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Senior Citi Banker Found Dead In Bathtub With Slashed Throat

The dust has barely settled on the latest high profile banker suicide in which Deutsche Bank's associate general counsel, and former SEC regulator, Charlie Gambino was found dead, having hung himself by the neck from a stairway banister, and here comes the latest sad entrant in the dead banker chronicles of 2014 when earlier today, the Post reports, a Citigroup banker was found dead with his throat slashed in the bathtub "of his swanky downtown apartment, authorities said Wednesday."


Shawn D. Miller, Citigroup’s managing director of environmental and social risk management, was discovered around 3 p.m. Tuesday by a doorman in the Greenwich Street building, law enforcement sources said. “We are deeply saddened by this news and our thoughts are with Shawn’s family at this time,” said a statement sent out by Citigroup.

Bloomberg adds that "a 42-year-old man was found unconscious yesterday in the bathtub of his Greenwich Street apartment in lower Manhattan with a neck laceration and later pronounced dead, the New York Police Department said in a statement."

Medics declared him dead after responding to an emergency call about 3:11 p.m. and an investigation to determine the cause of death is continuing, police said.


Miller advised executives and clients on sustainability matters, including environmental and social policies related to industries including mining and renewable energy, according to his LinkedIn profile. He helped oversee the development and implementation of policies in more than 100 countries.


“We are deeply saddened by this news and our thoughts are with Shawn’s family at this time,” Danielle Romero-Apsilos, a spokeswoman for the New York-based bank, told Bloomberg an e-mailed statement.

However, unlike previous more "clearcut" suicides, this time there may have been foul play: the Post adds that "there was no knife recovered at the scene, leading officials to suspect the death was not a suicide, and they were trying to determine who had access to his apartment."

Miller did well: "one-bedroom apartments at the building are listed at more than $1 million."

An online profile under the man’s name calls him a “pioneer in sustainable finance” and a specialist in emerging markets at the International Finance Corp., part of the World Bank. Several former colleagues told The Post that Miller was well-liked.

It was unclear why the doorman checked his apartment.

Miller's LinkedIn profile is shown below:

Why Japan’s Money Printing Madness Matters

Submitted by David Stockman via Contra Corner blog,

This is getting hard to believe. The announcement that Japan has plunged into a triple dip recession should have been lights out for Abenomics. But, no, its madman prime minister has now called a snap election to enlist more public support for his campaign to destroy what remains of Japan’s economy.

And what’s worse, he’s not likely to be stopped by the electorate or even the leadership of Japan Inc, which presumably should know better. Here’s what Japan leading brokerage had to say about the “unexpected” 1.6% drop in Q3 GDP—- compared to the consensus expectation of a 2.2% gain and after the upward revised shrinkage of 7.3% in Q2.

We think that the economy is gradually improving,” said Tomo Kinoshita, an economist at Nomura Securities. “There’s no reason to be pessimistic about the economy going forward.”

Really? How in the world can an economist perched at the epicenter of Japan Inc. think that its economy is improving when Japan’s constant dollar GDP has now fallen back to pre-Abenomics levels; and, in fact, is no higher than it was in late 2007 prior to the “financial crisis”? Indeed, aside from the Q1 pull-forward of spending to beat the consumption tax increase, Japan’s economy has remained stranded on the flat-line it attained after world trade recovered from its 2008-2009 plunge.

But that’s only the most recent iteration of the stagnation story. Japan has actually been treading water for a long-time—going all the way back to July 1989 when the monumental bubble created by the BOJ during the 1980s was cresting.

Japan’s index of total industrial production during July of that peak bubble year printed at 96.8. So here’s the real shocker: It was still printing at 96.8 in July 2014. That’s right—- after 25 years of the greatest government debt and money printing spree in recorded history, Japan’s industrial production has gone exactly nowhere.

Given that baleful history and the self-evident failure of the Keynesian elixir to cure Japan’s economic stagnation problem, it might be asked why the entire country seemingly moves in lock-step toward bankruptcy behind the sheer foolishness of Abenomics. That’s especially the case because even the short-run impacts have been self-evidently damaging to the real economy and have been utterly inconsistent with promised results.

To wit, Abenomics was supposed to send exports soaring and the trade accounts back into the black, thereby adding to GDP and household incomes. But what it has actually done has been to slash the global purchasing power of the yen by 35% since early 2013, causing Japan’s bill for imported energy, industrial materials and manufactured components and consumer goods to soar.

Accordingly, Japan’s trade accounts have remained mired in red ink, thereby defeating the fundamental “beggar-thy-neighbor” predicate of Abenomics. As shown in the second panel below, it’s trade account for the first 9 months of 2014 spewed 11 trillion yen of red ink or double its level in the year before Abenomics (2012). Annualized in dollar terms, the once and mighty export powerhouse of Japan has experienced a $200 billion swoon in its trade balance since 2010.

Moreover, Japan’s soaring import prices and cost of living, coupled with the utterly necessary increase in its consumption tax last April, have cause real household incomes to shrink by 6%. Thus, if Japan’s aging retirement colony could consume its way out of stagnation, which it can’t, Abenomics has clearly made matters worse on even that front line of the Keynesian cure.

Notwithstanding this self-evident, negative short-run impact, however, Japan soldiers on toward disaster with Abenomics for one overpowering reason. It is effectively bankrupt and has therefore embraced an entirely fictional narrative about its plight in order to avoid confronting the awful truth about its fiscal and economic circumstances.

