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Cost to Develop New Pharmaceutical Is Now $2.6 Billion – Up from $800 Million, Says Study

Pills The Tufts Center for the Study of Drug
Development has just completed a new study estimating how much it
costs to bring a new pharmaceutical to market. The Center’s 2003
report estimated that the cost per new drug developed between 1983
and 1994 at $800 million. In the analysis, the Center uses data on
a random selection of 106 new drugs developed by 10 pharmaceutical
companies between 1995 and 2007 to calculate the current costs of
getting a new drug across the regulatory finish line. From the

press release:

The $2,558 million figure per approved compound is based on
estimated:

Average out-of-pocket cost of $1,395 million

Time costs (expected returns that investors forego while a drug
is in development) of $1,163 million

Estimated average cost of post-approval R&D—studies to test
new indications, new formulations, new dosage strengths and
regimens, and to monitor safety and long-term side effects in
patients required by the U.S. Food and Drug Administration as a
condition of approval—of $312 million boosts the full product
lifecycle cost per approved drug to $2,870 million. All figures are
expressed in 2013 dollars. …

Factors that likely have boosted out-of-pocket clinical costs
include increased clinical trial complexity, larger clinical trial
sizes, higher cost of inputs from the medical sector used for
development, greater focus on targeting chronic and degenerative
diseases, changes in protocol design to include efforts to gather
health technology assessment information, and testing on comparator
drugs to accommodate payer demands for comparative effectiveness
data.

Lengthening development and approval times were not responsible
for driving up development costs, according to DiMasi.

Genetic Engineering and Biotechnology News further

reported:

At a briefing this morning to announce study results, DiMasi
said the overall clinical approval success rate for new drugs, the
likelihood that a Phase I drug will be approved for marketing,
stood at less than 12% (11.83%). “Approximately seven out of eight
compounds that enter the clinical testing pipeline will fail in
development. Put another way, this says more precisely that on
average, you need to put 8.5 compounds into clinical development to
get one approval.”

That less than 12% percentage rate was lower than a Tufts study
four years ago “the higher failure rate had a substantial impact on
R&D costs. Higher out-of-pocket costs of conducting R&D,
and proportionately more failures in clinical testing are what
really drove the increase in cost per approved new drug.”

Whatever the costs for developing new pharmaceuticals, the price
that patients pay for them is whatever the market will bear. That
being said, if the prices don’t cover the development costs, then
there won’t be more new drugs.

As I have explained earlier, one good way to lower costs is to
reform the clunky hypercautious FDA regulatory system by moving
toward
conditional approval of new drugs after Phase II clinical
trials.

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How The IRS & Homeland Security Are Expanding Undercover Work

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

Those guidelines apply only to the law enforcement agencies overseen by the Justice Department. Within the Treasury Department, undercover agents at the I.R.S., for example, appear to have far more latitude than do those at many other agencies. I.R.S. rules say that, with prior approval, “an undercover employee or cooperating private individual may pose as an attorney, physician, clergyman or member of the news media.”

Across the federal government, undercover work has become common enough that undercover agents sometimes find themselves investigating a supposed criminal who turns out to be someone from a different agency, law enforcement officials said. In a few situations, agents have even drawn their weapons on each other before realizing that both worked for the federal government.

– From the New York Times article: More Federal Agencies Are Using Undercover Operations

If this article doesn’t prove to you without a shadow of a doubt what the prosecutorial priorities of the U.S. federal government are I don’t know what will. I have been railing for years on this site about how the rule of law is dead and buried in the USA. How the “justice” system is targeting average citizens for non crimes, while allowing the large financial criminals responsible for destroying the global economy to get off on DPAs, or deferred prosecution agreements originally crafted to deal with juveniles (see: The U.S. Department of Justice Handles Banker Criminals Like Juvenile Offenders…Literally).

Further proof of this very disturbing trend can be seen in an article published by the New York Times over the weekend. Here are some excerpts:

WASHINGTON — The federal government has significantly expanded undercover operations in recent years, with officers from at least 40 agencies posing as business people, welfare recipients, political protesters and even doctors or ministers to ferret out wrongdoing, records and interviews show.

Wow, impressive. Even more impressive is the continued inability to put a single bank executive behind bars.

At the Supreme Court, small teams of undercover officers dress as students at large demonstrations outside the courthouse and join the protests to look for suspicious activity, according to officials familiar with the practice.

Ah, now we know why no bankers are in jail. Because dissent from the plebs poses a far greater threat to the corporate-fascist state.

At the Internal Revenue Service, dozens of undercover agents chase suspected tax evaders worldwide, by posing as tax preparers, accountants drug dealers or yacht buyers and more, court records show.

