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Authored by Adem Tumerkan via Palisade Research,

Summary

• I’ve been very critical of the mainstreams ‘growth story’ they continue to push. There are very troubling cracks widening in the economy they seem to ignore.

• The last 15 months has seen U.S. GDP rise, but most of this came from increased exports which has benefited from the declining USD.

• As we learned from the Austrian Economist F.A. Hayek – this is only temporary growth – and the effect of this is rising inflation, which is becoming a problem now.

• This puts the Fed between a rock and hard place – they either fight inflation by hiking rates (which U.S. economy can’t handle) causing a recession…or they let inflation run higher.

• Either way, there is a trade off. And the short-term growth has led us down the road of Stagflation.

There’s been a lot of talk lately about the dollar and the United States’ economy.

I don’t think people realize how the latest ‘growth’ the U.S. has had is superficial – all thanks to a weaker dollar.

Most CNBC pundits don’t even mention how the weaker dollar has given the economy a short-term spurt. And the couple that won’t even acknowledge that it’s temporary.

Let me explain…

A country can weaken their currency to make their exports look more attractive abroad.

Look at these three charts

First – and most importantly – the U.S. dollar has been in a steep decline over the last 17 months – regardless of the recent rally.

Why does this matter?

When a country needs to boost economic growth – a key thing they can do is to weaken their currency. This matters because. . .

1. It will give the nation a trade advantage and make their exports look attractive abroad.

2. The weaker currency will make imports more expensive, discouraging domestic consumers from buying foreign goods.

And since the USD has declined, exports have grown considerably. . .

This is what President Trump has wanted – all this talk of trade deals and trade wars with China is his way of increasing U.S. exports. He wants to make sure when foreigners look at the tags on their products it says “made in America”.

Now, as we’ve learned from the over-rated economist – John Maynard Keynes – when you cheapen your currency and boost exports, it will increase your economic output.

Economic growth = GDP (gross domestic product). . .

The formula for GDP is C (consumption) + G (government) + I (investment) + NX (net-exports).

And if you have more net-growth in any of those four, your GDP will be positive.

But notice the last one – that’s the important key here. Boosting exports will therefore grow the GDP.

“In calculating the GDP, imports and exports are balanced with each other, with the net difference either increasing or decreasing GDP. If exports are greater than imports then GDP increases. This is also called a current account surplus…”

As we saw above, U.S. exports have risen sharply since the currency has weakened.

Let’s see how GDP has done since. . .

It’s been choppy – but the trend is upwards. So it looks like the weakening dollar has helped U.S. growth.

But, here’s the problem – you can’t just cheapen your currency to get never-ending growth. There’s no such thing as a free lunch.

Going back to the teachings from the Austrian School – the nearly forgotten economist F.A. Hayek – the weakening dollar is only temporarily helping GDP. And the longer it goes on for, the more prices will rise throughout the entire economy, negatively affecting it.

This means that the export growth the U.S. has had – which translates into GDP – isn’t sustainable. And as inflation starts trickling into the economy (because all prices don’t rise at the same pace) – the whole will be negatively affected.

Putting this into context – in 2017 roughly 70% of U.S. GDP comes from consumption whereas -4% came from net-exports (this means we imported more than we exported by 4%).

As I wrote at the beginning – the weaker currency dissuades imports and promotes exports – thus increasing net-exports. But with 70% of the U.S. growth driven by consumption, the ongoing inflation will eventually damage the economy.

Not to mention the Fed has tied themselves to the ‘2% inflation’target. So the market will expect them to start aggressively hiking rates once inflation hits 2% – which will most likely send the economy into a recession.

I’ve been writing a lot lately about the economy being much weakerthen the mainstream likes to admit. . .

From subprime auto loan delinquencies soaring, to declining foreign demand of U.S. debt. . .

That’s why I believe the U.S. can’t sustain higher rates. The economy is still very fragile and heading towards an ugly period – known as stagflation.

This is when the economy has constantly increasing inflation and low growth – teetering in and out of recessions. The last time we saw stagflation was during the 1970’s which was known as the ‘lost decade’.

The only way the U.S. was able to escape without imploding was thanks to Henry Kissinger setting up the ‘petro-dollar’ with the Saudis’. And Federal Reserve Chairman Paul Volcker hiking rates all the way up to about 20%.

Imagine today if interest on the record amount of government, auto, college, mortgage, and credit card debt all shot up to 15-20%. . .

The Government could never allow that to happen.

This is a dangerous place to be in for the Fed – they’re stuck between a rock and a hard place. . .

Either they decide to fight inflation and raise rates faster – which will send the economy spiraling into a debt-ridden collapse. Or they decide to ditch their inflation target and let prices rise – in attempt to get more economic growth.

It seems like this outcome was inevitable and all Fed Chairmen do is play hot-potato with each other. Hoping they can keep things going until they don’t have a choice but to do something drastic.

As we learned from F.A. Hayek and the Austrian – who correctly predicted the 1970’s stagflation which the mainstream said would never happen – eventually inflation will get noticed and creditors will start raising interest rates on their own.

If the dollar keeps rising – which I don’t believe it will or can – U.S. exports will fall and imports will rise, negatively affecting GDP and the trade deficit.

Things are going to get choppy…

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In the latest warning to its regional adversaries to stay away, China conducted military drills over – and on – contested islands in the South China Sea, as the People’s Liberation Army air force for the first time landed several strategic bombers on the island and reefs, some man-made, in the region and this time China’s preparation for a revolution (and war) was televised.

