Month: April 2017

Authored by EconomicPrism's MN Gordon, annotated by Acting-Man's Pater Tenebrarum,

Seeing the Light

It has been said that “the definition of insanity is doing the same thing over and over again and expecting different results.”  No one quite knows who first uttered this remark; it has been attributed to Albert Einstein, Mark Twain, Benjamin Franklin, and has even been said to be an Ancient Chinese Proverb.  What is known is that this cliché has been repeated over and over again so often that its mere mention substantiates its own definition.

 

Several of the ladies and gentlemen above wanted to let us know that they’re merely eccentric,  and if they want to do things all over again and again and again, we should let them…

 

Nonetheless, we repeat it again because it’s particularly fitting to today’s deliberations.  Here we begin with a look back to the past in search of edification.  For the miscalculations of the past continue to dictate the insanity of the present.

Many years ago, a bright minded and well intentioned Italian pursued a devious undertaking.  His efforts aimed to conceive a pure theory of a socialist economy.  His objective was to take the sordid teachings of Marx and pencil out the mechanics of how a centrally planned economy could bring a life of security and abundance for all.  What follows is an approximation of how the dirty deed went down.

In 1908, Italian economist Enrico Barone suffered an abstraction.  One late night he skipped a bite of his meatballs and marinara, and gazed into the outer frontiers of deep space.  Looking around, he couldn’t believe his eyes. For in this far corner of absolute darkness, he saw something truly amazing.  Out in the distant reaches of nothingness, peering into a black hole, he saw not the dark.  Rather, he thought he saw the light.

Barone’s light was a socialist utopia achieved through “scientific management” of the economy, lorded over by the Ministry of Production.  Through this endeavor, he imagined, an economy could attain something called “maximum collective welfare.”

 

Enrico Barone in the only photo of him we could find. Both Vilfredo Pareto (in 1897) and Barone (in 1908, in the monograph “The Ministry of Production” discussed above) used a system of simultaneous equations based on Walrasian general equilibrium theory in order to investigate whether there was some sort of theoretical/ mathematical solution available to central planners facing the problem of what to produce, how much of it to produce, how, when, and where to produce it, etc., what resources in what quantities to allocate to capital goods production, how much consumption to permit, etc., etc. – all the stuff socialist planners ultimately turned out to be really bad at.  Anyway, we have to defend Barone and Pareto a bit, as neither of them seemed to really believe that the approach was actually viable in the real world. After presenting all his nifty equations, Barone pointed out that the planners would ultimately still need all the things they thought they could abolish (prices, rent, profits, interest, savings, etc., which he averred would “probably return under different names”).  He also noted that because no a priori determination of the “economically most viable technical coefficients” for the production system was conceivable (always assuming the goal of the planners was to maximize welfare), they would have to “experiment on a grand scale” – which would be far more wasteful than the so-called “anarchy of production” they wanted to replace. In the final pages of his monograph Barone proceeded to lambast “collectivist writers…[who] simply show that they have no clear idea of what production really is”, and inter alia remarked that “to promise increased welfare and to propose to ” organize” production and to preach about free love in the new regime is simply ridiculous nonsense.” Pareto meanwhile noted along similar lines that it would simply be impossible to perform all the calculations needed for running a complex economy in time and recommended to “rather observe the practical solution given by the market”. The problem was that the Marxists were simply too dense to understand what they were trying to tell them – instead it ended up giving them ideas (further elaboration regarding the issue in the caption under the Mises picture). [PT]

 

Swiss Cheese

The proposal was simple enough.  If a bounty of academics were put to the task of determining the best prices for all goods and services, supply and demand could be optimized to produce an economy without poverty, without unemployment… and without possibility.

Of course, with all these number crunchers hammering out technical memorandums and white papers, projecting data into the future with the intention of fixing the optimal price of toothpaste and pizza, how could they account for a change beyond their control or imagination?  What if a springtime heat wave resulted in a meager wheat harvest?

How would this affect their pre-determined price for a 16 inch pizza?  Would government mandated thin crust be the solution? More than likely, before the data fabricators could re-optimize the price to the change in conditions, the pizzerias would be out of pizza dough because the price wasn’t allowed to naturally adjust upward by free market interactions.  Government-induced shortages and artificial scarcity would result.

With just a little common sense, Barone’s ideas are quickly exposed as absurd.  From an academic standpoint, in his 1920 monograph, Economic Calculation in the Socialist Commonwealth, Austrian economist Ludwig von Mises, poked so many holes through the rationale it was transformed to Swiss cheese.

 

Swiss cheese does indeed have holes – this reminds us of the other day, when we bought a piece of Swiss cheese at a local supermarket, only to find out at home that the wrapping paper was empty. Upon confronting the author of this transgression (the dweller behind the cheese counter) with his misdeed, he explained that it had been a Swiss cheese with particularly large holes, and the piece he had sold us simply was one of said holes.  We realized that if we were to time our future Swiss cheese purchases judiciously, we would be spared a lot of unnecessary calorie intake. In socialist Utopias one can afford sloppier timing… there they sell only the holes most of the time (a popular snack in Caracas these days is reportedly “Hole of Swiss Cheese with Rat”). [PT]

 

With exacting repudiation, Mises argued that in a socialist economy rational economic calculation is impossible; in the absence of private ownership of the means of production attempts to allocate resources efficiently must fail.

