Month: April 2017

Authored by Adam Johnson via FAIR.org,

Buoyed by a total of 18 speculative verb forms – five “mays,” eight “woulds” and five “coulds” – New York Times reporters David E. Sanger and William J. Broad (4/24/17) painted a dire picture of a Trump administration forced to react to the growing and impending doom of North Korea nuclear weapons.

“As North Korea Speeds Its Nuclear Program, US Fears Time Will Run Out” opens by breathlessly establishing the stakes and the limited time for the US to “deal with” the North Korean nuclear “crisis”:

Behind the Trump administration’s sudden urgency in dealing with the North Korean nuclear crisis lies a stark calculus: A growing body of expert studies and classified intelligence reports that conclude the country is capable of producing a nuclear bomb every six or seven weeks.

 

That acceleration in pace—impossible to verify until experts get beyond the limited access to North Korean facilities that ended years ago—explains why President Trump and his aides fear they are running out of time.

The front-page summary was even more harrowing, with the editors asserting there’s “dwindling time” for “US action” to stop North Korea from assembling hundreds of nukes:

From the beginning, the Times frames any potential bombing by Trump as the product of a “stark calculus” coldly and objectively arrived at by a “growing body of expert[s].” The idea that elements within the US intelligence community may actually desire a war—or at least limited airstrikes—and thus may have an interest in presenting conflict as inevitable, is never addressed, much less accounted for.

The most spectacular claim—that North Korea is, at present, “capable of producing a nuclear bomb every six or seven weeks”—is backed up entirely by an anonymous blob of “expert studies and classified intelligence reports.” To add another red flag, Sanger and Broad qualify it in the very next sentence as a figure that is “impossible to verify.” Which is another way of saying it’s an unverified claim.

When asked on Twitter if he could say who, specifically, in the US government is providing this figure, Broad did not immediately respond.

Other key claims are either not attributed or attributed to anonymous “officials” (emphasis added):

Unless something changes, North Korea’s arsenal may well hit 50 weapons by the end of Mr. Trump’s term, about half the size of Pakistan’s. American officials say the North already knows how to shrink those weapons so they can fit atop one of its short- to medium-range missiles — putting South Korea and Japan, and the thousands of American troops deployed in those two nations, within range.

To offer a bit of outside perspective, Sanger and Broad interview Siegfried S. Hecker, a Stanford professor who directed the Los Alamos weapons laboratory in New Mexico in the late ’80s and early ’90s. The only time he speaks directly to the threat, he does so in the context of a nuclear accident:

At any moment, Dr. Hecker said on a call to reporters organized by the Union of Concerned Scientists, a live weapon could turn into an accidental nuclear detonation or some other catastrophe.

“I happen to believe,” he said, “the crisis is here now.”

Hecker and other semi-neutral observers (Hecker worked for the Department of Defense for several years) are understandably worried about more nuclear weapons in the aggregate, especially in the hands of a relatively poor country with a long history of botched missile attempts. But who, exactly, is making the article’s most alarmist predictions? It’s unclear.

Naturally, the specter of North Korea creating an assembly line of nuclear weapons—by far the sexiest part of the story—was the lead in subsequent write-ups. Within hours, this meme spread to a half-dozen other outlets:

“North Korea’s Growing Nuclear Threat, in One Statistic”

Here is the most frightening thing you’ll read all day: Growing numbers of US intelligence officials believe North Korea can produce a new nuclear bomb every six or seven weeks.

—Vox (4/25/17)

“North Korea Will ‘Cross The Point of No Return’ With Sixth Nuclear Test”

Defense experts estimate that the North is capable of producing a nuclear bomb every six or seven weeks, reports the New York Times.

—Daily Caller, 4/25/17)

“North Korea Could Produce a Nuclear Weapon Every Six Weeks, Experts Are Warning”

—Yahoo News (4/25/17)

“Residents of China Fear Radiation From North Korea Nuclear Tests”

Experts say the country is capable of producing a nuclear bomb every six or seven weeks, the New York Times reported Monday.

—UPI (4/25/17)

“China Warns North Korea Will ‘Cross the Point of No Return’ if It Carries out a Sixth Nuclear Test, as Secretive Country Stages Its ‘Largest Ever Firing Drill'”

…amid fears the secretive state can create a nuke every six weeks.

—Daily Mail (4/25/17)

“North Korea Is Capable of Producing a Nuclear Bomb Every Six or Seven Weeks”

—News.com.au (4/26/17)

Even New York Times columnist Nick Kristof jumped on the meme, magically turning “capable of producing” into “will soon be churning out”:

Excellent on the North Korea challenge, as Kim Jong-un will soon be churning out 1 nuke every 7 weeks https://t.co/jIlZBe2lc6 by @SangerNYT

— Nicholas Kristof (@NickKristof) April 25, 2017

But from whence did this meme come? Who, exactly, made this claim? Is there any dissent within the community of “experts” on this prediction? Is there an official document somewhere with people’s names on it who can later be held accountable if it turns out to be bogus?

