Category: zerohedge

Nigel Farage, the former leader of the UK Independence Party and current MEP for Southeast England, shared some jokes about his purported “Russia connections” with the crowd at CPAC on Friday – confessing that, though rumors of his involvement as a go-between for Vladimir Putin, Donald Trump and Julian Assange are overblown – he has been known to enjoy a swig of Russian vodka from time to time.

Farage, a notoriously heavy drinker, said he’s never been to Russia or Moscow, and has never – to his knowledge, we presume – met a Russian agent, or done any business in Russia.

“I’ve never been to Russia. I’ve never been to Moscow. I’ve never met a Russian operative or agent. I’ve never done business in Russia. I’ve never taken money from Russia….but I may be guilty of drinking the odd Russian vodka,” Farage said.

The reputed father of the Brexit movement was responding reports that he was a “person of interest to the FBI…”

…And marveled at conspiracy theories linking him to the Kremlin and its purported attempts to “sow discord” and “undermine US democracy.”

“I’ve read that actually I’m the center of an international spider’s web,” Farage added. “I’m the one person connecting Trump, Putin and Julian Assange. I’ve been running memory sticks back and forth, from the White House to the Kremlin, to Assange.”

On Thursday, Farage mocked certain “newspapers in America and the UK” who “say I colluded with the Russians” during an interview with Fox News.

 

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Last week we reported that as part of a rapidly deteriorating banking crisis in Latvia, which culminated with the detention of central bank head Ilmars Rimsevics on suspicion of accepting a bribe of more than €100,000 (which prompted both the prime minister and president to demand his resignation, something he has so far refused to do), the European Central Bank froze all payments by Latvia’s largest private bank, ABLV, following U.S. accusations the bank laundered billions in illicit funds, including for companies connected to North Korea’s banned ballistic-missile program.

Then overnight the Latvian banking crisis escalated when in a statement released early Saturday, the ECB said ABLV Bank’s liquidity had deteriorated significantly, making it unlikely to pay its debts and declaring it “failing or likely to fail.” As a result, Latvia’s third largest bank will be wound up under local laws after the European Central Bank

Following the ECB’s decision, which also included the bank’s subsidiary in Luxembourg, the WSJ reported that Europe’s banking resolution authority decided the banks didn’t represent a systemic risk for their countries or the region and should be wound up by local authorities rather than be “bailed in” under EU rules.

And so, on Saturday ABLV said it would be liquidated. In four days, the bank claimed, it had raised enough capital to meet all its depositors’ demands and keep functioning, however “Due to political considerations the bank was not given a chance to do it,” it said in a statement.

As we discussed previously, ABLV’s fall follows a move by the U.S. Treasury last week to block its access to U.S. dollars, accusing it of “institutionalized money laundering.” It said most of the bank’s customers were shell companies registered outside Latvia. ABLV said it isn’t guilty of money laundering and has invested heavily in compliance systems. It was not enough.

The speed of ABLV’s collapse has been breathtaking: It started less than two weeks ago, when on February 13 the U.S. Treasury declared the bank’s practices a form of money laundering. Latvia’s third biggest bank had long been a lead player in an industry that has been a boom for the former Soviet state: helping shell companies in and around Russia bring their money into the European Union.

The collapse is bad news for the bank’s larger depositors: Under European bail-in rules, shareholders, creditors and depositors of more than €100,000 would be in line for losses before taxpayers were called to help the bank. Deposits of as much as €100,000 are protected under Latvian and Luxembourg laws.

The resolution authority “concurred with the ECB’s assessment and concluded that there are no available supervisory or private sector measures which could prevent the failure of the banks,” it said in a separate statement.

It is unclear how many depositors will be hurt by the bail-in.

The blitz-collapse has prompted fears of a bank run, amid growing uncertainty if other local banks are also under the US microscope, coupled with the apparent disorganized chaos by local authorities.

On Friday, Latvia’s chief banking regulator tried to assure the country’s depositors that ABLV posed no risk to the system and was on track to receive as much as €480 million in emergency aid from the national central bank.

That did not happen, as the ECB’s statement confirms the bank did not receive the aid. In other words, in hopes of preventing a bank run, the local regulator lied to Latvian depositors who at least had a chance to remove any savings that were above the insured threshold.

They won’t have that option now, and depositors at other banks may decide they don’t want to wait and see if they will suffer a similar fate.

European regulators have repeatedly flagged risks about Latvian banks’ heavy exposure to nonresident account holders. Still, it was the U.S. Treasury that brought the issue into the open.

And now, five years after the Cyprus bail-ins, we look forward to learning which Latvian, Russian and/or Ukrainian oligarchs saw most of their savings vaporize overnight.

via Zero Hedge http://ift.tt/2CF9Crp Tyler Durden

Authored by Peter Cook via RealInvestmentAdvice.com,

“Peter Cook is the author of the‘Is That True?’ series of articles, which help explain the many statements and theories circulating in the mainstream financial media often presented as “truths.” The motives and psychology of market participants, which drives the difference between truth and partial-truth, are explored.”

Summing up the current conventional wisdom:

1. Global GDP growth has bottomed and is accelerating systematically higher,

2. Which will cause the inflation rate to accelerate higher.

3. Bond markets hate higher inflation, so interest rates have bottomed and will move even higher.

4. The stock market, dependent on low rates for high valuations, will fall if rates move higher,

5. Which is why the stock market peaked on January 26, 2018, and then declined dramatically,

6. Ushering in an era of systematically higher volatility

In this article, we will investigate the data behind the first three assertions related to GDP growth, inflation, and the bond market and offer explanations that differ from the conventional wisdom. Next Friday, we will continue this theme with a discussion of the following three assertions.

1. Global GDP Growth Is Accelerating

Unless GDP can be exported from another planet to Earth, the main drivers of global GDP growth are in four large economic zones.  Here are the past 30 years of GDP growth in the U.S……

The past ten years in China……

The past 20 years in Europe…..

and Japan.

In summary, each of the main economic zones are growing at lower rates than they did 10-20 years ago.  While they are each trending slightly higher after bouncing off recent troughs in early 2016, all are well within a range established since the Global Financial Crisis (GFC).

To believe that global GDP growth will move systematically higher in coming years, you need to believe that something fundamental has changed to produce higher economic growth.  You would also need to believe that cures have been found to reverse the two secular constraints that are primarily responsible for the slow-growth, low inflation environment in each of these regions, which are:

• High and increasing indebtedness
• Rapidly-aging populations

The first bullet point was documented in a 2012 study Rinehart and Rogoff, in which they observed an association between government with high debt-to-GDP ratios (90%+) and subsequent period of slower GDP growth.  Most people can grasp the idea that excessive debt constrains their ability to spend in the future. It is no different for a government in the long run.

