Month: October 2016

Now that it is widely accepted by everyone except the president in denial, that Obamacare is an epic debacle, one which boosts GDP because it is fundamentally a tax that counts toward healthcare expenditures yet takes away from other discretionary spending leading to a downtrend in overall US consumption, most also have an opinion on how it unwinds. However, few are as gloomy as economist Chris Butler of Butler, Lanz and Wagler, who discussed the rising cost of health insurance plans rising next year under the Affordable Care Act, and said he expects riots as the populace begins to expresses outrage upon learning many will be priced out of health care options.

Butler told Chris Stigall on Talk Radio 1210 WPHT to expect more public demonstrations of anger as prices move upward.

Cited by CBS Philadelphia, Butler said that “right now, I think you do have to say that A, it’s failing and that B, I think next year, you’re going to have a bunch of people that don’t get the subsidies that make the premiums a little bit more affordable that are just going to riot because it’s just too expensive for most people if you don’t qualify for subsidies.”

Butler said he still objects to court rulings siding with the government requiring individuals to purchase insurance or pay a penalty. In that case, he will be even angrier to learn that according to Obamacare architect Jonathan Gruber, the “solution” to prevent millions of Americans opting to pay penalties instead of be enrolled, is to hike the penalty even more.

“You can go back to the Supreme Court decision on this. I’m still shocked that we are being told that our constitution says that it is allowable to force to people to buy something. When I hear people talk about forcing them, not only to buy something, but to make the penalty stiffer if they don’t, I just get queasy.”

Butler told WPHT there could be simple solutions to lower costs and cites buying plans across state lines as an example.

“Do you know what New Jersey is anticipating, their’s is considerably less, as I recall, than Pennsylvania, yet we are not allowed to cross state borders to buy insurance. There are a lot of states, by the way, that have big cities on borders that are actually going to have huge increases but they border on a state that is quite reasonable in its growth in premium costs. We talked about that while all of this was being discussed back in 2010, some of the quick fixes you could make that would have a difference to our healthcare system, that was one of them, allow people to buy insurance across state lines to help equalize some of this stuff.”

Well, according to many the US is on the verge of full-blown rioting and even civil war on any given day: might as well throw in one more catalyst that will unleash chaos. After all, as Krugman said in March, “The important point about war from macroeconomic point of view is that it was a very large fiscal stimulus”

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Submitted by Alasdair Macleod via GoldMoney.com,

There is little doubt that the rapid expansion of both dollar-denominated debt and monetary quantities since the financial crisis will lead us into a currency crisis.

We just don’t know when, and the dollar is not alone. All the major paper currencies have been massively inflated in recent years. With the dollar acting as the world’s reserve currency, where the dollar goes, so do all the other fiat monies. Until that cataclysmic event, we watch currencies behave in increasingly unexpected, seemingly irrational ways. The fundamentals for Japan are not good, yet the yen remains the strongest currency of the big four. The Eurozone risks a systemic collapse, overwhelmed by political and financial headwinds, yet the euro’s exchange rate has proved relatively impervious to this deep uncertainty. The British economy is strongest, yet sterling is the weakest of the four majors.

If nothing else, today’s foreign exchanges are evidence that subjectivity triumphs over macroeconomic thinking. Mackay’s Extraordinary Popular Delusions and the Madness of Crowds beats computer modelling every time. Furthermore, any official attempt to establish a rate for the dollar has to address two separate questions: the value of the dollar relative to other currencies, and its purchasing power for goods and services.

The chart below indicates how the dollar has behaved against other currencies over the last five years, both on a trade weighted and on a predefined currency basis (DXY).

It should be noted that the dollar has risen on both these measures by roughly 18% since early 2014. At the same time, the Chinese yuan has fallen against the dollar by about 12%, so it has actually risen slightly against the DXY basket as a whole, particularly against the euro component, where it has gained 12% since early 2014. This matters, because far from devaluing, which is what we are routinely told by dollar-centric analysts, the yuan has been relatively stable over time against a basket of currencies. It has been weak against the dollar and yen, but strong against both the euro and sterling.

We should look at this from the Fed’s Federal Open Market Committee’s point of view. America runs a record trade deficit with China, and the only major economies where China’s terms of trade have improved are with the US, excepting Japan. Therefore, the Fed is bound to be very sensitive to the dollar’s exchange rate with China’s yuan. Furthermore, on two occasions when the Fed had signalled it was going to raise the Fed Funds Rate, it backed off when the Chinese lowered the rate at which it had pegged the yuan to the dollar. Chinese devaluation against the dollar is obviously a prime concern for the Fed.

