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Is Martial Law Justified If ISIS Attacks?

Submitted by Brandon Smith via,

A group of foreign militants infiltrates the U.S. using student visas, weak borders, bribery and cooperation with drug cartels.


Secret cells integrate within metropolitan areas and blend with the populace. At the precise moment, they activate, unleashing small attacks across the country in coordinated blitzkrieg-style terror campaigns against everything from suburban neighborhoods to public schools to shopping malls, striking fear into the citizenry, which now believes no one is safe, even in the heartland.


With normal law enforcement overwhelmed, the economy on the brink and the populace ready to riot, the military is deployed domestically; curfews, price controls and rationing are initiated; and special operations agents act as infiltrators in order to subdue the terrorist factions.


The loss of common liberties is welcomed by most as safety and security become the paramount motivator.

A glimpse into the future? Well, perhaps. Actually, it’s the plot narrative to a Chuck Norris movie called “Invasion U.S.A.” The terrorists in that movie were communists from places like Cuba and Venezuela (hey, it was the 80s, and we had no idea that the communists were elitists that had already taken over from within), but the premise is strangely not far from what the government is trying to sell to us as a potential real-life scenario today.

As Americans, we have been bombarded with propaganda for decades, which conjures rationalizations for domestic military operations. This propaganda always presents us with an all-or-nothing option: relinquish liberty and beat the enemy, or “cling” to the “outdated” Constitution and fall as a society. There never seems to be a third option, an option that does not require the loss of freedoms and allows for security. In the film “Invasion U.S.A.,” I suppose we had Chuck Norris as a third option, which is not a bad third option in the world of cinema; but I’m sorry to say that Chuck alone cannot save us from what is coming in the real America.

I am highly suspicious of the rhetoric coming out of Washington lately in terms of the ISIS situation. ISIS has apparently secured the Iraqi city of Ramadi and put the government there on the defensive, meaning that despite the recent claims that ISIS leadership has been hit in Syria, the group continues to advance.

Rumors of potential ISIS attacks on U.S. soil continue to spread from sources like the FBI and the Transportation Security Administration.

“Former” CIA officials (is there such a thing?) are also getting in on the action, warning in mainstream media outlets that ISIS has the ability to direct at least small-scale attacks on the U.S. today.

However, the threat of ISIS does not frighten me. It concerns me, but what truly disturbs me is the likely government response if such predictions by alphabet agencies come to pass.

In my recent article “When The Elites Wage War On America, This Is How They Will Do It,” I examined the tactics behind not only globalization, but also the most probable methods that will be used to secure globalization through the oppression of dissenting voices and groups. Part of that examination included my take on the Jade Helm 15 exercises running from summer into autumn and how they fit directly into the strategies for disrupting insurgencies (revolutions) discussed openly by internationalists in their own symposiums.

My conclusion given the clear evidence at hand? Jade Helm is definitely NOT meant to prepare troops for foreign operations. The program is admitted to be a primer for military response to “crisis scenarios,” denoting domestic operation. Special forces groups are training with domestic agencies like the FBI and the Drug Enforcement Administration. And they are training and infiltrating completely American environments, which they would not be doing unless they planned to operate in very similar environments. Special forces always train like they fight. Period.

With at least 45% of Americans concerned that open domestic military exercises are a precursor to greater federal control over states and more than 62% convinced that government power is suffocating individual liberty, it is only a matter of time before the government spin doctors create a semi-believable rationale for such endeavors as Jade Helm. I believe that ISIS could be their perfect rationale.

As public concern is amplified and evidence indicating that the Department of Defense is lying about the purpose of JH15 is more widely recognized, the DOD may very well admit that the operation is not for training in foreign theaters. Rather, they may argue that JH15 is in fact training designed to protect Americans on American soil from widespread terrorist threats. That is to say, the new spin will be that Jade Helm is meant to save us all from the psychopathic child killing cannibal monstrosity known as ISIS.

Look at it this way, what better excuse for covert military actions in domestic environments? What better way to justify lying to the American people about Jade Helm goals and directives? What better way to silence the critics and so-called “conspiracy theorists” than for the government to say: “Yes, we lied, but it was to keep the real and honorable purpose of JH15 secret, and to save the public from terrorism, now shut up naysayers and liberty activists, you are putting the whole nation at risk…!”

Maybe I am connecting dots that are not dots, but it seems to me that the timing of ISIS warnings, the re-ignition of economic downturn in 2014/2015, the global shift away from the dollar, and Jade Helm are not entirely coincidental. Martial Law is not a scenario that can be generated in a vacuum; it needs a primer, a trigger event, if not multiple trigger events.

If the final trigger event is indeed intended to be a terror campaign on U.S. soil, then questions of the true purpose of Jade Helm will undoubtedly take a back seat to immediate solutions to what amounts to a foreign invasion (at least, that is how it will be painted), and none other than Jade Helm will be presented as that solution.

The debate over JH15 and programs like it will change. It will become a matter of the “greater good” against a foreign enemy, rather than a government overstep against the rights of the people. How can we possibly question the defense of American soil against terrorists? Isn’t that an undeniable directive of the military? And if we do question such a directive and its value to the American people, are we not “weakening” the resolve and effectiveness of the defense apparatus through negative public opinion? And by extension, would that not make us “domestic enemies” as well?

In fact, I can easily argue that there is absolutely NO rationale for domestic military operations against ISIS or anyone else, and here’s why.

ISIS Is A Fabrication

As I outlined in detail in my article “The Time Is Ripe For A False Flag Attack On American Soil,” the organization known as ISIS has long been a collaborative creation of the U.S. government and its allies. From funding and training in Libya and Jordan, to arming in Syria and Iraq, ISIS is nothing without the Western intelligence apparatus, just as al-Qaida was nothing more than a CIA Frankenstein monster.

So should Americans be forced to relinquish their freedoms in order to combat an enemy that our own government engineered out of thin air? And beyond that, who represents the greater enemy: ISIS or the lunatic elitists who gave ISIS the tools to commit atrocities?

Government Is Incapable Of Providing Security

Some people may argue that the true origins of ISIS are a matter of historical debate that will not solve our immediate problem of rampant terror threats. How can we nitpick where ISIS came from while ISIS is trying to massacre us? Fair enough.

My rebuttal would be that regardless of where ISIS found its organizational support, the U.S. government and the military apparatus under the direction of a corrupt DOD are incapable of protecting the American people anyway. If ISIS is able to unleash a campaign of attacks that give license to the idea of martial law, then the government has only proven one of two things:

1)  It is too inept to prevent such events from occurring due to its refusal to secure our borders and despite full-spectrum surveillance of the American people by the NSA.

2)  It is so evil in its machinations that it has allowed terrorist infiltration in order to further an agenda of greater control.

Either the government is a bungling bureaucratic mess not capable of keeping anyone safe, or it is a cesspool of tyranny that has no intention of keeping anyone safe. In either case, why should the American people give such an entity even MORE power, when it can’t responsibly handle the considerable power it already has?

American Civilians Can Provide Their Own Security And Do It Better

Official martial law may never be declared, but it could nevertheless become a reality. I would present the response to the Boston bombing event as a direct example of militarization of a domestic region without it being called “martial law.” This was, of course, a “federalized” response, rather than a military one. But it was militarization in its nature all the same. The establishment will use all kinds of mislabeling and spin in order to entice the populace to submit to further encroachment of liberties in the name of security.

The fact is the best defense for the civilian population of America has always been the individual population itself. Terrorists are far more likely to be thwarted tactically and psychologically by a trained, armed, aware and free citizenry than any oppressive federal or military dragnet. Why?  Because the citizenry is the target, and thus, always first on the scene to respond.  Citizens become victims when they wait around passively for government "authorized" responders to save them, instead of adopting the attitude that THEY are responsible for their own defense.  Legally, it is a constitutional mandate that American militias retain authority over domestic defense. And to be clear, the militia is every able-bodied American, not only a certain percentage of Americans the government deems acceptable (which means the National Guard does not qualify as the militia).

This is the answer to the propaganda of militarization. We do not have to choose between liberty and security. We can have both, and we can provide it for ourselves as our own protectors. Sheepdogs be damned. Each citizen is his first and best line of defense.

Only when the American people take on the philosophy of self-defense rather than government reliance will we be free of fear from terrorism and free of fear from tyrannical government. It starts with each of you, in your homes, neighborhoods, towns and counties. Citizen organizations for mutual aid and security to counter any threat, regardless of the mask it wears, will be the catalyst for a legitimately free society. In the face of such organization, martial law is not only illegitimate, but entirely unnecessary. ISIS does not matter. It is what we ultimately do about ISIS or similar threats that matters, and martial law is not the answer.

"Go Now!": China Threatens US Spy Planes In South China Sea

There's trouble brewing in The South China Sea, where Beijing has been using "scores of dredgers" to turn reefs into islands in the Spratly archipelago. Atop the new islands, China has been busy building things like cement plants and 10,000 foot airstrips capable of landing fighter jets and surveillance aircraft. 

China shares contested waters in the area with the Philippines, Vietnam, Malaysia, Brunei and Taiwan, and the US has made it all too clear that China's reclamation efforts constitute an unacceptable attempt to "use sheer size and muscle to force countries into subordinate positions." That, along with reports that Washington is looking into options for countering China's island-building project, set up a contentious scenario that culminated in Beijing advising the US to "refrain from provocative action" in the area. 

Having thus set the stage, we bring you the following clip which shows what happens when US spy planes come a little too close to China's newly created military outposts.

Despite Weaker-Than-Expected PMI, Chinese Stocks Stumble

Chinese Manufacturing PMI missed expectations, printing a contractrionary 49.1 (against 49.3 expectatons) for the 3rd month in a row. While this was a small pick up from last month's 48.9 print, it hardly signals 'success' for the various easing efforts unleashed upon an all-knowing investing public. After yesterday's weakness in Chinese stocks, one would think a disappointing PMI was just the ticket to send investors wild with buying in anticipation of more easing, but now, Chinese stocks have erased early modest gains and are fading back...


a 3rd month of contraction in Chinese manufacturing PMI...


