Month: November 2014

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

Whichever side emerges victorious, both Republicans and Democrats should face up to a much bigger truth: Neither party as currently constituted has a real future. Fewer and fewer Americans identify as either Republican or Democratic according to Gallup, and both parties are at recent or all-time lows when it comes to approval ratings. Just 39 percent give Democrats a favorable rating and just 33 percent do the same for Republicans. Not coincidentally, each party has also recently had a clear shot at implementing its vision of the good society. If you want to drive down your adversary’s approval rating, just give him the reins of power for a few years.

 

– From Nick Gillespie’s article: Relax—Both Parties Are Going Extinct

Like so many others out there, in the aftermath of the financial crisis of 2008, I became terrified about the future. I knew the financial system was a corrupt fraud (still is), and I became filled with fear as far as what might happen next. The fear wasn’t that a horribly dysfunctional and immoral financial system would come unglued, rather the fear was based in the uncertainty of the general public’s response.

Historically speaking, many of the worst political regimes are swept into power in a reactionary wave following the destruction of an older, flawed system. Hence the saying: Better the devil you know than the devil you don’t. Or even: The road to hell is paved with good intentions. In other words, if good intentions coupled with tremendous upheaval can cause a hellish outcome, imagine the potential impact of bad intentions within such an environment. Those were the thoughts that filled my head during those years.

Over time, I picked myself up out of the fear bunker. Not because the media told me everything was ok, and certainly not because the stock market was rising. I transitioned from my brief period of fear because I recognized it as the negative and useless emotion it is. Furthermore, I had taken some precautions to protect myself should the worst case scenario unfold, but beyond that, I concluded that you need to live your life and try to have a positive impact on the world, rather than shiver in a corner. In fact, that’s exactly what the status quo wants, an ignorant population terrified of everything, paralyzed in a corner. In such a state one can be more easily manipulated by propaganda.

The other thing that helped me become more filled with optimism about the future was the things I was seeing at the grass roots level. The grassroots response from both anti-Democratic establishment “progressive types” and anti-Republican establishment “libertarians” had striking similarities. On many of the most significant issues of our day, these two “activist” groups had a surprising degree of overlap. I first noticed it with the emergence of both the Occupy Wall Street Movement and the Tea Party. This venn diagram sums it up well:

I expressed this perspective tirelessly, but it largely fell on deaf ears.

The defining moment where I think both sides finally realized how much they have in common, came last year when Rand Paul filibustered on drone strikes. I outlined my thoughts in the post: #StandwithRand: The Filibuster that United Libertarian and Progressive Activists. Here’ an excerpt:

Personally, I would have preferred the issue that united libertarian and progressive activists to have been the Federal Reserve, since it is the core cancer of this country and indeed the world. Without Federal Reserve funding, none of the awful things our government and multi-national corporations do at home and abroad would be possible, but you don’t always get what you want.  If civil liberties is the issue that does it, so be it.

 

I follow an eclectic group of people on Twitter.  Several of them are what would be best described as “progressive” journalists and activists.  When I witnessed several of them tweet in support of Rand Paul, my antennae shot up straight into the stratosphere.  Then I realized that Rand had quoted the work of several of them on the Senate floor (including one of my favorite journalists Glenn Greenwald), and I knew I something special was happening.

 

Ever since the dawn of Occupy Wall Street, I have pushed heavily to try to unite the “tea party” and OWS.  I recognized that at their core these two resistance movements had the same grievances with “the system.”  Unfortunately, the tea party was largely co-opted by mainstream Republicans, while OWS was crushed by the Department of Homeland Security and the FBI.  In reality, it isn’t about these two “movements,” rather it’s about ideas.  At this stage in the game, we have very established activists on both the libertarian and progressive side of things.  As someone that reads them all, I can tell you that the prominent ones on both sides are genuine, moral and intellectual.

 

What Rand Paul did yesterday was finally bring the public debate to where it needs to be.  In doing so, he united activists that are quite opposed on many issues (less than they think, but that’s for another day).  This is extremely significant and we need this momentum to continue.  Those of us that care about the core principles that made this country great need to stick together, find common ground and not allow the establishment to control the debate any longer.

