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On The Front Covers Of UK Newspapers Today

As Martin Daubney perhaps summarizes it best when looking at the cover pages of two of UK's most popular tabloids, today's referendum vote is being spun as one of "Project Hope" vs "Project Fear."


Here is how the rest of the UK press previews today's historic vote:

Trump's Anti-Interventionism - Neocons Hate It As Anti-War Left Comes Around

Submitted by John Walsh via,

Until recently the progressive mind has been resolutely closed and stubbornly frozen in place against all things Trump.

But cracks are appearing in the ice.  With increasing frequency over the last few months, some of the most thoughtful left and progressive figures have begun to speak favorably of aspects of Trump’s foreign policy.  Let us hear from these heretics, among them William Greider, Glen Ford, John Pilger, Jean Bricmont, Stephen F. Cohen and William Blum.  Their words are not to be construed as “endorsements,” but rather an acknowledgment of Trump’s anti-interventionist views, the impact those views are having and the alternative he poses to Hillary Clinton in the current electoral contest.

First, let’s consider the estimable William Greider, a regular contributor to The Nation and author of Secrets of the Temple.  He titled a recent article for the Nation, “Donald Trump Could be The Military Industrial Complex’s Worst Nightmare: The Republican Front Runner is Against Nation Building.  Imagine That.” 

Greider’s article is brief, and I recommend reading every precious word of it.  Here is but one quote: “Trump has, in his usual unvarnished manner, kicked open the door to an important and fundamental foreign-policy debate.”  And here is a passage from Trump’s interview with the Washington Post that Greider chooses to quote:

“’I watched as we built schools in Iraq and they’d be blown up,’ Trump told the editors.  ‘And we’d build another one and it would get blown up. And we would rebuild it three times. And yet we can’t build a school in Brooklyn.… at what point do you say hey, we have to take care of ourselves. So, you know, I know the outer world exists and I’ll be very cognizant of that but at the same time, our country is disintegrating, large sections of it, especially in the inner cities.’”

Trump talks about building infrastructure for the inner cities, especially better schools for African American children, rather than bombing people of color halfway around the world!  That is hardly racism.  And it is not how the mainstream media wants us to think of The Donald.

Next, Glen Ford, the eloquent radical Left executive editor of Black Agenda Report, a superb and widely read outlet, penned an article in March 2016, with the following title: “Trump Way to the Left of Clinton on Foreign Policy – In Fact, He’s Damn Near Anti-Empire.” Ford’s piece is well worth reading in its entirety; here are just a few quotes :

“Trump has rejected the whole gamut of U.S. imperial war rationales, from FDR straight through to the present.”


“If Trump’s tens of millions of white, so-called ‘Middle American’ followers stick by him, it will utterly shatter the prevailing assumption that the American public favors maintenance of U.S. empire by military means.”


“Trump shows no interest in ‘spreading democracy,’ like George W. Bush, or assuming a responsibility to ‘protect’ other peoples from their own governments, like Barack Obama and his political twin, Hillary Clinton.”


“It is sad beyond measure that the near-extinction of independent Black politics has placed African Americans in the most untenable position imaginable at this critical moment: in the Hillary Clinton camp.

Next, let’s turn to John Pilger, the Left wing Australian journalist and documentary film maker who has been writing about Western foreign policy with unimpeachable accuracy and wisdom since the Vietnam War era.   Here are some of his comments on Trump:

“..Donald Trump is being presented (by the mass media) as a lunatic, a fascist.  He is certainly odious; but he is also a media hate figure.  That alone should arouse our skepticism.”


“Trump’s views on migration are grotesque, but no more grotesque than those of David Cameron. It is not Trump who is the Great Deporter from the United States, but the Nobel Peace Prize winner, Barack Obama.”


“In 1947, a series of National Security Council directives described the paramount aim of American foreign policy as ‘a world substantially made over in [America’s] own image’.  The ideology was messianic Americanism. We were all Americans. Or else. …”


“Donald Trump is a symptom of this, but he is also a maverick. He says the invasion of Iraq was a crime; he doesn’t want to go to war with Russia and China. The danger to the rest of us is not Trump, but Hillary Clinton. She is no maverick. She embodies the resilience and violence of a system whose vaunted ‘exceptionalism’ is totalitarian with an occasional liberal face.

The money quote is: “The danger to the rest of us is not Trump, but Hillary Clinton.”  When Pilger submitted his article to the “progressive” magazine Truthout, this sentence was deleted, censored as he reported, along with a few of the surrounding sentences.  Such censorship had not been imposed on Pilger by Truthout ever before.  Truthout’s commitment to free speech apparently has limits in the case of The Donald versus Hillary, rather severe ones.  So one must read even the progressive press with some skepticism when it comes to Trump.

Trump has also been noticed by the Left in Europe, notably by the sharp minded Jean Bricmont, physicist and author of Humanitarian Imperialism who writes here:

(Trump) “is the first major political figure to call for ‘America First’ meaning non-interventionism.  He not only denounces the trillions of dollars spent in wars, deplores the dead and wounded American soldiers, but also speaks of the Iraqi victims of a war launched by a Republican President. He does so to a Republican public and manages to win its support. He denounces the empire of US military bases, claiming to prefer to build schools here in the United States. He wants good relations with Russia. He observes that the militarist policies pursued for decades have caused the United States to be hated throughout the world. He calls Sarkozy a criminal who should be judged for his role in Libya. Another advantage of Trump: he is detested by the neoconservatives, who are the main architects of the present disaster.”

And then there is Stephen F. Cohen, contributing editor for The Nation and Professor Emeritus of Russian History at Princeton and NYU.  Cohen makes the point that Trump, alone among the presidential candidates, has raised five urgent and fundamental questions, which all other candidates in the major parties have either scorned or more frequently ignored. The five questions all call into question the interventionist warlike stance of the US for the past 20 plus years. Cohen enumerates the questions here, thus:

“Should the United States always be the world’s leader and policeman?


“What is NATO’s proper mission today, 25 years after the end of the Soviet Union and when international terrorism is the main threat to the West?


“Why does Washington repeatedly pursue a policy of regime change, in Iraq, Libya, possibly in Ukraine, and now in Damascus, even though it always ends in “disaster”?


“Why is the United States treating Putin’s Russia as an enemy and not as a security partner?


“And should US nuclear weapons doctrine include a no-first use pledge, which it does not?”

Cohen comments in detail on these questions here. Whatever one may think of the answers Trump has provided to the five questions, there is no doubt that he alone among the presidential candidates has raised them – and that in itself is an important contribution.

At this point, I mention my own piece, which appeared late last year.  Entitled “Who is the Arch Racist, Hillary or The Donald”?  Like Cohen’s pieces, it finds merit with the Trump foreign policy in the context of posing a question.

Finally, let us turn to Bill Blum, who wrote an article entitled, “American Exceptionalism and the Election Made in Hell (Or Why I’d Vote for Trump Over Hillary).”  Again there is little doubt about the stance of Blum, who is the author of Killing Hope: U.S. Military and CIA Interventions Since World War II, a scholarly compendium, which Noam Chomsky calls “Far and away the best book on the topic.”

Blum begins his piece:

“If the American presidential election winds up with Hillary Clinton vs. Donald Trump, and my passport is confiscated, and I’m somehow FORCED to choose one or the other, or I’m PAID to do so, paid well … I would vote for Trump.”


“My main concern is foreign policy. American foreign policy is the greatest threat to world peace, prosperity, and the environment. And when it comes to foreign policy, Hillary Clinton is an unholy disaster. From Iraq and Syria to Libya and Honduras the world is a much worse place because of her; so much so that I’d call her a war criminal who should be prosecuted.”

And he concludes:

“He (Trump) calls Iraq ‘a complete disaster’, condemning not only George W. Bush but the neocons who surrounded him. ‘They lied. They said there were weapons of mass destruction and there were none. And they knew there were none. There were no weapons of mass destruction.’ He even questions the idea that ‘Bush kept us safe’, and adds that ‘Whether you like Saddam or not, he used to kill terrorists’.”


“Yes, he’s personally obnoxious. I’d have a very hard time being his friend. Who cares?”

I conclude with Blum’s words because they are most pertinent to our present situation.  The world is living through a perilous time when the likes of the neocons and Hillary Clinton could lead us into a nuclear Armageddon with their belligerence toward Russia and their militaristic confrontation with China.

The reality is that we are faced with a choice between Clinton and Trump, a choice which informs much of the above commentary.  Survival is at stake and we must consider survival first if our judgments are to be sane.

This Is What Yellen Told Congress When Asked If The Fed Is Boosting The Stock Market

Today was the second and final day of Janet Yellen's semiannual congressional testimony, after which she was said to have promptly departed to meet her colleagues in Basel, where they the world's key central bankers would meet the outcome of the Brexit vote together on the 18th floor of the BIS tower.

But first she had to slog through three hours of repetitive, redundant, and absolutely meaningless questioning.

Among the highlights was yet another bipolar shift in Yellen's demeanor who after last week's dramatically gloomy - and dovish - FOMC press conference, shifted into optimism mode and said she believes the recent weakness in job creation is "transitory" and does not reflect an otherwise growing economy.  "We are seeing a pickup in growth. There's been a sharp increase in consumer spending," Yellen told the House Financial Services Committee. "I'm very hopeful that we will see a pickup in growth. We will be watching for that as we assess the economy."

Then there was a fiery exchange with Committee Chairman Jeb Hensarling, who aggressively questioned Yellen over why the rate the Fed pays for reserves that banks store at the central bank is higher than the overnight funds rate, saying that the Fed's IOER subsidy which is above the Fed Funds rate violates a congressional statute.

HENSARLING: Today, you are paying 50 basis points on interest on excess reserves. The Fed funds rate yesterday, I believe, is 38 basis points. Is that correct? So, you're paying about a 35 percent premium on excess reserves. You're paying a premium to some of the largest banks in America, is that correct


YELLEN: Well, I consider a 12 basis point difference to be really quite small and in line with the general level of interest rates.


HENSARLING: OK. So, you believe you have the legal authority to do this, otherwise you wouldn't do it, is that correct?


YELLEN: Well, I do believe we have the legal authority to do it.


HENSARLING: Would it be legal for you to pay a 50 percent premium? You're paying a 35 percent premium today. Would it be legal to pay 100 percent premium?

And so on. Then there was the question posed by Rep. Huizenga of stress testing the Fed's $4.5 trillion balance sheet, specifically in the context of the massive duration risk which according to some estimates is about $2.5 billion DV01. To wit:

HUIZENGA: Given your belief in the value of stress testing, would you agree that it also would be appropriate to stress test the Fed's balance sheet with a $4.5 trillion portfolio, to make sure that the risk to the Fed, the treasury and the economy as a whole, if the Fed decides in the future that it's best to shrink its balance sheet faster than it's currently expected?  Do you believe that -- that the Fed is exposed with this $4.5 trillion balance sheet to considerable interest rate duration risk leading to loss of income as you unwind?


YELLEN: It is very unlikely that the Fed would end up with negative income. It is conceivable. There is a scenario in which the U.S. economy grows very strongly, and in order to avoid overheating, the Fed needs to raise short-term interest rates at a much more likely - at a much steeper pace than we consider likely to be appropriate. And in that scenario, it is conceivable that we would end up paying more for reserves than we earn on our -- in our assets. It's very unlikely.

