Category: zerohedge

In mid-February, we warned of the looming carnage for equity market-neutral funds, and sure enough, as Bloomberg reports, one of the most popular (and successful) hedge fund trades – playing the difference between high- and low-momentum stocks – crashed by the most since 2009 in Q1. After 6 years of almost unstoppable gains, equity market-neutral funds suffered their biggest losses since 2012 – comparable to the 2007 quant crisis devastation – as weak momo stocks massively outpeformed crushing the hedgies' models.

In Q1, 2015's worst became the best and the best became the worst…

“Being short those names was a really good trade during the second half of 2015. This is the flip side of that,” said Pravit Chintawongvanich, head derivatives strategist at Macro Risk Advisors. “All these names which had been doing really bad have turned around and started performing. I would say a lot of it is people getting short squeezed.”

Indeed it did…

An investment approach that profits from the divergent paths of high- and low- momentum stocks over time, a strategy that had one of its biggest gains on record in 2015, seized up in the last three months, posting the worst quarter in six years. The plunge helped zap returns among a big category of quantitative hedge funds, the so-called market neutral group, whose year-to-date decline of 2.3 percent is the largest since 2012.

 

While the tactic may be esoteric, the force that pummeled it is not: a growing revulsion among investors to shares whose main claim to fame in the past few years was that they kept going up. Anyone pursuing the strategy got into particular trouble shorting companies with the lowest price momentum, a section of the market that ended up being the quarter’s biggest winner.

 

“Momentum was the dominant factor really significantly last year, more so than I can recall any time in my career. When market neutral performs like that, when it breaks, it breaks hard,” said Benjamin Dunn, president of Alpha Theory Advisors, which works with hedge funds overseeing about $6 billion. “All the returns to momentum that were generated, you saw that reverse this year.”

And here is the reason why – mid-February (as Carney and Draghi bid stocks off the lows), it was weak momo stocks that massively outperformed strong momentum stocks…

Entirely breaking the models…

 

As Bloomeberg concludes,

One cause of the momentum breakdown was “mean reversion,” according to JPMorgan strategist Marko Kolanovic, who predicted in January investors would rotate into value assets, seeking out shares priced at deep discounts to things like earnings and assets. Using long-short proxies, value beat momentum by 40 percent this year, buoyed by systematic strategies covering short positions, Kolanovic said in a March 17 note to clients.

 

That turnaround may have roiled returns for hedge funds. While they were snapping up the best-performing stocks, hedge funds also reduced value stock holdings in every quarter of last year, making it the least popular of the 10 styles tracked by Evercore ISI.

This did not end well the last time, as detailed at the time, during the week of August 6, 2007, a number of high-profile and highly successful quantitative long/short equity hedge funds experienced unprecedented losses.

The losses at the time were initiated by the rapid unwinding of one or more sizable quantitative equity market-neutral portfolios.

 

Given the speed and price impact with which this occurred, it was likely the result of a sudden liquidation by a multi-strategy fund or proprietary-trading desk, possibly due to margin calls or a risk reduction.

 

These initial losses then put pressure on a broader set of long/short and long-only equity portfolios, causing further losses on August 9th by triggering stop-loss and de-leveraging policies.

Which perhaps suggests there is more fall-out from this to come now that quarter-end is over. Things did not go well after the last crisis…

via Zero Hedge http://ift.tt/1Stv6Iw Tyler Durden

In the past few months, the Bureau of Labor Statistics has gone out of its way to show that U.S. worker compensation is finally rising. There is one problem with that: while that may be true on an hourly basis…

… on a weekly basis, the picture is vastly different. What is happening is that weekly wage growth have gone nowhere in years, but because the average hours worked per week has declined and today hit a 2 year low of 34.4, it translates into more money per hour worked.

 

But let’s assume that wages, or at least the perception thereof, is indeed rising – is this helping the average American? Well, as we showed earlier this week, the net “after expense” income of average Americans measured in real dollars has declined from $17K in 2004 to $6,000 in 2014 because as wages have declined dramatically, expenses have surged. In fact, according to the recent Pew study, by 2014, median income had fallen by 13 percent from 2004 levels, while expenditures had increased by nearly 14 percent, As such a 2.5%, or 3.5% or even 10% increases in wages will not manage to offset the surging expenditures, mostly on rent.

All of this you will never see discussed in a sellside research report, which instead relies on the basic hourly earnings headline numbers. Instead, you will see charts like this from Wells Capital’s Jim Paulsen.

