Day: May 5, 2018

Authored by Valentin Katasonov via The Strategic Culture Foundation,

At the spring meeting of the International Monetary Fund (IMF) and the World Bank (WB), the head of the US Treasury Department, Steven Mnuchin, touched upon a delicate subject: the financing of IMF and WB members by China and several other developing countries.

He called these countries “non-transparent creditors” that do not coordinate their operations with the IMF, thereby destabilising the international loan market. Mnuchin noted that this practice creates problems for the debtor countries when it comes to the debt restructuring process. 

These arguments are a cover for the US official’s barely disguised irritation at the fact that China is going against Washington’s usual way of doing things on the international loan market, where it has reigned supreme for many years and directed the market using the US-controlled International Monetary Fund.

Steven Mnuchin then implied that Washington expected Beijing to coordinate its loan decisions for certain countries with the IMF. 

Here are a few figures to give you some idea of just how worried Washington is by Beijing’s active involvement in the international arena as a financial donor.

The information is taken from a study by the AidData research lab at the College of William & Mary in America in conjunction with experts from Harvard University in the US and Heidelberg University in Germany. Data was gathered and analysed from a total of 4300 projects that received Chinese funding in 140 countries around the world. The time frame of the study is 2000­–2014 (fifteen years).

The total amount of funding these projects received from China during this time period was $350 billion, and the scale of the funding increased steadily over the fifteen years, from $2.6 billion in 2000 to $37.3 billion in 2014. The largest amount was $69.6 billion in 2009. 

The amount of funding given to foreign countries under various arrangements by the United States during the same period equalled $394.6 billion.

This figure is slightly higher than that of China, but one should keep in mind that the volume of US funding did not increase as sharply as China’s. In 2000, the US provided $13.4 billion in overseas loans, which increased to $29.4 billion by 2014. In the final four years (2011-2014), China was already consistently exceeding the US in terms of the amount of overseas funding.

There are qualitative differences between the international financing policies of China and the US.

First of all, China focuses on credits and loans (repayable funding), with financial aid (non-repayable or partially repayable funding) playing a lesser role.

For America, however, financial aid dominates.

The authors of the study categorise as financial aid those agreements and projects in which the share of the grant exceeds 25 percent, while repayable funding includes those agreements and projects in which the share of the grant is less than 25 percent. The researchers have categorised the agreements and projects involving China where it has not been possible to determine the share of the grant as vague finance. The distribution of China’s international financing across the three categories for the entire period was (billions of dollars): financial aid – 81.1; repayable funding – 216.3; vague finance – 57.0. The structure of America’s international financing was (billions of dollars): financial aid – 366.4; repayable funding – 28.1. Thus financial aid accounted for 92.5 percent of America’s total international financing, but just 21 percent of China’s. 

So how is it that China has managed to focus on repayable funding, i.e. loans? At the beginning of the 21st century, the country discovered a huge niche that wasn’t being filled by the loans of America, other Western countries, the IMF or the WB. Many developing countries of Asia, Africa and Latin America were in dire need of overseas funding, but were unable or did not want to meet the stringent conditions of the “Washington Consensus”. Washington’s approach was politically motivated, while Beijing’s was commercial. Beijing declared a principle of non-intervention in the domestic affairs of the recipient countries, and it turned out to be more appealing than America’s so-called financial assistance that was like free cheese in a mousetrap. What’s more, in the 2000s China was issuing loans at 2.5 percent per annum (far more favourable terms than were being offered by the West). 

In its external financing policy, China focuses on those industries and economic sectors of the recipient countries that directly or indirectly boost the Chinese economy. So the distribution of China’s external financing according to industry and sector between 2000 and 2014 looks like this (billions of dollars): energy – 134.1; transport and logistics – 88.8; mining and manufacturing, construction – 30.3; agriculture and forestry – 10.0; and other industries – 74.3. 

The geography of China’s external financing is also interesting. The following countries were the main beneficiaries of financial aid (billions of dollars): Cuba – 6.7; Côte d’Ivoire – 4.0; Ethiopia – 3.7; Zimbabwe – 3.6; Cameroon – 3.4; Nigeria – 3.1; Tanzania – 3.0; Cambodia – 3.0; Sri Lanka – 2.8; and Ghana – 2.5. And here is the geographical distribution of China’s repayable funding (billions of dollars): Russia – 36.6; Pakistan – 16.3; Angola – 13.4; Laos – 11.0; Venezuela – 10.8; Turkmenistan – 10.1; Ecuador – 9.7; Brazil – 8.5; Sri Lanka – 8.2; and Kazakhstan – 6.7. As can be seen, Russia is the biggest recipient of Chinese money in the form of repayable loans (almost 17 percent of China’s total repayable funding). 

The main recipients of Chinese money include countries that Beijing is planning to make (or has already made) key players in the transcontinental “One Belt, One Road” project. China is too heavily dependent on its eastern seacoast and the narrow Strait of Malacca near Singapore through which most of its imports and exports pass. As an example, more than 80 percent of the oil purchased by China passes through this strait. The construction of trade routes through Pakistan and Central Asia increases China’s resilience to political and military pressure from Washington. The “Belt and Road” project will also allow Beijing to start using its enormous currency reserves (more than $3 trillion), provide Chinese businesses with orders, and support employment in the country. According to some estimates, more than $300 billion has already been spent on the project. And in the coming decades, China plans to spend a further $1 trillion on the “Belt and Road” project, creating an extensive transport and logistics infrastructure in Eurasia within the next decade. 

In recent years, the West has surrendered its position as a lender in many Asian, African and Latin American countries, which has weakened its political influence significantly. But most striking is the speed with which China has come to the forefront. At present, China is issuing more loans to developing countries than the World Bank, and yet in the 1980s and 1990s, China itself was the biggest recipient of loans from the World Bank and the Asian Development Bank. 

China is investing large amounts of money in countries that, by Western standards, are considered to be, if not “pariahs”, then “despotic”, “corrupt” and so on, countries like Zimbabwe, North Korea, Niger, Angola, and Burma. Ugandan President Yoweri Museveni has said he likes Chinese money because “the Chinese don’t ask too many questions and they come with big money, not small money”. In North Korea, meanwhile, only 17 Chinese projects were discovered over the entire period, for which the total amount of funding was just $210 million. This picture may be incomplete, however, since information is highly classified. 

