Month: May 2014

Steve Chapman on the Upside of the President’s Fading Power

ObamaAbout now,
Barack Obama may be wondering why he thought it would be such fun
to serve a second term rather than go lounge on a beach in Hawaii.
Life in the White House has become a daily ordeal of pain and
frustration. Nothing is going well. On the foreign front, he has to
contend with an aggressive Vladimir Putin, an unsuccessful war in
Afghanistan and his failure to revive the Israeli-Palestinian peace
process. Domestically, he has to endure a Department of Veterans
Affairs scandal, an underperforming economy, a health care overhaul
whose ultimate success is in doubt, House hearings on Benghazi, and
an inability to get Congress to do anything he wants.

But a year from now, writes Steve Chapman, the president may
look back at 2014 with fond nostalgia. That’s because however
limited his power and influence in Washington, they’re about to
shrink.

View this article.

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E.U. Election Results: A Handy Guide to Europe’s Political Factions

||| fdecomite / FlickrFor those of us who are more
used to two-party democracy, last week’s
elections to the European Parliament could easily be a source
of confusion. By my estimate, the European Parliament’s 751 seats
will soon be divided between representatives of 198 different
national parties, themselves organized into seven (or possibly
eight) official groups—with each of those representing a political
faction that draws support from at least 25 members of the European
Parliament (MEPs) who must, between them, represent no fewer than
seven of the E.U.’s 28 member states. Got it?

If you want to know more, read on for a guide to Europe’s main
political factions, how they did in last week’s elections, and what
it means for the future of the European Union.

The Center

A majority of seats (62 percent) went to representatives of
Europe’s three main groups: the European People’s Party (EPP), the
Alliance of Liberals and Democrats for Europe (ALDE), and the
Progressive Alliance of Socialists and Democrats in the European
Parliament (S&D). Collectively, these groups represent the
pro-E.U. mainstream, and include the main national parties from
most E.U. member states. Nonetheless, each of these groups
represents a distinct European political tradition.

The EPP are best described as Christian democrats. They are on
the center-right of politics, being relatively pro-market and
fiscally conservative in European terms, but nevertheless committed
to a comprehensive welfare state and a regulated, mixed economy.
They are moderately traditionalist, but not in an outspoken
way—they have very little in common with America’s religious right,
for example. After last week’s elections, the EPP remain the
largest group in the European Parliament with 28 percent of its
seats, but that is down from 36 percent last time. France’s
center-right opposition party, the Union for a Popular Movement
(UMP), lost half its seats in the European Parliament; the main
center-right parties in Italy and Spain lost almost one-third of
theirs.

ALDE are Europe’s liberal centrists. The group contains both
classical liberals and moderate social democrats; they generally
favor trade, competition, and individual freedom—but not to the
extent that you would call them libertarians. Moreover, two of the
group’s largest national parties—Germany’s Free Democrats and
Britain’s Liberal Democrats—suffered heavy losses in last week’s
elections, and that looks set to further diminish the influence of
classical liberalism within the group. Expect this bloc, which
holds 9 percent of seats in the European Parliament (down from 11
percent last time), to trend in a more interventionist direction in
future.

S&D, meanwhile, are typically referred to as socialists, a
term that doesn’t carry the same stigma in continental Europe as it
does in the U.S. But while some of S&D’s constituent national
parties are eager to embrace socialism (here’s looking at you,

Ed Milliband), others (like
Matteo Renzi’s Democratic Party in Italy) are much more
reformist, pursuing tax cuts, privatization, and market
liberalization. What’s more, many S&D members accept the E.U.’s
strict limits on public debt and deficits. S&D, then, are
perhaps better described as a broad, social democratic
coalition—they are certainly committed to social justice and the
welfare state, but they are not everywhere and always opposed to
fiscal consolidation, business, and markets. They have 25 percent
of seats in the new parliament, down 1 percent from 2009.

The Left

Another reason to hold off on calling S&D socialist is that
a genuinely anti-capitalist group—European United Left/Nordic Green
Left (GUE/NGL)—won 6 percent of seats in the European Parliament,
up 1 percent from 2009. The biggest news here was in Greece, where
the radical left-wing parties (Syriza and the Communist Party)
doubled their share of the vote, from 16 percent in 2009 to 33
percent in 2014—a sign of the deep unpopularity of the “austerity”
policies that were imposed on Greece as a condition of its repeated
E.U./IMF bailouts. With Syriza’s leader, Alex Tsipras, now
demanding an early general election in Greece, there may soon
be renewed concern about the stability and integrity of the
eurozone.

The Greens/European Free Alliance also lean left, albeit not
quite so radically as GUE/NGL. This group, which consists of
environmentalists and progressive parties representing “stateless
nations and disadvantaged minorities,” maintained its 7 percent
share of seats in the European Parliament.

The Right

Perhaps the most interesting news to come from last week’s
elections, however, is the rise of the euroskeptic right, who
oppose the doctrine of “ever-closer union” in Europe, and in some
cases want their countries to leave the European Union altogether.
But this is a very long way from being a homogeneous political
bloc. Indeed, it may yet result in three formal parliamentary
groups, and still leave several nationalist parties out in the
cold.

