John Paulson Puts Up Personal Holdings To Secure Credit Line As AUM Plunges

Back in August we noted that John Paulson managed to get himself and his investors involved in two rather dubious “firsts” in 2015: Puerto Rico became the first US commonwealth in history to default, and Greece became the first developed country to default to the IMF.

“[Paulson] is one of a handful of bold hedge fund investors who poured hundreds of millions of dollars into Greece in a wager that the country’s economy would recover after years of economic crisis,” the New York Times wrote late last summer, on the way to explaining why the wealth management arm of Bank of America Merrill Lynch was liquidating its clients’ money from one of Paulson & Company’s funds. “Mr. Paulson is also one of Puerto Rico’s biggest hedge fund investors, betting that the commonwealth will emerge from its own debt crisis,” The Times continued.

Besides Greece and Puerto Rico, Paulson also managed to tie up money in Mallinckrodt, which is down sharply since last summer.

Now, amid a client exodus, the billionaire is putting up his own holdings to secure a longstanding line of credit with HSBC. “The billionaire pledged his personal investments in four of his firm’s hedge funds as additional collateral for a credit line Paulson & Co. has had with HSBC Bank USA for at least five years,” Bloomberg reports, adding that “Paulson is using his wealth to back the firm’s borrowings after investment losses and client defections cut assets by more than half from their peak.”

Essentially, Paulson secured the line of credit with management fees as collateral, but with AUM having fallen by a whopping $18 billion over the last five or so years, HSBC apparently wanted some reassurance. Here’s a bit more from Bloomberg: 

Filings show Paulson & Co. secured its December 2010 credit line with annual management fees from five of its hedge funds, a common form of collateral in the industry. The firm’s funds charge outside clients a standard annual management fee equaling 1 percent to 2 percent of assets and a performance fee totaling 20 percent of profits, according to its latest investment-adviser registration.


The collateral may be down in value since Paulson & Co. entered into the agreement. The firm’s assets under management, which generate the fees, have fallen about 50 percent to $18 billion since Paulson & Co. received the credit line. Of the money that remains, more than half belongs to Paulson and other insiders at the firm who have been exempt from paying fees.


As of the end 2014, about 57 percent of the firm’s capital belonged to Paulson and others who don’t pay management and performance fees, according to a filing.

Paulson also secured a personal line of credit with HSBC. Some speculate the billionaire is shoring up the fund’s finances to ensure it can retain “top talent” in a downturn. “You run the risk of losing key people if you don’t provide a market level of compensation,” Jeff Levi, a partner at Casey Quirk said.

Of course it could just be that HSBC wants to cover its bases now that volatile, increasingly correlated markets have dealt blow after vicious blow to a 2 and 20 crowd that looks increasingly inept in a world where investors actually need hedge funds to live up to their billing and do what they’re supposed to do: namely provide some semblance of stability and return in turbulent times. 

Losing 36% in a year as Paulson Advantage did in 2014 doesn’t exactly inspire much confidence and at this juncture we think it’s safe to say that Mr. Paulson may indeed have been a one hit wonder.

via Zero Hedge Tyler Durden

Frontrunning: January 26

  • China shares end at 14-month lows after late selling frenzy (Reuters)
  • China Dec gold imports through Hong Kong highest since 2013 (Reuters)
  • China Contagion Fades as European Stocks Pare Drop, Oil Rises (BBG)
  • Apple set for slowest ever iPhone sales growth (Reuters)
  • Saudis, Russia Seen by Iraq as More Flexible on Oil-Output Cuts (BBG)
  • China Probes NEV sector for subsidy fraud (China Daily)
  • J&J forecasts 2016 sales below analysts’ estimates (Reuters)
  • Wider China-Hong Kong Discrepancy Revives Fake Trade Doubts (BBG)
  • German two-year yields hit new low as March ECB cut almost priced in (Reuters)
  • AIG to Sell Broker-Dealer Network (WSJ)
  • At $3.68 Million, This California Home Has Everything But Buyers (BBG)
  • Pimco to Vanguard Step Into Credit Fray to Buy High-Grade Bonds (BBG)
  • Vacant Office Spaces Pile Up in Houston  (WSJ)
  • Khomeini Grandson Barred From Iran Poll in Blow to Reformers (BBG)
  • Germany’s Cautious Savers Find New Taste for Risk (WSJ)
  • In coastal New Jersey, a flood of criticism for Christie follows storm (Reuters)
  • European Stability Mechanism head rules out haircut for Greek debt  (Reuters)
  • One Salmon Costs More Than Barrel of Oil as Slump Deepens (BBG)


Overnight Media Digest


– The Supreme Court ruled Monday that convicts who received life sentences as juveniles can seek parole, extending the possibility of freedom to as many as 2,500 inmates who otherwise would die in prison. (

– The White House unveiled on Tuesday a raft of proposals to make it easier for workers to save for their retirements, in part by pushing businesses and states to make benefits more portable. The steps include a $100 million grant proposal to explore ways to provide benefits that are portable across employers and are available to workers who are self-employed, are part-timers or have multiple employers. (

– Hassan Rouhani landed in Rome on Monday on his first overseas trip since the European Union lifted sanctions on Jan. 16 in return for Tehran’s implementation of key restrictions on its nuclear program. With a number of U.S. sanctions still in place, European countries are moving quickly to re-establish ties to sell everything from consumer goods to aircraft. (

– Johnson Controls Inc and Tyco International Plc agreed to merge in a $14 billion deal that creates a new giant provider of commercial-building systems and reflects a growing push by some executives and shareholders toward companies that are bigger but more focused. (

– A highly anticipated new energy-demand projection from Exxon Mobil Corp released Monday cuts the company’s expectations for China. And a slew of data is emerging that points to the toll a weakened economy has taken on Chinese energy demand, which is among the most important factors in determining the price of crude oil. (



Greg Medcraft, chairman of the International Organization of Securities Commissions said that financial groups betting on blockchain technology should also take into account the cost of fraudulent transactions, much like banks do for credit card transactions.

The CFE-CGC energy union has put forward a set of challenges that may jeopardise EDF’s plans to build an 18 billion pound ($25.61 billion) nuclear power plant at Hinkley Point in Somerset. These include an expression of serious concern about the plant’s viability and what it might cost the company.

French billionaire Xavier Nile’s Iliad has held preliminary discussions with UK telecoms regulators Ofcom to enter Britain’s mobile market.

Greece has hit back at EU proposals to tighten its border security with Macedonia to stem the flow of refugees, saying its a dangerous experiment which would turn the country into a “cemetery of souls”.



– Years of rapid economic growth across sub-Saharan Africa fueled hopes of a prosperous new era. To many, the world’s poorest continent was finally emerging, with economies that were no longer dependent on the fickle global demand for Africa’s raw resources. (

– “Manchester by the Sea,” a buzzy drama starring Casey Affleck as a handyman coping with family strife, was sold to Inc for $10 million, beating out the likes of Fox and Universal. (

– Johnson Controls Inc, which introduced a device that could control room temperature some 130 years ago, has agreed to combine with Tyco International PLc. With the deal, Johnson Controls will relocate its headquarters from Milwaukee to Cork, Ireland, where Tyco is domiciled and where corporate taxes are lower than in the United States. (

– Airbus Group SE said Monday it was in talks with Iran toward the sale of dozens of new commercial aircraft – part of a number of international business deals likely to flow toward Iran since it agreed to curtail its nuclear ambitions. (

– A Chinese journalist who was traveling across Thailand on a frantic quest for political refuge messaged his wife recently to say that he would soon reach the border with Laos. Two weeks ago, the journalist, Li Xin, disappeared. Li’s wife, He Fangmei, and his supporters believe he has joined a growing list of people at odds with Beijing, who have been spirited into China across borders, especially from Thailand. (