The situation becomes better understood when the Peoples Bank’s position is taken into account. The bank has been selling US Treasury stock in large quantities, stockpiling commodities and oil with the proceeds, though it has been diversifying into Japanese Government bonds as well. China’s dollars have been welcomed by markets, which are short of both quality collateral and raw currency. However, China’s supply of both has failed to stop the dollar rising against the yuan. Furthermore, China isn’t the only Asian and Middle Eastern state selling American paper, so the demand from other international players on the buy side has been immense, enough to determine the underlying direction of the dollar’s exchange rate.

The situation is being exploited by the Peoples Bank. In effect, the Peoples Bank is in a position to dictate Fed policy by adjusting the rate at which it is prepared to supply dollars into the market. So long as the dollar remains fundamentally strong, it only has to slow the pace of Treasury and dollar sales for the dollar to rise, and therefore the Fed’s planned interest rate rises to be deferred. This is not understood properly by western commentators, who erroneously think China is being forced to defend a declining yuan. Nothing could be further from the truth. It will be interesting to see whether this happens again ahead of the December FOMC meeting, when for the umpteenth time we have been promised a rise in the Fed Funds Rate.

A major consideration behind China’s foreign exchange policy is the outlook for the euro. The Eurozone represents a market as large as the US, with the added importance of being tagged onto the Asian continent. There can be little doubt that China sees her own long-term future being aligned more with Europe than America, despite Europe’s current troubles. It is, if you like, a situation that is primarily of strategic importance. Europe’s economy will need rescuing at some stage, and is therefore a future opportunity for China’s intervention.

That plan is for the long term, and becomes increasingly valid the deeper the hole the Eurozone digs for itself. A disintegration of the EU would also be beneficial for Chinese ambitions. Meanwhile, in the short-term the euro has broken a crucial trend-line against the dollar, having completed a continuation head-and-shoulders pattern, targeting the 1.0600 area, which is the previous low seen in March and November 2015. This is our second chart. 

Neither the Peoples Bank nor the Fed need to be chart experts to see what’s happening. Brexit was very bad news for the euro, because it is a racing certainty that the event will turn out to be just the start of a new round of political and economic trouble for the Eurozone. The Italian economy in particular is imploding, with a non-performing loan problem that is roughly 40% of private sector GDP.

So China can for the moment steer a course for the yuan between the euro’s devaluation and the dollar’s rise. The Fed sees in euro weakness an increase of currency-induced deflation for the US economy, and a loss of competitiveness for US exports. Chinese exporters are obvious beneficiaries as well, so the blame for deflation will be on China’s foreign exchange machinations.

Anyway, China probably cares less than she ever did about the long-term consequences of her actions on the US economy. China has been selling her US Treasuries and reducing her dollar exposure to add to her stockpiles of raw materials and oil. She wants to keep her over-indebted businesses trading by maintaining a favourable exchange rate with the dollar, particularly given the developing train wreck that’s the Eurozone. And there’s not a lot the Fed can do about it.

Gold and commodities

The principal driver for the gold price is the prospect of monetary inflation transmuting into price inflation, and the inability of central banks to respond to this threat by raising interest rates sufficiently to control the balance of consumer preferences between goods and holding money.

We are, of course, measuring gold in dollars, because the latter is the reserve currency for all the others. But, as stated above, there are two exchange considerations, the first being the dollar against other currencies, and the second the dollar against a basket of commodities. And here, we should note that over the long-term, the prices of commodities measured in gold are considerably more stable than the prices of commodities measured in fiat currencies.

China has behaved as if she is thoroughly aware of gold’s pricing attributes, and has a deliberate policy of dominating the market for bullion. This is very different from the US’s domination of gold paper markets. Not only has China invested in unprofitable gold mines to become the largest producer at about 450 tonnes annually, but the state monopolises China’s refining capacity. She also imports doré for refining from other countries, and without doubt since 1983 has accumulated substantial quantities of bullion not included in monetary reserves. Furthermore, it is the only country that has encouraged its population, through television and other media, to accumulate physical gold. Make no mistake, for the last thirty-three years, the Chinese government has made a credible attempt to gain ultimate control over the physical gold market, and to extend gold’s protection to her own citizens.

