Citi: “We Are Becoming Convinced That The System Won’t Stabilize” – How Central Banks Broke The Market

After taking a three month leave of absence, Citi’s Matt King has stormed right back to the front lines of financial reporting where his original perspective is very critically needed, and following up on his latest must read presentation which we posted two weeks ago and dubbed “the tipping point“, overnight Citi’s chief credit strategist is out with a new note titled “The race to the bottom”, which focuses on the negative feedback loop world in which “liquidity breeds liquidity and illiquidity breeds illiquidity” (we are now in the latter phase), and how this impacts both global markets and the global economy, and how central banks are desperately struggling to prevent it all from crashing down. 

In this note we will layout King’s thoughts on the market; his observations on the economy will be presented at a later time. 

From Citi’s Matt King

The race to the bottom

No, we’re not talking about currency wars, though they do illustrate the phenomenon. Nor are we thinking about € credit spreads and yields rapidly converging on (and in some cases surpassing) the zero bound.

Rather, a significant theme of our research in recent years has been the tendency of investors to assume they live in a zero-sum world, only to face a rude awakening when they discover that markets think otherwise.

Think of the reaction to falling (and now rising) oil prices, for example. What ought just to be a redistribution of wealth between oil producers and oil consumers has turned out not to be. Both markets and the global economy have proved an awful lot happier when prices have been rising than when they have been falling.

The same applies in multiple other spheres. We talk about money flowing from one market to another as though there is a fixed amount of it. Yet we have argued elsewhere that it is constantly being created through credit expansion in the private sector and on central bank balance sheets, or destroyed through deleveraging and defaults, and that changes in the multipliers – as opposed to the flows themselves – are at least as important as a driver of market movements and economic growth.

On multiple fronts we fear that what was a positive-sum game previously is now turning negative, and that the potential for some recent trends to run and run is still underappreciated, with potentially far-reaching repercussions.

Liquidity breeds liquidity; illiquidity breeds illiquidity

Take market liquidity, for example. Despite near-record notional volumes on TRACE, and policymakers’ protestations that nothing has really changed, market participants continue to lament that bid-offer is misleading, and depth is not what it used to be. Worse, many managers have struggled to make money on the basis of traditional single-name fundamentals, and poor performance is contributing to a steady leakage of flows away from traditional benchmarked funds towards totalreturn funds, indices and ETFs. The shift is not unique to credit: in European equities, futures-to-cash ratios – one convenient measure of index trading versus single-name trading – have reached all-time highs, for example (Figure 1).

Traditional thinking would not read too much into this. A decline in active single-name trading by some market participants should lead to greater dislocations, and hence greater opportunities for others. As index, or asset class, or factor investing becomes more popular, so it should become harder to make money there, and money should return to single-name trading. The system should stabilize.

We are becoming more and more convinced this is wrong. In ways that were underappreciated at the time, the pre-crisis era of unlimited leverage led to a veritable bonanza for sellside and buyside alike, in which trading begat more trading, and liquidity begat liquidity. Cyclicals vs non-cyclicals. Value vs momentum. On-the-runs vs off-the-runs. Cash vs CDS. Single names vs indices. The constant arbitraging of relative value relationships led to regular patterns of mean reversion, which in turn encouraged more investors to trade.

In the post-crisis era, this process is running in reverse. Yet what started as a simple desire by regulators to curtail excesses of leverage risks is having much more farreaching repercussions. The curtailment of the hedge fund bid means that many relationships which previously mean reverted are now failing to do so, or at a minimum are doing so much more erratically. Cyclicals vs non-cyclicals. Value vs momentum. On-the-runs vs off-the-runs. Cash vs CDS. Single names vs indices.

In principle, these aberrations do constitute trading opportunities – but only for investors with sufficiently strong stomachs and long time horizons, which these days nobody has. Central bank distortions have exacerbated these movements, making investor interest more one-sided and leading one market after another to exhibit more bubble-like tendencies, rising exponentially and then falling back abruptly. As such, managers are struggling to justify their fees, while the sellside wonders whether it is really worth the continuing commitment to market-making in the face of increased capital requirements and legal and back-office overheads. Both are under severe pressure to cut costs.

Each successive exit – funds migrating from expensive single-name trading to cheaper index or asset-class trading, banks deciding to leave the fixed income trading business altogether – in principle increases opportunities for the rest. But if the resultant reduction in liquidity leads people to proclaim the market uninvestable, this thesis falls down. Having 70 or 80 or 100 percent market share might temporarily be attractive in a slow-moving industrial segment with a captive buyer base (European purchases of Russian gas, for example). But it is not attractive when fast-moving technology allows the buyer base to migrate to new alternatives, and is even less so for a financial business with limited ability to hold to maturity.

Each individual cut makes sense. But collectively, they risk being a race to the bottom.

* * *

Central Banks To The Rescue (or not)

The one type of inflation the central banks have managed to engineer is asset price inflation, yet here too the effectiveness seems to be waning. The widening in spreads over the past month probably says more about an increase in positions and the renewed hawkishness of the Fed than it does about central bank credibility. And yet credit spreads, periphery spreads and equity prices have all moved the wrong way since the inception of ECB QE. And while € credit continues to enjoy strong inflows, the buying seems more confined than we would like, with HY inflows dwindling and equities seeing outright outflows.