A year later, we face another midterm election in which crony establishments from one of the two fraud political parties will be swept into power. I can still pretty much count on one hand the number of decent and intelligent members of Congress. Nevertheless, I strongly believe that the future belongs to those of us in the center of that Venn diagram.

Such thoughts were wonderfully articulated by the editor of Reason, Nick Gillespie, in a post from today titled: Relax—Both Parties Are Going Extinct. Here are some excerpts:

Whichever side emerges victorious, both Republicans and Democrats should face up to a much bigger truth: Neither party as currently constituted has a real future. Fewer and fewer Americans identify as either Republican or Democratic according to Gallup, and both parties are at recent or all-time lows when it comes to approval ratings. Just 39 percent give Democrats a favorable rating and just 33 percent do the same for Republicans. Not coincidentally, each party has also recently had a clear shot at implementing its vision of the good society. If you want to drive down your adversary’s approval rating, just give him the reins of power for a few years.

 

What’s going on? The short version is that political, cultural, and even economic power has been decentralizing and unraveling for a long time. Whether you like it or not, The Libertarian Moment is here, a technologically driven individualization of experience and a breakdown of the large institutions—governments, corporations, churches, you name it—that used to govern and structure our lives. The result is that top-down systems, whether public or private, right wing or left wing, have less and less ability to organize our lives. That’s true whether you’re talking about the workplace, the bedroom, or the bar down the street (that may now be serving legal pot). This is mostly good, though it’s also profoundly disruptive too.

 

Indeed, the signal characteristic of the past several decades of American life has been the ways in which all sorts of decision-making has been pushed outwards to individuals or end-users in whatever system you want to gin up. In virtually any commercial transaction, for instance, even budget buyers have far more information and leverage than they did 30 years ago (think of the immense difference in the experience of purchasing a car before and after Edmunds.comcame online).

 

Traditional authorities in social institutions such as churches wield less control too. Our world is in so many ways more based on voluntary exchange than ever before. As Albert O. Hirschman would put it, we’ve got more ways of exiting a given situation and giving voice to criticism too. That in turn leads to a premium on what the economic historian Deirdre McCloskey has recognized as the “sweet talk” of mutually beneficial exchange and persuasion rather than brute force. (Sadly, the fact of decentralization doesn’t mean that centralization by government and other large forces isn’t also taking place.)

As far as his last line here, I would argue that the forces of centralization see the threat they face and are aggressively doubling down where they can. Indeed, this battle of centralization vs. decentralization is the defining battle of our time. For more detailed thoughts on this, check out:

Networks vs. Hierarchies: Which Will Win? Niall Furguson Weighs In

Ex-CIA Officer Claims that Open Source Revolution is About to Overthrow Global Oligarchy

Now back to Nick Gillespie…

For liberals, it’s always 1965 and social justice is just one mega-entitlement program away from arriving. For conservatives, it’s always 1980 and the next tax cut will solve all problems forever. Each side can appreciate some but not all aspects of decentralization. Conservatives and Republicans can embrace it when it applies to some economic issues and to things like school choice, but they can’t abide the profusion of sexual and cultural identities and the diminution of authority in general. Liberals and Democrats may be more comfortable with some of the latter but then they want tighter and tighter controls and limits on all sorts of commercial transactions.

A key point here he fails to mention is that most of these self-described “liberals” and “conservatives” are actually from the baby boomer generation. These folks will inevitably fade away from a generational perspective, and millennials simply do not think in such terms.

Levin can at least diagnose the problem and recognize that this leads to an evacuation of traditional politics. In this, he’s years ahead of Vox’s Ezra Klein, the sort of liberal dogmatist who isn’t quite able to step outside of his own bubble. Klein recently wrote about how #GamerGate proves “the politicization of absolutely everything”. Don’t you see, wrote Klein, that “our political identities [have] become powerful enough to drive our other identities.” Sure, dead-enders are more bitter than ever. But what Klein can’t acknowledge is that fewer of us actually invest in our political identities. That helps explain why party self-identification keeps heading south and approval for political parties has been on the skids for a long time.