Coming from Yellen, it means it is 100% guaranteed.

We saved the best two exchanges for last. In the first one, Rep. Andy Barr asked Yellen if she has any idea why growth has been disappointing, and if the Fed's constantly wrong growth forecasts are the reason.

BARR: In your prepared remarks, you indicated that business investment was surprisingly weak. Maybe the reason why the Fed is surprised and continued to miss on forecasts. And the Fed as the Washington journal pointed out, estimated 2.4 percent growth in December, that had fallen to 2.2 percent by March. This month, it was down to 2 percent. And it follows the Federal Reserve's consistent record of forecasting error from a standpoint of predicting stronger growth than is actually occurring.... I would like you to comment on that."


YELLEN: Well, growth has been disappointing. I'm not sure of the reason. But our forecasts of the unemployment rate and progress in the labor market have been pretty close. And we have seen a lot of job creation, firms that are doing relatively little investing are doing a lot of - are doing a lot of hiring.

And there's your reason.

However, the best, and last, Q&A was with California Rep. Edward Royce who asked whether the Fed was merely propping up stock prices.

ROYCE: I'm worried that the Federal Reserve has created a third pillar of monetary policy, that of a stable and rising stock market. And I say that because then-Chairman Bernanke, when he appeared here, stated repeatedly that, "the goal of QE was to increase asset prices like the stock market to create a wealth effect." That seems as though that was goal. It would stand to reason then that in deciding to raise rates and reduce the Fed's QE balance sheet standing at a still record $4.5 trillion, one would have to be prepared to accept the opposite result, a declining stock market and a slight deflation of the asset bubble that QE created. Yet, every time in the past three years when there has been a hint of raising rates and the stock market has declined accordingly, the Fed has cited stock market volatility as one of the reasons to stay the course and hold rates at zero. So indeed, the Fed has backed away so many times from rate normalization that - and I think this is a conceptual problem here that the market now expects stock market volatility to diminish the odds of a rate increase. So Madame Chair, is having a stable and rising stock market a third pillar or the Federal Reserve's monetary policy if I go back to what I originally heard Ben Bernanke articulate?


YELLEN: It is not a third pillar of monetary policy. We do not target the level of stock prices. That is not an appropriate thing for us to do.

What Royce, who as noted above remarked explicitly about the "asset bubble that QE created", is talking about is the nightmarish merry go round, first shown here a month ago.

As for Yellen's response, it is not even worthy of a comment.

* * *

The full 3+ hour testimony is below.

Visualizing The Dramatic Erosion Of America's Middle Class

To be sure, income inequality and the complete erosion of the middle class in America is something that we have discussed many times over the years, especially since the central planners have done nothing but accelerate the problem. While many often focus on the super rich during the income inequality discussion, a new study from the Urban Institute shows that one rung below the super rich, dubbed the "Upper Middle Class", has actually grown dramatically over the years (along with the rich) and has significantly contributed to the slow disappearance of the middle class.

To make a long story short, the report provides a stunning visualization of just how significantly the middle class has eroded from a population standpoint, as well as from an income standpoint.

First, here is how the report defines the different social classes that will be shown in the charts below.

This first chart shows that as a percentage of the total population, the Rich & Upper Middle Class combined were just 13% in 1979, while the Middle Class accounted for 38.8%. Fast forward to 2014, and the Rich & Upper Middle Class combined for 31.2% of the total population, while the middle class shrunk to just 32% of the population.

While the percentage of the Rich grew, what stands out the most is the dramatic increase in the Upper Middle Class from 1979 to 2014, and the gradual decline of the middle class.

And now the chart that everyone has been waiting for, the below shows which social class controls what percentage of the nation's total income. This is where we can see the definitive effects of income inequality coming into play, as the absolute erosion of the middle class can be seen very clearly in this chart. While the population has shifted some, the income gains have grown quite disproportionately.

In 1979, the Middle Class controlled 46.4% of the total national income, compared to the Rich & Upper Middle Class who controlled just 30%. In 2014, the Middle Class only controlled 25.8%, while the Rich & Upper Middle Class jumped to 63.1%!

This chart alone shows all we need to know regarding the income inequality discussion, and the demise of the middle class.

We'll leave you with the part of the paper's conclusion.

This study found that the proportion of the population in the upper middle class went from under 13 percent in 1979 to over 29 percent in 2014. The effect of this growth was magnified by the greater income differences between this group and the rest of the population. Although wealthier people always have a greater share of total income, this report documents a major shift in the distribution of economic resources. In 1979, the bottom three income groups controlled 70 percent of all incomes, and the upper middle class and rich controlled 30 percent. By 2014, this distribution shifted to 37 percent for the bottom three groups and 63 percent for the upper middle class and rich groups. The middle class alone saw its share of income decline from 46 percent in 1979 to 26 percent in 2014.


Any discussion of inequality that is limited to the 1 percent misses a lot of the picture because it ignores the large inequality between the growing upper middle class and the middle and lower middle classes.

China's Petro-State "Lender Of Last Resort" Conundrum

Submitted by Eugen von Bohm-Bawerk via,

It took a while to play through, but our assessment that China would increasingly become the petro-state lender of last resort is starting to come good. The primary reason for that is producer states are rapidly running out of time to prevent full scale political implosion on the back of chronic economic pressures.

For all the hype around current ‘price recovery’, it means absolutely nothing for most producer states. It’s becoming painfully obvious that the prevailing geopolitical price of survival is structurally out of sync with geological costs of production. Ten dollars here, ten dollar there; it doesn’t really matter: Either China ‘steps up or steps out’ as the lender of last resort to keep fragile petro-states in the black at this stage. You’d think that’s a relatively easy call to make, but it’s anything but for Beijing. Prop up one petro-state, and the same standard will be applied across the board. Let one fail, and political contagion risks become very real across China’s entire supply base. That defines the very core of the lender of last resort conundrum for China. Where does Beijing want to draw its petro-state lines?

The most obvious (and extreme) test case is of course Venezuela. Beyond PSUV politicking around President Maduro, referendum recalls and whether the party can stagger on to 2019 without having to hold a national ballot, the country is economically collapsing. Nobody can get access to basic goods, kidnapping rates are through the roof, both of which happen to be directly linked to the government’s clear aim to cut imports as far as possible (towards $20bn this year) to try and service external debts. Beyond government control of food lines via ‘local supply and production committees’ with some pretty blunt tactics from the National Guard and police to contain massive social unrest, it’s still nowhere near enough to prevent outright default without Chinese help. Little wonder Venezuela is begging Beijing for another $8bn credit line, with postponed payments on PDVA’s oil backed debts to for at least a year, where China would basically provide ‘more cash’ and take less equity crude to buy Venezuela more 2016-17 time.

Whether China goes for it remains to be seen, but it’s in little doubt if it decides to keep Maduro on life support, it’s then going to be cutting far more cheques to buy President dos Santos another election in Angola (August 2016).

That would entail exactly the same ‘more cash vs. less equity crude’ mantra from Luanda, with Southern Iraq using the the same copy / paste story in Rumaila. Obviously you could add Ecuador, South Sudan and even Caspian players into the mix, but wherever you look, China has the same fundamental call to make: How many petro-players does it want to keep on its books, and at what strategic price, given that all means easing up on equity barrels as the mainstay of Chinese supply side optionality. Let’s not forget, petro-states are the absolute definition of ‘moral hazard’ when it comes to side stepping fiscal realities for as long as politically possible, at least if someone else is willing to pay for it.  

Unsurprisingly our readers won’t be amazed to hear that we don’t see this as a one size fits all conundrum for China’s response, but rather a three tiered attack.

Step one will be making a clear example out of some of Beijing’s smaller supply side interests to let them collapse. That’s not because China wants to establish any kind of precedent to that effect, but because they’ll want larger players such as Venezuela and Angola to understand that any interim loosening of terms is still categorically playing by Chinese rules and Chinese interests.


In effect, that’s step two. ‘Cheap’ Chinese money will become extremely politically expensive for any petro-states deemed worthy of keeping alive.


As the third, and final step in that process, also expect China to become much smarter at covering its political bases across producer states to protect longer term sunk costs. In Venezuela, that means owning the PSUV, the opposition MUD, and most of all, the military. In Angola, it means stitching up the dos Santos clan, but also reaching deeper in MPLA cadre to see what comes out of the succession wash. In Iraq, it means much closer engagement with Southern Shia militias to protect assets, in addition to far broader Baghdad / Abadi based politicking.

When the time comes, rest assured that’s also going to mean much closer links with the Revolutionary Guards in Iran as long term political cover. Sure, China has a serious conundrum as lender of last resort, but it’s one they’ll put a radically new spin on things compared to old IMF edicts. This time, it will be genuinely politically painful….

Here Is Why One Credit Rating Agency Believes Russia Is Safer Than The US

If posed with the question who has the better credit rating, the United States or Russia, most people would presumably pick the United States. However, that is not the case for Dagong Global Credit Rating Co, one of the three biggest credit rating companies in China.

Started in 1994 as a privately held company, Dagong isn't formally tied to the Chinese government, and as Bloomberg reports, began sovereign rating services in 2010 in an effort to break the monopoly of US rating firms. Guan Jianzhong, the firm's chairman said that the firm provides ratings for more than 110 countries, and tries to strip away political bias when assessing sovereign risk.

"Actually credit ratings are largely politically biased. Dagong is only considering the debt repayment capacity of the central government" Guan said.

So how does Dagong rate the US and Russia? The firm gives Russia a rating of A with a stable outlook, and the US is tagged with a rating of A-. Dagong cut the US from A to A- in 2013 after president Obama signed legislation raising the federal debt limit. As Bloomberg notes, while the S&P stripped the US of its top grade in 2011, Moody's and Fitch Ratings still give the US the highest credit ranking.

Guan's reasoning is quite simple, "America's debt is much higher than its capacity to pay and make profits". As for Russia, Guan believes that Russia's ability to service debt hasn't been affected by sanctions, and the threat of a debt crisis in Russia is "smaller and lower" than in the US.

As far as the ability of the US to simply print more money, Guan says that's actually one of the reasons the US is risky: "someone may think that the US could print more money because US dollars are accepted internationally. But that's why they can have risks more easily, because they are transforming bad loans to the whole world."

For good measure, Guan points out what many already think: "In the western countries, they use credit rating as a tool to protect their own profits, their own interests. And that's why we see in 2008 the financial crisis is partially because of a credit crisis, because the wrong credit rating was used."

What's interesting is that the spread between the Russian and US 10Y is actually the narrowest since August 2014.

For those curious as to how the Beijing based firm rates China, it rates China at AAA.

"China, as you know, is a big creditor to the US. So how could the US be higher than China, it's abnormal" Guan explained.

* * *

Dagong believes rating companies can help prevent the repeat of another global crisis by pointing investors to safe places to invest. While we're not sure anyone can help prevent the next global credit crisis at this point, we do want to remind everyone that may have forgotten, the last time any of the major credit rating agencies tried to tell the truth about the US sovereign debt risk, it cost Standard & Poor's $1.5 billion. If anyone would like a different point of view on the credit risk of the US, it should look at other firms that have a bit more autonomy to tell the truth.

