Kyle Bass Warns Of “A Lot More Pain To Come” Before This Is Over

Having recently explained his "greatest investment opportunity for the next 3 to 5 years," Kyle Bass expands on his China discussions…

"Given our views on credit contraction in Asia, and in China in particular, let's say they are going to go through a banking loss cycle like we went through during the Great Financial Crisis, there's one thing that is going to happen: China is going to have to dramatically devalue its currency."

…to focus on Emerging Markets more broadly and specifically The BRICs.

As Benzinga summed up, Bass Warns

"we still have three tough innings to go, maybe four," he warning that emerging markets will "see a lot more pain before things are okay."

Plenty more smoke and mirrors to be destroyed yet…


Bass talks Emerging Markets with Wall Street Week's Gary Kaminsky…

Specifically, as ValueWalk notes:


“You look at Brazil, and the [carwash] scandal goes all the way to the President…It is a complete disaster with corruption,” he said. Bass believes that until the country roots out its corruption, the country “will keep going south.”


Russia faces issues related to “Putin’s global chess moves” and international sanctions.


Bass, meanwhile, called India a “semi-bright spot” in the grouping of countries, but didn’t delve deeper.


China, lastly, is “the big one,” according to the hedge fund manager. Bass cited the country’s non-performing loan growth as the key issue to watch.


"China many years ago attached its currency to the dollar: they hitched their wagon to our star very smartly because back then our goal was to depreciate our dollar through inflation. So we issued debt to the rest of the world to depreciate the dollar. And so now the real problem is China has hitched their wagon to our star, and their currency has effectively appreciated about 60% versus the rest of the world since 2005 and it's killing them… China's effective exchange rate moving up versus the rest of the world made their goods and services a little bit more expensive each year and now that labor arbitrage is gone. And if that labor arbitrage is gone, and the banking system has expanded 400% in 7 years without a nonperforming loan cycle, my view is we are going to see a non-performing loan cycle."

via Zero Hedge Tyler Durden

Big Bad China

Submitted by $hane Obata via Tha Business blog,


It seems like every day we are inundated with news out of China. Investors are already concerned. The offshore renminbi (CNH) is more international than the onshore one (CNY), which is tightly managed by the government. As such, the rising spread (CNH-CNY) between the two may be indicative of mounting skepticism about China’s economy and its markets. Likewise, capital is fleeing the country as hot money flows have accelerated:

Hot Money Flows - @vikramreuters - Dec18'15source: @vikramreuters

In the following sections we will attempt to analyze China’s markets and determine the biggest risks facing its economy. Lastly, we will try to answer the following question: does it matter to us?


As the first week of trading in 2016 came to an end, the Chinese markets had already been halted twice. Newly minted circuit breakers, which have since been suspended, were triggered when China’s main equity index, the CSI 300, fell 7% on two separate occasions. The first selloff was triggered by a rumor that the China Securities Regulatory Commission (CSRC) was planning to suspend a short sale ban that has kept a reported ~$185 billion off the market. Subsequently, the CSRC decided to extend the ban in order to calm the markets. The second drop followed a significant devaluation of yuan by the People’s Bank of China (PBOC). China has also backtracked on that move. Basically, the Chinese markets are confusing

That said, the volatility is not surprising considering how unsophisticated China’s market is. One university study found that 2/3 of the new investors at the end of 2014 did not have a high school diploma:

Chinese Traders - BBG Brief
source: Bloomberg Brief

Along the same lines, individuals account for at least 80% of trading on the mainland exchanges. In other words, there are many speculators and few investors. China’s markets are undeveloped and relatively unimportant. Nonetheless, they may offer some clues into consumer sentiment and the government’s ability (or inability) to control the economy.


It is hard to determine whether China is more capitalist or communism. Either way, it remains an indispensable part of the global economy. In nominal terms, China is the world’s second biggest economy with a GDP of ~$10.3 trillion. However, in terms of Purchasing Power Parity-adjusted GDP (PPP), it has surpassed the US. Moreover, it accounts for ~40% of global PPP-adjusted GDP growth:

World GDP - The Economist - Dec'15
source: The Economist

In regards to trade, China is the world’s biggest player. In 2013, it led the world in exports ($2,209 billion) and was the number two country for imports ($1,950). The combined value of its trading amounted to $4,159 billion, marginally higher than the US’ $3,909 billion.


China’s aggregate debt level is one of the highest in the world, although it may not seem to be at first glance. China’s government debt-to-GDP ratio is 55%. To put that in perspective, the US and Japan are at 89% & 234%, respectively. Even so, it is always prudent to consider a country’s debt composition. China’s mounting debt comes into focus when we account for non-financial corporate debt (125% of GDP), financial institution debt (65%) and household debt (38%). The grand total is an astounding 282% of GDP, or $28.2 trillion:

China's Debt - MGI - Feb'15
source: McKinsey

The rate of debt growth is also a concern. Non-financial corporate debt, increased from 72% to 125% of GDP from 2007 to 2Q14, a 73.6% increase.