Without market-determined prices for goods and services via free exchange it is impossible to establish prices that reflect actual conditions.  Without prices that are grounded in reality the production and consumption relationship becomes distorted.  In the absence of the natural corrective mechanism of market-determined prices, oversupply and scarcity conditions extend out to absurdity.

 

Ludwig von Mises naturally refrained from wasting time by wrestling with general equilibrium equations. He realized right away what  the core problem was, but was  misunderstood and/ or misinterpreted by contemporary and later socialist economists,  of whom frighteningly large numbers were uselessly occupying otherwise perfectly fine standing room in his heyday – there must have been a nest somewhere, considering how they suddenly proliferated (their large number did nothing to improve the quality of their ideas and arguments. There were also a few interesting chameleons like the historicist Werner Sombart, a trust fund baby who started out as a radical Marxist, then joined the “socialists of the chair” who supported the Prussian dynasty of the Hohenzollern, and later on discovered his inner nationalist and became chummy with the Nazis without so much as batting an eyelid – just as long as he was in bed with vile statists he seemed to be happy!).  Anyway, after the publication of Mises’ monograph on the literal impossibility of a rational economy under socialism, Mises, Hayek and occasionally Lionel Robbins (a fellow fighter of the good fight on Hayek’s side before he defected for unfathomable reasons), proceeded to debate the leading socialist economists on the socialist calculation problem for decades (Menger and Boehm-Bawerk had debated the previous generation, except for those who invoked polylogism so as not to have to defend their ideas against “economists employing bourgeois logic”.  Today’s identity-politics SJWs who have whole lists of topics white males are supposedly not allowed to speak or think about are a bit reminiscent of that).  Socialist economist Fred Taylor was apparently inspired by Barone’s remark that there would be no equations for the planners to sensibly solve if they didn’t do “experiments on a grand scale”. While Barone seemed to indicate that this rendered the entire exercise useless and they might as well stick with the market economy, Taylor shrugged and said “Why not? Let’s do that!” Consequently, he proposed the “trial and error” method of central planning, once again missing the essence of the problem. Taylor then joined Oscar Lange with whom he wrote “On the Economic Theory of Socialism”. Two or three years later Henry Dickinson’s “Economics of Socialism” was published. This trio was in the process of conceding step by step that without prices for capital goods, rational resource allocation was indeed not possible, just as Mises had always pointed out. Over the decades the debate had moved from “calculation in natura” propagated by Otto Bauer in the late 19^th/early 20^th century (a bizarre idea, we would have liked seeing him draw up a balance sheet), to the planners simply using the Pareto/ Barone equilibrium equations to “calculate” production, to the addition of the “trial and error” method as a refinement, until finally, they renamed their method “market socialism”, adding some additional ideas to Taylor’s trial and error shtick by which they hoped to successfully replicate the price system. There would still be socialism, but the central planners and their subordinated factory managers would actually “play at market” – they would run a kind of make-believe market, a bit like little kids playing Monopoly. Given that they went as far as wanting to try that, one wonders why they didn’t just decide to simply stick with a market economy!

To this final pathetic attempt to save their tattered socialist economic theory Mises inter alia remarked later: “[…] the cardinal fallacy implied in [market socialist] proposals is that they look at the economic problem from the perspective of the subaltern clerk whose intellectual horizon does not extend beyond subordinate tasks. They consider the structure of industrial production and the allocation of capital to the various branches and production aggregates as rigid, and do not take into account the necessity of altering this structure in order to adjust it to changes in conditions. What they have in mind is a world in which no further changes occur and economic history has reached its final stage. They fail to realize that the operations of corporate officers consist merely in the loyal execution of the tasks entrusted to them by their bosses, the shareholders. The operations of  managers, their buying and selling, are only a small segment of the totality of market operations. The market of the capitalist society also performs those operations which allocate capital goods to the various branches of industry. The entrepreneurs and capitalists establish corporations and other firms, enlarge or reduce their size, dissolve them or merge them with other enterprises; they buy and sell the shares and bonds of already existing and of new corporations; they grant, withdraw, and recover credits; in short they perform all those acts the totality of which is called the capital and money market. It is these financial transactions of promoters and speculators that direct production into those channels in which it satisfies the most urgent wants of the consumers in the best possible way. These transactions constitute the market as such. If one eliminates them, one does not preserve any part of the market. What remains is a fragment that cannot exist.” 