In some countries there is intense competition for influence between the US and China. Pakistan is a prime example. In 2014, Pakistan was the third largest recipient of US money (after Iraq and Afghanistan). In the same year, Pakistan was the second largest recipient of Chinese money after Russia. 

In 2015, Beijing began to have an additional influence by way of the Asian Infrastructure Investment Bank (AIIB). The authorised capital of AIIB is $100 billion. China, India and Russia are the three biggest shareholders with 26.06, 7.5 and 5.92 percent of the voting power respectively. As can be seen, China’s position is much stronger than, say, America’s position in the IMF and the organisations that make up the World Bank Group (the International Bank for Reconstruction and Development, the International Finance Corporation, and the International Development Association). America’s stake in these is around the 16-17 percent mark. 

Beijing’s international finance activities should not be regarded as “anti-imperialist”, of course. In the countries that Beijing is starting to befriend, what is left of their local industry is crumbling under the pressure of cheap Chinese imports. The projects to develop deposits or build roads and other infrastructure facilities involve predominantly Chinese contractors and suppliers. As often as not, construction and other onsite work uses Chinese labour. 

Finally, China is slowly introducing tougher conditions for lending money to other countries. The interest rate has risen from 2.5 to 5 percent per annum and there is already a sense that many countries will not only be unable to repay, but also to service their Chinese loans. Beijing is not worried, however: the deposits, real estate, infrastructure facilities built using Chinese money, and businesses serve as collateral. So it will all belong to China in the end. Then the competitive struggle between Washington and Beijing will become fiercer than ever.

via RSS https://ift.tt/2wj37MW Tyler Durden

Authored by James Rickards via The Daily Reckoning,

Following the Panic of 1907, John Pierpont Morgan was called to testify before Congress in 1912 on the subject of Wall Street manipulations and what was then called the “money trust” or banking monopoly of J. P. Morgan & Co.

In the course of his testimony, Morgan made one of the most profound and lasting remarks in the history of finance. In reply to questions from the congressional committee staff attorney, Samuel Untermyer, the following dialogue ensued as recorded in the Congressional Record:

Untermyer:I want to ask you a few questions bearing on the subject that you have touched upon this morning, as to the control of money. The control of credit involves a control of money, does it not?

Morgan:A control of credit? No.

Untermyer:But the basis of banking is credit, is it not?

Morgan:Not always. That is an evidence of banking, but it is not the money itself. Money is gold, and nothing else.

Morgan’s observation that “Money is gold, and nothing else,” was right in two respects. The first and most obvious is that gold is a form of money. The second and more subtle point, revealed in the phrase, “and nothing else,” was that other instruments purporting to be money were really forms of credit unless they were redeemable into physical gold.

My readers know that I am a big proponent of gold. We should all be mindful of Morgan’s admonition, and not lose sight of the way in which real wealth is preserved through manias, panics and crashes.

Today I’ll provide an overview on why I recommend gold in every portfolio, and why gold may be the best performing asset class in the years ahead.

Specifically, my intermediate term forecast is that gold will reach $10,000 per ounce in the course of the current bull market that began in December 2015. I recommend that investors keep 10% of their investable assets in physical gold (with room left in the portfolio for “paper gold” in the form of ETFs and mining stocks).

Here’s the analysis:

We begin with the 10% allocation. The first step is to determine “investable assets.” This is not the same as net worth. You should exclude your home equity, business equity and any other illiquid or intangible assets that constitute your livelihood. Do not take portfolio market risk with your livelihood or the roof over your head. Once you’ve removed those assets, whatever is left are your “investable assets.” You should allocate 10% of that amount to physical gold.

This gold should not be kept in a bank safe deposit box or bank vault. There is a high correlation between the time you’ll want your gold the most and the time banks will be closed by government order. Keep your gold in safe, non-bank storage.

The next part of the analysis concerns my $10,000 per ounce forecast for the dollar price of gold. This is straightforward.

Excessive Federal Reserve money printing from 2008–2015 combined with projected U.S. government deficits over $1 trillion per year for the foreseeable future, and a U.S. debt-to-deficit ratio of 105% rising to over 110% in a few years, leave the U.S. dollar extremely vulnerable to a collapse of confidence on the part of foreign investors and U.S. citizens alike.

That collapse of confidence will not happen in a vacuum. It will coincide with a more general loss of confidence in all major central banks and reserve currencies. This loss of confidence will be exacerbated by malicious efforts on the part of Russia, China, Turkey, Iran and others to abandon dollars entirely and to bypass the U.S. dollar payments system.

The evolution of oil pricing from dollars to IMFs special drawing rights, SDRs, will be the last nail in the dollar’s coffin. All of these trends are well underway now, but could climax quickly into a general loss of confidence in the dollar.

At that point, either the U.S. acting on its own or a global conference resembling a new Bretton Woods will turn to gold to restore confidence. Once that route is chosen, the critical factor is to set a non-deflationary price for gold that restores confidence, but does not lead to a new depression.

Here’s the math on how to compute a non-deflationary price of gold using the latest available data:

The U.S., China, Japan and the Eurozone (countries using the euro), have a combined M1 money supply of $24 trillion. Those same countries have approximately 33,000 tons of official gold.

Historically, a successful gold standard requires 40% gold backing to maintain confidence. That was the experience of the United States from 1913 to 1965 when the 40% backing was removed.

Taking 40% of $24 trillion means that $9.6 trillion of gold is required.

Taking the available 33,000 tons of gold and dividing that into $9.6 trillion gives an implied gold price of just over $9,000 per ounce. Considering that global M1 money supply continues to grow faster than the quantity of official gold, this implied price will rise over time, so $10,000 per ounce seems like a reasonable estimate.

I believe this kind of monetary reset is just a matter of time. It could happen through a planned process such as a new Bretton Woods, or a chaotic process in response to lost confidence, heightened money velocity, and runaway inflation.

The portfolio recommendation is to put 10% of investable assets into physical gold as a diversifying asset allocation and as portfolio insurance. The following example demonstrates that insurance aspect.

For purposes of simplification, we’ll assume the overall portfolio contains 10% gold, 30% cash, and 60% equities. Obviously those percentages can vary and the equity portion can include private equity and other alternative investments.

Here’s how the 10% allocation to gold works to preserve wealth:

If gold declines 20%, unlikely in my view, the impact on your overall portfolio is a 2% decline (20% x 10%). That’s not highly damaging and will be made up as equity assets outperform.

