Russian Warship Flotilla Enters English Channel For Military Exercises

The French delivery of two Mistral ships to Russia may be postponed indefinitely (a move which ultimately would cost Hollande over $4 billion in contract breach penalty fees he simply can’t afford to pay), but that doesn’t mean the Russian navy has been hobbled or is hiding in the corner. To the contrary: according to the following tweet from the UK Ministry of Defense, Russia’s navy is getting quite bolder.

What happened?

As Bloomberg reports, at least 4 vessels which departed the Russian Northern Fleet main base on November 20, led by anti-submarine ship Severomorsk, entered English channel for exercises that include anti-sabotage training, damage control in case of fire and water intake, state-run news service RIA Novosti says, citing statement from Navy.

Reuters confirms that a squadron of Russian warships entered the English Channel on Friday to hold exercises, RIA news agency reported, the latest apparent show of military might since ties with the West plunged to Cold War lows over Ukraine.

RIA quoted the Northern Fleet as saying its vessels, led by anti-submarine ship Severomorsk, had passed through the Strait of Dover and were now in international waters in the Seine Bay to wait for a storm to pass.

 

“While it is anchored the crew are undertaking a series of exercises on how to tackle … infiltrating submarine forces and are training on survival techniques in the case of flooding or fire,” RIA quoted the Northern Fleet as saying in a statement.

 

The Russian navy could not reached for comment and the Defence Ministry declined to comment on the report.

The Russian navy frigate Smolny is seen at the STX Les Chantiers
de l’Atlantique shipyard site in Saint-Nazaire, western France, November 25, 2014

Naturally, NATO – afraid of looking even weaker than it is – was quick to downplay the incident since a lack of retaliation would make the defensive alliance appear quite prone to “penetrations” by Russian forces:

France’s navy confirmed the location of the ships and said it was not unusual to have Russian warships in the Channel.

 

“They are not holding exercises. They’re just waiting in a zone where they can be several times a year,” said the French Navy’s information service.

 

Lieutenant-Colonel Jay Janzen, NATO’s military spokesman, also said the alliance was aware of the Russian ships’ location.

 

“Our information indicates that the ships are transiting and have been delayed by weather conditions. They are not exercising in the Channel, as some Russian headlines would have us believe,” he said.

And if they were “exercising” it would simply mean that NATO exercises in the Black Sea miles away from the Russian coast, are finally being met in kind by a Russia which with every passing day is making it clear its “concern” of western reprisal and retaliation to Russian actions, which in turn are a consequence of NATO expansion eastward, is increasingly negligible.




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Frontrunning: November 28

  • Oil Seen in New Era as OPEC Won’t Yield to U.S. Shale (BBG)
  • Alberta Producers With World’s Cheapest Oil Face Cascading Woes (BBG)
  • Bundesbank’s Weidmann Rejects Calls for German Stimulus Plan (WSJ)
  • Google Should Be Broken Up, Say Euro MPs (BBC)
  • Calm comes to troubled Ferguson; protests dwindle across U.S. (Reuters)
  • Russia’s Banks Feel Capital Squeeze in Grip of Sanctions (BBG)
  •  Italian Unemployment Rate Rises to Record, Above Forecasts (BBG)
  • Hedge Funds Seek to Tie Up Money for Longer (WSJ)
  • Laughing Hacker Who Hit Sony, FBI Now Seeks Legal Lols (BBG)
  • China Motorists Exceed 300 Million as Cities Struggle (BBG)
  • WHO advises male Ebola survivors to abstain from sex (Reuters)
  • Why Italy’s stay-home shoppers terrify the euro zone (Reuters)
  • Iron Caps Biggest Monthly Drop Since September as Supply Climbs (BBG)

 

Overnight Media Digest

WSJ

* Two music publishers are taking aim at a new target in the battle against illegal song downloading: the cable industry. Wednesday afternoon, BMG Rights Management LLC and Round Hill Music LP sued cable giant Cox Communications Inc, claiming that Cox, which provides Internet service to millions, is deliberately turning a blind eye to illegal downloading by its subscribers. (http://on.wsj.com/15F673Y)

* Hedge-fund managers are increasingly persuading investors to lock up their money for longer – in many cases more than double the typical one-year period – and dangling lower fees to close the deal. (http://on.wsj.com/1vr7DyZ)

* European politicians are poised to approve a new generation of lower-cost rockets, partly in response to competition from U.S. launch providers, according to government and aerospace-industry officials on both sides of the Atlantic. (http://on.wsj.com/1xY2DEe)

* Manufacturers are taking matters into their own hands to patch up a weak spot of Thailand’s economy: its worsening shortage of skilled labor. A shrinking labor pool and inadequate training for workers are constraining business and industrial growth, investors here say. Now an increasing number of companies – many in the auto industry – are rolling out apprenticeship programs aimed at beefing up the workforce themselves. (http://on.wsj.com/1HJ21Xh)

* Europe escalated its war against U.S. technology superpowers as the Continent’s two largest economies and the European Parliament on Thursday backed fresh efforts to rein in the growing influence of companies such as Apple Inc, Facebook Inc and Google Inc. (http://on.wsj.com/1zZDYhv)

* Outbrain Inc, a provider of “native ads,” filed confidentially with the U.S. Securities and Exchange Commission earlier this month seeking preliminary approval to list shares on the Nasdaq Stock Market, according to people familiar with the matter. (http://on.wsj.com/1xXb1Uk)

* The financial crisis and its aftermath have revived interest in gold as a monetary policy instrument, especially in Europe, where central banks face public pressure to buy gold or bring back home what they hold overseas. (http://on.wsj.com/1vWk0pg)

* BAIC Motor Corp, a Chinese car maker partly owned by Daimler AG, is planning to start gauging investors’ interest next week in an initial public offering which could raise between $1.2 billion and $1.5 billion in Hong Kong, a person familiar with the situation said. (http://on.wsj.com/1tx1blZ)

 

FT

Two senior executives, Kevin Grace, group commercial director, and Carl Rogberg, UK finance director, of troubled British grocer Tesco, left the company on Wednesday.

