Why USDJPY Matters (Or The Carry Collapse Cometh)

The yen’s strength may be tripping up U.S. stocks as the collape of the BoJ-inspired carry trade pressures leverage and risk-taking around the world. As Bloomberg notes, in the last 10 instances the yen rallied at least 1 percent against the dollar, the Standard & Poor’s 500 Index lost 0.8 percent on average, the most since at least 2008.

 

Andrew Brenner, National Alliance Capital Markets' head of international fixed income, confirms the weakness in US equities could be due to a breakdown in what's known as a carry trade, in which investors borrow money in a low interest-rate environment such as Japan’s to fund investments in higher-yielding assets.

And as Acting-Man.com's Pater Tenebrarum details, a stronger yen usually doesn’t bode well for stocks. We once again should warn that such correlations are never valid “forever”. The only thing one can always expect to happen in financial markets and the economy is constant change.

Still, given recent experience, we are wary that yen strength could be a sign that the recent party in “risk” will soon be derailed. On the other hand, we have to acknowledge that market internals have greatly improved due to the recent strong bounce in the commodity and industrial sub-sectors. At the same time, defensive sectors have only surrendered very little of their previous gains.

Options markets are largely in “neutral” mode – there is neither a great deal of enthusiasm in evidence, nor is there much fear. A similarly meaningless backdrop in options could however be observed in the July-August period as well, so this doesn’t necessarily mean much.

 

2-SPX and P-C ratios

SPX daily: the SPX has returned into the area of congestion that contained it prior to the January sell-off. Put-call ratios look largely neutral at present, which is quite similar though to what they looked like shortly before the late August break – click to enlarge.

 

As we noted at the time of the interim lows in early to mid February, there was elevated crash risk due to the market’s proximity to important medium term support levels. However, once this risk had passed, we expected the SPX to rally back close to one of the previously established resistance areas.

It has in fact gone quite far in the meantime, by moving right back into the congestion zone it inhabited prior to the January breakdown. This continues to be in keeping with the 1962 and Nikkei 1990 analogs, which we have previously discussed (both examples for “unseasonal” market weakness in early January).

These analogs call for the next interim peak to be established sometime in the March to May period. If these models remains applicable (which is of course far from certain), then we are now in the phase designated “standard rebound from initial sell-off” on the chart below:

 

3-DJIA-1961-1962

DJIA, 1961 – 1962: after a bout of weakness in early January, a rebound brings the market nearly back to its previous highs, and then a large selling wave commences – click to enlarge.

 

Looking back to the February low, one had to look for subtle clues that might indicate whether the lows would or wouldn’t hold, given the heightened crash risk at the time (that the lows would hold was always the higher probability outcome of course, but caution seemed definitely advisable). One of these signs was that previously weak sectors that had been downside leaders started to outperform the rest of the market.

This was e.g. evident when comparing the DJIA to the Transportation Average. This is worth noting because the two averages have recently diverged again – only, the other way around. Here is a chart illustrating these divergences:

 

4-Indu-Tran Divergence

Short term divergences between the DJ Industrial Average and the Transportation Average. A bullish divergence occurred at the February lows, whereas a slight bearish divergence is in evidence currently – click to enlarge.

*  *  *

Of course, the real question should be – how much longer can this facade be upheld…


via Zero Hedge http://ift.tt/1S9M2cM Tyler Durden

“The Gold Price Has Been Captured By The Modern Banking System”

Submitted by Alasdair Macleod via GoldMoney.com,

It is commonly assumed that the gold price and interest rates move in opposite directions.

In other words, a tendency towards higher interest rates is accompanied by a lower gold price. Like all assumptions about prices, sometimes it is true and sometimes not.

The market today is all about synthetic gold, gold which is referred to but rarely delivered. The current relationship is therefore one of relative interest rates, because positions in synthetic gold, in the form of futures and forwards, are financed from wholesale money markets. This is why a rumour that interest rates might rise sooner than expected, if it is reflected in forward interbank rates, leads to a fall in the gold price.

To the extent that this happens, the gold price has been captured by the modern banking system, but it was not always so. The chart below shows that rising interest rates were accompanied by a higher gold price in the 1970s after 1971.

Chart1 07042016.tif

We can divide the decade into four distinct phases, numbered accordingly on the chart.

In Phase 1, to December 1971, interest rates fell and gold increased in price, much as today's market expectations would suggest, but from then on until the end of the decade a strong positive correlation between the two is clear. So why was this?

Those of us who worked in financial markets at the time may remember the development of stagflation in the late sixties and into the first half of the seventies, whereby prices appeared to be rising without a corresponding increase in underlying demand for the goods concerned. This put central banks in a difficult position. In accordance with post-war macroeconomic thinking, monetary policy was (as it is to this day) one of the principal tools for promoting economic growth, and so the lack of growth was put down to insufficient stimulus. Therefore, monetary policy was diametrically opposed to the higher interest rates needed to counter increasing price inflation. The result was central bankers wished for low interest rates but were forced by markets into raising them, which they did reluctantly and belatedly. This is the logical reason the gold price rose to discount the increasing rate of price inflation, instead of being suppressed by increasing interest rates. This was Phase 2 on the chart.