The Triviality Of Terrorism

Submitted by Paul Rosenberg via,

In the general scheme of manmade disasters, terrorism is trivial. That’s not even debatable, as I’ll itemize below. Westerners who’ve been consuming televised fears for 15 years straight may object, but fear has nothing to do with truth… and very much the opposite.

And I’ll skip through the obvious fact that I’m opposed to people being murdered by maniacs and the equally obvious acknowledgment that terrorism is a very big thing to the people involved.

The Facts

When deciding whether a statement is true or false, facts should decide. If we let ourselves imagine that fear makes something true, we doom ourselves to lives of abuse.

So, let’s take a look at the facts.

To address this question directly, I decided to take facts from just the past hundred years or so and to stick to the large powers. My apologies to those associated with events I left out; I do not mean to minimize them.

This list shows how many deaths are attributable to each. These figures are from Wikipedia, and if there was a range, I took the middle of it.

Now, would you like to know how many people have died at the hands of terrorists? Here are the numbers, over more years and a larger area:

Terrorism numbers are difficult to define post-2000, because every minor skirmish is now called “terrorism.” So, the numbers above exclude many attacks on government facilities and uniformed government employees. Civil wars aren’t terrorism; attacks on churches, buses, and markets are terrorism.

All told, this comes to 19,113 deaths over 116 years. Compared to the almost 146,000,000 deaths listed above, terrorism amounts to one one-hundredth of one percent: 0.013% to be precise.

Compared to Rudolph Rummel’s data showing 262 million “deaths by government” over the 20th century, terrorism stands at a statistically insignificant 0.0073%

A few more comparisons:

  • Since 1970, terrorism world-wide has claimed considerably less than 18,000 lives. Over those same years, the War on Drugs has claimed seven times as many in Mexico alone.

  • In the worst year of terrorism (2001), less than 4,000 died. In just one battle of World War I (Verdun), more than 300,000 died – 75 times as many.

  • On the worst day of terrorism (Sept. 11, 2001), less than 3,000 died. In one day of World War II (June 6, 1944), only in Normandy and only on the winning side, there were 4,413 confirmed dead.

Our Feelings Are Wrong

To most of us, war feels a lot less scary than terrorism. And the reason for that is obvious: the images that are presented to us and the attitudes of the people around us proclaim war to be normal.

War doesn’t surprise us; it doesn’t shock us. We’ve been trained to believe that wars are contained and that it’s mainly people in uniforms that are affected. The truth, however, is otherwise. Civilian deaths in World War II, for example, were double the number of soldier deaths.

Uniforms, authorizations, and official displays turn our eyes away from the massive horror of war. Everything around us supports the old saying that “one man dying is a tragedy; a million men dying is a statistic.” Everything supports fear of terror rather than fear of war.

Reality, however, is unmoved by our fears: War is death, dismemberment, and impoverishment, and it will never be anything else… just like terrorism, but much, much larger.

Our images and norms are at odds with reality. Consider this, please:

Government-waged war is hundreds of times worse than small bands of crazies. To take a ho-hum attitude toward war while remaining panicked over terrorism is wildly irrational.

When our feelings disagree with realty, it’s time to recalibrate them.

Now What?

Now, if we care about reality – if we care about our hearts and minds functioning well – we must stop accepting the massive terror of war as normal. Millions of people being killed in political disputes is beyond barbaric.

If this be normalcy, the systems that produce it must be questioned at the most basic levels and replaced. Promptly.

At the same time, we must stop living in fear. Fear makes us stupid; it makes us manipulable. Fear enslaves us.

Last Words

My point in this article is not that we should ignore the horrors of terrorism. Rather, it’s that we should see the situation as it is. And for those of us in the West, the situation is that terrorism is a political weapon, wielded by politicians in the service of what Dwight Eisenhower termed the “military-industrial complex.”

We should further understand that eliminating terrorism would deprive these people of their greatest tool. If terrorism stopped, they’d have to replace it. The Western status quo requires a frightened and confused populace.

Terrorism is a deadly reminder of just how deceived humans can become. Eliminating it will be awfully hard if we remain terrified and deceived ourselves.

Funding Is Now Drying Up For Luxury Real Estate Developers In Manhattan

As we have noted on many occasions, the luxury real estate market in Manhattan is now in a downturn. Back in April, we reported that the Bauhouse Group had put a development project into bankruptcy after it wasn't able to find lenders to refinance short-term loans. We then posed the question: "Did The Canary Of New York's Luxury Housing Market Just Die?"

It appears as though that was the correct question to ask, as we have since learned that sellers of luxury homes have had to resort to drastic price reductions if owners wish to sell. It also turns out that the fact that the Bauhouse Group couldn't find any lenders to help refinance may have been an early indication that lenders are now pulling back in the space as well. Courtesy of the WSJ, we are given a little more insight into how lenders may be viewing the once booming luxury real estate market, as builder Extell Development Co. has admittedly had to resort to a program known as EB-5 to help finance its latest condominium tower, known as Central Park Tower.

The critical point to be made is that Gary Barnett, Extell's CEO is seeking foreign investors to help fund the project because "given the financing environment that currently exists, it's a critical component". Said otherwise, lenders aren't keen on financing such projects anymore. As far as EB-5, it is a federal program that grants permanent residency to immigrants who invest in certain US businesses measured to create jobs.

The WSJ explains

The EB-5 program grants permanent residency to aspiring immigrants who invest in certain U.S. businesses measured to create jobs. A minimum investment for a standard business is $1 million, but in an effort to aid development in struggling areas, investors can put in a lower amount—$500,000—if a project is considered to be in a rural area or a high-unemployment neighborhood.


Developers like Extell have flocked to the program in recent years, almost always for projects in prosperous neighborhoods that use the category meant for the rural and high unemployment areas, a level at which it is easier to find immigrant investors.


The practice is legal so long as state officials and developers craft special districts that connect the projects with high unemployment neighborhoods—a method termed “gerrymandering” by critics.


But because the program has rapidly ballooned to overcapacity—there is a yearslong wait for the 10,000 visas allowed annually under the program—many of the flashiest and largest projects are crowding out projects in rural and poor neighborhoods, EB-5 professionals say.


That has sparked a fight in Congress. Numerous lawmakers, Obama administration officials and academics have said it runs counter to the intent of the law. A set of real-estate developers who use the program have pushed strongly back against proposed changes, however, successfully winning the ear of some influential lawmakers sympathetic to their arguments.

Extell has construction underway on the lower floors, which are to be the home to a sprawling flagship for Nordstrom department stores, however the firm has not yet secured all the financing necessary to build the condo tower atop - the reason: the super high-end market has weakened significantly due to the supply glut and lower demand, and lenders have pulled back.

"There's such a financing crunch that a lot of projects won't get done without EB-5, and this is one of them" Barnett said.

Barnett is actively trying to secure financing for the Central Park Tower project, which is estimated to cost more than $2 billion. The tower is planned to be higher than the Empire State Building, and set a new standard of luxury on what has been called "Billionaires Row". As mentioned, part of how Extell plans on financing the project is through the EB-5 program, and consultants are already actively trying to seek up to 380 investors in China this month to contribute $500,000 each.

* * *

So in summary, we now have confirmation that lenders are pulling back from the luxury real estate market due to the massive over supply and decrease in demand. When firms start to rely on programs such as EB-5 to fund projects, it may be time to head for the exits. Also of note, Extell is trying to drum up Chinese investors, which is a good idea in theory as investors are looking for ways to preserve capital outside of China, however if demand tanks for these projects, that investment also goes to zero.

Hillary Clinton's IT Aide Pleads The Fifth Over 125 Times

If the Obama administration defines itself as the "most transparent ever", one wonder what will be the term describing Hillary Clinton's potential presidency. We ask, because as Fox News reports, Brian Pagliano, the man believed to have set up and maintained the private server in the basement of then-Secretary of State Hillary Clinton’s New York home invoked his Fifth Amendment rights against self-incrimination more than 125 times during a deposition as part of a civil court case on Wednesday.

According to Fox, Pagliano’s sworn testimony with conservative organization Judicial Watch lasted for roughly 90 minutes, during which the IT expert repeatedly read a carefully worded statement off of an index card while refusing to answer questions. Pagliano’s deposition on Wednesday was originally scheduled to occur more than two weeks ago, but was postponed when his lawyers notified the court that the former State Department employee would be pleading the Fifth.

Which he did. Repeatedly.

As reported here previously, the IT official could have provided key information in the case, which might have resolved lingering questions about the state of Clinton’s private server, how information was preserved and the security protocols used to protect her data. However, as part of its ongoing criminal probe related to the server and the possibility that classified information was mishandled, he declined answer questions in part due to the federal government’s decision to grant him limited immunity.

After a back-and-forth between the two legal teams, Judge Emmet Sullivan ruled this month that the details of that immunity deal could remain secret.

As The Hill adds, despite his resistance to give up any possible incriminating information, Pagliano’s appearance in the deposition with Judicial Watch might reflect poorly on Clinton, the presumptive Democratic presidential nominee Unlike in criminal cases, judges in civil suits are allowed to draw inferences from a witness’s decision not to answer questions, potentially increasing the likelihood that Clinton herself is asked to testify as part of the Judicial Watch lawsuit. Clinton’s campaign would surely vigorously oppose any request for her to appear, and the event could dramatically shake up the presidential race. 

Judicial Watch has filed multiple open records lawsuits related to Clinton’s exclusive use of a private email account and server while serving as the nation’s top diplomat. Depositions have been granted in two of those cases, and the decision in a third was this week put on hold pending the outcomes of those two other cases.

Two other former aides are scheduled to be interviewed before the end of the month: longtime deputy Huma Abedin and Undersecretary for Management Patrick Kennedy.

The British Referendum And The Long Arm Of The Lawless

Submitted by Danielle DiMartino Booth via,

“Kings have long arms, many ears, and many eyes.” So read an English proverb dated back to the year of our Lord 1539. And thus was born an idiom that today translates to the very familiar Long Arm of the Law. It stands to reason that such a warning was born of feudal times when omnipotent and seemingly omnipresent monarchs personified the law, possessed of reach, eyes and ears against any and all nefarious souls who dare defy and attempt an escape into thick, ancient forests under dark cover of night.

Today we use the very descriptive and accurate idiom with little thought as to how it came to be a part of our modern language. The credit should go to Charles Dickens for bringing that borrowed but altered expression forward in time. It was he who first coined and made use of the phrase, “the strong arm of the law,” in his debut novel, 1836’s The Pickwick Papers. This satire opens a window onto life as lived in mid-nineteenth century England. It is through humor rather than judgement that Dickens appeals to and gives readers a glimpse of their true characters as they stand on the precipice of the Victorian Age.

Suffice it to say that many Britons today yearn for a time when hopefully fair and just monarchs, or later, elected officials, were the only lawmakers with whom they need comply. That bygone world starkly contrasts with the Britain of today, where the electorate finds itself being rigorously governed by the Bank of England (BoE), a deeply intrusive institution whose strictures may as well be law.

As is the case with the United States, those tasked with leading the BoE are unelected officials who have nevertheless risen to a power rivaling that of the duly elected. And, in the absence of any real fiscal courage, the words of central bankers are now being received as gospel rendering their ‘arms,’ and thus their reach, longer than was ever intended by those who envisioned at their inception bodies that were to be apolitical rather than the in-fact compromised institutions of today.

In early May, Mark Carney, the head of the BoE warned that a Brexit vote would not only cause job losses and trigger inflation, but that the risks “could possibly include a technical recession.” In response, Lord Norman Lamont, the former UK Chancellor, chided Carney for yelling the equivalent of fire in a crowded theatre, cautioning that a recession could prove to be a self-fulfilling prophesy brought on by the indiscreet lack of confidence voiced: “A prudent governor would simply have said, ‘We’re prepared for all eventualities.” Can we get a “Hear! Hear!”?

Adding what hopefully appeared to be gravitas to Carney’s alarmist statements, the world’s central banks have joined in the chorus, pledging with fanfare their readiness to step into the breach in the event of a Lehman-like credit market disruption. Can you imagine a more inflammatory way to incite fear? At the front of the line is, of course, the European Central Bank followed by the Federal Reserve and the central banks of Japan, Switzerland, Sweden and, not to be left out, Carney’s native Canada.

It is, no doubt, admirable that central banks are prepared for every contingency in the event of a Brexit, but the public pronouncements, with their accompanying publicity, smack of political complicity on the part of purportedly objective central bankers.

Several weeks ago, Carney answered the criticism with utter pretense, insisting, “We have not supported one side. We have supported low and stable inflation.”

To the credit of the Financial Times, the paper ran the appreciably less affected observations of Richard Sharp, a member of the BoE’s Financial Policy Committee: “The UK is a thoroughly investable economy; it would remain a thoroughly investable economy, whichever way the vote goes.” Sharp went on to add that he was, “very comfortable, from the financial stability issues associated, if there were to be a Brexit vote.”

The true fear lies with those who stand to lose the most, in this case the countries who hold the Euro currency together with the thinnest of threads. European banks are in a much more fragile state than their British and American counterparts, a point alluded to by Sharp. Look no further than the biggest winner as word spread that the ‘Leave’ vote had died the weekend preceding the Brexit vote; that would be Deutsche Bank.

More to the point, a Brexit would cast an immediate and harsh light on the next EU calendar event, an Italian referendum scheduled to come up for a vote in October. Italian Prime Minister Matteo Renzi has vowed to leave office if the referendum, aimed at reforming the constitution, fails to pass. Though his aims may be noble, the corruption that continues to emanate from Italy’s banking sector looks likely to catalyze the fall of Renzi’s government well before the autumn leaves turn.

The sickly Italian banking system can also be partially credited with the rise of the anti-establishment 5-Star Movement, which swept 19 of 20 mayoral elections this past weekend, including that of Rome. The party is a right-wing establishment whose lifeblood is an enraged populace who have screeched “Basta!” as in “Enough!” with the graft and the Italian economy’s other economic burden, nonstop immigration from North Africa.

To news novices, the migrant crisis and its price tag may appear to be a relatively new phenomena driven by the devolution of Syria. To the Italians, the saga has stretched on for a generation. By way of geography and proximity and little more, Italian taxpayers are obliged to bear the brunt of the cost of the immigrant crisis.

Consider that the population of foreign born residents has quadrupled since 2002 to over five million. With that as a starting point for calculating the tab, is it any wonder taxpayers are affronted by the $15,000 per annum, per capita effective tax hike to cover the cost of the hundreds of thousands of migrants who continue to flood Italy’s shores?

Now, extend this anger to countries who have been invited to share the bill as the ranks of migrants have exploded over the past two years. It’s easy enough to begin to understand the rise of the extreme right across Europe. Which brings us full circle to Brexit. The stakes of a Brexit rise appreciably when you consider that given the opportunity, many Euro members stand poised to join exiting Brits at their own polls.

How would this impact central banks’ grand experiment, even as the $10 trillion line in the sand of negative interest bearing instruments is crossed? Let’s just say it wouldn’t be pretty or containable An unravelling of the Euro would represent a sufficiently strong political stress test of the entire era of unconventional monetary policy.

Step back from the edge, though, and consider that a Brexit would herald a softer pathway to an inevitable dissolution of the Euro, which appears to be increasingly likely as the world economy flirts with recession. Not that this advice will be heeded, but why not treat a Brexit as a dress rehearsal for the real Euro un-deal when the time comes?

As for the financial markets, it’s convenient to have a novel reason to explain day-to-day market moves. The reality is we’ve probably seen the worst of it as stock market trading reflects the fear of an event coming to pass well ahead of its possible fruition.

“I personally think the drama is overdone,” said Citigroup FX trader Brent Donnelly who’s had a bird’s eye view on the action from his perch overlooking the currency markets. “Life would go on under a modified set of rules. The biggest impacts will be psychological and not real driven by the fear and uncertainty that could trigger a temporary dip in investment and spending.”

‘Temporary’ is the key word in Donnelly’s sober assessment. Seriously, who believes that French vintners and Italian prosciutto curers, to say nothing of the Mercedes of the world, would stand still for too long before saying, “Uncle!” Exporters to the UK need well-heeled British consumers much more than the UK needs them. And that’s just the way it is.

“There are plenty of countries outside the EU, such as Norway and Switzerland, who trade seamlessly with the EU,” offered Donnelly, sagely observing as any market veteran would, “And besides, when was the last time a scheduled event that the market was prepared for caused a major meltdown?” His rhetorical answer to his own question: “Never. There could be a panic for a few days, but there’s no systemic issue of concern.”

Given the opportunity, yours truly would indeed vote to Leave the EU. Alas, the roots of this writer are Italian and empathize with her relatives further south who’ve shouldered the economic burden of the ongoing immigrant crisis and corrupt politicians for far too long.

As Britons head to the polling booths, they should hold their heads high, rightly insulted at the feigned notion that the UK cannot stand on its own. After all, much of the civilized world we take for granted today is rooted in the British rule of law.

With that, it might be best to part ways for the week with the following words, care of the Bank of England’s sworn Code:

“We recognise that impartiality and objectivity are crucial to the decisive behaviours that form a core part of our Bank values. We know that our reputation for impartiality and independence is vital to our effectiveness, and, if lost, would be hard to recover.


Like other colleagues in the public sector, we know we must be seen to be apolitical and must never allow ourselves to become open to the perception that our decisions have been inappropriately influenced.”

If only that was the case, the vote to Leave might have passed on its own strong merits. And meanwhile, back at the Castle, the long arm of central bankers might have been retracted to its rightful, detached place. Remember that it was never intended that they be political beings invested with the omnipotent powers of long ago monarchs. Isn’t it time the once-long fiscal arm of our duly elected lawmakers reach out and rein in?

NATO General Admits Russia Is Not A Threat To The Region

Over the course of the past few months, the United States has pushed NATO to build up troops on Russia's border, held war games in its backyard, and deployed aircraft carriers to the Mediterranean in order to send a message to Russia of what the US is capable of. The rationale for such actions has always been very vaguely communicated, but as NATO European Command General  Philip Breedlove said, it has all been to send a signal of deterrence to Russia.

Granted, over two years ago Russia annexed Crimea, however since that time the turmoil in that area has been relatively quiet. The reality is that, according to General Petr Pavel, chairman of the NATO Military Committee, there is no intelligence that suggests Russia is planning any broad-scale aggression whatsoever.

According to General Pavel, NATO is not contemplating any further troop build-up in Eastern Europe beyond what's already been done, and as Reuters reports, Pavel claims that the build-up was just in hopes of discouraging Russia from orchestrating the kind of campaign it used to annex the Crimea peninsula. However what Pavel said next is most interesting:

"Deployment of substantial military force is not being considered. It is not the aim of NATO to create a military barrier against broad-scale Russian aggression, because such aggression is not on the agenda and no intelligence assessment suggests such a thing."

Well that's quite a statement, because the actions of the US and NATO have completely contradicted that assessment. If Pavel is correct, and there is no actual intelligence that suggests any aggression is being planned by Russia, then either the US is trying to provoke the country into action on purpose, which is always a possibility, or another possibility is one that we pointed out last week, and that is the Saudi's are pressuring the US to get rid of Assad. If the US accommodates that request from its good friend Saudi Arabia, then a direct conflict with Russia would be imminent, as Russia has made it very clear that the US isn't to take Assad out militarily. If the US knows it is going to go ahead and topple Assad at the behest of the Saudi's, then it would make sense to have an already established force surrounding Russia's border to deter any immediate action.

Whatever the reason for the build-up, we will be watching closely to see how this ultimately plays out.


Something Strange Emerges When Looking Behind The "Brexit" Bookie Odds

Two days ago we pointed out something surprising: according to Ladbrokes' head of political betting, Matthew Shaddick, the key catalyst that moved bookie odds on Monday morning, the first day after the suspended campaign in the aftermath of Jo Cox murder was resumed, "we took a £25,000 bet on Remain this morning which helped move the odds in their direction." This in turn unleashed a global asset surge, as markets rebounded on expectations the Leave campaign was losing momentum, even as actual polls - still neck and neck - did not validate such an observation.

Earlier today, Bloomberg confirmed as much:

Investors are piling money into bets on a victory for the “Remain” campaign, led by Prime Minister David Cameron. The pound has surged to a five-month high and European stocks just posted their biggest three-day gain in almost a year, with the U.K.’s benchmark index erasing its monthly decline. Bookmakers have shortened their odds on a vote to stay.


Polls, meanwhile, say the race is too close to call after a swing toward the “Leave” campaign came to an apparent halt last week following the murder of Labour Party lawmaker Jo Cox, a supporter of staying in the EU.


“Rising anticipation that ‘Remain’ will win the vote is driving the market,” said John Plassard, a senior equity-sales trader at Mirabaud Securities in Geneva. “Even if polls are close, people are paying more attention to the bookmakers because that was a much better predictor in past referendums.”

Talking to CNBC, Shaddik quantified the latest odds, which not surprisingly, put Remain's chances of success some three times greater than those of Leave: "at the moment, the odds are suggesting there is a 76 percent chance the U.K. will vote to stay in the European Union", once again caveating that this is "despite the polls still showing this is more or less a dead heat."

But is that really the case?

When one looks at the actual dynamics within the bookies, an odd divergence emerges. As Shaddick said, when looking at the underlying flows determining bookie odds, there is a very clear divergence when it comes to number of bets versus the amount of any given bet: "Although Ladbrokes has received a higher volume of bets to leave the EU, those making a punt on remain were placing higher financially larger. Shaddick revealed the average stake on a bet to remain was £450, compared to £75 on a bet to leave."

In other words, a few large bettors are skewing the bookie odds dramatically in the favor of Remain, even as the mass of bettors is betting on Leave, albeit with smaller cash amounts. Another way of putting it: a substantially outsized influence by a wealthy minority over the poor majority, just like in every other aspect of life.

Moments ago Ladbrokes confirmed as much when it pointed out that while the probability of Brexit remains at only 24%, two thirds or 62% of all bets being placed today are for Leave, the same as yesterday.

Ladbrokes: 62% of all bets today are for LEAVE, unchanged from yesterday. Brexit probability remains at 24%

— Ladbrokes Politics (@LadPolitics) June 22, 2016


In a tweet, Ladbrokes also noted the stark divergence in bet sizes which is prompting the skew in the line, which while modestly less than what Shaddick told CNBC, still showed the average Remain vote as 5x greater than Leave:

Ladbrokes: Average bet size

— Ladbrokes Politics (@LadPolitics) June 22, 2016

One simple, if very cynical explanation, is the following: wealthy financial entities, including local banks and rich individuals, all of whom have an interest in keeping the UK in the EU and preserving the status quo, are placing far larger bets, even if their number is ultimately far lower than the number of people betting on Brexit. And in yet another case of reflexivity, with the public seeing that "Remain" is winning based on bookie odds, it is shifting popular sentiment toward Remain, even as the vast majority of bets is actually for Leave.

To be sure, none of this is broken down when either the investing or general public see the bookie odds: they just note 76% chance of Leave, when in reality almost two thirds of bookie bettors are voting to Leave, despite not having nearly the financial capacity to offset the bookie line as a result of the few massive bets being placed on the other side.

Of course, the actual referendum is a democratic, and popular one, not one where the rich can influence or buy votes, and as such far more important is not the skew to the Brexit or Bremain line due to outsized bets, but the actual number of bets in any direction. As such, it would be certainly useful to the British voting public to know not just the bottom line odds, but how they got to where they are, which as Ladborkes admits, it "has received a higher volume of bets to leave the EU."

Substantially larger in fact, some 62% to 38%, which also explains the dramatic divergence between the neck and neck polling and the actual Brexit odds which see Remain winning with whopping 76% odds. Because it is those 38% supports of Remain, whose outsized bets are driving not only the reported odds, but also global market sentiment.

The real question is whether that same wealthy minority which is influencing bookie odds will also be able to manipulate the final Referendum outcome in less than 24 hours.

Desperate Sellers Resort To Dramatic Price Cuts In Manhattan's Luxury Real Estate Market

We have been covering the bursting of the Manhattan luxury real estate bubble for quite some time now (here, here, and here). Most recently we noted that REIT Equity Residential slashed its full year guidance due to the fact that a supply glut was causing the firm to give considerable concessions in order to secure tenants in Manhattan. On the earnings call, COO David Santee even said "There's some crazy stuff going on in New York."

We are now seeing more evidence that the only way luxury homes are moving on the island is if the seller offers dramatic price cuts. As Mansion Global reports, according to Olshan Realty's weekly snapshot of Manhattan's luxury market, 35 luxury Manhattan homes changed hands last week (the highest number of contracts this year for homes $4 million and above), which was up from 19 the previous week, and up from 24 the week commencing May 30.

However, Olshan believes that the underlying reason for the number of contracts signed was the fact that desperate sellers, whose properties were on the market an average of 311 days, gave buyers significant price discounts to the tune of 11% on average. The average discount in the w/c June 13 was nearly double that of the prior two weeks, and the number of contracts signs reflects that in order to move units, prices need to come down dramatically.

"The luxury market is bloated and choking with a lot of over-priced inventory, but once sellers capitulate and adjust to realistic price levels, the market moves. Not coincidentally, the May and June weeks that showed the strongest activity of the year were also those that saw prices slashed" said Donnan Olshan, president at Olshan.

As an example of how far prices are falling on these luxury homes, the number one contract last week was a townhouse at 18 East 69th Street on the Upper East Side, sold for $22 million. Prior to selling, the five-story house with 7,831 square feet  was listed at $26 million, meaning a reduction of over 15% in price. For context, the home was purchased in March 2012 for $13.25 million and was renovated. Prices have run up, but now are working their way back down as the supply glut becomes a reality and people begin to realize (especially REITs such as EQR and developers such as the Bauhouse Group) once again that real estate doesn't always rise in perpetuity.

Surging Far-Right Movements Across Europe Are Making Hitler Popular Again

Submitted by Michaela Whitton via,

An Argentinian man has purchased more than 50 items of Nazi memorabilia from a controversial auction in Munich. The single purchase, said to have totaled more than $683, 000 (£462,000), included a jacket owned by Adolf Hitler and silk underwear that once belonged to Nazi military leader Hermann Goering.

Though the event was closed to press following public outcry, the items under the hammer were sold under the theme, “Hitler and the Nazi Grandees — a look into the abyss of evil,” and hailed from the private collection of John K. Latimer, the physician at the Nuremberg trials.

According to Bild, 50 people attended the auction of more than 169 Nazi relics. An undercover journalist from the German newspaper reported the room was filled with young couples, elderly men, and muscular men with shaved heads and tribal tattoos. The buyer reportedly used the number 888 — the neo-Nazi code for “Heil Hitler” — to make his purchases. One of the items he bought was a brass container Goering used to kill himself with hydrogen cyanide.

The resurgence of the far-right

The unsettling auction comes amid a concerning surge in the far-right across Europe. A toxic combination of economic instability and the worst refugee crisis since World War II has seen the resurgence of the dangerous ideology across the continent, from Athens to Austria — and most places in between.

Last week, an Italian newspaper was heavily criticised after publishing Adolf Hitler’s political manifesto, Mein Kampf (My Struggle). Conservative Milan daily, Il Giornale, gave the book free to those who purchased the newspaper and is also publishing volumes exploring Third Reich history.

The situation is more unnerving in Germany. Considering the spike in xenophobic attacks against refugees in Western Europe’s most populous nation, Hitler’s political treatise has not only made a comeback, but has also become a bestsellerBy April, the new academically-annotated version of the ultra-nationalist, anti-semitic treatise made its way onto Germany’s influential Spiegel bestseller list, where it remained for several weeks. Although many bookshops do not have the book on display and order it by request only, it now stands in 14th place.

For 70 years, the Finance Ministry of the State of Bavaria exercised Hitler’s intellectual property rights. In doing so, it prevented republication of the book, which outlines his political ideology. Since the copyright ended at the end of 2015, it has sold thousands of copies. Earlier this year, the dictator’s personal copy sold for more than $20,000 to an American buyer.

As tensions continue to mount across Europe, it appears the success of the notorious book by Hitler serves as a reflection of such extremism.

Gold Slips Despite UK Gold Demand Surging – Investors “Seek Stability”

Gold fell again today despite very robust physical demand in western markets and especially the UK. Gold fell to a ten-day low despite a surge in gold demand in the UK.

Expectations that Britain could vote to leave the European Union in Thursday’s referendum have receded somewhat but remain and this is leading to very significant UK gold demand.

Over the last 5 days, we have had record demand from both Irish and UK retail and high net worth clients acquiring bullion in advance of the important poll. Other bullion dealers in the UK and indeed mints are reporting similar surging demand.

The Royal Mint has seen demand for gold “rocket” as investors seek sanctuary in safe haven gold due to increased volatility in stock and fx markets and concerns about the outlook for the UK economy and sterling (see News).

Two opinion polls yesterday showed the “Remain” camp had recovered some ground in the referendum debate though a third poll found those wanting to leave were ahead by a whisker.

As ever, speculative money in the futures market appears to be dictating gold prices in the short term. We expect the very robust physical demand will lead to a sharp bounce in gold prices in the medium term.

Gold News and Commentary
Gold Holds Two-Day Slump as Investors Count Down to Brexit Vote (Bloomberg)
Fed cautious on rates due to Brexit, hiring slowdown: Yellen (Reuters)
Gold Posts Biggest Loss in Four Weeks as Chances of Brexit Ebb (Bloomberg)
Switzerland gold exports jump 20% to 177.3 mt in May, highest this year (Platts)
Euroclear looks to apply blockchain to gold market (Coin Desk)

Prudent Brits Rush To Buy Gold Bars, Stuff Them In Home Safes (Zero Hedge)
Whatever Britons Decide, Bet on Gold Price Volatility to Profit (Bloomberg)
Why Gold, Why Now? (Holmes via Minyanville)
Economic Anxiety in Divided America (Max Keiser)
A look at the global economic malaise through Deutsche Bank (Marketwatch)
Read More Here

Gold Prices (LBMA AM)
22 June: USD 1,265.00, EUR 1,122.31 and GBP 862.98 per ounce
21 June: USD 1,280.80, EUR 1,129.67 and GBP 866.72 per ounce
20 June: USD 1,283.25, EUR 1,132.08 and GBP 877.49 per ounce
17 June: USD 1,284.50, EUR 1,142.05 and GBP 899.41 per ounce
16 June: USD 1,307.00, EUR 1,161.14 and GBP 922.01 per ounce
15 June: USD 1,282.00, EUR 1,141.49 and GBP 903.04 per ounce

Silver Prices (LBMA)
22 June: USD 17.20, EUR 15.23 and GBP 11.72 per ounce
21 June: USD 17.36, EUR 15.34 and GBP 11.78 per ounce
20 June: USD 17.34, EUR 15.30 and GBP 11.85 per ounce
17 June: USD 17.37, EUR 15.43 and GBP 12.19 per ounce
16 June: USD 17.71, EUR 15.79 and GBP 12.54 per ounce
15 June: USD 17.41, EUR 15.51 and GBP 12.26 per ounce
14 June: USD 17.25, EUR 15.37 and GBP 12.17 per ounce 

Forget Brexit: According To Albert Edwards, There Is A Far Bigger Risk To The Global Economy

While SocGen's Albert Edwards has opined previously on the topic of Brexit (with an apparent interest in a "leave" outcome), overnight he once again revisits the only thing that matters to markets over the next 24 hours, and looks at the possible outcome of a second "Black Wednesday", an event that could send the sterling plunging, from the prism of George Soros' recent op-ed predicting doom and gloom should the British currency rapidly devalue, and concluding that he disagrees:

"thinking about this from the point of view of my Ice Age thesis, where interest rates cannot be normalised because of economic weakness and deflation pressures persisting throughout this recovery, I would have thought a 20% sterling devaluation is exactly the antidote needed in the current circumstances."

We will have more to say on Edwards' comparison of Brexit to Black Wednesday and how the potential outcome, like back in 1992, may actually end up being a blessing in disguise for the UK economy, should Leave end up winning. Ultimate outcome for the UK aside, however - and Edwards believes that the pound will "fall with or without Brexit" - In this we will focus on what according to the SocGen strategist is a far bigger risk to the global economy - the same risk that defined risk for the entire second half of 2016: China's devaluation, which has returned, only this time it is far more strealthy which may explain why the market has largely ignored it for now.

Here is Albert:

The UK referendum is neck and neck. Commentators think it so close that the deciding factor could be whether it rains on Thursday – with rain seen reducing the Remain vote. How mad is that? One year ago we wrote that the UK economy was a ticking time bomb. The ticking has got even louder. The UK economy is a mess and that has nothing to do with Brexit – it has everything to do with economic mismanagement. We studiously take no view on the outcome of the vote; we simply discuss the possible implications of a sharp decline in sterling in the event of Brexit. But there is an argument that global investors have overly focused on Brexit at the expense of other more important macro events. We believe China’s ongoing stealth devaluation of the renminbi is far more important for the global economy.


* * *


The UK economy is a mess ? see ?The UK is a ticking time bomb?. I think sterling will end up falling substantially whether the UK stays or leaves the EU - it is just a matter of timing.

That's the "good news" (and we will have more shortly). Here is the bad news:

Meanwhile, our attention has been diverted. China has embarked on a stealth devaluation of the renminbi. Its new trade-weighted currency basket has fallen 10% since just before its initial August 2015 devaluation (white line in chart below) and it has continued to decline since January even as the Rmb/dollar has stabilised. The Wall Street Journal has reported that this is a deliberate shift in policy ?- link. China is now exporting its deflation, and my goodness it has a lot of deflation to export. In the Ice Age world, countries need to devalue to avoid deflation. So if sterling slumps in the aftermath of a Brexit vote there may be at least one silver lining outside the EU if the UK economy manages to avoid the quagmire of outright deflation.