This convenient fiction is the “deflation” myth, and the argument is that Japan’s only hope for eventually corralling its huge public debt is to first decisively break-away from that albatross. Only with positive inflation and a resurrection of its historic rate of GDP gains, it is claimed, can Japan hope to grow out from under its crushing public debt ratio of nearly 230%. Indeed, mimicking some latter day version of the Reagan supply-siders’ voodoo economics, Abe’s top economic advisors argue that only by adding more debt in the short-run can the long-run debt problem be contained.

“This is a once-in-a-lifetime opportunity to get ourselves out of deflation,” Etsuro Honda, an economic adviser to the prime minister, told reporters Tuesday. “From this perspective, it is dangerous to raise the consumption tax.”

Here’s the problem. Japan has spent the last 35 years burying itself in debt, off-shoring its industrial economy and getting old. There is no conceivable real growth rate, therefore, that can overcome the runaway fiscal debt burden that it has accumulated since 1980. As shown below, its public leverage ratio has risen by 5X relative to its national income during that period.

In this context, the BOJ’s 2% inflation target come hell or high water is a little more understandable, even if profoundly incendiary.  At 2% inflation forever, all of Japan’s $12 trillion mountain of public debt would have to be monetized or the carry cost—which already consumes 25% of its revenues—–would soar. That, in turn, would drive Japan into literal fiscal bankruptcy or transform its vast retirement colony into a poorhouse owing to savage tax increases and benefit cuts.

But, of course, there is not a shred of evidence that 2% inflation generates any more real output growth than 0.5%, but that’s not the point. The pro-inflation policy of Japan is about nothing other than depreciating its towering public debt. And Kuroda’s madcap 80 trillion yen per year money printing campaign is just a naked pretext for monetizing the prodigious flow of Japan’s budgetary red ink.

Stated differently, the Keynesian priesthood has invented an utterly groundless deflation ogre in order justify rampant monetary expansion in the vain hope that financial bubbles will levitate the real economy. But the latter delusion has been already disproved twice this century, and has now been validated once again by the short-lived fiasco of Abenomics. That is, in just 22 months Japan’s stock market has doubled, but its real GDP is back where it started and real household incomes have been pushed into the drink.

There is a reason this repudiation of Keynesian money printing is not just an anomalous problem relating to Japan’s unique history and economic structure. Namely, the phony “deflation” theory underlying the financial madness of Kuroda and Abe is readily portable. It has already been embraced by European policy-makers and will be arriving in the North American precincts soon.

So it is worth documenting yet again. In the entire 25 years since Japan’s financial bubble burst there has never been a semblance of meaningful consumer price deflation in Japan. Even the core CPI is well above it 1990 level:

And on the theory that over any extended period of time, people do eat and warm themselves in winter, it is necessary to view Japan’s long-term trend for the overall CPI. What is shows is not deflation, but near perfect price stability. That is, after the considerable rise in consumer prices during the 1980s, its price index has remained more or less constant ever since its financial bubble was punctured in the early 1990s.

There is not a shred of evidence that this wholesome price stability has caused Japan’s consumers to save too much or defer spending that they could otherwise afford. In fact, Japan’s savings rate has cratered during this period, dropping from more than 20% of household income prior to 1980 to hardly 3% today. That’s the opposite of what the deflation theory implies. What has actually deflated in Japan is its gigantic asset bubble, and that is something that even its prodigious money printing has proved incapable of reversing.


In short, they Keynesian apparatchiks have created a straw man that suits the purposes of their political masters on the fiscal front by rationalizing the monetization of endless amounts of public debt; and it empowers the state’s central banking branch to engage in plenary manipulation of the entire financial system on the misbegotten theory that fiat credit and bubble wealth can cause real production, incomes and wealth to rise.

Stated differently, Keynesian fiscal policies and central banking regimes have buried the public sectors of most of the world’s major economies in unsustainable debt. Now they propose to double down on more of the same because an entire generation of politicians have been house-trained in permanent fiscal profligacy and endless kicking of the fiscal can down the road.

To be sure, in putting off Japan’s day of fiscal reckoning once again, this time until  2017, Prime Minister Abe is proving himself to be a certifiable madman. In short order, however, he will have plenty of company all around the planet.

Tyranny "Lurking Just Around The Corner"

18 months ago President Obama warned a graduating class to "reject" those that "warn that tyranny always lurking just around the corner." It appears he went full Keyser Soze...


Source: Investors





"Unfortunately, you've grown up hearing voices that incessantly warn of government as nothing more than some separate, sinister entity that's at the root of all our problems. Some of these same voices also do their best to gum up the works. They'll warn that tyranny always lurking just around the corner. You should reject these voices. Because what they suggest is that our brave, and creative, and unique experiment in self-rule is somehow just a sham with which we can't be trusted.


We have never been a people who place all our faith in government to solve our problems. We shouldn't want to. But we don't think the government is the source of all our problems, either. Because we understand that this democracy is ours. And as citizens, we understand that it's not about what America can do for us, it's about what can be done by us, together, through the hard and frustrating but absolutely necessary work of self-government. And class of 2013, you have to be involved in that process."

*  *  *

Fed Warning Sends Small Caps Red For 2014

The word "volatile" comes to mind when reflecting on today's cross-asset class action. US equities dumped into and beyond the US open, decoupling entirely from JPY carry, only to reverse perfectly at the European close and recover all the way back to USDJPY right as the FOMC minutes hit. A kneejerk sent stocks higher but that quickly decoupled also and stocks fell. Small Caps underperformed and are back in the negative year-to-date. Treasury yields were volatile, ramping higher into the US open, rallying post, then whipsawing on FOMC minutes to close 3-4bps higher on the day.The USD was flat on the day despite the surge in USDJPY back above 118. Commodities were a mess with a big dump on Swiss Gold polls, rip higher on Russian buying rumors and dropped again on FOMC (oil and copper followed suit). HY Credit was "bidless" and continues to decouple from stocks (along with VIX). The Dow was levitated back into the green to close

On the day, Russell 2000 underperformed... and they tried their best to get The Dow green to prove how The Fed is right...


