Month: April 2016

It wasn’t until a week ago that the loud calls for the Bank of Japan to do much more easing came loud and strong, because it was last Wednesday when Goldman announced it had changed its base-case scenario from one of a June easing to making “easing in April our base-case scenario, given the rising risk that business confidence has been dented by recent financial market instability and the Kumamoto earthquakes, and in view of BOJ governor Haruhiko Kuroda’s recent proactive statements on possible additional easing in response to the sharp deceleration in inflation in April.” At that moment many Wall Street sellside lemmings promptly followed in Goldman’s footsteps and likewise made April their base easing case.

Incidentally, moments ago Japan reported its latest March inflation data, according to which prices excluding fresh food slumped 0.3% from a year earlier, the biggest drop since April 2013, suggesting Japan’s deflationary black hole is once again sucking everything in and the BOJ may have no choice but to act.

It was also one week ago when Goldman proposed that what the BOJ would most likely do was neither more QE (due to collateral limitations) nor more NIRP (due to its devastating effect), but double the pace of ETF purchases:

The main issue for the BOJ, in our view, will be the means of applying additional easing. From an exchange rate perspective, the most effective means would be to widen the negative interest rate. However, financial institutions have not reacted positively to negative interest rate and we think there is a general unease among the population with respect to the policy, so we think the BOJ is unlikely to take rates deeper into negative territory at this stage.

 

Another option would be to increase quantitative easing by again stepping up JGB purchases (currently at the rate of 80 trillion yen per year), but the marginal effect would be minimal as the decline in the yield curve is already more than sufficient, and we think additional expansion would even risk giving the impression that the BOJ is closer to the limit of purchasing JGBs at the current pace.

 

By a process of elimination, we think the BOJ is most likely to ease mainly via the qualitative measure, with increasing ETF purchasing the central pillar, with a view to improving business confidence. We think the market is already factoring in an increase in annual purchasing from ¥3.3 tn to ¥5-6 tn, and we thus think the BOJ may look to slightly more than double its current figure to around ¥7 tn.

Goldman floated one more option, namely the “possibility that the BOJ may combine the expansion of ETF purchases with a cut in the interest rate of its loan support scheme.” Incidentally this is precisely the “trial balloon” which the BOJ floated via Bloomberg the next day, sending the USDJPY higher by 300 pips – the most since the announcement of QQE – and since the market reaction to that particular “leak” was so positive, it stands to reason that this a combination of rate cuts on bank loans coupled with an increase in ETF purchases is what Kuroda will announce in a few short hours.

Then, perhaps to set an even bid/ask range, earlier this week Goldman’s FX team came out with an absolutely outlandish research report, according to which the Bank of Japan would go so far as unleashing helicopter money to push the USDJPY to 130 for one simple reason: “the BoJ is already so long into ‘the reflationary trade’ that it has to continue to deliver further accommodation for the time being.“

Basically, what Goldman is saying is the BOJ has to crush its currency today at all costs or risk losing even more credibility after the January NIRP fiasco.

We doubt that the BOJ will unleash helicopter money today, but it may well boost the amount of equities it purchases by doubling its ETF purchases and it certainly may cut the interest rate of its loan support scheme to benefit Japan’s banks.

Incidentally, this is what consensus looks like ahead of today’s BOJ decision due out in just a few short hours:

Of 41 respondents, 19 predict an increase in purchases of exchange-traded funds, eight expect a boost in bond buying, and eight project the BOJ will cut its negative rate.

This also means that a majority predict the BOJ will do nothing, which judging by the recent pent up market expectations of a major BOJ easing event would likely send the USDJPY plunging, which is ironic considering what Japan has already done to its monetary base and the BOJ’s balance sheet…

 

But if the BOJ does disappoint, and one thinks it will, how should one trade it? For the answer we go to Credit Suisse whose strategists Shahab Jalinoos and Bhaveer Shah write that they suspect there is enough upside risk in the price for USD/JPY to allow for a decent move lower if the BOJ disappoints the market, adding what we said above, namely that the market is pricing in a higher probability of action this week than the economics consensus appears to suggest.

This is how they would trade it:

• Buy a 3 May 16 expiry 107.80 strike USD put/JPY call for ~0.185% of notional (spot ref: 111.37)
• Both 1-wk implied vol and the risk-reversal skew bid for USD calls/JPY puts suggest market pricing in a risk of a pop higher in USD/JPY after the BOJ that is meaningful compared to historical precedent
• A comparison with the same indicators in the 3-mo. tenor suggests risk is concentrated around BOJ decision
• The trade would also perform if FOMC is more dovish than generally expected at its April 27 meeting
• Risk to the trade is limited to the upfront premium
• If BOJ were to expand the balance sheet with a domestic asset price and credit creation focus as opposed to an explicit attempt to weaken the JPY, the infrequently seen phenomenon of both a stable JPY and a stronger Nikkei could transpire

But the biggest argument for a BOJ disappointment is that with the G7 meeting in Japan in on month on 26–27 May 2016, it’s unlikely that Japanese policymakers will want to draw attention yet again to the idea that they are in the business of manipulating the JPY lower. After all the most recent G20 meeting once again confirmed that absent “disorderly moves” in the Yen, the US would frown on any attempt to dramatically manipulate its currency lower.

Unless, of course, Abe wants to send Lew and Obama a message, that if China can enjoy a weaker dollar (courtesy of its USD peg), then so should the Bank of Japan.

In any case, for those who do think the Bank of Japan will disappoint tonight, that is how to profit.