At a global level, the explanation still seems to be that DM QE is periodically being offset by EM outflows. We remain staggered by the continuing correlation between our aggregate CB liquidity metrics (including EM FX reserve changes, Figure 12) and credit and equities (Figure 13). The recovery in risk assets in recent months seems closely associated with the drop in EM and Chinese outflows, and these in turn probably benefited from a combination of a more dovish Fed and (hence weaker dollar) and the Chinese domestic credit surge. Both these supports now seem to be fading.


[This] points to an overall picture which is considerably more precarious than we think many investors (and central bankers) imagine, and one where seemingly extraneous influences – like China even for non-exporters, oil even for non-consumers, or hedge fund performance even for non-hedge funds – take on a disproportionate importance. Constraints on financial leverage do not just lead to liquidity settling at a lower level; they risk sparking a cycle of ever-diminishing liquidity. Banks exiting markets do not just lead to increased opportunities for the rest; they lead to a diminished pie for all. And a world of diminished credit growth may not simply stabilize at a lower level of nominal GDP; it is likely to need continued prodding so as not to consume itself in a destructive race to the bottom.

via Tyler Durden

The Gold Chart That Has Central Banks Extremely Worried


By the SRSrocco Report,

This gold chart should have Central Banks extremely worried.  Why?  Because the change in physical gold and Central Bank demand since the first crash of the U.S. and global markets in 2008 is literally off the charts.

I advise precious metals investors not to focus on the short-term gold price movement, rather they should concentrate on the long-term trend changes.  This is where the ultimate payoff will be by investing in gold.   Now, I say “INVESTING”, in gold because that is what we are doing.

Many analysts such as Jim Rickards don’t believe that gold is an investment.  Mr. Rickards looks at gold as money or insurance on the collapse of the U.S. Dollar and fiat monetary system.  However, I look at gold as an investment due to the collapse of U.S. and World energy production.

While I have been a broken record on this, many investors still don’t understand what I am trying to get across here.  Gold and silver are more than money today because of the 40+ year funneling of investors funds away from REAL ASSETS and into PAPER CLAIMS on future economic activity.  Thus, 99% of investors have sent their money into the largest Ponzi Scheme in history.

Jim Rickards fails to understand this principle because he doesn’t’ factor in energy into the equation.  I find most precious metals analysts do the same thing as they forecast the future gold price based on how much fiat currency (or money supply) is outstanding.

Folks…. it won’t matter how much money is floating around in the future as energy production plummets.  Who cares if there are trillions of M2 or M3 outstanding, when we won’t have the energy to continue running a system that only can function by a growing energy supply.  To base the future value of gold on outstanding currency is FOLLY.

Which is precisely why I label gold and silver as INVESTMENTS.  Their values will surge as most paper and physical asset values collapse.  The revaluation of gold and silver will occur well beyond the collapse of fiat money… they will also rise in value due to the disintegration of most physical and paper assets.  This is well beyond the scope of money or insurance.

The Gold Chart That Has Central Banks Extremely Worried

Before I get into the details of this gold chart, I would like to let my readers and followers know about my recent interview on TFmetals Report.  I sat down with Mr Ferguson (Craig) and discussed a lot of the Gold Market in a live webinar with many of his subscribers.  He has now made the interview public:

You can click on the link below to listen to the inteview at the TFmetals Report website:

TFmetals Report A2A With Stephen St. Angelo Of The SRSrocco Report

Okay, here is the gold chart that Central Banks should be worried about:

World Physical Gold Demand

This chart represents the change of physical Gold Bar & Coin demand including Central Bank net purchases.  Before the first collapse of the U.S. and Global markets in 2008, Central Banks dumped approximately 3,956 metric tons (mt) of gold on the market.  I have figures for 2002-2015 from the World Gold Council, but I estimated a total of 800 mt for 2000 and 2001.  This is based on data from the chart in the article, Germany Stops Selling Gold, Eurozone Sales Fall To Zero.

If we subtract the Central Bank dumping of 3,956 mt of gold from total Gold Bar & Coin demand of 2,776 mt, we get a net negative 1,180 mt during the 2000-2007 period.  Thus, Central Bank sales added 1,180 mt more gold supply than was consumed by investor physical gold purchases.

NOTE:  These figures do not include Gold ETF or similar product demand.  I decided to exclude this data as it is impossible to know if the gold held by these Electronic Traded Funds or similar products is not oversubscribed to one or more owners.  We know that when someone purchases either physical Bar & Coin or Central Bank gold.. there is more of a guarantee that this gold is likely unencumbered.

However, this situation changed drastically since 2008.  Even though Central Banks still sold 235 mt of gold in 2008 and 34 mt in 2009, this changed to net purchases in 2009.  If we add up all Central Bank gold sales and purchases from 2008 to 2015, it turned out to be 2,657 mt.

While this was a big change from Central Bank net sales of 3,956 mt (2000-2007), the real winner was the increase of Gold Bar & Coin demand.  Gold Bar & Coin demand surged to 9,461 mt from 2008-2015 versus 2,657 mt during 2000-2007.  Thus, physical gold investment and Central Bank demand totaled a whopping 12,118 mt from 2008-2015.  This equals a massive 390 million oz (Moz) for total physical gold and Central Bank demand since 2008 compared to a net supply of 38 Moz in the first period.

