Hackers Can Now Cause Blackouts On America’s Electrical Grid, Report

Authored by Rick Moran via AmericanThinker.com,

It was inevitable that someday, hackers would have the ability to exert control over the U.S. electrical grid.  According to the computer security firm Symantec, someday is today.

Hacking attacks over the last several months that targeted U.S. energy companies have been able to gain "operational control" over systems, thus threatening blackouts across the U.S., says Symantec.

 The hacker group known as DragonFly 2.0 was able to gain control in at least 20 places, according to the firm.

Wired:

Symantec on Wednesday revealed a new campaign of attacks by a group it is calling Dragonfly 2.0, which it says targeted dozens of energy companies in the spring and summer of this year. In more than 20 cases, Symantec says the hackers successfully gained access to the target companies' networks. And at a handful of US power firms and at least one company in Turkey – none of which Symantec will name – their forensic analysis found that the hackers obtained what they call operational access: control of the interfaces power company engineers use to send actual commands to equipment like circuit breakers, giving them the ability to stop the flow of electricity into US homes and businesses.

 

"There's a difference between being a step away from conducting sabotage and actually being in a position to conduct sabotage … being able to flip the switch on power generation," says Eric Chien, a Symantec security analyst. "We're now talking about on-the-ground technical evidence this could happen in the US, and there's nothing left standing in the way except the motivation of some actor out in the world."

 

Never before have hackers been shown to have that level of control of American power company systems, Chien notes. The only comparable situations, he says, have been the repeated hacker attacks on the Ukrainian grid that twice caused power outages in the country in late 2015 and 2016, the first known hacker-induced blackouts.

 

Security firms like FireEye and Dragos have pinned those Ukrainian attacks on a hacker group known as Sandworm, believed to be based in Russia. But Symantec stopped short of blaming the more recent attacks on any country or even trying to explain the hackers' motives. Chien says the company has found no connections between Sandworm and the intrusions it has tracked. Nor has it directly connected the Dragonfly 2.0 campaign to the string of hacker intrusions at US power companies – including a Kansas nuclear facility – known as Palmetto Fusion, which unnamed officials revealed in July and later tied to Russia.

 

Chien does note, however, that the timing and public descriptions of the Palmetto Fusion hacking campaigns match up with its Dragonfly findings. "It's highly unlikely this is just coincidental," Chien says. But he adds that while the Palmetto Fusion intrusions included a breach of a nuclear power plant, the most serious DragonFly intrusions Symantec tracked penetrated only non-nuclear energy companies, which have less strict separations of their internet-connected IT networks and operational controls.

The first question I would want answered is, if they have that sort of control, why not exercise it?  Why no blackouts or service interruptions in the U.S.?

Hacking Sony or another private business is one thing.  Fooling with our electrical infrastructure is many orders of magnitude more serious.  If a sovereign nation were behind such an event, it would be tantamount to a declaration of war.  Unless the attacking nation was supremely confident that the hack couldn't be traced back to it, the nation would be unlikely to attempt it.

Causing a blackout in a major urban area would almost certainly result in many deaths.  We know this from previous blackouts in New York City, where the 2003 power outage is estimated to have resulted in 100 deaths.  This would be intolerable, and if the attack could be traced back to Russia or China, it would result in retaliation by the U.S.  We're no slouches ourselves when it comes to cyber-warfare, and we could almost certainly make any country pay dearly.

But in a time of war, that kind of control over our electrical grid could wreak havoc and sow confusion and fear among the populace.  In the meantime, it would behoove the government to work with industry to harden our systems to prevent that kind of catastrophe.

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Deutsche: “Recession Risk Is The Highest In Ten Years; It’s Time For The Fed To Pause Tightening”

Even before Harvey and Irma were set to punish Texas and Florida, erasing at least 0.4% GDP from Q3 GDP according to BofA and costing hundreds of billions in damages (contrary to the best broken window fallacy, the lost invested capital more than offsets the “flow” benefits from new spending, which is why the US does not bomb itself every time there is a recession to “stimulate growth”), things were turning south for the US economy, so much so that according to the latest Deutsche Bank model, which looks at economic data that still has to incorporate the Irma/Harvey effects, the risk of a recession starting in the next 12 months is near the highest it has been since the last recession.