The result - an odd selloff on bad news...

Militarization Is More Than Tanks & Rifles: It’s a Cultural Disease, Acclimating Citizens To Life In A Police State

Submitted by John Whitehead via The Rutherford Institute,

“If we’re training cops as soldiers, giving them equipment like soldiers, dressing them up as soldiers, when are they going to pick up the mentality of soldiers? If you look at the police department, their creed is to protect and to serve. A soldier’s mission is to engage his enemy in close combat and kill him. Do we want police officers to have that mentality? Of course not.”— Arthur Rizer, former civilian police officer and member of the military

Talk about poor timing. Then again, perhaps it’s brilliant timing.

Only nowafter the Departments of Justice, Homeland Security (DHS) and Defense have passed off billions of dollars worth of military equipment to local police forces, after police agencies have been trained in the fine art of war, after SWAT team raids have swelled in number to more than 80,000 a year, after it has become second nature for local police to look and act like soldiers, after communities have become acclimated to the presence of militarized police patrolling their streets, after Americans have been taught compliance at the end of a police gun or taser, after lower income neighborhoods have been transformed into war zones, after hundreds if not thousands of unarmed Americans have lost their lives at the hands of police who shoot first and ask questions later, after a whole generation of young Americans has learned to march in lockstep with the government’s dictatesonly now does President Obama lift a hand to limit the number of military weapons being passed along to local police departments.

Not all, mind you, just some.

Talk about too little, too late.

Months after the White House defended a federal program that distributed $18 billion worth of military equipment to local police, Obama has announced that he will ban the federal government from providing local police departments with tracked armored vehicles, weaponized aircraft and vehicles, bayonets, grenade launchers, camouflage uniforms and large-caliber firearms.

Obama also indicated that less heavy-duty equipment (armored vehicles, tactical vehicles, riot gear and specialized firearms and ammunition) will reportedly be subject to more regulations such as local government approval, and police being required to undergo more training and collect data on the equipment’s use. Perhaps hoping to sweeten the deal, the Obama administration is also offering $163 million in taxpayer-funded grants to “incentivize police departments to adopt the report’s recommendations.”

While this is a grossly overdue first step of sorts, it is nevertheless a first step from an administration that has been utterly complicit in accelerating the transformation of America’s police forces into extensions of the military. Indeed, as investigative journalist Radley Balko points out, while the Obama administration has said all the right things about the need to scale back on a battlefield mindset, it has done all the wrong things to perpetuate the problem:

  • distributed equipment designed for use on the battlefield to local police departments,
  • provided private grants to communities to incentivize SWAT team raids,
  • redefined “community policing” to reflect aggressive police tactics and funding a nationwide COPS (Community Oriented Policing Services) program that has contributed to dramatic rise in SWAT teams,
  • encouraged the distribution of DHS anti-terror grants and the growth of “contractors that now cater to police agencies looking to cash DHS checks in exchange for battle-grade gear,”
  • ramped up the use of military-style raids to crack down on immigration laws and target “medical marijuana growers, shops, and dispensaries in states that have legalized the drug,”
  • defended as “reasonable” aggressive, militaristic police tactics in cases where police raided a guitar shop in defense of an obscure environmental law, raided a home looking for a woman who had defaulted on her student loans, and terrorized young children during a raid on the wrong house based on a mistaken license plate,
  • and ushered in an era of outright highway robbery in which asset forfeiture laws have been used to swindle Americans out of cash, cars, houses, or other property that government agents can “accuse” of being connected to a crime.

It remains to be seen whether this overture on Obama’s part, coming in the midst of heightened tensions between the nation’s police forces and the populace they’re supposed to protect, opens the door to actual reform or is merely a political gambit to appease the masses all the while further acclimating the populace to life in a police state.

Certainly, on its face, it does nothing to ease the misery of the police state that has been foisted upon us. In fact, Obama’s belated gesture of concern does little to roll back the deadly menace of overzealous police agencies corrupted by money, power and institutional immunity. And it certainly fails to recognize the terrible toll that has been inflicted on our communities, our fragile ecosystem of a democracy, and our freedoms as a result of the government’s determination to bring the war home.

Will the young black man guilty of nothing more than running away from brutish police officers be any safer in the wake of Obama’s edict? It’s unlikely.

Will the old man reaching for his cane have a lesser chance of being shot? It’s doubtful.

Will the little girl asleep under her princess blanket live to see adulthood when a SWAT team crashes through her door? I wouldn’t count on it.

It’s a safe bet that our little worlds will be no safer following Obama’s pronouncement and the release of his “Task Force on 21st Century Policing” report. In fact, there is a very good chance that life in the American police state will become even more perilous.

Among the report’s 50-page list of recommendations is a call for more police officer boots on the ground, training for police “on the importance of de-escalation of force,” and “positive non-enforcement activities” in high-crime communities to promote trust in the police such as sending an ice cream truck across the city.

Curiously, nowhere in the entire 120-page report is there a mention of the Fourth Amendment, which demands that the government respect citizen privacy and bodily integrity. The Constitution is referenced once, in the Appendix, in relation to Obama’s authority as president. And while the word “constitutional” is used 15 times within the body of the report, its use provides little assurance that the Obama administration actually understands the clear prohibitions against government overreach as enshrined in the U.S. Constitution.

For instance, in the section of the report on the use of technology and social media, the report notes: “Though all constitutional guidelines must be maintained in the performance of law enforcement duties, the legal framework (warrants, etc.) should continue to protect law enforcement access to data obtained from cell phones, social media, GPS, and other sources, allowing officers to detect, prevent, or respond to crime.”

Translation: as I document in my book Battlefield America: The War on the American People, the new face of policing in America is about to shift from waging its war on the American people using primarily the weapons of the battlefield to the evermore-sophisticated technology of the battlefield where government surveillance of our everyday activities will be even more invasive.

This emphasis on technology, surveillance and social media is nothing new. In much the same way the federal government used taxpayer-funded grants to “gift” local police agencies with military weapons and equipment, it is also funding the distribution of technology aimed at making it easier for police to monitor, track and spy on Americans. For instance, license plate readers, stingray devices and fusion centers are all funded by grants from the DHS. Funding for drones at the state and local levels also comes from the federal government, which in turn accesses the data acquired by the drones for its own uses.

If you’re noticing a pattern here, it is one in which the federal government is not merely transforming local police agencies into extensions of itself but is in fact federalizing them, turning them into a national police force that answers not to “we the people” but to the Commander in Chief. Yet the American police force is not supposed to be a branch of the military, nor is it a private security force for the reigning political faction. It is supposed to be an aggregation of the countless local civilian units that exist for a sole purpose: to serve and protect the citizens of each and every American community.

So where does that leave us?

There’s certainly no harm in embarking on a national dialogue on the dangers of militarized police, but if that’s all it amounts to—words that sound good on paper and in the press but do little to actually respect our rights and restore our freedoms—then we’re just playing at politics with no intention of actually bringing about reform.

Despite the Obama Administration’s lofty claims of wanting to “ensure that public safety becomes more than the absence of crime, that it must also include the presence of justice,” this is the reality we must contend with right now:

Americans still have no real protection against police abuse. Americans still have no right to self-defense in the face of SWAT teams mistakenly crashing through our doors, or police officers who shoot faster than they can reason. Americans are still no longer innocent until proven guilty. Americans still don’t have a right to private property. Americans are still powerless in the face of militarized police. Americans still don’t have a right to bodily integrity. Americans still don’t have a right to the expectation of privacy. Americans are still being acclimated to a police state through the steady use and sight of military drills domestically, a heavy militarized police presence in public places and in the schools, and a taxpayer-funded propaganda campaign aimed at reassuring the public that the police are our “friends.” And to top it all off, Americans still can’t rely on the courts, Congress or the White House to mete out justice when our rights are violated by police.

To sum it all up: the problems we’re grappling with have been building for more than 40 years. They’re not going to go away overnight, and they certainly will not be resolved by a report that instructs the police to simply adopt different tactics to accomplish the same results—i.e., maintain the government’s power, control and wealth at all costs.

This is the sad reality of life in the American police state.

Guatemala Central Bank Chief Arrested

Spot the banana republic(s):

* * *

We are talking about today's record-breaking FX rigging settlement, yesterday's premeditated leak by ECB's Benoit Coeure to hedge funds at the Brevan Howard Centre for Financial Analysis, and ironically, the arrest of Guatemala's central bank governor hours ago.

From Reuters:

Guatemala's central bank governor was arrested on Wednesday in a bribery probe that also targeted a former aide of President Otto Perez, who has faced mounting pressure since his vice president quit two weeks ago over a separate graft scandal.

The Guatemalan attorney general's office said it had arrested central bank chief Julio Suarez, and issued an arrest warrant for Juan de Dios Rodriguez, Perez's former personal secretary and head of the Guatemalan Social Security Institute.


The office said Suarez, who has a seat on the institute's board, had been arrested along with 14 others over a $14.5 million medical services contract awarded by the institute. The charges include fraud, influence trafficking and charging illegal commission, prosecutors said.


Ivan Velasquez of the International Commission against Impunity in Guatemala (CICIG), a United Nations-backed group working with prosecutor's on the case, said investigations that began last year found that the contract was rigged in favor of a pharmaceutical company. "We have very coherent evidence to show that the members of the tendering board took illegal steps," Velasquez said.


According to the investigators, taped phone conversations showed that the company, identified by the prosecutor's office as the Guatemalan unit of Mexico's Pisa, paid bribes to officials from the institute to win a dialysis contract. A Pisa spokesman declined to comment.


The central bank said in a statement that Suarez had its full support and that it would continue to operate as normal. The Social Security Institute was not available to comment.


President Perez said he welcomed the investigation.


"Nobody is above the law," Perez said in a televised address. "I'm the first one to regret that these situations are occurring and the first to demand that justice is served."