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Submitted by Brandon Smith via Alt-Market.com,

It’s been about 15 years now since passenger airliners struck the World Trade Center towers on 9/11, and we are still suffering the consequences of that day, though perhaps not in the ways many Americans might believe.

The 9/11 attacks were billed by the Bush Administration as a “wake-up call” for the U.S., and neocons called it the new Pearl Harbor. But instead of it being an awaking, the American public was led further into blind ignorance. The event launched wars throughout the Middle East, energized by a strike-first doctrine which was supposed to bring unprecedented “democracy” to the region. Instead, the Middle East has now become as unstable as it was during WWII.

The penchant for Western governments to fund and train terrorist groups is now verifiable mainstream fact rather than being considered “conspiracy theory” as was the common accusation back in 2001. Pentagon papers outlining support for the formation of ISIS are available for anyone to read. The only disconnect that the public still seems to suffer from is that orthodox Republicans fail to recognize that the support for Islamic terrorism has been just as prevalent under Republican presidents (al-Qaeda) as it has been under Barack Obama. And, Democrats refuse to recognize that Barack Obama has been guilty of all the same criminal foreign policies they used to protest under George W. Bush.

There have been substantial economic consequences as well. The Iraq War alone is estimated to have cost around $2 trillion, with billions more in veteran benefits forthcoming. These numbers, of course, stop accounting for costs after 2010, when the war was deemed officially “over.” Costs continue to this day as the U.S. maintains its military presence in the region along with thousands of private contractors we rarely ever hear about.

The U.S. official national debt in 2001 was around $6 trillion. Today, the national debt has grown to more than $19 trillion. This astonishing debt accumulation is only partially due to combat operations in the Middle East; however, one must also consider the amount of interest owed on debts accrued.

There have also been numerous socio-political consequences post-9/11, including an ever expanding police state mentality which is reaching critical mass. The inevitable outcome will be open totalitarianism in the name of security, and rebellion in response.

Clearly, after 15 years of disastrous policy, it is time to admit that the U.S. response to 9/11 has damaged us far more than the actual attacks ever could.

Many of us in the liberty movement have studied the circumstances surrounding 9/11 extensively, including evidence indicating either government complicity in the attacks, or outright participation. Such a discussion is beyond the scope of this particular article, but I highly recommend anyone skeptical of U.S. government involvement in 9/11 look into the scientific data collected by Architects and Engineers for 9/11 Truth and see if your assumptions are not rattled.

Interestingly, the 9/11 truth movement may be partially vindicated in the near term as debate rages over the release of redacted and classified documents tied to the original government led investigation into 9/11. The problem is, the release of these documents is just as calculated as the original cover-up.

The fact that the involvement of the Saudi Arabian government in the events of 9/11 has suddenly hit the mainstream media this year is probably not a coincidence.

As I outlined in my article “The global economic reset has begun,” the U.S. economy has been protected since the credit crisis of 2008 by three pillars, and each of these pillars is now being systematically demolished.

The first pillar was fiat stimulus and quantitative easing. This pillar was removed through the Federal Reserve’s taper program.

 

The second pillar was the use of near-zero interest rates to funnel cheap or free money through overnight loans to banks and corporations which they then used in a long cycle of stock buybacks. This pillar is now being removed through interest rate hikes by the Fed, and stock buybacks will be dead before 2016 is over.

 

The third and final pillar holding up the U.S. economy is the dollar’s world reserve status – the dominance of the dollar around the world as the primary currency used in international trade.

World reserve status allows America to maintain extreme levels of debt creation and protects us partially from fiat hyperinflation. Because so many dollars are needed by overseas governments and corporations for international trade, the Federal Reserve has been able to perpetuate massive stimulus programs without all the money created immediately burying the U.S. system as what happened in Wiemar, Germany. The problem is, if the dollar ever loses world reserve status, the unknown amounts of dollars created by the Fed and held overseas will come flooding back to destroy the illusion of our currency’s value.

The dollar’s world reserve status is highly dependent on the fact that it is the petrocurrency; the vast majority of oil purchases around the planet are made only in dollars. In fact, most oil producing nations will not sell their stock unless dollars are used.

The dollar has enjoyed this awesome advantage primarily because of the relationship between the U.S. government and Saudi Arabia.

For now, Saudi Arabia is still the largest holder of oil production market share in the world. This market share has been declining somewhat recently due to falling global demand and more specifically falling U.S. demand, which has led to more vicious competition from other producing nations, including Russia and Iran.

Falling U.S. demand by itself has perhaps led OPEC nations to question the continued validity of the dollar as the petrocurrency. In November of 2015, the Saudi government hinted at the possibility that they might depeg from the U.S. currency entirely. This act alone would essentially destroy the dollar’s petro-status. The conundrum facing the Saudis was increasingly low and unstable oil prices to which the petrodollar adds a level of uncertainty. Mainstream analysts argued that Saudi Arabia may be forced to choose – either cut production to increase prices, or end the dollar peg and stabilize prices, by switching to a basket of currencies instead (Special Drawing Rights, anyone?!).

Obviously, after the engineered absurdity at the Doha meeting this month, there is absolutely no chance in hell that Saudi Arabia will commit to any substantial cuts in oil production. In fact, the Saudis have just announced that they may expand oil fields in order to increase production to even greater historical levels.

So, oil prices are going to remain low for now, and will probably fall exponentially if a battle for market share between Iran, Russia and Saudi Arabia goes nuclear, as I have predicted. This would suggest that the Saudis will end the peg to the dollar within the next couple of years.

As I wrote in my article “Economic crisis goes mainstream; what happens next?,” an oil price panic could lead to conflict between Saudi Arabia and the U.S. and disrupt the petrodollar. And, this would precipitate the fall of the dollar’s world reserve status; meaning, the globalists would get exactly what they want — the death of dollar dominance and the rise of the SDR system under the IMF as a prelude to global currency and global economic governance. However, another catalyst from left field may be needed. A sort of black swan event… enter the 28-page “secret chapter” of the 9/11 congressional inquiry.

Supposedly, the documents are a bombshell linking the Saudi government directly to the 9/11 hijackers and exposing their aid to said terrorists. Despite Obama’s supposed peace offerings to the Saudis, the White House is still said to be “poised” to release these documents to the public in the near term.

The Saudi’s have responded with extreme anger, and have openly threatened to dump their $750 billion in U.S. treasury holdings if the documents ever see the light of day. This would invariably end the Saudi peg to the dollar and thus end the dollar’s petrostatus, which would then expedite the end of the dollar’s world reserve status. It would be a catastrophe.

The set-up is perfect. The liberty movement gets some vindication that there was indeed a conspiracy surrounding 9/11, but the true scope of that conspiracy remains hidden as the Saudis take the brunt of the blame. The Saudis get an opportunity handed to them on a silver platter to kill the dollar peg, an action they have been planning for quite some time anyway. The U.S. government then becomes partly responsible (in the public eye) for opening the door to the destruction of the dollar, a process which the globalists at the International Monetary Fund (IMF) and the Federal Reserve have been planning for decades. Then the IMF can swoop in post-crisis with the SDR basket system to replace the dollar’s world reserve structure.

We then have immense global economic change triggered by nothing more than a 28-page document, but predicated on years of careful staging, planning and choreography. Once again, the globalists have conjured a theatrical circus which they may use to end the American economy as we know it.

We will have to wait and see if the 9/11 documents are released, and if the Saudis follow through with their threats. But consider this; who really benefits in the end in the wake of these developments?  Such a move would certainly only serve the interests of international elites in the long run.

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Profit growth of Chinese industrial companies rebounded dramatically in March. Of course this should not be totally surprising given the trillion-dollar credit injection in Q1 and artificially-elevated commodity prices juicing the zombified industrial base but it does leave The Fed today with a problem – they're running out of excuses. So in being patriotic, we will help – first, as Goldman warns, this profit spike is unsustainabe given the surge in overcapacity; and second, nobody is paying – payment delays have surged to the highest in 17 years as the ponzi accelerates.

So a trillion dollars goes in and profits spike 11.1% YoY..

 

But on Sunday we also learned that median days sales outstanding for mainland domiciled companies now sits at 83 days – the highest in nearly 17 years and double the average for EM as a whole.

As you can see from the above, it now takes 50% longer for Chinese firms to get paid than it did just five years ago. As you might imagine, the problem is particularly acute for industrial firms who are waiting 131 days to convert sales into cash. "A reading of more than 100 days is typically a red flag," Amy Sunderland, a money manager at Grandeur Peak Global Advisors in Salt Lake City told Bloomberg. 

Yes, Amy it certainly is. Especially considering the median for companies in the MSCI Emerging Markets Index is just 44 days.

But, as Goldman notes, while it is all sunshine and rainbows now, this profits jump is not sustainable…

March industrial profits improved both in month-over-month and year-over-year terms. This is consistent with the rebound in industrial production in March. Better underlying activity growth, pickup in producer prices and lower financial costs all contributed to the rebound in profits in March.

 

Moreover, according to data quoted by NBS in the explanatory note, higher investment returns and non-business income also helped with the rebound in headline industrial profit growth: investment return went up 20.4% yoy in March (-3% in Jan-Feb), and non-business income (this includes gains from most asset sales , but not investment property) jumped 68.3% yoy in March (39.5% yoy in Jan-Feb). Compared with March last year, 30.5% of increase in profits (3.4 pp of the 11.1%yoy headline profit growth ) came from investment return/non-business income. Profit growth improved in most sub-sectors: in year-over-year terms, profit growth improved or turned less negative in ferrous/non-ferrous metal smelting and pressing, general equipment manufacturing, automobile manufacturing, computer manufacturing among other sectors.

We continue to expect sequential growth to rebound in Q2, which should support profit growth in the near term; however, structural issues such as overcapacity will still weigh on industrial profits in the long run.

Especially if the commodity bubble bursts…

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Earlier today we pointed out a surprising warning from Tom McClellan, who when looking at the unprecedented surge in the shares outstanding of the VXX, also known as the long VIX ETN, pointed out that this product is suddenly extremely popular and asked “Can this possibly end well?”

 

The reason for his concern was based on a post he published a few months ago, in which he explained that “VXX Shares Outstanding Data Work Differently.”

Curiously, at roughly the same time, Goldman’s derivatives team released a note seeking to “asses the risk-reward of long VIX trades” in which it attempted to answer when is the right time to get long the VIX.

In the note, author Krag Gregory writes that “after averaging 24 from early January through the market low on February 11, the VIX has averaged 16.2 (14.2 in April). Is a VIX level in the low to mid-teens too low?” Goldman then notes that courtesy of complacent central banks, there is a lack of near-term catalysts for the VIX to spike and says “this potentially leaves the market with a relative dearth of short-term catalysts, and we continue to think that the VIX may remain range-bound over the next few weeks.”

