en NSA Whistleblower Speaks: "The Ultimate Goal is Total Population Control" <p><em>Submitted by <a href="">Mike Krieger of Liberty Blitzkrieg blog</a>,</em></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong><em>At least 80% of fibre-optic cables globally go via the U.S. This is no accident and allows the US to view all communication coming in. At least 80% of all audio calls, not just metadata, are recorded and stored in the US. The NSA lies about what it stores.</em></strong></p> <p>&nbsp;</p> <p>- NSA Whistleblower Bill Binney</p> </blockquote> <p>Long-time readers of Liberty Blitzkrieg will be no strangers to Bill Binney, one of the earliest NSA whistleblowers. Well before anyone had ever heard of Edward Snowden, in July 2012, I posted the following:&nbsp;<strong><a href="">NSA Whistleblower: U.S. Government Creating Dossiers on Millions of Citizens</a></strong>. In it, I noted:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em>Bill Binney is no joke. He worked for the NSA for 30 years before resigning because of concerns he had regarding illegal spying on U.S. citizens in 2001. It seems that the claim I and many others have made for years, that the &ldquo;War on Terror&rdquo; is a gigantic fraud used to instill fear and further the creation of an unconstitutional surveillance state in America is absolutely true. The &ldquo;terrorists&rdquo; they have declared war on are the American people&nbsp;themselves.&nbsp;</em></p> </blockquote> <p>Mr. Binney thankfully has never stopped fighting for The Constitution that he swore to defend, unlike most other government officials who happily stomp all over the basic civil liberties enshrined in our founding document. He had some very choice words recently and it would be wise for all of us on planet earth to pay very close attention. We learn from the <em>Guardian</em> that:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em>William Binney is one of the highest-level whistleblowers to ever emerge from the NSA. He was a leading code-breaker against the Soviet Union during the Cold War but resigned soon after September 11, disgusted by Washington&rsquo;s move towards mass surveillance.</em></p> <p>&nbsp;</p> <p><strong><em>&ldquo;At least 80% of fibre-optic cables globally go via the US&rdquo;, Binney said. &ldquo;This is no accident and allows the US to view all communication coming in. At least 80% of all audio calls, not just metadata, are recorded and stored in the US. The NSA lies about what it stores.&rdquo;</em></strong></p> <p>&nbsp;</p> <p><em><strong>The NSA will soon be able to collect&nbsp;<a href="" name="in body link">966 exabytes</a>&nbsp;a year, the total of internet traffic annually.</strong> Former Google head Eric Schmidt once&nbsp;<a href="" name="in body link">argued</a>&nbsp;that the entire amount of knowledge from the beginning of humankind until 2003 amount to only five exabytes.</em></p> <p>&nbsp;</p> <p><em>He praised the revelations and bravery of former NSA contractor Edward Snowden and told me that he had indirect contact with a number of other NSA employees who felt disgusted with the agency&rsquo;s work. They&rsquo;re keen to speak out but fear retribution and exile, not unlike Snowden himself, who is likely<a href="" name="in body link">&nbsp;to remain there for some time</a>.</em></p> <p>&nbsp;</p> <p><em>It shows that the NSA is not just pursuing terrorism, as it claims, but ordinary citizens going about their daily communications. <strong>&ldquo;The NSA is mass-collecting on everyone&rdquo;, Binney said, &ldquo;and it&rsquo;s said to be about terrorism but inside the US it has stopped zero attacks.&rdquo;</strong></em></p> </blockquote> <div>Yep, as noted in the post:<strong><a href="">&nbsp;NSA Chief Admits &ldquo;Only One or Perhaps Two&rdquo; Terror Plots Stopped by Spy Program.</a>&nbsp;</strong>Now back to the Guardian article.</div> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em>&ldquo;The Fisa court has only the government&rsquo;s point of view&rdquo;, he argued. &ldquo;There are no other views for the judges to consider. There have been at least 15-20 trillion constitutional violations for US domestic audiences and you can double that globally.&rdquo;</em></p> <p>&nbsp;</p> <p><em><strong>Binney recently told the&nbsp;<a href="" name="in body link">German NSA inquiry committee</a>&nbsp;that his former employer had a &ldquo;totalitarian mentality&rdquo; that was the &ldquo;greatest threat&rdquo; to US society since that country&rsquo;s US Civil War in the 19th century.</strong> Despite this remarkable power, Binney still mocked the NSA&rsquo;s failures, including missing this year&rsquo;s Russian intervention in Ukraine and the Islamic State&rsquo;s take-over of Iraq.</em></p> </blockquote> <div>Well, I question the entire ISIS story and personally wonder if the <strong><a href="">U.S. is not perfectly fine with</a> </strong>what is happening over there as a justification to future crackdown on civil liberties in the name of &ldquo;fighting ISIS.&rdquo;</div> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><div><em>With&nbsp;<a href="" name="in body link">evidence</a>&nbsp;that there could be a second NSA leaker, the time for more aggressive reporting is now. As Binney said: &ldquo;<strong>I call people who are covering up NSA crimes traitors&rdquo;.</strong></em></div> </blockquote> <div>Now watch this interview of Bill Binney from 2012:</div> <div><iframe allowfullscreen="" frameborder="0" height="315" src="//" width="560"></iframe></div> <div>&nbsp;</div> <p>Full article <a href="">here.</a></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="286" height="435" alt="" src="" /> </div> </div> </div> Google Iraq SPY Ukraine Sat, 12 Jul 2014 01:51:43 +0000 Tyler Durden 490869 at About That China PMI Number... <p><a href=";initial=true"><em>Submitted by Sean Corrigan via Diapason Commodities,</em></a></p> <p>In general, in functioning economies with a solid financial architecture and reasonably reliable data, it is clear that PMI responses (excepting the occasional flush of stock market-inspired enthusiasm) can be matched to developments in corporate revenue with these in turn tending to look something like the track of the supply of that money in which invoices ultimately are to be settled.<br />&nbsp;<br /><strong>A moment's thought will reveal why this might be the case.