And what better cover for China to continue implementing what in 2015 was seen as the "biggest risk" than the one event that has been dubbed as the "biggest risk of 2016."

Frontrunning: June 22

  • Nervy global investors revisit 1930s playbook (Reuters)
  • Stocks Trade Near Week High Before Brexit Vote; Commodities Gain (BBG)
  • Yellen May Face Tougher Crowd in House Appearance (WSJ)
  • In SolarCity Bid, Tesla’s Musk Targets Customers Wanting All (BBG)
  • Trump to detour from campaign to visit Scotland golf properties (Reuters)
  • Senate likely to pass FBI spying bill after Orlando shooting (Reuters)
  • Brexit Polls and Markets Disagree in Campaign’s Final Hours (BBG)
  • China's top paper lambasts U.S. aircraft carrier deployment (Reuters)
  • Putin says Russia must strengthen as 'aggressive' NATO approaches (Reuters)
  • SEC Readies Case Against Merrill Lynch Over Notes That Lost 95% (WSJ)
  • California’s Last Nuclear Plant to Shut, Edged Out by Renewables (BBG)
  • Spanish Minister Under Pressure as Leak Suggests Smear Campaign (BBG)
  • Israel eyes law to remove online content inciting terrorism (Reuters)
  • A $541 Million Loss Haunts Deutsche Bank And Former Trader Dixon (BBG)
  • House Republicans to Unveil Health-Insurance Proposal (WSJ)
  • The Lonely Aftermath of China's One Child Policy (BBG)
  • Renters Are Making More, And Landlords Get It All (BBG)
  • VW CEO Tries to Appease Investors Angered by Cheating Scandal (BBG)


Overnight Media Digest


- Nestle has agreed to buy electricity from a wind farm being built near Sanquhar, southwest of Scotland. It signed a 15-year deal which would meet half the company's power needs in UK and Ireland.

- Valentino owner Mayhoola for Investments agreed to buy fashion-house Balmain. The terms of the deal was not disclosed immediately but the bidding process valued Balmain at 500 million euros ($562.40 million).

- Transferwise said in an email to customers that it will be imposing restrictions on transfers involving pounds beginning at 7 a.m. on Thursday UK time until Friday when the referendum results are announced.

- Tesla made an offer on Tuesday to acquire SolarCity. The offer represents a value of between $26.50 to $28.50 a share. Elon Musk has a 22.2 percent stake in SolarCity and is the company's largest shareholder.



- Tesla Motors said on Tuesday that it had offered to buy SolarCity in an all-stock deal, one that could value the latter at as much as $2.8 billion. The aim, Elon Musk argues, is to create a renewable-energy giant, collecting clean electricity and putting it to work propelling cars. (

- Nikesh Arora, a former Google executive and Silicon Valley star, was on course to be the next chief executive of SoftBank of Japan, one of the world's most prominent technology conglomerates. Now he is leaving, in an abrupt shakeout that shows cracks in SoftBank's global ambitions. (

- Chinese internet giant Tencent bought a controlling stake in Supercell, the Finnish creator of Clash of Clans, for $8.6 billion from SoftBank. (

- Sanjay Valvani, a hedge fund manager at Visium Asset Management LP who was criminally charged last week in a major insider trading case, has been found dead in an apparent suicide, the police said on Tuesday. (




** The Trudeau government will not make public the text of a "Joint Action Plan" it recently hammered out with six Arab Gulf states, including Saudi Arabia, that spells out how Canada might deepen its relationship with these countries in coming years. (

** Encana Corp has agreed to sell oil and natural gas assets to Birchcliff Energy Ltd for C$625 million in the latest sign that a freeze on deal flow in the oil patch is thawing. (


** The dramatic decline in freight volumes is taking its toll on Canadian Pacific Railway Ltd, which took the unusual step Tuesday of warning that its second-quarter results will come in significantly below expectations. (

** An uptick in natural gas prices caught some commodities analysts by surprise this week, as higher temperatures and more demand for gas fuel bullish calls for the commodity. (

** Business organizations reacted quickly and harshly Tuesday to freshly announced enhancements to the Canada Pension Plan that will increase contributions employers must make. (



The Times

Chancellor George Osborne's attempts to put the public finances in order have suffered a sharp setback, with UK government borrowing higher than this time last year. (

Government plans to enact special legislation and change the terms of Tata Steel Ltd's pension scheme have come under fire from the lifeboat scheme, which protects pensions when companies fail. (

The Guardian Inc is quietly rooting out many of its Chinese traders who do not hold UK VAT numbers to try to protect itself from tax evasion inquiries later this year when new HMRC powers come into force, the Guardian has learned. (

Britain's banks have spurned the chance to stock up on cash offered by the Bank of England before Thursday's Brexit referendum amid growing expectations in the City that the remain side will win the knife-edge vote. (

The Telegraph

The UK agency in charge of deciding which drugs the National Health Service will pay for has approved five different treatments, including medications for lung cancer and melanoma, in a coup for some of Europe's biggest pharmaceutical companies. (

Jaguar Land Rover's profits could take a hit of 1 billion pounds ($1.47 billion) per year if Britain votes to leave the European Union. The car company, which is currently enjoying a renaissance, is understood to be have conducted an internal analysis of the likely impact of a "Leave" vote from Thursday's referendum. (

Sky News

The convenience store chain, My Local, is to be placed in administration by its owners just nine months after buying it from Morrisons. (

The body charged with probing whether the books of HBOS Plc , the failed mortgage lender, were adequately scrutinised will decide this week whether the bank's auditors should be subject to a formal investigation. (

The Independent

Demand for gold has spiked in the run-up to Britain's referendum on European Union membership. Investors are looking for stability amid increased stock and currency market volatility, according to the Royal Mint. (

Analyst Slams Tesla's Bid For SolarCity: "This Proposed Acquisition Suggests SCTY Is Worth Little Value"

As we reported one month ago, on a standalone basis the pain for cash-bleeding SolarCity was only just starting. That all may have changed last night as a result of the shocking takeover proposal by a conflicted Elon Musk who surprised markets, not to mention TSLA longs, by announcing a bid for the troubled solar company. But what does it mean: many analysts are scratching their heads, however for one the outcome is clear.

As Axiom's Gordon Johnson writes: "yesterday, after-market, electric vehicle mfr. Tesla Motors (TSLA, NC) announced an all-stock offer to acquire rooftop solar bellwether SolarCity for $26.5-$28.5/shr, representing a 25%-34% premium. The reasoning? According to the 8-K (link), TSLA’s basis for acquiring SCTY is to “complete the picture”; that is, Tesla is bidding to become the only integrated energy company w/ “end-to-end” products." His take: "As we fail to fully grasp the rationale behind TSLA’s proposed acquisition of SCTY, we believe yesterday’s announcement suggests SolarCity has very little value."

Here is his rationale:

  1. TSLA is a high-tech car company that pioneered electric vehicles & battery storage while SCTY is a low-tech solar vendor, suggesting, in our view, few synergies beyond the obvious renewable energy relation (i.e., SolarCity buys panels, installs them on rooftops & extends financing; not a difficult model, just capital-intensive) – to wit, a car co. is proposing to buy solar co. with no tech advantage which, while both are bleeding cash, would lead to significantly neg. EPS accretion.
  2. The proposed premium to SCTY’s stock price is +30% (midpoint) from yesterday’s close, yet SCTY’s stock was $29.6 not two months ago (5/3) & this premium is still -44.6% below the stock’s avg. price of $49.6 during ’15 & just +2.8% above the stock’s avg. price of $26.7 in YTD ’16 – in other words, if TSLA truly believes in SCTY, then why such a modest premium?
  3. Can Tesla afford this? TSLA had $1.4bn of cash on its bal. sheet in 1Q & $3.2bn in debt; since then, Tesla raised $3bn in a follow-on offering (5/19), but earmarking that amount for its ambitious Model 3 prod. line, TSLA will need another ~$2.1bn of equity to acquire SCTY [= $27.5 (midpoint premium) x 76.2mn (98.3mn shares net of Elon’s 22.2mn shares already owned)] – this would again dilute existing TSLA shareholders by another 6% [= $2.1bn ÷ $32,3bn (mkt cap)].

His pessimistic conclusion: "Given the facts that SCTY is: (a) not profitable, (b) facing higher borrowing costs, & (c) likely, by our ests., to again lower ’16 installation guidance, suggesting covenant risks abound (not to mention a  $250mn term loan due at yr-end), we curiously wonder out loud: if Tesla can acquire SolarCity, amid what we believe are signs of an existential crisis, then – if TSLA were to ever get into trouble – could  taxpayers possibly be on the hook (i.e., could SpaceX, funded by US taxpayers, follow the same dubious corp. governance norms exhibited by TSLA/SCTY & bail out TSLA)? While we have neither the answer, nor the legal savvy, we do believe this proposed acquisition suggests SCTY is worth little value."

What does this mean in valuation terms:

Despite the premium ascribed to SCTY’s share price in yesterday’s proposed acquisition by TSLA, we firmly maintain our $7/share price target.


As we see it, at its core, SCTY is an originator/aggregator and servicer of residential solar leases and PPAs, or a middle man, if you will, in providing homeowners with “solar loans”, allowing consumers, who otherwise couldn’t afford it, the benefits of having a solar system installed on the rooftop (i.e., lower immediate energy costs, due mainly to government incentives [i.e., investment tax credit (“ITC”)] and favorable caveats [i.e., net metering]). By this thinking, we would go so far as to postulate that SCTY is more of a “bank” than a solar company. However, unlike a bank, which benefits when rates go up by issuing more loans at higher rates, should SCTY attempt to raise its rates to customers, customer spreads would shrink, materially tarnishing SCTY’s value proposition – stated differently, we view SCTY as a de facto bank, with all the risks, but none of the benefits.


In this fashion, we continue to believe that SCTY’s valuation should resemble that of its specialty finance peers (i.e., mortgage vendors). Looking to Exhibit 1 below, observing SCTY’s specialty finance/mortgage peer group average P/B multiple of about 0.8x (held unchanged from our prior note published 5/28), which is notably skewed higher by SolarCity’s multiple, we believe the company’s fair value at present remains $7/share (67% downside from yesterday’s closing price).