Once again, the essential antecedents of war are being established based on anonymous “experts” and “officials,” and hardly anyone notices, much less pushes back.

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via http://ift.tt/2oK6yZ2 Reggie Middleton

After two years of recurring warnings (both on this website and elsewhere) that Canada’s largest alternative (i.e., non-bank) mortgage lender is fundamentally insolvent, kept alive only courtesy of the Canadian housing bubble which until last week had managed to lift all boats, Home Capital Group suffered a spectacular spectacular implosion last week when its stock price crashed by the most on record after HCG revealed that it had taken out an emergency $2 billion line of credit from an unnamed counterparty with an effective rate as high as 22.5%, indicative of a business model on the verge of collapse .

Or, as we put it, Canada just experienced its very own “New Century” moment.

One day later, it emerged that the lender behind HCG’s (pre-petition) rescue loan was none other than the Healthcare of Ontario Pension Plan (HOOPP). As Bloomberg reported, the Toronto-based pension plan – which represented more than 321,000 healthcare workers in Ontario – gave the struggling Canadian mortgage lender the loan to shore up liquidity as it faces a run on deposits amid a probe by the provincial securities regulator. Home Capital had also retained RBC Capital Markets and BMO Capital Markets to advise on “strategic options” after it secured the loan.

Why did HOOPP put itself, or rather its constituents in the precarious position of funding what is a very rapidly melting ice cube? The answer to that emerged when we learned that HOOPP President and CEO Jim Keohane also sits on Home Capital’s board and is also a shareholder. But how did regulators allow such a glaring conflict of interest? According to the Canadian press, Keohane had been a director of Home Capital until Thursday, but said he stepped away from the boardroom on Tuesday to remove the conflict of interest when it became clear HOOPP might step in as a lender.

Keohane further clarified on Friday that he doesn’t view the Home Capital investment as risky because the pension plan will be provided with $2 worth of mortgages as collateral for every $1 it lends to Home Capital.

“We take comfort from the underlying asset portfolio, so we are not looking at Home Capital as a credit,” said Mr. Keohane in an interview with Business News Network television. He added that a correction in the housing market is not of great concern, since the values of homes would need to plummet by more than 65 per cent for the fund to make no return beyond the value of its principal commitment.

Furthermore, it appears that Canada’s pensioners are priming all other company lenders: Keohane also said that the funding syndicate would rank above Home Capital’s other lenders.

“We have security interest in the collateral we’ve received, so we have the right to sell that collateral if we don’t get paid. And then the balance that’s left over would go to recovery for other creditors.”

The implication is that as long as HCG’s mortgages dont suffer greater than 50% losses, HOOPP’s pensioners should be money good. Of course, if this is indeed Canada’s “subprime moment”, any outcome is possible. As for other lenders, or the prepetition (because there will be a petition here, the only question is when and in what form) equity, that’s some $4 billion in assets that was just stripped from existing collateral.

“The Best Price May Come From Breaking Up The Company”

In any case, the company’s frenzied, emergency measures to stabilize the near-insolvent mortgage lender were not nearly enough, and despite HCG stock posting a modest rebound on Friday between hopes of a rumored sale and a short squeeze, those hopes may be dashed soon because as the Globe and Mail reports, the depositor bank run that gripped Home Capital Group in the past week, only got worse after the company revealed just how precarious its funding situation had become.

First, any hope the company, or rather its investors may have held of a sale, appear dashed. Investment banking sources cited by the G&M said “the best possible price may come from breaking up the company and selling portions of its mortgage portfolio to regional financial institutions.” Which also implies that aside from a few select assets, there is no equity value left, or in other words, any potential buyer is now motivated to wait until HCG liquidates, and then picks off the various assets in bankruptcy court.

There are structural limitations as well: Home Capital currently holds $18-billion in home loans outstanding, “a portfolio that would be difficult to swallow for rivals in the alternative mortgage sector, such as credit unions, small mortgage lenders, Montreal-based Laurentian Bank and Edmonton-based Canadian Western Bank.” These institutions, along with private equity firms, could still bid for pieces of Home Capital, the G&M admits. The only question is why they would do so before a bankruptcy filing.