At the Agriculture Department, more than 100 undercover agents pose as food stamp recipients at thousands of neighborhood stores to spot suspicious vendors and fraud, officials said.

I guess I must have missed the section about the hundreds of agents embedded in TBTF banks.

Undercover work, inherently invasive and sometimes dangerous, was once largely the domain of the F.B.I. and a few other law enforcement agencies at the federal level. But outside public view, changes in policies and tactics over the last decade have resulted in undercover teams run by agencies in virtually every corner of the federal government, according to officials, former agents and documents.

Some agency officials say such operations give them a powerful new tool to gather evidence in ways that standard law enforcement methods do not offer, leading to more prosecutions.

“Done right, undercover work can be a very effective law enforcement method, but it carries serious risks and should only be undertaken with proper training, supervision and oversight,” said Michael German, a former F.B.I. undercover agent who is a fellow at New York University’s law school. “Ultimately it is government deceitfulness and participation in criminal activity, which is only justifiable when it is used to resolve the most serious crimes.”

At least they are focused on the most serious of crimes. You know, like illegal alcohol and cigarette sales.

At convenience stores, for example, undercover agents, sometimes using actual minors as decoys, look for illegal alcohol and cigarette sales, records show. At the Education Department, undercover agents of the Office of Inspector General infiltrate federally funded education programs looking for financial fraud. Medicare investigators sometimes pose as patients to gather evidence against health care providers. Officers at the Small Business Administration, NASA and the Smithsonian do undercover work as well, records show.

Mr. Hunker said sending federal and local agents undercover to meet with suspected money launderers “is a more direct approach than getting a tip and going out and doing all the legwork and going into a court mode.”

Those guidelines apply only to the law enforcement agencies overseen by the Justice Department. Within the Treasury Department, undercover agents at the I.R.S., for example, appear to have far more latitude than do those at many other agencies. I.R.S. rules say that, with prior approval, “an undercover employee or cooperating private individual may pose as an attorney, physician, clergyman or member of the news media.”

Yes you read that right, IRS agents “appear to have far more latitude than do those at many other agencies.” Must be a reward for targeting conservative political groups.

Oversight, though, can be minimal. A special committee meant to oversee undercover investigations at the Bureau of Alcohol, Tobacco, Firearms and Explosives, for instance, did not meet in nearly seven years, according to the Justice Department’s inspector general. That inquiry found that more than $127 million worth of cigarettes purchased by the bureau disappeared in a series of undercover investigations that were aimed at tracing the black-market smuggling of cigarettes.

Well at least someone is getting paid…

Financial oversight was found lacking in the I.R.S.’s undercover operations as well. Detailed reviews of the money spent in some of its undercover operations took as long as four and a half years to complete, according to a 2012 review by the Treasury Department’s inspector general.

Does it get any more ironic than that?

Across the federal government, undercover work has become common enough that undercover agents sometimes find themselves investigating a supposed criminal who turns out to be someone from a different agency, law enforcement officials said. In a few situations, agents have even drawn their weapons on each other before realizing that both worked for the federal government.

It is impossible to tell how effective the government’s operations are or evaluate whether the benefits outweigh the costs, since little information about them is publicly disclosed. Most federal agencies declined to discuss the number of undercover agents they employed or the types of investigations they handled. The numbers are considered confidential and are not listed in public budget documents, and even Justice Department officials say they are uncertain how many agents work undercover.

Can’t make this stuff up if you tried.

But current and former law enforcement officials said the number of federal agents doing such work appeared to total well into the thousands, with many agencies beefing up their ranks in recent years, or starting new undercover units. An intelligence official at the Department of Homeland Security, who spoke on condition of anonymity to discuss classified matters, said the agency alone spent $100 million annually on its undercover operations. With large numbers of undercover agents at the F.B.I. and elsewhere, the costs could reach hundreds of millions of dollars a year.

As an example of a case the DHS worked on, read this post: “War on Terror” Targets Underwear – Department of Homeland Security Raids Maker of Unlicensed World Series Panties.

A Supreme Court spokesman, citing a policy of not discussing security practices, declined to talk about the use of undercover officers. Mr. German, the former F.B.I. undercover agent, said he was troubled to learn that the Supreme Court routinely used undercover officers to pose as demonstrators and monitor large protests.

“There is a danger to democracy,” he said, “in having police infiltrate protests when there isn’t a reasonable basis to suspect criminality.”

Just another day in the American oligarchy.

via Zero Hedge http://ift.tt/1qmnHmE Tyler Durden

WARNING: new international gang of thieves make the IS and Somali pirates look like amateurs

November 18, 2014
Sovereign Valley Farm, Chile

When the two young petty thieves, Rinconete and Cortadillo, came to Seville they were quickly censured for stealing.

