Month: July 2014

Submitted by Michael Krieger of Liberty Blitzkrieg blog,

It is not an exaggeration to say Saudi Arabia is one of the most oppressive, authoritarian regimes on the planet. Despite having been the main foreign instigator pushing for conflict in Syria, as well as its increasingly disturbing ties to the attacks on 9/11, it remains one of the U.S. government’s closest allies.

I’ve covered some of the human rights abuses of the Saudi regime on several occasions due to the fact that it so clearly exposes the total hypocrisy of U.S. foreign policy. The most recent example was the recent sentencing of human rights lawyer and activist Waleed Abu Alkhair to 15 years in prison for “inciting public opinion,” i.e., effectively utilizing free speech. I covered this in detail in the post: Saudi Human Rights Lawyer and Activist Jailed for 15 Years for Free Speech Under New “Anti-Terror” Law.

Thanks to revelations from Edward Snowden, we now know that our taxpayer money is directly funding the ability of this autocratic regime to brutalize its citizenry. The Intercept reports that:

The Saudi Ministry of Interior—referred to in the document as MOI— has been condemned for years as one of the most brutal human rights violators in the world. In 2013, the U.S. State Department reported that “Ministry of Interior officials sometimes subjected prisoners and detainees to torture and other physical abuse,” specifically mentioning a 2011 episode in which MOI agents allegedly “poured an antiseptic cleaning liquid down [the] throat” of one human rights activist. The report also notes the MOI’s use of invasive surveillance targeted at political and religious dissidents.

 

But as the State Department publicly catalogued those very abuses, the NSA worked to provide increased surveillance assistance to the ministry that perpetrated them. The move is part of the Obama Administration’s increasingly close ties with the Saudi regime; beyond the new cooperation with the MOI, the memo describes “a period of rejuvenation” for the NSA’s relationship with the Saudi Ministry of Defense.

 

In general, U.S. support for the Saudi regime is long-standing. One secret 2007 NSA memo lists Saudi Arabia as one of four countries where the U.S. “has [an] interest in regime continuity.”

 

But from the end of the 1991 Gulf War until recently, the memo says, the NSA had a “very limited” relationship with the Saudi kingdom. In December 2012, the U.S. director of national intelligence,James Clapper, authorized the agency to expand its “third party” relationship with Saudi Arabia to include the sharing of signals intelligence, or “SIGINT,” capability with the MOD’s Technical Affairs Directorate (TAD).

 

Over the past year, the Saudi government has escalated its crackdown on activists, dissidents, and critics of the government. Earlier this month, Saudi human rights lawyer and activist Waleed Abu al-Khair was sentenced to 15 years in prison by a so-called “terrorist court” on charges of undermining the state and insulting the judiciary. In May, a liberal blogger, Raif Badawi, was sentenced to 10 years in prison and 1,000 lashes; in June, human rights activist Mukhlif Shammari was sentenced to five years in prison for writing about the mistreatment of Saudi women.

I’m still waiting for Hollywood celebrities to hashtag outrage about Saudi abuses.

Asked if the U.S. takes human rights records into account before collaborating with foreign security agencies, a spokesman for the office of the director of national intelligence told The Intercept: “Yes. We cannot comment on specific intelligence matters but, as a general principle, human rights considerations inform our decisions on intelligence sharing with foreign governments.”

Remember, your government loves you. Full article here.

 

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Submitted by Chris Martenson of PeakProsperity, authored by Charles Hugh Smith

Escaping the Rat-Race

The changing nature of work doesn’t just matter to new graduates seeking their first career-track job—it’s equally important to experienced workers seeking to escape the corporate rat-race or build a new career after a layoff.

Those who understand these changes will be able to successfully adapt. Those who don’t, won’t.

The Disruptive Forces Transforming the Economy

There are three fundamental forces disrupting the conventional order, and everyone with their eyes open sees them at work every day:

1.  Essential resources are becoming more expensive.

2.  The system of expanding credit/debt to fund more consumption (i.e. “growth”) has reached marginal returns and is failing.