Mexican billionaire Carlos Slim is set to become the largest investor in Spanish builder FCC after agreeing to buy top shareholder Esther Koplowitz’s part of a $1.3 billion capital increase. This capital increase will leave Slim with a 25.6 percent stake in the company.

Deutsche Bank AG is winding down its physical precious metals trading business, it said on Thursday, moving to further scale back its exposure to commodities.

Director of Britain’s “Business for New Europe”, a pro-EU lobby group and a non-profit organisation, Alisdair McIntosh, is set to quit after less than a year in office.

 

NYT

* Oil cartel OPEC decided not to cut petroleum production, despite the plunge in prices in recent months that has indicated the diminishing clout of the organization. The price of Brent crude oil fell an additional $4 to a four-year low of about $73. American crude dropped below $70, an even more significant threshold. (http://nyti.ms/1vqEkwq)

* Europe’s resentment of the American technology giant Google Inc reached a new noise level as the European Parliament passed a nonbinding vote to break up the company. European fears of American technology giants have been stoked in the last 18 months by the revelations of Edward Snowden, the former National Security Agency contractor, about American intelligence agencies’ spying activities and perceived easy access to the world’s tech infrastructure. (http://nyti.ms/120xXWO)

* A London high court judge has ordered Chris Hohn, founder of one of Britain’s largest and most successful hedge funds, to pay his former wife $531 million to settle their messy public divorce, according to statements made in court. The figure demonstrates the immense wealth Hohn has accumulated at the helm of the Children’s Investment Fund, known as TCI. (http://nyti.ms/1rB9PQy)

* Cheyne Capital, a $6 billion hedge fund based in London, plans to buy property it will then rent to organizations that deliver services like affordable housing, aid for the elderly or care through the National Health Service. (http://nyti.ms/1zBFfuq)

* Argentina’s tax agency accused HSBC Bank PLC of helping more than 4,000 Argentines evade taxes by placing their money in secret Swiss accounts. The head of the country’s tax agency said Argentine citizens had evaded about $3 billion in taxes. (http://nyti.ms/120UX8i)

* U.S. Bank, a division of U.S. Bancorp, is being accused of failing to engage with borrowers who missed payments. The legal action could mean fresh problems for other big mortgage banks, as well. (http://nyti.ms/1yiVs8p)

* Japan will follow the United States in forcing automakers to recall all vehicles containing potentially dangerous driver’s-side airbags made by Takata Corp. An order from the Transportation Ministry on the airbags would lead to the recall of an additional 200,000 vehicles in Japan. (http://nyti.ms/1zZHY1E)

 

Canada

THE GLOBE AND MAIL

** Canada’s energy sector faces the prospect of a lengthy downturn in oil prices and broad spending cuts after the Organization of the Petroleum Exporting Countries said it did not intend to cut production – a move that sent crude prices and energy shares plunging. Investors immediately punished Canadian energy companies in reaction to the OPEC’s decision on Thursday to stand firm on its production plans, defying industry hopes for a cut. (http://bit.ly/1zCx9lo)

** It has been a long road to redemption for Canadian Imperial Bank of Commerce, but the lender’s retail banking revamp is finally bearing fruit. For the first time in years, there is a buzz inside CIBC – a confidence instilled in its executives by early signs of above-industry-average growth. After years of lagging its peers, retail banking head David Williamson says he and other executives can’t help but feel a little swagger. (http://bit.ly/121HJIc)

** Patents are a key measure of a country’s ability to turn research into viable products, and Canada is slipping. Per capita patent filings in Canada have been on a steady decline since 2000, according to a study of more than one million applications to the Canadian Intellectual Property Office by the C.D. Howe Institute. (http://bit.ly/11AiBHC)

NATIONAL POST

** Wal-Mart Stores Inc’s Walmart Canada is expanding its ‘grab and go’ locker pickup system for online orders just in time for Christmas, beating Amazon Canada to the punch. Walmart began testing a locker system for web customers at 10 Toronto-area stores in August, offering it as an alternative to home delivery. It allows customers to pick up the goods at a locked unit with a personal PIN code tied to their order, thereby skipping cash register lines and in-store shopping time. (http://bit.ly/1v0D7NH)

** In his blogging about Canada’s hate speech laws, right-wing personality Ezra Levant defamed a young law student as a serial liar, a bigot and a Jew-hating “illiberal Islamic fascist,” bent on destroying Canada’s tradition of free expression, a judge has found. (http://bit.ly/1y7FLmW)

** Canada is sending a team of military medical specialists to Sierra Leone to help combat the spread of Ebola in that country. The government says up to 40 Canadian Armed Forces healthcare and support staff will be deployed to the West African country. (http://bit.ly/1vUeG6z)

 

China

CHINA SECURITIES JOURNAL

– A cut in China’s reserve requirement ratio (RRR) is “imminent” after the central bank slashed interest rates last week, said Wen Bin, senior economist at Minsheng Bank.

CHINA BUSINESS NEWS

– The Legislative Affairs Office of the State Council, or China’s Cabinet, is seeking public comments on draft rules for the country’s social security fund.

– Balance in China’s margin trading accounts reached a record 800 billion yuan ($130.31 billion), the newspaper said, citing a report.

21ST CENTURY BUSINESS HERALD

– The National Development and Reform Commission (NDRC) will soon release guidelines on Public-Private Partnership (PPP) regarding cooperation between local governments and social capital, said Ou Hong, an NDRC official.

CHINA DAILY

– The people of Hong Kong must respect Beijing’s jurisdiction over the region in order to smoothly implement the “One country, two systems” policy, the China Daily said in an editorial.

