It was the end of the big year with three zeroes. The first X-Men movie had broken box office records. You couldn’t set foot in a supermarket without listening to Brittney Spears caterwauling, “Oops, I Did It Again.” And Republicans and Democrats had total control of both chambers of legislatures in the same amount of states. That was the way it was back in the distant days of the year 2000.
In 2016, Republicans control both legislative chambers in 32 states. That’s up from 16 in 2000.
What happened to the big donkey? Among other things, the Democrats decided to sell their base and their soul to a very bad billionaire and they got a very bad deal for both.
It was 2004. The poncho was the hottest fashion trend, there were 5 million new cases of AIDS and a former Nazi collaborator had bought the Democrat Party using the spare change in his sofa cushions.
And gone to war against the will of the people. This was what he modestly called his own “Soros Doctrine”.
“It is the central focus of my life,” George Soros declared. It was “a matter of life and death.” He vowed that he would become poor if it meant defeating the President of the United States.
Instead of going to the poorhouse, he threw in at least $15 million, all the spare change in the billionaire’s sofa cushions, dedicated to beating President Bush.
In his best lisping James Bond villain accent, Soros strode into the National Press Club and declared that he had “an important message to deliver to the American Public before the election” that was contained in a pamphlet and a book that he waved in front of the camera. Despite his “I expect you to die, Mr. Bond” voice, the international villain’s delivery was underwhelming. He couldn’t have sold brownies to potheads at four in the morning. He couldn’t even sell Bush-bashing to a roomful of left-wing reporters.
But he could certainly fund those who would. And that’s exactly what he did.
Money poured into the fringe organizations of the left like MoveOn, which had moved on from a petition site to a PAC. In 2004, Soros was its biggest donor. He didn’t manage to bring down Bush, but he helped buy the Democratic Party as a toy for his yowling dorm room of left-wing activists to play with.
Soros hasn’t had a great track record at buying presidential elections. The official $25 million he poured into this one bought him his worst defeat since 2004. But his money did transform the Democrat Party.
And killed it.
Next year the Democracy Alliance was born. A muddy river of cash from Soros and his pals flowed into the organizations of the left. Soros had helped turn Howard Dean, a Vermont politician once as obscure as this cycle’s radical Vermont Socialist, into a contender and a national figure. Dean didn’t get the nomination, but he did get to remake the DNC. Podesta’s Center for American Progress swung the Democrats even further to the left. And it would be Podesta who helped bring Hillary down.
The Democrats became a radical left-wing organization and unviable as a national political party. The Party of Jefferson had become the Party of Soros. And only one of those was up on Mount Rushmore.
Obama’s wins concealed the scale and scope of the disaster. Then the party woke up after Obama to realize that it had lost its old bases in the South and the Rust Belt. The left had hollowed it out and transformed it into a party of coastal urban elites, angry college crybullies and minority coalitions.
Republicans control twice as many state legislative chambers as the Democrats. They boast 25 trifectas , controlling both legislative chambers and the governor’s mansion. Trifectas had gone from being something that wasn’t seen much outside of a few hard red states like Texas to covering much of the South, the Midwest and the West.
The Democrats have a solid lock on the West Coast and a narrow corridor of the Northeast, and little else. The vast majority of the country’s legislatures are in Republican hands. The Democrat Governor’s Association has a membership in the teens. In former strongholds like Arkansas, Dems are going extinct. The party has gone from holding national legislative majorities to becoming a marginal movement.
And the Democrats don’t intend to change course. The way is being cleared for Keith Ellison, the co-chair of the Congressional Progressive Caucus with an ugly racist past, to head the DNC. Pelosi will oversee the disaster in the House. And Obama will remain the party’s highest profile national figure.
There could hardly be a clearer signal that the left intends to retain its donkey herding rights. Soros and his ilk have paid for the reins. That is why Pelosi, with her access to donors, will retain her position.
The left had recreated the Democrat Party and marginalized it. Much of this disaster had been funded with Soros money. Like many a theatrical villain, the old monster had been undone by his own hubris. Had Soros aided the Democrats without trying to control them, he would have gained a seat at the table in a national party. Instead he spent a fortune destroying the very thing he was trying to control.
George Soros saw America in terms of its centers of economic and political power. He didn’t care about the vast stretches of small towns and villages, of the more modest cities that he might fly over in his jet but never visit, and the people who lived in them. Like so many globalists who believe that borders shouldn’t exist because the luxury hotels and airports they pass through are interchangeable, the parts of America that mattered to him were in the glittering left-wing bubble inhabited by his fellow elitists.
Trump’s victory, like Brexit, came because the left had left the white working class behind. Its vision of the future as glamorous multicultural city states was overturned in a single night. The idea that Soros had committed so much power and wealth to was of a struggle between populist nationalists and responsible internationalists. But, in a great irony, Bush was hardly the nationalist that Soros believed. Instead Soros spent a great deal of time and wealth to unintentionally elect a populist nationalist.
Leftists used Soros money to focus on their own identity politics obsessions leaving the Dems with little ability to interact with white working class voters. The Ivy and urban leftists who made up the core of the left had come to exist in a narrow world with little room for anything and anyone else.
Soros turned over the Democrats to political fanatics least likely to be able to recognize their own errors. His protégés repeated the great self-destruction of the Soviet Union on a more limited scale
Soros fed a political polarization while assuming, wrongly, that the centers of power mattered, and their outskirts did not. He was proven wrong in both the United States of America and in the United Kingdom. He had made many gambles that paid off. But his biggest gamble took everything with it.
