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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… 

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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.

 

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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.

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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. 

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Authored by Darius Shahtahmasebi via TheAntiMedia.com,

The Houthi rebels in Yemen, officially known as Ansurallah, have vowed to intensify rocket attacks on Saudi Arabia’s critical oil infrastructure, warning that they are now manufacturing their own ballistic missiles to achieve those aims, the Financial Times reports.

The threat comes at a time when Houthi attacks on Saudi Arabia have begun to increase. Just this Saturday, Saudi Arabia’s air defense system intercepted four ballistic missiles over the southwestern region of Jizan. The debris of those missiles reportedly killed one person. Just a week prior, two other missiles were launched at the Saudi Arabian Oil Company (Aramco) facilities on the Red Sea.

At the beginning of April, the London-based IHS Jane’s Terrorism and Insurgency Center noted that the Houthis claimed to have carried out three separate rocket attacks on Aramco facilities in ten days, including an attack on a Saudi oil tanker, which suffered some damage and led to the intervention of a coalition naval vessel, which in turn repelled the attack.

The Houthis also unveiled their new Badr-1 surface-to-surface weapon system (a heavy artillery rocket system) approximately a week prior, which the rebels claimed they had used to attack Aramco facilities.

Mohammed al-Boukhaiti, a member of the Houthi political council, also told the Financial Times that these attacks were “only the beginning of the response” to the death of Houthi leader Saleh al-Samad, who was killed by Saudi air strikes in April.

“Yemenis will not pass on the death of Samad easily and they will do their best to take revenge for him,” Mr. Boukhaiti said.

Boukhaiti also dismissed allegations that Iran has supplied the Houthis with sophisticated missiles, claiming instead that the rebels have been developing and manufacturing their own rockets and drones.

“The Yemenis have added new systems for manufacturing missiles, so more missiles are targeting Saudi Arabia as a part of an escalation,” Mr. Boukhaiti also said.

The claim that Iran is responsible for the Houthis’ supply of arms is one that continues to skim the surface of mainstream discourse without being bolstered by any hard, credible evidence.

Despite this, these recent developments are raising fears that the war in Yemen may begin to spiral out of control even more so than it has already in the last three years. As even the Financial Times admits, so far into the conflict Saudi Arabia has struggled to make any decent advancement against the rebels. It is also worth noting that in recent times, the Houthis’ confidence only appears to be strengthening, and these recent attacks targeting vital Saudi infrastructure may only improve their standing in the conflict.

According to Graham Griffiths, a consultant with Control Risks Group, these Houthi-led attacks have raised concerns for the safety of employees and assets even if the Houthis cannot exact any significant damage to the Saudi-led coalition.

“This perception of the risk is likely to greatly increase if even a single strike hits a sensitive target,” Griffiths said, according to the Financial Times. “The sustained pace of the attacks allows the Houthis to demonstrate that despite three years of war, they can still retaliate against a much more powerful foe.”

Most importantly — and largely missing from any serious analysis of this conflict — is Mr. Boukhaiti’s statement to the Financial Times that the Houthis will continue these attacks on Saudi Arabia until Riyadh “stops its aggression completely.”

As far as international law is concerned, Yemen is entitled to the right to defend itself from foreign aggression, including striking directly at Saudi Arabia, which is by all accounts the principal instigator of this conflict.

One might be inclined to believe a simple solution worth pursuing would be for the Saudi-led coalition to withdraw from its aggressive and criminal war in Yemen and allow Yemenis to conduct their own affairs.

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Authored by Robert Burgess, op-ed via Bloomberg.com,

Anecdotal evidence suggests that corporate borrowers may be due for a reckoning.

A growing spider web of evidence suggests a credit reckoning may be near.

For years, the naysayers have been warning about the precariousness of the corporate credit market. In an environment where balance sheets have become more and more bloated from excess borrowing stoked by the Federal Reserve’s easy-money policies, shrinking bond yield premiums don’t make sense. At some point, they argue, there will have to be a reckoning.