While one prominent name features on the list of potential buyers, that of PE giant J.C. Flowers whose CEO J. Christopher Flowers earlier this year said he expected to expand the company’s Canadian real estate lending business, Canada’s six big banks are notable for their absence on a list of bidders. The reason is that Home Capital lends money to home buyers who have been turned down by the major banks and none of these institutions is expected to enter the alternative mortgage sector by acquiring the company. National Bank of Canada proactively called the equity analysts who follow the company this week to say it would not bid on Home Capital after being asked if it was a potential buyer. Needless to say, the big banks would be quite delighted if one of their “bottom picking” competitors would suddenly go bankrupt.

“When you have a bank run people get spooked”

Which brings us to the most imminent risk facing Home Capital Group, and its subsidiary, Home Trust.

Recall, that on Thursday we observed that as concerns about HCG’s viability mounted, depositors were quietly pulling their funding from from savings accounts at subsidiary Home Trust. By Wednesday, when Home Capital revealed it was seeking a $2-billion loan to backstop its sinking savings deposits, shareholders ran for the exits, driving down the company’s share price by 65 per cent on Wednesday alone, and heightening the sense of panic.

On Friday, the company revealed that high-interest savings account balances fell another 36% to $521-million by Friday morning, down by a whopping $293 million from $814-million Thursday and more than $2-billion a month ago.

In other words, had it not been for the emergency HOOPP loan, the company would likely be insolvent as of this moment following what may be the biggest bank run in recent Canadian history; which also explains why the interest rate on the loan is above 20%.

“When you have a run on the bank, people get spooked and they sell and ask questions later,” said a Bay Street investment banker. “It’s investor psychology that takes over.”

As is usually the case, regulator appeared on the scene…. just one day too late.

Canada’s banking industry regulator, the Office of the Superintendent of Financial Institutions (OSFI), has gathered data from other financial institutions this week, both to monitor for signs of a broader depositor panic and to track where funds are moving as they leave Home Trust.

 

OSFI sent an urgent request Wednesday to several smaller and mid-sized financial institutions and credit unions to provide the regulator with up-to-date information about their savings accounts, according to a source. Specifically, OSFI wanted to know the institutions’ most recent account totals for high-interest savings accounts, as well as data on recent redemptions and current levels of high-quality liquid assets.

The request, which the OFSI said had to be fulfilled “as soon as institutions are able”, is seen as an attempt to take the pulse of the market by tracking where deposits flowing out of Home Capital may be going, and to gauge whether there is any contagion among other institutions. In recent days, some smaller and mid-sized institutions have also struck up early-stage discussions about whether multiple institutions could join together to explore a deal to buy some of Home Capital’s assets.

As for Canada’s big banks, they have already decided that HCG won’t survive. Several months ago, Canaccord Genuity Group Inc. told its financial advisers they could no longer steer investors to high-interest savings accounts at Home Capital or rival alternative mortgage lender Equitable Bank. Client money already placed with either bank had to be moved within 60 days.

Then, after Home Capital revealed in March it was under investigation by the Ontario Securities Commission over its disclosure practices, Canadian Imperial Bank of Commerce introduced a cap of $100,000 per client for purchases of Home Capital guaranteed investment certificates (GICs), which is the maximum level covered by Canada’s deposit insurer.

 

A spokesperson from Royal Bank of Canada said that, “several weeks ago” the bank introduced a $100,000 cap on Home Capital GICs bought through a full-service broker, although there were no limits for purchases through the firm’s discount brokerage.

 

Late last week, Bank of Nova Scotia said it would stop selling all GICs sold by Home Trust, but said Monday that policy was amended to a limit of $100,000. Bank of Montreal’s brokerage unit also confirmed it has a $100,000 limit on Home Trust GICs but would not say when it went into force.

As G&M adds, the OSC news shook investors, but the panic was heightened as news of the banks’ moves to cap investor deposits slowly seeped through Bay Street in subsequent days, raising concerns that major financial institutions were pulling away from Home Capital.

“We Are Out Of The Position”

When asked if Home Capital could survive this run on its deposits, Keohane – formerly at HOOPP, and the company’s last remaining source of funding – said it was possible. “I think it’s a viable business,” he said. “Their cost of funding is going to go up, which may impact earnings… it’s always a possibility that some other institution may have an interest in taking the entity over. If you can have access to a lower funding cost, I mean, it’s quite an attractive purchase.”

Most disagree, and it is safe to assume that the depositor run won’t stop until every last dollar held at HCG has been withdrawn.

Meanwhile, late on Friday, Home Capital’s second biggest shareholder, Calgary-based QV Investors disclosed that it liquidated its position, selling 8.4 million shares. QV Investors previously held a 12.8% stake in Home Capital. Toronto-based Turtle Creek Asset Management is Home Capital’s biggest shareholder with 13.6% stake.

On Saturday another prominent investor bailed, when Calgary-based Mawer Investment Management sold 2.75 million shares of the alternative lender, CIO Jim Hall said told Bloomberg in a phone interview. “We are out of the position,” Hall said.  Mawer also has reduced holdings in Canadian alternative- lender Equitable Group.

