Japanese GDP fell for the 2nd quarter in a row making it official – as we warned a month ago – that Japan has entered a triple-dip recession. Againstr hope-strewn expectations that the rebound from a sales-tax-driven slump would create a magical 2.2% (annualized) expansion, Japanese GDP slumped 1.6% in Q3 – missing by the most since March 2011. So no tax increase… and thus fiscal responsibility goes out the window. Abe dissolves government and bails on another failure? The initial kneejerk reaction sent USDJPY surgiung back over 117.00 (and NKY followed0 but that has quickly reversed and NKY futures are 200 off their highs.
Abenomics – FTMFW!!!
The full breakdown…
Which left this reaction…
We can’t wait for the spin… buy Japanese satocks because they are in recession which means so much more pent-up demand when Abenomics really works? Oh and by the way… Kuroda just fired his biggest bazooka ever so don’t expect any monetary policy reaction to this.
While the central banks of the world have yet to directly unleash the helicopter drop of free money to the end-consumer, preferring instead to seek financial asset inflation (and all its unintended consequences), it appears there is another way to get 'free money' direct to the average Joe… "ATM Jackpotting." According to Wired, using a special button sequence and some insider knowledge, it is possible to reconfigure ATMs to believe they are dispensing one dollar bills, instead of the twenties actually loaded into the cash trays. Though industry sources claim this to be rare, they note that "independent operators and financial institutions are very tight lipped about this sort of thing."
When a small-time Tennessee restaurateur named Khaled Abdel Fattah was running short of cash he went to an ATM machine. Actually, according to federal prosecutors, he went to a lot of them. Over 18 months, he visited a slew of small kiosk ATMs around Nashville and withdrew a total of more than $400,000 in 20-dollar bills. The only problem: It wasn’t his money.
Now Fattah and an associate named Chris Folad are facing 30 counts of computer fraud and conspiracy, after a Secret Service investigation uncovered evidence that the men had essentially robbed the cash machines using nothing more than the keypad. Using a special button sequence and some insider knowledge, they allegedly reconfigured the ATMs to believe they were dispensing one dollar bills, instead of the twenties actually loaded into the cash trays, according to a federal indictment issued in the case late last month. A withdrawal of $20 thus caused the machine to spit out $400 in cash, for a profit of a $380.
The first $20 came out of one of their own bank accounts. That’s right: They were using their own ATM cards.
In a city filled with slot machines spilling jackpots, it was a “jackpotted” ATM that got the most attention Wednesday at the Black Hat security conference, when researcher Barnaby Jack demonstrated two suave hacks against automated teller machines that made them spew out dozens of crisp bills.
The audience greeted the demonstration with hoots and applause.
In one of the attacks, Jack reprogrammed the ATM remotely over a network, without touching the machine; the second attack required he open the front panel and plug in a USB stick loaded with malware.
Jack, director of security research at IOActive Labs, focused his hack research on standalone and hole-in-the-wall ATMs — the kind installed in retail outlets and restaurants. He did not rule out that bank ATMs could have similar vulnerabilities, but he hasn’t yet examined them.
To demonstrate, Jack punched keys on the keypad to call up the menu, then instructed the machine to spit out 50 bills from one of four cassettes. The screen lit up with the word “Jackpot!” as the bills came flying out the front.
…
To conduct the remote hack, an attacker would need to know an ATM’s IP address or phone number. Jack said he believes about 95 percent of retail ATMs are on dial-up; a hacker could war dial for ATMs connected to telephone modems, and identify them by the cash machine’s proprietary protocol.
But at the street level, criminals have exploited a simpler vulnerability that requires no hacking software or gear…
Unlike the machines deployed at brick-and-mortar bank locations, kiosk ATMs could be placed into a privileged “operator mode” simply by pressing a special sequence of buttons on the ATM keypad.
From that mode, you could manipulate a number of variables—one of which sets the denomination of the bills loaded into the machine’s currency cartridges.