As Deutsche Bank’s Dominic Konstam writes, at first glance, the modeled probability is admittedly low at about 8% as of the end of August (down a touch from near 10% in June), but it has been generally trending higher despite a brief post-election dip. As a result, the bank “sees appeal to buying SPX put spreads and bull flatteners in Eurodollars given the emergence of downside risks.”

How does Deutsche estimate recession risk?

“We use a probit model to estimate the probability that a recession will start in the next 12 months using the 1s10s Treasury yield curve, the unemployment rate less CBO’s NAIRU, annual core CPI ex-shelter inflation, aggregate hours worked growth, and the year-on-year change in oil prices. Unemployment’s proximity to NAIRU and soft core inflation are the key factors contributing to the appearance of some recession risk currently. Aggregate hours worked remains on a relatively healthy trend and oil prices are slightly positive year-on-year, however. While it has flattened significantly, the yield curve is also relatively steep.”

On the other hand, as we discussed two months ago when observing the imminent Y/Y contraction in C&I loans, traditionally a guaranteed leading indicator of future recessions, other metrics demonstrate a far higher recession risk:

Konstam admits as much, saying that “if we look elsewhere we can find reasons to believe our 8% estimate is too conservative. We noted the slowing in C&I loan growth last week, which has rolled over from a recent peak near 13% to just 1.6% y/y at the end of July. This type of rolling over is consistent with what is typically seen during recessions, not in the build up to them. As we’ve noted, Fed reserve draining against the backdrop of a flat yield curve and potentially tepid loan demand may simply result in an outright contraction of bank lending as banks choose cash assets over loans, which would push this indicator further into what would be “recession levels” by historical standards.”

When considering the more practical recession indicators, the Deutsche economist concedes that when working with the bank’s rates strategy team, who previously produced a recession probability model that used the yield curve adjusted for the level of yields, shown a few higher recession probability:

Regressing the curve on front end rates shows that the curve is quite flat versus the level of short rates, and when we re-estimate our recession probability model using this metric instead we find a recession risk closer to 20%, having been as high as 25% in the Brexit aftermath. Outside of the last several years, such divergence between the two recession probability estimates has been highly unusual.

So what does the above mean for risk asset returns? Here is Konstam’s answer for equities:

Given its construction and purpose to predict recessions over the next 12 months, there should be some forward looking information for asset returns. There is some evidence of a bias in risk assets in the months following a recession probability of greater than 15% (as is currently reflected in the adjusted yield curve probit model). On a 6m look ahead, the S&P sells off 32% of the time since 1968, but that rises to 45% in the 6m following a recession probability of at least 15%, and the median return falls about 2%. A recession probability of 30% is consistent with the S&P selling off 50% of the time. In addition to the negative skew to returns, delivered volatility rises more frequently in instances of an elevated recession probability. We have previously discussed the risk of volatility/ risk-off feedback loops, which the modeled recession risk suggests are a higher likelihood in the months ahead.

Next, for junk bonds:

High yield widening increases in frequency from 47% to 65% (since 1985) after conditioning on a 15% recession probability, and the median 6m change is a 40bp widening (versus ~10bp tightening unconditionally). Note in high yield there is a significant increase in probability of widening up to +250 bps (to date recent widening is quite muted, around +30 bps). Despite these biases in risk assets, there is less evidence of any consistent behavior in yields or FX when the recession probability breaks above a given threshold.

The biggest take-home message, however, is what these rising recession odds mean for the Fed’s upcoming tightening actions, and while there is a discrepancy between various measures and indicators of recession risk which in turn complicates the ability to draw a firm conclusion, there are enough warning signs for Deutsche Bank to say that this uncertainty in and of itself “furthers our argument that the Fed would do well to take a pause in its tightening for the time being.” 