"I don’t believe in standing in the way of an avalanche," Soros complained of the Republican wave in 2010.
But he has been trying to do just that. And failing.
"There should be consequences for the outrageous statements and proposals that we've regularly heard from candidates Trump and Cruz," Soros threatened this time around. He predicted a Hillary landslide.
He was wrong.
As Soros plowed more money into the left, its escalating radicalism alienated more of the country. Each “avalanche” was a reaction to the abuses of his radicals. It wasn't Trump or Cruz who suffered the consequences. It wasn't even his own leftists. Rather it was the conservative and eventually the moderate wings of the Democrat party who were swept away by his left-wing avalanches.
The left did not mourn the mass destruction of the moderates. Instead it celebrated the growing purity of the Democrats as a movement of the hard left. It did not notice or care that it was no longer a political force outside a limited number of cities. It anticipated that voters would have no choice but to choose it over the "extremist" Republicans.
It proved to be very, very wrong.
George Soros spent a fortune to turn a national party favorable to the left into an organization that has difficulty appealing to anyone not on the left. He wanted to control a country he did not understand. And, as the left so often does, he achieved his goals and in doing so destroyed them.
We discuss the Housing Market in this video by looking through a bunch of data, and possible future drivers for the Market both to the upside and downside. I have mixed emotions about the Housing Market in general.
Finland begins a test of a universal basic income by offering 2,000 unemployed adults 560 euros a month. QuickTake: Universal Basic Income
U.S. companies will be required to disclose pay ratios comparing the compensation of their CEO to the median pay of employees, in the year starting Jan. 1. QuickTake: Executive pay
France is gathering dozens of foreign ministers in Paris Jan. 15 to discuss the Israeli-Palestinian conflict. QuickTake: Israeli Settlements
February
Judges may rule as early as February in a U.S. patent dispute determining who invented the gene-editing technique known as Crispr-Cas9. QuickTake: Gene Editing
Intercontinental Exchange Inc., which runs the daily London gold auction, will start trading a futures contract for the metal in the U.S., part of a battle for control of the world gold market. QuickTake: Gold's Ups and Downs
The number of influenza cases typically peaks this month in the U.S. QuickTake: The Flu
March
ChemChina aims to complete its $43 billion purchase of Syngenta, a record acquisition by a Chinese company, by the end of the first quarter. QuickTake: China Inc.'s Spending Spree
U.K. Prime Minister Theresa May plans to trigger the legal process for Britain’s exit from the European Union, starting a two-year countdown for Brexit. QuickTake: Brexit
The European Central Bank is scheduled to begin scaling back its quantitative easing program, reducing monthly bond buying to 60 billion euros. QuickTake: Europe’s QE Quandary
Pope Francis visits Fatima, Portugal, May 13 for the 100th anniversary of the day on which three children said the Virgin Mary first appeared to them. QuickTake: Pope Francis
The Eurovision song contest will be held in Kiev after Ukraine's Susana Jamaladinova, who uses the stage name Jamala, won the contest in 2016.
Ukraine's Jamala reacts on winning the 2016 Eurovision Song Contest.
College graduates say farewell to school and, in the U.S., hello to an average of more than $30,000 in debt. QuickTake: Student Debt
The Perseid meteor shower will peak Aug. 12 or 13.
Earliest date possible for the German federal election is Aug. 27. In recent years, elections have taken place in September. QuickTake: Angela Merkel
September
Russia will hold its annual strategic military exercises in its western regions. QuickTake: Cool War
Russian officers march during the Victory Day military parade.
Catalonia’s regional president, Carles Puigdemont, has vowed to hold a referendum this month on splitting from Spain. QuickTake: Catalonia
Bloomberg will open its new European headquarters in London before the end of the year. The site includes a museum for the archaeological remains of a temple dedicated to the Roman god Mithras.
Annual meeting of the World Bank and International Monetary Fund in Washington, Oct. 13-15. QuickTake: GDP
Chinese President Xi Jinping may narrow the field of potential successors at the party congress, expected in October or November. QuickTake: China’s Pain Points
November
If the U.S. Affordable Care Act is still in place, its open enrollment period will run from Nov. 1 to Jan. 31, 2018. QuickTake: Health Insurance Exchanges
China celebrates Singles' Day Nov. 11. It’s the largest online shopping day. QuickTake: Alibaba
Singles' Day is a Chinese annual online shopping spree that has been held every Nov. 11 since 2009.