The second bullet point is intuitive because of declining spending patterns as people age.  The concept is most clearly demonstrated by the economic performance of Japan over the past 20 years, but many other countries (China, US, and many European countries) are on this same path.  But a deep dive into each of these issues is beyond the scope of this article

2. Rising Inflation

Below is the chart of US annual inflation rate since the mid-1990s’ during which time it has fluctuated between 1.0% and 2.4%, and is currently at 1.5%.  Nothing significant seems to have changed here.

Business leaders don’t sense an imminent change in inflation in the next 12 months either.  Their expectations have ranged between 1.7% and 2.1% over the past year.

Consumers don’t seem too worried about a rise in inflation either.  The current expectation is a little below 3%, which is near the average of the past 20 years, in addition to being consistent with the past several years.

Sticking with the theme of the consumer, real income in the US has risen in recent years, and is near the top of the range of -3% to +4% which has existed over the past 20 years.  Could this be inflationary?

It depends.  Consumers aren’t doing anything out of the ordinary compared to the recent or distant past, as the annual growth in retail sales is stuck in the middle of the range of the past few years.

If anything, it is possible that the spike higher in retail sales during Q4 2017 was caused by rebuilding activity after the Florida hurricane and Texas hurricane/flooding events in early September as well as holiday-related spending.  If so, that blip is beginning to reverse, as shown by the most recent retail sales data.

3. Bond Market Reaction

Summing up the data presented so far, neither global GDP growth nor US inflation are systematically higher, and to believe they will rise sharply out of the range of the past 10-20 years, you would have to believe that GDP growth and inflation will overcome the two main constraints on economic growth, which are a high and rising debt burden, and an aging population.

So why would interest rates be moving higher over the past couple of months, and why would there be so much noise about that fact in the financial media?  We can think of two alternative explanations.

The first explanation is behavioral, meaning that it is rooted in how and why humans act and interact in markets, a subject of focus for the authors of the Epsilon Theory articles.  The chart below shows the history of the 10-year Treasury bond yield over the past 140 years.

Source:  multpl.com

Imagine the professional competition to predict the peak in interest rates in the early 1980s.  To win that competition, you would have somehow had to keep quiet (and keep your job) while rates rose from 7% to 15%, and then had to become a very lonely bull among a legion of bears at the precise peak in rates or shortly thereafter.  Today, very few remember the even fewer number of bulls that precisely called the peak in interest rates.

In beautiful symmetry, today the professional competition to predict the bottom in interest rates is fierce.  To accomplish that feat, you could not have previously called a bottom in rates, because you only get one shot to be correct.  A prediction of an inflection point in interest rates won’t arise out of an Ouija board; solid logic and data will be used to justify the prediction.  But ultimately, those reasonable justifications could be hiding a different motivation, which is the fame that would accrue from calling the inflection point after multi-decade bull market in bonds.  Because the inflection points are so rare, most careers come and go without the opportunity to predict a sea change, so it is understandable why some would be tempted.

But it is also extremely important to understand that a prediction, or new theory, may change the mainstream narrative but it does not change underlying reality, a consistent theme in this series of articles.  In this case, forecasts of higher GDP growth and inflation don’t make actual GDP and inflation rise, a lesson that should have been learned over the past decade.  Instead, economic events will happily come and go regardless of who or how many financial market observers call for an inflection point in GDP growth, inflation, and interest rates.

Viewed from this perspective, it is easy to envision a scenario in which rise in rates during the first half of 2018 and is followed by yet another lurch lower in the second half of 2018 when the expected rises in GDP growth and inflation do not materialize. Recent fund flow data supports the potential for a change in view (and price/yield), because a record short position has been amassed in bonds, as shown below.

A second explanation for the recent spurt higher in rates is rooted in fundamental analysis.  It is certainly true that budget deficits are rising.  The argument is that increased supply of government bonds will force interest rates higher.  That was the same argument used in the early 1980s when the Reagan tax cuts took effect, yet interest rates continued to fall.  Similar predictions on the inevitability of rising rates were made in the wake of the Bush tax cuts of 2003, yet interest rates continued to fall.  Obviously, larger forces than a supply/demand imbalance were dominant during those periods.

But there is one crucial difference in the economic environment today that didn’t exist in the early 1980s or 2003, as shown below.

 

In coming months and years, the US government is going to test its ability to issue additional debt in ways it didn’t in the 1980s or 2003, because its debt-to-GDP ratio is greater than 100%, which is 3x what it was in 1980 and roughly 2x what it was in 2003.  Layering even more uncertainty on the supply/demand imbalance is the fact that the Fed is unwinding its massive QE program.  That is, an unparalleled monetary experiment is occurring at the same time as an unprecedented borrowing experiment with a high debt-to-GDP ratio.

So the recent rise in interest rates may not be a market prediction of higher GDP growth and inflation.  Instead, the rise in rates could be a recognition of the unprecedented twin experiments.  If so, we could actually be witnessing the nascent signs of credit risk in the US Treasury market.

Financial textbooks have ruled out the possibility of credit risk embedded into US Treasury yields.  After all, the US Treasury rate is the well-known “risk-free rate” on which all of modern financial theory is grounded.  However, we repeat that the existence of a theory doesn’t change the way the world works in reality.  Sometimes prevailing theories must change, especially when radical changes are afoot, including the existence of the enormous ($50-100 trillion) unfunded liabilities of Medicare and Social Security.  Take another look at the chart of the US debt-to-GDP ratio, and see if the term “credit risk” doesn’t come to mind, even if it will never come to mind while reading a financial textbook.

Further, in another Rinehart and Rogoff study, “This Time Is Different: Eight Centuries of Financial Folly,” sharply rising housing prices and large capital inflows (to finance large trade deficits) tend to occur prior to financial crises.  Those two conditions were present before 2008, and they are present again in 2018.  As the title suggests, the authors also cite the tendency of leading thinkers who fail to learn the lessons of history, and who dismiss serious risks as irrelevant to their era.

Finally, many financial analysts have been perplexed by the anomalies that European sovereign bonds issued by countries such as Portugal, and even European junk bonds, are trading at yields lower than US Treasury bonds.  This is particularly odd given that the US issues bonds denominated in US dollars, the reserve currency, which should require a lower yield.   While it is impossible to state that credit risk is the sole reason for these observed anomalies, these are the types of anomalies you would expect to see if credit risk was beginning to creep into US Treasury prices.

Conclusions

It is possible that the mainstream narrative is correct and that the recent rise in rates is foreshadowing a future of higher GDP growth and inflation.  If so, then markets are discounting a future not yet seen, which is how market sometimes operate.  But sometimes they don’t.  The current levels of GDP growth and inflation are well within their recent ranges, and those recent ranges are lower than they were 10-20 years ago.  More importantly, the underlying problems of high debt levels and aging demographics will continue to constrain the potential for GDP growth and inflation to systematically rise, which are the main reasons that interest rates have persistently declined over the past several decades.  Predicting a regime change to much higher GDP growth, and hence higher inflation, could simply be a case of looking for, and then seeing, something that isn’t there.