** WestJet Airlines will suspend some of its regularly scheduled flights from Calgary and Edmonton to divert more of its capacity to Central and Eastern Canada. (

** Canadian government plans to require a separate climate test for proposed pipelines and a planned LNG export terminal, which are now under regulatory review, to determine their impact on Canada’s greenhouse gas emissions, a move that could impose new delays on billion dollar projects. (

** Postmedia Network Canada Corp announced an unconventional deal with Mogo Finance Technology Inc, an online provider of short-term loans that is looking to build a customer base among young people who shy away from traditional bank branches. (


** Vancouver is the third least affordable city in the world for a home, and construction constraints are to blame for rising home prices there and in other Canadian cities, according to U.S. group Demographia. (

** Fitch Ratings affirmed the default ratings of Canada’s largest banks Monday, but changed its outlook on Royal Bank of Canada’s to negative from stable. (

** Crude oil prices have fallen so low that oilsands producers are now in danger of seeing negative prices for their bitumen, according to a report Monday from FirstEnergy Capital Corp. (



The Times

The Guardian is to slash its costs by £54 million over the next three years and could start charging for some of its content after burning through £80 million of cash in only a year. (

Ophir Energy has signed a preliminary agreement with Schlumberger to develop its Fortuna gas project off the coast of Equatorial Guinea. (

The Guardian

American Apparel founder Dov Charney has lost his last-ditch attempt to wrest back control of the bankrupt retailer he started in his Tufts University dorm room in 1989. (

Sainsbury’s largest investor, the Qatar Investment Authority, has indicated that it might be willing to support a £1bn-plus bid for Home Retail Group at a “modest” increase to the 130p or so cash and shares offer rejected by the Argos owner in November. (

The Telegraph

Regulators are considering whether to allow two Iranian banks in London to resume operations after years of sanctions. (

McDonald’s will accelerate the rollout of table service across its refurbished UK restaurants and expand its trial of premium burgers in a bid to revamp its image amid intensifying competition in the fast food space. (

Sky News

George Osborne is preparing to end a six-month search for the new head of the City watchdog this week after ruling out one of the leading contenders for the job. (

The head of Opec has laid the blame on smaller oil-producing countries for the glut in supply swilling through global markets that has driven down prices. (

The Independent

The oil explorer JKX, which faces an attempt to topple its management this week, banned two of its biggest shareholders from voting yesterday after accusing them of providing “false or materially incorrect” information. (

A former Oxford schoolboy dubbed “Jihadi Jack” has dismissed reports that he is a member of Isis and accused the media of demonising young Britons who convert to Islam – in messages seen exclusively by The Independent. (


via Zero Hedge Tyler Durden

Not Even Bloomberg’s Analyst Is Buying The “Saudi Production Cuts”

The reason why oil has stormed higher from down over 3% to up well over $30 in the span of hours (and dragging futures higher with it), was – as observed earlier – news that Iraq’s Oil Minister Adel Abdul Mahdi said that both Saudi Arabia and Russia, the world’s biggest oil producers, “are now more flexible about cooperating to cut output as crude prices have fallen to levels that hydrocarbon-rich nations didn’t foresee.”

“This flexibility should be finalized, and we should hear some solid suggestions coming from all parties,” Abdul Mahdi told reporters at a conference in Kuwait City. He didn’t give details about what the increased Saudi and Russian flexibility entailed, nor did he say how he knew about it.

There is one problem with this: it wasn’t the Saudis saying the Saudis should (or would) cut, and in fact, while Aramco’s CEO said that there is an even greater glut than expected at 3MM b/d, he made precisely zero mention of Saudi Arabia cutting production at all in the near future.

And sure enough, moments ago Bloomberg’s own oil strategist, Julian Lee explained that comments that Saudi Arabia, Iraq, Russia have become more willing to consider production cuts need to be viewed with caution.

What else he said:

  • Saudi Arabia has said it would cut output as part of broader OPEC, non-OPEC agreement ever since current mkt share policy was introduced. There’s no indication that position has changed.
  • Aramco Chairman Khalid Al-Falih said in Davos last wk that country won’t reverse course unless non-OPEC nations play their part in production cuts
  • Iraq only willing to reduce output if others also cut
  • Russian govt officials continue to say that output reductions would not be effective; Energy Minister Alexander Novak has said several times that artificial production cuts are senseless
  • Lukoil’s Leonid Fedun says Russia could work with OPEC if a political decision was taken to cooperate No such agreement exists.
  • Parties agree that rising supply has been driven largely by U.S.

Lee concludes by saying that there’s no mechanism in U.S. to coordinate supply cut from large number of independent producers who have duty to their shareholders to maximize revenue. Actually there is a mechanism, if only a short-term one: it is called bankruptcy liquidation, and to get there the Saudis will need to keep the market oversupplied by 3MMb/d for a long, long time to take out said 3 million barrels in excess daily shale supply away from the table.

via Zero Hedge Tyler Durden

Is This Why Futures Soared Overnight?

As we noted in the overnight wrap, after sliding by 1%, and hitting an overnight low of 1,850, just as Europe opened US equity futures staged a furious rebound jumping nearly 30 point in under three hours for reasons largely unknown: surely it wasn’t hope that the Saudis would do any aggressive oil production cutting especially when considering what the CEO of Aramco Amin Nasser said moments ago, namely that the global economy is not encouraging for demand growth, adding that “The current price is definitely a supply-demand issue” hoping that “With low oil prices, demand hopefully will also increase” and estimating that the market is oversupplied by 3 million barrels/day, or about 200% higher than consensus.

And yet, the E-mini did this:


Perhaps the reason for this is none other than Dennis Gartman, who after infamously stating that oil will not see $44 again in his lifetime, (after being “quietly bullish of oil” just one month ago), sent this out just as futures were at their overnight lows:

This bear run is not over. There is more to be gotten on the downside. If we must put forth a target to the market’ downside we can suggest accepting Goldman Sachs’ latest estimate for earnings by the S&P listed companies of $110-$115 this year. If we apply a still higher-thanaverage P/e of 15 compared to the present level, that give us a target to the downside of 1690; a 16 P/e gives us a target of 1800 and in the broad scheme of things those are not illogical targets to the downside.


We shall strongly urge those who are still aggressively long of equities to become less so; we shall urge those who are upon the sidelines and are “punters” rather than long term investors to err obviously on the short side and we shall urge long term investors who’ve been fortunate enough to have gone to the sidelines to do what they can and what they must to convince themselves that things are not yet “cheap” enough to warrant even nibbling at equities. Patience and discretion shall be… as they always are… the far better parts of investment valor.

End result: anyone who “punted” on the short-side was immediately stopped out. But then again, the day is young, and Gartman may actually be proven correct by closing time…

via Zero Hedge Tyler Durden

China Crashes To 13 Month Low After Last Hour Panic Selling; Crude, Futures Tumble Then Surge

It has been another volatile, illiquid, whipsawed session, driven by the only two things that have mattered so far in 2016, China and oil…. and stop-hunting algos of course.

A quick look at the former first reveals that after sliding gradually all session, Chinese stocks puked in the last hour of trading with the China’s Shanghai Composite Index plunging 6.4% to 2,750, the most since the first week of January, and falling to the lowest level since December 2014. The composite has now plunged 22% in 2016 alone and is the world’s worst-performing primary equity index this year.

Among the reasons for the crash was concern about a possible cash squeeze before next month’s Chinese new year holiday as well as further capital outflows amid signs of a slowing economy, Huang Cendong, Shanghai-based analyst at Sinolink Securities, was quoted by Bloomberg as saying. We find that hard to believe, as neither are news.

What is far more accurate is what Wu Kan, a fund manager at JK Life Insurance Co. in Shanghai, said namely that “we are less than two weeks from the spring festival and it seems that most investors have no mood for trading any more.” Indeed, it appears that even the Chinese banana stand traders are tired of participating in a rigged casino and would much rather lose their money on other wholesome activities.