The Russell 2000 was down 1.8% this week, down 1.5% today, and had limped ungraciously back into the red for the year. before bouncing back into the FOMC Minutes release. Since then, it retreated rapidly and is now once again negative for 2014... which is odd given everyone proclaiming growth is back and the domestic economic exposure bias of small caps over big caps...


JPY Carry has decoupled...


HY Credit notably decoupling from stocks still

As Brean Capital's Peter Tchir notes:

I have said since it happened it was particularly focused on the high yield market which had gone bidless and rather than finding real clearing levels they did the QE trick (it was more about hy then stocks). Today they admit the market was right to take their reaction as stepping in when vol increased. By adding the statements about misimpressions today they are resetting the Yellen put - to a lower strike. The bad thing is hy is weak again and it isn't just shale and CCC that is going bidless - there is almost a daily blow up now whether here or in Europe.

And VIX continues to decouple...



Across the asset classes, quite a volatile day...

Commodities all broke aroun 1030ET when rumors of the Swiss poll results started...


Charts: Bloomberg

Santelli Goes Ballistic: "I Feel Like I'm Living In A Cartoon"

Having noted rather pointedly that "there's a subsidy in the marketplace that's worked out definitely to those that are holding equities," Santelli warns, when The Fed removes it, "it creates a problem for equities." However, when he is asked about the disconnect between the bond market (rates) and what The Fed is telling us, Santelli rightly explodes, lambasting the 'Hatzuis' of the world, "if The Fed hasn't made up its mind" about when and how rates will rise, "how can markets 'price it in'?"  ... and the rant ignites from there...


Open The Floodgates: Chinese Inquiries On US Real Estate Soar 35% After Easing Of Visa Rules

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

In a nation in which 1 out of every 3 homes is unaffordable, you’d think the primary goal of public policy wouldn’t be to ensure real estate becomes even more out of reach for the average citizen. However, we live in a country in which policy isn’t being driven by logic and what’s in the best interest of “the people,” rather, we live in an neo-feudalistic society in which policy is being driven by what is best for a handful of white-collar criminals.

It’s bad enough that American financial oligarchs have leveraged free money polices of the Federal Reserve to purchase tens of billions of dollars in real estate only to rent it back to people who were kicked out of their homes during the 2008 crisis, but the government is now going out of its way to allow Chinese (and other foreign criminals) to launder money via U.S. property.

In case you aren’t up to speed on this issue, I suggest reading the following:

Welcome to Arcadia – The California Suburb Where Wealthy Chinese Criminals are Building Mansions to Stash Cash

Chinese Purchases of U.S. Real Estate Jump 72% as The Bank of China Facilitates Money Laundering

Zillow Opens the Floodgates to Chinese Buyers in Order to Keep Housing Bubble 2.0 Inflated

*  *  *

Apparently, the level of ill-gotten funds flowing into U.S. real estate still hasn’t reached the level desired by policy makers. As such, China and the U.S. have extended the terms of multiple entry short-term tourist and business visas to 10 years from one year. Reuters reports the result has been a 35% jump in Chinese interest:

(Reuters) – Chinese inquiries about real estate investment in the United States surged 35 percent this week after the two countries agreed to extend the terms of short-term visas, China’s top international property portal said on Friday.


The White House announced this week that both countries have extended the terms of multiple entry short-term tourist and business visas to 10 years from one year. Student visas were extended to five years from one year.


The relaxation on student visas could have a bigger impact than the other two, said, an online property marketplace that refers potential Chinese buyers to overseas agents. It said there were twice the number of inquiries about student visas compared to tourist and business visas.

Millennials had better fluff up that basement couch.

USDJPY Hits 118 - Abe's Worst Nightmare: Weaker Currency, Weaker Stocks

Having kneejerked higher, stocks read the most important section of the FOMC Minutes - that they will not be rescued next time - and decided it was time to take some off. This is clearly not acceptable and so USDJPY was leveraged ever higher and just broke 118.00. The problem is... US and Japanese stocks are entirely decoupled from this surge in the momentum igniter...

The JPY ignition is not working...

In Japanese stocks...


And US...


Since the FOMC Minutes...


Charts: Bloomberg

Hilsenrath Confirms Hawkish Fed Focused Domestically, Rate Hikes Coming

Instead of reading between the lines of the 28 page FOMC minutes, we have The Wall Street Journal's Jon Hilsenrath to explain to us what we should believe. His message is not dovish. Despite tumult in financial markets, weak economic conditions abroad, and risks that low inflation could drift lower, Hilsenrath notes that the Fed forged ahead with a decision to end the central bank’s bond-buying program because the domestic economy and labor market appeared to be on course for further improvement. Furthermore, officials added a new twist: a debate about whether they should add new information in their official policy statement on how quickly rates will rise once increases commence.


Via The Wall Street Journal,

Federal Reserve officials were preoccupied at an October policy meeting with tumult in financial markets, weak economic conditions abroad and risks that low inflation could drift lower. But they forged ahead with a decision to end the central bank’s bond-buying program because the domestic economy and labor market appeared to be on course for further improvement.

Participants at the Oct. 28-29 meeting “pointed to a somewhat weaker economic outlook and increased downside risks in Europe, China, and Japan, as well as to the strengthening of the dollar over the period,” said minutes of the session, which were released Wednesday with the regular three-week lag.