</strong> The immediate and most obvious indicator to a businessman of whether trade is picking up is the sound of his cash register ringing more frequently. He will perceive this more readily and more tangibly than he will his count of orders, his stock of inventory, his plans for hiring and firing, and certainly than his eventual, quarterly or semi-annual reckoning of profits - themselves not always the most accurate reflection of whether he can actually continue to pay his way, remember.<br />&nbsp;<br /><span style="text-decoration: underline;"><em><strong>It is thus VERY unusual to see large, sudden divergences between receipts and survey responses such as the one which has just miraculously appeared in China. </strong></em></span></p> <p>&nbsp;</p> <p><a href=""><img src="" width="600" height="458" /></a></p> <p>&nbsp;<br /><strong>How to explain this?</strong> Well, given that ALL data in China are political constructs and given how anxious the regime has become in recent months to show up their nugatory achievements in the best possible light, is it entirely beyond the bounds of credibility to suggest that they might have exercised a degree of - shall we say - 'moral suasion' on either those ticking the boxes in this bellwether release or even, possibly, on some of those charged with its interpretation?<br />&nbsp;<br />Such is the commercial sensitivity of the PMI franchise that it is of course unlikely the fault would lie there, for though not utterly inconceivable, one struggles to imagine that a sufficient amount of pressure (threat) could have been brought to bear so as to persuade those involved at that end of the process to undergo the considerable reputational risk entailed in any doctoring of the results.<br />&nbsp;<br /><strong>However, it is surely not too difficult to imagine that a gentle reminder could have been issued to China's loyal business executives to the effect that it would be appropriate for their answers to reflect more closely the dramatic improvement in climate which has already miraculously resulted from Li and Xi's masterly series of 'micro-stimulus' announcements</strong> - even before some of these have even had a chance to be put into practice and certainly before the next ‘corruption’ inspection team sweeps down to give them the once over.<br />&nbsp;<br /><span style="text-decoration: underline;"><em><strong>Caveat emptor! </strong></em></span></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="776" height="592" alt="" src="" /> </div> </div> </div> China Sat, 12 Jul 2014 01:14:48 +0000 Tyler Durden 490868 at Guest Post: If Only The U.S. Had Stayed Out Of World War I <p><em>Submitted by <a href="">David Stockman via The Japan Times</a>,</em></p> <p><strong>The first big wave of embracing a liberal international economic order - relatively free trade, rising international capital flows and rapidly growing global economic integration - resulted in something remarkable.</strong></p> <p>Between 1870 and 1914, there was a 45-year span of rising living standards, stable prices, massive capital investment and prolific technological progress. In terms of overall progress, these four-plus decades have never been equaled — either before or since.</p> <p><strong>Then came the Great War. </strong>It involved a scale of total industrial mobilization and financial mayhem that was unlike any that had gone before. In the case of Great Britain, for example, its <strong>national debt increased 14-fold.</strong></p> <p>In addition, England’s price level doubled, its capital stock was depleted, most offshore investments were liquidated and universal wartime conscription left it with a massive overhang of human and financial liabilities.</p> <p><strong>Despite all that, England still stood out as the least devastated of the major European countries.</strong> In France, the price level inflated by 300 percent, its extensive Russian investments were confiscated by the Bolsheviks and its debts in New York and London catapulted to more than 100 percent of GDP.</p> <p><strong>Among the defeated powers, currencies emerged nearly worthless. </strong>The German mark was only worth five cents on the prewar dollar, while the country’s wartime debts — especially after the Carthaginian peace of Versailles which John Maynard Keynes skewered so brilliantly — soared to crushing, unrepayable heights. In short, the wave of debt, currency inflation and financial disorder from the Great War was immense and unprecedented.</p> <p><span style="text-decoration: underline;"><strong>With all that in mind, one important question only rises in importance: Was the United States’ intervention in April 1917 warranted or not?</strong></span></p> <p>And did it only end up prolonging the European slaughter?</p> <p><strong>Never mind that it resulted in a cockamamie peace, which gave rise to totalitarianism among the defeated powers. </strong>Even conventional historians like Niall Ferguson admit as much.</p> <p>Had President Woodrow Wilson not misled the U.S. on a messianic crusade, Europe’s Great War would have ended in mutual exhaustion in 1917.</p> <p>Both sides would have gone home battered and bankrupt — but would not have presented any danger to the rest of mankind.</p> <p><strong>Indeed, absent Wilson’s crusade, there would have been no allied victory, no punitive peace — and no war reparations. Nor would there have been a Leninist coup in Petrograd — or later on, the emergence of Stalin’s barbaric regime.</strong></p> <p>Likewise, there would have been no Hitler, no Nazi dystopia, no Munich, no Sudetenland and Danzig corridor crises, no need for a British war to save Poland, no final solution and Holocaust, no global war against Germany and Japan — and, finally, no incineration of 200,000 civilians at Hiroshima and Nagasaki.</p> <p>Nor would all of these events have been followed by a Cold War with the Soviets or CIA-sponsored coups and assassinations in Iran, Guatemala, Indonesia, Brazil, Chile and the Congo, to name just a few.</p> <p><strong>Surely, there would have been no CIA plot to assassinate Castro, or Russian missiles in Cuba or a crisis that took the world to the brink of annihilation.</strong></p> <p>There would have been no Dulles brothers, no domino theory and no Vietnam slaughter, either. Nor would the U.S. have launched a war in Afghanistan’s mountain valleys to arouse the mujaheddin from their slumber — and hence train the future al-Qaida.</p> <p>Likewise, in Iran there would have been no shah and his Savak terror, no Khomeini-led Islamic counter-revolution, no U.S. aid to enable Iraqi President Saddam Hussein’s gas attacks on Iranian boy soldiers in the 1980s.</p> <p><strong>Nor would there have been an American invasion of Arabia in 1991 to stop our erstwhile ally Saddam from looting the equally contemptible emir of Kuwait’s ill-gotten oil plunder — or, alas, the horrific 9/11 blow-back a decade later.</strong></p> <p>Most surely, the axis of evil — that is, the Washington-based Cheney-Rumsfeld-neocon axis — would not have arisen, nor would it have foisted a near-$1 trillion warfare state budget on the 21st-century U.S.</p> <p><strong>The real point of that Great War, in terms of the annals of U.S. economic history, is that it enabled the already-rising U.S. economy to boom for the better part of 15 years after the onset of the war.</strong></p> <p><strong>In the first stage, the U.S. became the granary and arsenal to the European allies. </strong>This triggered an eruption of domestic investment and production that transformed the nation into a massive global creditor and powerhouse exporter, virtually overnight.</p> <p><strong>U.S. farm exports quadrupled and farm income surged from $3 billion to $9 billion.</strong> Land prices soared, country banks proliferated and the same was true of industry. For example, steel production rose from 30 million tons annually to nearly 50 million tons.</p> <p><strong>Altogether, in six short years from 1914 to 1920, $40 billion of U.S. GDP turned into $92 billion — a sizzling 15 percent annual rate of gain.</strong></p> <p><strong>The depression that could have been avoided</strong></p> <p>Needless to say, these figures reflected an inflationary, war-swollen economy. After all, the U.S. had loaned the Allies massive amounts of money — all to purchase grain, pork, wool, steel, munitions and ships from the U.S.</p> <p>This transfer amounted to nearly 15 percent of GDP, or an equivalent of $2 trillion in today’s economy. It also represented a form of vendor finance that was destined to vanish at war’s end. As it happened, the U.S. did experience a brief but deep recession in 1920. But it was not a thoroughgoing end-of-war one that would “detox” the economy.</p> <p><strong>The day of reckoning was merely postponed.</strong> It finally arrived in 1933 when the depression hit with full force. The U.S. economy was cratering — and Germany embarked on its disastrous “recovery” experience under the leadership of Adolf Hitler.</p> <p><strong>These two events — along with so many of the above-listed offenses later on — could have been avoided if only the U.S. had shown the wisdom of staying out of World War I.</strong></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="375" height="488" alt="" src="" /> </div> </div> </div> Brazil France Germany Guest Post Iran Japan John Maynard Keynes Maynard Keynes National Debt Niall Ferguson Poland Recession Totalitarianism Sat, 12 Jul 2014 00:42:00 +0000 Tyler Durden 490867 at CEO Of Europe's Largest Insurer Pops The Utopia Bubble: "Nothing Is Solved And Everybody Knows It" <p>It's one thing for a tinfoil fringe blog to repeat, month after month, that <em><strong>nothing </strong></em>in Europe has been fixed, that Draghi's disastrous policies are merely concentraing and stockpiling even more unresolved problems - for now ignored courtesy of the gentle sprinkle of ZIRP, or rather NIRP "<a href="">fairy dust</a>" - and that just like Portugal showed panic can grip the entire continent literally overnight because <strong>everyone knows this.</strong> It is something entirely different for the CEO of Europe's largest insurer to make the same statement. </p> <p>From <a href="">Bloomberg</a>:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>When asking Allianz SE’s chief investment officer about the euro area’s sovereign debt woes, be prepared for an emphatic response.</p> <p>&nbsp;</p> <p>“<span style="text-decoration: underline;"><strong>The fundamental problems are not solved and everybody knows it</strong></span>,” Maximilian Zimmerer said at Bloomberg LP’s London office. The <strong>“euro crisis is not over,” </strong>he said.</p> <p>&nbsp;</p> <p>While extraordinary stimulus from the European Central Bank has encouraged investors to pile into the region’s government bonds this year, <strong>that’s not a sufficient remedy for Zimmerer, who oversees 556 billion euros ($757 billion) at Europe’s largest insurer. </strong>Countries are still building up their debt piles, <strong>and that’s storing up trouble for the future, he said.</strong></p> <p>&nbsp;</p> <p>As Zimmerer was speaking, investors were getting a reminder of the volatility that was rife through the sovereign debt crisis that started in 2009, as sliding stocks and bonds of Portuguese financial institutions rippled across the region’s markets. Amid a four-day slump, yields on Portugal’s 10-year bonds ended yesterday 279 basis points higher than their German counterparts, the widest spread since March 18. The securities recovered some of their losses today, tightening the spread to 268 basis points at 10:27 a.m. London time.</p> <p>&nbsp;</p> <p><strong>“There is only one country where the debt level last year was lower than 2012 and this is a signal the debt crisis can’t be over, only a recognition of the debt crisis has changed,” Zimmerer said on July 9. “If the debt levels are not going down in the end we will have a problem, that is for sure.” </strong></p> </blockquote> <p>And crickets.