South Africa's ruling African National Congress will choose a new leader at its party conference to replace President Jacob Zuma. QuickTake: South Africa
Finland begins a test of a universal basic income by offering 2,000 unemployed adults 560 euros a month. QuickTake: Universal Basic Income
U.S. companies will be required to disclose pay ratios comparing the compensation of their CEO to the median pay of employees, in the year starting Jan. 1. QuickTake: Executive pay
France is gathering dozens of foreign ministers in Paris Jan. 15 to discuss the Israeli-Palestinian conflict. QuickTake: Israeli Settlements
February
Judges may rule as early as February in a U.S. patent dispute determining who invented the gene-editing technique known as Crispr-Cas9. QuickTake: Gene Editing
Intercontinental Exchange Inc., which runs the daily London gold auction, will start trading a futures contract for the metal in the U.S., part of a battle for control of the world gold market. QuickTake: Gold's Ups and Downs
The number of influenza cases typically peaks this month in the U.S. QuickTake: The Flu
March
ChemChina aims to complete its $43 billion purchase of Syngenta, a record acquisition by a Chinese company, by the end of the first quarter. QuickTake: China Inc.'s Spending Spree
U.K. Prime Minister Theresa May plans to trigger the legal process for Britain’s exit from the European Union, starting a two-year countdown for Brexit. QuickTake: Brexit
The European Central Bank is scheduled to begin scaling back its quantitative easing program, reducing monthly bond buying to 60 billion euros. QuickTake: Europe’s QE Quandary
Pope Francis visits Fatima, Portugal, May 13 for the 100th anniversary of the day on which three children said the Virgin Mary first appeared to them. QuickTake: Pope Francis
The Eurovision song contest will be held in Kiev after Ukraine's Susana Jamaladinova, who uses the stage name Jamala, won the contest in 2016.
Ukraine's Jamala reacts on winning the 2016 Eurovision Song Contest.
College graduates say farewell to school and, in the U.S., hello to an average of more than $30,000 in debt. QuickTake: Student Debt
The Perseid meteor shower will peak Aug. 12 or 13.
Earliest date possible for the German federal election is Aug. 27. In recent years, elections have taken place in September. QuickTake: Angela Merkel
September
Russia will hold its annual strategic military exercises in its western regions. QuickTake: Cool War
Russian officers march during the Victory Day military parade.
Catalonia’s regional president, Carles Puigdemont, has vowed to hold a referendum this month on splitting from Spain. QuickTake: Catalonia
Bloomberg will open its new European headquarters in London before the end of the year. The site includes a museum for the archaeological remains of a temple dedicated to the Roman god Mithras.
Annual meeting of the World Bank and International Monetary Fund in Washington, Oct. 13-15. QuickTake: GDP
Chinese President Xi Jinping may narrow the field of potential successors at the party congress, expected in October or November. QuickTake: China’s Pain Points
November
If the U.S. Affordable Care Act is still in place, its open enrollment period will run from Nov. 1 to Jan. 31, 2018. QuickTake: Health Insurance Exchanges
China celebrates Singles' Day Nov. 11. It’s the largest online shopping day. QuickTake: Alibaba
Singles' Day is a Chinese annual online shopping spree that has been held every Nov. 11 since 2009.
South Africa's ruling African National Congress will choose a new leader at its party conference to replace President Jacob Zuma. QuickTake: South Africa
We go over some viewer questions that we received regarding financial markets over the last week in this video. The S&P 500 is the instrument you want to trade versus the Dow instrument, it provides for a balanced view of the financial market universe. Trading the Russell 2000 because you recognize a rotational play within markets is a different story, and in a big Risk-Off selloff the Nasdaq and the small caps will experience greater losses and vice versa in a Risk-On move to the upside, keep that in mind. But if you just have a general view on the markets play the S&P 500, it will spread your risk profile in a more balanced manner. Plus it provides the best liquidity for market participants.
India’s Prime Minister, Narendra Modi, announced on 8th November 2016 that Rs 500 (~$7.50) and Rs 1,000 (~$15) banknotes would no longer be legal tender. Linked are Part-I, Part-II, Part-III, Part-IV, Part-V, Part-VI and Part-VII, which provide updates on the demonetization saga and how Modi is acting as a catalyst to hasten the rapid degradation of India and what remains of its institutions.
India’s Pride and Joy
Indians are celebrating that their economy has surpassed that of India’s former colonial master, the UK.
So-called educated Indians have latched on to the above visual, with full support of the Indian government. It has been shared far and wide in the national media. When you remind them that India’s population is twenty-one times that of the UK and on top of that, the British pound has taken a huge pounding because of Brexit and associated fear in the financial markets, expect to be ignored. You will be seen as anti-Indian.
Given the underlying irrationality and tribalism of India (read earlier updates for more on this), selected numbers are used to rationalize feelings and emotions. You see this everywhere in India: Science — very ironically — is used as a tool to rationalize superstitions and irrationalities.
Who needs reality when we can exist in illusions? But even this illusion – that India has superseded the UK – might disappear once the reality of India’s demonetization sinks in and the rupee falls, which it likely will once the international media recognize that Modi went for demonetization not to reduce corruption, but to transform India into a police state.
Modi’s interest was to increase tax collection, for the sake of tax collection, an approach in which rulers start to see themselves as all that matters, where citizens come to be seen as mere cogs in the service of the state.
In Modi’s imagination, if you are not a part of the formal economy — as is the case with the vast majority of desperately poor Indians, perhaps close to a billion people — you don’t count. As they are not recorded as part of the formal economy, their pain and suffering does not count either. Indeed most of their suffering and pain goes unseen and unheard — it has for the last two millennia.
The Indian stock market continues to fall, despite the fact that people know that selling their shares makes no sense, as their cash in the bank is effectively frozen. Could the stock market fall even more if bank accounts were to be unfrozen? Could the Indian rupee then fall as well, unless serious capital controls are instituted and gold-buying is restricted?
It is hard to predict the future, but those owning Indian assets from which money can still be repatriated will likely soon start to discover that India’s stock market and the rupee are possibly overvalued. Could an exodus start once money managers in New York and London start arriving at their desks at the start of the new year, after sobriety kicks in with the end of socialization and partying?
