Month: November 2014

Submitted by Cary Wedler via Alt-Market.com,

A recently published FBI report accidentally proves that while the police claim cops face growing threats from rowdy populations–like in Ferguson–the opposite is true. The report presents law enforcement deaths in 2013.

The report found that across the entire country, only 76 LEOs were killed in “line-of-duty” incidents. 27 died as a result of “felonious” acts and 49 officers died in accidents–namely, automobile (ironically, of the 23 killed in car accidents, 14 were not wearing seat belts–a violation for which cops routinely ticket drivers). More officers die from accidents than actual murders on the job. The report also outright admits that intentional murders of cops were down from 2004 and 2009.

Further, 49,851 officers were assaulted–a statistic that seemingly proves police are at risk. 29.2%, or 14,556, were actually injured (an admittedly high number). Still, a suspect fact is that 79.8% of the time, “assailants used personal weapons (hands, fists, feet, etc.).” This means that in a vast majority of cases, there was no physical evidence that assault occurred (outside of potential bruises and cuts,but this information is not public). Punches and kicks can be damaging, but nowhere near firearms and knives, which constituted a very small percentage of “assaults.” The report also does not specify what constitutes an “injury,” making designations of injury potentially arbitrary and subjective.

This means that the common police tactic of misrepresenting scuffles and charging people with assault could be at work (such as when a cop squeezed the breast of an Occupy protester so hard he left a bruise and in the chaos, she accidentally elbowed a cop. She went to jail for “assaulting” an officer). Of course, it’s a possibility that all 49,851 officers were simply “doing their jobs,” but at the very least it is important to be skeptical.

But besides direct contradictions to the logic behind institutional myths of heroic cops and dangerous bad guys, what are the implications of this FBI report?

First, that police are schizophrenic in their belief that they are in danger (this fear is proven in the recent Ferguson protests and presence of the National Guard). The overzealous militarization of local cops is enough to prove that they might as well be hiding under blankies from the American populace in spite of the fact thatviolent crime has been dropping for decades.

However, considering how well cops are armed and how efficiently the justice system protects them from prosecution for their crimes, they prove to be paranoid. 27 police officers in a country with over 300 million people died last year. Law enforcement deaths-by-murder are included in the 49,851 “assaults” against officers, which means that .05 (half a percent) died as a result of alleged attacks. Crime against cops has dropped to a 50 year low. It’s more dangerous to drive a car than be a cop (this is bolstered by the fact that the number of cops who died in car accidents almost equals the total number of cops murdered–23 to 27).

Second, militarization is working for the police. It is not working for the rest of us. Though there is little reliable, official data about the number of people police kill every year, tenuous reports claim it is around 400. This is already almost 15 times more than police who are intentionally killed. However, the 400 figure is a result of 17,000 local police agencies being allowed to self-report. The numbers could be far higher.

As Tech Dirt said of a 2008 FBI report that found cops had killed 391 people in 2007:

“That count only includes homicides that occurred during the commission of a felony. This total doesn’t include justifiable homicides committed by police officers against people not committing felonies and also doesn’t include homicides found to be not justifiable.

But still, this severe undercount far outpaces the number of cops killed by civilians.”

The number of “justifiable” homocides was on the rise in 2008 (to be fair, it was rising among private citizens as well) in spite of the inconvenient fact that overall crime has been declining.

Unfortunately, the most important implication of the FBI report is the simple fact that the report exists. When the FBI takes the time to construct a meticulous report (you can read more details here) of all the ways that a tiny percentage of cops were killed–but cannot be bothered to officially count civilian deaths at the hands of cops, the reality is obvious:

The governemnt places a higher priority on their own than on the lives of those they claim to “serve,” “protect,” and “work for.” It cares more about exonerating the police of their crimes than providing justice to those they abuse. There is no justice when the criminal is the cop.

via Zero Hedge http://ift.tt/1vz0cH4 Tyler Durden

It’s never different this time…

Source: Armstrong Economics

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From exuberant credit-fueled cycle highs in July, China's official Manufacturing PMI has done nothing but drop as the hangover-effect from the credit-impulse weighs once again on the now commodity-collateral crushed nation. At 50.3 (missing expectations of 50.5 for the 2nd month in a row), this is the lowest print since March. All 5 components dropped led by notable weakness is outout and new orders (new export orders biggest MoM drop in 17 months) with medium- and small-enterprises heading deeper into contraction (at 48.4 and 47.6 respectively) as the Steel industry PMI craters to 43.3. Japan's PMI dropped marginally to 52 and then HSBC's China Manufacturing confirmed the government data and flash reading with a 50 print – the lowest since May as New Export Orders growth slowed for the 2nd month.