A supposedly secret six-digit numeric password protects the Operator Mode, but in the Nashville case, one of the defendants, Fattah, was a former employee of the company that operated the machines, says the Secret Service’s Mays, so he knew the code.
Currency switching capers appear to be rare now, says David Tente, executive director of the ATM Industry Association, though hard data is difficult to come by.
“Nobody likes talking about fraud, especially when it’s against them,” Tente says. “Independent operators and financial institutions are very tight lipped about this sort of thing.”
But there’s some evidence that operator passcodes are still an issue, he notes. Last June, two 14-year-old boys in Winnipeg followed internet instructions to gain operator access to a Bank of Montreal ATM at a grocery store, successfully guessing the six digit master passcode. The boys immediately notified the bank, which changed the code.
Who knows how many ATM hackers have been less scrupulous?
I got this from Naked Capitalism. Before presenting the chart, here are some words to bear in mind from Yves Smith:
Short omits some key elements from his discussion. One is that until recently, a profit share of GDP of 6% was perceived to be a cyclical peak; no less than Warren Buffet deemed a higher level to be unsustainable. And in fact, we see an explosion of profit share from 6% to 10% of GDP in the runup to the crisis, roughly from 2003 to 2007. The “rescue the banks and financial markets” measures succeeded in bringing the profit share back to its pre-crisis levels, at the expense of workers.
Notice the inflection point in profit share is 1987, when Greenspan became Fed chairman. Correlation may not be causation, but the timing is almost exact.
The Maestro strikes again!
Don’t worry plebs, it’ll get better next year. Just keep calm and slave on.
This week’s G-20 Meeting… Obama front-and-center between China’s Xi and Brazil’s Rousseff (just in front of Britain’s Cameron) with Putin almost out of shot
A rubber band can remain stretched for some time, but it takes some force to keep it stretched.
The consensus is anticipating a smooth sleigh ride for Santa's traditional stock market rally from November to year-end. But the rubber band of the current rally is looking quite stretched, and there's a distinct possibility the rubber band snaps and Santa's rally hits a rough patch and overturns, distributing lumps of coal rather than additional equity gains.
Exhibit 1: The Russell 2000 index (RUT). It's hard not to notice that MACD is about to cross in a bearish signal, and that the stochastic has already crossed and is heading south.
Then there's the open gaps below, which tend to get filled despite endless claims that "this rally is different." Yes, of course it is.
At the previous top, the RUT noodled around in a trading range for a couple of weeks, reaching for a breakout that quickly failed.
The RUT has repeated the pattern rather neatly: two weeks of going nowhere (a.k.a. distribution), and a breakout that quickly reversed.
It's also interesting that the RUT's runs seem to last around 20 days or so. The downturn in October lasted about 22 days, and the current run-up is stretched tight at 24 days.
Exhibit 2: the volatility index (VIX). As Zero Hedge has noted, the VIX exhibits a peculiarity at the close of each trading session: it drops precipitously in the waning minutes of trading, and equally magically, stocks pop up to close positive for the day.
That this sudden slam at the close has happened every day this past week must be coincidence–right?
Meanwhile, we see the stochastic has turned up and the MACD is poised to cross as well. The huge gap yawning around 24 is meaningless to complacent kiddies awaiting more equity-gain goodies from Santa. What's the basis of this confidence that volatility has been eradicated? This rally is different. Yes, of course it is.
Mr. VIX keeps getting slammed at day's end, but he still managed to notch an uptrend:
A rubber band can remain stretched for some time, but it takes some force to keep it stretched. In this case, the force is the daily VIX body-slam and the resulting pop up in equities. This has worked to keep RUT and its cousins aloft for several weeks of going nowhere, but the chart suggests all the kiddies who are supremely confident that Santa will deliver more equity gains might find their complacency is not rewarded.