All these investors will now be forced to explain to their LPs how they missed a ticking timebomb which so many, this website included, had warned about for year.

Home Without The Capital Group

As for Home Capital Group, or more aptly Home Without The Capital Group, the future is bleak, and a bankruptcy liquidation appears the most likely outcome. What impact such an event will have on the broader Canadian housing market remains to be seen. Last week, shortly after HCG’s rescue loan announcement stunned the otherwise sleep Toronto tape, the Canadian housing regulator warned of “strong evidence of housing-market problems.” Looking back in a few months, that may prove to be a vast understatement.

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If US GDP growth were tracking sentiment data alone, Goldman estimates the US economy would be growing at its fastest rate of the post-crisis period… But as many saw yesterday – crushing the hopes and dreams of a multitude of over-confident asset-gatherers and commission-takers.

As Goldman Sachs' Himmelberg notes, the music has yet to stop for market sentiment. Sentiment indicators are running extremely high among both households and small businessmen. While there are some signs of a peak in the sentiment surveys, the soft data are still near the highest levels of this expansion.

 

Exhibit 1 drills deeper into the soft data to see precisely where the improvements have been coming from. The cell values in this table (illustrated by the heatmap) show the levels of GDP growth implied by the univariate regressions of our broad CAI on each indicator (plus 12 lags). Both activity-oriented surveys (like ISM) and pure sentiment surveys (like NFIB Small Business Optimism) are running “hot”, while “hard” data indicators, like industrial production, are running cooler (although still quite strong). And the implied magnitudes of GDP growth are unrealistically high, with the Conference Board’s index of consumer expectations implying GDP growth of nearly 5%, and the NFIB’s small business optimism index implying growth of 6.8%.

Sentiment is running high in surveys of investor sentiment as well. The International Center for Finance at Yale School of Management surveys retail and institutional investors for their views on current valuations and one-year-ahead expected returns. In previous reports we have commented on the degree to which expectation measures have been running ahead of measures that survey current conditions. We can similarly use the Yale data to compare “expected one-year returns” to the assessment of “current market valuations”.

The patterns are remarkably similar. Just as in surveys of consumers and businesses, for investors (both retail and institutional), the post-election rise in expectations for year-ahead returns has materially outpaced their relatively sober assessments of valuation. As a result, the difference between the two survey questions – “expected returns” minus “current valuation” – is close to an all-time high.

Exhibit 2 plots this difference for both institutional and retail investors. In October, 83% of institutional investors expected the market to rise in the coming year, while 50% thought the market was too rich. By March, 99% expected the market to be higher in a year’s time, while the percentage who thought valuations were stretched was roughly flat at 49%. In short, optimism appears to be no less pervasive among investors than it is among households and small business.

 

Goldman concludes, we continue to worry that sentiment has moved ahead of the (hard) data, that this divergence will close from the top down.

And that is a long way down.

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Authored by Kevin Muir via The Macro Tourist blog,

There are two things that most men think they are experts at. Ask any man, and chances are, deep down, they believe they are the world’s greatest bbq’er and lover (probably in that order). Personally, I know not everyone can be the world’s greatest lover, so I hope I might be in the top quartile (I am giving myself a boost for all those too-good-looking guys who think they don’t even have to try), but god damn it! I know that I am in the top percentile when it comes to barbecuing!

My delusions about my mad bbq’ng skills are similar to everyone’s belief they are contrarians. Whether it is the NYSE specialist, the Chicago pit local, the Bay Street equity trader, the London credit specialist, or even the guy at home trading in his underwear, we are all consumed by these romantic narratives where we bravely battle the naive masses to nail the next great trade. But the reality is that we can’t all be contrarians. If we were, then it wouldn’t be contrarian…

Today we face expensive assets everywhere we look. Whether it is real estate, equities, fixed income – capital is chasing assets at a disturbing pace. Central Banks, with their massive quantitative easing programs and negative rates, have inflated anything with a CUSIP, and those private investors venturing out the risk curve have taken care of everything else.

So what’s an investor to do? Is there anything truly cheap anymore?

Well, rest assured, there is absolutely nothing easy left. Anything with a little bit of meat on the bone has been picked clean. You could try making some money taking the other side of this over valuation, but you need to realize who is on the other side of your trade. Although you might time the occasional squiggle lower, I would rather not fight Central Banks and their unlimited fire power.

No, I would rather go looking for something truly forgotten, hated, and cheap.

And nothing fits this bill better than grains.

I told you this wasn’t going to be easy, so when the idea of buying grains makes you throw up a little in your mouth, don’t immediately discount its investment merit. The grain charts look like death. No two ways about it. As the trader who sits beside me says, “going long grains is a hedge against profits.”