China’s debt load is a global risk because of how tightly managed its economy is. The government has allowed unprofitable companies to stay in business. Though defaults have been very limited, China must allow these companies to fail eventually. Otherwise, it will continue to suffer from high debt servicing costs ( ~30% of GDP).


Government investment has been a big part of China’s economy. Massive amounts of stimulus went into factories, leading to overcapacity in sectors such as coal and steel. This is making it very difficult for companies that operate within those sectors to make profits – both domestically and abroad. Fiscal stimulus also went into housing and infrastructure, which are both clearly overbuilt. Despite the overcapacity, gross capital formation still represents ~45% of GDP:

Over Investment - GTL - Oct31'15
source: Gordon T. Long

That is more than twice as high as it is in both the US and the European Union.

Monetary Policy & FX

The PBOC has been very active trying to support the economy. It has cut rates 6 times since November of 2014. Likewise, it has been lowering its Reserve Requirement Ratio and selling its foreign reserves in an attempt to prevent excessive devaluation of the yuan (CNY). They are down more than $400 billion (from a peak of ~$4 trillion) since mid-2014:

FX Reserves - BBG - Jan7'16
source: @TomOrlik

FX is also a risk because China has a lot of USD-denominated debt. In mid-2015, non-bank borrowers held ~$1.2 trillion worth of it. This is an issue because Dollar debt becomes more expensive when USDCNY rises, which is exactly what the markets expect to happen.

Corruption Crackdown

China’s anti-corruption campaign is a step in the right direction. That said, it is a big political risk for foreign investors. High profile businessmen and officials have been disappearing while others are being investigated. Moreover, securities regulators have been cracking down on market manipulators, “ensnaring some of the nation’s most high-profile money managers and announcing more than 2 billion yuan of fines and confiscated gains” (source: BBG Brief). Critics of the campaign suggest that it may deter business while failing to address the corruption that exists amongst the ruling party.


As investors, we should be concerned because China is one of the biggest economies and the world’s leading trader. Therefore, if it slows down then so will global growth:

Slower China, Slower World - $GS - Dec'15
source: $GS

China is also important because it is a massive source of demand for many commodities. Thus, its weakness is spreading to undiversified economies such as Russia, Brazil and South Africa. Recessions in those countries might not carry over to the rest of the world. Nevertheless, it is important to consider the amount of debt they have taken on since the financial crisis. In the US, credit is already tightening. If borrowing costs rise for the emerging markets, especially China, then we may see a wave of defaults with untold consequences.

via Zero Hedge Tyler Durden

With EMs And SWFs Pushing Markets Lower, Here Are The Three Dramatic Implications

Earlier today we showed an amazing schematic courtesy of Citi’s Matt King: if one includes the reserve liquidation by various EMs and SWF, and nets it against liquidity injections by DM central banks (and the PBOC), one gets a perfect quantitative, not just qualitative, walk-thru on how to trade markets: in other words one can measure, using high frequency data in real-time, just where markets should trade based on liquidity flows, and promptly profit from any arbitrage opportunities.


But aside from the potential for substantial profits, there are more profound implications. Matt King lays them out as follows:

If this relationship were to continue to drive markets, it would point to three conclusions.


First, if outflows from EM continue to be “worse than previously thought”, as the IIF put it this week, that may continue to weigh also on developed markets. We recommend the IIF’s monthly ‘portfolio flows tracker’ as the best high-frequency indicator as to how those flows are developing; we also use data from those EM central banks that promptly publish reserves information as a guide to the broader universe.


Second, the relationship suggests individual central banks are considerably less in control of their own destinies than they might have hoped. Our rates strategists have already pointed out that long-term inflation expectations in Europe and the US have more in common with a global – Chinese – factor than with domestic wage and price developments. With the current magnitude of EM outflows seemingly entirely offsetting ongoing ECB and BoJ QE, it seems fair to wonder whether the sorts of increases likely from the BoJ next week and the ECB in March will have as great an effect as investors seem to be hoping.


Third, the fact that just one variable, with nothing in common with credit or equity fundamentals at all, does such a good job of explaining changes in market prices is in itself disturbing. It points to just the sort of herding effects we have argued were in play all along, and suggests that recent complaints of illiquidity, and sudden bouts of volatility, are being driven by more than just regulatory constraints on dealer balance sheets. Such a relationship leaves little room for heterogeneous market views.

King’s summary:

To sum up, it does not follow that everything need evolve in a bearish direction; what strikes us mostly is how interlinked, even circular, the outlook remains.