“It was observed that if foreign economic or financial conditions deteriorated further, U.S. economic growth over the medium term might be slower than currently expected,” the minutes said. “However, many participants saw the effects of recent developments on the domestic economy as likely to be quite limited.”


Downward pressure on inflation is a more recent development.

“Most participants anticipated that inflation was likely to edge lower in the near term, reflecting the decline in oil and other commodity prices and lower import prices. These participants continued to expect inflation to move back to the Committee’s 2 percent target over the medium term,” the minutes said.


With the program now completed, many Fed officials are looking to drop the “considerable time” assurance. But the minutes left little clear indication of when and how this guidance might be changed.

Some officials wanted to drop the term at the October meeting. They didn’t want to appear locked into a specific time frame for their plans. “Considerable time” is generally interpreted in financial markets to mean at least six months, though the Fed has sought to play down that notion. Other officials thought this phrase still best described their plans, while others didn’t want to inadvertently send a signal of impending rate increase by removing the phrase.

To this discussion officials added a new twist: A debate about whether they should add new information in their official policy statement on how quickly rates will rise once increases commence.


“Some participants pointed out that, despite the market volatility, financial conditions remained highly accommodative and that further pockets of turbulence were likely to arise as the start of policy normalization approached,” the minutes said. “That said, more work to better understand the recent market dynamics was seen as desirable.”

Fed Hints It Won't Bail Out Stocks Next Time

Curious why, even as many were expecting at the time, the Fed decided against commenting on the October market swoon? Here is the answer, in the Fed's own words:

... members considered the advantages and disadvantages of adding language to the statement to acknowledge recent developments in financial markets. On the one hand, including a reference would show that the Committee was monitoring financial developments while also providing an opportunity to note that financial conditions remained highly supportive of growth. On the other hand, including a reference risked the possibility of suggesting greater concern on the part of the Committee than was actually the case, perhaps leading to the misimpression that monetary policy was likely to respond to increases in volatility. In the end, the Committee decided not to include such a reference. 

In other words, the Fed refused to admit that all its cares about is record high stocks volatility.

And when the Fed says it didn't want to "suggest greater concern on the part of the Committee than was actually the case" regarding a tumbling stock market, that means that Bullard's hint on QE4 the day the DJIA plunged 500 points and the 10 Year flash crashed... never happened right?

Or maybe, just maybe,  the humiliated Fed, caught offside by Bullard's verbal faux pas, is actually serious this one time especially considering the FOMC took place after the Bullard bull in a china store jawboning, in which case the one word to focus on in the following most important line:

... the misimpression that monetary policy was likely to respond to increases in volatility...

is "misimpression" as it means the next time Vol surges, the Fed will not be there to save the BTFDers.

Summing Up The FOMC Minutes In 2 Words: Inflation Rate

The Fed minutes can be boiled down to 3 two-word factors: "inflation rate", "economic policy", and "market conditions" - all of which overshadow words like "growth" and "jobs" and "employment"


FOMC Minutes Show Deflation-Wary Fed Not Worried About Global Growth

Having done nothing but rally since the FOMC statement on 10/29 that ended QE, the minutes provide little additional info aside from to note that some participants wanted to drop "considerable time":


If they don't mention, it never happened!!

Pre-FOMC Mins: S&P Futs 2045, USDJPY 117.75, 10Y 2.349%, Gold $1194

A reminder of the idiocy that occurred in stocks at the last Fed Minutes...



Some of the highlights from the report. On the domestic economic outlook:

Most viewed the risks to the outlook for economic activity and the labor market as nearly balanced. However, a number of participants noted that economic growth over the medium term might be slower than they currently expected if the foreign economic or financial situation deteriorated significantly.

On the global outlook:

period. It was observed that if foreign economic or financial conditions deteriorated further, U.S. economic growth over the medium term might be slower than currently expected. However, many participants saw the effects of recent developments on the domestic economy as likely to be quite limited. These participants suggested variously that the share of external trade in the U.S. economy is relatively small, that the effects of changes in the value of the dollar on net exports are modest, that shifts in the structure of U.S. trade and production over time may have reduced the effects on U.S. trade of developments like those seen of late, or that the slowdown in external demand would likely prove to be less severe than initially feared. Several participants judged that  the decline in the prices of energy and other commodities as well as lower long-term interest rates would likely provide an offset to the higher dollar and weaker foreign growth, or that the domestic recovery remained on a firm footing.

And inflation:

Inflation was continuing to run below the Committee’s longer-run objective. Market-based measures of inflation compensation declined somewhat, while survey-based measures of longer-term inflation expectations remained stable. Participants anticipated that inflation would be held down over the near term by the decline in energy prices and other factors, but would move toward the Committee’s 2 percent goal in coming years, although a few expressed concern that inflation might persist below the Committee’s objective for quite some time. Most viewed the risks to the outlook for economic activity and the labor market as nearly balanced. However, a number of participants noted that economic growth over the medium term might be slower than they currently expected if the foreign economic or financial situation deteriorated significantly

Full Statement

The Biggest Myth About Investing In Europe

One of the more prevalent myths in recent weeks is that just because everyone who manages money hates Europe, which recently entered a triple-dip recession if one excludes the "contribution" to GDP from hookers and blow, then it must be a good buy. After all, the only strategy that has worked like a charm under central-planning is BTFD, no further comment necessary. In fact, it was JPM itself that two days ago gave the world 5 reasons to buy Europe and Sell the US (the main of which was hope that the ECB would finally start buying everything that isn't nailed down at something more reasonable than the €3Bn/week snail's pace of covered bond monetization).