In other words, a Fed Funds rate just above 1.00% may be all the massively levered US economy can take before rolling over into recession, something first suggested by the various R-star analyses conducted here in 2015. It also means that in just a few months the US may be discussing NIRP and QE4 all over again.

DB’s conclusion: “while we are relatively optimistic in our medium term equity view – falling equity risk premia in a low inflation equilibrium world mean equities are more likely to rally to bonds than bonds sell-off to equities – we maintain our near-term caution. While we don’t see recession as imminent, the blinking yellow lights mean that upside may be contained for now.”

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“It’s A Killer” – Florida Orders A Third Of The Population To Evacuate As Irma Hurtles Toward Tampa

Florida’s highways and backroads are clogged with motorists after Gov. Rick Scott has ordered an unprecedented 6.2 million residents of central and southern Florida to evacuate. Meanwhile, Miami, along with many towns and cities along the state’s southeastern coast, resembles a ghost town, according to the New York Post.

To recap: The category 4 storm has already carved a path of destruction through the Caribbean, leaving 90% or Barbuda uninhabitable and nearly a million people without power in Puerto Rico. And now, with the storm’s outer bands already battering the southern part of the state, meteorologists are saying Irma has suddenly shifted westward and is now heading toward Florida’s Gulf Coast – specifically, the Tampa Bay area.

Here’s the Associated Press:

Forecasters expect Irma’s core to come ashore Sunday and strike the Keys, southwestern Florida and the Tampa Bay region, which hasn’t felt a major hurricane since 1921. The eye is expected to miss heavily-populated Miami, which may have dodged a bubble in the last minute, but that area will still get life-threatening hurricane conditions even without a direct hit, Hurricane Center spokesman Dennis Feltgen said.

Irma weakened slightly to Category 3 with maximum sustained winds of 125 mph on Saturday morning, but it was expected to pick up strength again as it closes in on Florida.

Damaging winds bombarded Key Biscayne and Coral Gables on Saturday morning with gusts of up to 56 mph (90 kph) recorded at Virginia Key, near Miami, according to the National Weather Service.

It's not just the wind that is deadly, the storm surge could well be life-threatening too…

In one of the country’s largest evacuations, a record 6.2 million people in Florida, or 30% of the state’s population, have been ordered to leave, and another 540,000 were ordered out on the Georgia coast. Authorities opened hundreds of shelters for people who did not leave. Meanwhile, South Carolina Gov. Henry McMaster issued evacuation orders for Hilton Head Island and six of the state's other barrier islands, according to the Associated Press. Hotels as far away as Atlanta were filling up with evacuees.

 

 

Scott warned that those who choose to stay will be on their own, before urging everybody in the Keys to get out as fast as possible.

“If you are planning to leave and do not leave tonight, you will have to ride out this extremely dangerous storm at your own risk,” Florida Gov. Rick Scott said Friday.

 

"It's getting late … if you're not on the road on the west coast by noon you need to get to a shelter…get off the road,"

Ray Scarborough and girlfriend Leah Etmanczyk left their home in Big Pine Key and fled north with her parents and three big dogs to stay with relatives in Orlando. Scarborough was 12 when Hurricane Andrew hit in 1992 and remembers lying on the floor in a hallway as the storm nearly ripped the roof off his house.

“‘They said this one is going to be bigger than Andrew. When they told me that, that’s all I needed to hear,’ said Scarborough, now a 37-year-old boat captain. “That one tore everything apart.”

Their house in the Keys, up on 6-foot (1.8-meter) stilts, has flooded before.

“This isn’t our first rodeo. Andrew was a wicked storm. Wilma was a wicked storm. This one is going to be worse. Then we’ll go home and rebuild, like we always do,” said Etmanczyk, a 29-year-old teacher.”