Conversely, it gold goes to $10,000 per ounce, that’s a 650% gain from current levels, highly likely in my view. That price spike gives you a 65% gain on your overall portfolio (650% x 10%).

There is a conditional correlation between a state where gold goes up 650% and where stocks, bonds and other assets are declining. For this purpose, we’ll assume a scenario similar to the worst of the Great Depression from 1929 – 1932 where stocks fell 85%.

An 85% decline in stocks making up 60% of your portfolio produces an overall portfolio loss of just over 50%.

In this scenario, the gains on the gold (650% separately and 65% on your total portfolio) will more than preserve your wealth against an 85% decline in stocks comprising 60% of your portfolio (85% separately and 50% on your total portfolio). The 30% cash allocation holds constant.

So, if 60% of your portfolio drops 85% (about equal to the stock market drop in the Great Depression), and 10% of your portfolio goes up 650% (gold’s performance in a monetary reset) you lose 50% of your portfolio of stocks, but you make 65% on your portfolio on gold.

Your total wealth is preserved and even increased slightly. Total portfolio performance in this scenario is a gain of 15%. That’s the insurance aspect at work.

In summary:

1. Gold has asymmetric performance characteristics. It has limited downside (20%) but substantial upside (650%).

2. The gains on gold are likely to come at a time when stocks are crashing. That’s an example of conditional correlation.

3. In the scenario where gold rises 650% and stocks fall 85%, the gain on gold (10% allocation) exceeds the loss on stocks (60% allocation), so the overall portfolio is enhanced.

Investors without an allocation to gold will be wiped out. Those with a 10% allocation will have survived the storm with their wealth intact. That’s why I recommend gold.

via RSS https://ift.tt/2wisXk4 Tyler Durden

An unusual protest will take place in Tel-Aviv this week, as Israeli strippers refuse to bow to a new draft law equating them to prostitutes. They are fervently defending their right to dance.

Inflamed by a new bill proposed by Meretz MK Michal Rozin that would make stripteasing a legal equal of prostitution, RT reports that some dancers decided to have their say and protest against it.

Despite the fact that prostitution is not illegal in Israel, all stripping and prostitution facilities would become illegal under the new legislation, which would also ban advertising and lobbying for stripping.

The strippers explained that dancing in strip clubs allowed them to earn good money and even set up their own businesses, which they wouldn’t have been able to do otherwise.

“The very question is infuriating: Why is it necessary to think that I’m being exploited by someone? I like my work and I’m proud of it,” one of the women told Haaretz.

Eden, Shelly and Amit pictured below (not their real names) are strippers. All have bachelor’s degrees and are in their late twenties. And, as Haaretz reports, they have never been interviewed before, and they live “double lives”: Their families don’t know about their work, but they don’t hide it from their close friends.

“No one sent us to protest or be interviewed…

I could work at a lot of other things, I’m thinking about getting a master’s degree. This is what suits me right now. Why is that so hard for people to understand?” says Eden, 29.  She has worked as a stripper for three years and comes from a traditionally religious family.

“When I was at university I met someone who was a stripper. I went to the club and expected to find all these dumb, drugged-out girls, but most of the people I met were very different than what I thought they’d be like. I love to dance, I’ve always liked male attention and I’ve always liked money.

I haven’t had any traumatic experiences and the dancing and stripping doesn’t feel like exploitation to me. I choose the customer and I can get a customer thrown out if he tries to touch me or do something I don’t want him to do. It’s the stigma about stripping that hurts me, not the customers.”

Haaretz notes that twenty-nine members of parliament, from both the opposition and coalition, including some from Habayit Hayehudi, Kulanu and Likud, have signed the bill and it will likely be brought to a vote soon.

“I won’t deny that there is some paternalism towards women in prostitution,” says MK Rozin.

“We can cite all the studies and proof about exploitation and harm, but if women come to me and say, ‘I’m not being sexually exploited, I don’t do drugs and alcohol,’ I’m not going to argue with them. But as someone who’s looking at the status of women across society, I’m still going to work to reduce prostitution in all its forms.

Just as we as a society don’t agree that people should be able to sell themselves into slavery, even if someone were to come and say that he wishes to be a slave. Or like we don’t let people sell their kidneys for money. As a society, we say no to that, we don’t think it’s moral for a person to sell their organs.

I think it’s not moral for women and men to sell their sexuality and their body for money.

Ultimately, it’s not just the individual that pays the price, but the society as a whole.

As long as prostitution is legitimate and permitted, we all have the potential to become prostitutes. I know that sounds extreme, but if we continue to allow prostitution, we’ll continue to educate men in a rape culture in which women are objects that can be bought and exploited.

To my mind, there’s no difference between stripping and prostitution.”

On ther words, ladies… “it’s for your own good… and as far as what you do with your body, that’s the government’s business – not yours!”

via RSS https://ift.tt/2rs0V06 Tyler Durden

Authored by ‘Dr.D’ via Raul Ilargi Meijer’s Automatic Earth blog,

“It’s hard enough to find a candidate that will even promise to do something right so it doesn’t help that they do the opposite 90% of the time.”

Who wrote “We hold these Truths to be self-evident, that all Men are created equal”? Jefferson, a slave owner.

Who was one of the most ardent Abolitionists? Alexander Hamilton.

Was he a slave owner? Yes.

Who won the election of 1824? No one, it was decided by the House of Representatives.

So which party lost? None: all four candidates were Democratic-Republicans.

In response, Andrew Jackson, a slave owner, created the Democratic Party.

Jackson created the Democratic Party as an anti-bank, anti-oligarch, states-rights platform the Tea Party would recognize.

Martin Van Buren, a Democrat, created the first concentration camp for Cherokee Indians in 1838.

Those 17,000 Cherokees owned 2,000 slaves.

Did Lincoln create the Republican Party? No, it was an amalgamation of failed parties: Lincoln was their 1st candidate.

What was the Lincoln campaign of 1860? Non-interference in state slavery.

Why? The decision of Dred Scott in 1857, a slave owned by abolitionists in a state he did not reside. Overturning 250 years of history, the case determined that no slave could ever become a citizen, i.e. freed.

Who was the best known Confederate General? Stonewall Jackson.

What did he do when he sided with the Southern cause? Freed his slaves.

Who else was a top Confederate General? William Mahone.