China does not manipulate the gold price. Instead, as described earlier, she is manipulating the dollar by regulating the exchange rate and by discouraging the Fed from raising interest rates. It is a temporary balancing act that only continues so long as desperate banks and their indebted borrowers continue to scramble for dollars, and China knows it. The Fed, for the moment, appears to be powerless to manage economic outcomes and is firmly trapped by China’s currency management, with interest rates stuck at the lower bound. And to make it worse, the weak euro, against which the dollar index (DXY) is very heavily weighted (57%!), threatens to force the DXY index even higher. The result, inevitably, is that monetary policy cannot be used to address future price inflation, which virtually guarantees there will be a higher gold price in 2017 and beyond.

This is why, despite American wishful thinking, gold remains at the centre of the financial system. It is central partly because China’s ensures it is, and it is also China’s ultimate money for commodity and trade purposes.

China most likely has enough gold to fully compensate for her reserve losses from the destruction of the dollar and the other fiat currencies on her reserve book. She is deliberately selling down her dollar exposure anyway, while she can. Lest we forget, communist economists in China were taught that capitalism destroys itself. For them, there is no clearer proof than the performance of the US economy and the dollar, and they do not intend to get caught up in its demise. Understand this, and you understand all.

While the monetary role of gold in the future has yet to be determined by China, and it will be China or the markets that make the decision, for the moment it can be regarded as the ultimate insurance against global currency failure.

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Tensions in Turkey are heating up again.

In a move that is will again infuriate Europe, today Turkish President Recep Tayyip Erdogan said his government would ask parliament to consider reintroducing the death penalty as a punishment for the plotters behind the July coup bid. “Our government will take this (proposal on capital punishment) to parliament. I am convinced that parliament will approve it, and when it comes back to me, I will ratify it,” Erdogan said at an inauguration ceremony in Ankara.

“Soon, soon, don’t worry. It’s happening soon, God willing,” he said, as crowds chanted: “We want the death penalty!”

Capital punishment was abolished in Turkey in 2004 as the nation sought accession to the European Union. After the failed bid to unseat Erdogan on July 15, the leader had threatened to bring the death penalty back for the coup plotters, stunning EU leaders.

Relations between Brussels and Ankara have been strained since Turkey responded to the coup by launching a relentless crackdown against alleged plotters in state institutions, amid calls from the EU to act within the rule of law. Tens of thousands of staff within the military, judiciary, civil service and education have been dismissed or detained in a crackdown.

Meanwhile, with EU relations at rock bottom, on Saturday, Erdogan scoffed at the West’s warnings on the reintroduction of the death penalty.

“The West says this, the West says that. Excuse me, but what counts is not what the West says. What counts is what my people say,” he said, during a ceremony to inaugurate a high-speed train station in the Turkish capital. 

* * *

And in a separate move, which may be linked to the escalation in tensions, this afternoon the US Embassy in Istanbul ordered the families of employees to depart, and  also advised U.S. citizens to avoid travel to southeast Turkey and “carefully consider the risks of travel to and throughout the country.”

Full Travel Warning:

The U.S. Department of State continues to warn U.S. citizens of increased threats from terrorist groups throughout Turkey.  U.S. citizens should avoid travel to southeast Turkey and carefully consider the risks of travel to and throughout the country.  The U.S. Department of State is updating this Travel Warning to reflect the October 29, 2016, decision to order the departure of family members of employees posted to the U.S. Consulate General in Istanbul, Turkey.  The Department of State made this decision based on security information indicating extremist groups are continuing aggressive efforts to attack U.S. citizens in areas of Istanbul where they reside or frequent.  The Consulate General remains open and fully staffed.

This order applies only to the U.S. Consulate General in Istanbul, not to other U.S. diplomatic posts in Turkey.  The Department continues to monitor the effect of these developments on the overall security situation in the country. This replaces the Travel Warning dated October 24, 2016.

The Governor of Ankara, acting under the authority of the recently-extended state of emergency, and on the basis of reported terrorist threats against cities in Turkey, has banned all demonstrations in Ankara province until November 30. The Department continues to monitor the effects of the ongoing state of emergency; recent terrorist incidents in Ankara, Istanbul, Gaziantep, and throughout the Southeast; recurring threats; visible increases in police or military activities; and the potential for restrictions on movement as they relate to the safety and well-being of U.S. citizens in Turkey.  Delays or denial of consular access to U.S. citizens detained or arrested by security forces, some of whom also possess Turkish citizenship, continue.

