Category: zerohedge

Authored by Caitlin Johnstone via Medium.com,

Americans are discussing the possibility of a universal basic income (UBI) more seriously than ever before, largely due to the surprisingly popular campaign of Democratic presidential candidate Andrew Yang.

Yang has made UBI the central issue of his platform, promising a “Freedom Dividend” paid for by a Value Added Tax on businesses which would give every American over the age of 18 an unconditional $1,000 a month to help offset the looming crisis of automation replacing US jobs.

“In the next 12 years, 1 out of 3 American workers are at risk of losing their jobs to new technologies — and unlike with previous waves of automation, this time new jobs will not appear quickly enough in large enough numbers to make up for it,” Yang’s campaign site argues.

“To avoid an unprecedented crisis, we’re going to have to find a new solution, unlike anything we’ve done before. It all begins with the Freedom Dividend, a universal basic income for all American adults, no strings attached – a foundation on which a stable, prosperous, and just society can be built.”

Yang is absolutely correct that automation is going to be replacing the jobs of many people in the very near future, and he is absolutely correct that new solutions unlike anything ever tried before are going to be necessary to help address this problem. But his plan, and indeed all the most publicized plans which involve the implementation of a universal basic income, will necessarily lead to an oppressive oligarchic dystopia unlike anything we’ve ever seen before.

Jeff Bezos is in favor of a universal basic income. https://t.co/ohsW00PNKS

— Matt Stoller (@matthewstoller) September 24, 2017

Do you know who supports the implementation of a UBI besides Andrew Yang? Billionaires. Lots of billionaires, especially the new money tech billionaires who are positioning themselves to inherit the earth in the transition to a new paradigm dominated by automation and artificial intelligence. Billionaires like Jeff Bezos, Pierre Omidyar, Mark Zuckerberg, Jack Dorsey, Elon Musk, Richard Branson, Bill Gross, Tim Draper, and more moderately Bill Gates have all been seen advocating for a policy that is now being popularized as one which would level the economic playing field and take power away from the billionaire class.

Now why would that be? Why would a group of people who’ve clawed their way up to positions of immense wealth control, enabling them to live as modern-day kings, be so eager to suddenly give away that power? Why would they break with the trend we’ve consistently observed in rulers since the dawn of recorded history and voluntarily relinquish the power they fought to claim without a fight? Are billionaires just naturally good people inherently predisposed to compassionate action and wealth redistribution? Have we been wrong about Jeff Bezos being a real-life supervillain this entire time?

Of course not. This increasingly powerful class of new money tech plutocrats are not pushing to give power away, they’re pushing to secure more. As Jimmy Stewart’s character says in It’s A Wonderful Life, Potter isn’t selling, Potter’s buying.

I am not arguing against the general principle of universal basic income here. If humanity is to learn to collaborate in a healthy way with the ecosystem in which we evolved, a lot more of us are going to have to start doing a lot less. We’re going to have to stop using up energy driving to jobs the world doesn’t need to produce crap you have to propagandize people into believing they want so they’ll spend money on it and then throw it in the landfill. That’s obviously an insane way for an increasingly technologically advanced species to continue to function, and one way or another we are going to have to start doing a lot more nothing quite soon.

But imagine what will happen with a system of the kind Yang and the tech billionaires are proposing. Imagine what will happen in a society where people are no longer necessary and have nothing the powerful need. Imagine what will happen when people become dependent on a subsistence UBI set up by the already plutocrat-controlled government to sustain them when plutocrat-owned technologies render their labor completely moot. Imagine a world where a few increasingly consolidated automation firms produce more and more of the goods and services once provided by human labor and re-collect all taxes they have to pay into the UBI from a public forced by their subsistence wages to buy automation-made products and services.

That would be total oligarchic control. Not what we’re seeing now; what we’re seeing now is not total oligarchic control. Our current predicament pales in comparison to how bad it could get.

Think about what would happen in that situation if people decided they weren’t being treated fairly by the existing system. What recourse would they have? They can’t organize labor strikes if they have no labor. They can’t boycott if everything is made by the same corrupt system. Mass demonstrations and civil disobedience would go unnoticed by a power structure that needs nothing from its populace. Violent revolution would be an unwinnable game as security systems protecting the infrastructure of the powerful would also become automated. People would cease to be active participants in their society, and would instead be merely along for the ride at the whims of the oligarchs, for as long as the oligarchs deemed them not too inconvenient to keep around.

Because our last bargaining chips would have been taken away from us.

Think about how such a paradigm would dance with the current populist movements we’re seeing in the world today as people grow upset with their already oppressive living conditions. The left will be neutered far more definitively than it has been by anything that government agencies have ever been able to engineer; the workers can’t unite if there are no workers. Yellow Vests-type demonstrations would have no effect on a power structure that doesn’t require law and order outside its automation complexes. Attempts to vote the problem away will be laughed off by a political system that is even more oligarch-controlled than it already is.

Now imagine how that would dance if you add in the sort of narrative domination that advanced artificial intelligence programs would allow, as Julian Assange warned shortly before his silencing. We are already seeing such programs being developed by shady government agencies, along with increasingly Orwellian high tech surveillance systems.

That’s what the billionaires are going for. That’s what Potter’s buying.

The rich and powerful have always feared two things: death and the public. Because both of those things can take away everything they’ve stolen. Our current rulers, the billionaire class, are currently working on unlocking the secret of immortality in a number of creepy ways, and they’re working on addressing the problem of the public in the way I just described. Someday Jeff Bezos and his ilk hope to become the first rulers in history who get to rule without the threat of losing it all to death or to revolution.

The solution, obviously, is to stop this before it happens, because if it’s allowed to happen it will be far too late to do anything about it. People are going to have to wake up out of the propaganda matrix and take power away from the billionaire class, and that must necessarily include taking control of automation technologies. Artificial intelligence and automation are far too consequential for their future to be determined by a few billionaires who are only billionaires because they can think like a machine better than other people can. Humanity’s future must be guided by the collective wisdom of all human beings in the service of humankind, not by binary-minded tech wizards in the service of corporate profit margins.

