ISIS Changes Name, Declares Caliphate

no flags no mastersThe Islamic State in Iraq and Syria (ISIS), which
has over the last month taken control of vast swaths of Iraq, has
declared itself an Islamic state in Iraq and Syria a few days after
the al-Nusra Front, the Syria Al Qaeda affiliate, was reported to
have signed a “loyalty
” to ISIS. In the statement it released, with English
translation (PDF),
ISIS claims to have “demolished” the governments of Syria and Iraq,
to have “disgraced” infidels and “humiliated” heretics. It also
called Sunnis “masters” and “esteemed.” The dick-swinging comes
after the group’s declaration that it had transcended race- and
class-based distinctions in favor of “piety,” the kind with which
they “forced the noses of the cross-worshippers onto the ground
with the most miserable of weapons and weakest of number.”

The group also claimed that the “ummah” (the Muslim “nation” for
which ISIS claims to speak) “succeeded in ending two of the largest
empires known to history in just 25 years and then spent the
treasure of those empires on jihad” and claimed it would be a sin
for them not to declare an empire of their own, called a caliphate,
with  their leader,
Abu Bakr al-Baghdadi
, naturally chosen as the caliph.

“The legality of all emirates, groups, states and organisations
becomes null by the expansion of the caliph’s authority
and the arrival of its troops to their areas,” the
statement read. According to
news reports
in an audio statement a spokesperson followed that
up with “Listen to your caliph and obey
him. Support your state, which grows every

ISIS formed amid the Syrian civil war, when the Islamic State of
Iraq, the Iraqi Al-Qaeda affiliate, joined in the hostilities.
 Last April, the Islamic State of Iraq (ISI), the Iraq Al
Qaeda affiliate, announced that they had merged with al-Nusra but
the Syrian group
the merger and reiterated their loyalty to Al Qaeda,
which was
also upset
by ISI’s attempt at a hostile takeover. ISI
continued to fight on its own in Syria, against the government,
more moderate rebels, and other jihadists, eventually becoming
ISIS. The group’s declaration of an Islamic state and its leaders
megalomaniacal claim to be a caliph is aimed not just to the
governments in the Middle East (and the world) but to Al Qaeda
affiliates in the region as well.

The ability of ISIS or any jihadi group to fell an empire, as
they claim such groups did to the Soviet Union (which spent its
last decade mired in an occupation in Afghanistan) and the United
States  (whose two land wars in Asia showed it a
very bad idea
to wage two land wars in Asia) goes only as far
as empires are willing to mire themselves in the kinds of wars and
military interventions that can only
such groups.

from Hit & Run

Of Baling Wire, Chewing Gum and Sinking Ships

Of Baling Wire, Chewing Gum and Sinking Ships


Cognitive Dissonance



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It sounded like a good idea at the time, ‘the time’ being a drunken outing with the other boys in the crew. The next day everyone would get up real early and head over to the local slip for a morning cruise on Joe’s ‘new’ boat, a 24’ Boston Whaler he picked up for a song from the dealer at the mariner. In between Tequila shots he had raved about the two hundred horse power Mercury outboard motor and the pretty railings and deck fittings. Shaking off the morning hangover I gulped down some coffee and donuts, then headed over to Joe’s place to meet up with the rest of the crew.

Since parking was at a premium at the local slip, we all piled into one car and quickly arrived at the pier. Joe, a novice boater, was beaming from ear to ear as he led us down the narrow walkway to his pride and joy. Being the newest member of the crew I was last in line so I didn’t get a good look at the boat until it was directly in front of me. While the other guys were laughing and carrying on as they climbed aboard I stopped short as the hairs on the back of my neck went into full alert mode.

After giving it a quick once over from the safety of the pier I asked Joe “Well I see the baling wire, so where’s the chewing gum?” Seeing his confused look I pointed to the two marine batteries strapped down to the deck in the back of the boat with miles of rusty baling wire, obvious evidence of electrical shorts having melted each layer of wire before another winding was added. “That’s the way it came when I bought it. It’s supposed to be that way,” he assured me. Right…….

Ignoring the other guys who were hollering at me to just shut up and get my butt in the boat, I pointed to the open bilge hatch and the fact that it was filled to the brim with sea water. “And that,” I asked?  Joe glanced down and then snorted. “The automatic pump has a short in it so it fills up overnight. When we get going it empties automatically,” he promised. “It’s designed that way,” he smugly added.

It was decision time for this landlubber. While Joe turned his attention to his guests as they stowed their gear and popped the morning’s first beers, I had a few more seconds to carefully consider which fork in the road I would take. We have all had at least one these moments at some point in our lives and this was the first for me of what turned out to be many over the next decade or so. In this case it was a freight train that hit me square in the face, but other times it was much more subtle. The question is not just what you do, though that is of course very important, but if you even recognize the decision point to begin with.