And HSBC China Manufacturing at the lowest since May

Of course, this weak data is great news…

“The HSBC China Manufacturing PMI fell to a six-month low of 50.0 in the final reading for November, down from 50.4 in October and unchanged from the flash reading. Domestic demand expanded at a sluggish pace while new export order growth eased to a five-month low. Disinflationary pressures remain strong while the labour market weakened further. Today's data suggest that the manufacturing sector lost momentum and point to weaker economic activity in November. The PBoC's rate cuts, delivered on the 21st November, will help to stabilise property and manufacturing investment in the coming months. We continue to expect further monetary and fiscal easing measures to offset downside risks to growth.”

*  *  *

Then it was Japan's turn as its PMI fell slightly, remaining oddly flat around 52 for the last 4 months – “However, the outlook for Japanese goods producers remains uncertain amid the weakening currency, the postponement of the planned sales tax increase and the upcoming election.”

But of course – it wouldn't be Japan if the nations leaders were not spewing utter bullshit once again…

• *HAMADA SAYS ABENOMICS HAS BEEN SUCCESSFUL
• *HAMADA: ABENOMICS'S 1ST, 2ND ARROWS ARE WORKING FINE
• *HAMADA:JAPAN ECONOMY EXPECTED BE BACK TO NORMAL IN 1-2 QUARTERS

Unbelievable!! The economy is imploding and still they are 'allowed' to utter this tripe in what appears a total lack of financial media attention to facts.

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Submitted by Robert Murphy via Mises Canada,

The fun thing about Paul Krugman is that you often can use his own charts against him. For a recent example, consider the issue of “sticky wages.” One of the typical complaints against a hardline “the market always clears” position is to say that, for whatever reason, employers are reluctant to actually reduce nominal wage rates. Therefore – the interventionist argument goes – the normal mechanisms of market recovery to a drop in demand don’t work if the new market-clearing wage rate is lower than before. This leads to involuntary unemployment because the market is simply stuck. Therefore, we need the State to come in and run budget deficits to boost Aggregate Demand.

In a recent post, Krugman thought he laid down a trump card making this point, with the following commentary and chart:

But there’s a lot of denial out there. Recently David Glasner deconstructed a WSJ op-ed calling for a return to the gold standard, which was as out of touch as you might expect. But what got me was the approving citation of Robert Mundell from 1971 (!) declaring that the Keynesian model was irrelevant to modern economies because it assumed pessimistic expectations and rigid wages. Right: no pessimism out there these days. And no sticky wages; oh, wait:

 

 

I mean, seriously, at this point even long-time skeptics about short-run wage and price stickiness are coming around in the face of overwhelming evidence.

Now look more closely at that chart Krugman posted. In case it’s not obvious, Krugman’s point is that the distribution of wage changes in 2011/12 shows a big spike at 0%. In contrast, the changes in 07/08 looked more like a bell curve. Therefore, the obvious implication is that the wage changes that “should” have been negative got piled up at the 0% mark, because those employers were reluctant (for whatever reason) to actually reduce nominal wages; instead they merely kept wages constant.

Now that we understand the claim Krugman is making, we have to ask, Is this really decisive when it comes to the issue of allowing labor markets to clear on their own? If we assume (as Krugman himself seems to be doing) that the red wage distribution “should” have been like the blue one, only shifted to the left, then the presence of the 0% boundary looks as if it bulked up the distribution of changes by about 13 percentage points or so, higher than what it “should” have been at the 0% mark. Just eyeballing the chart, from 2011-12 in Spain more than half of the labor force saw an increase in their nominal wages, and there were still about 20 percent or so who saw a reduction in nominal wages. (Since the people who saw no change represented about 28 percent, that means the other two groups have to add up to 72 percent.)

Indeed, the chart shows that around 5 percent or so of the labor force saw a one-year drop in wages between 5 and 10 percent. That’s a pretty big drop, for 5 percent of the labor force, when we’re talking about “sticky wages.”

All in all, Krugman’s chart about Spain suggests to me that there’s nothing inherent in market economies per se that prevents nominal wages from falling. In practice, at best the case of Spain shows that 13 percent (or so) of the labor market had its wage adjustments significantly hampered by this psychological barrier.

That means we can now go back to Krugman and spit this in his face, right? Ha ha, innocent reader, if you thought that, it shows you don’t know Krugman. For example, when Chicago’s Casey Mulligan wrote a critique of the (New) Keynesian position, in which Mulligan assumed sticky wages and prices were central to their case, Krugman responded in a post entitled “Why Casey Can’t Read”:

If he had read anything — anything at all — that Keynesians have written about policy at the zero lower bound, he would have learned that there is no reason to expect falling wages and prices to raise employment — in fact, quite the contrary in the face of a debt overhang.

