All Aboard The Bus To Home Ownership

With home-ownership rates collapsing and the likelihood of 'wealth taxes' potentially weighing on even the oligarchs and 1%-ers willingness to throw cash at US housing, we thought the following rusting hulks of a bye-gone era in a strorage yard deep in Middle America…


The American Homeownership Dream is officially dead…


And here are the bodies…


h/t SandP


via Zero Hedge Tyler Durden

The Taming Of Deluded ‘Conspiracy Theorists’

Submitted by Pater Tenebrarum of Acting-Man blog,

Valiant Knight of Government-Approved Information Rides to the Rescue

Look who is warning us again about the great harm conspiracy theories are doing to the minds of impressionable citizens everywhere: Cass Sunstein has emerged at Bloomberg, to once again plead for 'correction' of the many conspiracy theories that are disseminated on that pesky new medium, the intertubes, seemingly without inhibition. Contrary to the infamous paper in which he described how to precisely combat the spreading of false information that lacks the government's seal of approval, he doesn't list his favored censorship and disinformation techniques outright this time, but it is certainly implied that 'something must be done'.

With regard to conspiracy theories, there is a long history of dangerous thought entering the minds of deluded citizens. There were people who long doubted the official version of the Gulf of Tonkin incident, or those who believed that the government's minions were capable of thinking up other 'false flag' activities such as 'Operation Northwoods', or the poor confused souls who argued that Iraq's 'weapons of mass destruction' were a trumped-up pretext for war based on thoroughly politicized intelligence, or the mean-spirited  traitors who charged that the US military killed a Reuter journalist and his helpers in Iraq and then covered it up, or the completely delusional paranoiacs who asserted for many years that the NSA was literally recording everything. Next they're going to say that the official version of the WTC attack lacks credibility, in spite of its enshrinement as unassailable truth following the government's decision to investigate itself!

We incidentally even know of certain people who routinely assert that the scientific and utterly wertfrei monetary policy enacted by well-meaning central banks is harmful and favors certain groups in society over others! Surely such highly dangerous attempts to foment popular dissent need to be properly suppressed before they irreparably disturb the social harmony of the Collective.

Also, consider for a moment the honest and well-intentioned politicians and bureaucrats who advanced the schemes listed above in the national interest. It was only their self-less concern for our well-being that drove them to make a tiny mistake here or there. By accusing them of nefarious motives, the conspiracy theorists have undoubtedly deeply hurt their feelings. It is an outrage crying out for rectification.


What 'Needs to Be Done'

Cass Sunstein certainly knows what needs to be done to ensure that the geistige Volksgesundheit is maintained. The intertubes simply must be corralled to reduce the great harm all this conspiracy theorizing inflicts. In his 2008 paper 'Conspiracy Theories' written with Adrian Vermeule, he proposed the following eminently reasonable measures:

  1. Government might ban conspiracy theorizing.
  2. Government might impose some kind of tax, financial or otherwise, on those who disseminate such theories.
  3. Government might itself engage in counter-speech, marshaling arguments to discredit conspiracy theories.
  4. Government might formally hire credible private parties to engage in counter-speech.
  5. Government might engage in informal communication with such parties, encouraging them to help."

Surely number (1) would be most effective and help to conserve resources. But where would be the fun in that? Intellectual combat with the deluded masses is surely more satisfying. We are therefore informed that:

However, the authors advocate that each "instrument has a distinctive set of potential effects, or costs and benefits, and each will have a place under imaginable conditions. However, our main policy idea is that government should engage in cognitive infiltration of the groups that produce conspiracy theories, which involves a mix of (3), (4) and (5)”

We should be grateful that these social engineers are thinking up such excellent ways of protecting the already overloaded neural circuits of the citizenry. Incidentally, it seems actually quite possible that the NSA has heard about these useful proposals, considering that its agentsInfiltrate the Internet to Manipulate, Deceive, and Destroy Reputationsaccording to Glenn Greenwald. See, we are already protected!

As a result, have every reason to feel all 'snuggly and secure', as Mark Fiore points out in the video below, which nicely summarizes why we have absolutely nothing to fear.

Snuggly and secure! You have nothing to fear, citizen! As long as you have nothing to hide, are not blowing any whistles you treasonous leaker, or exhibit undue interest in the Bill of Rights.