The boat was a wreck, something even my inexperienced eye could easily discern. The transom, essentially the back of the boat where the outboard motor is attached, had clearly been severely damaged and just as clearly sloppily repaired. The outboard motor was not attached to the transom by factory clamping hardware, but with two carpenter’s metal clamps, once of which was loose and sagging. That motor was a few nautical miles from coming loose and going overboard.

There was an obvious gasoline leak dripping from one of several repairs to the fuel line and what looked like another gas leak seeping from the bottom of one of the two portable gasoline tanks, both of which were not secured or even safely contained in one area of the deck. Worse, each of the ten gallon gasoline tanks sported several large rusty dents, evidence of many close encounters with hard objects. Incredibly the two marine batteries were ‘secured’ right next to one of the gas tanks, the one that was leaking no less.

Moving a bit forward, there were two large areas along the hull on the starboard side that had recently been patched, one of which was already breaking loose from the pounding of the waves while motoring. God only knows what else was going on under the water line in the way of leaks and structural integrity. Several recessed deck light fixtures and overhead running lights were half hanging out while wires everywhere were hanging loose or simply unconnected. The radio and depth finder were clearly not operable since they were not even connected and the throttle had been jury rigged with some screws and metal brackets. But just like Joe said the upper deck railing had recently been replaced and was brand new and quite shiny.

I could go on, but I had seen enough and for me the decision was obvious. Heading out onto a shallow lake in this death trap was one thing, but heading out onto the wide open Atlantic Ocean was another thing entirely. The problem for me now was how to back out right here, right now, and still save face with the new crew. While I wanted to be accepted by the guys I also wanted to live another day. I could feel my heart racing and my head pound as the pressure ramped up. I needed to choose right now. What to do, what to do?


At Dockside


I’m not sure if it was the hand of providence, last night’s Tequila or the adrenaline surging through my body at that moment as I contemplated death if I were to step foot onto the unsinkable Molly Brown, but my excuse not to board involuntarily pushed its way forward as I suddenly projectile vomited all over the side of the boat. Chance favors the prepared mind, the weak stomach and dumb luck.

The chaos and hollering that followed was music to my ears because the entire crew was screaming at me to get the hell away as they frantically untied the mooring lines and pushed away from the dock, desperate to put distance between me and them lest I let loose another volley of last night’s Tequila and this morning’s fried dough and java. As I turned to leave I heard the big Merc sputter, then fire up while some of the guys threw buckets of sea water on my deposit in a futile effort to wash it away. It was a shame the bilge pump was on the fritz.

My last memory of that moment was of Joe running back and forth from the captain’s chair to the motor at the stern while the rest of the guys settled in, the strong smell of fresh gasoline hanging in the air. I walked the three miles home in a daze, both my head and stomach churning from the close encounter. Since the crew had rejected me for ‘medical’ reasons I was fairly certain I was still on the in. Whether there would still be a crew by the end of the day was much less certain.

As it turned out they did return, though it was not smooth sailing by any stretch of imagination. Setting aside the fact they got ‘lost’ because Joe (who couldn’t read a navigational chart if his life depended upon it……and it did) turned to Port instead of Starboard, everything that could have happened did happen…..and then some. It seemed Joe repeatedly electrocuted himself at the control panel (there’s that pesky short circuit) each time promptly stalling the Merc while smoking the baling wire and batteries.

By now they were out way past the breakwater and into some rough seas, essentially going in circles because the compass was broken and fog had obscured land. Someone at the bar had once told Joe to always turn ‘left’ if you get lost on the ocean and soon enough you will find dry land. Joe may have been stupid but he did know how to follow directions.

They were taking on water but weren’t too worried because as long as Joe, who earned the nickname “Shark” from the boss after this adventure, kept the boat moving forward the bilge would empty automatically. After all it was designed that way. However after losing power for the third time and now unable to restart, they began to slowly sink, that damn bilge pump coming back to haunt them once again.

Somehow they managed to attract the attention of another boater just before sunset, someone who actually possessed a sea worthy craft. He promptly radioed the US Coast Guard for help, then backed away and put plenty of distance between his craft and the rapidly sinking drunks. Eventually they were unceremoniously towed to the nearest mariner around 3 AM courtesy of the US taxpayer, only to finally sink 100 yards from the dock. Their three hour tour almost turned into another Gilligan.  

I learned of their escapades late the next day when once again we all gathered at Joe’s house, this time to commiserate the ‘accident’ while rolling around in all the gory details like a dog in his feces. I was declared ‘lucky’ I had ‘missed’ the boat; interestingly no mention was ever made of my safety concerns or my ‘medical’ issues. Joe vowed revenge upon the mariner owner who sold him the boat of death, though under light questioning he reluctantly admitted he had bought it ‘as is’, thus the reason for the great price.