And yet, even the analysts who are only looking at the most rudimentary data are now warning that a new problem is emerging for the US economy, a problem which is always present whenever wages are rising, while overall economic growth is stalling (as it is currently according to the Atlanta Fed with a 0.7% Q1 GDP) and corporate profits are about to plunge by the most since the financial crisis: stagflation. 

In a note earlier today, Deutsche Bank laid out the following ominous warning:

Worry not about the eight per cent drop in forecast earnings in the upcoming quarter reporting season. That aggregate figure is well telegraphed. Instead, pay attention to those companies with wafer-thin margins. Every year since the crisis, S&P500 stocks in the lowest quartile of ebitda margins have outperformed the market. Until, that is, last year when these least profitable companies trailed by 11 per cent. That is because after holding steady for six years, their already low margins nearly halved to 4.5 per cent while the median for S&P500 companies barely budged from 20 per cent. Benign cost pressures in recent years have allowed even the laggards to keep up. But if commodity prices start to rally, for example, or low unemployment finally gives employees some bargaining power, those companies living on minuscule margins may really start to sweat.

What Deutsche Bank is referring to is the following chart which shows the explicit and inverse correlation between corporate profits and employee wages. What it demonstrates clearly is that if indeed labor income, i.e., wages, are rising, then profit margins have no choice but to fall even more; this means that if the stock market wishes to continue rising even higher it will only achieve this with margin expansion, which however can only be achieved by even more Fed intervention and more stimulative inflation, which then pushes wages even higher generating a self-defeating feedback loop.

 

This is something we touched upon early in January when we made an observation on small business operating margins, namely that “If Companies Are Telling The Truth, Profit Margins Are About To Collapse The Most In The 21st Century.”

Which brings us to the following Bloomberg TV interview with Wells Fargo’s Jim Paulsen in which the otherwise jovial permabull focuses on only one thing: the rising threat of stagflation. This is what he said:

I think stagflation is starting to show – that idea of stronger nominal growth but weaker real growth is starting to show up across the economy. It certainly is showing up with real personal consumption slowing; it’s showing with slower job creation growth as the wage rate rises, and it’s showing up in weaker profits as the share of labor income rises reducing profit margins for corporations.

 

I think to some extent companies are starting to feel that pinch of higher labor costs and since margins are near post-war highs to begin with, they don’t have much ability to raise them much further, but if labor costs now start to go up, they’ll probably suffer some margin erosion.

 

What scares me about this is we’ve had a very weak growing recovery by historic standards, about 2% real growth, but what’s made it palatable to some degree, is that inflation has been so low and because of that interest rates have been so low. So even though laborers have only gotten 2% wage increases which doesn’t sound very good, until you recognize that because inflation has been virtually non-existent, real purchasing power, real wages have been growing very nicely.

… At this point we would like to interject that while we love the strawman argument that real wages are “growing fast” as much as the next guy, the reality is that this is bullshit as the previously shown chart from Pew has demonstrated: whether Americans are spending for more items, or actual prices are soaring, the consumer’s net income as shown below, has plunged.

 

Anyway, back to Paulsen who then says this:

And now for the first time you start to have core costs rising, then even if we get a little faster nominal growth, the final result on the real outcome might not be nearly as positive as hoped. Yellen is trying to raise the inflation rate and I am thinking you better be careful what you wish for.

Can this scenario tip us into a recession Paulsen is asked, his answer: “it’s possible. I am concerned that the Fed is so dovish in the face of rising core inflation.”

Which means that now that the “very serious economists” are talking about it, get ready to hear much more about the “threat of stagflation” for the US economy, a threat which the Fed is powerless to defeat unless it is willing to launch another market crash.

via Zero Hedge http://ift.tt/1VZFTQ5 Tyler Durden

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

Ron Paul took to Twitter to explain how he feels about The Donald…

Sorry…Trump's Not Really An Outsider https://t.co/9TXSltEFMM http://pic.twitter.com/gH4BgrZL4u

— Ron Paul (@RonPaul) March 21, 2016

As Paul notes, Yes, Donald Trump is shrewd and really wants to sell himself as an outsider. He understands how to stir the many people who are unhappy.

But when you get beyond the theatrics, he's not really an outsider at all. Paul discusses this, as well as Ted Cruz and Hillary Clinton below on Fox Business:

via Zero Hedge http://ift.tt/1M7U9UU Tyler Durden

Via InternationalMan.com,

(This is Doug Casey’s foreword to Casey Research’s Handbook for Surviving the Coming Financial Crisis.)

