Submitted by Bill Bonner of Bonner & Partners (annotated by Acting-Man.com's Pater Tenebrarum),

No Shame in Cash

After a year of wandering the globe, we are back in the homeland… and ready to turn in our passport. Travel can be fun. It can also be “broadening.” But the most interesting thing about it is not so much what you find out about other places. It’s what you discover about your home.

You return to the land you once knew, as T.S. Eliot put it, and know it for the first time. So, we are ready to rediscover Baltimore – a place where children refer to handguns as “school supplies.”

 

The new school year begins in Baltimore…

 

But, let’s move on. First, we return to questions put to us in Mumbai two days ago.

“What should an investor do?” asked an old man in a Nehru jacket.

“Should I stay in the stock market? After all, staying in the stock market always seems to pay off over the long term. Or should I move to gold and cash?”

We have been telling people there is “no shame in staying in cash” until the market finds a bottom. If we’re wrong and prices shoot upward, we will miss the upside. But the risk of missing substantial gains seems slight. Earnings are going down. Almost all the signals from industry and commerce seem to be pointing down, too.

Meanwhile, U.S. stocks are still expensive. The CAPE ratio looks at the inflation-adjusted average of the previous 10 years of earnings relative to stock prices. On that basis, the S&P 500 has been a worse deal only three times in the last 100 years. Those were just before the 1929 Crash… the dot-com bust in 2000… and right before the 2008 meltdown – hardly auspicious precedents.

 

Where we are: the current PE/10 is in the 92^nd percentile of market valuations since 1871 – exceeded only by 1919, 2007 and 2000.

 

Not only that, but also global debt levels are higher today than ever in history. Wouldn’t it make sense to stay in cash… on the sidelines… until prices go down and debt issues are resolved?

 

March to Hell

Not according to the newsletter writers at The Motley Fool. The Fool’s Matthew Frankel gives us “three reasons you shouldn’t worry about the stock market in 2016.”

“Don’t panic,” he goes on. The late Richard Russell, of Dow Theory Letters, taught us there are short cycles and long cycles. The long cycles are the ones that count. You can miss a rally now and then; it won’t make much difference. But miss a major, long-term bull market, and you have missed an opportunity of a lifetime.

On the other hand, riding through a major bear market can seem like a march to Hell. The worst thing that can happen, Russell used to say, is that you take a “ruinous loss” – one you can never recover from.

Major market swings take time. The Dow reached a peak in 1929. It didn’t regain that peak again until the late 1950s. Since then, we’ve cycled through booms and busts, reaching the latest top in 2015, when the Dow rose over 18,000.

 

The DJIA from 1920 to 1956 – in nominal terms, the average only regained its 1929 peak level in 1954. Apart from a short time in the 1950s-1960s, it only got back to its 1929 valuation in real terms in the mid 1990s. The vast bulk of the stock market’s nominal gains are simply a reflection of monetary inflation – click to enlarge.

 

The questions to ask yourself: Where are we now? Have we passed the top? Are we in a long decline? Then there are the personal questions: How long will you live? When will you need the money? How much volatility can you withstand?

Although top to top is a long time, it can also take a long time just to break even. The 1929 high was not reached again until 1956 – 27 years later. In Japan, they’re still waiting to recover half the losses from the crash of 1989 – 26 years on. How would you feel about waiting until 2042 before we return to last year’s high?

 

Whenever someone tells you that “stocks always go to new highs in the long run”, be sure to ask for a precise definition of “long run”, because it can sometimes be a lot longer than you’d expect – click to enlarge.

 

No Mountain Left to Climb

The other thing to realize is that the long-term performance of the stock market is mostly a myth. Yes, you could have made about 10% a year if you’d gotten in 100 years ago and stayed in. But that figure is subject to some important qualifications.

First, you don’t really make a steady 10% a year. That’s just what you get when you go back and average out your annual gains over a century. It looks as though you have steadily marched up the mountain and now sit high and dry. But when you’re at the top, the only way to go is down! Do the math again when you get to the bottom. You will find your average rate of return looks awful.

Second, who lives long enough to make it work? Compounding is great in theory. But it only works its magic at the end. Compound a penny at a 100% a year – from one to two… two to four… four to eight, etc. – and at the end of 10 years, you have just $10.24.

Compound $1,000 at 10% a year, and after 10 years, you have $2,593. Not bad. But hardly the sort of stuff dreams are made of. And that assumes that you get 10% a year. At today’s prices, stocks are already so high, there’s not much mountain left to climb.

