Category: zerohedge

Submitted by Peter Schiff via Euro Pacific Capital,

The Winter of 2015-2016, which came to an end a few weeks ago, has been officially designated as the mildest in the U.S. in 121 years according to NOAA. While this fact will certainly add a major talking point in the global warming debate, it should also be front and center in the current economic discussion. The fact that it isn’t is testament to the blatantly self-serving manner in which economic cheerleaders blame the weather when it’s convenient, but ignore it when it’s not. If economists were consistent (and that’s a colossal “if”), the good weather would be taken as a reason to believe the economy is weaker than is being reported.

The two previous winters were much harsher. 2013-2014 brought the infamous “Polar Vortex,” an unusual descent of frigid polar air that brought temperatures down significantly throughout most of the United States. The next winter was almost as bad, with colder than usual temperatures combined with record snowfalls in much of the country. These conditions were cited again and again by many economists to explain why Q1 GDP growth was so disappointing both years. Annualized growth came in at just -.9% and .6% respectively (Bureau of Economic Analysis). As both 2014 and 2015 got underway, economic optimism had been riding high. When both started off with such resounding stumbles, excuses were needed to explain why the forecasters were so wrong. The snow and cold provided those fig leaves.

As I quantified in a commentary on the subject two years ago, a bad winter can indeed put a chill into the economy, at least temporarily. In general, first quarter (which corresponds to the winter months of January, February, and March) shows annualized GDP growth that is roughly in line with the average of each of the other quarters. Since 1967, average annualized 1st quarter growth was 2.7%, not too far below the average 2.8% full year growth, based on BEA figures. But when winter gets nasty, the economy does slow noticeably in the first quarter.

The average annualized GDP growth for the 10 snowiest winters (not counting 2014) as reflected in Rutgers University Global Snow Lab (Seasonal Extent graph) was just .5%. While this phenomenon did not fully account for the poor results in 2014 and 2015, which missed the average by more than 2%, at least it provided a strong argument as to why we struggled unexpectedly. But that excuse is unavailable this year when the Q1 performance may be equally bad.  

While official 1st quarter GDP estimates have yet to be published, researchers at the Atlanta Federal Reserve Bank put out an estimate called “GDP Now” that attempts to offer a real time estimate of economic growth. As late as mid-February, the GDP Now estimate was 2.7% for the first quarter, far below the 3.5% projection that the Fed had offered for the quarter back in December, but at least in the same ballpark. Since mid-March, the estimates have fallen steadily throughout and last week it was taken down to just .1% (although since increased to .3%). (This comes after 4th quarter 2015 growth came in at a very disappointing 1.4%)

So if we assume that the official estimates (when they arrive in a few weeks) do not stray too far from these projections, economists will have to explain why we had a very, very bad quarter (in fact, two consecutive bad quarters) at a time when the weather should have been encouraging robust activity.

An analysis of the bad winters also reveals a clear tendency for the economy to bounce back strongly in the following quarter, confirming the theory that pent up demand in a bad winter, when it’s too cold for people to go out and shop or for construction companies to break ground, results in increased activity in the spring. In the ten 2nd quarters that followed the ten snowiest winters, annualized GDP averaged a strong 4.4%, or almost four percent higher than the prior quarter. That trend was clearly seen in 2014 and 2015 when second quarter growth was an average 4 percentage points higher than Q1.   

Most strategists are now confident that a similar rebound will occur this spring even if there has been no bad weather to create the “snap back” dynamic. But putting that aside, there is absolutely no evidence to support such an absurd conclusion, and any such beliefs are based on hope not reason. The weather was actually so warm this winter that rather than pushing economic activity forward into the second quarter, it likely could have pulled economic activity into the first. This could weigh down 2nd quarter performance.

We also should take note of the fast deceleration of the Atlanta Fed’s GDP estimates and the fact that the biggest declines came at the end of the quarter.

 

This may mean that we could be slowing down going into second quarter. Nevertheless, government and private economists still expect the traditional kind of 2nd quarter rebound.

But evidence arguing against this can be found in wholesale trade inventories for January and February that were released last week. Originally January inventories were reported as up .3% (U.S. Census Bureau), which was taken as a sign that business confidence was rising. At the time many thought that February would not sustain that pace and decline by .2%. Instead, January itself was revised to -.2% (from up .3%) and February was reported at down .5% (off of the already rolled back January number). This is a terrible outcome.

The bad dynamics have been apparent for a while in the inventory-to-sales ratio, which documents how difficult it has been for companies to move products. Last week some economists were relieved that this number had come down to 1.36 (U.S. Census Bureau). But that drop was only possible because the prior month had been revised up from 1.35 to 1.37 (a higher number indicates more stagnant inventories). Going into Q2 last year, most businesses still believed that the recovery was real, and they built their inventories throughout the quarter (which added to GDP). There is no sign that that is happening this year. I believe that based on the current high inventory-to-sales ratio companies will draw down their inventories this quarter, thus detracting further from GDP.   

Another big difference between this year and the last two is the trajectory of our trade deficits. January and February trade deficits averaged $46.4 billion per month this year. They were just $41.1 billion in 2014, and $41.0 billion in 2015 (U.S. Census Bureau). Trade deficits detract from GDP.

Despite the weather, the inventories, and the trade deficits, very few of the most influential public and private economists have marked down their full year GDP forecasts very much, if at all. Goldman Sachs even believes so strongly in the strength of the recovery that it still expects the Federal Reserve to raise interest rates three more times this year (Wall Street Journal, Min Zeng, 3/31/16).  The IMF just revised down its estimates for 2016 U.S. economic growth, but only by .2% from 2.6% to 2.4%. But if the 1st quarter matches the Atlanta Fed’s current estimate, GDP growth for the rest of the year will have to average over 3% to achieve that.  

This is likely the type of mindless optimism and herd mentality that caused only one in five U.S. large-cap fund managers to beat the S&P 500 in the first quarter. If you have no idea what’s going on economically, you are unlikely to pick the right stocks. High priced hedge fund managers did little better. In fact, the first quarter was the worst quarter for active managers in eighteen years, according to data from Bank of America Merrill Lynch. This tells me that the degree of denial is still very high, and that those who resist the stampede may be in a position to realize gains when the likelihood of recession finally becomes apparent to all.

Unlike Goldman Sachs and other big banks, I do not see any more rate hikes in 2016. Instead, I believe that it is far more likely that the Fed will have to roll out more dovish forward guidance until the point where it officially calls off rate increases for the foreseeable future. After that, I believe it will have to take us back to zero percent interest rates, restart quantitative easing, and it may even take interest rates into negative territory. Take your stand accordingly.