Right now, we are exiting the eye of the giant financial hurricane that we entered in 2007, and we’re going into its trailing edge.

It’s going to be much more severe, different, and longer lasting than what we saw in 2008 and 2009.

In a desperate attempt to stave off a day of financial reckoning during the 2008 financial crisis, global central banks began printing trillions of new currency units. The printing continues to this day.

It’s not just the Federal Reserve that’s printing. The Fed is just the leader of the pack. The U.S., Japan, Europe, China… all major central banks… are participating in the biggest increase in global monetary units in history.

These reckless policies have produced not just billions but trillions in malinvestment that will inevitably be liquidated. This will lead us to an economic disaster that will, in many ways, dwarf the Great Depression of 1929–1946. Paper currencies will fall apart, as they have many times throughout history.

This isn’t some vague prediction about the future. It’s happening right now. The Canadian dollar has lost 25% of its value since 2013. The Australian dollar has lost 30% of its value during the same time. The Japanese yen and the euro have crashed in value. And the U.S. dollar is currently just the healthiest horse on its way to the glue factory.

These are gigantic losses for major currencies. After all, we’re not talking about small volatile stocks. We’re talking about the value of money in peoples’ bank accounts. These moves show we’re in the early stages of a currency crisis.

At this point, it’s a lock cinch that the world’s premier paper currency – the U.S. dollar – will lose nearly all its value. I just don’t see any realistic way around it. Since the financial crisis began eight years ago, the U.S. government has created 3.5 trillion new dollars. In that same eight years, the U.S. government has borrowed $9 trillion – as much as it has borrowed in the previous 232-year history of the United States.

Though politicians would like us to believe otherwise, actions have consequences. You simply cannot quadruple the money supply and double the national debt in eight years without catastrophic results.

As this unfolds, your biggest risk isn’t the crashing stock market or the crashing bond market. Your biggest problem, and also the one most people just don’t see, is political. Your government is by far the most serious threat to your money and wellbeing.

Why do I say that? Like any organism, the prime directive of a government is to survive. When faced with a threat to its survival, a broke government will do anything it can to stay alive. President Roosevelt confiscated Americans’ gold in 1933. And in just the last few years, we’ve seen broke governments raid private pensions and confiscate cash directly from people’s bank accounts.

As we head into a currency crisis for the record books, I think currency controls are a lock. Governments have used currency controls since the days of the Roman Empire. A country debases its currency, raises taxes beyond a certain level, and makes regulations too onerous. Naturally, productive people react by getting their capital, and then themselves, out of Dodge.

But the government can’t have that, so it puts on currency controls that prevent people from moving assets outside the country. In effect, currency controls force people to stay with a sinking ship.

I’ll be genuinely surprised if some form of currency controls isn’t instituted within two years. If you don’t get significant assets out of your home country now, you may soon find it costly and very difficult to do so.

I’ve written many times about the importance of internationalizing your assets, your mode of living, and your way of thinking. I suspect most readers have treated those articles as a travelogue to some distant and exotic land: interesting fodder for cocktail party chatter but basically academic and of little immediate personal relevance.

I hope this book will shake you out of that mindset. There’s a very real risk that if you don’t act soon, you may find yourself penned like a sheep and your options extremely limited.

This book will teach you how to move some of your money and investments outside the reach of your home government. You’ll learn how to open a foreign bank account… the best ways to store gold for maximum safety… what you need to know before buying foreign real estate, and much, much more.

We’ve done most of the legwork for you. But it’s up to you to act.

The next few years are going to be quite catastrophic. Hundreds of millions of people will slip into poverty when the currency crisis destroys their savings.

The good news? If you take the steps outlined in this book, you won’t be one of them.

If you’re interested in obtaining this book, you can obtain a hard copy in the mail. Click here for more details or to download the PDF now.

via Zero Hedge http://ift.tt/1RRGM7h Tyler Durden

COLORADO SPRINGS, CO — Saying the turn of events will greatly benefit the 17-year-old’s economic security, sources confirmed Friday that local high school senior Emily Harrison’s failure to get into the University of Southern California, a private academic institution, will be the single most financially responsible act of her entire life.

According to reports, Harrison’s rejected application, which she spent weeks preparing in hopes of spending four years at her “dream school,” will save the young student a total of nearly $370,000, including $205,768 in tuition, $3,714 in fees, $57,392 in room and board, and $101,670 in student loan interest payments.