A universal basic income could work under a very different system, but the one thing all the most popular UBI/automation models being promoted by the billionaire class and by Andrew Yang have in common is that none of them seek to fundamentally change the system which enables plutocrats to shore up more and more power and control for themselves. They all seek to maintain the status quo and plunge it further into oligarch-dominated dystopia. This should be rejected.

This article originally said Yang’s plan is to give $1,000 to every American between 18 and 64, but that’s an older plan of his. Yang’s “Freedom Dividend” would be for every American over 18.

*  *  *

The best way to get around the internet censors and make sure you see the stuff I publish is to subscribe to the mailing list for my website, which will get you an email notification for everything I publish. My work is entirely reader-supported, so if you enjoyed this piece please consider sharing it around, liking me on Facebook, following my antics on Twitter, throwing some money into my hat on Patreon or Paypal, purchasing some of my sweet merchandise, buying my new book Rogue Nation: Psychonautical Adventures With Caitlin Johnstone, or my previous book Woke: A Field Guide for Utopia Preppers. For more info on who I am, where I stand, and what I’m trying to do with this platform, click here. Everyone, racist platforms excluded, has my permission to republish or use any part of this work (or anything else I’ve written) in any way they like free of charge.

Bitcoin donations:1Ac7PCQXoQoLA9Sh8fhAgiU3PHA2EX5Zm2

Thanks to advances in biometric payment technologies and ultra-slick payment systems, Silicon Valley has made it incredibly convenient to shop, pay for, and consume just about anything; and it’s about to get easier, according to MarketWatch‘s Quentin Fottrell. 

In the last decade, we’ve gone from physical credit cards to biometric mobile wallets – allowing people to store payment data in smartphones, watches, smart glasses and other devices. Now, these ‘last physical barriers’ are about to be supplanted by facial recognition. 

“The deeper the tie between the human body and the financial networks, the fewer intimate spaces will be left unconnected to those networks,” said Aram Sinnreich, associate professor of communication studies at American University and author of “The Essential Guide to Intellectual Property.

“Every technological necessity exists in the real world and is used commercially,” he says, adding “It just hasn’t all been integrated into one biometric-payment method yet because it would creep people out.”

“It’s the neoliberal takeover of the human body.” 

After a slow start, the global mobile-payment market is expected to record a compound annual growth rate of 33%, reaching $457 billion in 2026, according to market-research firm IT Intelligence Markets. As payments move from cash to credit cards to smartphones, financial-technology companies, known as fintechs, have been honing their biometric services.

Biometric technology, meanwhile, is infiltrating every other aspect of our digital lives. Juniper Research forecasts that mobile biometrics will authenticate $2 trillion in in-store and remote mobile-payments transactions in 2023, 17 times more than the estimated $124 billion in such transactions last year. –MarketWatch

“Using biometrics as a method of payment is going to be pretty popular in the future,” said attorney Hannah Zimmerman, who says the technology will propelled by “the globalization of commerce.” 

Frictionless payments translate to more spending

A University of Illinois study found that people’s purchases increased by almost 25% when mobile payment systems were used. Researchers found that the use of a mobile wallet boosted spending by 2.4% over those who don’t use them. Meanwhile, Chicago-based Consumer Intelligence Research found in a survey of 2,000 American customers that Amazon Echo smart speaker users spent 66% more on average with the online retailer than other consumers. 

As Fottrell notes, however “people who have the money to buy smart speakers may also have more to spend.” 

Still, it provides a window into the world of frictionless spending: Echo owners spend $1,700 annually at Amazon versus $1,300 among Amazon Prime members — who must pay a $99 a year subscription — and $1,000 for all Amazon customers in the U.S. Some people may have both Echo devices and Prime accounts. (Amazon did not respond to a request for comment.) –MarketWatch

Read the rest of the report here. 

Authored by John Mauldin via MauldinEconomics.com,

The last few weeks marked a turning point in the global economy.

It’s more than the trade war. A sense of vulnerability is replacing the previous confidence – and with good reason.

We are vulnerable, and we’ll be lucky to get through the 2020s without major damage.

Let’s talk about the risks facing us in the next year or so and the economic environment in which we will face those risks.

Supply Shocks Ahead

In a recent Project Syndicate piece, NYU professor and economist Nouriel Roubini outlined three potential shocks, any one of which could trigger a recession:

• The US-China trade and currency war

• A slower-brewing US-China technology cold war (which could have much larger long-term implications)

• Tension with Iran that could threaten Middle East oil exports

The first of those seems to be getting worse. The second is getting no better. I consider the third one unlikely.

In any case, unlike 2008, which was primarily a demand shock, these threaten the supply of various goods. They would reduce output and thus raise prices for raw materials, intermediate goods, and/or finished consumer products.

Roubini thinks the effect would be stagflationary, similar to the 1970s.

Because these are supply and not demand shocks, if Nouriel is right, the kind of fiscal and monetary policies employed in 2008 will be less effective this time, and possibly harmful.

Interest rate cuts could aggravate price inflation instead of stimulating growth. That, in turn, would probably reduce consumer spending, which for now is the only thing standing between us and recession.

Subnormal Growth

Most of our problems come down to debt.

Debt isn’t bad and may even be good if it is used productively. Much of it isn’t.

In theory, an economy overloaded with unproductive debt should see rising interest rates due to the excess risk it is taking. Yet we are in a low and falling-rate world. Why?

Lacy Hunt of Hoisington Management proved that government debt accelerations depress business conditions. This reduces economic growth, so rates fall. The data shows the amount of GDP each dollar of new debt generates has been steadily declining.

This is a problem because, among other reasons, central banks still think lower rates are the solution to our problems. So does President Trump.

They are all sadly mistaken, but remain intent on pushing rates closer to zero and then below. This is not going to have the desired effect.