The last thing Obama needed brought up during the just concluded G-20 conference, where world leaders generously agreed to boost global GDP by $2 trillion (let’s all hold our breath while they “just go find a cash machine“) while bashing Putin pretty much non-stop for 48 hours to the point where the Russian leader left early (due to “lack of sleep“), was the whole “Gruber thing”, i.e., the recent revelations that the architect of the “Affordable” Care Act, Jonathan Gruber, relied on the “stupidity of American voters” to pass Obamacare. Sadly for the American president, not even halfway around the world could he get away from the humiliation that has clouded his one and only domestic policy “success” in his 6 year tenure.
Alas, a question about Grubergate is precisely what Obama got when after preaching about “accountability to the people”, a member of the press asked the head of the “most hypocritical transparent administration ever” if Obama “misled Americans” about the taxes and about keeping the plan “in order to get the bill passed?”
Obama’s response:”No, i did not.” This was Obama’s conclusion after he had just gotten “well-briefed before he came out here.” Indeed, nothing escapes the American president who continued: “The fact that some adviser who never worked on our staff expressed an opinion that I completely disagree with in terms of the voters is no reflection on the actual process that was run.”
Obama’s argument in a nutshell: “we had a lengthy argument” in the US about Obamacare. True, one that was rammed down the throats of Americans as a tax courtesy of the Supreme Court: a decision that as we now know relied on the stupidity of the American voters. Apparently, one that also relied on the partisan nature of the Supreme Court. But it’s ok, because the misleading was done not by the architect of Obamacare but, suddenly, just “some advisor who never worked on our staff.”
Unfortunately, because Obama apparently wasn’t briefed quite as well as he would have hoped, let’s just take a look at what Dr. Gruber did do.
On March 25, 2009, HHS awarded a contract to Dr. Jonathan Gruber, an economist at the Massachusetts Institute of Technology, to “produce a series of technical memoranda on the estimated changes in health insurance coverage and associated costs and impacts to the government under alternative specifications of health system reform.” [3] HHS Contract No. HHSP233200900181P, at 3. The contract required Dr. Gruber to consult with senior HHS officials “to develop detailed specifications of alternative proposals to increase health insurance coverage” and to use the specifications to “develop estimates of the change in the number of individuals with health insurance coverage . . . and the costs to the government and the private sector associated with these estimated changes in coverage.” Id. This was a firm, fixed-price contract for $95,000. Id., at 1. On June 19, 2009, HHS awarded another firm, fixed-price contract to Dr. Gruber for similar services for $297,600. HHS Contract No. HHSP23320094301EC.
…
Subsequent to the award of the HHS contracts, Dr. Gruber authored opinion pieces on health care policy that were published in national newspapers. E.g., Jonathan Gruber, Reform requires consumer pressure, Boston Globe, Sept. 3, 2009, at 17; Jonathan Gruber, A Loophole Worth Closing, N.Y. Times, July 12, 2009, at WK-10. Several media outlets quoted Dr. Gruber in articles regarding health care policy. E.g., Alec MacGillis, Would Tax on Benefits Rein In Spending?, Washington Post, July 30, 2009, at A1; Lisa Wangsness, Mass. health overhaul offers lessons for US program; Employees not being dumped on public plan, Boston Globe, July 10, 2009, at 2. In 2009, Dr. Gruber twice testified before a Senate committee on health care policy issues. Increasing Health Costs Facing Small Businesses: Hearing before the Senate Committee on Health, Education, Labor, and Pensions, Nov. 3, 2009, video available at http://ift.tt/1EO1oY7; Healthcare Reform: Hearing before the Senate Committee on Health, Education, Labor, and Pensions, June 11, 2009, available at http://ift.tt/1EO1oY7.
…
At issue here is whether HHS violated the prohibition against using appropriations for publicity or propaganda purposes when it awarded the contract for technical assistance and when it used appropriated funds to produce and air the television advertisements. The applicable prohibition states that “[n]o part of any appropriation contained in this or any other Act shall be used directly or indirectly, including by private contractor, for publicity or propaganda purposes within the United States not heretofore authorized by Congress.”[7]
In other words Obama is right that Gruber wasn’t part of the administration. He was nothing short than a well-paid propaganda tool designed to take advantage of, in his own words, American stupidity.