Techniques of the Demagogue

Sunstein's recent Bloomberg article is quite interesting though in that it nicely demonstrates the demagogic techniques employed in advancing statist interests. One can immediately see that he has learned a few lessons from the push-back he received the first time around. As noted above, he refrains this time from telling us in detail what government should actually do in order to 'reduce the harm from conspiracy theories'.

He merely asserts that such harm exists, encouraging readers to think about  how it might be reduced. He mentions in closing that 'we' need to “persuade the conspiracy theorists to find their way around to the truth”,  but he doesn't say how.

Whenever an author invokes 'us', asserting that 'we' must do this or that, what he really means is actually that the government's apparatus of coercion and compulsion must be set into motion to attain certain goals the author approves of. In recent weeks we have e.g. heard that 'we' must bail out the Ukraine financially, or that 'we' must punish Mr. Putin and his henchmen with sanctions, but this is of course not a call to voluntarily engage in these activities. It is simply an announcement, informing us that those steering the government apparatus will do all these things. 'We' only figure in the sense that 'we' are going to pay for it all (and certainly not voluntarily).

So when Sunstein says that 'we' must 'help' those poor deluded conspiracy theorists, he is actually saying the same things he was saying before, only in a less direct manner. It means the government must intervene.

The other technique on display is the 'straw man' technique. Discussing conspiracy theories in detail, Sunstein deliberately lists many that can either be very easily disproved, or of which it can be assumed that most readers will immediately classify them as nonsense.

At one point he tries to assure us that his approach is evenhanded by conceding that a number of conspiracy theories have later turned out to be the truth, but he immediately reverts to his previous condescending tone, belittling those who show an interest in investigating government misdeeds. He lists three examples: the Watergate scandal, the CIA's MK Ultra program, and the fact that 'aliens have really landed in Roswell' –  in other words, he only lists two examples and immediately downplays their importance by adding a plainly ridiculous third one to the list.


Degrees of Harm

It could even be conceded arguendo that Sunstein succeeds in demonstrating that harm is sometimes inflicted, as e.g. in the context of conspiracy theories surrounding vaccines (we actually don't know what these theories assert, not having delved into the subject in detail; however, the history of modern medicine certainly suggests that a great many scourges that have plagued mankind have been successfully vanquished with the help of vaccines).

So it may be true that there are a small handful of cases when belief in a conspiracy theory might actually harm those believing it. But so what?

Sunstein's proposals as formulated in his original paper (and we have no reason to believe that he has changed his opinion on these points) are infinitely more harmful. Life is never without risks, but the wrongheaded belief held by social engineers that the government must eliminate every last one of them by intervening in every nook and cranny of our lives can ultimately only end in tyranny.

The ubiquitous and all-encompassing surveillance state that has been installed to allegedly 'protect us from terrorists' is actually an excellent example of how extremely misguided these attempts to shield us from every conceivable evil are. The reality is in this case that the threat is statistically minuscule; as we have previously noted, more Americans die from drowning in their bathtubs and even from merely falling off a chairs than from terrorist attacks. And yet, no-one has proposed to spend tens of billions every year to keep tabs on the citizenry's evil furniture, at least not yet. The danger that the gathering of every last scrap of data will be abused is orders of magnitude greater than the danger emanating from terrorists.

Central bank policy is yet another example: the attempt to spare us the pain of economic busts only leads to even bigger economic catastrophes down the road. This has only recently been demonstrated when the interventions following the bursting of the technology bubble resulted in its replacement by the housing bubble. In the end, a far more painful recession than the one the initial intervention sought to mitigate resulted. The same principle will be demonstrated again when the current echo bubble bursts at some point in the future.


The Conspiracy Theory of History

Finally, it should be clear that what one might term a 'conspiracy theory of history' often comes a lot closer to the truth than the officially approved line that is taught in public schools. The one thing that should be clear to every astute observer is that governments routinely lie. They sometimes even admit it, such as JC Juncker did in his function as president of the euro group of finance ministers (this incident serves as an example of how brazen the ruling class has become in modern times; they don't even care anymore how transparent they are).

The fact that governments are lying routinely and are keeping a great many of their activities secret in allegedly 'free societies' is what provides the fertilizer for conspiracy theories. Even in the rare cases when governments tell the truth, many people are no longer inclined to believe them. Distrust of government is however not akin to a mental disease – it is rather a sign that one is alert and keeping one's eyes open. It is also a necessary and healthy approach that provides a small, but important contribution to keeping government abuses in check.