 

 

The rejection, which led a visibly devastated Harrison to agonize over whether she should have participated in more extracurricular activities or obtained additional letters of recommendation, will reportedly allow her to avoid a period of 10 years or more in which she would have struggled to repay her loans, inevitably racking up credit card debt to cover basic necessities and ultimately leaving her unable to buy a home.

Sources said the teen will still face financial disaster if she follows through on her long-term plan to enter a PhD program, which would require her to spend approximately one-fifth of her adult life bringing in little to no income.

Source: The Onion

*   *   *

Indeed, while this satire is humorous, as Charles Hugh-Smith recently detailed, a system that piles debt on students in exchange for a marginal or even zero-return on their investment is morally and financially bankrupt.

Every once in a while you run across an insider's narrative of a corrupt, morally bankrupt sector that absolutely nails the sector's terminal rot. Here is that nails-it narrative for higher education: Pass, Fail: An inside look at the retail scam known as the modern university.

Here are excerpts of the article, which was published in Canada but is equally applicable to higher education in the U.S.:

A university degree, after all, is a credential crucial for economic success. At least, that’s what we’re told. But as with all such credentials—those sought for the ends they promise rather than the knowledge they represent—the trick is to get them cheaply, quickly, and with as little effort as possible. My students’ disaffection is the real face of this ambition.

 

I teach mostly bored youth who find themselves doing something they neither value nor desire—and, in some cases, are simply not equipped for—in order to achieve an outcome they are repeatedly warned is essential to their survival. What a dreadful trap.

 

One in particular matches perfectly with the type of change I’ve observed on my watch: the eradication of content from the classroom.

 

All efforts to create the illusion of academic content are acceptable so long as they are entertaining, and successful participation requires no real effort and no real accountability.

 

Remove your professor hat for a moment and students will speak frankly. They will tell you that they don’t read because they don’t have to. They can get an A without ever opening a book.

 

But don’t worry—you won’t go bust because of this failure, not in the modern university. So long as your class is popular and fun, you’ll be favoured by the administration and probably receive a teaching award. This, even though your students will leave your class in worse condition than they entered it, because you will have pandered to their basest inclinations while leaving their real intellectual and moral needs unmet.

 

There is no clearer example of administrators’ contempt for faculty. But there is also no clearer example of their contempt for students.

 

As money is siphoned from academic programs through attrition, it is channelled into a host of middle-management positions.

 

From 1979 to 2014, central administration and staff ballooned by three and a half times, while the size of the faculty merely doubled.

 

Parents, students, and governments keep supplying them with capital, assuming there will be a genuine return on investment. But since the institution no longer produces anything, no such return is forthcoming.

 

Spending on the student services sector in Canadian universities increased an incredible six-fold between 1979 and 2014.

 

The student services cabal is no longer there to support faculty in their work of educating students “but to compete with them to define the student experience.”

Insiders are quiet after they read this, because they know it's true.

The financial burden created by the higher education cartel is immense and expanding:

To mask the enormity of the sums squandered on "education" that has little measurable results, the federal government has purchased most of the debt:

No inflation here–just a 137% increase in 15 years:

A system that piles debt on students in exchange for a marginal or even zero-return on their investment is morally and financially bankrupt.

via Zero Hedge http://ift.tt/1PLJxW8 Tyler Durden

Believe it or not, the Iraqi army is on the verge of launching an attack on ISIS-held Mosul.

The city – home to millions of Iraqis – is Bakr al-Baghdadi’s most important urban stronghold.

Raqqa is the ISIS “capital”, but it’s easier to command. Mosul is a major city with a population that numbers in the millions. If ISIS were to lose its grip there, it would almost surely mark the beginning of the end for the self-styled “caliphate.”  

Over the past three weeks, Mosul has come under pressure from Russian-backed Shiite militias, US-supported Iraqi regulars, and Kurdish Peshmerga fighters who at this point have no idea who is on their side and who isn’t. 

Below, find excerpts from a new WSJ piece that outlines the pressure Islamic State faces from an international intelligence community that no longer finds them useful. 

Last week, the Pentagon said the U.S. military had killed a man they identified as one of Islamic State’s top military officials. It didn’t give any further information, but Gen. Magsosi said the man, known as Abu Eman, was the top expert at the Mosul bomb lab.

 

When Islamic State captured Mosul, Iraq’s second-largest city, in the summer of 2014, the university was one of the spoils. The university had a strong reputation around Iraq for its science departments, alumni say.