Stagflation was very evident up to the end of 1974. Dollar price inflation measured by the producer price index increased by over 25% that year, reflecting higher oil prices imposed by the OPEC cartel. Inflation measured by the CPI peaked at 12%. Equity markets collapsed, with the Dow halving and London's FT30 falling by over 70% from its 1972 high. In London, the secondary banking crisis, triggered by rising interest rates, led to the failure of banks which had loaned money to property developers, resulting in a financial crash in November 1973. Again, mainstream economists were confounded, because the collapse in demand following that crisis should have led to deflation, but prices kept on rising.

The gold story was not just a simple one of belated and insufficient rises in interest rates, as the economic runes suggest. The riches endowed on the Middle East from rising oil prices benefited, in western terms, a backward society which invested a significant portion of its windfall dollars in physical gold. This was natural for the Arabs, who believed gold was money and dollars were a sort of funny paper. Investing in physical gold was also recommended to them by their Swiss private bankers. The recycling of petrodollars into gold routinely cleaned out the US Treasury's gold auctions, which failed to suppress the rising gold price.

The financial crisis and the associated collapse of stock markets in 1974 lead us into Phase 3 on the chart. Interest rates declined after the stock markets began to recover from the extreme depths of negative sentiment at that time. The gold price also declined, with the price almost halving from just under $200 in December 1974 to just over $100 in August 1976. It had become apparent that the financial world would survive after all, so bond yields fell while stockmarkets recovered their poise during that period. Fear subsided.

Again, the gold price had correlated with interest rates, this time declining with them. We then commenced Phase 4. From 1976 onwards, economic activity stabilised and price inflation picked up later that year, with the dollar CPI eventually hitting 13% in 1980. Interest rates rose along with price inflation, and gold ran up from the $100 level to as high as $850 at the London PM fix on 21 January 1980. For a third time, the gold price correlated with rising interest rates.

From the history of the 1970s, we have learned that today's non-correlating relationship between gold and interest rates cannot be taken as normal in future market relationships. Admittedly, derivative markets and the London bullion market were not as well-developed then as they are today. But they certainly were in gold's next bull market, from the early 2000s to 2011. However, the comparison with the seventies is the more interesting, particularly given the emergence of stagflation at that time.

While official inflation figures today show the relative absence of price inflation, much of that is down to changes in the way it is calculated. John Williams of ShadowStats.com estimates that inflation today, calculated as it was in the eighties, runs consistently higher than official figures suggest. He reckons it is currently at about 5%. And the Chapwood Index, compiled quarterly including 500 commonly bought items in 50 American cities, records price inflation at 1970s levels, closer to 9%.

As always, official statistics such as the CPI should be treated with immense caution, as John Williams's and the Chapwood inflation estimates confirm. But even the suppressed official CPI is likely to rise beyond the Fed's 2% target within a year from now, if the recent increases in prices of raw materials and energy hold. This is because the negative factors that have suppressed the index, such as the oil price, will soon be dropping out of the back-end of the statistic, giving the CPI an upward boost. Furthermore, rising raw material and energy prices will have little to do with the level of economic demand in the US, because the US economy is no longer the driver for commodity prices. That role now belongs to China, which plans to use vast quantities of raw materials for domestic economic and Asia-wide infrastructure development, and accordingly is beginning to stockpile them.

On this simple analysis, we can see how domestic US prices could record a significant rise without any increase in domestic demand. In other words, the conditions now exist for the stagflation that became so pernicious from the late 1960s onwards. The question then arises as to how the Fed will respond.

One thing hasn't changed over the decades, and that is central bankers' assumptions that prices are tied, however loosely, to demand. This is the text-book basis of the inflation target, which assumes that a 2% inflation rate is consistent with sustainable economic growth. There is, in conventional macroeconomics, no explanation for stagflation, despite evidence the condition exists.

No one is more surprised than the forward-thinking members of the Fed's policy-making committees, who anticipate the same dilemma that their predecessors faced in Phase 2 of our chart of the 1970s. The US economy will be stagnating, while price inflation is rising. The Fed will be torn between the need to keep interest rates low to stimulate credit demand, and raising interest rates to control price inflation. Only this time, a rise in interest rates and bond yields averaging no more than two per cent could be curtains for the Fed itself, because the losses on its bond investments, acquired in the wake of the financial crisis and through quantitative easing, will easily exceed its so-called capital.