As Murray Rothbard pointed out:

“Anytime that a hard-nosed analysis is put forth of who our rulers are, of how their political and economic interests interlock, it is invariably denounced by Establishment liberals and conservatives (and even by many libertarians) as a "conspiracy theory of history," "paranoid," "economic determinist," and even "Marxist." These smear labels are applied across the board, even though such realistic analyses can be, and have been, made from any and all parts of the economic spectrum, from the John Birch Society to the Communist Party. The most common label is "conspiracy theorist," almost always leveled as a hostile epithet rather than adopted by the "conspiracy theorist" himself.


It is no wonder that usually these realistic analyses are spelled out by various "extremists" who are outside the Establishment consensus. For it is vital to the continued rule of the State apparatus that it have legitimacy and even sanctity in the eyes of the public, and it is vital to that sanctity that our politicians and bureaucrats be deemed to be disembodied spirits solely devoted to the "public good." Once let the cat out of the bag that these spirits are all too often grounded in the solid earth of advancing a set of economic interests through use of the State, and the basic mystique of government begins to collapse.”

(emphasis added)

And this, in a nutshell, is what is really behind Mr. Sunstein's concern with 'conspiracy theories'. It is all about preserving the State's perceived right to rule by letting nothing intrude on the notion that politicians and bureaucrats are 'disembodied spirits solely devoted to the public good' rather than people who pursue their own personal interests.


Sunstein Cass

Former government advisor Cass Sunstein: still concerned about 'conspiracy theories'


via Zero Hedge Tyler Durden

Citi Warns Bond Bulls “QE Is Dead… Long Live Normalization”

Despite the total collapse (flattening) in the Treasury yield curve in the last 2 days, Citi's FX Technicals group is convinced that we have seen a turn in fixed income that will see significantly higher yields in the years ahead and notably higher yields by this yearend also. Furthermore, they believe this will initially come from the belief in a continued taper, and the curve will initially steepen (2’s versus 5’s and 2’s versus 10’s). This normalization, they add, will be a good thing – QE encourages misallocation of capital and poor business decisions which has a negative feedback loop into the economy – but add (as long as yields do not go too far too fast like last year).


Citi FX Technicals,

We continue to expect a return to test and likely break the trend highs posted in Sept 2013 (2 and 5 year yields) and Jan 2014 (10 and 30 year yields)

2’s versus 5’s chart (One of our favourite charts of all time) making a comeback?

This is a chart that we have historically referred to as “the best interest rate chart in the World”

On 3 occasions in the last quarter century we have seen this chart go to +161 basis points and on 3 occasions we have seen it move to the area around -20 basis points. In 5 of those 6 periods we have seen this being a precursor to a shift in Fed policy.

The exception to this rule was when we turned off the +161 level seen in 2009. In the prior 2 occasions the flattening off this level was a “bear-flattening” as the market anticipated that we were moving to a tightening in Fed policy (Just as the rises from inversion were bull steepenings as the market anticipated an easing of Fed policy.)

The flattening we saw from the 2009 peak was NOT a bear flattening and it was NOT the market anticipating a Fed tightening but quite the contrary. The flattening was “interference”, more commonly known as QE. This caused the curve to bull flatten as Fed monetary policy moved to the long end of the curve….so it really was “different this time”

However, in early May 2013 as this curve stood around +45 basis points we got the very first compelling suggestion from the Fed (Ben Bernanke) that this ultra-loose unorthodox monetary policy may have served his purpose and that tapering may come into play (Not a moment too soon in our view)

Since then the curve has been “bear steepening”. Some people (the Fed included) will tell you that this is not tightening. Wake up call- If the part of the curve you are now playing in moves up in yield because of what you (the Fed) has said or done then you have been responsible for a tightening in monetary conditions. That is ok. It is the right thing to do, but call it like it is.

So long term rates are “normalizing”. Normalizing is not the “dirty word” that most people would like you to believe. Normalizing is a good thing. It starts to discourage misallocation of capital. It stops mispricing of risk. It forces companies to make investment/business decisions. It allows financial markets to function. Normal is better than abnormal.

So with the Fed “moving out of the way” long term yields headed higher and the curve above steepened again. We had no real concern with that, although felt that the initial move was “too far too fast” and might create a drag that would need time to offset.

In mid-March (A week after our bulletin on 07 March titled “Major reversal higher in US yields looks likely”) 10 year yields stood at 2.60%-Just shy of our 2.50% target expressed at the start of the year and just above the low of this year’s down move at 2.57%. More importantly that was the same level we had seen in last year’s up move by June 2013.