Still, this may come as cold comfort to the massive short overhang in SCTY: as a reminder, of the stock's total 69 million share float, 26 million shares are short. Here, according to Johnson, are the other risks to his surprisingly low price target:

  • Yesterday’s Take-Out Offer. The offer by Tesla to acquire SolarCity for a 30% premium (midpoint) lit a fire under the stock, which is unlikely going to fade much until further information/steps on the potential deal come out. Thus, given the market’s sentiment, we do see big risk to our price target.
  • Net-Metering Prevails. Core to our thesis is our view that utilities are readily gaining ground against the whole net-metering argument (i.e., whether customers with solar systems should be excluded from fixed charges on their utility bills) and will likely eventually prevail. If, however, solar proponents somehow are able to get everything they want, and the states currently reviewing net-metering policies either maintain or even strengthen the status quo, our thesis would prove invalid.
  • Interest Rates Stay Lower for Longer. As we see it, low interest rates enable the beneficially low cost of capital in SCTY’s solar loans. While higher interest rates would benefit traditional financial intermediaries, which generate the preponderance of earnings based on where net interest levels are floating, we posit that SCTY cannot simply pass on higher interest to its customers, as this would erode the costs savings of installing rooftop solar. However, if the Federal Reserve indefinitely continues to refrain from raising interest rates, SCTY would be saved from this inevitability, which runs contrary to our long-term thesis.
  • Financial Engineering... a Sentiment Play. As we have stated countless times before, we view SolarCity as a specialty finance / leasing company, versus a solar company. We say this given the complex products that SCTY offers and difficulty in modeling the company with any degree of precision. In other words, due to the plethora of assumptions that are required to model SCTY, we see this stock driven more by sentiment, versus fundamentals. Resultantly, following a similar “craze” that surrounded YieldCo.s last year, we acknowledge that SCTY’s stock may go higher if the company can reinvigorate investor sentiment by rolling out new, unforeseen financing products or engaging in more aggressive securitizations of its receivables. While this is a risk that would certainly void our thesis, we believe it would itself be temporary.
  • High Short Interest and Inside Ownership. Given the high degree of SCTY’s shares already sold short, we acknowledge that a potential short squeeze could result in a big move higher in the stock. Moreover, downside to SCTY’s share price could be limited by a lack of selling when considering the high amount of inside ownership.

Finally, while Axiom's vendetta with SCTY has been a long-running one, here is what some other analysts say:

First, here is JPM which notes the following: "Potential Catch-22. If SCTY’s board approves this deal then it may signal a defensive stance, originating in concerns that the stand-alone company is unable to secure funding necessary to attain growth objectives. On the other hand, if the board rejects the deal, we believe the stock could come under pressure owing to incremental cost of capital. If, however, shareholders reject the deal, then we believe the firm's strategy becomes uncertain and SCTY stock could be in for an even rougher ride."

Then Credit Suisse:

And finally, Barclays:

Eerie Calm Across Markets One Day Before The Main Event: Asia, Europe, US Unchanged

There is an eerie quiet across markets, one day before the year's main risk event: with the UK referendum vote starting in less than 24 hours and results due out shortly after, it is as if even the algos have stopped frontrunning other algos, in a market so thin and illiquid even the smallest order can result in a gap, either higher or lower. As a result, European, Asian stocks and S&P futures are little changed ahead of Thursday, with the Stoxx Europe 600 Index swinging between gains and losses more than five times so far today.

As Chihiro Ohta, a senior strategist at SMBC Nikko Securities Inc. in Tokyo summarized: "what investors hate the most is uncertainty. Most are just waiting on the sidelines to see what happens." Apparently Chihiro - as well as Janet Yellen - forgot that there is no such thing as certainty in the market, or least there wasn't before central bankers took over.

So for now, as "sidelined" investors wait, the MSCI All-Country World Index was little changed following three days of gains as bookmakers’ odds implied there’s only about a one-in-four chance that Britons will opt to leave the EU in Thursday’s referendum, even as the FT poll of polls gives Leave a small advantage. Sterling rose against most of its 16 peers and shares in emerging markets advanced for a fourth day. Crude oil was set to close above $50 a barrel for the first time in almost two weeks following yesterday's sharp drop in inventories according to API.

As we approach Friday, the first day when Brexit will be in the rearview mirror, the question is how much of a "Remain" vote has been priced in: global stocks have climbed in the past three days as odds of a so-called Brexit fell at betting shops after the murder of a U.K. lawmaker who favored staying in the EU on Thursday. The implied chance of a leave vote dropped to about 25 percent from 43 percent a week ago.

Here is how Deutsche Bank evaluates the market-implied odds:

The shift in opinion poll momentum towards 'remain' over the weekend has perhaps reversed a touch over the last 48 hours and the FT poll of polls is still forecasting a close run outcome. The betting market though suggests a much greater bias towards 'remain' and is currently predicting a 79.4% chance of success based on the Bloomberg indicator of political odds at bookmakers. That’s at the upper end of what’s been a wide range over the last month or so. Indeed the implied probability peaked at around 85% back at the end of May – where it held for some 10 days or so – before then toughing to a low of 61% intraday on the 16th June. So the probability is now 6% off the highs and 18% up from the lows. Whether this high number has an inbuilt expectation of a late shift towards the status quo (as with Quebec and Scotland referendums) we don't know.

Some think they do know, and believe there is still some upside should Leave lose tomorrow: “‘Remain’ is not completely priced in as the costs of a ‘Leave’ could be quite large,” said Daniel Murray, head of research at EFG Asset Management in London. “It’s clear that betting odds are skewed towards remain at the moment, which is the main data the market will be moving on until there is a clear outcome.”

In this muted, illiquid environment, there was still some upside, with the MSCI AC World Index adding less than 0.1% as of 10:55 a.m. in London. The Stoxx Europe 600 Index swung between gains and losses more than five times after capping their biggest three-day advance in almost 10 months yesterday. The FTSE 100 Index of U.K. stocks rose for a fourth day in the longest run of gains in two weeks. S&P500 futures rose 0.1 % after the U.S. index closed higher in a zigzag session Tuesday. Adobe Systems Inc. fell 5.2 percent in pre-market New York trading after forecasting revenue in the current quarter that may miss analysts’ estimates amid slowing momentum for its cloud-based products. The MSCI Emerging Market Index rose 0.4 percent, following a 3.2 percent jump over the last three days. Chinese stocks led the advance on Wednesday, with the Shanghai Composite Index climbing 0.9 percent to a two-week high.

The yield on U.S. Treasuries due in a decade retreated from a two-week high, falling two basis points to 1.69 percent. The Fed’s Yellen reiterated on Tuesday that a vote to leave the EU could have “significant economic repercussions,” even as she warned against exaggerating its global impact. She had said on June 15 that Brexit risks played a part in the Federal Open Market Committee’s decision to hold off from raising interest rates. Yellen is scheduled to give a second day of testimony before lawmakers Wednesday. 

This is where global markets stood as of this moment:

  • S&P 500 futures down less than 0.1% to 2080
  • Stoxx 600 up less than 0.1% to 340
  • FTSE 100 up 0.2% to 6237
  • DAX up 0.4% to 10059
  • German 10Yr yield down less than 1bp to 0.04%
  • Italian 10Yr yield down 2bps to 1.43%
  • Spanish 10Yr yield down 2bps to 1.49%
  • S&P GSCI Index up 0.5% to 382.2
  • MSCI Asia Pacific down less than 0.1% to 130
  • Nikkei 225 down 0.6% to 16066
  • Hang Seng up 0.6% to 20795
  • Shanghai Composite up 0.9% to 2906
  • S&P/ASX 200 down less than 0.1% to 5271
  • US 10-yr yield down 2bps to 1.69%
  • Dollar Index down 0.1% to 93.93
  • WTI Crude futures up 1% to $50.33
  • Brent Futures up 0.7% to $50.99
  • Gold spot down less than 0.1% to $1,267
  • Silver spot down 0.4% to $17.22

Top Global News:

  • Stocks Trade Near Week High Before Brexit Vote; Commodities Gain: Pound approaches 5-month high, oil rises with copper
  • Yellen Leads Fed in Retreat as Reasons for Rate Hikes Fade: Economists see Fed chair in group calling for one 2016 hike
  • Tesla Takeover of SolarCity Not a ‘No-Brainer’ for Investors: Oppenheimer analyst Colin Rusch downgrades Tesla to perform
  • Gun-Curb Compromise Gaining Bipartisan Support in Senate: Republican Collins would ban gun sales to those on no-fly list
  • FedEx Sees Profit in Line With Estimates on Moderate Economy: Co.’s outlook excludes just-acquired TNT Express
  • Trump Beats Clinton for Investor Confidence in National Poll: Cash, gold top choices for those who plan to alter investments
  • McDonald’s Gets Half Dozen Bids for China, H.K. Sale: Reuters: Co. gets bids from Beijing Tourism Group, Sanpower, ChemChina
  • Fortune Brands to Replace Cablevision in S&P 500: Churchill Downs to join S&P MidCap 400 after close of trading Thursday
  • Oil Explorers Embrace the Sharing Economy to Drill Cheaper Wells: North Sea drillers share warehouse of spare parts, tools
  • Oil Trades Above $50 as U.S. Crude Stockpile Glut Seen Easing: Nationwide inventories decrease by 5.2m barrels: API

Looking at regional markets, Asia equities saw mixed trade with markets tentative as we approach closer towards the UK Referendum with the effects of the Remain momentum slightly waning. Nikkei 225 (-0.6%) underperformed with strength in JPY pressuring stocks and souring sentiment for exporters, while ASX 200 (+0.1%) was supported by Financials and Energy sectors after WTI briefly broke above USD 50/bbl following an API inventory drawdown. Elsewhere, Chinese markets traded higher with the Shanghai Comp (+0.9%) recovering from early pressure after another consecutive firm injection by the PBoC. 10yr JGBs saw flat trade with the risk-averse sentiment in Japan and the BoJ buying operations failing to underpin demand.

Top Asian News

  • China Money Rate Increases Most Since March as Banks Hoard Cash: 14-day repurchase rate climbs 14bps to 2.93%
  • Japan Unilateral Intervention Said Unlikely if Brexit Approved: G-7 statement, currency swaps use seen as options on Friday
  • Powerful Storm Set to Hit Asian Bank Profits, McKinsey Says: Slower growth, weaker balance sheets may cripple ROEs
  • Hong Kong’s Richest Man Calls for Higher Tax Amid Wealth Gap: Li Ka-shing says govt should give city’s youth more options
  • SoftBank’s Arora Steps Down as Son Chooses to Stay in Charge: Co.’s president departs after Supercell purchase closed
  • Mitsubishi Motors Sees First Loss in 8 Years Amid Scandal: Co. sees 205b yen impact from fuel testing fraud

In Europe, equities remain cautious ahead of the key risk event in the EU referendum, as such the Euro Stoxx (-0.06%) has been relatively flat for much of the morning albeit slightly softer. While notable underperformance has been seen in the FTSE MIB with Italian banks leading the way lower. Additionally, price action in credit markets has also been muted with yields near flat across the German curve, while there has been outperformance in peripheral yields.

Top European News

  • H&M Earnings Decline on Weakest Sales Growth in 3 Years: Retailer says dollar’s strength will continue to inflate costs
  • Merkel-Hollande Brexit Plan Said to Amount to Statement of Unity: EU risks months of volatility as key leaders preoccupied
  • Ryanair CEO Says Brexit Vote Could Cause Whole of EU to Unravel: Says ‘Leave’ victory to mark end of European project
  • Volkswagen Seeks to Quell Investor Uprising on Emissions Damages: Co. holds first shareholder meeting since scandal broke
  • Ex-Deutsche Bank Executive in Asia Sues Lender for $17m: Douglas Morton files claims to Hong Kong labor tribunal
  • Debenhams Falls as 3Q Trading Slows, Cut to Hold at Peel Hunt: 3Q update shows constant currency LFL sales down 1.6%

In FX, sterling appreciated 0.05 percent to $1.4659, after reaching a five-month high of $1.4783 on Tuesday. It’s jumped 3.2 percent over the past five sessions. Since British lawmaker Jo Cox’s murder last week “a fair bit of repricing has occurred in the pound on the back of the shift in polls that were earlier clearly favoring Leave,” said Rodrigo Catril, a currency strategist at National Australia Bank Ltd. in Sydney. "The pound will definitely be volatile ahead of the vote.” The Bloomberg Dollar Spot Index fell 0.2 percent, after snapping a four-day losing streak on Tuesday. The yen climbed 0.3 percent to 104.40 versus the greenback, extending this month’s advance to about 6 percent. The Australian and New Zealand dollars appreciated 0.5 percent.