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It's well known that the US government is broke, and if it used accrual accounting instead of cash accounting it would be staggeringly worse, as all of its future liabilities would be shown. Knowing this, government officials are working tirelessly (and even on some weekends, much to the dismay of Jack Lew) to find ways to reduce spending. 

Thanks to all of those long nights scrubbing the budget line by line, a way to save costs has finally been found. As MarketWatch reports,

A popular tool families use to help boost retirement income known as "file and suspend" will be taken away after April 29th of this year, courtesy of the Bipartisan Budget Act of 2015.

 

File and suspend is essentially a way for one person who is eligible to file for his/her retirement benefits to file, but delay getting them until age 70 (in return for an 8% per annum credit). Once the benefits are filed for, however, that person's spouse can file for spousal benefits and begin to receive those right away, thus increasing income to the couple.

 

One final element of this strategy is that if the higher income earner dies, the spouse can now receive the full benefit including that 8% per year credit amount earned by delaying, which significantly increases the income of the surviving partner.

The point of cutting out this "loophole" as the government so proudly calls it, is to save money.

 

Certainly there are no other reasonable cost cutting measures outside of closing "loopholes" for hard working American's who earned their social security benefits (on loan the government by the way).

 

US military spending is 3x more than second ranked China

 

"New Obama Vacation Costs Uncovered; They Now Exceed $70 Million"

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Two days ago we introduced you to “the rich kids of Vancouver” for whom the most important decision in any given day is whether to spend half a million dollars on a new Lamborghini or on an investment such as “two expensive watches or some diamonds.”

From left, Loretta Lai, Chelsea Jiang and Diana Wang attended a reception
at a Lamborghini dealership last month in Vancouver, British Columbia

We now introduce you to someone who may be one of these rich kids’ dad. Or rather was, because Gang Yuan, a 42-year-old mining tycoon is no longer alive. His corpse was found chopped into 100 pieces in his Vancouver home.

According to a civil lawsuit, Yuan came to Canada in 2007 with permanent resident status and made his money by investing in real estate and Saskatchewan farmland, in the process becoming the owner of a now abandoned multimillion-dollar Vancouver home.

As The Province reports, Yuan has been linked to a government corruption scandal in southwestern China. He is also a shining example of how most of the billions in hot money flooding Vancouver real estate funds are sourced: illegally. This story helps to shed some light on the origina of at least a modest amount of that money.

The scandal led to a 19-year jail term for Yunnan province official Lin Yunye.  Yunye was jailed last November for selling $234 million in state mining assets to a number of businessmen from whom he accepted tens of millions in bribes – including gold bars, luxury watches and rhinoceros horns.

The full details follows:

Yunnan, where Yunye was deputy director of land and resources, is a province of lush, bamboo-covered mountains. It is also known as China’s gem-trading hub because of its border with Myanmar, a failed state with bounties of ruby and jade stones that are illicitly smuggled into Yunnan.

Gem exchanges, $50,000 gold bars, a $500,000 bribe, and deals benefiting two Vancouver-area tycoons feature in the lengthy record of charges proven against Yunye in Yunnan Provincial Court. The verdict states Yunye abused his power from 2007 until his arrest in 2014.

For 42-year-old Chinese mining millionaire Gang Yuan, the story ends May 2, 2015. His corpse was found chopped allegedly into 100 pieces in his British Properties home. According to a civil lawsuit, Yuan came to Canada in 2007 with permanent resident status and made his money — estimated at up to $50 million — by investing in real estate and Saskatchewan farmland.

But Yunye’s 38-page verdict tells a different story.

In early 2010 Yunye met Yuan, then director of Beijing Datang Investment, in a restaurant in Yunnan’s capital city, Kunming. At stake was a contract for Yuan’s firm. Over dinner he asked Yunye to permit Beijing Datang expanded coal mining rights on a Yunnan mountainside.

As the men dined, Yuan handed Yunye a bag that contained a 1,000-gram gold bar, worth about $50,000. In exchange, Yunye gave Beijing Datang rights to mine in Yunnan until April 2014. And Yuan’s company later provided Yunye with additional gold bullion gifts, the verdict states, for more mining permits. Yuan was named as a witness in the verdict, but not charged.

Meanwhile, back in Vancouver in 2010, Yuan bought a $5-million British Properties home, adding to his numerous B.C. assets including a private island and a vacant $14-million Shaughnessy mansion. The West Vancouver home was purchased in the names of relatives Li Zhao and his wife, Gang Yuan’s cousin, court filings say. Zhao now is charged with Yuan’s slaying, and Yuan’s estate is the subject of a court battle between relatives in China and Vancouver, and his numerous mistresses and illegitimate children.

Zhao’s criminal case continues, and no allegations in the criminal or civil case concerning Yuan’s assets have been proven in court.

In another twist, Yuan’s West Vancouver home, private island and Bentley have been used as set pieces in the Vancouver reality TV show Ultra Rich Asian Girls. The daughter of alleged murderer Li Zhao is a star of the show, in which she claimed to own Yuan’s assets.

Huaican Ren, the other known Vancouver-area tycoon who testified against Yunye, is worth about $400 million, according to Forbes China. Ren reportedly made his fortune in gem trading before founding a number of Yunnan-based real estate and tourism companies, including North Star Enterprise Company Limited.

The Province first reported in early February that Ren and his wife Xuepei Sun possess two Vancouver homes worth about $10 million, including a home in the 4100-block West 8th Avenue bought for $4.6 million in July 2011. Neighbours said the Chinese owners have never been seen in the rotting Point Grey home, which was cited in a City of Vancouver “untidy premises” order in June 2015.

* * *

At this point we take a small detour to remind readers of what was our original theory about the origin of all these “mysteriously” empty Vancouver houses owned by Chinese expats. Indeed, it was specifically the house of Huaican Ren that we commented one two months ago.

Our attempt to explain these curious developments back in early February was the following:

What is happening is quite simple:

• Chinese investors smuggled out millions in embezzled cash, hot money or perfectly legal funds, bypassing the $50,000/year limit in legal capital outflows.
• They make “all cash” purchases, usually sight unseen, using third parties intermediaries to preserve their anonymity, or directly in perso, in cities like Vancouver, New York, London or San Francisco.
• The house becomes a new “Swiss bank account”, providing the promise of an anonymous store of value and retaining the cash equivalent value of the original capital outflow.
• Then the owners disappear, never to be heard from or seen again.

Or they are found dismembered, chopped up in hundreds of small pieces. Aside from that, everything is as laid out.

* * *

Anyway, back to the “curious story” of Yuan and Yunye.

 

The Yunnan verdict says that in 2013 Ren invited Yunye’s family to a dinner meeting. Yunye asked Ren if he could help Yunye’s wife with her personal business, and Ren immediately agreed, Yunye testified.