So after the initial surge in yields we have had the correction/consolidation necessary to “work that move off” (relatively unchanged levels for about 9 months) and set the platform, in our view, for the next move higher.

So what do we expect now?

  • We expect the curve above to further steepen as 5 year yields head higher more aggressively than 2 year yields. That is because at this point Fed policy is changing at the longer end of the curve but not YET at the Fed funds level.
  • We would not be surprised if we see this curve head right back to 161 basis points again as Fed interference becomes less and less.
  • At that point, looking at the historical perspective, we would expect the bear steepening to then “morph” into a bear flattening as the market begins to realize that the timeline for a move by the Fed on the Fed funds rate is not going to be as long as they thought.
  • At that point 2 year yields are going to head sharply higher and rise at a pace greater than 5 year yields causing the curve to bear-flatten in a traditional type of way

US 2 year yield: New highs in the move look imminent

Following the recent 76.4% pullback the 2 year yield is now re-testing the Jan high at 43 basis points.

A close above would suggest gains towards the channel top at 59 basis points quite quickly.

A close above here would suggest that it could revisit the 2011 peak around 88-89 basis points.

US2 year yield minus Fed funds- Has it just become relevant again for the first time in 7 years?

Going back to the start of the Fed PUT era (beginning with Alan Greenspan, the Ben Bernanke and now Janet Yellen) all policy changes from the cycle low/high in the Fed funds rate have been preceded by a large gap opening up between the 2 year yield and the Fed funds rate ). This gap has regularly been in excess of 100 basis points before the Fed capitulates and moves short-term rates. (Including in 2007)

This may well suggest that we are going to have to see that break of 89 basis points on the 2 year yield and a move towards that 1.43% level before the Fed capitulates on the Fed funds rate (That normally happens earlier than they would guide) and raises short term rates.

If we look at the present Fed funds rate (Zero-25 basis points) this suggests that once we start heading into the 1.20-1.50% range in 2 year yields that a Fed hike is likely pretty imminent. As we mentioned above, we believe that a break of 89 basis points on the 2 year yield may well be the early warning sign that this development is materializing.

1994, 2004, 2014????. Might the shock be that the Fed could be grudgingly tightening by late 2014 (An equal time line to the 1994-2004 gap would suggest end November 2014) just as it was grudgingly easing by late 2007 despite being quite hawkish earlier that year?

US 5 year yield: breaking out of the triangle consolidation

Testing the triangle neckline at 1.73%

Above here resistance is met at:

– 1.86%: (Converged downward sloping and horizontal trend lines)
– 2.42%: Feb 2011 high
– 2.99%: June 2009 high.

US 10 year yield weekly chart- Set to head back to the trend highs.

Posted an outside week 2 weeks ago (As did every part of the curve from 2 year to 30 year yields) suggesting higher yields are in prospect.

We saw this in July 2012 and again in April 2013 as weekly momentum turned up.

That was a precursor to low to high moves of 70 and 144 basis points respectively (Average of about 107 basis points over 8 months).

If repeated, that would suggest the following by later this year (November)

– A repeat of the 2012 move would take us to 3.29%
– A repeat of the average would take us to 3.66%
– A repeat of the 2013 move would take us to 4.03%

A move through the double highs at 3.00-3.05% (Sept-Dec 2013) would suggest a topside acceleration. The top of this channel stands at 3.59% but is rising sharply and will converge with the horizontal resistance around 3.77% in early May.

US 10 year yield monthly chart- Back to test the channel top?

Along with the good resistance at 3.77% (Feb 2011 high) we have some good levels above there

– 3.80-3.85%- Long term channel top going back 20 years
– 4.00-4.01%- double top from June 2009/April 2010
– 4.27%- June 2008 peak
– 5.25-5.32%- 2007 cycle peaks

We are certainly convinced that we will go and re-test that area around 3.77-3.85% (Probably this year) with the potential to head higher still.

Citi's optimistic conclusion:

We have said for a very long time that we were “optimists” on the US coming out of this downturn but that it was going to take longer than people thought. For many years the phrase “green shoots” was used only for hopes to be dashed.

  • Are we growing as much as we would like? No
  • Has employment improved as much as we would like? No
  • Has housing strengthened as much as we would like? No

But the “Green shoots” are definitely there now and need to be “nurtured” by normalization not “flooded” by QE.
We believe ending QE and then moving into a more normal interest rate environment that rewards all savers rather than the marginal borrower, that forces businesses to make business decisions, that encourages risk adjusted allocation of capital and more thoughtful Capex decisions is unequivocally positive.


