your interpretation? And where do you expect oil prices, and possibly commodity prices, in general, going forward? Who are the winners and losers here?

Felix Zulauf: The commodity cycle peaked in 2011 and I assume the bearish trend will last another few years. Oil’s decline is part of that down cycle. Demand and supply factors are at work here. Oil’s market share of total energy has been declining for some years. The Saudis want to change this by having a lower price and want others to cut back on production. On the demand side, the world is getting more and more energy efficient (the automobile sector is an example) and therefore demand is now rising, but at a slower rate than the economy. The winners remain the energy consumers, in a broad sense, and the losers are the energy producers. That relates to individuals, companies, industries and national economies. But of course, energy is always only one component of the whole investment landscape.

Frank Suess: Over the years, you’ve had great exposure to Asian markets, particularly Japan. Many eyes are now set on China. The Chinese are confident they will report strong growth numbers of 7% this year, while many analysts disagree, saying that it is unachievable on low export figures. What do you make of the current performance of the Chinese economy and its impact on Europe and the US?

Felix Zulauf: China’s investment and credit boom was the biggest in recorded history. It peaked a while ago and is now in a downswing. After such a boom, the economy usually slows for 5-7 years and that is what’s happening in China. 7% growth is a joke; I would rather say it is now beginning to fall below 3% and won’t stop slowing for several years. China will be forced to help the banking and shadow banking system to digest the fallout of the previous boom and that means it will become more and more expansive in its monetary policy. In turn, this will weaken the Chinese currency. But China is moving slowly – which reinforces the slowdown – because it is afraid of a big wave of capital outflows that could create a shock to the banking system. Hence, they play down problems and move slowly. But eventually, the currency will weaken further. Once the Renminbi weakens by 10-15%, it will weaken prices of globally traded goods once more. In turn, this will dampen inflation further as well as revenues, profit margins and profits in the corporate sector around the world. When this happens, many equity markets may realize that the “emperor has no clothes”. In other words, China is key to the rest of the world.

Frank Suess: Greece is on the brink of collapse and possibly exiting the Eurozone. Negotiations are still ongoing, and the situation is still developing. Do you see a way out of the Greek leverage situation? In your view, should the Greeks stay or exit the Eurozone? And what is the best course of action for both parties, in your opinion?

Felix Zulauf: Of course, Greece is bust – like several others. But as long as the fiction that everything is okay and financing will be provided remains, the world doesn’t worry. My hunch is that the percentage of those in European politics that are fed up with Greece is rising and therefore it is only a matter of time until Greece defaults. A major restructuring and reform with Greece staying in the euro zone will be very difficult to achieve because the ECB will hardly provide the capital necessary for the refinancing of a restructured Greece. Hence, an exit may happen and the Drachma could be reintroduced with a value that is perhaps 50-70% lower compared to today’s currency. At that time, Greece has a true chance to recover. However, this would set prejudice of exiting.

 

Greece’s stock market has declined precipitously since 2007 – click to enlarge.

 

Frank Suess: When the SNB removed the cap on the CHF in January, did you see it coming? How would you evaluate this decision by the SNB, noting that only days earlier they said they would maintain the cap? Can we expect more of these shocking decisions in the near future and why so?

Felix Zulauf: Well, I was pretty sure they would eventually separate from the ECB policy, but had rather expected it to happen sooner. As a policymaker, you cannot tell if the truth could jeopardize your own policy. That is part of the game authorities must play. Well, we could see capital controls of some sort in the years ahead, because it is unreal to expect that all players are prepared to accept what other nations are trying to do at their own expense.

Frank Suess: What markets would you consider the most positive or negative? What investment opportunities would you say could develop in the course of the year that one should take advantage of?

Felix Zulauf: All equity and currency markets are pretty extended, at present. And many of the bond markets are as well. Hence, risk is high as assets are priced off a zero interest rate policy. I said last year that currency movements will play a key role. I expected the strengthening USD at the beginning of 2014, which is over a year ago. And European investors made 40% in US equities over the last 12 months while a US investor lost 10% in European equities, all calculated in their home currency. Hence, if you don’t understand currencies, you may get lost in these markets. I would certainly stay as far away as possible from emerging market currencies, bonds and also equities. On the positive side, I expect the USD strength to continue over the next 2 years or so but see some potential for a correction this spring. Long US treasuries are the most attractive fixed income instrument in the world because the economy will soften again against the general expectations of an economic reacceleration and rate hikes may be postponed for longer than generally expected. In equities, I find German equities the most attractive. Leading German multinationals made good money when the EUR/USD was trading at 1.40. It is trading now, at the time of this interview, near 1.08 and it must be a bonanza for them in terms of earnings. I would use short-term setbacks to buy more, but always hedge the currency.








Australia To Start Taxing Bank Deposits

Up until now, the world's descent into the NIRPy twilight of fiat currency was a function of failing monetary policy around the globe as central bank after desperate central bank implemented negative and even more negative (in the case of Denmark some four times rapid succession) rates, hoping to make saving so prohibitive consumers would have no choice but to spend the fruits of their labor, or better yet, take out massive loans which they would never be able to repay. However, nobody said it was only central banks who could be the executioners of the world's saver class: governments are perfectly capable too.  Such as Australia's.

According to Australia's ABC News, the "Federal Government looks set to introduce a tax on bank deposits in the May budget."

Ironically, the idea of a bank deposit tax was raised by Labor in 2013 and was criticized by Tony Abbott at the time. Much has changed in two years, and as ABC reports, assistant Treasurer Josh Frydenberg has indicated an announcement on the new tax could be made before the budget.