 




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PROOF: While The Bank Of Japan Goes ‘Full-QE-Retard’, Japanese Investors Are Hoarding Physical Gold

Shinzo_Abe_-_129590_419777c

Japan’s Prime Minister Shinzo Abe has had an extremely busy past few weeks. After increasing the sales tax rate earlier this year which caused the GDP to contract by more than 7%, the Bank of Japan announced earlier this month it would step up its game and print money like never before. In a previous column we explained that Japan would print new money at twice the rate the USA was printing cash at the height of its quantitative easing program.

Even though Abe’s economic policy (called Abenomics) seemed to be working in the first phase of the implementation, the progress has stalled and Japan is now back in a recession again. This could be a huge indication that Abenomics is quite dead. In an attempt to resuscitate the policy, the huge money printing program has started and Abe has announced he would postpone a planned increase in the sales tax to 10% by 18 months years as the effect of another increase might have been devastating for the country’s economy. It was already quite weird for someone who wanted to increase the consumption pattern of the Japanese population to increase a sales tax (which obviously reduces the demand for goods) to get the country’s financial situation back in order.

Surprisingly enough, even though Japan’s economy is now officially in recession again Abe has called for new elections within the month. With Abenomics failing and the domestic economy tumbling back into recession, the central bank printing money like crazy leading to a severe depreciation of the Japanese Yen and an unpopular move to increase the sales tax from 5% to 8%, one would definitely not expect a democratic leader to ask the citizens of Japan to vote for him once again.

Japan Abenomics

But Abe has effectively called for elections which will be held on December 14th which is in less than four weeks from now, now that’s an electoral ‘Blitzkrieg’! It’s also quite easy to understand why the sales tax hike has been postponed as the prime minister needs to make himself popular with his citizens. But more than anything else, the elections were called to take the left side of the political landscape by surprise. As elections are a complete surprise for everyone, the left-wing parties haven’t organized and harmonized their opposition against Abe yet. On top of that, with such a short time frame before the elections it’s extremely unlikely the left side will actually be able to organize themselves and take up the glove Abe has dropped.

By adding this element of surprise, Abe just wants to secure another term in office despite his failing economic policy. As he’s a real politician, Shinzo Abe is still upbeat about Abenomics stating ‘it’s working’ but he seems to forget that even though the unemployment rate decreased and the company’s revenues increased, there still isn’t a noticeable increase in consumption and salaries. Realizing one out of three promises isn’t really what you’d call ‘passing’ the test. It’s also a very wise decision to ask the Japanese population for a vote of confidence before the newly-printed money will be felt by the man in the street through an increasing inflation rate.

Gold in Yen 1y chart

Source

The ‘Abenomics -balloon’ is slowly deflating and Abe seems to want to secure his personal future before Japan’s economic situation deteriorates even further. The Japanese Yen has already lost 15% of its value in the past six months and with a failing economy and huge quantitative easing program we are expecting a further depreciation of the Yen. Meanwhile, the gold price in JPY has increased by almost 10% in the same six months, despite a 7.5% drop in the price of gold (expressed in USD). This once again emphasizes every decent investment portfolio should contain some gold and silver to protect yourself against sudden changes in the economic policy.

Our thesis seems to be confirmed as our research has indicated the total amount held in a physical gold ETF issued by Mitsubishi UFJ – “Fruit of Gold” – has increased exponentially since Abenomics went in full force, as can be seen on the following chart.

Mitsubishi UFJ Japan Physical Gold ETF - AUM

Source

The amount of gold is expressed in grams. So whereas this ETF had roughly 1 million grams of gold in 2010 ( 32,150 ounces), this increased exponentially and almost eightfolded in just a few years time. The vertical red line is the moment the Bank of Japan started behaving irrational and you can clearly see the interest to hold physical gold has increased since then. The smart Japanese have mobilized their money and invested it in physical gold to safeguard and protect their purchasing power. And they are right to do so!

>>> Check Out Our Latest Gold Report!

Sprout Money offers a fresh look at investing. We analyze long lasting cycles, coupled with a collection of strategic investments and concrete tips for different types of assets. The methods and strategies from Sprout Money are transformed into the Gold & Silver Report and the Technology Report.

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OPEC’s Crude Bloodbath Sends 10 Year To 2.20%, Energy Companies Tumble

The biggest, and most market-moving, event overnight continues to be yesterday’s shocking OPEC announcement, which is still reverberating across the energy space as markets largely ignore European and Japanese inflation data which is once again sliding back dangerously fast, or Italian unemployment which rose more than expected, and joined France in hitting a new record high. As a result European shares remain lower, close to intraday lows, with the oil & gas and industrials sectors underperforming and telco and travel outperforming as oil continues its decline. EU inflation slowed in Nov. to 0.3%. Italian and Swedish markets are the worst-performing larger bourses, Spanish the best. The euro is weaker against the dollar. And while US equity futures are largely unchanged even as, or perhaps because, the world is screaming economic slowdown, bonds are finally getting the message with U.S. 10yr bond yields falling to only 2.20% as Japanese yields also decline.

Some more detail from RanSquawk:

European equities enter the North American crossover in negative territory albeit off their worst levels. The sole catalyst for price action thus far has been the fallout of yesterday’s decision by OPEC to refrain from altering their output ceiling. More specifically, the energy sector has naturally been substantially weighed on by the ramifications of yesterday, with the top 10 laggards in the Stoxx 600 all being from the sector, with the FTSE 100 feeling the squeeze with BP and shell notably lower, with the two Co.’s accounting for just over 12% of the index. Nonetheless, airliners have provided stocks with some modest reprieve as the lower energy prices will benefit the sector, although the implications for airliners are less substantial than those of oil producers. Elsewhere, in fixed income markets, Bunds opened at fresh contract highs, although now reside in relatively modest territory after failing to make a break above the 153.00 level. One thing to be aware of looking ahead, is that the lower energy prices are likely to filter through to global inflation prospects and thus could have further considerations on central bank policies, notably the ECB, with this also coming in the backdrop of the heightened expectations of a sovereign QE programme.