What did he do? He was the creator of the most successful interracial alliance in the post-war South. His name was purged first by Southern Democrats (for integration), then by modern Democrats (for being a Confederate).

Woodrow Wilson (D) ran an anti-collectivism, limited government, anti-monopoly, anti-bank campaign in 1912. He created the Federal Reserve and is known for founding the modern welfare state.

Wilson was re-elected on the slogan “He Kept Us Out of War.” He immediately forced the reluctant nation into WWI.

Herbert Hoover, as Secretary of Commerce under Calvin Coolidge during the Crash of ’21, demanded economic aid and bailouts, but Coolidge, “the great refrainer,” refused. The market immediately recovered.

Hoover was President during the Crash of ’29. He gave unprecedented bailouts to help the economy recover. It never did.

Roosevelt campaigned against Hoover for being “ the greatest spending Administration in peacetime in all our history.” He outspent Hoover tenfold.

Did Roosevelt’s “New Deal,” the greatest stimulus and spending program up to that time, end the Great Depression? No. It was going strong in 1939.

What did Roosevelt campaign on? He promised to keep us out of war in Europe.

Who was Time’s Man of the Year in 1938? Adolf Hitler.

Who was Man of the Year in 1939? Joseph Stalin.

1942? Joseph Stalin.

Wars under “anti-war” Democratic Party: 93 years, 46.5%. 625K deaths since 1864.

Wars under “pro-war” “Republican” Party: 107 Years 53.5%. 12K deaths since 1864.

Who voted for the 1964 Civil Rights Act? Republicans 80% vs. Democrats 69%.

Who filibustered it? Southern Democrat Strom Thurmond.

Who signed it? Lyndon Johnson, a southern Democrat.

Where did Thurmond go? The GOP, who had voted against him and against southern segregation.

What did Richard Nixon campaign on? “Law and Order” and a “secret plan” to exit Vietnam. He immediately bombed Cambodia and was later impeached for a burglary.

Who said “the soundest way to raise revenues in the long run is to cut rates now” and “Every dollar released from taxation that is spent or invested will help create a new job and a new salary” ? John F. Kennedy.

Who gave the greatest modern tax cut? John F. Kennedy (income and capital gains, signed by Johnson).

Who most increased the postwar Federal deficit? Ronald Reagan 186%.

Who most increased taxes? Ronald Reagan, 1982 (as % of GDP, excluding Obamacare and Johnson’s one-year tax).

Who called young blacks “Superpredators”? Hillary Clinton, 1996.

Who put the most black men in jail? Bill Clinton, under the 1994 Violent Crime Control Act.

Who cut welfare most? Bill Clinton, 1996 Personal Responsibility and Work Act.

Who was called the first “Black President”? Bill Clinton (“white skin notwithstanding, this is our first black President. Blacker than any actual black person who could ever be elected in our children’s lifetime.” –Toni Morrison, 1998. I swear this is true).

What was George W. Bush’s platform? Smaller, less-invasive government, lower taxes, and no foreign wars.

Who are the Neoconservatives? “Liberal hawks who became disenchanted with the pacifist foreign policy of the Democratic Party”.

Where did these Liberal Democrats finally prosper? Under G.W. Bush and on Fox News, e.g. Bill Kristol.

Which President won the Nobel Peace Prize? Barack Obama. (As did Theodore Roosevelt, Woodrow Wilson and Jimmy Carter)

What was his legacy? War every day of all eight years, with +50,000 official strikes in Afghanistan, Pakistan, Libya, Yemen, Somalia, Iraq, and Syria and unofficial attacks in Ukraine, Sudan, Niger, Cameroon, Uganda, and elsewhere, as well as 3,000 drone deaths.

Wow, anything else? Due to his intervention, Obama, the first black president, caused the creation of an open-air black slave market in Libya.

Who campaigned advocating a Syrian no-fly zone expected to cause WWIII with Russia? Hillary Clinton (D).

Who campaigned for peace talks and de-escalation with Russia? Donald Trump (R).

Who sent 164 missiles into Russian ally Syria? Donald Trump (R).

Who advocated against the recent attacks? “Far-right” speakers Rand Paul and Tucker Carlson of Fox News.

Who advocated for the attacks? “Left” speakers Fareed Zakaria, and Rachel Maddow with left media Slate and Mother Jones.

What was the actual breakdown? 22% of GOP supported Syrian airstrikes in 2013 vs 86% for the same strikes in 2017.

And on and on. Got it? Know which side you’re on? History, party platforms, personal beliefs, economy, all clear?

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

P.S. Mark Twain never said this.

via RSS https://ift.tt/2IkGbSs Tyler Durden

Back in March, we explained how the High Energy Laser and Integrated Optical-dazzler with Surveillance (HELIOS) system would be one of the first Department of Defense (DoD) contracts to mount an integrated laser cannon onto the U.S. Navy’s destroyers. We also noted, the DoD awarded Lockheed Martin a $150 million contract, with options for an additional $942.8 million, to manufacture multiple HELIOS units with a completion date of 2020.

According to new information obtained by We Are The Mighty from the Lockheed exhibit at the 2018 SeaAirSpace expo in National Harbor, Maryland, this sea-based 150 kilowatts laser cannon would be the most powerful directed energy weapon system to ever  be installed on a warship. In contrast, the 30 kilowatts Laser Weapon System (LaWS) was installed on USS Ponce for field testing in 2014. It has since proven to be effective against UAVs (Unmanned Aerial Vehicles) and small boat threats.

We Are The Mighty, also obtained knowledge that HELIOS is a prime candidate to replace the MK-15 Phalanx Close-in Weapons System (CIWS) and the RIM-116 missile system on warships.

The Mk15 Phalanx carries more ammo than the launchers for the RIM-116, but has a much shorter range. (U.S. Navy photo by Mass Communication Specialist 3rd Class William Weinert)

The Phalanx MK-15 weapon system is a radar-guided 20 mm Vulcan cannon providing “inner layer point defense capability against anti-ship missiles, aircraft and littoral warfare threats,” according to a US Navy fact file. “Phalanx automatically detects, evaluates, tracks, engages and performs kill assessment against ASM and high-speed aircraft threats.”   

Citing the materials from Lockheed, We Are The Mighty explained how the HELIOS also has the potential to replace the RIM-116 Rolling Airframe Missile (RAM), small, lightweight, infrared homing surface-to-air missile in use on combat ships.