Furthermore, judging by the variety of predictions about what happens to Chinese stocks, such as these:

  • China Fund That Beat 98% of Peers Says Time to ‘Buy in Bulk’ -BBG
  • The Trader Who Made 6,200% on China Stocks Says Sell Now – BBG

… it is quite clear that nobody has any idea what is going on in China, or what is coming.

One thing that is certain, however, is that the Chinese government will continue intervening if not in stocks then in FX which it did earlier today in the offshore Yuan which had dropped 0.2% against the USD only to see the entire loss recovered after the PBOC intervened via “large-sized Chinese banks.”

The latest Chinese crash, and continued oversupply fears initially sent crude falling below $30 a barrel. The two-day drop in West Texas Intermediate topped 8% after a 21 percent rally on Thursday and Friday, the biggest in over seven years demonstrating just what a volatile pennystock oil has become. Data on Wednesday may show U.S. supplies rose by four million barrels last week, keeping inventories more than 120 million barrels above the 5-year seasonal average. As a reminder, the sliding price of oil hasn’t deterred Saudi Arabia. It won’t reduce its spending on energy projects, the catalyst for yesterday’s bounce.

And then, as if on cue, WTI and Brent both surged back over $30 after a few flashing read headlines carried the latest statement from the Iraq oil minister Adel Abdul Mahdi who told reporters in Kuwait City that Saudi Arabia and Russia are more flexible now on making cuts and cooperating, and that Iraq is ready to cut if others do so. The only problem is that Saudi Arabia has made it very clear it won’t cut until either the marginal producers cut first, or it puts the marginal shale producers out of business.

Furthermore, it will only take algos a few hours to realize that such statements are merely an opportunity for the oil ministers to sell into especially after Angola nnounced it would boost crude exports to 55.8MM B/D in March, and will ship 58 cargoes, equating to 1.8m b/d, according to final loading program obtained by Bloomberg. This is up from 1.69m b/d in Feb., and 1.77m b/d in preliminary plan for March. In other words, the supply glut is not only not improving, but getting worse by the day.

And then this:


For now however that is irrelevant, as algos saw the Iraqi headlines and ran with them, sending oil rebounding sharply from the lows and back into the green for the day, in the process pushing both US equities, which had tumbled more than 1% earlier, back to unchanged, and as now 7 points higher on the day…

… while the US 10 Year which had tumbled as much as 1.94% overnight is back to 2.00%.

At last check, this is where we stood:

  • S&P 500 futures up 0.2% to 1874
  • Stoxx 600 down 0.8% to 334
  • MSCI Asia Pacific down 1.6% to 118
  • US 10-yr yield unch at 2.00%
  • Dollar Index up 0.02% to 99.38
  • WTI Crude futures up 0.9% to $30.55
  • Brent up 1.4% to 30.98
  • Gold spot up 0.6% to $1,115
  • Silver spot up 1.1% to $14.39

Going quickly through the regional markets, Asian stocks traded in firm negative territory following the lacklustre close on Wall St., with sentiment dampened after crude pulled back from its largest 2-day gain in 7 years. Nikkei 225 (-2.4%) was pressured by the oil slump, while telecoms led declines amid losses from index heavyweight Softbank, which continued to suffer from Sprint woes. Elsewhere, the Shanghai Comp (-6.4%) weakened despite the largest liquidity injection conducted in 3 years, as oil weakness dictated sentiment, while outflow concerns also added to the downbeat tone. As a reminder, the ASX 200 was closed today due to Australia Day holiday. Finally, 10yr JGBs traded relatively flat, failing to sustain most its early advances despite weakness in stocks, as participants remain tentative ahead of Friday’s BoJ policy decision.

Top Asian News

  • PBOC’s Flood of Cash Keeps Money Rates in Check Before Holiday: China’s central bank conducts most reverse repos in 3 yrs
  • China’s Stocks Fall to 13-Month Low Amid Capital Outflow Concern: Shanghai Composite Index plunged 6.4% to lowest close since Dec. 2014
  • Hyundai Posts Lowest Profit in Five Years on China Slowdown: Slump in China deliveries overshadowed gains in the U.S., Europe, South Korea; 4Q oper. profit 1.52t won; est. 1.68t won
  • Sumitomo Mitsui Profit Unexpectedly Rises 17% on Stock Gains: 3Q net 238.1b yen, est. 192.4b yen
  • SK Hynix Profit Misses Estimates on Lower Memory Chip Prices: 4Q oper. profit 988.9b won; est. 1.04t won
  • Some BOJ Officials Are Said to See More Easing as Close Call: Kuroda gave no hint of his appetite for more stimulus at Davos
  • Hong Kong Feels Squeeze of Slowing China and Rising Rates: Stock selloff and Hong Kong dollar pressure unnerve investors
  • Singapore’s 80-Cent Loans Not Cheap Enough for Distressed Funds: Asian secondary loan trading thinnest in decade, says SC Lowy
  • Malaysia Brings Najib Probe to Close With No Graft Found: Najib has faced pressure to step down over funding scandal

In Europe, oil has turned around in recent trade, abating the risk off sentiment after both Brent and WTI re-took the USD 30.00 handle aided by comments from the Iraqi oil minister regarding production. European equities have been boosted by a turnaround in the energy sector, which was the laggard by a substantial margin throughout most of European trade today. It has recently turned around however, and lifted European indices off their worst levels.

In spite of a turnaround in risk sentiment, Bunds still trade higher (25 ticks), while the Dax (-0.7%) is lower even though one of its largest companies Siemens (6.4%) upgraded its EPS forecast. As participants await the release of Apple earnings after market today, it’s worth noting that its German

Top European News:

  • Lundbeck Said to Explore Options for Alcohol-Dependence Drug: Review may lead to a partnership agreement for Selincro
  • Draghi Says ECB Credibility Hinges on Meeting Its Inflation Goal: ECB President says critics ignore risks of doing nothing
  • Philips Earnings Beat Estimates on Jump in Medical Orders: 4Q Ebita ex-items EU842m, est. EU798m; confirms it sees modest comparable sales growth in 2016, expects improvements in the year to be back-end loaded; Philips’s Lumileds Draws Interest, May Get Lower Price, CEO Says
  • EasyJet to Intensify Cost Cuts as 2015 Terrorism Hurts Fares: iscal 1Q rev. fell 0.1% on pricing, currencies
  • Swiss Watch Exports Decline Amid Smartwatch Encroachment: Dec. exports declined 3.8%, pushing shipments down 3.3% on the yr to CHF21.5b, Federation of the Swiss Watch Industry said
  • Dixons Carphone to Accelerate Closings as Sales Beat Estimates: Will reduce outlet numbers by 134 over the next yr as it combines its PC World and Currys stores, while inserting a Carphone Warehouse outlet into each
  • Tesco Rapped by Grocery Regulator Over Treatment of Suppliers: Serious Fraud Office criminal probe still hangs over grocer
  • U.K. Flirts With Failed Debt Auction as Analysts Wince at Depth: Analysts study chance as Jan. 20 offer barely oversubscribed
  • Deutsche Post to Expand Parcel Service to Confront Amazon: Bild

In commodities, WTI crude fluctuated after Monday’s 5.8 percent retreat. Government data due out Wednesday is expected to show U.S. inventories rose by 4 million barrels last week, according to energy analysts. That would be a third week of gains. Oil is down almost 20 percent this year amid concern over brimming U.S. stockpiles, steady output from Saudi Arabia and Russia and the prospect of increasing Iranian shipments after the end of sanctions. Bets that WTI will retreat below $25 a barrel have reached a record high.

Iraq’s oil ministers says Russia and Saudi Arabia are more flexible on cutting oil output and would agree to have an emergency OPEC meeting but says it would be pointless without an upfront agreement on production.

Gold for immediate delivery gained 0.5 percent to $1,112.94 an ounce. It climbed 0.8 percent last week as the turmoil in global stock markets renewed interest in the metal as a store of value.

In FX, haven currencies erased earlier gains. The euro weakened 0.2 percent to $1.0833, while the yen was at 118.29 per dollar. The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, increased 0.1 percent. The won fell for the first time in four days after South Korea reported economic growth of 3 percent for the fourth quarter on a year-on-year basis, retreating from a five-year high. Foreign funds have pulled $2.5 billion from Korean shares so far this year. Russia’s ruble strengthened 0.6 percent, erasing an intraday decline and clawing back some of Monday’s 2.5 percent drop.

EUR/USD drivers are similar balanced, risk off rally against fresh ECB stimulus keeping the pair on the 1.0800’s for the foreseeable future. Oil was back on a USD 29.0 handle to send CAD, RUB, MXN et al all lower again, but recovering well in line with both WTI and Brent reclaiming USD 30.0 on fresh comments (from SA, Russian and Iraq) on production levels.

On the US calendar today we have the November FHFA house price index and S&P/Case-Shiller home price index. Following this will be the flash January services and composite PMI’s, before we get the January consumer confidence reading where current expectations are for no change relative to last month. The Richmond Fed manufacturing index print for January is also due out this afternoon. In terms of central bank speakers, comments from the BoE’s Carney (at 10.45pm GMT) this morning related to the December Financial Stability Report will be worth keeping an eye on. Meanwhile, earnings season rumbles on with 23 S&P 500 companies due to report. The highlight will no doubt be the Apple results which are expected post the closing bell, while Johnson & Johnson (pre-market), AT&T (after-market) and Proctor & Gamble (pre-market) are also due to report.

Bulletin Headline Summary from Bloomberg and RanSquawk

  • Treasuries slightly higher overnight as world equity markets selloff, oil mostly steady; week’s U.S. auctions begin today with $26b 2Y notes, WI yield 0.86%, compares with 1.056% awarded in Dec., fifth straight 2Y auction to stop through.
  • China’s stocks tumbled to the lowest levels in 13 months amid concern capital outflows will accelerate as the economy slows and support for the yuan eats into the nation’s foreign reserves
  • The mismatch between trade data reported by Hong Kong and China widened to the second-highest on record in December, renewing speculation of faked invoices
  • According to Bank of America Merrill Lynch, China will steer clear of a hard landing and the government will contain the risks arising from its financial market turbulence
  • While stocks are having a chaotic start to the year, investors are pulling money from securities that profit from higher volatility at the same time as short sellers are piling into bets that tranquility will return
  • Mario Draghi hit back at critics of his policies, saying the European Central Bank must fulfill its inflation mandate in order to maintain its credibility
  • Greece’s next bite of bailout money may turn into a movable feast if PM Alexis Tsipras can’t convince euro-area authorities he’s making good on his promises to fix Greece’s pension system, update its labor markets and close fiscal gaps
  • U.K. government bonds have investors bracing for a failed sale. An offering Jan. 20 that attracted the lowest demand in nearly seven years might be a warning sign for buyers who haven’t balked at acquiring all the targeted debt since a March 2009 auction
  • Across the U.S., the story is much the same. The world’s economic woes — from China to Russia to South America — are damping sales in the high-end real estate market
  • Sovereign 10Y bond yields mostly lower except for Greece which widens 15bp. Asian, European stocks mostly lower; U.S. equity-index futures drop. Crude oil steady, copper and gold rise

US Eveonomic Calendar

  • 9:00am: FHFA House Price Index m/m, Nov., est. 0.5% (prior 0.5%)
  • 9:00am: S&P/Case-Shiller US HPI m/m, Nov. (prior 0.88%)
    • S&P/CS 20-City Index NSA, Nov., est. 183.09 (prior 182.83)
    • S&P/CS 20 City m/m SA, Nov., est. 0.8% (prior 0.84%)
    • S&P/CS Composite-20 y/y, Nov., est. 5.67% (prior 5.54%)
    • S&P/CS US HPI NSA, Nov. (prior 175.65)
    • S&P/CS US HPI y/y, Nov. (prior 5.17%)
  • 9:45am: Markit US Services PMI, Jan. P, est. 54 (prior 54.3)
  • Markit US Composite PMI, Jan. P (prior 54)
  • 10:00am: Consumer Confidence Index, Jan., est. 96.5 (prior 96.5)
  • 10:00am: Richmond Fed Mfg Index, Jan., est. 2 (prior 6)

Top Headline News:

  • Oil has turned around in recent trade, abating the risk off sentiment after both Brent and WTI re¬took the USD 30.00 handle
  • FX markets continue to trade in familiar ranges, but clearly to the downside as sentiment is mostly sour
  • Today’s highlights include: US S&P/CaseShiller 20-City Index NSA, API Crude Oil Inventories, BoE’s Carney and earnings from the likes of Apple and Johnson & Johnson
  • Huntington Bancshares to Acquire FirstMerit for $3.4b: FirstMerit shareholders will receive 1.72 shares of Huntington common stock and $5 in cash for each share that they own
  • Staples Shakes Up Management, May Go Without Office Depot: Demos Parneros, Staples’ president of North American stores and its online business, will step down by March 31
  • Siemens Raises Outlook as Lower Tax Offsets China, Oil Slump: FY EPS will be between EU6-EU6.40, higher than a previous forecast of EU5.90-EU6.20
  • Crane Co. 2016 EPS Forecast Range Below Ests; 4Q Adj. EPS Beats: Sees yr EPS $3.85-$4.15, est. $4.27.
  • Obama Seeks to Expand 401(k) Use by Letting Employers Pool Plans: President wants $100m to test more portable accounts
  • JPMorgan Reaches $1.42 Billion Deal in Lehman Clearing Case: Lehman said the settlement resolves 2 of the 3 major pieces of litigation with JPMorgan left over from its 2008 bankruptcy
  • Paulson Pledges Personal Holdings to Back Firm After Assets Fall: Puts up his hedge-fund interests for credit line
  • Traders Are Withdrawing Money From VIX Funds Like Never Before: VIX index of market stress jumps 33 percent in Jan.
  • Flexible Workers, AI Keys to Future Success, Accenture Predicts: Companies must invest in AI, training, platforms, says firm
  • Einhorn’s Greenlight May Seek SunEdison Sale, Filing Shows: Greenlight says it may propose changes including asset sale
  • Retirement Giant Fidelity Now Wants Workers’ Health Insurance: To offer private health exchange for midsized firms
  • Nexstar Said to Be Close to $2.3b Deal for Media General: NYP: Agreement is expected to be put on hold when announced, because Media General has already pledged itself to Meredith Corp.: NYP cites one unidentified person familiar
  • Tesla’s Musk Says Held High-Level Talks With Chinese Government: Tesla is looking for a Chinese production partner but still “trying to figure that out,” billionaire co. co-founder Elon Musk tells a business conference in Hong Kong
  • Verso Files for Chapter 11 Protection in Delaware Today

DB’s Jim Reid concludes the overnight wrap

Global markets spat their dummy out again on Monday as oil tumbled yet again (over -7.5%) after the largest 2-day rally for 7 years. News out of Saudi Arabia proved to be a big driver in the European session, as the world’s largest crude exporter noted that it did not plan to reduce its investment spending on energy projects despite lower oil prices (Bloomberg). The risk-off sentiment once again dragged on equities, as European markets wiped out early gains and closed in marginally negative territory (STOXX -0.62%; FTSE -0.39%; DAX -0.29%) while US equities sold off in line until a weak final hour of trading saw the S&P 500 lose nearly an extra percentage point to close -1.56%.