To their surprise, it wasn’t for the theft itself, but instead because they were not registered with the local thieves’ guild.

In this upside-down world imagined by Miguel Cervantes, theft was not a crime, but a craft—performed in the name of God and justice.

And like any other craftsmen of the day, the thieves had formed a guild. There they provided training and support to their members, while maintaining an exclusive right to engage in the trade.

This past month, a real-life guild of thieves was formed. With 51 governments pledging their support to each other for the protection of their ignoble craft of theft. And another 30 pledging to join by 2018.

From day one, governments have been pilfering their citizens’ assets through taxation, claiming a monopoly on thievery.

From the largest institution to the pettiest pickpocket, anyone else who tries to engage in theft is severely punished, as governments work to protect their exclusive right to steal.

Frighteningly, they do this all out in the open, believing that they actually have a moral right to commit theft.

You can see this delusion in the US government’s claims that last year they “lost out” on $337 billion from people avoiding taxes. As if they have some moral claim to the money they’d failed to pilfer.

Nonetheless, they use this claim to justify actively hunting down and penalizing anyone who takes action to avoid being stolen from.

The ones that are doing this are the bankrupt countries, and the deeper they slide into debt, the more desperate they become.

Which is why these broke governments are now joining forces, pledging to to collect and share information amongst themselves about citizens’ bank accounts, taxes, assets and income outside local tax jurisdictions.

Basically—I’ll help you steal from your citizens if you help me steal from mine.

Both the punishment and the likelihood of getting caught for tax evasion are growing. Don’t even bother trying.

However that doesn’t mean that you have no choice but to sit there and let your self be stolen from.

While there are still ways of legally reducing your tax burden from within a country, your best option is to move and diversify.

Diversification is key, because if you have all your eggs in one bankrupt basket, you are really taking on extraordinary risk.

Moving some assets abroad can legitimately reduce some of this risk. And an even greater strategy is considering moving yourself.

Citizens of most countries have the benefit of divorcing themselves from the tax system simply by moving abroad.

It’s a bit more onerous for US citizens. But for Americans living abroad, it’s still possible to earn roughly $100,000 without paying income tax.

In fact, between the Foreign Earned Income Exclusion, Foreign Housing Exclusion, SEP IRA contributions, and more, an American couple can sock away roughly $300,000 per year while paying almost zero income tax.

And if you become a resident of Puerto Rico (which any American can do), it’s possibly to completely eliminate US federal income tax on any amount of money.

By doing so, not only are you taking yourself out of the reach of this gang of thieves, but you are also casting a vote with your feet.

More important than the ballot box, this is a vote that actually counts. And one you have complete control over.

(Don’t worry– if you can’t move, there are still plenty of options to reduce your tax burden and take back your freedom. More on this in upcoming letters.)

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This is Why Rand Paul is Hilary Clinton’s Worst Nightmare

Screen Shot 2014-11-18 at 11.44.02 AM As Hilary Clinton starts to ponder the curtains she wants to hang in the Oval Office, there is only one person who can realistically stand in her way: Rand Paul.

Readers of this site will be well aware that I spend very little time focusing on Presidential politics. There are many reasons for this, but more than anything else, I believe there are two key components to genuine cultural change, and none of them have to do with electing a savior. These are:

1) Knowledge – Ignorance is not bliss. Particularly when it comes to the advance or decline of a civilization. Thomas Jefferson said it best:

Enlighten the people generally, and tyranny and oppressions of body and mind will vanish like evil spirits at the dawn of day.

I am trying to do my own little part in that regard here at Liberty Blitzkrieg.

2) Internal Change – It is much easier to complain about others and the world at large than it is to improve oneself. I’m as guilty of this as anyone, but I am cognizant that you can’t change the outside world unless you have changed what’s inside. Gandhi said it best:

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Alleged Mexican Drug Kingpin Pleads Not Guilty, DOJ Says Arrest Led to Violent Drug Cartel War

Alfredo Leyva Beltran Alfredo Beltran Leyva, allegedly a former leader
of the drug cartel Beltran Leyva Organization,
entered a not guilty plea in federal court in Washington, D.C.
yesterday after being extradited over the weekend from Mexico,
where he was arrested in January 2008. He was indicted by federal
prosecutors in 2012

According to a
Department of Justice release, after his arrest the Leyva
organization blamed another group, the Sinaloa Cartel, for Beltran
Leyva’s capture, causing a “violent war between the two drug
cartels, and the murder of thousands of citizens in Mexico,
including numerous law enforcement officers and officials.”