3.  Networked software, automation and robotics are reducing the need for human labor on a global scale.

As a result of these three structural forces, economic instability is not going to go away any time soon.  Technology leapfrogs the obsolete and inefficient; no wonder conventional sectors and the market for traditional 9-to-5 jobs are both stagnating.

The realization that ever-expanding debt and consumption are unsustainable has given rise to a new understanding of the economy called Degrowth (French: décroissance, Spanish: decrecimiento, Italian: decrescita).

From the perspective of sustainable prosperity, growth based on ever-expanding debt-based consumption is the road to ruin.

This shift from debt-based consumption to a more productive sustainability is bringing profound changes to the nature of work itself and social arrangements in the workplace.

Though we can’t foresee all the ramifications of networked software, automation and robotics, we can predict one aspect of this systemic disruption: technology will disrupt the most expensive, least efficient sectors of the economy because that’s where the greatest reductions in cost can be reaped.

In our economy, these are healthcare, education, government and national defense, all traditionally viewed as stable sectors with guaranteed job security.   That is changing, as the soaring costs of these sectors now exceed the economy’s ability to fund them.  If an economy expands by 2% each year and healthcare costs rise by 5% each year, eventually healthcare runs out of oxygen—there isn’t enough income generated by the economy to fund its continued expansion.

Few “experts”—academics, pundits and advisors—have accepted the reality of these forces or thought through the interacting consequences. As a result, we’re on our own in setting a course and navigating the inevitable storms ahead as the old system lurches from crisis to crisis, weakening further as every politically expedient reform fails to address these structural realities.

Outmoded Career Advice Is the Norm

Though the transformative power of these three forces is self-evident, remarkably, conventional career counseling is still stuck in the past, offering three basic bits of advice:

1.  Choose a career that aligns with your core talents and interests.

2.  Get as many credentials as you can — degrees, certifications, etc. — because the gatekeepers who do the hiring require them.

3.  Since the goal is secure employment, try to get a job in the government or a big corporation.

In my view, the conventional advice has it all backward. What worked in the past is no longer working because the economy and the nature of work are both being disrupted by forces that cannot be controlled by those threatened by these fundamental changes. 

In the conventional view, a college degree prepares one to enter the workforce. This is no longer true, as higher education has largely failed to keep pace with technology and a fast-changing economy.

As for adding more credentials to keep ahead of the pack—degree inflation dooms this strategy for all but the few who manage to secure multiple degrees from elite universities. And even this is no guarantee of lifetime security for everyone, as the number of open slots in gatekeeper-dominated institutions is much smaller than the rapidly expanding pool of over-credentialed applicants.

What matters more than credentials is the ability to keep learning new skills over one’s entire productive life.

And while it’s certainly solid advice to align one’s work with one’s talents and interests, even this advice misses the key dynamics of the emerging economy—which I define as  the parts of the economy that are thriving on innovation rather than depending on cheap credit and asset bubbles for their survival.

The thriving parts of the economy rely less on gatekeepers and credentials and more on skills, flexibility, professionalism, mastery and networks of collaboration.

In the emerging economy, security arises not from institutional promises but from a diversity of skills and income streams and a flourishing network of other trustworthy, productive people.

As a result, the goal for jobseekers isn’t just to identify one’s talents and interests but to acquire a diverse suite of flexible skills and a network that enables you to put these skills to good use.

In this view, work isn’t what you do between 9 and 5: it’s a lifestyle informed by a flexible, open perspective and guided by entrepreneurial values.

In terms of values, conventional career advice is based on the idea that happiness and fulfillment require institutional security and ever more consumption. But the more we learn about happiness and fulfillment, the more apparent it becomes that family, community, meaningful work and networks of trustworthy collaborators and friends are the sources of happiness and fulfillment, not the accumulation of institutional promises and more stuff, which turns out to have little impact on happiness or fulfillment.

The Dynamics of Economic Transformation

Capitalism and technology are both disruptive by their very nature.  That mature industries shrink or disappear is not the fault of one policy or another; that process of creative destruction (a term coined by economist Joseph Schumpeter) is the heart of capitalism and technology.

Many have attempted to keep technology safely locked up so it can’t creatively destroy their regime or industry. But technology is a genie that cannot be kept in the bottle. To quote Bob Dylan:  those not busy being born are busy dying.  Every nation or industry that tries to protect itself from technological transformation either stagnates or fails.