We applaud Janet Yellen’s bold comments yesterday and encourage her to “hold the line”. It’s the right thing to do, not necessarily the easy thing to do. If her Fed does that it may well be the first Fed since Paul Volcker that has had the nerve to do so and we feel sure that it will culminate in a more positive outcome than the 5 ½ years of misguided QE has yielded.


via Zero Hedge Tyler Durden

Forget Russia Dumping U.S. Treasuries … Here’s the REAL Economic Threat

Russia threatened to dump its U.S. treasuries if America imposed sanctions regarding Russia’s action in the Crimea.

Zero Hedge argues that Russia has already done so.

But veteran investor Jim Sinclair argues that Russia has a much scarier financial attack which Russia can use against the U.S.

Specifically, Sinclair says that if Russia accepts payment for oil and gas in any currency other than the dollar – whether it’s gold, the Euro, the Ruble, the Rupee, or anything else – then the U.S. petrodollar system will collapse:

Indeed, one of the main pillars for U.S. power is the petrodollar, and the U.S. is desperate for the dollar to maintain reserve status.  Some wise commentators have argued that recent U.S. wars have really been about keeping the rest of the world on the petrodollar standard.

The theory is that – after Nixon took the U.S. off the gold standard, which had made the dollar the world’s reserve currency – America salvaged that role by adopting the petrodollar.   Specifically, the U.S. and Saudi Arabia agreed that all oil and gas would be priced in dollars, so the rest of the world had to use dollars for most transactions.

But Reuters notes that Russia may be mere months away from signing a bilateral trade deal with China, where China would buy huge quantities of Russian oil and gas.

Zero Hedge argues:

Add bilateral trade denominated in either Rubles or Renminbi (or gold), add Iran, Iraq, India, and soon the Saudis (China’s largest foreign source of crude, whose crown prince also happened to meet president Xi Jinping last week to expand trade further) and wave goodbye to the petrodollar.

As we noted last year:

The average life expectancy for a fiat currency is less than 40 years.


But what about “reserve currencies”, like the U.S. dollar?


JP Morgan noted last year that “reserve currencies” have a limited shelf-life:


As the table shows, U.S. reserve status has already lasted as long as Portugal and the Netherland’s reigns.  It won’t happen tomorrow, or next week … but the end of the dollar’s rein is coming nonetheless, and China and many other countries are calling for a new reserve currency.


Remember, China is entering into more and more major deals with other countries to settle trades in Yuans, instead of dollars.  This includes the European Union (the world’s largest economy) [and also Russia].


And China is quietly becoming a gold superpower

Given that China has surpassed the U.S. as the world’s largest importer of oil, Saudi Arabia is moving away from the U.S. … and towards China. (Some even argue that the world will switch from the petrodollar to the petroYUAN. We’re not convinced that will happen.)

In any event, a switch to pricing petroleum in anything other than dollars exclusively – whether a single alternative currency, gold, or even a mix of currencies or commodities – would spell the end of the dollar as the world’s reserve currency.

For that reason, Sinclair – no fan of either Russia or Putin – urges American leaders to back away from an economic confrontation with Russia, arguing that the U.S. would be the loser.


via Zero Hedge George Washington

Millenial Hope – Then And Now (In One Cartoon)

Presented with no comment…

h/t The Burning Platform via Cagle Post


And as a gentle reminder of why… here is the full breakdown of "young vs old" jobs since the start of the Depression in December 2007: those 55 and older have gained 4.9 million jobs. Those under 55 are still some 3.1 million jobs below their December 2007 level.


via Zero Hedge Tyler Durden

An Interview with Cognitive Dissonance

An Audio Interview with Cognitive Dissonance


This interview will be posted on Friday, March 21 at 8 PM EDT

and available for playback any time after


Four years and thirty weeks ago I created an alter ego avatar on by the name of Cognitive Dissonance. My thinking at the time was to craft a safe place to go when commenting on Zero Hedge (ZH) in order to help weather the slings and arrows that were, and still are, the hallmark of Fight Club aka Zero Hedge. In addition Cognitive Dissonance was my mentor of sorts, someone I could speak through, and to, while writing about subjects that were at times as unsettling to me as they were to my readers.