At the respectable end of the spectrum are the European
Conservatives and Reformists (ECR), a group dominated by the U.K.’s
ruling Conservative Party and Poland’s Law and Justice (PiS). As
things stand, the group looks set to have 6 percent of seats in the
European Parliament after last week’s vote, down 1 percent from
2009. However, the alliances among euroskeptic parties are
currently in flux, so the group could easily end up bigger than
that. This group is united by its desire to make the European Union
more open, decentralized, and free market. But beyond that, there
are some differences of opinion. The U.K. Conservatives are
relatively liberal on social issues, but also favor stricter
immigration controls; PiS is more socially conservative, but also
opposes restrictions on the free movement of people within the
E.U.

The next euroskeptic group is Europe of Freedom and Democracy
(EFD), which currently appears to have increased its share of
parliamentary seats from 4 to 5 percent. This group is dominated by
the U.K. Independence Party (UKIP), which topped the U.K. poll with
27 percent of the national vote. UKIP seeks Britain’s withdrawal
from the E.U. and favors very strict immigration control, but it
also has a number of free market policies and sometimes describes
itself as libertarian. (I’m
not convinced that it deserves the label.)

Interestingly, it is possible that UKIP will be joined in EFD by
Poland’s Congress
of the New Right, which advocates a minimalist, nightwatchman
state. The party won four seats in the European Parliament with 7
percent of the Polish national vote. It also “gained 28.5 percent
of votes among 18- to 25-year-olds—more than any other party,”

according to The Guardian. It is unfortunate, then,
that the party’s leader, Janusz Korwin-Mikke—described by some as a
Polish Ron Paul—is said to
favor monarchy over democracy,
oppose the right of women to vote, and has been quoted
heaping scorn on the Paralympics, as well as
questioning whether Hitler knew about the Holocaust.
Libertarians would be well advised to contain their excitement.

Another problem for UKIP is that its Italian ally, the Northern
League, plans to defect to the far-right European Alliance for
Freedom (more on that in a moment). Meanwhile, its Nordic
allies—the Finns and the Danish People’s Party—might be off to join
ECR. This could leave UKIP unable to gather representatives from
seven different E.U. member states, and therefore prevent them from
forming an official parliamentary group. (Official status is
important because it comes with central funding, which pays for the
groups’ staff, facilities, and research.) It would be a cruel irony
if UKIP’s electoral success were to translate into parliamentary
isolation, but it remains, for now, a possibility—to his credit,
UKIP leader Nigel Farage has ruled out an alliance with several
parties that are widely viewed as xenophobic and nativist.

Speaking of which, Marine Le Pen’s National Front came out on
top of the French poll, with 25 percent of the votes cast. She will
now seek to win official status for her European Alliance for
Freedom group. The National Front have 24 seats, and were
previously in a parliamentary alliance with Austria’s Freedom Party
(four seats) and Belgium’s Flemish Interest (one seat). The Dutch
Party for Freedom won four seats (a surprisingly lackluster
performance), and its leader, Geert Wilders, has said they will
join Le Pen’s alliance. Italy’s Northern League (five seats) plans
to sign up as well. Throw in the Sweden Democrats (two seats) and
the European Alliance for Freedom has 40 seats in parliament (5
percent of the total) but still needs to find an MEP from a seventh
country before it wins official status.

Taken as a group (there is some variation between the individual
parties involved), this bloc can be expected to espouse a robust,
nationalist ideology that is culturally conservative and
authoritarian, opposed to immigration, concerned about
Islamification, and skeptical of the benefits of global trade.
Unlike UKIP, they have no particular affection for free market
economics, and their chosen name (European Alliance for Freedom)
will strike many as a misnomer. The previous nationalist group,
which collapsed when its Romanian and Italian members
fell out with one another, was at least more honest: it called
itself “Identity, Tradition, Sovereignty.”

Despite this, there are three nationalist parties that won seats
in last week’s elections, but with whom the European Alliance for
Freedom will probably not wish to be associated. These are
Hungary’s Jobbik (three seats), Greece’s Golden Dawn (three seats),
and Germany’s National Democrats (one seat). Though they all reject
the neo-Nazi label that is usually applied to them, there are too
many telltale signs of
racism,
anti-Semitism, and
fascism for other parties to tolerate. As a result, Jobbick,
Golden Dawn, and the National Democrats are likely to remain
isolated.

Implications

Most coverage of the European election results—this article
included—has focused on the rise of radical, populist parties. This
is certainly significant. But the near-term effects of these
elections will mostly be felt at the domestic, rather than the
European level.

In Britain, UKIP’s popularity may—if it endures—sway the course
of 2015 general election, making the opposition Labour Party more
likely to win by depriving the Conservatives of crucial marginal
seats. It could make Scotland, which is relatively pro-E.U.,

more likely to vote for independence from the rest of the U.K.
in September this year. And it could make other European leaders
more willing to help UK Prime Minister David Cameron in his efforts
to reform the E.U., and thus avoid a British vote for withdrawal in
the referendum that is tentatively scheduled for 2017.

In Italy, the strong showing for the ruling Democratic Party is
good news for Matteo Renzi’s plans to liberalize, privatize, and
reform his way to faster economic growth and a more sustainable
debt burden in Europe’s fifth-largest economy. The country’s
traditional center-right groups face a challenge to redefine
themselves in a (possibly) post-Silvio Berlusconi era, after losing
out again to the Five Star Movement’s amorphous protest vote.
France’s UMP faces a similar future: how do they ensure that they
are the ones to benefit politically from the failure of President
Francois Hollande’s failed socialist agenda, rather than the
reactionary National Front?

