Category: zerohedge

Authored by Gregory Clark via The Strategic Culture Foundation,

The U.S. spy community – those nice people who told us they were certain the Iraq of President Saddam Hussein was holding weapons of mass destruction – have now made it known they are certain the Russian ambassador to the United States is Moscow’s top spy. But these people, even if they do not know much about WMD, must know what a top spy does. They do it themselves.

First, there is the messy and time-consuming job of finding information-loaded officials. Then there is the problem of maintaining contacts with those officials at secret rendezvous. So a senior ambassador, and former deputy Russian foreign minister, is able to do all this while going to cocktail parties, hobnobbing with the national elite, running a large embassy and studying the politics of the nation to which he is accredited?

I suggest U.S. top spies go back to doing their real work instead of inventing fairy tales.

I have seen the spies at work, on both sides of the Iron Curtain.

On the Soviet side they were not a very attractive breed. Their idea of a hard day’s work was constant snooping on the few Russian-speaking foreigners in their midst and relentless interrogation of any Soviet citizen who spoke to a foreigner, together with the occasional attempt at blackmail or compromise.

In the process they created a generation of Western policymakers deeply prejudiced against their people and their nation. Not a bad result for their decades of hard work, especially since the Western hostility they helped generate guaranteed their continued employment till well into the future.

Almost all their successes were “walk-ins”— people who for money or ideology wanted to provide information. Those volunteers would probably have provided more if they were not disgusted by the crudity of the people they had to deal with.

Spies sent to work abroad were usually of better quality. But they always had cover, as private citizens or mid-rank embassy officials at best.

Much the same in reverse was going in the West. To some extent it is still going on. In Japan the spies are almost out of control. Even though Russia has granted Japanese diplomats there the freedoms now enjoyed by Western diplomats in Russia, the Japanese spies continue to behave as in Soviet days. Like dogs chasing a bone (according to one victim), they are so crudely persistent and obtrusive that even ordinary diplomatic work becomes impossible. And these “dogs”think this will help them get their Northern Territories back?

I once played host to a prominent Western critic of U.S. Vietnam War policies. Thuggish Japanese spies camped outside my apartment for days.

These people are not the suave, romantic James Bonds of film fantasy. For the most part they are what we used to call “second elevens”— a cricket analogy for people rejected for the top team. Failing to enter the diplomatic service they make do by joining a spy network. One result is a burning desire to get ahead by undercutting the “first eleven”diplomats and by using largely bogus information to get close to the people in power. Hence the WMD information failure and the Iraq disaster, opposed by most Western diplomats with Middle East experience.

When U.S. President Donald Trump visited the CIA headquarters in Washington he was upbraided for failing to respect a “sacred” memorial wall devoted to the 90-odd CIA officers who have died while on duty. Maybe he was looking for the wall devoted to the 900,000 or so Iraqis who died as a result of CIA failures. Even Trump had the sense to turn against that dreadful war.

I once worked for two years as a diplomat in the Soviet Union. On return to Australia I went through the usual spy-agency debriefing, partly because I had reported some KGB stunts against our embassy there. Suddenly the debriefer jumped to his feet waving a report which I had written saying that the Odessa hotel where I was staying was close to the local KGB headquarters. Leaning ominously over the table he demanded to know how I knew the KGB location. I had to educate this stalwart and grossly overpaid defender of Australian security that in Soviet Union the KGB was a public organization with a large brass plate on its buildings reading Komitet Gosudarstvennoy Bezopasnosti, or Committee for Government Security.

Later, because I also spoke Chinese and had also opposed the Vietnam War, I was subjected to one of their stunts (our usual term for spy operations) to persuade me that a Soviet Embassy official wanted to meet me urgently. They made a bad mistake; the telephone operative they had employed spoke pre-revolutionary Russian (Australia has many White Russians, mostly people fleeing to China following the Russian Revolution). There was no way he could have been working for the Soviet Embassy. It seems that little detail passed completely over the heads of our Australian security interest defenders — the people who decide whether we can be trusted with secrets. Nor were they very happy when I was able publicly to expose the stunt.

The current anti-Russian hysteria in the U.S. media is fueled by similar ignorance. Various Trump officials and appointees are being persecuted relentlessly by leaks accusing them of talking to the Russian ambassador. But anyone who knows anything about diplomacy knows that such informal talks can be crucial to policymaking.

I admit to having joined secret talks with the premier and foreign minister of the Soviet Union in a fat-headed 1964 Australian attempt to have the Soviet Union join with the West in Vietnam to stop Chinese “aggression.” Because there were laws against revealing state secrets I sat on that important story for more than 20 years.

Today when the West is bent on equally fat-headed efforts to stop alleged Russian “aggression”(read the 2015 Minsk Two agreement if you want to know who really is the aggressor), talks with Moscow’s ambassador really are needed. And the spies who want to leak that information to embarrass their own government really should go to jail.

*  *  *

Gregory Clark served as first secretary at the Australian Embassy in Moscow, from 1963 to 1965.

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A group of environmental activists defaced one of President Trump’s premier golf courses early on Sunday morning. The group, which calls itself an “anonymous environmental activist collective” snuck into Trump National Golf Club in Rancho Palos Verdes, California and using six-foot-tall letters carved a message into the green that said: “NO MORE TIGERS. NO MORE WOODS.” The “activists” also released a 1 minute video documenting the trespassing in all its glory, a recording which also spliced footage made from a drone at the time of the event.

The 7,300-yard course, located in a peninsula just south of Los Angeles, was recently ranked the 43rd best course in California by Golf Digest.