Investors need to really take a good look at the chart.  What a change in demand from 38 Moz of net supply from 2000-2007 versus net demand of 390 Moz during the 2008-2015 period.  To get more understanding of the changing gold trends, I discuss this in my interview on TFmetals Report which I highly recommend listening to at the link above.

Lastly, now that Mainstream investors piled into Gold ETF’s during the first quarter of 2016, this could really upset the market going forward.  Currently, Gold Bar & Coin demand and Central Bank purchases are averaging about 1,600 mt annually for the past several years.  This could easily jump to 2,000 mt once the U.S. and global stock markets start to crash as investors move into the SAFETY TRADE (of gold).

If western Gold ETF demand really starts to surge, this could cause serious trouble for Central Banks as availability of gold supply tightens.  Global Gold ETF demand hit a high of 645 mt in 2009 as the U.S. and world stock markets crashed to their lows.  However, we already saw a huge 364 mt inflow of Gold ETF’s during the first quarter of 2016… and the DOW ONLY FELL 2,000 points.  What happens when the market really tanks??

If Gold ETF demand jumps to 1,000 mt along with Gold Bar-Coin demand and Central bank purchases totaling 2,000 mt, this would equal 3,000 mt or nearly 75% of total supply.

At some point, demand for gold will overwhelm supply causing the price to skyrocket.  This isn’t a matter of if, but a matter of when.  So, the more Central Banks screw around with monetary policy and as the broader stock markets continue their collapse, the closer we are to seeing record gold prices.

Lastly, if you haven’t checked out our new PRECIOUS METALS INVESTING page, I highly recommend you do.

Check back for new articles and updates at the SRSrocco Report

via SRSrocco

The Eurozone Is The Greatest Danger

Submitted by Alasdair Macleod via,

World-wide, markets are horribly distorted, which spells danger not only to investors, but to businesses and their employees as well, because it is impossible to allocate capital efficiently in this financial environment.

With markets everywhere disrupted by interventions from central banks, governments, and their sovereign wealth funds, economic progress is being badly hampered, and therefore so is the ability of anyone to earn the profits required to pay down the highs levels of debt we see today. Money that is invested in bonds and deposited in banks may already be on the way to money-heaven, without complacent investors and depositors realising it.

It should become clear in the coming weeks that price inflation in the dollar, and therefore the currencies that align with it, will exceed the Fed’s 2% target by a significant amount by the end of this year. This is because falling commodity prices last year, which subdued price inflation to under one per cent, will be replaced by rising commodity prices this year. That being the case, CPI inflation should pick up significantly in the coming months, already reflected in the most recent estimate of core price inflation in the US, which exceeded two per cent. Therefore, interest rates should rise far more than the small amount the market has already factored into current price levels.

Most analysts ignore the danger, because they are not convinced that there is the underlying demand to sustain higher commodity prices. But in their analysis, they miss the point. It is not commodity prices rising, so much as the purchasing power of the dollar falling. The likelihood of stagflationary conditions is becoming more obvious by the day, resulting in higher interest rates at a time of subdued economic activity.

A trend of rising interest rates, which will have to be considerably more aggressive than anything currently discounted in the markets, is bound to undermine asset values, starting with government bonds. Rising bond yields lead to falling equity markets as well, which together will reduce the banks’ willingness to lend. In this new stagnant environment, the most overvalued markets today will be the ones to suffer the greatest falls.

Therefore, prices of financial assets everywhere can be expected to weaken in the coming months to reflect this new reality. However, the Eurozone is likely to be the greatest victim of a change in interest rate direction. The litany of potential problems for the Eurozone makes Chidiock Titchborne’s Elegy, written on the eve of his execution, sound comparatively upbeat. Negative yields on government debt will have to be quickly reversed if the euro itself is to be prevented from sliding sharply lower against the dollar. Bankrupt Eurozone governments are surviving only because of the ECB’s money-printing, which will have to restricted, and government borrowing exposed to the mercy of global markets. Key Eurozone banks are undercapitalised compared with the risks they face from higher interest rates, so they will do well to survive without failing. There is also a growing undercurrent of political unrest throughout Europe, fuelled by persistent austerity and not helped by the refugee problem. Lastly, if the British electorate votes for Brexit, it will almost certainly be Chidiock’s grisly end for the European project.

We know the powers-that-be are very worried, because the IMF warned Germany to back off from forcing yet more austerity on Greece, which is due to make some €11bn in debt repayments in the coming months. The only way Greece can pay is for Greece’s creditors to extend the money as part of a “restructuring”, which then goes directly to the Troika, for back-distribution. It will be extend-and-pretend, yet again, with Greece seeing none of the money. Greece will be forced to promise some more spending cuts, and pay some more interest, so the fiction of Greek solvency can be kept alive for just a little longer.

One cannot be sure, but the IMF’s overriding concern may be the negative effect Germany’s tough line might have on the British electorate, ahead of the referendum on 23rd of June. That is the one outlier everyone seems to be frightened about, with President Obama, NATO chiefs, the IMF itself, and even the supposedly neutral Bank of England, promising dire consequences if the Brits are uncooperative enough to vote Leave.

All this places Germany under considerable pressure. After all, her banks, acting on behalf of the government and Germany’s populace, have parted with the money and cannot afford to write it off. Greece is bad enough, but Germany must be even more worried about the effect that a Greek compromise will set for Italy, which is a far larger problem.