One aspect of capitalism that disturbs many people is the mobile nature of capital—that capital will flow to the highest return, regardless of national borders or religious, national and ideological loyalties.

Though many attribute this mobility to base greed, capital that doesn’t seek to expand will fall victim to creative destruction: the only way innovation and productive investment can occur is if less productive investments and quasi-monopolies are dismantled.

This is true not just of financial capital (cash), but of human and social capital—what author Peter Drucker called the new means of production in the knowledge-based economy.

This will have implications for every worker seeking to escape the corporate rat-race or build a career.

One feature of capitalism that is rarely noted is the premium placed on cooperation. The Darwinian aspects of competition are widely accepted (and rued) as capitalism’s dominant force, but cooperation is just as intrinsic to capitalism as competition. Subcontractors must cooperate to assemble a product, suppliers must cooperate to deliver the various components, distributors must cooperate to get the products to retail outlets, employees and managers must cooperate to reach the goals of the organization, and local governments and communities must cooperate with enterprises to sustain the local economy.

Darwin’s understanding of natural selection is often misapplied. In its basic form, natural selection simply means that the world is constantly changing, and organisms must adapt or they will expire. This dynamic is scale-invariant, meaning that it’s true for individuals, enterprises, governments, cultures and economies. Darwin wrote: “It is not the strongest of the species that survives, or the most intelligent, but the ones most adaptable to change.”

These new ideas, techniques and processes trigger changes in society and the economy that are difficult to predict. The key survival trait is not so much the ability to guess the future correctly but to remain flexible and adaptive.

Ideas, techniques and processes which are better and more productive than previous versions will spread quickly; those who refuse to adapt them will be overtaken by those who do.

This creates a dilemma: we want more prosperity and wider opportunities for self-cultivation (personal fulfillment), yet we don’t want our security to be disrupted. But we cannot have it both ways. Those who attempt to preserve the current order while reaping the gains of free markets find their security dissolving before their eyes as unintended consequences of technological and social innovations disrupt their sources of wealth and mechanisms of control.

The great irony of free-market capitalism is that the only way to establish an enduring security is to embrace innovation and adaptation, the very processes that generate short-term insecurity. Attempting to guarantee security leads to risk being distributed within the system. When the accumulated risk manifests, the system collapses.

Why This Matters

Why do these characteristics of free-market capitalism matter to jobseekers?  Opportunity is not randomly distributed; it results from what I call the infrastructure of opportunity. If there is no mobility of labor and capital, no transparent markets for labor and capital, no creative destruction of corrupt, obsolete, inefficient systems, weak rule of law, weak property rights, no self-organizing (i.e. transparent, decentralized) access to credit, limited means of cooperation, little room for innovation and no understanding of the essential role of risk in adaptation, opportunities for successful adaptation (what we might call prosperity) are intrinsically scarce. Virtually all bets made in this environment will be lost because there is no fertile ground—it’s a desert for opportunity.

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Just two short weeks ago, when Goldman’s head strategist David Kostin announced that on one hand the market’s “stellar return borrowed heavily from the future” and “is now 30%-45% overvalued compared with the average since 1928″, which “logically” led to Kostin’s conclusion that “we lift our year-end 2014 S&P 500 price target to 2050 (from 1900) and 12-month target to 2075, reflecting prospective returns of 4% and 6%, respectively” we said “one can almost feel Kostin’s humiliation at having to pen such moronic drivel.”

Yesterday, in what was probably a case of moronic drivel penner’s remorse, the same firm which just upgraded its S&P price target by 150 points two weeks ago, decided to… downgrade stocks. But only kinda, sorta and only for the next 3 months: Kostin is unwilling to go so far as to tell the whole truth so while he did downgrade stocks to Neutral through October, he is still Overweight equities over the next 12 months. In other words, sell in July but don’t go away, and keep on buying over the next 12 months, or something.

To wit: “We downgrade to neutral over 3 months as a sell-off in bonds could lead to a temporary sell-off in equities. This makes the near-term risk/ reward less attractive despite our strong conviction that equities are the best positioned asset class over 12 months, where we remain overweight.”

Curiously, his reported release moments after our latest warning on High Yield debt was far more harsh on an asset class that has already been beaten down since the most recent round of Fed warnings that there is a corporate bond bubble brewing. As a result, Goldman also downgraded corporate credit “to underweight over both 3 and 12 months. We think spreads will narrow slightly, but given already tight levels, rising government bond yields are likely to dominate the returns, especially for US IG credit where spreads are the lowest.”

Uh, rising government bond yields where? Oh yes, he must be referring to the plunge in the 10 Year from 3% on January 1 to just shy of 2014 lows at under 2.5% today.

Maybe instead of being wrong for all the wrong reasons again (Goldman expected a tiny increase in the S&P 500 to 1900 at the beginning of the year on 3% GDP growth in Q1 – it got the opposite) Goldman can just tell us what its prop trading group is doing. Because while it was clear that GS is selling if it is advising its clients to buy, now that Goldman is both bullish and bearish at the same time, nobody has any idea how to fade the 200 West firm.

Here are the punchlines from the Goldman report:

We downgrade corporate credit to underweight over both 3 and 12 months. We continue to have a benign outlook for spreads and expect a slight further tightening over the coming year as monetary policy remains very accommodative and inflation and macro risks remain relatively low leading to a strong search for yield. However, spreads are now so tight that carry and further spread compression offer a relatively low offset against the rise we expect in the underlying government bond yield, especially for US investment grade credits. This tension between total return and spread return expectations have existed  for a while, but the latest developments have shifted the balance between these two forces far enough for us to prefer a credit underweight, given that our credit portfolio puts 60% weight on US investment grade.

And stocks:

We also downgrade equities to neutral over 3 months. We are concerned that a sell-off in government bonds will lead to a temporary sell-off in equities in line with what we saw last summer, though the magnitude is likely to be smaller as the need for bond yields to correct is lower than it was back then. At the same time, on our forecasts the acceleration of economic growth is now largely behind us, with any further expansion being very  small compared to what we have seen. We see an environment where growth is sustained around current levels as being positive for equities over the longer term, but would expect the pace of returns to slow down relative to the strong performance we have seen over the last couple of years. This suggests that the forgone return by lowering the equity exposure temporarily if equities continue their grind higher is likely to be lower than it has been. This is particularly true in the US where earnings and valuations are at high levels, and where data surprises are already very positive. Our MAP index of data surprises here is close to its highest levels over the last couple of years (Exhibit 2). Over the longer term we still see equities as the best positioned asset class, and remain overweight over 12 months. We would see any sell-off over the next few months as an opportunity to increase exposure again also on a short-term basis.

 

Whereas absolute valuations are on the high side, relative valuations remain attractive. The gap between dividend yields and bond yields is still high and our estimates of equity risk premia ranges from 5.2% in the US to 8.5% in Asia ex-Japan. We expect continued compression of these high premia to offset the rise in bond yields over the longer term and therefore think valuations should be relatively steady even as bond yields rise. This leaves earnings as the key driver of returns in our view. Whereas earnings were revised down across all markets except Japan at the beginning of the year, they have now stabilised in all regions except Europe, where the downward revisions have continued. This stabilization is supportive of our forecasts for earnings growth which are roughly in line with consensus in all regions except for Japan where we are more optimistic. We are concerned about the continued downward revisions in Europe and see this as a key risk to our overweight here. But, we expect both a slight improvement in European economic growth for the rest of the year as well as the currency depreciation to lead to a stabilisation of earnings.

In short: yet another person who applies some logic and fundamentals to predict the future of a market that is so broken and centrally-planned that only the NY Fed trading desk at Liberty 33 has any idea what is going on any more. The same trading desk which on one hand sells VIX courtesy of Citadel and on the other accuses the market of complacency.

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While it was already reported that the black boxes of flight MH 17 were supposedly not tempered with, despite early propaganda attempts via planted YouTube clips to claim otherwise (clips which have since disappeared replaced by other propaganda), the question of what the data recovery team operating in London would find was unanswered, until earlier today when CBS reported that “unreleased data” from a black box retrieved from the wreckage of Malaysia Airlines Flight 17 in Ukraine show findings consistent with the plane’s fuselage being hit multiple times by shrapnel from a missile explosion.