The dynamics behind the gold market are however different now from the early seventies. Debt levels today are so high they risk destabilising the whole financial system, making it impossible for the Fed to raise interest rates much without causing a financial wipe-out. Asian governments, such as the Chinese and the Russians are known to have been accumulating strategic positions in physical gold, and the Chinese and Indian populations along with other Asian people have also exhibited notable appetites for physical metal. Instead of starting from a position where the US Treasury on its own in 1969 still held 14% of estimated above-ground stocks, its holding is officially at less than 5% of them today. That is, if you believe it still has the stated 8,134 tonnes.

This time, the gold price is likely to be driven by physical shortages in the old world, as American and European investors wake up to stagflation, their central bank's interest rate dilemma, and the loss of physical liquidity from their vaults.

Today's market set-up, particularly if Chinese demand for energy and commodities materialises in accordance with her new five-year plan, looks like replicating the early stage of Phase 2 in the introductory chart to this article. Gold increased fivefold from $42 to a high of about $200 in three years. The circumstances today have notable differences, not least the launch-pad of negative interest rates. But we can begin to see why, despite the near infinite growth of derivatives as a price-control mechanism, it could be mistaken to assume that the link between interest rates and gold is normally one of non-correlation, and will continue to be so.


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“The People Aren’t Stupid” – Germany Takes Aim At The ECB, May Sue Draghi: Spiegel

One month ago, when Mario Draghi unveiled his quadruple-bazooka QE expansion, which for the first time ever included the monetization of corporate bonds, the German press, in this case Handelsblatt, had a swift reaction. It did not approve.

 

Fast forward a month later when the ECB is now contemplating the final monetary gambit, launching helicopter money, and Germany’s most respected (in official circles) financial media, Spiegel, is out with an article titled “Germany Takes Aim at the European Central Bank”, in which – as expected – we read that relations between Germany and the Frankfurt-based ECB have just hit new lows:

There was a time when the German chancellor and the head of the European Central Bank had nice things to say about each other. Mario Draghi spoke of a “good working relationship,” while Angela Merkel noted “broad agreement.” Draghi, said Merkel, is extremely supportive “when it comes to European competitiveness.”

 

These days, though, meetings between the two most powerful politicians in the euro zone are often no different than their face-to-face at the most recent summit in Brussels. She observed that his forced policy of cheap money is endangering the business model of Germany’s Sparkassen savings banks and retirement insurance companies. He snarled back that the sectors would simply have to adapt, just as the American financial sector has.

This is nothing new: we have been hearing laments by Europe’s biggest bank, Germany’s Deutsche Bank, that the ECB has gone too far for over two months now (initially in “A Wounded Deutsche Bank Lashes Out At Central Bankers: Stop Easing, You Are Crushing Us“). But for Merkel to take her feud in the open, and seeking to once again freeze relations between Germany and the ECB at this fragile juncture for the future of Europe, when Draghi has once again failed to stimulate inflation, when he has crushed European banks, but at least has unleashed a massive debt issuance spree, is troubling.

Spiegel has much more:

The alienation between Germany and the ECB has reached a new level. Back in deutsche mark times, Europeans often joked that the Germans “may not believe in God, but they believe in the Bundesbank,” as Germany’s central bank is called. Today, though, when it comes to relations between the ECB and the German population, people are more likely to speak of “parallel universes.”

The reason for German anger: rates.

ECB head Draghi doesn’t understand why he is getting so much resistance from the country that has profited from the euro more than any other. Yet Germans blame Draghi for miniscule yields on savings accounts and life/retirement insurance policies. Frustration is growing.

 

Draghi has pushed the prime rate down to zero and now even charges commercial banks a fee for parking their money at the ECB. He has also bought almost €2 trillion worth of bonds from euro-zone member states, making the ECB one of the largest state creditors of all time.

 

During his most recent appearance before the Frankfurt reporter pool, he went even further. The idea of pumping money directly into the economy, he said, was a “very interesting concept,” with a helicopter to distribute the money across the country if necessary, as economists have half-jokingly recommended. Doing so is seen as a way of boosting the economy. German money being thrown out of a helicopter: It would be difficult to find a more fitting image to show people that the money they have set aside for retirement may soon be worth very little.

If you want to get Germans angry, really angry, just suggest hyperinflation which is what helicopter money always leads to. They are really angry now; and an angry electorate is something Merkel, who has seen her popularity crushed as a result of Germany’s grotesque refugee experience, does not need..

The criticism of Draghi had already been significant, but his public ruminations about so-called “helicopter money” have magnified it to extreme levels. Even economists that tend to back the ECB, such as Peter Bofinger, who is one of Merkel’s economic advisors, are now accusing Draghi of constantly “pulling new rabbits out of the hat.” Leading representatives of the banking and insurance sectors are openly speaking of legal violations. And strategists within Merkel’s governing coalition, which pairs her conservatives with the center-left Social Democrats (SPD), are concerned that Draghi is handing the right-wing populist Alternative for Germany (AfD) yet another issue where they can score points with the voters. There is hardly any other issue that enrages Germans at town meetings and political party conventions as much as the disappearance of their savings due to the “unconventional measures” adopted by the ECB in Frankfurt.

Then again, just like when Draghi launched QE over Merkel’s protests, not even the Chancellor is prepared to openly oppose the former Goldman employee.

By now, the growing dismay has been registered in the Chancellery. Merkel is also critical of Draghi’s zero percent interest policy, but she is afraid of making public demands that she may not be able to push through. Still, she is convinced that Draghi must give greater weight to German concerns, so she has resorted to telephone conversations and closed-door meetings to make her case.

 

Economics Minister Sigmar Gabriel, who is also head of the SPD and vice chancellor, has likewise refrained from publicly criticizing Draghi. Instead, he says it was the “inaction of European heads of government” that has transformed the ECB into “a kind of faux economic government.” But Draghi’s most recent decision to make money in the euro zone even cheaper has been heavily criticized within Gabriel’s Economics Ministry. “It jeopardizes the trust of all those who work hard to establish a small degree of prosperity or a nest-egg for retirement,” says one ministry official. “Plus, the cheap money hasn’t helped get the economy back on track.”

There is only one person who is not worried about offending the Italian central banker: Germany’s finance minister, Wolfi Schauble.

To wit:

Most dangerous for Draghi, however, is the displeasure from the German Finance Ministry. A few weeks ago, Finance Minister Wolfgang Schäuble warned the ECB head that his ultra-loose monetary policies could “ultimately end in disaster.” The fact that Schäuble said anything at all is rather surprising, as were the words he chose. Out of respect for the ECB’s independence, finance ministers tend not to comment on decisions made by the central bank.

And here we get to the key point – according to Spiegel, the German finance minister is preparing to block the ECB’s helicopter money by any legal means possible:

ECB independence is also of vital importance to Schäuble as well. But that is no longer the case when the bank’s policies exceed its legal mandate. It is a boundary that Schäuble believes Draghi and his people have crossed, which explains why the minister does not have a bad conscience about abandoning traditional reserve. “We have to initiate this dialogue about monetary policy,” says a Finance Ministry official.

 

Were the ECB, as Draghi has indicated it might, to open the monetary policy gates even wider — with, for example, helicopter money — the German finance minister would view it as a breaking point. Such a policy would see the ECB bypass the banking sector and distribute money directly to companies, consumers or states, all of which would stand in violation of the central bank’s own statutes. Should it come to that, sources in the German Finance Ministry say, Berlin would have to consider taking the ECB to court to clarify the limits of its mandate. In other words: the German government and Draghi’s ECB would be adversaries in a public court case. 

 

Such a legal battle between the government and a central bank would be a first in German history. It could lead to a constitutional crisis of unprecedented severity or to currency turbulence — which is why it is extremely improbable that the two sides would allow the conflict to escalate to such a degree.

Actually, the outcome would be far less dramatic. Remember Draghi’s imaginary OMT program, the “deus ex” contraption he had to conceive to validate his 2012 threat of doing “whatever it takes?” Well, that led to a few lawsuits, the German constitutional court it wasn’t exactly good… and then washed its hands and punted to Brussels which promptly agreed with the ECB. Why would this time be any different.

We do agree with Spiegel, however, that the threat of legal action indicates how powerless Germany’s ruling party suddenly feels: “the very fact that senior officials in the German Finance Ministry are considering their legal options makes it clear just how great the frustration with Draghi has become.”

Next, Spiegel does its best attempt at humor by saying that “the ECB head’s ever more imaginative ideas for increasing the money supply, say Finance Ministry officials, indicate that he is only concerned about the psyche of the international financial markets and not about average German savers.

Uhm… yes. The ECB’s head is not concerned about German savers and yes, he is only concerned about financial markets. Did you really need the ECB to launch helicopter money to tell you that?

But beyond the merely theatrical, one thing neither Draghi nor Merkel seem to have grasped, is that just like everywhere else around the globe, so in Germany the vast majority of the population is now openly angry with monetary policy, even if they can’t explicitly name the person behind their anger (around 70% of Americans think the Federal Reserve is a national park):

During a recent visit to his constituency, Kauder’s deputy, economics expert Michael Fuchs, experienced first-hand just how concerned voters are about the interest-rate issue. One enraged man screamed at him during an event that Merkel is to blame for the low interest rates. Such anger is fertile soil for the AfD. “On this issue, it isn’t easy to counter the AfD,” Fuchs says. “The criticism of the ECB is justified.” Merkel’s coalition, he says, “must clearly say that it finds Mr. Draghi’s interest rate policy to be incorrect. We haven’t been loud enough.”

That’s right, because you are terrified of being loud. Because while the ECB’s NIRP means a slow death for Deutsche Bank, should the ECB cut off Germany in a full blown vendetta, that would mean the death of Europe’s biggest bank overnight.

Meanwhile other politicians are seeing cracks in Merkel’s facade and are eager to capitalize on the fury against low rates (and the ECB):

Bavarian Finance Minister Markus Söder has already set the tone: “The zero-interest policy is an attack on the assets of millions of Germans, who have placed their money in savings accounts and in life insurance policies,” he says.