Scuffles have broken out between desperate clients and bank staff. Historically, it is commanders, kings and politicians who get all the blame. But these rulers and elites sitting in their ivory towers would never get their way if those on the front lines refused to obey unethical orders. Banks are required to provide cash to their clients when asked to do so. Their staff should have declined to accept Modi’s instructions to ration cash distribution. They should have stepped aside and let Modi deal with their clients, passing the responsibility where it belongs. Having not done that, they have become the face of Modi, or at least the face clients will take their anger out on. Banks employees are now starting to worry.
The Last Gasps of Disintegrating Institutions
These updates are not just about demonetization. They are an attempt to dissect the deeper, underlying cultural issues of India (and similar backward countries in South Asia, Middle East, Africa and South America) and why with the disappearance of the last vestiges of colonial institutions, India is starting to crumble. They are also an attempt to see what future might hold.
These updates are a story of why without the British to run them, western institutions implanted on India did not work and have mutated into something horrible. For example, education has become a tool for propaganda.
Nationalism without underlying values, is perceived by Indians as a mere geographical concept — and with indoctrination in schools it is rapidly weaving Indians into a dogmatic collective no different than those found in the Middle East. In a decade or so, India might become the Middle East on steroids.
Given its culture, which probably cannot change for centuries or perhaps millennia, India must ideally get heavily decentralized. India’s tribalism is entrenched and unchangeable, which is creating massive pressures to devolve India into its natural constituents, namely tribes. This will happen. The earlier the underlying forces are recognized, the less painful the process will become.
But as last gasps, there is a massively increased tendency toward intensifying centralization, toward instituting a police state. Increased militarization and equipment purchases, centralization of taxes, and now demonetization — all failing — are those last gasps.
Bulandshahr, Uttar Pradesh: a cop fires in the air to “calm down” agitated women outside a bank How long can they hope to control the situation if people are not getting the money that belongs to them?
A Life of Queuing: Pain for no Gain
While people in the rich world are in the cozy comforts of their homes, celebrating Christmas and the arrival of the New Year, Indians are lining up outside banks in utter cold to take out their own savings. Most are numb to why they are doing this. To a rational foreign bystander, their lack of revulsion has a certain spiritual element.
Indians have almost no history of revolting against oppression — they simply adjust to new situations. With respect to the demonetization policy, they have sheepishly accepted their predicament. As we discussed in earlier updates, this is a result of Indians’ utter lack of rationality, their failure to see what is wrong, their fatalism, the absence of revulsion against oppression, and their lack of moral instincts.
The caste system finds its roots here, where might-is-right is the governing principle, with both oppressor and oppressed failing to see anything wrong with their situations. The oppressor feels no empathy and the oppressed feels no revulsion. At best — given the lack of reason — the oppressed strives to become the oppressor.
Giving in to their predicament, many want to believe that they are queuing for some greater cause — akin to how the freshly decked out soldier feels on his way to battle — fooling themselves that this battle is needed. Of course there is no real higher cause they are worried about.
This facade of moral superiority is merely a cover for their boring and unfulfilling lives, and perhaps an unconscious expectation to get something for nothing — since Modi has offered them a windfall once the unaccounted money has been deposited. In the face of reality, however, the initial euphoria is fading.
Over the last 70 years since the British left, India’s entrenched interests, sociopaths and rulers have kept over a billion people — without any exaggeration— in an insect-like existence. This likely has been one of the biggest crimes against humanity, but has gone unnoticed and unseen. Demonetization once again has created massive suffering, most of which will never be documented.
The failure to sell at prices exceeding transportation cost is forcing farmers to dump their produce. Food prices have fallen as a cascading result of the cash crunch. Farmers are suffering hugely and one must ask what poor people are eating. This is a man-made disaster. Members of India’s middle class, lacking empathy, are happy that their food expenses are down 25% to 50%. They are however failing to consider that this temporary boon will constrict supplies in the future and eventually push prices much higher.
What did Modi Want from Demonetization?
As the deadline of 31st December 2016 to deposit all banned notes draws to a close, it is worth assessing what Modi really wanted, what he said he wanted, and what we should expect going forward.
Modi was after nothing else but to shock and awe society, to inculcate fear in people and to centralize control, something not too dissimilar to what Stalin or Mao did in their countries. He wanted to humiliate Indians.
He wanted them to commit their spirit to the service of the great nation-state, which in the imagination of Modi is represented by him. He wanted society to do a ritualistic dance and to celebrate his glory and conduct a self-cleansing exercise, through these never-ending queues.
Suffering from a massive identity crisis, non-resident Indians (NRIs) have found an emotional crutch in Modi. Not having to face any immediate problems themselves and incapable to understand the future consequences — for at the foundations irrationality rules undisturbed in them — so-called educated middle class members have euphorically approved of Modi’s demonetization.
Moreover, they are happy, as they despise small businessmen and lower caste people, who are getting hurt the most from the initial stage of demonetization. With Modi starting to be increasingly seen as joker in the international media, the emotional crutch of NRIs will soon disappear.
The time for India’s middle class will come, as the second-order and higher-order effects of the policy reveal themselves, but by then there will be no one to save the Indian middle class. Who said that a massive social engineering exercise like demonetization will not any have higher-order effects?
Anyone with the slightest understanding of philosophy and universal principles knows that a massive increase in corruption is written all over what Modi has done. Rhetorically, Modi wanted to end corruption, stamp out counterfeit currency and the financing of terrorism. Let us consider each of these.