Bought As Is


Now safely on dry land and once again liquored up, in hindsight the boat’s problems were readily apparent and glaringly obvious. Sadly it was all chalked up to bad luck and an even worse boat with absolutely no consideration given to carelessness, hubris, alcohol or gross human error. There were plenty of scapegoats roasted at that gathering, though none of them happened to have been on the actual boat. Will wonders never cease?

As I listened to the various stories and the heckling and joshing back and forth as each guy related their own version of the day’s events, I couldn’t help but wonder what might have happened if I had boarded the boat and my 250 lbs of beef had been added to the volatile mix? A quick mental calculation told me I equaled 32 gallons of sea water by weight, a drop in the bilge from one point of view, the tipping point to an earlier sinking from another. At least the crew hadn’t rejected me for being a coward or pussy. I’d rather be known for a weak stomach than for weak nerves.

As previously mentioned over the next decade there were several more decision points similar to this one as I entered, and then passed through, my own period of peak insanity. And while I remember them all too some degree or another, this one is prominent in my mind as the pivot point that made all the others possible. Sometimes despite our poorest efforts we survive our own stupidity and live another day. But to this day I sometimes wonder if I would have had the guts to actually say “No” if my projectile vomiting had not saved me from crossing the Rubicon.

The similarities between the true story above and the world today are in my opinion glaringly obvious. The ship(s) of state are a complete mess with nearly every private and public institution structurally deficient, their formerly seaworthy hulls severely damaged and undermined by the very same people tasked with managing the systems. Economic fluids are leaking everywhere with market disconnections and short circuits the norm.

Regardless of the reasons why the boats are not seaworthy and rapidly becoming even less so, this fact seems of little apparent concern to the world’s citizen boaters who feel little can go wrong as long as there are mood altering beverages in the cooler, fiat gas in the can and a central banker at the wheel. Amongst some of the occupants there appears to be a sense of deflated resignation to endure whatever comes their way since they don’t control the ship of state. To counter this lingering repressed despair and depression no opportunity for an emotional buzz derived from mindless entertainment is lost.  

The real question isn’t why this condition exists or even how it persists. The pertinent question is far more personal and much more interesting. You are standing on the dock looking down at the death trap as the rest of the crew piles in, mostly because no one is telling them specifically to get out and the herd mentality runs riot with one lamb leading the next to slaughter.

This is your decision point, the proverbial fork in the road, the cognitive gathering place that will change everything from here on in. Not so much because of the actual decision you make, but because you understand that the space/time continuum occasionally squeezes down to a point directly in front of your nose and offers you an opportunity to tickle the beast, then quickly explodes back out to infinity only to repeat the process for the next person in line. You may get a dozen more chances or you might only get one…………and this is it.

So what do you do?


Save Our Ship


Screw questions of morals or ethics, of right or wrong, good or bad. Lock your ego away and consider your choice with a sober mind and a steady hand. It doesn’t matter who is in the boat and wants you to join them or who is not and tells you you’re an idiot if you do anything other than step back. This is about you and only you. At this very moment your spouse, kids, job, education, family, friends, home, cars and various other toys; none of these people, places and things exist.

While I called the boat a death trap you could quite easily get on, take your trip and return drunk and happy, ready to do it all again the next day and the next and the next. Or you could climb aboard and be sleeping with the fishes within two hours. There is no way to know for sure other than to assess probabilities. And considering the condition of the world today the probability is that sooner or later all hell is going to break loose and the ship of state is going to experience rough waters and a breached hull.

So what do you do?

Maybe I should clarify something here to make this a bit easier for you. I have described the situation as one where you come to a decision point and now face a choice. And I used the story above to illustrate the concept where you walk up to an unseaworthy boat and need to decide if you should board or not. But in fact the situation is quite different. You are not actually waiting to board the rickety ship; you are already on board and have been since the beginning.

That stink filling your nose is the fiat gasoline vapors permeating your cloths and hair. You are exhausted from constantly running on the endless wage slave exercise wheel just to maintain your standard of living, too drunk from consumerism to recognize your own insanity. Your head is woozy and your legs weak from being repeatedly fleeced and shocked by the rigged economic system.

So the question needs to be restated after the premise has been clarified. You have been a micro share owner of this ship of state since birth and have enjoyed many great days and nights out on the sea during the last several decades. But long term capital improvements and even basic maintenance has been deferred, delayed or minimally done for so long now that the infrastructure is no longer sound and the basic structure is well past the point of simple repair.