Mr Frydenberg is a member of the Government's Expenditure Review Committee but has refused to provide any details.

 

"Any announcements or decisions around this proposed policy which we discussed at the last election will be made in the lead up or on budget night," he said.

 

Speaking at the Victorian Liberal State Council meeting Mr Abbott has repeated his budget message, focusing on families and small businesses.

 

"There will be tough decisions in this year's budget as there must be, but there will also be good news."

For the banks and creditors, yes. For anyone who is still naive enough to save money in the hopes of deferring purchases for the future, not so much.

The banking industry has raised concerns about a deposit tax, saying it will have to pass the cost back onto customers.

 

Steven Munchenberg from the Australian Bankers' Association said it would be a damaging move for the Government.

 

"It's going to make it harder for banks to raise deposits which are an important way of funding banks. And therefore for us to fund the economy," he said. "And we also oppose it because particularly at this point in time with low interest rates a lot of people who are relying on their savings for their incomes are already seeing very low returns and this will actually mean they get even less money."

Don't worry Steven, neither central banks nor government care about "a lot of people" - they just care about a select few. As for the banks, once China, and immediately thereafter Australia, launches QE as the entire world descends into a monetary supernova, and Australia's banks are flooded with trillions in excess reserves like those in the US, all shall be forgiven. As a reminder, banks such as JPM are so flush with zero-cost cash from other sources, well one other source, they are now actively turning away depositors.

As for Australia, while central banks are untouchable and unaccountable to anyone (except their commercial bank directors and anyone else they secretly meet during those bimonthly sessions in the BIS tower in Basel), the government can be voted in and voted out. Especially a government that is about to break one of its main election promises:

The Federal Opposition has accused the Government of breaking an election promise by planning to introduce a tax on bank deposits.

 

The former Labor Government put forward the policy in 2013 to raise revenue for a fund to protect customers in the event of a banking collapse.

 

Shadow Assistant Treasurer Andrew Leigh said Treasurer Joe Hockey criticised the proposal at the time. "When we put it on the table Joe Hockey said that it was a smash and grab on Australian households just aimed at repairing the budget," he said.

It is almost surprising, but not really, how when it comes down to money, the thin white line between "us" and "them" always disappears when the money runs out.

As for Australia's savers, welcome to the NIRP world where savers in increasingly more countries are now on the endangered species list.








Wages Around The World

Although many economists—including at least some sitting central bankers—believe that nominal wage growth provides little forward-looking information about broader inflationary trends, policymakers have generally found wage growth useful in helping to assess the amount of slack in the labor market—a key consideration in monetary policy decisions, particularly at a time like today when labor market measures are sending differing messages about the degree of slack. Indeed, Fed Chair Janet Yellen has listed wage growth as one of a handful of measures she is closely watching as the Fed stands poised to embark on its first rate-hiking cycle in ten years.

 

 

The US is not the only country facing low wage growth and the Fed is not the only central bank focused on it.

 

But minimum wages around the world vary dramatically...

 

 

As total compensation is made up of ever increasing amounts of government transfers...

 

 

MIT professor Erik Brynjolfsson, author of Race Against the Machines and The Second Machine Age, argues that technology is fundamentally changing labor markets and increasingly displacing higher-skill, higher-wage workers. He is hopeful, however, that a new approach to education as well as entrepreneurship can result in new industries that “not only create value for consumers, but also leverage a lot of people and put them to work in new ways.”

"Median incomes are stagnating and have even fallen since the 1990s. And there is no doubt in my mind that technology is a big part of that." - Erik Brynolfson

Of course, for much of Europe, none of that matters as the worker is much more protcted than the average American...

 

Source: Goldman Sachs








Here's Which Emerging Markets Are Most Vulnerable To "External Shock"

With a no longer “patient” Fed set for “liftoff” sometime this year, some observers (including IMF chief Christine Lagarde) are bracing for emerging market turbulence. A new paper from the Center for Global Development attempts to discern which EMs are most vulnerable to an “external shock” (be it geopolitical or financial) and also seeks to determine which countries are more prepared to weather a storm now than they were pre-crisis. According to the study, the relevant factors are 1) current account balance, 2) ratio of external debt to GDP, 3) ratio of short-term external debt to reserves, 4) fiscal balance to GDP, 5) government debt to GDP, 6) inflation versus targeted inflation, and 7) financial “fragility”. 

From the study:

The values of the indicator for 2007 and 2014 are presented as well as the country rankings in both years. According to this methodology, the greater the value of the indicator the more resilient a country’s macroeconomic performance to external shocks is assessed to be. 

And here’s The Economist, simplifying things a bit further: 

How resilient are emerging-market economies? Many are struggling, thanks to the economic impact of a strong dollar. But what would happen if things suddenly got a lot tougher? A new paper, from Liliana Rojas-Suarez of the Centre for Global Development, a think-tank, offers some interesting data.

 

Let’s imagine that something really bad happens. The Federal Reserve tightens its monetary policy too soon; some new global debt crisis begins; Russia launches a full-scale invasion of Ukraine. Ms Rojas-Suarez wants to understand which emerging-market economies are most vulnerable.

 








A 'Miner' Problem, $2 Billion In Negative Working Capital

Via Visual Capitalist,

In a lengthy bear market for mining stocks, there have been repeated calls by pundits for the culling of hundreds of companies that have been unable to raise new money or generate shareholder value. This piece of the capitulation process, some say, is what is needed to put confidence back in the market so that the bull cycle can start again.