 

By March 2015, dozens of Islamic State engineers and scientists had set up a research hub in the chemistry lab, which was full of equipment and chemicals, according to the people with knowledge of the university.

 

Many of the regular staff, including professors specialized in organic, industrial and analytical chemistry, remained in the city at the time, but the new laboratories were staffed by Islamic State’s own men, according to one of those people.

 

At least since August, dozens of individuals—presumed to be foreigners because they didn’t speak Iraqi Arabic—were seen moving through the labs, the two people said. They said they were told specialized units had been set up there for chemical explosives and weapons research as well as suicide-bomb construction.

 

A separate group at the university’s technical college was dedicated to building suicide-bomb components, one of the two said.

Of course it’s a little late to be getting that kind of feedback. Sure, ISIS is now in control of Mosul’s intellectual community and that includes the bombmakers.

The question is whether these individuals will fold under pressure from the IRGC and admit what they know to the Ayatollah.

via Zero Hedge http://ift.tt/1Y4S4JQ Tyler Durden

Submitted by Peter Schiff via Euro Pacific Capital,

It may be almost impossible to underestimate the gullibility of professional Fed watchers. At least Lucy van Pelt needed to place an actual football on the ground to fool poor Charlie Brown. But in today’s high stakes game of Federal Reserve mind reading, the Fed doesn’t even have to make a halfway convincing bluff to make the markets look foolish.

Just two weeks ago, the release of the Fed's March policy statement and the subsequent press conference by Chairwoman Janet Yellen should have made it abundantly clear that the Central Bank policy had retreated substantially from the territory it had previously staked out for itself. In December it had anticipated four rate hikes in 2016,  but suddenly those had been pared down to two. Based on the conclusion that the era of easy money had been extended for at least a few more innings, the dollar sold off and stocks and commodities rallied.

But in the two weeks that followed the dovish March guidance, some lesser Fed officials, including those who aren't even voting members of the Fed's policy-setting Open Market Committee, made some seemingly hawkish comments that convinced the markets that the Fed had backed off from its decision to back off.

The campaign began on March 19 when St. Louis Fed President James Bullard said that the Fed had largely met its inflation and employment goals and that it would be “prudent to edge interest rates higher.” (H. Schneider, Reuters) Two days later Bloomberg reported that Atlanta Fed President Dennis Lockhart had said, “There is sufficient momentum…to justify a further step…possibly as early as April,” (J. Randow, S. Matthews, 3/21/16)

And it didn't stop there. On March 22, Philadelphia Fed President Patrick Harker said,“there is a strong case that we need to continue to raise rates…I think we need to get on with it.” (J. Spicer, Reuters) On March 24, Bullard chimed in again, saying that rate hikes “may not be far off,” appearing to back Lockhart’s suggestion for a surprise April hike. Suddenly, chatter erupted on Wall Street that the April FOMC meeting should be considered a “live” one, where a rate hike was possible. With such caution spreading, the markets reacted predictably: the dollar rallied, gold and stocks declined. 

At the time I said, as I have been saying all year, that the Fed never had an intention to tighten further, and that it would continue to talk up the economy just to create the impression of health. But many believed that Janet Yellen would use her speech this week at the New York Economic Club (her first public comments since her March press conference) to underscore the comments made by her colleagues in the past two weeks. Instead she delivered a double-barreled repudiation of any potential hawkish sentiment. In fact, her talk could be viewed as the most dovish she has ever delivered since taking the Chair.

The market reaction was swift. In fact, as the text of her address was released a few minutes before she hit the podium, gold jumped and the dollar dropped even before she started speaking. The only surprise was that there was any surprise at all.

If market watchers actually looked at economic data instead of trying to parse the sentence structure of Fed apparatchiks, they would know that the economy is rapidly decelerating, and most likely heading into recession (if it’s not already in one). These conditions would prohibit an overtly dovish Fed from any kind of tightening. Just this week February consumer spending increased at a tepid .1%, in line with very modest expectations (Bureau of Economic Analysis). But to get to that flaccid figure, the much more robust .5% growth rate originally reported for January had to be revised down to .1%. If that major markdown had not occurred, February would have come in as a contraction. The sleight of hand may have fooled the markets, but the Fed's own bean counters had to take it seriously. The figures were the primary justification for the Atlanta Fed’s decision to slash its first quarter GDP estimate to just .6%. That estimate had been as high as 1.4% last Thursday and 2.7% back in February. Clearly something isn't working. But whatever it is, Janet Yellen won't speak its name.  