We are now looking at a complete dry dock overhaul and one or more lost seasons of use as the fundamentals are completely rebuilt. It is no longer a question of if you will lose the ship at sea, and possibly your life with it, but when if you do not take immediate corrective actions.

So what do you do?


Remain seated until the ride comes to a complete stop


Our tendency is to remain seated simply because we believe we are more familiar with the dangers we ‘know’ than those we consider unknown or not very likely. Basically we fall into the previous-investment trap, where we believe all the time, effort and energy expended in the past should be heavily weighted when considering the future. This applies whether we are examining our fiat investment portfolio or our life as we sit ankle deep in cold sea water convincing ourselves if things get really bad we can still get out. Get out to where exactly? In case you have forgotten you are on a boat with just about everyone else.

This is a colossal cognitive bias of the first order skewed towards inaction and the status quo that speaks loudly of Stockholm Syndrome, itself a product of the slave mentality that plagues all of us to some degree or another. No longer a field slave laboring day after day in the hot sun, after decades of hard work and subservient loyalty we are now more comfortable kitchen staff, stable hand or possibly the personal man-servant to the master or one of his kin. With this promotion came perks and privileges along with the promise of even more if we kept our nose clean and continued our hard work.

The promise of even more to come, along with all that we did to ‘earn’ the already bestowed privileges, becomes an anchor around our necks when the boat sinks, propelling us even faster to the bottom. The irrefutable fact that the thousand times we rode in the boat prior to now without sinking helps convince us that the next time, and the time after that, won’t be much different. So there we sit, now calf deep in dirty bilge water, the sheen of gasoline shimmering on the surface, the sickening smell of refined hydrocarbons thick in our nose and cloths, the engine sputtering and shaking in its mount, bare live wires dangling to the left and to the right, dark clouds on the horizon, rough seas dead ahead. 

We can easily imagine all the work it took to get here while never clearly visualizing exactly what ‘here’ now is. The promises of the master, used as currency to compel and reward our willing participation, can no longer be fulfilled since the economic system that is the ultimate delivery vehicle for those promises is about to sink beneath the waves.

But so many of those who came before us did make it to the Promised Land, and we worked so hard to faithfully follow in their footsteps, careful to adhere to all the rules and skirt all the storms. Now that we are so close, our promised reward within sight, we desperately wish to believe that with just a few more rotations of our well worn routine, just a little more hard work, is all that is needed to achieve our goal. So close, so very very close.

So we remain seated in water now up to our butts, a constant low voltage tingle coursing through our body as the now submerged batteries continue to discharge, the motor long since fallen off the damaged transom, the gas cans spilling the last of their contents into the stinking pool of debris filled sea water now nearly up to our chest. The bad news is the wind and waves are really picking up now; the good news is there on the horizon we can see the Promised Land.

So what do you do?


Cognitive Dissonance



No where to go but up

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via Zero Hedge Cognitive Dissonance

The Truth About First Quarter S&P 500 Earnings

The last time we looked at real, GAAP, not “pro-forma” non-GAAP EPS, in November of last year, when the S&P 500 was just over 1800, we found that on an LTM GAAP basis, the market was trading at a whopping 19x P/E LTM – a number which all but the most dyed-in-the-wool permabulls such as Janet Yellen, would call significantly overvalued (and which even JPM reported was higher than 89% of all P/E prints in the history of the market).


What happened next was remarkable: following a uniform change to pension accounting, which helped “revise” US GDP by $500 billion higher, said revision also flowed through to reported corporate earnings, not just non-GAAP EPS but also GAAP, and EPS for the S&P500 were revised retroactively higher virtually uniformly by about $1.5 per quarter. This revision is shown on the chart below.

This is notable because it means that LTM GAAP EPS for the S&P500 were pushed higher from roughly $100 to $106 as of March 31.

In other words, had it not been for the pension accounting fudge which helped raise LTM S&P 500 GAAP EPS from $100 to $106, the P/E of the S&P would be nearly 20x as of Q1. Nonetheless, even on a “revised” GAAP basis, taking full benefit of pension accounting revisions (revisions which are only possible due to the S&P500 being at record highs, something which reflexively is only possible because valuation gimmicks such as this one!) the S&P is still trading at a nosebleed 18.5x LTM P/E.

So how does GAAP EPS compare to that perpetually fudged, Non-GAAP EPS – used excuslively by overzealous management teams and sell-side analysts to “justify” quite ridiculous valuations “when one excludes one-time charges, restructuring items, and so on.” Like fore exammple Alcoa‘s perpetually recurring, “non-recurring” charges or JPM’s now constant “one-time” legal addbacks. The delta between the two is shown in the chart below:

On an LTM basis this means that the choice of GAAP or Non-GAAP for the S&P 500 is equivalent to 2 turns of LTM P/E: 16.5 vs 18.5.


Backing up one chart, observent readers will notice something peculiar: in Q1 GAAP earnings tumbled while Non-GAAP earnings maintained an exuberant upward trajectory. Sure enough, anyone curious how real, GAAP EPS performed in the just completed quarter, should look at the chart below. It shows that GAAP EPS (helped by a record amount of corporate buybacks) in the first quarter of 2014 actually dropped 2.2% from Q1 2013 even as Non-GAAP suggested a nearly 5% increase!

As noted, this is happening even as corporations bought back a record amount of their own stock in Q1, reducing the S in the EPS, and thus artificially boosting the overall EPS number. One can only imagine how much worse the decling in EPS would have been had stock repurchases slowed down:

How does one explain the dramatic surge in Non-GAAP EPS compared to GAAP? Simple: supposed “one-time” Write-offs. This is what Deutsche Bank has to say about the topic:

Common items excluded from non-GAAP EPS are goodwill impairments, restructuring charges, merger costs, gain/loss on assets sales etc., which tend to be cyclical. Hence the difference between GAAP and non-GAAP EPS is largest during recessions and ~10% ex. recessions.

It is thus not surprising that the “write-off” difference between GAAP and Non-GAAP surged in Q1 2014 to 2.9: the highest since Q4 2012 when EPS once again slumped and the Fed was brought in to launch QEternity. In fact, excluding the two quarters prior to the launch of the latest round of QE, the number of “addbacks, write-offs and restructuring charges” has never been greater since the Lehman failure.

The bottom line is that the LTM P/E for the S&P 500 is therefore one of three numbers:

  • 16.5x on a non-GAAP basis.
  • 18.5x on a revised GAAP basis, or
  • 19.5x on a pre-revision GAAP basis, when corporations do not take the “benefit” of a pension boost to EPS which is solely the result of record high stock prices courtesy of a Fed and HFT-manipulated market.

Readers can make their own choice which number to use based on their own particular bias.

As for corporate revenues and CapEx… fughetaboutit.

via Zero Hedge Tyler Durden

The Riskiest Housing Markets In America

As homeownership rates tumble, perhaps it is not just the stagnation of income or piling up of ‘other debts’ disabling any organic buying frenzy; perhaps, as Bloomberg breaks down, it is the realization that real-estate is nothing less than another boom-bust roller-coaster ride. ??When so much wealth is tied up in one asset, the risk — or stability — of a local market can mean a lot to a homeowner and Bloomberg has quantified the ‘riskiest’ (and most stable) home markets in America… not Vegas, not Phoenix, and not LA…


Full Breakdown here


And the stablest real estate markets?

5. Raleigh, North Carolina
Risk of loss: 9%
Worst year: -5% (July 1981 – June 1982)

4. Nashville, Tennessee
Risk of loss: 9%
Worst year: -4% (July 2010 – June 2011)

3. Louisville-Jefferson County, Kentucky
Risk of loss: 3%
Worst year: -3% (April 1981 – March 1982)

2. Pittsburgh
Risk of loss: 0%
Worst year: -7% (July 1980 – June 1981)

1. Buffalo, New York
Risk of loss: 0%
Worst year: -4% (July 1994 – June 1995)

??Methodology: For each of the 50 largest housing markets, analyzed average home prices over 117 rolling five-year periods since 1979, as far back as reliable data go. The “risk of loss” is the percentage of those periods that created negative returns for homeowners. In the case of ties between markets, those with the bigger drop in their worst years were ranked as riskier.

via Zero Hedge Tyler Durden

Gold Spikes To 3-Month Highs

It appears the same ‘contagion’ that is driving copper prices higher is also impacting gold and silver this morning. As we have noted previously, the CCFD unwind drives synthetic short (hedge) covering and inevitably rolls down the curve to drive spot strength (as the paper gold market tail wags the ‘physical’ market’s dog). Gold is at 3 month highs and silver getting close.


One wonders if the following disclosures from Bank of America early this morning had something to do with the move: 

  • Strongest weekly buying of Gold in more than two years
  • Large specs increased their Gold and Silver longs at the strongest pace in two years 


via Zero Hedge Tyler Durden

WTF Chart Of The Day: “Holy $340 Billion In Quarter-End Window Dressing, Batman”

If there ever was any question as to what the purpose of the Fed’s Reverse Repo liquidity facility was, or is (and considering we already explained it before in Fed Soaks Up Record $200 Billion In Year End Excess Liquidity and Month-End Window Dressing Sends Fed Reverse Repo Usage To $208 Billion: Second Highest Ever), the amount of reverse repos issued by the Fed to make banks appear healthier than they are and to cure whatever “high quality collateral” shortfalls banks are now chronically experiencing, should slam the door shut on any future debate just what the motive behind the Reverse Repo is.

Behold: a record $340 billion in reverse repos submitted by the world’s financial institutions with the Federal Reserve, an increase of $200 billion overnight, and amounting to a record $3.5 billion on average among the 97 operations participants. Considering this is a clear quarterly event, it goes without saying that all the reverse repo is, is a quarter-end window dressing mechanism underwritten by Mr. Chairmanwoman itself.

That there was some $200 billion in excess reserve liquidity as of yesterday’s market close (which today was handed over to the Fed in exchange for one day rental of Treasurys), or that banks actually have a third of a trillion gaping shortfall in collateral, hardly needs discussion.

Expect total reverse repo usage tomorrow to plunge by at least $150 billion as the banks will have fooled their regulator, which also happens to be the Fed, that they are safe and sound. Rinse, repeat, until the entire financial system collapses once again and people will ask “how anyone could have possibly foreseen this.

As we said last time:

So step aside any sophisticated claims that the Fed’s reverse repo is a means to extract liquidity when the time to raise rates finally comes: all this latest “tool” in the Fed’s arsenal is, is nothing more than a Fed-mandated and endorsed mechanism with which the banks can fool regulators and investors that they are in a far healthier condition than they really are.


And judging by the humiliating episode involving Bank of America’s made up numbers that punked the Fed into believing America’s most insolvent TBTF bank was healthy enough to give be billions to investors, one of the parties most “confused” by what the RRP does, is the Fed itself.


Source: NY Fed

via Zero Hedge Tyler Durden

Burning Banknotes !


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There are some out there in the economic world that believe that banknotes are detrimental to the health of the economy and that they are currently stifling the recovery of the markets. Their solution: burn the damn things and let them go up in smoke. Replace them with electronic money and then the central banks around the world will be able to do more than just providing alternatives that don’t work to revamping the financial markets and boosting economic growth.

What have central banks been doing these past few years? Nothing of much worth. They have tried Forward Guidance. They have thought up great ideas so they didn’t have to use negative interest rates to try to get the markets working such as Quantitative Easing, injecting billions every month into the economies around the world. It still didn’t get the banks lending and it still didn’t get them working and creating jobs. It just gave them the possibility of investing and gaining dividends and returns on that investment.

Burning Banknotes

Burning your banknotes could be the solution to that. Patrick Artus at Natixis believes that if we were to do that, then central banks would be able to act effectively. He says, taking the example of the situation in the European Union that the banks in the north that have their coffers filled are just not lending to those in the south that are in dire straits. The European Central Bank is now charging (since June 11th 2014) at a rate of -0.1% for banks to park their money at the ECB.

The ECB will not stimulate anything however. Simply because banknotes and tangible money exist. What do people do when interest rates are low? And when interest rates are negative? In theory, they withdraw their money and spend because it’s not gaining enough in value just sitting there.

Except, Artus argues that a 100 euro banknote, like all banknotes, has a 0%. Withdraw it and keep it and it won’t increase or decrease in value. It will still be worth 100 euros in a year. That’s worrying in countries like the USA where the percentage of cash in circulation at the same time stands at roughly 14% of the entire money stock of the country. Negative interest rates will just make people (and the banks) hold on to their money. If you are going to use negative interest rate, then they have to be used throughout the economy, for banks and for customers of those banks. Want people to spend? Apply negative interest rates everywhere, but, then you have to get rid of tangible money.

Of course, there’s the added bonus of getting rid of notes in as much as tangible money costs money (and a lot of it) to make it perfectly unique and impossible to copy (laugh!). The Europeans have banknotes that they use for transactions everyday (5, 10, 20 and 50 euro banknotes). They also have notes that they never or rarely use (100, 200 and 500 euro banknotes). Apparently, they had the 500 note just to placate the Germans and keep them quite since they were losing the 1000 mark banknote that they had. But also, the 500note has the nickname ‘the Bin Laden’ since they make fraud easy. These banknotes that are hoarded outside of banks are estimated in Europe to represent 50% of all banknotes in circulation (948 billion euros is the total stockpile of all euro banknotes in circulation in April 2014). The 500 euro banknote is 30% of all banknotes in circulation and never used in daily transactions by Europeans. Getting rid of banknotes is supposedly going to cut the Bin-Laden effect on money and its trafficiking. But, the fraudsters and the mafia will just go to Bitcoins or their like.

So do we burn or don’t we?

All of this won’t be worth the tantalizing attractiveness it seems to portray unless the whole world does the same thing. The likelihood of the entire world agreeing to get rid of banknotes at the same time and going electronic would be a trillion to one chance. We have just about as much chance of Vladimir Putin saving President Obama from drowning (if you remember his laughable newspeak just a few months ago now). Theories are nice, but they never seem to take into account the parameters of impossibility, do they? Still, it occupied a researcher somewhere in the world for a while, didn’t it?

Ready to burn your banknotes?

Originally posted: Burning Banknotes !

via Zero Hedge Pivotfarm

Europe Gives Bulgaria A Bank System Lifeline As Battle Over “South Stream” Pipeline Heats Up

As we reported a week ago, as a result of various political developments (and potentially other reasons, still unknown) the poorest EU country, Bulgaria, suddenly found itself gripped by the worst bank run it has suffered in 17 years, when first its fourth largest bank, Corpbank, was nationalized, followed by a second bank run slamming its third largest bank, Fibank. Promptly thereafter, in an attempt to preserve calm, Bulgaria’s central bank issued a dramatically-worded statement on Friday warning of “an attempt to destabilise the state through an organized attack against Bulgarian banks” coupled with the issuance of €1.5 billion in 10 year bonds at a 3.055% yield, to demonstrate that the country still has access to capital markets (in the biggest bond bubble in history that is a given) and has liquidity.

Alas since that too failed to preserve calm in a country in which even the leader of the opposition (which has every interest in destabilizing the economy) piled on and said the banks are essentially insolvent, Bulgaria resorted to arresting two men who were suspected of involvement in what they have described as an organized attempt to destabilise the country’s financial system by encouraging citizens to withdraw bank deposits.

Which brings us to today, when moments ago, Reuters reports that the European Commission said on Monday it had approved a Bulgarian request to extend a credit line of 3.3 billion levs ($2.30 billion) in support of banks that have come under speculative attack.

“The Commission concluded that the state aid implied by the provision of the credit line is proportionate and commensurate with the need to ensure sufficient liquidity in the banking system in the particular circumstances,” the EU executive said in a statement.


The statement said Bulgaria’s banking system was “well capitalised and has high levels of liquidity compared to its peers in other member states. For precautionary reasons, Bulgaria has taken this measure to further increase the liquidity and safeguard its financial system”.


The move follows runs by jittery depositors on two major Bulgarian commercial banks in the space of a week.

And while this latest backstop of the Bulgarian bank system should provide a respite from bank insolvency fears (if only for the time being), one wonders.

Recall that as we explained earlier, Bulgaria is the critical first European leg of the Russian “South Stream” pipeline as it emerges from the Black Sea: a pipeline which the European Commission has sternly objected to, yet which Russia recently signed a deal with Austria (which balked at European demands to isolate Russia) to activate.

Which means that with Austria siding with Russia, Europe has to isolate and convert the “feeder” countries, those which the South Stream crosses on its way to central Europe.

Ludicrous? Not really. This is what we reported last week:

Recall that it was in January, two months before the Ukraine government was overthrown that the prime minister of Bulgaria – a country that has a very distinguished love/hate relationship with Russia (a relationship which the US would love to make more “hate”) – Plamen Oresharski, surprisingly ordered a halt to work on the South Stream, on the recommendation of the EU. The decision was announced after his talks with US senators.


At this time there is a request from the European Commission, after which we’ve suspended the current works, I ordered it,” Oresharski told journalists after meeting with John McCain, Chris Murphy and Ron Johnson during their visit to Bulgaria on Sunday. “Further proceedings will be decided after additional consultations with Brussels.”


At the time McCain, commenting on the situation, said that “Bulgaria should solve the South Stream problems in collaboration with European colleagues,” adding that in the current situation they would want “less Russian involvement” in the project.


“America has decided that it wants to put itself in a position where it excludes anybody it doesn’t like from countries where it thinks it might have an interest, and there is no economic rationality in this at all. Europeans are very pragmatic, they are looking for cheap energy resources – clean energy resources, and Russia can supply that. But the thing with the South Stream is that it doesn’t fit with the politics of the situation,” Ben Aris, editor of Business New Europe told RT.


It was also in January when EU authorities ordered Bulgaria to suspend construction on its link of the pipeline, which is planned to transport Russian natural gas through the Black Sea to Bulgaria and onward to western Europe. Brussels wants the project frozen, pending a decision on whether it violates the EU competition regulations on a single energy market. It believes South Stream does not comply with the rules prohibiting energy producers from also controlling pipeline access.


Therein, of course, lies the rub, because as Europe has learned the hard way so many times, its overrliance on Russia for both the production and the transit of gas means that it has absolutely no leverage over the Kremlin – something recent events in Ukraine have only confirmed.

“They do everything to disrupt this contract. There is nothing unusual here. This is an ordinary competitive struggle. In the course of this competition, political tools are also being used,” the Russian president said after holding talks with his Austrian counterpart, President Heinz Fischer, in Vienna.

So, one wonders: will a key condition for this $2.3 billion “rescue” loan be that Bulgaria turn its back on Putin, halt the South Stream permanently, and block any further work on what has suddenly become Europe’s most important pipeline alternative – one which makes Ukraine (and all western investment therein) the most irrelevant country in Europe (as explained earlier today).

One also wonders if the recent escalation of troubles in Bulgaria’s banking sector were not, perhaps, Brussels inflicted. After all, who had the most to win from a financial, economic and political crisis in the country?

Finally, one wonders if the above is true, and this is merely the latest act in a play starring Russian gas (as was the case with Syria and Ukraine, and so on) just how much deeper will the Bulgarian crisis will escalate until Europe gets its way, and – alternatively – just when and under what conditions will Putin step in with his own counterproposal? After all the Kremlin already got Crimea and east Ukraine, followed swiftly by the heart of Europe itself: Vienna. What is a small, former USSR satellite country to the former KGB spy?

via Zero Hedge Tyler Durden

CT School District Apologizes For Blocking Conservative Websites

BlockedOn the website of Connecticut’s Regional
School District 14 is a commendable, but somewhat out-of-context,

commitment to relative Internet freedom for public school
, dated June 20.

Regional School District 14 takes the position that while it is
obviously critical to block specific categories of websites as
required by law (e.g., pornography, etc.), the blocking of
otherwise appropriate websites, regardless of political or
religious viewpoints, is WRONG.

The statement goes on to note that “On Region 14’s computers,
some websites were blocked, while others were not,” and it was all
a big technical error.

A letter dated the previous day gives us a little of the

awkward background in this story

In recent weeks, a student conducting research on the district’s
network came upon a pattern of information access through the
district’s content filtering service…

the district has pressed Dell SonicWall for more information
about how websites are assigned to categories and why there are
apparent inconsistencies, as discovered by the student, in
classifications particularly along conservative and liberal lines.
Many of the liberal sites accessible to the student fell into the
“not rated” category, which was unblocked while many of the
conservative sites were in the “political/advocacy group” which is
accessible to teachers but not to students. The district is trying
to determine the reason for the inconsistency and if the bias is
pervasive enough to justify switching to another content filtering

Uh huh. As it turns out, high school student Andrew Lampart was
assigned to do a report on gun control, and quickly discovered that
the school Internet connection allowed him access to only one side
of the debate. Then he found that the school permitted access to
only one side of many debates—permitting access to gun
control groups and liberal organizations, but not their
counterparts. Whoops.

On Facebook, he wrote:

Earlier in the semester, our law class was promised to hold a
debate closer to the end of the year on the issue of gun control.
To prepare, I decided to do some research and gather resources
during study hall. However, I immediately found it difficult to
find resources that were opposed to stricter gun-control as most of
these websites were blocked by the firewall. Most of these websites
were blocked under the category of “Political/Advocacy Groups.” Out
of curiousity, I decided to perform a brief investigation and
search to see what other websites were blocked under this listing.
What I discovered was appalling.

As you can see from the list that I have provided you, the
firewall at the high school offers a very biased viewpoint towards
not only the issue of gun-control, but also abortion, religion, and
political parties. Even in this crucial election year for not only
the state of Connecticut, but the entire nation, the firewall has
selectively blocked candidate websites.

Bias in public schol classrooms is nothing new, but this was
especially blatant. And Lampart wasn’t prepared to let it rest. His
Facebook complaint quickly caught
media attention
. And that explains Connecticut’s Regional
School District 14’s new, publicly proclaimed devotion to Internet

Lampart’s list of blocked and unblocked sites is below.

-National Right To Life
-Second Amendment Foundation
-National Rifle Association
-Paul Ryan for Congress
-The Black Sphere
National Right To Life Foundation


from Hit & Run

Meet Janet Cowell – The North Carolina Treasurer Desperately Pushing to Keep Criminal Public Pension Fees Secret

Screen Shot 2014-06-30 at 11.07.57 AMOne of the most important revelations to emerge in 2014 to-date, is the fact that public pensions are taking on an increasing amount of irresponsible risk in order to meet return targets. The primary way they are doing this is by investing a larger and larger percentage of assets with “alternative investment” managers such as hedge funds and private equity firms.

Specifically, states have increased allocations to alternatives to $460 billion, or 15.3%, from only 3.3 percent in 2001, according to the National Association of State Retirement Administrators. However, this is just the tip of the iceberg. What is really shocking, and extraordinarily disturbing, is the fact that the deals these public pensions enter into, and associated fees paid, are intentionally kept secret from the public, and the people’s whose assets are at stake have absolutely no idea how their money is being invested.

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from Liberty Blitzkrieg