Could we be nearing that point?  

On the surface, it’s hard not to like corporate bonds, despite yields being at some of their lowest levels relative to U.S. Treasuries since before the financial crisis. After all, corporate earnings are booming, thanks to an expanding economy and tax cuts, and the default rate is miniscule at less than 3 percent. On top of that, the number of companies poised for an upgrade at S&P Global Ratings is the highest in a decade.    

All that said, there’s mounting anecdotal evidence of possible cracks in the credit facade. One place you can see them is in the latest monthly survey put out by the National Association of Credit Management. This organization surveys 1,000 trade credit managers in the manufacturing and service industries across the U.S. Like most surveys of its kind lately, the main index number was down a bit from its recent highs. But some Wall Street strategists are focusing on a more alarming data point showing a collapse in a category called “dollar collections.” The index covering that part of the survey – which measures the ability of creditors to collect the money they are owed from their customers – tumbled to 46.7 in April from 59.6 in March, putting it at its lowest level since early 2009, the height of the financial crisis. 

The folks at the NACM aren’t quite sure what to make of the big plunge, which could turn out to be an anomaly. What they do know, however, is that credit conditions are getting weaker. As they describe it, the strengthening economy has forced more companies to boost borrowings to keep pace with their competitors. Now, they may be struggling to keep on top of that debt.

“It looks like creditors are having more challenges as far as staying current, which may be contributing to the very weak dollar collection numbers,” NACM economist Chris Kuehl wrote in a report accompanying the monthly survey results. 

There may be something to that. The Institute of International Finance noted in a report last month that U.S. non-financial corporate debt rose to $14.5 trillion in 2017, an increase of $810 billion from 2016 and a figure that equates to 72 percent of the country’s gross domestic product (a post-crisis high). About 60 percent of the rise in debt stemmed from new bank loan creation, which is worrisome since those borrowings roll over more frequently than bonds and are tied to short-term interest rates, which are rising at a much faster clip than long-term rates. As an example, the three-month London Interbank Offered Rate for dollars has jumped to 2.35 percent from 1 percent at the start of 2017. While that’s still low historically, any small increase gets magnified across such a big amount of borrowings.  

“Rising interest rates will add pressure on corporates with large refinancing needs,” the Washington-based Institute of International Finance wrote in its report. It estimates about $3.8 trillion of loan repayments will be coming due annually. 

Credit is the lifeblood of the economy and financial markets. As such, it has a reputation for being a sort of early-warning system for investors and leading indicator for riskier assets such as equities. The equity strategists at Bloomberg Intelligence say they are noticing that stock performance is starting to correlate strongly with corporate balance sheet health as well as profitability. In an April report, they wrote that over the prior year, stocks of Standard & Poor’s 500 Index members with higher cash ratios outperformed low-ratio counterparts. Also, stocks of companies with higher net-debt ratios relative to both cash flow and market capitalization underperformed lower-debt counterparts, with average monthly return differentials of 1.1 percentage points. 

A growing number of influential Wall Street firms, from Guggenheim Partners to Pacific Investment Management Co., and from BlackRock Inc. to Greg Lippmann – who helped design the “Big Short” trade against subprime mortgages – are raising the alarm about the dangers growing in credit markets. It may well be that the reckoning is closer than we think.

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While nuclear power stations across the United States are shutting down, NASA and the Department of Energy’s National Nuclear Security Administration (NNSA) are working on a secret nuclear reactor to power deep-space exploration, such as human missions to Mars in the next decade and beyond.

Kilopower, NASA’s Portable Nuclear Fission Reactor, Will Help Humans Power Future Base On Mars (Source: NASA)

NASA announced the results of a new nuclear reactor power system, called the Kilopower Reactor Using Stirling Technology (KRUSTY), during a press conference Wednesday at its Glenn Research Center in Cleveland. Experimental trials of the Kilopower system were conducted at NNSA’s Nevada National Security Site from November 2017 through the end of 1Q2018.