Which is why the BTFDippier of the fast money is already rotating into a long-Europe mode: their entire thesis is that sooner or later the whales will have no choice but to follow the momentum chasers right back into Europe, because where else are they going to go: in the "safety" of the S&P's 19x GAAP P/E?

In theory this would be a great strategy, if only in a world in which nobody actually does any fundamental homework and the only thing that matters is frontrunning the next great sucker. In practice, it is fatally wrong.

As the following observation from hedge fund Lyxor shows, while CTA and momentum strats have indeed bailed on Europe in recent months, the so-called smart money, the "global macro" funds never left.

Dispersion among strategies remains high, with CTAs leading the pack. In terms of positioning, momentum players recently turned short European equities (see chart). This is in stark contrast with discretionary managers, which remain long European equities. But the underperformance of Global Macro managers versus CTAs this year does not bode well for European equities.



L/S Equity is the worst performing strategy. Most of the disappointment came from European funds which suffered from their short exposure on energy services names (see page 4). US managers fared better as they held onto their long positions on retailers before Black Friday. Despite this, they failed from fully capturing the market rebound on the back of their low exposure to the energy sector, which experienced an unexpected rebound this week.

So all those momos hoping that just because they are doing what nobody else has possibly thought of, i.e., investing in beaten down markets, in hopes of frontrunning bigger investors, we have bad news: the only thing momo traders will be frontrunning is each other. And that, as CYNK most recently showed, always ends in tears.

America Throws Up Over Obama's Immigration Executive Action Even Before It Is Announced

Ahead of President Obama's address to the nation tomorrow to dictate his executive orders on immigration, potentially allowing millions of undocumented immigrants to stay legally in the US, a new NBC News/Wall Street Journal poll finds nearly half of Americans disapprove of his plan. Only a dismal 38% support the President taking this executive action... which makes us wonder if there has ever been so much revulsion at the policies of a standing President. It's good to be king.

As NBC News reports,

Forty-eight percent oppose Obama taking executive action on immigration -- which could come as soon as later this week -- while 38 percent support it; another 14 percent have no opinion or are unsure.




Not surprisingly, these numbers largely break along partisan lines: 63 percent of Democrats approve of Obama taking executive action here, versus just 11 percent of Republicans and 37 percent of independents.


Latinos are divided, with 43 percent supporting the action and 37 percent opposing it.

*  *  *

The Only Thing More Bullish Than Inflation Is....

Deflation. And not just deflation, but a deflationary bust! At least, such is the goalseeked logic of Cornerstone Marco, which has released a bullish (no really) note titled the Coming Deflationary Boom in the U.S.

In it the authors throw in the towel on the most conventional concept in modern economics, namely that for growth one needs stable inflation which in turn causes earnings growth and is low enough not to pressure multiples too high. Well, according to the BLS' hedonic adjustments and courtesy of Japan's epic exporting of deflation, inflation is nowhere to be seen (except if one eats pork or beef, or drinks milks), so it is time to give ye olde paragidm shift a try. The paradigm that the only thing more bullish for stocks than inflation, is deflation.

To wit:

The concept of a deflationary boom is a controversial one in economics. Truth be told it will not work in every economy. Indeed, a prerequisite for this to unfold is an economy driven by consumers. In that sense, it does not get more consumer-centric than the US. The second, and necessary, condition calls for a major decline in commodity prices ideally compounded by a strong currency to provide the fuel for growth. In essence, a decline in commodity and import prices creates disposable income the same way the Fed Funds rate cuts used to a decade ago.



Positioning for a deflationary boom is a binary event. After all, “deflationary” implies that stocks levered to lower inflation will have a powerful tailwind, these are what we like to call early cyclicals such as consumer, transports and other similar segments. Meanwhile, the “boom” part of the story implies that segments levered to growth, US growth in this case, also find a tailwinds. This should help the beleaguered financials to a better year in 2015 and also provides support for sectors like technology and some of the industrials. As we see it, “deflation” is going to become the operative word on the street … that and PE expansion since they typically go hand in hand. As always, we shall see.

Indeed we shall. Then again the only thing we will see is how every time there is deflation somewhere in the world, one after another central bank somewhere will admit its only mandate is to keep stocks at record highs and inject a few trillion in risk-purchasing power into what was once called a market.

One thing the authors do get right that the only benefit resulting from ever more liquidity is P/E (and make sure that is non-GAAP E post buybacls) multiples that are stretched several sigmas wider than anything seen in recent history, especially if one looks at GAAP EPS which at last check were just shy of 20x.

So to summarize:

  • In an "Inflationary" world, EPS growth that drives equity upside.
  • In a "Deflationary Bust", the unprecedented multiple expansion that not only offsets declining EPS but leads to even recorder equity highs.

Rinse, repeat, because you just can't lose!

And for the idiots in the audience, here is Cornerstone's infographic for dummies which shows that no matter what happens in the world, stocks can only go higher!

We are just confused if the little person is the Fed chairmanwoman, and the green thing is the money printer in the basement of Marriner Eccles.


Gold & Silver Surge, Recover Swiss Gold Poll Losses As EURCHF Hits Lows

It appears the FX and Precious Metals markets have as much faith in the pre-Swiss Gold Referendum polls as the Scots did before their referendum. The clearly leaked results sparked considerable weakness in gold and silver (and EURCHF surge), but once the data was released, markets began to creep back - perhaps questioning the plausibility of such a big swing in such a short amount of time. This surge was also helped by some unusually frank comments on Russian gold buying from the Russian Central Bank.  Gold, Silver, and EURCHF have all recovered the moves with the latter pressing towads cycle lows...