Foreign and U.S. tourists have been explicitly targeted by international and indigenous terrorist organizations in Turkey.  In the past year, extremists have carried out attacks in France, Belgium, Germany, Mali, Bangladesh, Tunisia, and Turkey.  Additional attacks in Turkey at major events, tourist sites, restaurants, commercial centers, places of worship, and transportation hubs, including aviation services, metros, buses, bridges, bus terminals and sea transport, could occur.  Extremists have also threatened to kidnap and assassinate Westerners and U.S. citizens.  U.S. citizens are reminded to review personal security plans, monitor local news for breaking events, and remain vigilant at all times.

U.S. Government personnel in Turkey remain subject to travel restrictions in the southeastern provinces of Hatay, Kilis, Gaziantep, Sanliurfa, Sirnak, Diyarbakir, Van, Siirt, Mus, Mardin, Batman, Bingol, Tunceli, Hakkari, Bitlis, and Elazig.  In particular, the U.S. Mission to Turkey may prohibit movements by its personnel to these areas on short notice for security reasons, including threats and demonstrations.  Due to recent acts of violence, such as the August 20 suicide bombing in Gaziantep, the September 12 bombing in Van, and the potential for reprisal attacks due to continued Turkish military activity in Syria, U.S. citizens are urged to defer travel to large, urban centers near the Turkish/Syrian border.  Finally, the Government of Turkey has closed its border with Syria.  Border crossings from Syria into Turkey are prohibited, even if the traveler entered Syria from Turkey.  Individuals seeking emergency medical treatment or safety from immediate danger are assessed on a case by case basis

 

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After nearly a decade of central planning by global monetary authorities, the hedge fund industry has found itself unable to generate any alpha since 2011. As Barclays recently calculated, the average monthly alpha has declined to -0.07% (annualized ~0.8%) from 2011 to May 2016 compared to an average of +0.48% (-5.9% annualized) for the entire period analysed (1993 to May 2016).

This has resulted in not only formerly respected hedge fund managers like Bill Ackman (as well as countless more) being forced to revise the traditional 2 and 20 fee structure to retain fleeing clients, but also the biggest outflow from active managed funds on record, as inflows into passive, ETF-based asset managers continue unabated.

This unprecedented shift in capital away from active managers and toward passive strategies has resulted in not only a chilling effect on the hedge fund industry, culminating with the fewest hedge fund launches since 2000, and massive redemptions, creating a feedback loop which assures even lower returns in the future and even more pain for the “2 and 20” crowd…

 

… but also concerns about a market in which “passive”, robotic, algo-driven decision makers are the marginal buyers and sellers of securities.

And while it is the case that so far, the market has been spared an observation of how a largely passive investing crowd would respond during a downturn (and more importantly what happens to market liquidity), the time is drawing nearer with every passing day, and certainly as central bankers collectively try to prop up global yield curves.

So what are the implications from this shift toward passive investing?

Conveniently, that is the topic of the latest Flows and Liquidity piece from JPM’s Nikolaos Panagirtzoglou, in which he makes some interesting and troubling observations, of which three are key: 

• Markets become more brittle, risky: “The shift towards passive funds has the potential to concentrate investments to a few large products. This concentration potentially increases systemic risk making markets more susceptible to the flows of a few large passive products.”
• Crashes, when they happen, will be bigger and badder: “the shift towards passive funds tends to intensify following periods of strong market performance as active managers underperform in such periods of strong market performance. In turn, this shift exacerbates the market uptrend creating more protracted periods of low volatility and momentum. When markets eventually reverse, the correction becomes deeper and volatility rises as money flows away from passive funds back towards active managers who tend to outperform in periods of weak market performance.“
• Markets become less efficient: “if passive investing becomes too big, potentially crowding out skilled active managers also, market efficiency would start declining. In turn, this would present opportunities for active managers to extract arbitrage profits.”

Here are his thoughts:

The rise of passive funds at the expense of active funds has been well documented and has attracted widespread attention in the press recently. Figure 1 shows that the shift towards passive funds has been a trend that started before the Lehman crisis but intensified after the Lehman crisis. In fact after the Lehman crisis the trend towards passive investing has been boosted by the explosive growth of ETFs, the AUM of which currently stands at $1.8tr, from $0.5tr before the Lehman crisis, i.e. the ETF universe more than tripled since the Lehman crisis. For comparison, the AUM of mutual funds worldwide grew 53% over the same period.

 

The shift towards passive investing has accelerated over the past two years. This is shown in Figure 2 which shows the cumulative flows into passive and active equity and bond funds domiciled in the US. Since  2014, active mutual funds have been experiencing outright outflows.