Did we say well paid? We meant very well paid. To wit:
Because it suddenly becomes all too clear that Gruber was indeed telling the truth: only a nation full of idiots would pay a lying, self-serving propaganda tool nearly $2 million for nothing but constant lies.
Last week, President Obama came out in favor of
reclassifying the Internet under Title II of the Telecommunications
Act. That’s a tighter level of regulation than the current Title I
and the switch is one of the rallying cry of many who are calling
for Net Neutrality. Proponents of Net Neutrality and Title II
reclassification contend that more regulation of companies such as
Comcast and Time Warner is the only to keep the Internet as free
and wide open as it has been…without such rules. Net Neutrality
advocates are especially worried about “fast lanes” or “paid
prioritization” in which some Internet services or customers would
be forced to pay ISPs in order to make sure streaming video and
other services get to users smoothly.
In a Time piece from last week, I argue that such fears are
overblown. Snippets:
Let’s leave aside the inconvenient fact that reclassification
under Title II wouldn’t
actually prevent “paid prioritization” deals, that ISPs
are constantly managing online traffic in all sorts of ways to keep
users happy, and that the FCC’s legal standing to regulate the
internet is far from a
settled matter. The real question is whether experiments in
delivering content and services would necessarily be bad for the
rest of us (I write as a Netflix subscriber, the editor of web and
video sites, and an Internet junkie)….
The answer is no. Clemson University
economic historian Thomas W. Hazlett defines Net Neutrality as
“a
set of rules…regulating the business model of your local ISP.”
The definition gets to the heart of the matter. There are specific
interests who are doing well by the current system and they want to
maintain the status quo via government regulations. That’s
understandable but the idea that the government will do a good job
of regulating the Internet (whether by blanket decrees or on a
case-by-case basis) is unconvincing, to say the least. The most
likely outcome is that regulators will freeze in place today’s
business models, thereby slowing innovation and change….
According to the FCC’s own
findings, the speed and variety of American Internet
connections are growing substantially every year. Despite claims
that monopolistic ISPs don’t have to listen to customers, 80% of
households have at least two providers that can deliver the
internet at 10Mbps or faster, which is FCC’s top rating. It’s in
the increasingly intense battle over customers that a thousand
flowers will bloom; all sorts of interesting, stupid, and dumb
innovations will be tried; users will be empowered; and tomorrow’s
Internet will look radically different from today’s.
As the G-20 meeting comes to a ‘successful’ end with back-patting congratulations having agreed to create $2 trillion more GDP out of thin air (or maybe hookers and blow), it appears that someone – or more than one – among these nations was less than diplomatic towards every nations’ best friend – America. As AP reports,The State Department has taken the unprecedented step of shutting down its entire unclassified email system as technicians repair possible damage from a suspected hacker attack. Earlier attacks have been blamed on Russian or Chinese attackers, although their origin has never been publicly confirmed.
The State Department has taken the unprecedented step of shutting down its entire unclassified email system as technicians repair possible damage from a suspected hacker attack.
A senior department official said Sunday that “activity of concern” was detected in the system around the same time as a previously reported incident that targeted the White House computer network. That incident was made public in late October, but there was no indication then that the State Department had been affected. Since then, a number of agencies, including the U.S. Postal Service and the National Weather Service, have reported attacks.
The official said none of the State Department’s classified systems were affected. However, the official said the department shut down its worldwide email late on Friday as part of a scheduled outage of some of its internet-linked systems to make security improvements to its main unclassified computer network. The official was not authorized to speak about the matter by name and spoke on condition of anonymity.