Nobel Prize-winning economist Robert Shiller estimates the average annual return on U.S. stocks the next 10 years at only 3%. Vanguard Group founder Jack Bogle puts it at a little more than 1%. And Rob Arnott at Research Affiliates looks for a return of less than 1%. At those levels, you can forget about the magic of compounding.

 

Dr. Hussman’s market cap/GVA valuation parameter with actual subsequent S&P returns overlaid predicts a 12-year nominal S&P 500 return of 2.5% following the recent market losses. As you can see, this is abjectly low from a long term historical perspective – even the 2007 projection looked better.

 

Whacked by the Big Bear

Then, you have to worry about those drawdowns – the peak-to-trough losses you experience in your portfolio. If you compound at a rate of 10% a year but have a 40% drawdown in year three, you have to go for another three years just to get back where you started.

Worse, your lifetime of savings and investing gets whacked by a big bear market. You take the “ruinous loss” Russell warned about, with no time to recover. Most investors don’t have enough time to make compounding work as advertised. Most are already over 50 when they begin investing. They don’t have 100 years. They’re lucky if they have 15 or 20.

Over that kind of time frame, if there are any substantial setbacks, they’re finished. That’s why it’s so important to get in when the market is low. Then double-digit gains, compounded over many years, can at least be a theoretical possibility.

But if we’re right about where the economy is… how expensive the stock market is… and how difficult it will be to sustain further gains, then this is probably not the best time to begin a program of retirement financing via stocks.

On our scales, the balance between risk and reward in U.S. stocks falls heavily toward the risk. We see a reasonable likelihood of a ruinous loss against a remote possibility of a big gain.

So go ahead and panic. You may be glad you did.

 

The big bad bear – there’s no point in sticking around when he makes his entrance.

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

via Zero Hedge http://ift.tt/1UA4eZR williambanzai7

On Thursday, Donald Trump made what could have been a costly gamble.

The brazen billionaire skipped the final GOP presidential debate before the Iowa caucuses and held his own, competing event “for veterans.”

Of course it wasn’t really “for veterans.” It was “for Trump,” who figured that he may be able to bolster his anti-establishment credentials by refusing to participate.

The publicity stunt – which Trump justified by claiming that Megyn Kelly couldn’t be trusted as a moderator – worked. All anyone cared to talk about on Thursday night was Trump.

Now, with the caucuses just a day away, a Des Moines Register/Bloomberg Politics poll shows Trump has a “clear lead” over his closest rival Senator Ted Cruz. “Mr. Trump leads the Republican field as the preferred pick of 28% of likely caucusgoers, followed by Texas Sen. Ted Cruz at 23% and Florida Sen. Marco Rubio at 15%,” WSJ writes, adding that “the results show Mr. Trump overtaking Mr. Cruz from an earlier Register poll conducted Jan. 7-10.”

“Donald Trump could win Iowa,” Stuart Stevens, a Maryland-based GOP strategist who the Register notes has worked on five presidential campaigns says. “But he has little room for error. He is almost no one’s second choice.”

That’s probably just fine with Trump. After all, he doesn’t like “losers” and second place is just “first loser.”

“A victory for Trump would give him a huge head start toward the nomination, paving the way for him to achieve the unprecedented feat of winning both the first caucus voting in Iowa and the first primary in New Hampshire,” the Register goes on to say. “A second-place finish for Cruz could make his path to the nomination difficult [as] he was expected to dominate in Iowa, where fellow religious conservatives make up a bigger bloc than in many other states.”

This is the first time Trump has been the frontrunner in Iowa since last August.

“They don’t even matter anymore to be honest,” Trump said, speaking to a crowd in Clinton about the new poll. “Because we’re so close to the end, what difference does it make?”

He then proceeded to conduct his own poll when he asked the audience to determine which is more dangerous Wall Street or Canada. On Friday morning, Trump called Cruz “an anchor baby in Canada.”

Meanwhile on the Democratic ticket, the same Des Moines Register poll shows Hillary Clinton has a slight lead over Bernie Sanders going into the caucuses. “Clinton is the top pick for 45 percent of likely Democratic caucusgoers, with Sanders at 42 percent,” The Register writes. “This race is as tight as can be,” David Axelrod, a national political strategist, said. “If Bernie Sanders had momentum headed into the final month, the race now is static and essentially tied.”

“Turnout,” he added, “is everything.”

Amusingly, voters overwhelmingly said Sanders cares more about Clinton’s “everyday Americans.”