Market Wrap

  • S&P 500 futures down 0.3% to 2067.1
  • Stoxx 600 down 0.5% to 345.7
  • US 10Yr yield down 5bps to 2.2%
  • German 10Yr yield up 0bps to 0.7%
  • MSCI Asia Pacific up 0.1% to 140.9
  • Gold spot down 0.8% to $1181.5/oz

Bulletin Headline Summary from RanSquawk and Bloomberg

  • The OPEC oil-slide continues to cause further turmoil for oil producers and commodity currencies, while lower energy prices provide airline names with some reprieve.
  • Looking ahead, today’s calendar is exceedingly thin with ECB’s Weidmann due on the speaker slate, although volumes are expected to be surprised by yesterday’s US Thanksgiving Holiday
  • Treasuries head for weekly gain amid well-received 2Y and 5Y auctions and as oil prices slide after OPEC refrained from reducing output at meeting yesterday.
  • OPEC’s decision to cede no ground to rival producers underscored the price war in the crude market and the challenge to U.S. shale drillers
  • Euro-area inflation slowed in November to match a five-year low, prodding the ECB toward expanding its unprecedented stimulus program
  • Draghi yesterday said the ECB is open to buying a wide variety of assets for further stimulus as German and Spanish inflation data highlighted the struggle to revive the euro-area economy
  • David Cameron raised the prospect of Britain leaving the EU unless fellow leaders agree to let him restrict access to welfare payments for migrants
  • Rating companies say defaults in China will spread as the central bank’s interest rate cut will do little to stop a wave of maturities from worsening record debt downgrades
  • China asked state-owned companies to investigate risks associated with commodity trading, said people familiar with the matter, as the government seeks to avoid losses amid a price slump for raw materials
  • Brazil’s economy expanded 0.1% in 3Q, less than forecast, as the world’s second biggest emerging market recovers from recession
  • Brazil’s Finance Minister-designate Joaquim Levy pledged to adopt more rigorous fiscal discipline without providing details on how he will reduce the country’s debt levels
  • Sovereign yields mostly lower. Asian stocks gain; European stocks,  U.S. equity-index futures fall. Brent crude falls; WTI reached $67.75 yday, lowest since May 2010; gold and copper lower

FX

In FX markets, the notable focus has been on commodity currencies with the NOK reaching a 5 year low against the EUR, while CAD has continued its OPEC-inspired losses, with USD/CAD steadily approaching the 1.1400 level; should we trade above 1.1400 in the pair then the 6th of November 2014 high comes in at 1.1443 to the upside. Furthermore, the RUB has also felt the squeeze of lower energy prices and earlier printed a fresh record low against the greenback, with the USD broadly stronger after breaking above the 88.00 level during Asia-Pacific trade, which subsequently saw USD/JPY break above 118.00 overnight. EUR was provided a modest uptick as Y/Y CPI came in-line with expectations at 0.3%, although was not as low as some participants had feared. Furthermore, today is the last trading day before the results of the Swiss national gold referendum with results due on Sunday.

COMMODITIES

In the energy complex, as to be expected, yesterday’s OPEC decision has continued to take centre-stage with energy prices continuing to plummet lower and seemingly unable to find a floor, with analysts at Barclay’s suggesting that Crude prices to drop another USD 10/bbl before new floor is discovered. Elsewhere in metals markets, a strong USD capped any potential pullback in prices and also weighed on metals with COMEX copper, spot gold and spot silver all slipping to their 1-week lows. Elsewhere, Spot iron ore prices rose to around USD 70/ton overnight, boosted by Dalian iron ore futures rising for their 3rd consecutive day as investors covered short positions




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Guest Post: What Americans Celebrate On Thanksgiving Day

Authored by Paul Craig Roberts,

When Americans celebrate Thanksgiving, they don’t know what they are celebrating.

In American folklore, Thanksgiving is a holiday that originated in 1621 with the Pilgrims celebrating a good harvest. Some historians say that this event is poorly documented, and others believe that the Thanksgiving tradition travelled to the New World with the Pilgrims and Puritans who brought with them the English Days of Thanksgiving. Other historians think the Pilgrims associated their relief from hunger with their observance of the relief of the siege of Leiden.

The Pilgrims’ Thanksgiving, if it happened, might not have been the first in the New World. Historians say the Virginia colonial charter declared a Day of Thanksgiving in 1619, and other historians say the first Thanksgiving was observed by the Spanish in Florida in 1565.

Apparently, the different English colonies and later American states each had their own day of Thanksgiving, if they had one. Abraham Lincoln tried to make Thanksgiving a national holiday in 1863, but the country was divided by the War of Northern Aggression.

Thanksgiving became a national holiday with the completion of the Reconstruction of the South after the War of Northern Aggression and the extermination of the Plains Indians by the Union generals in the 1870s. This taints Thanksgiving as a celebration of the preservation and expansion of the American Empire and accurately reflects the goal of the political forces behind Lincoln.

Today, Thanksgiving is simply known as “Turkey Day” and a time of retail sales. But as you eat your Thanksgiving meal, contemplate that what you are really celebrating is an Empire rooted in war crimes. If Lincoln had lost, and if there had been at that time a Nuremberg War Crimes Tribunal, Lincoln, Grant, Sherman, and Sheridan would have been hung as war criminals.

Sheridan was probably the worst of the lot. His war crimes against the South, especially those he committed in the Shenandoah Valley of Virginia, must have been forgotten by Southerns who vote Republican, the Party of Lincoln and Sheridan. But Sheridan’s crimes against the Indians were worse. He attacked the Indians in their winter quarters, destroying their food supplies, and sent professional hunters to exterminate the Buffalo, declaring: “Let them kill until the buffalo is exterminated,” thus depriving the Plains Indians of their main food source.