 

In a world where you can personalize and individualize your online experience, your clothing, your work situation, even your sexuality, why would anyone join up for ossified, rigid, centuries-old groups such as the Democrats or Republicans?

 

And that’s why the future of politics and policy doesn’t belong to doctrinaire Democrats or Republicans who want to control large swaths of everyday life. It belongs ultimately to the libertarian decentralists such as Paul who not only understand what is happening to America but are growing comfortable with it. Americans are increasingly wary of government’s power, and they don’t want it to teach a single set of morals either. Everything is proliferating and people just want a government that will keep people from starving on the streets and get out of the way as they go to the corner pot shop to buy edibles to take to their friends’ gay wedding celebrated by ministers who are not forced to do so.

Amen to that.

So my final conclusion on this, another election day sham, is to not get discouraged. Things are changing at the grassroots for the better. The battle of decentralization vs. centralization, networks vs. hierarchies, will not be easily won, but it will be won. Keep fighting.

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Does this Black Swan look like a Grey Goose?

Historical Backdrop:

In the previous 125 years of the Global economy, no two events overshadow the system fragility of the financial system as the economic woes of the 1920’s and 1930’s and the crisis of 2008.

The historical and economic memory of the post WWI and pre-WWII European economies certainly presents itself in an ominous way when dealing with the current situation in the EU.  Although, tangible and theoretical economic thought existed during the inflation/deflation of the said period, the role of the central banker was remarkably different. The Federal Reserve was created a few years after the turn of the last century.  Though theoretical economic theory existed, one could make an argument for the lack of functional experience in dealing with massive economic calamities.  

Unless you have been living in the far distant villages of Nepal (no offense) for the last 9 years, not one business day passes without a journalist discussing the implication of the crisis of 2008.  Considering society has a remarkable ability to enact our short term memories rather keenly, we rely on this piece of history quite well and effectively.

Recalling the notion of the Black Swan, as economists and traders we begin to search for the next potential Black Swan event.  

In this article we evoke history as an antidote for the nay-Sayers and as a scare-tactic for the optimists.

We show the intensity of true inflation and the debilitating power of deflation.  Below are graphs showing how high CPI was through the two crises’. Anecdotal evidence: 1) The inflation of the 1920’s was so severe that restaurant waiters in Germany during the 1920 had to announce menu prices every half hour to stay up to date on inflation indicators.  During the 2008 crisis, the need to divest from all asset classes, gold withstanding, hedge funds were buying the commodity to store in bank vaults as a just-in-case the world ends tomorrow move.

 

 

Looking at the historical CPI data, we see that the range in CPI during the 1930’s was in a range of positive 20 to negative 20 (US Data). In the 1980 through 2008 timeframe, the range of CPI was 15 to -5 (US Data).  If you compare the inflation indicator in recent years, CPI seems rather tame. Most recent CPI indicated 1.7 on an annual basis.

 

 

So clearly, we are not anywhere near crisis levels either on the inflationary or deflationary front.  Could this change rather quickly? Absolutely.

He are three scenario’s that could decouple optimism from the investor:

One: Central bankers overstate their presence and promote the inevitable inflationary environment.  One could argue that the goal of stimulus is to perhaps overshoot the 2% target.  The objective of central bankers is to also promote growth.  We know from historical evidence that public money has a much lower multiple than private funds (capex, corporations, small business, etc.).  The disastrous situation that could develop from stimulus alone is that there is an overabundance of cheap capital. In turn, causing inflationary pressure in a number of economies. As inflation gets out of control, rates climb to unsustainable levels, borrowers can no longer afford the higher cost of loans, and we will begin to witness recessionary and deflationary pressures.