After his 2008 arrest, the Leyva organization was added to a
“Blocked Persons” list under the Kingpin Act and Beltran Leyva
himself was later “specifically designated… as a specially
designated drug trafficker under the same Kingpin Act.” The DOJ
insists in the same release that Leyva “is presumed innocent unless
and until proven guilty.”

Beltran Leyva’s entered his not guilty plea through a public
defender, according to
the Washington Post, but says his family will provide
him a lawyer. Beltran Leyva’s 2008 arrest did nothing to stem the
flow of narcotics across the Americas, but it did, by the
Department of Justice’s own admission, increase the level of
drug-related violence in Mexico, an expected consequence of a drug
war offensive.

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You have two options. One can bring you a world of opportunity.

November 18, 2014
Santiago, Chile

Walking across a bridge with ornate classical Roman sculptures trimmed in gold,
I turned down a little Italian street to meet up with a friend for lunch.

As the aroma of pizza wafted around me, I couldn’t help but feel that something was out of place.

It wasn’t the food. It wasn’t me. In fact, it was the street itself.

Because despite all the evidence around me, I wasn’t actually in Italy. I was in Tianjin, China.

Here in the midst of sky-high apartment buildings is a little Italian neighborhood, a historical remnant of the days when the port city was sectioned off by the Western powers.

The Middle Kingdom had once been the most technologically and culturally advanced in the world, but from thinking they were at the top, they had stopped trying to learn from those around them.

So confident in their superiority the Chinese elite had no idea how far from the top they’d fallen.

Thus, when Westerners came to Chinese shores seeking to open up trade, they were flatly rejected.

After all, what did these white devils have to offer them? Were the Chinese supposed to be impressed by these cheap, boring pieces of cloth? Anyone could tell that Chinese silks were far superior.

(Remember, at one point it was the British that were the ones with the cheap manufactured goods.)

With better weaponry and cheaper industrial goods the Western powers easily overwhelmed the Qing empire, saddling the government with huge indemnities and forcing the door open for them to enter the country and trade.

Unrest began to stir across the country. In 1900 this culminated in the anti-foreign ‘Boxer Rebellion’ that launched attacks on foreign businesses and people in Northern China.

Eight of the foreign powers united to quash the rebellion, and once they did, the foreign states took the port town of Tianjin and split it amongst themselves as payback.

No person, business, or country likes to find out that they’ve lost their edge. But the sooner that fact is accepted, the quicker they can get to learning and improving in order to regain that dominance.

In that situation there are essentially two options: you can either get angry and try to reject the fact that the world is changing or you can position yourself to take advantage of it.

Choosing the first option, the Boxers’ actions actually led to greater Western control of China. Achieving exactly the opposite of what they’d intended.

Whereas those that decided to work with the foreigners not only survived, but thrived, taking advantage of the influx of capital, knowledge and cheap products.

Deeply submerged in debt and with increasingly slowing economies, the US and Europe are facing the same two options today as China did merely a century earlier.

Rather than the Italian Concession in Tianjin, we are now seeing an influx of Chinese to Italy.

Businesses that can’t keep up with the heavy regulatory and tax burdens imposed by the Italian government are looking to sell, and the Chinese have the capital and interest to buy.

So while the economy may look bleak in Italy, thanks to globalization there is still an abundance of business opportunities there.

Take for example the three guys who created http://ift.tt/1bhWkBz, which quite literally means “sell to Chinese”. The concept is simple—to help connect the Italian sellers of businesses, real estate and etc. with the Chinese market—and they’re doing great.

The simple shift in attitude, to view outsiders as an opportunity rather than a threat creates a new whole world of possibilities. Those who do that stand to profit most.

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How to Make a Million Dollars From Owning Stocks… Become a Fed Chairperson

Imagine… if you could press a magic button… and your wealth expanded by hundreds of thousands…if not millions of Dollars.

Imagine the power you’d feel… not to mention the financial security… knowing that at any point, if things get shaky with your investment portfolio, you could simply hit that button (or sometimes just promise to hit that button to the world) and you become richer virtually overnight.

For most people this is nothing more than a pipe dream. For the officials at the Federal Reserve, it’s a reality.

As everyone now knows… the Fed’s monetary policies are directly aimed at pushing the stock market higher. After all, the Fed’s own research shows QE to be a complete failure at generating jobs or GDP growth. And if you divide the NYSE by the Fed’s balance sheet, you get a straight line, showing that all stock gains are directly correlated to the Fed’s balance sheet expansion.

Lost amidst the pages of research written about this is the fact that Janet Yellen and most officials have profited personally from this.

Indeed, since 2011, Yellen’s net worth has risen somewhere between $900,000 and $1.7 million.

And the bulk of the money she made came from her investments in stocks.