While it might take some residents along the state’s gulf coast by surprise, the storm’s westward shift means “a less costly, a less deadly storm,” according to University of Miami. Still, forecasters warned that Irma’s winds could reach from coast to coast, testing the rapid development of more stringent hurricane-proof building codes in the last decade or so.

As residents flee, streets were nearly deserted early Saturday in Palm Beach County as the first squalls hit the state’s Atlantic coast. Gas stations ran out of fuel, grocery stores were closed and only a few fast-food restaurants were open.

Meanwhile, Gov. Scott took to CBS This Morning to warn residents that the storm was going to have "a big impact" on the state, calling it a "killer." for large swaths of southern and central Florida. He has ordered all schools in the state shut, and was scrambling to set up emergency shelters for residents, according to an interview with CBS This Morning.

"People are going to shelters, but I just want to make sure everybody understands this is an unbelievable, massive, destructive storm, and it's a killer," he said.

Meanwhile, some of the worst-case projections will likely leave the southernmost parts of the state uninhabitable for months. According to one forecaster, a reasonable worst case scenario has over half of Key West underwater due to storm surge.

 

The storm, which is presently battering parts of Cuba, is expected to make landfall early Sunday, bringing winds well over 100 miles per hour and dangerous water levels…

…meanwhile, Hurricane Jose – a Category 4 storm – is following closely behind.
 

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John McCain: The Anti-Trump: New at Reason

John McCain For both good and ill, Sen. John McCain of Arizona is the closest the Republican Party has to the opposite of Donald Trump. He is the moral conscience that promises to check the president’s excesses, and he is the hypocritical Washington lifer whose cynical rhetoric and interventionist passions helped create the Trumpian backlash in the first place.

McCain, who was diagnosed with brain cancer in July, famously spent five-plus years imprisoned in Vietnam; Trump meanwhile received five deferments exempting him from the conflict. Trump believes that torture “absolutely works,” and on the campaign trail advocated violating Geneva Convention prohibitions and overruling his own military brass if need be. (He later backtracked on the latter threat.) McCain, an actual victim of torture, is the leading Republican opponent of the practice, arguing that it “doesn’t work” as an intelligence-gathering tool.

Trump almost never apologizes for his inflammatory statements, including his notorious crack about McCain’s heroism: “I like people that weren’t captured, OK?” McCain’s extravagant apologies are almost as well-known on Capitol Hill as the temper that makes them necessary. When he still had a fighter’s chance against Barack Obama for the presidency, McCain publicly rejected attempts by the GOP base to portray the then-senator as an “Arab” or even a “socialist.” Trump, on the other hand, refused to fully disavow the birther conspiracy theory until September 2016, writes Matt Welch.

View this article.

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US Dollar/Yen- Slip here, bear trend could start!

Since 2011, it has paid to be long the US$/Yen, could that trend be about to change? Big test in play friends!

Below looks at the US$/Yen over the past 8-years-

weekly chart of us dollar Japanese Yen ratio, chris kimble chart

CLICK ON CHART TO ENLARGE

The trend is your friend and the trend in the US$/Yen still remains up at this time. It has paid for years to buy on support, will it be different this time?

Most important test of support in the past year is in play at (3) currently.

What the US$/Yen does at (3), has huge implications for many different assets and stocks are one of them. If support would fail to hold at (3), US$/Yen could see selling pressure ramp up. Next key support for the US$/Yen comes into play around the 100 level.

Keep your eye on the US$/Yen, what it does from here, should be very important!

 

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When Tin Ceilings Were High-Tech: New at Reason

In the late 1970s, Barbara Schiller and her husband bought a decaying brownstone in the Park Slope neighborhood of Brooklyn, then in its early stages of gentrification. The house was structurally sound, but the ceilings were a mess. Water damage had ruined the ones in the master bedroom and dining room, while the parlor’s had an “ominous crack,” and the plaster rosebuds trimming the edge “were dropping like hailstones.”