If Lacy is right, as I believe he is, the Federal Reserve is on track to do exactly the wrong thing by dropping rates further as the economy weakens.

The Fed also did the wrong thing by hiking rates in 2018. They should have been slowly raising rates in 2013 and after. They waited too long. This long string of mistakes leaves policymakers with no good choices now.

The best thing they can do is nothing, but that’s apparently not on the menu.

Paralyzed Business

All this bears down on us as other things are changing, too.

Many relate to shrinking world trade. Trump’s trade war hasn’t helped, but globalization was already reversing before he took office.

Industrial automation and other technologies are killing the “wage arbitrage” that moved Western manufacturing to low-wage countries like China. Higher wages in those places are also reducing the advantage. This will continue.

Ideally, this process would have happened gradually and given everyone time to adapt. Trump and his Svengali-like trade advisor, Peter Navarro, want it now. I think the president’s recent demand that US companies leave China wasn’t a bluff. He wants that outcome, and he has the tools to attempt to force it. The only question is whether he will.

I agree that we have to deal with China but the fact that we must do something doesn’t make everything feasible or advisable.

Tariffs are a counterproductive bad idea. Severing supply chains built over decades in less than a few years is, if possible, an even worse idea. It will kill millions of US jobs as factories shut down for lack of components.

Some say this is just more Trump negotiating bluster. Maybe so, but the mere threat paralyzes business activity.

CEOs and boards don’t make major capital commitments without some kind of certainty on their costs and returns. The president is making that impossible for many.

Europe in Shambles

Europe is rapidly turning into a major problem, too. Negative interest rates there are symptoms of an underlying disease. Italy is already in recession. Germany suffered its first negative quarter and may enter “official” recession soon.

Germany is highly export-dependent. The entire euro currency project was arguably a plot to boost German exports, and it worked pretty well.

But it boosted them too much, bankrupting countries like Greece which bought those exports. China, another big customer, is buying less as well.

A German recession will have a global effect. Automobile sales are down and Brexit could mean further declines. That would most assuredly deliver a German and thus a Europe-wide recession. And it will affect US exports and jobs.

Then there’s Brexit. At this point we still don’t know if the UK and EU will reach terms, but there is some risk of a hard end to this drama. News focuses on the damage within the UK, but it will also affect the EU countries, mainly Germany, who trade with the UK.

These supply chains are no less intricate and established than the US-China ones. Tearing them down and rebuilding them will take time and money. The transition costs will be significant.

Bumpy Ride

Remember when experts said to keep politics out of your investment strategy?

We no longer have that choice. Political decisions and election results around the globe now have direct, immediate market consequences. Brexit is just one example.

A far bigger one is the looming 2020 US campaign. None of the possible outcomes are particularly good. I think the best we can hope for is continued gridlock.

But between now and November 2020, none of us will know the outcome. Instead, a never-ending stream of poll results will show one side or the other has the upper hand.

That will generate high market volatility, inspiring politicians and central bankers to “do something” that will probably be the wrong thing.

As noted above, if Roubini is right then rate cuts aren’t going to help. Nor will QE. Both are simply ways of encouraging more debt which Lacy Hunt’s work shows is no longer effective at stimulating growth.

They are, however, effective at blowing up bubbles.

I expect 2020 to be one of the most volatile market years of my lifetime.

I predict an unprecedented crisis that will lead to the biggest wipeout of wealth in history. And most investors are completely unaware of the pressure building right now. Learn more here.

The U.S. Army is getting much closer to deploying the next generation weapon that could soon replace the M4 carbine and M249 light machine gun sometime in the early 2020s.

On Aug. 29, the Army announced it selected three defense companies to deliver prototype weapons for the Next Generation Squad Weapons (NGSW) program.

The new weapons must be lighter and able to penetrate the world’s most advanced body armor from at least 600 meters away, defense insiders say.

“This is a weapon that could defeat any body armor, any planned body armor that we know of in the future,” former Army Chief of Staff Gen. Mark Milley has said.

“This is a weapon that can go out at ranges that are unknown today. There is a target acquisition system built into this thing that is unlike anything that exists today. This is a very sophisticated weapon.”

The announcement was originally posted on the Federal Business Opportunities website on Aug. 29. The notice said the Army selected AAI Corporation Textron Systems, General Dynamics Ordnance, and Sig Sauer as the three finalists for the NGSW program, reported Defense Blog.

For those that missed the reveal months ago, here’s AAI’s (@Textron subsidiary) prototypes for the #USArmy‘s NGSW program. The first pic is the offer for the NGSW-R segment (M4 rifle replacement), the 2nd pic shows the two NGSW-AR prototypes (M249 SAW replacement), both in 6.8mm. pic.twitter.com/SsUIhCgeku

— Parthu Potluri (@Parthu_Potluri) June 18, 2019

The request asks AAI/Textron, G.D., and Sig Sauer each to supply 53 rifles, 43 automatic rifles and 850,000 rounds of ammunition for the 27-month test. The Army is expected to wrap up the test in 1H22 when it’s expected to announce the winning design. By 2H22, the Army could start fielding the new weapons to combat units.

NGSW weapons won’t initially replace all M4 carbine and M249 light machine guns but will be given to infantry and special operation forces first.

The 27-month test will include “soldier touchpoint” tests that evaluate “mobility and maneuverability on Army relevant obstacles, and user acceptance scenario testing,” the Army says.

The Army is expected to test each weapon’s round for ballistic effectiveness under simulated combat conditions. There’s a chance in the latter parts of the test, the weapons could be tested in a war zone.

“These evaluations may be conducted with multiple squads,” the Army added.

The NGSW program has been centered around a weapon that can support a new 6.8mm bullet.

AAI/Textron is seen as the leader in the NGSW since it has spent more than a decade developing its 6.8mm cased-telescoped round.

