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“What The Hell Is Going On?”

The last few days have been "odd" according to one veteran trader and today's moves, with USDJPY plunging, S&P 'steady', and XIV (the inverse VIX ETF soaring) left the same trader exclaiming "what the hell is going on?" More unwinds from equity market-neutral funds? OPEX impacts? Or just the death-throes of a Fed-fueled market gasping its last breaths…

The chaos in equity market-neutral funds continues with weak/strong momo stocks extremely volatile this week…

Carry trades being unwound in size as China bank liquidty stress hits again…

And bonds ain't buying it…

And finally – The VIX ETF complex is completely decoupled today…

In answer to the trader's rant – we don't know, but we suspect we know what happens next.

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The Southern Poverty Law Center Strikes Again

That Trump guy pops up everywhere. The Southern Poverty Law Center has published its annual report on “The Year in Hate and Extremism,” which as always includes its attempt to tally how many hate groups and how many anti-government “Patriot” groups exist in America. This year, both figures rose about 14 percent.

I have repeatedly made two criticisms of these counts and the ways they’re used. One problem is built in to the idea of measuring a movement’s strength by counting the number of groups on the ground. If an organization splinters, that suggests it’s getting weaker, but on these lists the disarray will show up as growth. The SPLC’s Mark Potok more or less acknowledges this problem in his write-up of the numbers this year. The “hardest core sectors of the white supremacist movement—white nationalists, neo-Nazis and racist skinheads—actually declined somewhat,” he notes, with the hate-group count going up because there are more Klan groups and black separatist organizations. But the Klan spike is “probably mainly accounted for” by the fact that two large Klans fell apart last year, leaving their adrift former members to form new grouplets.

I don’t doubt that there’s been some genuine growth in some of these movements. It’s plausible, for example, that the general recent increase in civil rights activism would include some growth on the separatist fringes. And Potok may be right that the outcome of the original Bundy standoff led more people to join militia-style groups. But the numbers being thrown around can be misleading.

The patriot's dream still lives on today. That’s especially true when you run into my other recurring complaint—that people try to treat these lists as a proxy for the number of American willing to engage in right-wing terrorism. The problem is that they include nonviolent as well as violent organizations. (This year’s list of anti-government groups, for example, includes 44 chapters of Phyllis Schlafly’s Eagle Forum, 24 chapters of the John Birch Society, a separate listing for “the John Birch Society Shop,” and the paleolibertarian website LewRockwell.com.) Nonviolent groups can be a stepping-stone to violence, but they can also pull people away from violence; in several cases, nonviolent activists have even turned would-be terrorists in. Potok never tries to account for those dynamics.

The SPLC does caution against using the list as a proxy for the terror threat in another, more self-serving way. Before this latest report came out, we saw several years in which its numbers of hate groups and anti-government groups were both declining. So the center took to playing up the specter of unorganized “lone wolf” violence, noting that such crimes can surge even as actual groups disappear. This year Potok combines the approaches, citing the increasing number of groups while also highlighting the threat of the loners.

So how much lone-wolf terror was there in 2015? The SPLC turns to another group for its answer:

According to a year-end report from the Anti-Defamation League (ADL), “domestic extremist killers” slew more people in 2015 than in any year since 1995, when the Oklahoma City bombing left 168 men, women and children dead. Counting both political and other violence from extremists, the ADL said “a minimum of 52 people in the United States were killed by adherents of domestic extremist movement[s] in the past 12 months.”

If that number seem extraordinarily high, it’s because of that phrase “and other” sitting there between “political” and “violence.” The ADL’s count includes gang slayings, domestic violence, and other apolitical or ambiguous assaults in which the killer also happens to subscribe to an “extremist” worldview. According to the ADL’s bulletin, the number of ideologically motivated murders last year was not 52 but 34. That breaks down to 19 deaths in two Islamist attacks (the mass shootings in Chattanooga and San Bernardino) and 15 killings by people with views resembling the groups covered in the SPLC’s count, with the grisliest incident being the massacre of nine Charleston churchgoers in June. This may be more than usual, especially on the Islamist front, but it’s within the sort of random year-to-year fluctuations that you often see with rare crimes.

If you want to read the SPLC’s full report, it’s here. For a different view of the year that just ended, read my “2015: The Year in Fear.”

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Criminal Penalties for Companies that Won’t Help Decrypt? Not Yet—But Keep Watching

You have to give up your security in exchange for security. Wait ... what? The Wall Street Journal appeared to have a scoop yesterday evening: Senate Intelligence Committee Chair Richard Burr (R-N.C.) was drafting legislation that would actually institute criminal penalties against companies (like Apple) who resist or refuse orders to decipher encrypted messages on the tech devices they’ve created.

Given that Apple CEO Tim Cook is being very vocal about his company’s refusal to compromise iPhone security to help the FBI crack the phone possessed by deceased San Bernardino terrorist Syed Farook, the gesture appeared to be a threatening escalation in the conflict.

But it turns out such legislation is not happening … yet. A spokesperson for the senator said he was looking at tightening the rules surrounding encryption but was “not considering criminal penalties in his draft proposals.”

Burr is famously one of the anti-encryption politicians who simply doesn’t even want to listen to debate about the potential dangers of forcing tech device companies to compromise their security at the demands of law enforcement and prosecutors. He wants to push forward with legislation without a proposed commission to explore the solutions, saying “I don’t think a commission is necessarily the right thing when you know what the problem is. And we know what the problem is.”

But Burr has absolutely no interest in engaging or even acknowledging the potential negative consequences of his solutions, and he makes it abundantly clear in a USA Today commentary. All he cares about is Apple doing what they’re told and helping the government fight crime. He simply dismisses any complaints by saying that Apple isn’t being forced to decrypt the phone itself or provide an actual back door, a semantic argument that ignores a discussion of the potential consequences of what Apple is actually being asked to do. Indeed, even after attempting to suggest this is an isolated case, Burr makes it abundantly clear that he and like-minded folks want Apple to do this on demand in order to help fight the government fight crime. Every time security is deliberately weakened like this, the risk is elevated that the mechanism for breaching phones will escape the control of those responsible and will end up in the hands of criminals, hackers, or autocratic governments. (If you want to learn more about the risks from the government weakening encryption—read here).

It’s easy to suspect that the leaking of the possibility of criminal sanctions was the deliberate floating of the “stick” to punish stubbornness. Now that it’s been presented, stay tuned for the carrot. Here’s what consumers should be worried about: If the government forces Apple and Google and other tech companies to compromise their security, they’ll also have to shield these companies from the consequences if (and when) this all goes sour. If the government makes Apple compromise its security, and then mechanism for doing so gets out and Apple users are targeted for theft and fraud, the company would face tremendous liability. Say you have an iPhone. Apple creates a system to bypass your phone’s security. Somebody uses that system to get into your phone data and get access to your credit card information, for example. Wouldn’t you want to hold Apple legally responsible for knowingly compromising your security?

One likely solution: Shield Apple and other companies like it from legal liability for breaches. Keep consumers from suing them. The government would pretty much have to do this if it makes tech company cooperation mandatory. This was the “solution” in the Cybersecurity Act of 2015, included and passed in the recent budget omnibus. It encourages companies to share data about users and customers with government agencies for the goal of helping fight crime. But it also shields companies who participate from lawsuits over breaches as an incentive and a reward.

So as this fight spools out, definitely keep an eye out for that “compromise.” I have doubts that companies like Google or Apple will deliberately accept it, given how important their users feel their security is (Burr is losing a USA Today poll that was embedded within his own commentary). But liability protection could be implemented in legislation regardless, and it will be consumers who will be screwed over, both by increased risk of fraud and the inability to turn to the courts to hold companies liable.

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Brexit!? France & Germany Cannot Wait

Via GEFIRA,

If London decides to leave the European Union nobody in Europe will even notice. Great Britain is an entirely separate country, isolated from the European Union and does not participate in the Euro or Schengen Agreement. The European Union as a political platform is disintegrating and becoming more and more irrelevant and will be displaced by the European Monetary Union (EMU).

The center of power in Europe has shifted from the EU to the EMU and London politicians are fully aware of it. A Brexit will accelerate the process of political integration of the EMU members and make the EU politically less significant. Over the past decade we saw:

Countries can enter the European Union;
The very core values of the European Union can be set aside as we saw happening in Turkey just before the European Commission announced to restart Turkey’s accession negotiations;
Trade relations with Great Britain can be suspended without any upheaval, as we saw it concerning non-EU member Russia;
Borders can be opened and closed as is the case in south-east Europe due to the refugee crisis;
The Dublin Regulation can be dissolved overnight in the face of the fact that more than a million refugees have entered Europe since the summer of 2015;

All these events hardly changed the life of the Europeans. Being a member of the European Monetary Union is of another magnitude. The Greek euro crisis changed the lives of millions of Greeks. During the tense days in July 2015, when the future of Greece, the EMU and indirect the future of Europe was at stake, Chancellor Merkel and President Hollande held 24 hours emergency meetings as did the Eurogroup. Great Britain and the European Parliament did not play any role whatsoever in these decisive moments for the future of Europe. Cameron was not even invited to share his opinion.

The European Monetary Union is doomed for further political integration; the euro members have no other option but to create a fiscal union and a banking union. Without these two pillars, the whole Euro will fall apart dragging with it the complete Western financial system. A fiscal and banking union means that these countries have to integrate far beyond the European Union framework.

Prime Minister Cameron is an annoyance for the already struggling EMU. The European Monetary Union faces extreme difficulties, as on one hand further integration of the Euro countries is inevitable and on the other hand, the widespread support for this integration is eroding.

In 2011, French President Sarkozy told Cameron:”We’re sick of you criticizing us and telling us what to do. You say you hate the euro, you didn’t want to join, and now you want to interfere in our meetings,”. The EMU countries face a big political problem that is to be solved. Germany and France will never let countries outside the EMU have a say in their affairs as Cameron proposed. The diplomatic words from French Prime Minister Manuel Valls make it all clear to London as he said; “a Brexit is a shock for Europe but still members can not pick and choose rules that suit them”. The UK leaving the European Union will make life easier for Paris and Berlin as Figaro writes: “Brexit? An opportunity for Europe, for France and for Paris”
When the UK is outside the European Union Frankfurt and Paris will have more opportunities to crush London as a financial center. London could not miss Merkel’s warning against gains for British banks under ‘Brexit’. If the UK decides to leave, Berlin and Paris will do definitely more than prevent London banks from making any gain; they will do everything to establish Paris or Frankfurt as the financial center of the EMU at London’s expense.

With the UK outside the European Union and losing all its influence on the continent, Frankfurt will be able to force its will on euro transactions that are done in London. We have already seen how Washington forced its jurisdiction on European banks. In 2006 European banks were prohibited from making dollar transaction with Cuba, despite the fact that these transactions were regarded as entirely legal in Europe. French, German and Dutch banks were forced to retreat from Cuba and pay hefty fines or else they would have had to leave the US. Frankfurt and Europe can impose similar rules on banks in London and force them to comply or leave the EMU area. Some in London, like top diplomats are already aware of this as Sir Nigel Sheinwald, Sir John Grant and Sir Stephen Wall, warn that rival financial powerhouses, as Paris and Frankfurt, will not be sentimental in seeking to challenge the City’s prominence, if the referendum result is to leave the EU.

* * *

Meanwhile, BREXIT risks are at record highs in the FX market…

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Experts: Invasion of Syria Could Lead to Nuclear War

Turkey previously shot down a Russian jet.

Now, Turkey and Saudi Arabia are threatening to invade Syria.

How dangerous could this get, in a worst case scenario?

Robert Parry – the investigative reporter who broke the Iran-Contra story for the Associated Press and Newsweek – wrote yesterday:

A source close to Russian President Vladimir Putin told me that the Russians have warned Turkish President Recep Tayyip Erdogan that Moscow is prepared to use tactical nuclear weapons if necessary to save their troops in the face of a Turkish-Saudi onslaught. Since Turkey is a member of NATO, any such conflict could quickly escalate into a full-scale nuclear confrontation.

Washington’s Blog asked one of America’s top experts on Russia – Stephen Cohen, professor emeritus of Russian studies and politics at New York University and Princeton University, and the author of a number of books on Russia and the Soviet Union – what he thought of Parry’s claim.

Cohen said:

Parry is a serious man [“serious” is the highest compliment that an insider can give to someone]. I cannot say it will lead to nuke war, but it is very dangerous, as is quadrupling US/NATO forces near Russia’s borders.

Pavel Felgenhauer – a leading Russian military analyst – also believes that a nuclear war is “very likely” to arise from Russia’s skirmishes with Turkey in Syria.

Last December, U.S. Congresswoman Tulsi Gabbard – a Member of the House Armed Services Committee, Iraq war veteran, and Major in the Hawaii Army National Guard – warned that U.S. policy in Syria could lead to a nuclear war. And see this.

Also in December, retired Lieutenant General Robert Gard, chairman emeritus of the Center for Arms Control and Nonproliferation, retired Brigadier General John H. Johns, professor emeritus from US National Defense University, and Leslie Gelb, president of the Council on Foreign Relations, penned an article in Foreign Policy calling for US-Russia cooperation to de-escalate current tensions and diffuse the increasing worrisome nuclear blustering.

American security expert Bruce Blair – a former nuclear-missile launch officer – notes that Turkey’s downing of the Russian warplane at the Syrian-Turkish border “fits a pattern of brinkmanship and inadvertence that is raising tensions and distrust between Russia and US-led NATO,” and that “this escalation could morph by design or inadvertence into a nuclear threat.”

Blair writes that the threat of nuclear war is higher now that during the Soviet era:

Russia has shortened the launch time from what it was during the Cold War. Today, top military command posts in the Moscow area can bypass the entire human chain of command and directly fire by remote control rockets in silos and on trucks as far away as Siberia in only 20 seconds.

Why should this concern us? History shows that crisis interactions, once triggered, take on a life of their own. Military encounters multiply; they become more decentralized, spontaneous and intense. Safeguards are loosened and unfamiliar operational environments cause accidents and unauthorized actions. Miscalculations, misinterpretations and loss of control create a fog of crisis out of which a fog of war may emerge. In short, the slope between the low-level military encounters, the outbreak of crisis and escalation to a nuclear dimension is a steep and slippery one.

(Indeed, the U.S. and Soviets came within seconds of all-out nuclear war on numerous occasions. And only the courage of U.S. and Soviet individuals to say no when their superiors told them to fire nuclear weapons – in the face of mistaken readings – saved the planet from nuclear war.)

Russia expert Stephen Cohen agrees that the risks of nuclear war are much higher than people know, telling the Commonwealth Club last year that the threat of nuclear war with Russia is now greater than it was with the Soviets.

Postscript: Top Russian, American and Polish experts also warn that continued fighting in Ukraine could lead to nuclear war.

via Zero Hedge http://ift.tt/20JiT6O George Washington

Virginia Bill Would Exempt Cops’ Names, Positions from FOIA Requests

A bill introduced in the Virginia state legislature would exempt law enforcement officers in the state from open records requests about their names, positions, job classifications, or any other “personal identifying information.”

The exemption applies to state and local police departments and sheriff’s offices, as well as special agents with Alcoholic Beverage Control, Virginia Marine Police, Department of Game and Inland Fisheries officers, Virginia Lotto investigators, Department of Conservation and Recreation officers, motor vehicles enforcement officials, and “animal protection police officers.”

The Virginian-Pilot reports that Sen. John Cosgrove (R-Chesapeake) told a subcommittee hearing that he introduced the bill as a response to a court ruling about The Virginian-Pilot‘s request for the names and positions of police officers across the state. The newspaper was compiling the information to “track officer movement from department to department” and examine “how often officers who got in trouble were able to find other jobs in law enforcement.”

The response to such an idea should be the state trying to set up its own such registry, not to expand open records exemptions so far as to keep the identities of all law enforcement officials secret from the public.

Cosgrove insisted the exemption was for officer safety. “I think this FOIA exemption is probably needed just because we want to make sure their safety is assured,” Cosgrove said of local police officers, “their families are not put at risk just because their information as law enforcement officers is available.”

Neither Cosgrove nor more than a dozen other law enforcement officers, legislators, academics, or open government advocates could provide an example of a police officer being targeted after his name was found through an open records request. Cosgrove told the subcommittee he was “sure” such examples could be found. “All you have to do is talk to any police department. They probably have a good illustration of that happening.”

The Pilot reports Virginia—which got an F and was ranked 38th by the Center for Public Integrity for access to public information—would be the first state with such a broad exemption for releasing the names of law enforcement government employees. Other states, like New Jersey and West Virginia, are exploring proposals of their own to shield the identity of some police officers from the public as a response to increased attention to incidents of police brutality around the country.

The state police union, which lobbies the legislature, supports the legislation, according to The Pilot. “What we’re trying to do is move the ball to the greatest extent possible,” executive director Wayne Huggins told The Poilot, “so as to provide protection and security for our folks.”

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Hillary Clinton: “I’ve Always Tried To Tell The Truth To The American People”; The American People Disagree

Below is a notable exchange between the person who may be America’s next president and CBS’ Scott Pelley:

Key excerpt:

PELLEY: You know, in ’76, Jimmy Carter famously said, “I will not lie to you.”

CLINTON: Well, I have to tell you I have tried in every way I know how literally from my years as a young lawyer all the way through my time as secretary of state to level with the American people.

PELLEY: You talk about leveling with the American people. Have you always told the truth?

CLINTON: I’ve always tried to. Always. Always.

PELLEY: Some people are gonna call that wiggle room that you just gave yourself.

CLINTON: Well, no, I’ve always tried —

PELLEY: I mean, Jimmy Carter said, “I will never lie to you.”

CLINTON: Well, but, you know, you’re asking me to say, “Have I ever?” I don’t believe I ever have. I don’t believe I ever have. I don’t believe I ever will. I’m gonna do the best I can to level with the American people.

Americans such as these perhaps:

Because it certainly is not anyone else:

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Venezuela’s Bogus Inflation Statistics

Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke.

On Thursday, Venezuela’s central bank released a long-overdue — and little-trusted — report claiming that the country’s inflation rate in 2015 was 180.9%. Unfortunately, for the global community, as high as this figure sounds, it is way below the true inflation rate.

Through a confluence of incompetence and widespread corruption, the Banco Central de Venezuela (BCV) has shown time and time again that it can’t be trusted. Bogus inflation statistics are nothing new.

The only reliable method for calculating inflation in countries where the rates are elevated, like Venezuela, is to observe changes in the black market (read: free
market) exchange-rate data. These changes can then be translated into implied inflation rates. It’s nothing more than an application of standard purchasing power parity (PPP) theory. When inflation is elevated, it is deadly accurate. Using the PPP approach, I have calculated that Venezuela’s 2015 inflation rate was 384.7% – a far cry from the 180.9% that the government reported on Thursday.

As the accompanying chart indicates, the Banco Central de Venezuela has vastly underestimated inflation for 2015. Most of the investment banks’ guestimates aren’t much better. Like most big inflations, Venezuela’s will end in tears.

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Is Oil Wastewater A Cure For California’s Drought?

Submitted by Dex Dunford via OilPrice.com,

As California grapples with a historic four-year-long drought, and farmers skimp on water for crops in the face of fines, oil wastewater is becoming both a laudable and uncomfortable answer to water woes.

Depending on who you ask, California’s drought may be over this spring. It may also never be over, with some scientists questioning whether groundwater reserves can ever reach pre-drought levels.

California isn’t the only U.S. state dealing with drought. As of right now, much of the western United States is experiencing some level of drought as well as parts of the upper mid-west. Water is a precious resource, and restrictions on water usage are becoming more and more common.

A recent national survey shows that nearly 75 percent of Americans believe that the agriculture industry should be first in line for water during a drought. It makes sense. Farmers grow our food and raise our meat. However, record fines being levied against farmers who pull too much water in California has the agriculture industry questioning what the future holds.

Could the answer really be held deep underground in oil wastewater reservoirs?

Before you turn your nose up at the thought of wastewater being used on the crops you eat; you should probably know that it is already being done. In fact, Chevron pumped 8 billion gallons of treated wastewater to farmers in California last year.

Recent figures estimate that about a third of oil wastewater is reused in some way. That means there is a large, unused source of water that could render aid to farmers. However, the cost of treating oil wastewater for use on crops is a major hurdle for producers to overcome. But first, we have to know if the wastewater is even safe for use on crops.

Legitimate concerns have been brought forward regarding the safety of treated oil wastewater. How effective is the treatment? Could the wastewater be harmful to people, plants, and animals? Water Defense, an environmental group, has been at the forefront of voicing these concerns.

In response, the local water authority tested and confirmed that, in fact, the treated wastewater provided by Chevron was in accordance with existing guidelines.

Water Defense insists otherwise, though. It says that it conducted its own tests and found high levels of acetone and methylene chloride, which can be toxic to humans, in the Chevron irrigation water. It also claims to have found traces of oil that should have been removed during recycling.

As Mother Jones reported last summer, there are rising concerns about what the use of oil wastewater means for organic food labels, for one thing. While there is a ban on petroleum-derived fertilizers for organic standards, the ban says nothing about what might show up in irrigation water.

Treating oil wastewater has become a pretty lucrative business. Energy producers have been seeking the expertise of companies that can treat oil wastewater quickly, effectively, and on the cheap. Some of the latest innovations include using algae to treat oil wastewater and even using electrical pulses to turn the previously contaminated water into clean water that can be used by farmers on their crops.

The major problem with treating oil wastewater is the cost. New technologies are rapidly helping to reduce the financial burden on producers, but with oil prices as low as they are, even cheaper solutions are needed.

One great thing about reusing wastewater is that the pipeline doesn’t have to just flow in one direction, so to speak. Santa Maria Energy LLC is just one of the producers finding new ways to reduce their footprint on water supplies in drought-stricken areas.

The company has won approval to build a pipeline to bring treated wastewater from a sewage treatment facility to their fracking operations. It’s a great example of energy producers stepping up to find a creative solution to real problems.

The state of California is likely to be the pioneer of finding innovative uses for the oil industry’s wastewater—even if that is the result of mounting legal pressure to do something about the tens of thousands of disposal wells that dot the state’s underground.

But right now, the wastewater-for-agriculture segment may be getting by on some unforeseen environmental loopholes that will come under greater scrutiny as the waste-not-want-not irrigation practice becomes more prolific.