</p> <p>Here's the punchline: <strong>everyone knows that Draghi, the unelected dictators of Europe, and all of its bankers are lying when the say day after day that things are better</strong>. However, at least there was unanimity in the "head-in-the-sand" exercise, which recall from game theory works only if all participants in the charade agree to the ignore reality. </p> <p>Today for the first time, a "member of the club" finally called out Europe on its bullshit: something that is not allowed under game theory. What's worse, he made it quite clear that everyone else knows they are not only lying to others, but lying to themselves. </p> <p>What happens next may be very unpleasant, because as always happens, following protracted periods of denial, and Europe has been living in a vacuum completely dislocated from reality for exactly two years since Draghi's "Whatever it takes" speech, there is very violent convergence between reality and idiocy. And Europe is just about due for precisely that kind of denial-shattering convergence. </p> <p><img src="" width="550" height="309" /></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="550" height="309" alt="" src="" /> </div> </div> </div> European Central Bank fixed Portugal Reality Sovereign Debt Volatility Sat, 12 Jul 2014 00:11:17 +0000 Tyler Durden 490843 at Goldman Warns, Congress Is Preparing To Tame The Fed <p>Having <a href="">already warned that looming political uncertainty is not at all priced-in to US equities</a>, Goldman's Alec Phillips points out that legislation was introduced earlier this week (July 7) in the US House that would <strong>attempt to revamp the FOMC's monetary policy process</strong>. The bill would require the FOMC to justify to Congress each policy decision relative to a Taylor rule specified in the legislation. While Goldman, do not expect the bill to get very far, but the issue does appear to be a <strong><span style="text-decoration: underline;">growing focus for some lawmakers and we expect further action on it in the near term</span></strong>.</p> <p><em>Via Goldman Sachs,</em></p> <ul> <li>Legislation was introduced earlier this week (July 7) in the US House that would attempt to revamp the FOMC's monetary policy process. <strong>The bill would require the FOMC to justify to Congress each policy decision relative to a Taylor rule specified in the legislation.</strong></li> <li>These proposals may attract some attention as they make their way through the legislative process, particularly since the House committee seems likely to pass the bill in the next few weeks. However, the bill is less likely to pass in the full House of Representatives before the November election, and it seems to us very unlikely that the Senate would consider it this year so the probability of enactment appears very low.</li> <li>Earlier this week, two members of the House Financial Services Committee, Reps. Huizenga (R-MI) and Garrett (R-NJ), introduced legislation that would impose new requirements on the Federal Reserve and the FOMC. <strong>We do not expect the bill to get very far, but the issue does appear to be a growing focus for some lawmakers and we expect further action on it in the near term.</strong></li> </ul> <p><span style="text-decoration: underline;"><strong>The bill presumes a Taylor rule for the Fed</strong></span></p> <p>The most important change the bill proposes would be to require the FOMC justify its policy decisions to Congress with reference to a Taylor rule. Specifically,<strong> the bill would establish a new requirement that the FOMC submit to Congress a report on monetary policy within two days after each FOMC meeting</strong>. The report would include a detailed quantitative description of the policy rule the FOMC is following, including whether the fed funds rate, the rate of interest on excess reserves, and/or the discount rate is being targeted, and how the targeted values would change under different inflation and GDP assumptions.</p> <p><strong>The bill would require the FOMC to explain its own policy rule in relation to a rule like the one Stanford Professor John Taylor described in 1993</strong>, where the nominal federal funds rate equals 2% plus the sum of (a) the inflation rate over the prior 4 quarters, (b) one-half of the estimated output gap in percentage terms, and (c) one-half of the difference between the rate of inflation over the prior 4 quarters and 2%. To the extent that the policy rule the FOMC submits under the requirement does not conform to this reference rule, the FOMC would be required to submit a "detailed justification" of the departure from the rule. The legislation would require the Government Accountability Office (GAO) to conduct an analysis and report to Congress on whether the FOMC had complied with the requirements laid out in the legislation. If the FOMC were found to be out of compliance with these requirements, the Federal Reserve Chair would be required to testify in Congress and the FOMC would be subject to an audit by the GAO.</p> <p>The practical implication of the bill would be that while the FOMC could continue to operate as it currently does, if it opted out of the process established in the bill it could become subject to periodic audits and the Fed chair would have to testify before Congress quite often, potentially after each FOMC meeting (the bill, in a separate section, would increase the semi-annual Humphrey Hawkins testimony to four times a year in any case). <strong>In the past, Fed officials have been clear in their opposition to prior proposals to require an audit of monetary policy decisions and we assume the Fed would oppose the recently introduced legislation though we are not aware of any specific comments from the Fed on it.</strong></p> <p><span style="text-decoration: underline;"><strong>Further near term action seems likely but enactment is unlikely</strong></span></p> <p>The Committee held a hearing on the legislation today (July 10). No vote has been scheduled yet, but we expect the House Financial Services Committee to vote on the bill in the next few weeks. We assume it will pass along mostly party lines. Whether it will receive a vote on the House floor is less clear, since the legislative agenda will be crowded during the limited time Congress will be in session in July and September (the House will be in session for only 25 days between now and the midterm election on November 4). More importantly, regardless of whether the House passes the bill or not, there appears to be very little chance that the Senate would consider, let alone pass, the bill this year.</p> <p><strong>Next year, if the Republicans manage to take the Senate majority following the midterm election, there might be somewhat greater pressure to hold a vote in that chamber if the House were to pass the legislation.</strong> However, even in this case it is far from clear that there would be sufficient support in the Senate, where 60 votes are normally required. Moreover, in the unlikely event that such legislation managed to pass in the Senate, we would expect President Obama to veto it.</p> <p>Of course,<span style="text-decoration: underline;"><strong> it would not be unprecedented for Congress to amend the Federal Reserve's mandate regarding monetary policy, though it happened only rarely</strong></span>. The last time Congress enacted significant new monetary policy-related requirements was in 1977 and 1978, when Congress reworked the Fed's mandate, required the Federal Reserve Chair to testify semiannually to House and Senate Banking Committees, and established a four-year term, confirmed by the Senate, for the Federal Reserve Chairman and Vice Chairman, among other changes. However, not only was the economic situation different at that point, the political situation at the time very different from the current one as well: both chambers of Congress were controlled by the recently elected President's party, while the Fed Chairman had been appointed by the prior administration.</p> <p>There has in fact been some bipartisan support over the past few years for much simpler legislation first offered by Rep. Ron Paul (R-TX) to remove the prohibition on GAO audits of monetary policy deliberations. That said, support for more recent efforts appears to be falling along party lines more than it used to. For example, while Rep. Paul's legislation passed the House in 2012 by a vote of 328 to 98, a nearly identical version of that legislation in the current Congress has been co-sponsored mainly by Republicans. <strong>The upshot is that while the issue seems likely to remain a subject of political interest among lawmakers, these sorts of policy changes appear unlikely to be enacted into law in the foreseeable future.</strong></p> <p>*&nbsp; *&nbsp; *</p> <p>The simple question we have is - why is Goldman Sachs bringing this up now?</p> B+ Excess Reserves Federal Reserve Goldman Sachs goldman sachs House Financial Services Committee Monetary Policy Output Gap President Obama Ron Paul Testimony Sat, 12 Jul 2014 00:04:00 +0000 Tyler Durden 490866 at Is It Time To Sell The "Old Guy At A Club" Market? <p><strong>It’s time to think like a contrarian</strong>, warns ConvergEX's Nick Colas. Why? Because capital markets seem as bulletproof as one of those up-armored military personnel carriers you see in war zones.&nbsp; So <strong>what could really rattle stock, bond and commodity markets over the next 3-6 months?</strong>&nbsp; The go-to answer, steeped in history, is <span style="text-decoration: underline;"><strong>geopolitical crisis</strong></span>, where the logical hedges are precious metals, volatility plays, and possibly crude oil.&nbsp; Look deeper, however, and other answers emerge.&nbsp; </p> <p>The simplest one is a <span style="text-decoration: underline;"><strong>shallow U.S. recession</strong></span> starting early next year.&nbsp; The causes: slack consumer spending and a slower labor market as corporations take a “Wait and see” attitude into the Federal Reserve’s first rate hikes in eight years.&nbsp; Hedges would include non-cyclical stocks and volatility plays. </p> <p>Lastly, the most common answer from an ad hoc survey of our peers at ConvergEx: a <span style="text-decoration: underline;"><strong>surprise bout of inflation</strong></span> that forces the Fed’s hand to raise interest rates in a still slow economy.&nbsp; Hedges: volatility plays. But fair warning: it is time to think like a contrarian. But not, perhaps, to invest like one. Yet.</p> <p><em>Via ConvergEx's Nick Colas,</em></p> <p><strong>Ever see an older man at a nightclub or bar, chatting up much younger women?&nbsp;</strong> Or -yes – perhaps, much younger men? He doesn’t have the Russian oligarch vibe – no entourage to order his drinks or hold his cigarettes. And he’s not a friend of the owner, or an A&amp;R guy from a major label, or just one of those super-cool dudes that can just pull it off.&nbsp; No, he is mildly awkward, bordering on creepy.&nbsp; Watching him in action is like a nature show where the aging, toothless lion can no longer hunt for his food.&nbsp; And yet, he persists.&nbsp; Again and again, he (the guy, not the lion) proves impervious to public embarrassment and repeated rejection.&nbsp; But he keeps trying. </p> <p><span style="text-decoration: underline;"><strong>After a while, you realize that there is a reason for all this: it worked once, and probably fairly recently.&nbsp;</strong></span> For reason or reasons unknown, that aging Romeo found his Juliet and for one day in late fall it felt like summer.&nbsp; At least to him.&nbsp; And because it worked once, he tries again.&nbsp; Just hang around long enough and you will see it happen. </p> <p><span style="text-decoration: underline;"><strong>Take away the awkward desperation, and this paradigm broadly fits the price action of risk assets like global stocks and derivative markets at the moment.</strong></span>&nbsp; Today was a good example.&nbsp; Take one part mini-banking crisis in Portugal, add some weak European economic data, and mix with a twitchy U.S. market and you should have had a day-long sell off.&nbsp; Instead, the open was the low.&nbsp; Equity buyers stepped in, using exchange traded funds, and the U.S. stock market lifted most of the day.&nbsp; Why would investors step in, especially with news that would have sent them running just a few years ago?&nbsp; Because every single pullback for over 5 years has been a buying opportunity in U.S. large cap stocks.&nbsp; Every.&nbsp; Single.&nbsp; One.&nbsp; Equity markets have trained investors to keep buying, so while the bull market is +5 years old, it still thinks it “Has it…”</p> <p><strong>So what could be the shock that ends this persistent pattern?&nbsp;</strong> I got asked that question on television today, and I punted.&nbsp; The truth is that any really bearish case is hard to describe without sounding like you are stepping into the realm of fantasy.&nbsp; But the reality is that an ever-up trending market is the actual fantasy.&nbsp; With all that in mind, here are three events that would finally cause that elusive 10% correction and enough actual stock market volatility to get the CBOE VIX closer to 20 than 10.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><span style="text-decoration: underline;"><strong>Geopolitical risk.</strong></span>&nbsp; This is the most common answer to the question “What could hurt stocks?”&nbsp; At the same time, the devil is in the details.&nbsp; Israel’s relationship with the Palestinians is tragic for both sides, but neither side is a major oil producer.&nbsp; So however bad that problem gets, it is unlikely to force oil prices higher.&nbsp; Also, keep in mind that Israel has been in hot and cold conflicts with its neighbors since its founding in 1948.&nbsp; None of the headlines we see about the latest problems are new.&nbsp; Sad, yes.&nbsp; Novel.&nbsp; No. </p> <p>&nbsp;</p> <p><strong>To really inject fear into capital markets, you need to disrupt oil supplies with a short sharp shock.</strong>&nbsp; Think the Saudi embargo in 1973, or the Iranian Revolution of 1979. Then there is Saddam Hussein’s invasion of Kuwait in 1990, and the post-9/11 Gulf War II. Four major events in the last 40 years.&nbsp; That pace makes an oil shock something more than a bolt out of the blue, but less than a persistent threat.&nbsp; If you want to include the short period in 2008 when Crude went to $140/barrel, that would be a fifth.&nbsp; Whether that liquidity-driven bubble would have created a recession even without the Financial Crisis, we’ll never know.&nbsp; But make no mistake – a quick move up for oil prices always pushes equities lower.&nbsp; Always.</p> <p>&nbsp;</p> <p><span style="text-decoration: underline;"><strong>Recession.</strong></span>&nbsp; Yes, I said it.&nbsp; What if the yield on the 10-year Treasury at =/- 2.50% is right? One way to explain this parlous payout is that fixed income markets forecast a long period of slow growth and modest recessions, eliminating the threat of inflation.&nbsp; At +5 years of ‘Expansion’, we are due for a recession just based on historical averages.&nbsp; Just consider how quickly expectations for a robust 2014 collapsed under the weight of a few feet of snow this winter.&nbsp; Or the way economists gave up on a robust Q2 2014? The smart money seems to be on a 2% run rate for the second half, and that seems reasonable enough. </p> <p>&nbsp;</p> <p><strong>But what happens in early 2015? </strong>Will companies continue to hire as the Federal Reserve embarks on its first rate increases in 8 years?&nbsp; And will consumer spending finally accelerate?&nbsp; Anyone who lived through the 1994 rate cycle - a violent rotation of both capital and sentiment – knows not to diminish the impact of a rising rate environment.&nbsp; For proof, a quick quiz.&nbsp; What were Fed Funds on Christmas 2007?&nbsp; Answer: 4.25%. Pretty normal times, those.&nbsp; Now how long do you think it will be before the Fed gets to a 4.25% Fed Funds rate now?&nbsp; And can the economy continue to expand as we get there?</p> <p>&nbsp;</p> <p><span style="text-decoration: underline;"><strong>The old guy at the club gets kicked out.</strong></span>&nbsp; As I canvassed ConvergEx staffers about their most-likely downside scenario, their most common answer was a rising rate of inflation.&nbsp; This would force the Federal Reserve to raise interest rates Volcker-style, threatening or even causing a recession to dampen rising prices. Certainly, a burst of inflation would challenge the Fed in a way not reflected in equity prices. The fact that inflation has remained calm (unless you have a child in college, or a parent in need of medical care, or are inordinately fond of breakfast foods) doesn’t make this concern any less valid. The road to Hell is paved with good intention, after all.</p> </blockquote> <p><strong>In summary, it is important to keep the worry-wart playbooks close at hand.&nbsp;</strong> After all, it wasn’t all that long ago that our aging Lothario looked more like a bear than a bull.&nbsp; It is time to think like a cautious contrarian, even if the current market still rewards the brave.&nbsp; Remember – it works until it doesn’t.</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="371" height="309" alt="" src="" /> </div> </div> </div> Bond Capital Markets CBOE Crude Crude Oil Equity Markets Federal Reserve fixed headlines Israel Kuwait None Portugal Precious Metals Price Action Reality Recession Smart Money Volatility Fri, 11 Jul 2014 23:30:17 +0000 Tyler Durden 490865 at "Waiting For Armageddon" - Say It Isn't So? <p>Brent Johnson, of Santiago Capital, provides a brief but broad overview of the state of the state in the world's precious metals markets (and monetary policy implications). Often accused of "waiting for Armageddon", Johnson is quick to note that he would love to be wrong... "If I thought it possible to carry out the next 40 years the same as the last - by sticking to the status quo - I'd do it." But it's not... and no matter how many "say it isn't so" you hear from the mainstream, it is inevitable (when not if). Simply put, he warns, <strong>if you do have to have capital markets exposure - make sure you have insurance</strong> - you need it now more than ever.</p> <p>&nbsp;</p> <p><a href=""><img src="" width="600" height="389" /></a></p> <p>&nbsp;</p> <p>Full presentation below...</p> <p><object id="object_gm_player" width="600" height="515" data="" type="application/x-shockwave-flash"><param name="data" value="" /><param name="allowScriptAccess" value="always" /><param name="allowFullScreen" value="true" /><param name="allowNetworking" value="all" /><param name="wmode" value="opaque" /><param name="flashvars" value="FVGMID=qyuvgx68zpna&amp;FVEmbed=true&amp;FVGMServer=P" /><param name="src" value="" /></object></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="943" height="612" alt="" src="" /> </div> </div> </div> Capital Markets Monetary Policy Precious Metals Fri, 11 Jul 2014 22:48:56 +0000 Tyler Durden 490864 at "Planned Chaos" - Why Fiat Money Is "A Large-Scale Fraud System" <p><em>Submitted by <a href="">Ryan McMaken of Mises Economic blog</a>,</em></p> <p><em>The Center for Financial Studies in Frankfurt <a href="">reports</a> on a recent talk given by Thorsten Polleit: &nbsp;</em></p> <p><b>Thorsten Polleit on the &ldquo;planned chaos&rdquo; of money</b></p> <p>What are the reasons for economic booms and busts and which reforms are necessary to create an economically viable monetary order? On 2 April, Thorsten Polleit addressed these questions in his lecture &ldquo;Boom &amp; Bust, or: Planned Chaos&rdquo; referring to the Austrian school of economics. Polleit is Chief Economist of Degussa Goldhandel, President of the Ludwig von Mises Institut Deutschland and Honorary Professor at the Frankfurt School of Finance &amp; Management.