 

If Mulligan wants to argue that point, fine — but he presents as “the New Keynesian position” something that is just what he imagines, on casual reflection (or, again, maybe after talking to some guy in a bar) to be the New Keynesian position.

 

OK, so from now on I’ll assert that the Chicago position on unemployment is that we can cure it by sacrificing goats.

This would be a great analogy, if Casey Mulligan had posted graphs of goat sacrifices in Australia in a discussion of why they didn’t get hurt so bad in the crash.

In summary:

(1) Krugman can’t believe the idiots who try to reject the Keynesian policy prescriptions by denying that there are sticky wages and prices. Just open your eyes, guys! Wages are clearly sticky and so the classical solutions fail; that’s why we need bigger government deficits.

 

(2) Krugman can’t believe the idiots who try to reject the Keynesian policy prescriptions by looking at the empirical relevance of sticky wages and prices. Try reading what the Keynesians are actually writing, you liars! If wages fell it would exacerbate nominal debt burdens; that’s why we need bigger government deficits.

 

(3) The empirical evidence for the need for bigger government deficits is overwhelming at this point. The Keynesian model came through this crisis with flying colors. Anyone who denies that is a knave or fool.

*  *  *

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Presented with no comment…

Source: Cagle Post

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From a tactical point of view, Saxobank's CIO Steen Jakobsen lives in a very simple world:

''A great deal of intelligence can be invested in ignorance when the need for illusion is deep” — Saul Bellow

Core trading view

 

Ten-year bond yields (US) will continue lower into the second quarter of 2015. I see acceleration to the downside, mainly in the US where 10-year yields could hit 2.00% and bottom out at 1.5% by Q2 as GDP comes off (relative to “lift off” consensus).

• European factors: Lower than anticipated growth in Germany (China rebalancing, lower US current account deficit and EZ overall); the impact of the Russian crisis is only beginning to impact the real economy, and of course there is the deflation (which the European Central Bank promised us would never happen…).

• US factors: Energy sector moving towards default and closing down capacity, subtracting 0.3-0.5% from GDP, plus a lackluster housing market (despite record low mortgage rates), plus contraction in monetary aggregate…

• Chinese factors: Despite reserve requirement ratio cuts, the economy is already at 5.0% in real terms and without reform in health care(why people save money), competition (anti-corruption) and deeper capital markets (sort of happening), the marginal change will continue to be negative. 

• Emerging markets factors: A strong US dollar is the last thing emerging markets need. It’s a de facto tightening of monetary policy at a time when “export markets” continue to weaken. 

The world is barely surviving at an average yield of 1.5-2.0% . Markets forget that we have two drivers of growth: the US and emerging markets. EM are under pressure as we end 2014, forced into the defensive by a lack of reforms but also a much stronger US Dollar. This means the “mean-reversion” trade is for 2015 is for a weaker US dollar to rebalance towards EM growth as the path of least resistance.

 

I have no doubt that EM will become a major buy sometimes in Q2 when world is off the concept of an ever-stronger US dollar based on a growth lift-off that is never coming.

 

EEM (iShares MSCI EMG) vs. S&P 500 — S&P lead by 11%+ (reversal in 2015?)

Source: Yahoo! Finance

 

The never-ending illusion of “lift off” for the US economy

 

Again, the revised data for US GDP shows Real Personal Consumption expenditures increased 2.2% in the third quarter — a much better (the only reliable) indicator of growth as inventories, investment and trade generally add up to zero over a full year. In other words, where RPCE goes, so does the US economy. Too see why this is, please see the composition of GDP in the US here:

 

Source: Federal Reserve Economic Data

 

US growth has been 2% (plus or minus) since the financial crisis started, this year it will be 2%… and next year? Two percent is nowhere close to the 3-4% expected by the markets building on “surveys” and feel-good factors. Trust me, as someone who spent too much time travelling this year, the world is worse off, not better.

 

I meet frustration, lack of access to credit and near-desperation when the question concerns asset allocation, but… 2015 looks like a year of change. The Federal Open Market Committee will definitely continue to sell the “pipe dream” of normalisation, while the Bank of Japan is done and toast. 

 

Why anyone believes printing money will leave Japan better off is a mystery to me. Compare the FX policies of Switzerland and Japan: One has an ever-rising currency (Switzerland) which forces its “Mittelstand” (small and medium-sized enterprises) to be flexible, productive and acquisitive; the other (Japan) has tried to intervene in its currency in order to avoid changes and reforms.