The RIM-116 Rolling Airframe Missile has a range of five nautical miles, but the launcher can only hold so many rounds. (U.S. Navy photo by Mass Communication Specialist 2nd Class Gary Granger Jr.)

Mark Gunzinger of the Center for Strategic & Budgetary Assessments, a longtime supporter of lasers, said, “it is clear evidence of the progress that has been made over the last several years on maturing solid-state lasers.  We are talking about lasers that now have the power and beam quality needed to defend against UAVs (Unmanned Aerial Vehicles), small boat threats, and possibly some weapons (e.g. incoming missiles) over short ranges.”

“It also highlights how serious the Navy is about fielding non-kinetic defenses with deep ‘electric’ magazines,” Gunzinger said. Unlike guns and missiles, a laser doesn’t run out of ammunition as long as it has electrical power.  

Watch the US Navy’s field test the LaWS laser system

The HELIOS has a comparable range to the RIM-116 (about five nautical miles), while the missile system holds 11 or 21 missiles, the laser cannon has an unlimited amount of ammo — dependent on an adequate supply of electricity.

As fears of World War III have migrated from the Korean peninsula to the Middle East, it is becoming increasingly evident that the Pentagon is expected to unleash an array of revolutionary weaponry against its next adversary. War with Iran is nearing…

via RSS https://ift.tt/2FNwjv0 Tyler Durden

Authored by Tom Lewis via The GoldTelegraph,

People around the world love gold. It has always been the most reliable hedge against economic uncertainty. Yet few people consider that the government (who is usually responsible for the turndown in the first place), has the authority to seize your gold.

Historically, the government will seize gold when it’s the most valuable, during times when its fiat currency has become utterly devalued. When President Roosevelt made ownership of gold bullions illegal in 1933, the move was preceded by the boom of the Roaring Twenties, then the crash of 1929. Although Roosevelt didn’t call it gold confiscation; he preferred the term “gold hoarding.”

By the 1930s, the US government was facing its most severe financial crisis, and it needed gold (something of value), to stimulate the economy that was running on the fumes of fiat currency. So, it took people’s gold. It was as simple as that. Non-compliance was threatened with severe punishment.

We may be facing another financial crisis, and it might be best to avoid the role of fugitive “gold hoarder.” At this point, it doesn’t make sense for the government to confiscate private gold, as a cashless society will indirectly control peoples finances.

Why would the government seize gold? In 1933, under the 1913 Federal Reserve Act, the dollar had to be backed by 40 percent gold. This would give the Federal Reserve room to print new money when needed. What’s a government to do when it needs to print money, but doesn’t have the gold reserves needed to back it up? It passes an Executive Order making gold ownership illegal but buys up the illegal gold itself. That’s what Roosevelt did. When the government continued to print more money, it declared ownership of silver illegal a year later.

Soon after the government confiscated all gold, the price rose by 40 percent. As if by magic, the US government had a lot more funds than it had before. What happens is that the government buys your gold with cash, then devalues the cash and raises the value of the gold. It wins, you lose.

While the government attributes artificial value to money, it can do and does the same to the value of gold. The government currently holds 261 million ounces of gold in reserve at marked on its book at $42.22 per ounce. That’s a total value of $11 billion. Or is it? The fair market value of gold today is around $1,300 per ounce. As Jim Rickards pointed out in the New Case For Gold, gold is actually what kept the Federal Reserve solvent in 2008.

It is important to know, that under extreme circumstances, the U.S government can still keep you from “hoarding” gold if it wishes to do so.

Many countries recently have repatriated their gold reserves to keep the precious metal closer to home. Germany is just one of the countries that have called back all its gold. When this happens, countries are often preparing for geopolitical and financial events. People buy gold for the same reason.

Since the US dollar is no longer backed by any amount of gold, why would the government want to confiscate it these days? The government is keeping afloat by printing as much fiat currency as it can. The more it prints, the less valuable the dollar becomes, while gold concurrently rises in value. A desperate government might very well begin to eye private gold as the solution to its problems.

Want to know a sad fact?

$20.00 in 1971 has the same buying power as $123.88 in 2018… in other words, inflation has destroyed savings.

Money is supposed to be:

a) medium of exchange
b) unit of account
c) STORE OF VALUE

Fiat currencies DO NOT store value; it erodes it. pic.twitter.com/Lfq7a9g8ml

— Gold Telegraph (@GoldTelegraph_) May 3, 2018

It is unlikely that the government will confiscate your gold in the short term. But the whole purpose of keeping gold is long-term, so it’s a good idea to be prepared. Keeping some physical gold tucked safely away is always a good idea.

Investors wanting a hedge against inflation should be aware that old and rare gold coins retain their value without falling under the definition of gold that can be seized by the government. Once you get over the hefty premium, rare gold coins can be had and kept even when it has been declared illegal. Currently, many rare coins are still exempt from seizure.

If any government were to confiscate gold, it would be to enable governments, instead of free trade, to control the economy. The more power the government claims, the less power lies within the hands of its citizens.

Gold has been the most reliable form of money by being a trusted store of value. Its physical properties is the reason gold has remained a coveted asset for over five thousand years.

With the “everything bubble” only getting bigger and bigger, will the U.S government want gold to be under its control or under the control of its citizens?

Time will tell… 

via RSS https://ift.tt/2wcy0CJ Tyler Durden

Traders, analysts and strategists have been stumped by a market paradox in recent weeks: despite earnings that have been off the charts, rising 24% Y/Y (the most since 2010, if largely thanks to Trump’s tax reform), the S&P is still down for the year, after experiencing two brief 10% corrections just the past 4 months after a torrid, melt-up start to 2018. 

How come? While many have offered explanations why the market refuses to break out higher, one of the most convincing observations comes from Matt King, who in his latest note points out that it is all about rates, both nominal and real, and how they influence risk assets. That particular interplay is especially notable because as the Citi strategist writes, whereas straight market correlations between both nominal and real yields and risk assets tend to prove unstable, “they can be thought of as following a regular cycle.”

The cycle in question, which is shown below…

… boils down to one thing: competition for investment flows.