So there you have it. America is inching ever closer to putting itself in a position of having to choose between an avowed socialist and what the Register calls “a smash-mouth game show host.”

America’s political aristocracy is dead, long live the political aristocracy.

via Zero Hedge http://ift.tt/23BMymA Tyler Durden

Submitted by Alexander Grover in Oslo, Norway

A Norwegian Gold Allocation Would Counter Sovereign Incompetence Risk

The Norwegian Oil Fund (The Government Pension Fund) or “The Fund” belongs to the Norwegian people, investing surpluses from domestic oil activity. NBIM (Norges Bank Investment Management), established in 1990 by the Norwegian Parliament, receiving initial funds in 1996, manages the mandate. Currently, The Fund invests 60% in equities, 35% in Fixed Income (bonds) and 5% in real estate, allocating 39% in Europe, 39% in North America, 18% in Asia and 4% everywhere else. Adjusted for inflation and management overheads, the average annual return between 1998-2014 is 6.3% in USD terms, beating the S&P 500 4.2% annual return (inflation adjusted and reinvesting dividends) during the same period.

Although successful in the past, the current situation, considering energy and the global economy, warrants a critical reassessment of their investment strategies. The Fund needs to perform better now that oil prices are below the necessary $70 per barrel, which balances the budget. Norway started to withdraw from The Fund, shoring up deficits amidst a slowing economy. Moreover, global stock markets are retreating, and fixed income (bonds) may have peaked. The Fund invests a small portion in prime real estate in New York, London and Singapore. However, this may also be at a peak with finance sector turmoil.

None of these factors, driving the present situation, were forecasted by mainstream financial media or academics. The greatest risk to The Fund is the lack of Norwegian government and Norges Bank (Norwegian Central Bank) crisis experience. Central Banks are biased towards inflation, but not getting it, risking an overshoot in the future. Mismanagement could cause The Fund, which has taken two generations to accumulate, to disintegrate over the next five to ten years, filling budget shortfalls while the overall value declines. Therefore, The Fund must to protect itself, adjusting allocation, from current and unforeseen risks. This is the case for The Fund to invest 5% of overall holdings in to physical gold:

Norwegian “Economic Expert” Risks:

Oil Extraction Technology: One of technology’s goals is to turn scarce resources into abundant commodities (i.e. aluminum and salt were overcome with technical advances). We can expect extraction and refining technology to keep advancing while engines and machinery, which consumes oil, increase in efficiency.

Norwegian labor laws would make this bucket cost ca. $100. Therefore, fried chicken is not a viable export.

“One barrel of oil equals one full grown salmon” I have done extensive research on fish farming. It’s good business but can’t cover oil losses. Moreover, as Salmon prices rise, nations with cold water and coastlines (Japan, USA, Canada and Russia) will get into the game as prices rise.

Shale Bankruptcies and Consolidation in the American oil industry continues to lower long term operating costs. Oasis petroleum, improving efficiency, reduced their long term operating cost from $66 to $50 per barrel.  The operators unable to adapt will go bankrupt, selling their equipment, exploration data and wells at distressed prices. The new driller will enjoy much lower CAPEX, helping reduce operation costs. Shale wells can be started and stopped with minimal losses whereas traditional ones are significantly less productive when restarted. Consolidation is just beginning. The EIA (Energy Institute of America) estimates that the Permian, Eagle Ford, Bakken, and Niobrara fields could break even at $25 per barrel.

At $50, these rigs will be put back to work by new owners, receiving substantial discounts. Robotics and Industrial Revolution 4.0 will further reduce OPEX!

Unreliable Forecasting:  Reviewing the Norwegian State Budget, one can see that forecasting was mostly rearward looking, averaging prices from previous months in the past year and then making some conservative adjustment ca. 10%. However, this year, the forecast appears to be way off as oil treads water at $30/barrel while the EIA (Energy Institute of America) and API (American Petroleum Institute) more often report above forecast output and inventory than lower. The latest report, published on January 26, 2016, shows an upside blowout. Crude supplies were at 11.4M barrels vs. 3.5M expected. Furthermore, fracking opens up new reserves, not economical before, turning Ukraine and Poland into another Bakken.

Ministry of Finance
Budget Assumption	2012	2013	2014	2015	2016
Assumption in NOK	575	639	656	650	529
Assumption in USD	99	109	104	81	60
Actual Oil Price USD	112	109	99	52	Est 37
Norges Bank FX*	5.821	5.8768	6.3019	8.0739	8.8726
2016 Rate is YTD as of 24.1.2016 (2013-2016 assumptions from 2015 revised budget summary)

 

The charts below, from DnB, Norway’s largest bank, (and the one calling for a cash ban) indicate constantly changing predictions:  

Source: DnB Group: Oil Related Portfolio Update by the Global Head of Energy: New York February 27, 2015

Source: DnB Markets Oil Market Prognosis: January 2016 Report.

Therefore, forecasting (guessing) is an inexact science at best. The fortune tellers, working along Karl Johan (Oslo’s main street), may offer better insight at far greater cost than government experts.

US Economic and Political Risks: Although the United States, regarded as the world’s safe-haven, displays strength and does innovation better than anyone else, there are huge underlying risks. The Fed, like NBIM and other Central Banks, is trapped in a box.  If they raise rates, they could derail the fragile recovery or spark a bond market sell-off. If they hold or rollback, their credibility comes into question and dollar drops. However, there is even negative interest rate talk. This inflationary move would significantly weaken the dollar, devaluing NBIMs holdings, assuming steady stock prices. As we can see from the chart below, inflation moves in large increments, central banks then rush to contain it, drastically raising rates.

It is not safe to assume that lower or negative rates boost stocks. US Corporate earnings and growth rates factor more than prevailing interest rates.  Although I do not personally regard Donald Trump as a political risk, the global financial sector does. If the US economy starts to struggle around November and he gets elected, there is no telling what markets and the USD will do.

Source: Seeking Alpha – The US Economy Vs. Fed Policy At A Glance

NBIM’s invests around one-third in the USA, including Apple and real estate (RE). Prime American RE is a good long term bet. However, only 5% of The Fund’s strategic allocation is RE, currently holding at three percent. Recently, Apple outlook took a 180-degree turn.  They appear to have peaked at ca. $518 billion market cap. There were optimistic predictions, not too long ago, for Apple to be the world’s first trillion-dollar company. Apple is one of NBIM’s largest holdings.

NBIM website on January 27, 2016

Therefore, the USD and American exposure that has been helping The Fund could work against them. If the US starts to slow down, it could affect other markets, namely Asia and Europe, where NBIM also has substantial exposure.  

Black Swans:  There are many unknowns that could adversely affect The Fund. The following are 2016’s most discussed “tail risks:”

Europe is falling apart. Barclays stated that a successful exit vote would turn the UK into a safe haven, encouraging others to leave, collapsing the European Union. They further state that these risks have not been properly accounted, calling this one of the world’s most significant risks in 2016.   Global recession risk negatively impacts oil demand, furthering Norway’s economic woes. China is landing hard but it’s difficult to tell how severe. Data, deemed unreliable, further exacerbates the problem.  The world, flooded with debt, becoming more uncertain every year.  Norway is not immune from this and therefore requires further safeguards.

The Norwegian Government Lacks Crisis Experience:

Things have been quite good in Norway since the 1980s. Hence two generation experienced prosperity, led to believe that this will go on forever by an overly optimistic media and government. Norwegians, like Americans in the past, were led to believe that housing will always go up, dropping all their wealth in real estate. The NOK crashed so fast, catching many “experts” by surprise. They have a dilemma:

• Cutting rates is inflationary, further pumping up asset bubbles, namely housing. However, with massive job cuts, namely in the well paid oil sector, housing is starting to flatten out. Low interest rates won’t help much if people don’t have jobs to pay inflated mortgages. SEB predicts that the USDNOK to break 9.00 in 2016.

• Holding or raising rates could crash the housing market. However, in dollar terms, the housing market has already crashed (NOK vs. other currencies). This effect also extends to other assets, namely productive companies, making them susceptible (“cheap”) to foreign acquisition. The company, under foreign ownership, will continue to do the work in Norway but the profits will be taken offshore.

The bias in Norway is like everywhere else, looking for an easy way out. Cut rates, inflating to save housing and the stock market, “kicking the can down the road.” Øystein Olsen, Norwegian Central Bank governor, just like Janet Yellen, engages in “open mouth operations.” He is attempting economic “Jedi Mind Tricks” on the Norwegians:

“We think the economy will turn around in the summer of 2017,” Olsen told Aftenposten. “That’s when both exports and private consumption will start to rise. We aren’t drawing a gloomy picture.”

Therefore, Norwegian leader is navigating uncharted waters, never seen before.

Norway is one of the only “rich countries” without a gold reserve.

Many believed that the NOK was backed by oil, not requiring a gold reserve. However, oil is no longer a scarce resource but an abundant commodity. Switzerland, Germany, America and other first world nations have gold reserves. Norway should have one too! Ever since oil started moving downward, starting 2014 and the NOK following, gold started moving up significantly in NOK terms:

Indicator	Unit	23.12.2013	28.1.2016	PCT
USD	USDNOK	6.1432	8.6194	-29%
Oil	Price/Barrel	$111.51	$34.18	-69%
Gold	NOK/Ounce	7371	9602	30%
Source: ycharts.com, Bullion-Rates.com and XE.com

Gold, perceived negatively by many, is being taken seriously by some very smart and rich people. The University of Texas Investment Management Company, the second largest university endowment in the USA, took physical possession of their gold, amounting to $1 billion. Kyle Bass, who saw and capitalized on the US sub-prime crisis, advocated the move from the NY Federal Reserve Bank Vault to the Texas repository. Gold is not only for cowboys and crazy people. Recently, some very rich and smart people have bought large quantities of gold. Moreover, Germany, Belgium, Holland and Austria are repatriating their physical gold.        

Gold prices, relatively low compared to the amount of currency printed, offers NBIM a unique opportunity. They could liquidate 5% of their riskiest assets, allocating the proceeds to physical gold. This would give the Norwegian people insurance. They would have the most gold per capita and eight largest gold reserve overall, displacing Switzerland. Moreover, Norway’s abandoned mines, many of which are being turned into super secure data centers could also be used for storage. Norway could further extend storage to private persons and commercial entities, leveraging their reputation for trustworthiness.

 

Gold will protect Norway from unforeseen events, economists and politicians.

Source: Wikipedia and ThePrudentInvestor.com sourced from World Gold Council.  

Conclusion

The prognosis for the global economy is not good. The oil price collapse appears to have caught the Norwegian policymakers off-guard, and perhaps they were thinking the situation is temporary. However, technology today is much more advanced than in the past, making oil extraction faster, easier, safer and cheaper. Moreover, OPEC, Russia, Iran and North Dakota are in a pumping frenzy. Norway needs $70 per barrel to breakeven. Getting to $50 will be a challenge.

My previous articles argue for a long term solution. However, the short term prognosis requires immediate action, hedging the “The Fund” against unforeseen risks including the managers themselves. Central Banks, including Norway’s, are inclined towards rate cuts and NIRP (Negative Interest Rate Policy), setting the stage for inflation.  Historically, we have seen inflation run away while policy makers try stimulate. Before experimenting, NBIM should offset this risk by investing into physical gold, giving the people a solid base during crisis. Remember, these are the same policy makers, along with mainstream media, that encouraged Norwegians to put most of their money into housing. Despite numerous warnings, this bubble continues to grow. 

We expect NBIM to do the obvious. They will cut rates. Once they are at zero, they will go to NIRP, do quantitative easing (QE) or both. I do not expect NBIM to buy gold. I came to Norway almost three years ago. I found a job, dutifully paid my taxes and learned the language enough to read the business newspapers. This summer I will become a permanent resident and in 2020 a citizen.  Therefore, “we,” meaning all of us contributing to Norwegian society, must take some precautions, protecting ourselves from big mistakes and serious miscalculations.

This is how to prepare for the coming economic winter:

• Get a Dale Sweater, heavy knit and wool, made in Norway. It’s not only warm and supports the economy but also helps you blend in.
• Get a gold chain, bigger is better and put some King Harald 1500 NOK gold coins your pocket. They will protect you from inexperienced economists and politicians. 
• Wear sunglasses during daylight hours, protecting yourself from UV risks and facial recognition software. 
• Wear a hat. It goes with the sweater and glasses, making you look cool.

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

The Federal Reserve seems to have been caught off-guard by the recent turmoil on the markets. As the Chinese economic growth seems to be slowing down, all of the Western central banks need to re-think their plans, and the Federal Reserve will have to kneel in the dust.

Whereas just a few weeks ago, the Fed ‘promised’ the markets it would increase the interest rates 4 times in just twelve months, the central bank is already reneging on its promise as it no longer thinks it will be able to do so without completely suffocating the economy. As we explained in a previous column, the use of some specific words when the original rate hike was announced indicated to us the Fed was actually anticipating the markets might not be ready for more rate hikes just yet.

This has now been confirmed by Robert Kaplan, the president of the Dallas Fed. In one of the most recent statements of the Federal Reserve, the central bank has no longer used the word ‘balanced’ to describe the potential risks to the US economy, and Kaplan has now confirmed this was caused by the bank no longer willing to trust its own expectations and projections.

The implications of this news, you ask? Well, they are huge. First of all it does indicate the American economy (and the world economy) is in a worse shape than one would have anticipated. The muscle-flexing of the Federal Reserve is now really blowing up in their own faces. This updated view was obviously also influenced by the Bank of Japan which has now introduced a NIRP. A Negative Interest Rate Policy.

Source: tradingeconomics.com

That’s absolutely unheard of for any central bank in a civilized country, and Japan seems to be desperate to try to get its economy going again, even though the interest rates have been low for the past few decades. As you can see on the previous image, Japan has had an interest rate close to zero for the past 20 years, and that hasn’t helped the country too much. That’s also one of the main reasons why we didn’t expect the zero interest rate policy of the Federal Reserve to be very helpful.

Source: Yahoo Finance

Indeed, the market had lost its faith in the Federal Reserve earlier this year. Even though the central bank was still pretending it would be able to increase the interest rates by no less than four times in 2016, the yield on the 10 year treasury notes continued to fall (which would actually indicate the market participants were expecting the interest rate of the Federal Reserve to decrease rather than seeing it hiked).

Source: CME Group

The new wording in the press release of the Federal Reserve as well as the sudden move by Bank of Japan has rattled the futures market of the 30 day funds rate, and it now looks like the market is right now assigning a possibility of just 80% to see just one rate hike (of 0.25%) this year. This basically means Mr Market has now given up on expecting the federal reserve to increase the interest rates this year. They tried but failed (miserably).

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This “state within a state” hides “mostly in plain sight, and its operators mainly act in the light of day,” says Lofgren, and yet the “Deep State does not consist of the entire government.”

“Our plutocracy, whether the hedge fund managers in Greenwich, Connecticut, or the Internet moguls in Palo Alto, now lives like the British did in colonial India: ruling the place but not of it. If one can afford private security, public safety is of no concern; to the person fortunate enough to own a Gulfstream jet, crumbling bridges cause less apprehension, and viable public transportation doesn’t even compute. With private doctors on call and a chartered plane to get to the Mayo Clinic, why worry about Medicare?”

 

? Mike Lofgren, The Deep State: The Fall of the Constitution and the Rise of a Shadow Government

 

"Our analyses suggest that majorities of the American public actually have little influence over the policies our government adopts. Americans do enjoy many features central to democratic governance, such as regular elections, freedom of speech and association, and a widespread (if still contested) franchise.

 

But we believe that if policymaking is dominated by powerful business organizations and a small number of affluent Americans, then America’s claims to being a democratic society are seriously threatened."

 

Martin Gilens and Benjamin I. Page, Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens, Princeton 2014

"As a congressional staff member for 28 years specializing in national security and possessing a top secret security clearance, I was at least on the fringes of the world I am describing, if neither totally in it by virtue of full membership nor of it by psychological disposition.

 

But, like virtually every employed person, I became, to some extent, assimilated into the culture of the institution I worked for, and only by slow degrees, starting before the invasion of Iraq, did I begin fundamentally to question the reasons of state that motivate the people who are, to quote George W. Bush,  'the deciders.'

 

Cultural assimilation is partly a matter of what psychologist Irving L. Janis called groupthink,  the chameleon-like ability of people to adopt the views of their superiors and peers. This syndrome is endemic to Washington: The town is characterized by sudden fads, be it negotiating biennial budgeting, making grand bargains or invading countries. Then, after a while, all the town's cool kids drop those ideas as if they were radioactive.

 

As in the military, everybody has to get on board with the mission, and questioning it is not a career-enhancing move. The universe of people who will critically examine the goings-on at the institutions they work for is always going to be a small one. As Upton Sinclair said,  'It is difficult to get a man to understand something when his salary depends upon his not understanding it.'"

Mike Lofgren

h/t Jesse's Cafe Americain blog

*  *  *

As we previously concluded, for all intents and purposes, the nation is one national “emergency” away from having a full-fledged, unelected, authoritarian state emerge from the shadows. All it will take is the right event—another terrorist attack, perhaps, or a natural disaster—for such a regime to emerge from the shadows.

As unnerving as that prospect may be, however, it is the second shadow government, what former congressional staffer Mike Lofgren refers to as “the Deep State, which operates according to its own compass heading regardless of who is formally in power,” that poses the greater threat right now.

Consider this: how is it that partisan gridlock has seemingly jammed up the gears (and funding sources) in Washington, yet the government has been unhindered in its ability to wage endless wars abroad, in the process turning America into a battlefield and its citizens into enemy combatants?

The credit for such relentless, entrenched, profit-driven governance, according to Lofgren, goes to “another government concealed behind the one that is visible at either end of Pennsylvania Avenue, a hybrid entity of public and private institutions ruling the country according to consistent patterns in season and out, connected to, but only intermittently controlled by, the visible state whose leaders we choose.”

This “state within a state” hides “mostly in plain sight, and its operators mainly act in the light of day,” says Lofgren, and yet the “Deep State does not consist of the entire government.”

Rather, Lofgren continues:

It is a hybrid of national security and law enforcement agencies: the Department of Defense, the Department of State, the Department of Homeland Security, the Central Intelligence Agency and the Justice Department. I also include the Department of the Treasury because of its jurisdiction over financial flows, its enforcement of international sanctions and its organic symbiosis with Wall Street.

 

All these agencies are coordinated by the Executive Office of the President via the National Security Council. Certain key areas of the judiciary belong to the Deep State, such as the Foreign Intelligence Surveillance Court, whose actions are mysterious even to most members of Congress. Also included are a handful of vital federal trial courts, such as the Eastern District of Virginia and the Southern District of Manhattan, where sensitive proceedings in national security cases are conducted.

 

The final government component (and possibly last in precedence among the formal branches of government established by the Constitution) is a kind of rump Congress consisting of the congressional leadership and some (but not all) of the members of the defense and intelligence committees. The rest of Congress, normally so fractious and partisan, is mostly only intermittently aware of the Deep State and when required usually submits to a few well-chosen words from the State’s emissaries.

In an expose titled “Top Secret America,” The Washington Post revealed the private side of this shadow government, made up of 854,000 contract personnel with top-secret clearances, “a number greater than that of top-secret-cleared civilian employees of the government.”

Reporting on the Post’s findings, Lofgren points out:

These contractors now set the political and social tone of Washington, just as they are increasingly setting the direction of the country, but they are doing it quietly, their doings unrecorded in the Congressional Record or the Federal Register, and are rarely subject to congressional hearings…

The Deep State not only holds the nation’s capital in thrall, but it also controls Wall Street (“which supplies the cash that keeps the political machine quiescent and operating as a diversionary marionette theater”) and Silicon Valley.

As Lofgren concludes:

[T]he Deep State is so heavily entrenched, so well protected by surveillance, firepower, money and its ability to co-opt resistance that it is almost impervious to change… If there is anything the Deep State requires it is silent, uninterrupted cash flow and the confidence that things will go on as they have in the past. It is even willing to tolerate a degree of gridlock: Partisan mud wrestling over cultural issues may be a useful distraction from its agenda.

Remember this the next time you find yourselves mesmerized by the antics of the 2016 presidential candidates or drawn into a politicized debate over the machinations of Congress, the president or the judiciary: it’s all intended to distract you from the fact that you have no authority and no rights in the face of the shadow governments.

via Zero Hedge http://ift.tt/1PMM60X Tyler Durden

Presented with no comment… apart from Arizona wins!

 

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Source: The Burning Platform blog

via Zero Hedge http://ift.tt/23B3CJA Tyler Durden

Beforer we discuss The Empire of Chaos ongoing attacks on "The Assassin Putin" and The Master of the Universe attempts to topple any challenge to Washington's global hegemony, we thought the following chart may give some much needed context for where the pain really is – the drop in the oil price in local currency terms has been the least of all major nations… for Russia

 

While a case can be made that for Moscow it would be a tremendous waste of hard-earned foreign exchange to try to counter a rig against their currency they simply cannot beat, as the entire fiat financial power of the US is against them.

As Pepe Escobar via DoomsteadDiner.net notes,  Russia’s Central Bank by now should be all-out selling rubles for gold, and building Russia’s gold reserves.

Well, it is happening, somewhat.

 

Last week, Russia’s Central Bank estimated gold reserves to have reached 1,415 metric tons in 2015 – over 17 percent more than 2014, valued at almost $48.6 billion. The share of monetary gold in Russia’s foreign currency reserves rose from 11.96 percent to 13.18 percent.

 

That’s still not good enough. Why? A harsh answer would be that the Russian Central Bank and the Ministry of Finance, as some analysts argue, are in effect run by saboteurs and vassals of the US financial elite, a.k.a. the Masters of the Universe.