No unusual counterfeit money was found in the process of demonetization, absolving Pakistan from the charge of having counterfeited Indian currency. Most of the banned notes have already been deposited in banks, despite desperate attempts by Modi to stall the process of depositing.
What has indeed become a massive problem is that the new notes are extremely vulnerable to being counterfeited. There are too many parts of this developing story of demonetization, but the ease with which the new notes can be counterfeited —and their many other flaws — by itself may be a major blow to the future of India’s monetary system. What if people start to refuse to accept the new notes?
This is one of the many problems with the new notes. Some are badly printed; some have ink that gets smeared. They have been extremely easy to counterfeit. If the government of 1.34 billion people, in this large-scale social engineering project cannot even design two new notes properly, on which the possibility of any stabilization of the money system rests, one can easily imagine how utterly and thoroughly incompetent India’s government is. Of course one probably has to spend some time in India to really understand the depth of this incompetence. It pays to remind ourselves that India is a single country only because the British left it that way. It is otherwise unmanageable and incapable of being controlled as a single unit. It is on its way to eventual disintegration. Modi will have hastened that trip.
Agitation in Kashmir and issues at the border with Pakistan have continued unabated. With Indians increasingly nationalistic, there is enormous popular support to continue and increase the oppression of Kashmir. The North Eastern provinces, which have historically been very unstable, have in recent weeks been very volatile.
Even if demonetization were able to control the so-called terrorism in these areas in the short-term, the problem would be back within months. India needs to solve the discontent that exists in so many of its regions and stop rampant abuses — fake encounter killings, rapes and systematic imposition of fear — conducted by its armed forces. This leaves ending corruption as the only issue.
One billion Indians with no internet are expected to use e-transactions. How did Modi come to think this was possible? Even a lot of educated people have never used an ATM. And you must pay about 2% in transaction fees and service taxes for using e-transactions. A primary school student can explain that this does not add up.
Photo credit: Reinhard Krause / Reuters
Corruption in India
As soon as one lands at the airport in Delhi, Mumbai or Chennai, one is hit with a wave of corruption, and sheer chaos. Often the custom-immigration forms are not there. Someone who acts very authoritative then rations those out. The line-ups to the immigration counter are hazy. No one really knows where one should go.
When you go to the baggage carousel, someone from customs comes over and offers to help you leave the airport unexamined, for a fat bribe. If you have something to declare, good luck, for the customs officer will know nothing about how to put a value on what you have, despite this being the only thing he does. You will waste your time and end up negotiating with them. You will be in a dark alley with no support.
When I arrived in Chennai a couple of years back with my suitcase missing, I had no choice but to go to customs to get the paperwork signed. I was asked to pay a massive custom duty on my unaccompanied bag. When they realized I wasn’t going to pay a bribe, they let me go.
Once you are out of the customs area, you encounter scammers of all sorts, all working hand in glove with the airport authorities. You must know which taxi counter to go to, or you risk paying a fortune.
A European friend who arrived in Delhi last week gave me a call from the airport. She could not find a working ATM. The banks did not convert her money at the airport. She ended up going out hunting with touts to get her money converted, a whole new dimension of corruption and abuses that Modi has inflicted on people.
A lot of girls eventually get sexually assaulted in India anyway, now even more after the demonetization. At most airports in India, you find to your surprise that you end up paying parking charges even if you never parked. The bribes are distributed from top to bottom, from the head guy of the airport to the lowest policeman in the hierarchy.
If you want a passport, you pay a bribe. If you want a driving license, you pay a bribe. If you want water or electricity coming to your house, you pay a bribe. If you go to the police or the court, you must pay a bribe.
My poor friends keep reminding me that I always talk about corruption that rich people — the top 2% of the population — face. They tell me I have no clue how much worse life gets once you start looking at distant rural places. Girls tell me the same. And I confess they are correct. In all these cases, apart from bribes, one must face the sadism of the police and bureaucrats.
Instant street justice dispensed by policemen. Might is right is what rules in India, not the rule of law.
Bribes are an essential part of India. Everyone gives and takes bribes. Everyone I know would gladly give a bribe to gain an unfair advantage over others.
The circus continues. While India queues up in front of the banks, Modi has inaugurated construction of a $500 million statue, to support Hindutava, a religious national identity. This wretched country, containing the highest number of the world’s poorest, most stunted and malnourished, must face such wastage.
Image credit: Chhatrapati Shivaji
What Should We Expect Going Forward?
Modi’s recent policies have significantly increased all-around corruption, which we have discussed in earlier updates. The Mafia has grown by leaps and bounds and tax authorities get whatever bribes they are asking for. There has been a horrendous increase in corruption among the banks for conversion of banknotes. Until now corruption did not exist at the retail level in banks.
If Modi really wanted to control corruption, he did not even have to turn his head. Wherever you look corruption stares you into the face. But Modi has actively protected institutionalized corruption. Modi has protected political parties, bureaucrats and politicians from the consequences of the banknote ban and their corrupt activities.
Nothing can control corruption in India except a ruthless decentralization of power in India. Instead, Modi is doing the exact opposite. Indeed, corruption has skyrocketed, particularly the worst one: destruction of whatever spirit still existed among small business and the poorest people.