The official said the department expects that all of its systems will be operating as normal in the near future, but would not discuss who might be responsible for the breach. Earlier attacks have been blamed on Russian or Chinese attackers, although their origin has never been publicly confirmed.
The State Department is expected to address the shutdown once the security improvements have been completed on Monday or Tuesday.
The US Dollar rally is at risk of blowing up a $3 trillion carry trade.
When the Fed cut interest rates to zero in 2008, it flooded the system with US Dollars. The US Dollar is the reserve currency of the world. NO matter what country you’re in (with few exceptions) you can borrow in US Dollars.
And if you can borrow in US Dollars at 0.25%… and put that money into anything yielding more… you could make a killing.
A hedge fund in Hong Kong could borrow $100 million, pay just $250,000 in interest and plow that money into Brazilian Reals which yielded 11%… locking in a $9.75 million return.
This was the strictly financial side of things. On the economics side, Governments both sovereign and local borrowed in US Dollars around the globe to fund various infrastructure and municipal projects.
Simply put, the US Government was practically giving money away and the world took notice borrowing Dollars at a record pace. Today, the global carry trade (meaning money borrowed in US Dollars and invested in other assets) stands at over $3 TRILLION (larger than the economy of France).
This worked while the US Dollar was holding steady. But in the Summer of this year (2014), the US Dollar began to breakout of a multi-year wedge pattern:
Why does this matter?
Because the minute the US Dollar began to rally aggressively, the global US Dollar carry trade began to blow up. It is not coincidental that oil commodities, and emerging market stocks took a dive almost immediately after this process began.
This process is not over, not by a long shot. As anyone who invested during the Peso crisis or Asian crisis can tell you, when carry trades blow up, the volatility can be EXTREME.
The market drop in October was just the start. Once the US Dollar rally really begins picking up steam, we could very well see a crash.
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The inevitable result of the centrally planned Asian Miracle Model is credit bubbles and the crippling misallocation of capital in Building Bridges to Nowhere.
Japan’s extraordinary rise from the ashes of World War II created an “Asian Miracle” template that other Asian nations have followed, and continue to follow.The outlines of the model are straightforward.
The growth engine is export-dependent mercantilism: organize the economy to prioritize exports at the expense of domestic income and consumption. The central government manages the mercantilist project in conjunction with favored cartels or state-owned enterprises (SOEs). In other words, The Asian Miracle Model is central planning plus credit expansion plus export-based cartel-capitalism.
The Asian Miracle form of centrally planned capitalism depends on these four pillars:
1. Integration of government ministries and private-sector cartels
2. Heavy reliance on export sectors for growth and profits
3. Domestic savers provide the capital for export expansion
4. Defaults and write-offs of bad debt cause loss of face and are thus hidden from public view or rescued with government bailouts or zombie loans.
This combination of central planning, credit expansion and export-based capitalism ignites a rocket booster of rapid growth. Since the Asian nations pursuing this model are starting from relative poverty, the rapid expansion of credit, exports and employment in the export sector are all the more miraculous.
But the model runs off the rails when central planning and credit expansion reach diminishing returns. Central planning is very effective at allocating scarce capital in the boost phase, because the capital is invested in building an efficient export machine and in essential infrastructure that enables exports: ports, railways, highways, etc.
But once all this basic infrastructure is built out and exports reach their zenith, central planning slips from miraculous to disastrous. The state bureaucracies that guided the Miracle boost phase have no other plan other than more credit expansion and more investment in infrastructure.
The inevitable result of the centrally planned Asian Miracle Model is credit bubbles and the crippling misallocation of capital in Building Bridges to Nowhere. China has already burned through the booster phase and has reached the credit bubble/building ghost cities stage.
The hubris of central planning knows no limits. Though the only possible endgame of the central planning plus credit expansion plus export-based cartel-capitalism model is stagnation and implosion, central planners in Japan and China remain supremely confident in their ability to re-ignite a rocket with no fuel.
Following Japan’s Failed Economic Model with Gordon T. Long: