Month: August 2014

Yesterday we noted the fact that Biotech stock investors has ‘fought the Fed’ and won (for now) in the last few months after Janet Yellen’s “stretched valuations” warning. With bond yields continuing to collapse, despite Bullard’s ongoing demand that the market ‘sell sell sell’, we thought a glimpse at just how dovish the market is compared to the ‘hawkish’ Fed would be useful…

 

FOMC ‘demanding’ the market take them seriously…

 

But the FOMC even admitted previously that it over-estimated rate rise pace…

“nailed it”

But, despite all the exuberance over stocks, jobs, and growth, the ‘real’ easiness of the Fed remains at record levels…

An alternative measure – a “shadow” policy rate developed by Jing Cynthia Wu and Fan Dora Xia – captures the combined impact of the Fed’s conventional and unconventional policies into a single indicator that estimates just how easy Fed policy has been in terms of Fed Funds rate equivalents.

Estimates suggest that the U.S. shadow policy rate has declined sharply in the postcrisis recovery period, and is now in negative territory to the tune of -3%. In theory, this is where the Fed Funds rate should be trading if not constrained by the ZLB.

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We suspect that red line will stop falling pretty soon… or The Fed needs another (war?) excuse

Charts: Bloomberg and BofA

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Submitted by Nick Giambruno via Doug Casey's International Man blog,

You may be familiar with the story of how the US government confiscated gold bullion and then made owning it illegal back in 1933.

Actually this event is more accurately termed a nationalization. Americans were forced under harsh penalties to sell their gold at an artificially low “official price.” If it were an outright confiscation, the government would have just taken the gold without giving anything in return. But no matter how you label it, the end result was the same: the theft of purchasing power.

Many have speculated that the US government could once again turn to gold confiscation/nationalization if it became desperate enough. These fears are not unfounded given the abysmal financial situation of the US government that only continues to get worse, coupled with a total lack of political will to cut spending.

But would the US government really turn to a 1933-style grab again?

I would argue that they wouldn’t, but that doesn’t mean the threat to your gold has diminished. Quite the opposite.

More Likely Than Outright Confiscation

Today only a tiny fraction of the overall US population owns gold. That wasn’t the case back in 1933 when the US was still on a variation of the gold standard.

Heck, I’d bet most Americans today have never even seen a gold coin, much less appreciate its value.

This is why I think it’s unlikely we’ll see a repeat of the 1933 ripoff. It’s simply not worth the effort. If the government is looking to confiscate wealth, they’ll likely go for the low-hanging fruit… like financial accounts, which can be plundered with a few mouse clicks. Or they’ll continue to ramp up the inflationary money printing, which is a way to confiscate from savers.

But that doesn’t mean gold owners are in the clear.

Instead there will be a new scam. And that scam is likely to be a windfall profits tax on gold.

A windfall profits tax on gold would be much easier for the government to administer than what they did in 1933. And thanks to the system of citizenship-based taxation, a windfall profits tax on gold could be levied on Americans no matter where in the world they live.

There’s precedence for this, too. In 1980 the Congress passed the Crude Oil Windfall Profit Tax Act, which taxed up to 70% of what they deemed to be “windfall profits” of domestic oil producers.

If gold were to explode to the upside (another way of saying the dollar crashes), we shouldn’t be surprised to see a bill like the Fair Share Gold Windfall Profit Tax Act get passed, which would levy a 80%, 90%, or higher tax on gold.

Fortunately, there are some practical steps you can take to protect yourself from a windfall profits tax on gold, which I believe is the most likely form of future confiscation.

Keep Your Hands Off of My Gold!

One way you can avoid a windfall profits tax on gold is to become a resident of Puerto Rico – read more on that here. You could also preemptively divorce the US government by renouncing your citizenship.

But these are drastic measures and out of reach of most people.

There’s a far easier solution that can be done from your living room and without having to turn in your US passport. It’s to own gold in a Roth IRA, preferably offshore gold.

A Roth IRA is like a tax-free zone. It’s funded with after-tax savings, and any future capital gains or income derived from investments in a Roth IRA are not taxable—if you wait until the age of retirement to withdraw.

While we can never know 100% for sure what the US government will do, it would be unlikely that gold placed in the tax-free zone of a Roth IRA would be affected by a future tax increase. That is, of course, unless the politicians start monkeying with the IRA rules. But that would produce a lot of screaming from tens of millions of people, most of whom are voters. If I were a politician, I would stay away from IRAs.

This is not to say that the US government doesn’t have its eyes on the juicy target of retirement accounts. As we’ve seen with the myRA scam, they most certainly do.

However, if and when an executive order is issued to convert a portion of your retirement savings into unwanted Treasury securities, it will likely apply only to the most susceptible retirement assets—those being accounts with the large, traditional IRA custodians. These assets are soft targets for the government. They could be frozen, confiscated, or nationalized at the flip of a switch.

Physical gold held offshore in a Roth IRA would represent a significantly more complex challenge for them to confiscate. It probably wouldn’t be worth their effort either, as only a very tiny percentage of Americans hold their retirement assets in physical gold overseas. It makes much more sense that they’d go for the sitting ducks at the large custodians.

In short, a Roth IRA with gold held offshore is the most practical way to protect yourself from the most likely forms of future confiscation—a windfall profits tax on gold and a forced conversion of retirement savings to Treasuries. It’s the ultimate retirement insurance policy and makes you a hard target.

It used to be very time consuming and difficult to own gold offshore in an IRA. For a lot of people, it simply wasn’t worth the effort.

Fortunately, that’s no longer the case—this solution is within reach of almost anyone.

All it takes is about 10 minutes to get set up, and it can all be done online without having to leave your living room. More details can be found here.

via Zero Hedge http://ift.tt/1rBeFlJ Tyler Durden

The following sign on the grass in front of a Texas school sums up where we are with the militarization of education in America.

 

As WSJ reports, public schools nationwide are greeting students for the fall term with a host of new security measures including adding armed guards, giving guns to employees, installing perimeter fencing, and bulletproof glass. "It's kind of the way of the world, unfortunately," notes one parent, but bulking up on security has led some parents and experts to question how it affects students. The idea of "hardening" schools against intruders took on urgency after Dec 2012: "Newtown was a nuclear bomb that changed the whole landscape of everything."

 

 

"The reality is that we do have to be careful, and the children have to be aware of it, too," she said. "It's kind of the way of the world, unfortunately."

But, as WSJ reports, bulking up on security has led some parents and experts to question how it affects students.

"We would like greater attention to the psychological safety measures," said Stephen Brock, president of the National Association of School Psychologists. "They need to not just be safe at school but also feel safe at school."

From a percentage standpoint, schools remain a safe place for children.

A joint report by the U.S. Education Department and Justice Department released in June found that less than 2% of youth homicides occurred at schools between the 1992-93 and 2010-11 school years.

Yet a stream of violent incidents at schools since Sandy Hook has added to the concern about school security, with preliminary estimates from the joint report saying there were at least 17 school-associated violent deaths in the 11 months after the December 2012 shooting.

 

…

 

The idea of "hardening" schools against intruders took on urgency after the December 2012 killing of 20 children and six educators in Newtown, Conn., with districts considering a variety of measures, from adding armed guards or giving guns to employees to installing perimeter fencing and bulletproof glass.

 

"Newtown was a nuclear bomb that changed the whole landscape of everything just because of the magnitude of it," said Jamie Grime, superintendent of Montpelier Exempted Village Schools in northwestern Ohio. "Security has always been an issue, but maybe not a huge issue. Now it is."

This will end well…

Returning students at Hillsborough County Public Schools in Tampa, Fla. found 20 new armed officers in the elementary schools in the first year of a plan costing about $1 million.

 

The school board also approved security training for employees, the hiring of a safety consultant and more measures to control school access, such as fencing and buzzers.

 

Meanwhile, all 16 schools in the Coeur d'Alene, Idaho, public school district have been enclosed in security fencing and each school limits visitors to a single entry point, officials said. This September, for the first time, two police officers will patrol elementary schools, at a cost of roughly $68,000 from the district's state funding.

 

…officials continue to allow four anonymous employees to carry firearms on school property. Bulletproof glass and panic buttons have been installed, and officials held schoolwide assemblies for security training.

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Submitted by Devin Leary-Hanebrink via the Ludwig von Mises Institute,

In February, the Federal Reserve made a cursory observation that the unusually severe winter was partly to blame for the stagnant pace of the US economy. The news media, ranging from liberal to conservative, all highlighted the Fed’s report and provided their respective “spin” on how the weather damages the economy. But soon enough, focus turned back to the brutally cold temperatures and not winter’s economic impact.

Recently, however, the Commerce Department reported that the US economy actually contracted 2.9 percent in the first quarter of 2014. This was the Department’s third attempt at revising its figures, with previous reports estimating first 0.1 percent growth and then a 1.0 percent contraction. While this little statistical “revision” was inconvenient, it was quickly followed (in true Orwellian fashion) by a slew of reports confirming that the economy has already rebounded and the second quarter will be even better than previously anticipated. (According to an advanced estimate released last week by the Bureau of Economic Analysis, GDP increased 4.0 percent in the second quarter and the first quarter’s numbers were revised yet again.)

Naturally, the “blame the weather” campaign popped up again. In fact, Gus Faucher, Vice President and Senior Macroeconomist with PNC in Pittsburgh, estimates that over half of the contraction can be blamed on the severe winter weather. Well, this certainly begs the question, “Can weather actually cause the economy to contract?”

Weather obviously affects the economy. However, the claim that weather can actually drag down the economy is dubious at best. While severe winter weather may slow construction, idle auto sales, and reduce ice cream consumption, the economy never goes into hibernation. Instead, economic activity simply shifts.

A great analogy is household consumption spending. Each month, the average household allocates a certain amount of disposable income to entertainment. How this money is spent — at restaurants, traveling, shopping malls, or the theater — is irrelevant. The point is that people tend to budget a relatively fixed amount of income toward leisurely pursuits. If a new restaurant opens to rave reviews or a blockbuster movie debuts, a young couple does not drastically increase their monthly budget to accommodate the new entertainment options. Instead, consumption spending may shift from the mall or the theater to dinner and a movie. Similarly, a family that is planning a big vacation or a day at the ballpark either budgets additional savings throughout the year or scales back other expenses. To assume that new retail options magically increase spending is flawed economics.

Likewise, severe winters merely shift economic activity. While it’s true that companies may postpone construction projects and consumers will spend less time outside, the economy does not grind to a halt.

Instead, companies often use the post-holiday lull to complete annual inventory, update quality control initiatives, or install new technology. Further, while some retailers like ice cream vendors, department stores, and restaurants may see sales slump, others will inevitably see sales increase because consumers tend to stay indoors, dine at home, stock up on emergency supplies, and watch more television. In more real terms, Ben & Jerry’s and Baskin-Robbins may suffer, but Amazon, Netflix, and the local grocery store might see sales spike. This cyclical effect is natural.

There are spillover effects, as well. More movie downloads boosts the telecommunications industry. Trips to the grocery store and internet purchases mean more deliveries, which means work for the shipping giants (even after accounting for weather delays). What’s more, the economy is so interconnected that an increase in cold weather deliveries inevitably means additional strain on trucks and equipment. This, in turn, may help hardware stores, mechanics, and parts distributors. Not to mention that severe winter weather inevitably leads to increased spending on utilities, snow removal, and industrial equipment, like plows, snow blowers, and chainsaws. These spillover effects go on and on.

In addition, every winter there is always an uptick in travel as people escape the bitter cold, which raises revenues for the airline and tourism industries. Meanwhile, some travel destinations actually embrace winter’s cold. In fact, this past season, most ski resorts in the United States opened earlier and had their best season in years. (Predictably, this summer’s unseasonably cool temperatures are being blamed for dismal attendance at pools and resorts across the country.)

Finally, economic growth and consumption spending are not intrinsically connected. Purchasing power does not evaporate just because spending may slow during the cold winter months. Instead, saving increases investment opportunities and may boost the bottom line for companies like Wells Fargo, Edward Jones, and E*TRADE. This may, in turn, boost the stock market and possibly even the share price of Unilever and Dunkin' Brands (the corporate parents of Ben & Jerry’s and Baskin-Robbins) even when consumers are craving hot chocolate over ice cream treats.

While weather may affect the economy, the recent contraction has little to do with winter’s bitter cold; the US economy is far too diverse and complex. Instead, we are witnessing the ongoing effects of failed monetary and fiscal policies. As the Wickersham Commission noted years ago, “These laws [of economics] cannot be destroyed by governments, but often in the course of human history governments have been destroyed by them.”

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Yesterday it was Ambrose Evans Pritchard, today, in this 2nd of a series of London interviews that Lars Schall conducted for Matterhorn Asset Management this summer, Lars has a City of London streetside conversation with Alasdair Macleod right outside the Dutch reform Church in Austin Friars near the Bank of England. Together they talked about, inter alia: the challenges for The London Bullion Market Association (LBMA); China’s appetite for gold; the Shanghai Cooperation Organization as THE future player in the gold market; and the problems related to Germany’s gold at the New York Fed.

via Zero Hedge http://ift.tt/1sEb5mE Tyler Durden

The right to bear arms in the United States has been and continues to be one of the most hotly debated pieces of legislation in our modern era. But, as Nicole Pontius of CamCode notes, the reality is that gun laws and arms regulation is not simply a human rights issue and it certainly does not only affect the U.S. Arms regulation also impacts national security, economic interests, global commerce and foreign policy. As Pontius adds, the latest political solution to help improve international arms regulation is the ATT, or the Arms Trade Treaty. Among a number of potential benefits of the ATT, this treaty would require governments to report all arms sales, thus preventing the sale and transfer of weapons likely to be used in violation of human rights all around the world. We wanted to take a closer look at this important piece of legislation – this infographic answers what it is, who is involved, and why we need it.