 

 

 

 

 

 

I realize these charts do not represent grain’s actual returns due to the problems rolling contracts and the embedded carry (positive/negative depending on the shape of the curve), but it gives you a sense of the spot market over the past five years. The selling has been relentless, and discouraging.

I like to follow agriculture twitter. It’s a nice break from all the finance guys bragging about their latest wins or posting pictures of the meat they are bbq’ng that evening. The ag people seem a little more humble, but I must admit, I get a kick out of them showing off their latest tractors or combines.

The reason I bring this up is to give you a sense of the sentiment within the agriculture trader community.

 

 

 

 

What’s that line legendary strategist Don Coxe likes to use? “The most exciting returns are to be had from an asset class where those who know it best, love it least because they have been burnt the worst?”

Well, there can be no doubt that grain longs have been burnt the worse. If we back up the timeframe on our charts, and then adjust for inflation, you will notice that grain prices are now all ticking all time lows.

 

 

 

 

 

 

Grains have been a vicious bear market in real terms.

Technology has caused grain prices to resemble the price decline of a 80386 microprocessor chip. Whether it be from improvements in fertilizer and pesticides, to the introduction of self driving farm equipment, the modern farmer has become dramatically more efficient over these past few decades.

 

 

Now maybe you believe these technological improvements will continue. Have a look at the increase in corn yields over the last 150 years:

 

 

Could this chart simply continue moving infinitely higher? Sure, never say never. Maybe Monsanto will come up with even better super grain seeds to create the fountain of perpetual food. Maybe we will figure out ways to automate the remaining last few jobs left on the farm to squeeze costs even lower. Then again, maybe Lindsay Lohan doesn’t have a drinking problem.

I just don’t buy that progress can continue at this pace. I have no doubt that farmers will continue improving, but I suspect the large gains are behind us. The moves from here will be incrementally smaller.

Over the past few years, the weather has been as close to perfect growing conditions as a farmer could ask. All of the droughts have been on the West side of the Rockies, with the grain growing conditions on the other side experiencing ideal weather. Although you should always be suspicious when a hedge fund trader starts predicting weather patterns, I wonder how long this can continue. This winter the West Coast experienced a record amount of precipitation, will the opposite now happen in the plains?

But you might not even need to get a drought to cause grain prices to rise.

This terrible bear market has not gone unnoticed by the speculators. Have a look at the net speculator position in the CBOT wheat contract.

 

 

Specs have never been this short! Everyone believes prices can only go one way – lower! After all, we are all top performing bbq’ers and lovers.

I must admit, I have been lugging around a long grain position for the past few years, so I am not sure anyone should listen to my analysis. Yet, while every is all beared up on grains, some smart guys are starting to talk about the investing merits of long positions. Great technicians like Peter Brandt are raising the possibility a long term bottom might be forming. And then, shrewd macro traders like Raoul Pal, are advocating long grain positions from a fundamental perspective.

But few are talking about the real reason that grains offer a compelling risk reward from the long side. If this Central Bank experiment goes off the rails, we could have a return of 1970’s style inflation. That happens to coincide with the last great bull market in grains.

Yeah, yeah, I know – inflation will never return. I know all the reasons why the absurd amount of Central Bank stimulus will never cause inflation. Trust me, I have been lectured by many a deflationist. Well, I will leave them to buy long term treasury bonds (after a forty year monster bull market), I am going to keep picking away at my long grain positions.

When you are busy dismissing the possibility of a 1970’s style bull market in grains, don’t forget – we all want to be contrarians, but it sure is hard. Don’t look now, but I think your steak is burning.

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An almost inconceivably large amount has been written and said about Donald Trump during his first 100 days as the president of the United States. The lion's share, it must be said, has been negative; especially internationally. But, as Statista's Martin Armstrong details, where it matters most for the president, there is a very clear split in opinion.

You will find more statistics at Statista

Trump still enjoys seemingly unwavering support among the people that voted for him back in November. As our infographic shows, a recent survey revealed that 85 percent of Trump voters approve of the job he has done so far; it is also possible to find polls where this figure is as high as 97 percent.

On the flip side, Trump has so far failed to win around the majority of his detractors. 87 percent of Clinton voters are apparently watching on disapprovingly, while only five percent admit that they are in favor of what the president is doing.

While it is normal for approval ratings to be split down party lines, even Obama's polarizing presidency scored an average Republican approval rate of 13 percent. It is early days though, and until he starts to eye a second term these figures are unlikely to faze Trump, or indeed his supporters.