In a statement sent to The Washington Post, the group said the vandalism was carried out in response to the Trump administration’s “blatant disregard” for the environment. “In response to the president’s recent decision to gut our existing protection policies, direct action was conceived and executed on the green of his California golf course in the form of a simple message: NO MORE TIGERS. NO MORE WOODS,” the statement said.

The message was carved into the green using gardening tools and took less than one hour to accomplish, according to a member of the group who discussed the project with The Washington Post on the condition of anonymity.

The group consisted of four people, who accessed the course by scaling a fence and “walking down a steep hill laced with cacti,” the group member told The Post. “Tearing up the golf course felt justified in many ways,” the member said.

“Repurposing what was once a beautiful stretch of land into a playground for the privileged is an environmental crime in its own right.” According to the law, it’s also criminal trespassing and explains why the “activists” were all shrouded head and toe to avoid being recognized in the video.

Neither the golf course, nor the Trump Organization’s NYC HQ respond to requests for comment.  A spokesman for the Los Angeles County Sheriff’s Department confirmed that the department received a call for service Sunday morning about grass being dug up around hole five at the golf club. The spokesman said the department sent a deputy to the scene to determine whether the damage constituted an act of vandalism or whether it was accidental. It was the former.

“We hope this sends a message to Trump and his corrupt administration that their actions will be met with action,” the member added. Previously farmland, Trump National Golf Club opened in November 2000. On its website, the club touts its dedication to “protecting the environmentally sensitive habitat that plays host to several protected plant species and the endangered Coastal California Gnatcatcher (a small migratory bird).”

As the WaPo renminds us, Sunday’s vandalism was merely the latest in a long series of attacks involving Trump properties; most recently, the president’s brand-new Washington hotel was spray-painted with the words “Black Lives Matter” during a demonstration.

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Authored by Jeffrey Snider via Alhambra Investment Partners,

It is surely one of the primary reasons why many if not most people have so much trouble accepting the trouble the economy is in. With record high stock prices leading to record levels of household net worth, it seems utterly inconsistent to claim those facts against a US economic depression. Weakness might be more easily believed as some overseas problem, leading to only ideas of decoupling or the US as the “cleanest dirty shirt” – the US economy has problems, but how bad can they be? Yet, despite asset price levels and even record debt, all those prove is just how disconnected those places have become from what used to be an efficient way to redistribute financial resources.

According to the Fed’s Z1 report, Household net worth climbed by $2 trillion in Q4 alone to $92.8 trillion.

That is a 69% increase from the low in Q1 2009, even though Final Sales to Domestic Purchasers have grown by just 30% in that same time.

The wealth effect is dead, or, more specifically, it never was.

From the view of net worth, the increase to record debt levels seems manageable. From the more appropriate view of income and economy, it does not, even though US debt levels have grown more slowly post-crisis. That would mean debt is partway between assets and economy, sort of splitting the difference of what monetary policy believes and what it, at best, “achieved.”

Total debt (Total Lending plus Total Securities) rose just 0.8% in Q4 2016, the slowest growth rate since Q3 2015. That deceleration was shared equally by loans as well as securities, both registering record highs but also remaining hugely inefficient toward real economic growth and therefore capacity (what is all this debt financing?).

The minimal amount of overall deleveraging after the Great “Recession” has achieved a similarly minimal amount of financial rebalancing debt to economy. Total credit levels have remained historically out of bounds with the capacity to support them. The chart above may provide a clue as to why that has been, especially in contrast to the Great Inflation. The so-called Great Moderation (which clearly wasn’t that) did not moderate the level of credit expansion to economic expansion (in nominal terms) as had been done even throughout the worst parts of the Great Inflation.

That would propose monetary expansion (via evolution) into credit expansion (including the blurring distinction between money and credit, as monetary forms became more substitutable and fungible) along the lines of Net Worth and therefore asset prices. It further suggests asset prices are hugely leveraged based on hidden factors of credit and monetary substitution (housing bubble as a predicate of the dot-com bubble, for one example). In terms of just stocks, that would appear to be the verdict of valuation measures like Tobin’s Q (and the modified Q which strips potential real estate bubble pricing from corporate net worth).

There isn’t a whole lot of additional insight provided by these statistics and ratios, just more evidence and confirmation that imbalances remain as ridiculous as ever. It really isn’t so difficult to understand why the economy of the 21st century has behaved so radically different than at almost any time in history – especially post-crisis where monetary instability contributes to great uneasiness about the distribution and redistribution of resources (stock repurchases vs. capex, for one example). From the view of the corporate board room, it would appear less risky to “invest” in one’s shares than to actually invest where the economy needs it most (liquidity preferences). And as the imbalances only grow worse, that skew becomes even more skewed (self-reinforcing).

In very simple terms, what small level of deleveraging was achieved was limited to real economic function rather than in asset prices (and truly debt levels).

So rather than rebuilding debt increasing the probability and strength of the recovery, it has done instead the opposite at least in the private economy (which wouldn’t actually be a bad thing) as opposed to the swelled public economy.

The result is the seeming paradox stated at the outset – record assets and debt during full-blown and durable depression.

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Former Goldman president, and current White House chief economic advisor – as well as the person who supposedly is engaged in a bitter fued with Peter Navarro over the shape of future US trade policy – Gary Cohn appeared on Fox News Sunday, and spoke at length to Chris Wallace about some of the key economic policy changes to be implemented.

First, he touched on Obamacare repeal, saying that the administration will do “whatever it takes” to get the bill passed, setting a high bar for expectations from Trump who is still expected to meet significant challenges from House and Senate republicans.