King suggests thinking of the 5 steps as follows:

1. while risk assets like credit tend to respond positively to early signs of inflation and growth…
2. once these give way to a recognition that central banks will have to withdraw stimulus and raise rates …
3. manifested in rising real yields, at which point risk-on turns to risk-off…
4. This continues until real eventually central banks are forced back into easing…
5. Lowering real yields, prompting investment flows to return to risk assets, and eventually completing the cycle by helping to drive optimism about growth again.

Note the critical role central banks play in this cycle: they are the de facto catalyst, whose monetary policy intervention serves to mark the trough in the cycle once risk assets hit the so-called “Fed Put”, whose new strike price under Jay Powell was quantified last week by Deutsche Bank at roughly 2,300-2,400 in the S&P500.

While King admits that the “Real Yield Cycle” is merely a simplification, it does seem to fit relatively well with both credit and equity moves over recent decades, and “would suggest that risk assets will continue to be vulnerable – and that even if yields start falling again, it may well be as part of a flight to quality.”

But whereas the real yield cycle may provide a shorthand approximation of where in the cycle we should be, another paradox emerges when looking at where we are in terms of risk flows.

This is where it gets interesting.

It is no secret that Matt King (and not only) has been increasingly bearish for the past few years, predicated by the threat that is the tapering and eventual reversal in central bank assets. Here, unlike most of the peanut gallery, King who has repeatedly proven that he is one of the best credit strategists on Wall Street, admits that just as central banks were the driver for risk assets to hit all time highs, so their reversal will unleash the next correction/bear market/crash.

And yet, despite repeated warnings, despite the Fed’s balance sheet having shrunk by $100 billion recently, despite a mature credit, business and “real yield” cycle, despite a bevy of geopolitical risks, stocks – both in the US and globally – remain just shy of all time highs.

But maybe not for long.

Going back to the chart of the Real Yield cycle, King plays devil’s advocate, and notes that “it may be argued that we are not yet properly in phase 3, that risk assets are going sideways rather than selling off, and that this phase could persist for a while yet – the standard “late-cycle, not end-cycle” argument.” But, the Citi strategist warns again, “we have argued against this previously, and think subsequent market developments this year have become more, rather than less, ominous.“

Why? A very simple reason.

“Inflows to risk assets have basically stopped.”

As we first pointed out several weeks ago, Citi notes first that foreign buying of US credit – for long a mainstay of market demand – fell to zero in November and has not revived significantly since, either in official numbers or on Citi’s own flows (Figure 5). While there has been some rotation towards Europe in Japanese buying, this has not been nearly enough to offset the reduction in the US; furthermore hopes that this is simply a seasonal lull will dwindle further if there is not a big uptick following Japanese Golden Week.

One simple reason for this, as we explained 2 months ago, is that net of surging dollar funding costs, US Treasuries hedged for the dollar mean that the effective yield on US paper is now lower than both JGBs and Bunds, crippling foreign demand.

In other words, as long as the Fed’s tightening cycle keeps overnight funding costs high (note the failure of Libor-OIS to drop as so many so-called experts predicted would happen), demand for US paper will continue to wane.

But it’s not just flows into credit that have suddenly halted: the same has happened to mutual fund flows.

While the weekly numbers have been volatile, and fixed income has held up better than equities, it looks distinctly as though net buying of risk assets has ground to a halt (bottom left chart). Moreover, the flow across asset classes and geographies has been very consistent with the abovementioned late cycle dynamics: a short-term cycle driven by trailing total returns (bottom right chart), and a longer-term cycle driven by deposit rates. As Citi warns, “both of these are sending increasingly negative signals – all the more so now the YTD return on $ IG has hit -3.5%”, an observation which BofA’s Michael Hartnett noted yesterday to warn that the ECB is now on the verge of quantitative failure.

What is King’s conclusion? Simple (no really): just follow central bank liquidity (all the way down), to wit:

The broader point in all this is that – despite the markets’ confusing gyrations and counter-gyrations in response to the latest earnings beat or Trump tweet – there is a pattern. The enormous influx of central bank liquidity in recent years may not have produced nearly as much inflation as expected in the real economy, but it did produce an abundance of asset price inflation – over and above what should have been expected on the grounds of economic fundamentals alone.

The chart he is referring to is, of course, this one:

… and in just a few months, it will turn negative for the first time since the financial crisis. Hence, point #2:

More than that, to quote Jeremy Stein, it got into “all the cracks”, flowing freely from one asset class to another and one geography to another. Now that the flow of central bank purchases is in decline, and especially that the Fed’s central bank balance sheet is contracting, the risk is that this process runs in reverse, leaving asset prices unsupported and exposing surprising vulnerabilities as money comes back out from different asset classes and  geographies.

… while brings us to – what else – another gloomy outlook from the man whose clear, simple explanation of why Lehman should fail one week ahead of the Lehman failure in September 2008 , many say became a self-fulfilling prophecy and indeed led to Lehman’s failure.

So far the shift in this direction has been modest. The ECB and BoJ have still been putting chairs into the game even as the Fed has begun taking them out, and there are times when the music is playing that it’s tempting to overlook the markets’ vulnerabilities. But investors prefer $ chairs to € and ¥ chairs, and even they are accumulating at a slower rate. The signs are there, for those who choose to see them – in rising real yields, in falling inflows, in pockets of stress in global money markets, and in the continuing correlation between market moves and global central bank liquidity.

As more chairs are withdrawn, expect more consensus trades suddenly to come under pressure – and don’t be surprised if more than a few investors find themselves left standing awkwardly as a result.

 

via RSS https://ift.tt/2rlzAx0 Tyler Durden

Authored by Chris Hamilton via Econimica blog,

Once upon a time, skeptical analysts cross checked stated growth versus energy consumption…looking for discrepancies as fluctuations in energy consumption are a good proxy for the changes in real economic activity. 

Nowadays, the model of printing highly politicized and/or skewed economic data has gone very global.  So, today I offer a couple broad variables to gauge global economic activity; 1) total primary energy consumption data by region, cross checked against 2) their consumer bases (the 0-65yr/old populations).  I break the world down into four different regions to gain a better vantage of the purported global recovery, as follows:

• OECD (List of 35 nations) representing 17% of global population & 43% of total energy consumption

• Combined Africa / S. Asia (S. Asia = India, Pakistan, Afghanistan, Bangladesh, Nepal, Bhutan, Sri Lanka, Maldives) representing 41% of global population & 9% of total energy consumption

• China, representing 19% of global population & 22% of energy consumption

• “RoW” or Rest of the World, representing 23% of global population & 26% of global energy consumption

The first chart below shows total global primary energy consumption in quadrillion BTU’s from 1980 through 2015 according to the EIA (US Energy Information Administration).  The flattening in consumption since 2012 is plainly visible in the upper right and clearly detailed in the year over year columns in the lower right.  The arrows highlight minimal growth or outright energy consumption declines that were associated with recessionary periods.  The weakness of the current period since 2012 is unparalleled from 1980 on…and even more significant than the sharp but brief downturn of 2009.