 

Söder believes that emphatic critique of the ECB will bring political benefits. The ECB may be independent, but it isn’t omnipotent, he says. “We need a debate in Germany about the erroneous policies of the ECB,” he says. “The German government must demand a change in direction on monetary policy. If things continue as they have, it will be a boon for the AfD.” Ahead of a July conclave of the Bavarian state cabinet, Söder has been charged with developing ideas for what can be done to counter Draghi’s course.

It’s not just politicians: take Nikolaus von Bomhard.

Politically correct to a fault, but with a deep sensitivity to the mood of the people, Bomhard is the head of global reinsurance giant Munich Re. He recently launched a savage attack on the ECB. Because its loose monetary policy has driven up stock and real estate prices, he said, it is primarily benefiting the wealthiest people in the country. He said it was serving to redistribute wealth to the upper classes and it had become impossible to sit back and say nothing. “The people of Germany aren’t stupid,” he said, adding that political leadership was required.

As a reminder, this is the same Bomhard who as we reportedly previously, recently revealed that Munich Re had set aside gold and also cash in the company’s safes. “It is a move that many normal Germans have already made. According to banking associations, the demand for safes and lockers has gone up as people are apparently concerned that they may soon have to pay negative interest rates to their banks, just as commercial banks must now pay the ECB.” At least unlike Japan, where the scramble for cash is so great the Finance Ministry has had to print additional ¥10,000 bills, so far Germany hasn’t run out of physical money.

So far.

Meanwhile, instead of at least pretending to hear German concerns, “Draghi has become increasingly annoyed by the constant criticism coming from Germany. He feels unjustly targeted and has insisted even more stubbornly on the correctness of his policies as a result – such as during a recent speech to German stock traders just outside of Frankfurt. What haven’t his German critics tried in their efforts to shed doubt on the measures he has taken, Draghi complained. They have warned of mega-inflation and of a red ECB balance sheet, the ECB head continued, but none of it has come to pass. “Repeatedly, those who have called our decisions into question, have been proven wrong,” Draghi said. It was the Mario Draghi that many of his German listeners were all too familiar with: the man who is never wrong.”

* * *

In the end, it is absolutely clear that Draghi will be wrong, just as Bernanke was wrong when he said “subprime was contained” or that “there will be no recession” months after one had started, and hundreds of other things the former “I am the smarest man in the world and i know it” was wrong about, but the question whether his error will bring not only Europe, but the entire world to hyperinflationary ruin, may depend on just one thing: whether the Germans succeed in reining him in.

For now, however, we doubt it.

Hours after the Spiegel article hit, Reuters cited the German finance ministry which “denied that it would consider taking legal action if the European Central Bank resorts to “helicopter money” distributions to euro zone citizens, an extreme form of monetary easing.”

And so Germany retreats once more, terrified to openly engage the European Central Bank.

* * *

As senior German conservative lawmaker Ralph Brinkhaus was quoted by Spiegel, Germany needed to “put the ECB under pressure to provide justification” because “otherwise nothing will change.”

It is clear enough that, at least for the time being, nothing will change and that helicopter money is indeed coming. Trade accordingly.


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

Department Of Education – Our Work Here Is Done

Submitted by Jim Quinn via The Burning Platform blog,

It appears a few children were left behind.

The Department of Education was created in 1979 and now has an annual budget of $73 billion, with 5,000 government bureaucrats roaming its hallways. When you include all Federal, State and Local spending on public education it totals about $700 billion per year, or $13,000 per student. The Department of Education was created to improve the education of our children.

After 37 years and trillions of dollars “invested” in our children, see below what they have achieved. The public school teachers who have been on the front lines for the last 37 years work 9 months per year, earn above average salaries, get awesome benefits, and have gold plated pension plans – all at the expense of taxpayers. And look what they have accomplished.

The tens of millions of illiterate drones think they deserve $15 per hour because it’s fair, even though they can’t count to fifteen or spell fifteen.

STAGGERING ILLITERACY STATISTICS

California

  • According to the 2007 California Academic Performance Index, research show that 57% of students failed the California Standards Test in English.
  • There are six million students in the California school system and 25% of those students are unable to perform basic reading skills
  • There is a correlation between illiteracy and income at least in individual economic terms, in that literacy has payoffs and is a worthwhile investment. As the literacy rate doubles, so doubles the per capita income.