Yunye’s wife testified that after the dinner meeting, Ren invited her to North Star’s offices to discuss business. It was proposed that she sell several gems to him. Ren testified that he felt the gems were not worth much, but after negotiations he paid a large sum. He claimed he was afraid that Yunye would be offended if he paid too little, and the official would not permit North Star’s massive state-land tourism development, Ancient Dian Kingdom amusement park.

The final verdict states that Ren’s version of the gem deal could not be confirmed, but that documentary evidence showed that in September 2013 he made a 2.48 million RMB ($500,000 Cdn) cash payment to Yunye’s wife, in exchange for a construction permit. Subsequently, “the state-owned construction land use right transfer contract,” for North Star’s “Ancient Dian Kingdom Investment and Development Co.,” was confirmed for the June 2013 to January 2014 period. Ren was not charged for bribery.

Underlying the disturbing evidence in Yunye’s verdict is a big-picture story about how business is conducted in China as its economic system changes from communism to crony capitalism.

Reporting on Yunye’s November 2015 sentencing verdict, Chinese financial journal Caijing wrote: “The time period during which Lin (Yunye) was in charge of land resources coincides with the period featuring nationwide integration and acquisition of mineral resources. Aside from (Yunye), most corrupt officials in Yunnan have more or less intervened in the restructuring of mining companies, leading to the fire sale of many large state-owned mines and the loss of state-owned assets.”

And an April 2014 report from Yunnan business website GoKunming says that “while China’s economy slows after two decades of explosive growth” Yunnan strongly promoted tourism and real estate development to reignite growth.

“Fuelling investment numbers are several enormous projects aimed at expanding Yunnan’s already thriving travel industry to places that the government has deemed underdeveloped,” GoKunming reported. “Perhaps the largest of these is (North Star’s) sprawling Ancient Dian Kingdom, a $3.5 billion USD amusement park which covers more than 6,000 acres.”

Ren is from Wenshan, a state of Yunnan, and reports from China highlight his connections to Yunnan and Wenshan officials. For example, a Wenshan State website shows a picture of Ren and his wife “Mrs. Xuepei Sun” donating 10 million yuan ($2 million Cdn) for disaster relief to state Governor Huang Wenwu in 2010. In the ceremony a state party committee director declared Huaican Ren a friend of Wenshan’s government.

Chinese investment statements filed for Kunming North Star Enterprise Company Limited say that Ren is chairman, and a Chinese citizen with permanent resident status in Canada. According to the Global Real Estate Institute, Ren is among “the world’s leading real estate players.”

As for Ren’s Point Grey property, it was listed for sale about 10 days after The Province exposed its decrepit conditions.

It appears to have been sold for $6.5 million on March 3 according to MLS documents. But over a month later, a new owner has yet to be registered on title.

B.C. land title documents say that Ren and his wife bought the Point Grey home for $4.6 million in 2011 through a property transfer executed in a Beijing law office. The previous owner, Chinese investor Wei Min Zhang, flipped the home after buying it for $3.35 million in 2010.

According to MLS documents, Wayne Du was the listing agent for seller Wei Min Zhang in 2011, and George Xia was buyer agent for Huaican Ren. MLS records show the same two realtors involved in the March 3 sale. This time, however, George Xia is the listing agent for Huaican Ren, and Wayne Du is listed as the agent for an unidentified buyer. Legally, Huaican Ren is still owner until a notary or lawyer files transfer documents, B.C. land title office staff said.

B.C. Notary Society counsel Ron Usher — who is a member of the B.C. Real Estate Council panel investigating so-called “shadow flipping” — said he can’t determine the status of the Point Grey home sale.

“We can’t really tell anything from the MLS data,” Usher said. “Has any money changed hands? We don’t know.”

* * *

And while stories like these depicting how the shady Chinese criminal underworld moves to Canada and become the norm when it comes to Vancouver’s Chinese nouveau super riche, the underlying reality remains one where billions in laundered money end up in local real estate, leading to our favorite chart. This:

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Make America Un-transformed again…

 

 

Source: Townhall.com

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Authored by Danielle DiMartino Booth, former adviser to Dallas Fed's Dick Fisher

Volcker, Greenspan, Bernanke and Yellen.

Which one does not belong? Logic dictates that Volcker should have been odd man out. After all, there is no legendary “Volcker Put.”

The towering monetarist made no bones about never being bound by the financial markets. The same can certainly not be said of his three successors. And yet, history contrarily suggests it is to Volcker above all others that the financial markets will forever be beholden.

Many of you will be familiar with Michael Lewis’ memoir, Liar’s Poker. Yours truly first read the book in a Wall Street training program much like the one Lewis survived to describe in his autobiographical work. The take-away then, in late 1996, was that Gordon Gekko was right — greed was good.

Recently, a second reading of Liar’s Poker, following nearly a decade inside the Federal Reserve, delivered a much different message than did that first youthful reading and was nothing short of an epiphany: Paul Volcker, albeit certainly inadvertently, created the bond market.

On Saturday, October 6, 1979. Volcker held a press conference and announced that interest rates would no longer be fixed and that further the Fed would begin to target the money supply in order to curb inflation and “speculative excesses in financial, foreign exchange and commodity markets.”

Alas, this new regime was not meant to be. In trying to introduce an alternative to interest rate targeting, the Fed replaced one guessing game with another. Predicting the demand for reserves and then buying or selling securities based on that demand proved to be just as dicey as a similar exercise to target a given level of interest rates had been.

Volcker’s experiment ended in 1982. But by then, the genie had escaped the proverbial bottle.

Michael Lewis explains: “Had Volcker never pushed through his radical change in policy, the world would be many bond traders and one memoir the poorer. For in practice, the shift in the focus of monetary policy meant that interest rates would swing wildly. Bond prices move inversely, lockstep, to rates of interest. Allowing interest rates to swing wildly meant allowing bond prices to swing wildly.

Before Volcker’s speech, bonds had been conservative investments, into which investors put their savings when they didn’t fancy a gamble in the stock market. After Volcker’s speech, bonds became objects of speculation, a means of creating wealth rather than merely storing it. Overnight the bond market was transformed from a backwater into a casino.”

What a casino. As Lewis points out in his book: In 1977, the total indebtedness of U.S. government, corporate and household borrowers was $323 billion. By 1985, that figure had grown to $7 trillion.

Volcker left the Fed in August of 1987 after handing the reins over to Alan Greenspan. Two short months later, there would be a celebrated birth, that of the Greenspan Put, a watershed that truly got the party started. At last check, that party’s still going strong though stress fractures have begun to show on the festive facade. Of course, you wouldn’t have noticed them with the celebration of credit continuing to party on.

By year’s end 2015, U.S. indebtedness had swelled to $45.2 trillion. Tack on financials, which few do, and it’s $64.5 trillion and unabashedly growing. We are a nation transformed.