 

 

Courtesy of: Visual Capitalist

 

 

Tony Simon, President of Seguro Consulting, has put together a report that has rather concerning findings for those interested in the venture markets. The chief finding in his report is that there are 589 companies (roughly 40%) that should no longer be listed as they do not meet the continuous listing requirements required by the exchanges.

As per Policy 2.5 in TSX-V document:

Working Capital or Financial Resources of the greater of (i) $50,000 and (ii) an amount required in order to maintain operations and cover general and administrative expenses for a period of 6 months.

However, these nearly 600 companies still remain listed, which helps generate fees for a variety of service providers including legal companies, auditors, and listing fees for the exchange themselves.

*  *  *

The full worksheet of 589 companies and commentary can be found here and here.








When Will China Disclose Its True Official Gold Reserves And How Much Is It?

Submitted by Koos Jansen of Bullion Star

When Will China Disclose Its True Official Gold Reserves And How Much Is It?

Things are heating up in the Chinese gold market

First let’s go through the latest Shanghai Gold Exchange data and then we’ll continue to discuss the most recent developments regarding Chinese official gold reserves.

Friday the Shanghai Gold Exchange (SGE) released its trade report of week 11, 2015 (March 16 – 20). Withdrawals from the vaults, which equal Chinese wholesale demand, accounted for 53 tonnes, up 3.91 % from the prior week.

Blue is weekly gold withdrawn from the vaults in Kg, green is the total YTD.

Year to date total withdrawals have reached a staggering 561 tonnes, up 7.3 % from 2014, up 33 % from 2013. When using the basic equation for the Chinese gold market to estimate import, we learn that up until March 20 China has net imported 412 tonnes. Add to this India has net imported about 230 tonnes over the same period, that’s 642 tonnes combined. I wonder how long the Chinese can keep up this pace of importing before physical supply from Western vaults runs dry.

Trading volume on the Shanghai International Gold Exchange (SGEI) has been 32 tonnes in week 11, which could have distort SGE withdrawals by 0.8 tonnes. (Read SGE Withdrawals In Perspective for more information on the relation between SGEI trading volume and SGE withdrawals)

When Will China Disclose Its True Official Gold Reserves And How Much Is It?

As most readers who are interested in gold will know, China’s official gold reserves are small in proportion to the size of their economy and their foreign exchange reserves. This disproportionate position has been difficult for China to escape from. Any slight move from their immense stock of US dollars into gold could disrupt the gold market, and thus the US dollar, spoiling the party for everybody.

China is forced to buy in secret. The latest update on the size of their official gold pile was in April 2009, when they disclosed to have 1,054 tonnes, up 454 tonnes from 600 tonnes, which they claimed to have since 2003. Common sense indicates the PBOC did not buy 454 tonnes in a few months; most likely they bought this amount in secret spread over six years (2003 – 2009). More common sense suggests they continued to buy in secret since 2009 and they hold at least twice the weight they currently claim.

Last week I reported it’s very likely the renminbi will be adopted into the SDR basket this year and before inclusion China will announce their true gold reserves. All arrows point in the same direction, IMF chief Lagarde stated:

China’s yuan [renminbi] at some point would be incorporated in the International Monetary Fund’s Special Drawing Right (SDR) currency basket, IMF Managing Director Christine Lagarde said, …”It’s not a question of if, it’s a question of when,”

The SDR basket is reconsidered every five years, in 2010 there was no adjustment made, as the renminbi was not considered eligible at the time. But the renminbi has made significant developments since then; this year will be appropriate for adoption.

Next to what Lagarde and the IMF have stated, more “official” channels are hinting at changes to come regarding China in the international monetary system. Roland Wang, China managing director at World Gold Council, told Reuters on March 26:

China currently holds about 1.6 percent of its foreign exchange reserves in gold, which is relatively low compared with developed countries and some developing countries, WGC China managing director Roland Wang said.

 

“The ideal amount should be at least 5 percent of its total forex reserves,” Wang told Reuters in an interview in Hong Kong.

The latest IMF data points out China’s total foreign exchange reserves, excluding gold, on December 1, 2014, were valued at 3.859 trillion US dollars. 1,054 tonnes at the price of gold on December 1, 2014 (37,600 US dollar for 1 Kg), was a little over 1 % of total reserves.

If China would announce on Monday they hold 5 % of total reserves in gold, this would translate into roughly 5,000 tonnes.

Remarkably, the exact same day Reuters published Wang’s statement, Chinese newswire Caixin published a detailed story on gold in China’s monetary history and its potential function in the present and future economy, written by Hedge Fund manager Li Sheng:

Gold accounts for only 1.6 percent of China’s forex reserves. This is only a fraction of the figure in the United States and many other developed countries. If China ever increased the level to 5 percent, it would have an enormous impact on global demand for gold.

Li mentions the exact same numbers as Wang from the World Gold Council: 1.6 % and 5 % of total reserves. Coincidence?

I think that if China will update us on their gold reserves, the total will be less than 5,000 tonnes. For clarity, I have little hard evidence on the amount of gold the PBOC or its proxies hold in reserve. However, the reason I think it will be less is because of what Song Xin, Party Secretary and President of the China Gold Association, wrote at Sina Finance on July 30, 2014:

Gold Will Support Renminbi As It Moves To Join World

 

For China, the strategic mission of gold lies in the support of RMB internationalization, and so let China become a world economic power and make sure that the “China Dream” is realized.

 

Though China is already the world’s second largest economy, there is still a long way to go to become an economic powerhouse. The most critical part to this is that we don’t have enough say in matters such as international finance and matters regarding the monetary system, the most obvious of which is the fact that the RMB hasn’t fully internationalized.