 

 

Infographic by Camcode

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Submitted by Lance Roberts of STA Wealth Management,

 

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In all of its infinite wisdom, the “market”, which stopped reacting to newsflow or discounting the future some time after the Fed officially announced it would centrally-plan it indefinitely, decided that just like the trade war against Russia is irrelevant only to find itself a week ago with Europe staring at the abyss of a triple-dip recession, so it decided that the worst Ebola outbreak in history is a non-event, even though it has put virtually all of western Africa on indefinite lockdown, and as Reuters reports, is “causing enormous damage to West African economies and  draining budgetary resources.” In fact the damage from Ebola to Africa is already so acute, it is expected that economic growth in the region will plunge by up to 4 percent as foreign businessmen leave and projects are canceled, according to the African Development Bank president said.

“Revenues are down, foreign exchange levels are down, markets are not functioning, airlines are not coming in, projects are being canceled, business people have left – that is very, very damaging,” African Development Bank (AfDB) chief Donald Kaberuka said in an interview late on Tuesday.

“The numbers I have had vary from one percent to four percent of GDP. That is a lot in a country with a GDP of US$6 billion,” Kaberuka said, when asked to quantify the impact.

That’s ok, surely the Central Bank of Nigeria will just print some “growth” to offset the 4% GDP plunge. Oh wait, wrong continent for such moronic drivel. Here businesses actually have to, well, “business” in order to generate cash flow and to grow, and where printing prosperity and wealth out of thin air is still a novel concept.

And while all the world’s central banks can push the CTRL-P button and mask the simple fact that global trade is crumbling around the world, which despite the happy all time high stock market facade, is getting dragged down ever deeper into currency and trade wars…

… sooner or later the reality that globalization is rapidly unwinding will finally come to the surface. And while the sudden stop of the German economy in the aftermath of the Russian sanctions may not be the stick the breaks the camel’s back, said stick may be, appropriately enough, in the continent much more preferred by camels.

Here is what else is going on:

As transport companies suspend services, cutting off the region, governments and economists have warned that the worst outbreak of the hemorrhagic Ebola fever on record could crush the fragile economic gains made in Sierra Leone and Liberia following a decade of civil war in the 1990s.

Air France, the French network of Air France-KLM said on Wednesday it has suspended its flights to Sierra Leone following advice from the French government. France did not recommend suspending flights to Nigeria and Guinea.

 

Liberia has already said that it would have to lower its 2014 growth forecast, without giving a new one.

Sierra Leone Deputy Minister of Mineral Resources Abdul Ignosis Koroma also told Reuters that the government would miss its target of exporting $200 million in diamonds this year because of the Ebola outbreak, versus $186 million last year.

 

“There is no way the government can reach this amount since the districts where diamonds are mined are not Ebola-free, especially the main diamondiferous region Kono,” Koroma said. Miners, he added, are too afraid to go to alluvial diamonds pits in the country’s Ebola-striken east.

But while nobody cares about the cataclysm the locals find themselves in because clearly, they are  “out of sight”, one firm that will be furious is De Beers: “Diamond trade had also been stopped by tough border controls to curb the spread of the virus.”  Which means the world’s billionaires will have to spend more on bling, and we can’t have that.

Actually we jest: nobody cares about Africa – it is on its own.

The AfDB this week donated $60 million toward essential supplies to help train medical workers and purchase supplies to fight the outbreak, which has already killed more than 1,400 people, mostly in Guinea, Sierra Leone and Liberia.

Sadly Africa needs hundreds of millions more,  money which it doesn’t have… money which represents several minutes of the Fed’s daily market manipulating POMO liquidity injection.

And since it won’t get it, the epidemic could soon lead to an all out economic depression in west Africa: “Kaberuka described the health care systems of the affected countries as “overloaded”. He said he hoped the donation would stop money being diverted away from other programs such as the education and agriculture, thereby reducing the long-term damage from the outbreak.”

“We need to begin now to plan what could happen next when Ebola is beaten,” he said.

Sure, but let’s get there first, and also let’s hope that the epidemic, which shows zero signs of abating, doesn’t lead to another slashing of GDP other places: places which the general ice-bucket challenge-obsessed public actually does care about. Because printing antibodies is not one of the Fed’s “shotgun approach” specialties.

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