While we are suspicious of the reasoning behind the last day or so’s rally – Aramco may find oil prices “irrational”, but if neither it nor anyone else is prepared to cut production, our commodities strategists see little reason for near-term optimism – that does not mean it cannot continue. As in August and September last year, there is a great deal of bearishness in market pricing already. If investors are bracing themselves for outflows which fail to materialize, the resultant short squeeze can be vicious. The more bearish the pricing, the greater the risk that reasonably stable economic data (as recent Chinese and European numbers have been) produce just such a squeeze. If that in turn helps to reverse the recent trend towards mutual fund outflows, as is suggested by our latest investor survey, the chance grows that this will come to be seen as just another example of the market predicting a recession that never happened, as in 2011. It is just such a view that underpins our house forecasts, and continues – just – to seem the most likely overall scenario.


But this will not address the underlying issue for economists and investors alike. Weak multipliers in the economy away from EM and commodities have left us overly dependent on monetary policy. When monetary stimulus’ effect on markets fails to be matched by a corresponding improvement in the real economy, we are inevitably vulnerable to a correction.


Perhaps if this sell-off fizzles out by itself, as it did last October, central banks will again be spared the need to face up to the distortive effect they have had upon markets, and can continue the pretence that markets are still following fundamentals.  After all, for many of them, this has been the sell-off which ‘isn’t supposed to be happening’.


As in many a nursery game of ring-a-ring-a-roses, the problem is not just that, once we have all linked hands, we really do all end up either standing up or falling down together. It is also that, in the giddy excitement induced by running round in circles, sometimes you end up falling down even when you didn’t intend to.

What is the implication of all of the above?

The reality is that the vast majority of market participants are not only idiots, they are also very lazy: they have no desire to read any of the above, and certainly no interest in understanding what it means, or what truly makes the market tick. Back in 2007 this meant blaming the rating agencies for everyone’s blow up. This time the scapegoat will likely be HFTs.

However, a small handful of people will read the full Matt King note – which is a must read – and understand just how close we are to the event horizon in which central banks lose not credibility but control over risk assets. This also means an end to the fiat system: a truly epochal outcome and the biggest phase shift in modern economics and financial markets.

But the real rub is the following: most market participants already have had a suspicion of what Matt King has so eloquently explained. They likewise had a sense days before Lehman collapsed that something historic was brewing. Back then, it was Matt King’s note “Are the Brokers Broken” issued on September 5, 2008 that explained to everyone just how broken the system was, and allowed everyone to visualize the Lehman failure. Ten days later it was realized.

Now, Matt King has done one better, and has explained not only how central banks rigged everything, but how the loss of control could and will look like. Which makes us wonder: will it be sufficient to explain just how broken everything is – with the source being not some tinfoil fringe blog but the head credit strategist of Citi – for said breakage to migrate from the merely hypothetical to the realized?

We look forward to finding out very soon.

via Zero Hedge Tyler Durden

Even Goldman No Longer Believes China’s GDP Fiction

When even that bastion of statist groputhink and legacy conventional wisdom accuses China of fabricating its most important economic number, then surely some violently volatile event is in the immediate future as China’s goalseeked cognitive dissonance is forced to reallign with reality in an event which even the bank that does god’s work on earth implies is now overdue.

From Goldman’s David Kostin:

In China, the government reported 4Q GDP growth of 6.8%. However, during the same time period our China CAI (Current Activity  Indicator) expanded at an average of just 4.5%, 230 bp slower than the official measure. Earlier this week our December CAI reading suggested China economic growth has decelerated to just 4.2%.


And if China is indeed growing at 4.5% (or less), that means that its total debt is now growing three time as fast as the underlying economy, a recipe for not just an epic bubble, but its even more epic collapse.

via Zero Hedge Tyler Durden

Exposing The Fiction Of Mainstream Macroeconomics (In 9 Simple Questions)

Submitted by Alasdair Macleod via,

Parents will tell you the most difficult questions to answer sometimes come from their children.

Here are some apparently innocent questions to ask of economists, journalists, financial commentators and central bankers, which are designed to expose the contradictions in their economic beliefs. They are at their most effective using a combination of empirical evidence and simple, unarguable logic. References to economic theory are minimal, but in all cases, the respondent is invited to present a valid theoretical justification for what invariably are little more than baseless assumptions.

A pretence of economic ignorance by the questioner is best, because it is most disarming. Avoid asking questions couched in anything but the simplest logical terms. You will probably only get two or three questions in before the respondent sees you as a trouble-maker and refuses to cooperate further.

The nine questions that follow are best asked so that they are answered in front of witnesses, adding to the respondent's discomfort. Equally, journalists and financial commentators, who make a living from mindlessly recycling others' beliefs, can be great sport for an interrogator. The game is simple: we know that macroeconomics is a fiction from top to bottom, the challenge is to expose it as such. If appropriate, preface the question with an earlier statement by the respondent, which he cannot deny; i.e. "Last week you said that…"

Commentary follows each question, which is in bold.