 

 

Figure 3 and Figure 4 also show that the shift from active to passive investing appears a lot more advanced in the equity fund vs bond fund space. For example, active equity mutual funds started experiencing outright outflows after the Lehman crisis in the US and these outflows intensified after 2014. Active bond mutual funds started experiencing outright outflows more recently after the taper tantrum of 2013

 

What are the implications of the shift towards passive funds?

 

• 1) End investors such as retail investors are becoming more important in driving markets. Swings in retail investor sentiment, which are often abrupt due to typically shorter investment horizons than institutional investors, are transmitted into markets more quickly as the cushion from active managers accommodating retail investor flows is removed. For example, if retail investors turn suddenly bearish and decide to withdraw a lot of previously invested active funds from the market, active managers could accommodate this selling pressure by running down their cash balances. In this way, the bearishness of retail investors is transmitted less abruptly to markets relative to the case where retail investors withdraw their money from passive funds that hold no cash balances. In other words, active managers inject a degree of convexity to markets which would naturally diminish if passive investing becomes even more dominant in the future.
• 2) Markets could see more protracted momentum periods coupled with deeper corrections. Markets would see more protracted uptrends to the extent that there is more herding in retail investors’ behaviour. In addition, the shift towards passive funds tends to intensify following periods of strong market performance as active managers underperform in such periods of strong market performance. In turn, this shift exacerbates the market uptrend creating more protracted periods of low volatility and momentum. When markets eventually reverse, the correction becomes deeper and volatility rises as money flows away from passive funds back towards active managers who tend to outperform in periods of weak market performance.

• 3) The shift towards passive funds has the potential to concentrate investments to a few large products. In turn, asset concentration potentially increases systemic risk making markets more susceptible to the flows of a few large passive products.
• 4) Passive or index investing favours large caps as most equity indices are market cap weighted. This could exacerbate the flow into large companies beyond to what is justified by fundamentals, creating potential misallocation of capital away from smaller companies. To the extent that these passive funds become even more dominant in the future, the risk of bubbles being formed in large companies, at the same time crowding out investments from smaller firms, would significantly increase.
• 5) The proliferation of index funds increases the size of stock inclusion flows. In turn, market moves around index constituent changes become more pronounced overpenalizing companies leaving the index and causing excessive gains to companies entering the index.
• 6) Passive investing potentially reduces corporate activism. The conventional wisdom is that passive owners will show little interest to corporate governance relative to active managers and as a result corporate activism would naturally decline. But there is little empirically evidence of that happening. Gormley , Keim and Appel showed in their academic work show that mutual fund firms which focus on passive investing do indeed cast their shareholder votes to press for change, and do it effectively. In addition, they show how passive investing also leads to more aggressive shareholder activism than there would be otherwise, as passive fund firms add their clout to campaigns waged by activist investors.
• 7) Passive investing potentially reduces market efficiency. This is again the conventional wisdom but we believe that this argument is not entirely correct and could be valid only after the shift away from active towards passive funds becomes more advanced. Initially the opposite could be argued. It could be argued that the shift away from low skilled active managers to passive investing could increase market efficiency as the noise from low skilled managers is reduced. But if passive investing becomes too big, potentially crowding out skilled active managers also, market efficiency would start declining. In turn, this would present opportunities for active managers to extract arbitrage profits. In other words, if passive investing becomes too big, the portion of active managers outperforming the market would naturally rise and the flow would start shifting again away from passive towards active funds. So there is a natural limit of how high passive investing can grow at the expense of active managers. How high this natural limit is not yet clear. At the moment, there is little evidence of active managers generating enough alpha even as the share of passive funds has grown steadily nearly 30% in the US. In addition, the HF industry has been failing to generate alpha in recent years with little evidence of succeeding to do this so far this year as shown in Figure 5.

In all, this suggests that there is more room for passive investing to grow over the coming years at the expense of active managers until more low skilled active managers are removed from the marketplace and market inefficiencies start emerging for the skilled ones.

* * *

And then, just in case hedge funders’ lives were not bad enough, JPM decided to remind them that “HFs are failing to produce alpha for another year.“

Hedge funds have produced lackluster performance this year. The performance of HFs was not only poor in absolute terms but also relative to a traditional bond/equity portfolio benchmark. In particular, relative to a bond/equity portfolio benchmark, with weights chosen to reflect the relative distance of bond and equity volatility from that of HFs, HFs underperformed by 2.2% in 2016. According to Figure 5 this negative “alpha” in 2016 was worse than the -1.6% seen in 2015, but better than the -5.0% seen in 2014. But it is still disappointing given the failure of the HF industry to achieve positive alpha for three consecutive years. And before 2013, one needs to go back to 2010 for another positive alpha. Similarly in terms of flows, Figure 6 shows that the HF outflows over the past year are the worst since the Lehman crisis.

