http://www.zerohedge.com/fullrss2.xml/component/option%2Ccom_docman/Itemid%2C200023/gid%2C397/BoomBustBlog/BoomBustBlog/BoomBustBlog/BoomBustBlog/Is-this-the-Breaking-of-the-Bear.html en News That Matters http://www.zerohedge.com/news/2014-09-19/news-matters <p><img src="http://www.image-maps.com/m/private/0/5i287dske54ght5cmuc92k60v2_output_zuxadl.gif" width="680" height="380" usemap="#image-maps-2014-09-19-051348" border="0" id="Image-Maps-Com-image-maps-2014-09-19-051348" /><br /> <map id="ImageMapsCom-image-maps-2014-09-19-051348" name="image-maps-2014-09-19-051348"><br /> <area style="outline: none;" shape="rect" coords="599,342,680,380" href="http://www.bloomberg.com/news/2014-09-18/alibaba-group-said-to-raise-21-8-billion-in-record-u-s-ipo.html" target="_self" /><br /> <area style="outline: none;" shape="rect" coords="597,1,678,39" href="http://www.dailymail.co.uk/wires/reuters/article-2761925/UK-PM-Cameron-says-Scottish-independence-issue-settled-generation.html" target="_self" /><br /> <area style="outline: none;" shape="rect" coords="0,340,81,378" href="http://www.bloomberg.com/news/2014-09-18/gold-iphones-at-3-600-as-china-delay-fuels-black-market.html" target="_self" /><br /> <area style="outline: none;" shape="rect" coords="0,0,81,38" href="http://www.bloomberg.com/news/2014-09-19/scotland-rejects-independence-as-u-k-wins-reprieve.html" target="_self" /><br /> <area style="outline: none;" title="Image Map" shape="rect" coords="678,378,680,380" href="http://www.image-maps.com/index.php?aff=mapped_users_32759" alt="Image Map" /><br /> </map></p> http://www.zerohedge.com/news/2014-09-19/news-matters#comments Fri, 19 Sep 2014 09:22:14 +0000 Pivotfarm 494572 at http://www.zerohedge.com Silver Buyers Keep Stacking And Demand Higher ... Yet Prices Fall http://www.zerohedge.com/news/2014-09-19/silver-buyers-keep-stacking-and-demand-higher-despite-falling-prices <p><span style="line-height: 20.7999992370605px; font-size: 1em;">Silver demand keeps increasing ... silver prices keep falling ... hmmm</span></p> <p><span style="line-height: 20.7999992370605px;">Recent interview on silver: '</span><a href="https://www.youtube.com/watch?v=6CJrYx-7XZI" style="line-height: 20.7999992370605px;">Get REAL: Silver</a><span style="line-height: 20.7999992370605px;">'</span>&nbsp;</p> <p><a href="http://dzswc0o8s13dx.cloudfront.net/goldcore_bloomberg_chart3_18-09-14.png" style="line-height: 20.7999992370605px;"><img src="http://dzswc0o8s13dx.cloudfront.net/goldcore_bloomberg_chart3_18-09-14.png" /></a><br style="line-height: 20.7999992370605px;" /><em style="line-height: 20.7999992370605px;">Total Global Silver ETF Holdings - 2006 - September 2014 (Thomson Reuters)</em></p> <p><span style="line-height: 20.7999992370605px; font-size: 1em;">The silver price has remained subdued this year, falling just less than 5% year-to-date, and is now near a 14 month low. Naturally, investor psychology has been affected by the price weakness.</span></p> <p>Quoted today in Bloomberg News, Mark O’Byrne, director of GoldCore said that “sentiment remains quite bad in the silver market.”</p> <p>Its well accepted that investors in the financial markets are known to experience cycles of emotion, from excitement and euphoria, through to fear and panic, before the cycle turns again after despondency and goes back to hope and optimism.</p> <p>Although the silver price weakness has damaged psychology, some interesting trends have emerged which appear to be signalling that the core silver retail &nbsp;and indeed institutional investor remains resilient and is even using the current price weakness as a further buying opportunity.</p> <p>The overall trend in the silver market currently appears to be, when prices weaken, investors continue to hold and in some cases buy more. While the price has fallen, overall holdings of the silver ETFs still remain near an all-time high. This would suggest that silver investors are now expecting higher prices again due to continued industrial and investment silver demand.&nbsp;</p> <p><a href="http://dzswc0o8s13dx.cloudfront.net/goldcore_bloomberg_chart1_18-09-14.png" style="font-size: 1em; line-height: 20.7999992370605px; text-decoration: underline; color: #000000;"><img src="http://dzswc0o8s13dx.cloudfront.net/goldcore_bloomberg_chart1_18-09-14.png" /></a></p> <p>Globally, 26,000 tonnes of silver are mined each year and about 7,000 tonnes of silver is recovered through recycling and scrap. Industrial demand accounts for 14,500 tonnes, jewellery demand for 8,000 tonnes, coin demand for 2,500 tonnes and photography for 1,700 tonnes.&nbsp;</p> <p>This totals nearly 27,000 tonnes so leaves about 6,000 tonnes as a residual, some of which goes into the physically backed silver Exchange Traded Funds (ETFs).&nbsp;</p> <p>The investor base in physically backed silver ETFs &nbsp;is predominantly retail, one element being that silver is more affordable than gold to retail investors. Gold ETFs have a higher proportion of institutional and hedge fund investors. For US based silver ETFs, retail investors account for 80% of holdings.</p> <p>Retail investors tend to have a longer term investment horizon and these silver ETF investors are mostly long term buy and hold investors. Recent updates on the flows into these ETFs and their total holdings point to continued accumulation across-the-board by these retail investors. It appears that the current price weakness in the silver price has if anything, encouraged these retail investors to accumulate additional holdings.</p> <p>Reuters calculated this week that the world’s six largest silver ETFs saw an additional 104 ton inflow last week and now hold 17,135 tonnes of silver in total between them. The massive iShares Silver Trust represents over 60% of this total. The iShares ETF recently reported its biggest one day inflow in the last 4 months.</p> <p>Bloomberg calculates similar data but includes more silver ETFs than Reuters in its calculations. Bloomberg reports today that the holdings of silver Exchange Traded Products (ETPs) that it tracks &nbsp;have now reached 19,900 tons, which is near the all-time high of 20,121.5 tons which was reached in October 2013. &nbsp;According to Bloomberg, ETP holdings have risen 2.7% in 2014. Silver ETFs did not see any large outflows in 2013, unlike in gold where gold ETF holdings fell by more than 30% in 2013.</p> <p>The latest Bloomberg survey of silver analysts shows a median price estimate averaging $20 for the last quarter of 2014, increasing to $20.40 next year.</p> <p>Some silver mining companies have hedged part of their output so that they can sell their output at specific prices, even if the price falls, such as at $18 for Coeur Mining. Likewise hedging can backfire as prices rise and they remain committed to sell their output at a lower price.</p> <p>At the Denver Gold Summit, yesterday, Keith Neumeyer, president and CEO of First Majestic Silver Corp pointed out that after all the talk by the London Bullion Market Association (LBMA) of greater &nbsp;transparency for &nbsp;the new LBMA Silver Price and wider market participation in the auction, nothing much has changed:</p> <p>&nbsp;“Any time you have a small group of people fixing a price, it’s prone to manipulation,” he said. “There’s no change from how it was done before to the way it’s done now – it’s just a different group of players and now they do it on a computer.”</p> <p>To that we would add that the “group of players” is still not all that different since only one player has changed. The old Silver Fixing process had three participants, HSBC, ScotiaMocatta and Deutsche Bank. When Deutsche Bank announced in April that it was pulling out of the Silver Fixing, it precipitated the move by the LBMA to create the new Silver Price.</p> <p>Then, when the new auction was launched on August 15, HSBC and ScotiaMocatta reappeared as participants, bringing Mitsui on board in place of Deutsche Bank. So it’s still the same old usual suspects continuing to fix the silver price each day in London, and there is still little or no transparency about the auction beyond a few netted out buy and sell volume figures.</p> <p>It remains to be seen when if ever the LBMA Silver Price auction will allow in a wider range of direct participants such as mining companies and refiners.&nbsp;</p> <p>In the meantime, the retail silver investor, as indicated by the silver ETF flows, appears to be taking advantage of the lower price environment to accumulate additional metal. This is also true in the silver coin and bar market.&nbsp;</p> <p><strong>Conclusion</strong></p> <p>In any period of price weakness there will always be some nervousness and fear. But market history invariably shows that this point in the cycle is usually the time when price expectations start to turn upwards.</p> <p>Silver remains undervalued vis a vis gold with gold silver ratio at over 66. At $18.59, it is some 63% below the record nominal price of $50/oz in 1980 and again in April 2011.</p> <p>We could see further weakness in the short term as momentum is clearly down. Support is at $18 and below that at $15.</p> <p>We believe both gold and silver remain undervalued and are in the process of bottoming. We remain confident gold and silver will see new record highs in the coming years. Both will continue to act as hedges and safe havens against the considerable risk in the world today.</p> <p><span id="docs-internal-guid-f0e75169-8d27-4b5d-1797-d6b7dc22ea49" style="color: #0000ff;">by <a href="about:blank">Ronan Manly</a> , Edited by <a href="https://twitter.com/MarkTOByrne">Mark O’Byrne</a> </span></p> <p><span style="color: #0000ff;">Recent research and charts on silver&nbsp;<a href="http://www.goldcore.com/goldcore_blog/Silver_Up_10_3_Percent_YTD_Outperformance_To_Continue">here</a></span></p> http://www.zerohedge.com/news/2014-09-19/silver-buyers-keep-stacking-and-demand-higher-despite-falling-prices#comments Bloomberg News Deutsche Bank Reuters Silver ETFs Transparency Fri, 19 Sep 2014 08:43:50 +0000 GoldCore 494561 at http://www.zerohedge.com How Good Decision Making can Save Your Ass http://www.zerohedge.com/news/2014-09-19/how-good-decision-making-can-save-your-ass <p style="line-height: 20.7999992370605px;"><span style="color: #800000;">By: Chris Tell at&nbsp;<strong><a href="http://capitalistexploits.at/">http://capitalistexploits.at/</a></strong></span></p> <p style="line-height: 20.7999992370605px;"><strong><em>A little while ago I shared&nbsp;<a href="http://capitalistexploits.at/2014/09/6-ways-to-improve-decision-making/">6 ways to improve decision making</a>. In response I received a number of comments, the most insightful of which I'd like to share with you today. My main point in the previous article was that information, together with a strong filtering process, form the basis for making sound decisions.</em></strong></p> <blockquote style="line-height: 20.7999992370605px;"><p>I love these emails. You write essentially about what it all comes down to which is psychology playing out in life, and markets.</p> <p>&nbsp;</p> <p>However, can someone from your organization, please elaborate on the last point, on procrastination. What if procrastination is the humility in knowing that you don't know enough to make a decision now, and are simply waiting either for more facts to come to you, or waiting for the dust to settle? In this age of tremendous deception I've discovered that waiting a roughly set amount of time is the ONLY objective truth we have in this world of subjectivity. By that I mean that a lot of the fakers get weeded out, and the truth rises to the top, upon which you can then make a decision to commit to the idea, product, or partner. I find that one can be more quick in committing to an industry, partner, or pattern that has been worked in the past, and is not novel.</p> <p>&nbsp;</p> <p>In the last year or so, I made a few errors, but I substantially saved a lot on two deals where I let the early adopters be my guinea pigs, and they blew up tremendously, precisely because of procrastination. The only novel idea I got into was bitcoin, I got in just after that initial guinea pig stage and made 500% thus far, though who knows where exactly it's headed in the long term. My one year of procrastination benefited me here as well. The key is to procrastinate to roughly the right moment.</p> <p>&nbsp;</p> <p>I'm curious if this is how it works in the business world on the level that you guys play out in, as well, as I find that the worst decisions are made when we think we have a gun to our head, when we think in terms of scarcity instead of abundance... the concept that if one misses the opportunity to max out on this chance, that another one is right down the pipe.</p> <p>&nbsp;</p> <p>Cheers</p> </blockquote> <p style="line-height: 20.7999992370605px;">I'm not sure I see this the same way. To me procrastination is carrying out tasks that are easier, more enjoyable and less taxing than tasks which are often more important, yet more difficult either physically, mentally, or emotionally. This is a poor strategy as it involves delaying what needs to be done.