Oh well... making favorable mention of speculators,  promoters and entrepreneurs when explaining to the Reds what they are wrong about is probably a good way of getting them riled up…:)  Mises’ remark above indirectly encompasses questions about the nature of knowledge and its distribution Hayek had begun to discuss in the early 40’s. The point being that what all these individual entrepreneurs, speculators, promoters etc. discover and know, their individual talents and the part of their knowledge that is tacit, which they  cannot even verbalize themselves – all of these things a central planning agency can never learn and will therefore never know. Even if its bureaucrats were mind readers and did know about them, why would they ever care? In the socialist commonwealth going the extra mile has no rewards.  As a final remark to this highly condensed caption version of the socialist calculation debate: although Oscar Lange became a high-ranking communist official in Poland after WW2, the system of “market socialism” was never even tried there. They opted for old-fashioned Stalinist oppression instead (and the guy had sounded so reasonable while he was still in the US!). We know Lange had still not conceded a basic error in his in old age, as he made a gleeful remark in 1967 about computers soon being able to calculate all those equilibrium equations proposed by Barone rapidly enough that a perfect 5 year plan could finally be produced for the comrades. Good grief! [PT]

 

Polish-American socialist economist Oscar Lange

 

Ludwig von Mises’ Century of Validation

The planners are never able to get things quite right.  In time, these absurdities become ubiquitous.  For example, in a socialist economy you’ll find supermarkets with long lines of people and empty shelves.  Another definitive gift of socialist economies is toilets without toilet seats.  How is this even possible?

Still, the socialist visionaries loved Barone’s gibberish because it endorsed their conceit.  Here was a marvelous way for the enlightened illuminati to play god, muck with people’s lives at large, and remake the world in their image.  Conversely, the mainstream economists of the day greeted Mises’s truths like a five-year-old first greets word that Santa Clause isn’t real.  They derided his efforts and attempted to marginalize his work. This still continues today.

The ideas of Barone, which were an attempt at defining a practical application of Marx, swept across Eastern Europe during the early 20th century like a medieval plague.  Later, a somewhat altered derivative of these ideas resurfaced in France, the United Kingdom, the United States, and Japan, among other places, within the intersection of Keynesian fiscal policies and Chicago school monetary policies.

Rather than having to directly fix the price of individual goods and services via a Central Planning Board, it was established that a Central Bank can crunch fabricated aggregate demand data and control the prices of an entire economy just by monkeying around with the price of credit.  What’s more, governments could run perpetual deficits to remold things nearer to their heart’s desire.

Mises’ efforts to refute socialist economic proposals nearly a century ago were explicitly validated with the decline and fall of Soviet socialism. Presently, they are being openly validated again, with the utter chaos being heaped upon the people of Venezuela.

 

The somewhat diminished modern-day shopping experience in Venezuela – meet the latest attempt to make socialist economics “work” by finally “doing it right”.

 

Indeed, the results of government intervention are always the same.  Stagnation, inflation, declining living standards, and widespread social disorder.  No doubt, they’ll be repeated to insanity.

In closing, and although many refuse to recognize it, Mises’ truths are currently borne out in the United States, and other social and corporate welfare economies, where money, which is a form of private property, is covertly confiscated by the insidious effects of a centrally planned system that’s based on ever increasing issuance of debt.

 

via http://ift.tt/2py2nyj Tyler Durden

Back in February, around the time Bloomberg caught up to what we had been discussing for the past year, namely the historic dumping of US Treasurys by offshore official investors (such as central banks and reserve managers, just as the selling had in fact reversed and foreigners had resumed buying once more) we noticed that it was not China but Japan that had emerged as one of the most aggressive sellers of Treasuries following material Mark-to-Market losses on existing TSY holdings, prompting the foremost ex-Fed shadow banking expert Zoltan Poszar to declare the selling “a deer in the headlights moment”.

Fast forward two months, when according to the latest update from Deutsche Bank, Japan’s revulsion to fixed income products has accelerateed, and the Pacific island was a net seller of foreign bonds again in the past week, divesting another $12bn worth of securities. It was not only the third straight week of selling out of Japan, according to MOF data, but more remarkably, the the year-to-date divestment of $66bn in foreign bonds YTD is the biggest since 2002, the first full year of such data is available.

What is prompting the sudden liquidation? According to Deustche, “profit-taking most likely explains Japan’s selling.”

Ten-year Treasury yields declined in April to a lower level than any previous month since the Trump election. In the process, yen cross-currency basis has tightened to levels not seen since January 2016. Japanese investors use the yen basis (or more precisely, their derivative FX forwards) to hedge the currency risk of their coupon flows from non-yen bonds. The basis tightens when there is a drop in demand to swap yen for dollar.

The next chart, which shows the distinctive inverse relationship between cumulative Japanese purchases of foreign bonds and the 3m yen basis, should be useful to anyone still confused by what has been the biggest driver behind the gradual drop and sudden recent spike in the USD-JPY currency basis: it all has to do with Japanese TSY demand, and hedging costs (which we pointed out had risen so high last August it made TSYs and JGBs look equally priced to Japanese investors).

However, it’s not just the Yen basis (and thus relative USD shortage) that is impacted by the Japanese appetite (or lack thereof) for US paper. As the Deutsche fixed income team writes, the lack of love shown by Japanese investors for Treasuries might also be responsible for low 3m Libor fixings and the collapse in Libor/FF spreads.