Two: Selling the $4 Trillion fed balance sheet.  How does the fed orchestrate the sale of such a massive position? Laws of Demand and Supply teach us that an influx of supply will decrease the price of a unit.   Keeping in mind the inverse relationship of bonds prices and rates, we can infer that as prices drop the yield will climb rather quickly.  The caveat: A coordinated effort between the fed, global central banks, pension funds, insurers, and foreign entities to simultaneously purchase Treasures as the Fed is selling the positions.  We see that central bank coordination is quite likely judging by the recent Japan QE monetary easing a day and a half after the FOMC stopped QE3.  

Three: Deflation.  Granted we are not in the 1920’s and 1930’s.  But, the recent “decrease in inflation” does give credence to the deflation concern.  Can we slide deep into negative GDP, CPI, and PCE territory? Yes.  We do not want deflation.  There are a lot of indicators that need to coincide for this to happen.  Remember, our economies our more mature that 70 years ago.  At the moment, we do not have serious systemic risk on balance sheets that would cause severe panic in the markets.  

Having said this, concern exists.  If many investors believe in and find the proverbial Black Swan and take the necessary position against such an event, will it happen? Does this make the notion of the Black Swan obsolete? By definition a Black Swan is an unpredictable (dove tail) risk.  Think the effect of the Japanese earthquake. 

I argue that we have calculated the potential risks in the global economy and possible implication is not pretty.  This is under the assumption that the global central bankers completely mucks this up.  

 

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Having destroyed any remnants of the "it's earnings that matter" meme, we thought the following chart would clarify just how bad the outlook for Q4 EPS is. As Factset notes, "the decline in the bottom-up EPS estimate recorded during the course of the first month (October) of the fourth quarter was higher than the 1-year, 5-year, and 10-year averages." That is not a 'good' thing..

 

h/t @Not_Jim_Cramer

 

Though one wonders what reality stocks will move on as "Earnings don't matter (anymore)"

Fundamentals or Central Bank liquidity!

 

and haven't done for a long time…

 

Charts: Citi, Factset, @Not_Jim_Cramer

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Submitted by Simon Black via Sovereign Man blog,

Don Quixote is easily one of the most entertaining books of the Renaissance, if not all-time. And almost everyone’s heard of it, even if they haven’t read it.

 

You know the basic plot line- Alonso Quixano becomes fixated with the idea of chivalry and sets out to single-handedly resurrect knighthood.

 

His wanderings take him far across the land where he gets involved in comic adventures that are terribly inconvenient for the other characters.

 

He famously assaults a group of windmills, believing that they are cruel giants. He attacks a group of clergy, believing that they are holding an innocent woman captive.

 

All of this is based on Don Quixote’s completely delusional view of the world. And everyone else pays the price for it.

 

Miguel de Cervantes’ novel is brilliantly entertaining. But the modern-day monetary equivalent is not so much.

Central bankers today have an equally delusional view of the world. Just three months ago, Mario Draghi (President of the European Central Bank) embarked on his own Quixotic folly by taking certain interest rates into NEGATIVE territory.

Draghi convinced himself that he was saving Europe from disaster. And like Don Quixote, everyone else has had to pay the price for his delusions.

On November 1st, the first European bank has passed along these negative interest rates to its retail customers.

So if you maintain a balance of more than 500,000 euros at Deutsche Skatbank of Germany, you now have the privilege of paying 0.25% per year… to the bank.

We’ve already seen this at the institutional level: commercial banks in Europe are paying the ECB negative interest on certain balances.

And large investors are paying European governments negative interest on certain bonds.

Now we’re seeing this effect bleed over into retail banking.

It’s starting with higher net worth individuals (the average guy doesn’t have half a million euros laying around in the bank). But the trend here is pretty clear– financial repression is coming soon to a bank near you.

It almost seems like an episode from the Twilight Zone… or some bizarre parallel universe. That’s the investment environment we’re in now.

Bottom line: if you’re responsible with your money and set some aside for the future, you will be penalized. If you blow your savings and go into debt, you will be rewarded.

If we ask the question “cui bono”, the answer is pretty obvious: heavily indebted governments benefit substantially from zero (or negative) rates.

Case in point: the British government just announced that they would pay down some of their debt that they racked up nine decades ago.

In 1927, then Chancellor of the Exchequer Winston Churchill issued a series of bonds to consolidate and refinance much of the debt that Britain had racked up from World War I and before.

This debt is still outstanding to this day. And the British government is just starting to pay it down– about $350 million worth.

Think about it– $350 million was a lot of money in 1927. Thanks to decades of inflation, it’s practically a rounding error on government balance sheets today.

This is why they’re all so desperate to create inflation… and why they’ll stop at nothing to make it happen. (It remains to be seen whether they’ll be successful, but they are willing to go down swinging…)

What’s even more extraordinary is how they’re trying to convince everyone why inflation is necessary… and why negative rates are a good thing.

On the ECB’s own website, they say that negative interest rates will “benefit savers in the end because they support growth and thus create a climate in which interest rates can gradually return to higher levels.”

I’m not sure a more intellectually dishonest statement could be made; they’re essentially telling people that the path to prosperity is paved in debt and consumption, as opposed to savings and production.

These people either have no idea how economies grow and prosper, they’re outright liars, or they’re completely delusional.

I’m betting on the latter. Either way, this assault on windmills has only just begun.

As Don Quixote himself said, “Thou hast seen nothing yet.”

*  *  *

Our goal is simple: To help you achieve personal liberty and financial prosperity no matter what happens.

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German Euro Sceptic Party Sells €1.6 Million of Gold Bullion In Two Weeks

Disillusionment with Europe’s single currency continues to grow with the cracks beginning to show in it’s heartland, Germany, where the third largest political party is now selling gold coins and bars to raise funds.

In a poll in September Alternative for Germany (AfD) were found to be Germany’s third most popular party. The rise of the Alternative for Germany (AfD) party saw it receive 10.6% of the vote in Thuringia and 12.2% in Brandenburg on 14 September. Two weeks earlier it secured its first regional government seats in Saxony.

AfD are not anti-EU per se and have distanced themselves from other eurosceptic parties. They see a future for Germany in the EU and embrace common markets but wish to see the European Monetary Union (EMU) and the euro itself wound up and a return to the Deutschmark.

In the past two weeks, in a bid to gain as much state funding as possible they have entered the gold bullion market with quite a degree of success. In Germany, the federal government will match, up to a value of €5 million, any funds raised privately by a political party. In a bid to get the full allocation of state funding, AfD have started to sell gold bullion online.

In the two weeks since the scheme was announced they have sold gold coins and bars worth a sizable €1.6 million.

There has been strong, broad based demand for precious metals in Germany in recent weeks and months due to concerns about the Eurozone, the Euro, the conflict with Russia and global uncertainties.

AfD have managed to sell a large volume of bullion bars and coins despite being unable to undercut the well established bullion dealers with whom they have been competing. This indicates that their customers are motivated to buy gold from them specifically because they support the party and it’s policies.

“I have always warned that we can not compete with the prices of the competition,” federal executive of the party Konrad Adam told Spiegel newspaper.  “People should not feel deceived by our offer.”

The smash on silver and gold on Thursday and Friday of last week played into the AFD’s hands as it saw German people, both investors and savers, entering the market in droves to take advantage of the low prices.

Gold brokers across Germany described the manner in which demand for precious metals exploded last week as “a run.”  Many have seen a sharp increase in demand and found their inventories insufficient to meet demand according to Goldreporter.

Germans have become more knowledgeable vis-a-vis precious metals in the last few years and indeed have a cultural affinity for gold due to the hyperinflation and to Hitler’s banning of gold ownership.

The benefits of owning a tangible, divisible asset that cannot be printed at will by a government is strong in the folk memory. The lack of a response of the Merkel government following the scandal which arose when the Federal Reserve refused Germany’s request to have it’s sovereign gold repatriated has also motivated many Germans to take matters of wealth protection into their own hands.



They, like many people in the world today, are electing to become their own central bank.

The prudence and patience for which Germans are admired are worthy of emulation in these times. It is wise to do ones own research into owning precious metals and if one does take a position in gold  – be sure to own coins and bars in segregated, allocated vaults in safe jurisdictions such as Switzerland.