“It did what it was designed to do,” a European air safety official told CBS News, “bring down airplanes.”

 

The official described the finding as “massive explosive decompression.”

Of course none of this is surprising, and has been widely known from the beginning: it was also widely known that the black box would provide no additional information on the $64K question: whose missile was it, and was it a missile launched from the ground or an air-to-air missile fired by a fighter jet.

Perhaps a better question is who is leaking the “unreleased data” and what propaganda is it meant to achieve in what is, as we said a week ago, nothing but a propaganda war on both sides.

As for the real questions the “released” black box data will hopefully reveal, they remain as follows: i) why was the plane diverted from its original flight path; and ii) what was said between the pilots and air traffic control in the minutes before the crash. Recall that the Ukraine secret service confiscated the ATC conversation logs a week ago, and the fate of said conversations has been unknown ever since, something that Malaysian Airlines revealed to the public promptly after its other, just as infamous plane anomaly, flight MH 370 disappeared forever from radar.

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While it was already reported that the black boxes of flight MH 17 were supposedly not tempered with, despite early propaganda attempts via planted YouTube clips to claim otherwise (clips which have since disappeared replaced by other propaganda), the question of what the data recovery team operating in London would find was unanswered, until earlier today when CBS reported that “unreleased data” from a black box retrieved from the wreckage of Malaysia Airlines Flight 17 in Ukraine show findings consistent with the plane’s fuselage being hit multiple times by shrapnel from a missile explosion.

“It did what it was designed to do,” a European air safety official told CBS News, “bring down airplanes.”

 

The official described the finding as “massive explosive decompression.”

Of course none of this is surprising, and has been widely known from the beginning: it was also widely known that the black box would provide no additional information on the $64K question: whose missile was it, and was it a missile launched from the ground or an air-to-air missile fired by a fighter jet.

Perhaps a better question is who is leaking the “unreleased data” and what propaganda is it meant to achieve in what is, as we said a week ago, nothing but a propaganda war on both sides.

As for the real questions the “released” black box data will hopefully reveal, they remain as follows: i) why was the plane diverted from its original flight path; and ii) what was said between the pilots and air traffic control in the minutes before the crash. Recall that the Ukraine secret service confiscated the ATC conversation logs a week ago, and the fate of said conversations has been unknown ever since, something that Malaysian Airlines revealed to the public promptly after its other, just as infamous plane anomaly, flight MH 370 disappeared forever from radar.

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Against the major currencies, the US dollar had a good week.  It appreciated across the board, with two minor exceptions.  The Swedish krona continued to recover from the slide spurred by the larger than expected 50 bp rate cut at the start of the month.  A few data points, including June manufacturing PMI and June CPI were stronger than expected, and helped ease stagflation fears.  

 

The other exception was the Australian dollar, which sill managed to eke out a marginal gain after pulling back three-quarters of a cent in the last two sessions of the week to test $0.9400.   The gains had been sparked RBA minutes that did not show heightened concern about the Australian dollar, even though on its trade-weighted index was approaching the year’s high and buying on against the yen (on carry ideas).   The lower end of the Australian dollar’s recent range comes in near $0.9330.  

 

The New Zealand dollar was the weakest of the majors.  It fell 1.6% on the week following indications that the RBNZ was on hold after delivering a 25 bp rate hike at its fourth consecutive meeting.  The Australian dollar was bought against the New Zealand dollar and exploded through the 200-day moving average (~NZD1.0875). 

 

Both the euro and sterling lost 0.7% against the dollar.  While we had anticipated the latter’s weakness, we were leaning the other way on the former.   We had recognized the risk that the euro would break through the $1.3470-$1.3500 band of support.  Any fraying would be shallow and short as the speculative market was already very short euros, and Asian central banks were reportedly taking advantage of the setback to diversify some of the recently accumulated reserves.  

 

Despite these misgivings, the price action should be respected.  The break of the support, which included the weekly trend line was not ambiguous.  On one hand, it means that the former support should now act as resistance.  On the other hand, it means downside targets need to be reassessed.  We had initially suggested $1.34 would be the initial target on a break of the $1.3470-$1.3500 support.  However, the poor close before the weekend, and the technical indicators warn that the downside has not been exhausted.  Below $1.34, the $1.3350-75 area may slow the euro’s descent.  

 

Sterling also had a poor weekly close, and although it is not traded below the $1.6950 target we suggested, new losses next week should be anticipated.  While the euro’s downside pressure is coming from new shorts, sterling is moving lower as previously accumulated longs liquidate.  A break of $1.6950 opens the door to $1.6885-$1.6900.  

 

The dollar was turned back as it approached JPY102 before the weekend, which corresponds to the 20-week moving average and the middle of the JPY101-JPY103.  This range has confined the dollar with two minor exceptions for nearly four months.   

 

The dollar-yen has two external drivers.  US 10-year Treasury yields were unchanged on the week, giving the dollar little fresh impetus.  In fact, the 10-year yield has not closed above its 20-day moving average (~2.53%) since the July 2.  Next week is an important week for US economic data (FOMC meeting, ISM, auto sales and monthly jobs report), and they can be expected to provide direction.   The other external spur is the equity market. 

 

The S&P 500 finished slightly lower on the week, but the technical tone warns of downside risk.  After setting record highs on July 24, the S&P 500 gapped lower on July 25.  The gap exists between 1984.60 and 1985.79.  The longer the gap goes unfilled, the more negative is the technical implication.  The sharp losses recorded before the weekend in both Europe and North America bodes ill for the Tokyo opening on Monday.  

 

After the Kiwi, the Canadian dollar was the worst performing of the major currencies, losing about three-quarters of a percent against the US dollar last week.   More than three-quarters of those losses took place just before the weekend.  As we have noted, there had been a large build of speculative long positions, evident in the future market.   The currency losses came despite the S&P/TSX Composite rallying for the last four sessions to post new record highs. 

 

It is hard to identify the proximate cause of the Canadian dollar’s decline that lifted the greenback above CAD1.08 for the first time in a month.  It may have been in sympathy with the decline in the other dollar-bloc currencies or in reaction to the latest sanctions against Russia that the Canadian government announced.  However, one might have expected the sanctions to have weighed on equities as a more direct knock-on.  

 

Lastly, the Mexican peso continues to move in narrow ranges.  Given the yield pickup, the bulls can afford to be patient.  The dollar has not traded below MXN12.90 since June 9.  It has closed above MXN13.00 once in the past month.  Technical indicators are not generating strong signals.

 

Observations based on the speculative positioning in the futures market:

 

1. There were three significant position adjustments (more than 10k contracts) in the latest Commitment of Traders report covering the week ending July 22. There was a 24.2k contract jump in the gross short euro position to 147k contracts. This is the largest gross short position since September 2012. Gross long sterling positions were culled by a little more than 14k contracts to just under 72k. The gross long peso position grew by a 12k contracts to almost 99k. Of the remaining 11 gross positions we track, ten changed by less than 4k contracts.

 

2. Although weekly position adjustments have been small, net positions are significant. The net short euro position of almost 89k contracts is the largest since late-2012. The almost 54k net short yen contracts are the least since late May. The net long sterling position of 27.5k contracts is the smallest since late March. The net Swiss franc position of 7.4k contracts is the largest since 2013. Speculators are long a net 20.6k Canadian dollar futures contracts, and that is the largest since February 2013.

 

3. Of the seven currency futures we track, the gross long position was generally added to in the last reporting period. The exceptions were the euro that saw a small liquidation (1.4k contracts) and sterling, which as we noted above experienced a large decline (14.2k contracts) in gross longs. There was not a clear pattern among the gross short positions.

 

4. The net short 10-year Treasury bond futures was reduced to 38.2k contracts from a net short 53.6k contracts the previous period. However, this does not reflect fewer gross shorts. To the contrary, the gross short position increased by 26.4k contracts to 505.6k. The gross longs stuck to their guns and added almost 42k contracts to 467.4k. The reduced net short position was the result of new longs were added to more than new shorts.

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