The details:

In US money markets where Japanese banks also raise dollars, the rates they’ve been paying on commercial paper and certificates of deposit have narrowed vis-a-vis the rates they pay on repos. CP and CD rates are of course used by banks as the main input for daily Libor submissions. Three of the 17 contributing banks to USD Libor are also Japanese. The narrowing of rates Japanese banks pay to borrow dollar using CP/CDs versus repos is further evidence that unsecured funding costs have dropped, which is reflected in the tightening in Libor-FF spreads.

That said, the recent revulsion toward fixed income products out of Japan will probably not last for two reasons.

First, as DB notes, April typically tends to be a month when Japanese investors sell foreign assets as they take profits at the start of the fiscal year. Seasonality would suggest that Japan becomes a buyer again in May, with especially strong appetite for foreign bonds in the July to September period. Consequently, we would look for Libor-FF spreads to find some support in the coming month, especially if Treasury yields become attractive again.

The second reason comes from BofA.

In a recent report, the bank’s FX and rates strategists published a piece summarizing the investment plans of nine Japanese life insurance companies for the first half of their fiscal year (which began April 1st). This is what BofA found:

Over the past few years in particular, insurers have been amassing foreign bonds, and particularly US Treasuries, but that fund flow will probably change if US rate hikes continue. Foreign bond investment is increasingly dependent on yields, FX, and FX hedge costs, and will probably become more fluid. In the United States, rate hikes are expected to continue, so the USD/JPY hedge cost cannot be expected to decline much. As par the plans announced, many will likely be less active in hedging foreign bond than last year. Investment in unhedged foreign bonds is expected to be heavily dependent on levels of FX relative to assumptions (see below), and it is more likely to increase. Domestic yields have sunk due to the BoJ’s negative interest rate policy, making fund management in JGBs difficult and prompting the major insurers to stop selling a number of yen-denominated life insurance products.

In other words, the story remains largely the same in that domestic yields are too low for buying JGBs, and life insurers remain without any other option but to buy foreign bonds (Figure 1). However in a key change foreign bond purchases are likely to take place increasingly on a currency unhedged basis (Figure 2), which has two major implications for both Treasurys and US corporate bonds.

First it reduces the need to reach for yield, which means less buying of BBBs and BBs and longer maturities; however it also means that Treasurys across the curve are suddenly far more attractive to Japanese buyers as investors will no longer need to offset up to 80 bps in hedging costs.

Second Japanese life insurance buying is likely to be less steady and more tactical, depending on interest rates and FX. This means more (less) buying when rates vol is low (high). The FX assumption is that the USD/JPY is in the range 100-125 and will increase toward fiscal year end. That means currently at 111 we are in the middle of the range, but since the dollar is expected to appreciate buying will take place here and increase should the dollar weaken, decrease should it strengthen.

This dynamic, together with recent technicals (recall earlier we showed that Treasury futures traders had just experienced the biggest short squeeze in history), mean that the reflation trade could be further jeopardized due to yet another feedback loop linking a weaker dollar (and thus USDJPY), with lower yields, which in turn leads to even more weakness in the USD, and so n. Ultimately, it will be up to the Fed to break this latest adverse feedback loop, although with the US economy growing at just 0.7% in Q1, it will take a significant leap of faith by Yellen and the “data dependent” Fed that US output will recover by Q2 when the Fed is expected to hike by another 25 bps.

via http://ift.tt/2oNpIwS Tyler Durden

Submitted by Gary Novak via Science Errors blog,

An electric auto will convert 5-10% of the energy in natural gas into motion. A normal vehicle will convert 20-30% of the energy in gasoline into motion. That's 3 or 4 times more energy recovered with an internal combustion vehicle than an electric vehicle.

Electricity is a specialty product. It's not appropriate for transportation. It looks cheap at this time, but that's because it was designed for toasters, not transportation. Increase the amount of wiring and infrastructure by a factor of a thousand, and it's not cheap.

Electricity does not scale up properly to the transportation level due to its miniscule nature. Sure, a whole lot can be used for something, but at extraordinary expense and materials.

Using electricity as an energy source requires two energy transformation steps, while using petroleum requires only one. With electricity, the original energy, usually chemical energy, must be transformed into electrical energy; and then the electrical energy is transformed into the kinetic energy of motion. With an internal combustion engine, the only transformation step is the conversion of chemical energy to kinetic energy in the combustion chamber.

The difference matters, because there is a lot of energy lost every time it is transformed or used. Electrical energy is harder to handle and loses more in handling.

The use of electrical energy requires it to move into and out of the space medium (aether) through induction. Induction through the aether medium should be referred to as another form of energy, but physicists sandwich it into the category of electrical energy. Going into and out of the aether through induction loses a lot of energy.

Another problem with electricity is that it loses energy to heat production due to resistance in the wires. A short transmission line will have 20% loss built in, and a long line will have 50% loss built in. These losses are designed in, because reducing the loss by half would require twice as much metal in the wires. Wires have to be optimized for diameter and strength, which means doubling the metal would be doubling the number of transmission lines.

High voltage transformers can get 90% efficiency with expensive designs, but household level voltages get 50% efficiency. Electric motors can get up to 60% efficiency, but only at optimum rpms and load. For autos, they average 25% efficiency. Gasoline engines get 25% efficiency with old-style carburetors and 30% with fuel injection, though additional loses can occur.