</p> <p>Polleit identified the state-controlled fiat money system as a main cause of the international financial and economic crisis. This system, he said, is based on the ability of banks to create money literally out of nothing. It is, in principle, a &ldquo;large-scale fraud system&rdquo; because today&rsquo;s money is &ldquo;intrinsically worthless and not redeemable&rdquo;. This has damaging consequences for the overall economic development.</p> <p><b>Circulation credit reason for economic fluctuations</b></p> <p>To prove this fundamental critique, Polleit referred to the theoretical principles of the Austrian School of Economics, in particular to Ludwig von Mises. According to Mises, the circulation credit is the cause of economic fluctuations. Circulation credit means that banks lend money, and thereby expand money supply, without backing them by real savings (or reduction of consumption). This circulation credit is creation of money &ldquo;ex nihilo&rdquo;. Booms as well as busts are damaging because they slow down long-term investments with the consequence that resources in fluctuating economies are lacking. According to Mises, the problem is not low consumption but low savings. This means that the countercyclical policy in the manner of Keynes is based on a wrong diagnosis. This policy prevents an early market-driven correction with the result of an even bigger bust.</p> <p><b>Fiat money system creates failures</b></p> <p>Polleit explained, on the basis of the interest theory of Mises, that the market interest rate in a fiat money system was chronically below the natural interest rate. The consequence of adherence to such a system with its too low interest rates is that economic and political mistakes during the bust phase are not completely corrected &ndash; and, thus, new failures will arise. One current example for the failure of the low interest rate policy in the industrial countries is the flow of foreign capital into the emerging markets with all its harming effects. Especially since the US Federal Reserve has announced to reduce bond purchases, many investors have withdrawn their money from the emerging markets. As a result, the exchange rates of the emerging market currencies strongly depreciated &ndash; with negative consequences for their previously booming economies.</p> <p>This destabilization in emerging markets will, according to Polleit, result in an even closer cooperation among national central banks &ndash; with the objective to counteract the remaining currency competition. Central banks of emerging economies could be forced to join the network of liquidity-swap-agreements in order to receive credits from other central banks more easily. Thereby, they would basically give up their sovereignty over the national money supply. The result would be a world cartel of central banks led by the US Fed. This cartel would extend the boom phases, which are caused by the credit money system, and, as a consequence, amplify the inevitably following busts.</p> <p><strong>Against the background of this grim scenario, Polleit demanded a reform of the monetary system towards a market-oriented monetary order. This should include, inter alia, disempowering central banks and privatizing money supply.</strong></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="260" height="168" alt="" src="" /> </div> </div> </div> Austrian School of Economics Bond Central Banks Federal Reserve Ludwig von Mises Money Supply Fri, 11 Jul 2014 22:23:39 +0000 Tyler Durden 490863 at Gallup Slams Lid On Hopes for US Economy <p>Wolf Richter&nbsp;&nbsp; <a href=""></a>&nbsp;&nbsp; <a href=""></a></p> <p>Consumers are &ldquo;straining against rising prices on daily essentials to afford summer travel, dining out, and discretionary household purchases &ndash; the kinds of purchases that ordinarily keep an economy humming.&rdquo; That&rsquo;s what Gallup found when it used a new survey to dive deeper into consumer spending.</p> <p>Its regular <a href="" target="_blank"><font color="#0009c4">monthly survey</font></a> has been mixed. The average dollar amount consumers spent in June swooned to $91 per day from $98 in May, after a crummy January-April period ranging from $78 to $88 per day. The May spurt seems to have been an outlier that had given rise to a lot of speculation consumers would finally hit &ldquo;escape velocity,&rdquo; now obviated by events. But from 2012 until late last year, the averages had been rising.</p> <p>So Gallup <a href="" target="_blank"><font color="#0009c4">dove deeper</font></a> into the issue with its new survey conducted in mid-June to sort through what consumers are spending more or less money on. And what it found was that they&rsquo;re buying a little more &ndash; &ldquo;just not the things they want.&rdquo;</p> <p>They&rsquo;re spending more on things they <em>have to buy</em>, and in many instances they&rsquo;re spending more in these categories because prices have jumped. At the top of the list: groceries.</p> <ul> <li>Groceries: 59% spent more, 10% spent less.</li> <li>Gasoline: 58% spent more, 12% spent less</li> <li>Utilities: 45% spent more, 10% spent less</li> <li>Healthcare: 42% spent, 8% spent less</li> <li>Toilet paper and other household goods: 32% spent more, 5% spent less</li> <li>Rent, the biggie: 32% spent more, 9% spent less.</li> </ul> <p>These categories are household essentials. They&rsquo;re on top of the priority list. And in order to meet the requirements of these items, consumers are cutting back where they can. Gallup found that &ldquo;the increasing cost of essential items is further constraining family budgets already hit hard by the Great Recession and still reeling from a stagnant economy.&rdquo; Hence, the less essential the expense, the more it got cut. Here is the bottom of the list, which explains part of the recent retail woes:</p> <ul> <li>Retirement savings: 18% spent more, 17% spent less.</li> <li>Leisure activities: 28% spent more, 31% spent less</li> <li>Clothing: 25% spent more, 30% spent less</li> <li>Consumer electronics: 20% spent more, 31% spent less</li> <li>Travel: 26% spent more, 38% spent less</li> <li>Dining out: 26% spent more, 38% spent less</li> </ul> <p>Then there are summer travel plans, so future spending. They show just how bifurcated the economy has become. On the positive side of the ledger, 69% of American plan to travel this summer, the highest since 2006, and far more than the 52% in 2009 during the depth of the Great Recession. And those travelers intend to spend more on transportation, food, lodging, and entertainment than last year, as Gallup put it, &ldquo;further pressuring their already-strained budgets.