1. How do you improve economic prospects when monetary policy destroys wealth by devaluing earnings and savings?

Central bankers and financial commentators are always ready to point out the supposed merits of monetary expansion, but are never willing to admit to the true cost. You can add that Lenin, Keynes and Friedman agreed that debasing money destroyed wealth for the masses, if the respondent prevaricates. Often politicians will duck the question with the excuse that monetary policy is delegated to the central bank.

The argument in favour of devaluation relies on fooling all of the people some of the time by encouraging them through lower interest rates to spend instead of save. However, monetary debasement has become a permanent and continuing fixture today, instead of a short-term fix.

2. What makes you think that targeting a continual rise in the general price level allows you to overturn the normal price relationship between supply and demand?

Simple price theory posits that higher prices reduce demand, while lower prices stimulate it. For evidence, look no further than the electronics and data industries. Look no further than any product, which a salesman will offer at a discount in order to sell it. The confusion over price formation is highlighted by economists' response to falling energy prices. Far from being a bad thing, unlike falling prices of other goods, apparently it leaves more money to spend on those other things!

Enjoy the subsequent attempt to justify the impossible. Animal spirits may be mentioned as an escape, which is the focus of the next question.

3. What are "animal spirits", and how do you measure them?

The reference to animal spirits, which cannot be actually defined, is supposed to be a reflection of consumer confidence. However, an increase in animal spirits can only mean a change in overall preference towards buying goods and against holding cash, usually driven by a growing fear of a falling purchasing power for money, and not consumer greed. This is the route to runaway price inflation, and if the policy succeeds in promoting so-called animal spirits, the outcome is impossible to control, without raising interest rates to a level that crashes the economy. It is also impossible to quantify animal spirits, because they are a bad concept.

The reference to animal spirits was always a cop-out for effects that refuse to be modelled. It is in its own small way an admission that the mathematical treatment of economics is fundamentally flawed.

4. It's commonly believed that a lower currency stimulates production. If this is the case, how did Germany and Japan in the post-war years develop into the strongest economies despite their currencies consistently rising against those of their trading partners?

This should stump all mainstream macroeconomists, except perhaps the few remaining sound-money practitioners in Germany. While Germany's and Japan's economies developed successfully, Britain actively weakened the pound, the French the franc and the Italians the lira as a matter of competitive policy with abysmal results. Furthermore, since Japan implemented aggressive Keynesianism following its financial crisis in 1990, its economic record has been appalling. It is time for this canard to be well and truly nailed.

5. Experience of government intervention in the economy clearly shows that it usually fails. Why do you continue to support intervention, when the evidence is so clearly against it?

Central bankers and economists in the pay of governments are conditioned to believe that the state can fix the apparent shortcomings of free markets. Furthermore, politicians will always promote an advisor who comes to them with a positive solution involving intervention, and demote one that argues the merits of doing nothing. They usually argue something on the lines that it is unfair to ordinary people to expose them to the uncertainties and brutality of markets when they go wrong. In which case, follow up with Question 1, since they obviously care so much about ordinary folk.

6. The difference between national socialism and communism was that the former controlled people through regulation, while the latter compulsorily acquired their property. Is the government at all troubled to be pursuing the economic policies of the fascists?

This one is best used for poking fun at left-wing journalists. When Tony Blair was seeking office in the 1990s, the British Labour Party did away with Clause 4 in its constitution, the commitment for the state to acquire the means of production. From that moment, British socialism embraced the previously fascist policy of regulation as the means of state control. Not one commentator picked up on this aspect of a change that was heralded as necessary to make Labour electable.

7. You say you are a socialist and yet you despise communism. Isn't socialism just a milder form of communism? Please explain where, other than in their degree, these beliefs differ in their economic effect.

The root of this problem was encapsulated in the socialist calculation debate, where it was proven beyond any doubt that the state could never organize production and prices effectively. Socialists like to think that the obvious failure of state control under communism does not apply to modern socialism. They usually argue that modern socialism is based on Christian ethics and has nothing in common with the godless statism of Lenin and Mao. They overlook the fact that the problem is one of government economic intervention.

8. Keynesians believe that deficit spending is necessary to make free markets work when they fail. If deficit spending is needed to supplement free markets when this apparently happens, why is it not appropriate at other times as well?

Deficit spending is almost always introduced in an attempt to deal with the results of earlier policy errors, usually made by central banks allowing credit booms to develop. It may sound reasonable to stop a recession from throwing people out of work needlessly, but the state is merely permitting past errors to accumulate. The purpose of the question is to expose the lack of any economic basis for deficit spending, and to expose the policy as purely political.

And lastly, a Royal question:

9. If these things [signs of financial failure] were so large, how come everyone missed them?

This was the question Queen Elizabeth famously asked the professors at the London School of Economics about the symptoms that foretold the financial crisis in 2008, when opening the LSE's New Academic Building later that year. The result was that a group of the foremost British economists met seven months later for a roundtable discussion to answer her question. You read that right: it took seven months to cook up a reply.