However, here Goldman noticed something peculiar, which ties in with what Tom McClellan pointed out overnight:

Our view that the VIX may remain low in the near term is at odds with the VIX ETP market, as investors seem to be pouring money into levered long VIX ETPs.

In other words, despite the eerie market calm manifesting itself in a plunging VIX and steadily rising market, Goldman has found a relentless inflow of cash into various VIX derivative products, which oddly enough does nothing to actually move the underlying price; and, as a reminder, these are all VIX-derived products which would lead to substantial payoffs in the event of a market crash due to the embedded leverage as most are vega-focused and bet on the volatility of the underlying volatility in the very near term.

This is what else Goldman has found:

• As the VIX has declined, the demand for VIX ETPs that benefit from a rise in market volatility remains strong, in particular double-levered VIX ETPs such as UVXY and TVIX
• In April 2016, the market cap of the UVXY topped $1bn for the first time and vega exposure on the UVXY remains near an all-time high at around 120 million (Exhibit 1). The markets two most popular double levered longs are the UVXY and the TVIX. Their combined vega exposure recently stood at around 190 million vega, about twice the vega in single-levered long products such as VXX and VIXY (Exhibit 2).
• Short vol performance… +73% since February 11: While long ETP exposure has been growing, the appetite for inverse VIX ETPs, which benefit from declines in volatility such as the XIV and SVXY, has been muted, with vega exposure remaining range-bound in recent weeks. That’s surprising, since the benchmark index which these underliers track (SPVXSPI) is up 73% since the market low on February 11 and investors often follow performance!

The underlined text is key as it goes to the heart of McClellan’s argument, namely that while investors typically chase performance (and momentum) in the case of the number of shares outstanding in the VXX, or the now record vega exposure across the VIX derivative sector. And furthermore, as McClellan showed, unlike other  trading instruments, interest into VXX (or respective vega exposure) is a “double-contrary indicator.” Oddly enough, at previous peak, it has tended to lead to major downward inversion points.

As for Goldman’s punchline:

Vega exposure on longs has tripled since February 11: The total amount of vega exposure across four popular long VIX ETPs (VXX, VIXY, UVXY, TVIX) has tripled since February 11 and recently stood at ~290 million, a record high.

And this is what this flood into vol vega-exposure looks like graphically across the various products that allow investors to bet on an imminent spike in volatility.

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Submitted by Giulio Meotti via The Gatestone Institute,

Last week, Nazimuddin Samad sat at his computer at home and penned a few critical lines against the Islamist drift of his country, Bangladesh. The day after, Samad was approached by four men shouting "Allahu Akbar!" ("Allah is great!") and hacked him to death with machetes.

These killings have become routine in Bangladesh, where many bloggers, journalists and publishers are being killed in broad daylight because of their criticism of Islam. There is a hit list with 84 names of "satanic bloggers." A wave of terrorism against journalists reminiscent of that in Algeria, where 60 journalists were killed by Islamist armed groups between 1993 and 1997.

But these shocking killings have not been worth of a single line in Europe's newspapers.

Is it because these bloggers are less famous than the cartoonists murdered at Charlie Hebdo? Is it because their stories did not come from the City of Light, Paris, but from one of the poorest and darkest cities in the world, Dhaka?

No, it is because the West has capitulated on freedom of expression. Nobody in the West launched the motto "Je Suis Avijit Roy," the name of the first of these bloggers butchered last year.

From Bangladesh, we now receive photos of writers in pools of blood, laptops seized by police looking for "evidence" and keyboards burned by the Islamists. We receive images reminiscent of the riots in Bradford, England, over Salman Rushdie's The Satanic Verses in 1989, ten years after the Ayatollah Khomeini had revolutionized Iran into a stronghold of Islamic extremism.

Yet the stories of these bloggers from outside Europe remain shrouded by a ghastly transparency, as if their death has been only virtual, as if the internet had become their grave, as if these fallen bloggers did not deserve the virality of social networks.

There is also the case of Raif Badawi, in Saudi Arabia, sentenced to 1,000 lashes, ten years in jail and a fine of $270,000 for blogging thoughts such as, "My commitment is…to reject any repression in the name of religion…a goal that we will reach in a peaceful and law-abiding way." The lashing order added that he should be "lashed very severely." In addition to that, Badawi's human rights lawyer, Walid Abu al-Khayr, was sentenced on July 6, 2014, to 10 years in prison. He was accused of: "inciting public opinion," "disobedience in matters of the sovereign," "lack of respect in dealings with the authorities," "offense of the judicial system," "inciting international organizations against the Saudi kingdom" and, finally, for having founded illegally, or without authorization, his association "Monitor of Human Rights in Saudi Arabia." He was also forbidden to travel for fifteen years after his release, and fined 200,000 riyals ($53,000) according to Abdullah al-Shihri of the Associated Press.

Also in Saudi Arabia, in a clear violation of international law, according to Amnesty International, on March 24, the journalist Alaa Brinji was sentenced to five years in prison, an eight year travel ban and a fine of $13,000 for a few tweets allegedly "insulting the rulers," inciting public opinion," and "accusing security officers of killing protestors in Awamiyya," the kingdom's eastern province where the oil fields and the Shiites are.

Unfortunately, Western governments never raise Badawi's case when they visit Saudi Arabia's rulers, and turn a blind eye to the way this country treats its own citizens.

Look also at what happened not in the poor and Islamic Bangladesh, but in the wealthy and secularized Germany, where a comedian named Jan Böhmermann mocked and insulted Turkish president Recep Tayyip Erdogan on a television show. The prosecutor of Mainz just opened a case against Böhmermann under paragraph 103 of the German Penal Code, which provides up to five years in prison for insulting a foreign head of state. Chancellor Angela Merkel sided with the Turks. She condemned the comedian's poem, called it a "deliberate insult," then approved the prosecution against him.

Meanwhile, the German public television station, Zdf, removed the video from their website, and Böhmermann raised the white flag by suspending his show. The comedian, after Islamist death threats, got police protection.

The West is veiling its freedom of speech in the confrontation with the Islamic world: this is the story of Salman Rushdie, of the Danish cartoons, of Theo van Gogh, of Charlie Hebdo.

Theo van Gogh (left) was murdered by an Islamist because he made a film critical of Islam. Salman Rushdie (right) was lucky to stay alive, spending many years in hiding, under police protection, after Iran's Supreme Leader ordered his murder because he considered Rushdie's novel The Satanic Verses "blasphemous."

A few weeks ago, at Rome's Capitoline Museum, a famous repository of Western antiquities, the government of Italy called for "respect" for the sensibilities of Iran's President Rouhani and placed large boxes over nude sculptures.

Iran's foreign minister, Mohammed Javad Zarif, just released an interview with Italy's largest newspaper, Il Corriere della Sera, where he suggested a kind of grand bargain: We Iranians will discuss with you our human rights situation, if you Europeans suppress freedom of expression on Islam: "Human rights are reason for concern for everyone," Zarif said. "We are ready to dialogue. We shall make our observations on alienation of the Muslim communities in many European societies, or how freedom of expression is abused to desecrate the symbols of Islam."

And that is exactly what is happening right now — of course with no mention of how freedom of speech or human rights are abused in "many Muslim societies." Or how violent repression there "is abused to desecrate the symbols of the free world."

The Iranian ayatollahs recently added to the bounty on the head of Salman Rushdie. And as it happened with Saudi Arabia's or Bangladesh's bloggers, nobody in Europe protested and Mrs. Merkel has been willing to abandon the German comedian to the autocratic Turkish Islamists.

In Pakistan, a Christian woman, Asia Bibi, is now fighting for her life in prison, where, condemned to death for "blasphemy," she awaits her fate. European public opinion, which is always generous in rallying against "the persecution of minorities," did not fill the streets and the squares to protest Asia Bibi's imprisonment.

Further, for Europe's journalists and writers, it has become increasingly difficult to find publishers. This is true of, for instance, Caroline Fourest, author of the French book Eloge du blasphème. "The treatment of her work by the publishing industry shows how much has been lost" wrote the British journalist, Nick Cohen. "No Anglo-Saxon publisher would touch it, and only fear can explain the rejection letters."

"No American or British publisher has been willing to publish the book" Mrs. Fourest told this author. "'There is no market for this book', I was repeatedly told, to justify their desire not to touch something explosive. It was an important project which Salman Rushdie tried to sponsor with his own publishing houses. It is alarming because more and more I see that my colleagues behave as useful idiots."

Europe is also suppressing freedom of expression for the very few moderate Islamic voices. On January 31, 2016, an Algerian writer named Kamel Daoud published an article in the French newspaper Le Monde on the events of New Year's Eve in Cologne, Germany. What Cologne showed, says Daoud, is how sex is "the greatest misery in the world of Allah."

A few days later, Le Monde ran a response by sociologists, historians and anthropologists who accused Daoud of being an "Islamophobe," Jeanne Favret-Saada, an orientalist at the École Pratique des Hautes Études, wrote that Daoud "spoke as the European far-right." Daoud has been defended only by a few other Arab writers exiled in Europe.

The affair is the mirror of Europe's forsaking freedom of expression: a great Arab writer expresses precious truths and the mainstream European media and intellectuals, instead of protecting Daoud while Islamists threatened him with death, press the novelist to choose silence.

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We’ve been tracking some of the more outlandish things taking place in the real estate market recently, although we may have stumbled upon one of the more peculiar ones.

First it was what $2.5 million gets you in Canada in today’s market.

 

Then we looked to London, where you’ll only be charged £500 to live underneath someone’s stairs.

 

And finally in San Francisco, we found a cozy little spot for someone to live in a box – literally live inside a box – in the middle of someone’s living room for a mere $400 a month.

 

Today, however, we find a “palatial” 20-by-97 foot lot with a “house” on it. Located in Brooklyn and going for a reasonable $499,000, interested parties should pick up the phone while the offer still stands. The price has been strategically set to come in just under half a million dollars, which will undoubtebly lead to more offers. 

 

CBS quotes Audrey Chapman, who lives across the street, and said “you can’t fit nothing in there. It’s like a dollhouse.” Still, that doesn’t matter because it is not about actually having utility from the purchase, but betting on greater fools. And there are many.

Others understand where the price tag might come from. “Everyone is buying up this whole neighborhood. If you notice, every block is something new going up…. It could definitely happen,” Gravesend resident Jonathan Utsler said.

The single-family detached home is on a quiet block in Gravesend, between Bath and Harway avenues and not far from the D Train. Some homeowners on this block say it’s a nice area, but don’t think the narrow piece of property is worth half a million dollars.

“If they were in let’s say DUMBO or Dyker Heights, yes. But not here, they’re not getting it,” neighbor Thomasina Bacarella.

Oh, they’ll get it. Because while the ultra top end of the NYC real estate market may be starting to crack there is still a long time before that “trickles down” to such “affordable” listings as the shack below.

The listing agent for this tiny house says it was meant to be sold along with the home next door. But realtors say in this market, it’s considered a standalone property.

And the obligatory defense:

“What they’re selling is something they’re not making anymore, which is land. And this is New York City, and this is Brooklyn, and Brooklyn is booming. If you look at this lot here it’s really being sold as a development opportunity, so it’s priced per buildable square-foot,” said Anthony Lolli chief executive officer of Rapid Realty.

 

“The houses that are on the market are ridiculously high and you still have to go in and do the work. So why not start from the ground up and build your dream home? It’s actually more cost-effective when you have a clean slate,” Lolli said.

 

Lolli says purchasing this land and a new, pre-fabricated house would cost a buyer about $800,000. Similar homes on larger lots in Brooklyn would cost $1 to $2 million.

So far there are no offers on this property, but the listing agent expects that to change quickly.

We are confident that he is right, in fact a bidding war is virtually assured. We are also confident that every time we believe we’ve hit peak lunacy, something else will pop up to remind us that in this bold new centrally-planned world one should never call a “top”.

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Back in February, when we commented on the unprecedented hyperinflation about the be unleashed in the Latin American country whose president just announced that he would expand the “weekend” for public workers to 5 days…

… we joked that it is unclear just where the country will find all the paper banknotes it needs for all its new physical currency. After all, central-bank data shows Venezuela more than doubled the supply of 100-, 50- and 2-bolivar notes in 2015 as it doubled monetary liquidity including bank deposits. Supply has grown even as Venezuela has fewer U.S. dollars to support new bolivars, a result of falling oil prices. 

This question, as morbidly amusing as it may have been to us if not the local population, became particularly poignant recently when for the first time, one US Dollar could purchase more than 1000 Venezuela Bolivars on the black market (to be exact, it buys 1,127 as of today).

And then, as if on cue the WSJ responded: “millions of pounds of provisions, stuffed into three-dozen 747 cargo planes, arrived here from countries around the world in recent months to service Venezuela’s crippled economy. But instead of food and medicine, the planes carried another resource that often runs scarce here: bills of Venezuela’s currency, the bolivar.

The shipments were part of the import of at least five billion bank notes that President Nicolás Maduro’s administration authorized over the latter half of 2015 as the government boosts the supply of the country’s increasingly worthless currency, according to seven people familiar with the deals.

More planes were coming: in December, the central bank began secret negotiations to order 10 billion more bills which would effectively double the amount of cash in circulation. That order alone is well above the eight billion notes the U.S. Federal Reserve and the European Central Bank each print annually—dollars and euros that unlike bolivars are used world-wide.

Where things got even more ridiculous for the government where the largest bill in denomination is 100 Bolivars, is how much physical currency it needed, and the cost to print it:

The high cost of the printing binge is an especially heavy burden as Venezuela reels from the oil-price collapse and 17 years of free-spending socialist rule that have left state finances in shambles.

 

Most countries around the world have outsourced bank-note printing to private companies that can provide sophisticated anticounterfeiting technologies like watermarks and security strips. What drives Venezuela’s orders is the sheer volume and urgency of its currency needs.

 

The central bank’s own printing presses in the industrial city of Maracay don’t have enough security paper and metal to print more than a small portion of the country’s bills, the people familiar with the matter said. Their difficulties stem from the same dollar shortages that have plagued Venezuela’s centralized economy, as the Maduro administration struggles to pay for imports of everything, including cancer medication, toilet paper and insect repellent to battle the mosquito-borne Zika virus.

Wait a minute, why not just print a single 100,000,000 Bolivar note instead of one million 100 bolivar bills? After all the savings on the printing, let along the air freight, to the already insolvent country will be tremendous and allow it to pretend it is not a failed nation for at least a few more days? It is here that the sheer brilliance of the rulers of this socialist paradise shines through:

Currency experts say the logistical challenges of importing and storing massive quantities of bank notes underscore an undeniable truth: Venezuela is spending a lot more than it needs because the government hasn’t printed a higher-denomination bank note—revealing a misplaced fear, analysts say, that doing so would implicitly acknowledge high inflation the government publicly denies.

 

“Big bills do not cause inflation. Big bills are the result of inflation,” said Owen W. Linzmayer, a San Francisco-based bank-note expert and author who catalogs world currencies. “Larger bills can actually save money for the central bank because instead of having to replace 10 deteriorated notes, you only need five or one,” he said.

 

The Venezuelan central bank’s latest orders have been exclusively only for 100- and 50-bolivar notes, according to the seven people familiar with the deals, because 20s, 10s, 5s and 2s are worth less than the production cost.

 

Mr. Maduro and his allies say galloping consumer prices reflect a capitalist conspiracy to destabilize the government.

Well, no, but at this point one may as well sit back and laugh at the idiocy of it all.  But at least we will give Maduro one thing: he has done away with the pretense that when push comes to shove, the state and the central bank (and thus commercial banks) are two different things: “the president in late December changed a law to give himself full control over the central bank, stripping congressional oversight just as his political opponents took control of the National Assembly for the first time in 17 years.”

Sadly, that did nothing for the imploding economy and country, whose morgues are now overflowing due to rampant social violence.

Of course, the punchline of all the above means that Venezuela has to buy bolivars from abroad at any cost. “It’s easy money for a lot of these companies,” one of the people with details on the negotiations said. 

The problem is that it is “very difficult money” for Venezuela which needs to pay in hard dollars to print its rapidly devaluing domestic currency. In fact, among the sources of funds to purchase its own money was the liquidation of its gold reserves, which as we reported recently, Venezuela has been quietly selling to willing offshore buyers.

* * *

All of this brings us to today’s latest update in the sad story of Venezuela’s terminal collapse: today Bloomberg wrote a story that basically covers everything said above, noting that “Venezuela’s epic shortages are nothing new at this point. No diapers or car parts or aspirin — it’s all been well documented. But now the country is at risk of running out of money itself.”

Indeed, as we hinted three months ago, “Venezuela, in other words, is now so broke that it may not have enough money to pay for its money.“

Among the new information revealed by Bloomberg is that last month, De La Rue, the world’s largest currency maker, sent a letter to the central bank complaining that it was owed $71 million and would inform its shareholders if the money were not forthcoming. The letter was leaked to a Venezuelan news website and confirmed by Bloomberg News.

“It’s an unprecedented case in history that a country with such high inflation cannot get new bills,” said Jose Guerra, an opposition law maker and former director of economic research at the central bank. Late last year, the central bank ordered more than 10 billion bank notes, surpassing the 7.6 billion the U.S. Federal Reserve requested this year for an economy many times the size of Venezuela’s.

Venezuela had prudently diversified its money printing relationships, and ahead of the 2015 congressional elections, the central bank tapped the U.K.’s De La Rue, France’s Oberthur Fiduciaire and Germany’s Giesecke & Devrient to bring in some 2.6 billion notes, Bloomberg adds. Before the delivery was completed, the bank approached the companies directly for more. De La Rue took the lion’s share of the 3-billion-note order and enlisted the Ottawa-based Canadian Bank Note Company to ensure it could meet a tight end-of-year deadline.

As we reported four months ago, the cash arrived in dozens of 747 jets and chartered planes. Under cover of security forces and snipers, it was transferred to armored caravans where it was spirited to the central bank in dead of night.

But while Venezuela was already planning its future cash orders, the cash vendors were starting to get worried. According to company documents, De La Rue began experiencing delays in payment as early as June. Similarly, the bank was slow to pay Giesecke & Devrient and Oberthur Fiduciaire. So when the tender was offered, the government only received about 3.3 billion in bids, bank documents show.

Which led to an interesting phenomenon: when it comes to counterparty risk, one usually has in mind digital funds or electronic securities. In this case, however, the counterparty risk involved cold, hard cash: “Initially, your eyes grow as big as dish plates,” said one person familiar with matter. “An order big enough to fill your factory for a year, but do you want to completely expose yourself to a country as risky as Venezuela?“

As Venezuela’s full implosion emerges, the answer has now become obvious, and companies are backing away. With its traditional partners now unenthusiastic about taking on new business, the central bank is in negotiations with others, including Russia’s Goznack, and has a contract with Boston-based Crane Currency, according to documents and industry sources.

We expect these last ditch efforts to obtain much needed paper currency for the hyperinflating nation will break down shortly, forcing Venezuela into one of two choices: do away with cash entirely and resort to barter, or begin printing high-denomination bills which in turn will only facilitate even faster hyperinflation as there will be no actual physical limit on how much something can cost; as of right now the very physical limit is how many 100 bolivar bills one can put on a wheelbarrow.

Steve Hanke, a professor of applied economics at Johns Hopkins University, who has studied hyperinflation for decades, says that to maintain faith in the currency when prices spiral, governments often add zeros to bank notes rather than flood the market.

“It’s a very bad sign to see people running around with wheelbarrows full of money to buy a hot dog,” he said. “Even the cash economy starts breaking down.”

In Venezuela’s case it is sadly too late.

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Submitted by Justin Raimondo via AntiWar.com,

What’s the difference between “boots on the ground” and military personnel wearing boots who are engaged in combat – and perhaps dying – on the ground? If you can answer that question convincingly, perhaps you’d like to apply for John Kirby’s job, because he’s not doing it very successfully. Kirby is the State Department spokesman who, in answer to a question from a reporter about the 250 US troops being sent to Syria, denied President Obama ever said there’d be “no boots on the ground” in Syria. Here’s the video…

And here’s the relevant transcript:

“Kirby: there was never this – there was never this, “No boots on the ground.” I don’t know where this keeps coming from.

 

Question: But yes there – well, yes, yes, there was.

 

Kirby: There was no – there was – no there wasn’t. There was –

 

Question: More than –

 

Question: What?

 

Kirby: We’re not going to be involved in a large-scale combat mission on the ground. That is what the President has long said.”

To anyone who has been following this, Kirby’s argument is patently absurd. The President told the BBC less than twenty-four hours previously that there would be “no boots on the ground” – and then his administration announced that 250 more booted US soldiers would be treading Syrian ground. Not only that, but prior to the summer of last year, the President assured the American people there’d be no “boots on the ground” a total of sixteen times.

As George Orwell dramatized in Nineteen Eighty-Four, and also in this memorable essay, the degeneration of language into an instrument of concealment is one of the hallmarks of the modern age. In the novel, there is a vast apparatus concerned solely with erasing the past in order to justify the actions of the present: the Obama administration doesn’t have the power to do that, and yet thinks it can achieve the same ends by simply denying what everyone knows to be true, as shown by Kirby’s surreal exchange with reporters:

“Question: The point is is that for months and months and months that the mantra from the President and everyone else in the Administration has been, ‘No boots on the ground’ and now –

 

“Kirby: No, that is not true.

 

Question: What?

 

Kirby: It’s just not true, Matt.

 

Question: It is.

 

Question: Mr. Kirby –

 

Kirby: It’s just not true.

 

Question: It’s true.

 

Kirby: No, it’s not. I just flatly, absolutely disagree with you …”

When you are dealing with a liar, it’s important to parse every word, every syllable, in order to tease real meaning out of the tissue of dissimulations – and, indeed, if we go back and do this with the President’s pronouncements over the past few years on this question, we get a sense that what is being said is not quite what we are hearing. And that, as Orwell pointed out, is the purpose of most political speech.

If you listen hard, you can hear Orwell’s ghost laughing.

What the Obama administration is doing here is on the same level as Bill Clinton’s handling of the Monica Lewinsky affair: “I did not have sexual relations with that woman.”

So why is the administration engaged in a futile effort to deny the obvious, and make its spokesman look like the American equivalent of Baghdad Bob?

The answer is: politics. The American people have made it very clear that they consider the Iraq war a mistake and they want no repeat of that experience. And yet there are countervailing influences within the military and the national security bureaucracy that want exactly that and they will not be denied. Furthermore, these embedded dead-enders are well aware of the policy differences between Obama and his would-be successor: it was, after all, Hillary Clinton who pushed (and continues to push) for regime change in Syria, hatched a scheme with Gen. David Petraeus to arm Islamist rebels on a large scale, and pushed for the disastrous “liberation” of Libya.

Obama is a lame duck, and the second and third rank officials who really run our foreign policy are already adapting to the likelihood of a Clinton Restoration..

There are now over 4,000 US troops in Iraq, “advising” and “assisting” the Iraq military: there are hundreds in Syria – and this latter represents a significant extension of US intervention over and above what George W. Bush ever tried. Back in the days of “Operation Iraqi Freedom,” the Bush administration continually threatened the Syrian government with “regime change,” but never made a serious move to translate rhetoric into action. The Obama administration recognizes no such constraints – and a second Clinton administration, if such there is to be, is likely to throw reticence to the winds and charge full-bore into Syria.

President Obama won the White House largely on the promise that he would not repeat Bush’s folly in the Middle East. Yet his legacy is likely to be that the war he hung around Hillary Clinton’s neck was restarted in the final months of his presidency. And if Mrs. Clinton does indeed succeed him, I have no doubt that she will escalate the war in Syria and in Iraq, with consequences down the road that we can only imagine.

The Republican alternatives are no less dispiriting. Ted Cruz wants to find out whether we can “make the sand glow.” Donald Trump, for all his “isolationist” rhetoric, vows to destroy the Islamic State – albeit without putting troops on the ground. (Want to bet that, once in office, he’ll reverse his stance on ground troops in a New York minute?)

The entire political class –including the alleged “outsiders” – are on the other side of the barricades from the average American when it comes to US intervention in the Middle East. Which leads one to conclude that we’re going to be in for a long and bloody battle over this question, with thousands more lives lost – and the only change that’s going to come won’t be led by politicians, but by a mass movement from below.

via http://ift.tt/1T5yqJL Tyler Durden

In the wake of the release of the Panama Papers, which exposed financial dealings of some of the world’s wealthiest people, much has been made in the media and on the U.S. presidential campaign trail about making sure everyone is paying their “fair share”, and emphatically calling for improving transparency around how corporations and individuals handle their money.

One topic that will only continue to receive attention as this topic moves along, is the state of Delaware and its perceived status as a U.S. tax shelter. According to Bloomberg, the state has about 1.1 million business entities, and one single building located at Wilmington’s 1209 Orange Street is the home address of 285,000 companies including Alphabet (Google), Ford Motor Co., and Wal-Mart.

Incidentally, a few shady characters have been linked to having ties to shell companies in Delaware, “El Chapo” being one of them. Oh, and then there’s a few more people of note, such as presidential candidates Hillary Clinton and Donald Trump, each of whom have businesses incorporated in the state. 

Delaware offers companies an easy and inexpensive path to incorporating, and is known for its very business friendly statutes and court system. It’s also a potential magnet for those who are perhaps looking to game the income tax system by setting up a shell corporation there. Recall that Chevron was served a $269 million tax bill for structuring inter-company loans between an Australian company, and one that incorporated in Delaware. The loans were issued with ridiculous interest rates in order to lower taxable income.

As pressure from mounts from the outside asking Delaware to reform some of its laws around incorporation and business in general, there is one good reason why the state will choose to leave everything at the status quo if at all possible.

Actually make that one billion good reasons to do so. In 2015, Delaware registerd more than 480 companies a day, leading to registration fees provide more than $1 billion in annual state revenue.

 

In spite of a lot of rhetoric, there is little little chance that Delaware is motivated enough to make any meaningful changes regarding how the state chooses to do business, save one thing of course:

“There’s little indication that’ll change. I would not hold my breath waiting unless the Panama Papers and U.S. corporations can be directly linked to terrorist financing. U.S. policy could change and change quickly.” said J. Richard Harvey, a former tax official at the IRS and Treasury Department.

And in case that something does change and Delaware is not longer America’s favorite onshore tax shelter, there is always Nevada, and one very specific corporation that is more than willing to help any US (or international) clients with their tax sheltering needs: Rothschild, whose Andrew Penney is always looking for new business.

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