And EURCHF has roundtripped to cycle lows...


Charts: Bloomberg

Gold Rises After Unusual Russian Central Bank Gold Buying Announcement

Gold Rises After Unusual Russian Central Bank Gold Buying Announcement 

Russia’s central bank bought about 150 metric tons of the metal this year, announced Governor Elvira Nabiullina yesterday. The pronouncement immediately created buying in the market, prompting gold to rise to a two week high at $1,200 an ounce.

Head of Russian Central Bank Elvira Nabiullina -Jr/Bloomberg

Russia's central bank Governor Elvira Nabiullina told the lower house of parliament about the significant Russian gold purchases. She is an economist, head of the Central Bank of Russia and was Vladimir Putin's economic adviser between May 2012 to June 2013. 

This announcement is unusual and to our knowledge has not happened before. The announcement by the Russian central bank governor was likely coordinated with Putin and the Kremlin and designed to signal how Russia views their gold reserves as a potential geopolitical and indeed financial and currency war weapon.  

Gold currently constitutes for around 10% of the bank's gold and forex reserves, she added. Official purchases were about 77 tons in 2013, International Monetary Fund data show.


Today’s AM fix was USD 1,200.75, EUR 957.61 and GBP 766.08 per ounce.
Yesterday’s AM fix was USD 1,202.00, EUR 959.68 and GBP 767.81 per ounce.

Gold climbed $10.40 or 0.88% to $1,196.80/oz yesterday. Silver rose $0.06 or 0.37% to $16.22/oz.
Gold remained firm at $1,200 an ounce as the market digested very robust Russian central bank demand and announcement and await next week's Swiss gold referendum and later today, the U.S. Federal Reserve minutes at 1900 GMT.

If the Fed increases interest rates it could hurt non-interest-bearing gold in the short term. However rising interesting rates are more bearish for stocks and bonds as was seen in the rising interest period of the 1970s when gold prices surged.

The Swiss gold referendum is around the corner on November 30th and if passed this could force the Swiss National Bank to keep 20% of its holdings in gold bullion, force the SNB to repatriate gold holdings and end all gold sales.

The dollar hit a seven-year high against the yen today. Silver was up 0.5%  at $16.24 an ounce. Spot platinum was up 0.5% at $1,206.65 an ounce, while spot palladium was flat at $769.98 an ounce. 

Shares fell in Europe and Asia on Wednesday while the dollar rose broadly, hitting a new seven-year high against the yen, as investor nervousness on the diverging outlooks for the world's major economies.

The dip in gold prices has spurred purchases from Asia. Trading volumes on the Shanghai Gold Exchange’s (SGE) benchmark bullion spot contract jumped this week and India’s imports surged in October. 

Russian President Vladimir Putin holds a gold bar while visiting an exhibition at Russia's Far Eastern gold mining center of Magadan November 22, 2005. Putin on Tuesday supported the idea of boosting the share of gold in Russia's central bank reserves, which are the largest of any country outside Asia. (Photo: REUTERS/ITAR-TASS/PRESIDENTIAL/)

The International Monetary Fund said the latest figures showed an almost double jump over the country's registered purchases of 77 tonnes in 2013. It said that historically, Russia started buying gold again since the end of September, perhaps at an initial 35 tonnes.

Nabiullina, who said the bank's total foreign reserves is made up 10 percent of gold, likewise told the Russian parliament on Tuesday there is no need to place restrictions on gold exports. A number of lawmakers had proposed to put a moratorium on the exports of the safe haven yellow metal so the country would be able to secure enough gold amid the sanctions it is experiencing.

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The Broken Market's Latest Creation: An Algo To Offset The Impact Of Other Algos

Define paradox: in a world in which market liquidity has become non-existent due to the pervasive presence of algos in every product, from stocks, to FX, to commodities and now to Treasurys (as the Oct 15 Treasury crash showed) who do nothing but churn all day long to collect liquidity rebates and just wait to front-run and subpenny whale orders, and yet the second a major sell order appears they all scurry as the "machines are all turned off" and we get a flash crash, what is one to do? Why put all their faith in an algo of course.

Define paradox #2: just whose algo is supposed to provide you will the much needed liquidity? Why that of the firm which blew up because its trading wires got crossed and on August 1, 2012 inverted bid and ask, promptly pushing itself into insolvency as its own "liquidity" evaporated in minutes and ended up being bought for pennies on the dollar by the like of Jefferies and Citadel. The firm, of course, is Knight Capital, or as it is now known, KCG.

And because two paradoxes make an unparadox or something, Trader's Magazine reports that "as part of KCG's continued push into the institutional trading side of the business"... which is a euphemism for please trade with us: we won't blow up again, we promise... "the well-regarded and historically focused market-maker [ZH: if you keep repeating that it magically comes true, just ask world-renowned trader Dennis Gartman] has built its first brand new algorithmic trading tool - Catch."

What does the algo known as Catch do? Well, supposedly it offsets the impact of all other algos who have crushed market liquidity. Translation: this is a "good" algo.

The firm has developed Catch - an algorithm designed to find what Susi and KCG term "higher quality" liquidity. Higher quality liquidity, he noted, could be defined as order flow that reflects little to no market impact after and execution - no market movement, reversion or footprint. Thus, Catch is meant for buysiders who are quietly searching for that elusive block trade and/or natural fill - not the small predatory orders or high-frequency traders who look to sniff out institutions larger orders and get out in front of them.