In commodities, crude oil rose 0.9 percent to $50.31 a barrel in New York as U.S. industry data showed crude stockpiles declined, trimming a glut. Inventories fell by 5.2 million barrels last week, the American Petroleum Institute was said to report. Government data Wednesday is forecast to show supplies slid by 1.5 million barrels, slipping for a fifth week while still more than 100 million barrels above the five-year average. “The oil price will probably continue to labor around this $45 to $50 a barrel area for some time,” David Lennox, an analyst at Fat Prophets in Sydney, said by phone. “Demand is still under question. Inventories are declining, but they’re still large and will cap any significant rally.” Gold slipped 0.1 percent, after sliding 2.4 percent over the last two days.

On the again quiet US calendar, we have the FHFA house price index for April, as well existing home sales for May (which are expected to have risen +1.8% mom). Fed Chair Yellen is due to speak again, this time in front of the House Financial Services Committee at 3pm BST. Prior to this the Fed’s Fischer is due to speak in a panel at a Riksbank conference.

* * *

Bulletin Headline Summary from Bloomberg and RanSquawk

  • European equities remain cautious ahead of the key risk event in the EU referendum
  • Price action in FX markets is somewhat mutes with Cable hovering around the 1.47 level
  • Highlights Include Fed's Yellen, DoE Crude Oil Inventories and US Existing home sales
  • Treasuries higher in overnight trading as global equities mixed, gold sells off ahead of tomorrow’s Brexit vote; week’s auctions conclude with $28b 7Y notes, WI yield 1.485%, compares with 1.652% awarded in May.
  • Fed Chair Janet Yellen sketched a cautious and uncertain view of the economy in testimony before lawmakers in Washington Tuesday; will appear before the House Financial Services Committee today at 10am ET
  • Britain entered the final day of campaigning before its referendum on European Union membership with opinion polls and financial markets at odds about the outcome
  • Markets in London are bracing for what could be a wild ride in everything from foreign-exchange to stock trading as the U.K. votes on European Union membership
  • The pound climbed toward a five-month high versus the dollar as traders took cues from betting odds that point to the U.K. voting to stay in the European Union, rather than opinion polls showing the referendum is too close to call
  • Japan’s Ministry of Finance views unilateral intervention as an unlikely tool in the event of a surge in the yen on Friday should the U.K. vote to leave the European Union

Event Calendar

  • 7am: MBA Mortgage Applications, June (prior -2.4%)
  • 9am: FHFA House Price Index m/m, April, est. 0.6% (prior 0.7%)
  • 10am: Existing Home Sales, May, est. 5.55m (prior 5.45m)
  • 10am: Fed’s Yellen testifies to House Financial Services Panel
  • 10:30am: DOE Energy Inventories
  • 2:30pm: Fed’s Powell Makes Remarks at Panel in New York

DB's Jim Reid concludes the overnight wrap

In markets the last 24 hours has seen activity slow down and calm restored. The polls remain close though with the only one from yesterday being the Survation phone poll in the UK morning session which showed a 45/44% narrow lead for 'remain'. The shift in opinion poll momentum towards 'remain' over the weekend has perhaps reversed a touch over the last 48 hours and the FT poll of polls is still forecasting a close run outcome. The betting market though suggests a much greater bias towards 'remain' and is currently predicting a 79.4% chance of success based on the Bloomberg indicator of political odds at bookmakers. That’s at the upper end of what’s been a wide range over the last month or so. Indeed the implied probability peaked at around 85% back at the end of May – where it held for some 10 days or so – before then toughing to a low of 61% intraday on the 16th June. So the probability is now 6% off the highs and 18% up from the lows. Whether this high number has an inbuilt expectation of a late shift towards the status quo (as with Quebec and Scotland referendums) we don't know.

As mentioned at the top last there was a big live BBC televised debate on Brexit at Wembley Arena last night involving 6000 in the audience. It wasn't quite as epic as Game of Thrones but it was the biggest event of the campaign. The betting odds were little changed over the course of the program. Meanwhile, in an interview with the Telegraph newspaper, PM David Cameron ‘guaranteed’ that he would use a vote to remain to push for further reforms on rules concerning freedom of movement. The last 24 hours has also seen the Daily Mail confirm that they are backing the ‘leave’ campaign (and so putting it at odds with the Mail on Sunday) and influential football icon (to some) David Beckham confirm his backing for ‘remain’.

Sterling traded as high as 1.478 yesterday (roughly +0.6% on the day) which is actually the highest since January, before weakening from lunchtime onwards to eventually close at 1.466 (-0.31% on the day) following that close outcome from the Survation poll. It’s up about +0.25% this morning. It’s worth noting that since the intraday lows of last Thursday however, the Pound is up an impressive +4.6%. Meanwhile, European equities advanced again although gains were a lot more modest compared to Monday with markets seemingly in more of a consolidation mode. The Stoxx 600 closed +0.70% which puts the three day gain at an impressive +5.84% and the most in ten months. The FTSE 100 was up a lesser +0.36% as that early rally for Sterling created a bit of a headwind. European credit indices ran out of steam a bit meanwhile and finished a touch wider by the close of play.

Across the pond markets were in a similar consolidation mode. The S&P 500 ended up +0.27% with credit indices performing a little better (CDX IG -1.5bps). Fed Chair Yellen’s semi-annual testimony comments were a bit of a sideshow given the overriding focus on the referendum although in truth there was little new or interesting to come out of them. She reiterated further the need for ‘proceeding cautiously’ in raising the federal funds rate to ‘keep the monetary support to economic growth in place while we assess whether growth is returning at a moderate pace’ and whether ‘inflation will continue to make progress toward our two percent objective’. As expected she downplayed reading too much into one or two employment reports while also making mention of other timely indicators of the labour market as looking favourable. Yellen also confirmed ahead of Thursday’s vote in the UK that the Fed will closely monitor what the ‘economic consequences will be and are prepared to act in light of that assessment’.

As we refresh our screens overnight, most Asian bourses are following the lead from Europe and Wall Street yesterday and trading with modest gains. The Hang Seng (+0.35%), Shanghai Comp (+0.45%), Kospi (+0.47%) and ASX (+0.42%) in particular are all up a touch, although markets have moved in lower in Japan (Nikkei -0.44%) with that perhaps reflecting a slightly stronger session for the Yen (+0.30%) this morning. Gold is flat following two days of consecutive heavy falls, while Oil markets are up about half a percent.

Moving on and taking some brief respite from all things Brexit. Yesterday in Germany the Constitutional Court delivered a positive verdict on the constitutionality of the ECB’s OMT by ruling that the complaints have been partly inadmissible and could therefore not be challenged before the GCC. Our European economists noted that the GCC reiterated the conditions mentioned by the ECJ and stated that the German Bundesbank may only participate in the implementation of OMT if these prerequisites are met (for example, limits set at the outset, bonds to be held to maturity only in exceptional cases, etc). Our economists disagree with the view that the German court capitulated. Instead, they saw the conclusion as more constructive given that the two most important constitutional courts in the EU exchanged arguments from a national and European point of view and in the end came up with a consistent opinion on the mandate and actions of a major EU institution.

While we’re on the subject of the ECB, yesterday President Draghi confirmed that the Bank is ‘ready for all contingencies following the UK’s EU referendum’. Draghi added that while it was ‘very difficult’ to predict how the vote could impact markets, he confirmed that ‘we’ve done all the preparations that are necessary now’ and that the Bank stands ready to act if needed.

Changing tack, yesterday we published another Credit Bites (Rating trends still firm but deteriorating) where we tried (for a short while at least) to think of something non-Brexit related to write about. In it we showed how credit fundamentals - as reflected by rating trends - remain in reasonable shape. That said in Europe they have certainly been moving in the wrong direction in recent months. In the US we have seen a more notable downward trend in ratings although this has largely been driven by the energy and natural resources sectors. See the report from yesterday afternoon or email if you haven't got a copy.

Wrapping up the data flow yesterday which was focused solely in Europe, the German ZEW survey for June was the biggest highlight. The data exceeded expectations with the headline current situations print rising 1.4pts to 54.5 (vs. 53.0 expected). Even more impressive was the 12.8pt rise in the expectations component to 19.2 (vs. 4.8 expected) which is the highest level since August last year. Given Thursday’s impending event, the data looks surprisingly upbeat.

Looking at today’s calendar, it’s set to be another relatively quiet one for data with the focus once again for the market squarely on the UK and the latest on the referendum. In terms of the data that is due out its set to come this afternoon. In the US we’ll get the FHFA house price index for April, as well existing home sales for May (which are expected to have risen +1.8% mom). The Euro area consumer confidence reading for June is also expected to be released this afternoon, as well as China’s Conference Board leading index for May. Fed Chair Yellen is due to speak again, this time in front of the House Financial Services Committee at 3pm BST. Prior to this the Fed’s Fischer is due to speak in a panel at a Riksbank conference.

Loretta Lynch Admits That Federal Authorities Have Lost The Orlando Shooter's Wife

According to CNN, Federal investigators are trying to find out more specifically what Omar Mateen's wife, Noor Salman (profiled here), knew about the planned attack at the Pulse Nightclub in Orlando. The intent is to bring evidence before a federal grand jury to determine whether or not charges will be brought against Salman.

As US Attorney General Loretta Lynch said today, federal authorities are going back and looking at all of the contact with Omar Mateen, as well as those around him in order find out if there is anything that was missed.

AG Loretta Lynch on #OrlandoShooting gunman: "We're going to go back and look at all of our contact with him"

— CNN (@CNN) June 21, 2016

However there is one rather large problem with one key person in the investigation, it appears that Noor Salman is missing and may not even be in the state of Florida anymore. In an interview the Sun Sentinel conducted with Seddique Mateen, the shooter's father, Seddique said that Salman was "not around here."

"If you're looking for Noor, she's not here. I cannot say where she's gone, but she's not around here." Seddique said.

The Sentinel went on to report that while reporters were outside Seddique's house, St. Lucie County sheriff's deputies arrived, went into the house for a few minutes, and then left without comment.

And perhaps most disturbing of all, according to Breaking911 citing CNN, US Attorney General Loretta Lynch says that she doesn't know if Salman has left the state or not.

Attorney General Loretta Lynch Says She Doesn’t Know if Orlando Shooter’s Wife Has Left the State of Florida -CNN

— Breaking911 (@Breaking911) June 21, 2016

We believe the source to CNN's assertion that Lynch doesn't know where Salman is came from a press conference held today whereby Lynch said the following in response to an inaudible question: "right now I do not know exactly the answer to that, I believe she was going to travel but I do not know exactly her location now"

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If this is accurate, how it's possible that Noor Salman has given federal authorities the slip is beyond our comprehension. Perhaps the department needs more funding, that always seems to do the trick.