Officially, the Italian government’s debt-to-GDP ratio stands at 130%, and since the public sector is 50% of GDP, government debt is 260% of the Italian tax base. It is also the nature of these things that these official numbers probably understate the true position.

If the Eurozone is the greatest risk to global financial and systemic stability, Italy looks like being the trigger at its core. The virtuous circle of Italian banks, pension funds and insurance companies, funding ever-increasing quantities of debt for the government, is failing. Pension funds and insurers cannot match their liabilities at current interest rates, and importantly, the banks are under water with non-performing loans to the tune of €360bn, about 18% of all their lending. It also represents 19.4% of GDP, or because the NPLs are all in the private sector, it is 39% of private sector GDP.

Within the private sector, NPLs are more prevalent in firms than in households. And that is the underlying problem: not only are the banks undercapitalised, but Italian industry is in dire straits as well. The Banca D’Italia’s Financial Stability Report puts a brave gloss on these figures, telling us that the firms’ financial situation is improving, when an objective independent analysis would probably be much more cautious.1

All financial prices in the Eurozone are badly skewed, most obviously by the ECB, which will be increasing its monthly bond purchases from next month to as much as €80bn. So far, the price inflation environment has been benign, doubtless encouraging the ECB to think the inflationary consequences of monetary policy are nothing to worry about. But from the beginning of this year, things have been changing.

Because the recent pick-up in commodity prices will begin to show in the dollar’s inflation statistics, markets will begin to smell the end of negative euro rates, in which case Eurozone bond yields seem sure to rise steeply. Given their extreme overvaluations, price volatility should be considerably greater than that of the US Treasury market. Imagine, if instead of yielding 1.5%, Italian ten-year bond yields more accurately reflected Italy’s finances, by moving to the 7-10% band.

This would result in write-downs of between 40% and 50% on these bonds. The effect on Eurozone bank balance sheets would be obvious, with many banks in the PIGS needing to be rescued. Less obvious perhaps would be the effect on the ECB’s own balance sheet, requiring it to be recapitalised by its shareholders. This can be easily engineered, but the political ramifications would be a complication at the worst possible moment, bearing in mind all EU non-Eurozone central banks, such as the Bank of England, are also shareholders and would be part of the whip-round.

Assuming it survives the embarrassment of its own rescue, the ECB will eventually face a policy choice. It can continue to buy up all loose sovereign and corporate debt to stop yields rising, in which case the ECB will be signalling it has chosen to save the banks and member governments’ finances in preference to the currency. Alternatively, it can try to save the currency by raising interest rates, giving a new and darker meaning to Mario Draghi’s “whatever it takes”. In this case insolvent banks, businesses and the PIGS governments could go to the wall. The choice is somewhat black or white, because any compromise risks both a systemic failure and a collapse in the euro. And there is no guarantee that if the banks fail, the euro will survive anyway.

The ECB is likely to opt for supporting the banks and over-indebted governments, partly because that is the mandate it has set for itself, and partly because experience after the Lehman crisis showed it could expand money supply without destabilising price inflation. The danger, once it dawns on growing numbers of investors and bank depositors, is stagflation. In other words, rising goods prices, falling asset prices, and interest rates not being allowed to rise enough to break the cycle, all combining to further undermine the euro’s purchasing power.

Financial and economic prospects for the Eurozone have many similarities to the 1972-75 period in the UK, which this writer remembers vividly. Equity markets lost 70% between May 1972 and December 1974, cost of funding was reflected in a 15-year maturity UK Treasury bond with a 15.25% coupon, and monthly price inflation peaked at 27%. There was a banking crisis, with a number of property-lending banks failing, and sterling went through a bad time. The atmosphere became so gloomy, that there was even talk of insurrection.

This time, the prospects facing the Eurozone potentially could be worse. The obvious difference is the far higher levels of debt, which will never allow the ECB to run interest rates up sufficiently to kill price inflation. More likely, positive rates of only one or two per cent would be enough to destabilise the Eurozone’s financial system.

Let us hope that these dangers are exaggerated, and the final outcome will not be systemically destabilising, not just for Europe, but globally as well. A wise man, faced with the unknown, believes nothing, expects the worst, and takes precautions.

via Tyler Durden

A Retired White House Correspondent Explains “How Obama Gets Away With It”

Authored by Richard Benedetto, a retired USA Today White House correspondent and columnist, who teaches politics and journalism at American University and in the Fund for American Studies program at George Mason University. Originally posted in the WSJ.


How Obama Gets Away With It

At a time when large numbers of Americans say they are fed up with politics and politicians, why is it that the nation’s chief politician, President Obama, seems to skate above it unscathed?


Usually when an incumbent president is leaving office and a slew of candidates are battling for his job, that departing chief executive’s record is a major campaign issue.

But not this year, even though two of three Americans say the country is on the wrong track, job creation is sluggish, income inequality continues to rise and Mr. Obama’s job approval barely tops 50%. Moreover, approval of his handling of the war on terror and Islamic State is underwater, and a majority of Americans—white and black—say race relations are getting worse, not better.

When Mr. Obama ran for office in 2008, a central part of his campaign strategy was to heap blame on George W. Bush. How has Mr. Obama dodged similar treatment? One reason: Donald Trump’s bombastic candidacy is a huge distraction and often blocks out or obliterates more-substantive issues. That was the case even when his now-vanquished rivals tried to address serious topics. When Mr. Trump does criticize the president, it gets far less news play than his attacks on his opponents and critics, Republican or Democrat. As for Bernie Sanders and Hillary Clinton, they both are angling for a third consecutive Democratic administration, so are not eager to criticize Mr. Obama.

But another reason—a big one—why Mr. Obama is able to avoid being a target is that he is a deft manipulator of the media, probably more skillful at it than any president ever. He heads a savvy public-relations machine that markets him like a Hollywood celebrity, a role he obligingly and successfully plays. One of the machine’s key tactics is to place Mr. Obama in as many positive news and photo situations as possible. Ronald Reagan’s advisers were considered masters of putting their man in the best possible light, but they look like amateurs compared with the Obama operation—which has the added advantage of a particularly obliging news media.

A sampling over the past few weeks: A Washington Post photo captures President Obama blowing giant bubbles “At the final White House Science Fair of his presidency.” A New York Times photo shows the president mobbed by women admirers at a ceremony designating the Sewall-Belmont House on Capitol Hill as a national museum for women’s equality.

An ABC News video gives us Mr. Obama’s helicopter landing on the rainy grounds of Britain’s Windsor Castle, and then we visit the president and first lady lunching with Queen Elizabeth II on her 90th birthday.

In other news clips, we see a doctoral-robed Obama speaking to graduates of Howard University, a tuxedoed Obama yukking it up at the White House Correspondents Association dinner, a brave Obama drinking a glass of water in Flint, Mich., a cool Obama grooving with Aretha Franklin at a White House jazz concert, a serious Obama intently listening to Saudi King Salman, a jubilant Obama on his showy trip to Cuba.

A picture may be worth a thousand words, but with Mr. Obama you also get the thousand words.

Yet at the same time we were seeing those nice photos, videos and articles, a lot of other important stuff was going on where Mr. Obama was hardly mentioned, seen or questioned. For example, the U.S. economy grew at a meager 0.5% in the first quarter of 2016; Russian military planes lately have been buzzing U.S. Navy ships; and China is building its military forces and expanding their reach in the South China Sea. Early in May, a Navy SEAL was killed in Iraq (the president has assured the American public that U.S. troops there, increasing in numbers, are not in combat roles). Islamic State terrorist attacks in Baghdad in recent weeks have killed scores of civilians. The Taliban are on the march in Afghanistan. The vicious war in Syria continues. The Middle East refugee crisis shows no sign of diminishing. Military provocations by Iran and North Korea keep coming.

President Obama’s media handlers try to keep the president as far away from these crises as possible, leaving others in his administration such as Press Secretary Josh Earnest, Vice President Joe Biden, Secretary of State John Kerry, Defense Secretary Ash Carter and Joint Chiefs Chairman Joseph Dunford to be their public face. That way the problems don’t appear to be Mr. Obama’s problem, and he is free to bask in the good news.

One of the news media’s main jobs is to hold public officials accountable, from the president on down. But Mr. Obama is the beneficiary of news-media managers and reporters who mostly like his style and agree with his policies, from his reluctance to make strong military commitments to his advocacy for LGBT rights, fighting climate change and supporting tougher gun-control laws. Case in point: The administration’s easy orchestration of the media story line about the Iranian nuclear deal, recently revealed by Deputy National Security Adviser Ben Rhodes, only scratches the surface of the White House’s skill at managing a media happy to be managed.

Given such a congruence of opinion, Mr. Obama’s policies don’t receive the scrutiny and analysis they should. Reporters who criticize or dig too deep are cast by the administration as spoilsports or, worse, cut off from sources.

With Donald Trump now the media obsession—and most in the media don’t like him—it is easy to see why Mr. Obama’s performance over the past seven-plus years is still not a major issue in the 2016 campaign. And that’s the way he likes it.

via Tyler Durden

Trump Lashes Out At Clinton’s Hypocrisy: “No More Guns To Protect Hillary!”

As the Clinton campaign continues to stumble along trying to figure out just how to attack Trump, The Donald is wasting no time showing Hillary how that's done.

Trump has already put together the narrative he plans to use in order to defeat Clinton this fall, and the plan is very simple: Paint Hillary as a crooked, untrustworthy candidate who wants to confiscate everyone's guns.

Fresh off of receiving the NRA's endorsement, Trump fired up his twitter account this morning and immediately got to work on just that. The Donald called out Hillary's gun control hypocrisy by saying that if Clinton wants to get rid of guns, then that mandate should include the bodyguards that travel with Clinton as protection.

As The Hill reports,

Speaking to the NRA on Friday, Trump repeatedly railed against Clinton, calling her “the most anti-gun, anti-Second Amendment candidate ever to run for office.”


Repeatedly slamming her as “heartless Hillary,” Trump on Friday also called for Clinton’s Secret Service protection to disarm.


“Let’s see how they feel walking around without their guns and their bodyguards,” he said.


Trump promised to not let the NRA down after his endorsement was announced, and while what he would do in the White House remains to be seen, The Donald is quickly capitalizing on his recent NRA momentum by immediately going after Hillary. And that, (cc: Clinton campaign), is how effective branding is done.

via Tyler Durden

407,000 Workers Stunned As Pension Fund Proposes 60% Cuts, Treasury Says “Not Enough”

Submitted by Michael Shedlock via,

407,000 private sector workers are about to lose most of their pensions.

I first wrote about this on April 21, in One of Nation’s Largest Pension Funds (Truckers) Will Reduce Benefits or Go Broke by 2025.

The Central States Pension Fund, which handles the retirement benefits for current and former Teamster union truck drivers across various states applied for reductions under that law.

Currently the plan pays out $3.46 in pension benefits for every $1 it receives from employers. That’s a drain of $2 billion annually.

The plan filed for 60% cuts in pensions. The Treasury Department has the final say. The verdict came in today: “cuts not deep enough”.

Please consider Pensions May be Cut to ‘Virtually Nothing’ for 407,000 People.

The Central States Pension Fund has no new plan to avoid insolvency, fund director Thomas Nyhan said this week. Without government funding, the fund will run out of money in 10 years, he said.


At that time, pension benefits for about 407,000 people could be reduced to “virtually nothing,” he told workers and retirees in a letter sent Friday.


In a last-ditch effort, the Central States Pension Plan sought government approval to partially reduce the pensions of 115,000 retirees and the future benefits for 155,000 current workers. The proposed cuts were steep, as much as 60% for some, but it wasn’t enough. Earlier this month, the Treasury Department rejected the plan because it found that it would not actually head off insolvency.


The fund could submit a new plan, but decided this week that there’s no other way to successfully save the fund and comply with the law. The cuts needed would be too severe.


Normally, when a multi-employer fund like Central States runs out of money, a government insurance fund called the Pension Benefit Guaranty Corporation (PBGC) kicks in so that retirees still receive some kind of benefit.


But that’s not a great solution in this case. For one thing, the amount is smaller than what pensioners would have received under the Central States reduction plan, and is based on the number of years a retiree worked. A retiree would receive a maximum $35.75 a month for each year worked, according to the fund’s website. (That amounts to $1,072.50 a month for retiree who worked 30 years.)


But there’s yet another problem. The PBGC itself is underfunded and isn’t expected to be able to cover all the retirees in the Central States Pension Fund.

Dear Beneficiary

Central States Pension2

Click here for the entire “Dear Beneficiary” letter.

This is a sad saga for which there is no happy ending.


Public Union Whiners

An Illinois state worker was whining earlier today about my post Chicago Pension Liabilities Jump 168%, Understated by $11.5 Billion.

When private pension plans go broke, they go broke. Public pension expect a bailout.

I replied to the person whining … “Corrupt politicians got in bed with corrupt union leaders making promises both knew could not be met.”

Public workers have no idea how well off they are vs. the private sector, yet they demand, more, and more and more, from a state that is broke.

Taxpayers owe the Chicago pension fund absolutely nothing. Bankruptcy is the solution.

via Tyler Durden

“The Sendai Dischord” – Japan Humiliated At G-7 Meeting In Sharp Rift Over Yen Intervention

At the end of February, shortly after Japan’s disastrous attempt to crush the Yen at the expense of a stronger dollar when the BOJ unveiled its first episode of Negative Interest Rates, only for everything to go spectacularly wrong for Kuroda, the world’s financial leaders met in Shanghai where the so-called Shanghai Accord took place when in no uncertain terms central bankers around the globe (and especially the Chinese) came down on Janet Yellen like a ton of bricks demanding that the Fed do a “dovish relent”, and stop the Fed’s monetary tightening talk, ease back on expectations of further rate hikes, and generally talk down the dollar.

This is precisely what happened. However, while China was delighted because the weaker dollar meant less FX intervention and less capital outflows from China, Europe and especially Japan were livid: after all the offset of a weaker USD would be a weaker EUR and JPY.

And, heading into this weekend’s closely watched G-7 meeting in Japan’s Sendai, the Bank of Japan had made it quite clear it was not happy with being repeatedly singled out by the US Treasury as happened just a few weeks ago, when Jack Lew singled out Japan by putting it on a new currency watch list with a warning not to devalue its currency unilaterally and without prior approval of the international committee.

To be sure, when the meeting started…


everyone was all smiles…


… with hopes they could hammer the deflation monster to death…


… or failing that, hammer out some agreement…


… but it was not meant to be.

Unlike February when all central bankers had one simple intention, to push the value of the dollar lower, this time the key issue was whether or not Japan could intervene to devalue the Yen at the first possible opportunity. And without any support to take on the US, whose position has been to only allow prepapproved (and thus greenlit by the US) central bank intervenions, Japan was left out in the cold.

To be sure, the G7 did release a joint statement, according to which the group of seven nations agreed not to target exchange rates, saying “excess volatility and disorderly movements” can have an adverse impact on economic and financial stability, however already here one could sense the tension express by Japan which explicitly said that the “summary statement does not officially represent G-7 consensus”, suggesting that now Japan is the G-7 black horse, desperate to push the Yen lower, however the US refuses.

Also, according to the statement, global uncertainties have increased, and as a result the G-7 reaffirmed existing exchange rate agreements, agreed to avoid competitive FX devaluation, adding that it is important to implement fiscal strategies flexibly. The G-7 also committed to reducing international cash transaction threshold hinting that the phasing out of cash in the Developed countries continues.

On the topic of monetary policy, the G-7 agreed it will continue to support economic activity and ensure price stability, in other words keep asset prices artificially inflated. It also said that terrorism, Brexit, refugees complicate economic environment.

But from a trading perspective, what was most important is what was left unsaid in the joint statement. It is here, where as Reuters reports, the United States issued a fresh warning to Japan against intervening in currency markets on Saturday, as the two countries’ differences over foreign exchange overshadowed a Group of 7 finance leaders’ gathering in the Asian nation.

As noted first above, Reuters also writes that “Japan and the United States are at logger-heads over currency policy with Washington saying Tokyo has no justification to intervene in the market to stem yen gains, given the currency’s moves remain “orderly”. The rift was on full show at the G7 finance leaders’ meeting in Sendai, northeastern Japan, with U.S. Treasury Secretary Jack Lew saying he did not consider current yen moves as “disorderly” after a bilateral meeting with his Japanese counterpart.”

The US Treasury secretary was adamant: in the aftermath of the NIRP fiasco, any BOJ interventions will have to be preapproved by the US: “It’s important that the G7 has an agreement not only to refrain from competitive devaluations, but to communicate so that we don’t surprise each other,” Lew told reporters on Saturday. “It’s a pretty high bar to have disorderly (currency) conditions.”

Hence, the US – and thus global – position is that only if the USDJPY is plunging by a few thousand pips in any given day does the BOJ have permission to intervene. For all other BOJ manipulation, the Federal Reserve will have to be consulted first. Translation: Kuroda (and by implication Abe) is now treated like a little child among the world’s financial elite, and he has lost the right to act independently. It also means that now the Fed believes China’s FX stability is far more important than that of Japan.

There was some obligatory spin by Japan to save face: after all it would be absolutely humiliating for the BOJ to be schooled on its own soil. Japanese Finance Minister Taro Aso said there was no “heated debate” on the yen with Lew, and that it was natural for countries to have differences in how they see exchange-rate moves. But the meeting with Lew did not stop him from issuing verbal warnings to markets against pushing up the yen too much.

“I told (Lew) that recent currency moves were one-sided and speculative,” Aso said in a news conference on Saturday, adding that the yen’s gains in the past few weeks have been disorderly.

The Japanese finmin was alone.

While Aso has publicly warned of intervention after the yen’s recent rise to 18-month highs, some economic policymakers have signaled that they are not too worried the yen will derail a fragile economic recovery.

Aso also said his G7 counterparts reaffirmed the importance of exchange-rate stability, Japan received no public endorsements from other G7 members for intervention to contain “one-sided” yen rises. “There is a consensus that monetary policy is well-adapted and there are no big discrepancies in currencies, so there is no need to intervene,” French Finance Minister Michel Sapin told reporters after the two-day G7 gathering concluded on Saturday.

Meanwhile, the biggest monetary hawk of all, Germany, made it clear that calls for aggressive, coordinated global fiscal policy just won’t happen.

G7 leaders called for a mix of monetary, fiscal and structural policies to boost demand but left it to each country to decide its own policy priorities – dashing Japan’s calls for more aggressive joint fiscal action.


Germany has shown no signs of responding to calls from Japan and the United States to boost fiscal spending.

Enter Germany’s finmin Schauble, who said that “the most important are structural reforms… there are more and more (in the G7) recognizing that structural reforms are crucial.”

The conclusion from this G-7 meeting, in as much as one is possible, is that the financial stress that was prevalent in February when global risk assets and commodities were tumbling and pressured the world’s financial leaders to hammer out an agreement, one which however is now self-defeating as the easing in financial conditions resulting from the Shanghai accord, is precisely what has caused the failure of a follow-up monetary agreement, not to mention Japan’s latest humiliation and demotion to rank below that of China, at the Sendai meeting.

Furthermore, should the Fed proceed with another rate hike in June or July as the market now seems to believe, it would mean more USD strength, more Chinese turmoiling, another sharp tightening of financial conditions, more tumbling asset prices and so on in deja vu fashion. But the good news for Japan is that at least it will have gotten its way and a weaker Yen, if only briefly, before this entire episode is repeated yet again.

via Tyler Durden

CIA ‘Accidentally’ Destroyed 6,700 Page Torture Report? Snowden Calls Bullshit

Submitted by Carey Wedler via,

The world’s most famous whistleblower, Edward Snowden, took Twitter by storm when he created an account last year. Since, he has criticized everyone from the FBI to Google, so his latest post on the CIA should come as no surprise.

Commenting on revelations the CIA “inadvertently” destroyed a copy of the 6,700-page torture report, Snowden questioned the agency’s official story.

“I worked @CIA. I wrote the Emergency Destruction Plan for Geneva. When CIA destroys something, it’s never a mistake,” he tweeted Wednesday, openly challenging the CIA’s claim. He also shared an article detailing the news.

Snowden previously worked for the CIA and as an NSA contractor before leaking documents revealing the U.S. government’s extensive mass surveillance programs and subsequently fleeing the country. He has been an outspoken voice against government overreach and privacy issues ever since.

On Monday, Yahoo News reported on the CIA’s apparent fumble that inspired Snowden’s Wednesday tweet:

“The CIA inspector general’s office — the spy agency’s internal watchdog — has acknowledged it ‘mistakenly’ destroyed its only copy of a mammoth Senate torture report at the same time lawyers for the Justice Department were assuring a federal judge that copies of the document were being preserved.”

The Senate Intelligence Committee was reportedly informed of the ‘mistake’ last summer, but it was never disclosed to the public, nor to the federal judge presiding over a Freedom of Information Act case seeking access to the lengthy document.

Douglas Cox, a professor at the City University of New York School of Law, who specializes in “tracking the preservation of federal records,” commented on the CIA’s self-described mistake. “It’s breathtaking that this could have happened, especially in the inspector general’s office — they’re the ones that are supposed to be providing accountability within the agency itself,” he said. “It makes you wonder what was going on over there.”

The clandestine organization came under fire for its use of torture after 9/11 (and before, though it’s lesser-known), as exposed by a Senate investigation in December 2014. Following embarrassing reports of everything from sexual assault and forced rectal feeding to beatings, sleep deprivation, and other degrading practices, the CIA has since tried to clean up its image. Amid presumptive Republican presidential nominee Donald Trump’s calls to implement waterboarding and more torture, in general, CIA Director John Brennan disavowed the agency’s infamous practice. “I will not agree to have any CIA officer carry out waterboarding again,” he said in April.

But the CIA has a track record of deception, and has had at least one issue with destroyed documents before — that time concerning records on the agency’s coup in Iran in 1953.

The 2014 Senate report “relied on the CIA’s own records to document a pattern of an agency consistently understating the brutality of the techniques used on detainees and overstating the value of the information they produced,” the Associated Press reported in 2014.

“This is a tremendous amount of CIA misrepresentation. It is difficult to read these pages and wonder whether a system of accountability can work,” Mother Jones observed, in a thorough article examining the many ways the CIA deceived lawmakers and multiple federal agencies about its torture program.

As Democratic Senator Mark Udall flatly said, “The CIA lied.”

No doubt, according to Snowden, the CIA continues to lie — and his tweet highlights growing mistrust of establishment narratives as Americans increasingly lose faith in government and other institutions.

via Tyler Durden

Trump’s Grass Roots: Small Donors Flood Trump Super PAC In April

That the Great America PAC raised $514k in April in support of Donald Trump isn’t very surprising, what is surprising however, is the fact that 81% of those funds came from donors giving less than $200.

The PAC was established in early February, and during that month it raised $74k with just 22% from small donors. In March the PAC gained some momentum, collecting $479k in total donations, but the percentage of small donors was similar to January, coming in at 24%.

April’s high percentage of small donors giving money to a super PAC is unusual, and according to The Hill, could trigger a letter from the Federal Election Commission based on the FEC review policy.

The PAC ended with $65k cash on hand for the month of April, but will inevitably receive a significant funding boost with the announcement that billionaire Stanley Hubbard has joined the Great America PAC’s advisory committee, begrudgingly supporting his “least favorite candidate.

While many will undoubtedly try and spin the fact that such a large amount of small donors giving to a super PAC as opposed to donating directly to a candidate as indicative there is something nefarious taking place, the more likely scenario is now that the stage is set for a Trump/Clinton showdown in the fall, The Donald is demonstrating that Bernie is not the only one who can capitalize on grassroots efforts.

Which in retrospect is hardly that surprising. Recall that according to actual polls, the actual Trump supporter is far from the generic stereotype of “white, working class, and uneducated” – on the contrary, Trump voters not only have higher education levels (44% of Trump voters have college undergraduate degrees, compared to 29% of US adults) they also have higher median household incomes than the typical American.

In fact, in a stark reversal, Hillary only dominates among the very lowest of income earners in America; which is no surprise since “work is punished” at that level of income.

What is simply happening is that Trump’s wealthier-than-the-average-American supporters, are simply putting their money to promote the candidate they believe should defeat Hillary in November.

via Tyler Durden

Portland School Board Bans Literature Denying Climate Change

Submitted by Joseph Jankowski of Planet Free

Portland School Board Bans Literature Denying Climate Change

There will be no more discussion as to whether or not humans are contributing to climate change in the Portland, Oregan public school system, as the school board plans to ban all material that denies the existence of man-made climate change.

Although the topic is still being heavily debated within the scientific community, young and impressionable students will now only receive the politically correct side of the issue.

‘Man is causing climate change, no questions asked.’

From the Portland Tribune:

In a move spearheaded by environmentalists, the Portland Public Schools board unanimously approved a resolution aimed at eliminating doubt of climate change and its causes in schools.


“It is unacceptable that we have textbooks in our schools that spread doubt about the human causes and urgency of the crisis,” said Lincoln High School student Gaby Lemieux in board testimony.


“Climate education is not a niche or a specialization, it is the minimum requirement for my generation to be successful in our changing world.”


The resolution passed Tuesday evening calls for the school district to get rid of textbooks or other materials that cast doubt on whether climate change is occurring and that the activity of human beings is responsible. The resolution also directs the superintendent and staff to develop an implementation plan for “curriculum and educational opportunities that address climate change and climate justice in all Portland Public Schools.”

During board testimony, Bill Bigelow, a former PPS teacher and current editor of ReThinking Schools, a magazine devoted to education issues, claimed that the science on man-made climate change was settled and that current “text materials are kind of thick with the language of doubt.”

“‘Carbon dioxide emissions from motor vehicles, power plants and other sources, may contribute to global warming,’ ” Bigelow quoted Physical Science published by Pearson as saying. “This is a section that could be written by the Exxon public relations group and it’s being taught in Portland schools.”

For years, there have been thousands of scientists dissenting against the idea of anthropogenic climate change. So now that this former public school teacher makes the speculative claim that big fossil fuel may be influencing the literature, the school board will cut off all debate.

This is brainwashing.

via Tyler Durden