There are many temptations that tantalize when it comes to delving into debt. Uncle Sam now owes a cool trillion more than the nation produces. In our history, only once before has the divide between debt and production been so wide. That time was right after World War II. The difference between now and then — the cost was great but the purchase of our freedom was priceless.

What has today’s vast store of debt purchased? Certainly not freedom.

American nonfinancial businesses are today in hock as never before, to the tune of $14 trillion. Sadly, most of their debt accrued since the crisis has been funneled into nonproductive endeavors that involve balance sheet tiddlywinks to pad earnings. Don’t believe a single economist who dares quantify the consequences of a foregone generation of capital expenditures.

(At the risk of digressing, there was a bittersweet irony to Greenspan’s lamenting a lack of productivity growth when record share buybacks occurred on his watch. Consider his tenure to have provided the training ground for today’s C-suite occupants.)

At the most fundamental level, it’s the household sector that has undergone the most tragic transformation. We of that sector are, after all, what this country is and what it will be tomorrow. And it was individual citizens who had the good sense and vision to found a democracy built on the tenet of government’s role being protector of our inalienable rights to life, liberty and property. We earned these rights through relentless hard work and proudly claimed them as our own. It was the American way.

But what happens when the incentive system that encourages the honest attainment of that very American Dream breaks down? What happens when people in positions of power add the forbidden fruit of debt to our nation’s recommended daily allowance of consumables cloaked as a bonafide food group?

Whether it’s margin debt, mortgages or car loans, Americans have been brainwashed into believing that living beyond their means will somehow get them ahead. Consider the data, which simply do not lie.

In 1984, disposable income, what we take home in the aggregate after we pay our taxes, was $2.9 trillion. That same year, total household debt was $1.9 trillion. Back then, we covered our debts and had a fair bit left over with which to fund savings and possibly pay for a trip to Disney or for our kids’ college educations.

Then along came ‘measured.’ The first era of ‘lower for longer’ interest rates arrived in the aftermath of the dotcom implosion. Baby boomers, while still years away from retirement, had nevertheless been shocked to see their retirement savings take such a huge hit. But rather than batten down the hatches, they whipped out their credit cards marking a turning point in our nation’s history.

The Gregorian calendar dictates that the first year of this young century was 2001. That also happens to be the first year Americans spent more than they cleared in disposable income by way of accumulating debt: they took in $7.74 trillion and racked up debts that totaled $7.82 trillion by year’s end.

Feeding the shift from those who once had rainy day funds to those who had been had were six words constituting a commitment from Alan Greenspan stating that interest rates would rise at a, “pace that is likely to be measured.” Stand and deliver the famous obfuscator among orators did. The good times lasted for so long that households began to get unsolicited offers for new credit cards and mortgages in the mail…for their children.

Was the Maestro warned of the disaster building? The answer to that is well documented in the terrible tale of Edward Gramlich, who pled with his boss to put a stop to the subprime madness before it claimed countless victims, the largest of which would be the entire U.S. economy.

And yet the borrowing binge continued, even in the darkest days of the foreclosure crisis as mortgage balances collapsed. Of course, by then, Greenspan had exited stage left, off to sign book covers and leave the cleaning up of the disastrous detritus to his successor.

What was the harsh medicine Ben Bernanke prescribed to wean the country off over-indebtedness? Why gasoline. Bernanke poured fuel on the fire in the form of seven years of zero interest rates making debt more accessible than it had been in 5,000 years of recordkeeping (as per Merrill Lynch’s math).

The result was that households never saw even one year in which they made more than they owed. Not one, even though the period of ‘beautiful deleveraging’ was supposedly underway.

From this and that dotcom IPO, bought on margin, no less…to liar mortgages…to super subprime car loans, the elixir of aspiration has simply been too strong to resist. Lost along the way is a culture that once valued waiting for the better things in life. In the wake of this wholesale surrender of a culture, households have slowly succumbed to a subpar existence. That’s the trouble with living beyond your means. It never lasts indefinitely and always leaves you worse off than had you refrained from the get go.

The latest household data for 2015: Disposable income, $13.4 trillion. Debt, $14.2 trillion.

The prognosis? Mortgage debt is rising, credit card usage is back in vogue and student debt continues to spiral upwards. Car lending meanwhile, may be taking its last gasp for this cycle as fresh reports show used car prices have fallen for four straight months, a classic precursor to a downturn in the auto sector.

As for the fair chair, Janet Yellen, by all accounts she is running scared, pulling out all stops to forestall a recession in the hopes that there is such a thing as The Great Moderation, Part II.

To say Yellen is just now waking to the dangers of over indebtedness would be disingenuous. She was President of the San Francisco Fed when the housing bubble literally inflated and burst in her backyard.

No, perhaps what she is now realizing is the deep trap she is in. Her cabal of economists have long since assured her that government, corporate and household debt service is so low that history itself has been rewritten. But therein lies the mother of all Catch 22s, wrought by nearly 30 years of central bankers encouraging, enticing and imploring debt-financed spending while punishing, penalizing and all but outlawing saving.

Yes, the debt service is at record lows, but the mountain of debt that’s been accumulated dictates that the only thing the economy can withstand is low rates in perpetuity. The alternative is simply unimaginable. There would be widespread ruin and perhaps even the bankrupting of a great nation.

If only we didn’t know how we got to this point. But we do. We were duped by Liar’s Brokers and now have to live with the consequences. To quote Michael Lewis one last time, “In the land of the blind, the one-eyed man is king.”

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Gold and Silver Are Manipulated

Deutsche Bank admitted today that it participated with other big banks in manipulating gold and silver prices.

In 2014, Switzerland’s financial regulator (FINMA) found “serious misconduct” and a “clear attempt to manipulate precious metals benchmarks” by UBS employees in precious metals trading, particularly with silver. Reuters reported:

Swiss regulator FINMA said on Wednesday that it found a “clear attempt” to manipulate precious metals benchmarks during its investigation into precious metals and foreign exchange trading at UBS …

And the UK’s Financial Conduct Authority found that Barclays manipulated the price of gold for a decade, sending “bursts” of sell orders to manipulate the market.

Gold and silver prices have been “fixed” in daily conference calls by the powers-that-be for a long time.

Bloomberg reported in 2013:

It is the participating banks themselves that administer the gold and silver benchmarks.

So are prices being manipulated? Let’s take a look at the evidence. In his book “The Gold Cartel,” commodity analyst Dimitri Speck combines minute-by-minute data from most of 1993 through 2012 to show how gold prices move on an average day (see attached charts). He finds that the spot price of gold tends to drop sharply around the London evening fixing (10 a.m. New York time). A similar, if less pronounced, drop in price occurs around the London morning fixing. The same daily declines can be seen in silver prices from 1998 through 2012.