Yet it may well be Greece where the impact of these elections is
most keenly felt. The electoral success of parties on both the
radical-left and the far-right suggests there may be trouble ahead
for the Greek economy, Greek society, and perhaps the eurozone as a
whole.

Back in Brussels and Strasbourg (the two homes of the European
Parliament) the three traditional parties—EPP, ALDE, P&S—are
likely to function as a grand coalition, ensuring the continued
dominance of pro-E.U., “ever-closer-union” policies. Although the
election results may have some immediate and unwelcome impact on
policy—the Financial Times
notes, for example, that the loss of several liberals from key
committees may lead to more heavy-handed financial
regulation—chances are that business will continue very much as
usual.

This, in itself, is a shame: While there is no need for E.U.
politicians to react to the rise of far-right and radical-left
parties by copying their policies, there are lessons they should
learn. They ought to be more respectful of the principle of
subsidiarity, and decline to legislate and regulate things that are
better left to national or local governments. They should realize
that the E.U. is not meant to be a superstate, and accept that its
direction should be dictated by representatives of national
governments, rather than E.U. functionaries. Most important of all,
they should realize that much more radical action is needed to
boost economic growth in the eurozone, and to prevent it sliding
into a Japanese-style “lost decade.” That means taking measures to
liberalize the E.U.’s internal market, reduce the deadweight costs
of E.U. regulation, and pursue genuine free trade deals with the
rest of the world, while also supporting efforts reduce corruption,
redesign tax codes, and reform outdated and costly public services
in E.U. member states.

In a context of decentralization and renewed economic growth,
far-right and radical-left ideas would likely fade from view as
quickly as they’ve appeared in this round of European elections.
But if power continues to accrue to distant elites, and eurozone
economies continue to fester, these ideologies will continue to
attract European voters.

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Peter Schiff Slams PikettyMania

It’s all the rage… Pikettymania is sweeping the nation and liberal economists are throwing their academic panties on his theoretical stage…

 

 

So here is Peter Schiff to debunk the euphoria…

 

Submitted by Peter Schiff of Euro Pacific Capital,

There can be little doubt that Thomas Piketty’s new book Capital in the 21st Century has struck a nerve globally. In fact, the Piketty phenomenon (the economic equivalent to Beatlemania) has in some ways become a bigger story than the ideas themselves. However, the book’s popularity is not at all surprising when you consider that its central premise: how radical wealth redistribution will create a better society, has always had its enthusiastic champions (many of whom instigated revolts and revolutions). What is surprising, however, is that the absurd ideas contained in the book could captivate so many supposedly intelligent people. 

Prior to the 20th Century, the urge to redistribute was held in check only by the unassailable power of the ruling classes, and to a lesser extent by moral and practical reservations against theft. Karl Marx did an end-run around the moral objections by asserting that the rich became so only through theft, and that the elimination of private property held the key to economic growth. But the dismal results of the 20th Century’s communist revolutions took the wind out of the sails of the redistributionists. After such a drubbing, bold new ideas were needed to rescue the cause. Piketty’s 700 pages have apparently filled that void.

Any modern political pollster will tell you that the battle of ideas is won or lost in the first 15 seconds. Piketty’s primary achievement lies not in the heft of his book, or in his analysis of centuries of income data (which has shown signs of fraying), but in conjuring a seductively simple and emotionally satisfying idea: that the rich got that way because the return on invested capital (r) is generally two to three percentage points higher annually than economic growth (g). Therefore, people with money to invest (the wealthy) will always get richer, at a faster pace, than everyone else. Free markets, therefore, are a one-way road towards ever-greater inequality.

Since Piketty sees wealth in terms of zero sum gains (someone gets rich by making another poor) he believes that the suffering of the masses will increase until this cycle is broken by either: 1) wealth destruction that occurs during war or depression (which makes the wealthy poorer) or 2) wealth re-distribution achieved through income, wealth, or property taxes. And although Piketty seems to admire the results achieved by war and depression, he does not advocate them as matters of policy. This leaves taxes, which he believes should be raised high enough to prevent both high incomes and the potential for inherited wealth.

Before proceeding to dismantle the core of his thesis, one must marvel at the absurdity of his premise. In the book, he states “For those who work for a living, the level of inequality in the United States is probably higher than in any other society at any time in the past, anywhere in the world.” Given that equality is his yardstick for economic success, this means that he believes that America is likely the worst place for a non-rich person to ever have been born. That’s a very big statement. And it is true in a very limited and superficial sense. For instance, according to Forbes, Bill Gates is $78 billion richer than the poorest American. Finding another instance of that much monetary disparity may be difficult. But wealth is measured far more effectively in other ways, living standards in particular.

For instance, the wealthiest Roman is widely believed to have been Crassus, a first century BC landowner. At a time when a loaf of bread sold for ½ of a sestertius, Crassus had an estimated net worth of 200 million sestertii, or about 400 million loaves of bread. Today, in the U.S., where a loaf of bread costs about $3, Bill Gates could buy about 25 billion of them. So when measured in terms of bread, Gates is richer. But that’s about the only category where that is true.