Asia is following on from the US close with the Nikkei and Hang Seng down -2.4% and -1.8% as we go to print. The Shanghai Comp is around -3% lower and trading at 13 month lows. Oil has continued its slide from yesterday, declining around -2.5%. Just after we went to print yesterday the futures contract hit $32.73. 24 hours later it’s at $29.57 – nearly 10% lower from the highs. With high impact news-flow from China easing for now, Oil has taken over as the main global markets driver at the moment and when you get swings like we’ve seen since last Wednesday evening, sentiment is going to be messy.

Obvious one of the asset classes most in focus over the last few months and one closely tied to the price of Oil has been US credit. Yesterday our US credit strategist Oleg Melentyev published an update which included looking at how the market has rarely been as dislocated (less than 15% of HY trading within 100bps of the overall index – close to the lowest ever) but at least showing signs of fair value re-emerging. As Oleg discusses, HY ex-energy has widened 80bps so far in 2016, and 115bp since early December; currently standing at 667bp. IG ex-energy spreads at 168bp are +17 and +21bps respectively over those time horizons. Both markets have now modestly overshot his targets of 650bp and 155bp respectively. Oleg worries that if credit widens much more it could reach the point of no return and become even more self fulfilling. In the note he also looks at their lead indicators for the default cycle with many of them recently reaching critical levels. So overall value re-emerging but with risk that we could be near a tipping point in some of the market drivers.

Back to markets, data releases out yesterday were largely disappointing and did little to help the risk off sentiment across markets. The German IFO survey data for January missed estimates as the business expectations index fell to 102.4 (vs. 104.2 expected; 104.6 previous) and the business climate index fell  to 107.3 (vs. 108.4 expected; 108.6 previous). Data out of Italy was also soft, as retail sales numbers for November posted only +0.3% mom (vs. +0.5% expected) and increased concerns that the country’s economic recovery may already be losing momentum. The UK saw factory orders data for the three months to January dip more than expected as indicated by the CBI order book balance (-15 vs. -10 expected; -7 previous). On a somewhat positive note, optimism about the general business environment increased to -4 (vs. -12 prior) over the same period.

Data out of the US was also negative, as the Dallas Fed Manufacturing Survey reported a sharp drop in broader business conditions, as the general business activity index for January came in at -34.6 (vs. -14.5 expected; -21.6 previous) – the lowest levels since April 2009. Texas manufacturing activity also fell sharply to near recession levels with the production index dropping to -10.2 (vs. 12.7 previous), while the general Company outlook index came in at -19.5 (vs. – 10.5 previous).

Looking at today’s calendar, with no data due in Europe this morning it’s all eyes on the US session where there are a number of releases due. Kicking things off will be the latest housing market data where we’ve got the November FHFA house price index and S&P/Case-Shiller home price index prints both expected. Following this will be the flash January services and composite PMI’s, before we get the January consumer confidence reading where current expectations are for no change relative to last month. The Richmond Fed manufacturing index print for January is also due out this afternoon. In terms of central bank speakers, comments from the BoE’s Carney (at 10.45pm GMT) this morning related to the December Financial Stability Report will be worth keeping an eye on. Meanwhile, earnings season rumbles on with 23 S&P 500 companies due to report. The highlight will no doubt be the Apple results which are expected post the closing bell, while Johnson & Johnson (pre-market), AT&T (after-market) and Proctor & Gamble (pre-market) are also due to report.

via Zero Hedge Tyler Durden

Makers of Controversial Planned Parenthood Video Face Felony Charges, Seemingly for Fake I.D.s

Makers of the controversial video made to shame Planned Parenthood by pretending to be researchers trying to purchase fetal tissue from the organization, David Daleiden and Sandra Merritt (working under the aegis of the “Center for Medical Progress”), were indicted today in Harris County, Texas, by a grand jury on felony charges of “tampering with a governmental record.” 

The grand jury was ironically convened to investigate whether the videos reveals that Planned Parenthood had broken any laws.

Since the story broke this afternoon I saw coverage cheering the indictment largely because they were sympathetic to Planned Parenthood and thought the video makers had done a bad thing, or booing it because they were unsympathetic to Planned Parenthood and thought the video makers had done a good thing.

But for hours no explanation of what specific act they had actually committed qualified under the quoted indictment language of “tampering with a governmental record” seemed forthcoming, or at least none that I had seen.

Now The New York Times has updated with a possible explanation:

In making the videos, Mr. Daleiden and others have been accused of setting up a fake company called Biomax Procurement Services, creating fake identities and claiming to be part of a legitimate provider of fetal tissue to researchers.

“We know that they used fake IDs that had their real photographs but fake names and fake addresses purported to be issued by the State of California,” said Josh Schaffer, a Houston lawyer who represents Planned Parenthood Gulf Coast in the Harris County criminal investigation. Mr. Daleiden and Ms. Merritt presented those IDs to security at the Planned Planned office to gain entry to the building. “They never denied that they presented a fake ID,” Mr. Schaffer said…..

“It does not surprise me that a grand jury that chose to correctly apply the law to the evidence that was presented would return this result,” he said. “The written charges have not been released publicly yet, so at this point I am working on my knowledge of the investigation.”

What seems to be the relevant Texas criminal code, only one I found with that language:

Sec. 37.10. TAMPERING WITH GOVERNMENTAL RECORD. (a) A person commits an offense if he:

(1) knowingly makes a false entry in, or false alteration of, a governmental record;

(2) makes, presents, or uses any record, document, or thing with knowledge of its falsity and with 

intent  that it be taken as a genuine governmental record;

(3) intentionally destroys, conceals, removes, or otherwise impairs the verity, legibility, or availability 

of a governmental record;

(4) possesses, sells, or offers to sell a governmental record or a blank governmental record form 

with intent that it be used unlawfully;

(5) makes, presents, or uses a governmental record with knowledge of its falsity; or

(6) possesses, sells, or offers to sell a governmental record or a blank governmental record form with 

knowledge that it was obtained unlawfully…..

(c)(1) Except as provided by Subdivisions (2), (3), and (4) and by Subsection (d), an offense under 

this section is a Class A misdemeanor unless the actor’s intent is to defraud or harm another, in 

which event the offense is a state jail felony.

The reporting all states that their charge is a felony one. According to this site, a “state jail felony” is:

punishable by 180 days to two years in state jail and a fine of up to $10,000.

Daleiden also was hit with a misdemeanor charge related to attempting to buy human tissue.

It’s possible people might rise above their culture-war sympathies about this and wonder whether having and using a fake I.D. in and of itself should be punished as a felony. Or, maybe not and those who want to see those guys punished will grab whatever stick they can toward that goal. (Or maybe people genuinely believe the making of a fake I.D. deserves six months to 2 years locked in a cage.)

Past Reason coverage involving those videos.

from Hit & Run

Bernie Sanders Says He’d Raise Taxes. Of Course He Would.

Bernie Sanders made something very clear tonight at a Democratic townhall event in Iowa: He wants to raise taxes.

“We will raise taxes. Yes we will,” Sanders said in response to a question about how Sanders would pay for the immense cost of his single-payer health care plan, which would make government the universal insurer for every American.

In the plan, Sanders calls for individuals to pay an “income-based premium.” But this is basically just another way of describing a new tax that would hit most everyone, including middle-income earners.

Sanders admitted as much tonight, but also defended himself, saying that under his plan, the taxes would replace health insurance premiums.

“But let me be clear,” Sanders said, “There’s a little bit of disingenunity out there. We will raise taxes but we are also going to eliminate private health insurance premiums for individuals and for businesses.”

Even still, this would require raising about $1.35 trillion in new revenue each year—the initial cost estimate for Obamacare was a little shy of $1 trillion over a decade—under the rosiest possible assumptions. Actually, scratch that; rosy assumptions is too kind. The Sanders plan simply assumes that we’ll reduce health care spending in the U.S. by nearly a half a trillion dollars a year, without offering any details at all about how that will happen. In fact, the incredibly generous, cover-everything-at-no-cost plan it seems to sketch would almost certainly not achieve the sort of savings Sanders imagines. If anything, it would likely lead to massive increases in health care utilization and spending. It is a fantasy of easy, effortless savings that makes no attempt to reckon with the trade-offs it would inevitably require.