A few months after the birth of Cognitive Dissonance, ZH’s Tyler Durden contacted me and asked if I would like to become a contributing editor. While this was a wonderful opportunity to speak to a wider audience, it also opened me up to the full force of the ZH comment section. I learned a lot about myself during that first year as a ZH contributor, most importantly that I did not need to value myself by what others said about or to me.

Four years and much personal growth later Mrs. Cog and I decided the next step in the evolution of Cognitive Dissonance was to create our own play place, a unique web destination in its own right, and was born on Valentine’s Day, 2014.

Creating ‘Two Ice Floes’ allowed me to expand the range of Cognitive Dissonance’s ‘voice’ while also creating a safe place where others may gather to share their thoughts and experiences. My intention all along was to expose some of ‘my’ background and perspective in order for my readers to better understand Cognitive Dissonance.

The opportunity to do so came quickly when within a week of opening shop an offer was received from Gemini of Time Monk Radio to interview Cognitive Dissonance and the mind behind the avatar. After a week to mull it over and a few deep discussions with Mrs. Cog the offer was accepted and last weekend (Sunday, March 16, 2014) the two hour interview was recorded.

So…….are you interested in hearing the ‘voice’ of Cognitive Dissonance, to sneak a peek into the thinking and mindset behind the anonymous man who is Cognitive Dissonance? If so, please visit Friday evening, March 21st @ 8 PM EDT to access the two hour recorded interview.



Cognitive Dissonance


Cognitive Dissonance Radio Interview


via Zero Hedge Cognitive Dissonance

British Tax Authorities Just Out-Mafia’d The IRS

Submitted by Simon Black of Sovereign Man blog,

A few months ago, I told you about a bold report published within the IRS that absolutely blasted the agency’s mafia tactics.

In its 2013 annual report to Congress, the Office of the Taxpayer Advocate wrote that the IRS shows “disrespect for the law and a disregard for taxpayer rights.”

Further, the report says that the current system “disproportionately burdens those who [make] honest mistakes,” and that “tax requirements have become so confusing and the compliance burden so great that taxpayers are giving up their U.S. citizenship in record numbers.”

We all know the stories. The IRS has nearly infinite power to do whatever it wants, including freezing you out of your own bank account without so much as a phone call, let alone due process.

In the Land of the Free, people think they’re innocent until proven guilty. This is total BS. If you are only suspected of wrongdoing, you can be locked out of your entire savings.

This is an incredible amount of authority to wield.

But the British government has just gone even further.

Buried in its most recent budget package is a curt little paragraph that reads “The Government will modernise and strengthen [the tax agency's] debt collection powers to recover financial assets from the bank accounts of debtors who owe over £1,000 of tax.”

Read that one more time just to let it sink in.

The British government is setting an absurdly low threshold at £1,000… about $1,650 in back taxes.

And they’re saying that if the tax authorities believe you owe even just a minor tax debt, they will not only FREEZE your assets, they’ll dip into your bank account and TAKE whatever they want.

Judge, jury, and executioner. They get to decide in their sole discretion if you owe them money, and they get to take as much as they want to satisfy the debt.

It’s unbelievable.

I can’t even begin to imagine why any Brit in his/her right mind would continue to hold a substantial amount of savings in UK banks.

You are practically begging for the government to relieve you of your hard-earned savings.

Even if you haven’t done anything wrong, and have paid up everything that you owe, the slightest clerical error could have them plunging their filthy hands into your account.

These issues are worldwide. Whether you’re in the US, UK, France, Cyprus, etc., when governments go bankrupt, these are precisely the sorts of tactics they resort to.

Rational, thinking people need to be aware of this trend. And it behooves absolutely everyone to come up with a plan B. Because at the rate things are going, Plan B may very soon become Plan A.


via Zero Hedge Tyler Durden

Goldman Doubles Down Its Hate On The Best Performing Asset Of 2014: Gold

As gold completes its golden cross today and remains by far the best-performing asset of 2014, we thought it intriguing that Goldman Sachs’ commodity group would issue a strong “sell your gold” recommendation… of course, when Goldman’s clients are selling, who is buying? As a reminder, the last time the bank was extremely bearish on gold (about a year ago), our skepticism at the time was well warranted as Goldman was in fact the largest buyer of gold in the following quarter.