Let us remind ourselves that Modi’s interest was not to control corruption but to shock and awe society into submission, for his personal glory. In future updates, we will delve even deeper into why corruption is so entrenched in India and why it can never go away using top-down institutional mechanisms.
Modi has set events into motion that will cripple India’s economy, with devastating effects on its poorest people. Most of the suffering will go unseen and unheard, in remote village and tribes, whose hunger and death is no one’s concern. Modi will be gone sooner rather than later, a result of his own arrogance. The problem is that whoever comes after Modi will probably make me nostalgic about Modi.
The textile industry in Ludhiana in Punjab is in severe trouble. There will be many unpredictable cascading effects on the economy and society.
Let us end this update with what one should expect in terms of monetary regulations in the near term.
Modi astutely declared demonetization on 8th November 2016, when the international press was focused on the US elections. He undertook a massive — and extremely flawed — social engineering exercise of no use to society. He did manage to escape scrutiny by the mainstream media.
He will do this again, between the start of the New Year and before Trump is installed, very likely at the turn of the year. He has promised that everything will be back to normal on 1st January 2017. Many transactions and hopes are based on the situation soon becoming normal.
Of course there is nothing on the horizon that can normalize the monetary situation for many months. He has so far released about 60 changes in rules over the last 47 days. He will have to continue to patch things up.
Eventually people will no longer be able to do the transactions they are currently doing informally. They will come to realize that their trust has been completely betrayed and their savings have been hugely constrained by Modi’s edicts.
The police state will continue to advance—slowly killing the very hosts it is feeding on. Will Modi impose capital controls and a ban on gold at the turn of the year? I would not be surprised.
El Monte, California is a city of roughly 100,000 residents in East Los Angeles, many of whom struggle to make ends meet with a median household income of ~$39,000 and nearly 25% of people living below the poverty line. But while most of the people of El Monte struggle to meet monthly expenses, the city’s public employees are living the high life courtesy of one of the most egregious taxpayer funded pension plans in the country. Just ask the retired City Manager, James Mussenden, who told the LA Times that he gets paid $216,000 per year in retirement to tour the world on extravagant golf trips.
The retired city manager of El Monte collects more than $216,000 a year, plus cost-of-living increases and fully paid health insurance.
“It’s giving me an opportunity to do a number of things I didn’t get to do when I was younger, like travel to Europe, take some things off my bucket list,” Mussenden, 66, said recently. He even flew to Scotland to play the famed Old Course at St. Andrews, a mecca for golf enthusiasts.
Mussenden recognizes that few Americans have pensions anymore — least of all the El Monte taxpayers who are funding his retirement. So while he enjoys his monthly retirement check, he’s discreet about it.
“The guys I play golf with, they get very angry about my pension because they don’t have anything like it,” he said.
El Monte’s total retirement costs for public employees in 2016 totaled $16.5 million, or a staggering 28% of the city’s total budget.
But taxpayer funded pension payouts weren’t always so generous in El Monte. A fact that changed in 1999 when a decade-long bull market tripled the value of California’s massive public pension fund, CalPERS. Of course, the CalPERS board of directors, dominated by public employee union leaders and their political allies, voted to spend the surplus lowering retirement ages and raising pensions for public employees all across the state.
Unfortunately, the CalPERS board was blinded by endless wall street reports suggesting that “pets.com” was worth at least $1 trillion and forgot that markets actually cycle. Alas, shortly after granting 200,000 civil servants sweet new retirement packages, at the absolute peak of the market, the tech bubble burst and CalPERs found itself in a crisis that still plagues the state to this day.
California Highway Patrol officers got an especially sweet deal. Their pensions had been 2% of their highest salaries, multiplied by the number of years they worked. The percentage of peak salary was raised to 3%.
That meant officers with 30 years of service could collect up to 90% of their highest pay for life. And they would be eligible to retire at 50.
El Monte adopted the new pension formula (known as “3% at 50”) in 2000, and the effect was dramatic. Officers who retired before 2000 with more than 25 years of service collect $82,000 a year on average, according to CalPERS data.
Those who retired after 2000 collect an average of $120,000.
But former City Manager Harold O. Johanson didn’t think it was “fair” that police officers got a sweetened retirement deal while other city employs had their pensions capped at two-thirds of their final salary. So he set out to implement a “supplemental plan” for other El Monte public employees that would boost their retirement checks by ~50%. Johanson subsequently retired three years later, at 58, and now collects $250,000 per year from taxpayers putting him in the top one-hundredth of one percent of all public pension recipients in California.
The idea for the supplemental plan arose in 2000, after the city council granted El Monte police officers the right to retire with up to 90% of their highest salary guaranteed for life.
But it created a gap between El Monte police and the city’s non-uniformed employees: Under CalPERS rules, civilian pensions were capped at two-thirds of final salary.
It would boost civilians’ retirement checks by 50% and put their pensions nearly on a par with police. The city council approved the idea in May 2000, unanimously and without public debate.
Johanson retired three years later, at 58. Today, he is the top beneficiary of the program he championed, collecting a combined pension of more than $250,000 per year, state and city records show. That puts him in the top one-hundredth of one percent of all public pension recipients in California.
But sweet pensions aren’t the only perk afforded to El Monte public employees who also get Fridays off if they work 10 hours per day Monday – Thursday and annual cost of living adjustments of up to 5%
El Monte has a history of generous employee benefits — including a four-day work week for civil servants, who put in 10 hours a day and have Fridays off. Liberal pension provisions are another part of that tradition.