1. In 2011, Yellen between $4.4 million and $12.4 million in assets (her financial disclosures are presented in a range).

2. As of 2012, Yellen had between $4.8 and $13.2 million in assets.

3. By 2013, Yellen’s had between $5.3 million and $14.1 million in assets.

It’s extraordinary, really. Can you imagine how Yellen must feel having made over a million dollars from her investments… investments which directly profited from her decisions as Fed Vice-Chair (2010-2014) and Chair (early 2014 to the present)?

Yellen is not alone by any stretch. Most Fed Presidents (the very folks who vote on whether or not the Fed should engage in more money printing…and who also decide to appear on TV or give speeches talking about engaging in more money printing) have profited handsomely from the stock market rising.

The rest of America… not so much. According to data from the Federal Reserve, only 13.8% of US families own individual stocks. Granted that’s individual stocks… but even if you include 401Ks and other stock-based retirement plans through which Americans have indirect exposure to stocks, you’re still talking about less than half of the US (48%) profiting from the Fed-fueled market rally.

So… QE has failed to boost employment, failed to create sustainable job growth, and has benefitted less than half of Americans even by the most liberal estimates possible… just why did the Fed spend over $3.5 trillion again?

If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis "Round Two" Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.

You can pick up a FREE copy at:

http://ift.tt/1rPiWR3

Best Regards

Phoenix Capital Research

via Zero Hedge http://ift.tt/1t277Us Phoenix Capital Research

Hugh Hendry: “I Believe Central Bankers Are Terrified”

It was almost a year ago when Hugh Hendry shocked the world when he announced he was, said simply, turning bullish (his full recantation can be found here), even though as he admitted he “Can’t Look At Himself In The Mirror.” Which was understandable: in a world where markets as many know them (if not the current generation of BTFD and BTFATH traders) no longer exist and have been replaced by centrally-planned “markets” where rising asset levels are not a byproduct of capitalism but a policy tool, Hendry – a person who makes money by managing assets and generating alpha by outperforming the market – did the one thing that would keep his job: he joined the herd of momentum traders to whose lowest common denominator the world’s central banks have been pandering ever since 2009.

Some of the pearls of wisdom uttered by Hendry at the time showed just how profound a change in his worldview he was undergoing:

“I can no longer say I am bearish. When markets become parabolic, the people who exist within them are trend followers, because the guys who are qualitative have got taken out,” Hendry said.

…

“I have been prepared to underperform for the fun of being proved right when markets crash. But that could be in three-and-a-half-years’ time.”

…

“I cannot look at myself in the mirror; everything I have believed in I have had to reject. This environment only makes sense through the prism of trends.”

…

“You have got to be in things that are trending.”

…

“We want to believe markets go up because the economy is improving, because corporate cashflows are improving. But when you get monetary disturbances creating loops, it does not really matter.”

As we noted back then, “Sadly, his last statement is just the latest confirmation that in the New Centrally-Planned Normal, FOMO or Fear of Missing Out (the trend, the media appearance, the herd, the year end bonus, you name it) is indeed the new POMO as we warned in May” of 2013.

And while Hendry flip-flop was perfectly understandable, sadly his attempts to generate alpha in a “parabolic” market, where he was merely chasing the trend, did anything but succeed. Perhaps that has to do with the fact that he decided to buy 3D printing stocks and Bitcoin…

Hendry has bought 3D printing stocks as a play on trend-driven, QE-fuelled equity markets, and said the rise in the valuation of Bitcoin amounts to “the same thing”.

All US-listed 3D printing stocks are trading on at least 50 times earnings, but Hendry said he has little concern over the sector’s sky-high valuations. “We are in 3D printing stocks. I say to my team ‘don’t tell me the valuations, it is trending.”

… although in retrospect perhaps someone should have told him the valuation because he jumped on the bandwagon just as printers, and Bitcoin, both hit all time highs.

In turn this led to our observations, just a month later that “Hugh Hendry Suffers Biggest Monthly Loss Since Inception” and then, two months ago, that “Hugh Hendry Is Not Having A Good Year.“

So where is Hendry now, and has he thrown in the towel on his bullish phase also? Well, after a horrible period for his fund, Eclectica is now up some 2.6% through November, having risen over 7% in September and October. Still, hardly the return a self-respecting, or not as the case may be, “momentum chasing, trending” bull should generate in a market in which all central banks are now all in, and where even a semi-correction launches verbal and CTRL-P interventions by the world’s money printers.