 

Gold is a monetary asset that transcends national sovereignty, is very powerful to settle obligations when everything else fails, hence it’s exactly the basis of a currency moving up in the international arena. When the British Pound and the USD became international currencies, their gold reserve as a share of total world gold reserves was 50% and 60% respectively; when the Euro was introduced, the combined gold reserves of the member countries was more than 10,000 tonnes, more than the US had. If the RMB wants to achieve international status, it must have popular acceptance and a stable value. To this end, other than having assurance from the issuing nation, it is very important to have enough gold as the foundation, raising the ‘gold content’ of the RMB. Therefore, to China, the meaning and mission of gold is to support the RMB to become an internationally accepted currency and make China an economic powerhouse.

 

That is why, in order for gold to fulfill its destined mission, we must raise our gold holdings a great deal, and do so with a solid plan. Step one should take us to the 4,000 tonnes mark, more than Germany and become number two in the world, next, we should increase step by step towards 8,500 tonnes, more than the US.

According to Song step one is to reach the 4,000 tonnes mark to surpass Germany and become the second largest holder in the world, which would be in line with being the second largest economy (in terms of GDP). We can also read China’s aspirations in international finance that is currently, among other deveopments, to be established through the inclusion in the SDR basket. Bear in mind, Song is a Party Secretary, he wrote his article with permission, or on behalf of the Communist Party of China (CPC).

 

Song’s statements makes me think if China will increase its official gold reserves it will be more than Germany’s reserves; something north of 3,384 tonnes. Of course I could be wrong and it will be less – perhaps because they have less, perhaps because the international monetary system “can’t handle” and increase of more than 100%, perhaps because China has more than they see fit to disclose on the grand chessboard.

To finish please read the last bit of the article from Caixin, a must read and it has similarities with Song’s article:

Yuan and Gold: Old Enemies Should Finally Become Friends

 

…Since the global financial crisis that started in 2008, there has been consensus that an excessive issuance of U.S. dollars, driven by the U.S. Federal Reserve’s need to protect the U.S. economy, was partially to blame for causing havoc. Since the Bretton Woods system collapsed in 1971, the United States has been freed from having to restrict its money supply to the size of the gold reserve its central bank holds.

 

What does that say about the attitude China should take toward gold?

 

The boom years for gold between 2008 and 2012 were, of course, driven to a large extent by the United States’ easy monetary policy and an economic recovery in many countries. Yet, China played a part in it as well.

 

Its push since 2010 to promote the use of the yuan globally and diversify its foreign exchange investment away from U.S. Treasury bonds and U.S. dollar-denominated assets has made investors expect the demand for gold to rise because the Chinese central bank will need a greater reserve to support its currency.

 

Gold accounts for only 1.6 percent of China’s forex reserves. This is only a fraction of the figure in the United States and many other developed countries. If China ever increased the level to 5 percent, it would have an enormous impact on global demand for gold.

 

The price of gold started plummeting in early 2013 as the U.S. economy became stronger and the market expected the Federal Reserve to stop its policy of so-called quantitative easing. Meanwhile, China’s demand for gold soared. In the first half of 2014, imports skyrocketed, prompting speculation that the central bank was secretly beefing up its gold reserve.

 

Buying more gold seems to be a good choice for both the government and individual investors, given the new domestic and international circumstances. The yuan has been relatively stable throughout the most troubled times of the financial crisis, but its peg to the U.S. dollar means it will always fluctuate in sync with the latter, depending on the Fed’s moves.

 

That is why it is extremely important that we have an “anchor” ourselves.

 

Gold is a currency that supersedes sovereignty issues, is politically neutral, and is not easily manipulated by monetary policy. Gold may not be able to compete with the currencies of the world’s major powers, but it can certainly be used as an anchor.

 

In the past year or two, enormous changes have occurred to the structure of China’s economic growth, to the degree of social wealth accumulation, and to the investment and wealth management habits of ordinary people. It is important and urgent that we revisit certain issues, including the relationship between the yuan and gold, under these new circumstances.

 

The party came to power not only because it won the war but also, and more importantly, because it represented the right thing to do economically and financially. The relative advantages of its monetary system back then have been fully demonstrated, but it will not be long before they turn into obstacles to progress if the authorities reject reform and refuse to evolve along changing times.

 

The emphasis on material goods over gold and silver in the yuan system may have been superior in wartime and when supplies were insufficient, but it has increasingly become incompatible with today’s needs.

 

If it was necessary to use all means necessary to secure enough supplies of goods in the old days, today’s priority should be how to fairly distribute them. The emphasis should be on developing a fair market and protecting the ownership of private assets.

 

In a 1966 essay, former Fed chairman Alan Greenspan wrote that gold is “a protector of property rights.” This is true, but only in times of peace and in an open environment. The old wisdom of hoarding gold in troubled times is applicable only to eras of strife and war. In China in the 1960s, in Nazi-controlled Europe and in the Soviet Union under Stalin, gold could not buy one food, let alone protect property.

 

So instead of trying to peg the yuan somehow to gold to increase its credibility internationally, the government might as well work to establish rule of law and create a system where private property ownership is respected and the public believes in the strength of the monetary system. Confidence is more important than gold.

 

But that does not mean the yuan system does not need gold. It can be an anchor that stabilizes the yuan and increases people’s confidence in it. It can also serve as a check to the power of any one major currency.

 

Increasing private savings and investments of gold, or – as the Chinese government likes to call it – “storing gold with the people,” is not only about the diversification of investment channels. It is also an inevitable path that the yuan must take from being a currency supported by reserves of material goods to one based more on credit.

 

The government should be pleased to see this trend gaining momentum. Increasing its gold reserves at the same time can also strengthen the public’s confidence in the yuan and promote its use globally.








Eurasian Pivot? Moscow Expects "Progress" From Tsipras Visit

As Athens prepares to try and convince eurozone creditors that its latest set of proposed reforms represents a credible attempt to address Greece’s fiscal crisis, and as Greek depositors face the very real possibility that they will soon be Cyprus’d, a leverage-less Alexis Tsipras faces a rather unpalatable choice: bow to the Troika which “wants real reforms… meaning that Greece finally has to implement some/any of the long ago promised and never delivered redundancies in the government sector,” or to quote Credit Suisse, be “digitally bombed back to barter status.” Unfortunately for the Greek populace, the latter seems to be far more likely than the former. Here’s WSJ:

Greek proposals for a revised bailout program don’t have enough detail to satisfy the government’s international creditors, eurozone officials said, making it more likely that Athens will need to go several more weeks without a new infusion of desperately-needed cash…

 

“The proposals were piecemeal, vague and the Greek colleagues could not explain technically what some of them actually implied,” a eurozone official said. “So, let’s hope that they present something more competent next week.”

 

Senior eurozone finance officials will hold a teleconference on Wednesday to discuss the situation, officials said. But they said it is highly unlikely eurozone ministers will meet before mid-April to release more money for Greece. That means Athens will have to scrape together cash to pay salaries and pensions at the end of the month and make a €460 million debt repayment to the IMF on April 9.

As a reminder, here are two charts which demonstrate the urgency of the situation:

Despite what is unquestionably a rather dire outlook, Athens does have one card it has yet to play, because as we noted last week, “once the first week of April comes and goes and Greece officially runs out of money, it will go to anyone who can provide it with the funds needed to avoid civil war, even if that means switching its allegiance from Europe to the Eurasian Economic Union, something Russia is eagerly looking forward to, and something we predicted would be the endgame months ago.” With the Tsipras/Putin meeting now just a little over a week away, you can bet that Moscow will not squander an opportunity to procure a bit of leverage over Europe in the face of an increasingly contentious situation in Eastern Ukraine. In fact, Moscow is calling Tsipras’ visit a “big event” and has indicated that any request for financial assistance would be “examined.” Here’s more via ekathimerini

“We are certain that the Greek prime minister’s working visit to Moscow will be a big event for our bilateral relations,” said Russian ambassador Andrey Maslov. “The possibility of further cooperation in trade, energy, technical military issues, education and culture will be examined.”

 

Maslov said that any request from Athens for a loan would have to be “examined very carefully” because of Greece’s euro membership. “If the Greek government submits a request for a loan, it will be examined – as Foreign Minister Sergey Lavrov said after meeting his counterpart Nikos Kotzias and as Russian Finance Minister Anton Siluanov has said,” the Russian ambassador told Kathimerini.

 

Maslov played down the possibility of Moscow lifting the embargo on food imports from Greece or other European Union countries as long as the EU keeps its sanctions on Russia in place. However, the ambassador praised Athens for helping prevent a rift in the EU’s relations with Russia.

 

“We are grateful for Greece’s efforts in helping ease the tension in relations between Russia and the EU, which is mainly due to the sanctions,” he said. “The stance of our Greek partners and other EU member-states during the council of foreign ministers in January and at the EU leaders’ summit in February prevented the hawks... from creating a permanent rift in Russia-EU relations.”

This may indeed represent an opportunity for Moscow to conduct a quasi-annexation-by-loan (as opposed to by force) and besides, any money funneled to Greece will ultimately end up back in Moscow anyway because any cash Athens manages to scrape together to pay the IMF is essentially diverted straight to Kiev which as we’ve said before, “is just as broke as Greece, and needs to pay Gazprom yesterday to keep gas deliveries coming, with Gazprom promptly remitting the funds into Putin's personal money vault.” 

We’ll leave you with the following from ekathimerini:

“Pressures on Greek bank deposits have continued in March, with sector officials estimating that households and enterprises have withdrawn a net 3 billion euros in the first weeks of this month.”








Did The Fed Just Whisper "Fire" In A Crowded Market?

Authored by Mark St.Cyr,

This past Friday saw what many like myself can only describe as a blatant example of just what’s wrong with both the economy – as well as the markets.

At precisely 15 minutes before the closing bell on Wall Street the now Chair of the Federal Reserve, Janet Yellen gave a press conference detailing further insights into upcoming monetary policy. I guess two days worth of FOMC discussions, along with a press conference detailing all that was discussed immediately after, followed by a question and answer session about all those “insights and decisions” wasn’t enough. For the markets remained red for the week while losing all its post FOMC pop which in itself is an ominous sign.

At first blush some might contend, “Well, that’s a good thing they decided to communicate even more. Best to have any and all the information available as soon as possible. After all: more information is always better for the markets – no?”

Yes it is, however, when it exposes just how cozy (as well as frightened) monetary policy setting has moved from the appearance of setting beneficial policies that help ensure a free and open capitalistic system – to one hell-bent on serving a newer more dominant form of crony styled capitalism rampant within our markets. Where winners and losers are decided solely on their ability to manipulate their bottom line earnings “beat” via access to resources made possible only via the Fed.’s current zero bound stance. (i.e., ZIRP) I don’t believe that was their original intent.

If you were one of the few (i.e., not one of the Wall Street “In crowd”) that watched and listened to that presser on Friday. You were left dumbfounded on just how illogical, as well as contradictory nearly every example given was as to what one should now infer about what the Fed. is going to do next – and when.

So convoluted was both the rationale as well as examples given, I concluded: there was no other intent for this presser other than to signal the “In Crowd” – You better get the heck out of Dodge because we’ve painted ourselves so deep into a corner this is probably the last time you’ll have a chance as to “paint the tape” in any upcoming quarters. For we might actually have to do what we implied (e.g., raise rates) regardless – just to keep up the appearance that we’ll do what we say. Even if so doing means – creating turmoil. So don’t say “we didn’t warn you.” (i.e., We’ve changed the meaning of “data” so many times now even we can’t figure out what it means or, what we should do any longer!)

Certainly total conjecture on my part. However, if you listened to the rational and explanations given about “data” and “the economy” – nothing made sense. Everything was conflicting not only in the examples but also the tenor and tone. Here are a few examples of what I mean: (I’m paraphrasing)

“The economy has improved considerably, that’s why we need to continue the extraordinary measures we’ve been implementing.” Huh?

 

Or better yet: “We see continuing improvement in the labor force and expect even further improvement.” (as they seemingly disregard the only sector that provided all that month over month, year over year boost in honest job formations, e.g., oil related sectors in States which has now dramatically fallen off a cliff with massive layoffs already announced, as well as the possibly of accelerating further as the price of oil drops ever more.)

 

And last but surely not least, “We see continued growth in upcoming quarters of GDP.” (As long as you don’t pay any attention to the latest Atlanta Fed.’s report that’s downgraded its GDP forecast from just over 2% which by itself was pitiful, to now just 0.2% faster than one can say “everything was is awesome!”)

The timing of this reprise in conjunction with the latest FOMC’s conference just a week ago was quite instructive in my opinion. I mean, think about it: Fifteen minutes before the closing of the markets on the very day of the quarter ending? Isn’t it just funny how the timing of this presser coincided with allowing for the opportunity as to “paint the tape” if needed? Along with the additional 15 minutes of the later closing futures market as to hedge for Monday’s opening? Again, “if needed” as in – just in case what you heard went against your current positions. The serendipity of that coincidence is an amazingly funny thing – no? I firmly believe this presser was nothing more than a contorted effort by the Fed. to signal what many like myself have been anticipating since the ending of QE just a few months ago: They’ve lost control.

I theorize the Fed. was trying to accomplish two things.

One: State for the record publicly as many C.Y.A. statements as possible regardless of how contradictory.

 

And two: Warn (i.e., signal “The In Crowd”) that because they’ve painted themselves into such a tight corner that messaging and more is now a useless exercise. The only way they’re going to be able to adjust going forward or, further intervene within the markets is: If and when a calamity is upon us. Or better said – If, and when the markets fall apart. And “when” just might be a whole lot closer to reality – than “if.”

All one has to do is be willing to look at the “true” data with eyes open and a rational open mind to see what’s taking place. Everything (and I do mean everything) as to what the Fed. said should be taking place via their intervention 6 years ago not only is not. Rather: it’s coming unglued, as well as beginning to run off the rails. Nearly every report released since the ending of QE that was previously always indicating “awesomeness” is now indicating borderline if not outright pathetic-ness.

We are entering our first (yes 1st!) earnings period since QE was halted just a few months ago and what are we beginning to see and hear? All those projections and assurances made by the so-called “smart crowd” that “this time is different” are suddenly changing their tune to “Well you know we’ve had so much improvement surely a pause is warranted.” Sure it is. And they call us “idiots.”

The unemployment rate is and has been an absolute joke having more in common with fairy-tales than anything factual. GDP has gone from poor to worse. And remember when you were told that 5% GDP print wasn’t an outlier but “indicative of the recovery” by the so-called “smart crowd?” How’s that meme working out?

The Dollar is still screaming higher making imports cheaper, and our exports non-competitive. Remember we were told by this very same crowd “we were going to export our way to prosperity soon?” I know, I can barely type as I chuckle also.

Reduction in oil prices were going to put “more money in consumers pockets to spend helping to boost the economy.” Problem is all that “free” healthcare now costs far more than the potential “gas savings.” But hey, don’t complain. For without having to now spend more on healthcare – retail spending would be far, far worse. And this is just a handful of the boatloads of fundamentally flawed data reports we were besieged with by the so-called “smart crowd” ad nauseam as to continue their narrative of “everything is awesome!”

However for the rest of us that have questioned such reports over the years  we’ve been branded as: uninformed – data deniers. Personally I just might go out and get a t-shirt made stating just that. On the front I’ll have: “I’m a data denier – and proud of it!” And on the back it’ll read: “I believe in critical thinking – That’s why you wont see me on CNBC™.”

It’s not just here in the U.S. where the once burgeoning commodity sectors like oil and gas, as well as others such as steel, and more are now getting bludgeoned. The entire shale industry for one is beginning to buckle under the weight of falling prices. Canada is now beginning too feel the effects. And these ripples are far from over – they’re just beginning. Remember oil and such helped insulate Canada from a downturn in housing such as we had here. By the most recent reports that all seems to have now changed. And the implications for our friends to the north could be dramatic.

How about China? That once rejoiced “savior” of the economic world is itself having a harder, and harder time trying to dismiss (as well as cover up) clearly visible signs of economic weakness. Here’s where I’d also like to bring attention to one economic fact squarely staring the world down with implications just as far-reaching as the latest oil carnage. And: with possibility the same effect to the repricing of everything everywhere. This ominous scenario alone seems lost across the financial media.

How can one not derive the implications on the market forces associated with the decision of the Saudi’s to continue pumping at record levels and at lower prices as to help preserve their market share with the added benefit of simultaneously crushing as many as possible competitors: and not see that pretty soon China is going to do, in effect – the very same thing with everything it exports? Once it begins just like with oil – It will crush pricing power (on everything from trinkets to commodities) globally in my opinion.

This is the world the Fed. has wrought with leaving the punchbowl out far too long after everyone at the party was clearly inebriated. Instead of wisely pulling the bowl back and away (at the least in 2012 or there about) while everyone was passed out. They decided it would not only be better to remain – but continued refilling it as the one’s with an affinity for risk gulped more and more down their gullet acquiring shares in any sector they thought provided yield.

And if you’re in Asia? Sectors be damned! It’s a straight Kamikaze spree into the Nikkei™ or better yet, Shanghai Composite™. There you don’t discern. You just buy, buy, buy in way that would make Cramer envious. All while using multiples of margin never before seen in the history of that market. What could possibly go wrong? And I haven’t even mentioned Greece, or The EU.

Again this is what I believe the Fed. has finally come to terms with. The realization that control is no longer an option. It’s been a mirage that’s held up far longer than originally anticipated. The monster has now grown far too big and dangerous while possibly exposing to their dismay – the only way they might have a shot of regaining some stability for future control is to let it fall apart: as they stand by and watch hoping to “thread the needle” for further intervention just in time. Along with trying to have some C.Y.A. assurance to the “In Crowd” that “Hey – we tried to warn you!” if it indeed does exactly that.

At issue is, even if I’m only partly correct. What should scare the heck out of any critical thinking person is: With everything we’ve witnessed over the last 6 years, along with what is now transpiring which is scarier?

A Fed. that may be signalling they’ve lost control? Or, a Fed. that still believes “Don’t worry – we’ve got this!”








Globalist Financiers Fleece Greece?

StealthFlation.org

 

Greece was brought to her knees at the hands of its corrupt political class elites with the full support of an avaricious int'l banking cabal.  Please don't put the blame on the little old lady pushing her Gyro cart up the steep streets of Kolonaki.  She was perfectly within her rights to assume that the political leadership of her country knew what the hell they were doing managing her distinguished nation's finances. 
Yet today, she has taken the full brunt of the fiscal pain, while those most responsible for this massive over leveraged abomination, namely the Greek political family dynasties and their complicit int'l banksters, continue to bask in the sun off of Mykonos on their luxury yachts.
Along with the privilege of leadership comes responsibility, too easy to blame the little people for all of this mess.
According to Atlantic Media today:

The Greek government might run out of money in two weeks. Orperhaps four. Capital controls are either imminent or a month away. Whatever the case, depositors are draining Greek banks dry, which could hasten a state default and, potentially, ejection from the euro zone altogether.

The four-month bailout extension that Greece got in February now seems a distant memory, with €7.2 billion ($7.8 billion) in much-needed funds still contingent on Greece drawing up a detailed list of reforms, which creditors are vetting this weekend. If they don’t like what they see, it might mark the beginning of the end for Greece’s membership in the euro.


 
The first mandate SYRIZA obtained from the sovereign electorate, who rightly rejected the corrupt old-guard Greek political establishment, was to offer to negotiate a more rational, realistic and productive debt repayment schedule / structure with the TROIKA.  
That is what Alexis Tsipras & Yanis Varoufakis have tried diligently to accomplish thus far, if they fail because Brussels insists on sucking blood from a rock, then the next mandate is to leave the Eurozone, and for that they will require a national referendum from the Greek people themselves.    Tsipras is much smarter than many give him credit for, he knows that he must progress conservatively and as constructively as possible, in order not to be pigeonholed as an extreme radical, which the EU establishment is so desperately trying to paint him as....     Make no mistake, the international banking cartel of today's world are on a mission to dismantle the sovereignty of all people.  Greece is the first nation to fully recognize and realize this craven conniving cataclysm.   This Multilateral Central Banking Cabal and it's high finance agents are planning to transition to a new international monetary order by devaluing the USD, as they fold it into the SDR world reserve currency, backed by a basket of the existing currencies of the major trading block nations.     This will serve to both ease the burden of the most indebted nation in history, the U.S., by permitting its outstanding debt denominated USDs to be debased, as well as appease the creditor nations, who will agree to have their US dollar denominated debt holdings devalued, because they now require a true stake in the globe's future monetary system moving forward.     The only question remaining is will the global economy be in tatters before we get there........     It's a monumental trade, the U.S. gives up exclusive world reserve currency status, and in return its outstanding debt, largely held by the creditor Nations of the East, gets devalued along with its currency..     Worst of all, the Multilateral Central Banking Cabal doesn't miss a beat, and actually further consolidates its firm grip on the global monetary order, as National Sovereignty takes a back seat to a Global Corporate/Banking Autocracy, otherwise known as Fascism or Pimpocracy!    I may not agree with all of SYRIZA's politics, but I wholeheartedly back anyone who exposes the veritable and ugly truth about those who mendaciously manipulate our monetary order for themselves, on the backs and at the expense of the rest of us.








Chances For Diplomatic Solution To Ukraine Conflict "Slim", Soc Gen Says

Depending on which side of the story you believe, the crisis in Ukraine represents either an attempt by the Kremlin to realize territorial ambition and reassert Russian dominance in the Baltics by violating other countries’ sovereignty or it represents yet another attempt by Washington to prop up puppet governments with financial and military support in order to advance US foreign policy aims even if that means risking armed conflict. As is usually the case, the truth likely lies somewhere in the middle, although one has to admit that recent events seem to validate the Russian security council’s claims that “the armed forces are considered as the basis of US national security and military superiority is considered a major factor in the American world leadership.” NATO war games along the Russian border and the recent House vote to provide Kiev with lethal aid seem to support Moscow’s assessment, and the dramatic collapse of the Yemeni government is a vivid example of how things can go horribly awry when Washington hijacks the political process in order to install “friendly” leaders in countries The White House deems “strategic” for whatever reason.

That said, it’s in Russia’s best interest to keep geopolitical tensions just high enough to support oil prices (which works right up until other powerful nations decide to use energy prices as leverage in a bid to bring about regime change in Syria) and Moscow is itself famous for sabre rattling. Whatever the case, the conflict in Ukraine has made an impact on the lives of everyday Russians as Western sanctions squeeze the Russian economy. To let Soc Gen tell it however, the Russian people remain, for the most part, resolute in their support not only for President Putin, but for Russia’s position vis-a-vis the rebels in Ukraine. 

Here’s Soc Gen on why economic sanctions may become a fixture of Russian life:

Western sanctions have exerted a broad-based negative impact on Russian businesses. The cost of borrowing has climbed considerably not just for sanctioned institutions, but also for other Russian entities. Risk management departments across global enterprises are likely to continue erring on the side of caution, continually assessing the risk of sanctions materializing for counterparties in Russia. Normalization of business practices may only reemerge long after the removal of sanctions. Although this does not mean completely avoiding interactions with Russian entities, businesses and investors are increasingly cautious and selective in their participation…

 

Western sanctions against Russia may persist indefinitely. Some locals believe in the likelihood of de-escalation later this year, pointing to the lack of political cohesion and unanimity among Europe’s political leaders, and increasing calls for easing of sanctions. Russian businesses believe that escalation of sanctions may be hard to implement, given that they will also hurt European counterparties. Some local asset managers are optimistic on the performance of Russian assets later this year, based on a perceived high likelihood of improvement in geopolitics. Although locals differ in their assessment of the timeline when sanctions may be lifted, they appear united in their support and admiration of President Putin. Few care to speculate on President Putin’s ultimate game plan, or whether one exists, citing the opacity of the situation. With that said, locals broadly concur that Russia would never (again) relinquish Crimea. In this light, Western sanctions against Russia based on its annexation of Crimea may persist indefinitely…

Unsurprisingly, Russians view the conflict in Ukraine in an entirely different light than observers in the West: 

The local population’s interpretation of events unfolding in Ukraine and of Russia’s role in the current geopolitical turmoil differs incomprehensibly from the Western or US perspective, with virtually no middle ground. In the hotel where we stayed, over the three days of our visit, Russian state television played a continuous loop of repeated UK- and US negative stories, and those that reflected poorly on the Ukrainian administration. The vast majority of the Russian population believes the official state-sponsored story – that President Putin is pursuing the best possible course of action in defending the rights of Russian speakers everywhere, that the President is not an aggressor and has no territorial ambitions, that the US impinged upon Russia’s national security – and furthermore, that personal financial sacrifices during these difficult times are a source of honour in defence of the country’s national interests. Many locals express conviction that Europe and Russia’s interests are aligned, asserting that both sides desire de-escalation of injurious economic sanctions. Locals further highlight that the US and Ukraine are the sole parties insistent on aggravating the situation – the US by nature of its fundamental antipathy toward Russia, and Ukraine by virtue of its desperate reliance on funding from the international community. The logic goes that Ukrainians need to perpetuate havoc and chaos on the situation, as absent a crisis, funding will dry up for Ukraine. 

 

Chances for a diplomatic solution to current geopolitical tensions appear slim. The irreconcilable characterizations inside and outside of Russia of current geopolitical stress lead us to believe that it is unlikely that understanding / compromise between political parties involved can be achieved via diplomacy. Too much has been invested in shaping the public’s perspective. In turn, this suggests that notwithstanding the lack of political unanimity / cohesion among squabbling European leaders, there is a risk that Western economic sanctions on Russia may remain in place for the foreseeable future. 

And the President’s iron grip on the country isn’t likely to loosen any time soon:

President Putin personifies power in Russia. Notably, there are no clear successors to replace the president, as broadly agreed by local sources, with Russia arguably exposed to an over-concentration of power invested in one single individual. Indeed, President Putin is the personification of power in Russia. Not only is there a glaring deficit in checks and balances to President Putin’s political power, there is furthermore no succession plan. Strikingly, although locals are less than thrilled about President Putin’s personal consolidation of power, they are terrified of the prospect of his disappearance from Russian political life, and fear the worst for the country in such a scenario.

 

There is no obvious, credible challenger to the president thus far. An uprising of political opposition forces surged following the 2011 Duma (State Assembly) elections, amidst strong sentiment that the election results were heavily manipulated. Procedural irregularities persisted in the subsequent 2012 presidential election, in which Vladimir Putin won a third, non-consecutive term as President. However, since then, opposition forces have failed to gain traction with the public, presenting no credible alternative. Currently, President Putin enjoys a sky-high public approval rating of 88%, according to the latest polls.

 

*  *  *

So, far from any "de-escalation," it appears a diplomatic solution is becoming increasingly unlikely as both Russia and the West are now pot committed in terms of the enormous effort expended to demonize the other side. 








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