Cohn then touched on Trump’s vision to protect the country, saying the Obama administration under-invested in the military the past eight years. “Unfortunately, we have no alternative but to reinvest in our military and make ourselves a military power once again,” Cohn said. Cohn said Trump met over the last several weeks with generals from the Army, Navy, Air Force and Marines to talk about the military’s preparedness. He said it has been disappointing to hear what these generals have had to say. Cohn conceded that if funds are used to reinvest in the military, cuts need to be made elsewhere in order ensure a balanced budget without creating a further deficit.

“It’s no different than every other family in America that has to make the tough decision,” Cohn said. “When they need to spend money somewhere, they have to cut it from somewhere else. These are tough decisions, but the president has shown he is ready, willing and able to make these tough decisions.”

Finally, touching on a topic that until recently at least appeared to be dear to Trump’s, Cohn – speaking in his best former Goldman COO voice – said that the Federal Reserve “has been doing a good job” and the Trump administration respects its independence, even if the U.S. central bank raises interest rates this week.

He said that Trump administration will keep working to reduce barriers to job creation no matter what the Fed does on interest rates.

“The Federal Reserve is an independent agency and they operate as such. They have their economic data, which they look at and they are trying to always modulate economic growth with inflation, with the work force,” Cohn said. “I think the Federal Reserve has been doing a good job in doing that. The Fed will do what they need to do. And we respect the powers of the Fed.”

It remains to be seen if he will also respect them after 2-3 rate hikes, when the market finally wakes up to the rate hike cycle and Yellen’s realization she needs to hike in order to cut once the official recession begins, in the process slamming the stock market which both Trump and Cohn have previously confirmed is a “barometer” of the administration’s policies. For now Trump has been happy to take credit for the all time highs in the S&P, but what will he say once stocks start sliding, the dollar surges crushing exports, and Trump finally realizes that he needs looser, not tighter, policies to implement his economic vision? We don’t know, but a twitter Feud between @RealDonaldTrump and the @FederalReserve was certainly among our most vocal desires of things to see in 2017. It may soon come true.

 

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Only lowering our living standards will achieve sustainable growth. That’s the message from Satyajit Das, a former financier who anticipated the GFC. Debt, energy consumption, housing affordability or superannuation – it’s all based on a financial system that’s in fact a completely fictional model. This model was always doomed to fail – eventually.

Beyond growth as we know it – How can we stop consuming our future?

Full Interview below

 

As Das concluded previously, nothing has really changed since the 2008-09 crisis. Low interest rates encourage borrowing. Artificially low capital costs have allowed unsustainable businesses to continue, generating sub-standard returns. Companies seek glib solutions to the complex problem of earning adequate returns by re-engineering their finances, rather than improve their operations.

Governments also are increasingly borrowing and adopting private-sector financial engineering techniques to deal with economic problems. Governments have increased their debt levels, in some cases resorting to forcing purchases of bonds by central banks, domestic banks, and captive institutions such as state pension funds.

 

Conventional and innovative monetary policies have supported aggregate demand and helped maintain economic activity to prevent prevented even deeper recessions. Policies that have sent both real and nominal interest rates to ultra-low levels have resulted in re-distribution of income and wealth.

 

According to a 2013 report from the McKinsey Global Institute, between 2007 and 2012, governments in the U.S., Europe and the U.K. collectively benefited by $1.6 trillion, primarily through reduced debt-service costs and increased profits remitted from central banks. Most of this wealth transfer came from households, pension plans, insurers, and foreign investors, mainly through lower interest earnings on savings.

 

It is time that businesses and governments focus on helping the real economy to solve large problems including debt, lack of growth, industrial stagnation, slowing innovation and productivity, aging demographics, income inequality, resource scarcity, and environmental threats.

 

Financial engineering masks the true performance and health of companies and nations. But the damage goes much deeper, deluding decision-makers into thinking that things are better than they are, and that solutions to problems can be deferred.

And worse still, the mispricing of assets across world markets has reached epidemic proportions.

Stock prices have made strong advances over the past several years, yet market analysts see further gains, arguing that the selloffs of August 2015 and early 2016 represent a healthy correction.

 

But this rise in stock values has been underpinned by financial engineering and liquidity — setting the stage for a global financial crisis rivaling 2008 and early 2009.

The conditions for a crisis are now firmly established: overvaluation of financial assets; significant leverage; persistent low-growth and deflation; excessive risk taking reliant on central banks for liquidity, and the suppression of volatility.

 

 

 

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Any hopes for an early rebound in oil following last week’s torrid plunge in WTI and Brent appear to be dashed, at least at the open, when WTI promptly tumbled below $48/barrel.

While there have been no materal adverse catalysts over the weekend, three factors are being mentioned by Sunday night trading desks as drivers behind the latest seloff.

First: price momentum has simply persisted from the Friday US selloff, as Asian funds catch up to the US action. 

Second, some have pointed to a report by JPM’s Nikolaos Panigirtzoglou from Friday evening, which warns of “commodity downside” as a result of persistent near-record net long futures positioning, and warns that “a pending normalization/mean-reversion of spec positions in commodity futures has begun.” Here are some of the reports highlights:

• Spec positions stood at pretty elevated levels as of last Tuesday March 7th, the latest available snapshot, suggesting that this normalization is at its beginning rather than its end phase.

• Even if we assume that the change in the open interest since last Tuesday reflects entirely a build up of short spec positions or a reduction of long spec positions, the commodity position overhang would remain.
• This pending mean reversion in commodity spec positions is unlikely to be prevented by the growth of commodity index products.
• In our opinion, the demand for long positions in commodity futures contracts created by passive commodity index products acts merely as a background force.
• Mean reversion is primarily driven by active investors such as hedge funds and in particular CTAs.
• Simple return momentum trading models suggest that CTAs are turning incrementally more negative across most commodities.
• We get a similar overbought picture in commodity equities, by looking at the short interest of the biggest commodity stocks in world equity markets.
• Therefore any further unwinding of commodity futures positions is likely to be accompanied by an increase in the short interest of commodity stocks.

A third possible catalyst for the drop is the yet another prominent voice in the oil industry has slammed the OPEC gambit, this time Leonardo Maugeri, a “Senior Fellow with the Geopolitics of Energy Project and the Environment and Natural Resources Program at the Harvard Kennedy School’s Belfer Center”, though better known as the former head of strategy at Italian energy giant, Eni. His reported is titled simply “OPEC’s Misleading Narrative About World Oil Supply” and as the title suggests, Maugeri is the latest to point out that the OPEC emperor is naked and that OPEC’s actions have, at best, served as psychological support to oil prices:

At a time when energy market headlines focus mainly on OPEC cuts, observers may be forgiven for concluding that a supply crunch and higher prices are imminent. On the contrary, there is still too much oil in global markets. In this context, OPEC production cuts (which notably fall short of the original target envisaged by the organization) appear to serve mainly as a psychological support to oil prices.

 

… the global oil market remains highly vulnerable to the actual status of oil supplies. There’s a paradox: so far, OPEC’s effort to convey the message of an exceptional level of compliance with cuts has helped sustain oil prices—but in so doing it has also incentivized oil output increases in many countries. The United States is by far the main beneficiary of such price support. In early February, almost all US shale oil producers have presented plans to strongly increase their shale oil output in the course of 2017.

 

To make matters worse, a heavy global refinery maintenance of around 3 mbd—concentrated in March and April—would lower crude demand and could add to temporary crude builds. When it starts to ease, the OPEC and non-OPEC cuts will be close to expiration—June 30, 2017.

Whatever the reason, for now the selling has continued, and if JPM is correct and momentum and trend chasing CTAs are now in charge, the next level may be far – and sharply – lower from current prices.

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Authored by Michael Snyder via The Economic Collapse blog,

It has been said that “as California goes, so goes the nation”.  That is why it is such a shame what is happening to that once great state.  At one time, California seemed to be the epicenter of the American Dream.  Featuring some of the most beautiful natural landscapes in the entire world, the gorgeous weather and booming economy of the state inspired people from all over the world to move to the state.  But now people are moving out of the state by the millions, because life in California has literally become a nightmare for so many people.

I certainly don’t have anything against the state personally.  My brother and sister were both born there, and I spent a number of my childhood years in stunning northern California.  When I was younger I would sometimes dream of getting a place on the coast eventually, but for reasons I will discuss below I no longer think that would be advisable.

In fact, if I was living in California today I would be immediately looking for a way to move out of the state unless I specifically felt called to stay.  The following are 16 reasons why you shouldn’t live in California…

#1 The entire California coastline is part of the “Ring of Fire” seismic zone that roughly encircles the Pacific Ocean.  The San Andreas Fault has been described as a “time bomb“, and at some point there will be a catastrophic earthquake that absolutely devastates the entire region.  In fact, a study that was just released says that a “major earthquake” on the San Andreas Fault “is way overdue” …

A recently published study reveals new evidence that a major earthquake is way overdue on a 100 mile stretch of the San Andreas Fault from the Antelope Valley to the Tejon Pass and beyond.

 

Researchers with the U.S. Geological Survey released the results of the years-long study warning a major earthquake could strike soon.

#2 Out of all 50 states, the state of California has been ranked as the worst state for business for 12 years in a row…

In what is sounding like a broken record, California once again ranked dead last in Chief Executive magazine’s annual Best and Worst States for Business survey of CEOs – as it has all 12 years the survey has been conducted. Texas, meanwhile, earned the top spot for the 12th straight year.

 

Among the survey’s subcategories, the 513 CEOs from across the nation ranked California 50th in taxation and regulation, 35th in workforce quality and 26th in living environment, which includes cost of living, the education system and state and local attitudes toward business. Notably, California placed worst among the nine states in the Western region in all three categories.

#3 California has the highest state income tax rates in the entire nation.  For many Americans, the difference between what you would have to pay if you lived in California and what you would have to pay if you lived in Texas could literally buy a car every single year.

#4 The state government in Sacramento seems to go a little bit more insane with each passing session.  This time around, they are talking about going to a single-payer healthcare system for the entire state that would cost California taxpayers 40 billion dollars a year…

On Friday, State Senator Ricardo Lara introduced legislation that would transition California’s healthcare into a single-payer system. (RELATED: Read what a retired colonel said about the real purpose of Obamacare). The system would be very similar to the healthcare system currently in place in Canada and would cost California taxpayers roughly $40 billion for the first year alone. Given the poor economic climate California has already created for itself, this will no doubt be just one more burden on the people of California, and one step closer towards total bankruptcy.

 

Micah Weinberg, the president of the Economic Institute at the Bay Area Council, raised concerns over the financial consequences of the proposed legislation. “Where are they going to come up with the $40 billion?” he asked. He went on to suggest that adopting a state level single-payer system is “just not feasible to do as a state.”

#5 The traffic in the major cities just keeps getting worse and worse.  According to USA Today, Los Angeles now has the worst traffic in the entire world, and San Francisco is not far behind.

#6 A lot of money is being made in Silicon Valley these days (at least for now), but poverty is also exploding in the state.  In desperation, homeless people are banding together to create large tent cities all over the state, and the L.A. City Council recently asked Governor Jerry Brown “to declare homelessness a statewide emergency“.

#7 Thanks to unchecked illegal immigration, crime is on the rise in many California cities.  The drug war that has been raging for years in Mexico is increasingly spilling over the border, and many families have moved out of the state for this reason alone.

#8 California is one of the most litigious states in the entire nation.  According to the U.S. Chamber Institute for Legal Reform, the “lawsuit climate” in California is ranked 47th out of all 50 states.

#9 Every year wildfires and mudslides wreak havoc in the state.  Erosion is particularly bad along the coast, and I have previously written about how some portions of the California coastline are literally falling into the ocean.

#10 California has some of the most ridiculous housing prices in the entire country.  Due to a lack of affordable housing rents have soared to wild extremes in San Francisco, where one poor engineer was actually paying $1,400 a month to live in a closet.

#11 All over the state, key infrastructure is literally falling to pieces.  Governor Jerry Brown recently issued a list of key projects that needed to be done as soon as possible, and the total price tag for that list was 100 billion dollars.  Of course that list didn’t even include the Oroville Dam, and we all saw what happened there.

#12 Radiation from the ongoing Fukushima nuclear disaster continues to cross the ocean and wash up along the California coastline.  The impact of this crisis on the health of those living along the west coast could potentially be felt for generations.

#13 Illegal drug use in the state is on the rise again, and emergency rooms are being flooded by heroin overdose victims.

#14 On top of everything else, it is being reported that Russia is “quietly ‘seeding’ the U.S. shoreline with nuclear ‘mole’ missiles”.  The following comes from retired colonel and former Russian defense ministry spokesman Viktor Baranetz…

“What are these mysterious ‘asymmetrical responses’ that our politicians and generals speak about so often? Maybe it’s a myth or a pretty turn of phrase? No! Our asymmetrical response is nuclear warheads that can modify their course and height so that no computer can calculate their trajectory. Or, for example, the Americans are deploying their tanks, airplanes and special forces battalions along the Russian border. And we are quietly ‘seeding’ the U.S. shoreline with nuclear ‘mole’ missiles (they dig themselves in and ‘sleep’ until they are given the command)[…]

 

“Oh, it seems I’ve said too much. I should hold my tongue.”

Hopefully what Baranetz is claiming is not accurate, because if it is even partly true the implications are absolutely staggering.

#15 North Korea is a major nuclear threat as well.  It is being reported that the North Koreans are developing an ICBM that could potentially reach the west coast of the United States…

Defense officials have warned that North Korea is on the brink of producing an ICBM that could target the United States. North Korean leader Kim Jong Un announced in January during his New Year’s address that Pyongyang had “entered the final stage of preparations to test-launch” an ICBM that could reach parts of the United States.

#16 Someday a very large earthquake will produce a major tsunami on the west coast.  According to the Los Angeles Times, one study found that a magnitude 9.0 earthquake along the Cascadia fault could potentially produce a massive tsunami that would “wash away coastal towns”…

If a 9.0 earthquake were to strike along California’s sparsely populated North Coast, it would have a catastrophic ripple effect.

 

A giant tsunami created by the quake would wash away coastal towns, destroy U.S. 101 and cause $70 billion in damage over a large swath of the Pacific coast. More than 100 bridges would be lost, power lines toppled and coastal towns isolated. Residents would have as few as 15 minutes notice to flee to higher ground, and as many as 10,000 would perish.

 

Scientists last year published this grim scenario for a massive rupture along the Cascadia fault system, which runs 700 miles off shore from Northern California to Vancouver Island.

Over the past decade, approximately five million people have moved away from California.

After reading this article, perhaps you have a better understanding why so many people are getting out while they still can.

Once again, I don’t have anything against California or the people that live there.  It is such a beautiful place, and it once held so much promise.

Unfortunately that promise has been shattered, and there is a mass exodus out of the state as families flee the horrific nightmare that California is in the process of becoming.

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With the Fed expected to further tighten financial conditions following its now guaranteed March 15 rate hike, and the ECB recently announcing the tapering of its QE program from €80 to €60 billion monthly having run into a substantial scarcity of eligible collateral, the third big central bank – the BOJ – appears to have also quietly commenced its own monteary tightening because, as Bloomberg calculates looking at the BOJ’s latest bond-purchase plan, the central bank is on track to miss an annual target, by a substantial margin, prompting investor concerns that the BOJ has commenced its own “stealth tapering.”

While in recent weeks cross-asset traders had been focusing on the details and breakdown of the BOJ’s “rinban” operation, or outright buying of Japan’s debt equivalent to the NY Fed’s POMO, for hints about tighter monetary conditions and how the BOJ plans to maintain “yield curve control”, a far less subtle tightening hint from the BOJ emerged in the central bank’s plan released Feb. 28, which suggests a net 66 trillion yen ($572 billion) of purchases if the March pace were to be sustained over the following 11 months. As Bloomberg notes, that’s 18 percent less than the official target of expanding holdings by 80 trillion yen a year.

Some more details: the central bank forecast purchases of 8.9 trillion yen in bonds in March, based on the midpoint of ranges supplied in the operation plan. Maintaining that pace for 12 months will see it accumulate about 107 trillion yen of debt. At the same time, 41 trillion yen of existing holdings will mature, leaving it with a net increase of 66 trillion yen, well below the stated goal of 80 trillion yen.

And in another potential major shift to the status quo, one which would imply a sharp steepening in the JGB yield curve, the March plan indicates the BOJ may acquire 1.5 trillion yen of bonds due in more than 10 years, down 32 percent from the level in January 2016 when it introduced its negative rate policy. Other parts of the curve are also changed: for one-to-five-year notes, the projection is for an 8.6 percent decline, whereas the central bank will be buying roughly the same amount of five-to-10-year notes.

The BOJ appears to be joining other banks that are seeking to jumpstart the “carry trade” for local banks and pension institutions, by steepening the yield curve. The step-back from buying super-long bonds, those with more than 10 years to maturity, comes after Governor Kuroda and his colleagues said in September that an “excessive” decline in the yields has placed a heavier burden on companies seeking to meet pension obligations.

To be sure, the BOJ could and probably will vary its buying as it attempts to anchor borrowing costs for 10-year bonds at around zero percent, however holding onto both the targets for quantitative easing and yield-curve control has left investors scouring the central bank’s daily purchases to see whether the balancing act is achievable Bloomberg adds.

“If the BOJ was simply to reduce its annual target, it would probably have to do so over and over again, which would clearly look like tapering,” said Naomi Muguruma, a senior market economist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. If the appearance of tapering isn’t what the Japanese central bank wants, it could replace its 80 trillion yen annual target with one for monthly purchases at its July 19-20 meeting, she said. So far it has not suggested it would do that.

As Bloomberg further adds, “while the BOJ board is projected to keep policy unchanged at its March 15-16 meeting, some central bankers are now considering giving cues on what they’d do with rate policy once inflation starts picking up — a shift that could end the focus on JGB purchase plans.”

With oil prices higher than a year ago and a relatively weak yen, the central bank officials expect the benchmark inflation gauge to be around 1 percent later this year, according to people familiar with the discussions.

 

The expected pick-up in inflation and rising U.S. Treasury yields have put pressure on the BOJ’s yield-curve control policy. The Japanese central bank offered to buy an unlimited amount of five-to-10-year bonds at a fixed rate on Feb. 3 after borrowing costs surged to the highest in 12 months.

Of course, the BOJ may be simply launching its latest – in the past two decades – attempt at renormalizing the yield curve (all the previous ones have failed). “Given the BOJ is committed to managing the yield curve, any upward pressure on yields could lead to an increase in bond purchases in the future,” said Yusuke Ikawa, Japan strategist at BNP Paribas SA in Tokyo. “If it maintains its zero percent target, the BOJ faces the risk of one day having to buy more than 80 trillion yen of bonds a year.”

Perhaps not surprisingly, local banks are refusing to wait and see what the outcome will be: according to FT parent company, Nikkei Asian Review, Japanese banks are shedding government bonds at an accelerating pace, slashing their total holdings at the end of January to a 14-year low. The value of Japanese government bonds held by domestic banks was 79.59 trillion yen ($693 billion) as of Jan. 31, the Bank of Japan said, falling below 80 trillion yen for the first time since 2003.

Over the past year, Japanese banks were purchasing large amounts of higher-yielding U.S. government bonds, but expectations that President Donald Trump will engage in aggressive fiscal stimulus have produced a spike in U.S. interest rates and sent bond prices plummeting. In response, domestic banks “sold Japanese government bonds to cover the losses,” said Kazuhiko Sano of Tokai Tokyo Securities.

Regional banks, relatively weaker in portfolio management, have been prominent in this trend. They amassed net JGB sales of 246.7 billion yen in November and 277.6 billion yen in December, according to the Japan Securities Dealers Association.

As the Nikkei reported last week, this is a concern for the Financial Services Agency, which plans to examine foreign bond investments by regional banks. “It will become tougher for regional banks to invest in overseas bonds,” said Katsutoshi Inadome of Mitsubishi UFJ Morgan Stanley Securities.

And so, with both the ECB and BOJ gradually phasing out their support of ultra low interest rates, the unpleasant scenario envisioned last week by SocGen’s Albert Edwards may soon come to pass as investors, worried about the removal in central bank backstops, proceed to liquidate holdings en masse, leading to a sharp spike in global yields higher, catalyzing the next leg lower in global risk assets as Goldman warned over the weekend.

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By Chris at http://ift.tt/12YmHT5

On Monday, I shared with you a conversation I had with an entrepreneur Mahdi Kazemzadeh, who’s built a business in Iran.

Here’s the astonishing thing: despite being Iranian Mahdi isn’t a terrorist. No, really!

The mere mention of Iran gets the dog-pack enzymes flowing with an easily influenced Western media-fed crowd. Pack mentality surfaces, except that those who are exhibiting it don’t call it that. No, instead they call it patriotism (discussed here), which miraculously is seen as a good, honourable, virtuous quality rather than a mental disorder.

I’ve spent a lot of time discussing the qualitative aspects affecting the global macro landscape and I receive hundreds of emails each month thanking me for sharing them. I’m deeply humbled and in fact 99.9% of readers are kind, curious, engaging, and where they disagree they do so in an intelligent and intellectually stimulating way. I genuinely love it, even if I can’t respond to all.

I like to think of Capitalist Exploits as a home for independent, objective thought. The ability to step back, observe, question where the consensus may be wrong, look to economic history for guidance, and to then objectively invest according to probabilities is at the very centre of how I feed my family and what this little corner of cyberspace is all about.

We’re here to make money, not to be popular.

As such, it’s amusing when occasionally a moron pops his wee little head up.

Fortunately, morons are desperately easy to spot. They stick out like a giant zit on a prom queen. Logic has left the building, wild accusations are used, and the pack instinct is alive and kicking. They operate purely from an emotional level, not unlike a 4-year old who’s been told Santa isn’t coming this year.

After publishing the conversation on Monday discussing Iran with Mahdi I received the usual thank yous and then this doozy:

“Listen you kangaroo meat eating hill billy…

you better quit talking ignorant bullshit about the U.S. and Trump, two subjects you know absolutely nothing about. I know you’re probably upset with yourself since you turned out to be a shit money manager and are having a very tough time dealing with redemptions but why don’t you concentrate on educating yourself and start practicing some class.”

Bless this poor intellectually retarded soul.

The reason I share this with you is to demonstrate something that we’re all going to have to get very used to.

The seasons have changed. This, folks, is the pack animal zeitgeist that I’ve written about in “What the Incoming “Strong Men” Mean for the Global Economy” and elsewhere in these pages.

Humans have an insuperable tendency to form packs and proceed to bark at other packs. When a neighbour’s dog walks past my property, my dog rushes to bark at it. Every time! The neighbour’s dog isn’t a threat, it’s just what dogs do.

When a Japanese military recon plane enters Chinese airspace, fighter jets scramble furiously to bark at it. They know it’s not going to bomb China. It’s what pack animals do.

I’ve little doubt that the clown who emailed me (the one with the intellectual capacity of ringworm) gathers his knowledge of Iran from the @realDonaldTrump Twitter feed. A pack animal. Grrr! Woof! Bow-wow!

The odds he’s visited Iran? Slim!

Ever been threatened by Iran? Nope. Grrr! Woof! Bow-wow! My guy says it’s so. The hoi polloi never learn. Remember Bush’s Iraq war? The one where Saddam had weapons of mass destruction? Same pack response then. Same pack response now. Grrrr! woof!

Paradoxically, when I was writing about why “the ginger ninja” was going to win the presidency (for example, this one) I received a good dozen emails which could be summarised as, “Whoo yeah! Go Trump, stick it to em!”.

I get it. It was the point I was making : the rising anti-establishment zeitgeist. The thing is – and I made this clear but it still falls on deaf ears: I’m interested in outcomes. It doesn’t matter one iota what I might wish to happen. If I was to trade based on what I wish would happen I’d not be able to afford this fancy machine I’m writing to you on.

No. The only thing that matters is outcomes and attempting to protect yourself and profit accordingly. Some seem to have unfortunately mistaken my identifying a trend for my supporting of a trend.

The response that I get when I say this is, “Oh, so you support Hillary then?”. Well, no.

Actually, I was tickled pink that the reptile was kicked to the curb but that doesn’t mean you don’t question what’s taking place, and it certainly doesn’t mean that you need to support the opposition either. It’s useful to remember that your vote is statistically meaningless, anyway.

I wrote an entire article about why voting is a terrific waste of your time years ago:

“The reason I don’t vote, apart from the mathematical certainty that my vote is meaningless and the near mathematical certainty that I will be contributing towards propelling a parasitic self serving, egotistical, yet entirely ignorant, podium doughnut towards stardom is that I don’t care for any political party either. Not the Reds, Whites, Pinks or Browns, the Tea party, Libertarian party, or any other party.

 

They all end up the same way, with some folks moving to expand their sphere of influence to the detriment of others who disagree with them. Voting is meaningless in its present form. “The people” are presented with a select group of egomaniacs with whom they have no connection, and who have proved repeatedly that they will never “represent” said “people” anyway. What a charade. I would go so far as saying its unethical to participate in such a fraud.”

Despite what you’re told by the media and any given podium doughnut, George Carlin was right:

Simply investigating multiple angles is a mental challenge few are prepared to engage in, especially where it conflicts with their chosen “guru’s” ideology. Far easier to shut your mind off and follow. Just follow. Read history and tell me it isn’t so.

The psychology of a gas station lout says that if you “diss” my guy, then I’ll beat your head in with a brick. It matters not what “your guy” has said or done. The reason this matters to us as investors is because the pack actually dominates humanity.

Patriotism is simply the loyalty of dogs in a pack. 

 

Consider this: the German soldiers who murdered millions in World War II were patriots as were the Japanese pilots bombing Pearl Harbour. In fact, we can objectively say that the the thugs who drove a truck into a crowd in Nice were patriots.

Do we admire them for patriotism? No, they’re not “our” guy.

Do their own admire them for their allegiance to the pack? Sadly, yes.

Patriotism, like love, is blind because it’s driven not by logic but by emotion. It’s irrational thought at it’s finest.

Which brings me to how patriotism, nationalism, and meatheads all come together in our world of global macro finance.

I just hopped off the phone with a friend, the gracious, humble, and razor sharp Grant Williams. We were discussing this very theme. Grant, of course, wrote about this in late 2015. War is the likely outcome. Back then few thought it possible. Increasingly, it’s not only possible but highly probable. I fear Grant is probably right.

You see countries behave as idiotically as pack animals. Politics itself rewards unprincipled behaviour. The aggressive, arrogant, and self serving are drawn to the power it represents like moths to a flame. In order to achieve the top spots they fight, cheat, steal, and lie to get there. How is this different to dogs fighting for alpha status in a pack?

Once in power, these pathological ego-maniacs (that’s how you become an alpha dog) send entire countries to war with little crackpot third world nations that the electorate has never heard of, can’t pronounce, and can’t find on a map. Given the “right” information (remember Saddam’s WMD) the crowd bay for blood. Grrr! Woof! Bow-wow!

Read that email response to my podcast on Iran again and tell me this imbecile wouldn’t be one of those pack animals baying for blood in any altercation his “guru” leader tells him is just.

Humans have incredible powers of compassion, kindness, creativity, and loyalty. They also have another side, and right now from sea to shining sea lines are being drawn and the “other side” is rearing its ugly head.

A Question

Let me ask you a question, and this is a question irrespective of your nationality, religious, or political persuasion.

Tell me, have you experienced in the last few months heated debates or even outright arguments about political outcomes and those elected or those up for election?

If so, is this unusual to you? Are you finding that siding with one political party over another is today causing problems it wouldn’t have caused in the past?

Do you sense the shift on the ground wherever you are?

Can you feel the lines being drawn in the sand?

I’d love to have your thoughts and feedback in the comments section.

From where I sit I believe we’ve solidly entered an environment where pack animal behaviour is going to rule the day. You don’t need to be a genius to figure out that the probabilities of barking dogs getting into a scrap have been magnified.

– Chris

“Humans are the only animals who will follow unstable pack leaders.” — Cesar Milan (The dog whisperer)

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A major Nor’easter threatens to shut down travel due to heavy snow and strong winds from Washington, D.C., to New York City and Boston early this week, as weather forecasters on Sunday put the U.S. East Coast on a blizzard watch, warning some 50 million people of potential snowfall from 12 to 18 inches, coupled with wind blasts in some areas from Monday night into Wednesday. New York City issued a snow alert for Monday night, preparing its fleet of snow plows to deal with the fallout.

Washington, which often grinds to a halt with even low levels of snow, is expecting 5 inches in the city and twice that in outlying areas.

Blizzard watch issued for New York, Boston. http://pic.twitter.com/40oHqHS9kS

— Fox News (@FoxNews) March 12, 2017

The National Weather Service warns that the storm has raised the potential for dangerous travel and power outages with damaging wind gusts up to 50 mph possible across eastern Long Island and southeastern Connecticut. The likelihood of blowing snow and strong winds could lead to “whiteout” conditions with visibility as poor as a quarter mile, the service said. Sub-freezing temperatures were forecast in the upper 20s Fahrenheit, Reuters adds.

According to Accueweather, areas from northern Virginia to northern Maryland, central and eastern Pennsylvania, northern New Jersey, central and southeastern New York state and a large part of New England will be shoveling out of 6 inches or more of snow from the storm. A widespread zone of around a foot or more of snow is expected from the western suburbs of Philadelphia to New York City, Boston and Portland, Maine.

“New York City’s Central Park has not recorded more than 10 inches of snow from one storm in March since the 1993 Storm of the Century,” AccuWeather Senior Meteorologist Kristina Pydynowski said. This amount of snow over such a broad, heavily populated area could bring travel to a standstill as snow clogs streets and highways and heavy snow and wind trigger airline delays and flight cancellations. Some flights have already been canceled in advance of the storm.

New York state Governor Andrew Cuomo announced preparations for the so-called Nor’easter storm, activating the state Emergency Operations Center as of Monday night while also directing state agencies to be on heightened alert. “I encourage all New Yorkers in affected regions to plan ahead, and avoid any unnecessary travel as the storm progresses,” Cuomo said in a statement, adding that commuters should expect road closures, delays and cancellations. To be sure, some more cynical observers recall the last time New York was paralyzed ahead of what was expected to be a major storm, the impact ended up being relatively minor, that said it remains unclear if this time caution not warranted.

The Port Authority of New York and New Jersey was installing hundreds of pieces of snow equipment at the three New York area airports, including snow melters that can liquefy up to 500 tons of snow per hours and plows that can clear snow at 40 mph, Cuomo’s office said. Thousands of tons of salt and sand were prepared for airport roads, parking lots, bridges and tunnels. Some flights have already been canceled in advance of the storm.

Accuweather also warns that for thousands of miles of roads in the region, this will be an unusually cold storm for the middle of March. Much of the snow that falls will accumulate on the roads. “Residents should prepare for school closures and potential cancellations of sporting events due to hazardous travel for players and fans,” Pydynowski said.”

All rain or a mixture of rain and snow is likely to fall on southeastern Virginia, southeastern Maryland, southern Delaware, southern New Jersey and Cape Cod, Massachusetts. Should the storm track farther to the east, then heavy snow could fall in these areas. Should the storm track farther west, more rain could fall farther inland, especially to the Interstate-95 corridor. In this case, the zone for a foot or more of snow would shift westward to the I-81 and northern I-91 corridors.

“It is also possible that a band of burying snow with amounts to or past a foot rides up the central Appalachians before shifting to New England,” Pydynowski said. “In this situation, there could be a break in the heavy snow over a part of the mid-Atlantic’s I-95 corridor.

Making matters worse, as the storm intensifies, winds will ramp up along the coast and expand inland. Wind gusts can frequently top 40 mph at the height of the storm, which cannot only create blizzard conditions, but may break tree limbs and threaten sporadic power outages. Blowing and drifting snow can become a significant problem, not only during the middle of the storm on Tuesday, but perhaps for a couple of days in the storm’s wake. During much of the storm, northeasterly winds will pull ocean water toward the coast and create rough surf from Virginia to Maine. This effect will cause tides to run 1-2 feet above normal and can result in coastal flooding at times of high tide.

Strong onshore winds, coastal flooding and beach erosion will diminish from south to north as the storm moves along and winds blow offshore Tuesday night and Wednesday. Only if the storm stalls would a more prolonged period of beach erosion and coastal flooding occur.

The threat of heavy snow comes toward the end of an unusually mild winter along much of the East Coast, with below-normal snowfalls in many areas, including New York City and Washington. The Northeast Regional Climate Center reported that this was the warmest February on record in nearly the entire area, with temperatures in New York last week hovering near 70 degrees Fahrenheit, according to Accuweather.com, and hit 60 degrees or higher on six days in February.

Meanwhile, in the western United States, the weather service forecast potentially record-setting heat in the four corners states of Arizona, Colorado, New Mexico and Utah, where temperatures were expected into the 90s Fahrenheit in some places.

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