“We have assembled a team that understands and can deliver on the rigorous requirements for this U.S. Army program with mature and capable technology, reliable program execution and dedicated user support,” says Wayne Prender, Textron Systems’ Senior Vice President, Applied Technologies and Advanced Programs.

“Together, we are honored to support America’s soldiers with the next-generation capabilities they need in their most dangerous missions.”

The Pentagon’s current shift from urban warfare in Iraq and Syria to the mountains and open terrain of Afghanistan have been the driving force behind modernizing standard issue weapons for infantry units. While standard rifles are well-suited for close combat in cities like Mosul and Raqqa, it lacks the range to kill adversaries in open stretches.

AAI/Textron will likely secure the contract for NGSW by 1H22. The contract could be as large as 250,000 weapons and 150 million rounds for the first order.

Submitted by Eric Peters, CIO of One River Asset Management

“Judging by bond markets around the world, economic Armageddon – or something awfully close to it – is just around the corner.” – SocGen, September 5, 2019

“It’s difficult to describe markets,” said the CIO, reflecting on his decades of trading. “For what seems like forever, markets behaved in ways that reflected shifting expectations about central bank activity, economic trends, and profit potential, but that’s changing,” he said. “Now markets shift direction on a tweet then reverse on some comment. And nearly all of it is political.” But even politics are different now.

“Yet through it all, global interest rates are collapsing like an economic calamity looms.” 

* * *

“It is a bowl of water that might help put out a fire that has just started,” said young Jimmy Sham, describing Carrie Lam’s withdrawal of Beijing’s extradition legislation. “But it is now useless in the face of what has become a forest fire,” continued Jimmy, one of many leaders in Hong Kong’s burning rebellion. Naturally, the government hopes that by meeting the protestor’s principal demand, cries for further action will soften.

But that’s not how crowds work. Hong Kong’s emboldened freedom fighters have another four demands to go. Behind them lay more still. And far in the distance, beyond the event horizon, lay their ultimate objective, barely spoken of today, democratic revolution in China.

“Public discontent extends far beyond the bill,” conceded Carrie Lam, exuding a manufactured calm, withdrawing the bill, “It covers political, economic and social issues, including problems relating to housing and land supply, income distribution, social justice and mobility.” No doubt she’s right.

All revolutions are sparked by such failures of government. But this one goes further. Hong Kong will fully revert to Chinese rule in 28 years, which means its citizens will be subjected to Beijing’s political oppression. Today’s young protestors will suffer its retribution as they enter middle age, images of their rebellious youth forever swirling in servers. The only hope for Hong Kong’s young freedom fighters is a Chinese political revolution between now and 2047. And with that inferno as their only escape, each concession by Carrie Lam’s government will be met with calls for another, then another.

Just as each central bank rate cut is followed by the market’s demand for another, then another. It’s what has begun in the US. And what will soon start in Europe. With central bankers in both economies cutting rates, exuding a manufactured calm, when in fact they’re terrified that what little they have left will be useless in the face of a forest fire.

* * *

The clock is ticking, he thought, gazing out at 35,000 feet. Above was the most perfect blue. Far below, concealed by clouds, lay Hong Kong. In tumult. He’d always admired the rebels, the risk takers. They’re our salvation, our liberators, without them nothing changes. And since the protests had started, he marveled at the brave young souls who dare defy Beijing and its puppet, Carrie Lam.

The British returned Hong Kong to the Chinese in 1997 under Deng Xiaoping’s ‘one country, two systems’ principle, which enshrined capitalism, rule of law, and certain rights and freedoms for fifty years. That seemed like a long time. And back in 1997, conventional wisdom assumed democracy was the destiny of all great nations – so every effort was made to integrate China into the global trading system to speed their political transformation.

But twenty-two years in, Western democracies in shambles, China’s unparalleled economic ascent allowed the communist party dictatorship to consolidate power, strengthen its grip, spread its gospel. Beijing’s ‘Made in China 2025’ economic plan is advancing its dominance of tomorrow’s technologies. Its ‘Belt and Road’ initiative is extending its global influence. And while these are slow moving efforts, barely visible to the world in any given month or year, for Hong Kong (and Macau) the clock is ticking.

Its citizens are unique – of all the people in the world only they can be certain that if they do not rebel, they’ll lose their freedom in 2047. It has sharpened their minds. And it should sharpen ours too. Throughout the West, we should be equally terrified of losing our freedom. Without a sustained struggle to maintain our privacy and civil liberties, the creep of today’s surveillance state (and surveillance corporations) will consume us, control us, quieting tomorrow’s rebels, crushing our risk takers, before they can save us from tyranny.

So here we go again, another depressing story from Baltimore City, a region that is imploding on itself and suffering from a murders crisis, opioid epidemic, a wide gap in wealth/health/education inequalities, and deindustrialization. 

In this report, we’re only going to focus on the murder crisis and gently touch on the opioid epidemic (because they go hand in hand), however, please search our archives for other stories on Baltimore, because the implosion there is what will be coming to many other inner cities across the country in the 2020s. 

With that being said, Baltimore City could be on track to surpass last year’s 309 homicides, and if current trends persist, there is a chance that homicides could hit a record high, which means the city could see 342, a level that was previously set in 2015 and 2017. 

“Baltimore is on course to reach more than 300 homicides for the fifth year in a row, with 232 killings through Wednesday compared to 199 at the same time last year,” The Baltimore Sun said.

To combat the murder crisis, the federal government and Baltimore City Police unveiled a permanent “strike force” comprised of detectives, prosecutors, and federal agents will begin operations to target Baltimore drug gangs and their Mexican suppliers, who have been flooding the city with heroin and fentanyl.

No details were provided if the strike force will target hospitals and pharmaceutical companies who continue pumping legal opioids onto the streets. Legal opioids kicked off the opioid crisis across the city several decades ago, not Baltimore gangs and their Latin American suppliers.

As shown in the chart below, cumulative homicide trends are likely to record the 5th consecutive year of murders over 300. 