Below, the year over year change in global energy consumption broken down by nuclear/renewable (green), natural gas (brown), coal (black), and petroleum (blue)…plus total consumption represented by the yellow dashed line.

Looking at the primary energy consumption of the OECD regions (N. America, Europe, and Asia/Oceania) versus China and the combined Africa/S. Asia consumption.  The Chinese consumption moonshot is pretty obvious.

The next chart again shows global primary energy consumption (quadrillion BTU’s), but broken out by regions.  As of 2015, the OECD nations are consuming less energy than during the 2009 global recession and in fact are using about 1% less than they did in 2000.  Meanwhile, China has increased total energy consumption about 200% since ’00, the combined Africa / S. Asia have increased consumption by about 70%, and the RoW have increased by about 40%.  Quite noticeably, total global energy consumption is essentially unchanged from 2012 through 2016 as the OECD declines have offset minor increases across the other regions.

The chart below shows global primary energy consumption, by region, as a percentage of all energy consumed.  Noteworthy, the long declining OECD portion of total energy consumption, the more than doubling of Chinese consumption from ’00, and the flattish consumption from Africa / S. Asia and the RoW.

Next, the EIA total energy estimations through 2040 (chart below).  All regions estimated to move from lower left to upper right.  I’m going to detail why these estimations are highly unlikely to be realized and why far lower consumption is probable.

So, lets cross reference…starting with the changing populations of the four regions (particularly the core 0-65yr/old populations) that drive spending, housing, jobs, credit utilization, and resultant energy consumption.
OECD

The 35 nations that make up the OECD represent 17% of global population but 43% of total primary energy consumption.  The OECD core population is now outright declining and by 2040, is estimated to see a 6% decline (this estimate includes and relies upon ongoing immigration at current levels).  This is also assuming birth rates and fertility suddenly, and unlikely, surge as the UN and Census have been wrongly projecting ever since 2008.  However, assuming birth rates and fertility continue their decade plus downward trend &/or immigration wanes, even more significant declines will ensue and the under 65yr/old population will be below the mid 1980 levels by 2040.

OECD annual 0-65yr/old population change versus OECD actual and projected total energy consumption (chart below).  Despite the 50%+ fall in energy prices since peak consumption (way back in ’07), OECD demand continues declining but is continually estimated to suddenly reverse and begin rising again by the EIA?!?  A secular decline of the population and energy consumpttion is underway and is likely to continue indefinitely.

CHINA

19% of global population, 22% of global energy consumption.  China’s core population began declining in 2017 but the pace of decline is accelerating, so much so that China is estimated to see a 10%+ core decline from ’18 to ’40 (but as with the OECD, this assumes a surge in fertility rate that is not happening (Termination of China’s “One Child” Policy…Much Ado About Next to Nothing )…so actual declines are likely to be significantly larger than 10%).  Growth, once as many as 20 million more potential core consumers annually, has turned to declines of millions every year…indefinitely.

China annual 0-65yr/old population change versus China actual and projected total energy consumption (chart below).  The accelerating population decline versus ongoing energy growth imply a rapidly increasing demand, per capita.  However, like the OECD, the EIA estimates are fantasy as secular decline is underway and will be accelerating to the downside as China’s domestic market and China’s export bases shrink indefinitely.

Rest of the World

23% of global population, 26% of global energy consumption.  10% increase in core population from ’18 to ’40 but growth is significantly decelerating.

And RoW annual 0-65yr/old population change versus RoW actual and projected total energy consumption (chart below).  Again, a decelerating growth versus anticipated accelerating energy consumption.

Africa / S. Asia

41% of global population but just 9% of global energy consumption (fyr – the combined regions likewise consume just about 9% of the total Chinese exports).  From 2018 to 2040, combined core population growth of 30% while YoY growth remains elevated at current levels (Africa’s accelerating growth offsetting India’s decelerating growth).  As of 2018, these combined regions represent 83% of annual under 65yr/old global population growth…but by 2040, Africa alone will represent 100%+ of the fast decelerating annual under 65yr/old global growth.

Africa / S. Asia annual 0-65yr/old population change versus actual and projected total energy consumption (chart below).  Population growth is projected to remain centered and extremely high for the next quarter century, particularly in Africa .  Yet, despite the combined size and expected growth, the combined Africa / S. Asia region total energy consumption is estimated to grow only two thirds as much as China…despite China’s fast declining population (est. +47q/btu for China vs. +33q/btu for Africa/S. Asia).

Energy Consumption, a Means to Gauge Relative Wealth

The chart below details total primary energy consumption, on an actual and estimated per capita basis versus the changing under 65yr/old populations.  If energy consumption is equivalent to wealth, then the declining populations of the OECD and China will accrue all the benefits of the existing system while the teaming masses of Africa & South Asia are not anticipated to enjoy any real gains.  Again, I believe all these forward EIA estimates to be way too optimistic and out of step with the reality of changing populations.

Global Oil Consumption

Similar to the total energy consumption chart above (and discussed previously HERE), OECD oil consumption peaked in 2005 and as of year end 2017, OECD oil consumption is back to levels last seen in 1997 (over a 6% total decline in consumption).  Still, the 3mbpd decline among the OECD has been more than offset by the 5mbpd increase in China, 7mbpd increase among the RoW, and 3mbpd among the combined Africa / S. Asia.

As an aside, OECD oil consumption trend growth ended as of Q4 ’07 (chart below)…and quarterly variations in consumption have been “unusual” since.  Despite the halving of energy costs, despite the implementation of ZIRP, massive growth in federal debt, central bank balance sheets, and stimuli of every sort…the OECD demand is back to levels first breached in the mid 1990’s.

Why This is About to Get Far Worse

The chart below shows the 15-45 year old global childbearing population minus Africa and S. Asia.  This population peaked in 2010 (red line) and is now declining annually by millions (blue columns, falling 7 million alone in 2018).  Those capable of having children among the nations of the world that consume over 90% of all the energy, 90% of the oil, and 90%+ of China’s exports are now falling and will continue falling indefinitely.

Couple the declining childbearing population (red line, chart below) with collapsing birthrates and total births (blue columns) among the import engines…and an economic collapse is assured.  The chart shows births (x-Africa/S. Asia) have already fallen 20% from the 1990 peak and are estimated to be somewhere between 30% to 50% below peak by 2040 (blue line is UN medium variant, green line is UN low variant).  The low variant is looking more and more likely.  The real question isn’t an economic collapse…it is will society and civilization be able to adapt to this new reality?

Below, global childbearing population and 45-64yr/old populations and actual plus estimated total energy consumption (all excluding Africa/S. Asia).  Energy consumption simply isn’t likely to continue on anything like the previous growth trends (and perhaps not growing at all) with these changing dynamics.

The chart below is the best case (economically speaking) for the world (excluding Africa/S. Asia), assuming the medium variant of births through 2100.  The UN estimates that the 65+yr/old population will nearly double the 0-15yr/old population by 2100.  This inversion of the population pyramid simply can’t and almost surely won’t happen given the reliance of the elderly on the young.  A near term “course correction” will almost surely intervene and the reality will be a far lower 0-15yr/old population and honestly…I can’t hazard a guess as to what will become of the 65+yr/old population.

Conclusion:

Finally, for those who don’t understand the gravity of the broken trend-line in the chart above…the OECD is the global import engine that provided the growing markets for developing nations of the world to export their way to prosperity.  What began post WWII with Germany and Japan, spread to Taiwan, Korea (etc.), and eventually China.  However, as the OECD and potential import growth capacity has waned, the exporters have a progressively deteriorating viable rationale to grow their capacity, their jobs base, their GDP (previously discussed HERE).

China alone since 2000, as a quasi “communist” state, was able to “compel” its corporations and local governments to undertake massive debt fueled build-outs to achieve pre-determined “growth” targets (previously discussed HERE).  New factories, housing, malls, infrastructure, etc. were built for a domestic population now embarking on a large decline and a global import base which has indefinitely stalled.  Now the massive Chinese overcapacity sits pumping out deflation and no other nation (of significance) can similarly compel their corporations and the like to undertake like levels of bad debt to keep global “growth” going.

This notion of an imminent “S-Curve” lifting India or Africa to prosperity is simply (and sadly) ludicrous.  That a fast growing group of poor in Africa and S. Asia, in need of selling their labor and resources to a now declining base of buyers in the OECD, China and decelerating growth among the RoW (already with too much and still growing capacity as it is), is delusional.  Very unfortunately, a synchronous and intertwined financial, economic, and currency collapse is highly likely as central banks and federal governments worldwide are undertaking progressively worsening policies and interventions to extend and pretend…even if it’s just buying months now instead of years.  Of course, I’ve been wrong more than once…so perhaps I’m wrong again.  Maybe two plus two can add up to seven and really, this is one time being wrong probably would feel better than being right.

Extra Credit (below), gauging asset appreciation in the US (using the Wilshire 5000, representing all publicly traded US equities) versus the measuring stick of total US energy consumption and the childbearing population.

…and the variables of est. childbearing population growth, estimated energy consumption, and 7% asset appreciation extended through 2040.  Make of it what you will.

via RSS https://ift.tt/2jxSHQw Tyler Durden

It is official. Consumers in Colorado appear to be tapped out.

This comes at a time when the recovery is now tied for the second-longest economic expansion in American history. The stock market is near an all-time high, unemployment is the lowest in two decades, consumer confidence is beyond euphoric, and Trump tax cuts are stoking the best earnings quarter since 2011 — unleashing a record amount of corporate stock buybacks.

While a real economic recovery could be plausible this late in the business cycle, the unevenness of the recovery has left many residents in Colorado without a paddle. Accelerating real estate and rent prices across Colorado are squeezing residents out of their homes at an alarming pace.

According to ABC Denver 7, Denver metro area’s skyrocketing cost of living, stagnate wage growth, and lack of affordable real estate has fueled an enormous housing crisis — overwhelming the state’s eviction courts.

Colorado Center on Law and Policy (CCLP), which has spent decades advocating for tenant rights, warns that an eviction crisis is underway in the Denver region.

ABC Denver 7 said, “27 percent of all civil cases filed in Colorado in 2017 were evictions, which represents 45,000 cases.” In Denver alone, eviction cases accounted for nearly 18 percent (8,000 eviction cases) of all evictions across the state. Arapahoe County, the third-most populated county outside of Denver, experienced the most significant number of eviction cases at nearly 22 percent (10,000 eviction cases) in 2017.

Jack Regenbogen, attorney and policy advocate for the Colorado center on Law and Policy, told ABC Denver 7 that most tenants are underrepresented in eviction court cases. In return, this has led to more evictions forcing tenants out onto the streets. He says about 90 percent of landlords are represented by legal counsel during an eviction process, but less than one percent of tenants have legal assistance.

“Traditionally, Colorado has been a very friendly state towards landlords. We really need our policymakers to begin investing meaningful resources to address this issue,” said adds.

ABC Denver 7 indicates that more than 50 percent of Coloradans are renting, and as court dockets continue to expand with evictions in 2018, the crisis is far from over.

According to the Denver Metro Association of Realtors (DMAR) May housing trends report, the average cost of a single-family home in the Denver metro area edged up, as it hit $543,059 in April. More and more homes are listing in the range between $500,000 to $750,000 than all of the price ranges below $500,000 combined. A spokesman from DMAR said homes priced between $500,000 and $749,000, is now considered the “new norm.”

All-Transactions House Price Index for Colorado

“This demonstrates homebuyer demand remains robust,” said Steve Danyliw, Chairman of the DMAR Market Trends Committee. “As new listings poured into the market, buyers that were waiting for them quickly gobbled them up, driving the average days on market down to 20 days.”

Danyliw, further said housing activity remains stable, but increasing interest rates could have an eventual impact on the real estate market.

Evidence continues to build that housing affordability is getting worse, particularly for everyday Americans. Colorado is the latest example of consumers physically tapping out, as they can no longer afford soaring real estate/rent prices – which is now overwhelming state courts in Denver. 

via RSS https://ift.tt/2FLWoe0 Tyler Durden