Considering the enormity of the Republican Party’s crimes against the South, it is a testament to the forgetfulness of people that Southerners vote Republican. Sheridan expressed well the Republican attitude toward the South, declaring on several occasions that “if I owned Texas and Hell, I would rent Texas and live in Hell.”

In the 1870s when Democrats won elections in Louisiana, Sheridan, who had power over the state, declared the Democrats to be bandits who would be subjected to his military tribunals.

Sheridan graduated near the bottom of his West Point Class, but his immorality and viciousness propelled him to the rank of Commanding General of the US Army. Today he would delight in the endless US bombings of women and children in seven countries.

Note: The War of Northern Aggression is the South’s description for what those dedicated to preserving the Union called the Civil War. The South’s term seems more correct. The Union forces invaded the South. A Civil War occurs when contending parties engage in violence for control of the government. But the Southern states were not contending for control of the US government; they exercised their right of self-determination and withdrew from the union into which they had voluntarily entered. It was an act of secession based in divergent economic interests between an export agricultural economy in the South and a rising industrial economy in the North in need of protective tariffs. The Southern secession was not an act of war for control over the government in Washington.

Unionists saw secession as a threat to empire. Another country could be a contender for the lands to the West. In his books, The Real Lincoln and Lincoln Unmasked, Thomas DiLorenzo makes a case that the War of Northern Aggression was waged in behalf of empire. He quotes Lincoln to the effect that he would preserve slavery if it would preserve the Union, and, if memory serves, DiLorenzo quotes Lincoln’s generals advising him not to throw a bone to abolitionists by saying it was a war to end slavery or much of the Union army would desert.

Today Americans think of themselves as citizens of the United States. But in 1860 people thought of themselves as citizens of states. When Robert E. Lee was offered a top command in the Union army, he declined on the grounds that he could not draw his sword on his native state of Virginia. Lincoln used the war to establish the supremacy of the central government in Washington over the states to which the Constitution had given most functions of government.

The supremacy of the central government that Lincoln established advanced the forces of empire.The “war to end slavery,” like the Iraq war to protect America from “Saddam Hussein’s weapons of mass destruction,” looks more like fictional cover for the employment of violence in pursuit of empire than a moral crusade.




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Irrational Exuberance – Descriptive Superlatives Exhaustion Point Is Reached

Submitted by Pater Tenebrarum via Acting-Man blog,

Positioning Indicators at new Extremes

We are updating our suite of sentiment data again, mainly because it is so fascinating that a historically rarely seen bullish consensus has emerged – after a rally that has taken the SPX up by slightly over 210% from its low. Admittedly, a slew of such records has occurred in the course of the past year or so, and so far has not managed to derail the market in the slightest– in fact, since 2012, only a single correction has occurred that even deserves the designation “correction” (as opposed to “barely noticeable dip”).

While a number of positioning and survey data show a bullish consensus that easily dwarfs anything that has been seen before, this consensus is not reflected in expressions of exuberance by the broader public. “Anecdotal” sentiment seems more cautious and skeptical than the quantitatively measurable kind. Most likely this is because the vast bulk of the middle class has been so thoroughly fleeced in the last two boom-bust sequences that it finds itself in dire straits in spite of the reemergence of major asset bubbles across a wide swathe of assets. This includes by the way an astonishing revival of the bubble in real estate prices – see e.g. this 330 square foot shack in San Francisco, which recently sold for $765,000:

 

expensive SF shack

Yes, that tiny dark-brown thingy situated on a steep road sold for $765,000. The real estate bubble is back.

(Photo credit: SFARMLS)

Moreover, with the broad US money supply (TMS-2) having nearly doubled since 2008 and other major central banks inflating their money supply as well at breakneck speed, there has been more than enough “tinder” provided the world over to drive asset prices higher. This by the way makes a complete mockery of the constant refrain of central bankers that we are allegedly threatened by “deflation”. The inflationary effects of their monetary pumping are simply showing up in asset prices rather than consumer goods prices – ceteris paribus, a rapid inflation of the money supply always leads to prices rising somewhere in the economy.

 

Bubble Trouble

There is of course a “danger” that this asset price bubble will burst rather spectacularly once monetary inflation slows down sufficiently (it will probably never be reversed again in our lifetime, but a slowdown is already underway). In light of the current rare extremes in positioning, sentiment and leverage, the eventual denouement of the current bubble should be a real doozy. Note that in every respect one can possibly think of – with the sole exception of household debt – systemic leverage is at new all time highs (not only in absolute terms, but relative to everything, including the size of the known universe), and is likewise positively dwarfing anything that has occurred before.

Specifically relevant for financial markets are record highs in margin debt, record highs in hedge fund leverage, as well as record issuance of junk debt in recent years, which in turn has given rise to systemic leverage once again vastly increasing in the credit markets on the part of investors as well. To the latter point, note that financial engineering that is specifically aimed at enabling the taking of extremely leveraged positions is back with a vengeance as well – however, at the same time, the markets for the underlying debt instruments have become quite illiquid due to new banking regulations that hinder proprietary trading activities by banks (for a more detailed discussion of these topics see “A Dangerous Boom in Unsound Corporate Debt” and “Comforting Myths About High Yield Debt”).

In light of all these considerations, it is truly remarkable how little concern there is. Even former skeptic Hugh Hendry is these days talking about the alleged “omnipotence of central banks” which money managers are forced to surrender to (this view strikes us actually as an example of the “potent directors fallacy” – see also this comment by EWI on the topic). While we certainly have some understanding for his perspective – after all, as a fund manager, he cannot afford to “miss” an asset boom, or he will soon be out of a job – we do think he may be underestimating the potential for a capsizing of the happy ship that could well happen in an unseemly hurry, for currently unanticipated reasons. With “reasons” we actually mean “triggers” – the reasons are already discernible and perfectly clear: we listed most of them above. All that is still needed is a trigger that alters the perceptions of a critical mass of observer-participants.