For those curious about the nuances of his performance, here is his latest summary exposure:

And his recent VaR, because nothing shouts desperation to outperform a “trending” benchmark, or Sharpe ratio for that matter, than putting one’s value at risk into overdrive:

And his most recent letter to investors:

The Fund is now up 2.6% on the year and, despite running a net long equity book that has exceeded 1x NAV for the past few weeks, we succeeded in weathering a particularly volatile October with rather dramatic intra month price declines in the major equity indices to post another gain of 4.0%. We have now made money in each of the last three months. Therefore, contrary to what you may have heard, our spirits are high and our risk taking is increasingly paying off.

My premise hasn’t really changed since I published my paper explaining why I had become more constructive towards risk assets this time last year. That is to say, the structural deficiency of global demand continues to radicalise the central banking community. I believe they are terrified: the system is so leveraged and vulnerable to potentially systemic price reversals that the monetary authorities find themselves beholden to long only investors and obliged to support asset prices.

However, I clearly confused everyone with my choice of language. What I should have said is that investors are perhaps misconstruing rising equity prices as a traditional bull market spurred on by revenue and earnings growth, and becoming fearful of a reversal, when instead the persistent upwards drift in stock markets is more a reflection of the steady erosion of the soundness of the global monetary system and therefore the rise in stock prices is something that is likely to prevail for some time. There is more to it of course, as I will attempt to explain, but not much.

This should be a great time to be a macro manager. It is almost without precedent: the world’s monetary authorities are targeting higher risk asset prices as a policy response to restoke economic demand. Whether you agree with such a policy is irrelevant. You need to own stocks. And yet, remarkably, the most contentious thing you can say in the macro world today is “I’m bullish”.

In a world dominated by the existentialist angst of identifying and trading qualitative value, there is profound mistrust of equity values today; macro investors see prices as overvalued and few are willing to capitalise on the opportunities to make money. This angst and fear of big drawdowns in risky assets in part reflects astonishment that policy makers were able to rescue investors from the folly of their misallocations in the years preceding 2008 and that stocks have massively outperformed the modest rise in global nominal GDP. I should know. I, like others, became a moraliser who just couldn’t forgive the Fed for bailing out Wall Street. I read one “death of money” polemic after another and luxuriated in the work of people like Marc Faber, James Grant, Nassim Taleb, Raoul Pal and Albert Edwards. I became a moral curmudgeon rather than a money maker.

As you know, I have sought to overcome this deficiency. However my risk controls, or rather my procedures for dealing with big monthly losses, seemed to anchor me to the bearish camp (against my better wishes). No-one wants to lose more than 5% in any one month (for the record, we have recorded only 9 such months over the Fund’s previous 144). But typically this has entailed selling when there has been a spike in volatility; since the end of last year I have been a bull that had to sell for lower prices. No wonder I couldn’t make you money. But perhaps you don’t need such reactive stop loss policies when the world’s central banking community is intent on protecting you; which is to say, I needed to apply greater risk tolerance and intervene less often.

You are not convinced? Japan was down 16% from its highs earlier this year. I was particularly long Japanese equities at the start of the year and so at some point, fearing greater losses, I swallowed my pride and booked a loss. However, the ongoing policy intentions of the BoJ meant that the stock market clawed back all of its losses. Why did I sell?

European stocks fell almost the same over the summer but again the ECB upped its ante, pushed short term rates negative, tolerated a weaker currency and promised to re-stock its balance sheet with more local risk asset purchases. Lo and behold, European stock prices recovered sharply in August and early September. So why did I reduce my holdings?

October is simply another example. US stocks fell over 10%. I don’t really know why. Was it the threat of the end of QE or a global pandemic or more misgivings as to the state of affairs in Greece and Europe’s enduringly weak economy? It doesn’t really matter. Such is the perceived risk in the financial system that enough investors now anticipate a policy response whenever the S&P falls more than 10%. This ensured that shorts were covered and volatility sold in mid-October. The fixed income market’s expectations for hawkish future Fed rate hikes evaporated with stock price weakness and other risk markets soon rallied; the S&P is now back to its all-time high.

Pity the macro manager then who had to stop loss mid-month; that used to be me. But I widened my tolerance for loss. We have no desire to lose money but unless something tangible happens to challenge our narrative we are less willing to automatically reduce our risk taking in response to modest, if rapid, short term market gyrations. Making money requires making the right calls of course but just as importantly it necessitates that we provide trades with enough breathing space to develop and hopefully prosper.

So why all this enthusiasm for upside equity risk?

To my mind the current period is analogous to the Plaza Accord of 1985 when central bankers agreed to intervene in the currency market to drive the value of the dollar lower. The fast moving world of FX was deemed a more expeditious way of correcting for the huge US current account deficit than the laborious and slow process of waiting for the totality of countless micro wage and productivity deals to rectify the yawning trade gap. No one really knew for sure how high the yen or Deutsche Mark should trade back then but this didn’t stop macro managers from being very long such positions.

The FX market tends to take the US Supreme Court view. Overruling an obscenity charge for showing a salacious French movie in Ohio in 1964, Justice Potter Stewart wrote that the Constitution protected all obscenity except hard core pornography. Unwilling to define the latter, the judge maintained that he would know it when he saw it. And likewise currency values; you just know the wrong ones when you see them. This is to say that the market becomes more treacherous once the imbalances of the primary economic transactions (the US current account) show signs of improving from the remedy of the price changes engineered via the relative currency movements.

Which is a rather long preamble to describe what I believe is a very analogous central banking intervention in today’s financial markets. It would take just too long for the Fed, ECB or the BoJ to rely on a return of animal spirits in the real economy to lift their flagging economies. They need the remedy of fast moving risk asset prices. By using QE to promote more risk taking, asset values in the US have risen faster than fundamentals and, with better perceived collateral and more confidence, the demand for risk taking in the real economy has recovered somewhat. At a lag, the theory runs, so will the rate of expected inflation.

So I think we find ourselves especially in Europe (and Japan) with a situation whereby the central bank has to use all of its powers to engineer higher stock and bond prices. And I think the precarious nature of France and the election timetable in 2017 means that they need higher European stock and bond prices NOW or there will be no economic recovery, budget deficits will continue to overshoot 3% and the Euro area will get trapped in the poisonous and perpetual cycle of having to demand more and more unpopular austerity measures. This is high stakes: boost European stock prices or risk losing France and the euro. To my mind the message is simple: don’t short French bonds, buy European stocks and short the euro.

It will only become a bubble when slow moving price inflation and real wages start moving; we’re obviously nowhere close to that just now in Europe (or in Japan) and hence my large net long.

via Zero Hedge http://ift.tt/1xAsnaO Tyler Durden

Rejected for Being Asian: Students Sue Harvard, UNC Over Race-Based Admissions

Harvard Harvard University and the University of North
Carolina at Chapel Hill are facing lawsuits over their race-based
admissions schemes, which hold Asian and white students to higher
standards because of their skin color.

The lawsuits were filed Monday by a group of interested parties,
including two unnamed college students who were rejected from
Harvard and UNC. According to Inside Higher Ed, the
Harvard applicant is of Asian ethnicity: He had a perfect ACT
score, two 800s on SAT II subject exams, and was valedictorian of
his high school. He didn’t get in.

Remarkably, Harvard has managed to keep its Asian student
population constant over the years, while universities that don’t
consider race as an admission factor have seen more and more Asians
gain admittance. According to
Inside Higher Ed:

What Harvard calls a holistic approach to admissions (in which
applicants are reviewed individually, with a range of criteria
considered) is actually a disguise for racial balancing in a system
where Asian Americans are held to higher standards for admission,
according to the lawsuit. As evidence, the lawsuit says that the
racial demographics of Harvard’s admitted class, first-year
enrollment and total student body have remained stable over the
last several years. …

“In light of Harvard’s discriminatory admissions policies,
[Asian Americans] are competing only against each other, and all
other racial and ethnic groups are insulated from competing against
high-achieving Asian Americans,” the lawsuit reads.

The Supreme Court has previously upheld racial considerations in
university admissions, but the recent Fisher v. University of
Texas at Austin decision in 2013 further limited the
permissible uses of affirmative action. Plaintiffs believe UNC’s
admissions system would fail the Fisher rationale. It’s
also conceivable that the Court would rule affirmative action
entirely unconstitutional if presented the right kind of case.

Who can defend abject racial discrimination against Asians?
Harvard’s administrators and some of its faculty can. One professor
even had the gall to suggest that discriminating against Asians is
good for Asians. According to Fox
News:

“Asian-American students benefit greatly from attending the
racially and socio-economically diverse campuses that affirmative
action helps create,” Julie Park, assistant professor of education
at the University of Maryland and author of the book “When
Diversity Drops,” told FoxNews.com.

I should think Asian-Americans wold be better served by a
non-discrimination policy. All student applicants should have the
same right to a colorblind evaluation of their academic merits.
With any hope, the sinister justifications offered by Park and
others are becoming less compelling to the voting public, as well
as the courts that will adjudicate lawsuits like this one.

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Destroying The Myth That Lower Gas Prices Boost Consumption

Submitted by Lance Roberts via STA Wealth Management,

The recent plunge in oil prices has brought both optimism and pessimism to the economic landscape. Anyone who lives in Houston, as I do, knows that the price of oil is an important driver of the economic landscape. The plunge in oil prices in the 1980's is a solemn memory for many Houstonians, particularly for those in the oil patch that lived through it.