“Safe, efficient and plentiful energy will be the key to future robotic and human exploration,” said Jim Reuter, NASA’s acting associate administrator for the Space Technology Mission Directorate (STMD) in Washington. “I expect the Kilopower project to be an essential part of lunar and Mars power architectures as they evolve.”

The Kilopower system can generate 1 to 10 kilowatts of electrical power — enough power to run several American homes – continuously for more than 10-years. NASA indicates that four Kilopower units would provide enough “power to establish an outpost” on Mars or the Moon.

Artist’s conception of the Kilopower reactor on Mars. (Source: NASA)

According to Marc Gibson, lead Kilopower engineer at Glenn Research, “the pioneering power system is ideal for the Moon, where power generation from sunlight is difficult because lunar nights are equivalent to 14 days on Earth.”

“Kilopower gives us the ability to do much higher power missions, and to explore the shadowed craters of the Moon,” said Gibson.

 

“When we start sending astronauts for long stays on the Moon and to other planets, that’s going to require a new class of power that we’ve never needed before,” he added.

The Kilopower reactor utilizes a solid, cast uranium-235 reactor core, about the size of a “paper towel roll,” said NASA. Reactor heat is transferred through passive sodium heat pipes, then converted to energy by high-efficiency Stirling engines. In other words, NASA has successfully built a thermoelectric generator that can power its space camps hundreds of thousands, if not millions of miles away from planet earth.

Kilopower lead engineer Marc Gibson and Vantage Partner’s Jim Sanzi install hardware on the Kilopower assembly at the Nevada National Security Site during testing in March. (Source: NASA)

According to David Poston, the chief reactor designer at NNSA’s Los Alamos National Laboratory, “the purpose of the recent experiment in Nevada was two-fold: to demonstrate that the system can create electricity with fission power, and to show the system is stable and safe no matter what environment it encounters.”

“We threw everything we could at this reactor, in terms of nominal and off-normal operating scenarios and KRUSTY passed with flying colors,” said Poston.

A recent test of the Kilopower technology was conducted in four phases. The first two – conducted without power – to make sure all components of the system “behaved as expected,” said NASA. During the third phase, the power to heat the core was incrementally increased before moving to the last and final phase. For 28-hours, the Kilopower unit experienced a full-power blast that simulated a mission, including “reactor startup, ramp to full power, steady operation and shutdown,” said NASA.

Kilopower nuclear fission reactor KRUSTY vacuum test. (Source: NASA)

During the demonstration, the Kilopower unit ran through “simulated power reduction, failed engines and failed heat pipes,” said NASA, showing that the power unit was more than capable of operating under extreme stress.

“We put the system through its paces,” said Gibson. “We understand the reactor very well, and this test proved that the system works the way we designed it to work. No matter what environment we expose it to, the reactor performs very well.”

NASA and NNSA developed the Kilopower technology project for a little less than $20 million; however, officials said it was too premature to forecast how much it will cost to build a spaceworthy Kilopower system. If the program receives enough funding, a Kilopower system could be operating on the lunar surface by the mid-2020s.

Before NASA or SpaceX rockets a portable nuclear reactor to Mars or even the Moon, numerous companies are creating portable nuclear power for earthly applications, including TerraPower, a Seattle-area venture backed by Microsoft co-founder Bill Gates.

Powering a Habitat on Mars with Kilopower

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Via Middle East Eye,

Britain’s defense ministry have acknowledged using controversial thermobaric missiles in Syria that rights groups have described as “indiscriminate”.

Royal Air Force drones used the weapons, often called “vacuum” bombs because they suck oxygen into the powerful blast, against targets in Syria in January and February of this year, an FOI request sent by Drone Wars UK, a campaign group, has revealed.

The missiles work by sucking in oxygen from the environment to create a high-temperature explosion with an extremely powerful blast radius. Unlike conventional explosives that cause injuries through shrapnel, the blast effect of thermobaric weapons causes internal organ damage including to the lungs.

RAF MQ-9 Reaper drones fired 19 AGM-114N missiles in January and February of this year. The ‘N’ variant of the AGM-114 missile, known as Hellfire missiles, contains a thermobaric warhead which is particularly effective at targeting people inside enclosed spaces such as buildings, fortifications or tunnels.

The British government has in the past refused to acknowledge whether it has used the weapons in combat saying it could harm the effectiveness of the armed forces.

The revelations came on the same day that the British government admitted for the first time that its bombing campaign against Islamic State in Syria and Iraq killed civilians.

The MoD said a civilian who had entered the target area at the last minute was killed in Syria’s Euphrates Valley on 26 March when a Reaper drone struck a “terrorist vehicle” with a Hellfire missile. The MoD did not specify what type of Hellfire missile was used.

Justin Bronk, a research fellow at the Royal United Services Institute, said thermobaric weapons create an explosion significantly bigger than conventional weapons of similar size.

“What differentiates a thermobaric weapon from a conventional explosive is, whereas a conventional explosive is between 30 percent and 40 percent explosive… thermobaric weapons use nearly one-hundred percent explosive,” he said.

The weapons, also known as “enhanced blast weapons”, disperse an explosive metallic powder into the air immediately before detonating. This then draws in oxygen from the air, creating a very powerful explosion.

‘Particularly cruel wounds’

“[Thermobaric weapons] tend to kill via blast wave pressure rather than direct explosion or fragmentation damage which means it’s enormously effective against things like bunkers or people in confined spaces,” Bronk said.

“The exact cause of death from being hit by a thermobaric weapon would be multiple injuries to various organs including the lungs,” he added.

While thermobaric weapons are legal, rights groups have said that their large blast area makes them indiscriminate weapons that should not be used in densely populated area.

A report by the United Nation Institute for Disarmament Research said that enhanced blast weapons, referring to a type of thermobaric weapon which includes those used by RAF drones, “raise additional humanitarian concerns that deserve focused attention”.

“So-called ‘thermobaric weapons’ generate high temperatures that can start fires, and can cause particularly cruel wounds to people within a wide area,” the report said. 

The number of strikes carried out by British drones in Syria greatly increased in 2018, figures seen by Middle East Eye show. UK drones fires as many weapons in the first three months of 2018 as they had fired over the previous 18 months.

Chris Cole, of Drone Wars UK, told MEE that the scale of UK operations since 2014 and the recent rise in drone strikes meant that the UK’s announcement of one civilian death was “likely just the tip of the iceberg”.

He told MEE: “UK drone strikes have hugely intensified in Syria since January. In the first three months of 2018 UK drones fired as many weapons in Syria as they have done over the previous 18 months.”

“Despite the MoD insisting that its drones are primarily for surveillance and intelligence gathering, UK Reaper drones have now fired more weapons in Syria than the UK’s dedicated bomber, the Tornado.”

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It turns out that it is not just analysts that Elon Musk likes hanging up on. As Tesla news over the course of the last week has been solely about Musk’s bizarre behavior on the company‘s most recent conference call (and ensuing Tweets), another interesting nugget slipped its way into the media Friday that was overlooked: Musk also apparently hung up on the NTSB back in April.

Bloomberg reported on Friday, May 4:

Elon Musk, the feisty leader of an empire to build new-age cars and rockets whose dismissive call this week with financial analysts has drawn controversy, last month hung up on the top U.S. transportation accident investigator.

Robert Sumwalt, the chairman of the National Transportation Safety Board, held a phone call with Musk on April 11 to tell him that blog posts by Tesla Inc. casting blame on the driver of a Model X for a fatal California crash had gone too far. The NTSB had earlier warned Tesla not to make statements about the accident while it was being investigated by the board.

Sumwalt then said he was taking the unusual step of kicking the company’s representatives off the investigation.

“Best I remember, he hung up on us,” Sumwalt told attendees of the International Society of Air Safety Investigators’ Mid-Atlantic Regional Chapter dinner Thursday. It was his first public comments on the exchange.

One would think that alienating the regulator that may hold the company’s future in its hands is arguably just as much of a transgression as calling conference call analysts “boring”, “dry” and “boneheads”.

But now, in the dance that the company has done over the last month to try and put a spin on the NTSB investigation news (of the NTSB dropping Tesla from the investigation and not the other way around), we found out the truth from the source directly. Bloomberg continued:

In the speech, Sumwalt had been discussing the NTSB’s long-time practice of enlisting companies and other government agencies to assist its investigations and praised the cooperation it received from Southwest Airlines Co. following an engine failure that killed a passenger on April 17.

After the conversation between Sumwalt and Musk, the company took the initiative and issued a statement saying it “withdrew” from the probe. Only later on April 12 did the NTSB issue a release saying it had actually removed the car manufacturer.

The NTSB is looking at why the battery on the Model X caught fire after the car struck a highway barrier in Mountain View, California, on March 23. After NTSB opened the investigation, Tesla announced that the car was being guided by the semi-autonomous driving feature known as Autopilot and the driver’s hands hadn’t been detected on the wheel for six seconds. NTSB then expanded the probe to look at the autonomous driving issues.

The Bloomberg article concluded:

The NTSB, which is also investigating a January Tesla crash near Los Angeles, hasn’t released a preliminary report yet on the Mountain View crash.

After its removal, Tesla accused NTSB of being “more concerned with press headlines than actually promoting safety” and defended its right to warn other drivers to remain engaged while using Autopilot. The company didn’t immediately respond to a request for comment on Sumwalt’s latest speech.

All of this comes on top of a distressing last month and a half for Tesla, which has seen mainstream media confidence in the name slip and has obviously found the company’s CEO under significant amounts of stress and pressure. We commented on Friday morning about a new recent tweet storm that Musk put up to address his antics from the most recent conference call.

Elon Musk’s bizarre Wednesday meltdown, when during the conference call he cut off analysts from Bernstein and RBC simply for asking “boring, boneheaded” questions, continued Friday on Twitter, when he personally attacked Bernstein’s Toni Sacconaghi and RBC’s Joe Spak, accusing them of “trying to justify their Tesla short thesis” and working against the interest of (bullish) investors.

Some blame “Russians” when things don’t go their way, others find blame with “sell-side” analysts who are “trying to justify their Tesla short thesis.” And for the record, Tesla fell 5.6% to close Thursday at $284.45, just above Sacconaghi’s $265 price target and almost in line with Spak’s, who sees the shares falling to $280.

Of course, Musk’s latest display of petulant anger, which naturally spares such analysts as Morgan Stanley’s Adam Jonas who have idiotically high price targets, merely indicates that Musk has no idea how this works at all: sellside analysts don’t do anything to justify a thesis, whether long or short, that’s what buyside analysts are for; what the sellside does is serve as conduits to arrange management meetings.

And in the case of RBC and Bernstein, they clearly won’t be doing that any time soon – and certainly won’t be invited to participate in any upcoming Tesla stock offering – so at least their analysis is credible, which may be what most angered Musk.

Actually, no, what infuriated Musk is that Tesla shares had their biggest drop in more than a month on Thursday after the earnings call, in which Musk said the questions “are so dry,” and turned instead to one from a channel on the YouTube video-streaming service; he also urged ‘daytrading’ retail investors to sell the stock if they don’t believe the long-term vision of the company.

On Thursday, the day after the conference call, Tesla shares fell from post-result highs of about $310 to about $285 – but rebounded on a squeeze Friday, set to close around $295.

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