In short, bubbles don’t burst because of a “black swan”: rather the swan – often a combination of events that makes it impossible to identify a single trigger – is a diffuse trigger mechanism that sets into motion what is already preordained. It is the famous “one grain too many” that is put atop a giant sand pile – however, it is the sand pile that is the problem, not the one grain. This is also why precise timing of a bubble’s demise is so difficult – it is unknowable what exactly will actually lead to the change in perceptions that ultimately provokes the unwinding of the leverage that has been built up.

At some point down the road, a Zimbabwe or Venezuela type very rapid devaluation of money may emerge. In this case asset prices would become solely a function of monetary debasement. It is important though to keep in mind that things don’t just move from the present state to the Venezuela type state from one day to the next – not to mention that it may not happen at all, if central banks in developed nations alter their policies in time. Assuming for argument’s sake though that it does eventually happen, there will still be an interim phase during which monetary debasement will e.g. alter the perceptions of stock market investors regarding the multiples they should pay for corporate earnings. This is what happened e.g. in the 1970s: multiples contracted into single digit territory, because market participants decided that the future stream of earnings would be less valuable in real terms, and thus deserved a commensurate discount.

 

Sentiment Data

Let us move on now to our suite of data. We have on purpose decided to follow a number of data points that relatively few people usually look at, in the hope that they may therefore be slightly more meaningful. Below we show three different views of Rydex data. The first chart shows the Rydex ratio in the form (bear+money market fund assets)/bull assets, as well as the disaggregated bear, MM fund and bull assets. It is noteworthy that the ratio of bears plus fence sitters to bulls has now also declined to a new all time low (the chart is inverted).

The second chart shows a more detailed view of money market and bear assets, plus the “pure” bull/bear asset ratio. The latter has made a remarkable move in recent weeks – it has gone straight up without even the slightest correction, as assets deployed in bull funds have exploded higher. In terms of this data series it represents the most extreme expression of a bullish consensus ever.

Next comes the leveraged bull/bear fund ratio, which compares assets in Rydex funds that employ leverage. Almost needless to say, it is at an all time high as well, but what is most remarkable about it is that it has spent more than a year in “excessive optimism” territory. This by the way goes to show that these data are not very useful for timing purposes. What they are useful for is this: the more time they spend in extreme territory, the more profound the move in the opposite direction is likely to be once it gets going.

Similar considerations apply to the Investor’s Intelligence survey and the mutual fund cash-to-assets ratio which come next. We show a very long term chart of the latter – what is noteworthy is the big difference in fund manager positioning and sentiment during the period beginning in 2000 compared to the secular bear market that lasted from 1968 to 1982. The latter was characterized by extreme fear and caution, while the period since the 2000 tech mania peak shows a remarkable degree of complacency (again, we think this is quite meaningful for the long term outlook).

Lastly we also update the still growing divergences between junk debt ETFs and credit spreads versus the SPX.

 

1-RYDEX-1

Rydex: the (bear + MM funds)/bull funds asset ratio has now also hit a new all time low. This was mainly due to a huge surge in bull assets (which have increased roughly by one third in the 6 weeks since the October correction low) – click to enlarge.

 

2-RYDEX-2

A closer look at money market funds, bear assets and the “pure” bull/bear asset ratio. The latter has just made a truly stunning move. Nothing comparable has ever happened before – click to enlarge.

 

3-Rydex leveraged
The leveraged Rydex bull/bear asset ratio – in “extreme optimism” territory for more than a year, and currently at a new all time high – click to enlarge.

 

4-II-survey

The Investor’s Intelligence survey. The bull/bear ratio has failed to return to the 27 year high hit earlier this year twice in succession, but the bear percentage has fallen back to 14.9% – only slightly above the all time low of 13.3% recorded earlier this year – click to enlarge.

 

5-mutual fund cash

The mutual fund cash-to-assets ratio. Compare the secular bear market of 1968-1982 with the period since the year 2000 tech bubble peak. Fear and caution have been replaced by utter complacency. This is likely telling us something about what to expect in the long term – click to enlarge.

 

6-JNK-SPX

Junk debt (represented by the JNK ETF) compared to government debt and the SPX. Credit spreads are widening and the divergence with the stock market keeps growing – click to enlarge.

 

Conclusion – Real Wealth Undermined:

As noted in the title to this post, in some respects we’re in danger of running out of appropriate descriptive superlatives for the current bout of “irrational exuberance” (we’re open for suggestions). The current asset bubble is in many respects reminiscent of the late 1990s tech bubble, but it also differs from it in a number of ways. One of the major differences is that the exuberance recorded in the data is largely confined to professional investors, while the broader public is still licking its wounds from the demise of the previous two asset bubbles and remains largely disengaged (although this has actually changed a bit this year).

A few additional remarks regarding the alleged “omnipotence” of central banks: monetary pumping certainly has the power to distort prices across the economy, which includes inflating the prices of titles to capital. However, at some point there will be a stark choice – either the pumping is abandoned voluntarily, or one risks the destruction of the underlying currency system.

Moreover, there is another limiting factor in play, which doesn’t get as much attention as it probably deserves. Monetary pumping merely redistributes existing real wealth (no additional wealth can be created by money printing) and falsifies economic calculation. This in turn distorts the economy’s production structure and leads to capital consumption, thus the foundation of real wealth that allows the policy to seemingly “work” is consistently undermined. At some point, the economy’s pool of real funding will be in grave trouble (in fact, there are a number of signs that this is already the case). Widespread recognition of such a development can lead to the demise of an asset bubble as well.




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

“Panicking” Ukrainians Face Soaring Prices, Warn “Inflation Is War”

With Ukraine, according to President Poroshenko, on the verge of World War III, it appears the people of the divided nation face another all too familiar war… on their living standards. As Hyrvnia continues to collapse to record-er lows, Ukraine’s Central Bank warns of further stress and FX (think USDollar or EUR) demand because the “population is in panic.” With a 19.8% inflation rate last month and a 48% devaluation in the currency this year, Bloomberg reports the costs of imported goods from gasoline to fruit and from medicine to meat is soaring. One store-owner reflected that she “feels the hryvnia devaluation everywhere,” and another noted “I can’t imagine how people survive on a single pension. We can’t even go to the drug store. We try to use herbs instead.” The Central bank expects inflation to keep rising (having previously peaked at 10,256% in 1993 as the Soviet economy was dismantled). “Inflation is the same as the war,” warns one analyst, “it may lead to protests if people blame the authorities for failing to conduct proper policies.”

 

 

As Bloomberg reports,

[Ukrainians] are cutting back because of this year’s 48 percent plunge in the hryvnia, a decline that’s eroded purchasing power. The inflation rate spiked to 19.8 percent last month as the currency’s slide boosted the costs of imported goods from gasoline to fruit.

 

 

Valentyna is thankful for the two pensions she and her husband share, even if Ukraine’s inflation shock means they’re no longer enough to buy medicine and meat.

 

“We have some potatoes, tomatoes and cucumbers from our dacha,” said the 72-year-old pensioner as she made her way through the city of Zhytomyr, a two-hour bus ride west of Kiev. “I can’t imagine how people survive on a single pension. We can’t even go to the drug store. We try to use herbs instead.”

 

 

“I watch the dollar rate all the time because for me it’s the best indicator of poverty,” said the 29-year-old mother of a son in first grade. “I buy less sweets and fruit because of the astronomical costs. We used to save some money. Now, we can’t save anything.”

It’s gonna get worse…

Inflation will probably speed up to 25 percent this year, compared with the 19 percent forecast earlier, central bank Governor Valeriya Gontareva said today.

 

Ukrainians are no strangers to inflation. Price growth peaked at 10,256 percent in 1993 as the Soviet economy was dismantled. Having subsided, the rate jumped to 31.3 percent in 2008, shortly before the hryvnia last sank.

 

 

“I’m ready to tolerate the current economic situation as long as the war is on,” said Hanna Hryhoriyeva, 67, a teacher at a culinary college who backed the protests’ anti-corruption message. “I won’t go onto the streets tomorrow because of inflation and the devaluation but my patience isn’t infinite.”

 

Others are less understanding.

 

Valya, a pensioner who declined to give her last name, said she’d just bought 2 kilograms (4.4 pounds) of grain that should last a month, along with potatoes and beetroot from the market. While she doesn’t drink alcohol or smoke, she can’t afford the bus to visit relatives’ graves in the Lviv region.

 

“Glory to Ukraine?” said Valya, 76, referring to a slogan of the street uprising. “Glory for what? Higher prices? The war? We’re just tolerating the authorities.”

And may end badly…

“Inflation is the same as the war,” Valchyshen said. “It may lead to protests if people blame the authorities for failing to conduct proper policies.”

*  *  *

Is it any wonder Poroshenko is talking up the war and hoping for more aid/loans from The West to subordinate his nation…

And then this happens…

  • *MEDVEDEV, YATSENYUK TALKED ABOUT FINANCIAL-ECONOMY TIES
  • Russian Prime Minister Dmitry Medvedev on Thursday held a phone conversation with Ukrainian Prime Minister Arseniy Yatsenyuk, the Russian government press service reported Thursday.
  • “Medvedev and Yatsenyuk discussed issues of financial-economic cooperation between the two countries,” the statement said.




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

5 Things To Ponder: Tryptophan Induced Coma

Submitted by Lance Roberts of STA Wealth Management,

Since this is Thanksgiving, I want to offer my thanks to you for your readership over the past year. Your comments, suggestions, and debates have been a great source of education and affirmation for me. Thank you.

As we prepare for the annual food fest, and post-Thanksgiving tryptophan-induced food coma; I thought this weekend's reading list should be a bit of a smorgasbord of interesting topics to stimulate your brain cells between naps and football.

Have a happy and safe, if you are traveling, Thanksgiving holiday and many blessings to you and your families.


1) Q3 GDP Upside Revision Was Nonsense

I have written for some time that the real economy has diverged from the governmental reports which have been subjected to mass torturing of the underlying data. The latest report on GDP was just the latest example of the impact of statistical data revisions and seasonal adjustments.

The latest quarter was sharply boosted by an undisclosed Revision to Prior Quarter. The Bureau of Economic Analysis (BEA) reported its second estimate of third-quarter gross domestic product (GDP) growth at 3.9%, up from initial reporting of 3.5%. This was against an unrevised 4.6% pace of second-quarter growth. Importantly, once the third estimate of any quarter is in place, the number is not revised again except for annual benchmark revisions.

That restriction, however, does not apply to the GDP’s accounting-equivalent counterpart, gross domestic income (GDI), which goes through three revisions. The majority of the latest headline growth in GDI was due to a sharp-downside revision to second-quarter growth, which is suggestive that second quarter GDP was also likely sharply slower than previously estimated.

GDI-112614

This would correspond with much of the recent economic data such as industrial production, personal spending, and durable goods which have all been consistently weaker than estimated.

The Mystery Of Surging Q3 GDP – Americans Are $80 Billion "Poorer" via ZeroHedge

"The final major datapoint of the day was the Consumer Income and Spending data from the US Dept of Commerce's Bureau of Economic Analysis, the same outfit that yesterday shocked everyone with just how much better US GDP was. Well, today, we learned just where the offset came from. Because while on the surface, both income (+0.2%) and spending (+0.2%) missed expectations of a 0.4% and 0.3%, respectively.