</p> <p style="line-height: 20.7999992370605px;">More than just the obvious problem of failing to deal with something that needs dealing with, the psychological impact (stress) of this is the real killer. Procrastination leaves this nagging, persistent, unfinished problem that won't leave you until you've dealt with it, and it affects your overall mindset and performance.</p> <p style="line-height: 20.7999992370605px;">This is very different from deciding that you have insufficient information on which to proceed and make a final decision. This simply means that you're still in the information gathering stage. There is nothing wrong with this. There isn't any nagging stress hanging over you, as you've determined that you simply don't have sufficient information at this time to make a decision. That information may come in way of the company validating their thesis or any number of other things.</p> <p style="line-height: 20.7999992370605px;">On the other hand, if you've gathered all the possible information and still don't feel confident in proceeding then this could be your gut instinct at work. It probably means that you're working in an environment that is unfamiliar to you and this could be affecting your ability to process the information you've gathered.</p> <p style="line-height: 20.7999992370605px;">When this is the case, and even when it isn't, we rely on people smarter and more skilled than ourselves to brainstorm the issues. This does a number of things.</p> <p style="line-height: 20.7999992370605px;">One, it builds our knowledge base. Do this day in, day out and I guarantee you you'll learn something. It's tough to engage with brighter minds than your own and not learn something new. It also often highlights both positive and negative elements you're possibly unaware of, and after having done this, if you're still unsure then you need to move on. Time is too valuable a resource to be spent burning through issues which you're not comfortable with. There is HUGE power in saying "NO".</p> <p style="line-height: 20.7999992370605px;"><img src="http://capitalistexploits.at/wp-content/uploads/2014/09/just-say-no-150x150.jpg" width="150" height="150" style="vertical-align: middle; display: block; margin-left: auto; margin-right: auto;" /></p> <p style="line-height: 20.7999992370605px;">There will always be another deal. And guess what - the next deal will be one which you come armed with a new set of experiences and knowledge gained from having been through the previous deal. Personally I'm not shy to look at dozens of deals a week. Naturally I have a rapid culling process but the point is that each deal allows you to hone your skills whether you participate or not.</p> <p style="line-height: 20.7999992370605px;">In terms of "having a gun to your head". I have had a 100% failure rate with this. Every time I've felt like I have a gun to my head, or felt like I'm in a position where I'm forced to do something, I should have walked away... EVERY TIME.</p> <p style="line-height: 20.7999992370605px;">The truth is, you never have a gun to your head. That is dealing with things on an emotional not a logical business level. Throwing good money after bad works only if structural changes are implemented. This is where activist investors such as Carl Icahn excel. Like him or loathe him, he often turns the tables on companies which "put a gun to shareholders" heads.</p> <blockquote style="line-height: 20.7999992370605px;"><p>Very good post, Chris. I would also add that part of good diligence is ensuring there is sufficient corporate governance in place at the beginning to avoid wiggle room for founders to change how much they report or disclose down the road. I’ve had a situation before where a founder/manager started making decisions unilaterally within the context of a closely held company, and it was not so obvious initially what was going on. This probably falls under your point #1, with a need for good info both at the outset and throughout the life of the project or business until a liquidity event cashes you out. It's often those closely held start-ups where problems can sneak in with a founder going off the reservation.</p> <p>&nbsp;</p> <p>I have had to learn that lesson the hard way with a decent chunk of change, as you put it.</p> <p>&nbsp;</p> <p>Keep up the great work!</p> </blockquote> <p style="line-height: 20.7999992370605px;">Corporate governance. Ah, yes. Something I wrote about recently when&nbsp;<a href="http://capitalistexploits.at/2014/09/iq-ip-and-8-commandments-of-corporate-governance/" target="_blank">talking about the Chandler brothers</a>. You're dead right! And just remember that good corporate governance doesn't always magically happen as often founders don't even know what they're meant to do and need guidance on this one. Well structured term sheets with things like step in rights and so forth can be valuable.</p> <blockquote style="line-height: 20.7999992370605px;"><p>Hi Guys,</p> <p>&nbsp;</p> <p>Another great write up.</p> <p>&nbsp;</p> <p>As you know my 'first' private placement went sour and obviously I didn't do all of the items you listed.</p> <p>&nbsp;</p> <p>In most things, I'm way too trusting of people, assuming the best in them until they show me otherwise. I think I must still be this way in my personal life as I just don't think life would be fun going through it with the opposite view. But you're right, as an investor it is a lousy way to think of things.</p> <p>&nbsp;</p> <p>Knowing that Doug Casey, with all of his "P rules" and experience, also got caught in the same investment make me question whether the private placement game is just that - too much of a game of personality reading and information masking? I'm not saying that public markets are much different, but some of the reporting 'requirements' help.</p> <p>&nbsp;</p> <p>Perhaps y'all could do an article on what can be done (if anything) when a private placement goes bad?</p> <ul> <li>Are we just SOL?</li> <li>Are their any clauses that could insure shareholder recourse that 'might' be accepted in documents by companies?</li> <li>Are their any practical legal recourse's within corporate jurisdictions?</li> <li>Is criminal 'fraud' prosecution ever remotely possible in any jurisdictions?</li> <li>Most other shareholder are unknown, so can one get organized or weighted shareholder influence over a company?</li> <li>Are there techniques used against bad public companies that may be applied?</li> </ul> <p>I'm sure y'all have seen it all and know other questions in this area that could be addressed.</p> <p>&nbsp;</p> <p>I realize this type of article may not be a good subject for your business. But I assume others, like me, may find comfort in knowledge rather than ignorance. Likely many of your customers or potential customers think about the issue some anyway.</p> <p>&nbsp;</p> <p>Take care</p> </blockquote> <p style="line-height: 20.7999992370605px;">I don't think being trusting is a bad thing at all. Who wants to live a depressing negative existence believing that the world sucks, everyone is out to get you and bogeymen live under your bed? Trust but verify is my best answer to this.</p> <p style="line-height: 20.7999992370605px;">The easiest way to avoid being hurt is to not get involved in the first instance, right? There is a saying which builders use "measure twice, cut once". The same principal applies on due diligence on companies. There is nothing wrong with asking for the obvious, well before getting involved. When someone tells you they have X, and you ask for proof, this is not only your right but just plain common sense.</p> <p style="line-height: 20.7999992370605px;">Further to this, I have a rule I apply - don't ever lie to me or provide me with half information. I'll provide an example from a recent exchange with a company. I was told that a particular company had&nbsp;X. I asked to see the contracts to prove this. I was then told that there was actually a letter of intent (LOI). I will never deal with that person again. An LOI and an actual contract are not the same thing. I was clearly told that the contract existed.</p> <p style="line-height: 20.7999992370605px;">In response to the questions on jurisdictions. Sure, though they differ widely. It's best to have companies incorporated in investor friendly jurisdictions even if they're doing business in jurisdictions which may not be so robust legally. Criminal fraud prosecution is definitely an option, though it really depends whether or not this is worth pursuing. It really is best to have investor protections in term sheets at the outset.</p> <p style="line-height: 20.7999992370605px;">With respect to the question regarding weighting of shareholders and shareholder influence. Depending on the jurisdiction it is typical that you can obtain the cap table and shareholder register and pursue organizing a shareholder led effort to force removal of directors, disclosures etc. The topic is really too wide to answer in a paragraph...</p> <p style="line-height: 20.7999992370605px;">- Chris</p> <p style="line-height: 20.7999992370605px;">PS:&nbsp;Accredited investors interested in proprietary deal flow, and participating in investments alongside Mark and myself can inquire&nbsp;<a href="http://seraph.vc/inquire/">here</a>.</p> <p style="line-height: 20.7999992370605px;">&nbsp;</p> <p style="line-height: 20.7999992370605px;"><em>"There can be as much value in the blink of an eye as in months of rational analysis."</em>&nbsp;- Malcolm Gladwell</p> http://www.zerohedge.com/news/2014-09-19/how-good-decision-making-can-save-your-ass#comments Bitcoin Carl Icahn ETC Lie to Me Fri, 19 Sep 2014 06:05:18 +0000 Capitalist Exploits 494560 at http://www.zerohedge.com Shale Fracking Is a “Ponzi Scheme” … “This Decade’s Version of The Dotcom Bubble” … “A Lot In Common With the Subprime Mortgage" http://www.zerohedge.com/news/2014-09-19/shale-fracking-%E2%80%9Cponzi-scheme%E2%80%9D-%E2%80%A6-%E2%80%9C-decade%E2%80%99s-version-dotcom-bubble%E2%80%9D-%E2%80%A6-%E2%80%9C-lot-common-sub <p>In 2011, the New York Times <a data-mce-="" href="http://www.nytimes.com/2011/06/26/us/26gas.html?pagewanted=all" target="_blank">wrote</a>:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;Money is pouring in&rdquo; from investors even though <strong>shale gas is &ldquo;inherently unprofitable,</strong>&rdquo; an analyst from PNC Wealth Management, an investment company, <a data-mce-="" href="http://www.nytimes.com/interactive/us/natural-gas-drilling-down-documents-4.html#document/p15/a22739" target="_blank" title="February e-mail">&nbsp;wrote to a contractor in a February e-mail</a>. <strong>&ldquo;Reminds you of dot-coms.&rdquo;</strong></p> <p>&nbsp;</p> <p>&ldquo;The word in the world of independents is that <strong>the shale plays are just giant Ponzi schemes</strong> and the economics just do not work,&rdquo; an analyst from IHS Drilling Data, an energy research company, <a data-mce-="" href="http://www.nytimes.com/interactive/us/natural-gas-drilling-down-documents-4.html#document/p1/a22779" target="_blank">&nbsp;wrote in an e-mail on Aug. 28, 2009</a>.</p> <p>&nbsp;</p> <p>***</p> <p>&nbsp;</p> <p>&ldquo;And now these corporate giants are having an <strong>Enron moment</strong>,&rdquo; a retired geologist from a major oil and gas company <a data-mce-="" href="http://www.nytimes.com/interactive/us/natural-gas-drilling-down-documents-4.html#document/p19/a24620" target="_blank">&nbsp;wrote in a February e-mail</a> about other companies invested in shale gas.</p> <p>&nbsp;</p> <p>***</p> <p>&nbsp;</p> <p>Deborah Rogers, a member of the advisory committee of the Federal Reserve Bank of Dallas, [and a]&nbsp; former stockbroker with Merrill Lynch ... showed that wells were petering out faster than expected.</p> <p>&nbsp;</p> <p>&ldquo;These wells are depleting so quickly that the operators are in an expensive game of &lsquo;catch-up,&rsquo;&nbsp;&rdquo; Ms. Rogers wrote in an e-mail on Nov. 17, 2009, to a petroleum geologist in Houston, who wrote back that he agreed.</p> <p>&nbsp;</p> <p>***</p> <p>&nbsp;</p> <p>A review of more than 9,000 wells, using data from 2003 to 2009, shows that &mdash; based on widely used industry assumptions about the market price of gas and the cost of drilling and operating a well &mdash; <strong><span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">less</span> <span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">than</span> <span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">10</span> <span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">percent</span> of the wells had recouped their estimated costs by the time they were seven years old</strong>.</p> <p>&nbsp;</p> <p>***</p> <p>&nbsp;</p> <p>&ldquo;Looks like crap,&rdquo; the Schlumberger official wrote about the well&rsquo;s performance, according to the regulator, &ldquo;but operator will flip it based on &lsquo;potential&rsquo; and make some money on it.&rdquo;</p> </blockquote> <p>In 2012, the New York Times <a data-mce-="" href="http://www.nytimes.com/2012/10/21/business/energy-environment/in-a-natural-gas-glut-big-winners-and-losers.html?pagewanted=all">pointed out</a>:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>The gas rush has ... been a <strong>money loser so far for many of the gas exploration companies</strong> and their tens of thousands of investors.