So yes, Bernie Sanders is admitting the obvious: As president, he’d push to raise taxes. Of course he would! But even in this admission, he’s not telling the whole truth about what his health care plan would entail.

from Hit & Run

Presidential Crimes Then And Now

Authored by Paul Craig Roberts,

Are Nixon’s and the Reagan administration’s crimes noticable on the scale of Clinton’s, George W. Bush’s, and Obama’s?

Not much remains of the once vibrant American left-wing. Among the brainwashed remnants there is such a hatred of Richard Nixon and Ronald Reagan that the commitment of these two presidents to ending dangerous military rivalries is unrecognized. Whenever I write about the illegal invasions of other countries launched by Clinton, George W. Bush, and Obama, leftists point to Chile, Nicaragua and Grenada and say that nothing has changed. But a great deal has changed. In the 1970s and 1980s Nixon and Reagan focused on reducing Cold War tensions. Courageously, Nixon negotiated nuclear arms limitation agreements with the Soviet Union and opened to China, and Reagan negotiated with Gorbachev the end of the dangerous Cold War.

Beginning with the Clinton regime, the neoconservative doctrine of the US as the Uni-power exercising hegemony over the world has resurrected tensions between nuclear-armed powers. Clinton trashed the word of the Reagan and George H.W. Bush administrations and expanded NATO throughout Eastern Europe and brought the military alliance to Russia’s border. The George W. Bush regime withdrew from the anti-ballistic missile treaty, revised US war doctrine to permit pre-emptive nuclear attack, and negotiated with Washington’s East European vassals to put anti-ballistic missiles on Russia’s borders in an effort to neutralize Russia’s nuclear deterrent, thus bringing major security problems to Russia. The Obama regime staged a coup against a government allied with Russia in Ukraine, traditionally a part of Russia, and imposed a Russophobia government as Washington’s vassal. Turning to China, Washington announced the “pivot to Asia” with the purpose of controlling shipping in the South China Sea. Additionally, the Clinton, George W. Bush, and Obama regimes fomented wars across a wide swath of the planet from Yugoslavia and Serbia through the Middle East and Africa to South Ossetia and now in Ukraine.

The neoconservative ideology rose from the post-Reagan collapse of the Soviet Union. The doctrine met the need of the US military/security complex for a new enemy in order to avoid downsizing. Washington’s pursuit of empire is a principal danger to life itself for everyone on the planet.

Unlike Clinton, George W. Bush, and Obama, Nixon and Reagan went against the military/security complex. Nixon opened to China and made arms reduction agreements with the Soviets. Reagan negotiated with Gorbachev the end of the Cold War. The military/security complex was displeased with these presidential initiatives. Both left and right accused Nixon and Reagan of nefarious machinations. Right-wing Republicans said that Nixon and Kissinger were selling America out to the communists and that the scheming Soviets would take advantage of Reagan, the old movie actor. “Communists,” we were assured, “only understand force.”

Nixon and Reagan focused on eliminating dangerous rivalries, and the three stooges—Clinton, Bush, and Obama—have resurrected the rivalries. Those who cannot see the astonishing difference are blinded by prejudices and their brainwashing.

In this article, I describe unappreciated aspects of the Nixon and Reagan presidencies. What I provide is neither a justification nor a denunciation, but an explanation. Here is what Patrick Buchanan, who was in the White House with both presidents, wrote to me in response to my explanation:

“Craig, you are dead on in what you write about both Nixon and Reagan and what they sought in their presidencies. Reagan often talked of those ‘godawful weapons,’ meaning nukes. I was at Reykjavik with him, and was stunned at Hofde House to learn that Ronald Reagan pretty much wanted to trade them all away. And when, years later, Tom Wicker wrote favorably about the Nixon presidency, he accurately titled his book One of Us. All his life Nixon sought the approbation of the [pre-neocon] Establishment. Am deep into a new book, based on my experiences and my White House files, and all through it I am urging him [Nixon] to be and to become the kind of conservative president I wanted, but he never was. My thanks for bringing in The Greatest Comeback, which covered the period when I was closest to Nixon. All the best, Pat.”

Writing for Americans is not always an enjoyable experience. Many readers want to have their prejudices confirmed, not challenged. Emotions rule their reason, and they are capable of a determined resistance to facts and are not inhibited from displays of rudeness and ignorance. Indeed, some are so proud of their shortcomings that they can’t wait to show them to others. Some simply cannot read and confuse explanations with justifications as if the act of explaining something justifies the person or event explained. Thankfully, all readers are not handicapped in these ways or there would be no point in trying to inform the American people.

In a recent column I used some examples of Clinton-era scandals to make a point about the media, pointing out that the media and the American people were more interested in Clinton’s sexual escapades and in his choice of underwear than in the many anomalies associated with such serious events as the Oklahoma City bombing, Waco, the mysterious death of a White House legal counsel, US sanctions on Iraq that took the lives of 500,000 children, and illegal war against Serbia.

Reaganphobes responded in an infantile way, remonstrating that the same standards should be applied to “your dear beloved Ray-Gun” as to Clinton. Those readers were unable to understand that the article was not about Clinton, but about how the media sensationalizes unimportant events in order to distract attention from serious ones. Examples from the Clinton era were used, because no question better epitomizes the level of the American public’s interest in political life than the young woman’s question to President Clinton: “boxers or briefs?”

It is doubtful that journalists and historians are capable of providing accurate understandings of any presidential term. Even those personally involved often do not know why some things happened. I have been in White House meetings from which every participant departed with a different understanding of what the president’s policy was. This was not the result of lack of clarity on the president’s part, but from the various interests present shaping the policy to their agendas.

Many Americans regard the White House as the lair of a powerful being who can snap his fingers and make things happen. The fact of the matter is that presidents have little idea of what is transpiring in the vast cabinet departments and federal agencies that constitute “their” administration. Many parts of government are empires unto themselves. The “Deep State,” about which Mike Lofgren, formerly a senior member of the Congressional staff has written, is unaccountable to anyone. But even the accountable part of the government isn’t. For example, the information flows from the cabinet departments, such as defense, state, and treasury, are reported to Assistant Secretaries, who control the flow of information to the Secretaries, who inform the President. The civil service professionals can massage the information one way, the Assistant Secretaries another, and the Secretaries yet another. If the Secretaries report the information to the White House Chief of Staff, the information can be massaged yet again. In my day before George W. Bush and Dick Cheney gave us the Gestapo-sounding Department of Homeland Security, the Secret Service reported to an Assistant Secretary of the Treasury, but the Assistant Secretary had no way of evaluating the reliability of the information. The Secret Service reported whatever it suited the Secret Service to report.

Those who think that “the President knows” can test their conviction by trying to keep up with the daily announcements from all departments and agencies of the government. It is a known fact that CEOs of large corporations, the relative size of which are tiny compared to the US government, cannot know all that is happening within their organizations.

Nixon: Villain or Centrist Reformer?

I am not particularly knowledgeable about the terms of our various presidents. Nevertheless, I suspect that the Nixon and Reagan terms are among the least understood. Both presidents had more ideological opponents among journalists and historians than they had defenders. Consequently, their stories are distorted by how their ideological opponents want them to be seen and remembered. For example, compare your view of Richard Nixon with the portrait Patrick Buchanan provides in his latest book, The Greatest Comeback. A person doesn’t have to agree with Buchanan’s view of the issues of those years, or with how Buchanan positioned, or tried to position, Nixon on various issues, to learn a great deal about Nixon. Buchanan can be wrong on issues, but he is not dishonest.