 

Still, the Russian Central Bank did not intervene to prop up the ruble. And they should not. The best course of action would be to let the ruble go, ending almost all imports, thus forcing self-sufficiency. Or introduce capital controls, with only approved transactions involving foreign currencies. It did work for Malaysia, for instance, after the 1997 Asian financial crisis.

 

Forget about a China crash

 

A serious case can be made that Russia does not need much Western foreign investment. That was mostly encouraged by the Central Bank, who held interest rates higher in Russia than the US and EU, naturally leading Russian companies to borrow abroad in US dollars or Euros.

 

The responsibility of Russia’s Central Bank is to create domestic credit to build the industries that have been cut off from Russia by the falling ruble. This is not inflationary; the increased production out of these investments would nullify the inflationary implications on the newly created credit.

 

The Russian Central bank instead went for tight money to fight inflation. It would have been much more profitable for Russia to fight inflation by creating credit at low interest rates to finance the construction of the industries necessary to replace the import of foreign products.

 

Now let’s look at the Russia-China strategic partnership. While Russia may be on the ropes, China is not. China will grow at an estimated 6.5 percent this year – versus 7 percent in 2015. Amid an astounding web of economic restructuring and de-leveraging, US multinationals such as Apple and GM certainly have no interest in a Chinese “crash”.

 

A key indicator to watch is the growth in China’s demand for oil. Construction has ebbed; but not car manufacturing, which is pumping out 25 million vehicles per year.

 

To deal with China, the Masters of the Universe deployed a different strategy; they tried to stop Chinese economic growth from fueling the rise in the oil price. Thus the offensive by the usual Wall Street suspects trying to crash China’s stock market using cash settlement on A shares. It did not work.

 

Now, the Masters of Universe, remote-controlling the Saudis, are essentially trying to pull the plug on global stock markets. One could call it a trillion dollar cash settlement derivative game. There’s no evidence this will be enough to break Russia.

 

The “assassin” versus the fifth column

 

Masters of the Universe hysteria on getting rid of President Putin (and reinstating vassal oligarchs) by any means available has reached fever pitch; the latest manifestation is “Putin The Assassin”, with crucial assistance provided by British“intelligence”.

 

There is no question Masters of the Universe operatives are behind the collapse in oil and ruble prices. Somewhat it’s a repeat of the scenario in mid-2014, when the oil price crashed and there was no visible increase in output; what happened was the – invisible – dumping of seven million barrels a day of Gulf oil under orders by the Masters of the Universe, according to surefire (American) banking sources.

 

The Fed mightily contributed to the present disorder by raising interest rates when the US economy was sick, while cash settlement manipulators in Wall Street used this as the basis for their move to tank the markets. It goes without saying that the usual suspects will make hundreds of billions of dollars out of the current market crash. A good place to watch is what goes on inside BlackRock.

 

Into this gloomy scenario steps in none other than the aspiring Master of the (New) Universe, Chinese President Xi Jinping, in his high-profile tour of the Middle East. Xi’s three-pronged business/charm offensive in Saudi Arabia, Iran and Egypt should be interpreted as Beijing’s shot at reshaping Southwest Asia in a framework closer to the Shanghai Cooperation Organization (SCO).

 

Xi as much as anyone knows very well how the whole American economy – based on a worthless global reserve currency – is fuelled by a rapacious, barely disguised tribute, paid by every nation in the world to the Empire of Chaos. And Xi knows how this tribute scam is unraveling, fast.

 

In Riyadh, Xi even implied, in a very Chinese, nuanced way, that the House of Saud would be doing a very good deal if it eventually dropped Washington as the Mafia-style protector, as well as the petrodollar as the privileged conduit for recycling Saudi oil income. What about yuan-denominated bonds and yuan-based oil benchmarks?

 

Needless to add, should the House of Saud even contemplate such a move en masse, a CIA-engineered coup in Riyadh would be a certainty, and all House of Saud assets confiscated – as many a Master of the Universe minion in the Beltway is already advocating off the record.

 

So we have the Saudis – following Masters of the Universe orders – frantically dumping securities on the market while the Russian Central bank wavers on what to do next.

 

Yet even if the Saudis managed to dump their $8 trillion in estimated assets Russia, adopting the correct strategy, could still move to a self-sufficiency that the US – or the EU – can’t even dream of. And on top of it enjoying full employment – while the West crashes itself down as their markets disintegrate.

So, Russian Central Bank and Finance Ministry, the steaming hot ball is in your court.

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