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Authored by Mac Slavo via SHTFplan.com,

For a bunch of peace loving, tolerance spewing social justice warriors, it sure does appear that the new “progressive” movement in America is rapidly turning to Bolshevik tactics to force their will upon a free and non-violent people.

The latest example of a society on the brink of civil war comes to us from Portland, Oregon, where every year the 82nd Avenue of Roses Business Association kicks of the city’s annual Rose Festival with a family-friendly parade.

Except this year, there will be no parade. Organizers have cancelled the event amid threats of violence from groups referring to themselves as “Anti-Fascist.” According to The Washington Post, the reasoning behind the threats is reportedly outrage over the fact that the county’s Republican Party was given one of the nearly 100 spots in the parade.

Then came an anonymous and ominous email, according to parade organizers, that instructed them to cancel the GOP group’s registration — or else.

 

“You have seen how much power we have downtown and that the police cannot stop us from shutting down roads so please consider your decision wisely,” the anonymous email said, referring to the violent riots that hit Portland after the 2016 presidential election, reported the Oregonian. “This is nonnegotiable.”

 

The email said that 200 people would “rush into the parade” and “drag and push” those marching with the Republican Party.

 

“We will not give one inch to groups who espouse hatred toward LGBT, immigrants, people of color or others,” it said.

Earlier this month we reported that members of the so-called anti-fascist, left leaning progressive movements are preparing for war by organizing combat fighting classes and even going so far as to suggest it’s time to start bringing guns to such protests as a show of force:

In short, as predicted, they are turning to militancy and mob action by mobilizing individuals and groups to attend combat training seminars, acquiring better equipment like baseball bats and helmets, and of course, if things really go bad… guns.

Yes, we seemed to have lost today. The alt-right held their ground. If we wanna take action against them, we need to be better organized and better trained. It doesn’t help that it’s only the far left opposing them, any trump supporter can be radicalized far easier than any liberal.

I hope we learn from today

 

…

 

A shocking number of our comrades went in there with absolute no combat training. We need to set up seminars or something of the sort.

 

…

 

We also need better equipment

Full report: There Will Be Blood: Left Prepares For War After Berkeley Beat Down: “Combat Training, Better Equipment, Guns…”

While these folks may think silencing the free speech of political ideologies contrary to theirs through violence is a means to a worthy end, it was the Bolshevik ideology, similar to what we’re seeing from “comrades”  in the anti-fascist movement, that eventually gave way to one of the world’s most brutal dictators and was responsible for the deaths of, quite literally, over 100 million people in the 20th century.

On another and perhaps equally interesting note, we’ll mention the fact that for years the Department of Homeland Security and domestic law enforcement agencies had warned Americans that it was lone wolves with conservative values who stockpiled guns, food, bibles and peacefully protested government overreach who were, by officials and congressional members, deemed terrorists.

In fact, there were a variety of identifiers used to qualify an American citizen as a potential domestic terrorist:

So how does a person qualify as a potential domestic terrorist?  Based on the training I have attended, here are characteristics that qualify:

• Expressions of libertarian philosophies (statements, bumper stickers)
• Second Amendment-oriented views (NRA or gun club membership, holding a CCW permit)
• Survivalist literature (fictional books such as “Patriots” and “One Second After” are mentioned by name)
• Self-sufficiency (stockpiling food, ammo, hand tools, medical supplies)
• Fear of economic collapse (buying gold and barter items)
• Religious views concerning the book of Revelation (apocalypse, anti-Christ)
• Expressed fears of Big Brother or big government
• Homeschooling
• Declarations of Constitutional rights and civil liberties
• Belief in a New World Order conspiracy

We wonder if similar classifications will be assigned to those who threaten families and children at parades?

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In a rare comment on the deteriorating North Korean situation, outspoken Philippine president Rodrigo Duterte urged the US to show restraint after North Korea’s latest missile test and to avoid playing into the hands of leader Kim Jong Un, who “wants to end the world“. The notoriously blunt Duterte said on Saturday that the Southeast Asia region was extremely worried about tensions between the United States and North Korea, and said one misstep would be a “catastrophe” and Asia would be the first victim of a nuclear war.

“There seems to be two countries playing with their toys and those toys are not really to entertain,” the president said quoted by Reuters during a news conference after the ASEAN summit in Manila, referring to Washington and Pyongyang. “One miscalculation of a missile, whether or not a nuclear warhead or an ordinary bomb, one explosion there that would hit somebody would cause a catastrophe.”

Duterte also warned the United States, Japan, South Korea and China that they are sparring with a man who was excited about the prospect of firing missiles. Duterte’s speech, which was delivered in his capacity as chairman of ASEAN, was due to speak by telephone to U.S. President Donald Trump later on Saturday. He said he would urge Trump not to get into a confrontation with Kim.