This was it: "Risk calculations were most often confined to slices of financial activity, using some of the best mathematical minds in our country and abroad. But they frequently lost sight of the bigger picture."

It is a public admission that macroeconomists are unable to see the big picture. This defies the meaning of the word macro.

via Zero Hedge Tyler Durden

“Bowels Emptied! Women Molested!” German Media Reveals “Monstrous” CCTV Footage Of Refugee Pool Mayham

Europeans are struggling to come to terms with the wave of Mid-East refugees that have inundated the bloc over the course of the last 12 months.

The challenge, for those inclined to believe that German Chancellor Angela Merkel’s multicultural utopia is feasible, is to adopt an open minded approach to the prospect of integrating millions of Muslim asylum seekers into a largely Christian society while retaining a healthy level of skepticism with regard to the prospect of unifying two vastly divergent cultures.

Even those who are predisposed to being patient with the integration process are beginning to question the wisdom behind Berlin’s open-door policy.

Interestingly, it wasn’t the murder of 130 people in Paris that served as the catalyst for what amounts to a wholesale shift in sentiment towards migrants. While there was certainly a public outcry in the wake of the Paris attacks, the backlash coalesced after New Year’s Eve, when scores of women were reportedly assaulted by men of “Arab origin.”

Since then, voters have moved to express their discontent with the bloc’s handling of the refugee crisis by taking to the streets in what on many occasions have turned out to be violent protests.

The official response has been mixed. Germany has endeavored to keep the faith (as it were) by preserving the “yes we can” narrative in public, but in private, many German politicians claim the country is on the verge of closing its borders. Austria has apparently had enough, has suspended Schengen, and is now requiring refugees to learn German or risk losing access to welfare. The country has also developed a pictographic flyer designed to coach migrants on what types of behaviors are acceptable in polite Western European society.

Switzerland has adopted the Austrian flyer and Germany has developed its own cartoons the government hopes will to clear up any “confusion” about how asylum seekers should act once settled in Europe.

A particularly sensitive issue is pool etiquette. If you believe the media, refugees are having a particularly difficult time figuring out how to behave when swimming in public. The controversy led one small German town near Cologne (the site of the New Year’s Eve assaults) to ban adult male asylum seekers from swimming.

Well, despite the best efforts of European cartoonists, some refugees apparently didn’t get the message about proper pool behavior because according to “reports,” some asylum seekers were caught on closed circuit TV doing some rather lewd things at the Johannisbad baths in Zwickau. Below, find the story from Bild, which we present without further comment because frankly, there’s not much we can add here.

*  *  *

From “In The Swimming Pool, Bowels Emptied! Women Molested!”, originally published in Bild and Google translated for your amusement

According bathrooms GmbH have masturbated refugees when visiting swimming baths in pools and emptied their bowels in the water. They are women in sauna harassed and have tried to storm the ladies’ locker!

All this is evident from a letter from clerk’s office manager Rainer Kallweit to his superior departmental head Bernd Meyer. In the letter dated 19 January (Image exists) summarizes Kallweit a report of the security that service the city’s baths GmbH. The city administration has towards BILD confirm their authenticity letter!

Kallweit reports of a memorandum from the Johannisbad. It states inter alia: “An asylum seeker has masturbated in the hot tub and ejaculated into the basin. This is also recorded on the surveillance camera “And further:”. The lifeguards threw him out. The asylee came with his, cronies’ but again purely to get his cell phone.Together, visitors have ‘in the hot tub a hooting, Selfie’ done. “

“The users of this contaminated pool by there got rid of one’s own intestinal contents. Native people have immediately leave the bathroom. “

The memo continues: “Furthermore, the lifeguards have to protect women and girls from the asylum. Young men wanted to forcibly penetrate into the dressing of women and girls. These actions could previously be blocked.”

via Zero Hedge Tyler Durden

Meet China’s Largest Empty Building – The Ghost ‘Pentagon’

While China's ghost cities are now a well-known occurrence – massive empty spaces built "Fields of Dream" style for when 'they' come from the countryside – the following massive 500,000 square meters of 'Ghost Pentagon' surely takes the proverbial biscuit when it comes to mal-investment mania. As The BBC reports, the Pentagonal Mart – a shopping mall in Shanghai built in 2009 – inspired by the Pentagon in the United States – has now gained the dubious title of China's largest empty building.



And from the inside out, the 70-acre site – only slightly smaller than the largest shopping mall in the world, the Dubai Mall in the United Arab Emirates – is almost entirely vacant…

via Zero Hedge Tyler Durden

Risk Management Lessons From A Drunk Welshman

By Chris at

If I was to watch the world news every day I would be filled with a burning desire to build myself a hut in the hills, don my hazmat suit and wait for the impending collapse of humanity.