When their architect suggested using decorative metal panels instead of replastering, the couple balked at first. “Tin ceilings” would certainly be cheaper, but they sounded like a poor substitute for the real thing. Once he showed them the ones in his own restored Victorian home, however, they were convinced. The couple was so pleased with the eventual result that Schiller wrote an article about the experience for This Old House Journal. “Their intricate designs,” she wrote, “give an authentic feeling of the old days that cannot be matched at the price by any other material.”

Now de rigueur in the type of hipster bar The New York Times calls “ersatz speakeasy,” tin ceilings have always challenged the meaning of authenticity. In their heyday from the 1890s through the 1920s, they were at once modern and old-fashioned, genuine and fake, writes Virgina Postrel.

View this article.

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Conor McGregor – Worth His Weight In Gold?

Conor McGregor – Worth His Weight In Gold?

– Conor McGregor, MMA champion has gold statue made of him
– If McGregor was cast in investment grade gold bullion he would be worth …
– If Mayweather were cast in gold he would be worth $2.7m
– Ali once fought equivalent of MMA fighter and nearly lost use of his legs
– Gold continues to be seen as the ultimate prize in sport
– Gold a great prize but true value is as a safe haven

At the moment there are some heated debates going on about statues that some believe should no longer stand.

Many of the figures previously cast in bronze, gold or stone are no longer seen as heroes. Time has changed some people’s perspective on what were once seen as heroic endeavours and achievements.

Today we have different measures of success and while statues of now divisive historical figures are being pulled down, statues of modern millennial heroes are being raised. Last week a statue was created of the ‘Notorious’, world champion Mixed Martial Arts (MMA) fighter, Dublin-born Conor McGregor.

In one of the most hyped fights of all time last week, McGregor was defeated by the 50-times unbeaten boxing champion Floyd Mayweather in Las Vegas.

McGregor’s achievement of stepping out of his comfort zone and his actual sport and taking on the legend that is Floyd Mayweather was applauded by most and it is something that has not gone unnoticed by Irishman Eamon Heneghan.

Last week Heneghan unveiled a life-size gold statue of Conor McGregor, ‘I’m such a big fan and find him so inspirational.’ the amateur sculptor told the Irish Independent.

Heneghan is currently out of work. He saw that McGregor has a keen interest and penchant for gold and gold statues and decided that he would make one for him.

His hopes are that the MMA champion will notice it. We hope he does as statues are getting bad rep at the moment and this one was only made out of admiration for someone who has made history.

The gold-sprayed chicken wire and papier-mâché statue has been called a mixture of things but it was definitely one headline that declared the statue ‘belongs in the pantheon of horrible sports sculptures’ that grabbed my attention.

Whatever you think of the statue you have to admire the effort that went into it. We thought we would look at some other headline-grabbing sports statues and look at what may have happened if they had been cast in gold.

Ugly statues

A lot of sports stars have been confronted with statues that perhaps aren’t the most…flattering.

One of the most famous is Ronaldo.

The bust was cast out of bronze, but we suspect if Ronaldo had ben cast in gold he might feel a little happier about it.

Is Ronaldo worth his weight in gold? Ronaldo was bought by Real Madrid for €94 million in 2009. At the time his weight in gold was worth €1.76m, today he is worth over €2.8m in gold. This is nothing to do with Ronaldo’s performance, instead the simple climb in price of gold.

How does that compare to the other competitor for world’s best footballer, Lionel Messi. The Barcelona Forward €250m. Weighing in at 72kg, Messi’s weight in gold today is worth €2.25m.

Wimbledon champs

Photo credit: AP

In 2011, Andy Murray was ‘honoured’ with a Terracotta Army statue in Shanghai.

The Chinese are obviously known for their love of gold. Had they decided to make Andy’s 84kg frame into a gold statue in 2011 then it would have fallen slightly from £2.856m to £2.688m.