The next chart shows most of the homicides this year have been caused by a gun. 

Geographically speaking, the killings aren’t situated in just one part of the town but are more widespread.

Last week, we reported how one neighborhood in the city transformed into a warzone. We said: “There was so much gunfire at one point that not even a single rat was spotted on the streets of East Baltimore City.” 

🚨Officer Down🚨 Officer struck by gunfire in Baltimore during pursuit as innocent civilians jump for cover during the shooting. If you see Officers pointing their weapons at a suspect, please get out of the line of fire. Find a safe place if you really need to record. pic.twitter.com/OKD6aAWZsq

— Sgt.Helper (@1Cycle20) August 29, 2019

On a per-capita basis, Baltimore’s homicide rate is the highest in the country and is on par with a war zone.

We said this last week, and we’ll repeat it: “There’s no meaningful policy in place to turn Baltimore around in the next decade. So in the meantime, if you value your life, stay away from Baltimore.” 

Authored by Brandon Smith, originally published at Birch Gold Group,

The price movements of precious metals are difficult for some people to understand. In the world of equities, investors are mesmerized by tickers day in and day out, and market movements occur minute by minute. This realm of investment teaches people to shorten their memories, their attention spans and their patience. In the world of gold and silver, however, investors buy and sell according to cycles that last years – oftentimes decades. It is the complete antithesis to stocks.

This is why gold catches a lot of ignorant criticism at times. The “barbaric relic” does not behave the way day traders want it to behave. It sleeps, they ignore it or laugh at it, and then it explodes. It is not surprising that your average stock market player is usually caught completely off guard when an economic crisis hits Main Street, while the average gold investor already saw the event coming many months in advance. The gold mentality lends itself to caution, observation and historical relevance. The stock market mentality lends itself to carelessness and the denial of history.

I would acknowledge here that there is plenty of evidence of paper market manipulation of gold and silver to the downside by major banks like JP Morgan. Any investor in metals should take this into account. However, it is also important to realize that in moments of economic uncertainty, the physical market can and does overtake paper manipulation, and prices rise anyway. This is exactly what happened in the lead up to the 2008 crash, and it’s happening again today.

Gold and silver have had an exciting run in the past couple of months, and this is taking place exactly because precious metals are doing what they are supposed to do – act as a hedge against economic instability. This is where I see a disconnect in the mainstream media and the stock market pundits in their explanations for the gold rally since July.

The economic media and some in the alternative media expected gold to take a dive in July. Why? Because they also had high expectations for Fed Chair Jerome Powell to massage the markets with an ample interest rate cut and promises of stimulus measures in the near future. This did not happen. Instead, market investors were shocked to hear Powell deny any need for renewed quantitative easing (QE) and they were greeted with a marginal 0.25% cut in rates with no guarantees that any more cuts were on the way.

In August, this message was reiterated at the annual Fed Jackson Hole meeting, and multiple Fed officials indicated that the central bank has no intention of introducing new stimulus, and that aggressive rate cuts are unlikely.

Currently, the Fed continues to hold rates near their “neutral rate of inflation”, they are still cutting assets from their balance sheet despite claims that they would be stopping early, and the Fed funds rate is currently the single HIGHEST rate of all central bank rates in the developed world. Global dollar liquidity is drying up and mainstream analysts are practically begging the central bank to reintroduce stimulus measures.

The Fed also continues to make the false claim that US economic growth is “strong” and that a recovery is still underway, despite the fact that the yield curve has flattened to levels not seen in over a decade, housing sales are falling, auto sales are falling, retailers are expecting store closures of over 12,000 outlets this year, US freight is grinding to a halt, US manufacturing PMI is the weakest it has been since 2009, etc. Some of the Fed’s own data is showing a recessionary storm is about to make landfall, despite all their statistical rigging, and yet they ignore it completely and repeat the mantra that “all is well”.

This should not surprise anyone; this is what the Fed always does. They create massive debt bubbles, then tighten policy conditions causing the bubbles to implode. They then lie about the economic threat until the crash is about to cripple the average citizen. Then, they claim “no one could have seen this coming”.

As I have been predicting for the past few years, the Fed is keeping liquidity tight right up until crash conditions become obvious to the public. Talk of recession is now being taken a bit more seriously in the mainstream, and the only thing left to prop up economic optimism is the US consumer and his debt burden, which is growing far beyond the historic highs seen during the crash of 2008. Stock markets are being propped up by corporate stock buybacks, but for how long? How long can these companies pour capital into their own stocks to fight a losing battle while the Fed reduces the cash flow?

In the wake of the Fed’s “disappointment”, and their refusal to promise investors that the old fiat punch bowl will return, the US dollar index spiked in July in response and overall has continued to climb. The vast majority of analysts claimed that gold prices would plummet. Instead, they accelerated.

As I predicted in my article ‘Gold Will Rise Even If The Fed Doesn’t Cut Interest Rates’, the gold price found wings in July and August. This matches exactly with what happened in 2006-2007. As the Fed raised interest rates and tightened liquidity, the dollar index jumped but gold prices still almost doubled in the same time frame. This is because the dollar index does not always dictate the price of gold. Sometimes, gold decouples from the dollar and rises according to market instability. When a crisis is near, precious metals are heavily bought. The dollar becomes a secondary issue.

Source: Bloomberg

I believe that this trend will continue. Currently, the trade war has entered a new phase with the latest round of tariffs on both the US and Chinese sides. I said it over a year and a half ago and I’ll say it again – the trade war is not going to end until the crash runs its course. It is a highly useful distraction away from the central bankers and their controlled demolition of the Everything Bubble.

The Fed’s policy decisions seem to be having little negative effect on metals prices going into autumn, and there doesn’t seem to be any indication that they plan to dramatically alter their current course of little to no rate reductions and no new stimulus.   While some people have noted the Fed has made some purchases of US treasuries in recent weeks, this does NOT represent true QE, as the Fed’s balance sheet continues to decline anyway as assets are cut.