I met a guy who’d done pretty much that. He was Welsh and drunk most of the time. But once, in the local pub he’d decided to venture into after spending a year living in solitude, he confided in me that all the things that had driven him to his fearful state didn’t seem all that important any longer.

He told me this as he glanced occasionally at a TV above the bar, where David Attenborough was magically making a previously boring looking swallow seem like the most amazing creature you’d ever seen. Perhaps he realised that the world in fact wasn’t in quite so terrible a state as it seemed to be if you took your information from the 6’o clock news.

Indeed, media studies indicate negative news reports outweigh positive news reports by 17 to 1!

Given a 17:1 barrage of mayhem, death, destruction, and Tony Blair this poor miserable Welshman was on the brink of hanging himself, and a little quiet time providing perspective had brought him back from the brink. Sure it hadn’t cured his drinking problem but then again he was Welsh.

I bumped into him again a month or so later and he’d taken up a regular spot in the pub playing his guitar. Apparently he was pretty good because the bartender told me he’d spent the previous night being ridden around his bedroom by some South American backpacker wearing a cowboy hat who must have mistaken him for Jon Bon Jovi. He had a glint in his eye that wasn’t there before. This perspective and media diet had clearly changed his world for the better.

The reason for this poor sod’s previous state of fear can be explained by an almond-shaped mass of nuclei deep in the brain’s temporal lobe – the amygdala. According to men in white coats who play with rats and still wear Brylcreem this highly sensitive part of our brain contributes heavily to threat detection.

From an evolutionary and neuro-scientific perspective we are hardwired to look for dramatic and negative news and when we find it, we share it.

The clansman who spotted a sabre-toothed tiger would immediately share the information with his clan. Being eaten was a pretty big deal and you didn’t want to be the guy explaining to Joey’s wife as she sat grieving over his mauled body that, “Ah yeah, now you mention it, I did see that horrid beast up on Woolly Mammoth point just yesterday. I guess I should have mentioned it to him. Sorry about that.” 

Social sharing of danger was therefore immensely important.

Today, however, we don’t wait to catch up with Billy for a drink on the weekend to tell him about the car crash on the highway that we just drove past. We snap it on our smartphone and post it on a dozen social media sites where it is then re-posted and shared by hundreds of others, thus amplifying the visibility of the crash.

The fact is that unless you live in Kandahar, or maybe Detroit, unusual scary things just don’t tend to happen that often to most people. If you live in a small town of a few hundred thousand people it’s a big deal when someone is murdered.

On the other hand, when you have a murder in a city of a million plus people it’s just a fact that you’re more likely to hear about it. Take a city like New York and London with over 8.5 million people, or Shanghai with 25 million; there are a few murders going down and they will be blasted all across the 6 o’clock news.

Many studies have shown that we care more about the threat of bad things than we do about the prospect of good things. Our negative brain tripwires are far more sensitive than our positive triggers. We tend to get more fearful than happy. Clearly taken to its extreme this can result in radical emotion driven decisions which don’t produce positive results.

An Experiment

In a now-famous experiment done by two researchers, Amos Tversky and Daniel Kahneman, they examined how people make decisions involving risk. These gents were working in an area of research known as behavioral finance but the results can be extrapolated to any actions involving risk.

In their experiment subjects where provided the following scenario:

  • Suppose you have been given $1,000 and must choose between a sure gain of another $500 or, alternately, a 50% chance to gain $1,000 and a 50% chance to gain nothing.
  • Another group of subjects were given a different scenario: You are given $2,000 and must choose between a sure loss of $500 or, alternately, a 50% chance to lose $1,000 and a 50% chance to lose nothing.

Both situations are identical in terms of the net financial benefit to the individuals but Tversky and Kahneman found that most members of the first group chose the sure gain of $500. A majority of the second group, however, opted for the gamble between a loss of $1,000 and loss of nothing.

The simple phrasing of the question – the fact that one is presented in terms of gain and the other in terms of loss – is what causes them to be interpreted differently?

The conclusion of the experiment, which has been proven many times since was that people are willing to run greater risks to avoid losses than they are to make gains. 

Next week I’m going to discuss how this ties into another mathematics principle uncovered centuries ago by an Italian mathematician and how most investors focus on the completely wrong sectors and asset classes at the wrong times.

We’ll top if off with asubscriber-only report on the 8 investment biases that screw with your investing that a good friend of mine and part of our global network put together.

Until then, have a fantastic weekend!

– Chris 


Liked this article? You can read more from us here.


via Zero Hedge Capitalist Exploits

The Bernie & Hillary ‘Group Think’ Show – Cynics, Cowards, Or Populist Propagandists

Submitted by Robert Parry via,

A curious reality about Official Washington is that to have “credibility” you must accept the dominant “group thinks” whether they have any truth to them or not, a rule that applies to both the mainstream news media and the political world, even to people who deviate from the pack on other topics.

For instance, Sen. Bernie Sanders may proudly declare himself a “democratic socialist” – far outside the acceptable Washington norm – but he will still echo the typical propaganda about Syria, Russia, Iran and other “designated villains.” Like other progressives who spend years in Washington, he gets what you might called “Senate-ized,” adopting that institution’s conventional wisdom about “enemies” even if he may differ on whether to bomb them or not.

That pattern goes in spades for former Secretary of State Hillary Clinton and other consciously “centrist” politicians as well as media stars, like NBC’s Andrea Mitchell and Lester Holt, who were the moderators of Sunday’s Democratic presidential debate. They know what they know based on what “everybody who’s important” says, regardless of the evidence or lack thereof.

So, you had Mitchell and Holt framing questions based on Official Washington’s “group thinks” – and Sanders and Clinton responding accordingly.

Regarding Iran, Sanders may have gone as far as would be considered safe in this political environment, welcoming the implementation of the agreement to restrain Iran’s nuclear program but accepting the “group think” about Iran’s “terrorism” and hesitant to call for resumption of diplomatic relations.

“Understanding that Iran’s behavior in so many ways is something that we disagree with; their support of terrorism, the anti-American rhetoric that we’re hearing from their leadership is something that is not acceptable,” Sanders said. “Can I tell you that we should open an embassy in Tehran tomorrow? No, I don’t think we should.”

Blaming Iran

In her response, Clinton settled safely behind the Israeli-preferred position – to lambaste Iran for supposedly fomenting the trouble in the Middle East, though more objective observers might say that the U.S. government and its “allies” – including Israel, Saudi Arabia and Turkey – have wreaked much more regional havoc than Iran has.

“We have to go after them [the Iranians] on a lot of their other bad behavior in the region which is causing enormous problems in Syria, Yemen, Iraq and elsewhere,” Clinton said.

Yet, how exactly Iran is responsible for “enormous problems” across the region doesn’t get explained. Everybody just “knows” it to be true, since the claim is asserted by Israel’s right-wing government and repeated by U.S. pols and pundits endlessly.

Yet, in Iraq, the chaos was not caused by Iran, but by the U.S. government’s invasion in 2003, which then-Sen. Clinton supported (while Sen. Sanders opposed it). In Yemen, it is the Saudis and their Sunni coalition that created a humanitarian disaster by bombing the impoverished country after wildly exaggerating Iran’s support for Houthi rebels.

In Syria, the core reason for the bloodshed is not Iran, but decisions of the Bush-43 administration last decade and the Obama administration this decade to seek another “regime change,” ousting President Bashar al-Assad.

Supported by Turkey, Saudi Arabia and other Sunni powers, this U.S.-backed “covert” intervention instigated both political unrest and terrorist violence inside Syria, including arming jihadist forces such as Al Qaeda’s Nusra Front and its close ally, Ahrar al-Sham and – to a lesser degree – Al Qaeda’s spinoff, the Islamic State. [See’s “Hidden Origins of Syria’s Civil War.“]

The desire of these Sunni powers — along with Israel and America’s neoconservatives — was to shatter the so-called “Shiite crescent” that they saw reaching from Iran through Iraq and Syria to Lebanon. Since Assad is an Alawite, a branch of Shiite Islam, he had to be removed even though he was regarded as the principal protector of Syria’s Christian, Shiite and Alawite minorities. [See’s “Did Money Seal Saudi-Israeli Alliance?’]

However, while Israel and the Sunni powers get a pass for their role in the carnage, Iran is blamed for its assistance to the Syrian military in battling these jihadist groups. Official Washington’s version of this tragedy is that the culprits are Assad, the Iranians and now the Russians, who also intervened to help the Syrian government resist the jihadists, both the Islamic State and Al Qaeda’s various friends and associates. [See’s “Climbing into Bed with Al Qaeda.”]

Blaming Assad

Official Washington also accepts as undeniably true that Assad is responsible for all 250,000 deaths in the Syrian civil war – even those inflicted by the Sunni jihadists against the Syrian military and Syrian civilians – a logic that would have accused President Abraham Lincoln of slaughtering all 750,000 or so people – North and South – who died in the U.S. Civil War.

The “group think” also holds that Assad was behind the sarin gas attack near Damascus on Aug. 21, 2013, despite growing evidence that it was a jihadist group, possibly with the help of Turkish intelligence, that staged the outrage as a provocation to draw the U.S. military into the conflict against Syria’s military by creating the appearance that Assad had crossed Obama’s “red line” on using chemical weapons.

Mitchell cited Assad’s presumed guilt in the sarin attack in asking Clinton: “Should the President have stuck to his red line once he drew it?”

Trying to defend President Obama in South Carolina where he is popular especially with the black community, Clinton dodged the implicit criticism of Obama but accepted Mitchell’s premise.