"Elusive" being the key word of course. And we won't even comment on the irony of an algo admitting its sole purpose is to offset what createors of every other parasitic, predatory algos deny exists: HFTs which "sniff out institutions of larger orders and get out in front of them." Maybe there is another irony somewhere that offsets this one. Just like the paradoxes.

So, how does the algorithm work?

In simple terms, Catch casts a wider net for an order, leveraging a broader set of tools when chasing liquidity. Utilizing thoughtful, passive order placement logic and an advanced fair value model, Catch is empowered by KCG's Big Data analytics and low-latency routing technology.


Catch is guided, but not governed, by a market-aware participation strategy that uses adaptive participation guidelines. This strategy influences the urgency of trading, but will not force trading at inopportune times, as can be the case with algorithms coded with hard bands.


Susi explained that the algo is designed to act aggressive early on. That is, volume participation will be greater at the beginning of the order, getting a user closer to the fill sooner. As the algo runs, it continuously recalibrates. Catch manages opportunistic passive and aggressive trading by considering urgency, inventory, and market conditions in real-time. Therefore, its participation is continually recalibrated as an order progresses to ensure proper exposure and optimal execution performance.


He added that Catch is rooted in the firm's market making technology, market latency experience and now big data technology. The result is an algorithm which helps the buyside find alpha at all levels - especially incremental or "micro" alpha at the child order level.


Uh, Knight Capital - which again blew up due to its market making going horribly wrong - pitching something as being rooted in the firm's "market making technology, market latency experience" is probably not the best approach.

The said, we can't help but note the biggest irony of all: first of all HFTs destroy market liquidity, and now they "sell" products meant to circumvent the zero liquidity they themselves have created. Does that qualify for a market monopoly yet?

In conclusion, however, we are very much relieved to note that when even HFTs begin offering products that seek to offset the impact of other HFTs, than the market structure wars are finally coming to an end as the cannibalization among the parasites has reached the endgame.

Now if only central banks could follow suit.

New International Gang Of Thieves Make Somali Pirates Look Like Amateurs

Submitted by Simon Black via Sovereign Man blog,

When the two young petty thieves, Rinconete and Cortadillo, came to Seville they were quickly censured for stealing.


To their surprise, it wasn’t for the theft itself, but instead because they were not registered with the local thieves’ guild.


In this upside-down world imagined by Miguel Cervantes, theft was not a crime, but a craft—performed in the name of God and justice.


And like any other craftsmen of the day, the thieves had formed a guild. There they provided training and support to their members, while maintaining an exclusive right to engage in the trade.

This past month, a real-life guild of thieves was formed. With 51 governments pledging their support to each other for the protection of their ignoble craft of theft. And another 30 pledging to join by 2018.

From day one, governments have been pilfering their citizens’ assets through taxation, claiming a monopoly on thievery.

From the largest institution to the pettiest pickpocket, anyone else who tries to engage in theft is severely punished, as governments work to protect their exclusive right to steal.

Frighteningly, they do this all out in the open, believing that they actually have a moral right to commit theft.

You can see this delusion in the US government’s claims that last year they “lost out” on $337 billion from people avoiding taxes. As if they have some moral claim to the money they’d failed to pilfer.

Nonetheless, they use this claim to justify actively hunting down and penalizing anyone who takes action to avoid being stolen from.

The ones that are doing this are the bankrupt countries, and the deeper they slide into debt, the more desperate they become.

Which is why these broke governments are now joining forces, pledging to to collect and share information amongst themselves about citizens’ bank accounts, taxes, assets and income outside local tax jurisdictions.

Basically—I’ll help you steal from your citizens if you help me steal from mine.

Both the punishment and the likelihood of getting caught for tax evasion are growing. Don’t even bother trying.

However that doesn’t mean that you have no choice but to sit there and let your self be stolen from.

While there are still ways of legally reducing your tax burden from within a country, your best option is to move and diversify.

Diversification is key, because if you have all your eggs in one bankrupt basket, you are really taking on extraordinary risk.

Moving some assets abroad can legitimately reduce some of this risk. And an even greater strategy is considering moving yourself.

Citizens of most countries have the benefit of divorcing themselves from the tax system simply by moving abroad.

It’s a bit more onerous for US citizens. But for Americans living abroad, it’s still possible to earn roughly $100,000 without paying income tax.

In fact, between the Foreign Earned Income Exclusion, Foreign Housing Exclusion, SEP IRA contributions, and more, an American couple can sock away roughly $300,000 per year while paying almost zero income tax.

And if you become a resident of Puerto Rico (which any American can do), it’s possibly to completely eliminate US federal income tax on any amount of money.

By doing so, not only are you taking yourself out of the reach of this gang of thieves, but you are also casting a vote with your feet.

More important than the ballot box, this is a vote that actually counts. And one you have complete control over.

(Don’t worry– if you can’t move, there are still plenty of options to reduce your tax burden and take back your freedom. More on this in upcoming letters.)

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Our goal is simple: To help you achieve personal liberty and financial prosperity no matter what happens.

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Will you be prepared when everything we take for granted changes overnight?

Just think about this for a couple of minutes. What if the U.S. Dollar wasn't the world's reserve currency? Ponder that... what if...

Empires Rise, they peak, they decline, they collapse, this is the cycle of history.

This historical pattern has formed and is already underway in many parts of the world, including the United States.

Don't be one of the millions of people who gets their savings, retirement, and investments wiped out.

The Next Round of the Great Crisis is Just Around the Corner

The financial system is lurching towards the next round of the Great Crisis that began in 2007.


The 2007-2008 phase occurred when investment banks flooded the financial system with toxic derivatives. All told the derivatives market was over $1 QUADRILLION (that’s 1,000 TRILLIONS) in notional value when the crisis hit.