As I warned in July, some alternative economists have been jumping the gun by predicting the Fed would rush headlong into QE4, and they do this because they have a bias in favor of a rising gold price. But these people need to realize that gold can and will climb in value even if the Fed does not launch stimulus measures.

For now, I predict that prices will remain relatively steady with a slight uptrend for perhaps another month or two, until October or November. The next most obvious catalyst event would be the Brexit. If the Brexit decision culminates in a ‘No Deal’ exit from the EU (as I believe it eventually will), then expect metals prices to skyrocket from that point on.  I do not believe the recent Tory “rebellion” has changed the dynamic enough to stop the Brexit from happening.

There are some downside risks in the next month, but these will be temporary. The US/China meeting in October could become yet another circus in which a “deal” is announced but nothing tangible in terms of a real agreement is ever produced. This could cause a short term drop in gold. Also, aggressive monetary devaluation by multiple nations, though not very likely at this time, could cause enough of a reactionary jump in the dollar index to slow gold’s ascent.

The Fed meeting in September is widely expected to end with another interest rate cut. Every piece of evidence and Fed statement so far hints that the central bank will not cut dramatically, or, may not cut at all. If this is the case, then gold will spike again this month and in October. If the Fed does cut dramatically, expect a short term inflow of capital into equities and away from precious metals, then a rebound into late fall and early winter. A dramatic cut by the Fed would be an open admission that a recession is upon us, and though it would take some time for markets to digest, they will eventually come to the conclusion that a downturn is taking place and metals are one of the best options for protecting their savings.

For now, my timeline is for an uptrend within the next month or two. There is no end in sight to the flow of negative incoming data. The Fed is clearly not going to intervene, at least not until the situation becomes so horrendous that average people start demanding a response. Brexit is looking more and more volatile every day, and no doubt it will be blamed for economic tremors in the EU, just as the trade war will be blamed for the recession in the US. These are the “perfect storms” that drive gold to record highs. A repeat of gold’s performance during the 2008 crash is certainly possible. In fact, I think the next rally in metals will far surpass the 2008 event.

*  *  *

After 8 long years of ultra-loose monetary policy from the Federal Reserve, it’s no secret that inflation is primed to soar. If your IRA or 401(k) is exposed to this threat, it’s critical to act now! That’s why thousands of Americans are moving their retirement into a Gold IRA. Learn how you can too with a free info kit on gold from Birch Gold Group. It reveals the little-known IRS Tax Law to move your IRA or 401(k) into gold. Click here to get your free Info Kit on Gold.

In perhaps the most absurd narrative of this late-summer news cycle, former top officials at the National Oceanic and Atmospheric Administration (NOAA) have criticized the agency for defending President Trump’s statement from several days ago that Hurricane Dorian threatened Alabama. 

Of note, official forecasts did include the possibility of Dorian hitting the state – which CNN broadcast separate of Trump’s comment and a hand-drawn hurricane path he presented which has become central to what is now known as “sharpiegate.” 

Idiocracy at it’s finest:

In a September 6 statement, the NOAA wrote “the information provided by NOAA and the National Hurricane Center to President Trump and the wider public demonstrated that tropical-storm-force winds from Hurricane Dorian could impact Alabama. This is clearly demonstrated in Hurricane Advisories #15 through #41, which can be viewed at the following link.”

And now, former NOAA officials are slamming the agency’s note according to the Associated Press.

“This rewriting history to satisfy an ego diminishes NOAA,” said Elbert “Joe” Friday – former director of the National Weather Service via Facebook, adding on Saturday “We don’t want to get the point where science is determined by politics rather than science and facts. And I’m afraid this is an example where this is beginning to occur.”

In the tempestuous aftermath, some meteorologists spoke on social media of protesting when the acting NOAA chief, Neil Jacobs , is scheduled to speak at a National Weather Association meeting Tuesday — in Huntsville, Alabama.

Former officials saw a political hand at work in NOAA’s statement disavowing the Birmingham tweet. The statement was issued by an anonymous “spokesperson,” a departure from the norm for federal agencies that employ people to speak for them by name. –AP

“This falls into such uncharted territory,” said former Florida emergency management chief under Gov. Jeb Bush and Obama’s FEMA director. “You have science organizations putting out statements against their own offices. For the life of me I don’t think I would have ever faced this under President Obama or Governor Bush.”

Jane Lubchenco, NOAA administrator during the Obama administration said: “It is truly sad to see political appointees undermining the superb, life-saving work of NOAA’s talented and dedicated career servants. Scientific integrity at a science agency matters.” –AP

Meanwhile, CNN’s Jim Acosta tweeted on Sunday a letter from the National Weather Service advising staff not to contradict Trump’s claim on Dorian impacting Alabama, after the NWS Birmingham Twitter account tweeted in response: “Alabama will NOT see any impacts from #Dorian. We repeat, no impacts from Hurricane #Dorian will be felt across Alabama. The system will remain too far east.”

Trump, of course, has dug in on the issue – and is now tweeting memes knocking CNN for their coverage: 

pic.twitter.com/J3aTzBG7ao

— Donald J. Trump (@realDonaldTrump) September 6, 2019

pic.twitter.com/QeUbwdsWfr

— Donald J. Trump (@realDonaldTrump) September 8, 2019

Time for a nice, refreshing glass of Brawndo? 

Authored by Eoin Higgins via CommonDreams.org,

Friday’s edition of The View became the site of an argument about war crimes, the U.S. military, and WikiLeaks as actress Pamela Anderson and program co-host Meghan McCain battled during Anderson’s appearance on the hit daytime talk show.

The dispute began when View hosts attacked Anderson for her unwavering support of Julian Assange, the founder of WikiLeaks. McCain pounced, claiming that Assange is merely a “cyber terrorist.”

“He hacked information,” McCain said. “His leaks included classified documents that put our national security at risk, our military, and the lives of spies and diplomats at risk.”

Anderson replied by pointing out that the U.S. military, not WikiLeaks, is responsbile for the deaths of many innocent people around the world. 

“How many people have the American government killed innocently and how many has Wikileaks?” Anderson asked. “The military has put many innocent lives at risk.”

That response spurred a cheer from the audience. 

“Oh, calm down, sir,” McCain snapped at one boisterous supporter.

Later in the discussion, McCain extolled the virtues of American spies and intelligence officers and asked if Anderson was concerned for their safety from Assange leaking information to the public. 

“Well, there’s no evidence he’s put anyone at risk,” said Anderson. “And I think people like Edward Snowden, Chelsea Manning are heroes.”

By dunking on John McCain’s daughter, Pamela Anderson is reminding us all that Chelsea Manning is still in jail, Edward Snowden is still in exile, and Julian Assange is about to be prosecuted under the rarely used Espionage Act of 1917. pic.twitter.com/ZDqbH1ksjf

— postmodern life is war (@buckadef) September 6, 2019

Progressive reaction online to the argument focused on Anderson’s effective batting away of McCain’s right-wing talking points. 

“What a breath of fresh air!!” Splinter managing editor Katherine Kreuger wrote in her recap of the argument. 

“Pamela Anderson talking about how war crimes need to be punished and of course Meghan McCain is crying about it,” said Twitter user @Millerheighlife.

In a rare omission, Meghan McCain did not mention that her father was late war hawk Sen. John McCain (R-Ariz.) during the discussion.

Back in June, when bond duration hit an all time high and total negative yielding debt hit a record $13.4 trillion for the first time (it recently spiked to $17 trillion), we warned that a “monstrous” VaR shock loomed as all bond investors had been forced on the same side (the deflationary) of the boat. It didn’t take long for this prediction to start coming true: just 48 hours later, following a much stronger than expected June payrolls number which beat every sellside forecast, 10Y Treasury yields exploded higher in a 6-sigma move that saw massive paper losses for those who were long the curve as government bond yields soared.

Indeed, as JPM said at the time, “the rise in bond volatility coupled with very strong momentum and elevated positions was raising the risk of a large bond selloff or tantrum.”

And yet, something odd happened after: even though bond volatility surged, and vol-sensitive investors such as hedge funds, mutual fund managers and risk parity funds cut their duration positions as the Value-at-Risk exceeded their limits and stop losses are triggered, the widely anticipated bond selloff didn’t materialize in the summer despite the VaR shock as an unexpected re-escalation of the US-China trade war on August 1st renewed the bond rally with the yield on JPM’s Global Government Bond Index falling by another 30bp during the month of August. Crushing conventional wisdom, the yield on global debt dropped to new 5000-year lows (if only those Roman emperors had cut rates more)…

… even as a major cross-section of the bond investing public puked, resulting in a bloodbath for bond shorts, while as we noted last week, vol-insensitive CTAs benefited from the relentless momentum in the bond market, which resulted in CTA and momo funds – which trade based on trends and momentum chasing – to be the best performing group, returning 19.41% YTD.

Meanwhile, bond yields continued to sink ever lower, and as recently as two weeks ago BofA calculated that the average non-US sovereign bond yield had turned negative for the first time ever, sliding to -0.03%.

Which leads us to two key questions: i) who is buying bonds with negative yields, and ii) has the bond rally in August made bond markets more or less vulnerable, or in other words, is the risk of a bond tantrum or VaR shock higher or lower relative to last July?

Conveniently, these are the two questions asked by JPMorgan’s Nikolaos Panigirtzoglou in his latest Flows and Liquidity. who first addresses the recent surge in bond volatility, and the July VaR shock, noting that “when the volatility shock arrives, VaR sensitive investors cut their duration positions as the Value-at-Risk exceeded their limits and stop losses are triggered. This volatility induced position cutting becomes self-reinforcing until yields reach a level that induces the participation of VaR-insensitive investors, such aspension funds, insurance companies or households.”

A common feature of bond tantrums or VaR shocks is that bond volatility starts creeping higher ahead of the shock, which once unfolded causes volatility to spike to even higher levels. As shown in the chart above, bond volatility has been creeping up for months now and rose further in recent weeks to very high levels currently, last seen immediately after the US presidential election of 2016 or during the Bund tantrum of early 2015. As Panigirtzoglou writes, “this sharp increase in bond volatility must have already put some pressure on VaR sensitive investors to cut their bond positions.” And indeed, some position indicators such as the betas of active bond mutual fund managers appear to have declined over the past month.

This in turn goes to address the first question – who was buying bonds as yields plumbed record lows, as it suggests that the bond rally in August was largely driven by VaR insensitive investors such as insurance companies and pension funds rather than VaR sensitive investors. The chart above also provides a partial answer to the second question, because according to JPMorgan, given how high bond volatility is at the moment, there is higher chance that bond volatility subsides rather than rises from here, pointing to lower likelihood of a VaR shock currently relative to last July.

A second common feature of previous bond tantrums or VaR shocks was a rapid deterioration in market liquidity ahead of the shock. And sure enough, there is clear evidence of further deterioration by looking for example at JPM’s market depth  proxy for 10y UST futures shown in the next chart: “this market depth measure, based on the size of the tightest three bids and asks each day measured in number of contracts, has unwound this year much of the previous improvement seen during 2017 and 2018. And more recently this measure declined further posting a multiyear low in mid-August.”

A third feature of previous bond tantrums or VaR shocks was position vulnerability by VaR sensitive investors such as hedge funds and asset managers including CTAs who are active participants in futures markets. Here, as Panigirtzoglou writes, telative to last July, the evidence on investor positioning is more mixed.

1) Movements between government bond yields and the HFRX Systematic Diversified CTA index have almost mirrored each over the past months and this continued to be the case in the most recent weeks. This is shown in the next figure, which depicts a CTA performance index against the average of 10y UST and Bund yields.