“I know from my own experience as Secretary of State that we were deeply worried about Assad’s forces using chemical weapons because it would have had not only a horrific effect on people in Syria, but it could very well have affected the surrounding states, Jordan, Israel, Lebanon, Turkey. …


“If there is any blame to be spread around, it starts with the prime minister of Iraq, who sectarianized his military, setting Shia against Sunni. It is amplified by Assad, who has waged one of the bloodiest, most terrible attacks on his own people: 250,000-plus dead, millions fleeing. Causing this vacuum that has been filled unfortunately, by terrorist groups, including ISIS.”

Clinton’s account – which ignores the central role that the U.S. invasion of Iraq and outside support for the jihadists in Syria played in creating ISIS – represents a thoroughly twisted account of how the Mideast crisis evolved. But Sanders seconded Clinton’s recitation of the “group think” on Syria, saying:

"I agree with most of what she said. … And we all know, no argument, the Secretary is absolutely right, Assad is a butcher of his own people, man using chemical weapons against his own people. This is beyond disgusting. But I think in terms of our priorities in the region, our first priority must be the destruction of ISIS. Our second priority must be getting rid of Assad, through some political settlement, working with Iran, working with Russia.” [See’s “A Blind Eye Toward Turkey’s Crimes.”]

Sanders also repeated his talking point that Saudi Arabia and Qatar must “start putting some skin in the game” – ignoring the fact that the Saudis and Qataris have been principal supporters of the Sunni jihadists inflicting much of the carnage in Syria. Those two rich countries have put plenty of “skin in the game” except it comes in the slaughter of Syrian Christians, Alawites, Shiites and other religious minorities.

Blaming Russia

NBC anchor Lester Holt then recited the “group think” about “Russian aggression” in Ukraine – ignoring the U.S. role in instigating the Feb. 22, 2014 coup that overthrew elected President Viktor Yanukovych. Holt also asserted Moscow’s guilt in the July 17, 2014 shoot-down of Malaysia Airlines Flight 17 despite the lack of any solid evidence to support that claim.

Holt asked: “Secretary Clinton, you famously handed Russia’s foreign minister a reset button in 2009. Since then, Russia has annexed Crimea, fomented a war in Ukraine, provided weapons that downed an airliner and launched operations, as we just did discuss, to support Assad in Syria. As president, would you hand Vladimir Putin a reset button?”

While noting some positive achievements from the Russian “reset” such as a new nuclear weapons treaty, help resupplying U.S. troops in Afghanistan and assistance in the nuclear deal with Iran, Clinton quickly returned to Official Washington’s bash-Putin imperative:

“When Putin came back in the fall of 2011, it was very clear he came back with a mission. And I began speaking out as soon as that happened because there were some fraudulent elections held, and Russians poured out into the streets to demand their freedom, and he cracked down. And in fact, accused me of fomenting it. So we now know that he has a mixed record to say the least and we have to figure out how to deal with him. …


“And I know that he’s someone that you have to continuingly stand up to because, like many bullies, he is somebody who will take as much as he possibly can unless you do. And we need to get the Europeans to be more willing to stand up, I was pleased they put sanctions on after Crimea and eastern Ukraine and the downing of the airliner, but we’ve got to be more united in preventing Putin from taking a more aggressive stance in Europe and the Middle East.”

In such situations, with millions of Americans watching, no one in Official Washington would think to  challenge the premises behind these “group thinks,” not even Bernie Sanders. No one would note that the U.S. government hasn’t provided a single verifiable fact to support its claims blaming Assad for the sarin attack or Putin for the plane shoot-down. No one would dare question the absurdity of blaming Assad for every death in Syria’s civil war or Putin for all the tensions in Ukraine. [See, for instance,’s “MH-17’s Unnecessary Mystery.”]

Those dubious “group thinks” are simply accepted as true regardless of the absence of evidence or the presence of significant counter-evidence.

The two possibilities for such behavior are both scary:

either these people, including prospective presidents, believe the propaganda…


or that they are so cynical and cowardly that they won’t demand proof of serious charges that could lead the United States and the world into more war and devastation.

via Zero Hedge Tyler Durden

Four Stunning Timelapse Videos Of “The Blizzard Of 2016”

For those who enjoy truncating 24 hour blocks into 45 seconds or less, here are four time lapse videos of winter storm Jonas, a/k/a Snowmageddon, dumping near-record amounts of snow across the northeastern United States.

First here is a clip showing 24 hours of footage, from 12:30 pm on January 22 to 12:30 pm on January 23. It consists of nearly 3000 photos.


Next is the WSJ’s visual summary of how New York City was blanketed in what ended up being the third biggest snow accumulation in history:


Here is one from across the river, in the middle of Brooklyn:


Finally, here is timelapse somewhere in Pennsylvania, this time caught on Twitter:

via Zero Hedge Tyler Durden