The Nation

  • In a study of literacy among 20 ‘high income’ countries; US ranked 12th
  • Illiteracy has become such a serious problem in our country that 44 million adults are now unable to read a simple story to their children
  • 50% of adults cannot read a book written at an eighth grade level
  • 45 million are functionally illiterate and read below a 5th grade level
  • 44% of the American adults do not read a book in a year
  • 6 out of 10 households do not buy a single book in a year

The Economy

  • 3 out of 4 people on welfare can’t read
  • 20% of Americans read below the level needed to earn a living wage
  • 50% of the unemployed between the ages of 16 and 21 cannot read well enough to be considered functionally literate
  • Between 46 and 51% of American adults have an income well below the poverty level because of their inability to read
  • Illiteracy costs American taxpayers an estimated $20 billion each year
  • School dropouts cost our nation $240 billion in social service expenditures and lost tax revenues

Impact on Society:

  • 3 out of 5 people in American prisons can’t read
  • To determine how many prison beds will be needed in future years, some states actually base part of their projection on how well current elementary students are performing on reading tests
  • 85% of juvenile offenders have problems reading
  • Approximately 50% of Americans read so poorly that they are unable to perform simple tasks such as reading prescription drug labels

(Source: National Institute for Literacy, National Center for Adult Literacy, The Literacy Company, U.S. Census Bureau)

*  *  *

All that's needed now is a "Mission Accomplished" banner and this is yet another perfect example of the failure of government intervention.


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

The Complete Story Behind Payroll Gains In Just One Chart

The following tweet by Eurofaultlines is the best, and most concise, summary of the recent “improvement” in nonfarm payrolls. 

  • Declining average weekly hours and rising part-time employment.

That, for all non-fiction peddlers, is all you need to know.


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

War On Cash Escalates: Japan Starts Testing Fingerprints As “Currency”

The war on cash just got serious, and of course, it is the extreme policy experimenters of Japan that are pushing the boundaries. Having dived headlong into negative interest rates, Japanee policymakers recognize full well the historical reaction of "hording cash" will not 'create' the nirvana of 2% inflation and break the 'deflation mindset' that they so long have waited for. So, following in the footsteps of Venezuela, as Japan News reports, starting this summer, the government will test a system which will enable people to buy things at stores using only their fingerprints – thus enabling full monitoring (and inevitable control) of spending (or saving).

 

The government hopes to increase the number of foreign tourists by using the system to prevent crime and relieve users from the necessity of carrying cash or credit cards.

The experiment will have inbound tourists register their fingerprints and other data, such as credit card information, at airports and elsewhere.

 

Tourists would then be able to conduct tax exemption procedures and make purchases after verifying their identities by placing two fingers on special devices installed at stores.

 

 

The government plans to gradually expand the experiment by next spring, to cover areas including tourist sites in the Tohoku region and urban districts in Nagoya.

 

It hopes to realize the system throughout the country, including Tokyo, by 2020.

 

 

Data concerning how and where foreign tourists use the system will be managed by a consultative body led by the government, after the data is converted to anonymous big data.

 

After analyzing tourists’ movements and their spending habits, the data is expected to be utilized to devise policies on tourism and management strategies for the tourism industry.

However, there are concerns that tourists will be uneasy about providing personal information such as fingerprints. The experiment will examine issues including how to protect one’s privacy and information management.

And finally, the system has already begun use in one bank's ATM systems…

By the end of this month at the earliest, Tokyo-based Aeon Bank will become the first bank in Japan to test a system in which customers will be able to withdraw cash from automatic teller machines using only fingerprints for identification and omitting the use of cash cards.

 

“The system is also superior in the area of security, such as preventing people from impersonating our customers,” an official from the bank said.

While the idea of fingerprint ID-ing authorization makes perfect sense from a security perspective, the requirement of fingerprinting an entire nation (or those who want to spend or retrieve cash) is yet one more step towards the totalitarian control of the final step in the central planners' arsenal – your consumption habits.


via Zero Hedge http://ift.tt/1Q14JaW Tyler Durden

Meanwhile In Germany, An Unexpected Ad Appears

During a leisurely stroll around Germany, one may encounter many strange sights but nothing would stranger than the following ad (courtesy of Peter Barkow) which promises negative 1% interest rates for consumer loans up to 24 months.

 

Here is the quick and dirty: take out a loan and pay 1% less.

For the fine print we go to Santander Consumer Bank AG, which has this to which has this to say about this self-amortizing (if only in the beginning) loan.

 

-1.0% FINANCING

 

Finance now with 0% and is pay 1% off the purchase price.

 

An exclusive designer bed for only 78 euros a month, or a designer dining table for only 88 euros a month – what are you waiting for?

 

Fulfill your desires today and pay conveniently in small monthly installments – and get this money back yet!

 

To mark the 20 years of existence of WHO’S PERFECT, we offer the whole of April at a negative interest rate financing. 

 

This means that you get refunded after delivery of your goods 1% of the amount of funding of the purchase contract.

 

Purchase in all our stores and of course here in the online shop you can easily and conveniently fund. So luxury is made easy!