Crassus lived in a palace that would have been beyond comprehension for most Romans. He had as much exotic food and fine wines as he could stuff into his body, he had hot baths every day, and had his own staff of servants, bearers, cooks, performers, masseurs, entertainers, and musicians. His children had private tutors. If it got too hot, he was carried in a private coach to his beach homes and had his servants fan him 24 hours a day. In contrast, the poorest Romans, if they were not chained to an oar or fighting wild beasts in the arena, were likely toiling in the fields eating nothing but bread, if they were lucky. Unlike Crassus, they had no access to a varied diet, health care, education, entertainment, or indoor plumbing.

In contrast, look at how Bill Gates lives in comparison to the poorest Americans. The commodes used by both are remarkably similar, and both enjoy hot and cold running water. Gates certainly has access to better food and better health care, but Americans do not die of hunger or drop dead in the streets from disease, and they certainly have more to eat than just bread. For entertainment, Bill Gates likely turns on the TV and sees the same shows that even the poorest Americans watch, and when it gets hot he turns on the air conditioning, something that many poor Americans can also do. Certainly flipping burgers in a McDonald’s is no walk in the park, but it is far better than being a galley slave. The same disparity can be made throughout history, from Kublai Khan, to Louis XIV. Monarchs and nobility achieved unimagined wealth while surrounded by abject poverty. The same thing happens today in places like North Korea, where Kim Jong-un lives in splendor while his citizens literally starve to death.

Unemployment, infirmity or disabilities are not death sentences in America as they were in many other places throughout history. In fact, it’s very possible here to earn more by not working. Yet Piketty would have us believe that the inequality in the U.S. now is worse than in any other place, at any other time. If you can swallow that, I guess you are open to anything else he has to serve.

All economists, regardless of their political orientation, acknowledge that improving productive capital is essential for economic growth. We are only as good as the tools we have. Food, clothing and shelter are so much more plentiful now than they were 200 years ago because modern capital equipment makes the processes of farming, manufacturing, and building so much more efficient and productive (despite government regulations and taxes that undermine those efficiencies). Piketty tries to show that he has moved past Marx by acknowledging the failures of state-planned economies.

But he believes that the state should place upper limits on the amount of wealth the capitalists are allowed to retain from the fruits of their efforts. To do this, he imagines income tax rates that would approach 80% on incomes over $500,000 or so, combined with an annual 10% tax on existing wealth (in all its forms: land, housing, art, intellectual property, etc.). To be effective, he argues that these confiscatory taxes should be imposed globally so that wealthy people could not shift assets around the world to avoid taxes. He admits that these transferences may not actually increase tax revenues, which could be used, supposedly, to help the lives of the poor. Instead he claims the point is simply to prevent rich people from staying that way or getting that way in the first place.

Since it would be naive to assume that the wealthy would continue to work and invest at their usual pace once they crossed over Piketty’s income and wealth thresholds, he clearly believes that the economy would not suffer from their disengagement. Given the effort it takes to earn money and the value everyone places on their limited leisure time, it is likely that many entrepreneurs will simply decide that 100% effort for a 20% return is no longer worth it. Does Piketty really believe that the economy would be helped if the Steve Jobses and Bill Gateses of the world simply decided to stop working once they earned a half a million dollars?

Because he sees inherited wealth as the original economic sin, he also advocates tax policies that will put an end to it. What will this accomplish? By barring the possibility of passing on money or property to children, successful people will be much more inclined to spend on luxury services (travel and entertainment) than to save or plan for the future. While most modern economists believe that savings detract from an economy by reducing current spending, it is actually the seed capital that funds future economic growth. In addition, businesses managed for the long haul tend to offer incremental value to society. Bringing children into the family business also creates value, not just for shareholders but for customers. But Piketty would prefer that business owners pull the plug on their own companies long before they reach their potential value and before they can bring their children into the business. How exactly does this benefit society?

If income and wealth are capped, people with capital and incomes above the threshold will have no incentive to invest or make loans. After all, why take the risks when almost all the rewards would go to taxes? This means that there will be less capital available to lend to businesses and individuals. This will cause interest rates to rise, thereby dampening economic growth. Wealth taxes would exert similar upward pressure on interest rates by cutting down on the pool of capital that is available to be lent. Wealthy people will know that any unspent wealth will be taxed at 10% annually, so only investments that are likely to earn more than 10%, by a margin wide enough to compensate for the risk, would be considered. That’s a high threshold.

The primary flaw in his arguments are not moral, or even computational, but logical. He notes that the return of capital is greater than economic growth, but he fails to consider how capital itself “returns” benefits for all. For instance, it’s easy to see that Steve Jobs made billions by developing and selling Apple products. All you need to do is look at his bank account. But it’s much harder, if not impossible, to measure the much greater benefit that everyone else received from his ideas. It only comes out if you ask the right questions. For instance, how much would someone need to pay you to voluntarily give up the Internet for a year? It’s likely that most Americans would pick a number north of $10,000. This for a service that most people pay less than $80 per month (sometimes it’s free with a cup of coffee). This differential is the “dark matter” that Piketty fails to see, because he doesn’t even bother to look.

Somehow in his decades of research, Piketty overlooks the fact that the industrial revolution reduced the consequences of inequality. Peasants, who had been locked into subsistence farming for centuries, found themselves with stunningly improved economic prospects in just a few generations. So, whereas feudal society was divided into a few people who were stunningly rich and the masses who were miserably poor, capitalism created the middle class for the first time in history and allowed for the possibility of real economic mobility. As a by-product, some of the more successful entrepreneurs generated the largest fortunes ever measured. But for Piketty it’s only the extremes that matter. That’s because he, and his adherents, are more driven by envy than by a desire for success. But in the real world, where envy is inedible, living standards are the only things that matter. 




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The Bond Market Explained Part II

By EconMatters

 

 

Addendum Needed

 

Since so many people are still slightly confused about how all the pieces come together in this move lower in yields, we feel the need to add some follow-up commentary to our previous article entitled “The Bond Market Explained for CNBC” on the subject which should help investors better understand the behind the scenes dynamics of the bond market.  

 

Filling in the Details

 

So the High Yield Carry Trade is what has brought the 10-Year down to the 2.62% area, Hedge Funds started realizing what was going on in the Bond market, and started getting involved when yields were around 2.8%, but they are just jumping on the tails of the High Yield crowd with the size required to move this market 50 basis points.

 

Once we settled into the 2.62% area hedge funds made a run for the 2.58% area lows, then covered and we were back up around 2.65% yield. From there European Bonds started rallying in price, going down in yield on the belief that Mario Draghi was going to do some kind of stimulus program involving bond buying, investors wanted to front run this event, this led US Bonds to also rally in price and go down in yield which is the move down to 2.47%, then the traders covered and we retraced back to the 2.56% area yield. 

 


From there traders waited until the econ news came out on Tuesday where yields rallied, and then with no econ data to worry about made the next push down to the 2.43% area on Wednesday in a relatively light volume trading environment. This is straight out of the trend trading handbook, and traders have yet to cover this latest push down hoping for additional profit with protective stops in place. 

 

Make no mistake this is just a trade for these folks with no long-term conviction regarding where bond yields should trade relative to the economic fundamentals. These same traders will be pushing in the other direction in a couple of months; this is how momentum trading works these days.

 

Market Moving Events Next Week

 

There is economic data on Thursday with GDP revisions and Jobless Claims numbers, but relatively speaking, next week is where the rubber meets the road on this trade. Hedge Funds are piling into this trade trying to push some technical areas in a light volume week, see where yields end up next Friday for any commitment to this trade by Hedge Funds. 

 

 

My guess is that there is major covering or closing out of positions by the end of next week similarly to how the Hedge Funds all ran out of the Natural Gas trade, sending NG Futures down two bucks in two days as nobody wanted to take delivery of said natural gas in their largely paper world. 

 

Lots of Stops Protecting Profits

 

Therefore, to sum up the High Yield chasing environment fueled via Low Interest Rates for Borrowing are the reason all rates are this low, but this last move down in bond yields has been due to front-running the ECB decision on June 5th, and hedge funds piling in as they always doing smelling blood in a hot market for technical damage. 

 

As an aside, these aren`t high yields all things considered, but high relative to essentially zero percent borrowing costs once you factor in the kind of leverage being used in this trading strategy.

 

It might be worth pointing out that the bond market is tightening like a coiled spring and can explode higher in yields an easy 20 basis points at the drop of a hat, look for the ECB Meeting or the USEmployment Report to be a potential catalyst next week!

 

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Sriracha Triumphs Over Government Meddling

Viva la
Sriracha. The city of Irwindale, California, yesterday dropped its
declaration that Huy Fong Foods, maker of the famous hot sauce, is
a pungent “public nuisance.”

Reuters
explains that “at a city council hearing on Wednesday, three
council members and Mayor Mark Breceda voted unanimously to dismiss
the resolution” that was made last month and “would have allowed
Irwindale, 20 miles east of Los Angeles, to act on its own to
remedy the fumes, with the company assuming any abatement
costs.”

“I will say that I believe that not always lawsuits are good for
any business or any community. It’s not only hurtful but expensive.
I don’t believe at this point that it was the right way to go,”

said Mayor Mark Breceda.

The squabbling began last year when reports emerged that some
residents of the 1,500-person town experienced watery eyes and sore
throats due to the smells emitted by the Huy Fong factory. However,
L.A. Weekly‘s Dennis Romero was skeptical,

noting that “most of the odor complaints have come from four
nearby homes, one of which is occupied by the relative of a city
councilman. That councilman, Hector Ortiz, recused himself from
discussion and voting on the matter because, he says, he owns
property near the plant.” And, the city was trying to sell property
next to the factory at the time.

Even the judge who ordered a partial shutdown of the factory
said that there was a “lack of credible evidence” that the makers
of the award-winning condiment were responsible for the poor air
quality in the primarily
industrial town.

California’s health regulators
changed their own rules in December as they demanded a 30-day
hold on operations, which
created fear of a national Sriracha shortage.

David Tran, CEO of the $80 million business, recently
accused the city council of acting like a “local king” and
compared their governance to that of his birth country—Communist
Vietnam. He received numerous offers to move his operation to more
business friendly states, but decided to stay and agreed to install
stronger air filters in his factory to contain the peppery
smells.