Instead, there are two alternative explanations for the recent rise in US Treasury rates.

One is the inevitable temptation of high-profile investors to burnish their professional reputations by “calling the bottom” in rates, which has the power to change the narrative (and prices) in financial markets but it doesn’t have the power to change underlying economic reality.  That is, if high-profile investors put their money where their mouths are, it will affect prices in financial markets, which will affect the perception of other investors, who may tag along with similar strategies.  But there is a short shelf life for that type of process because economic reality will eventually unfold, revealing whether the forecasts of high-profile investors are correct.  As unlikely as it seems now, it is quite possible that they won’t be correct, and that slow GDP growth and low inflation are here to stay awhile longer.  Or, given the length of the tepid economic expansion and high indebtedness, it is even possible that recession arrives prior to the visions of a systematic rise in GDP growth and inflation.  That is one of the implications of the Rinehart and Rogoff study.

Another explanation for rising rates is the emergence of credit risk in US Treasury bonds, the result of the simultaneous and unprecedented experiments of monetary policy (unwind of QE) and fiscal policy (a borrowing binge with a high debt-to-GDP ratio).  The concept of credit risk in US Treasury prices is outlawed in financial theory.  But other aspects of today’s financial landscape, such as negative interest rates or European junk bonds trading at lower yields than US Treasury bonds, also weren’t supposed to occur and cannot be explained by orthodox financial theories.  Theories can change how we observe facts, but they can’t change the facts.

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The Trump administration is coordinating with key Asian allies to crack down on ships suspected of violating sanctions imposed on North Korea, Reuters reports.

The joint effort between the U.S. Coast Guard and regional partners including Japan, South Korea, Australia and Singapore, would go further than ever before to physically block deliveries of banned weapons, components for its nuclear missile program and other prohibited cargo. Suspected violators could be targeted on the high seas or in the territorial waters of countries which cooperate with the coalition. Up to now, suspect ships have been intercepted on a far more limited basis. 

Depending on the scale of the campaign, the U.S. might even devote a portion of air and naval power from the Pacific Command – though the plan would stop short of a full naval blockade according to officials who spoke on condition of anonymity.

While suspect ships have been intercepted before, the emerging strategy would expand the scope of such operations but stop short of imposing a naval blockade on North Korea. Pyongyang has warned it would consider a blockade an act of war. –Reuters

North Korea is suspected of being just a few months away from having an ICBM capable of hitting the U.S. mainland, a program which has continued despite heavy sanctions which have been sidestepped by smuggling and ship-to-ship transfers of banned goods. 

“There is no doubt we all have to do more, short of direct military action, to show (North Korean leader) Kim Jong Un we mean business,” said a senior administration official.

Dozens of countries and vessels linked to North Korean shipping trade were slapped with fresh sanctions by Washington Friday, while the U.S. urged the United Nations to blacklist entities known or believed to be smuggling prohibited cargo in or out of North Korea. 

“Today’s actions will significantly hinder North Korea’s ability to conduct evasive maritime activities that facilitate illicit coal and fuel transports,” Treasury Secretary Steve Mnuchin told reporters on Friday. “And limit the regime’s ability to ship goods through international waters.”

“Those who trade with North Korea do so at their own peril,” added Mnuchin. “The United States will leverage our economic strength to enforce President Trump’s directive that any company that chooses to help fund North Korea’s nuclear and ballistic missile programs will not be allowed to do business with anyone in the United States.”

“While we appreciate the fact that there haven’t been [recent nuclear] tests, that’s not exactly a terrific standard of what we’re applying,” Mnuchin said. “Whether they’re Russian ships, whether they’re Chinese ships, we don’t care whose ships they are. If we have intelligence that people are doing things, we will put sanctions on them.”

That said, some are concerned that the tougher measures may stoke tensions amid a tense period of diplomacy between nations. 

Tighter sanctions plus a more assertive approach at sea could dial up tensions at a time when fragile diplomacy between North and South Korea has gained momentum. It would also stretch U.S. military resources needed elsewhere, possibly incur massive new costs and fuel misgivings among some countries in the region.

Stoking tensions

Concerns have been raised that more aggressive enforcement of sanctions would trigger a military retaliation by North Korea, and a rebuke by U.N. members opposed to the coalition. 

China and Russia, which have blocked U.S. efforts at the United Nations to win approval for use of force in North Korea interdiction operations, are likely to oppose new actions if they see the United States as overstepping. A Chinese official, speaking on condition of anonymity, said such steps should only be taken under United Nations auspices.

Meanwhile, U.S. legal experts are analyzing the best approach to legally initiate the program, citing the most recent U.N. Security Council resolution calling for states to inspect ships on the open seas or in territorial waters. Rules of engagement are also being mapped out to avoid armed confrontation at sea, said officials. Directly boarding ships for inspections has not been ruled out, according to Mnuchin.

QUESTION: Can you rule out the United States boarding and inspecting North Korean ships…

(CROSSTALK)

MNUCHIN: No, I — I cannot rule that out.

U.S. officials, however, have privately said that such actions – especially the use of boarding crews, would be considered with the utmost caution on a case-by-case basis. Others have suggested that the use of less militarily powerful Coast Guard cutters would reduce the chance of military conflict over the use of warships. 

[insert: rId12_image2.jpg ]

In December we reported that Russian tankers were reportedly caught selling oil to North Korea on at least three occasions via transferring cargoes at sea during October and November. 

“The vessels are smuggling Russian fuel from Russian Far Eastern ports to North Korea,” said the first security source, who spoke on condition of anonymity. –Reuters

China, meanwhile, was allegedly caught by U.S. spy satellites selling oil to North Korea in October.

[insert: china ships refueling north korea.jpg ]

A government source said, “We need to focus on the fact that the illicit trade started after a UN Security Council resolution in September drastically capped North Korea’s imports of refined petroleum products.”  Meanwhile, on paper, China’s trade with North Korea virtually collapsed after Donald Trump unleashed a barrage of sanctions in September targeting North Korea’s imports of refined petroleum products.

The US. Treasury Department sanctioned an additional six North Korean shipping and trading companies and 20 of their ships after the satellite pictures surfaced. In the above picture, the North Korean ship named Ryesonggang 1, was easily identified and connected to the illegal sale of oil from China.

Interdiction in Chinese waters is something likely to be avoided, however – as the U.S. will likely inform Chinese authorities of banned cargo transfers and ask them to perform inspections, one official said. 

David Shear, former deputy secretary of defense for Asia for the Obama administration said “It’s probably impossible to stop everything, but you can raise the cost to North Korea.”

via Zero Hedge http://ift.tt/2sRUjvH Tyler Durden

In its latest annual letter, released at 8am on Saturday, Warren Buffett’s Berkshire Hathaway said Q4 profit hit an all time high, rising more than five time, as net income soared to a record $32.44 billion, or $19.790 a share, from $6.29 billion, or $3.823 the prior year, while operating EPS fell 24% to $3,338, hurt by losses in the company’s insurance operations, however it was enough to beat the $2,617 consensus estimate.

For the full year, Berkshire earned $44.940 billion, up 87% last year’s $24.1 billion, despite “only” an 8% increase in total revenue to $242.1 billion. Where did the delta come from? Largely from Trump’s tax reform, which needless to say Berkshire was not a big fan of.

As Berkshire admits in its annual report, while the gain in net worth during 2017 was $65.3 billion – which increased the per-share book value of both our Class A and Class B stock by 23% –  $29.11 billion of its net income to the reduction of the U.S. corporate tax rate, to 21 percent from 35 percent.

As Buffett admits in starting the letter, “the format of that opening paragraph has been standard for 30 years. But 2017 was far from standard: A large portion of our gain did not come from anything we accomplished at Berkshire.”

The $65 billion gain is nonetheless real – rest assured of that. But only $36 billion came from Berkshire’s operations. The remaining $29 billion was delivered to us in December when Congress rewrote the U.S. Tax Code attributed roughly $29.11 billion of its net income to the reduction of the U.S. corporate tax rate, to 21 percent from 35 percent, that President Donald Trump signed into law in December.”

Next, on the increasingly sensitive topic of Berkshire’s mounting cash pile – which as discussed yesterday is invested mostly in Treasury bills – it grew to $116 billion at year-end, up from $109 billion in the third quarter.

* * *

First a few thoughts on what was not discussed in the letter: the most notable omission appears to be the lack of succession discussion – which is particularly notable given yesterday’s news that Buffett would retire from the board of Kraft Heinz.

Last month, Buffett elevated Ajit Jain and Greg Abel – the two most likely candidates to succeed Buffett and Charlie Munger atop the Berkshire Hathaway hierarchy – to vice chairmen, which the financial press widely interpreted as a signal that Buffett was toying with retirement.

Other things missing: any discussion on Wells Fargo, the recently announced Bezos-Buffett-Dimon employee health plan, Buffett’s traditional American bullishness… oh, and bitcoin.

* * *

Before moving on to discuss his company’s performance in greater detail, Buffett advised readers about a change in GAAP that could lead to significant distortions in Berkshire’s numbers:

After stating those fiscal facts, I would prefer to turn immediately to discussing Berkshire’s operations. But, in still another interruption, I must first tell you about a new accounting rule – a generally accepted accounting principle (GAAP) – that in future quarterly and annual reports will severely distort Berkshire’s net income figures and very often mislead commentators and investors.

The new rule says that the net change in unrealized investment gains and losses in stocks we hold must be included in all net income figures we report to you. That requirement will produce some truly wild and capricious swings in our GAAP bottom-line. Berkshire owns $170 billion of marketable stocks (not including our shares of Kraft Heinz), and the value of these holdings can easily swing by $10 billion or more within a quarterly reporting period.

Including gyrations of that magnitude in reported net income will swamp the truly important numbers that describe our operating performance. For analytical purposes, Berkshire’s “bottom-line” will be useless. The new rule compounds the communication problems we have long had in dealing with the realized gains (or losses) that accounting rules compel us to include in our net income. In past quarterly and annual press releases, we have regularly warned you not to pay attention to these realized gains, because they – just like our unrealized gains – fluctuate randomly.

That’s largely because we sell securities when that seems the intelligent thing to do, not because we are trying to influence earnings in any way. As a result, we sometimes have reported substantial realized gains for a period when our portfolio, overall, performed poorly (or the converse).

As Buffett points out, coverage of corporate earnings releases is often instantaneous, with media reports focusing on the year-over-year change in GAAP net income. Buffett said he would try to alleviate this problem by methodically explaining how the company’s per-share earning power – the key metric that he and Munger use to evaluate the company’s performance – changed during the quarter, and also by continuing their longtime practice of releasing earnings reports late Friday or early Saturday, when markets are closed – allowing investors more time to digest the material.

Acquisitions:

Addressing a topic near and dear to the company’s shareholders, Buffett lamented the lack of well-priced acquisition opportunities and reiterated his advice that individuals should avoid debt and invest passively. He also said that Berkshire needs to make “one or more huge acquisitions” to increase Berkshire Hathaway earnings, but admitted that finding a deal at “a sensible purchase price” has become a challenge.

“Prices for decent, but far from spectacular, businesses hit an all-time high” in 2017, preventing Berkshire from spending more cash on acquisitions, Buffett said, fondling his $116BN. “Our smiles will broaden when we have redeployed Berkshire’s excess funds into more productive assets.”

Buffett said that a debt-fueled “purchasing frenzy” binge by deal-hungry chief executives is making that task very difficult. “Price seemed almost irrelevant to an army of optimistic purchasers,” Buffett said. “The ample availability of extraordinarily cheap debt in 2017 further fueled purchase activity.”

In terms of M&A activity, Berkshire was notably inactive during 2017, largely thanks to one recurring factor: Buffett’s inability to find sensibly-valued companies:

While the rest of the world embarked on an M&A frenzy fueled by cheap debt and the incessant cheerleading of investment bankers, Buffett says he and Munger sleep well at night because of their aversion to taking on debt.

As Buffett says, it’s foolish to risk what you have – and something you need – for something you don’t.

In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business; opportunities for internal growth at attractive returns; and, finally, a sensible purchase price.

That last requirement proved a barrier to virtually all deals we reviewed in 2017, as prices for decent, but far from spectacular, businesses hit an all-time high. Indeed, price seemed almost irrelevant to an army of optimistic purchasers.

Why the purchasing frenzy? In part, it’s because the CEO job self-selects for “can-do” types. If Wall Street analysts or board members urge that brand of CEO to consider possible acquisitions, it’s a bit like telling your ripening teenager to be sure to have a normal sex life.

Once a CEO hungers for a deal, he or she will never lack for forecasts that justify the purchase. Subordinates will be cheering, envisioning enlarged domains and the compensation levels that typically increase with corporate size. Investment bankers, smelling huge fees, will be applauding as well. (Don’t ask the barber whether you need a haircut.) If the historical performance of the target falls short of validating its acquisition, large “synergies” will be forecast. Spreadsheets never disappoint. The ample availability of extraordinarily cheap debt in 2017 further fueled purchase activity.

After all, even a high-priced deal will usually boost per-share earnings if it is debt-financed. At Berkshire, in contrast, we evaluate acquisitions on an all-equity basis, knowing that our taste for overall debt is very low and that to assign a large portion of our debt to any individual business would generally be fallacious (leaving aside certain exceptions, such as debt dedicated to Clayton’s lending portfolio or to the fixed-asset commitments at our regulated utilities). We also never factor in, nor do we often find, synergies.