&rdquo;</p> <p>But about one-third plan to spend only one night or less away from home. So not exactly a long vacation. And 36% are planning to travel less than last year, even worse than in the terrible year of 2010, when 33% were cutting back from the already terrible year 2009.</p> <p>And what about &ldquo;escape velocity&rdquo; in consumer spending? Despite what Wall Street economists and other hype mongers have been predicting for five years in a row, Gallop soberly puts slams the lid on those speculations:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>If there was any doubt that the U.S. economy is still struggling to get back on its feet, the results of this poll reinforce that reality. Because consumer spending is the lifeblood of a healthy economy, these findings suggest that discretionary spending still has a ways to go before it will fuel the kind of economic growth Americans have been hoping for.</p> </blockquote> <p>Americans who are struggling to make ends meet, and who cut discretionary spending in order to pay for essentials, form a large part of the middle class. But there are others who don&rsquo;t have these problems, who are doing well. A dichotomy that shows up in &ldquo;dining out.&rdquo;</p> <p>&ldquo;Dining out&rdquo; made the bottom of the list: 38% of the people cut back, while only 26% spent more on it. The restaurant industry should be groaning in pain.</p> <p>But someone <em>must be</em> eating out. The Restaurant Performance Index (RPI) for May, <a href=""><font color="#0009c4">released</font></a> on June 30, rose again, &ldquo;driven by stronger sales and traffic levels and an increasingly optimistic outlook among restaurant operators.&rdquo; May was the third month in a row that the Current Situation Index was above 100, and therefore in expansion mode.</p> <p>Smell of conundrum? Nope. But a sign of America&rsquo;s dual-track society. The 26% of consumer who spent more on dining out might well belong to that group whose median household income exceeds $50k a year. They feel flush and their confidence has soared to post-recession highs. But the confidence of consumers making less than $50k a year has barely moved up from the recession bottom. And the gap between the two is at a record high. Read&hellip;.&nbsp; <a href=""><font color="#0009c4">This Chart Truly Depicts What&rsquo;s Wrong With the &lsquo;Recovery&rsquo; in America</font></a></p> Gallup Reality Recession recovery Fri, 11 Jul 2014 22:02:12 +0000 testosteronepit 490862 at UK Economy "Boomerang'd" As Russians Shun $719 Bottles Of Cristal <p>The UK had feared whiplash from sanctions on Russian oligarchs but this &#39;boomerang&#39; is too much to bear... <a href="">As Bloomberg reports</a>, &ldquo;We&rsquo;re seeing a lot less Russian surnames on the booking sheet,&quot; at London&#39;s Mahiki, a Polynesian-themed nightclub in upmarket Mayfair where a bottle of Cristal Champagne goes for $719 - and Russian customers are being supplanted by revelers from countries including China and Nigeria. <strong>&ldquo;The Russian market was like a Champagne fountain,&rdquo; notes on ereveler, &quot;The money was coming into the top and flowing down...&quot;</strong> but not so much anymore...</p> <p>&nbsp;</p> <p><a href="">As Bloomberg reports, </a>to gauge London&rsquo;s place in the global economy, you could examine World Bank statistics, canvass investors and analyze trade volumes. Or you could visit Mahiki, a Polynesian-themed nightclub in upmarket Mayfair where a bottle of Cristal Champagne goes for $719 -- and Russian customers are being supplanted by revelers from countries including China and Nigeria.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><span style="text-decoration: underline;"><strong>&ldquo;We&rsquo;re seeing a lot less Russian surnames on the booking sheet,&rdquo; </strong></span>said Michael Evans, the creative director of the club, where the likes of Rihanna and Prince Harry have been spotted after dark. <span style="text-decoration: underline;"><strong>&ldquo;It&rsquo;s very easy to see what&rsquo;s going on in the world from the markets we attract.&rdquo;</strong></span></p> <p>In another sign of the slowdown, retail spending by Russian visitors to the U.K. between January and May declined 22 percent from a year earlier, according to Global Blue, which runs tax-rebate services. Chinese spending climbed 8 percent in the same period.</p> </blockquote> <p>It all changed when the sanctions hit...</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>A few years ago, Russians&rsquo; orders for customized Ferraris or Lamborghinis &ldquo;with your own leather, gilt-edged instrument dials, personalized with your initials, with tailor-made Louis Vuitton (MC) luggage&rdquo; to match, were a mainstay for dealers</strong>, said Simon Empson, managing director of London luxury car broker Broadspeed Ltd.</p> <p>One customer spent 150,000 pounds customizing a 70,000-pound Range Rover. Another was sent an order form for options on a BMW.</p> <p>&ldquo;He faxed it back blank except for writing &lsquo;Give me everything,&rsquo;&rdquo; with an American Express number appended below, Empson said. <span style="text-decoration: underline;"><strong>&ldquo;The sanctions have ended that business&rdquo;</strong></span></p> </blockquote> <p>And while non-Chinese are stepping in to fill the void... there&#39;s still a gap...</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>Even in large numbers, Londoners shouldn&rsquo;t expect new arrivals from China to fully assume the role that wealthy Russians have held in the city&rsquo;s economy</strong>, cautions Peter Wetherell, CEO of real-estate agency Wetherell. For the most part, he said, they aren&rsquo;t spending enough to become players in storied districts like Kensington and Knightsbridge, choosing instead to stick to less-prestigious zones on the fringes of the central city.</p> </blockquote> <p>*&nbsp; *&nbsp; *</p> <p>So UK pops its Champagne bubble as <a href="">China pops the US real estate bubble</a>.</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="322" height="373" alt="" src="" /> </div> </div> </div> American Express China Global Economy Real estate World Bank Fri, 11 Jul 2014 21:46:23 +0000 Tyler Durden 490861 at