In her speech in New York, Yellen was careful to mention that the Fed has not reduced its full year growth forecast of 2.5% to 3.0% that it had laid out in December. This despite the fact that their first quarter predictions, which must be a big part of their full year predictions, have already been hopelessly shattered by the Atlanta Fed's updates. 

If the Fed really believes that we are still on a solid growth track, then two major questions should immediately come to mind:

1) Given that she acknowledges greater than expected financial stresses and expected deceleration abroad, what could possibly be the catalyst that will suddenly reverse our economic trajectory, and

 

2) If it really does believe that this miracle will occur, why has the Fed abandoned the monetary policy trajectory that it announced in December?

The answer to the first question is a mystery. For much of the past year, Yellen stressed the improvements in the labor market, as evidenced by the low unemployment rate. But that figure has been thoroughly debunked by those who correctly point out that job creation in the U.S. has been dominated by low-paying part-time jobs that detract from economic health rather than add to it. But while Yellen clung to her rosy domestic outlook, she acknowledged the significant slowdown abroad. But if these global concerns are sowing caution at the Fed, why does she expect the U.S. to buck the trend?

She is correct that that many countries around the world have badly missed First Quarter forecasts. But she totally ignores the fact that the U.S. has been one of the bigger disappointments. For instance, since the end of last year, expectations for Q1 growth have declined 12.5% for Germany, 30% for Canada, 45% for Norway, and 57% for Japan (Bloomberg, 3/30/16). But based on the current estimates from the Atlanta Fed, the U.S. economy is growing at a rate that is 75% slower than the 2.4% projection Yellen and the Fed had forecast back in December. So why does the Fed acknowledge unexpected weakness abroad, yet ignore even greater unexpected weakness in the U.S.? Could it be that Yellen does not want to be seen as one of those “fiction peddlers” that President Obama criticized in his State of the Union address who have the audacity to suggest that the U.S. economy is not strong?

But the bigger question is not why the Fed is mindlessly cheer-leading, that is after all part of its job description, but how it can justify altering its monetary policy while holding fast to its economic forecasts. To square that circle,Yellen said that the Fed had erred in its assumptions as to what constitutes a “neutral” policy level whereby rates are neither stimulating nor restrictive. She said that based on her global concerns, neutral policy should now be considered close to 0% rather than the 2% that the Fed had hinted at earlier. She also said that the range of factors that the Fed considers in reaching its rate decisions had evolved beyond simply looking at the traditional inputs of GDP growth, inflation and unemployment to include global risk factors that could impact the U.S. In other words, the Fed is not simply “data dependent” but is now “globally data dependent,” a stance that could allow it to point to any potential crisis anywhere in the world as a rationale not to raise rates. Already many observers are suggesting that the June “Brexit” vote in the UK will be a justification to take a rate hike off the table for the June FOMC meeting.

Of course, this ever-expanding list of criteria should be viewed as what it really is: a continual shifting of goal posts that will prevent the Fed from EVER having to raise rates again (at least until a rapidly rising CPI forces its hand). It may have incorrectly believed it could get away with a series of increases when it first started raising in December, but those expectations may have wilted when the markets and the economy dropped so decisively in the immediate wake of December’s 25 basis point increase. Yet even though markets have recovered, I believe they have only done so because the Fed has backed off. In fact, if that initial rate hike was a trial balloon for future hikes, its flight was about as successful as the Hindenburg’s. As such, the Fed hardly wants to risk another sell-off that it may be unable to reverse.

So the handwriting is on the wall for anyone literate enough to read it. The Fed is stuck in a monetary Roach Motel from which it may never escape. Keynesian economists like to discuss a “liquidity trap” but their policies have created an undeniable “stimulus trap” that I believe will remain in place until the whole merry-go-round spins out of control.

The quarter that just ended yesterday saw the biggest quarterly declines in the U.S. dollar in five years (T. Hall, Bloomberg, 3/30/16), and the strongest quarter for gold in 30 years (R. Pakiam, Bloomberg, 3/30/16). These moves completely took the Wall Street establishment by surprise. But given the historic rally enjoyed by the dollar over the past five years, three months’ worth of declines may just be a small down payment on the declines the dollar may experience in the years ahead.