 

 

On offer from Tokyo: smoke, mirrors and currency intervention. Photo: iStock

 

No, if there is any reality left in the world the market will realize — by its mistaken support for long USDJPY positions — that productivity gains and competitive edges are driven by the “need” to change… not from isolation but from cause and effect (but that’s also a 2015 story).

 

In closing I have very little positions — the stock market is on a mission to kill the shorts (which will probably succeed), the FX market believes in Santa Japan and the ECB continues to do nothing but talk… but for now it’s enough to sell the product, which is risk-on at all costs.

 

The correction will be deeper and deeper as the market is dislocated through zero interest rates and an investing crowd that is rewarded for throwing all conservative risk rules overboard in a year where we again have double digit gains on… low interest rates.

 

Let’s hope the ECB plays ball for the market to buy some more time; for now we are playing musical chairs, and when the music stops, more than one chair will be missing…

 

Positions

 

• 75% of risk is long fixed income (mainly US FI).
• 10% risk in equities, mainly mining plays (Alcoa & Fortescue); looking to add VALE and others in sector on inflation expectations hitting rock bottom in Q1.
• 5% long silver, bought on sell-off.
• 5% natural gas, preparing for a long and cold winter.
• 5% upside optionality in EUR c USD p.

 

How bad are things? Well, let me give you my starting slide from a presentation done in November:

 

Source: Saxo Bank

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The entire commodity complex is seeing major contagion-like price declines in early trading. WTI Crude is back below $65 for the first time since May 2010 – now down 16% since the initial leaks of OPEC’s decision last Wednesday. Gold and Silver are getting whacked and copper has plunged below 300 – back at its lowest since June 2010. The news over the weekend that Brevan Howard is liquidating its $630 million commodity hedge fund following recent poor performance is also likely not helping as what looked like late-Friday margin call liquidations are extending notably this evening.

As The Wall Street Journal reports,

Brevan Howard Asset Management LLP plans to close its commodity hedge fund following recent poor performance, according to two people familiar with the matter.

 

The fund, managed by Stephane Nicolas, has $630 million in assets. It lost 4.2% last year and is down 4.3% this year to the end of October, according to performance data reviewed by The Wall Street Journal.

 

It is not clear what Mr. Nicolas’s role might be following the commodity fund’s closure, a person familiar with the matter said. Attempts to reach Mr. Nicolas were unsuccessful.

 

Brevan Howard is among Europe’s largest hedge fund managers with about $37 billion in assets.

*  *  *

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Submitted by Adam Taggart via Peak Prosperity,

When we wander over to the third E in this story – the Environment – we note two things: both the increasing demand of exponentially more resources being extracted from the ground and exponentially more waste being put back into various ecosystems.

Because we are trying to assess here whether we can justify ever-increasing amounts of money and debt, for now let's just concern ourselves with the resources we take from the natural world to support our global economy.

Oil is not the only essential resource that is fast becoming more expensive to produce, harder to find, or both. In fact, we see an alarming number of examples depletion of critical resources that almost exactly mirror the oil story.

First we went after the easy and or high quality stuff, then the progressively trickier, deeper and or more dilute stuff.

The bottom line is this: we, as a species, all over the globe, have already mined the richest ores, found the easiest energy sources, and farmed the richest soils that our Environment has to offer.

We have taken several hundreds of millions of years of natural ore body, fossil energy deposition, aquifer accumulation, soil creation, and animal population growth — and largely burned through them in the few years since oil was discovered. It is safe to say that in human terms, once these are gone, man, they’re gone.

So, if we are getting less and less net energy for our efforts, and the other basic resources we need to support exponential economic growth are requiring a lot more energy to extract because they are depleting, then does it make sense to keep piling up exponentially more money and debt? Isn't it just common sense to observe that money and debt have to exist in some sort of relationship and proportion to primary and secondary wealth?

For those who simply don't want to wait until the end of the year to view the entire new series, you can indulge your binge-watching craving by enrolling to PeakProsperity.com. The entire full new series, all 27 chapters of it, is available — now– to our enrolled users.

The full suite of chapters in this new Crash Course series can be found at http://www.peakprosperity.com/crashcourse

And for those who have yet to view it, be sure to watch the 'Accelerated' Crash Course — the under-1-hour condensation of the new 4.5-hour series. It's a great vehicle for introducing new eyes to this material.

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Stocks today are overvalued by any reasonable valuation metric.