Our aversion to leverage has dampened our returns over the years. But Charlie and I sleep well. Both of us believe it is insane to risk what you have and need in order to obtain what you don’t need. We held this view 50 years ago when we each ran an investment partnership, funded by a few friends and relatives who trusted us. We also hold it today after a million or so “partners” have joined us at Berkshire.

Berkshire’s one notable deal was the purchase of a 38.6% partnership interest in truck stop operator Pilot Flying J, which Buffett describes as “far and away the nation’s leading travel-center operator.” Berkshire, Buffett explains, is obligated to increase its partnership interest to 80% in 2023.

* * *

Check back for updates…

Read the report in its entirety below (pdf link):

via Zero Hedge http://ift.tt/2GHO9QZ Tyler Durden

Authored by James George Jatras via The Strategic Culture Foundation,

Republicans love to caricature Democrats as big spenders whose only approach to any problem is to throw money at it. As with most caricatures, it is made easy by the fact that it is mostly true. At least when it comes to domestic entitlement programs, nobody can top the party of FDR and JFK when it comes to doling out goodies to favored constituencies paid for by picking someone else’s pocket.

However, Republicans are hardly the zealous guardians of the public purse they would have us believe. While quick to trash their partisan opponents for making free with taxpayers’ money, they are no less happy to do the same – at least when it’s called “national defense.”

Over the next five years, the Trump administration will spend $3.6 trillion on the military. The GOP-controlled Congress’s approved, with Republicans voting overwhelmingly in the affirmative, the “Bipartisan Budget Act of 2018” (HR 1892) and the “National Defense Authorization Act for Fiscal Year 2018” (HR 2810). With respect to the former, the watchdog National Taxpayers Union urged a No vote:

‘An initial estimate of approximately $300 billion in new spending above the law’s caps barely scratches the surface in terms of total spending. The two-year deal also includes $155 billion in defense and non-defense Overseas Contingency Operations (OCO) spending, $5 billion in emergency spending for defense, and more than $80 billion in disaster funding. $100 billion in proposed offsets are comprised of the same budget gimmicks taxpayers have seen used as pay-fors over and over and are unlikely to generate much of a down-payment on this new spending.’  

Senator Rand Paul (R-Kentucky) poses the question that few in Washington – and certainly few Republicans – are willing to ask: “Is our military budget too small, or is our mission too large?” He notes:

‘Since 2001, the U.S. military budget has more than doubled in nominal terms and grown over 37% accounting for inflation. The U.S. spends more than the next eight countries combined.

It’s really hard to argue that our military is underfunded, so perhaps our mission has grown too large. That mission includes being currently involved in combat operations in Iraq, Syria, Afghanistan, Somalia, Niger, Libya, and Yemen. We have troops in over 50 of 54 African countries. The wars in Iraq and Afghanistan have cost over a trillion dollars and lasted for over 15 years.’

Defense spending is about survival, right? If you need to spend it, you spend it. But realistically, how does one assess whether spending is too much or too little without looking at the strategy the military is tasked with carrying out, and whether it makes any sense?

Proponents of increased – always increased – spending, like Defense Secretary James Mattis, point to real problems with increased accident rates due to poor training or equipment maintenance or the fact that most army brigades and navy planes are not ready for combat. But is that a symptom of too little money or of a force stretched beyond its limits by conducting operations anywhere and everywhere with little regard for actual U.S. interests?

That doesn’t matter politically, though. The message is, if you don’t support giving more money, you are guilty of neglecting the nation’s security and of killing service personnel. No wonder only a brave handful of Republican legislators consistently are willing to say No, like Senator Paul and a few House members: Justin Amash (Michigan), John Duncan (Tennessee), Walter Jones (North Carolina), Raul Labrador (Idaho), and Thomas Massie (Kentucky).

Here’s a crazy idea. What if instead of taking for granted a national security policy that seeks to maintain U.S. supremacy over every square inch of the globe we figure out what our real defense needs are – protecting our own country, not mucking about in the rest of the world – and then structure and fund the forces we need? What would that look like?

To start with, we know what it doesn’t look like: the policies followed by Presidents and Congresses of both parties for the past three decades since the Berlin Wall came down.  While the Trump administration’s new National Security Strategy (NSS) takes a commendable but befuddled nod toward genuine American interests – Pillar I (defense of American borders and tightening immigration controls to keep dangerous people out) and Pillar II (ending unfair trade practices and restoring America’s industrial base) – the real meat and potatoes is in Pillar III (“Preserve Peace Through Strength”), which could have been drafted by any gaggle of George W. Bush retreads – and no doubt was – or for that matter by Obama holdovers.

The NSS’s Pillar III is little more than a rehash of the usual litany of “threats” from China, Russia, North Korea, Iran, etc. It’s symptomatic that these are clustered under “Strategy in a Regional Context” as Indo-Pacific (a perfectly ridiculous concept that could best be summed up as “China – bad!”), Europe (“Russia – bad!”), Middle East (“Iran – bad!”), and South and Central Asia.  Next comes the region that should be our first concern, but isn’t: the Western Hemisphere (“Cuba and Venezuela – bad!”).  Last comes Africa (well, at least we can agree on something), but we still need a dedicated Africa Command (which for some reason is located not in Africa but in Stuttgart, Germany).

Still, just suppose that by some wild unpredictable accident we ended up with a strategy that in some way resembled the “America First!” prioritization Donald Trump promised us? Here’s a possible broad sketch:

1. Western Hemisphere comes first, not last. As they say in New England, “Good fences make good neighbors.” Presumably good walls make even better neighbors. Whatever happened to controlling our own border with Mexico, which was the cornerstone of President Donald Trump’s campaign? That remains hostage to political horse-trading and a budgetary game of chicken in the Washington Swamp. As far as the political class is concerned, the Wall can wait until mañana.

At the same time, the U.S. is all too happy to meddle in our neighbors’ internal affairs under the justification of “democracy promotion.” Recently Secretary of State Rex Tillerson claimed such meddling was an expression of the Monroe Doctrine, which he said “clearly has been a success, because… what binds us together in this hemisphere are shared democratic values.” Really? That would have been big news to President James Monroe, who promulgated the Doctrine back in 1823 when no other country in the Americas could be described as a democracy and when even most of the U.S. Founding Fathers would have disputed that label for the Republic they sought to create. Monroe’s declaration had nothing to do with democracy. Rather, its core was a warning to other powers not to establish colonies in our hemisphere, an exclusion which we have considered essential to our security for almost two centuries. Even as a relative infant on the international scene, long before our young nation had emerged as a power on a par with those of Europe, the United States considered it reasonable to ask other powers not to step on our toes in our own neighborhood.

2. Respecting the “Monroe Doctrines” of other powers: The regional deference the United States has demanded in our own area for nearly 200 years is precisely the one we today refuse to accord to other respectable powers, namely China and Russia, by conceding the primacy of their security interests in, respectively, the former Soviet space and in the western Pacific. Instead – as under Bill Clinton, Barack Obama, George W. Bush – the Trump administration still rejects the principle of “spheres of influence,” which in practice means not only asserting mastery in the Western Hemisphere but over every square inch of the globe. Today not a single sparrow falls to the ground anywhere but that a divinely omniscient and omnipotent Washington must have the last word about it – generously lubricated with rhetoric about democracy, human rights, rule of law, and other invocations of “universal principles.”

Despite suggestions from the foreign policy establishment, neither China nor anyone else is threatening the sea lanes in the South China Sea. Even America’s closest regional partners do not want to be pushed into a military confrontation with China to suit the agenda of “indispensables” in Washington. American concerns about North Korea can only be solved with Beijing’s security respected – and without the presence on the peninsula of almost 30,000 American “tripwire” troops and tens of thousands more in Japan.

In Europe, NATO forces should stand back from Russia’s borders and territorial waters.  NATO expansion should be ended – even after the Trump administrations ill-advised decision to induct tiny and corrupt Montenegro – while a new security architecture in Europe takes shape. The Alliance’s 2008 pledge to bring in Georgia and Ukraine should be withdrawn. Better yet, get us out of NATO entirely! We and our European friends should be finding a way to cooperate with Russia on pulling Ukraine out of its political and economic crisis as a united, neutral state, not pumping in lethal weapons so touch off renewed large-scale fighting.

An American accord with Russia and China is the stable tripod of any rational global peace, and no one else really matters at the moment. Russia boasts the world’s greatest landmass and natural resources unrivalled by any other country. She also has the only nuclear arsenal comparable to America’s. China is the most populous country in the world, with an economy achieving a par with ours and a burgeoning military sector. If American policy had been designed to alienate both of these giants and drive them to cooperate against us – and maybe it was designed to do that – it could not have been more successful.

3. Get the hell out of the Middle East and Central Asia. The NSS risibly refers to the undesirability of America’s earlier “disengagement” from the region, evidently a reference to the Obama administration’s not being quite as bellicose as its authors might prefer (for example, only supporting terrorists in Syria, not invading the place outright), Of dubious value even in its time, President Jimmy Carter’s 1980 declaration that the Persian Gulf region lies within thevital interests of the United States is only a dangerous absurdity now.  The entire region designated under the goofy moniker “Greater Middle East” is a welter of ethnic and religious antagonisms and unstable states that for America have only two things in common: (1) they ain’t us, and (2) they ain’t nowhere near us. It’s not America’s job to sort the place out, via such fool’s errands as nation-wrecking in Libya and Syria, nation-building in Afghanistan and Iraq (after wrecking them), and “mediating” to “solve the problem” of the Israelis and the Palestinians.

The sole interest the U.S. and the American people have in the region is to ensure that jihad terrorism doesn’t achieve a sufficient foothold as to present a threat to us here. However, our regional efforts have instead served to increase and import that threat, not diminish it. American policy toward the region should rest on two pillars: (1) limiting our contact with it, above all drastically cutting down immigration from the area and, hence, the prospect of importing more terrorists; and (2) instead of favoring terrorism-supporting regimes like Saudi Arabia and Pakistan, defer to countries with more direct interests in the region but who also have a fundamentally anti-jihad outlook, principally Russia, China, and India. Let them babysit Afghanistan.

Other than that – include us out.

Granted, this is only an outline, but it’s a start.

Back to the matter of Republicans’ penchant for overspending on the military, the force needed for this concept of “America First!” – one that focuses first of all on defending our territory and people – could only be a fraction of what we spend now.

Wouldn’t it be great to finally get that “Peace Dividend” we were promised until George H.W. Bush decided he’d rather build a New World Order starting in Kuwait?

via Zero Hedge http://ift.tt/2Fs6x0T Tyler Durden

We now have supporting evidence that Baltimore is the “nation’s most dangerous city,” according to a new report issued by USA Today’s crime desk. The implosion of Baltimore’s inner city comes as little surprise to us, considering our recent reporting of out of control murders and violent crime plunging the town into turmoil after the Ferguson effect (2015).

“Baltimore is the big city with the highest per capita murder rate in the nation, with nearly 56 murders per 100,000 people. At 343 murders in 2017, the city tallied the highest per capita rate in its history,” USA Today wrote on Sunday.

The newspaper analyzed 2017 law enforcement crime data from the 50 largest cities across the nation and discovered that Baltimore had a higher per capita murder rate than Detroit, Memphis, Chicago, Philadelphia, and New Orleans.

Back in December, we detailed how Baltimore’s murder rate is more than 4x the average of large cities, and to make matters worse— tied with Venezuela.

Surprisingly, the newspaper’s crime desk says the overall homicide rate for the 50 largest cities started to decline in 2017.

However, the drop was not by much roughly 1 percent, which was produced by a rapid decline in murders for cities like Chicago (14.7 percent), New York City (13.4%) and Houston (11%).

Meanwhile, in Baltimore, the region added 25 homicides in 2017 (343) up from the prior year (318).

On the chart below, Baltimore logged the nation’s second highest homicides for large cities in 2017, only behind Chicago with 650 homicides in 2017, down from 762 the prior year, a town with a population of 2.7 million, verse Baltimore’s population of 620,000. For Baltimore’s small size, the city had more homicides in 2017, than New York, Los Angeles, and Philadephia, where populations are astronomically higher.

“Where they rank us is very alarming,” Commissioner Designate Darryl De Sousa told WBAL Radio.

He added: “But I know Baltimore in another way…I know the moms and dads that struggle each and every day that try and make the city better.”

De Sousa said the new violence reduction initiative that he and Mayor Catherine Pugh have implemented across the city is working; he further stated homicides are down 37 percent and nonfatal shooting are down 46 percent as compared to this time last year.

There have been 32 homicides as of February 21, 2018, according to The Baltimore Sun; at this time last year, police reported around 47 murders.

Crime is “trending downward in every single category” in 2018, Pugh said at a Tuesday press conference.

The mayor described Baltimore’s violence prevention initiative as “very data-driven.”

Said Pugh: “Are we satisfied yet? No. Are we trending in the right direction? Yes.”

Baltimore’s law enforcement officers have already arrested some 200 violent repeat offenders in recent weeks on outstanding warrants, De Sousa said on WBAL Radio. The city’s violence prevention strategy is about “putting resources in the right places at the right times,” he said.

“We know our problematic areas,” said De Sousa, who proposed diverting more energy and time to districts that are considered troubled areas, such as Sandtown-Winchester, a neighborhood in West Baltimore, Maryland where Freddie Gray was arrested and ultimately died– triggering the 2015 Baltimore riots.

Dr. Nicole Gonzalez Van Cleve, a criminology expert and professor at Temple University in Philadelphia, tells the Baltimore Patch that citizens should ignore USA Today’s rankings of the city.

“We kind of throw around these rankings and it makes it sound like everyone is equally vulnerable to violence, when really, in most cities, especially a city like Chicago for instance, violence is mostly concentrated in areas that are most socially neglected. Areas with the highest rates of poverty. Failing schools,” Van Cleve said.

“Major American cities with high levels of segregation, poverty and inequality will often see high rates of violence, she says. But crime statistics and rankings don’t paint an accurate picture of where that violence actually happens. Violence is concentrated within communities, and individual blocks within neighborhoods see vastly different levels of violence than others,” she added.

“Literally, one side of the street will have less crime in the same neighborhood than the other side of the street,” she says.

USA Today cited some crime experts and law enforcement officials believe the fracturing of community and law enforcement relationships could have had some impact on elevated homicides in areas like Baltimore and Chicago.

While it is only day 53 into 2018, Mayor Catherine Pugh has already indicated success in her new crime-fighting strategies. Homicides in Baltimore tend to be a seasonal thing, which, perhaps, the recent split of the polar vortex could signal homicides will increase from here due to warmer weather. As for now, Pugh and her PR firm are merely spreading propaganda…

Something tells us that the implosion of Baltimore is far from over, as the opioid crisis is fueling the next wave of turmoil. The Baltimore Sun identifies the next wave of chaos to be originating from an explosion of commercial robberies. This will further complicate the situation for the police department, who is already stretched thin with out of control murders. In the last five years, commercial robberies have risen 88 percent, from 560 in 2013 to more than 1,000 last year. 

The explosion of commercial robberies started on April 18, 2015, just six days after Baltimore Police officers arrested Freddie Gray, a 25-year-old African American resident of Baltimore, Maryland. Gray sustained injuries to his spine while being transported in a police vehicle, where he later passed away. In return, residents spurred city-wide riots that targeted commercial stores. The National Guard was called in and shut down the town for a week in a variant form of Martial law.

Business owners in the inner city are panicking about the threats outside their stores: drug dealing, intimidation, stabbings, and shootings, said the Baltimore Sun. Businesses have adapted to the warzone like environment by hiring guards, installing bullet-resistant glass, door buzzer systems, and basically turning their shop into a mini-fortress. Some businesses are just shutting down, as the warzone like climate is not producing a sustainable atmosphere for a healthy economy.

“Our members are very concerned,” said Cailey Locklair Tolle, president of the Maryland Retailers Association. “Unfortunately, a lot of our members don’t relocate. It’s a massive endeavor. A lot of times they just go out of business.”

Baltimore is a mess. America is a shithole. Do we have your attention now? 

via Zero Hedge http://ift.tt/2Ch9Glo Tyler Durden

Authored by Eric Zuesse via The Strategic Culture Foundation,

On Sunday, February 17th, I was surprised to see in the reliably neoconservative newspaper, New York Times, an ‘opinion’-article headlined with the distinctively non-neoconservative title, “Russia Isn’t the Only One Meddling in Elections. We Do It, Too.”

But, then, I got to the neocon core, in the article itself: 

But in recent decades, both Mr. Hall and Mr. Johnson argued, Russian and American interferences in elections have not been morally equivalent. American interventions have generally been aimed at helping non-authoritarian candidates challenge dictators or otherwise promoting democracy. Russia has more often intervened to disrupt democracy or promote authoritarian rule, they said.

Equating the two, Mr. Hall says, “is like saying cops and bad guys are the same because they both have guns — the motivation matters.”

That’s just a typical neocon lie — reality turned upside-down, black-is-white and white-is-black.

When the CIA hired Iranian mercenaries to rebel against and overthrow the progressive democratically elected Iranian Prime Minister Mohammed Mosaddegh in 1953 and installed there a dictatorship (which lasted till 1979); and did the same to overthrow and replace the progressive democratically elected Guatemalan President Jacobo Arbenz in 1954; and, more recently, in 2009, helped Honduras’s aristocracy to overthrow that country’s progressive democratically elected President Manuel Zelaya, and to cement and make permanent their new and fascist regime; and, in 2014, perpetrated a brutal coup in Ukraine overthrowing that country’s democratically elected but corrupt (like all prior post-communist Ukrainian Presidents were) President Viktor Yanukovych — even the Soviets (including the pre-1991 and pre-independent Russians) weren’t that bad; and a 1992 classic BBC documentary about the CIA’s having set up in Western Europe during the Cold War numerous deadly terrorist incidents which were designed so as to be blamed on ‘communists’, makes clear, that the US CIA is a spiritual implant into the US Government, of Adolf Hitler’s Nazi (but now American) Gehlen Organization — a darling of the CIA Director Alan Dulles, and which is still today the CIA’s spirit.

But, even that hypocrisy misses the essentially fascist nature of America’s secret-police agencies, because America’s Presidents are now reliably pro-fascist, and on many occasions are even pro-racist-fascist, or pro-“nazi” (standing out to defend the nazi ideology itself). At the U.N., both President Obama and President Trump have stood America up publicly as being one of only three countries (in Obama’s case) and then of only two countries (in Trump’s case) publicly defending nazism. Furthermore, on one day (31 October 2015), twice in close succession, the U.N. Secretary-General publicly criticized Obama, though not by name, for opposing and insisting on blocking, democracy in Syria. Whereas Russia insists upon a democratic and united — instead of ethnically broken-up — Syria, and polls amongst Syrians consistently show that the vast majority of Syrians insist upon the same thing, the US Government not only does everything possible to block it, but has the gall to deny the blatant fact that it’s seeking to replace Syria’s secular non-sectarian Government, by a fundamentalist-Sunni Government that will do the Sauds’ bidding (and the bidding of America’s oil-giants).

However, that February 17th New York Times article is deceptive not merely on account of its holier-than-thou admission of the CIA’s supposedly ‘past history’ of badness and its presumption of today’s Russia being almost as bad as was the Soviet Union.

Actually, the article includes several other lies, such as are exposed in these three articles about how American billionaires systematically robbed Russia during the 1990s:

“Russia’s Fiscal Whistleblower”

“The Summers Conundrum”

“Soros and His CIA Friends Targeted USSR/Russia in 1987”

Those articles offered at least some of the explanation as to why America’s billionaires (at least the ones who care about this matter at all) hate Vladimir Putin: they had loved Boris Yeltsin because he allowed them to rape Russia, but Putin put a stop to it.

So, while millions of Americans, who subscribe to the New York Times, will learn the lie, that (and here is the regime’s basic message) internationally ‘we’re the good guys against the bad guys’, there’s no more reason to trust that, than there was when the same lies came from Joseph Goebbels’s shop, at which time, the US itself was a progressive country, heading in progressive directions, under President FDR.

Bill Clinton and the post-Clinton Democratic Party have repudiated that direction for their Party; and, now, in international relations, the US is solidly fascist, in both Parties. The CIA lies, as usual, indistinguishably differently when it’s run by a Democratic President and Congress, than when it’s run by a Republican President and Congress. 

In international relations, it’s the same regime, regardless: full of the same lies. And that historical fact, and ongoing but unpublished news, is not to be found to be accepted in the Times’s masthead-lie, “All the News That’s Fit to Print” — or else the truth itself, just isn’t “Fit to Print.” It’s fit to print here (and without paying a subscription), but how many people even read here? This explains how the regime protects itself, against democracy — by hiding what’s essential.

via Zero Hedge http://ift.tt/2HGEf3p Tyler Durden

As the People’s Bank of China’s longtime leader Zhou Xiaochuan prepares for retirement in March, speculation about who Chinese leader Xi Jinping might choose to succeed him is mounting – and according to Reuters, a formerly dark horse candidate is now being viewed with increasing certainty as Xi’s likely pick. 

His name is Liu He, and he’s both a senior government bureaucrat and longtime friend of Xi. Insiders say Liu has leapfrogged two other candidates as part of the wide-ranging government reshuffle that has accompanied Xi’s elevation to supreme leader during November’s Congress.

If he is, in fact, chosen to succeed Zhou, Liu could become one of the  most powerful central-bank governors in modern Chinese history.

Liu may be in a position to become one of China’s most powerful economic and financial officials ever, as he is already top adviser to Xi on economic policy and is also expected to become vice premier overseeing the economy.

Liu would replace current PBOC chief, 70-year-old Zhou Xiaochuan, who is China’s longest-running head of the central bank, having taken the job in 2002. Zhou is expected to retire around the time of the annual session of parliament in March, sources previously told Reuters.

The change would be part of a wider government reshuffle following the 19th Communist Party Congress in October last year, during which Xi laid out his vision for China’s long-term development, and elevated his key allies.

Speculation has been rife for months over the choice of the next central bank governor. Xi will have the final say, and the sources noted that while Liu is clearly the frontrunner he is not yet certain to get the job.

…

Just before last October’s Congress, sources told Reuters that China’s banking regulator head Guo Shuqing and veteran banker Jiang Chaoliang were leading contenders for the PBOC job.

Not only would Liu – who was educated at Harvard and speaks fluent English – be responsible for running the central bank, Reuters  says he is also set to become one of China’s four vice premiers who would oversee the economy and financial sector.

Reuters sources previously said that Liu was in line to become one of China’s four vice premiers, and that he would oversee the economy and financial sector. Whether he might hold both positions concurrently is unclear. As Reuters points out, only Zhu Rongji in the early-1990s held both the posts of vice premier and central bank governor simultaneously. Zhu later went on to become China’s premier from 1998-2003.

As Reuters points out, the PBOC is different from Western central banks in that it doesn’t have control over monetary policy – decisions on interest rates and the yuan are still governed by policies determined by the Party leadership. In a strategy that has repeatedly been employed by Chinese officials, Liu dangled the prospect of an open, internationalized economy in front of his audience at Davos last month, saying the country might soon roll out market-opening measures that would exceed “international expectations.”

But the next leader of the central bank will face tough challenges as he will have to walk a tightrope between ensuring economic stability and pushing reforms to rein in debt risks.

But perhaps most importantly of all, Liu has one key advantage over his rivals that, in addition to his friendship with and support of Xi Jinping, would probably aid his oversight of one of the world’s largest economies: He currently heads a government office in charge of preserving financial stability, and as a result almost undoubtedly had a hand in last night’s shocking news that Chinese regulators had decided to take control of Anbang Insurance – one of the country’s “big four” hyperleveraged conglomerates. That move was first announced by the China Insurance Regulatory Commission.

He was also widely seen by political analysts as being behind the voice of an unnamed “authoritative person” who wrote in the People’s Daily, the party’s mouthpiece, in May 2016 warning about risks from the country’s debt-driven growth model.

Liu, like Zhou, stands out among Chinese bureaucrats because of his grey hair. Many top officials dye their hair jet-black.

Liu, who currently heads the General Office of the ruling Communist Party’s Central Leading Group for Financial and Economic Affairs, is also set to become the head of the cabinet-level Financial Stability and Development Committee (FSDC), sources previously told Reuters.

He has been closely following Xi on regional tours and meetings with foreign leaders. When then-U.S. National Security Adviser Tom Donilon visited Beijing in 2013, Xi introduced Liu as “very important to me”, according to the Wall Street Journal.

The PBOC also recently shut down VIX trading, purportedly to halt market turbulence. Liu and Xi share a uniquely Chinese family history: that is, both their families were purged during the 1966-76 Cultural Revolution, and both their fathers were senior government officials.

“Without the reflection on the catastrophe of the Cultural Revolution, it is impossible for China to have today’s economic growth,” Liu said in an article published in 2017.

Amazingly, sources tell Reuters that Liu and Xi have been friendly since their teens, and have always kept in touch.

via Zero Hedge http://ift.tt/2GHSX93 Tyler Durden

Authored by John Vibes via The Mind Unleashed blog,

Raising rent prices and low wages have resulted in thousands of people across the city of Los Angeles becoming homeless, many of them now living in cars and RVs if they were able to keep it together that well.

According to the most recent counts by the KPCC, there are at least 7,000 people live in their cars in Los Angeles.

Many of these people still maintain jobs and try to live the most fulfilled lives that they can, but they are constantly facing problems from authorities.

It is such a common issue that many churches have opened up their parking lots to people living out of their cars. For example, the New Beginnings Counseling Center opened up their parking lot for a “Safe Parking program,” which was intended to provide a safe and welcome parking place for people living out of their cars. Unfortunately, under new legislation passed in Los Angeles, programs like this will be illegal, because sleeping in cars and RVs have been entirely outlawed.

Under the new laws, it is illegal to sleep in a car or RV that is parked in a residentially zoned area from 9 p.m. to 6 a.m. Areas within one block of a park, daycare, or school are entirely off limits. Fines will range anywhere from $25 to $75 which is impossible to pay for most people in these situations.

In 2014, LA lawmakers attempted to pass a similar bill but it was shot down in a federal appeals court. The judge in the case ruled that the legislation was “broad enough to cover any driver in Los Angeles who eats food or transports personal belongings in his or her vehicle. Yet it appears to be applied only to the homeless.”

The policy is up for debate and reconsideration in July, where homeless advocates are expected to strongly protest for an appeal.

Policies like this can have disastrous consequences, in Canada where laws like this have been implemented for some time, one man racked up over $110,000 worth of fines for essentially being homeless.

Last year, The Mind Unleashed reported that the city of Seattle was planning to set up razor-wire fencing to keep homeless populations from camping. Then, earlier this year we reported that San Francisco was using Robots scare homeless people away from encampments and report them to police.

Not soon after that, the city of San Francisco spent $8,700 installing large boulders under overpasses to prevent homeless people from setting up camps. There were numerous homeless encampments in the area until they were recently forced out of the area, and now the City’s government is doing everything they can to keep the camps out of the area.

via Zero Hedge http://ift.tt/2GFCuCn Tyler Durden