“You know that they are playing with somebody who relishes letting go of missiles and everything. I would not want to go into his (Kim’s) mind because I really do not know what’s inside but he’s putting mother earth, the planet to an edge.”

Ahead of his phone call with the US president, Duterte appealed to Trump saying it was incumbent upon the US as the a responsible country to not rise to Kim’s provocations. He said he was sure Trump had cautioned his military not to allow the situation to spiral out of control; what Duterte may have ignored is that it may be precisely Trump’s intent to provoke Kim into a first move, giving the US a carte blanche to retaliate.  “Who am I to say that you should stop? But I would say ‘Mr. President, please see to it that there is no war because my region will suffer immensely’,” Duterte said. “I will just communicate to (Trump), ‘just let him play… do not play into his hands’.”

He added: “The guy (Kim) simply wants to end the world, that is why he is very happy. He is always smiling. But he really wants to finish everything and he wants to drag us all down.”

Ironically, Duterte has joined China and Russia in pleading with the leaders of North Korea and the U.S. to tone down their nuclear brinksmanship, even as he agreed with Japanese Prime Minister Shinzo Abe that negotiations to end the standoff would be useless.

“We have to caution everybody including those who’d give the advice to the two players because you have nuclear warheads to just show restraint,” Duterte said.

Meanwhile, speaking in London, Japan’s Prime Minister Abe said talks with North Korea shouldn’t be tried while the communist nation continues its “provocative acts.” In a briefing for reporters in London, Abe described the missile as a “grave threat” that “can absolutely not be tolerated.”

China, which accounts for the vast majority of North Korean trade, has an important role to play, Abe added. Tillerson told the UN Security Council Friday that countries that fail to implement economic sanctions on Kim’s regime “fully discredit this body.” Trump said in a Twitter message Friday that the missile launch disrespected Chinese President Xi Jinping.

And speaking of China, Beijing’s official news agency, Xinhua, urged President Donald Trump to “tread cautiously” with the U.S. and North Korea locked in a “tit-for-tat” vicious cycle. According to Bloomberg, in a commentary distributed by Xinhua, the official China news agency said the U.S. and North Korea “need to tread cautiously not to ignite another war in the region.” The U.S. needs to “terminate the state of war” on the peninsula while North Korea needs to offer a “solid reason” for the U.S. to change its policy, Xinhua said in the commentary.

During his speech at the UN, Tillerson said that the U.S. goal isn’t to overthrow Kim’s regime but ruled out talks unless the North Korean leader takes “concrete steps to reduce the threat that illegal weapons programs pose to the United States and our allies.” As the meeting concluded, Tillerson reiterated that the U.S. wouldn’t agree to talks unless North Korea abides by existing Security Council resolutions.

Several hours later, Kim test-fired (unsuccessfully) his latest, sixth, ballistic missile of 2017.

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Authored by Jeffrey Snider via Alhambra Investment Partners,

Back on March 10, the New York Fed’s attempt at real-time GDP forecasting predicted that the Q1 2017 estimate would be 3.2%. That would have qualified as another decent quarter, the second out of the past three and somewhat in keeping with “reflation.” As we know today, the advance figure calculated by the Commerce Department amounted to just 0.69% growth in Q1.

The point is not to cherry pick the highest quarterly prediction and make fun of FRBNY. At the same time in mid-March the Atlanta Fed’s GDPNow competing model had already collapsed below 1%. Like the New York version, the Atlanta tracker had early on projected better than 3% growth for the quarter. It was at one time in early February just shy of 3.5%, higher than at any point for the other one.

The New York Fed’s parsimonious statement today tersely explained:

Today’s advance estimate of GDP growth for 2017:Q1 from the Commerce Department was 0.7%, substantially weaker than the latest FRBNY Staff Nowcast of 2.7%.

While that was of no value, pointing out merely the obvious, the regular weekly report gives us a clue ironically in trying to explain why we should readily trust its methods.

Extensive back-testing of the model, research, and practical experience have shown that the platform is able to approximate best practices in macroeconomic forecasts. The model produces forecasts that are as accurate as, and strongly correlated with, predictions based on best judgment.

There is a whole lot to that statement covered underneath statistical jargon and buzzwords. That they attempt to “approximate best practices” rather than the results of those practices is especially significant. The New York Fed is trying to model the economy that “should be” rather that the Atlanta Fed’s model of the economy as it actually is. Very important to the former is sentiment, one reason why monetary policy builds itself philosophically around rational expectations and the institutional expectation for successfully manipulating them.

The major disconnect is in the latest quarter entirely one of that area. PMI’s and other measures of business attitudes were through the roof, as were the various indices attempting to gauge consumer confidence. Yet, neither form of sentiment or confidence translated. The difference on the consumer side was especially important given the weight of risks for the future economic trajectory as well as the majority basis for this quarter’s (repeat) disappointment.