</p> <p>&nbsp;</p> <p>***</p> <p>&nbsp;</p> <p><strong>Although the bankers made a lot of money</strong> from the deal making and a handful of energy companies made fortunes by exiting at the market&rsquo;s peak, <strong>most of the industry has been bloodied</strong> &mdash; forced to sell assets, take huge write-offs and shift as many drill rigs as possible from gas exploration to oil, whose price has held up much better.</p> <p>&nbsp;</p> <p>***</p> <p>&nbsp;</p> <p>Now the gas companies are committed to <strong>spending far more to produce gas than they can earn selling it</strong>. Their stock prices and debt ratings have been hammered.</p> </blockquote> <p>Rolling Stone <a data-mce-="" href="http://www.rollingstone.com/politics/news/the-big-fracking-bubble-the-scam-behind-the-gas-boom-20120301" target="_blank">reported</a> the same year:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Fracking, it turns out, is about producing cheap energy the same way the mortgage crisis was about helping realize the dreams of middle-class homeowners. For Chesapeake, <strong>the primary profit in fracking comes not from selling the gas itself, but from buying and flipping the land that contains the gas</strong>. The company is now the largest leaseholder in the United States, owning the drilling rights to some 15 million acres &ndash; an area more than twice the size of Maryland. McClendon [the CEO of fracking giant Chesapeake] has financed this land grab with junk bonds and complex partnerships and future production deals, creating a highly leveraged, deeply indebted company that has<strong> more in common with Enron than ExxonMobil</strong>. As McClendon put it in a conference call with Wall Street analysts a few years ago, &quot;<strong>I can assure you that buying leases for x and selling them for 5x or 10x is a lot more profitable than trying to produce gas</strong> at $5 or $6 per million cubic feet.&quot;</p> <p>&nbsp;</p> <p>According to Arthur Berman, a respected energy consultant in Texas who has spent years studying the industry, Chesapeake and its lesser competitors <strong>resemble a Ponzi scheme, overhyping the promise of shale gas in an effort to recoup their huge investments in leases and drilling</strong>. When the wells don&#39;t pay off, the firms wind up scrambling to mask their financial troubles with convoluted off-book accounting methods. &quot;<strong>This is an industry that is caught in the grip of magical thinking,&quot;</strong> Berman says. &quot;In fact, when you look at the level of debt some of these companies are carrying, and the questionable value of their gas reserves, there is <strong>a lot in common with the subprime mortgage market just before it melted down.</strong>&quot;</p> <p>&nbsp;</p> <p>***</p> <p>&nbsp;</p> <p>In February, Chesapeake announced that, because of low gas prices, its revenues will fall $3.5 billion short of its expenses this year.</p> </blockquote> <p>Jim Quinn <a data-mce-="" href="http://www.zerohedge.com/news/2013-10-07/guest-post-about-shale-oil-gas-miracle">noted</a> last year:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Royal Dutch Shell is one of the biggest corporations in the world, with financial resources greater than 99% of all the organizations on earth. Their CEO [Peter&nbsp; Voser] probably knows a little bit more about oil exploration than the Wall Street systers and CNBC bimbos. His company has poured $24 billion into shale exploration in the U.S. It has been a huge failure. They have already written off $2.1 billion. They are trying to sell&nbsp;huge swaths of land in the&nbsp;Eagle Ford area. They are losing money in the shale oil and gas business. <strong>If Shell can&rsquo;t make it profitable, who can?</strong></p> </blockquote> <p>Oil Price <a data-mce-="" href="http://oilprice.com/Energy/Natural-Gas/Shells-American-Woes-Highlight-Difficulty-of-Cracking-Shale.html">reported</a> in March:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Shell&rsquo;s new boss, Ben van Beurden, said bets on U.S. shale plays haven&rsquo;t worked out for his company.</p> <p>&nbsp;</p> <p>***</p> <p>&nbsp;</p> <p>&ldquo;Some of our exploration bets have simply not worked out,&rdquo; Shell&rsquo;s Chief Executive Officer Ben van Beurden <a data-mce-="" href="http://www.reuters.com/article/2014/03/13/us-shell-strategy-idUSBREA2C0NE20140313">said</a>. It was bad management policy to commit close to $80 billion in capital on its North American portfolio and still lose money. Now, he said, it&rsquo;s time to cut the loss and slash exploration and production investments by 20 percent for 2014.</p> <p>&nbsp;</p> <p>***</p> <p>&nbsp;</p> <p>Shell&rsquo;s problems say more about the difficulties of shale exploration than they do about the company itself.</p> </blockquote> <p>The Wall Street Journal <a data-mce-="" href="http://online.wsj.com/news/articles/SB10001424052702304688104579467823517834980" target="_blank">pointed out</a> this April:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>These newly public companies are spending more than they make ....</p> </blockquote> <p>Bloomberg <a data-mce-="" href="http://www.bloomberg.com/news/2014-05-26/shakeout-threatens-shale-patch-as-frackers-go-for-broke.html">wrote</a> in May:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>Shale debt has almost doubled over the last four years while revenue has gained just 5.6 percent</strong>, according to a Bloomberg News analysis of 61 shale drillers. A dozen of those wildcatters are spending at least 10 percent of their sales on interest compared with Exxon Mobil Corp.&rsquo;s 0.1 percent.</p> <p>&nbsp;</p> <p>&ldquo;The list of companies that are financially stressed is considerable,&rdquo; said Benjamin Dell, managing partner of Kimmeridge Energy, a New York-based alternative asset manager focused on energy. &ldquo;Not everyone is going to survive. We&rsquo;ve seen it before.&rdquo;</p> <p>&nbsp;</p> <p>***</p> <p>&nbsp;</p> <p>In a measure of the shale industry&rsquo;s financial burden, <strong>debt hit $163.6 billion</strong> in the first quarter, according to company records compiled by Bloomberg on 61 exploration and production companies that target oil and natural gas trapped in deep underground layers of rock.</p> <p>&nbsp;</p> <p>***</p> <p>&nbsp;</p> <p><strong>Drillers are caught in a bind.</strong> <strong>They must keep borrowing to pay for exploration needed to offset the steep production declines typical of shale wells. At the same time, investors have been pushing companies to cut back. Spending tumbled at 26 of the 61 firms examined. For companies that can&rsquo;t afford to keep drilling, less oil coming out means less money coming in, accelerating the financial tailspin.</strong></p> <p>&nbsp;</p> <p>***</p> <p>&nbsp;</p> <p>&ldquo;Interest expenses are rising,&rdquo; said Virendra Chauhan, an oil analyst with Energy Aspects in London. &ldquo;<strong>The risk for shale producers is that because of the production decline rates, you constantly have elevated capital expenditures</strong>.&rdquo;</p> </blockquote> <p>And Tim Morgan - former global head of research at Tullett Prebon - <a data-mce-="" href="http://www.telegraph.co.uk/finance/personalfinance/investing/11006723/fracking-for-Shale-gas-the-dotcom-bubble-of-our-times.html">explained</a> last month at the Telegraph:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>We now have more than enough data to know what has really happened in America.</p> <p>&nbsp;</p> <p>***</p> <p>&nbsp;</p> <p>If a huge number of wells come on stream in a short time, you get a lot of initial production. This is exactly what has happened in the US.</p> <p>&nbsp;</p> <p>The key word here, though, is &quot;initial&quot;. The big snag with shale wells is that output falls away very quickly indeed after production begins. Compared with &ldquo;normal&rdquo; oil and gas wells, where output typically decreases by 7pc-10pc annually, rates of decline for shale wells are dramatically worse. It is by no means unusual for production from each well to fall by 60pc or more in the first 12 months of operations alone.</p> <p>&nbsp;</p> <p>Faced with such rates of decline, the only way to keep production rates up (and to keep investors on side) is to drill yet more wells. This puts operators on a &quot;drilling treadmill&quot;, which should worry local residents just as much as investors. Net cash flow from US shale has been negative year after year, and some of the industry&rsquo;s biggest names have already walked away.</p> <p>&nbsp;</p> <p>The seemingly inevitable outcome for the US shale industry is that, once investors wise up, and once the drilling sweet spots have been used, production will slump, probably peaking in 2017-18 and falling precipitously after that. The US is already littered with wells that have been abandoned, often without the site being cleaned up.</p> <p>&nbsp;</p> <p>Meanwhile, recoverable reserves estimates for the Monterey shale &ndash; supposedly the biggest shale liquids play in the US &ndash; have been revised downwards by 96pc. [<a data-mce-="" href="http://www.latimes.com/business/la-fi-oil-20140521-story.html">Background</a>; and <a data-mce-="" href="http://www.businessweek.com/news/2012-01-25/u-s-cuts-estimate-for-marcellus-shale-gas-reserves-by-66-.html">see this</a>.]&nbsp; In Poland, drilling 30-40 wells has so far produced virtually no worthwhile production.</p> <p>&nbsp;</p> <p><strong>In the future, shale will be recognised as this decade&#39;s version of the dotcom bubble</strong>. In the shorter term, it&#39;s a counsel of despair as an energy supply squeeze draws ever nearer.</p> </blockquote> http://www.zerohedge.com/news/2014-09-19/shale-fracking-%E2%80%9Cponzi-scheme%E2%80%9D-%E2%80%A6-%E2%80%9C-decade%E2%80%99s-version-dotcom-bubble%E2%80%9D-%E2%80%A6-%E2%80%9C-lot-common-sub#comments Bloomberg News Capital Expenditures CRAP Dell Enron Exxon Federal Reserve Federal Reserve Bank Ford Merrill Merrill Lynch Natural Gas New York Times Poland ratings Wall Street Journal Fri, 19 Sep 2014 05:12:12 +0000 George Washington 494559 at http://www.zerohedge.com Scotland Says "No" - The Results So Far: NO 54.3% - 45.7% YES (26/32 In: NO 21 - 5 YES) http://www.zerohedge.com/news/2014-09-18/live-feed-scotland-results-start-trickling <p>&nbsp;</p> <blockquote class="twitter-tweet" lang="en"><p>Breaking News: Scotland Votes No. More on the live blog: <a href="http://t.co/GlTbXbfE53">http://t.co/GlTbXbfE53</a> <a href="https://twitter.com/hashtag/indyreflive?src=hash">#indyreflive</a> <a href="https://twitter.com/hashtag/indyref?src=hash">#indyref</a> <a href="http://t.co/SnxJRyVQyL">pic.twitter.com/SnxJRyVQyL</a></p> <p>— The Daily Record (@Daily_Record) <a href="https://twitter.com/Daily_Record/status/512820375323824131">September 19, 2014</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><p><span style="text-decoration: underline;"><strong></strong></span></p> <p>&nbsp;</p> <ul> <li><span style="text-decoration: underline;"><strong>*SCOTLAND VOTES AGAINST INDEPENDENCE IN REFERENDUM, BBC PROJECTS</strong></span></li> <li><strong>*SCOTLAND VOTES: BBC PROJECTS NO 55%, YES 45% IN REFERENDUM</strong></li> </ul> <p><iframe src="//www.youtube.com/embed/6wyLvagyApY" width="480" height="360" frameborder="0"></iframe></p> <p>The reaction in Cable...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/09/20140918_UK1.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/09/20140918_UK1_0.jpg" width="600" height="319" /></a></p> <p>&nbsp;</p> <p>The initial results are in:</p> <p>NO's...</p> <ul> <li>*SCOTLAND VOTES: CLACKMANNANSHIRE 16,350 YES, 19,036 NO</li> <li><strong>*SCOTLAND VOTES: CLACKMANNANSHIRE YES 46.2%, <span style="text-decoration: underline;">NO 53.8%</span></strong></li> <li>*SCOTLAND VOTES: ORKNEY 4,883 YES, 10,004 NO</li> <li><strong>*SCOTLAND VOTES: ORKNEY 32.8% YES, <span style="text-decoration: underline;">67.2% NO</span></strong></li> <li>*SCOTLAND VOTES: SHETLAND 5,669 YES, 9,951 NO</li> <li><strong>*SCOTLAND VOTES: SHETLAND 36% YES, <span style="text-decoration: underline;">64% NO</span></strong></li> <li>*SCOTLAND VOTES: EILEAN SIAR 9,195 YES, 10,544 NO</li> <li><strong>*SCOTLAND VOTES: EILEAN SIAR 47% YES, <span style="text-decoration: underline;">53% NO</span></strong></li> <li>*SCOTLAND VOTES: INVERCLYDE 27,243 YES, 27,329 NO</li> <li><strong>*SCOTLAND VOTES: INVERCLYDE 49.9% YES, <span style="text-decoration: underline;">50.1% NO</span></strong></li> <li>*SCOTLAND VOTES: RENFREWSHIRE 55,466 YES, 62,067 NO</li> <li><strong>*SCOTLAND VOTES: RENFREWSHIRE 47.2% YES, <span style="text-decoration: underline;">52.8% NO</span></strong></li> <li>*SCOTLAND VOTES: MIDLOTHIAN 26,370 YES, 33,972 NO</li> <li><strong>*SCOTLAND VOTES: MIDLOTHIAN 44% YES, <span style="text-decoration: underline;">56% NO</span></strong></li> <li>*SCOTLAND VOTES: E. LOTHIAN 27,467 YES, 44,283 NO</li> <li><strong>*SCOTLAND VOTES: E. LOTHIAN 38.3% YES, <span style="text-decoration: underline;">61.7% NO</span></strong><span style="text-decoration: underline;">&nbsp;</span></li> <li>*SCOTLAND VOTES: STIRLING 25,010 YES, 37,153 NO</li> <li><strong>*SCOTLAND VOTES: STIRLING 40.2% YES, <span style="text-decoration: underline;">59.8% NO</span></strong></li> <li>*SCOTLAND VOTES: FALKIRK 50,489 YES, 58,030 NO</li> <li><strong>*SCOTLAND VOTES: FALKIRK 46.5% YES, <span style="text-decoration: underline;">53.5% NO</span></strong><span style="text-decoration: underline;">&nbsp;</span></li> <li>*SCOTLAND VOTES: ANGUS VOTES 35,044 YES, 45,192 NO</li> <li><strong>*SCOTLAND VOTES: ANGUS 43.7% YES, <span style="text-decoration: underline;">56.3% NO</span></strong></li> <li>*SCOTLAND VOTES:DUMFRIES &amp; GALLOWAY 36,614 YES, 70,039 NO<span style="text-decoration: underline;"><br /></span></li> <li><strong>*SCOTLAND VOTES:DUMFRIES &amp; GALLOWAY 34% YES, <span style="text-decoration: underline;">66% NO</span></strong><span style="text-decoration: underline;">&nbsp;</span></li> <li>*SCOTLAND VOTES:ABERDEEN 59,390 YES, 84,220 NO<span style="text-decoration: underline;"><br /></span></li> <li><strong>*SCOTLAND VOTES:ABERDEEN 41% YES, <span style="text-decoration: underline;">59% NO</span></strong></li> <li>*SCOTLAND VOTES: E. RENFREWSHIRE 24,287 YES, 41,690 NO</li> <li><strong>*SCOTLAND VOTES: E. RENFREWSHIRE 37% YES, <span style="text-decoration: underline;">63% NO</span></strong></li> <li>*SCOTLAND VOTES: E. DUNBARTONSHIRE 30,624 YES; 48,214 NO</li> <li><strong>*SCOTLAND VOTES: E. DUNBARTONSHIRE 39% YES, <span style="text-decoration: underline;">61% NO</span></strong></li> <li>*SCOTLAND VOTES: S. LANARKSHIRE VOTES 100,990 YES, 121,800 NO</li> <li><strong>*SCOTLAND VOTES: S. LANARKSHIRE VOTES 45% YES, <span style="text-decoration: underline;">55% NO</span></strong></li> <li>*SCOTLAND VOTES: PERTH &amp; KINROSS VOTES 41,475 YES, 62,714 NO</li> <li><strong>*SCOTLAND VOTES: PERTH &amp; KINROSS VOTES 40% YES, <span style="text-decoration: underline;">60% NO</span></strong></li> <li>*SCOTLAND VOTES: W. LOTHIAN 53,342 YES, 65,682 NO</li> <li><strong>*SCOTLAND VOTES: W. LOTHIAN 45% YES, <span style="text-decoration: underline;">55% NO</span></strong><span style="text-decoration: underline;">&nbsp;</span></li> <li>*SCOTLAND VOTES: SCOTTISH BORDERS VOTES 27,906 YES, 55,553 NO</li> <li><strong>*SCOTLAND VOTES: SCOTTISH BORDERS VOTES 33% YES, <span style="text-decoration: underline;">67% NO</span></strong><span style="text-decoration: underline;">&nbsp;</span></li> <li>*SCOTLAND VOTES: N. AYRSHIRE 47,072 YES, 49,016 NO</li> <li><strong>*SCOTLAND VOTES: N. AYRSHIRE 49% YES, <span style="text-decoration: underline;">51% NO</span></strong><span style="text-decoration: underline;">&nbsp;</span></li> <li>*SCOTLAND VOTES: S. AYRSHIRE 34,402 YES, 47,247 NO</li> <li><strong>*SCOTLAND VOTES: S. AYRSHIRE 42% YES, <span style="text-decoration: underline;">58% NO</span></strong><span style="text-decoration: underline;">&nbsp;</span></li> <li>*SCOTLAND VOTES: E. AYRSHIRE 39,762 YES, 44,442 NO</li> <li><strong>*SCOTLAND VOTES: E. AYRSHIRE 47% YES, <span style="text-decoration: underline;">53% NO</span></strong><span style="text-decoration: underline;"><br /></span></li> </ul> <p>YES's...</p> <ul> <li>*SCOTLAND VOTES: DUNDEE 53,620 YES, 39, 880 NO</li> <li><strong>*SCOTLAND VOTES: DUNDEE <span style="text-decoration: underline;">57% YES</span>, 43% NO</strong></li> <li>*SCOTLAND VOTES: W. DUNBARTONSHIRE 33,720 YES, 28, 776 NO</li> <li><strong>*SCOTLAND VOTES: W. DUNBARTONSHIRE <span style="text-decoration: underline;">54% YES</span>, 46% NO</strong></li> <li>*SCOTLAND VOTES: N. LANARKSHIRE 115,783 YES, 110,922 NO</li> <li><strong>*SCOTLAND VOTES: N. LANARKSHIRE <span style="text-decoration: underline;">51% YES</span>, 49% NO</strong></li> <li>*SCOTLAND VOTES: GLASGOW 194,779 YES, 169,347 NO</li> <li><strong>*SCOTLAND VOTES: GLASGOW <span style="text-decoration: underline;">53% YES</span>, 47% NO</strong></li> </ul> <p>A picture paints a thousand words...</p> <blockquote class="twitter-tweet" lang="en"><p>Alex Salmond has been conspicuous by his absence tonight, but has now been spotted at Aberdeen Airport. <a href="https://twitter.com/hashtag/indyreflive?src=hash">#indyreflive</a> <a href="http://t.co/Bz5q5eNiIB">pic.twitter.com/Bz5q5eNiIB</a></p> <p>— The Daily Record (@Daily_Record) <a href="https://twitter.com/Daily_Record/status/512791083508457472">September 19, 2014</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><p>Some of the most recent updates:</p> <blockquote class="twitter-tweet" lang="en"><p>Better Together campaign director Blair McDougall says there has been an "extraordinary" <a href="https://twitter.com/hashtag/indyref?src=hash">#indyref</a> turnout with nearly 100% in some places</p> <p>— Sky News Newsdesk (@SkyNewsBreak) <a href="https://twitter.com/SkyNewsBreak/status/512711596481576960">September 18, 2014</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet"> <p>First news coming in of the modern Battle of Falkirk - YES need it BUT NO campaign say they going to win</p> <p>— Nick Robinson (@bbcnickrobinson) <a href="https://twitter.com/bbcnickrobinson/status/512745801496264704">September 18, 2014</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet"> <p>Yes sources say data suggest Glasgow could be 54% yes, 46% no. Mood quite flat in the Yes camp though. <a href="https://twitter.com/hashtag/indyref?src=hash">#indyref</a> <a href="https://twitter.com/hashtag/Scotland?src=hash">#Scotland</a></p> <p>— James Cook (@BBCJamesCook) <a href="https://twitter.com/BBCJamesCook/status/512747095434866688">September 18, 2014</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet"> <p>Better Together sources sounding confident, saying they're certain they've got their vote out in droves. <a href="https://twitter.com/hashtag/indyref?src=hash">#indyref</a> <a href="https://twitter.com/hashtag/Scotland?src=hash">#Scotland</a></p> <p>— James Cook (@BBCJamesCook) <a href="https://twitter.com/BBCJamesCook/status/512747271968931840">September 18, 2014</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet"> <p>A snapshot of what's going on in Pacific Quay tonight. All the <a href="https://twitter.com/hashtag/indyref?src=hash">#indyref</a> developments here &gt;&gt;&gt; <a href="http://t.co/W7hfyV0m9y">http://t.co/W7hfyV0m9y</a> <a href="http://t.co/sInyPF8UDR">pic.twitter.com/sInyPF8UDR</a></p> <p>— BBC Scotland (@BBCScotland) <a href="https://twitter.com/BBCScotland/status/512747989845037056">September 18, 2014</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet"> <p>I'm told some of the polling stations in East Renfrewshire area had 98% turnout! Verification process finished turnout figures for here soon</p> <p>— Jane Lewis (@BBCJaneLewis) <a href="https://twitter.com/BBCJaneLewis/status/512749920793526274">September 18, 2014</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet"> <p><a href="https://twitter.com/hashtag/indyref?src=hash">#indyref</a> night so far:</p> <p>• Glasgow fraud probe<br /> • Turnouts topping 80%<br /> • Declarations still due</p> <p>Live here <a href="http://t.co/eTLjieobrP">http://t.co/eTLjieobrP</a></p> <p>— BBC Scotland News (@BBCScotlandNews) <a href="https://twitter.com/BBCScotlandNews/status/512750962675441664">September 18, 2014</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><blockquote class="twitter-tweet"> <p>BBC's Nick Witchell reports that the Queen is expected to issue a written statement late afternoon on Friday about the result. <a href="https://twitter.com/hashtag/indyref?src=hash">#indyref</a></p> <p>— Kevin Keane (@kkabdn) <a href="https://twitter.com/kkabdn/status/512752275882639363">September 18, 2014</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><p><em>Below is a bullet summary of the most recent developments courtesy of the <a href="http://news.yahoo.com/scotland-referendum-live-report-180403797.html;_ylt=AwrSyCRxKxtUyG4Ale7QtDMD">AFP live blog:</a></em><a href="http://news.yahoo.com/scotland-referendum-live-report-180403797.html;_ylt=AwrSyCRxKxtUyG4Ale7QtDMD"></a></p> <p>23:58 GMT - Fraud allegations - News breaking that police are investigating allegations of electoral fraud in Glasgow. Officials at the referendum count in Glasgow say they are investigating 10 cases of suspected electoral fraud at polling stations.<br />Related Stories</p> <p>Media reports say it relates to incidents where people turned up to vote and were told they had already voted.</p> <p>23:47 GMT - Turnout figures - First turnout figures for a couple of areas have just been announced at the count centre in Edinburgh.</p> <p>In Orkney the turnout was 83.7 percent, in Clackmannanshire 88.6 percent, fitting the trend of what is expected to be extraordinarily high participation.</p> <p>23:42 GMT - Tribal chief - AFP's Katherine Haddon, at the Edinburgh count centre, says journalists there face a long wait as officials concentrate on the business of counting the huge numbers of ballot papers. But they are not without diversions:</p> <p>"In the Edinburgh count hall, Benny Wenda, a campaigner for West Papua to be independent from Indonesia, is drawing plenty of attention from journalists, wearing a tribal chief's headdress featuring the head of a bird of paradise," she tells us.</p> <p>He is in Scotland with the Radical Independence Campaign but normally lives in Oxford and is one of many separatists from other nations who hope the Scottish vote will mobilise support for their own independence battles.</p> <p>"I'm campaigning for an independence referendum for my people," says Wenda.</p> <p>23:30 GMT - Roundup - In case you are just joining us, counting is now under way at each of Scotland's 32 polling stations, with the first results expected from around 2am local time. The final vote will not be announced until after 6am, but a running total may well make it possible to call the result before then.</p> <p>Officials have reported an unprecedented turnout -- up to 90 percent in some areas, with postal votes also high -- and many people have hailed it a victory for democracy, whatever the outcome.</p> <p>A YouGov poll released after the close of polling predicted a victory for the "No" campaign of 54 percent to 46 for "Yes". But this hasn't stopped large crowds of pro-independence supporters gathering expectantly in Glasgow's George Square and outside the Scottish parliament in Edinburgh.</p> <p>22:55 GMT - Bookies expect 'No' - Since the close of voting, betting markets have shifted considerably towards a 'No' vote. Bookmakers Ladbrokes said the latest odds were 1/7 'No' 9/2 'Yes'.</p> <p>22:44 GMT - George Square - In Glasgow, the central George Square is awash with blue and white flags, as thousands of independence supporters await the results.</p> <p>Globe and Mail correspondent Mark MacKinnon tweets: "On Glasgow's George Square. Crowd waiting for the official count, and hoping the #indyref polls are wrong..."</p> <p>Other twitter users have posted videos and pictures of flares being lit and flags burned.</p> <p>22:24 GMT - Looking ahead - Scottish Secretary Alistair Carmichael has invited the SNP to join discussions on more powers for the Scottish Parliament if there is a "No" vote.</p> <p>He tells STV: "If we have got a no vote as I hope… that's something I would want people from the SNP to be involved in."</p> <p>Alluding to what at times has been a fiercely fought campaign, he adds: "We have got to heal the wounds that we have inflicted on ourselves."</p> <p>22:19 GMT - Queen 'watching' - Royal officials tell Britain's Sky News that Queen Elizabeth is watching the referendum results "very closely". Publicly, she has stayed out of the debate, saying it was "a matter for the people of Scotland".</p> <p>22:13 GMT - Ballot boxes arrive - AFP's Katherine Haddon, in Edinburgh, tells us: "First ballot boxes from polling stations are starting to arrive at the Edinburgh count. In the hall, "Yes" and "No" supporters, some in t-shirts advertising their allegiance, a couple in kilts, cluster in groups chatting to each other, looking anxious. It's going to be a long night."</p> <p>22:02 GMT - At the Aberdeen count centre representatives from both the "Yes" and "No" campaigns watch on, trying to get a sample feel of the number of votes cast at this stage.</p> <p>This is one of the biggest counts in the country and First Minister Alex Salmond's vote will be among those counted when the ballot box from his rural home village of Strichen arrives.</p> <p>21:59 GMT - Aberdeen count - AFP's Robin Millard is at the Aberdeen Exhibition and Conference Centre, where the count for rural Aberdeenshire is taking place. The votes from Aberdeen city are being counted in a separate venue in Scotland's oil capital.</p> <p>"At the stroke of 10pm, when the polls closed, counting officials immediately went into action," he tells us.</p> <p>"Boxes of postal votes were tipped out onto the tables and officials in white t-shirts, with blue plastic thimbles for extra purchase on each ballot, began counting the number of votes in piles of 100 to make sure they matched the given tally.</p> <p>"Plastic boxes filled with sweets are on hand to keep the counters going. With the first piles complete, they drummed their fingers on the tables in anticipation of many, many more."</p> <p>21:53 GMT - Chairman of the Yes Scotland campaign Dennis Canavan tells Scottish television station STV: "Some people may be super-optimistic… I'm a bit more of a realist, I still think it's neck and neck."</p> <p>* * * </p> <p><em>Finally, for those who enjoy observing events on the ground, here is a live webcast from the ground in Scotland:</em></p> <p><iframe src="http://new.livestream.com/accounts/6163639/events/3403698/player?width=560&amp;height=315&amp;autoPlay=true&amp;mute=false" width="560" height="315" frameborder="0" scrolling="no"> </iframe></p> http://www.zerohedge.com/news/2014-09-18/live-feed-scotland-results-start-trickling#comments Twitter Twitter Fri, 19 Sep 2014 02:20:15 +0000 Tyler Durden 494553 at http://www.zerohedge.com When War Erupts Patriots Will Be Accused Of Aiding "The Enemy" http://www.zerohedge.com/news/2014-09-18/when-war-erupts-patriots-will-be-accused-aiding-enemy <p><em>Submitted by <a href="http://www.alt-market.com/articles/2326-when-war-erupts-patriots-will-be-accused-of-aiding-qthe-enemyq">Brandon Smith via Alt-Market blog</a>,</em></p> <p style="margin-bottom: 0in"><strong>In modern times, war is never what it seems.</strong> Mainstream historians preach endlessly about grand conflicts over territory, resources, political impasse, and revenge, but the cold hard reality is that all of these &ldquo;motivations&rdquo; are actually secondary, if they are relevant at all. As I and many analysts have covered in great detail in the past, most wars are engineered wars. International elites have long seen advantages in pitting two seemingly opposed societies or ideologies against each other while playing both sides of the chessboard to direct events towards a predetermined and desired outcome. This is <a href="https://www.youtube.com/watch?v=PaFklTLNy8c">undeniable historical fact</a>. If you really want to understand the past, or the intricacies of war, you will be lost unless you accept that most conflicts are designed; they are not random or natural.</p> <p>They are not extensions of man&#39;s mere greed or ignorance. They are not products of resource scarcity (a common and overly simplistic misconception used to mislead activists). They are not inevitable developments of &ldquo;overcomplexity&rdquo; according to the Rand Corporation&#39;s <a href="http://www.alt-market.com/articles/1308-the-linchpin-lie-how-global-collapse-will-be-sold-to-the-masses">&ldquo;linchpin theory&rdquo;</a> propaganda. They are not the product of too much national sovereignty or individual liberty. No;<strong> traditional war is a tool for the organized ruling class. It always has been and always will be. This tool is used to turn the world into a vast petri dish, a bubbling beaker in a laboratory where social engineers hope to destroy the &ldquo;old&rdquo; to create something &ldquo;new&rdquo;.</strong></p> <p>At its most paramount of purposes, the despair and terror of war is intended to change the fundamental collective unconscious of nations and populations. It is meant to change our beliefs, our morals, our principles. It is meant to mutate us into something else, something malleable and terrible, something we would not normally recognize.</p> <p><strong>As we continue into the latter quarter of 2014, exactly 100 years after the first world war, I see <a href="http://www.alt-market.com/articles/2263-internationalists-are-pushing-the-world-towards-globally-engineered-economic-warfare">much evidence</a> to suggest we are headed for yet another engineered conflagration. </strong>It may be a war of terrorism and attrition between the U.S. and ISIS (an insurgency <a href="http://www.alt-market.com/articles/2298-the-time-is-ripe-for-a-false-flag-attack-on-american-soil">funded and trained</a> by Western covert agencies). It may be a war of economic escalation between the West and the East (even though Russia is just as much a pawn of international banks <a href="http://www.bloomberg.com/news/2013-02-05/goldman-sachs-hired-by-russia-as-corporate-broker-to-boost-image.html">like Goldman Sachs</a> as any country in the West). Or, we may see all out global holocaust depending on the level of desperation and insecurity amongst the elites. What each liberty movement proponent, constitutionalist, and freedom fighter around the world needs to understand is that while we will be told that the enemy is Muslim extremism, or Russian aggression, or eastern economic subversion, the real target will be YOU.</p> <p><strong>The advantages of war at this time would be immense to the globalist establishment, but the primary function will be the ability to co-opt, demonize, and/or wipe out legitimate opposition during the fog and confusion.</strong> If you have ever noticed that each consecutive presidential administration seems progressively more hell-bent than the last to sabotage our infrastructure and push us towards endless confrontation, you might want to ponder the possibility that the New World Order does not end with the fall of the American empire - it BEGINS with the fall of the American empire.</p> <p><strong>Imagine a war in which a tangible and immediate threat is presented against the U.S.</strong> Not a CNN covered carpet bombing campaign in some poverty stricken hole on the other side of the world, but a real war right on our very own doorstep. Now, consider how this would psychologically affect the general public, and twist the principles of the average person. Imagine the kinds of morally relative impasses people would be willing to accept when they are truly afraid. Imagine what they would sacrifice to quell that fear. Imagine who they would sacrifice.</p> <p><u><strong>In such an environment, the concepts of free speech and personal dissent are rarely respected.</strong></u></p> <p><u><strong>In war, dissent is often labeled treason, and free speech is labeled a peacetime privilege.</strong></u> The truth becomes a nuisance, or even a threat to the endurance of the state and by extension the collective. The same argument always arises &ndash; the argument that the survival of the group outweighs any disagreement the individual may have with the objectives of the group&#39;s leadership. In turn, calls for &ldquo;unification&rdquo; reach a religious fervor, regardless of whose benefit this unification ultimately serves.</p> <p><strong><u>In the meantime, those who were tolerated as activists now become enemies of the state simply for doing what they have always done.</u></strong> The propaganda is already being put in place to assure the liberty movement is caught in the crossfire between the East and West.</p> <p>For years I have been warning readers about the <a href="http://www.alt-market.com/articles/2168-the-new-world-order-and-the-rise-of-the-east">false East/West paradigm</a> and the directed build up to <a href="http://www.alt-market.com/articles/2074-russia-is-dominated-by-global-banks-too">conflict with Russia and China</a> with the goal of <strong>creating a rational historical narrative by which the dollar could be supplanted as the world reserve currency</strong> to make way for a long planned basket currency system under the control of the IMF and the Bank of International Settlements. During the crisis, Americans blame the East for the implosion of the dollar system rather than international and central bankers (the true culprits), and chaos ensues as the masses turn on each other while the elites sit back in relative comfort, letting us destroy each other.</p> <p><strong>Another aspect of this plan, I believe, involves the hijacking of the image of the liberty movement.</strong> The liberty movement is essentially the most dangerous unknown element on the elite&#39;s global chessboard. In fact, because we understand that international financiers and central bankers are the real enemy, we have the ability to leave the chessboard entirely and play by our own rules. Widespread economic or military conflict provides an opportunity to neutralize liberty activists who might turn revolutionary.</p> <p>Recently, I came across an article from &#39;The Atlantic&#39; titled <a href="http://www.theatlantic.com/international/archive/2014/09/russia-putin-revolutionizing-information-warfare/379880/">&#39;Russia And The Menace Of Unreality&#39;</a>. Now, some alternative analysts would read this article and immediately shrug it off as yet another attempt by the Western media machine to propagandize against Russia. Though their motivations are genuine, these analysts would be cementing the delusion that Russia is the &ldquo;good guy&rdquo; and the U.S. is the ever present &ldquo;bad guy&rdquo;. The Atlantic piece is a far more intricate manipulation than they would be giving credit for.</p> <p>In the past I have pointed out that Russian government funded media outlet RT in particular is in fact an ingenious psy-op, not only run by the Russian government as The Atlantic asserts, but influenced by the globalist establishment. It is effective mainly because most of what it reports is absolutely true.&nbsp; What it does NOT report is where we must focus. This might be confusing unless you grasp how false paradigms work. The conflict dynamic between the U.S. and Russia is no more real than the conflict dynamic between Democrats and Republicans. If you understand that this time around, America is scripted to lose its pro-wrestling match with Russia, everything else comes into focus. As far as RT is concerned, here&#39;s the problem:</p> <p><strong>1)</strong> First, RT is relentless in its coverage of corruption within Western governments, but rarely if ever reports anything negative on the Russian establishment. I&#39;m sorry, but Russia&#39;s economic policy is dominated by central bankers who are advised directly by <a href="http://www.reuters.com/article/2014/05/06/ukraine-crisis-goldman-russia-idUSL2N0NS08020140506">Goldman Sachs</a> and who are avid members of the IMF and the BIS. The RDIF (Russian Direct Investment Fund), manages billions in investments in Russia, <a href="http://www.bloomberg.com/news/2014-09-01/russia-said-to-plan-sovereign-fund-move-over-sanctions.html">works closely with Goldman Sachs</a>, and the managing director of this institution is former IMF head and SDR advocate <a href="http://rdif.ru/Eng_Nabsovet/">Dominique Strauss-Kahn</a>.</p> <p>Vladimir Putin has openly <a href="http://www.themoscowtimes.com/business/article/at-g20-kremlin-to-pitch-new-currency/375364.html">called for the IMF&#39;s Special Drawing Rights basket currency</a> to replace the dollar, demanded that Ukraine <a href="http://news.yahoo.com/russia-ukraine-seek-bailout-loan-imf-082309440--finance.html">take loans from the IMF</a> denominated in SDR&#39;s, and has a <a href="http://www.nytimes.com/2012/01/20/world/europe/henry-kissinger-to-meet-with-vladimir-putin-in-russia.html?_r=2&amp;">long time friendship</a> with Mr. NWO himself, Henry Kissinger. The only &ldquo;conflict&rdquo; Russia has expressed with the globalists at the IMF is that it wishes to be more fully included in the SDR basket system, which has been the planned intention of the IMF anyway. All of this, and RT doesn&#39;t have any hard questions about the loyalties of its own government?</p> <p><strong>2)</strong> Second, the fact based reporting of RT, at least when it comes to the Western side of the globalist establishment, mimics the alternative journalism growing in popularity in the the U.S. At bottom, RT is a newcomer to the world of independent news analysis, but it is ultimately NOT independent, and most of what they do amounts to little more than regurgitated content from more original and insightful Western independent media sources. The Atlantic article above, very cleverly, makes it sound as if it is we witless writers in America who are getting all our info and inspiration from RT. And this is where we begin to see the true nature of the psy-op...</p> <p><strong>3)</strong> Third, because RT mimics our independent media so well, it appeals greatly to a large percentage of liberty movement activists, who tend to forget or are simply unaware that Russia is as much a part of the problem as our own government. There are many liberty proponents who will angrily defend Russia and RT without question simply because RT &ldquo;speaks their language&rdquo;, so Russia must be on their side.</p> <p>This was not as pressing an issue two years ago, when conflict with Russia was a ridiculous notion for many people. But today, conflict with Russia, at the very least on an economic scale, is an inevitability. If you read in full the linked Atlantic article, the narrative that is being constructed is clear &ndash; the establishment hopes to rewrite the history and image of the liberty movement by painting us as dupes radicalized by Russian propaganda, rather than being the originators of our own grassroots movement with our own philosophy and methodology. Through this, they take away our ownership of our own cause.</p> <p>Also, by blindly supporting Russia or the Russian government without considering their participation in the globalist run crisis, liberty activists help reinforce the soon-to-be manufactured lie that we are nothing but puppets of the Putin regime. If we publicly question the intentions of the Russian government as much as we question our own government, we can help to defuse this lie before it can take hold.</p> <p><u><strong>How the mainstream views us or portrays us is not as important as how we view and present ourselves. If we become starry-eyed cheerleaders for Russia, we will lose our sovereign identity as a self motivated counter-movement to the NWO. If you believe like I do that a second American revolution is coming, identity means everything, and it should not be cast aside lightly. Mark my words, one day our activism will be deemed treason, and our rebellion will be marginalized as a servant satellite astro-turf movement organized by Russian interests.</strong></u></p> <p>We can&#39;t prevent how they will label us, but we can make it clear now that we work for NO government, by refusing to disregard the trespasses of any government, even those who appear to support our position.</p> <p><strong>Tied closely to the Russian issue, the liberty movement also has the return of the &ldquo;White Al-Qaeda&rdquo; meme to look forward to.</strong> I have seen a tidal wave of mainstream news stories lately preaching the horrors of a white middle-class America secretly swarming to the Syrian border <a href="http://www.cbsnews.com/news/how-many-americans-have-joined-isis/">to join ISIS</a>. The narrative is setting the stage for false flag terrorism, to be sure, but it is also injecting the theme that anyone who is anti-establishment could be a terrorist. Not an American bred &ldquo;terrorist&rdquo; with his own American-centric ideology fighting against what he sees as a despotic government, but a mercenary extremist desperate for any cause, latching onto the concept of Muslim caliphate because he is bewildered, angry, or insane.</p> <p><strong>In this way, the elites hope to kidnap the liberty culture&#39;s identity, rewriting us into their theater not even as &ldquo;misguided&rdquo; freedom fighters, but rather, as pawns of a foreign cabal. </strong>Many people could be convinced to join a fight by Americans for Americans, no matter how the mainstream portrays our character. But, no one wants to join a group of traitors and sellouts fighting for theocratic Muslim monsters, or covert Russian agencies after the East is blamed for the collapse of the dollar. The complete erasing and rewriting of a movement&#39;s identity through false association is advanced 4<sup>th</sup> generation warfare, and it can only be accomplished in the midst of overwhelming catastrophe. The masses have to be so afraid they begin to lose memory of what life was like before, let alone who stood for what cause.</p> <p><u><em><strong>The public is already quite familiar with the idea that governments buy revolutionaries and create rebellions, just as our government has done in Syria. Why wouldn&#39;t they believe that the Liberty Movement&#39;s rebellion is also actually bought and paid for by some outside enemy, rather than real Americans battling for real freedom?</strong></em></u></p> <p><strong>This examination is not meant to undermine the positive accomplishments made so far by liberty advocates. We have come a long way.</strong>&nbsp; However, if we underestimate or oversimplify the task we have ahead of us, or the well calculated strategies of the internationalists, then we are destined to fall into the trap of becoming yet another element of another false paradigm ourselves, and we will lose. This is a war on all fronts; informational, emotional, intellectual, psychological, spiritual, and physical. It goes well beyond any war ever fought in generations past. If individuals and the activist movement at large do not have the insight and courage to commit fully to combat on every level, they should throw in their bug-out bags and give up now. If they do have the courage, then it is surely time to begin...</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="478" height="433" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20140917_war.jpg?1411077154" /> </div> </div> </div> http://www.zerohedge.com/news/2014-09-18/when-war-erupts-patriots-will-be-accused-aiding-enemy#comments China Corruption Dominique Strauss-Kahn Goldman Sachs goldman sachs Henry Kissinger Rand Corporation Reality Reserve Currency Ukraine Unification Vladimir Putin Fri, 19 Sep 2014 02:17:45 +0000 Tyler Durden 494558 at http://www.zerohedge.com On The Ambiguity Of The Fed's Dot Plot http://www.zerohedge.com/news/2014-09-18/ambiguity-feds-dot-plot <p><em>Via ConvergEx&#39;s Nick Colas,</em></p> <p>In the Q&amp;A period during yesterday&rsquo;s Federal Reserve Chair press conference, Janet Yellen was careful to describe the projections made by Fed officials on future interest rate policy as point estimates.&nbsp; <strong>The implicit caveat here is that every &ldquo;Dot&rdquo; on the Fed&rsquo;s chart of expected future Fed Funds rates carries its own confidence interval &ndash; a statistical range with the dot at the center.</strong> Today we take Chair Yellen&rsquo;s observation to heart, and ponder what range (rather than simple average) of potential future rates is most likely.</p> <p>For example, the average projection for 2015 year-end Fed Funds is 1.27%, but the standard deviation of the 17 estimates that make up that mean is 0.71. Recall your college statistics: that means that a range of 0 to 2.7% covers 95% of the likely outcomes for Fed Funds by the end of next year. Based on this math, it isn&rsquo;t until 2016 that an increase to Fed Funds becomes a statistical certainty, with a 2.7% mean estimate and a range of 0.75 &ndash; 4.7% Fed Funds at a 0.98 standard deviation.</p> <p><strong><span style="text-decoration: underline;">Bottom line: </span>forget the averages - markets actually aren&rsquo;t far off the Fed&rsquo;s estimates &ndash; they&rsquo;re just shading their bets to the lower end of the curve.</strong></p> <p>*&nbsp; *&nbsp; *</p> <p><strong>Market sage and Yankee great Yogi Berra said it best: &ldquo;It&rsquo;s tough to make predictions, especially about the future.&rdquo;</strong> He would have hated working at the Federal Reserve &ndash; or Wall Street, for that matter &ndash; where forecasting is an important part of the job.&nbsp; At the same time both baseball and market projections do have one thing in common: it&rsquo;s more about your averages than any specific at-bat or play.&nbsp; Even the best traders on the Street seldom have win ratios better than 60%.&nbsp; And Yogi &ldquo;Only&rdquo; had a .285 batting average over his career at the Yankees and Mets.</p> <p><strong>All that is worth keeping in mind as you look at the projections made by Federal Reserve officials for where Fed Funds will be at the end of 2015, 2016,&nbsp; 2017, and the longer run.</strong>&nbsp; This is the now-famous &ldquo;Dot Plot&rdquo; chart that got so much attention at today&rsquo;s press conference with Fed Chair Janet Yellen.&nbsp; There&rsquo;s a link to the document at the end of this note, but the basics are as follows:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>The Federal Reserve regularly surveys members of the Federal Open Market Committee on their opinions regarding &ldquo;Appropriate monetary policy in the future&rdquo;.&nbsp;</strong> The Fed defines this as &ldquo;The future path of policy that each participant deems most likely to foster outcomes for economic activity and inflation that best satisfy his or her interpretation of the Federal Reserve&rsquo;s dual objectives of maximum employment and stable prices.&rdquo;&nbsp; The information is part of the central bank&rsquo;s &ldquo;Summary of Economic Projections&rdquo;, or SEP for short.</p> <p>&nbsp;</p> <p><strong>One of the more interesting nuances that Chair Yellen highlighted in her Q&amp;A session with reporters today was the need to think about such projections as merely a point along a continuum.</strong>&nbsp; An estimate of 1% Fed Funds at the end of 2015, for example, did not include how certain the respondent actually was in making that projection. That&rsquo;s an important point, for how valuable is an estimate of 2 percent if the respondent could also tell you that they really thought the range was zero to 4 percent?</p> <p>&nbsp;</p> <p><strong>The capital markets, however, do tend to focus their analysis on the average of these estimates.&nbsp;</strong> Today&rsquo;s Fed dot plot, for example, showed a mean estimate for year-end 2015 Fed Funds of 1.27%, up from the average of 1.2% that the Fed published in June. For 2016, the average rose to 2.68% from June&rsquo;s 2.52%.&nbsp; Longer dated bonds like the U.S. 10-year Treasury sold off after the Fed release, closing the day at a yield of 2.60%, up from the 2.56% level right before the release. The change in the Dot Plot seemed to play a role in that move.&nbsp;</p> </blockquote> <p><strong>Taking Chair Yellen&rsquo;s advice to heart, we got to wondering: just how much certainty does the Dot Plot actually express?</strong>&nbsp; To assess that, we ran the standard deviation for each year&rsquo;s projections: 2015, 2016, 2017, and what the Fed calls the &ldquo;Longer run&rdquo;.&nbsp; A few points here:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>If you want 95% certainty that the Fed will raise interest rates, then 2015&rsquo;s estimates in the Dot Plot will not provide that level of conviction.&nbsp;</strong> Here&rsquo;s the problem in a nutshell. The mean estimate for the 17 projections in the SEP is for Fed Funds to end next year at 1.27%.&nbsp; At the same time, the standard deviation of those estimates is 0.71.</p> <p>&nbsp;</p> <p><strong>Recall your college statistics: in a normally distributed population, you need 2 standard deviations on either side of the mean to cover 95% of the dataset.</strong>&nbsp; In this case, that gives us a range of negative 15 basis points (essentially zero) to positive 2.69%. In other words, Fed Funds could stay at zero for another year and still be consistent with the probabilities expressed by the Fed&rsquo;s Dot Plot.</p> <p>&nbsp;</p> <p><strong>The story changes for year-end 2016, where a similar statistical analysis shows that the FOMC absolutely believes Fed Funds will be at least 74 basis points.</strong> The math here: a mean observation of 2.70% for Fed Funds, and a standard deviation of the Fed&rsquo;s estimates of 0.98.&nbsp; The same holds true for 2017, where Fed Funds should be at least 2.32% (mean of 3.54, standard deviation of 0.61).</p> <p>&nbsp;</p> <p><strong>Going out to the FOMC&rsquo;s &ldquo;Longer run&rdquo; projections, the average here is 3.79% and a quite small 0.26 standard deviation.</strong> That&rsquo;s a much higher degree of certainty than the 2015-2017 forecasts, indicating that the FOMC does have a lot of conviction over where they would like to see rates normalize. One odd historical point: the year end 2006 Fed Funds rate was 5.25%, and 4.25% in December 2005. Why doesn&rsquo;t the FOMC think these (higher) rates are more appropriate than the lower point estimates for retarding the advancement of unwelcomed developments like asset bubbles?</p> <p>&nbsp;</p> <p><strong>This math provides an alternative explanation for another question posed in the press conference yesterday, highlighting a paper out of the San Francisco Fed (Chair Yellen&rsquo;s &ldquo;alma mater&rdquo;).</strong> Essentially, the problem is this: why does the public (as expressed in the prices for financial assets, for example) &ldquo;Expect a more accommodative policy than Federal Open Market Committee participants&rdquo;?</p> <p>&nbsp;</p> <p><strong>Our statistical analysis shows one possible answer: the point estimates in the FOMC&rsquo;s Dot Plot yield an artificial accuracy than markets and the public understand is actually a bit fuzzier than what the simple average shows.</strong> It&rsquo;s not that asset prices are at real loggerheads with the FOMC. Rather they are handicapping the possibility that the Fed&rsquo;s projections will change &ndash; modestly and in line with statistical ranges &ndash; downward over the course of the next 12 months.</p> </blockquote> <p><u><strong>In summary, the Fed&rsquo;s Dot Plot may look like a precise set of forecasts, with a series of purposeful markings meant to portray certainty and conviction.</strong></u> The math, however, says something else entirely.&nbsp; Ambiguity is part of life, either as a central banker or investor.&nbsp; As Yogi once said while giving directions to his house: &ldquo;When you come to a fork in the road, take it.&rdquo;</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="781" height="715" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20140912_baml1_0.jpg?1411092054" /> </div> </div> </div> http://www.zerohedge.com/news/2014-09-18/ambiguity-feds-dot-plot#comments Capital Markets Federal Reserve Janet Yellen Monetary Policy San Francisco Fed Fri, 19 Sep 2014 02:00:56 +0000 Tyler Durden 494557 at http://www.zerohedge.com FX Markets In Turmoil On Scottish Vote & Japan Economic Downgrade http://www.zerohedge.com/news/2014-09-18/fx-markets-turmoil-scottish-vote-japan-economic-downgrade <p>Cable (GBPUSD) is surging as the first results from the Scottish Referendum hit and a resounding &quot;No&quot; to independence appears confirmed. Almost back to pre-Scottish-Vote-fears level (1.66), <strong>cable is up 250 pips in the last 24 hours</strong> (its biggest move in over a year). GBP is also strengthening notably against EUR (2-year highs), CHF (2 year highs) and of course the JPY (6 year highs) as the <strong>Japanese government admits defeat and downgrades its economic assessment for the first time in 5 months</strong> (hence sell JPY as they &#39;must&#39; do more money printing (despite Japanese businesses all pushing for a stronger JPY). FX markets are extremely volatile this evening and implicitly, equity futures are clanging around cluelessly. <strong>The USD Index is flat (gaving retraced all FOMC gains)</strong>.</p> <p>Chaos in FX tonight...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/09/20140918_gbp4.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/09/20140918_gbp4_0.jpg" style="width: 600px; height: 316px;" /></a></p> <p>&nbsp;</p> <p>GBPUSD is retracing all the Scottish vote fears...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/09/20140918_gbp6.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/09/20140918_gbp6_0.jpg" style="width: 600px; height: 314px;" /></a></p> <p>&nbsp;</p> <p>And GBPJPY punched through 180 (as USDJPY broke 109)</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/09/20140918_gbp2.jpg"><img height="312" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/09/20140918_gbp2_0.jpg" width="600" /></a></p> <p>&nbsp;</p> <p>As USDJPY is up 2 big figures from pre-FOMC...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/09/20140918_gbp3.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/09/20140918_gbp3_0.jpg" style="width: 600px; height: 314px;" /></a></p> <p>&nbsp;</p> <p>After Japan downgraded its economic assessment for the first time in 5 months...</p> <ul> <li><strong>*JAPAN GOVT CUTS SEPT. ECONOMIC ASSESSMENT ON WEAK CONSUMPTION</strong></li> </ul> <p>Abe, you have a problem (as the Sont CEO recently explained)</p> <ul> <li><strong>*MOST JAPAN COS. WOULD PREFER A STRONGER YEN: REUTERS SURVEY</strong></li> </ul> <p>Because nothing says Buy The F##king Parabolic Meltup in today&#39;s new normal like an economic downgrade...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/09/20140918_gbp5.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/09/20140918_gbp5_0.jpg" style="width: 600px; height: 315px;" /></a></p> <p>&nbsp;</p> <p>Gold is also sliding (except in JPY terms of course) - driven more by Japan than Scotland</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/09/20140918_gbp7.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/09/20140918_gbp7_0.jpg" style="width: 600px; height: 472px;" /></a></p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p> <p><em>Charts: Bloomberg</em></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="951" height="501" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20140918_gbp4.jpg?1411090282" /> </div> </div> </div> http://www.zerohedge.com/news/2014-09-18/fx-markets-turmoil-scottish-vote-japan-economic-downgrade#comments Japan Meltup New Normal Reuters Yen Fri, 19 Sep 2014 01:36:05 +0000 Tyler Durden 494556 at http://www.zerohedge.com BofA Says Bearish Bonds Means Bullish Greenback http://www.zerohedge.com/news/2014-09-18/bofa-says-bearish-bonds-means-bullish-greenback <p><strong>US Treasuries are breaking out</strong>, according to BofAML&#39;s Macneil Curry, which is very <strong>supportive of the US dollar</strong> (especially against the JPY and EM FX). The only caveat, he warns, <span style="text-decoration: underline;">keep a close eye on fixed income volatility</span>...</p> <p>&nbsp;</p> <p><em>Via BofAML,</em></p> <p><span style="text-decoration: underline;"><strong>5yr Treasuries are breaking out. This is supportive of the US $ against &yen;</strong></span></p> <p><strong>US Treasuries yields are on the move, resuming their long term uptrend. </strong></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/09/20140918_bofa1.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/09/20140918_bofa1_0.jpg" style="width: 600px; height: 333px;" /></a></p> <p>Our focal point for this move is 5yr yields which have broken out from a 1yr range trade and resumed their long term bear trend, targeting 2.025%/2.055% and eventually 2.18%/2.25%.</p> <p>This <strong>should help propel the US $ higher </strong>and maintain its long term bull trend.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/09/20140918_bofa2.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/09/20140918_bofa2_0.jpg" style="width: 600px; height: 334px;" /></a></p> <p>Looking at a weekly chart of the US $ Index, the trend is on track for long term targets between 89/91, particularly as the weekly ADX is breaking out through 6yr trendline resistance (meaning the trend has further room to run). In the very short term, however, we could see a period of pause in both the US $ bull trend and the advance in treasury yields as 2yr yields are testing a confluence of l/term support at 58.9bps/61.1bps and the US $ Index is testing the Jul&#39;13 highs at 84.75. But we must stress that this should be a temporary pause and ultimately a buying opportunity.</p> <p>In particular we think that the next bout of US $ strength is likely to come against EM FX.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/09/20140918_bofa3.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/09/20140918_bofa3_0.jpg" style="width: 600px; height: 335px;" /></a></p> <p><strong>$/&yen; should also continue to appreciate, with a break of 108.95/109.00 exposing 12yr trendline resistance at 109.31</strong> ahead of 110.67 and eventually beyond.</p> <p>One CAVEAT keep a close eye on FI Vol.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/09/20140918_bofa4.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/09/20140918_bofa4_0.jpg" style="width: 600px; height: 316px;" /></a></p> <p><strong>A spike in the MOVE Index could lead to a nasty corrective snap back</strong>, albeit a snap back to buy $/&yen;; especially if 107.49/50 holds.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1261" height="705" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20140918_bofa3.jpg?1411089856" /> </div> </div> </div> http://www.zerohedge.com/news/2014-09-18/bofa-says-bearish-bonds-means-bullish-greenback#comments fixed Volatility Yen Fri, 19 Sep 2014 01:24:18 +0000 Tyler Durden 494555 at http://www.zerohedge.com Why Global Growth Is So Disappointing http://www.zerohedge.com/news/2014-09-18/why-global-growth-so-disappointing <p><em>Submitted by <a href="http://www.salientpartners.com/epsilontheory/notes/Finest_Worksong.html">Salient Partners&#39; Epsilon Theory blog</a>,</em></p> <div style="margin-bottom:14px; border:dashed 1px #858585; padding:20px 20px 5px 20px; background-color:#fbfbfb; "> <p><strong>Take your instinct by the reins<br />You&#39;d better best to rearrange<br />What we want and what we need<br />Has been confused, been confused </strong><br />&ndash; <em>REM, &ldquo;Finest Worksong&rdquo; (1987)</em></p> </div> <div style="margin-bottom:14px; border:dashed 1px #858585; padding:20px 20px 5px 20px; background-color:#fbfbfb; "> <p><strong>The politics of dancing<br />The politics of oooh feeling good </strong><br />&ndash; <em>Re-flex, &ldquo;The Politics of Dancing&rdquo; (1983)</em></p> </div> <div style="margin-bottom:14px; border:dashed 1px #858585; padding:20px 20px 5px 20px; background-color:#fbfbfb; "> <p><strong>The fault, dear Brutus, is not in our stars, but in ourselves.</strong><br />&ndash; <em>William Shakespeare, &ldquo;Julius Caesar&rdquo; (1599)</em></p> </div> <div style="margin-bottom:14px; border:dashed 1px #858585; padding:20px 20px 5px 20px; background-color:#fbfbfb; "> <p><strong>In theory there is no difference between theory and practice. In practice there is.</strong><br />&ndash; <em>Yogi Berra, (b. 1925) </em></p> </div> <div style="display:block; margin-left:auto; margin-right:auto;"><img alt="" class="alignnone size-full wp-image-1101" src="http://www.salientpartners.com/epsilontheory/images/finest.jpg" style="display:block; margin-left:auto; margin-right:auto;" /></div> <p> <div style="display:block; margin-left:auto; margin-right:auto;"><img alt="" class="alignnone size-full wp-image-1101" src="http://www.salientpartners.com/epsilontheory/images/finest2.jpg" style="display:block; margin-left:auto; margin-right:auto;" /></div> </p><p> <div style="margin-bottom:14px; border:dashed 1px #858585; padding:20px 20px 5px 20px; background-color:#fbfbfb; "> <p><strong>Year after year we have had to explain from mid-year on why the global growth rate has been lower than predicted as little as two quarters back. &hellip;</strong></p> <p>Indeed, the IMF&#39;s expectation for long-run global growth is now a full percentage point below what it was immediately before the Global Financial Crisis. &hellip;</p> <p>But it is also possible that the underperformance reflects a more structural, longer-term, shift in the global economy, with less growth in underlying supply factors. <br />&ndash;<em>Fed Vice Chairman Stanley Fischer,</em><strong> &ldquo;</strong><a class="eplink" href="http://www.federalreserve.gov/newsevents/speech/fischer20140811a.htm">The Great Recession: Moving Ahead</a><strong>&rdquo;</strong><em>, August 11, 2014</em></p> </div> </p><p>There is one great mystery in the high falutin&rsquo; circles of the Fed, ECB, and IMF today. <strong>Why is global growth so disappointing? </strong>There are different variations on this theme &ndash; why aren&rsquo;t businesses investing more? why aren&rsquo;t banks lending more? &ndash; but it&rsquo;s all one basic question. First the Fed, then the BOJ, and now the ECB have taken superheroic efforts to inflate financial asset prices in order to bridge the gap between the output shock of 2008 and a resumption of normal economic growth. They&rsquo;ve done their part. Why hasn&rsquo;t the rest of the world joined the party?</p> <p>The thinking was that leaving capital markets to their own devices in the aftermath of the Great Recession could result in a deflationary equilibrium, which is macroeconomic-speak for falling into a well, breaking your leg, at night, alone. It&rsquo;s the worst possible outcome. So the decision was made to buy <em>trillions</em> of dollars in assets, forcing all of us to take on more risk with our money than we would otherwise prefer, and to jawbone the markets (excuse me &hellip; &ldquo;<a class="eplink" href="http://www.salientpartners.com/epsilontheory/notes/Stalking_Horse.html">employ communication policy</a>&rdquo;) to leverage those trillions still further. All this in order to buy time for the global economic engine to rev back up and allow private investment activity to take over for temporary government investment activity.</p> <p>It was a brilliant plan, and as emergency intervention it worked like a charm. QE1 (and even more importantly TLGP) saved the world. The intended behavioral effect on markets and market participants succeeded beyond Bernanke et al&rsquo;s wildest dreams, such that now the Fed finds itself in the odd position of trying to talk down <a class="eplink" href="http://www.salientpartners.com/epsilontheory/notes/When%20Does%20The%20Story%20Break.html">the dominant Narrative of Central Bank Omnipotence</a>. But for some reason the global economic engine never kicked back in. The answer? We must do more. We must try harder. And so we got QE2. And QE3. And Abenomics. And now Draghinomics. We got what we always get in the aftermath of a global economic crisis &ndash; a temporary government policy intervention transformed into a permanent government social insurance program.</p> <p>But the engine still hasn&rsquo;t kicked in.</p> <p>So now villains must be found. Now we must root out the counter-revolutionaries and Trotskyites and Lin Biao-ists and assorted enemies of progress. Because if the plan is brilliant but it&rsquo;s not working, then obviously someone is blocking the plan. <strong>The structural villains per Stanley Fischer (who is rapidly becoming a more powerful Narrative voice and Missionary than Janet Yellen): housing, fiscal policy, and the European economic slow-down. Or if you&rsquo;ll allow me to translate the Fed-speak: <em>consumers, Republicans, and Germany</em>.</strong> These are the counter-revolutionaries per the central bank apparatchiks. If only everyone would just spend more, why then our theories would succeed grandly.</p> <p>Hmm. Maybe. Or maybe what we want and what we need has been confused. Maybe <a class="eplink" href="http://www.salientpartners.com/epsilontheory/notes/Hollow%20World.html">the thin veneer of ebullient hollow markets</a> has been confused for the real activity of real companies. Maybe <a class="eplink" href="http://www.salientpartners.com/epsilontheory/notes/The_Plays_The_Thing.html">the theatre of a Wise Man with an Answer</a> has been confused for intellectually honest leadership. Maybe <a class="eplink" href="http://www.salientpartners.com/epsilontheory/notes/When_E_F_Hutton_Talks.html">theoretical certainty</a> has been confused for practical humility. Maybe the fault, dear Brutus, is not in external forces like Republicans or Germans (or Democrats or Central Bankers), but in ourselves.</p> <p>Let me suggest a different answer to the mystery of missing global growth, a political answer, an answer that puts hyper-accommodative monetary policy in its proper place: a nice-to-have for vibrant global growth rather than a must-have. The problem with sparking renewed economic growth in the West is that domestic politics in the West do not depend on economic growth. <strong>What we have in the US today, and even more so in Europe (ex-Germany), are not the politics of growth but rather the politics of identity.</strong> At the turn of the 20th century the <em>meaning</em> of being a Democrat or a Republican was all about specific economic policies &hellip; monetary policies, believe it or not. You could vote for Republican McKinley and ride on a golden coin to Prosperity for all, or you could vote for Democrat Bryan and support silver coinage to avoid being &ldquo;crucified on a cross of gold.&rdquo;</p> <div style="display:block; margin-left:auto; margin-right:auto;"><img alt="" class="alignnone size-full wp-image-1101" src="http://www.salientpartners.com/epsilontheory/images/finest3.jpg" style="display:block; margin-left:auto; margin-right:auto;" /></div> <p> </p><p>Today&rsquo;s elections almost never hinge on any specific policy, much less anything to do with something as arcane as monetary policy. No, today&rsquo;s elections are all about social identification with like-minded citizens around amorphous concepts like &ldquo;justice&rdquo; or &ldquo;freedom&rdquo; &hellip; words that communicate aspirational values and speak in code about a wide range of social issues. Don&rsquo;t get me wrong. There&rsquo;s nothing inherently bad or underhanded about all this. I think Shepard Fairey&rsquo;s &ldquo;HOPE&rdquo; poster is absolute genius, rivaled only by the Obama campaign&rsquo;s genius in recognizing its power. Nor am I saying that economic issues are unimportant in elections. On the contrary, James Carville is mostly right when he says, &ldquo;It&rsquo;s the economy, stupid.&rdquo; What I am saying is that modern political communications use neither the language nor the substance of economic policy in any meaningful way. Words like &ldquo;taxes&rdquo; and &ldquo;jobs&rdquo; are bandied about, but only as totems, as signifiers useful in assuming or accusing an identity. Candidates seek to be identified as a &ldquo;job creator&rdquo; or a &ldquo;tax cutter&rdquo; (or accuse their opponent of being a &ldquo;job destroyer&rdquo; or a &ldquo;tax raiser&rdquo;) because these are powerful linguistic themes that connect on an emotional level with well-defined subsets of voters on a range of dimensions, not because they want to actually campaign on issues of economic growth. Candidates have learned that while voters certainly care about the economy and their economic situation, the only time they make a voting decision based primarily on specific economic policy rather than shared identity is when the decision is explicitly framed as a binary policy outcome &ndash; a referendum. Even there, if you look at the ballot referendums over the past several decades (Howard Jarvis and Proposition 13 happened almost 40 years ago! how&rsquo;s that for making you feel old?), the shift from economic to social issues is obvious.</p> <div style="display:block; margin-left:auto; margin-right:auto;"><img alt="" class="alignnone size-full wp-image-1101" src="http://www.salientpartners.com/epsilontheory/images/finest4.jpg" style="display:block; margin-left:auto; margin-right:auto;" /></div> <p>&nbsp;</p> <p>Both the Republican and the Democratic Party have entirely embraced identity politics, because it works. It works to maintain two status quo political parties that have gerrymandered their respective identity bases into a wonderfully stable equilibrium. <strong>The last thing <em>either</em> party wants is a defining economic policy question that would cut across identity lines.</strong> But until the terms of debate change such that an electoral mandate emerges around macroeconomic policy &hellip; until voters care enough about Growth Policy A vs. Growth Policy B to vote the pertinent rascals in or out, despite the inertia of value affinity &hellip; we&rsquo;re going to be stuck in a low-growth economy despite all the Fed&rsquo;s yeoman work. I know, I know &hellip; what blasphemy to suggest that monetary policy is not the end-all and be-all for creating economic growth! But there you go. At the very moment that elections hinge on the question of economic growth, we will get it. But until that moment, we won&rsquo;t, no matter what the Fed does or doesn&rsquo;t do.</p> <p>What reshapes the electoral landscape such that an over-riding policy issue takes over? Historically speaking, it&rsquo;s a huge external shock, like a war or a natural disaster, accompanied by a huge political shock, like the emergence of a new political party or charismatic leader that triggers an electoral realignment. In the US I think that the emerging appeal of national Libertarian candidates (all of whom, so far anyway, have the last name Paul) is pretty interesting. The 2016 election has the potential to be a watershed event and set up a realignment, if not in 2016 then in 2020, which hasn&rsquo;t happened in the US since Ronald Reagan transformed the US electoral map in 1980. And yes, I know that the conventional wisdom is that a viable Libertarian candidate is wonderful news for the Democratic party, and maybe that will be the case, but both status quo parties today are so dynastic, so ossified, that I think everyone could be in for a rude awakening. It&rsquo;s a long shot, to be sure, mainly because the US economy isn&rsquo;t doing so poorly as to plant the seeds for a reshuffling of the electoral deck, but definitely interesting to watch.</p> <p><strong>What&rsquo;s not a long shot &ndash; and why I think Draghi&rsquo;s recently announced ABS purchase is a bridge too far &ndash; is a realigning election in Italy. </strong></p> <p>I like to look at aggregate GDP when I&rsquo;m thinking about the strategic interactions of international politics, but for questions of domestic politics I think per capita GDP gives more insight into what&rsquo;s going on. Per capita GDP gives a sense of what the economy &ldquo;feels like&rdquo; to the average citizen. It addresses Reagan&rsquo;s famous question in the 1980 campaign with Jimmy Carter: are you better off today than you were four years ago? It&rsquo;s a very blunt indicator to be sure, as it completely ignores the distribution of economic goodies (something I&rsquo;m going to write a lot about in future notes), but it&rsquo;s a good first cut at the data all the same. Here&rsquo;s a chart of per capita GDP levels for the three big Western economies: the US, Europe, and Japan.</p> <div style="display:block; margin-left:auto; margin-right:auto;"><img alt="" class="alignnone size-full wp-image-1101" src="http://www.salientpartners.com/epsilontheory/images/finest5.jpg" style="display:block; margin-left:auto; margin-right:auto;" /><br /> <div style="text-align:center; margin-top:10px; margin-bottom:30px;">Source: <a class="eplink" href="http://data.worldbank.org/indicator/NY.GDP.PCAP.KD.ZG">World Bank</a>. For illustrative purposes only.</div> </div> <p>The Great Recession hit everyone like a ton of bricks, creating an output shock roughly equal to the impact of losing a medium-sized war, but the US and Japan have rebounded to set new highs. Europe &hellip; not so much.</p> <p>Let&rsquo;s look at Europe more closely. Here&rsquo;s a chart of the big three continental European economies: Germany, France, and Italy.</p> <div style="display:block; margin-left:auto; margin-right:auto;"><img alt="" class="alignnone size-full wp-image-1101" src="http://www.salientpartners.com/epsilontheory/images/finest6.jpg" style="display:block; margin-left:auto; margin-right:auto;" /><br /> <div style="text-align:center; margin-top:10px; margin-bottom:30px;">Source: <a class="eplink" href="http://data.worldbank.org/indicator/NY.GDP.PCAP.KD.ZG">World Bank</a>. For illustrative purposes only.</div> </div> <p><strong>Germany off to the races, France moribund, and Italy looking like it just lost World War III.</strong> I mean &hellip; wow. More than any other chart, this one shows why I think the Euro is structurally challenged.</p> <p>First, why in the world would Germany change <em>anything</em> about the current Euro system? The system <strong>works</strong> for Germany, and how. Alone among major Western powers, the politics of growth are alive and well in Germany. &ldquo;But Germany, unless you lighten up and embrace your common European identity, maybe this sweet deal for you evaporates.&rdquo; Ummm &hellip; yeah, right. The history books are just chock-full of self-interested creditors with sweet deals that unilaterally made large concessions before the very last second (and often not even then).</p> <p>Second, why in the world would Italy accept <em>anything</em> about the current Euro system? The system <strong>fails</strong> Italy, and how. The system fails other countries, too, like Spain, Portugal, and Greece, but these countries are in the Euro by necessity. Their economies are far too small to go it alone. Italy, on the other hand, is in the Euro by choice. Its economy is plenty big enough to stand on its own, and with a vibrant export potential, an independent and devalued lira is just what the doctor ordered to get the economic growth engine revved up. Short term pain, long term gain.</p> <p>Why doesn&rsquo;t Italy bolt? Lots of reasons, most of them identity related. Also, let&rsquo;s not underestimate the power of cheap money to keep the puppet-masters of the Italian State in a Germany-centric system. <strong>The system may fail Italy as a whole, but if you&rsquo;re pulling the strings of the State and can borrow 10-year money at 2.5% to keep your <em>vita</em> nice and <em>dolce</em> &hellip; well, let&rsquo;s keep dancing.</strong></p> <p>Still, nothing focuses the electoral mind like the economic equivalent of losing a major war. At some point in the not so distant future there will be an anti-Euro realigning election in Italy. <a class="eplink" href="http://www.salientpartners.com/epsilontheory/notes/The_Red_King.html">And that will wake the Red King.</a></p> <div style="display:block; margin-left:auto; margin-right:auto;"> <p><img alt="" class="alignnone size-full wp-image-1101" src="http://www.salientpartners.com/epsilontheory/images/finest7.jpg" style="display:block; margin-left:auto; margin-right:auto;" /></p> </div> <p>In the meantime, Draghi will go forward with his ABS purchase scheme, a brilliant theory that will deliver frustratingly slim results quarter after quarter after quarter. Until the politics of growth are embraced outside of Germany, European banks will remain reticent to lend growth capital to small and medium enterprises. Until the politics of growth are embraced outside of Germany, large enterprises with plenty of cash and access to cheap loans will remain reticent to invest growth capital. Maybe a little M&amp;A, sure, but no new factories, no organic expansion, no grand hiring plans. The thing is, <strong>Draghi knows that he&rsquo;s pushing on a string with the ABS program and that growth won&rsquo;t return until the fundamental political dynamic changes in France in Italy, which is why he is calling both countries out by name to institute &ldquo;structural reforms&rdquo;. </strong>But in typical European fashion this entire debate is Mandarin vs. Mandarin, with almost all of the proposals focused on regulatory reform rather than something that must be hashed out through popular legislation. So long as <a class="eplink" href="http://www.salientpartners.com/epsilontheory/emails/The_Ministry_of_Markets.html">economic policy reform is imposed from above</a> &hellip; so long as we are engaged in modern-day analogs of Soviet Five-Year Plans &hellip; I believe we will remain stuck in what I call <a class="eplink" href="http://www.salientpartners.com/epsilontheory/notes/A_World_of_Guarantees.html">the Entropic Ending</a> &ndash; a long gray slog of disappointing but not catastrophic aggregate economic growth. That&rsquo;s not a terrible environment for stocks, certainly not for bonds, and the alternative &ndash; economic reform based on the hurly-burly of popular politics, is almost certain to be a wild ride that markets hate. But to get back to what we need (real growth) rather than what we want (higher stock prices) this is what it&rsquo;s going to take. Elections always matter, but in the Golden Age of the Central Banker they matter even more.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="277" height="275" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20140918_epsilkon.jpg?1411087752" /> </div> </div> </div> http://www.zerohedge.com/news/2014-09-18/why-global-growth-so-disappointing#comments B+ Capital Markets Creditors Epsilon Fail France Germany Global Economy Greece Italy Janet Yellen Japan Mandarin Monetary Policy Portugal Recession Rude Awakening World Bank Fri, 19 Sep 2014 00:49:14 +0000 Tyler Durden 494554 at http://www.zerohedge.com