* * *

While this is bad news for hedge funds everywhere, who are likely to suffer even greater AUM declines, and even lower fees, it may all change overnight should central banks – the entities whose only true mandate has been to be the market’s Chief Risk Officers since 2009 and not allow even the smallest downturn – lose control and “make hedging great again.” Then again, it may be too late: if there is another market crash, it is possible that what little faith and confidence in the market remained, is gone for ever. That said, with some of the smartest people around forced to engage in socially productive activities for a change instead of just creating ever more debt, there could be worse outcomes.

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Submitted by Charles Hugh-Smith via OfTwoMinds blog,

Central banks seeking to boost inflation are waging financial war on the bottom 95% of households.

Central banks are obsessed with boosting inflation, but the "why inflation is good" arguments make no sense for households being ravaged by inflation. The basic argument is that inflation makes it easier for debtors to service their debts.

But this is only true if income rises along with costs. If income stays flat while costs rise, households lose ground–debt remains a burden as the purchasing power of income plummets.

Central banks and the mainstream media make two fatal errors when discussing inflation.

1. They assume an inflation rate that lumps all costs/prices into one number is meaningful. But the "headline" consumer price index (CPI) is meaningless for two reasons:

A. The "headline" CPI is easily manipulated by underweighting sectors with double-digit cost increases such as higher education, rent and healthcare, and by gaming hedonics and other adjustments.

B. Households and enterprises that are exposed to sectors with double-digit cost increases experience inflation at rates that are far higher than those households and enterprises that have little to no exposure to soaring rents, healthcare premiums and college tuition.

2. They lump all inflation-adjusted household income into one "headline number" of median household income. This is a meaningless number because it combines the top 5% of households that are experiencing strong income gains in the "recovery" with the 95% of households experiencing stagnant or declining purchasing power.

In other words, there is not one inflation rate or median household income, there are completely different classes of inflation and income. Americans in the top 5% with little exposure to the soaring big-ticket expenses of rent, healthcare and higher education are doing great, as their income/purchasing power is rising while their household budget is protected from 25% increases in rent, healthcare premiums, etc.

Households with stagnant incomes that are fully exposed to the ravages of soaring big-ticket expenses are experiencing catastrophic losses of purchasing power (i.e. inflation) on the order of 8% to 12% declines annually.

Take a look at these charts:

A better measure of how households are doing is to compare GDP (gross domestic product) and wages: if GDP is rising but household incomes aren't keeping pace with GDP, then households are doing worse–which is exactly what's happened in the "recovery":

The share of GDP devoted to wages is another basic measure of household well-being: the wage/salary share of the economy has been declining for 45 years:

Meanwhile, the top 5% is riding high: notice how the spending of the top 5% has pulled away from the stagnant spending of the bottom 95% during the "recovery":

Any household paying soaring healthcare premiums and co-pays is being crushed:

Ditto for households experiencing double-digit rent inreases:

Rising inflation crushes the purchasing power of the bottom 95% whose incomes are not rising along with double-digit cost increases in big-ticket expenses. Central banks seeking to boost inflation are waging financial war on the bottom 95% of households.

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Democrats are angry. Mainstream media are angry. Clinton campaign members are angry. And all because the director of The FBI dared to enforce the law as he saw fit, with awkward timing for the future warmonger-in-chief's followers.

Clinton campaign head John Podesta lashed out that the FBI chief's letter was "long on innuendo and short on facts," adding that there was "no evidence of wrongdoing, no charge of wrongdoing, and no indication that this was even about Hillary."

And so, The Democratic Coalition Against Trump filed a complaint with the Department of Justice Office of Professional Responsibility on Friday against FBI Director James Comey for interfering in the Presidential election, following the FBI’s decision to open up an investigation into Secretary Clinton’s emails this close to Election Day. Federal employees are forbidden from participating in political activities under the Hatch Act.

Scott Dworkin, Senior Advisor to the Democratic Coalition Against Trump, added…

“It is absolutely absurd that FBI Director Comey would support Donald Trump like this with only 11 days to go before the election.