According to the Chinese military’s website, multiple bombers took off from a base in southern China and hit a training target before practicing take-off and landing at an airfield built on an unidentified island in the disputed South China Sea.

In a statement, the Chinese Air Force said that “a division of the People’s Liberation Army Air Force (PLAAF) recently organized multiple bombers such as the H-6K to conduct take-off and landing training on islands and reefs in the South China Sea in order to improve our ability to ‘reach all territory, conduct strikes at any time and strike in all directions.”

A pilot involved in the drills told Reuters that the maneuvers were meant to advance military training to “new era,”  and prepare China’s air force for a defense of the region, suggesting that a South China Sea war is an outcome Beijing is increasingly preparing for. And in case the message was lost, the pilot described the exercise as preparation for “the west Pacific and the battle for the South China Sea.”

The drills involved  Xian H-6 strategic bombers, developed on the basis of the Soviet Tupolev Tu-16 aircraft. The reef from where they took off is being used as a relay node that will vastly increasing the range and ability of Chinese strategic aircraft to strike targets far from the South China Sea, and allowing them to police large swaths of the Pacific. The bombers can be refueled and rearmed on the island, per RT.

What made this particular drill unique is that footage of the bombers landing and taking off from the reef was released by Chinese state television, in what was meat to server as a clear warning to potential aggressors: “China is ready to protect its territory“.

The Pentagon criticized the bombing exercises and China’s “continued militarization of disputed features” in the region that only “serves to raise tensions and destabilize it.”

The drills took place shortly after China started sea trials of its first domestically-built aircraft carrier: A 77,000-ton Type 001A vessel, which was built to accommodate the air force’s Shenyang J-15 fighter jets. It’s expected to join the country’s navy by the end of the year.

Admiral Philip Davidson, Trump’s pick to lead the US Pacific Command, has repeatedly warned about China’s growing military presence in the South China Sea. In an unclassified 50-page transcript, Davidson warned that Beijing has the capability and capacity to control the South China Sea “in all scenarios short of war with the United States.”

In prior testimony Davidson also warned that China is seeking “a long-term strategy to reduce the US access and influence in the region.” He claims the US must maintain its critical military assets in the area, adding that he views China as “no longer a rising power,” but rather a “great power and peer competitor to the United States in the region.”

Beijing has been building up its military infrastructure in the Spratly and Paracel archipelagos to tighten its control of the region, despite protests from its neighbors and especially the US.

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Authored by Daniel Lazare via ConsortiumNews.com,

As months turn into nearly two years and no solid evidence emerges to nail Russia for nabbing Election 2016, some big Russiagate cheerleaders are starting to cover their tracks.

The best evidence that Russia-gate is sinking beneath the waves is the way those pushing the pseudo-scandal are now busily covering their tracks. 

The Guardian complains that “as the inquiry has expanded and dominated the news agenda over the last year, the real issues of people’s lives are in danger of being drowned out by obsessive cable television coverage of the Russia investigation” – as if The Guardian’s own coverage hasn’t been every bit as obsessive as anything CNN has come up with.

The Washington Post, second to none when it comes to painting Putin as a real-life Lord Voldemort, now says that Special counsel Robert Mueller “faces a particular challenge maintaining the confidence of the citizenry” as his investigation enters its second year – although it’s sticking to its guns that the problem is not the inquiry itself, but “the regular attacks he faces from President Trump, who has decried the probe as a ‘witch hunt.’”

And then there’s The New York Times, which this week devoted a 3,600-word front-page article to explain why the FBI had no choice but to launch an investigation into Trump’s alleged Russian links and how, if anything, the inquiry wasn’t aggressive enough.  As the article puts it, “Interviews with a dozen current and former government officials and a review of documents show that the FBI was even more circumspect in that case than has been previously known.”

It’s Nobody’s Fault

The result is a late-breaking media chorus to the effect that it’s not the fault of the FBI that the investigation has dragged on with so little to show for it; it’s not the fault of Mueller either, and, most of all, it’s not the fault of the corporate press, even though it’s done little over the last two years than scream about Russia. It’s not anyone’s fault, evidently, but simply how the system works.

This is nonsense, and the gaping holes in the Times article show why.

The piece, written by Matt Apuzzo, Adam Goldman, and Nicholas Fandos and entitled “Code Name Crossfire Hurricane: The Secret Origins of the Trump Investigation,” is pretty much like everything else the Times has written on the subject, i.e. biased, misleading, and incomplete.  Its main argument is that the FBI had no option but to step in because four Trump campaign aides had “obvious or suspected Russian ties.”

Flynn: With Stein at ‘The Dinner’

‘At Putin’s Arm’

One was Michael Flynn, who would briefly serve as Donald Trump’s national security adviser and who, according to the Times, “was paid $45,000 by the Russian government’s media arm for a 2015 speech and dined at the arm of the Russian president, Vladimir V. Putin.”

Another was Paul Manafort, who briefly served as Trump’s campaign chairman and was a source of concern because he had “lobbied for pro-Russia interests in Ukraine and worked with an associate who has been identified as having connections to Russian intelligence.”

A third was Carter Page, a Trump foreign-policy adviser who “was well known to the FBI” because “[h]e had previously been recruited by Russian spies and was suspected of meeting one in Moscow during the campaign.”