Murray’s statue in Shanghai was in good company. Just the year before Roger Federer had been gifted with a statue in a similar style. In contrast to Murray’s 2011 statue, Federer’s 2010 statue has climbed in value from £2.295m to £2.72m. It shows what difference a year can make.

All about the gold

What’s most interesting about the coverage surrounding this new statue is that it wouldn’t have happened if Heneghan hadn’t decided to paint it in gold.

If he’d not painted it at all or just gone for a plain colour then no-one would be interested.

We have a fascination with gold that means it makes headlines. Most people have an interest in gold.

We reward people in gold. Last week the belt McG and Mayweather were fighting for was made of 1.5kg gold (plus 3,360 diamonds 600 sapphires and 160 emeralds).

The desire to reward and be rewarded in gold has been around since time immemorial. It is not a recent phenomenon of rising gold prices or flashy Instagram photos.

We know deep down inside that to be rewarded in gold is to be rewarded with something that will last long past the victories and should even secure your financial future.

Watch gold in the long-term

The last few examples of how gold can change in over time are merely short-term ones.

To bring it back to Mayweather we can take each of his fighting weights from his 50 fights and see how the equivalent weight in gold has climbed since.

The graph below shows the percentage gain in the gold price since Mayweather’s first fight in 1996 and in 2017. Since his 1996 fight against Roberto Apodaca the price of gold has climbed by over 226%.

Gold hasn’t demonstrated as big gains if you bought in recent years but the lesson here is that gold takes its time. A bit like property or indeed fine wine.

Conclusion: Gold’s the champion but it takes its time and doesn’t show off

The most famous boxer of all time is of course Muhammad Ali.

What’s interesting about Ali in light of the Mayweather vs McGregor fight is that the legendary boxer once took on a similar challenge.

In 1976 Ali fought Antonio Inoki, a Japanese professional wrestler. The fight was fought under special rules  and is seen as a precursor to the MMA sport which McGregor is famous for today.

The result was a draw but Ali was arguably left worse off. He was left with two blood clots in his legs. These hindered him for the rest of his career with amputation even being discussed at one point. The fight is considered one of the most embarrassing of Ali’s career.

Ali was so convinced that he could show that he was ‘The Greatest’ that he stepped out of his comfort zone and into unfamiliar territory. As a result he nearly ruined his entire sporting future and his health.

An analogy can be drawn with Ali’s challenge with what we see today in the financial world and governments controlling the monetary system. They feel they are infallible. They are taking on riskier and riskier matches, with rules that are unfamiliar and the consequences known.

What has survived the test of time and all of the risk taking and speculative punts whether in sports or finance?

Gold has. Gold cannot be beaten to a pulp whether figuratively or literally. It has stood strong through financial crisis and crashes throughout history and will continue to protect people in the coming uncertain years.

Conor McGregor has done very well financially in recent years and is believed to have made €100 million from the Mayweather fight alone.

We sincerely hope that in order to protect his financial well being, he diversifies into physical gold bullion.

News and Commentary

Gold climbs to 1-year high as U.S. dollar sees fresh weakness (MarketWatch.com)

Gold rises to one-year high amid sluggish dollar (Reuters.com)

Dollar Tumbles as Yen, Euro Rally on Irma, ECB (Bloomberg.com)

ECB keeps door open to even more stimulus (Reuters.com)

Hurricane Harvey lifts U.S. jobless claims to more than two-year high (Reuters.com)

Source: Bloomberg

Yen Losing its Haven Sheen to Gold on North Korea (Bloomberg.com)

Gold to reach $1400 on dollar weakness and North Korea (CNBC.com)

Flight to quality may see further gains for gold bullion (CNBC.com)

Gold prices boom as fears grow over North Korea nuclear crisis (Independent.co.uk)

Own Gold for Long Term as Fiat Money is Doomed – Frisby (MoneyWeek.com)

Gold Prices (LBMA AM)