Under state law, police are supposed to contribute 9% of their paychecks toward their pensions, and civilian workers 7%. But El Monte covers the employee contribution as well as the employer share, a legacy of collective bargaining agreements dating to the early 1980s.
On top of that, retired El Monte employees receive annual cost of living increases at the high end of what CalPERS allows: up to 4% for police retirees and 5% for civilians, depending on inflation. Most CalPERS pension recipients receive increases of 2% annually.
Benefits that lavish do not come cheap: For every $100 the city paid a police officer in 2016, it had to pay an additional $71 to CalPERS to fund payments to current and future retirees.
Perhaps at some point we can all stop talking about “Russian hackers” and actually focus on the real corruption plaguing our country.
A couple years ago I noticed a strange phenomenon that occurs around the end of each year – and the beginning of each new year.
Dozens of necktie-clad stock market experts appear on CNBC (and in other media) and proclaim they “expect the market to rise 8-10%” the following year.
Since this annual ritual seemed to encompass the boiler-plate narrative amongst the highly-paid Wall Street analysts and money managers, I decided to start keeping track.
With the market essentially flat in 2015, they sort of blew it – but many managed to salvage their reputations this past year in 2016.
Here are the (original) 2016 year-end targets that were released a year prior. I shaded in green everyone that came within 50 points (a couple percent).
2016 turned out well for “consensus expectations”. It’s also worthwhile noting the 2015 predictions and how they panned out. The majority were a bit overly optimistic. This year they got lucky their hard work paid off.
Bloomberg summed up 2016 well with this headline.
Well done Wall Street strategists…
As we enter 2017 I decided to go ahead and keep things going. Here are the 2017 year-end price targets of the major Wall Street firms.
As you can see, I’m still looking for Mr. Lee’s target and I’ll update the image when I have it. I know I’m also missing a few others and if I run across them I’ll add them to the list.
A lot of hard work goes into these year-end projections and there are always more details provided. Generally speaking, the analysts come up with a SPX earnings number and then assign a p/e multiple to it to arrive at their forecast.
One thing that strikes me this time around is that the “Financials” seem to be the #1 favorite sector going into 2017.
It’s not hard to understand why because as the famous saying goes…
“Banks and financials tend to do well in a rising rate environment” (drink)
As we see below in the annual Barron’s year-ahead “predictions for the new year” article, 8 out of 10 analysts agree that financials are the place to be in 2017.
One interesting thing about the year-end price targets for this year is that not one firm expects the market to end down for the year (tank).
I guess we’ll just have to see.
Remember, in 2016 things kicked off on a bit of a sour note – with the market literally having it’s worst start to a year ever.
Last year started off so bad that several firms actually lowered their 2016 price targets down near the Feb lows.
Since many of these firms reserve the right to adjust the year-end targets throughout the year as the price moves, my methodology is to track the original price targets to keep things simple.
Intra-year revisions tend to make things confusing. This is from September.
This revision occurred in February, right at the dead-low for the year.
On the 2017 price-target table above, you’ll notice that just for fun, I added my own 2017 year-end target and decided to take the “under” and go just below everyone else. The way I look at it “whoever comes closest at the end of the year wins” and I’m comfortable with my “price is right” strategy.
We’ve all seen the articles about how year-end price targets are nonsense and how over the years most strategists tend to have poor track records at predicting where the SPX will close the following year.
But I’d like to congratulate those that came close this past year because they deserve it.
Here’s to a great New Year and the analyst’s hopes that the market will rise 8-10% again in 2017.
2016 was a year most hedge funds would be happy to forget. And while the same goes for 2015, 2014, 2013, 2012, 2011, and 2010, in fact virtually every year since the financial crisis in which the vast majority of the two and twenty crowd have failed to generate alpha, in 2016 – a year many said would mark a renaissance for active managers – the “flash hedge fund return” according to a report by BofA’s Paul Ciana from Friday was a paltry 3.34%, which as BofA conveniently calculated meant they “underperforming the S&P500 index by 6.2%” at which point your average underperforming hedge fund manager complains that they shouldn’t be benchmarked against the S&P, even as the redemption notices flood in and the AUM gets ever smaller.
Not everyone did poorly: credit related strategies lead HF performance, including Distressed Credit, Convertible Arbitrage and Event Driven strategies. On the other end, predictably, dedicated Short Bias was down 5.10%
Looking at specific names, the following HSBC table breaks out the best and worst hedge funds as of the last week of December 2016:
In recent weeks there has been a fresh burst of hope that 2017 will be better for the HF community as a result of the recent collapse in cross-asset correlation; it is hoped that the resulting returns dispersion will make it easier for hedge funds to stand out in a world in which due to central bank intervention, correlations had been abnormally high following the financial crisis.
But is that an accurate description of events? To a great extent, the answer is no.
While correlation between diversified HF performance and S&P 500 price return declined from the May 2016 high (Chart 1), the 1-year correlation (83.7%) was slightly above the 3-year correlation (83.0%) as of the end of November. Overall, correlation remained far higher than it has been historically. Which as BofA redundantly explains, means that “when S&P 500 declines, performance of HFs with higher positive correlation is expected to suffer.“
Not all “hedge” funds have such a high correlation, however. The correlation relationship with S&P 500 varies substantially among different HF strategies. Short Bias and Merger Arbitrage offer negative correlation or most diversification effects. Equity focused HF strategies, including Equity Market Neutral and Long/Short, has decreased correlation to the S&P 500 compared to longer term relationship (3-year and 5-year). On the other hand, Distressed Credit, Convertible Arbitrage and Event Driven have increased positive correlation (Chart 2).