 

It is an obvious attack from a lifelong Republican who used to serve in the Bush White House, just to undermine her campaign.

 

Comey needs to focus on stopping terrorists and protecting America, not investigating our soon to be President-Elect Hillary Clinton.”

Clinton's allies are past the boiling point, as The Hill reports, fuming that they were "dumbfounded"…

“I'm livid, actually,” one Clinton surrogate told The Hill. “This has turned into malpractice. It's an unforced error at this point. I have no idea what Comey is up to but the idea this email issue is popping back up again is outrageous. It never should have occurred in the first place. Someone somewhere should have told her no. And they didn't and now we're all paying the price.”

 

Another ally called the campaign’s mood something akin to “paralysis,” and blamed Weiner’s behavior for railroading the campaign.

 

“The F.B.I. has a history of extreme caution near Election Day so as not to influence the results,” Senator Dianne Feinstein, Democrat of California, said in a statement. “Today’s break from that tradition is appalling.”

“Was this information Congress needed to know urgently? Of course not,” said Matthew Miller, a Clinton supporter who was the chief spokesman at the Justice Department under former Attorney General Eric H. Holder Jr.

And the media is livid, having backed this horse all the way. (via The Washington Examiner)

Ousted Meet the Press host David Gregory, now a media scold on CNN, ripped FBI Director James Comey for reentering the Hillary Clinton email scandal, calling it an "unprecedented" jump into a presidential race.

 

 

Gregory said, "What is also striking is the extent to which the FBI director of the United States is allowing himself to be injected into this political campaign. Unprecedented that he would have released the information he released after a decision not to recommend indictment."

In making his case against Comey, however, Gregory did not mention that his lawyer wife has represented former Clinton aides involved in the scandal.

So let's go back in time just a few months… and see what the president, politicians and the media thought on Jim Comey then…

President Obama: "He's got the resume, but more importantly, a strong sense of right and wrong."

 

Democratic National Committee: "We are pleased that the career officials handling this case have determined that no further action by the Department of Justice is appropriate."

 

CNN: "If there is a silver lining to this episode from a public perspective, it is that the investigation itself appears to have been conducted without fear or favor. Comey is regarded as a straight shooter by both sides of the aisle. Who can forget that as deputy attorney general for President George W. Bush, it was Comey who raced into a hospital and stopped top administration officials from persuading a sick attorney general to bless their wiretapping schemes? No one should forget that President Barack Obama appointed Comey, a registered Republican, to serve as FBI director. Americans' trust in public officials and public institutions has fallen abysmally, as we all know. So far as we can now tell, the country in this instance has been well served by a leader and an FBI that has been diligent, hard-working and fair. Embittered partisans will disagree, but for my book, the FBI seems to have gotten this one right."

 

Richard Blumenthal, a former U.S. attorney for four years and former state attorney general for 20 years, said he has complete confidence in the integrity of FBI Director James Comey, a former Connecticut resident who made the announcement Tuesday: "He's a former colleague and a friend, and most important, his record demonstrates that he has both the capacity and the determination to make judgments about criminal matters with the highest degree of integrity and professionalism. So, I trust his judgment, and I believe it will have a great deal of credibility with the American people."

So, having gloated in the past over Comey's exemplary record, trustworthiness, knowing right from wrong, and patriotism, it seems that for Democrats, anyone enforcing the law and investigating allegations of lawlessness are now puppets of Russian President Vladimir Putin.  On Saturday, as conservativefiringline.com reports, Howard Dean issued a tweet telling the world that FBI Director James Comey is "on the side of Putin."

Ironically Comey put himself on the same side as Putin.

— Howard Dean (@GovHowardDean) October 29, 2016

For GOP'r James Comey to speculate 11 days before an election, I can only assume he is colluding w/Trump, alt-right racists & Putin. #AMJoy

— Bill Madden (@activist360) October 29, 2016

Naturally, it has nothing to do with the fact that Clinton violated the law.
 

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Submitted by Jeffrey Snider via Alhambra Investment Partners,

Durable goods continue to show that there is no difference between the economy of 2015 and the one being described by these numbers in 2016. To the “transitory” narrative, it is the death blow, which is why so many central banks and central bankers are busy exploring other options (while as quietly as they can writing down the future economy). To others, there is hope in that condition especially since for a time it looked like recession for this year. Where the glass is half full, at least 2016 hasn’t gotten a whole lot worse.

The statistics show that everything is stuck, at best. Durable goods shipments were down 0.5% year-over-year in September 2016 after being up almost 2% the month before; new orders were flat.

Capital goods continue to see the worst of it, with new orders down almost 4% in the latest month while shipments fell by 5.2%. These circumstances are the continuation of two years of the wrong direction. To some, durable goods might show stabilizing, but in terms of capital goods businesses don’t appear to arrive at the same conclusion (and it’s not all energy-related).

The story of durable goods is the story of the economy itself. Why wouldn’t it be? It is a segment related to consumers in some of the most economically-sensitive ways possible. Big ticket items tend to sway with overall economic conditions, including consumer perceptions about the future. The less confident you are about what’s just over the horizon the less likely you are to buy expensive stuff.

It all started with the shock of the Great “Recession”, but if it was to be a recession and normal business cycle that meant the prospects of huge growth despite the enormity of the hole that the economy would have to be overcome. Monetary officials around the world knew the scope of the challenge, which is why they quickly turned to “extraordinary” policies and in heavy (it was thought at the time) doses.

Almost immediately, however, there was a problem. The recovery started to shallow, which pushed some at the time to characterize it as just a “new normal” of asymmetric growth. It was a recovery, they thought, just not as strong as it perhaps should have been.

The first serious economic setback followed closely the monetary one in 2011. By early 2012, the economy here and globally started to weaken and do so in such serious fashion that it at the time threatened renewed recession (and in some places like Europe did occur). Central banks around the world responded with coordinated “stimulus” meant to overcome that drag and reignite latent recovery forces that economists still believed valid.

What followed that downturn in 2012 is the main source of how everything afterward has been misconstrued. QE3 ignited stocks in the promise that it would work, while in the economy there was no recession but also no recovery from the weakness. The mainstream opinion turned as if avoidance of recession by 2013 was the same as actual growth, or at least the precondition for it. That view was furthered in 2014 by also mistaking relative improvement for actual improvement. Far too much was made out of what was so very little (a condition further established by later benchmark revisions, but one that didn’t need them to still be clearly appreciated).

Even though by 2014 there were positive numbers and even more so in durable goods as well as other accounts, it wasn’t the same as recovery or the continuation of a normal business cycle. Stuck in that frame of reference, however, policymakers were essentially fooling themselves by failing to appreciate the overall context that was actually quite repressive as well as overriding. “Something” was still very wrong, even if in traditional terms “expansion” was still proceeding.

Because of that altered state, economists misread what came next – the effects of the “rising dollar.” Viewing 2014 as, again, meaningful acceleration, the mainstream interpretation of what was very serious weakness was to dismiss it. Believing the hastening in 2014 as real, the negatives of 2015 were downplayed as either a minor disturbance (manufacturing is only 12%) not worthy of consideration or a temporary condition that would soon enough dissipate of its own accord.

By that view and expectation, 2016 had to be a meaningfully improved environment even if still by relative comparison. It hasn’t been. As durable and capital goods show well, the economy remains as it was. From the perspective that viewed 2014 as actual acceleration, this is a surprise and a shock; from the wider context that sees the disparity of where the economy “would” be had this all been contained within a normal cycle, it was just more of the same.

Here’s the part that economists, policymakers, and the media (all three largely indistinguishable from each other) miss – lack of true growth is contraction, and the worst kind because it isn’t recession contraction it is depression contraction. In the former, all is forgotten after a time; in the latter where even occasional positive numbers can be and often are highly deceptive, time is the biggest problem. In 2016, that latter realization can no longer be avoided, which is why we have seen orthodox institutions like the IMF and World Bank give up completely on the recovery idea, and where central bankers are now after defending QE and ZIRP (and NIRP) forcefully for years suddenly admitting (some of) their faults and desperately searching for alternatives.

It is not a business cycle; there was no recession in 2008 and 2009. There was a contraction but it was instead a full dislocation which represented a huge shift in systemic factors starting with, of course, the eurodollar; what we see of US conditions is also what we find all over the world.

At each of these monetary intervals, the global economy absorbs the hit and weakens but doesn’t recover from it; what appears to be stabilization or even minor improvement is really just the interim between monetary events that transpire only in that one direction (negative pressure). Trying to understand what has been taking place from a cyclical perspective is like what it once was in trying to read ancient Egyptian hieroglyphs before the discovery of the Rosetta Stone.

Letting go of QE and accepting the (decaying) “dollar” as the actual monetary basis for the global economy is the key to translating what appears to be an impossible enigma into a coherent basis for understanding what is still, tragically, occurring.

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