The fourth was George Papadopoulos, a “young and inexperienced campaign aide whose wine-fueled conversation with the Australian ambassador set off the investigation. Before hacked Democratic emails appeared online, he had seemed to know that Russia had political dirt on Mrs. Clinton.”

Seems incriminating, eh?  But in each case the connection was more tenuous than the Times lets on.  Flynn, for example, didn’t dine “at the arm of the Russian president” at a now-famous December 2015 Moscow banquet honoring the Russian media outlet RT.  He was merely at a table at which Putin happened to sit down for “maybe five minutes, maybe twenty, tops,” according to Green Party presidential candidate Jill Stein who was just a few chairs away.  No words were exchanged, Stein says, and “[n]obody introduced anybody to anybody.  There was no translator.  The Russians spoke Russian.  The four people who spoke English spoke English.”

The Manafort associate with the supposed Russian intelligence links turns out to be a Russian-Ukrainian translator named Konstantin Kilimnik who studied English at a Soviet military school and who vehemently denies any such connection.  It seems that the Ukrainian authorities did investigate the allegations at one point but declined to press charges.  So the connection is unproven.

Page Was No Spy

The same goes for Carter Page, who was not “recruited” by Russian intelligence, but, rather, approached by what he thought were Russian trade representatives at a January 2013 energy symposium in New York.  When the FBI informed him five or six months later that it believed the men were intelligence agents, Page appears to have cooperated fully based on a federal indictment filed with the Southern District of New York.  Thus, Page was not a spy pace the Times, but a government informant as ex-federal prosecutor Andrew C. McCarthy has pointed out – in other words, a good guy, as the Times would undoubtedly see it, helping the catch a couple of baddies.

Page: No Spy

As for Papadopoulos, who the Times suggests somehow got advance word that WikiLeaks was about to dump a treasure trove of Hillary Clinton emails, the article fails to mention that at the time the conversation with the Australian ambassador took place, the Clinton communications in the news were the 30,000 State Department emails that she had improperly stored on her private computer. These were the emails that “the American people are sick and tired of hearing about,” as Bernie Sanders put it.  Instead of spilling the beans about a data breach yet to come, it’s more likely that Papadopoulos was referring to emails that were already in the news – a possibility the Times fails to discuss.

FBI ‘Perplexed’

One could go on.  But not only does the Times article get the details wrong, it paints the big picture in misleading tones as well.  It says that the FBI was “perplexed” by such Trump antics as calling on Russia to release still more Clinton emails after WikiLeaks went public with its disclosure.  The word suggests a disinterested observer who can’t figure out what’s going on.  But it ignores how poisonous the atmosphere had become by that point and how everyone’s mind was seemingly made up.

By July 2016, Clinton was striking out at Trump at every opportunity about his Russian ties – not because they were true, but because a candidate who had struggled to come up with a winning slogan had at last come across an issue that seemed to resonate with her fan base.  Consequently, an intelligence report that Russia was responsible for hacking the Democratic National Committee “was a godsend,” wrote Jonathan Allen and Amie Parnes in Shattered, their best-selling account of the Clinton campaign, because it was “hard evidence upon which Hillary could start to really build the case that Trump was actually in league with Moscow.”

Not only did Clinton believe this, but her followers did as well, as did the corporate media and, evidently, the FBI.  This is the takeaway from text messages that FBI counterintelligence chief Peter Strzok exchanged with FBI staff attorney Lisa Page.

Andrew McCarthy, who has done a masterful job of reconstructing the sequence, notes that in late July 2016, Page mentioned an article she had come across on a liberal web site discussing Trump’s alleged Russia ties.  Strzok texted back that he’s “partial to any women sending articles about nasty the Russians are.”  Page replied that the Russians “are probably the worst.  Very little I finding redeeming about this.  Even in history.  Couple of good writers and artists I guess.”  Strzok heartily agreed: “f***ing conniving cheating savages.  At statecraft, athletics, you name it.  I’m glad I’m on Team USA.”

Strzok: Thought F’ing Russians ‘nasty’

The F’ing Russian ‘Savages’

This is the institutional bias that the Times doesn’t dare mention.  An agency whose top officials believe that “f***ing conniving cheating savages” are breaking down the door is one that is fairly guaranteed to construe evidence in the most negative, anti-Russian way possible while ignoring anything to the contrary. So what if Carter Page had cooperated with the FBI?  What’s important is that he had had contact with Russian intelligence at all, which was enough to render him suspicious in the bureau’s eyes.  Ditto Konstantin Kilimnik.  So what if the Ukrainian authorities had declined to press charges?  The fact that they had even looked was damning enough.

Clapper: Bogus ‘assessment’

The FBI thus made the classic methodological error of allowing its investigation to be contaminated by its preconceived beliefs.  Objectivity fell by the wayside.  The Times says that Christopher Steele, the ex-MI6 agent whose infamous, DNC and Clinton camp paid-for opposition research dossier turned “golden showers” into a household term, struck the FBI as “highly credible” because he had “helped agents unravel complicated cases” in the past.  Perhaps.  But the real reason is that he told agents what they wanted to hear, which is that the “Russian regime has been cultivating, supporting and assisting TRUMP for at least 5 years” with the “[a]im, endorsed by PUTIN, … [of] encourage[ing] splits and divisions in [the] western alliance” (which can be construed as a shrewd defensive move against a Western alliance massing troops on Russian borders.)