Via Goldman Sachs’ Damien Courvalin,

Cold, Crimea & China: Transient supports to gold prices

The 2014 gold rally brought prices to their highest level since September before a more hawkish-than-expected March FOMC pushed prices sharply lower. Three distinct and in our view transient catalysts have driven this rally: (1) a sharp slowdown in US economic activity which we believe was weather driven, (2) high Chinese credit concerns, although ultimately bearish for gold demand through lower financing deals if realized, and (3) escalating tensions over Ukraine. While further escalation in tensions could support gold prices, we expect a sequential acceleration in both US and Chinese activity, and hence for gold prices to decline, although it may take several weeks to lift uncertainty around this acceleration. Importantly, it would require a significant sustained slowdown in US growth for us to revisit our expectation for lower US gold prices over the next two years.

Re-acceleration in US activity will push gold prices lower

While we see clear catalysts for the recent rally in gold prices, this move has been large relative to US real rates which are a key input into our forecasts and benchmarking of gold prices. As a result, we see potential for a meaningful decline in gold prices towards the level implied by 10-year TIPS yields, which our rates strategists expect to rise further this year, and reiterate our year-end $1,050/toz gold price forecast. More broadly, we believe that with tapering of the Fed’s QE, US economic releases are back the decline in gold prices will likely be data dependent, in contrast to our 2013 bearish gold view which was driven by the disconnect between stretched long gold speculative positioning and stabilizing US growth.

Indian and Chinese gold demand unlikely to surprise to the upside

Weak Indian gold imports and surging Chinese imports were the most important shifts in EM gold demand last year, although these trade statistics likely overestimated shifts in local gold demand given reported gold smuggling into India and the use of gold in Chinese financing deals. While we see potential for these shifts to reverse in 2014, we estimate the net impact will not be meaningful to our gold outlook as: (1) India’s potential easing of gold import tariffs will likely remain modest given how much lower gold imports have contributed to its improved trade balance, (2) we expect a gradual unwind of gold backed financing deals.


Full note below:



via Zero Hedge Tyler Durden

5 Things To Ponder: Yellin’ About Yellen

Submitted by Lance Roberts of STA Wealth Management,

The biggest news this past week was Janet Yellen's first post-FOMC meeting speech and press conference as the Federal Reserve Chairwoman.  While I have the utmost respect for her accomplishments, every time I hear her speak all I can think of is my white haired, 75-year old grandmother baking cookies in her kitchen.  This week's "Things To Ponder" covers several disparate takes on what she said, didn't say and the direction of the Federal Reserve from here.

In order to give these views context, I have included Yellen's post-meeting news conference.  This is best viewed with a glass of milk and some warm, fresh chocolate-chip cookies…."just like Grandma used to make."


Quote Of The Day:  "Bull Markets Are Just Like Sex, It Feels Best Just Before It Ends."  by Barton Biggs

1) Dropping The 6.5% Unemployment Target by Howard Gold via MarketWatch

I have written many times in the past, most recently here, that the 6.5% unemployment target for the Federal Reserve was not a good measure of the true state of employment in the U.S.  Specifically I stated:

"The difference between today, and 1978, is that in 1978 the LFPR was on the rise versus a sharp decline today.  However, as I stated previously in 'Fed's Economic Projections – Myth vs Reality' this leaves the Federal Reserve in a bit of a predicament.


'The problem that the Fed will eventually face, with respect to their monetary policy decisions, is that effectively the economy could be running at 'full rates' of employment but with a very large pool of individuals excluded from the labor force.  Of course, this also explains the continued rise in the number of individuals claiming disability and participating in the nutritional assistance programs.   While the Fed could very well achieve its goal of fostering a 'full employment' rate of 6.5%, it certainly does not mean that 93.5% of working age Americans will be gainfully employed.  It could well just be a victory in name only"


This is particularly the case when roughly 1 out of 3 people are no longer counted as part of the work force, 1-out-of-3 individuals are dependent on some sort of social support program, and over 17% of personal incomes are comprised of government transfers."

Howard points to the Federal Open Market Committee dropping its 6.5% unemployment rate threshold for raising the federal funds rate, a target originally set in December 2012.

"Instead it would look at some 'qualitative' measures, 'including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments,' the FOMC’s statement said."


This move shouldn’t have surprised anyone. The official unemployment rate was 6.7% in February and keeping that 6.5% target would have tied the Fed’s hands before it’s even finished tapering.


Yellen must deal with an economy that’s slowly recovering, but leaving a lot of people behind."

2) Yellen And The Fed Go Dark by Matthew Klein via Bloomberg

This is a very interesting take on a change in how the Fed presents its decisions and is worth reading in its entirety.