Applying this brilliant engineering to the problem yields this result: A natural gas electric generating turbine gets 40% efficiency. A high voltage transformer gets 90% efficiency. A household level transformer gets 50% efficiency. A short transmission line gets 20% loss, which is 80% efficiency. The total is 40% x 90% x 50% x 80% = 14.4% of the energy recovered before the electrical system does something similar to the gasoline engine in the vehicle. Some say the electricity performs a little better in the vehicle, but it's not much.

Electricity appears to be easy to handle sending it through wires. But it is the small scale that makes it look cheap. Scaling it up takes a pound of metal for so many electron-miles. Twice as much distance means twice as much metal. Twice as many amps means twice as much metal. Converting the transportation system into an electrical based system would require scaling up the amount of metal and electrical infrastructure by factors of hundreds or thousands. Where are all those lines going to go? They destroy environments. Where is that much natural gas going to come from for the electrical generators? There is very little natural gas in existence when using it for a large scale purpose. Natural gas has to be used with solar and wind energy, because only it can be turned on and off easily for backup.

One of the overwhelming facts about electric transportation is the chicken and egg phenomenon. Supposedly, a lot of electric vehicles will create an incentive to create a lot of expensive infrastructure. There are a lot of reasons why none of the goals can be met for such an infrastructure. The basic problem is that electricity will never be appropriate for such demanding use as general transportation, which means there will never be enough chickens or eggs to balance the demand. It's like trying to improve a backpack to such an extent that it will replace a pickup truck. The limitations of muscle metabolism are like the limitations of electrical energy.

Electrons are not a space-saving form of energy. Electrons have to be surrounded by large amounts of metal. It means electric motors get heavy and large. When cruising around town, the problems are not so noticeable. But the challenges of ruggedness are met far easier with internal combustion engines. Engineers say it is nice to get rid of the drive train with electric vehicles. But in doing so, they add clutter elsewhere, which adds weight, takes up space and messes up the suspension system. Out on the highway, the suspension system is the most critical factor.

These problems will prevent electric vehicles from replacing petroleum vehicles for all but specialty purposes. The infrastructure needed for electric vehicles will never exist when limited to specialty purposes. This would be true even with the perfect battery which takes up no space and holds infinite charge.

*  *  *

1. Historical Perspective on Electric Cars, by A. Jones

2. Comparing Energy Costs per Mile for Electric and Gasoline-Fueled Vehicles.
http://ift.tt/2oNckcj

3. Electricity Emissions. U.S. Department of Energy. Energy Efficiency and Renewable Energy. Alternative Fuels and Advanced Vehicles Data Center.
http://ift.tt/2oYQLl0

4. Electric Power Industry 2007: Year in Review. Energy Information Administration. U.S. Department of energy.
http://ift.tt/2oN3Y4p

5. Electric Power. U.S. Department of energy. Energy Sources.
http://ift.tt/1squZUK

via http://ift.tt/2oYHvNU Tyler Durden

Authored by Frank Shostak via The Mises Institute,

For most economists the key factor that sets the foundation for healthy economic fundamentals is a stable price level as depicted by the consumer price index.

 

via http://ift.tt/2qmF6O3 Tyler Durden

Authored by Duane via Free Market Shooter blog,

In August of last year, Free Market Shooter wrote in support of an Obama administration directive to end the use of private prisons in the United States, one of the only policy issues the administration managed to get right:

Why, you ask, is a free market advocate in favor of ending private prisons?  Simple: because these facilities aren’t  “private” at all.

 

The reason why should be obvious.  Prisoners are their only “customer”, if you want to call them a customer at all; the “customers” are provided by the government, who pays private prison companies for their incarceration.

 

What else makes private prisons so profitable? This should also be obvious – having as many facilities and customers as possible. They have every incentive to encourage laws that keep as many incarcerated as possible, as it increases their “customer” base. Moreover, they then sell the “labor” from prisoners to companies who source prison labor at bargain basement prices, increasing their margins even further.

We all should have known the Obama administration would manage to screw this up; it just took two weeks into the job for new Attorney General and Drug War champion Jeff Sessions to flick his pen and undo Obama’s efforts:

The U.S. Justice Department has reversed an order by the Obama administration to phase out the use of private contractors to run federal prisons.

 

In a memo made public on Thursday, Attorney General Jeff Sessions said the Obama policy impaired the government’s ability to meet the future needs of the federal prison system.

 

The Obama administration said in August 2016 it planned a gradual phase-out of private prisons by letting contracts expire or by scaling them back to a level consistent with recent declines in the U.S. prison population.

And, in case you weren’t aware, this is the same Jeff Sessions who is on the record as being not only against medicinal marijuana, it is the same Jeff Sessions that has stated that marijuana is only slightly less awful than heroin:

Jeff Sessions, to reporters in Richmond just now: "I think medical marijuana has been hyped, maybe too much."

— Matt Zapotosky (@mattzap) March 15, 2017

 

And I am astonished to hear people suggest that we can solve our heroin crisis by legalizing marijuana – so people can trade one life-wrecking dependency for another that’s only slightly less awful.