Yet, while there are some notable exceptions, the rule generally is that as the market goes, so goes the average hedge fund. Which is why some of the world’s wealthiest billionaires are pleading that Trump does not disappoint and manages to keep pushing the S&P to ever higher records on nothing but hope of a “fiscal stimulus” which may well never come.
* * *
That said, how did hedge fund close out 2016? Here is the answer based on the latest weekly CFTC data:
Buy-side net long in WTI Crude was near record high (99.4%-tile). However, trend remains bullish absent a move below 44.1/42.2 (50-week SMA and chart support).
Institutions added to their long in 30-year Treasury future to the highest since July 2015; HFs added to their short in 30-year to the most since Feb. 2015. Technical bias favors a bullish rebound of the 30-year Treasury.
Buy-side was most short JPYUSD since December 22, 2015. However, net position was 42% less than the short seen in Jan. 2007. Although JPY strengthened during the past 2-weeks, the longer term trend favors further depreciation against USD absent a move below 114.97/114.74.
Notable flows last week (12/20/2016 to 12/27/2016):
Institutions sold $5.5bn S&P 500, $0.7bn Russell 2000 and $0.6bn MSCI EM futures last week. HFs sold $0.4bn MSCI EM and $0.3bn Russell 2000, but bought $4.7bn S&P 500 and $1.1bn NASDAQ 100.
Institutions bought $9.8bn 10-year and $2.3bn 30-year Treasuries, while selling $1.9bn 2-year. HFs sold $10.1bn 10-year and $2.7bn 30-year, but bought $3.9bn 2-year.
HFs increased their shorts in EURUSD and JPYUSD, by $0.1bn and $3.2bn, respectively. Institutions added -$0.2bn to JPYUSD shorts, and sold $0.7bn of their longs in EURUSD.
CTAs/CPOs sold $1.2bn Gold and $0.3bn Silver, but bought $0.6bn WTI Crude.
Turkey has finally won the title of having the world's first spook-imams.
Turkey is exporting its political wars and tensions to Europe. That is not a good sign for the Old Continent.
Officially, Turkey's General Directorate for Religious Affairs (Diyanet in Turkish) has a mission about offering institutional religious services independent of all political ideologies. In practice, Diyanet's understanding of "offering institutional religious services" can be different from what the term should mean. Recently, the office of Istanbul's mufti, an official of Diyanet, described the location of a mosque as "… it was [in the past] a filthy Jewish and Christian neighbourhood." After press coverage, the depiction was removed from the web page.
Diyanet's "institutional religious services" may sometimes even overlap with what in other countries people call intelligence. In a briefing for a parliamentary commission, Diyanet admitted that it gathered intelligence via imams from 38 countries on the activities of suspected followers of the US-based preacher Fetullah Gülen, whom the Turkish government accused of being the mastermind of the attempted coup on July 15. As if it is the most normal thing in the world, Diyanet said its imams gathered intelligence and prepared reports from Abkhazia, Germany, Albania, Australia, Austria, Azerbaijan, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Denmark, Estonia, Finland, Georgia, the Netherlands, the United Kingdom, Sweden, Switzerland, Italy, Japan, Montenegro, Kazakhstan, Kenya, Kyrgyzstan, Kosovo, Lithuania, Macedonia, Mongolia, Mauritania, Nigeria, Norway, Poland, Romania, Saudi Arabia, Tajikistan, Tanzania, Turkmenistan and Ukraine.
After several other political absurdities, Turkey has finally won the title of having the world's first spook-imams — and that is official.
This is unnerving for many European countries hosting millions of Turks. In October, a Turkish-German political scientist, Burak Copur, warned that growing support for Turkish President Recep Tayyip Erdogan could lead to Germans of Turkish descent creating a violent Turkish nationalist movement. In July, Cem Ozdemir, an ethnic Turk and leader of Germany's Greens Party, warned of the influence of the Turkish-Islamic Union for Religious Affairs (DITIB), which he claimed took its funding and its orders directly from Erdogan's Justice and Development Party (AKP). A similar statement was made the month before by integration commissioner Aydan Ozoguz.
The Dutch government has warned people about "agent imams" from Turkey, and has solicited complaints about malfeasance.
The Netherlands also said it would challenge every instance of the "long arm" of Ankara extending to its territory, after a report that the Turkish embassy had sent home many Dutch Turks who might have sympathized with July's failed coup. Turkey's ambassador to The Hague was summoned after reports that a Diyanet official acknowledged he had compiled a list of "Gülenists".
Germany was less diplomatic in expressing its discontent about Turkish spies. Earlier in December, German police arrested a 31-year-old Turkish man suspected of providing information on Kurds living in Germany to Turkish intelligence agencies, according to the German federal prosecutor's office. A statement from the office said:
"The accused is strongly suspected of working for the Turkish intelligence agency and providing information about Kurds living in Germany, including their whereabouts, contacts and political activities".
Turkey is exporting its political wars and tensions to Europe. That is not a good sign for the Old Continent.
Mehmet Gormez, President of Turkey's Directorate of Religious Affairs. (Image source: ?lke Haber video screenshot)