"Unless you have a crystal ball that tells you what will happen with wages, this possible new target tells you almost nothing about when rates will be raised.


These developments suggest a desire to turn the clock back to a time when traders had to make bets without Fed hand-holding — even if the Fed still does release its economic projections. A shift toward opacity might be wise. The economy is a complex system that no one fully understands, so it would be foolish to commit to any unbending numerical rule that limits policy makers’ flexibility to react to unforeseen events. That was why former Chairman Alan Greenspan was opposed to formal inflation targets.


An additional benefit of opacity is reduced predictability. Scholars have found that financiers take too much risk when they think they know what will happen in the future, so muddying the waters may be just what’s needed to promote a safer financial system."

3) Why The Fed Will Stop Tapering by Peter Schiff

"In reality, the Fed will keep manufacturing excuses as to why rates can't be raised. Whether it's a cold winter or a hot summer, a geopolitical crisis, or an unexpected sell off in stocks or real estate, the Fed will always find a convenient excuse to postpone tightening. That's because it has built an economy completely dependent on zero % interest rates. Even the smallest rate shock could be enough to push us into recession. The Fed knows that, and it is hoping to keep the ugly truth hidden.


Although Yellen followed the script on the QE tapering, by decreasing monthly purchases by an additional $10 billion to $55 billion, look for her to abandon her commitment to wind it down to zero just as easily as she has walked back the Fed's commitment to raise rates once unemployment hits 6.5%. Any additional weaknesses in economic data, or dips in stock or real estate prices, will cause the Fed to call a time out on its tapering plan."

4) Rising Risks To Fed's Policy Change By Mohamed El-Erian via CNBC

"Higher uncertainty premiums: The Fed is in the midst of not one but two policy transitions. It is pivoting from reliance on a direct instrument (QE purchases of securities in the marketplace) to an indirect one (forward policy guidance to convince others to devote their balance sheets) — thereby raising effectiveness questions. It is also moving from a readily-observable unemployment threshold to a set of indicators that include qualitative judgments — thereby raising less predictable interpretation questions.


Technical market conditions: Given the impressive multi-year rally, it doesn't take much these days to convince equity traders to book profits (and it hasn't taken long for buyers to buy on the dip). Similarly, over-extended front end rates positions can be destabilized in the immediate term even if the Fed is committed to maintaining low rates for long.


Reaction to the interest-rate selloff: With a significant part of the economy sensitive to short and intermediate interest rates, including housing, and with the economic recovery yet to broaden sufficiently, it is not surprising that the stock market would be concerned with a sharp selloff in the shorter-dated rates.


What about the longer-term?


Here, much depends on your assessment of the first factor — namely, Fed policy effectiveness during its policy transition. Unfortunately, there are no tested models, policy playbooks or historical data to confidently guide investors. What is clear, however, is that they will require quite a bit of evidence of ineffectiveness before abandoning their faith in an institution that has significantly supported markets in recent years."


5) Inside The Madness Of The Stock Market by Jason Zweig

Jason's articles are always worth reading and this is no exception.  The "madness of crowds" is always relevant and prevalent.  With the financial markets tied to the Federal Reserve, like a "fetus to its mother," these words of wisdom are worth remembering.

"In a guest essay published in the New York Times on Oct. 29, 1989, called 'Fear of a Crash Caused the Crash,' future Nobel Prize-winning economist Robert Shiller described a survey he had done of 101 market professionals the Monday and Tuesday after the tumble. Asked whether the drop was driven by 'a change in the stock market fundamentals' or 'psychology and emotion,' only 19% cited fundamentals; 77% blamed psychology and emotion. Shiller and his colleague William Feltus also asked the professionals if they thought the latest drop could turn into a replay of the 1987 crash; 35% thought it could, while 41% thought other investors thought so.

So, when KAL poked fun at traders overreacting to what others say, he was right on the money.


To this day, says KAL, brokers buying copies of the cartoon (featured above) 'inevitably' tell him, 'It was so funny because it was so true.'"

EXTRA!  The Mysterious Disappearance Of Aircraft Since 1948 via Zero Hedge

The ongoing search for Malaysian Airline Flight 370 has the conspiracy world abuzz with theories ranging from terrorism, government experiments, black holes to alien abduction.  However, what is interesting is that this is not the first time a plane has mysteriously disappeared.  The following info graphic details the last known position of lost large aircraft since 1948. 


Have a great weekend.


via Zero Hedge Tyler Durden