Category: zerohedge

Despite having Goldman Sachs CEO Lloyd Blankfein as an investor and being Bill and Hillary Clinton’s son-in-law, Marc Mezvinsky (and two former colleagues from Goldman Sachs who manage Eaglevale Partners hedge fund) told investors in a letter last February they had been “incorrect” on Greece, generating staggering losses for the firm’s main Eaglevale Hellenic Opportunity, a/k/a the “Greek recovery” fund during most of its life. By ‘incorrect’ the Clinton heir apparent meant the $25 million Eaglevale Greek fund had lost a stunning 48% in 2014.

Which is not to say the larger fund it was part of was doing any better: as of last February, Eaglevale had spent 27 of its 34 months in operation below its high-water mark. We are confident that 13 months later the numbers are 40 out of 47.

 

As a reminder, 2013, Institutional Investor proclaimed Mezvinsky “a hedge fund rising star“…

In late 2011, Marc Mezvinsky co-founded New York-based, macro-focused hedge fund firm Eaglevale Partners with Bennett Grau and Mark Mallon, two Goldman Sachs Group proprietary traders whom he’d gotten to know when they all worked at the bank. Best known as the husband of Chelsea Clinton, Mezvinsky, 35, who has a BA in religious studies and philosophy from Stanford University and an MA in politics, philosophy and economics from the University of Oxford, has been quietly building his finance career. Before launching his own firm, the longtime Clinton family friend was a partner and global macro portfolio manager at New York- and Rio de Janeiro-based investment house 3G Capital. Eaglevale manages more than $400 million.

Alas, he was anything but, and instead of having a real grasp of macroeconomic events, he decided to dump nearly half a billion dollars in Greece just before the country entered a death spiral that culminated with its third bailout, capital controls, insolvent banks and a paralyzed economy.

Meanwhile, things went from terrible to abysmal for both the clueless hedge fund manager and his LPs, and as the NYT reports, Hillary Clinton’s son-in-law is finally shutting down the Greece-focused fund, after losing nearly 90% of its value.  Investors were told last month that Eaglevale Hellenic Opportunity would finally be put out of its misery and would shutter.

The closure comes as the worst possible time: we are confident that Donald Trump will be quick to work it into his political attack routine.

Mr. Chelsea Clinton and his partners began raising money in 2011 from investors for the firm’s flagship fund. Since then, that portfolio has posted uneven performance. A Stanford University graduate, Mr. Mezvinsky worked at Goldman for eight years before leaving to join a private equity firm. He left that job to form Eaglevale with two longtime Goldman partners, Bennett Grau and Mark Mallon. The hedge fund firm is named after a bridge in Central Park.

As noted above, some of the firm’s earliest investors were Goldman partners, including Lloyd C. Blankfein, Goldman’s chief executive officer, who let Eaglevale use his name in marketing the flagship fund. Ironically this is in addition to the hundreds of thousands of dollars that Goldman paid to Marc’s mother-in-law. One almost wonders who “benefits” Goldman was seeking to get out of this particular relationship.

But on a less sarcastic note, we agree with the NYT that it is not at all clear why Eaglevale waited until this year to close the Hellenic fund, which already had lost about 40% of its value by early last year.

Perhaps it was just hope that the Greek people would simply pick up and rebuild the devastated economy from scratch, ideally without getting paid (the word slavery comes to mind), thereby miraculously rescuing his investment. In letters to investors in 2014, Mezvinsky and his partners expressed confidence that Greece would soon be on the path to a “sustainable recovery.” But by the end of that year, Eaglevale’s leaders began to acknowledge that their perspective on the situation in Greece may have been wrong. The fund had earlier stopped taking in new money.

We will conclude by stealing the NYT’s tongue in cheek humor:

The one silver lining for the fund’s investors from all of this is that they will have a somewhat larger tax loss on investments to claim next year.

True: it’s all funny if one assumes that none of the people who were invested in Mezvinsky’s pet fund actually needed the cash (we doubt Blankfein will lose sleep over a few million). For all those others who actually did, the joke’s on them.

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By EconMatters

 

The EIA Report is tomorrow, but under any interpretation of the API numbers the Bulls will still be waiting for their big Drawdown EIA Report. It looks like we just keep replacing US Production with OPEC Production, namely Saudi Arabia, Iraq and Iran excess production.

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Submitted by Michaela Whitton via TheAntiMedia.org,

One of the many catastrophic legacies left behind by the longest war in U.S. history is that Afghanistan produces 90% of the world’s opium. As with most parts of the world, the most vulnerable pay the heaviest price of war, and the country has faced a harrowing escalation in the number of child heroin addicts.

“What’s happened in Afghanistan over the last 13 years has been the flourishing of a narco-state that is really without any parallel in history,” Kabul-based journalist Matthieu Aikins told Democracy Now back in 2014.

Adding that all levels of Afghan society are involved in the flourishing trade — which became undeniably worse after the U.S.-led invasion — Aikins accused both the Taliban and government-linked officials of profiting from the crisis. He claimed the U.S., in its quest for vengeance against the Taliban and Al Qaeda, not only cooperated with warlords but ignored corruption by criminals whose human rights abuses created the conditions that led to the rise of the Taliban in the first place.

As a result, Afghanistan now produces twice as much opium as it did in the year 2000, and the booming trade now accounts for 50% of the country’s GDP. Since the cartels began refining their poppy harvests into addictive and profitable heroin, the street price for “powder,” as it is known, is the cheapest in the world — and it costs less than food in the war-torn country.

Lost childhoods

The psychological damage of war, together with the flood of cheap heroin, has led to a doubling in addiction rates over the last five years. In the Channel 4 documentary, Unreported World, Ramita Naval explores a harrowing escalation in child addiction. In the ravaged country, where access to drug treatment is severely limited, she visits a rehabilitation centre where children as young four or five — haunted by horrors they have witnessed — attempt to regain lost childhoods.

The only treatment centre in Kabul to help children, it was originally set up to treat women. The 20-bed unit, which forces kids off the drugs by making them go cold turkey is, ironically, funded by the U.S. State Department. Naval is introduced to a number of very small children who are at varying stages of the 45-day treatment programme.

At one point, the reporter finds it hard to contain her dismay at being in a room full of drug-addicted children. One describes becoming addicted after taking the drug for toothache, while another became hooked after inhaling his father’s smoke. Doctor Latifa Hamidi said in the past two years she has seen a 60% increase in the number of child addicts at the centre. Claiming the future of the country is at stake, she added, “There is going to be a future generation of drug addicts that need help and aren’t going to be able to work.”

The problem is so severe among the child population that many are taking desperate measures to fund their habits. Naval spoke to a 13-year-old boy at a safe house who began using when his parents were killed by shelling. From the age of eight, he was paid by drug addicts to guard them while they smoked. Unsurprisingly, he then developed his own habit, which he funds with child prostitution. Many addicted children sell their bodies, as there are no jobs or work.

Fifteen-year-old Ali has been using heroin for the past two years. His mother is dead and his father fled to Iran. He smoked a gram of heroin, which cost £1, on camera as he explained how he became addicted.

The young boy’s trauma began when, after witnessing a suicide bomb attack in Kabul, he went to stay with relatives in the countryside. While he was there, U.S. forces bombed his village, killing dozens of people; he described seeing bodies scattered everywhere. The young boy and other villagers had to pick up the body parts and put them in plastic bags. Claiming the war breaks his heart — and making his descent into drug use more understandable — he said, “I’d rather not live, than live through this war.”

Behind closed doors

With drug use haram, or forbidden, in Islam, addiction is seen as shameful. Consequently, many of society’s most vulnerable are often too ashamed to ask for help. As a result, a hidden epidemic has arisen, affecting thousands of parents and children behind closed doors. Naval accompanies a medical team of doctors and social workers who are frequently attacked and beaten during their work:

“More and more children are becoming addicted because the country is awash with opium,” the doctor said. “If the government doesn’t do anything about this situation, Afghanistan is going to face another disaster,” she added.

Claiming that of 130, 000 families in the area, 60% are addicted to drugs, the doctor explained many men pick up their addictions while working in neighbouring Iran and Pakistan. After using drugs as a stimulant to help them work longer hours, they return, bringing their addictions with them — often passing their new habits on to entire families.

Opium is also part of daily life in Afghanistan’s refugee camps, where the internally displaced are left to fend for themselves. Government doctors rarely visit, and agencies are ill-equipped to deal with child addicts — many whom have fled fighting in other provinces and are left with devastating injuries as a result of the war. Locals claim that even if painkillers were available, opium is much cheaper and more effective.

Three-year-old Zarima lost her arm when her village was attacked during fighting between the government and insurgents. With no doctors or medicine, her father had no option but to give her opium. He had tried to stop the treatment a number of times, but she suffered severe withdrawal symptoms. Other locals described being forced to perform amputations due to lack of medical help.

Cheaper than food

Entire villages of people are addicted to opium, and Naval visits one family where three out of six of children are addicted. One little boy, who began smoking at the age of three, was sprawled out next to his father, completely out of it. He explained that he needs to smoke three times a day or he suffers painful withdrawals. When asked if he ever goes out and plays with other kids, he shook his head.

The boy’s mother originally gave him opium to cure a stomach ache. Now the family uses the drug for a very different reason. “There is not enough food to feed the whole family,” his mother said.“When you smoke you lose your appetite,” she added, explaining that while food for the family of nine costs £3 a day, a day’s worth of opium costs £2.

Summing up the hidden side of the devastation in the war-ravaged country, Naval was frank and said that while the world is focused on the fight against the Taliban, the country is being consumed from within — by an equally serious and long-term threat.

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Following the spike in searches for "how to move to Canada," 25-year-old Texan Joe Goldman had an idea – "to make dating great again." His creation – MapleMatch.com – is a new online dating site that 'hooks up' Americans leery of living under a President Trump with friendly caring Canadians.

 

 

 

As NBC News reports, "Maple Match makes it easy for Americans to find the ideal Canadian partner to save them from the unfathomable horror of a Trump presidency," the site declares.

Goldman told NBC News Tuesday he was inspired by repeated threats from friends in Austin to move north of the border if the likely Republican nominee defies long odds and actually wins in November.

"I have always been fascinated by Canada," Goldman said. "So I thought to myself, 'Given the current political situation, this could bring Canadians and Americans closer together'."

Goldman said he launched the site a week ago and 13,000 people have already signed up — a quarter of them Canadians.

"The response has been tremendous," he said. "I'm getting people from all over, but the strongest responses have been from Seattle and New York City. Our first inquiries came from Billings, Montana."

Goldman, who is single and also runs a higher education research company, said he too had signed-up on the site in hopes of finding his dream Canadian. He said there's no fee.

Asked if he can point to any success stories, Goldman answered, "Nothing quite yet."

"But we're hoping to match people as soon as possible," he said.

However, far be it from us to break up a possible beautiful relationship, there are a few things to remember before you bail for your northern partner, as we detailed previously, if you are one of the many Americans thinking of making the switch to Canada, our exclusive “Canadian insider” offered these tips and answers about making the move to Canada and what you can expect when you arrive:

1. Are Canadians as polite as the jokes say?

In fact they are. One joke that even Canadians laugh at goes, “How do you get 47 Canadians out of the pool as quickly as possible?” The answer: simply yell, “Get out of the pool!”

2. Is the weather in Canada as bad as the jokes say?

No; it is actually worse. The beautiful East Coast becomes an ice cube in the winter—an endurance test equaled only by the weather in the capital, Ottawa, where the main distraction (aside from watching your breath freeze) is skating on the central canal, which freezes solid during winter. The prairies are no better. The outdoor parking spots accompanying most condos and hi-rises each have a built-in electrical outlet. No, not for your orbital buffer; they’re for your block heater. (If you don’t know what a block heater is, perhaps the Dominican Republic should really be your first choice for bugging out…?)

3. Of course, there is always Vancouver, which experiences the best winters in the country (like Seattle, but with fewer serial killings).

Keep in mind, however, that Vancouver currently has the largest housing bubble on the planet. (Source: “This is Freaking Nuts — House sells $750K above Asking,” Zerohedge, March 1, 2016.)

4. Canada has cross-country “value added tax” (VAT), called HST, that can add about 13% to a typical purchase in the mere blink of an eye.

If you are in business, you may be able to reclaim it. Most Canadians just pay it. Americans will find this unsettling. Of course, the whole idea of a VAT is that it theoretically obviates the need for income tax. Unfortunately Canada has not figured this out yet. They introduced income tax right after WWI, swore it was just temporary, and yet it is still here…? If, however, you are seeking the comfort and nostalgia of politicians who say one thing and then do another, Canada could be a dream come true.

5. Speaking of politics, the wise voters of Canada just threw out the most conservative leader in decades (that is “conservative” with BOTH a small “c” and a capital “C”).

This was mainly because they were bored with his conservatism, and (the irony!) they felt he was too close to the U.S.

6. Social medicine will be a kick if you are making the journey north.

It has its plusses and minuses. If you are in dire need, it is there. I have a friend who recently received a lung transplant, did not pay a nickel, and now loves Canada so much he moved back to Toronto from the Czech Republic. On the other hand, if you are looking for a simple MRI in a non-urgent situation, be prepared to wait several months or (more irony!) be prepared to cross into a U.S. border town and pony up cold hard cash.

7. Supermarkets will be a shocker.

Imagine that 70% of all the products you have come to know and love disappeared in the blink of an eye, like in a sci-fi movie, and, in many cases, they were replaced by brands you have never heard of. Your first time grocery shopping may possibly bring a tear to your eye. Good news? They do stock Kleenex, just like in the U.S.

8. No, you don’t have to learn French, in spite of the millions of dollars a year Canadians spend translating and labeling everything that moves or squeaks into the official “second language.”

Learning French is mainly useful only if you plan to live in Quebec or run for federal office. And if you learned history via U.S. textbooks, be prepared for some revisionism. Turns out that France did not lose the war for Canada to the Brits at the Battle of the Plains of Abraham. It was actually a “draw.” (Luckily, nobody bothered to tell the British or every province in Canada would have two tax systems and two levels of government, just like those freethinkers in Quebec.)

9. The thing you will notice the most?

Well, the whole money thing will be uncomfortable. First of all, everything in Canada costs more, ceteris paribus, than the equivalent item in the U.S., even before taxes. Why? Mainly because of the higher costs of labeling and moving goods in the sparser geography (hey! those French labels don’t put themselves on the items, do they…). Next, if you factor in the weaker loonie, well, let’s just say that as a Canadian newbie, your first experience with socialized medicine might be for anti-depressants. The good news? The doctor’s visit, and part of the cost of your meds, will be picked up by the very same country that depressed you in the first place!

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Submitted by Rory Hall via SprottMoney.com,

Akin to ancient Rome, the United States has over-extended herself. She has created a climate that could easily be transformed into a war on a slight pretext. Wars, as it is well known are also a means a nation can extricate itself from debt and financial responsibility.

– The U.S. Endgame, Jeremiah Johnson (nom de plume, retired U.S. Special Forces, excerpt from Zero Hedge

One would have to be blinded from either denial or ignorance not see the escalating political and military tension between the U.S. and Russia/China. While the U.S. media spins the story into a tall-tale in which BRIC nation leaders are the provocateurs, the truth is that the U.S. has transformed its illegitimate “war on terror” into war on the world in a last-gasp attempt hold onto the economic and geopolitical hegemony it has enjoyed for several decades.

When you see that men get richer by graft and pull than by work, and your laws don’t protect you against them, but protect them against you – you see corruption being rewarded and honesty becoming a self-sacrifice – you may know that your society is doomed.

– Francisco’s “Money Speech,” from “Atlas Shrugged”

If you reread that passage, think about how it applies to the Patriot Act, Homeland Security Act, Wall Street, the Justice Department and Hillary Clinton. It’s pretty obvious the U.S. is collapsing economically, politically and socially.

Perhaps the one last chance at saving the United States is embracing the truth – the truth as it is and not the “truth” the U.S. Government would have you believe. But economic and political truth is seeded in honest money – think about the Federal Reserve, the Comex and the political elitists in the context of this passage from “Atlas Shrugged:”

Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper.

– Francisco “Money Speech”

The San Francisco Fed’s “President,” John Williams was blowing his weekly smoke on Monday. He said that higher interest rates would trigger “big movements downward” in asset valuations. He didn’t exactly discover plutonium with that revelation. But with his comments, Williams inadvertently admitted that the policy makers were responsible for creating what is now the biggest asset bubble in history. This is not going to end well.

The Shadow of Truth hosted Alasdair Macleod for a discussion which ties into the ongoing financial, economic and political collapse of the United States.

Alasdair offers some original insight into the manner in which the inevitable geopolitical and financial “reset” might unfold: "If You’ve Got Gold, You’ve Got Money; If You Haven’t Got Gold, You’ve Got a Problem"

Until and unless you discover that money is the root of all good, you ask for your own destruction. When money ceases to be the tool by which men deal with one another, then men become the tools of men. Blood, whips and guns – or dollars. Take your choice – there is no other – and your time is running out

– Francisco “Money Speech”

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Einstein's defintion of insanity was "doing the same thing over and over again and expecting a different outcome." It appears, judging by the world's central bankers' utter failure to ignite anything but speculative bubbles in risk assets they are all insane and, while the phenomenon of negative rates is relatively new in Europe and Japan (in other words they can decalre it too soon to judge), it has been four years since Denmark went full NIRP-tard, and inflation has done nothing but collapse.

 

As Bloomberg reports,

The latest data from Statistics Denmark is bad news for ECB President Mario Draghi and other central bank governors seeking to fuel inflation through ultra-low interest rates.

 

Denmark’s consumer price index in April was unchanged from a year ago for the second month in a row and up a less-than-expected 0.1 percent from March.

 

After four years of negative interest rates, it looks like the (inverse) relationship between rates and prices may be broken for good.

Because, as Charles Hugh-Smith detailed previously, what NIRP communicates is: this sucker's going down, so sell everything and hoard your cash and precious metals.

The last hurrah of central banks is the negative interest rate policy–NIRP. The basic idea of NIRP is to punish savers so severely that households and businesses will be compelled to go blow whatever money they have on something–what the money is squandered on is of no importance to central banks.

All that matters is that people and enterprises are forced to spend whatever cash they have rather than "hoard" it, i.e. preserve and conserve their capital.

That this is certifiably insane is self-evident. If an economy depends on bringing future spending into the present by destroying savings, that economy is doomed regardless of NIRP, for eventually the cash runs out and spending declines anyway.

But NIRP will fail completely and totally due to another dynamic— one I addressed last month in Another Reason Why the Middle Class and the Velocity of Money Are in Terminal Decline. As correspondent Mike Fasano noted, negative interest rates force us to save even more, not less:

"People like me who have saved all their lives realize that they their savings (no matter how much) will never throw off enough money to allow retirement, unless I live off principal. This is especially so since one can reasonably expect social security to phased out, indexed out or dropped altogether. Accordingly, I realize that when I get to the point when I can no longer work, I'll be living off capital and not interest. This is an incentive to keep working and not to spend."

If banks start charging savers interest on their cash, savers will have to save even more income to offset the additional costs imposed by central banks on their savings.

A third dynamic dooms the insane negative interest rate policy: what does it say about the stability and health of the status quo if central banks are saying the only way to save the status quo is to force everyone to empty their piggy banks and spend every last dime of cash?

What exactly are we saving by destroying savings and capital? Isn't capital the foundation of capitalism? The answer is we are saving nothng but a rotten-to-the-core, parasitic, predatory banking system, coddled and enabled by corrupt central banks and states.

What NIRP says about central banks is that they have run out of options and are now in their own end zone, heaving the final desperate Hail Mary pass that has no hope of saving them from complete and total defeat.

NIRP also says the economy that needs NIRP is sick unto death and doomed to an implosion of impaired debt, over-leveraged risk-on bets and asset bubbles generated by stock buybacks and central bank purchases of risky assets.

The central bankers are delusional if they think NIRP will inspire confidence in investors, punters, households and enterprises. Rather, NIRP signals the failure of central bank policies and the end-game of credit expansion as the solution for all economic ills.

What NIRP communicates is: this sucker's going down, so sell everything and hoard your cash and precious metals. If that's what the central banks want households and enterprises to do, NIRP will be a rip-roaring success.

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NBC projects Bernie Sanders and Donald Trump to win the West Virginia primaries.

While Bernie’s hope are mathematically still alive, as Politico explains, his last best hope rests on a swing in superdelegates as Sanders continuing gains may sway them towards his popularity (as opposed to the establishment)…

Entering Tuesday night, Clinton leads Sanders 1,705 to 1,415 in pledged delegates and 523 to 39 in superdelegates, an overall lead of 2,228 to 1,454. With only 926 pledged delegates remaining, Sanders’ hopes rest with superdelegates deciding to abandon Clinton in large numbers.

 

The Clinton campaign is confident enough that that won’t happen that, in recent weeks, it has turned its attention largely to Donald Trump, the presumptive Republican nominee.

 

Clinton is facing criticism in West Virginia for remarking in March that she intended to “put a lot of coal miners and coal companies out of business.” The comment came in the context of her plans to find jobs for those workers in new industries, but it went over terribly in the state.

 

But she did not kick off her week of campaigning in West Virginia. Instead, on Monday, Clinton was in a café in the affluent Northern Virginia suburbs of Washington, D.C., where she courted women with a discussion on the importance of a “work-life balance.”

Trump continues to close on Clinton once again…

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Via PandaHedge.com,

Overnight the People’s Daily published an interview with “anonymous authorities” on the topic of China's economy.  It’s a very important article as the “anonymous authorities” is considered to be Mr. Liu He, who is the economy brain of President Xi Jinping.  The interview sends strong signals that China policy will shift from its aggressive easing in Q1 to a conservative position which focus on structural reforms.

People’s Daily also published the “anonymous authorities” interviews in May 2015 and Jan 2016, which led to the subsequent collapse in the China A share market, because Mr. Liu (and President Xi’s camp) has been promoting structure reforms and risk controls.  For a credit driven China economy and the associated highly leveraged equities/commodities/properties markets, these’re the bad news.   The A share market and China domestic commodities market had a big fall last night.  Many overseas investors may think last night’s chaos is driven by the weak April import/export data announced during the weekend.  I can tell you that it’s not.  The local Chinese take the “anonymous authorities” article seriously and his opinion will have much deeper impact for China in the coming quarters.

 

Shanghai composite index performance after the “anonymous authorities” articles

In general, the interview denied the “demand driven” stimulus policy adopted by China in Q1.  Like other governments in the world, the CCP party and Chinese government have different sub-parties internally holding different views of the economy.  They believe their own claims are the best for China and advocate their ideas when the reality cling to them.  For example, when the economy is really bad, the pro-growth camp will have upper hands and is able to push for their demand driven policies.  That’s why we see China swings between structural reform and demand stimulus in the last two years.  China pumped $1tn credit in Q1 to stop the falling knife, and this really cross the line of structural reform camp, so that’s why we see the article comes out right now.  As the Politburo economy meeting just finished in the end of April, I believe the article delivers the consensus message agreed in the meeting.

I translate the key message of the interview below and add my comment in blue color.

1. China’s economy will run as a L shape, not a U shape or V shape. L shape is a long process, but not just a one or two years’ period.

It’s the first time the government outlines a clear picture of what the economy will look like, and that’s their core judgement.  Some China analysts have been calling for U shape after couple key indicators picked up in Q1, but apparently, the government see the current challenges are difficult and will last much longer.  If there’s no recovery for China and the recession will go longer, it means those high financial leverage China plays such as some commodities producers will go to zero, as time is the biggest enemy for them.  Remember the US coal industry?  Almost the whole industry file chapter 11 after four years’ coal price downturn.  

However, Chinese government is still too optimistic about the shape.  Chinese investors make fun of the L shape statement as it technically can be drawn in four forms as below:

I will agree with the first one 

 

2. In general, the economy meets our expectation currently, but the structural problems are not resolved yet and new issues come out beyond our expectations. We still use the old methods (refers to investment and leverage driven GDP) to stabilize the economy, which brings pressure to fiscal balance and raise the risk of economy.  We see risks in the area of lack of private investments, property bubbles, overcapacity, local government loan, equity market, currency market, credit market and illegal fund raising.  So, it’s hard to simply say we have a good start in 2016.  However, China economy is resilient, and has great potential and sufficient buffer room.  Even we do not stimulate, the GDP growth will not have a free fall.

The “anonymous authorities” are not happy about investment and leverage driven GDP and don’t think it’s sustainable.  Specifically, he points out nine risk areas which need to address, and he mention “property bubble” in this interview for the first time ever.  It shows that the government has clear understanding of the risk areas and will try to curb them down, so that’s why he tries to hold back the stimulus which will make the issue worse.  In the coming quarters, the credit boom will be kept controlled and not allowed to flow aggressively into these areas.  I agree that his measurement will benefit China in the long run, but I don’t share the same confidence of economy bottoming.

 

3. We need to use both supply side and demand side policies to boost macro economy, but the focus should be different at various stage. Right now, supply side reform is the major problem and should be our top priority.  Investment expansion is a supplemental policy and we cannot rely on it. 

Again, clear message, the crazy credit and investment in Q1 is not appropriate. Going forward, government focus will return back to supply side reform.  Therefore, Q1 is the peak for investment demand, we will see it slow down in the next couple quarters.  Bad news for commodities. 

 

4. High leverage will bring higher risks. If we cannot control leverage well, it will heighten systematic financial risk, lead to negative GDP growth and swallow normal people’s saving.   We cannot rely on high leverage to boost GDP.  Compared to slower GDP, the risk of high leverage is more damaging, so we should put more focus on control of leverage.  The worst outcome is trying promote GDP with more leverage.

High leverage is the Viagra for a commodity driven economy.  The article points out the risk and admit that stabilizing economy (adding leverage) and controlling risk (deleveraging) are conflicting policies.  After evaluating the pros and cons, the government choose deleveraging. 

 

5. For equities market, FX market and properties market, we should respect the market force and not simply put them as means to maintain GDP growth. For RMB, we should build a flexible floating mechanism based on market supply and demand (interestingly, he does not mention “targeting a basket of currencies” as PBOC did).  For properties, we should push the destocking through urbanization but not through allowing the residence to add leverage.

That’s very important discussion for the three major asset classes in China.  If you still remember, the Chinese government was trying to use the equity market to raise money and lower the debt burden of Chinese companies.  Now it abandoned this idea and focus on the stabilization of equity market through the market forces themselves.  Unless there’s another market collapse like that happened in last June, the government will not push money into the equity market again.  Anyway, it already put so much money there.   

The message of RMB is very interesting as it did not mention “targeting a basket of currencies” as PBOC did.  Actually, RMB has been depreciating to “a basket of currencies” but stabilizing with USD as the dollar is weakening to Euro and Yen.  This is the perfect outcome for PBOC as “a basket of currencies” represents the merchandise trading flow while the USD represents the capital flow.  If we believe there’s a “Shanghai Accord” which aims to kill the dollar, then we can understand why the Chinese government does not mention “targeting a basket of currencies” anymore, as the RMB will continue to depreciate with those currencies with a weakening dollar.

The comment of properties market means the destocking process will be much longer and it definitely will hurt the new housing start number.  In Q1, we saw some crazy buying from residences as they got leverage again.  The sale result make the developers believe the mania will continue and that’s why they decide to build more properties and turn around the declining housing start trend.  But now, as the government will curb leverage from the residences, I believe the property sales will cool down and the inventory liquidation cycle will be much longer.  The government tries to destock properties inventory through urbanization, which means relying on the residence moving from village to cities.  That will be a long process even those “new urban” can afford the properties price. 

 

In general, the article’s main thesis is that China needs to put structural reform on top of investment driven stimulus and control the risk from high leverage.  Say good bye to the aggressive easing in Q1 and China will enter couple quarters’ “reform” period, until the government cannot stand with the pain and has to use “investment driven stimulus” again.

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Things are increasingly upside down in the brave new centrally planned world: thanks to negative deposit rates central banks have put an explicit cost on saving, while in various instances, such as taking out a mortgage in Denmark and the Netherlands, the bank actually pays the borrower, thus rewarding living beyond one’s means. Curiously, it was just a month ago when an offer was spotted in Germany offering a negative -1% rate on small consumer loans issued by Santander Bank.

 

However, so far these cases have been isolated to institutional entities largely sparing the broader population. However, that may change soon.

According to Bloomberg, Japanese banks may soon pay borrowers to accept loans if they can raise funds at even cheaper rates.

Negative interest-rate lending is increasingly becoming a reality since the Bank of Japan started levying charges on idle cash. Lenders can now borrow for three months in the Tokyo interbank market at a record-low 6 basis-point annualized rate, versus 17 basis points since the BOJ move in January. They may eventually be able to be paid to borrow and then profit by paying less to lend, according to Credit Suisse Group AG, JPMorgan Chase & Co. and SMBC Nikko Securities Inc.

This is also known as shoving money down people’s throats… and then paying them for it.

However, a catalyst would be required to unleash negative rate loans: a negative Tibor.

“Banks paying interest to borrowers is possible if the Tibor goes negative,” said Shinichiro Nakamura, a senior analyst in Tokyo at SMBC Nikko Securities, a unit of Japan’s second-biggest lender by market value. “Many large-cap companies in Japan are borrowing funds from banks around the same level as the Tibor.”

If the Tibor falls to minus 0.2%, “it would make sense to lend at minus 0.1 percent to companies with little credit risk,” said SMBC Nikko’s Nakamura. He expects the BOJ to cut the interest on some reserves by another 10 basis points to minus 0.2 percent by March 2017. If Tibor falls further, then banks may just lend direct to consumers as well.

 

But while consumers may greet the arrival of self-amortizing loans – even if it ultimately means even more unrepayable debt – this is bad news for the banks, which already slowed their loan growth to 2 percent in March amid shrinking profit margins and slumping confidence among customers. Negative-rate loans would hurt margins at banks, which find it hard to charge customers for deposits, so they will focus on areas such as fee businesses and foreign investments, according to Pacific Investment Management Co.

“Because it is difficult for banks to charge negative rates to customers for deposits, this will likely lead to net interest margin compression and deterioration in profitability,” Raja Mukherji, the Hong Kong-based head of Asian credit research at Pimco, wrote in a report.

How long until negative loans are a reality? Well the Yen London rate has already dropped below zero. Companies including Takeda Pharmaceutical Co. and Mitsubishi Corp. have taken out loans at one basis point over the three-month yen Libor, according to data compiled by Bloomberg. If they refinance with the same terms, they would in effect borrow at a negative rate based on current Libor levels. Other such as Sumitomo Mitsui Finance & Leasing are already getting paid to borrow after they got a rate of minus 0.001% when the company raised 5 billion yen in March via the sale of six-month six-month commercial paper.

If negative rate loans come to Japan will Europe follow? Probably not without some additional changes to the ECB’s policy first. That’s because base lending rates are higher in Europe than in Japan. Germany’s average effective lending rate to non-financial companies was 2.2% in March while a similar gauge for France was 1.89%. The average rate on new loans in Japan was 0.793 percent in February, BOJ data show.

But while European banks may not be rushing to pay for the privilege of taking out a loan, they are getting closer to charging depositors for the privilege of holding money at the bank. Reuters writes that UBS could pass on negative interest rates to wealthy private customers or add new service fees to ensure profitability and capital returns in the current environment, its chief executive said on Tuesday.

UBS already passes on negative interest rates to corporate clients, but CEO Sergio Ermotti’s admission is a sign of the pressure Swiss banks are under due to the Swiss National Bank’s negative interest rate policy.

 

“If the conditions remain as they are or grow worse, we will have to consider extending these measures to very wealthy clients and increasing interest rates on loans,” Ermotti said at the group’s annual general meeting on Tuesday.

 

“Or we will have to demand payment for services that were previously free – with the possibility that additional fee adjustments in the future will also be necessary.”

 

Low or negative interest rates meant banks had to weigh taking on client assets against the costs these incurred for the institution and the “unreasonably large amount” of capital with which they needed to back up liquid assets.

At first it will be the very wealthy, then it will be everybody else. And as ordinary people who barely have an interest, let along understanding of “modern” monetary polixy learn that everything they have been taught about savings and borrowing money is inverted upside down, and as concern about just how bad things around the world must be for even their neighborhood bank to have to take such drastic measures, the central banks will wonder how it is that the narrative of the “global” recovery has failed to take hold some 7 years later. After all, just look at global stock markets: once again approaching all time highs, and somehow nobody believes the lies any more.

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War? That splendid means of conflict (armed, please) between at least two nations for a multitude of reasons. It could be because one of those countries is jealous, or in love, even with the other that doesn’t want to give up its virgin land to be raped. Perhaps war might take place for hate, because the skin of the opponents (commonly called the enemy) is not quite the same color (so the people there can’t be people, because people are always our color if they are to be called people and not subjugated into second-class ranking). Perhaps, it might take (albeit sometimes publically only) to spread our form of government in the west (we call know that the others envy our form of democracy and that they want to secretly be like us). War is waged because of all of these reasons and also because we just want to. It’s like stealing. People don’t just steal out of necessity; they do it because they feel like doing it even if they don’t need it. 25% of people will actually just steal because they get a rush from it; it’s a fix, adrenaline from the fear of being caught. War has little positive effect and even more rarely on the civilian population in the war zone.

Do we go to war because our populations have grown far greater than it is reasonably possibly for us to live together? Or do we find in that desire to wage war on our neighbors as some glowing spark of the past inside us that made us thrive on animal tendencies or sexual and territorial competition to perpetuate our species? Perhaps Marxist theories were correct, espousing the belief that man wages war only due to the attempt to gain control of resources in the imperialistic and capitalistic system in which we evolve. Thomas Malthus believed that we would also wage war because resources were being eaten away at by the poor (who incidentally, should be allowed just to die). The Youth Bulge theory in the pyramid of ages shows that when there is a large number of growingly unhappy cohort of male youths that are unable to find work due to lack of economic activity, then it is grounds for that group evolving into a pool of violence that will ultimately end in war.

Whatever the reasons we have and we will go to war for, there have been many stupid wars in the past. We don’t need to mention George W. Bush and his ridiculous invention of the reasons to wage war in the Middle East and his responsibility in the matter for most of the instability that has ensued in that region. If only those that had voted for him had voted for someone else to change the course of history. If only those that had falsified the votes, had been arrested in thrown in jail before he was declared President.

There have been wars that were ridiculously fought in the past. What were they? Here they are:

5. The War of the Golden Stool

This war took place in 1900 and the stool belonged to the Ashanti Empire. The seat was supposed the sacred representation of the chief and in turn of the Shanti nation, past and present.

The British Governor of the Gold Coast, Sir Frederick Hodgson, was the ruler of the Ashanti people while the Ashanti King had been put into exile in 1896. Hodgson demanded that he have the stool brought to him so that he could sit on it, but when troops went in search of it, they came across a whole army of people led by the mother of the exiled chief of the Ashanti people. Yaa Asantewaa led troops of some 12,000 against British colonialism and nearly annihilated the British in the Gold Coast. The British were besieged in their barracks for almost three months and several thousand British troops had to come to their rescue. The Ashanti ended up being killed with a loss of 2,000 people on the battlefield, but the British never got to sit on that stool.

4. Flagstaff War (1845-46)

In the New Zealand town of Kororareka, the British were yet again stirring up trouble in their colonies. They hoisted the Union Jack above the town and it riled their native population, who subsequently went and chopped it down. Hone Heke, the culprit didn’t just do it once either. When the British erected another flag pole and hoisted another flag, he went and chopped it down with an axe a second time. By the time the British ended up getting to erect a 4^th flag pole, they had to reinforce it with iron and post guards around it to protect it. The House of Commons back at Westminster decided that Heke needed to be told that this just ‘wasn’t cricket’ and they sent missionaries to tell him. But, on March 11^th 1845 he went into the town and massacred the town’s people there. A war ensured and it lasted 10 months. The last word is that the British didn’t attempt to erect another flag pole, but Heke and his tribe were massacred.

3. Battle of Karansebes (1788)

The Austrians were waging a war against Turkey at the time. Some scouts went out, but they ended up coming across some gypsies selling alcohol and they got drunk on the local booze. The infantry was also out there and came across the scouts. The scouts didn’t want to share their drink with the infantry and set up some sort of make shift fortification. Things got heated and an argument ensued, with a few shots getting fired. Now, things got really complicated as each side actually believed that they were fighting the Turks. A full-scale battle ensued with the Austrians fighting against themselves and not a Turk in sight. They ended up with more than 10,000 dead or dying and to boot the Turks did finally turn up and take over declaring victory of the battle.

2. The Pig War (1859)

On the British-ruled island of San Juan between Washington State (today) and Vancouver Island, there was nothing except sheep, until the Americans decided to go there and settle. One of the 25 Americans that had gone there shot a pig on June 15^th 1859. The pig belonged to the Hudson Bay employee Charles Griffin. The American offered $10 to pay for the pig and Cutler asked for $100. Things escalated and the British believed that they were going to lose control of San Juan Island. So, they dispatched 5 warships with 2,140 men and the Americans came along with 461 soldiers and 14 canons. They ended up calling the whole thing off and telling their troops to fire only if fired out. From then on, both Americans and British troops jointly controlled the island.

1. The War of Jenkins Ear (1739-42)

Robert Jenkins, a British naval captain, had his ear cut off in 1731 by Spaniards that had boarded his ship. In 1739, the British decided to use the ear as an excuse and held a parliamentary hearing, where the ear was proudly exhibited as proof of the Spanish affront. They decided to go to war against the Spanish and it ended up lasting from 1739 until 1742. The war turned into the War of Austrian Succession as a result and it was only with the signing of the Treaty of Aix-la-Chapelle in 1748 that things were allowed to cool down.

There are plenty more that could be added to the list!

According to studies, in the past 3,400 years peace has only existed for Man for a total of 268 years, which works out to 8% of the time that we have been on this planet as men. In the 20^th century alone, there were 108 million deaths and the impossibility of realistically calculating the total number of human deaths ranges from some 150 million to 1 billion people. 60.7 to 84.6 million died in World War II, which is the worst recorded number of deaths in the world during warfare, including civilian deaths and on the battlefield as well as fatal casualties. The second highest death toll from war was the 13^th century Mongol Conquests with 60 million killed. 65-85% of the US population is in favor of war when it is declared by their government. But, it soon peters out and for example the Korean and Vietnam Wars ended up with less than 30% in favor of them.

Is war a universal and even ancestral part of what man likes to call human nature? Man is a wolf to another man, Homo homini lupus, and we have known that for centuries now ever since the Roman playwright Plautus first declared it. Thomas Hobbes got man down to a t when he said that “Man to Man is a kind of God; and that Man to Man is an arrant Wolfe. The first is true, if we compare Citizens amongst themselves; and the second, if we compare Cities.” Man, according to the philosopher, is quite capable of being kind and generous, helpful even to his fellow men that are around him, and yet outside of the confines of the neighborhood and in particular when talking of being outside the boundaries of the state or the borders of a country, then man turns into some ferocious beast. Nice at home and a bastard outside to the others.

Sigmund Freyd wrote much the same thing (with a little tinge of sexual repression thrown in: “Men are not gentle creatures, who want to be loved, who at the most can defend themselves if they are attacked; they are, on the contrary, creatures among whose instinctual endowments is to be reckoned a powerful share of aggressiveness. As a result, their neighbor is for them not only a potential helper or sexual object, but also someone who tempts them to satisfy their aggressiveness on him, to exploit his capacity for work without compensation, to use him sexually without his consent, to seize his possessions, to humiliate him, to cause him pain, to torture and to kill him. Homo homini lupus. Who in the face of all his experience of life and of history, will have the courage to dispute this assertion?”

Man is aggressive by nature and his satisfaction is quelled only by taking what doesn’t belong to him or getting revenge for what he things he was entitled to and never got to have.

How many wars do we need still to understand that war causes famine, emigration, mistreatment of prisoners, destruction of the ecosystem and obliteration of the warzone’s infrastructure? The Old English word ‘wyrre’ is at the etymological origins of modern ‘war’ today. At one time it meant ‘to confuse’ or to ‘perplex’. It’s not war that confuses today, is it? It’s the reasons for going to war that should ‘bring us into confusion’. 

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