Trust in one’s decision and your judgement and view the volatility of the market with equanimity.

The fragile global financial and monetary system is teetering on the edge of collapse and serious inflation and stagflation is likely on the cards.

In the event of a crisis, gold will be there to help protect you which may not necessarily be the case for paper money and digits on a computer screen.

Gold was gold at the dawn of time and will continue to be.

Get Breaking News and Updates on the Gold Market Here

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The most bizarre story of the weekend was that of Bank of America’s 29-year-old banker Rurik Jutting, who shortly after allegedly killing two prostitutes (and stuffing one in a suitcase), called the cops on himself and effectively admitted to the crime having left a quite clear autoreply email message, namely “For urgent enquiries, or indeed any enquiries, please contact someone who is not an insane psychopath. For escalation please contact God, though suspect the devil will have custody. [Last line only really worked if I had followed through..]”

But while his attempt to imitate Patrick Bateman did not go unnoticed, even if it will be promptly forgotten until the next grotesquely insane banker shocks the world for another 15 minutes, the question that has remained unanswered is what did young Master Jutting do when not chopping women up.

The answer, as the WSJ has revealed, is just as unsavory: “he had been part of a Bank of America team that specialized in tax-minimization trades that are under scrutiny from prosecutors, regulators, tax collectors and the bank’s own compliance department, according to people familiar with the matter and documents reviewed by The Wall Street Journal.”

Basically, when not acting as a homicidal psychopath, Jutting was facilitating full-blown tax evasion, just the activity that every developed, and thus broke, government around the globe is desperately cracking down on, and why every single Swiss bank is non-grata in the US and may be arrested immediately upon arrival on US soil.

More from the WSJ:

Mr. Jutting, a U.K. native and a competitive poker player, worked in Bank of America Merrill Lynch’s Structured Equity Finance and Trading group, first in London and then in Hong Kong, according to these people and regulatory filings. Mr. Jutting resigned from the bank sometime before Oct. 27, which police say was the date of the first murder, according to a person familiar with the matter.

 

The trading group, known as SEFT, employs about three dozen people globally, one of these people said. It helps hedge funds and other clients manage their stock portfolios, often through the use of derivatives, according to the people and internal bank documents.

 

Mr. Jutting joined Bank of America in 2010 and worked three years in its London office, the bank’s hub for dividend-arbitrage trades, the people familiar with the matter say. He moved to Bank of America’s Hong Kong office in July 2013.

Ironic, because it was just this summer that a Congressional panel headed by Carl Levin was tearing foreign banks Deutsche Bank and Barclays a new one for providing structures such as MAPS and COLT, which did precisely this: give clients a derivative-based means of avoiding taxation (as described in “How Rentec Made More Than 34 Billion In Profits Since 1998 “Fictional Derivatives“).

As it turns out not only did a US-based bank – Bank of America – have an entire group dedicated to precisely the same type of hedge fund, and other Ultra High Net Worth, clients tax evasion advice, but it also housed a homicidal psychopath.

Perhaps if instead Levin had been grandstanding and seeking to punish foreign banks, he had cracked down on everyone who was providing this service, Jutting’s group would have been disbanded long ago, and two innocent lives could have been saved, instead allowing the alleged cocaine-snorting murderer to engage in far more wholesome, banker-approrpriate activities:

During his time in Asia, Mr. Jutting’s pastimes apparently included gambling. In a Sept. 14 Facebook post, he boasted of winning thousands of dollars playing poker at a tournament in the Philippines. He signed off the post: “God I love Manila.” The comment drew eight “likes.”

Alas one will never know “what if.”

But we are certain that with none other than America’s most prominent bank, the one carrying its name, has now been busted for aiding and abetting hedge fund tax evasion around the globe, it will get the same treatment as evil foreign banks Barclays and Deutsche Bank, right Carl Levin?

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Don’t think and trade…

 

Lower pane is volume relative to average… (a falling average in the last 2 weeks)

 

Chart: Bloomberg

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