If you investigate Sessions’ claim by examining charts of annual deaths for each drug…

…you’ll notice that “slightly less dangerous” marijuana can’t be compared and doesn’t have a chart, because it kills precisely no one…

Heroin overdose deaths per year ~13,000.
Marijuana overdose deaths per year ~0 https://t.co/hn7Z04KU42

— David Menschel (@davidminpdx) March 15, 2017

…but fear not, this man now heads up the Department of Justice, and is responsible for enforcing the war on drugs – surely the DoJ’s resources and funds will be “properly allocated” to best serve the public and not the corporate interests, right?

Just as we did before, if you follow the money, you’ll see that while Trump’s election win might have undone the Obama effect on the share prices of the two major private prisons groups, CoreCivic (CXW) and the GEO Group (GEO)…

…it took Mr. Drug War Jeff Sessions himself to kick these stocks into overdrive, with shares of both more than doubling off the pre-election lows:

We pointed out that stocks for private prisons plummeted when then-Deputy Attorney General Sally Yates ordered they be phased out last year. We reminded you that the day after Trump’s election, those stocks soared. Now, we read in TheNation that in October, just before the election, two of Sessions’ former Senate aides, David Stewart and Ryan Robichaux, became lobbyists for GEO Group, one of the two largest private prison companies, and that the two were specifically engaged to lobby on government contracting.

So, when Sessions focuses on expanding the drug war and private prisons… take one guess as to who wins the contracts:

The Trump administration has awarded its first federal contract for a new immigrant detention center to be built in Texas.

 

The $110 million deal went to GEO Group, a private prison company that runs 143 facilities worldwide. In a news release, GEO said it would build and run the 1,000-bed facility outside Houston under a 10-year contract that would “generate approximately $44 million in annualized revenues and returns on investment.”

And if you think this has nothing to do with the war on drugs, think again:

Sessions has long been a leading advocate for vigorous enforcement of harsh mandatory minimum drug sentencing laws that have exacerbated mass incarceration. As a federal prosecutor in Alabama, the Brennan Center for Justice found that 40 percent of his convictions were for drug related crimes, double the rate of other Alabama federal prosecutors.

What a surprise – when it comes to private prisons and the war on drugs, all you have to do is follow the money to see who still supports them.

via http://ift.tt/2pLVMkW Tyler Durden

In the week when it was confirmed that Q1 was the weakest economic growth for a rate hike period since 1980…

 

Bond bears have never puked so much in such a short period of time as the $25 billion plus short-cover in 10Y Treasury bond futures in the last week.

 

In fact the stunning swing in sentiment in the last 8 weeks (with almost $62 billion in 10Y Treasury shorts dumped) is shocking to see, smashing Speculative Positioning from its shortest ever to its longest in over 9 years…

 

And perhaps more notably, the aggregate Treasury futures complex has shifted to a net long speculative position for the first time since July 2016…

 

Note that Eurodollar futures shorts (rate hike bets) did increase modestly this last week (after dropping the week before).

via http://ift.tt/2qmkky5 Tyler Durden

North Korea threatened to sink a US nuclear sub currently deployed in South Korean waters if the US take provocative action, responding to a statement from Donald Trump that the president won’t be “happy” if Pyongyang conducts another nuclear test.

After the US deployed a nuclear-powered submarine and an aircraft carrier to South Korean waters amid high Korean tensions, Yonhap reported that North Korea on Sunday threatened to sink the submarine, accusing America of stepping up military intimidation.

“The moment the USS Michigan tries to budge even a little, it will be doomed to face the miserable fate of becoming a underwater ghost without being able to come to the surface,” the North’s propaganda website Uriminzokkiri wrote in a vivid article. North Korea’s nuclear deterrent will assure that American aircraft carriers, nuclear submarines, and other military hardware will be “shattered into pieces of molten metal” if they threaten Pyongyang, the article read.

The North warned – once again using its dramatically vivid jingoist language – that “whether it’s a nuclear aircraft carrier or a nuclear submarine, they will be turned into a mass of scrap metal in front of our invincible military power centered on the self-defense nuclear deterrence.”

“The urgent fielding of the nuclear submarine in the waters off the Korean Peninsula, timed to coincide with the deployment of the super aircraft carrier strike group, is intended to further intensify military threats toward our republic,” the website further claimed. According to the article, recent statements from the Trump administration indicate that Washington is close to implementing a strategic scenario in which an actual military confrontation is a real possibility.

Earlier on Sunday, Donald Trump told CBS that he “will not be happy” if North Korea conducts another nuclear test. When asked to clarify, the US president said: “I would not be happy. If he (North Korean supreme leader, Kim Jong-un) does a nuclear test, I will not be happy.”

“And I can tell you also, I don’t believe that the president of China, who is a very respected man, will be happy either,” Trump said, adding that he believes Xi Jinping was also “putting pressure” on North Korea to bring a halt to its nuclear tests.

CBS host John Dickerson then directly asked Trump whether US military action was possible, the US president replied: “I don’t know. I mean, we’ll see.”