The Central Banks, knowing that the very banks they are meant to govern, were insolvent, began a series of emergency measures to deal with this. In the simplest form, they moved the banks’ garbage debts onto the public’s (read sovereign nations’) balance sheets.


The banks, knowing that they were given a green light, have since begun leveraging up again. Today, the financial system’s leverage is in fact even greater than it was in 2007.


Moreover, this time around, entire countries are on the verge of being bankrupt.


Consider Japan.


Japan is the third largest economy in the world. And the Bank of Japan is buying ALL of its debt issuance. This is precisely what triggered Germany’s Weimar Hyperinflation. The Japanese Bond market has become in the words of a financial insider “a giant Ponzi scheme”


We all know how Ponzi schemes end. They implode. Japan is on the verge of this.


In Europe, we already know the economy is in tatters. Italy is back in recession for the third time since 2008. Germany’s economy contracted in the second quarter of 2014 and will likely be in recession before the first quarter of 2015. France has registered zero growth for six months now.


Things are heating up on the political front as well. Separatist movements are rapidly growing in Spain, Italy, Belgium, and even France. Small wonder when even the individual Central Banks for the EU are fed up with the European Central Bank and its policies.


Then there is the US.


While the US in no better shape than Japan or Europe, the fact remains that our economy is almost flat-lining. The “official” data claims we’re in good shape as far as unemployment, but we all know that the “official” data is a work of fiction.


 Moreover, we’re now sitting on the biggest stock market bubble of all time. By some measures, stocks are MORE overvalued today than they were in 2000. Small wonder than corporate insiders (the folks who know more about their companies’ growth prospects than anyone) are dumping shares at a pace not seen since the peak of the Tech Bubble.


On top of this:


1.     Corporate debt is back to 2007 PEAK levels.

2.     Stock buybacks are back to 2007 PEAK levels.

3.     Investor bullishness is back to 2007 PEAK levels.

4.     Margin debt (money borrowed to buy stocks) is at 2007 PEAK levels.

5.     Numerous investment legends have warned of a coming crash.

6.     Investor complacency is at a record LOW.


Between the US, Europe, and Japan, you’ve got over 50% of the world’s GDP in recession or approaching it. And this is happening at a time when the financial system is in an epic bubble.


Buckle up, it’s coming.


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


You can pick up a FREE copy at:


Best Regards

Phoenix Capital Research




President Obama To Dictate Immigration Executive Order In Vegas On Friday

While what normally happens in Vegas, stays in Vegas; President Obama's decision to dictate his Immigration Executive Order from sin city will likely have repurcussions across the entire nation. As NY Times reports, Obama is preparing to use his executive authority to provide work permits for up to five million people who are in the US illegally, and to shield them from deportation. But these new arrivals will not receive one key benefit: government subsidies for health care available under Obamacare. The immigrants would also be unlikely to receive benefits like food stamps, Medicaid coverage or other need-based federal programs offered to citizens and to some legal residents. "The costs of extending these programs to millions of low-wage illegal immigrants would be enormous," said Senator Jeff Sessions "this is yet another danger posed to Americans by the president’s unconstitutional action."


As AP reports,

A Democratic official says President Barack Obama will visit Las Vegas on Friday.


The trip comes amid anticipation that the president will announce executive orders on immigration as soon as this week. Obama used a stop in Las Vegas in 2013 to outline his blueprint for immigration legislation.


Legislation passed in the Senate, but gained no traction in the Republican-led House. Obama announced this summer that he would instead move forward with executive action on immigration, but delayed the measures until after the midterm election.


People familiar with the president's proposals say the policy could shield from deportation as many as 5 million people in the country illegally, and grant them work permits.


The official insisted on anonymity because this person wasn't authorized to confirm the president's trip by name.

But, as The NY Times reports, it appears the immigrants won't get the entire largesse of American dependency...

Millions of undocumented immigrants who are set to be granted a form of legal status by President Obama as early as this week will not receive one key benefit: government subsidies for health care available under the Affordable Care Act.


Mr. Obama is preparing to use his executive authority to provide work permits for up to five million people who are in the United States illegally, and to shield them from deportation. But an official familiar with the administration’s deliberations said on Tuesday that such people would not be eligible for subsidized, low-cost plans from the government’s health insurance marketplace,




The decision would reflect the political sensitivities that arise when there is a collision between two of the most divisive issues in Washington: health care and immigration. It would also underline the White House preference for not risking the fury of conservative lawmakers who have long opposed providing government health care to illegal immigrants, and who fought intensely to deny such immigrants coverage under the Affordable Care Act.




But a White House decision to deny health care benefits to the immigrants would also fall far short of the kind of full membership in American society that activists have spent decades fighting for. The immigrants would also be unlikely to receive benefits like food stamps, Medicaid coverage or other need-based federal programs offered to citizens and to some legal residents.

However, Sylvia Mathews Burwell, the secretary of health and human services,  said that

federal aid — including health care benefits — could be available to children who are United States citizens but living with parents who are illegal immigrants. Such so-called mixed families “should not be scared,” she said, because they may be eligible for coverage and financial assistance.

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Source: CaglePost

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We leave it to Senator Jeff Session of Alabama - the senior Republican on the Senate Budget Committee to conclude:

"The costs of extending these programs to millions of low-wage illegal immigrants would be enormous... This is yet another danger posed to Americans by the president’s unconstitutional action."


“It is plain that President Obama has no authority to grant lawful status to those declared unlawful by the duly passed laws of the United States,” he said. “Nor does the president have any authority to declare such individuals eligible to receive health benefits that have been restricted to lawful residents.”