For both commodities there were, on average, no comparable price changes at any other time of the day. These patterns are consistent with manipulation in both markets.

The Oil Market Is Manipulated

The big banks aided Unaoil in bribing governments worldwide to manipulate oil prices.  The Age notes:

Bankers in New York and London have facilitated Unaoil’s money laundering ….

The European Commission says oil prices have been manipulated for many years.

And many commentators note that big banks play a big role in the mediation.

Other Commodities Are Manipulated

The big banks and government agencies have been conspiring to manipulate commodities prices for decades.

The big banks are taking over important aspects of the physical economy – including uranium mining, petroleum products, aluminum, ownership and operation of airports, toll roads, ports, and electricity – to manipulate market prices.

And they are using these physical assets to massively manipulate commodities prices … scalping consumers of many billions of dollars each year. (More from Matt Taibbi, FDL and Elizabeth Warren.)

The Mortgage Market Is Manipulated

Goldman Sachs and Wells Fargo admitted this week that they fraudulently manipulated the mortgage and mortgage backed securities markets.

Indeed, the entire housing bubble which crashed in 2007 was caused by manipulation.

The big banks committed massive and pervasive fraud both when they initiated mortgage loans and when they foreclosed on them (and see this).

And they pledged the same mortgage multiple times to different buyers. See this, this, this, this and this. This would be like selling your car, and collecting money from 10 different buyers for the same car.

Banks Rig Treasury Market

Bloomberg reported last September:

The same analytical technique that uncovered cheating in currency markets and the Libor rates benchmark [details below] — resulting in about $20 billion of fines — suggests the dealers who control the U.S. Treasury market rigged bond auctions for years, according to a lawsuit.

 

***

 

The plaintiffs built their case against the 22 primary dealers who serve as the backbone of Treasury trading — including Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley — using data from Rosa Abrantes-Metz, an adjunct associate professor at New York University who has provided expert testimony in rigging cases.

 

Her conclusion: More than two-thirds of a certain type of Treasury auction appear to have been rigged. She found issues with other auctions, too.

 

***

 

Treasury traders at some banks learn of customer demand hours before auctions, and were communicating with their counterparts at other firms via chat rooms as recently as last year, Bloomberg News reported earlier this year.

 

***

 

Among the lawyers representing the investors is Daniel Brockett, a Quinn Emmanuel attorney who recently won a $1.87 billion settlement against Wall Street’s largest banks in a case alleging they conspired to limit competition in the market for credit-default swaps.

 

***

 

Another group of investors, including Boston’s public employee retirement system, has filed a similar suit against Wall Street primary dealers. Experts interviewed by Labaton Sucharow LLP, the law firm that filed that suit, analyzed auctions and the market for when-issued securities, which are essentially agreements to buy or sell Treasury bonds, notes or bills once they’re issued.

 

They claim that banks colluded to push prices artificially low at auctions, and to drive prices for when-issued securities to artificially high levels, until December 2012, when news broke of investigations into how Libor was set.

 

“These scenarios all turn on a very simple conflict of interest,” attorney Michael Stocker said in a telephone interview. “You had banks who were auction participants who also had the power to move the prices that those markets depended on.”

High-frequency trading has also long been used to manipulate the treasury market.

Banks Rig Currency Markets

It has long been known that currency markets are massively rigged. And see this, this, and this. Indeed, not only do the banks share confidential information with each other … they also shared it with a giant oil company.

A number of giant banks pleaded guilty to manipulating currency markets, and agreed to pay a $7.5 billion dollar fine. New York’s state financial regulator called it “a brazen ‘heads I win, tails you lose’ scheme to rip off their clients.”

The formal admissions by the banks include a trader saying, “We trying to manipulate it a bit more in ny now . . . a coupld buddies of mine and I.” And a vice president of a big bank said:

• “If you aint cheating, you aint trying.”

Derivatives Are Manipulated

Runaway derivatives – especially credit default swaps (CDS) – were one of the main causes of the 2008 financial crisis. Congress never fixed the problem, and actually made it worse.

The big banks have long manipulated derivatives … a $1,200 Trillion Dollar market.

Indeed, many trillions of dollars of derivatives are being manipulated in the exact same same way that interest rates are fixed (see below) … through gamed self-reporting.

Reuters noted in 2014:

A Manhattan federal judge said on Thursday that investors may pursue a lawsuit accusing 12 major banks of violating antitrust law by fixing prices and restraining competition in the roughly $21 trillion market for credit default swaps.

 

***

 

“The complaint provides a chronology of behavior that would probably not result from chance, coincidence, independent responses to common stimuli, or mere interdependence,” [Judge] Cote said.

 

The defendants include Bank of America Corp, Barclays Plc, BNP Paribas SA, Citigroup Inc , Credit Suisse Group AG, Deutsche Bank AG , Goldman Sachs Group Inc, HSBC Holdings Plc , JPMorgan Chase & Co, Morgan Stanley, Royal Bank of Scotland Group Plc and UBS AG.

 

Other defendants are the International Swaps and Derivatives Association and Markit Ltd, which provides credit derivative pricing services.

 

***

U.S. and European regulators have probed potential anticompetitive activity in CDS. In July 2013, the European Commission accused many of the defendants of colluding to block new CDS exchanges from entering the market.

***

“The financial crisis hardly explains the alleged secret meetings and coordinated actions,” the judge wrote. “Nor does it explain why ISDA and Markit simultaneously reversed course.”

In other words, the big banks are continuing to fix prices for CDS in secret meetings … and have torpedoed the more open and transparent CDS exchanges that Congress mandated.

The managing director at Graham Fisher & Co. (Joshua Rosner) said that the big banks are frontrunning CDS trades … and manipulating decisions on whether a the party “insured” by CDS has defaulted on its obligations, thus triggering an “event” requiring payment on the CDS.

By way of analogy, whether or not an insurance company pays to rebuild a house which has burned to the ground may turn on whether it finds the fire was arson or accidental.

This is a big deal … while hundreds of thousands of dollars might be at stake in the home fire example, many tens or even hundreds of billions of dollars ride on whether or not a country like Greece is determined to have suffered a CDS-triggering event.

Rosner notes:

The potential use of CDS to artificially manipulate corporate solvency, the imbalances in the amounts of CDS outstanding relative to referenced debt and ongoing allegations that ISDA’s Determinations Committee is deeply conflicted and “operates as a quasi-Star Chamber or cartel”, are finally being scrutinized.

 

As one source recently suggested, “It would be a surprise if determinations of default, made by a committee of interested parties, don’t lead to findings of manipulation similar to those found in LIBOR and FOREX”.

 

***

 

The fact that Pimco’s Chief Investment Officer criticized the determination that Greece had not triggered its CDS, even though Pimco was part of the unanimous vote making that determination, is profoundly troubling to say the least.

 

***

 

The fact that the [ISDA’s Determinations Committees] has no obligation to “research, investigate, supplement or verify the accuracy of information on which a determination is based” and members “may have an inherent conflict of interest in the outcome of any determinations” only adds credence to suggestions that the “CDS market is being manipulated and gerrymandered by the all-powerful investment banks”.

Energy Prices Manipulated

Energy markets are manipulated as well …

The U.S. Federal Energy Regulatory Commission says that JP Morgan has massively manipulated energy markets in California and the Midwest, obtaining tens of millions of dollars in overpayments from grid operators between September 2010 and June 2011.

And Pulitzer prize-winning reporter David Cay Johnston noted in 2014 that Wall Street is trying to launch Enron 2.0.

And the Senate’s Permanent Subcommittee On Investigations found that Enron itself (which massively manipulated energy markets) was enabled by the fraud of big banks such as Citigroup and Chase.

(And as noted above, oil prices are manipulated.)

Interest Rates Are Manipulated

Bloomberg reported in 2014:

Royal Bank of Scotland Group Plc was ordered to pay $50 million by a federal judge in Connecticut over claims that it rigged the London interbank offered rate.

 

RBS Securities Japan Ltd. in April pleaded guilty to wire frauda s part of a settlement of more than $600 million with U.S and U.K. regulators over Libor manipulation, according to court filings. U.S. District Judge Michael P. Shea in New Haventoday sentenced the Tokyo-based unit of RBS, Britain’s biggest publicly owned lender, to pay the agreed-upon fine, according to a Justice Department statement.

 

Global investigations into banks’ attempts to manipulate the benchmarks for profit have led to fines and settlements for lenders including RBS, Barclays Plc, UBS AG and Rabobank Groep.

 

RBS was among six companies fined a record 1.7 billion euros ($2.3 billion) by the European Union last month for rigging interest rates linked to Libor. The combined fines for manipulating yen Libor and Euribor, the benchmark money-market rate for the euro, are the largest-ever EU cartel penalties.

 

Global fines for rate-rigging have reached $6 billion since June 2012 as authorities around the world probe whether traders worked together to fix Libor, meant to reflect the interest rate at which banks lend to each other, to benefit their own trading positions.

To put the Libor interest rate scandal in perspective:

• The big banks have conspired for years to rig interest rates … upon which $800 trillion in assets are pegged

• This was the largest insider trading scandal ever … and the largest financial scam in world history

• Local governments got ripped off bigtime by the Libor manipulation

• Even though RBS and a handful of other banks have been fined for interest rate manipulation, Libor is still being manipulated. No wonder … the fines are pocket change – the cost of doing business – for the big banks

Everything Can Be Manipulated through High-Frequency Trading

Traders with high-tech computers can manipulate stocks, bonds, options, currencies and commodities. And see this.

Manipulating Numerous Markets In Myriad Ways

The big banks and other giants manipulate numerous markets in myriad ways, for example:

• Engaging in mafia-style big-rigging fraud against local governments. See this, this and this

• Shaving money off of virtually every pension transaction they handled over the course of decades, stealing collectively billions of dollars from pensions worldwide. Details here, here, here, here, here, here, here, here, here, here, here and here

• Charging “storage fees” to store gold bullion … without even buying or storing any gold . And raiding allocated gold accounts

• Cheating homeowners by gaming laws meant to protect people from unfair foreclosure

• Pushing investments which they knew were terrible, and then betting against the same investments to make money for themselves. See this, this, this, this and this

• Engaging in unlawful “frontrunning” to manipulate markets. See this, this, this, this, this and this

• Engaging in unlawful “Wash Trades” to manipulate asset prices. See this, this and this

• Otherwise manipulating markets. And see this

• Participating in various Ponzi schemes

• Charging veterans unlawful mortgage fees

• Cooking their books (and see this)

• Bribing and bullying ratings agencies to inflate ratings on their risky investments

And the big banks engaged in pervasive criminal behavior as well, by engaging in shenanigans such as:

• Laundering money for terrorists (the HSBC employee who blew the whistle on the banks’ money laundering for terrorists and drug cartels says that the giant bank is still laundering money, saying: “The public needs to know that money is still being funneled through HSBC to directly buy guns and bullets to kill our soldiers …. Banks financing … terrorists affects every single American.” He also said: “It is disgusting that our banks are STILL financing terror on 9/11 2013“. And see this.  This has been going on for decades.  For example, Bank of America funneled massive amounts of money to BCCI – itself connected with the CIA – and, according to the US Senate Foreign Relations Committee on Terrorism, Narcotics and International Operations, BCCI in turn funneled huge sums of money to Bin Laden and other terrorists)

• The massive “Panama Papers” investigation revealed that big banks help many clients set up shell companies to hide their money offshore. The Wall Street Journal notes, “Biggest Banks Are Top Users of Offshore Services”

• Financing illegal arms deals, and funding the manufacture of cluster bombs (and see this and this) and other arms which are banned in most of the world

• Handling money for rogue military operations

• Laundering money for drug cartels. See this, this, this, this and this (indeed, drug dealers kept the banking system afloat during the depths of the 2008 financial crisis). A whistleblower said: “America is losing the drug war because our banks are [still] financing the cartels“, and “Banks financing drug cartels … affects every single American“. And see this.  This is actually a decades-old practice)

• Funding the Nazis (while we’re referring to funding the original Nazis many decades ago, the U.S. is now backing the neo-Nazis in Ukraine, and banks are undoubtedly involved in some of the support)

• Launching a coup against the President of the United States (an old – but vital – story)

The Big Picture

The experts say that big banks will keep manipulating markets unless and until their executives are thrown in jail for fraud.

Why? Because the system is rigged to allow the big banks to commit continuous and massive fraud, and then to pay small fines as the “cost of doing business”. As Nobel prize winning economist Joseph Stiglitz noted years ago:

“The system is set so that even if you’re caught, the penalty is just a small number relative to what you walk home with.

The fine is just a cost of doing business. It’s like a parking fine. Sometimes you make a decision to park knowing that you might get a fine because going around the corner to the parking lot takes you too much time.”

Indeed, Reuters points out:

Switzerland’s regulator FINMA ordered UBS, the country’s biggest bank, to pay 134 million francs ($139 million) after it found serious misconduct in both foreign exchange and precious metals trading. It also capped bonuses for dealers in both units at twice their basic salary for two years.

Capping bonuses at twice base salary? That’s not a punishment … it’s an incentive.

Experts say that we have to prosecute fraud or else the economy won’t ever really stabilize.

But the government is doing the exact opposite. Indeed, the Justice Department has announced it will go easy on big banks, and always settles prosecutions for pennies on the dollar (a form of stealth bailout. It is also arguably one of the main causes of the double dip in housing.)

Indeed, the government doesn’t even force the banks to admit any criminal guilt as part of their settlements. In fact:

“The banks have been allowed to investigate themselves,” one source familiar with the investigation told Reuters. “The investigated decide what they want to investigate, what they admit to, and how much they will pay.

Wall Street has manipulated virtually every other market as well – both in the financial sector and the real economy – and broken virtually every law on the books.

And they will keep on doing so until the Department of Justice (or We the People) grows a pair.

The criminality and blatant manipulation will grow and spread and metastasize – taking over and killing off more and more of the economy – until Wall Street executives are finally thrown in jail.

It’s that simple …

via http://ift.tt/23zqJGT George Washington

According to the latest Consumer Price Index data from The Labor Department, it has never – ever – been more expensive to "dine out" relative to "eating at home."

In December last year, in another instance showcasing the real intellectual capacity of career and academic economists and those clueless enough to listen to them, we warned repeatedly that even the smallest of mandatory wage hikes would ripple through the economy and unleash extensive price increases across the board, not to mention countless job cuts as small and medium business, already struggling with keeping profits from plunging, had to find ways to eliminate overhead or raise prices.

As a result of this latest forced governmental intervention into the economy, everyone would be far worse off.

 

But while we had seen isolated cases of mostly food sector companies push prices higher, so far there has not been a coordinated industry-wide effort that will see a sizable impact on food inflation. This will change for New Yorkers starting on January 1, when the cost of a night out in the Big Apple is about to get even pricier.

 

As the Post reports, NYC diners can expect their restaurant and bar tabs to rise as much as 10 percent, plus tips, as restaurants seek to protect their profit margins from mandatory wage hikes; some eateries will eliminating tipping entirely – that primary source of incremental wages for thousands of food industry workers – and are hiking base prices by as much as 30%, with the money going toward higher payroll.

And so, here we are a few months later… and the cost of "eating out" is exploding relative to a home-cooked meal…

As Bloomberg adds,

The Labor Department’s latest consumer-price data show the difference between the index of food costs away from home and the measure of inflation for home-cooked meals is the largest in records back to 1953.

 

The widening began in earnest around the start of the third quarter of 2015 just as gasoline costs slid, indicating restaurants were confident higher menu prices would stick… presumably to cover higher payroll costs.

Finally, we leave it to SprottMoney.com's Nathan McDonald to explain how the minimum wage is a curse, not a blessing…

Central planners and politicians have no clue when it comes to creating wealth. They are incapable of creating growth and a productive economy, despite what they would have you believe.

 

The government cares about one thing above all else: expanding itself and its power. One of the methods in which they have done this through history, up until the point in which it becomes so bloated it implodes on itself, is through the expansion of social welfare programs.

 

In the West, a large portion of the population now finds itself stuck in this very cycle, the social welfare cycle, which is the doom of all established economies – the cycle of "why should I work if I can make more money sitting at home?"

 

The logic is sound; you can't entirely blame those for thinking this way, as it is only human nature to take the easy way out, no matter the cost to our future or the wellbeing of generations down the road.

 

The biggest challenge for government is how to expand this dependant class, while making it seem to the rest of us (who support the welfare class) that this is not their intention. One stealth method of achieving this end goal is through the nefarious "minimum wage."

 

To the naked eye, minimum wage is a great thing. Yet to those of us who are awake and understand basic economics, we know that this has been one of the great blights in the West and has hollowed out our manufacturing base and shipped untold jobs overseas.

 

Minimum wage forces companies, such as McDonald’s, to come up with newer and newer solutions to replace humans in the work force, pricing people out, as politicians raise the bar ever higher, making it less and less feasible to hire people to do jobs. It becomes cheaper and cheaper to replace workers with machines.

 

In some cases this has led to great innovations, yet in others it has been a great detriment to mankind, putting many out of the workforce and causing vast poverty in many sectors where there was once untold wealth.

 

This "pricing out" of mankind is happening in many industries, with McDonald’s, for example, making it very clear that they will be replacing much of their workforce with machinery as the minimum wage price goes up. This will add no increase in service to the customer, but will place much more stress on our already fragile system.

 

I have seen this first-hand. In Canada there are numerous "self-checkout" McDonald’s kiosks, where only one staff member can be seen on the front line, and the rest are represented by machines with which you fill out and pay for your own order, interacting with barely anyone during your experience there.

This is the way of the future, as politicians continue their war on the working class, while "acting" like our saviors and demanding a raise in the minimum wage. A raise – as anyone who understands economics 101 will understand – that will not bring more prosperity, but only inflation, wealth destruction, and misery. Good job, mission accomplished.

via http://ift.tt/20FFwL3 Tyler Durden

Just over four years ago, on March 23, 2012, every HFT’s favorite exchange (because it specifically affords them a look at incoming order flow as described by Michael Lewis in Flash Boys), BATS Global Markets, IPOed at a price of $16/share (the low end of the range), valuing the company at around $760 million. However, it was not the pricing that was memorable, but what happened later that day when the stock tried to break for trading. As we reported back then, after its first print at $15.75, the stock proceeded to collapse to just above $0 in about 900 milliseconds.

 

Some, such as Nanex, speculated that the busted IPO may have been the results of a rogue Nasdaq algo (whether with or without intent), one using the notorious Intermarket Sweep Orders. This is what the orderbook looked like zoomed very closely in for the first several hundred milliseconds of trading.

 

Fast forward four years later, it’s time for try number two.

Moments ago BATS announced that it has just priced its second attempt at going public by pricing its (second) initial public offering at a price to the public of $19.00 per share (this time the high end of the range). The size of the offering has been increased from the initially announced 11,200,000 shares of common stock to 13,300,000 shares of common stock.

However, what is most peculiar about this IPO is that the company will pocket exactly zero of the $252.7 million (before overallotment) in proceeds. All the shares are being sold by selling shareholders. From the release:

The shares offered are being sold by certain Bats stockholders. Certain selling stockholders have also granted the underwriters a 30-day option to purchase up to an additional 1,995,000 shares. Bats will not receive any proceeds from the sale of any shares by the selling stockholders. The offering is expected to close on April 20, 2016, subject to customary closing conditions. The shares of common stock are expected to begin trading on the Bats BZX Exchange on April 15, 2016, under the symbol “BATS.”

Instead, the sellers are key shareholders such as Instinet, Citigroup, Bank of America Merrill Lynch and KCG Holdings… some of whom also happen to be the offering’s underwriters. 

The joint bookrunners are Morgan Stanley, Citigroup, BofA, Merrill Lynch, Credit Suisse, Goldman Sachs & Co., and J.P. Morgan. We hope they are ready for any eventuality tomorrow when the stock opens for trading, because one thing is certain: if the March 2012 repeats itself, there won’t be a lucky third try.

via http://ift.tt/1T7Mt4g Tyler Durden

Submitted by Lance Roberts via RealInvestmentAdvice.com,

Retail-Less

Despite all of the cheering by the mainstream media that the economy is “doing great” and “no recession” in sight, a look at small business sales trends and retail sales certainly suggest a very different story.

We recently saw the “retail sales figures” for March which were, to say the least, disappointing. I say this because these numbers expose the flawed economic theories of the mainstream proletariat that the abnormally warm winter and exceptionally low energy prices should boost spending due to the relative savings.

Despite ongoing prognostications of a “recession nowhere in sight,” it should be remembered that consumption drives roughly 2/3rds of the economy. Of that, retail sales comprise about 40%. Therefore, the ongoing deterioration in retail sales should not be readily dismissed.

More troubling is the rise in consumer credit relative to the decline in retail sales as shown below.

What this suggests is that consumers are struggling just to maintain their current living standard and have resorted to credit to make ends meet. Since the amount of credit extended to any one individual is finite, it should not surprise anyone that such a surge in credit as retail sales decline has been a precursor to previous recessions.

We can also see the problem with retail sales by looking at the National Federation of Independent Business Small Business Survey. The survey ask respondents about last quarter’s real sales versus next quarters expectations.

Not surprisingly, expectations are always much more optimistic than reality turns out to be. However, what is important is that both actual and expected retail sales are declining from levels that have historically been indicative of a recession.

Today, consumer credit has surged, without a relevant pickup in spending, to more than 26% of DPI. Given that it took a surge of $11 Trillion in credit to offset a decline in economic growth from 8% in the 70’s to an average of 4% during the 80’s and 90’s, it is unlikely that consumers can repeat that “hat trick” again. 

A Different Valuation Measure

I recently discussed the effect of stock valuations on future long-term returns. To wit:

“I believe in long-term investing. I do think that you should buy quality investments and hold them long-term. However, what Wall Street, and many financial advisors miss, is the most important point of this argument which is ‘at the right valuation.’

 

Valuation, what you pay for an investment, is the single biggest determinant of future returns.

 

According to Dr. Roberts Shiller’s data, the Cyclically Adjusted P/E Ratio is currently hovering around 24x earnings. It is here that the problem for long-term investors currently resides. The chart below shows the average real (inflation-adjusted) 20-year returns of a $1000 investment made when P/E ratios first hit 20x or 10x earnings.”

As you can see, valuations make a huge difference.

However, not surprisingly, shortly after I published the article I received numerous emails citing low interest rates, accounting rule changes, and debt-funded buybacks all as reasons why “this time is different.”  While such could possibly be true, it is worth noting that each of these supports are both artificial and finite in nature.

Currently, the aging U.S. economy, where productivity has exploded, wage growth has remained weak and whose households are weighed down by surging debt, remains mired in a slow-growth funk. This slow-growth funk has, in turn, put a powerful shareholder base to work increasing pressure on corporate managers not to invest, and to recycle capital into dividends and buybacks instead which has led to a record level of corporate debt. 

These actions, as suggested above, are limited in nature. For a while, these devices kept ROE elevated, however, the efficacy of those actions has now been reached.

Importantly, profit margins and ROE are reasonably well-correlated which is what creates the perception that profit margins mean-revert. However, ROE is a better indicator of what is happening inside of corporate balance sheets more so than just profit margins. The current collapse in ROE is likely sending a much darker message about corporate health than profit margins currently. 

While the decline in reported earnings, which are subject to accounting manipulations and share buybacks have indeed declined, it is not nearly to the extent as shown by both ROE and Corporate Profits After Tax.

While traditional P/E ratios have surged to 24x earnings recently, Price to Corporate Profits Per Share (P/CP) has exploded to the second highest level on record.

Historically speaking, it is unlikely that with reported earnings early in the reversion process that we will see a sharp recovery in the second half of the year as currently expected by the majority of mainstream analysts. The suggests that as long as the Fed remains active in supporting asset prices, the deviation between fundamentals and fantasy will continue to stretch to extremes. The end result of which has never “been different this time.” 

Did The Fed Kill The Bear?

Accordingly, the chart above, investor sentiment suggests the market has just completed a recessionary “bear market” with virtually no substantial losses. This can also be seen by looking at just the amount of “bearish” sentiment in the market as well.

As noted, the 13-week moving average of bearish sentiment has reached levels currently that are more normally associated with bottoms to corrective processes as seen in 2010 and 2011 when the Federal Reserve intervened with QE2 and Operation Twist. What is interesting is that all of the support during the current correction has been strictly “verbal” with no real change to market liquidity or accommodation.

“Make me promises, just tell me no lies.”

However, while this surge in bearish sentiment has occurred, which normally denotes a substantial level of fear by investors, there has been no substantial change to actual allocations.

Just some things to think about.

via http://ift.tt/1qWed34 Tyler Durden

In a somewhat stunning decision, SkyNews reports that a US judge has ruled that the families of victims in the 2012 massacre at Sandy Hook Elementary School can sue the maker of the weapon used in the attack, arguing the Bushmaster rifle is a military weapon that should not have been sold to civilians.

As SkyNews reports,

Gun companies had sought to reject the negligence and wrongful death lawsuit filed two years after the attack by nine victims' relatives and a survivor.

 

But Connecticut Superior Court Judge Barbara Bellis said a 2005 federal law protecting gun-makers from lawsuits does not shield the companies from legal action in this case.

 

She ruled that lawyers for the victims' families can still argue the semi-automatic rifle is a military weapon and should not have been sold to civilians.

 

The legal action names Remington Arms, maker of the Bushmaster AR-15 rifle, model XM15-E2S, as well as the distributor and seller.

 

A lawyer for the families, Josh Koskoff, welcomed Thursday's news that the lawsuit can proceed.

 

"We are thrilled that the gun companies' motion to dismiss was denied," he said.

 

"The families look forward to continuing their fight in court."

Gunman Adam Lanza used the Bushmaster to kill 20 children and six adults at the school in Newtown, Connecticut, in December 2012.

Earlier this week a judge ruled that state police do not have to release to media some of Lanza's writings, including his spreadsheet ranking mass murders.

 

Media were also seeking publication of 20-year-old Lanza's notebook titled The Big Book of Granny.

 

It contains a story he wrote in fifth grade featuring a character who likes hurting people, especially children.

So an otherwise totally normal kid driven to massacre by the 'availability' of a weapon? yep makes perfect sense.

via http://ift.tt/1Sd603c Tyler Durden