What else would one expect of people as “nasty” as these?  In fact, the Steele dossier should have caused alarm bells to go off.  How could Putin have possibly known five years before that Trump would be a viable presidential candidate?  Why would high-level Kremlin officials share inside information with an ex-intelligence official thousands of miles away?  Why would the dossier declare on one page that the Kremlin has offered Trump “various lucrative real estate development business deals” but then say on another that Trump’s efforts to drum up business had gone nowhere and that he therefore “had had to settle for the use of extensive sexual services there from local prostitutes rather than business success”?  Given that the dossier was little more than “oppo research” commissioned and funded by the Democratic National Committee and the Clinton campaign, why was it worthy of consideration at all?

The Rush to Believe

But all such questions disappeared amid the general rush to believe.  The Times is right that the FBI slow-walked the investigation until Election Day. This is because agents assumed that Trump would lose and that therefore there was no need to rush.  But when he didn’t, the mood turned to one of panic and fury.

Without offering a shred of evidence, the FBI, CIA, NSA, and Director of National Intelligence James Clapper issued a formal assessment on Jan. 6, 2017, that “Putin ordered an influence campaign in 2016 aimed at the US presidential election … [in order] to undermine public faith in the US democratic process, denigrate Secretary Clinton, and harm her electability and potential presidency.”  The “assessment” contains this disclaimer: “

The New Yorker reports that an ex-aide to John McCain hoped to persuade the senator to use the Steele dossier to force Trump to resign even before taking office.  (The ex-aide denies that this was the case.)

When FBI Director James Comey personally confronted Trump with news of the dossier two weeks prior to inauguration, the Times says he “feared making this conversation a ‘J. Edgar Hoover-type situation,’ with the FBI presenting embarrassing information “to lord over a president-elect.”

But that is precisely what happened. When someone – most likely CIA Director John Brennan, now a commentator with NBC News – leaked word of the meeting and Buzzfeed published the dossier four days later, the corporate media went wild. Trump was gravely wounded, while Adam Schiff, Democratic point man on the House Intelligence Committee, would subsequently trumpet the Steele dossier as the unvarnished truth.  According to the Times account, Trump was unpersuaded by Comey’s assurances that he was there to help.  “Hours earlier,” the paper says, “…he debuted what would quickly become a favorite phrase: ‘This is a political witch hunt.’”

The Times clearly regards the idea as preposterous on its face.  But while Trump is wrong about many things, on this one subject he happens to be right.  The press, the intelligence community, and the Democrats have all gone off the deep end in search of a Russia connection that doesn’t exist.  They misled their readers, they made fools of themselves, and they committed a crime against journalism.  And now they’re trying to dodge the blame.

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Friday’s outing of longtime CIA and MI6 asset Stefan Halper as an FBI asset sent to infiltrate the Trump campaign has social media abuzz today. Reactions have ranged from celebration to outrage, with little inbetween. 

To recap, after two weeks of hunting for a “mole” in the Trump campaign, the New York Times and Washington Post both printed incredibly detailed descriptions of Halper – withholding all but his name, solidly corroborating a March report by the Daily Caller‘s Chuck Ross about Halper’s meetings with the Trump aides. Neither publication give Ross credit, of course. 

Somehow several anti-Trump intellectuals got their wires crossed, conflating President Trump and Senate Intel Committee Chair Devin Nunes’ calls for transparency by the DOJ, with the actual media outlets that exposed Halper.

Senior Brookings Institute fellow, and James Comey’s close friend, Benjamin Wittes is beside himself – angrily tweeting: “I have a whole lot to say about how the chairman of the House Intelligence Committee and the President of the United States teamed up to out an intelligence source…,” adding in a subsequent tweet “But I am too angry to write right now—and Twitter is probably not the right forum. So I’ll leave it at this for now: Important people defiled their oaths of office for these stories to appear.”

I have a whole lot to say about how the chairman of the House Intelligence Committee and the President of the United States teamed up to out an intelligence source who aided our country in a properly predicated counterintelligence investigation against a hostile foreign power.

— Benjamin Wittes (@benjaminwittes) May 19, 2018

To which Paul Krugman replied: “We’ve basically crossed the line into treason now — and a whole party is acquiescing” 

We’ve basically crossed the line into treason now — and a whole party is acquiescing https://t.co/zZdhidfFR3

— Paul Krugman (@paulkrugman) May 19, 2018

Maybe Paul… there is just one problem:

Krugman says it’s treason to out Halper — but the NYT and WaPo outed him based on DoJ leaks… https://t.co/2B6QJIJmeH

— Steve Robinson (@BigSteve207) May 19, 2018

Others have noted that Halper, a longtime asset of MI6 and US Intelligence – is a rabid Trump hater who openly supported Hillary Clinton during the 2016 US election.

“I believe [Hillary] Clinton would be best for US-UK relations and for relations with the European Union,” Clinton is well-known, deeply experienced and predictable. US-UK relations will remain steady regardless of the winner although Clinton will be less disruptive over time,” Halper, who served as deputy assistant secretary of state for political-military affairs and senior adviser to the Department of Defense and the Department of Justice, said.

Listen to Stefan Halper describe how much he hates Trump in this 2017 interview https://t.co/jzF4wxJVFM

— Jack Posobiec🇺🇸 (@JackPosobiec) May 19, 2018

I see none of these people thought to ask anyone about “Stefan Halper” before meeting with him

— Jack Posobiec🇺🇸 (@JackPosobiec) May 19, 2018

Yet others noted that the FBI’s Russia “investigation” into Trump didn’t seem to extend to Hillary Clinton. We would remind readers that her campaign chair, John Podesta, sat on the board of Massachusetts energy company Joule Unlimited, along with senior Russian official Anatoly Chubais and Russian oligarch Ruben Vardanyan – who was appointed by Vladimir Putin to the Russian economic council. 

Two months after Podesta joined the board, Joule managed to raise $35 million from Putin’s Kremlin-backed investment fund Rusnano. Not only did John Podesta fail to properly disclose this relationship before joining the Clinton Campaign, he transferred 75,000 shares of Joule to his daughter through a shell company using her address.

We’re sure the FBI was all over that… 

Weird how they didn’t “protect” Hillary. https://t.co/uyIcFXXEZm

— Arthur Schwartz (@ArthurSchwartz) May 19, 2018

FBI opened a CI investigation in the absence of any (a) incriminating evidence, or (b) evidence implicating the Trump camp in Russian espionage. The FBI collaborated w/ CIA to probe an American political camp using foreign-intel surveillance & informants. Bigger than Watergate…

— Nick Short 🇺🇸 (@PoliticalShort) May 19, 2018

Stefan Halper, the spy placed into the Trump campaign to entrap and smear was also an MI-6 asset.

Questions for @Comey:

What’s his relationship with Christopher Steele?

Was he paid by Fusion GPS?

Was he paid by FBI part and parcel to the deal they cut with Steele?

— John Cardillo (@johncardillo) May 19, 2018

The media accuses Nunes of wanting to get an informant killed. Then the media continually leaks details about said informant. Pick a side guys! https://t.co/PG5NCS9neP

— Benjamin Weingarten (@bhweingarten) May 19, 2018

Even Midtown Manhattan bars were abuzz with people shaking their heads over the FBI’s double-standards and ham-handed investigation. 

Last night all the guys at my regular bar in Midtown—not by any means a lunch-bucket institution, if you will—were saying the FBI thing has gone too far and enough with elite institutions trying to undo the result of a democratic election.

This is in Midtown Manhattan[!!!].

— Sohrab Ahmari (@SohrabAhmari) May 19, 2018

THE FAT SPY:
Starring Stefan Halper

an ObamaGate production. pic.twitter.com/ZPHn8V6Q8D

— thebradfordfile™ (@thebradfordfile) May 19, 2018

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Authored by Michael Snyder via The Economic Collapse blog,

In recent years, the number of people moving away from the state of California has greatly outnumbered the number of people moving into the state.  Reasons for the mass exodus include rising crime, the worst traffic in the western world, a growing homelessness epidemic, wildfires, earthquakes and crazy politicians that do some of the stupidest things imaginable.  But for most families, the decision to leave California comes down to one basic factor…

Money.

For a lot of Californians, it simply does not make economic sense to remain in the state any longer.  So over the past decade approximately 5 million people have picked up and moved to another state, and many believe that this trend is going to accelerate if California does not start doing things differently.  The following is from an excellent article by Kristin Tate, the author of a new book entitled “How Do I Tax Thee?: A Field Guide to the Great American Rip-Off“…

The largest socioeconomic segment moving from California is the upper-middle class. The state is home to some of the most burdensome taxes and regulations in the nation. Meanwhile, its social engineering — from green energy to wealth redistribution — have made many working families poorer. As California begins its long decline, the influx outward is picking up in earnest.

I don’t know anyone that enjoys being taxed at extremely high levels, and in California extracting more and more revenue from the citizens has become an art form.  California’s highest marginal tax rate is now a whopping 13.3 percent, and on average taxpayers are hit with a 9.3 percent rate…

Taxes also are much lower in Arizona than California. California residents pay nearly twice as much in state income taxes. The individual income tax rate is 4.54 percent in Arizona. It’s 9.3 percent in California, according to the Arizona Sun Corridor.

Under the old rules, the tax burden imposed upon Californians was mitigated by federal rules allowing for the deduction of state taxes.  But now the new tax bill has made some major changes, and some experts believe that this will actually accelerate the exodus out of the state of California.  The following comes from CNBC…

In an op-ed in the Wall Street Journal headlined “So Long, California. Sayonara, New York,” Laffer and Moore (who have both advised President Donald Trump) say the new tax bill will cause a net 800,000 people to move out of California and New York over the next three years.

The tax changes limit the deduction of state and local taxes to $10,000, so many high-earning taxpayers in high-tax states will actually face a tax increase under the new tax code.

Of course taxation is only part of the equation.

For many, the exceedingly high cost of housing in California is the primary reason that they have chosen to leave.  At this point, the average price of a home in California is more than $200,000 above the national average…

According to Zillow, the average price for a home in the U.S. was $261,000 in February 2018. The average home price in California was $469,000. In Oklahoma, it was $116,000.

And that $469,000 figure is for the state as a whole.

In Santa Clara County (the home of Google and Apple), the median price of a single family home is 1.4 million dollars.

Yes, you read that correctly.

In some areas of northern California, the housing bubble is completely out of control.  For example, just recently a burned out husk of a home sold for more than $900,000…

Real estate agent Holly Barr says she’s never had a listing generate as much attention as the one on Bird Avenue in the San Jose neighborhood of Willow Glen. The house caught fire two years ago during a remodeling job. What was left was a burned-out husk of a California bungalow sitting on 5,800 square feet of land.

When Barr put the property on the market in April for $800,000, the listing made international headlines. It sold for over $900,000 — in less than a week. The burned down house will be razed and a new property will be built there that will likely sell for far more.

Well, if families cannot afford to buy a home, why don’t they just rent?

Unfortunately, we have seen rents spiral completely out of control as well…

The median monthly rent for a one-bedroom apartment in the Los Angeles area is $2,249, and in San Francisco it’s almost $3,400, according to Zumper. The median rent for a two-bedroom apartment in the Los Angeles area is $3,200 and in San Francisco about $4,500. By comparison, the median rent for a one-bedroom in Las Vegas is $925 and in Phoenix $945, and for a two-bedroom in Las Vegas $1,122 and in Phoenix $1,137.

Ouch.

Sadly, rapidly rising prices have greatly contributed to the homelessness epidemic that California is dealing with right now.

Even though we are supposedly in an “economic recovery”, the number of homeless people in Los Angeles has risen by an astounding 50 percent over the last five years…

The homelessness issue has achieved a special distinction in Los Angeles. Having increased 50% during the past five years, “it’s supplanted traffic as the topic everyone talks about,’’ says Tom Waldman, spokesman for regional homeless agency.

The homeless are as visible as the Hollywood sign. More than two years after Mayor Eric Garcetti declared a “state of emergency,’’ about 41,000 are “unsheltered’’ — sleeping in cars, outside City Hall, under freeway overpasses. The Los Angeles Times calls it “a human tragedy of extraordinary proportions.’’

And it isn’t just families that are leaving.

In fact, sometimes entire companies are picking up and relocating to another state.  For example, Price Pump Manufacturing Co. is leaving the Golden State and is heading for Idaho…

Price Pump Manufacturing Co., an 86-year-old company that has operated in Sonoma for 70 years, bought 6 acres of land in the Sky Ranch Business Center for about $86,000. The company plans to build a 40,000-square-foot plant at the industrial site east of Interstate 84 and south of Franklin Road.

The high cost of manufacturing in California made it more difficult to compete with other sellers in the United States and across the globe, president and CEO Bob Piazza said. He said the marketplace helps determines prices, and Price Pump could not simply raise prices to maintain a reasonable return on investment.

And I found another article today about a company that has decided to leave California and is relocating to Phoenix, Arizona…

A company that manufactures workbenches and lab furniture is relocating to Goodyear, near Phoenix, Arizona, to save money, while creating 30 new jobs in Arizona.

Matt McConnell, director of sales and marketing for IAC Industries, said the move will increase the stability and longevity of his business. IAC is located in Brea, California.

“The commercial property costs in California versus the commercial property costs in other states” made the decision easy, he said.

As long as tech giants such as Google and Apple are thriving, the trends that are driving such dramatic change in the state are likely to continue.

So we are likely to continue to see a very large exodus out of California, and those that are leaving will continue to fundamentally change the communities that they are moving into.

Because there is such a disparity between the number of people moving out and the number of people moving in, it actually costs nearly twice as much to take a U-Haul from California to Texas as it does to take a U-Haul from Texas to California…

The cost of popular moving truck services, like U-Haul, is largely created through the ironclad rules of supply and demand. Turns out, there is much higher demand for trucks leaving high-tax blue states heading to low-tax red states than vice versa.

A route from California to Texas, for example, is more than twice as expensive as a route from Texas to California. Want to go from Los Angeles to Dallas? $2,558. Returning back? $1,232.

Once upon a time, millions of young Americans dreamed of moving to California.  It was a land of gorgeous weather, movie stars and endless opportunity.

But now the California Dream has turned into the California nightmare, and people are heading out of the state in droves.

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A day after the deadliest high school shooting since the Valentine’s Day massacre at Parkland High School, details about shooter Dimitrios Pagourtzis are starting to trickle out.

And in one of the most shocking revelations, the Wall Street Journal reports that Pagourtzis spared students that he liked so they could “tell his story.”

According to a search of his computer, diaries and cellphone, police revealed that Pagourtzis, a former high school football player, had initially planned to commit suicide after Friday’s shooting – but he instead surrendered to police.

Pagourtzis intended to kill certain students that he didn’t like, but he wanted others to survive, according to the WSJ.

The probable cause document, which was released by the Galveston County District Attorney’s Office, provides a comprehensive accounting of the response from multiple federal and local law enforcement agencies.

The report contained several grisly details. For example, at 7:32 am Friday morning, one officer described discovering two dead victims in a classroom while clearing the school. Another told of seeing several students suffering from gunshot wounds.

The report also provided a comprehensive accounting of Pagourtzis’ movements during the assault.

At 8:02 am, roughly 30 minutes after the reports of the shooting started, Pagourtzis exited “Art Lab 2 classroom of the Santa Fe High School and surrendered.”

Pagourtzis, in custody on capital murder charges, had no criminal record and hadn’t previously displayed signs of instability, but authorities found journals on his computer and cellphone saying he wanted to carry out the shooting and commit suicide afterward, Texas Gov. Greg Abbott said.

As we pointed out yesterday, those killed were mostly students, and the wounded included a police officer. He was in critical condition after major blood loss from a gunshot wound in his elbow, according to a doctor at University of Texas Medical Branch in Galveston.

The shooting has inspired Texas Governor Greg Abbott to soften his view on background checks and other measures to keep guns out of the hands of students. He said he would convene discussions with lawmakers, educators, students, parents and Second Amendment advocates, starting next week, to take action to prevent such attacks in the future.

“We need to do more than just pray for the victims and the families,” the Republican governor said.

His response Friday was a marked shift from the killing of 26 people at a Baptist church in Texas in November, when he proclaimed a day of prayer.

Police said they searched two residences linked to the suspect: They also found explosive devices at a home and in a vehicle. They’re currently interviewing two other people of interest.

The shooting, which took place two weeks before the end of the school year, left students rattled.

John Robinson, 16, a sophomore at the school, said six friends were in the classroom where the shooting took place, and he felt “shook” while he awaited information about their condition.

“Why my town? Small-town Santa Fe. Not a lot happens here,” he said.

Hannah Hershey, an eighth-grader at Santa Fe Junior High, spent much of Friday praying for two friends she heard had been shot.

“It’s hard to know something like that could happen so close by,” Ms. Hershey said, adding she had seen her friends Thursday at pole-vaulting practice. “It’s so weird seeing them one minute and then hearing they’ve been shot and they’re at the hospital now.”

[…]

Rome Shubert walked into art class Friday morning at 7:03 a.m., as he usually does, to finish a project before school started.

A star pitcher on the baseball team who had thrown 11 strikeouts in the team’s playoff game the night before, Mr. Shubert said he heard a loud pop from the hallway but thought nothing of it at first.

[…]

Mr. Shubert said he saw the shooter’s legs, covered by a trench coat, as he walked past him and fired at the ground near him. At first he thought the shots may have been blanks to scare the students, but realized the rounds were live when he saw a bloodied student behind him.

Acting on pure adrenaline, he said, he sprinted to a rear exit in the room and bounded over a 7-foot wall. That’s when Mr. Shubert realized he was covered in blood and he had been shot. “I’m just glad I’m alive,” he said.

Meanwhile, villagers in the Greek town where his father grew up expressed shock at Pagourtzis’s actions, according Reuters.

“We’re lost for words. We did not expect this,” said Costas Spanos, president of the Magoulitsa community, a tiny village in central Greece with just over 500 residents where his father, Antonios Pagourtzis, was born.

“We’re in shock. We’re a small community and this makes us look very bad,” he told Reuters over the telephone.

Pagourtzis rarely visited the village. Locals say they saw him recently, but couldn’t remember if it was last summer or the summer before.

He is currently being held on capital murder charges.

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Authored by Molly Jane Zuckerman via CoinTelegraph.com,

Iran and Russia could start using cryptocurrencies to avoid Western sanctions, Russian news portal RBC reported yesterday, May 17.

image courtesy of CoinTelegraph

Mohammad Reza Pourebrahimi, the head of the Iranian Parliamentary Commission for Economic Affairs, referred to cryptocurrencies as a promising way for both countries to avoid US dollar transactions, as well as a possible replacement of the SWIFT interbank payment system.

At a meeting with Dmitry Mezentsev, the Chair of the Federation Council Committee on Economic Policy, Pourebrahimi said that they have “engaged the Central Bank of Iran to start developing proposals for the use of cryptocurrency.”

Pourebrahimi added that he discussed this topic in the State Duma’s Committee on Economic Policy the day before and that Iran had established cooperation with Russia on this issue:

“They [Russia] share our opinion. We said that if we manage to move this work forward, then we will be the first countries that use cryptocurrency in the exchange of goods.”

In turn, Mezentsev noted that “interbank relations between our countries should be of great importance” against the backdrop of international sanctions currently in place against both Russia and Iran. The meeting of the interbank working group on financial and interbank cooperation will be held in Tehran on July 5 of this year, RBC reports.

Last week, Pourebrahimi had reported that without access to the international banking system, Iranian citizens have so far succeeded in siphoning a staggering $2.5 bln out of the country in crypto.

Venezuela, another country facing international sanctions, recently released its own oil-backed cryptocurrency, the Petro, in a move that some critics saw as an illegal way to enter the international financial markets. After the Petro’s launch, both Turkey and Iran had expressed interest in releasing their own state-backed cryptocurrencies as well, with Russia’s own CryptoRuble reportedly set to launch in mid-2019.

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Something odd took place one month ago, when the PBOC announced on April 17 that it would cut the reserve requirement ratio (RRR) by 1% to ease financial conditions: it broke what until then had been a rangebound market for both the US Dollar and the US 10Y Treasury, sending both the dollar index and 10Y yields soaring…

… which led to an immediate tightening in financial conditions both domestically and around the globe, and which has – at least initially – manifested itself in a sharp repricing of emerging market risk, resulting in a plunge EM currencies, bonds and stocks.

Adding to the confused market response, this violent move took place at the same time as geopolitical fears about Iran and Syria, and concerns about a new war in the middle east, sent oil soaring – with Brent rising above $80 this week for the first time since 2014 – a move which is counterintuitive in the context of the sharply stronger dollar, and which has resulted in even tighter financial conditions for emerging market importers of oil, which with the exception of OPEC nations, is virtually all of them.

Meanwhile, all this is playing out in the context of a world where the Fed continues to shrink its balance sheet – a public sector “public Quantitative Tightening (QT)” – further tightening monetary conditions (i.e., shrinking the global dollar supply amid growing demand), even as high grade US corporate bond issuance has dropped off a cliff for cash-rich companies, which now opt to repatriate cash instead of issuing domestic bonds, with the resulting private sector deleveraging, or “private sector QT”, further exacerbating the tighter monetary conditions.