For a politician, Richard Nixon was a very knowledgeable person. He travelled widely, visiting foreign leaders. Nixon was the most knowledgeable president about foreign policy we have ever had. He knew more than Obama, Bush I and II, Clinton, Reagan, Carter, Ford, and Johnson combined.

The liberal-left created an image of Nixon as paranoid and secretive with a long enemies list, but Buchanan shows that Nixon was inclusive, a “big tent” politician with a wide range of advisors. There is no doubt that Nixon had enemies. Many of them continue to operate against him long after his death.

Indeed, it was Nixon’s inclusiveness that made conservatives suspicious of him. To keep conservatives in his camp, Nixon used their rhetoric, and Nixon’s rhetoric fueled Nixon-hatred among the liberal-left. The inclination to focus on words rather than deeds is another indication of the insubstantiality of American political comprehension.

Probably the US has never had a more liberal president than Nixon. Nixon went against conservatives and established the Environmental Protection Agency (EPA) by executive order. He supported the Clean Air Act of 1970. Nixon federalized Medicaid for poor families with dependent children and proposed a mandate that private employers provide health insurance to employees. He desegregated public schools and implemented the first federal affirmative action program.

Declaring that “there is no place on this planet for a billion of its potentially most able people to live in angry isolation,” Nixon engineered the opening to Communist China. He ended the Vietnam War and replaced the draft with the volunteer army. He established economic trade with the Soviet Union and negotiated with Soviet leader Brezhnev landmark arms control treaties—SALT I and the Anti-Ballistic Missile Treaty in 1972, which lasted for 30 years until the neoconized George W. Bush regime violated and terminated the treaty in 2002.

These are astonishing achievements for any president, especially a Republican one. But if you ask Americans what they know about Nixon, the response is Watergate and President Nixon’s forced resignation.

In other words, here is more proof that all the American media does is to lie to us. The US media is no longer independent. It is a servile captive creature that turns lies into truths via endless repetitions.

I am convinced that Nixon’s opening to China and Nixon’s arms control treaties and de-escalation of tensions with the Soviet Union threatened the power and profit of the military/security complex. Watergate was an orchestration used to remove the threat that Nixon presented. If you read the Watergate reporting by Woodward and Bernstein in the Washington Post, there is no real information in it. In place of information, words are used to create an ominous presence and sinister atmosphere that is transferred to Nixon.

There was nothing in the Watergate scandal that justified Nixon’s impeachment, but his liberal policies had alienated conservative Republicans. Conservatives never forgave Nixon for agreeing with Zhou Enlai that Taiwan was part of China. When the Washington Post, John Dean, and a missing segment of a tape got Nixon in trouble, conservatives did not come to his defense. The liberal-left was overjoyed that Nixon got his comeuppance for supporting the exposure and prosecution of Soviet spy Alger Hiss two decades previously.

I do not contend that the left-wing has no legitimate reasons for hostility against Nixon. Nixon wanted out of Vietnam, but “with honor” so that conservatives would not abandon him. Nixon did not want to become known as the President who forced the US military to accept defeat. He wanted to end the war, but if not with victory then with a stalemate like Korea. He or Kissinger gave the US military carte blanche to produce a situation that the US could exit “with honor.” This resulted in the secret bombing in Laos and Cambodia. The shame of the bombings cancelled any exit with real honor.

The Reagan era is also misunderstood. Just as President Jimmy Carter was regarded as an outsider by the Democratic Washington Establishment, Ronald Reagan was an outsider to the Republican Establishment whose candidate was George H. W. Bush. Just as Carter’s presidency was neutered by the Washington Establishment with the frame-up of Carter’s Budget Director and Chief of Staff, Reagan was partially neutered before he assumed office, and the Establishment removed in succession two national security advisors who were loyal to Reagan.

Reagan’s Priorities and the Establishment’s Agenda

When Reagan won the Republican presidential nomination, he was told that although he had defeated the Establishment in the primaries, the voters would not be able to come to his defense in Washington. He must not make Goldwater’s mistake and shun the Republican Establishment, but pick its presidential candidate for his vice president. Otherwise, the Republican Establishment would work to defeat him in the presidential election just as Rockefeller had undermined Goldwater.

As a former movie star, Nancy Reagan put great store on personal appearance. Reagan’s California crew was a motley one. Lynn Nofziger, for example, sported a beard and a loosely knotted tie if a tie at all. He moved around his office in sock feet without shoes. When Nancy saw Bush’s man, Jim Baker, she concluded that the properly attired Baker was the person that she wanted standing next to her husband when photos were made. Consequently, Reagan’s first term had Bush’s most capable operative as Chief of Staff of the White House.

To get Reagan’s program implemented with the Republican Establishment occupying the chief of staff position was a hard fight.

I don’t mean that Jim Baker was malevolent and wished to damage Reagan. For a member of the Republican Establishment, Jim Baker was very intelligent, and he is a hard person to dislike. The problem with Baker was two-fold. He was not part of the Reagan team and did not understand what we were about or why Reagan was elected. Americans wanted the stagflation that had destroyed Jimmy Carter’s presidency ended, and they were tired of the ongoing Cold War with the Soviet Union and its ever present threat of nuclear Armageddon.

It is not that Baker (or VP Bush) were personally opposed to these goals. The problem was that the Establishment, whether Republican or Democratic, is responsive not to solving issues but to accommodating the special interest groups that comprise the Establishment. For the Establishment, preserving power is the primary issue. As The Saker makes clear, in both parties the Anglos of my time, of which George H. W. Bush was the last, have been replaced by the neocons. The neocons represent an ideology in addition to special interest groups, such as the Israel Lobby.

The Republican Establishment and the Federal Reserve did not understand Reagan’s Supply-Side economic policy. In the entire post World War II period, reductions in tax rates were associated with the Keynesian demand management macroeconomic policy of increasing aggregate demand. The Reagan administration had inherited high inflation, and economists, Wall Street, and the Republican Establishment, along with Reagan’s budget director, David Stockman, misunderstood Reagan’s supply-side policy as a stimulus to consumer demand that would cause inflation, already high, to explode. On top of this, conservatives in Congress were disturbed that Reagan’s policy would worsen the deficit—in their opinion the worst evil of all.

Reagan’s supply-side economic policy was designed not to increase aggregate demand, but to increase aggregate supply. Instead of prices rising, output and employment would rise. This was a radically new way of using fiscal policy to raise incentives to produce rather than to manage aggregate demand, but instead of helping people to understand the new policy, the media ridiculed and mischaracterized the policy as “voodoo economics,” “trickle- down economics,” and “tax cuts for the rich.” These mischaracterizations are still with us three decades later. Nevertheless, the supply-side policy was partially implemented. It was enough to end stagflation and the policy provided the basis for Clinton’s economic success. It also provided the economic basis that made credible Reagan’s strategy of forcing the Soviets to choose between a new arms race or negotiating the end of the Cold War.

Ending the Cold War and Bad CIA Advice

President Reagan’s goal of ending the Cold War was upsetting to both conservatives and the military/security complex. Conservatives warned that wily Soviets would deceive Reagan and gain from the negotiations. The military/security complex regarded Reagan’s goal of ending the Cold War as a threat comparable to Nixon’s opening to China and arms limitations treaties with the Soviet Union. President John F. Kennedy had threatened the same powerful interests when he realized from the Cuban Missile Crisis that the US must put an end to the risk of nuclear confrontation with the Soviet Union.

With the success of his economic policy in putting the US economy back on its feet, Reagan intended to force a negotiated end to the Cold War by threatening the Soviets with an arms race that their suffering economy could not endure. However, the CIA advised Reagan that if he renewed the arms race, he would lose it, because the Soviet economy, being centrally planned, was in the hands of Soviet leaders, who, unlike Reagan, could allocate as much of the economy as necessary to win the arms race. Reagan did not believe the CIA. He created a secret presidential committee with authority to investigate the CIA’s evidence for its claim, and he appointed me to the committee. The committee concluded that the CIA was wrong.