None of this is new, of course, as the discrepancy emerged as far back as 2013. But it found another level importantly in 2014, particularly with respect to consumer confidence. Just when the BLS started reporting the “best jobs market in decades”, the various indices recorded a similar surge in positive consumer emotion. The University of Michigan’s Index of Consumer Confidence was in July 2014 barely above 80, but by January 2015 it was nearly 100 and suggesting normalcy at long last. Taken together, the labor statistics as well as confidence was a powerful mix for mainstream interpretation. Is shouldn’t have been that way.

Consumer confidence relatedly did not fall much as the economy clearly did through the “rising dollar” period. As “reflation” after it has taken hold, it is right back again at multi-year highs; in the UoM format just less than 100 like the days of the housing bubble. That means confidence remained high even though consumer spending seriously decelerated (retail sales were in 2015 and early 2016 among the worst in the entire data series).

Other parts of the UofM survey did register significant pessimism that more closely matched the trajectory of consumer spending as the economy overall.

Inflation expectations, longer-term expectations in particular, clearly showed a hard change and one that occurred at the exact same moment the whole survey was claiming confidence was surging.

How do we make sense of what is clearly a contradiction? I think the answer lies in the space between the New York Fed’s NowCast model and the Atlanta Fed’s GDPNow alternate. Consumer confidence indices appear to be reflecting expectations for the economy that “should be” while inflation expectations might better exhibit the pessimism of how things haven’t changed, and are in further danger of remaining that way more permanently. It is reminiscent of the huge divergence between the stock market and the bond market, and surely the latter has to some degree affected consumer thoughts on the “should be” side.

The weight of evidence, such as Q1 GDP, remains all in the wrong direction. What’s left on that other side is merely unbacked mainstream rhetoric and the hollow assurances that amount to little more than agenda noise. Yet, confidence persists. It is dissonance, to be sure, but explainable.

I think what we are seeing expressed is this state of disbelief over the length of depression so far, thus its mere existence. None of us has any experience with a structural dislocation on this scale. Even the Great Inflation, though it lasted for more than fifteen years, was in the opposite direction, meaning that while it was no picnic it was at least characterized by movement and action – especially in labor. This last decade is nothing more than inaction, an economy apparently frozen deeper and deeper into desperate stasis; the figurative embodiment of Dante’s Hell.

As Japan has shown time and again, the worst case is not recession or even repeated recession. It is stagnation of a kind far more sinister than that of the Great Inflation. At least in the 1970’s there was action and activity. This version is where the economy is simply frozen. In Dante’s Inferno, Hell is not hot, it is increasingly cold as each layer is further removed from God’s true warmth. Heat is passion and life; cold is where living is further stripped away toward the inanimate. The bond market is making that same journey, if not in a straight line, further into the lower reaches as the economy grows colder and colder.

For most of us, this just cannot be; it cannot be possible that there is so little growth and opportunity after ten years of none. Even if predicated on just randomness alone, blind dumb luck, the economy should start to correct at some point.

It just doesn’t seem believable that in the 21st century depression of this magnitude and length could happen.

And so the longer it goes on, people seem to believe the greater the chance that something just has to go right. It is a happy a comforting thought, aided in emotional manipulation by the constant mainstream optimism. In that belief, every minor uptick is extrapolated far beyond its true significance as that thing that will surely restore positive balance and order.

Like inflation expectations, however, there are lingering doubts. We want to believe it can’t be this bad forever, but we also have to live to some degree, unlike policymakers and their regressions, in reality. In the middle of 2014, that meant not only could things be bad for such a long time, as they had been for seven years already by that point, they could actually get worse!

 

This is the legacy of the “maestro”, where “we” can’t make sense of where we are because it just doesn’t seem possible. There is no way that the Federal Reserve, once the standard for all technocratic excellence, could let this happen. Even the QE’s to some degree fall under this cultish existence, for trillions in money printing have to show up somewhere at some point. It can’t be that all the worst cases merge together; that the Fed could totally strike out like that, and the economy stuck without expansion for a decade and more. Who ever heard of an economy that just shrunk?

Unfortunately, we have been studying one for more than a quarter century, which only adds to the seeming impossibility of it all. We have known about Japan for all that time, so it can’t be that we are following that path being so aware of it. That might be, though, where a significant proportion of doubt has come from especially in inflation expectations unanchoring (as well as bond rates and eurodollar futures) because the Federal Reserve for all its posturing and assurances did exactly what the Bank of Japan did – and the results were exactly the same. We want to believe we aren’t Japan, and yet, we know on some level that we are.

I have no idea if denial is a stage of depression, but we have here all the evidence for it in economic terms.

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