The CTA performance index spiked over the past months suggesting that CTAs have been increasingly benefiting from the bond rally, something we noted last week when we highlighted the stellar performance of CTA investors in 2019. A continued overhang of long duration positions by CTAs is also implied by JPM’s momentum signals for 10y TSY and Bund futures as shown in Figure 4.

These momentum signals had been rising up until the end of August to high levels for USTs and very extreme levels for Bunds. The change in momentum over the past week or so has already started putting downward pressure on these momentum signals suggesting that CTAs and other trend following investors might come under pressure to reduce their very elevated bond positions, unless of course bonds get a fresh wind in their sails following Friday’s surprisingly poor jobs report.

2) The evidence on real money managers is more mixed: JPM’s European client survey, which tends to be less volatile and to exhibit clearer medium-term trends than its US counterpart, showed another large increase in the long duration exposures by our clients over the past month. The current long duration positioning based on the latest survey on August 29th is now matching the previous highs seen in April 2015 ahead of the Bund tantrum at the time.

Yet if one looks at the biggest active bond mutual fund managers relative to aggregate bond indices, a different picture emerges. The effective total duration of these bond managers declined in August as shown by Figure 6 and Figure 7, pointing to below rather than above average total duration exposure, especially in the US. This suggests that it is also possible that the rise in bond volatility in August put pressure on VaR-sensitive investors such as bond mutual fund managers to cut their duration positions last month. So if one combines Figure 5, Figure 6 and Figure 7 we conclude that real money managers are currently not as long duration as they were in July.

Putting the above evidence together, JPM concludes there is now a lower risk of a bond tantrum relative to what we saw last July; it would also suggest that the probability of even lower rates is greater than a violent snapback higher in yields.

Which brings us to the main question: who will be buying bonds at already record negative yields?

As JPM notes, with bond yields during the month of August having seen new lows after a rally triggered by the escalation of the US-China trade conflict from end-July, the universe of negatively yielding bonds expanded sharply. Indeed, negatively yielding bonds in the Bloomberg Global Agg index reached a new high of $17tr, or just over 30% of the index by market value. 

Furthermore, as discussed here and elsewhere, the steady rally in yields has seen the entire yield curve of several countries trading at negative yields. This, as even JPM notes, “has again raised questions about who buys bonds with negative yields?”

Here, JPM’s Panigirtzoglou notes that there are in fact a number of investor groups that buy bonds with negative yields; these include:

1. investors that fear or expect deflation;
2. investors that speculate on currency appreciation;
3. investors that expect capital gains resulting from central bank easing;
4. central banks themselves, particularly when conducting asset purchase programs;
5. indexed or passive multi-asset and bond funds;
6. banks who seek to avoid potentially even more negative deposit rates;
7. foreign investors who may find negatively yielding bonds attractive after FX hedging is accounted for;
8. CTAs and other momentum-based investors who are price-based rather than yield-based investors; and
9. some insurance companies and potentially pension funds that may be forced by regulations to de-risk or reduce duration mismatches even as yields turn negative.

Here, the JPM strategist focuses on the latter three as these have generated most discussion in recent client conversations.

First, looking at foreign investors, these may find negatively yielding Euro area or Japanese bonds attractive, as some investors (e.g. dollar-based investors) take advantage of the cross currency basis as well as differences in funding rates (although not every investor chooses to hedge FX exposure). In this way, US investors can buy a 10y Bund yielding -60bp or 10y JGB yielding -26bp and still provide yield pickup of 55-70bp over 10y US Treasuries. This is shown in Figure 9, which depicts the 10y UST yield as well as 10y Bund and JGB yields currency hedged to US dollars using 3-month rolling hedges. In addition, Euro area investors can achieve around 55bp of pickup in 10y JGBs vs. 10y Bunds after currency hedging to maturity, while Japanese investors can achieve around 30bp of pickup in negatively yielding 5y Spanish bonds vs. JGBs.

Indeed, foreign investors have been ravenously buying Euro area and Japanese bonds this year, despite nominal negative yields. On aggregate, the ECB and BoJ balance of payments data show foreign investors have bought nearly $210bn of Euro area (of which around $130bn of government bonds) and $70bn Japanese bonds in the first half the year. The significant inflow into Euro area bonds in particular stands in stark contrast to the $550bn of sales by foreign investors from March 2015 when the ECB started its QE purchases to December 2018, and while it not straightforward to quantify the inflow from US investors, it can account for a substantial part. Moreover, German bonds, which saw cumulative outflows of nearly $360bn from March 2015 to December 2018, have seen inflows of more than $65bn in the first half of 2019. Of this, May and June accounted for a combined $22bn even as 10y Bunds have been trading with increasingly negative yields. The inflows into Japanese bonds on an annualized basis were also stronger than the $80bn per year on average since 2015.

This is a longish way of saying that when factoring for FX hedging, the fact that the US has positive nominal yields means little when they net to even lower yields when FX hedged vs Europe or Japan.

Meanwhile, CTAs and other momentum-based investors are price-based (i.e., they care for capital appreciation) rather than yield-based investors, and as shown in Figure 9 above, this momentum has strengthened since 10y Bund yields turned negative in early May suggesting these investors have been buyers of negatively yielding bonds until more recently. Indeed, the z-score for 10y Bunds has doubled since early May, suggesting the size of positions may also have doubled.

Finally, some insurance companies constrained by solvency ratios may be forced to de-risk and buy negatively yielding bonds, even though that assures capital loss through maturity; one loophole – hope that a greater fool emerges (i.e., central bank QE) allowing the insurance company to sell the bond at a capital gain to a third party. Similarly, pension fund with wider funding gaps may be forced by regulators to reduce duration mismatches even as yields turn negative.

Putting the above together, it suggests that in terms of the flow into negatively yielding bonds, foreign investors have been the most substantial influence, and that CTAs and other momentum-based investors have also been an influential flow, but that insurance companies have likely been a more modest influence.