Reagan always told us that his purpose was to end, not win, the Cold War. He said that the only victory he wanted was to remove the threat of nuclear annihilation. He made it clear that he did not want a Soviet scalp. Like Nixon, to keep conservatives on board, he used their rhetoric.

Curing stagflation and ending the Cold War were the main interests of President Reagan. Perhaps I am mistaken, but I do not think he paid much attention to anything else.

Grenada and the Contras in Nicaragua were explained to Reagan as necessary interventions to make the Soviets aware that there would be no further Soviet advances and, thus, help to bring the Soviets to the negotiating table to end the nuclear threat. Unlike the George W. Bush and Obama regimes, the Reagan administration had no goal of a universal American Empire exercising hegemony over the world. Grenada and Nicaragua were not part of an empire-building policy. Reagan understood them as a message to the Soviets that “you are not going any further, so let’s negotiate.”

Conservatives regarded the reformist movements in Grenada and Nicaragua as communist subversion, and were concerned that these movements would ally with the Soviet Union, thus creating more Cuba-like situations. Even President Carter opposed the rise of a left-wing government in Nicaragua. Grenada and Nicaragua were reformist movements rather than communist-inspired, and the Reagan administration should have supported them, but could not because of the hysteria of American conservatives. Reagan knew that if his constituency saw him as “soft on communism,” he would lack the domestic support that he needed in order to negotiate with the Kremlin the end of the Cold War.

America Playing the Foreign Policy Game

Today Western governments support and participate in Washington’s invasions, but not then. The invasion of Grenada was criticized by both the British and Canadian governments. The US had to use its UN Security Council veto to save itself from being condemned for “a fragrant violation of international law.”

The Sandinistas in Nicaragua were reformers opposed to the corruption of the Somoza regime that catered to American corporate and financial interests. The Sandinistas aroused the same opposition from Washington as every reformist government in Latin America always has. Washington has traditionally regarded Latin American reformers as Marxist revolutionary movements and has consistently overthrown reformist governments in behalf of the United Fruit Company and other private interests that have large holdings in countries ruled by unrepresentative governments.

Washington’s policy was, and still is, short-sighted and hypocritical. The United States should have allied with representative governments, not against them. However, no American president, no matter how wise and well- intentioned, would have been a match for the combination of the interests of politically-connected US corporations and the fear of more Cubas. Remember Marine General Smedley Butler’s confession that he and his US Marines served to make Latin America safe for the United Fruit Company and “some lousy investment of the bankers.”

Information is Power

Americans, even well informed ones, dramatically over-estimate the knowledge of presidents and the neutrality of the information that is fed to them by the various agencies and advisors. Information is power, and presidents get the information that Washington wants them to receive. In Washington private agendas abound, and no president is immune from these agendas. A cabinet secretary, budget director, or White House chief of staff who knows how Washington works and has media allies is capable, if so inclined, of shaping the agenda independently of the president’s preferences.

The Establishment prefers a nonentity as president, a person without experience and a cadre of knowledgeable supporters to serve him. Harry Truman was, and Obama is, putty in the hands of the Establishment. If you read Oliver Stone and Peter Kuznick’s The Untold History of the US, you will see that the Democratic Establishment, realizing that FDR would not survive his fourth term, forced his popular Vice President Henry Wallace off the ticket and put in his place the inconsequential Truman. With Truman in place, the military/security complex was able to create the Cold War.

From Bad to Worse

The transgressions of law that occurred during the Nixon and Reagan years are small when compared to the crimes of Clinton, George W. Bush and Obama, and the crimes were punished. Nixon was driven from office and numerous Reagan administration officials were prosecuted and convicted. Neither Nixon nor Reagan could have run roughshod over both Constitution and statutory law, setting aside habeas corpus and due process and detaining US citizens
indefinitely without charges and convictions, authorizing and justifying torture, spying without warrants, and executing US citizens without due process of law.

Moreover, unlike the Clinton, Bush, and Obama regimes, the Reagan administration prosecuted those who broke the law. Assistant Secretary of State Elliott Abrams was convicted, National Security Advisor Robert McFarlane was convicted, Chief of CIA Central American Task Force Alan Fiers was convicted, Clair George, Chief of the CIA’s Division of Covert Operations was convicted. Richard Secord was convicted. National Security Advisor John Poindexter was convicted. Oliver North was convicted. North’s conviction was later overturned, and President George H.W. Bush pardoned others. But the Reagan Administration held its operatives accountable to law. No American President since Reagan has held the government accountable.

Clair George was convicted of lying to congressional committees. Richard Secord was convicted of lying to Congress. John Poindexter was convicted of lying to Congress. Alan Fiers was convicted of withholding information from Congress. Compare these convictions then with James R. Clapper now. President Obama appointed Clapper Director of National Intelligence on June 5, 2010, declaring that Clapper “possesses a quality that I value in all my advisers: a willingness to tell leaders what we need to know even if it’s not what we want to hear.” With this endorsement, Clapper proceeded to lie to Congress under oath, a felony. Clapper was not indicted and prosecuted. He was not even fired or forced to resign. For executive branch officials, perjury is now a dead letter law.

The destruction of the rule of law and accountable government has extended to state and local levels. Police officers no longer “serve and protect” the public. The most dangerous encounter most Americans will ever experience is with police, who brutalize citizens without cause and even shoot them down in their homes and on their streets. A police badge has become a license to kill, and police use it to the hilt. During the Iraq War, more Americans were murdered by police than the military lost troops in combat. And nothing is done about it. The country is again facing elections, and the abuse of US citizens by “their” police is not an issue. Neither are the many illegal interventions by Washington into the internal affairs of other sovereign countries or the unconstitutional spying that violates citizens’ privacy.

The fact that Washington is gearing up for yet another war in the Middle East is not an important issue in the election.

In the US the rule of law, and with it liberty, have been lost. With few exceptions, Americans are too ignorant and unconcerned to do anything about it. The longer the rule of law is set aside, the more difficult it is to reestablish it. Sooner or later the rule of law ceases even as a memory. No candidate in the upcoming election has made the rule of law an issue.

Americans have become a small-minded divided people, ruled by petty hatreds, who are easily set against one another and against other peoples by their rulers.

via Zero Hedge Tyler Durden

Gold Fund Manager Laments The Big Payoff “Will Not Be Cause For Celebration”

Dreams don't always come true for TV singing show contestants or gold enthusiasts. As Santiago Capital's Brent Johnson explains, precious metals remain in a long and painful bear market… so why continue to own gold? Simply put, despite all the cries of "you suck" and feelings of loneliness and depression, "if you have done your homework" this will lead to conviction because all the reasons to own gold are still there and are now even more compelling…

Contrarians, by definition, spend most of their time bring wrong "until the moment they are not and the big pay off comes."


Brent Johnson explains "you don't get to make the big money and have it be easy…"


The Party In The Global Equity Markets Is Winding Down and "Our moment is coming.. and when that happens we can be humble and gracious or pompous rockstars. When this position – which has been so painful for so long – pays off, the urge to say 'I told you so' will be almost impossible to resist… but please don't say it."

"Our winnings are not going to come from the backs of politicians who sold out their constituents in mountains of debt; it's not going to come from the bankers who loaded up their balance sheets with trillions of dollars of derivatives; it's not going to come at the expense of the celebrities in Hollywood or rockstars of New York. Our winnings will come on the backs of innocent people around the world whose prices will rise as their wages fall.. it's going to come from the people who wake up one morning to find their savings have been devalued or bailed-in… it's going to come from the pension funds of teachers and firefighters. The irony is that when gold finally pays off – it will not be a cause for celebration."

via Zero Hedge Tyler Durden