The guided-missile submarine USS Michigan sailed into the South Korean port of Busan on April 25 before heading out to sea four days later. The Ohio-class submarine is reportedly conducting various drills. At the same time, the U.S. has also directed the nuclear-powered aircraft carrier USS Carl Vinson to the waters near South Korea. The supercarrier is currently engaged in a joint exercise with South Korean naval forces of the Korean peninsula.

The threat followed North Korea’s failed missile launch. On early Saturday, North Korea fired off a ballistic missile which the South Korean military said exploded after flying only 71 kilometers. The launch marks the third missile test in April.

Trump told CBS that the failed test wasn’t significant enough to warrant action against North Korea. “This was a small missile. This was not a big missile. This was not a nuclear test, which he was expected to do three days ago. We’ll see what happens,” the president said.

Joint US-South Korean naval wargames, Foal Eagle, involving 20,000 Korean and nearly 10,000 American troops kicked off in the region on Sunday.

Washington has said that the USS Carl Vinson aircraft carrier and USS Michigan nuclear sub will remain in the area due to the spike in tensions between Washington and Pyongyang.

via http://ift.tt/2pkBwFA Tyler Durden

One day after his “100 Day” rally in Harrisburg, president Trump “Faced the nation” on CBS, and suggested that China may have hacked the emails of prominent Democrats to meddle with the 2016 presidential election, countering the view of U.S. intelligence officials who have said Moscow is behind the hacks (that said, there have hardly been any new WaPo and NYT reports on the issue since Trump launched his Syrian attack).

Trump first made the allegation on the eve of the Nov. 8 presidential election, when he said that China could have hacked the emails of his rivals.

“If you don’t catch a hacker, okay, in the act, it’s very hard to say who did the hacking,” the president said in an interview with CBS “Face the Nation.” “(It) could have been China, could have been a lot of different groups.”

Trump on election hacking: “It’s very hard to say who did the hacking. With that being said, I’ll go along with Russia. Could’ve been China” http://pic.twitter.com/Yitp5YqdTs

— Face The Nation (@FaceTheNation) April 30, 2017

Over the past 6 months, Trump has been dismissive of Intel Community allegations that Moscow hacked the emails to help Trump win the election. During the Sept 26 presidential debate with Clinton, Trump said China was one of many actors that could have been behind the hack, including “somebody sitting on their bed that weighs 400 pounds.” Like Russia, China is a longstanding cybersecurity adversary of the United States.

Curiously, Trump’s refocusing on China as a potential hacker comes as a time when the White House has pivoted away from improving relations with Russia, which according to Putin spokesman Peskov have “never been worse” and has instead moved to mending and improving ties with Beijing, having softened its criticism of Chinese trade policies as Washington seeks Beijing’s support in diffusing military tensions with North Korea.

As a reminder, before Trump was elected, he pledged to improve relations with Moscow. As Reuters notes, Russia has denied any involvement in the hacks. Lawmakers are currently investigating whether Trump’s campaign team had ties with Russia.

via http://ift.tt/2oYsz25 Tyler Durden

That Italy has a bank solvency problem will not come as a surprise to anyone who has been following events in Europe for the past 7 years.

Just yesterday, Italian daily La Stampa reported that four months after the third government bailout of Italy’s third largest bank in as many years, the Italian government may have to inject even more cash than planned into Monte Paschi, the world’s oldest and apparently always insolvent bank.

Stampa cited the outcome of an ECB inspection, focusing on uncertainties from the bank’s planned bad loan reduction. The Italian daily noted that the ECB had communicated results of its inspection to the bank last week, noting that losses are now expected to be well above those calculated until now. Specifically, while the proposed €8.8BN recapitalization would be sufficient to take the bank’s CET1 above the required regulatory level, it would not be sufficient to meet the ECB SREP requirements, raising the risk the government will have to contribute more than the €6.6BN currently envisaged.

But while Monte Paschi continues to be a perpetual drain of taxpayer funds, the most imminent threat facing the Italian economy comes not from the banking sector, but from its just as troubled national airline carrier. Last week, Alitalia said it had exhausted all options after workers voted against job cuts aimed at salvaging the cash-strapped Italian airline, pushing it toward administration for the second time in a decade.

According to Bloomberg, a €2 billion recapitalization tied to the savings plan is effectively dead and Alitalia would start appropriate “legal procedures” as funds run out, the Rome-based airline said. Chairman Luca Cordero Di Montezemolo “formally” communicated to the Italy aviation authority that the carrier decided to start the process of naming a administrator, the authority said on its website last Tuesday.

The decision to appoint an administrator is the first step for being placed in a legal reorganization process, making it almost impossible a last-minute rescue of the carrier as it exists today.

Meanwhile, unlike Italian banks which get bailed out any time there is even a modest threat of a bank run, typically with ECB assistance, Italy has said it won’t nationalize Alitalia whatever the circumstances. Abu Dhabi-based Etihad, the carrier’s main backer, said the employees’ rejection means “all parties lose,” and that it supports the board’s move to hold a shareholders’ meeting Thursday “to start preparing the procedures provided by law.”