 

There are some rather massive variations between what the BEA reported a month ago, and what it reported today, as relates to all the data issued since March. To wit:

Zero-hedge-DPI-112614

Essentially, the just reported Disposable Personal Income print of $13.109 trillion as of the end of October, is where according to the old, unrevised data US household income was sometime in August. Whatever happened to two months of income? In order to 'suggest' that the US economy had grown by a far greater than expected run-rate, the BEA was forced to revise away personal income, and "assume" these had instead been invested in the US economy, in the form of a surge of durable goods purchases."

The problem with the assumption by the BEA that savings went into durable goods purchases is that just reported durable goods ex-transportation just collapsed by -0.9% in October. Core capital goods fell by 1.3% in October after falling 1.32% in September. As shown in the chart below, the decline in durable goods will likely be reflected by a downwardly revised Q3-GDP number next month.

Durable-CoreCapital-Goods-112614

 

2) 2015 Is Shaping Up To Be A Turkey by Paul Kasriel via The Econotrarian Blog

"If relatively robust growth in thin-air credit was a major factor accounting for 2014’s bountiful U.S. economic harvest, as I believe it was, then 2015’s “harvest” is likely to be considerably less bountiful. Growth in thin-air credit has already begun to decelerate and is on course to further decelerate in 2015. As mentioned above, the Fed curtailed its purchases of securities more aggressively than I had reckoned a year ago and ended its purchase program in October 2014. Although bank credit has grown considerably faster than I had anticipated, it is not fast enough to compensate for the slowdown in the growth of Fed thin-air credit.

 

Plotted in the chart below are actual and projected monthly observations of year-over-year percent changes in the sum of commercial bank credit and reserves held by these banks and other depository institutions at the Federal Reserve.

But the dominant factor affecting the U.S. economy in 2015 will be below-normal growth in U.S. thin-air credit. So, as you gather your family around you on Thursday, November 27, to give thanks for our bountiful 2014 economic harvest, bear in mind that next year’s harvest is likely to be a 'turkey' in comparison."

Econotrarian-112614

 

3) The Mistakes We Make And Why We Make Them by Meir Statman via WSJ

  •  Goldman Sachs Is Faster Than You
  • The Future Is Not The Past & Hindsight Is Not Foresight
  • Take The Pain Of Regret Today And Feel The Joy Of Pride Tomorrow
  • Investment Success Stories Are Misleading
  • Neither Fear Nor Exuberance Are Good Investment Guides
  • Wealth Makes Us Happy, Wealth Increases Make Us Happier
  • I've Only Lost My Childrens Inheritance
  • Dollar-Cost Averaging Is Not Rational

Also Read: 7-Simple Things that Most Investors Don't Do by Ben Carlson via Wealth Of Common Sense

 

4) Humorous: How Turkey's Predict Global Market Crashes via Political Calculations

"As you can see in our carefully calibrated chart above, whenever the value of the MSCI World index has exceeded the equivalent live weight of an average farm-raised turkey in the U.S., the index went on to either stagnate or crash. And in 2014, the value of the the MSCI World Stock Market Index has once again exceeded that key threshold, which can only mean one thing…. The climate for investors has changed, and it's time to sell!"

Political-Calc-Turkeys-112614

"And if they try to tell you that doesn't make any real sense, you should hold firm and tell them that the correlation is really strong (the R² is 0.9616), which means that the science is settled and that they really shouldn't want to be some kind of climate change science denier."

 

5) Another Year Of Christmas "Cold Feet" by Jeffrey Snider via Alhambra Partners

"The current release from Gallup shows exactly that, another collapse in spending plans, this year from $781 all the way down to just $720; an 8% drop. That wasn’t all that much better than 2013, which saw an October/November drop from $786 down to that $704."

Gallup-Spending-112614

"Instead, that optimism is cast directly against the sinking tide of the post-2012 slowdown that is not an anomaly but a global trend that does exist even inside the US. The fact that Brazil and China are in such desperate positions is not independent of a US recovery, but very much related, as shown by this persistent and persisting drag of consumption, to faltering US growth. That is unfortunately sharpened by price changes in 2014 which are more severe than both 2013 and what is being measured by official metrics. When revenue is expanding solely on price changes (or more dependent on prices), volume is thus axiomatically shrinking. To some that looks like recovery, but in the real global economy that is growing trouble."

After Pumpkin Pie Read: Did The Fed Save Us From A "Liquidity Trap?" by Comstock Partners

"There have been a number of very sophisticated economists who recently made some presentations on the financial networks discussing just how effective the Federal Reserve was in being able to avoid a “liquidity trap”. One economist in particular used the avoidance of a 'liquidity trap' a number of times as he praised the Fed.

 

This global deflationary environment has resulted in a Central Bank “bubble” that we believe will end badly both here and abroad! The reason for this difficult deflationary environment all over the world is explained very well in The Geneva report titled "Deleveraging, What Deleveraging?"  It explains that, most believed that the 2008 crash (caused by the debt explosion) would result in deleveraging. But, instead, due mostly by government spending, worldwide debt grew rapidly.

 

According to the report, global debt as a percentage of GDP has risen 36 percentage points since 2008, to a record 212%."

After A Second Slice Of Pumpkin Pie Read: Millenial Investors Shouldn't Trust The Market by Meb Faber

"Is that because Millenials are slacker morons?  Or are they actually justified in their distrust?

 

The article mentions the benefit of time to starting early as an investor, as well as the fact that the market has returned about 6.8% real per year since 1871 as a reason investors should stay the course with stocks (since 1900 the number is 5.8% and worldwide closer to 5%)

 

But here’s the problem – it greatly matters what you pay when you start.

 

The problem is, of course, where we are now with a CAPE ratio of 26.5.  I would argue Millenials are actually smarter than they look and that they are correct in avoiding stocks.  That is depressing but is the unfortunate reality."


"I celebrated Thanksgiving the old-fashioned way. I invited everyone in my neighborhood to my house, we had an enormous feast, then I killed them and took their land” ? Jon Stewart

Happy Thanksgiving!!




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