Check out Reason TV’s coverage of the saucy standoff here:

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Snowden: The Government That Is Attacking Me Is Also Reforming Because of Me

Spending spare time watching "The Wire"Brian Williams’ exclusive
interview with whistleblower Edward Snowden aired on NBC last
night. The nearly 40-minute interview didn’t provide any new
information for those who have been closely following Snowden’s
situation, but offered Snowden a chance to debunk some of the
nonsense being said about him, particularly by politicians—such as
Secretary of State
John Kerry—who think he should just “man up” and come home to
face espionage charges for the crime of telling the public what
their government is doing.

Here are some highlights:

  • Snowden says he did not bring any of his documents with him to
    Russia and he doesn’t have access to any of them, even by computer,
    to give to the Russians. His files are all in the hands of the
    journalists he’s partnered with, such as Glenn Greenwald. Williams
    also acknowledged that NBC News has partnered with Snowden and
    Greenwald to report on some of the documents.
  • Snowden says he was working like a spy, lying about what his
    job was and even using a fake name. He says his critics are using
    his earlier position as a “low-level analyst” to detract from the
    totality of his work. He says he has worked for the CIA and the
    National Security Agency (NSA) and gave lectures on keeping
    information secure.
  • He’s not a fan of using fears of terrorism to undermine civil
    liberties: “I take the threat of terrorism seriously and I think we
    all do. I think it’s really disingenuous for the government to
    invoke, and sort of scandalize our memories, to sort of exploit the
    national trauma that we all suffered together and worked so hard to
    come through to justify programs that have never been shown to keep
    us safe but cost us liberties and freedoms we don’t need to give up
    and our constitution says we should not give up.”
  • Probably the only really new disclosure for those who have been
    following Snowden’s leaks is his claim that any powerful
    intelligence agency, not just America’s but Russia’s and China’s as
    well, can access cellphones as soon as they’re turned on. They can
    use the phones’ embedded microphones and cameras and turn phones on
    when they’re off. But, he points out, such technology would likely
    only be used against targeted people. Williams asked whether an
    intelligence agency would be interested in knowing that he looked
    up the score for a hockey game, prompting Snowden to explain how
    this information could be used to establish Williams’ “pattern of
    life”: “Are you engaging in any kinds of activities we disapprove
    of, even if they’re technically not illegal?” The activities
    Williams engaged in could increase his level of scrutiny, even if
    he hasn’t done anything wrong.
  • NSA analysts can watch people’s Internet communications and see
    them write messages in real time.
  • He reiterates (as this has already been reported) that he did
    attempt to go through proper channels to blow the whistle on the
    unconstitutional surveillance of the NSA. His concerns are
    documented in writing, he says, and Congress should be able to get
    them from the office of general counsel. NBC has confirmed that at
    least one email from Snowden exists and has filed a Freedom of
    Information Act (FOIA) request to look for other records.
  • The NSA’s auditing process was so negligent that any private
    contractor could walk into the Agency, take anything they wanted,
    and walk out, and the government would never know. He pointed out
    that despite claims that all sorts of military secrets were at
    risk, nothing about troops or weapons or non-surveillance issues
    have appeared in the press.
  • Snowden entered into agreements with the media outlets he’s
    provided documents to that they would actually check with the
    government to make sure no specific harms could befall individuals
    from their reporting. This played out
    recently     when Greenwald and other journalists declined to name
    one of the countries in which America is reportedly recording and
    temporarily storing all mobile calls.
  • He explains that he cannot return home to “face charges”
    because of the intricacies of the Espionage Act and how they’re
    stacked against the defendant. He would not be provided an open
    court or “a fair trial.”
  • He is frustrated being in Russia where individuals’ rights are
    “being challenged,” given that he sees himself as fighting for
    Americans’ rights. He objects to Russia’s new law requiring the
    registering of bloggers and says no government should be regulating
    the operations of a free press.
  • Williams asked him to explain how he sees himself still serving
    the government. Snowden points out that one court so far has ruled
    the bulk metadata collection likely unconstitutional and members of
    Congress are trying to end it (though their efforts have been
    extremely watered
    down    ). “How can it be said that I did not serve my country?” he
    asked. “How can it be said I have harmed government when all three
    branches of the government have made reforms as a result of
    it?”

If you missed it, watch the interview below:

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10Y Treasury Yield Hits 2.40%

It seems shorts keep covering and the Chinese keep buying (through Belgium of course – as they sell CNY, buy USD, and grab the extra yield on Treasuries). Despite stocks relative stability, 10Y yields have just hit 2.40% for the first time in over 11 months (as USDJPY broke down). It seems this morning’s dismal GDP print was just enough to confirm the growth/inflation slowing meme (in bond investors’ minds) and the yield curve is flattening even further…

10Y at 11 month lows at 2.40%

 

Led by USDJPY

 

As the divergence grows…

 

Why are they buying Treasuries? because they offer great yield pick up – unbelievably…

 

Charts: Bloomberg




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Gold To See “Massive Shortages” and “Typical Investor” Will Not Be Able To Get Bullion – Rickards

Today’s AM fix was USD 1,254.00, EUR 921.04 and GBP 749.82 per ounce.

Yesterday’s AM fix was USD 1,265.25, EUR 928.83 and GBP 754.52 per ounce.
Gold fell $6.20 or 0.5% yesterday to $1,259.30/oz. Silver remained nearly unchanged at $19.04/oz
 



Gold extended losses to a third straight day yesterday and is down over 3% in three sessions.  Gold bullion in Singapore traded sideways prior to a bout of concentrated selling in late trading in Singapore (0615 BST) saw gold quickly fall from $1,258/oz to $1,252/oz prior to a slight bounce back to $1,254/oz.

It fell to 16 week lows, possibly due to slightly weaker physical demand in top buyer China and technical selling.

In China, gold premiums ticked slightly higher to $2 to $3 per ounce. They have remained roughly the same since before the price drop, which suggests demand in China has not picked up on the price falls.


We are bearish in the short term and technically, gold is vulnerable to further falls. Potentially to test what appears to be a double bottom between $1,180/oz and $1,200/oz. Gold is particularly vulnerable in the very short term, in other words, today, tomorrow and early next week.

Gold in U.S. Dollars, Daily, 1 Year – (Thomson Reuters)

It is also worth considering seasonal trends and in recent years, June is one of the weakest months for gold. Gold’s five year and ten year average performance in June is negative. We will look at this in more detail tomorrow.

While gold is vulnerable technically to further falls, it’s 14-day relative strength index (RSI) has dipped into very oversold territory, at 28.9 currently.

This morning Russia, Belarus and Kazakhstan signed the historic Eurasian Economic Union which will come into effect in January 2015. “The just-signed treaty is of epoch-making, historic importance,”Russian President Vladimir Putin said.

The Eurasian Economic Union expects Armenia to join within a month, Kyrgyzstan within a year.

Cutting down trade barriers and comprising over 170 million people it will be the largest common market across the ex-Soviet states. The troika of countries will cooperate in energy, industry, agriculture, transport and monetarily.


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“Massive Shortages” In Gold Coming and “Typical Investor” Will Not Be Able To Get Bullion – Rickards


Financial expert, Pentagon insider and bestselling author James Rickards has warned that “typical investors” may not be able to acquire physical gold when prices begin to surge hundreds of dollars a day as “massive shortages” will take place.

In another fascinating interview, this time with the always worth a watch Greg Hunter, formerly of ABC and CNN and now of USA Watchdog, Rickards said that gold will become the preserve of the “big guy” in the form of sovereign wealth funds and central banks.

This is something we have warned of since 2003. There is another risk in the form of ultra high net worth individuals (UHNWIs) in Russia, China and elsewhere also attempting to corner the physical gold and silver markets.

In the 1970’s, the Hunt Brothers made the mistake of not accumulating enough physical silver outside the reach of the U.S. authorities. Some billionaires today will likely not make the same mistake.

Rickards latest book, ‘The Death of Money’ predicts “the coming collapse of the international monetary system” and is being very well received. In recent days alone, Rickards has conducted a huge amount of media interviews with most leading financial networks.  

One of the signposts of the coming collapse of the international monetary system is countries like Russia declaring it will no longer use the U.S. Dollar as a reserve currency in international trade.

Rickards explains, “Putin said he envisions a Eurasian economic zone involving Eastern Europe, central Asia and Russia.  The Russian Ruble is nowhere near ready to be a global reserve currency, but it could be a regional reserve currency.”


Rickards is surprised at how fast the economic situation is unfolding.  Rickards says, “If you ask me what has happened since you finished writing the book that comes as a surprise, I would say a lot of the things I talk about in my book are happening faster than I would have expected. Things that I thought would happen in the 2015 or 2016 time frame seems to be happening now in some ways.  If anything, the tempo of events is faster than expected. “

“Therefore, some of these catastrophic outcomes may come sooner than I wrote about.”

Rickards told Hunter that “right now, we are on the precipice now”.


“When you are on the precipice, it doesn’t mean you fall off immediately, but you are going to fall off because you can see the forces in play.  What I tell clients and investors is it’s not as if we are going to make some mistakes and some bad things are going to happen.  The mistakes have already been made.  The instability is already in the system.  We’re just waiting for that catalyst that I call the snowflake that starts the avalanche.   You don’t worry about the snowflakes; you worry about the snow and that it’s unstable and it’s just waiting to collapse.  That’s what the system is right now; we are just waiting for a catalyst.  People ask me all the time, what could it be?  Technically, my answer is it doesn’t matter because it will be something.  It could be a failure to deliver physical gold.  It could be an MF Global financial failure.  It could be a natural disaster.  It could be a lot of things.  The thing investors need to understand is the catalyst doesn’t matter.  It’s coming because the instability is already there.”

On gold manipulation and when it will end, Rickards says, “It will end when the physical shortage gets to the point that someone fails to deliver; which, at that point, there will be a buying panic.  There could be a buying panic or what some people call a demand shock.  One of the things I said about gold manipulation is if I was the manipulator, I would be embarrassed at this point.  The manipulation is obvious.  The evidence is coming in from all directions. . . . The manipulation is clear.  When will it end?  It will end when there is a physical shortage that pops up somewhere, or it will end with a short squeeze.”

“We are going to get a very large demand shock coming from China and India”, said Rickards.


“Let me explain those two cases.  We have a brand new government in India, and they are going to repeal the import tax on gold.  We also have the wedding season coming up. . . . So, India is set up for a very large surge in demand in the fourth quarter.  Now, over to China, this is one of the things that it’s happening faster than I originally thought.  The credit collapse story is happening in real time.  I said (in my book) this might be a 2015 event, but it looks like it is happening now.  Defaults are piling up.  We are seeing money rise.  We’re seeing people march down to the banks . . . trying to get their money back. . . . So, if they can’t buy foreign stocks, domestic stocks, don’t want to put their money in the bank and are getting out of real estate, then what’s left?  The answer is gold. . . . I see a demand shock coming from China. . . . You could see a scramble to buy gold.  It is going on anyway, but you could see it accelerate.  That will take down the manipulation.  Once the markets prevail over the manipulators, then watch out.”

Rickards, Washington and Wall Street insider, is certain the collapse will happen. He is just not sure when it will happen.

“It is the thing you won’t see coming that will take the system down.  Things happen much more quickly than what investors expect.”

“What will happen in gold is that it will chug along and then all of a sudden–boom.  It will be up $100 an ounce, and then the next day it will be up another $200 an ounce.  Then everyone will be on TV saying it’s a bubble—boom.  It’s up $300 an ounce, and before you know it, it will be up $1,000 per ounce.”


“Then people will say gee, I better get some gold, and they’ll find out they can’t get it because the big guy will get it.  You know, like central banks and sovereign wealth funds will be able to get the gold.  The typical investor will run down to the coin shop and they will be sold out, and the U.S. Mint will say sorry, we’re not shipping.”  

“You’re going to find out you can’t get it because the whole thing is set up for massive shortages in supply.”

Rickards interview with Greg Hunter is well worth watching and can be seen here





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Cathy Young on Elliot Rodger, #YesAllWomen, and Toxic Gender Warfare

Last
weekend’s horror in Santa Barbara, California, where 22-year-old
Elliot Rodger killed six people and wounded more than a dozen
before shooting himself, unexpectedly sparked a feminist moment.
With revelations that Rodger’s killing spree was fueled by anger
over rejection by women and that he had posted on what some
described as a “men’s rights” forum (actually, a forum for bitter
“involuntarily celibate” men), many rushed to frame the shooting as
a stark example of the violent misogyny said to be pervasive in our
culture. The Twitter hashtag #YesAllWomen sprung up as an
expression of solidarity and a reminder of the ubiquity of male
terrorism and abuse in women’s lives. Most of the posters in the
hashtag were certainly motivated by the best of intentions. But in
the end, writes Cathy Young, this response not only appropriated a
human tragedy for an ideological agenda but turned it into toxic
gender warfare.

View this article.

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Someone Is Dead Wrong About The Economy

As we reported earlier, for some today’s economic humiliation of a -1.0% GDP print was merely more good news, and as Goldman announced, weaker than expected Q1 GDP will merely lead to a greater than expected rebound in Q2 GDP.

Here are some other takes:

  • ING: “Overall, this isn’t a terrible outcome”; Sees 2Q GDP at 4.5% annual rate “with inventory rebuilding likely to play its part”
  • Strategas “GDP -1%, old news….mostly noise”
  • Bank of Tokyo’s Chris Rupkey: “2Q growth seen at nearly 4%… Weak 1Q is stone cold dead as an indicator of where the economy is headed.”
  • Newedge: “Prospects for the near future remain relatively optimistic” Sees GDP accelerating to “around 3%” in 2Q as well as second half of year

And of course, the “best” take comes from the White House economic advisor Jason Furman, who said that March, April data “provide a more accurate and timely picture of where the economy is today” and show recovery from recession… A recession which ended 5 years ago mind you. He adds that GDP figures can be volatile; “it is important not to read too much into
any one single report.” Especially if the report shows a 2% contraction when excluding the benefits of Obamacare.

All of these “bullish in the face of adverse data” opinions are what we would dub the equity market’s take: ignoring hard data, and betting on the Fed’s balance sheet and hope for the future (and a blemish-free weather forecast in a priced to perfection and centrally-planned economy of course)

And here is the non-equity market take:

FTN

  • Negative GDP, as reported in 1Q, is “rare for expansions,”
  • “The growth trajectory is flatter than normal, a consequence of an ongoing credit squeeze that has dragged on so long”
  • 1Q inventory decline suggests 2Q GDP rebound of 3.8% annual rate
  • However, “don’t be fooled into thinking -1% was an anomaly and 4% is the new baseline”
  • Drop in 1Q corporate profits dashes hopes for increased capital spending this year

GMP, Adrian Miller: “After 1Q GDP contraction, 2Q data has been very much mixed with the jury out on near-term growth momentum,”

Redfin:

  • GDP shows economy lost ground this winter; so far, little indication will be huge pickup in 2Q home sales to make up for 1Q’s “lethargic” housing mkt, says Nela Richardson, Redfin chief economist.
  • Low inventory, rising prices continue to be “significant headwinds” to housing demand
  • Homebuyer demand in many areas also hurt by affordability pressures, stagnating median incomes that haven’t kept up with inflation

Bottom line: someone is dead wrong on the economy, but we are glad that the weathermen formerly known as economists are putting all these timestamps out there in the public domain. Because we eagerly look forward to seeing just what the scapegoat will be when Q2 GDP mysteriously fails to soar to 4%. And judging by what the bond market is doing, the only place that may see 4% growth in Q2 is China (net of all the fabricated data of course).




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