Despite having fallen for all of the Fed’s prior head fakes,  some economists are taking today’s March payroll report, which showed the creation of 215,000 jobs and a tick up in the labor participation rate to 63.0% (Bureau of Labor Statistics), as a sign that the Fed will now have to shift back into a hawkish stance. Putting aside the fact that the majority of the new jobs were part-time and went to people who already had at least one, and that the official unemployment rate actually ticked up, one wonders how much more of this will we have to witness before economists  finally realize that there will likely never be a real ball to kick.

via Zero Hedge http://ift.tt/25BGMm4 Tyler Durden

In the wake of the terrorist attacks that left nearly two dozen killed and some 100 people injured, officials in Brussels (not to mention presidential candidates in the US) are wondering whether police in Belgium should have tortured Salah Abdeslam last weekend.

To let Donald Trump and others tell it, torturing Abdeslam would likely have yielded valuable information that may well have prevented the attacks that left some 34 people dead last week. 

Meanwhile, “the terrorists” are planning attacks on Belgium’s nulclear facilities – or at least that’s what the mainstream media wants you to believe. 

As you can see from the following headline dump however, the real threat to peace in the Western world may emanante from sheer incompetence.

via Zero Hedge http://ift.tt/1X4CePk Tyler Durden

Submitted by Justin Raimondo via AntiWar.com,

Unlike many libertarians, I love presidential election season, because that’s when generally ignored foreign policy issues are discussed beyond the small circle of Washington wonks. And that’s why I’m having such fun with Donald Trump – much to the annoyance of some of my readers, both libertarians and liberals alike: because he’s provoking a much-needed discussion about who benefits (and loses) from “American leadership” on the world stage. Most useful is his recent assertion that the North Atlantic Treaty Organization (NATO) is “obsolete.”

So it is. When the Berlin Wall fell, and the Soviet Union dissolved, the rationale for NATO disintegrated along with it. However, as libertarians know all too well, government programs (especially those that benefit the corporate sector) never die, nor do they fade away: they just keep growing to the degree that their constituency wields political clout. In NATO’s case, this clout is considerable.

When the citizens of Berlin did what Ronald Reagan urged Gorbachev to do – “Mr. Gorbachev, tear down that wall!” – the Soviet leader tried to negotiate with the West. And, to his mind, he succeeded: an understanding was reached with Washington that the Russians would allow German reunification on the condition that the NATO alliance would not expand eastward.

That promise was not kept. Instead, the lobbyists, both foreign and domestic, went into overdrive in a campaign to extend NATO to the very gates of Moscow. It was a lucrative business for the Washington set, as the Wall Street Journal documented: cushy fees for lobbyists, influence-buying by US corporations, as well as political tradeoffs for the administration of George W. Bush, which garnered support for the Iraq war from Eastern  Europe’s former Warsaw Pact states in exchange for favorable treatment of their NATO applications.

The Committee to Expand NATO, later re-dubbed the US Committee on NATO, had at its core many of the founding members of Bill Kristol’s Project for a New American Century (PNAC) which played such an instrumental role in agitating for the invasion of Iraq. Yet it was too lucrative to exclude “progressives” of the Clintonian variety, bringing together neoconservatives like Paul Wolfowitz, Robert Kagan, Stephen Hadley, and Richard Perle, with liberal internationalists such as Will Marshall, of the Progressive Policy Institute, and Sally Painter, a former Commerce Department official under Bill Clinton –turned-lobbyist, who raked in hundreds of thousands in contracts from aspiring NATO countries and their corporate clients in the US.

Founder and president of the NATO Committee was Bruce Jackson, at the time finance director of Bob Dole’s presidential campaign, and vice-president in charge of planning and strategy for Lockheed – today Lockheed-Martin – the biggest military contractor in the country.

The NATO expansion project fit neatly in with Jackson’s day job: all NATO applicants must upgrade their military forces in order to meet uniform standards, and this meant a windfall for the military-industrial complex – with Lockheed first in line. The Lockheed connection was reinforced by Randy Scheunemann, a member of the Committee’s board, and president of Orion Strategies, a public relations firm whose clients include Lockheed.

The Clinton administration fully supported NATO expansion, and the Committee’s activities brought together the White House, members of Congress from both parties, and the Washington lobbyists and their foreign clients for a spate of conferences, dinners, and private meetings. Reams of propaganda were aimed at the mass media, and the political class, including a very visible presence at the national conventions of both political parties.

In short, NATO expansion was – and is – a crony capitalist’s dream, albeit not the sort that gets the same amount of attention from “libertarian” critics of such boondoggles as the Ex-Im Bank, who regularly remind us that Boeing is the Bank’s biggest customer. Forgotten (or evaded) is the fact that Boeing (or Lockheed-Martin, General Dynamics, etc.) gets billions whenever a new applicant is added to NATO’s ranks and has to modernizes its forces.