 

Now -1.0% financing for 24 months (in monthly installments)

 

Santander Consumer Bank, Santander-Platz 1, 41061 Mönchengladbach

Sorry, no refugees allowed. Here are the conditions:

For financing the following requirements must be satisfied in principle:

  • You must be of legal age
  • You must have your primary residence in Germany
  • You must have a checking account at a bank in Germany
  • You must have a steady income
  • You must have a valid identity card or passport with registration card
  • In case of non-EU citizens are further evidence as residence and work permit and a current registration certificate required

Jest aside, what this ad does is scream deflation. Or maybe that’s the German banks screaming:recall that as shown earlier this week, European bank stocks have been tracking the 10Y Bund lower tick for tick. Why? Because the lower rates go, the lower the interest margin profit.

 

And when rates go negative, so do profits. At that point all banks can hope for is to charge customers one off “violation” fees to offset the NIM losses in a world in each every loan assures an at least 1% loss for the first 24 months of the loan.

What is more troubling is that now that one bank is offering such loans (to stimulate demand) all other banks will follows suit, and what is initially a 24 month promo period will quickly become set for the duration of the loan. And then we will see an even more unexpected ad, when -2% rates emerge, then -3%, until finally the bank “market test” of where the equilibrium consumer loan demand is to be found provides an answer.

Meanwhile, even more deflation will be unleashed across Europe as both short and long-term consumer expectations for inflation plunge and instead everyone is looking forward to the latest and greatest negative rate loan which not only pays itself off but reduces the purchase price.

All of this will continue until the ECB does one or all of the above: i) forces banks to cut deposit rates negative; ii) eliminates cash; iii) starts the money helicopter.

As we write, Mario Draghi is already working on all of the above.


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DARPA Unveils Latest Military Tech Weapon

With DARPA‘s newly created “Cranial Response Online Weapons Network” (CROWN), you too can lead the executive branch and get instant access to U.S. military resources, without the need for congressional oversight!

Reason TV producers Meredith Bragg and Austin Bragg were the masterminds behind this hilarious April Fools’ Day parody.

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“Rotten To The Core”

Submitted by Bill Bonner of Bonner & Partners (annotated by Acting-Man.com's Pater Tenebrarum),

Poison Money

We live in a world of sin and sorrow, infected by a fraudulent democracy, Facebook, and a corrupt money system. Wheezing, weak, and weary from the exertion of trying to appear “normal,” the economy staggers on.

 

David-Simonds-zombie-high-011

Staggering on….

 

Last week, we gained some insight into the ailment. Something in the diagnosis has puzzled us for years: How is it possible for the most advanced economy in the history of the world to make such a mess of its most basic bodily functions – getting and spending?

By our calculations – backed by studies, hunches, and deep research – the typical American man (it is less true for women) earns less in real, disposable income per hour today than he did 30 years ago.

He goes to buy a car or a house, and he finds he must work longer to pay the bill than he would have in the last years of the Reagan administration. How is that possible? What kind of economic quackery do you need to stop capitalism from increasing the value of workers’ time?

What kind of policies and circumstances are required to stiffen its joints… clog up its innards… and rot its brain? Globalization? Financialization? Bad trade deals? Too much red tape? Too many cronies? Too many zombies?

 

nonsequitor_cartoon_comic_first-economist

We can identify at least one source of the quackery…

 

All of those things played a role. But our answer is simpler: poison money. The bigger the dose… the sicker it got. When you say you “have some money,” you usually believe that there is, somewhere, an electronic database in which it is recorded that you are the owner of some amount of currency.

You have $100,000 in your account, right?   Does it mean that there is a little cubbyhole somewhere, with your name on it, in which you will find a stack of 1,000 Ben Franklins? Nope. Not even close. No cubbyhole. No stack of money. No nothing.

Does it mean the bank is carefully guarding some 1s and 0s, digital information proving that it at least “stores” your money in its database? Nope again! What it means is there is a financial institution of uncertain integrity… with a complex electronic balance sheet of uncertain accuracy… listing alleged financial claims and contracts of uncertain quality…

…and that you are one of the many thousands of entries on the debit side… with a claim to a certain number of dollars… which the institution may or may not have, each of uncertain value.

 

willie-sutton-2

When prolific American bank robber Willie Sutton was asked why he robbed banks, he reportedly said “Because that’s where the money is”. Not anymore, not really.

 

Today, banks – and this could be said of the entire financial system – no longer have “money.” They have credits and debits. Your deposit is your bank’s liability and your asset.

But look at the balance sheet. You don’t know how many of the claims shown on the left are right… or whether, when the other creditors get finished with it, any of the assets shown on the right are left. All you know is that the system works. Until it doesn’t.

 

System Seizure

For many months, we have urged readers to prepare themselves for problems. One day, the accumulation of contradictions, misinformation, and plain old “trash” in the system will cause a seizure. You will go to the ATM, and it won’t work.

That day, your life could take a big turn to the downside… depending on how widespread the problem is… the cause of it… and how you prepared for it. Of course, we don’t know for sure that that day will ever come. We are always in doubt, especially about our own forecasts.

 

temporarily-out-of-order-533x400

And then, one morning…

 

Still, the potential problem seems likely enough… and grave enough… to justify some minimal precautions. You might cross the street blindfolded without getting run down, but it is still a good idea to look both ways. Usually, we look to the right… where we see the problems inherent in a credit-based money system.

The feds can create all the credit they want. But real people can’t pay an infinite amount of debt service. Like a junkyard dog reaching the limit of his chain, the credit cycle has a way of jerking people back to reality.

 

Real Money

But there are other potential problems coming from the left. An electronic, credit-based money system is fragile. It can be hacked by thieves. It can be attacked by terrorists. It can be shut down by accident. Even a “bug” could bring it to its knees.

And then what? How will you get money? How will you spend it? How will you buy gasoline or food? Our advice: Keep some cash on hand. Make sure you own some gold, too – real gold, coins that you can hold in your hand and you can flip to your grandchildren.

“Hey kid,” you say with a knowing and superior air, “take a look at this. This is real money. You don’t have to plug it in.” By the way… Gold just had its best quarter in 30 years. Do buyers know something? Maybe.

 

Spot Gold

Do the buyers know something? Maybe they do… – click to enlarge.


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“This Is Devastating News For Republicans”: Poll Finds Denying Trump Nomination Would Crush GOP

In the latest shock for the GOP, which in recent weeks some have speculated is willing to scuttle the entire republican presidential campaign if it means not having Trump as the candidate, according to a just released Reuters poll, one  third of Republican voters who support Donald Trump could turn their backs on their party in November’s presidential election if he is denied the nomination in a contested convention.

Or, as The Hill puts it, “blocking Donald Trump from the Republican presidential nomination with a contested convention would spell disaster for the GOP” because instead Trump supporters would vote Democrat, vote third-party or sit out the election.

Just 66% of Trump supporters, which as of this moment are the most numerous of any presidential candidate, said they would support the GOP’s nominee anyway. 

Should it get to a contested convention, the GOP could be hurt even more in November because 58% of Trump supporters said they would stay with the party, while 16% would leave and 26% responded they didn’t know, yet.

The results are bad news for Trump’s rivals as well as party elites opposed to the real estate billionaire, suggesting that an alternative Republican nominee for the Nov. 8 presidential race would have a tougher road against the Democrats.

“If it’s a close election, this is devastating news” for the Republicans, said Donald Green, an expert on election turnout at Columbia University.

The Reuters/Ipsos poll conducted March 30 to April 8 asked Trump’s Republican supporters two questions: if Trump wins the most delegates in the primaries but loses the nomination, what would they do on Election Day, and how would it impact their relationship with the Republican Party?

This is what the respondents said:

 

Meanwhile, 58 percent said they would remain with the Republican Party. Another 16 percent said they would leave it, and 26 percent said they did not know what they would do with their registration. The online poll of 468 Republican Trump supporters has a credibility interval of 5.3 percentage points.

Trump, whose supporters have remained loyal even as he rankled women, Hispanics, Muslims, veterans and others with his fiery rhetoric on the campaign trail, predicted last month there would be riots outside the convention if he was blocked.

“If they broker him out, I’ll be fed up with the Republicans,” said Chuck Thompson, 66, a Trump supporter from Concord, North Carolina, who took the poll .

Cited by Reuters, Thompson, a lifelong Republican, said he admires Trump’s independence from big campaign donors and takes that as a sign that the front-runner will be able to think for himself if he were to become president.

If Trump loses the nomination, Thompson said he would quit the party. “The people want Donald Trump. If they (Republicans) can’t deal with that, I don’t need them,” he said.

Green said the departure of even a small number of Republicans would make it tough for the party to prevent the Democrats from winning the White House, especially if the election is again decided by razor-thin margins in a handful of battleground states.

What is paradoxical, is that Trump and Cruz both trail Democratic front-runner Hillary Clinton among likely general election voters in a hypothetical general election matchup, but not by much, according to the latest Reuters/Ipsos polls. The only Republican candidate who, again according to polls, can best Hillary Clinton is Kasich, the one candidate who has virtually no shot of becoming the candidate.

In other words, the GOP is likely damned if it goes to convention, and damned if it doesn’t.

Then again, the death of the GOP would not have to wait until November: if and when it does get to the contested convention one can call the time of death.

Generally, a convention battle is a bad sign for the health of a political party, said Elaine Kamarck, a senior fellow at the Brookings Institution. “When a party gets to a point when it has a contested convention, it almost always hurts them,” Kamarck said. “It’s a confirmation of some really deep fissures within the party that were unable to be dealt with during the primary season.”

And then there are hard core Trump supporters such as Elizabeth Oerther, 40, of Louisville, Kentucky, who would go all the way, saying she would switch parties and vote for the Democratic nominee if the Republicans denied Trump the nomination.

If you don’t give it to him, I’m going to vote against them,” said Oerther, who took the poll. “They want to take away the choice of the people. That’s wrong.”


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