Archive - Feb 2014 - Story

Protests in Venezuela continue (despite President Maduro's proclamation that the nation is in "absolute calm"), with both the government and the opposition holding rallies, leaving several streets and subway stations in Caracas closed. 10 students who were arrested amid violent protests last week have been released, though 6 students remain in custody. Demonstrators do not yet have the numbers or support base to unseat President Nicolas Maduro's administration, but as Stratfor notes, these protests could mark a turning point as the economic situation deteriorates there is a chance that protests like this could begin to generate additional social momentum in rejection of the status quo.

Actually, according to the first detailed estimate of international purchase activity in London by Knight Frank, the percentage of all central London homes that sold for more than 1 million pounds to foreigners in the 12 months through June 2013, was 49% to be exact. And as we showed yesterday when we put China's loan creation in the context of US and Japanese QE, keeping in mind the use of proceeds of all this newly created inside money has to ultimately go somewhere - that somewhere in this case being London and other global luxury real estate, said percentage is only going to get higher. Especially when one adds Russian, the middle east and other various regions whose oligarchs are desperate to park their money in "safe" havens.

Becoming more like Europe is not a good thing.  But that is the path that we are currently on.  For the most part, Europeans live in a socialist “Big Brother” system in which the government completely dominates your life from the cradle to the grave.  Of course there are differences from country to country, but generally speaking the lives of most Europeans are very tightly regulated.  You see, the truth is that high levels of individual liberty and freedom are considered to be “dangerous” by the European elite.  They believe that if we are all allowed to just do whatever we want that it would result in utter chaos.  They are convinced that life is better when those that are smarter (them) control the lives of everyone else.

While the propaganda surrounding Europe's "recovery" has reached deafening levels, what is going on behind the scenes is quite the opposite, and in the latest example that Europe is increasingly formalizing a regime of implicit capital controls, we learn that Italy has just ordered banks to withhold a 20% tax on all inbound wire transfers: a decree which on to of everything will apply retroactively to February 1. As Il Sole reports, "the deductions will be automatic (unless prior request for exclusion), and then it will be up to the taxpayer to prove that the money is not in the nature of compensation "income." In other words, as of this moment, but really starting two weeks ago, all Italians are money launderers unless proven innocent.

Amidst this sea of uncertainty we can be certain of this: humans will continue down an unsustainable path that inevitably leads to a tragic end until they succeed in destroying themselves or they reach a point of no return and abruptly change  course. That process of clinging to the present arrangement "because I can't live any other way" until that arrangement collapses is the primary narrative of our era. It is truly remarkable how humans will cling to a visibly self-destructive, no-exit arrangement because they see no alternative, and then after the present arrangement crumbles and the wreckage is cleared, we somehow manage to find some other arrangement. Sadly, we only rouse ourselves to change when there is no other choice, that is, after we've destroyed the previous arrangement.

The American people are the most drugged people in the history of the planet.  Illegal drugs get most of the headlines, but the truth is that the number of Americans that are addicted to legal drugs is far greater than the number of Americans that are addicted to illegal drugs.  As you will see below, close to 70 percent of all Americans are currently on at least one prescription drug.  In addition, there are 60 million Americans that “abuse alcohol” and 22 million Americans that use illegal drugs.  What that means is that almost everyone that you meet is going to be on something.  That sounds absolutely crazy but it is true.  If it seems like most people cannot think clearly these days, it is because they can’t.   And considering the fact that big corporations are making tens of billions of dollars peddling their drugs to the rest of us, don’t expect things to change any time soon.

Renowned behavioral economist Dan Ariely explains why humans are biologically wired to make irrational decisions when money is involved. It's a case of our evolutionary wiring interfering with the decisions we face in a modern world very different from the one our ancestors adapted to. For instance, he explains how one of the easiest phenomena to create in a lab are valuation "bubbles". Our vestigial herding instinct encourages us to imitate the actions of those around us (e.g. bidding for a particular asset), which then strengthens that signal for others (leading to even higher bidding), resulting in behavior not justified by the underlying fundamentals of reality (asset prices destined to crash)... " I do think that we need a new generation of bankers. I think you cannot take the old generation of bankers and rehabilitate them. Recent history is not showing us that this is something we should hope for. But there is a real question of, How do we create a new generation of bankers that are going to think of themselves as the caretakers of society, rather than the rapists?"

"It's really a crisis situation," exclaims one California city manager, "and it's going to get worse in time if this drought doesn't alleviate." For the state that produces one-third of the nation's fruits and vegetables, the driest spell in 500 years has prompted President Obama to make $100 million in livestock-disaster aid available within 60 days to help the state rebound from what he describes is " going to be a very challenging situation this year... and potentially some time to come." As NBC reports, Governor Jerry Brown believes the "unprecedented emergency" could cost $2.8 billion in job income and $11 billion in state revenues - and as one farmer noted "we can't recapture that." Dismal recollections of the 1930's Dust Bowl are often discussed as workers (and employers) are "packing their bags and leaving town..." leaving regions to "run the risk of becoming desolate ghost towns as local governments and businesses collapse."

Not quite what you thought it would be? Have no fear. The following will make it all clear...

The global crisis that began in 2007/8 has unmasked many unsustainable economic dispositions. Unfortunately, the proper conclusions have still not been arrived at, as evidenced by the fact that the same old Keynesian recipes that have failed over and over again are being implemented on an even grander scale. One must not be misled by the claims of 'austerity' being imposed, as this has evidently little bearing on government spending as such, but is rather an attempt to squeeze more blood out of an already shriveled turnip, namely what remains of the private sector. Puerto Rico seems – at least so far – not any different in that respect.

"It is unbelievable how bullish [investors] have become."

"We expect another deflationary episode leading to systemic risks and economic disappointments. Hence, it is time to structure portfolios much more conservatively and put capital preservation ahead of aggressive return strategies. In contrast to last year, 2014 will hardly be a year with a powerful and easy trend to ride. Instead, it will bring much more volatility."

"It may take a few more months until the dimension of risk in the credit system become more visible, but I expect this to be on the table in the second half at the latest, when the price of gold should be higher again."

Hint: it's neither the Fed nor the Bank of Japan...

The curse of the over-bearish (or over-bullish) magazine cover is well known. Of course, the media will only cherry-pick the "lows" as an indication that it's time to buy; as opposed to the exuberance-exhibiting article writers and their glaring headlines. To wit, this week's Barron's cover proclaims "GOOD NEWS - The US economy could grow this year at 4%... Forget the snow, consumers and businesses are ready to spend." Hhmm, it seems that Barron's forgot to look at the data...

It's not that the US has a scarcity of bizarre everyday stories - it does not. It is just that sometimes you encounter something so surreal, warped and ridiculous, that even the stock "market" makes sense by comparison. Such as this.

Today’s economic model was best summed up by dictator Benito Mussolini in one short sentence: “Fascism … is the perfect merger of power between the corporations and the state”.   But tyranny also has its life-cycle within the balance between the past and the future.  Once the past becomes far too much of a millstone for the future generations to carry any longer, governments fall and debt and servitude recede.   Empires can fall largely without violence and allow a new, freer system to emerge, as most of the satellite states of the Soviet Union achieved.   Or the legacy of fallen empire becomes violent chaos followed by renewed oppression, like the French Revolution. This bottom-up style revolution is happening to nations across our 21st Century.  The future lies in the balance.  The bell tolls for all Western nations, too. So, in the United States, it seems, liberty will have its chance again before too long.