08 Sep: USD 1,350.90, GBP 1,026.82 & EUR 1,120.71 per ounce
07 Sep: USD 1,340.45, GBP 1,026.52 & EUR 1,119.54 per ounce
06 Sep: USD 1,340.15, GBP 1,028.03 & EUR 1,122.11 per ounce
05 Sep: USD 1,331.15, GBP 1,029.51 & EUR 1,120.43 per ounce
04 Sep: USD 1,334.60, GBP 1,030.98 & EUR 1,120.53 per ounce
01 Sep: USD 1,318.40, GBP 1,020.18 & EUR 1,107.98 per ounce
31 Aug: USD 1,305.80, GBP 1,013.17 & EUR 1,098.31 per ounce

Silver Prices (LBMA)

08 Sep: USD 18.21, GBP 13.80 & EUR 15.09 per ounce
07 Sep: USD 17.79, GBP 13.59 & EUR 14.85 per ounce
06 Sep: USD 17.77, GBP 13.62 & EUR 14.90 per ounce
05 Sep: USD 17.88, GBP 13.80 & EUR 15.03 per ounce
04 Sep: USD 17.80, GBP 13.75 & EUR 14.95 per ounce
01 Sep: USD 17.50, GBP 13.53 & EUR 14.69 per ounce
31 Aug: USD 17.34, GBP 13.47 & EUR 14.62 per ounce


Recent Market Updates

– ‘Things Have Been Going Up For Too Long’ – Goldman CEO
– Physical Gold In Vault Is “True Hedge of Last Resort” – Goldman Sachs
– Bitcoin Falls 20% as Mobius and Chinese Regulators Warn
– Gold Surges To $1338 as U.S. Warns of ‘Massive’ Military Response
– Precious Metals Outperform Markets In August – Gold +4%, Silver +5%
– 4 Reasons Why “Gold Has Entered A New Bull Market” – Schroders
– Gold Reset To $10,000/oz Coming “By January 1, 2018” – Rickards
– Gold Surges 2.6% After Jackson Hole and N. Korean Missile
– Diversify Into Gold On U.S. “Political Instability” Advise Blackrock
– Trump Presidency Is Over – Bannon Is Right
– The Truth About Bundesbank Repatriation of Gold From U.S.
– Cyberwar Risk – Was U.S. Navy Victim Of Hacking?
– Global Financial Crisis 10 Years On: Gold Rises 100% from $650 to $1,300

Important Guides

For your perusal, below are our most popular guides in 2017:

Essential Guide To Storing Gold In Switzerland

Essential Guide To Storing Gold In Singapore

Essential Guide to Tax Free Gold Sovereigns (UK)

Please share our research with family, friends and colleagues who you think would benefit from being informed by it.

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“Diiferent Type Of Bubble”: Markets, The Sports Illustrated Jinx, And The Dodgers

Submitted by Gary Evans of Macromon

Markets, The Sports Illustrated Jinx, And The Dodgers

Why do stocks and assets markets crash? Why is there is a Sports Illustrated jinx and magazine cover stories often signal a sign of a top or bottom of the subject being portrayed?

Regression to the mean, or, more simply, just moving back to the long-run averages.   

Dodgers Tank After SI Cover Story

After going on a tear of 51-9,  the best 60 game winning stretch in 105 years,  the ink was barely dry on the August 28th Sports Illustrated’s cover, which read, “Best Team Ever,” before the Dodgers went into a major tailspin.

“Best. Team. Ever?” The ink was barely dry the cover of our Aug. 28 issue—which hit newsstands Aug. 23, with a corresponding comparison to the greatest teams in history online—when the Dodgers fell into a tailspin that they have yet to escape. Through Aug. 25, they had gone 91-36 for a .717 winning percentage, which put them on a 116-win pace, good enough to tie the 2001 Mariners for the highest total of the 162-game expansion era. Since then, they’ve lost 10 of 11 to the Brewers, Diamondbacks and Padres, and while they still have an ample cushion to win the NL West and wrap up homefield advantage in the National League playoffs, they’ve shown that even if the infamous Sports Illustrated cover jinx is a myth, this squad is hardly invincible.  –  Sports Ilustrated, September 6

Sports Illustrated Cover Jinx A Myth?