The problem with falling oil prices, economically speaking, is that oil and gas production make up a hefty chunk of the "mining and manufacturing" component of the employment rolls. Since 2000, when the oil price boom gained traction, Texas has comprised more than 40% of all jobs in the country according to first quarter data from the Dallas Federal Reserve.

Higher oil prices have led to more employment as energy companies explored and developed more aggressively. This has particularly been the case since the financial crisis as cheap financing has lead to an exploration "boom" in "shale fields." However, as I discussed recently, there is a dark side to that "miracle".

"First, the development of the “shale oil” production over the last five years has caused oil inventories to surge at a time when demand for petroleum products is on the decline as shown below."

The drop in demand is being driven, no pun intended, by a change in demographics, a rise in telecommuting, a structural shift in unemployment (large pool of working age individuals outside of the labor force) and increases fuel efficiency. These dynamics are likely not to change in the foreseeable future as economic growth rates globally continue to "muddle along."

The obvious ramification of the surge in supply as demand stagnates is a “supply glut” which leads to further declines in oil prices. As prices fall, energy related business cut production by “shutting in” wells, cutting capital expenditure plans (which makes up almost 1/4th of all capex expenditures in the S&P 500), freezes and/or reductions in employement, and declines in revenue and profitability. Of course, the "ripple effect" of those actions impacts all of the related and ancilliary businesses from piping to coatings, trucking and transportation, restaurants and retail.

Do Lower Gasoline Prices Lead To Higher Consumption

The optimistic argument is that lower oil prices lead to lower gasoline prices that gives consumers more money to spend. The argument seems to be entirely logical since we know that roughly 80% of households in America effectively live paycheck-to-paycheck meaning they will spend, rather than save, any extra disposable income.

This argument is easy to prove by just comparing the annual change in inflation-adjusted (real) disposable incomes (DPI) to real gasoline prices. As gasoline prices fall, DPI should rise and vice-versa. However, as shown in the chart below this has not been much of the case.

Most of the changes in DPI have come from tax law changes, increases in welfare dependency and changes to actual compensation. As an example, the spike in DPI at the end of 2012 was due to massive dividend and bonus payouts in advance of the "fiscal cliff" tax changes rather than the drop oil prices. Importantly, the annual rate of change in DPI has been on the decline since the 1998 peak.

The follow up argument for lower gasoline prices is higher levels of spending by consumers. Again, this is easy enough to analyze by looking at real gasoline prices compared to retail "control purchases." I am using "control purchases" as it removes retail gasoline sales, automobiles, and building materials from the retail sales number to focus more on what consumers are buying on a regular basis.

As with DPI, the argument suggests that falling gasoline prices should lead to a rise in the annual rate of change in retail sales. The vertical orange line shows peaks in gasoline prices which should correspond to a subsequent increase in retail sales.

However, "retail sales" is only about 40% of the Personal Consumption Expenditure (PCE) number that comprises roughly 2/3rds of the economic GDP calculation. Therefore, we can also analyze falling gasoline prices as it relates to total PCE. Again, falling gas prices should lead to increases in PCE.

While the argument that declines in energy and gasoline prices should lead to stronger consumption sounds logical, the data suggests that this is not actually the case. With consumers heavily leveraged already, any increases in disposable incomes from lower gasoline prices are likely negligible in terms of their monthly spending.

Furthermore, as I predicted back in August, the onset of another extremely cold winter will likely detour any savings from lower gasoline prices into higher electricity and heating oil costs.

The most critical impact of a sustained decline in energy prices, at a time when the US dollar is rising, is a deterioration in the economic foundation. Exports of goods and services, which comprise about 40% of S&P 500 profits, are already under pressure from a surging U.S. dollar. Combine that with a sustained decline in oil prices that leads to cutbacks in capex, employment and incomes and you have the potential for substantially weaker economic growth than currently estimated.

The risk to investors is that with financial markets already pushing extremes in terms of bullish sentiment, complacency and valuations, there is little room for disappointment. As John Hussman recently penned:

"Importantly, rich valuations here cannot be 'justified' by appeals to current interest rates or profit margins unless that justification carries with it the assumption that both zero interest rate policy and cyclically-elevated profit margins will be sustained for decades, coupled with the assumption that economic growth will proceed at historically normal rates."

John is right. While interest rates can surely remain suppressed for decades, particularly when economies are caught in a "liquidity trap" like Japan, however, profit margins are extremely "mean reverting." The decline in oil prices is important to watch as energy has a broad reach across the economic spectrum and the financial markets.

via Zero Hedge http://ift.tt/1urfwnA Tyler Durden