The NATO expansionists won their battle: Poland, Hungary, and the Czech Republic joined in 1999: Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia, and Slovenia were added in 2004. Albania and Croatia came on board in 2006. The latest applicants are tiny Montenegro, a splinter shaved off of the former Yugoslavia, which will probably be admitted this summer, and Georgia, which is not even in Europe, and is still fighting to join the club: its inclusion is controversial in part because it would be seen as throwing down the gauntlet to Russia, with whom it fought a brief war in 2008 over the breakaway Republic of Ossetia.

Therein lies the real danger posed by NATO expansion – and, indeed, the existence of the alliance thirty years after the Soviet implosion. As Sen. Robert A. Taft put it in a 1949 nationally broadcast speech opposing US entry into NATO, he said:

“It obligates us to go to war if at any time during the next 20 years anyone makes an armed attack on any of the 12 nations. Under the Monroe Doctrine we could change our policy at any time. We could judge whether perhaps one of the countries had given cause for the attack. Only Congress could declare a war in pursuance of the doctrine. Under the new pact the President can take us into war without Congress. But, above all the treaty is a part of a much larger program by which we arm all these nations against Russia… A joint military program has already been made… It thus becomes an offensive and defensive military alliance against Russia. I believe our foreign policy should be aimed primarily at security and peace, and I believe such an alliance is more likely to produce war than peace. A third world war would be the greatest tragedy the world has ever suffered. Even if we won the war, we this time would probably suffer tremendous destruction, our economic system would be crippled, and we would lose our liberties and free system just as the Second World War destroyed the free systems of Europe. It might easily destroy civilization on this earth…

 

“There is another consideration. If we undertake to arm all the nations around Russia from Norway on the north to Turkey on the south, and Russia sees itself ringed about gradually by so-called defensive arms from Norway and. Denmark to Turkey and Greece, it may form a different opinion. It may decide that the arming of western Europe, regardless of its present purpose, looks to an attack upon Russia. Its view may be unreasonable, and I think it is. But from the Russian standpoint it may not seem unreasonable. They may well decide that if war is the certain result, that war might better occur now rather than after the arming of Europe is completed…

 

“How would we feel if Russia undertook to arm a country on our border; Mexico, for instance?

 

“Furthermore, can we afford this new project of foreign assistance?”

Which brings us to Trump’s critique: that NATO is a “bad deal” because we bear a disproportionate share of the costs. He is quite correct on this score. As of today, the US and Estonia are the only two NATO members keeping to the “requirement” that their military spending equals two percent of GDP. Former Defense Secretary Robert Gates pointed this out in a 2011 speech in which he predicted that NATO’s future was sure to be “dim if not dismal.” Our shiftless allies are all too “willing and eager for American taxpayers to assume the growing security burden left by reductions in European defense budgets,” he said.

Added to the direct costs of NATO is the expense of stationing over 60,000 troops in Europe, maintenance of our many bases, and the opportunity costs of money that could have been diverted to productive domestic uses. Taft, it seems, was right that the costs of NATO would turn out to be “incalculable.”

And then there is yet another cost – the price of risking World War III.

NATO expansion has led to Russian rearmament and the nullification of arms treaties negotiated as the cold war neared its endpoint. The Western powers have launched provocative military “exercises” that cannot be seen by the Russians as anything other than a dress rehearsal for war – and the Kremlin has reacted accordingly.

With his plan – or, rather, inclination – to abandon the old NATO and replace it with some sort of multilateral counterterrorist operation, and his insistence that our “allies” pay up, Trump is forcing an issue onto the stage that hasn’t been seen since the days of Bob Taft. And with the bogeyman of Communism absent, he is free to say he could get along with Vladimir Putin and only catch flak from committed neocons.

NATO isn’t just an expensive luxury of the sort we can no longer afford – it is a tripwire that could be set off by a minor border conflict involving Moldova, the status of Kaliningrad, or – more likely – another round of hostilities in Ukraine.

Would we start World War III in defense of the oligarchs of Kiev?

I wouldn’t put it past them.

That’s why, no matter what the fate of Trump’s presidential bid, we all owe him for raising this vital issue – and within the GOP, no less, a party which has been, up until now, a bastion of support for the NATO-crats and the new cold war against Russia.

via Zero Hedge http://ift.tt/1pSk4W3 Tyler Durden