If you look at the CAPE (cyclical adjusted price to earnings) the market is registers a reading of 27(anything over 15 is overvalued). We’re now as overvalued as we were in 2007. The only times in history that the market has been more overvalued was during the 1929 bubble and the Tech bubble.

Please note that both occasions were “bubbles” that were followed by massive collapses in stock prices.

Source: http://www.multpl.com/shiller-pe/

Then there is total stock market cap to GDP, a metric that Warren Buffett’s calls tge “single best measure” of stock market value.

Today this metric stands at roughly 130%. It’s the highest reading since the DOTCOM bubble (which was 153%). Put another way, stocks are even more overvalued than they were in 2007 and have only been more overvalued during the Tech Bubble: the single biggest stock market bubble in 100 years.

Source: Advisorperspectives.com

1)   Investor sentiment is back to super bullish autumn 2007 levels.

2)   Insider selling to buying ratios are back to autumn 2007 levels (insiders are selling the farm).

3)   Money market fund assets are at 2007 levels (indicating that investors have gone “all in” with stocks).

4)   Mutual fund cash levels are at a historic low (again investors are “all in” with stocks).

5)   Margin debt (money borrowed to buy stocks) is near record highs.

In plain terms, the market is overvalued, overbought, overextended, and over leveraged. This is a recipe for a correction if not a collapse.

If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis "Round Two" Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.

You can pick up a FREE copy at:

http://www.phoenixcapitalmarketing.com/roundtwo.html

Best Regards

Phoenix Capital Research

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We have previously discussed the implications that tumbling crude oil prices will have not only on some of the most levered companies with exposure to Brent prices, namely the vast majority of the US energy space with outstanding junk bonds which, as we explained before, should WTI drop to $60, it would “Trigger A Broader HY Market Default Cycle” (based on a Deutsche Bank analysis) leading to pain across the entire credit market (and in the process impairing the stock-buyback machinery which companies aggressively use to artificially boost their stock price), as well as on oil-exporting nations, whose economies are assured to grind to a halt leading to broad social unrest or worse, and lastly, on global asset liquidity, which is set to contract even more now that for the first time in over a decade, the net flow of Petrodollars will be an outflow (as explained in How The Petrodollar Quietly Died, And Nobody Noticed).

And while much has been said about the “benefits” the US economy is poised to reap as a result of the plunge in gas prices, which has been compared to a major tax cut (whatever happened to the core Keynesian tenet that “deflation” is the worst thing that can possibly happen) on the US consumer, almost nothing has been said about the adverse impact on US GDP as a result of tumbling fixed investment spending and CapEx.

The reason, clearly, is that the collapse in new investment will more than offset the boost from incremental household spending.

Here are the facts, per Deutsche Bank:

US private investment spending is usually ~15% of US GDP or $2.8trn now. This investment consists of $1.6trn spent annually on equipment and software, $700bn on non-residential construction and a bit over $500bn on residential. Equipment and software is 35% technology and communications, 25-30% is industrial equipment for energy, utilities and agriculture, 15% is transportation equipment, with remaining 20-25% related to other industries or intangibles. Non-residential construction is 20% oil and gas producing structures and 30% is energy related in total. We estimate global investment spending is 20% of S&P EPS or 12% from US. The Energy sector is responsible for a third of S&P 500 capex. 35% of S&P EPS from investment and commodity spend, 15-20% US

 

 

In short, while nobody knows just how many tens of billions in US economic “growth”, i.e., GDP, will be eliminated now that energy companies are not only not investing in growth spending or even maintenance, being forced to shut down unprofitable drilling operations and entering spending hibernation territory, the guaranteed outcome is that US GDP is set to slide as the CapEx cliff resulting from Brent prices dropping below the $75/bbl red line under which shale is broadly no longer profitable will offset any GDP benefit unleashed from the “supposed” increase in consumer spending (supposed because according to the latest NRF numbers, Thanksgiving spending was not only well below last year (with the average consumer spending $380.95 over Thanksgiving compared to $407.02 a year ago) but below even our worst case forecasts. So just where are all those external benefits to US retailers as a result of crashing gas prices?

Rhetorical questions aside, the real question is just how much will said GDP slide ultimately be? Sadly, this too will be one question the BEA will never answer, as instead the upcoming GDP plunge will be blamed once again on inclement weather as opposed to actually analyzing what is truly happening as America’s transformation to an oil-producing (and maybe exporting) powerhouse, is so rudely interrupted.

The only good news: the resulting surge in America’s trade deficit as the US is forced to import more crude in the coming months, will provide just the catalyst for the Fed to return to the game and resume monetizing the US budget deficit, which is poised to commence rising once again.

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