And while the latest incarnation of the dollar’s “impossible trilemma” – rising dollar, rising oil, rising yields (not to be confused with its conventional Chinese variant) makes a short, if perplexing appearance, ultimately it’s all about the value of the dollar, and its impact on downstream assets and volatility.

This is also the point made by Deutsche Bank’s derivatives expert Aleksandar Kocic, who writes that in the context to the Fed’s normalization and monetary policy fine tuning, the “USD is emerging as the key variable — it presents a compact summary of the underlying macro risks that could destabilize the current Fed path.” In other words, the last thing the Fed wants right now as it accelerates its balance sheet normalization, is a sharp spike in the dollar. And yet, that’s precisely what it has gotten. Kocic explains:

A strong USD corresponds to generally hawkish Fed in an environment where the US is recovering fast while the rest of the globe is still too slow or recessionary, or that the Fed is pushing rates above the neutral and causing excessive tightening of financial conditions and potentially triggering recession. A weak USD path, on the other hand, can materialize either as an inflation or credit (twin deficits) risk, a troubling possibility to which there is no adequate policy response.

For Kocic, the relative strength of the dollar is the exogenous event that could awake markets from their peaceful slumber, resulting in a violent reappraisal of monetary conditions as the Fed quietly undoes the biggest monetary experiment in history, or as he puts it, “although unwind of stimulus and Fed exit continue without disrupting the markets, the underlying stability remains local, threatened potentially by the tail risk.”

For now, the DB strategist notes, “the current market configuration appears to be cooperating with the Fed’s efforts in either scenario” and “market positioning and flows are likely to cause offsetting pressure to each macro risk and therefore help stability of the system.”

In particular, strong USD, which is bullish for bonds, in terms of global sponsorship, is also bearish for EM currencies and reserve managers there are likely to defend local currencies by selling US assets, which goes against macro. Similarly, their response to weaker USD would stabilize bear steepeners on the back of defending their exports through stabilization of EM currencies and support for the US long end.

The bigger problem, one discussed by Kocic previously, and which also takes the shape of the yield curve in consideration, is that with every passing day of normalization manifesting itself in bear flatteners, the market gets closer to the tipping point of duration decrease in which a rotation from risk assets into the short-end of the curve threatens a forced “price discovery” of the new “Fed put” (which Kocic recently calculated was in the 2,300-2,400 range).

So in this context of a creeping bear flattener, Kocic observes that together with the stronger USD, these two discrete trends have a potential to create more volatility and discomfort across all market sectors than bear steepeners if they both remain localized and do not trigger tail risk.

How does this look schematically? Luckily, the Deutsche Banker has come up with a handy flowchart showing the next steps in how the stronger dollar could lead to an “explosive” move in not only the front end of the curve, but across all markets:

Causality chain of strong USD and its potential knock-on effect is shown in the chart. We start at the lower left corner. Fed hikes and strong USD open up the EM dilemma: Facing the outflows or defending the currency at expense of stifling the growth. This implies both, more volatility and potential sell off in EM, and bearish pressure on the long end of the UST that would offset the underlying bid for US bonds (strong USD is bullish). Turbulence in EM could have a knock-on effect on risk assets in the US.

Why is the above critical? Because if the cycle were to play out, it would result in the same set of conditions which led to a global bear market back in 2015 in the aftermath of China’s devaluation (odd, there’s China again precipitating a global market crisis):

An example is the 2015 episode where asset managers faced redemptions due to EM losses and had to sell the best performing assets (US equities) to cover those costs. This means more turbulence in developed markets and possible tightening of financial conditions, which could question the strength of the USD and possibly push Fed to take a pause.

But the real punchline is just how trapped the Fed now is, because should Powell “relent” and hint that the Fed may take a break in order to spare EMs and stocks, well the result would be an avalanche of short covering in the Eurodollar market, one which would lead to an even more dramatic, or as Deutsche calls it “explosive” move in the short end:

Given record shorts on the Eurodollar curve (Figure), Fed pause is likely to trigger unwind of these position which could be explosive and the front end of the curve could rally hard.

The punchline: the dollar surge, catalyzed by the April 17 PBOC RRR cut, has launched a feedback loop which, very much like the Chinese 2015 devaluation, culminates in one of two possible disastrous – for the Fed – outcomes: a collapse in EMs should dollar strength not be arrested, which morphs into a broad-based liquidation of all risk assets  (this would require at least verbal Fed intervention) or if the Fed relents, again, as it did in 2016 with the Shanghai Accord, it threatens to crush the biggest ED net spec position ever, leading to trillions in paper losses:

The EPFR data reflecting the ETF and Mutual Funds Flows show continued outflows from the emerging markets and inflows into the short end of the UST curve, which is only increasing the stress in this sector. So, although we should see continued stability at the long end of the curve due to offsetting pressures between macro and flows, a slow grind of the front end, if persists, could morph into a volatile whipsaw. Further strength in the USD and the front end sell off on the back of more hawkish Fed could be potentially bearish for risk assets and act as a trigger for rates reversal.

In short, while the Fed has found itself trapped before, it is only the spike in the dollar that has now forced the Fed to act – with either decision, further hawkishness or a dovish relent, leading to major market pain. And the longer the Fed delays making the key decision, the more painful the outcome will be.

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