We are confident that Goldman already has a spare partner or two on their way to take over for Suarez. After all, let no crisis or central bank arrest go to waste.

We are, however, confused: just which is the banana republic?

Putin Pans Ukraine's Debt Moratorium As "De Facto Default", Threatens Court

In exactly a month, Ukraine will owe Russia a $75 million debt coupon payment. Finance Minister Anton Siluanov told reporters in Moscow today that "if they miss the payment, we will use our right to go to court." Then it got serious, as Vladimir Putin instructed Russian Prime Minister Dmitry Medvedev to assume control of Ukraine's repayment of its $3-billion debt in Eurobonds that Russia bought in 2013, slamming Ukraine's bill allowing them to impose a moratorium on foreign debt repayments as a de facto announcement of default. As one market participant warned, "I would wait until after June 20 to go forward with" any moratorium, as "if Russia takes Ukraine to court, that might be an incentive for other creditors to go down the same route."

As we previously noted, on Tuesday, Ukraine's parliament adopted a bill allowing Ukraine to freeze repayments of its foreign debt. As RT notes,

Experts agree that Tuesday vote meant a technical default for the country and would impede Ukraine’s ability to raise private investment from the EU and the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB), a European source told TASS on Wednesday.


"Suspension of debt payments not coordinated with creditors results in a technical default, and in the case of Ukraine, it threatens to undermine Kiev’s ability to attract private investment through EU programs,“ the source said.


As part of the underpinning of Kiev’s bailout plan, the International Monetary Fund said in March that Russia would not receive the $3 billion bond repayment from Ukraine this year.

IMF is looking for cooperation from creditors to accept a restructuring on Kiev’s debt. That includes Russia.

“It is rather clear that the IMF is assuming that Russia’s $3 billion bond is included in this year’s $5.2 billion financing from a ‘debt operation’,” said Charles Blitzer of Blitzer Consulting and a former IMF staff member.

The IMF is avoiding the term ‘restructuring’ replacing it with ‘debt operation’.

Vladimir Putin is unimpressed, as Sputnik reports, blasting that Ukraine’s bill allowing to impose a moratorium on foreign debt repayments is a de facto announcement of default...

“This de facto announcement of a looming default demonstrates that the level of responsibility and professionalism [of the country’s leadership] appears to be low, despite the fact that the country is being ran from the outside.”

The bill, which is yet to be signed into law by the country's president, can be applied to Ukraine's payments on the $3-billion Eurobond issue bought by Russia in late 2013. However,

The Russian bond is governed by English law and any disputes related to it would be settled in an English court, according the bond prospectus.


The bond has a covenant allowing the holder to demand its money back if Ukraine’s public debt tops 60 percent of economic output, which the IMF said took place last year.


“At the request of our Ukrainian partners and the IMF, we are not using this right as we do not want to aggravate the already difficult economic situation of our partners and neighbors,” Russian President Vladimir Putin said at a government meeting in Moscow on Wednesday.


However, I would like to understand what our partners plan to do.”

And so far, as Bloomberg notes, Ukraine has failed to bring Russia to the table as it begins negotiating with creditors to reduce its $23 billion of international debt.

Russia says the $3 billion bond that comes due in December shouldn’t be included in the restructuring because it was bought from the regime of former Ukrainian President Viktor Yanukovych as part of a government aid agreement.


Failure to cut a deal risks future tranches of a $17.5 billion International Monetary Fund loan that Ukraine needs after a conflict with pro-Russian separatists pushed it into the worst recession since 2009.

“Our goal is to find an outcome that is acceptable for the Russian Federation,” Putin said during a meeting with government members.

*  *  *

In conclusion this is far from over...

“If Russia takes Ukraine to court, that might be an incentive for other creditors to go down the same route,” Jakob Christensen, an economist at Exotix Partners LLP in London, said by phone on Wednesday. “I would wait until after June 20 to go forward with” any moratorium, he said.


Furthermore, as we have noted previously, Ukraine’s biggest creditor is Franklin Templeton, which along with three other companies owns $8.9 billion of the nation’s debt (where a knife-catching bond manager was exposed as a glorified BTFD'er).

The nation’s debt levels are “unsustainable” and there is “no alternative” for creditors but to accept maturity extensions, coupon reductions and principal writedowns on their holdings, Ukraine's American Finance Minister Natalie Jaresko said on Tuesday.

“I wouldn’t assume that Ukraine is not willing to default on the Russia bond,” Anna Gelpern, a Georgetown University law professor and fellow at the Peterson Institute for International Economics, said by phone on Tuesday. “They’ve said that they want to restructure them on the same terms as everybody else.”

4 Factors Signaling Volatility Will Return With A Vengeance

Submitted by Nomi Prins via,

No one could have predicted the sheer scope of global monetary policy bolstering the private banking and trading system. Yet, here we were - ensconced in the seventh year of capital markets being buoyed by coordinated government and central bank strategies. It’s Keynesianism for Wall Street. The unprecedented nature of this international effort has provided an illusion of stability, albeit reliant on artificial stimulus to the private sector in the form of cheap money, tempered currency rates (except the dollar - so far) and multi-trillion dollar bond buying programs. It is the most expensive, blatant aid for major financial players ever conceived and executed. But the facade is fading. Even those sustaining this madness, like the IMF, are issuing warnings about increasing volatility.

We are repeatedly told these tactics benefit broader populations and economies. Yet by design, they encourage hoarding, or more crafty speculative behavior, on the part of big financial firms (in the guise of obeying slightly adjusted capital rules) and their corporate clients (that largely use cheap funds to buy their own stock.) While politicians, central banks and multinational government-funded entities opine on “remaining” structural weaknesses of certain individual countries, they congratulate themselves on having staved off more acute crises.  All without exhibiting the slightest bit of irony. 

When cheap funds stop flowing, and “hot” money shifts its attentions, as it invariably and inevitably does, volatility escalates as it is doing now. This usually signals a downturn, but not before nail-biting ups and downs in the process.

These four risk factors individually, or collectively, drive rapid price fluctuations. Individually, they fuel market volatility. Concurrently, they can wreak far greater havoc:

  1. Central Bank Policies
  2. Credit Default Risk
  3. Geo-Political Maneuvering
  4. Financial Industry Manipulation And Crime

Events that in isolation don’t impact markets severely can coalesce with more negative results. This is important to understand when prioritizing personal investment decisions. In this two-part report, I will outline driving forces behind today’s volatility and provide suggestions as to what you can do to protect yourself, and even thrive, going forward.

Take Central Banks First

Two weeks ago, stock and bond markets dipped when Federal Reserve Chair Janet Yellen announced, “equity market valuations at this point generally are quite high."  She admitted,  “There are potential dangers." She saw no bubble. The Fed continues to claim its policies have fostered sustainable - if slow – growth for the mainstream economy.

This wasn’t the first time Yellen has said as much. It won’t be the last. In November 2013, she saw no equity or real estate bubble, either. In July 2014, at an IMF lecture, she said the Fed wouldn’t raise rates just to burst bubbles, rather when the US has a healthy job market with stable prices.  She has assumed Ben Bernanke’s mantras in this regard.

Each time she speaks, the media enters interpretation overdrive and markets react similarly. They drop initially, then rebound to slightly lower levels than before. The pattern is becoming increasingly pronounced, though, as is the associated volatility.

Recent volatility spikes underscore the fragility of markets inhaling cheap money due to the global central bank policies that began with the US Federal Reserve, and spread to the European Central Bank, the Bank of Japan and the People’s Bank of China.  The IMF has recently stated that, despite rising volatility, a dose of “QE-Plus” may be needed.

Since the beginning of 2015, the stock market has fluctuated between new highs and turning negative for the year. Movements are mostly linked to the rate hike timing guessing game, amidst a roster of other commonly circulated “threats” from Grexit to erratic oil price behavior. Associated speculation is marked by lengthy media debates about what the word ‘patience’ means regarding Fed talk on rate hikes and smatterings of the realization that artificially stimulated markets don’t promote real long-term growth.

Growing Credit Risk

Yellen also mentioned "compression of spreads on high-yield debt, which certainly looks like a reach for yield type of behavior.” Obviously.  When high-grade debt interest rates are low, the only place to grab yield is in riskier securities. A credit bubble develops. This awareness has not been met with deterrent policy though, leaving the propensity of compressed spreads (and credit default spreads) to blow out (widen) from these levels.

The Fed’s goalposts on rate hikes keep changing. Globalization of low to negative interest rates and dampening of currency exchange rates relative to the dollar has helped keep US rate policy where it is, though the Fed doesn’t say this. The Fed’s zero-interest-rate and QE policy has propped markets, encouraged corporate share buybacks, caused yield seekers to buy riskier securities, and provided banks incentives to leverage it all.

Yellen isn’t wrong in her diagnosis; she’s just ignoring the Fed’s role in it. So is every other central bank and multinational entity. They offer liquidity crack and then wonder why junkies multiply. The Fed missed the last bubble and is missing this one. Meanwhile, the rate-hike guessing game increases market volatility.

From Geo-Politics to Manipulation

Excessive speculation also provokes volatility, especially as enacted by the major market players that control the narrative and the trading volume. This occurs with stocks, bonds, and commodities.  Often such moves rely on geo-political tensions as a cover.

When the US and its Euro-friends slapped economic sanctions on Russia over its actions in the Ukraine, the fallout was used to explain weaker market days.  Oil price drops were partially attributed to Middle East tensions, ostensibly because OPEC didn't agree to withhold production. They were also used to explain Russian economic weakness, allowing the Obama administration to gloat about the success of its sanctions.

Energy volatility, widely reported as oil price movements, can impair household budgets and the overall economy. When oil prices are elevated, associated household costs rise. When they drop, media stories about resultant layoffs can dampen markets and household investments in them. To the extent that prices are manipulated in either direction by financial players and not end-producers or users, they cause excessive volatility.

Big banks don’t care about any of this. They have the capital and global agility to leverage whatever situation arises. If Russia is weak, head to Latin America. If US hedge funds force Argentina into technical default, press Obama to lift sanctions and head to Cuba. It’s a merry-go-round of institutional speculation followed by volatility and decline.

Financial firms, including banks, hedge funds and less regulated players, exert tremendous power through leveraging capital, trading positions and public predictions. They can hype up prices to attract money into their market of choice and quickly reverse course, aided by a media eager to follow the story-du-jour for page-views or ratings.

The power of the large trading players to move prices remains vast. The Big Six US banks control 97% of all trading assets in the US banking system and 95% of all derivatives. Thirty Globally Systemically Important Banks (GSIB’s) control 40% of lending and 52% of assets worldwide. As volatility rises, ongoing concentration in these still-too-big-to-fail entities that can manipulate financial markets, produces triple digit stock market swings that capture headlines and stoke people’s fears.

Subsidization for the elite banking class can’t last forever. But it has already overstayed its welcome many times over, so predicting a specific end date is not easy (though I’m going with mid-2016, when the ECB will be done with this round of bond-buying.) In the interim, rising volatility signals an unraveling of current polices that can’t be ignored.

The uncertainty surrounding the inevitability, if not the exact timing, of multiple and possibly overlapping volatility drivers is itself a source of volatility. For the average person, these signs can be scary. Taking steps to avoid the circus as much as possible, such as extracting money from the markets, securing personal assets, and waiting out the swings, can be a source of emotional comfort and future financial stability.

In Part 2: Protecting Yourself In The Coming Era Of Volatility, we look closer at the factors mostly likely to trigger market gyrations, as well as steps investors should be considering to safeguard capital in a coming age that promises turbulence and unpredictability.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

In India, Gold Is Not Only Money But Now Pays Interest

Despite Bernanke's previous protestations that "gold is not money... it is tradition," it appears the Indian government - having come to the rapid realization that any attempts to thwart the use of gold as a monetary equivalent merely forced the people to hoard the precious metal in ever larger amounts and ever more shadow, un-regulated, ways - now has a very different opinion.

In an effort to mobilise 20,000 tonnes of unproductive gold owned by Indian households into cash, Reuters reports that - after unveiling the gold monetisation scheme on Feb 28th, India's FinMin Arun Jaitley released bank guidelines overnight on interest rates, reserve and liquidity ratios. The scheme "allows gold to become a dynamic, fungible asset in the hands of gold savers."

As we previously noted - before India went full gold-curb-tard when the finance minister said "demand for gold must be moderated" - this chart from 2012 shows the staggering eightfold increase in India's gold loans "which monetize the idle gold in the country", in just four short years.



And now, as Reuters reports, India could allow individuals deposit a minimum of 30 grams of gold with banks in return for interest payments to help monetise large quantities of the metal lying with households, a step that is aimed at cutting expensive imports.

Banks could treat gold deposits as part of their cash reserve ratio (CRR) or statutory liquidity ratio (SLR), the finance ministry said in its guidelines released on Tuesday to seek opinions about its gold monetisation scheme. It said the stakeholders could respond to its suggestions by June 2.


The SLR is the minimum amount of bonds that banks must have, while the CRR is the share of deposits they have to compulsory keep with the central bank.


"Both directionally and in terms of content, this draft reflects a practical approach," said Somasundaram PR, managing director of World Gold Council's India operations.


"Once the incentive framework falls into place to the satisfaction of the banks, customers and others, we will own a uniquely Indian scheme that allows gold to become a dynamic, fungible asset in the hands of gold savers."


Indians' penchant for gold spans centuries and is rooted in the Hindu religion, with the Diwali festival being one of the biggest annual buying seasons. Gold also forms part of dowries and it is an instrument of financial security for 70 percent of India's rural population.

The government is trying to convince households, who sometimes have little faith in financial institutions, to break the tradition and hand over gold passed down the generations.

Under the scheme, customers' will have to deposit gold for at least a year and banks may pay the interest after 30 or 60 days of the opening of the gold savings account, the proposal said.


Both the interest and the principal payable to depositors are likely to be valued in gold and the gains will be tax-free, it said.


"Lower threshold for deposits and tax exemptions will make the scheme attractive for households," said a Mumbai-based dealer with a bullion importing bank.


But the biggest challenge would be to set up collection centres that can accept gold, the dealer said.

*  *  *

We are reminded of the RBI's 2012 report on Gold loans and imports... whose purpose is to isolate the attractiveness of gold to the general population, and most importantly, prevent it, is that gold demand must be limited as the only control a collapsing central-bank based statist system has is in controlling "money" that is infinitely dilutable and can inflate away debt, not the type that actually has value, and that a central bank can't create out of thin binary air. Hence the report's conclusion:



There is a need to moderate the demand for gold imports, as ensuring external sector’s stability is critical. But, it is necessary to recognise that demand for gold is not strictly amenable to policy changes and also is price inelastic due to varied reasons. What is critical is to ensure provision of real returns to investors through various financial savings products. What is also relevant is the need for banks to introduce new gold-backed financial products that may reduce or postpone the demand for gold imports. The Working Group believes that providing real rate of return to investors through alternative instruments holds the key to reducing the excessive  demand for gold. Meanwhile, there is also a need to increase monetisation of idle gold stocks in the economy for productive purposes.


As of now, there appears to be no close substitute to wean away investors’ attention from gold. Investors’ awareness and education is important, in this context, to channel the investment to gold-backed financial products. Banks and NBFCs may continue to deliver gold jewellery loans, which monetises the idle gold in the country. The gold loan market has grown well in recent years. It is time for consolidation of the operations of the gold loan NBFCs. The gold loans NBFCs need to transform themselves into institutions free of complaints, have proper documentation and auction procedures, with rationalised interest rate structure and have a branch network that is fully safe and secure. Gold loans NBFCs’ linkage with formal financial institutions may be reduced gradually. Such transformation ensures the gold loans NBFCs’ future growth more robust, besides making them a contributing segment to the financial inclusion process.

One can almost feel the panic.

*  *  *

In short it proves that in India, gold is the only real money, and is the only fallback option in a country where inflation is still rampant, and where even simple peasants prefer to keep their wealth not in the local paper currency, which has been losing its value aggressively in recent years, but in the shiny metal. Must be "tradition."

* * *Full details of India's Gold monetization scheme below...

Draft Gold Monetization Scheme

What this means for the supply and demand dynamics of not paper, but real physical gold, we leave to our readers to decipher... or ask blogger Ben (if he's not too busy at his new hedge fund).

"This Divergence Is At The Root Of Most American Economic Problems"

Some critical observations on changes in the US economy over the past two generations, which are certainly not for the benefit of the American middle-class worker, courtesy of the Economic Policy Institute.

Unpaid Productivity

Since 1979, hourly pay for the vast majority of American workers has not only lagged behind growth at the very top of the distribution and thus behind average wage growth, but has also diverged from economy-wide productivity, as shown in Figure M. This divergence is at the root of numerous American economic challenges (Bivens et al. 2014).

Labor productivity is a measure of the value of goods and services produced in the economy in an average hour of work. It rises steadily over time (except possibly during some recessionary years) as technology, capital intensity, and the educational attainment of the U.S. workforce increase. When labor markets are tight and/or policy provides bargaining power to workers through labor market institutions such as a protected right to unionize and robust minimum wages, productivity increases usually generate corresponding wage increases. From 1948 to 1979, this combination of healthy labor markets and institutional support of workers’ bargaining power was sufficient to keep wage growth for the majority of U.S. workers tracking productivity growth. Over this period, net productivity (productivity after accounting for depreciation of capital) grew by 108.1 percent, and the compensation of nonsupervisory production workers (who comprise roughly 80 percent of the private-sector workforce) grew by a comparable 93.4 percent. Thus, the typical worker shared in the economic spoils of increased productivity.

However, between 1979 and 2013, there was a marked decoupling of productivity and typical workers’ compensation. Over this span, productivity grew 63.5 percent, while hourly compensation of production and nonsupervisory workers grew just 7.7 percent. Productivity thus grew eight times faster than typical worker compensation, which means the prosperity created over this time period did not result in broad-based wage gains.

* * *

So where did the prosperity come from, and who did it go to?

As noted above, wage growth from the 1940s to the early 1970s almost exclusively benefited the "90%" bucket of American workers. In other words, this is how the great American middle class was born. And, as both charts above and below shows, ever since the 1980s, the only group that has benefited from the increase in US labor productivity in the form of skyrocketing income growth, is the "1%."

We don't know what may have caused this dramatic divergence in the 1970s... but we have a good idea, one which we showed three months ago.

In retrospect, we find it so very ironic that gold is allegedly (if one listens to the media of course) one of the most hated substances among "respected" economists, and yet it is the destruction of the gold standard that enabled the serf-ization of US society, which has culminated with a record class disparity between the rich and poor unseen at any one time in human history, surpassing the Gilded Age, and going all the way back to the French revolution.

Our Social Depression

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

This erosion of opportunities to complete life's stages and core dramas is rarely recognized, much less addressed.

The consequences of economic stagnation are not limited to finance: stagnation is causing a social depression. We can best understand this social depression by examining how the natural stages of human life are being disrupted.

Confucian thought views life as a developmental process with seven stages, each roughly corresponding to a decade: childhood, young adulthood (16-30), age of independence (30-39), age of mental independence (40-49), age of spiritual maturity (50-59), age of acceptance (60-69), and age of unification (70 - end of life).

Each stage has various tasks, goals and duties, which establish the foundation for the next stage.

I see each stage as centered on a core human drama: for the teenager, establishing an identity and life that is independent of parents; for the young adult, finding a mate and establishing a career; for the middle-aged, navigating the challenges of raising children and establishing some measure of financial security; for those in late middle-age, helping offspring reach independent adulthood and caring for aging parents; early old age, seeking fulfillment now that life's primary duties have been accomplished and managing one's health; and old age, the passage of accepting mortality and the loss of vitality.

The End of Secure Work and the diminishing returns of financialization are disrupting these core human dramas and frustrating those who are unable to proceed to the next stage of life:

1. Teenagers are being pressured to focus their lives on achieving a conventional financial success (see "Training for Discontent" in From Left Field) that is becoming harder to achieve.


2. Young adults without secure full-time careers cannot afford marriage or children, so they extend the self-absorption of late adolescence into middle age.


3. The middle-aged are finding financial security elusive or out of reach as they struggle to fund their young adult children, aging parents and their own retirement.


4. Increasing longevity is pressuring the late-middle-aged's stage of fulfillment, as elderly parents may require care even as their children reach their own retirement (65-70).

The financial pressures generated by the demise of financialization and the End of Secure Work are not just disrupting each stage; they are disrupting essential financial balances between the young, the middle-aged and the old.

The elderly, protected by generous social welfare benefits paid by current taxpayers, also benefit from the soaring value of assets such as real estate and stocks. Meanwhile, financialization's asset bubbles have pushed housing beyond the reach of most young people.

Downsizing, lay-offs, low-paying replacement work and poor decisions to buy houses near the peak of the prior bubble have left many of the middle-aged with high fixed costs and a stagnant or increasingly insecure income.

The stresses of trying to make enough money to afford what was once assumed to be a birthright--a "middle class" lifestyle--is taking a heavy toll on the mental and physical health of the middle-aged, leaving many of them too tired for any fulfilling activities and easy prey for destructive self-medication.

This erosion of opportunities to complete life's stages and core dramas is rarely recognized, much less addressed. We are constantly bombarded with messages to innovate, keep up, be fulfilled, etc.--essentially impossible demands for those with multiple generational and/or business duties.

When I talk about the Mobile Creative class, I'm not talking about a finance-centric definition of success or a path to join the top 5% in Corporate America and the government. The herd is chasing those dwindling slots, too, guaranteeing frustration and failure for the 95% who won't secure one of those slots. That is the essence of our social depression.

What we're discussing is a way of living that places a premium on independent thinking, maintaining very low fixed costs, establishing a healthy honesty with oneself and one's associates and customers, the ability to make realistic assessments of oneself, one's successes, failures and errors, and a focus on challenges, opportunities, risks, adaptability, flexibility and experimentation, all with a goal of building one's own human, social and physical capital--the foundations not just of well-being but of any meaningful measure of wealth.

China Bails Out Brazil In $50 Billion Regional Power Grab

In early April, we asked if the $3.5 billion in financing the Chinese Development Bank provided to heavily indebted Petrobras was indicative of how China intends to invest once the Beijing-led Asian Infrastructure Investment Bank is officially up and running. We also noted how interesting (and ironic given how we’ve characterized the AIIB), it is that Beijing is investing in Washington’s backyard, effectively slighting the original Monroe Doctrine even as China tacitly implements its own take on an official policy of regional influence and control. 

Three weeks later, we documented Xi Jinping’s historic trip to Pakistan where the Chinese President pledged to invest $46 billion in a variety of infrastructure projects including the long-delayed Iran-Pakistan natural gas pipeline as part of Beijing’s ambitious (to say the list) Silk Road initiative. As a reminder, the $46 billion is 53% more than the US has invested in Pakistan in 13 years and six times as much as what Washington promised under a recent program which the New York Times called a “dramatic failure.” 

It’s against this backdrop that Chinese Premier Li Keqiang is touring Brazil, Colombia, Peru and Chile, and as Bloomberg notes, “China’s interest in Latin American isn’t just about oil and agriculture anymore.” It sure isn’t, because in a set of agreements worth as much as $54 billion, Beijing has just effectively bailed out AIIB member Brazil, further entrenching China into the economic and political future of Latin America in the process. 

Via Reuters:

Chinese Premier Li Keqiang came to the rescue of Brazil's slumping economy on Tuesday with trade, finance and investment deals worth tens of billions of dollars in energy, mining, aviation and the upgrade of dilapidated infrastructure.


On his first official trip to Latin America, Li saw a raft of agreements signed, ranging from a $1 billion purchase of passenger jets made by Brazil's Embraer to the lifting of an import ban on Brazilian beef and a long-discussed plan to build a railroad over the Andes to the Pacific.


"A new road to Asia will open for Brasil, reducing distances and costs, a road that will take us directly to the ports of Peru and, across the Pacific Ocean, China," President Dilma Rousseff said, inviting Chinese companies to build it. Brazil and China agreed to study the feasibility of the rail link that would allow Brazilian exports to avoid the Panama Canal.


Li put the value of Tuesday's agreements at $27 billion, while Rousseff said they totaled $53 billion, a ballpark figure that aides said included past and future funding.


The injection of capital from China could not come at a better time for Brazil, which is sliding into recession following the end of a commodity boom last decade that was fueled by voracious Chinese demand for its main exports, iron ore and soybeans…


The two leaders announced that the Industrial and Commercial Bank of China Ltd (ICBC), the world's largest bank by assets, will set up a $50 billion fund with Caixa Econômica Federal, Brazil's largest mortgage lender, to invest in infrastructure projects in the South American country.


The fund was another sign of China flexing its financial might in Latin America, a region that used to be dominated by the United States but where China lent more than the World Bank and the Inter-American Development Bank combined last year.

Here’s more from The Latin Times on the massive cross-mountain rail undertaking:

Peru, Brazil and China are moving forward on a transcontinental railway that will cut across the Andes and connect port cities in the Pacific and Atlantic coasts of South America. The agreement was announced during a four-country Latin American tour by Chinese Premier Li Keqiang. The mega rail project will cost an estimated $10 billion dollars. Technical studies are now underway and specific timelines are expected to be revealed in the coming months. The railway is expected to reduce the cost of exporting agricultural goods from Brazil to China, and bring new business to Peruvian ports.


Brazilian grain is a top item on China’s wish list, as are iron and other raw minerals. Agricultural goods like corn and soy currently leave Brazil by boat heading south down the Atlantic coast, rounding the southern tip of Argentina, and heading back up the Pacific coast on it’s way to China. An overland route would shave off a few days from the trip, and lower transport costs by an estimated $30 per ton. That might not seem like much for a $10 billion dollar project, but Brazil exports millions of tons of grain to China each year.

And a bit more color from FT:

International rail contracts are a political priority for Beijing, which sees exports as a solution to China’s burdensome overcapacity in steel, rail, construction and engineering services as the economy slows. Chinese-built rail projects have been proposed for Thailand, Indonesia and central Asia.


A rail programme fits Beijing’s preference for government-to-government infrastructure deals that can be allocated to state-owned companies, which remain wary of complex Latin American tax and labour laws. China engineered a merger in its two state-owned rail companies late last year to prevent them from undercutting each other in international tenders.


The concept of a trans-Andes rail link is ambitious, with cost estimates ranging from $4.5bn to $10bn for a northern link through the Amazon. That route is almost certain to face opposition from environmental and indigenous rights groups as it would cross primary forests. A longer alternative through Peru’s southern deserts would have to include Bolivia but would justify large port investments in the south of Peru.


Via Folha

As is abundantly clear from the above, China is very serious about taking an opportunistic approach when it comes to expanding China's influence in regions Beijing views as strategic. In Pakistan, China has an interest not only in bridging trade routes, but in facilitating the flow of Iranian gas and combating the spread of extremism along its western border. Now, Beijing is set to seize upon the commodities bust and invest in Latin America while conditions are ripe in order to both facilitate trade (China needs to do anything it can to combat decelerating economic growth) and cement Beijing's regional power grab in what is supposed to be Washington's strongest sphere of influence. 

The US' waning influence is now on full display in its own backyard.

*  *  *

Press release and full list of new agreements between China and Brazil (note the underlined projects):

Steeped in close coordination and fluid that marks relations between China and Brazil. Thus it can be defined the visit of Prime Minister of China,  Li Keqiang, to Brazil, when he signed with President Dilma Rousseff a Joint Action Plan between the two countries in the period 2015-2021. 

During the visit of the Chinese delegation, on Tuesday (19), have signed a total of 35 agreements covering infrastructure segments, manufacturing, trade, strategic planning, infrastructure, transport, agriculture, energy, mining, science and technology, trade, among others. Also, joint statements on the results of the Prime Minister's visit and climate change were held.

"The Joint Action Plan 2015-2021, which I signed with the Prime Minister inaugurates a higher stage in our relationship. It is expressed in the various agreements in multiple government and business agreements signed today, especially in the areas of investment and trade " said President Dilma Rousseff...

Brazil and China have important bilateral investment flows. Trade between the two countries reached US $ 77.9 billion in 2014, with Brazilian surplus of $ 3.3 billion. On the Brazilian side, the highlights are the aviation, banking, machinery, auto parts and agribusiness. It has been noted, too, diversification of Chinese investment in Brazil for energy, electronics, automotive and banking.

According to José Alfredo Graça Lima, political undersecretary-general of the Foreign Ministry, "bilateral relations between Brazil and China point to a new type of cooperation between the two countries, with much more focus on investments in increasing production capacity, with Chinese contribution in technology for different areas. "

35 agreements signed between the Brazilian and Chinese governments on Tuesday (19):


  • Joint action plan between the Government of the Federative Republic of Brazil and the Government of the PRC (2015 - 2021)
  • Memorandum of Understanding for implementation of projects to promote investment and creation of business opportunities between the two countries.


  • Memorandum of Understanding on remote sensing, telecommunications and information technology
  • Collaboration agreement for funding and Project Free Wifi 4G operation
  • Agreement between Vivo and Huawei on the Tech City Project to expand the coverage and signal in the downtown area of ??Rio de Janeiro and Porto Maravilha region
  • Agreement on joint center of innovation in the mobile area
  • Memorandum of understanding on strategic cooperation fixed and mobile solutions


  • Framework Agreement for the development of investment and cooperation in capacity area and the early harvest program of investments and cooperation in capacity area between Brazil and China


  • Memorandum of Understanding on feasibility studies for the Transcontinental Railway Project
  • Framework Agreement on financing the purchase of 40 Embraer aircraft
  • Operating lease financing agreement for the Blue Airlines


  • Additional Protocol on research and joint production of satellite earth resources China-Brazil (CBERS) 04a
  • Scientific cooperation agreement
  • Memorandum of Understanding on providing training in information technology to scholars of Science Without Borders program


  • Health and quarantine protocol requirement on the export of beef from Brazil to China
  • Cooperation agreement on animal health and quarantine
  • Framework Agreement for trilateral cooperation between the government of Mato Grosso do Sul state, the China Development Bank and the China BBCA group on corn and soybean processing


  • Memorandum of Understanding for cooperation in the sport of table tennis and badminton modalities


  • Memorandum of Understanding on cooperation in the nuclear technology field
  • Conclusion of agreement EDPR shares transfer to the Three Gorges Group on wind power project
  • Memorandum of Understanding on cooperation in promoting trade and investment for the construction of photovoltaic solar panels


  • Framework Agreement for cooperation for the Petrobras project financing worth US $ 5 billion
  • Framework Agreement for cooperation for the Petrobras project financing worth US $ 2 billion
  • Cooperation Agreement for the creation of long-term relationship


  • Memorandum of global financial cooperation between the Valley and ICBC to offer financial services worth $ 4 billion
  • Contract of purchase and sale of Banco BBM SA shares by the China Communications Bank
  • Cooperation agreement for preferential partnerships and access to the Brazilian capital market


  • Charter agreement between Vale and Cosco
  • Memorandum of Understanding aiming at the creation of the Polo Car of Jacarei / SP
  • Cooperation Agreement for the steel complex facility in Maranhao
  • Financing memorandum about purchasing project of 14 tonnage of iron ore ships of 400 000 tonnes
  • Financing memorandum about purchasing project of 10 tonnage of iron ore ships of 400 000 tonnes
  • Memorandum of Understanding for the acquisition of four ships of Class large ore carriers
  • Framework Agreement between China Merchants Shipping and Vale for shipping iron ore


  • Memorandum of Understanding for private partnership with a view to preparing project within the Amazon integration program to renew and expand the current Amazon Protection System (SIPAM)

The Illusion Of Democracy

Distract, deny, democracy...


Source: Jesse

Which reminded us of this perennial note...

The past several weeks have made one thing crystal-clear: Our country faces unmitigated disaster if the Other Side wins.

No reasonably intelligent person can deny this. All you have to do is look at the way the Other Side has been running its campaign. Instead of focusing on the big issues that are important to the American People, it has fired a relentlessly negative barrage of distortions, misrepresentations, and flat-out lies.

Just look at the Other Side’s latest commercial, which take a perfectly reasonable statement by the candidate for My Side completely out of context to make it seem as if he is saying something nefarious. This just shows you how desperate the Other Side is and how willing it is to mislead the American People.

The Other Side also has been hammering away at My Side to release certain documents that have nothing to do with anything, and making all sorts of outrageous accusations about what might be in them. Meanwhile, the Other Side has stonewalled perfectly reasonable requests to release its own documents that would expose some very embarrassing details if anybody ever found out what was in them. This just shows you what a bunch of hypocrites they are.

Naturally, the media won’t report any of this. Major newspapers and cable networks jump all over anything they think will make My Side look bad. Yet they completely ignore critically important and incredibly relevant information that would be devastating to the Other Side if it could ever be verified.

I will admit the candidates for My Side do make occasional blunders. These usually happen at the end of exhausting 19-hour days and are perfectly understandable. Our leaders are only human, after all. Nevertheless, the Other Side inevitably makes a big fat deal out of these trivial gaffes, while completely ignoring its own candidates’ incredibly thoughtless and stupid remarks – remarks that reveal the Other Side’s true nature, which is genuinely frightening.

My Side has produced a visionary program that will get the economy moving, put the American People back to work, strengthen national security, return fiscal integrity to Washington, and restore our standing in the international community. What does the Other Side have to offer? Nothing but the same old disproven, discredited policies that got us into our current mess in the first place.

Don’t take my word for it, though. I recently read about an analysis by an independent, nonpartisan organization that supports My Side. It proves beyond the shadow of a doubt that everything I have been saying about the Other Side was true all along. Of course, the Other Side refuses to acknowledge any of this. It is too busy cranking out so-called studies by so-called experts who are actually  nothing but partisan hacks. This just shows you that the Other Side lives in its own little echo chamber and refuses to listen to anyone who has not already drunk its Kool-Aid.

Let’s face it: The Other Side is held hostage by a radical, failed ideology. I have been doing some research on the Internet, and I have learned this ideology was developed by a very obscure but nonetheless profoundly influential writer with a strange-sounding name who enjoyed brief celebrity several decades ago. If you look carefully, you can trace nearly all the Other Side’s policies for the past half-century back to the writings of this one person.

To be sure, the Other Side also has been influenced by its powerful supporters. These include a reclusive billionaire who has funded a number of organizations far outside the political mainstream; several politicians who have said outrageous things over the years; and an alarmingly large number of completely clueless ordinary Americans who are being used as tools and don’t even know it.

These people are really pathetic, too. The other day I saw a YouTube video in which My Side sent an investigator and a cameraman to a rally being held by the Other Side, where the investigator proceeded to ask some real zingers. It was hilarious! First off, the people at the rally wore T-shirts with all kinds of lame messages that they actually thought were really clever. Plus, many of the people who were interviewed were overweight, sweaty, flushed, and generally not very attractive. But what was really funny was how stupid they were. There is no way anyone could watch that video and not come away convinced the people on My Side are smarter, and that My Side is therefore right about everything.

Besides, it’s clear that the people on the Other Side are driven by mindless anger – unlike My Side, which is filled with passionate idealism and righteous indignation. That indignation, I hasten to add, is entirely justified. I have read several articles in publications that support My Side that expose what a truly dangerous group the Other Side is, and how thoroughly committed it is to imposing its radical, failed agenda on the rest of us.

That is why I believe [2016] is, without a doubt, the defining election of our lifetime. The difference between My Side and the Other Side could not be greater. That is why it absolutely must win [in 2016].

The Student Loan Write-offs Have Begun: 78,000 Students File For Debt Discharge After Corinthian Closures

When Corinthian Colleges abruptly shuttered its remaining campuses late last month we asked if for-profit colleges will be the next multi-billion dollar taxpayer-sponsored bailout. That may have seemed like a bit of hyperbole on our part but in fact it was not, because as we explained then, students left out in the cold by Corinthian owed some $200 million in federal student loans and when the government forces an institution to close its doors (which is effectively what happened with Corinthian), students can apply to have their debt discharged. 

Because Corinthian is a for-profit institution, students won’t have a particularly easy time transferring their credits (meaning they would have to start over at another school if they wanted to complete their degrees), we said that more likely than not, the government (i.e. taxpayers) would end up eating the cost of forgiving their debt. 

Fast forward three weeks and sure enough, the government is scrambling to figure out what to do after Secretary of Education Arne Duncan received a group request from 78,000 students requesting loan forgiveness. 

Via Reuters:

The bankruptcy of Corinthian Colleges Inc, one of the biggest for-profit college chains, has set off a scramble to find a way to wipe away billions of dollars of student loans for those who attended its campuses.


More than 50 consumer and labor organizations sent a joint petition on Tuesday to U.S. Secretary of Education Arne Duncan, urging him to cancel federal student loans owed by 78,000 who attended Corinthian schools.


The groups, including the National Consumer Law Center, said the Department of Education had the authority because Corinthian misrepresented its job placement rates and defrauded students by enrolling them in high-cost, low-quality classes.


Corinthian settled allegations about misrepresenting job placements with the California attorney general in 2007.


NCLC lawyer Robyn Smith said there was no precedent for the department to cancel student debt in the way the groups were urging.


"Unfortunately, they haven't used this authority before," she said.


The Department of Education said it had not decided how any debt relief would work.

Well Department of Education, allow us to tell you how the debt “relief” will work. You will end up being forced to write it off because you closed down the school.

And while your decision to shutter the college was likely the right move given the for-profit industry’s reputation for absurdly predatory recruiting practices, you have no one to blame but yourself for allowing these institutions to live off of billions in federal loans for years (while their CEOs pulled in millions in compensation), when you likely knew that in the end, they would have to be closed down once Congress got wind of how they went about luring students. 

The real question now is whether continued pressure on for-profit colleges will result in further closures and more petitions from hundreds of thousands of students with tens of billions of loans they now know can be legally discharged. Note that we have not used the term "canceled", because as we like to remind readers, liabilities are never "canceled", they are simply written off by the person for whom they are an asset.

Finally, it's worth noting that nearly every student displaced by a for-profit closure will have student loans because when tuition is double that charged by public institutions, taking out loans is the only option for 88% of attendees. In other words, when the government finally goes all-in on its for-profit crackdown, not only will every student have debt, but the outstanding amount will be about 36% larger than that carried by graduates of public schools. 

So yes, this could indeed wind up being a multi-billion dollar taxpayer sponsored bailout, and the first $200 million writedown is just around the corner.

The Fed Has Created A "Clockwork Orange" Market

Via Scotiabank's Guy Haselmann,

As an 18-year old college freshman taking ‘Pysch 101’, I watched the highly-disturbing Stanley Kubrick film-version of A Clockwork Orange.  The story takes place in a dystopian futuristic London and exposes the extreme battle of good versus evil.


After the sociopathic and violent gang leader Alex was captured, the government decided to deploy a modern behavioral modification method to reform him.  This experimental treatment was  highly-controversial.


The government’s idea was to use the cruelest members of society to control everyone else.  While well intentioned, the unintended consequences were poorly understood.

Extracting out the violence, I can’t help but notice the symbolic similarities of the motif-ridden story with the 2008 financial market fallout and subsequent attempts at economic rehabilitation.  Leading up to 2008, unsavory behavior of both borrowers and lenders conspired with lax rules to provide the conditions for the crisis to manifest.  Today, there are daily articles about how restrictive regulations are stifling banks and market-makers and causing a deleterious impact on market liquidity.  The intention of regulators is to deter risk taking in the banking system with the goal of preventing a similar banking-style crisis from ever re-occurring.

The film forces the viewer to weight the values and danger of both individual liberty and state control.  It forces us to consider how much liberty we are willing to give up for order, and how much order we are willing to give up for liberty.  The central idea of the film has to do with the freedom of the individual to make free choices, but free choice becomes problematic when it undermines the safety and stability of society. It reminds me of the markets price discovery mechanisms (or lack thereof).

Bond rates and stocks are in the midst of the greatest detachment of prices from economic reality in history.  Even during the Great Depression of the 1930’s, when unemployment was 25% and there was confirmed deflation, the US 10-year rate never traded below 2.00% yield.  How then is it possible that the US 10-year note traded below 2.0% last month with the US economy near full-employment and inflation relatively stable near 1.5%?

  • The answer to the question is that price levels have become influenced by regulatory rules and central bank hoarding.  They are also a function of shifts in investor behavior to the ‘respondent conditioning’ of central bank policies that foster moral hazard and risk seeking activity.  

By promising to ‘do whatever it takes’, central banks have conditioned investors to buy the dip and over-weigh the riskiest assets.   Despite the Fed being possibly out of fire power, the ‘classical conditioning’ response remains strong.  However, it can wear off.   In the movie, Alex was actually ‘cured of the cure’; he had so much of the ‘medicine’ that it eventually became ineffective.  In the end, the experiment failed:  the state replaced Alex’s violence with its own; he was freed; and eventually the original problem resurfaced in a different form.

  • This seems analogous to the Fed trying to eradicate systemic risk in the banking system.  Yet, in the process, the Fed has fomented large asset price inflation; compromised market liquidity; and as Richard Fisher says, “the Fed is now the largest hedge fund in the world”. 

Prior to being ‘cured of the cure’, side-effects materialized or became counter-productive to the process (as they were in experiments by B.F. Skinner or Ivan Pavlov).  For global central banks, the long term problems of financial repression are clear. Any policy that punishes savers and frugality, and rewards borrowers and profligacy is not prudent in the long-run.  Moral hazard and reduced investor discipline results from debt monetization.  It also reduces incentives for politicians to control public finances.

Any process that is unsustainable will eventually end.  Ever-growing reliability on debt-driven consumption and increases in levels of entitlements in order to drive economic growth, boost living standards, or manage inequality concerns, is untenable and a ruinous direction.  Even Keynes said that a government should borrow money to close the GDP gap and get the economy back on track, but once it is back on track, the borrowed money should be paid back.  Seven years into this crisis, the level of debt in major economies has increased.

There is no “free lunch”.  At some point the underlying issues will have to be addressed with the correct policy tools.  The end to political polarization in Washington may require a financial crisis.  QE4 will never happen as it would compromise the Fed’s independence, so the next financial burden will require a congressional response.

Regardless, at this point, Fed policies and its $4.5 trillion balance sheet have reached their practical limit and may have even become a source of systemic risk and market uncertainty.  In this light, it is time to pull back.  I suspect the Fed will hike rates no later than the July FOMC meeting.

“What is it going to be then, eh? – Anthony Burgess, A Clockwork Orange

If Your Doctor Drives The Following Cars, He Is Probably A Criminal

If your doctor drives any, and certainly all of the cars listed below, there is a virtually 100% certainty said doctor is a criminal...

... just like the above noted "Doctor" Xiulu Ruan, M.D., who is a doctor only by title: his real descrption is "legal" drug dealer, one who provides pain medication to drug addicted junkies for a (high) fee, and who is a favorite brand ambassador of such "legal' drug makers as Insys Therapeutics, maker of the Subsys 400 microgram Fentanyl anti-pain spray.

"Dr." Ruan, together with his business partner John Patrick Couch, M.D, were arrested earlier today on drug and fraud charges (full indictment pdf here) as part of an FBI and DEA raid of Physicians' Pain Specialists of Alabama Pain Center on Springhill Avenue and Airport Boulevard in Mobile. The practice, together with the adjacent pharmacy, C&R Pharmacy, was all part of a wildly profitably pain drug distribution ring.

The cars listed above, and which have now been confiscated by the state of Alabama, are what Ruan purchased with the spoils of fraudulently selling pain drugs to starved junkies, all under legal pretenses (the Pain Specialists website notes that on 4/18/2013, "Xiulu Ruan, MD, a fellowship trained physician, has broken his own world record of having 7 medical board/subspecialty board certifications."), and then padding his reimbursement demands from benefits programs.

Turns out Ruan's 7 'record' certifications were not enough and now he is assured of spending lenghty time in prison.


According to the charging document, Ruan and Couch, "conspired with each other and with others... to knowingly, willfully, and unlawfully distribute and dispense, and cause to be distributed and dispensed, Schedule II controlled substances including but not limited to: Oxycodone, Oxymorphone, Hydromorphone, Morphine, Fenantul, and Methadone, outside the usual course of professional practice and not for a legitimate medial purpose."

But for a perfectly legitimate business purpose: to make "tons of money", by first getting patients hooked to pain medications, and then stuffing them full of near lethal doses of said drugs, all of which the "doctors" would then get reimbursement for, while making both themselves and the manufacturing company millions of dollars:

According to the Grand Jury charge, "the objective of the conspiracy was to unlawfully increase the amount of reimbursement received from healthcare benefits programs."

But that's just the tip of the iceberg.

The real crime in question lies not so much with "doctors" Ruan and Couch who were merely low-level drug distributors, but with drug manufacturing and wholesale companies, particularly such as the abovementioned Insys makes of Subsys, which is the topic of a recent investigative piece by the Boyd Roddy of the Southern Investigative Reporting Foundation titled "Insys Therapeutics and The New “Killing It."

This is what Roddy had to say about INSY, a $2 billion market cap company, whose story provides a good glimpse into just how biotech companies have shortcutted their way to blockbuster stardom in the last few years:

Insys Therapeutics is doing pretty darn well. The company has had a remarkable level of financial success and its soaring stock price has made it a darling on Wall Street.


But that level of growth ought to warrant a raised eyebrow; going to over $222 million sales from about $15.5 million in just two years without inventing something like a better search engine is no mean feat. Fentanyl, after all, has been around for many years and while Subsys is the only spray version available, several of Insys’s competitors are well-established and better capitalized, with sales forces that reach all 50 states.


While details on the particulars of the breakthrough pain medication market are hard to find, or at least details that aren't self-serving management estimates, veteran sales staff from Insys and other pharmaceutical companies put its growth prospects at roughly 10% a year. If that's true, and the company is selling to oncologists then growth possibilities for Insys should be a function of that plus whatever they can take away from its larger competitors. Many companies would be happy for those odds.


But Insys grew north of 100%, implying that whatever organic growth they are getting is being aided by a whole lot of doctors who have grown profoundly fond of an expensive drug that brings an acre of governmental red-tape with it and that one of the largest pharmacy benefit managers will no longer touch.


The question then becomes "How?" and "Why?"


A SIRF investigation into Insys reveals that this growth has come at a remarkable price: Food and Drug Administration data shows that Subsys is proving lethal to a growing number of patients, many of whom, like Carolyn Markland, are taking it for so-called off-label indications, such as headaches and back pain.

For more answers of what really takes place every day in the corrupt underbelly of America's healthcare industry, the linked 4,100-word piece is a must read for anyone with even a passing interest in not only said industry, but for a spoiler alert, one need to only look at this table of the highest reimbursed doctors doctors for the 2013-2014 period under TRICARE, the U.S. military’s primary health insurance plan, one which represents 9.5 million people or 3% of the US population.


So, here's to you, Doctor Charlatan Xiulu Ruan: we hope prescribing millions in overpriced, potentially deadly pain medication to US army vets was worth it, and that the 13 sports cars you purchased on their hurting backs will either keep you warm at night, and keeps Bubba away during those long nights at the Talladega Federal Correctional Institution.

Source: US Indictment against John Patrick Couch and Xiulu Ruan

Ray Dalio Slams Buffett For Being "Wrong On Gold", Says "Social Disruption" Is Inevitable

Given the recent resurgence of precious metals and the looming 'endgame' of Federal Reserve faith, we thought dusting off the following 160 seconds of uncomfortable truth from Bridgewater's Ray Dalio was worthwhile...

"we're beyond the point of being able to successfully manage this... and I worry about another leg down in the economy causing social disruption... Hitler came to power in 1933 because of the social tension between the factions."


"Gold should be a part of everybody's portfolio to some degree because... it is the alternative money.


Warren Buffett is making a big mistake."

Dalio explains...

WalMart's Leaked Anti-Union Training Video

Last month, we asked: “Why Is WalMart Mysteriously Shuttering Stores Nationwide For Plumbing Issues?” The story, which has since gone viral, goes like this. WalMart inexplicably closed five geographically distinct locations across the US, citing persistent plumbing issues. These pesky “clogs and leaks” are apparently so endemic at the shuttered stores that they will need to remain closed for at least six months. 

Needless to say, the 2,200 or so employees whose jobs ‘went down the drain’ so to speak were skeptical given that no one had seen any evidence that the plumbing was indeed bad and considering the fact that WalMart gave them virtually no notice whatsoever before closing the stores. Local media quickly picked up on the issue and discovered that no plumbing permits had been filed in any of the cities where the stores were closed and the LA Times subsequently discovered that at one location, the Pico Rivera WalMart in California, $500,000 in renovations had been completed in the previous year including plumbing repairs.

As it turns out, the Pico Rivera location isn’t just any old WalMart. In fact, as we documented in “Did WalMart Close A California Store To Punish Employees Who Protested Labor And Working Conditions?”, the store’s employees have been at the forefront of pickets, walkouts, sit-ins, protests, and various and sundry other demonstrations aimed at raising awareness about working conditions and management’s retaliatory tendencies when it comes to workers who escalate concerns. These demonstrators have enjoyed the support of The United Food and Commercial Workers International Union who last year prevailed in a Canadian Supreme Court case stemming from a 2004 incident in which the company closed a Quebec store after employees voted for representation by the union. Now, the UFCW is seeking a labor board injunction in connection with the plumbing incident. 

Now, a “New Associate Orientation” video has surfaced. In the nine minute clip (entitled “Protect Your Signature”) WalMart patiently explains to new hires why unions are bad.

Regardless of your stance on organized labor, it’s difficult to describe the video as anything other than a hilariously transparent (and poorly acted) piece of propaganda. The video is below (along with the Spanish version for our bilingual audience), but here are some highlights.

The clip begins with an attractive female associate who assures new employees that “the people in this store are a second family to me” before claiming that “there’s no retailer who offers more job security than WalMart” (until the ‘plumbing’ breaks that is).

Fast forward to the 3:00 mark and a friendly-looking male associate tells you that despite any misgivings you may be having about what was invariably a necessity-driven decision to work at WalMart, “you made a great choice and the company is glad you’re here.” 

The associate then issues a dire warning: But the reality is, you’re not the only one looking to get your foot in the door. Labor unions are really interested in WalMart.” 

What follows are five straight minutes of brazen anti-union rhetoric including the following highly amusing soundbites:

From the male associate:

“Our company is the first to have open and direct communication with our associates.” 

“We don’t think a labor union is necessary here and because our associates have said time after time that they don’t want a union, we usually don’t spend a lot of time talking about it.”

From a second female associate:

“I don’t get it, how would it make any sense for our associates to join a union that wants to damage our reputation?”


“The truth is, unions are businesses that make their money by convincing people like you and me to give them a part of our paychecks.”

“At WalMart, employees are used to having their voice heard — for free.” 

From a supposedly semi-retired part-time associate who apparently works in the stock room:

“Believe me, joining a union isn’t something I EVER want to do again.”

Then it’s back to the first associate who talks with union members "all the time":

“Union members shop at our stores. I talk to them all the time and I hear them complain about their jobs.”

And summing things up is associate number two again who doesn’t understand why, with “all he’s got at WalMart” he would ever want organized labor:

“With everything I’ve got here, I’m not willing to trade it for a union.”

Without further ado we present "Protect Your Signature", a WalMart production:


Our "Junkie Economy" Will Soon Hit Rock Bottom

Submitted by Bill Bonner via Bonner & Partners,

Addicted to Debt

Yesterday, U.S. stocks continued their climb, with a 26-point step-up to yet another all-time high for the Dow. Treasurys, meanwhile, continued to sell off. The yield on the 10-year T-note – which moves in the opposite direction to prices – rose 8 basis points to 2.2%. This follows last week’s turbulent action in the bond market, which saw Treasury yields hit a six-month high.

We have our eye on the U.S. bond market. Prices have been going up – and yields have been going down – for 32 years. And as prices have risen to the highest levels ever recorded, so has the amount of debt.

It is as though the world couldn’t get enough of the stuff. It got to be like heroin: The more debt the world took on, the more it wanted… and the bigger the dose it needed to get a buzz on.

But after the 2008 credit crisis, it is as though the major developed economies are immune to the stuff.

The Fed, the Bank of England, the Bank of Japan, and now the European Central Bank, have been buying it on the street corners. In the largest quantities ever.

But nothing much happens. At least, not in the real economy.

Sooner or later (a phrase we can’t seem to avoid), the entire economy is bound to get the shakes.

But we don’t know when sooner, or later, will come.

If it comes now, it will be a source of great satisfaction here at the Diary. “Finally,” we will say to no one in particular. “We knew it couldn’t last!”

A Healthy End to the Bond Bull?

There is an alternative explanation for falling bond prices. Bond prices should fall, and yields should rise, when economic growth picks up. As economic growth rates speed up, wages tend to rise… and people open up their wallets. Demand starts to outstrip the supply of goods and services. This drives up consumer prices. And interest rates start to rise. As rates go up, that raises bond yields and drives down bond prices.

This would be a healthy end to the epic bull market in bonds. A robust economy would allow central banks to raise rates and still allow debts to be paid down.

But that is not what is happening. And it won’t happen. Junkies rarely go out and get a job... and gradually “taper off” their habit. No. They have to crash... hit bottom... and sink into such misery that they have no choice but to go cold turkey.

Now, major central banks are committed to QE and ZIRP forever. They have created an economy that is addicted to EZ money. It will have to be smashed to smithereens before the feds change their policies.

An Impotent Fed

As colleague Chris Hunter reported yesterday to paid-up Bonner & Partners subscribers in The B&P Briefing:

In April, industrial production fell for the fifth straight month. And in May, consumer sentiment fell to a seven-month low.


And now GDP growth is flat-lining… Following the 0.1% annualized growth rate in the first quarter, the Atlanta Fed’s “real-time” GDPNow forecasting model is predicting 0.7% growth for the second quarter.


The U.S. economy may not be in an official recession – often measured by two back-to-back quarters of negative GDP growth – but it’s not far off…

Oh, but what about the big boost the economy was supposed to get from lower oil prices? What happened to that? Didn’t happen. Americans didn’t spend their gasoline savings; they saved them instead.

After adjusting for inflation, the median household income is down 10% since 2000. So it’s no wonder most Americans aren’t feeling very expansive.

And now, the price of oil is going back up. After hitting a low of $44 in March, today a barrel of U.S. crude oil sells for just under $59.

That leaves the Fed’s “stimulus” just as impotent as it has been for the last six years.

Interest rates remain ultra low. But the real economy remains as flat and dull as a joint session of Congress.

And the markets shudder...

"One Of These Things Is Not Like The Other"

It is very rare to see Dow Industrials hitting new highs as Dow Transports prints new range lows... one of them is wrong here...


h/t Brad Wishak


As Dana Lyons recently noted,

...while not all divergences mark tops, many tops are marked by divergences. So it has been the case with this version. Several major intermediate-term or cyclical tops saw this negative divergence among the Transports, including 1937, 1946, 1961, 1973, 1981, 1998, 2000 and 2007.


Currently the DJIA is at a 52-week high while the Transports are well off of their own high. But while Dow Theorists may have you running for the hills, the historical track record following similar divergences is less than ominous. That said, on the occasions when this divergence did have teeth, it bit portfolios hard.

  *  *

What Is The Future For Saudi Aramco?

Submitted by Gaurav Agnihotri via,

In a move that could shake up the dynamics of the global oil and gas industry, the desert Kingdom is restructuring its national oil company, Saudi Aramco.

With revenues of more than $1 billion per day, Saudi Aramco is easily the largest energy company in the world in terms of both production and company value. According to reports from Saudi Arabia’s Al Arabiya News Channel, the Saudi King is separating Saudi Aramco from the country’s powerful Oil Ministry. The restructuring plan, which was proposed by the King’s son, Deputy Crown Prince Mohammad Bin Salman, includes the creation of a Supreme Council of Saudi Aramco. The Deputy Crown Prince will head up the Supreme Council.

Why Restructure Saudi Aramco?

As the biggest global exporter of petroleum liquids, Saudi Arabia is considered by many as the undisputed king of oil and gas, as it possesses nearly 16 % of the world’s proven oil reserves. But it has a competitiveness problem, with the company’s operations often used to pursue political objectives. In 2014, Sadad Al Husseini, a former top executive at Aramco, said, “Aramco produces almost 9.5 million barrels a day, and if it needs to replace these reserves it needs to add almost 35 billion barrels of new reserves every 10 years. That's a very large challenge."

One of the biggest reasons for Aramco’s restructuring would be to become a more commercially-driven organization, whose aim is to maximize its financial value and compete directly with big oil firms on a global level. The separation from the Oil Ministry could reduce political meddling and provide more leeway for the company to make commercial decisions. Also, the restructuring of its oil ministry would signify a generational shift and create a new vision for how the government develops its future energy and economic strategies.

What Are The Consequences Of This Restructuring?

The restructuring of Aramco could change global oil and gas dynamics. The biggest energy company in the world may become even more aggressive in its oil exploration spending. According to Saudi Aramco’s 2014 annual report, “[t]he bulk of this spending (exploration and production) will be in our upstream activities to ensure we maintain adequate spare crude oil production capacity to help stabilize the world oil market whenever disruptions occur.”

By moving away from its oil ministry, Aramco will have the operational flexibility to pursue growth along commercial lines. Saudi Arabia is already producing 10.3 million barrels a day. If Saudi Aramco succeeds in increasing its production levels, it could exacerbate the glut in global supplies and push down prices. Aramco had earlier embarked on a $10 billion investment plan that prioritized the development of domestic shale gas resources. The company will likely pursue this more aggressively in the years ahead, using lessons learned from the US shale patch. That will allow the country to use more natural gas for domestic electricity purposes, freeing up more oil for export.

Saudi Arabia budget insulated from effects of low oil prices

Image source: EIA

Along with upstream growth, Saudi Aramco also has ambitious goals for its downstream sector. It is already the world’s sixth largest refiner. Along with its equity interests in domestic and international refineries, one of Aramco’s objectives is to become the second largest exporter of refined products after United States by 2017. The current restructuring could result in a formal division of its upstream and downstream business resulting in better financial and commercial control.

Who Stands To Gain The Most From This Move?

The service providers and international suppliers of Saudi Aramco could be the biggest beneficiaries of this restructuring as increased spending on exploration and production activities would mean more business for these players. Companies like Sembcorp Marine Limited, Keppel Corporation Limited and others could profit from the reshuffling. So far, more than 75,000 oil and gas jobs have been lost globally in 2015 due to volatile oil prices. Aramco has been one of the few companies that have actually increased their head count. One can expect the oil giant to step up its hiring process even further, especially in the E&P sector.