“The most likely scenario is that we will go towards a short period of special administration that may be concluded within six months with a partial or total sale of Alitalia’s assets or with liquidation,” Economic Development Minister Carlo Calenda told TG3 in a television interview late Tuesday.

An Alitalia bankruptcy would be its second in under a decade: the company was last put into bankruptcy in 2008 after political and labor opposition thwarted sale plans, and has stumbled on since, with ties to Air France-KLM Group and Etihad Airways PJSC failing to end losses.

While Bloomberg’s take was relatively benign, saying that while a complete collapse would have an inevitable impact, the carrier is less central to Italy’s economy than before, after shrinking its long-haul network and losing market share to low-cost rivals on European routes, today Italian officials disagreed, and warned of dire consequences for the economy should Alitalia be allowed to collapse.

Cited by Reuters, Calenda said on Sunday that a sudden collapse of the loss-making national carrier “would be a great shock for Italy’s economy.” Rome has given the crisis-hit airline a short-term lifeline, a bridge loan of up to €400 million to see it through a process whereby an administrator will decide if it can be sold as a going concern or should be liquidated.

However, it is the worst case outcome that has Italian government officials spooked. “A [sudden closure] would be a shock for GDP much greater than the scenario that we are looking at: a brief period of six months covered by a bridging loan from the government so as to find a buyer who could provide services that Italians need as travelers,” he said in an interview with Sky TG24 television.

Making matters worse, rival airlines have shown little interest in buying Alitalia and creditors have refused to lend more money after workers last Monday rejected the abovementioned rescue plan that would have reduced pay and cut 1,700 jobs. It is unclear how yet another “shock” to Italy’s GDP would reverberate across Europe, which as we showed last week, has just hit its latest downward inflection point, with upcoming economic data set to disappoint according to Deutsche Bank. 

Europe’s “economic peak” also comes as the dynamo of the global reflation trade, China, just reported its worst PMI survey data in 6 months, despite a record credit injection in the first quarter, suggesting China’s unprecedented credit impulse is wearing off not only domestically, but also internationally.

 

Which means that for watchers of European deflationary inflection points, in addition to monitoring the perennially troubled Italian banking sector, one should also pay attention to legacy companies such as the national carrier, and how its bankruptcy would ripple through the country, especially if Carlo Calenda is right, and the outcome is nothing short of a “shock” for the domestic economy.

via http://ift.tt/2oMKBZa Tyler Durden

While the Canadian housing bubble – driven by Chinese hot money – continues to grow (although its latest near-death experience courtesy of Home (Lack of) Capital Group may have finally pierced a stake through its heart), housing markets elsewhere are suffering from some serious wobbles. Take Singapore, for example, where recently a 4,069 sq ft at Seascape in Sentosa Cove was sold at a $6.6 million loss. The loss works out to 52% or 10% annualised over a holding period of 6.6 years.

The unlucky seller: a Russian oligarch. According to The Edge Property, the previous owner, a Russian national bought the unit from the developer at $12.8 million or $3,146 psf in June 2010. The unit was put up for mortgagee sale at an auction conducted by JLL in January 2017 at an opening price of $6.8 million but did not find a buyer. It was subsequently sold at $6.2 million or $1,524 psf by private treaty. According to JLL head of auctions Mok Sze Sze, the buyer is an investor.

It’s not the first dramatic repricing of Singapore real estate. So far, four other private non-landed homes have been sold at losses above $5 million, based on the matching of URA caveat data as at Feb 17.

Previously, a 4,133 sq ft unit at Seascape was sold at a $5.2 million loss. The unit was bought at $11 million or $2,661 psf in December 2011 and sold at $5.8 million or $1,403 psf. The loss works out to 47% or 17% annualised over a three-year holding period. The seller was also liable for a 4% or $232,000 Seller’s Stamp Duty.

Before that, a 3,757 sq ft unit at St Regis Residences Singapore in prime District 10 was sold at a $5.02 million loss. The unit was bought at $13 million or $3,461 psf in July 2007 and sold at $7.98 million or $2,124 psf. The loss works out to 39% or 24% annualised over a 1.8 year holding period.

In September 2001, two separate 8,740 sq ft units at Ardmore Park in prime District 10 were sold at losses of $8 million and $5.5 million. The larger loss accrued to the unit bought at $18.5 million or $2,117 psf in Feb 2000 and sold at $10.5 million or $1,201 psf. The smaller loss accrued to the unit bought at $16 million or $1,831 psf in December 1999 and sold at $10.5 million or $1,201 psf.

* * *

While it remains unclear who the “motivated” Russian seller was, or what prompted him to rush with the firesale, it is notable that in at least some occasions, price discovery under liquidity durress results in market clearance as much as 50% below suggested “fair values.” It may also explain why in its rescue loan to Canada’s biggest alternative lender, HCG, the provider of $2 billion in rescue financing, Canada’the Healthcare Of Ontario Pension Plan, demanded $2 worth of collateral coverage for every $1 it lends, a hint that losses as great as 50 cents on the dollar may be imminent if and when the Canadian housing bubble finally bursts.

via http://ift.tt/2pkaiPA Tyler Durden