We disagree.

Teams, players, politicians, companies,  markets or, whatever or whoever, always seem to be cover stories either at at their peak or nadir.   For sure,  the Dodgers 51-9 winning stretch was unsustainable, and the law of averages had to kick in.

Black Swans Are Rare

We do admit there are on rare occasions when Black Swans come along that defy all probabilities and shatter age old records.  Rarely.

The 2015-16 Golden State Warriors were one, but couldn’t validate their 73-9 record shattering season, reverting to the mean after executing the biggest choke in NBA championship history.   Blowing a 3-1 lead to the Cleveland Cavaliers.

In other words,  the Warriors lost three games in a row in the NBA finals, 33 percent of what they lost over the 82 game season.  That was one “mean” reversion to the mean!

No more, however.

“The Warriors are going to win forever, if everything stays the same. This season is over. You know, we’re gonna play it out, and the Warriors are gonna win. And then the next year it’s gonna be the same thing.” – Jeff Van Gundy, September 6

Regression To The Mean

What about the [Sports Illustrated] curse? What happens is that some athlete somewhere in some sport will perform way above average. Sports Illustrated has to have something on its cover and so seeks out those athletes who are doing exceptionally well, and picks from among them the one that outperforms them all. In other words, this particular athlete will have performed way, way above average, a rare event. At this point, their picture is shown.

 

But, lo! In the coming weeks, our poor athlete slumps back to average or even below, disappointing all, and once again proving the validity of the curse.

 

All that has happened, however, is that the athlete has “regressed to his mean.” The overwhelming probability is for that athlete to perform near his average, which the athlete subsequently does. It’s no slump after all, just a return to regularity.

 

To say the SI has a “cover curse”, then, is no different than saying a coin has been hypnotized after a “Tail” finally shows up after a successful run of 20 “Heads” in a series of coin flips. – William M. Briggs

What Does The Sports Illustrated Jinx Have To Do With Asset Markets?

First,  markets are not immune to the magazine cover curse.  We can recall many covers that were contrarian calls of market tops or bottoms.

Probably the most famous was BusinesWeek’s August 1979, The Death of Equities, cover.

The stock market had been in a decade long bearish funk.  The cover didn’t mark the end of the bear market as it banged around another seven months with the S&P500 falling another 8.6 percent bottoming in March 1980.  The market didn’t break out into the multi-decade bull run a few years later in August 1982.   Timing is tricky but close enough for government work.

The stock market had performed way below its long-term average performance, everyone was bearish on equities and had sold out, including BusinessWeek.  Ergo, regression to the mean with some overshooting.

Yes,  markets almost always overshoot, not only to the downside but also to the upside.

Current Asset Markets

That brings us to today’s asset markets and U.S. household net worth.

We came across a chart, similar to the one below, which peaked our curiosity and motivated us to crunch the data and come up with our own observations and conclusions.

The Data

The chart is self-evident. We are in another asset bubble.

This one, however, is more complicated.

More of a steel bubble, if you will.

Harder to burst and long lasting as it is created and driven by central bank money.  Credit based money bubbles pop easier and more quickly as they are vulnerable to a lightning fast deleveraging as was the case in the last crisis.

Asset prices, as reflected in household net worth, are once again divorced from economic reality now more than ever before.  In our above analysis, the difference between the time series of household net worth and nominal GDP.

The two series tracked each other very closely for 45 years up until 1997.  Asset prices grow with fundamentals, which, ultimately, are driven by economic growth.

U.S. household net worth is currently 38 percent or more than three standard deviations above the nominal GDP index, where the average difference is only 6 percent for the 65-year sample period.

Greenspan Put

The difference data (net worth less GDP) appears to have become non-stationary – e.g., an unstable mean, etc. — after 1997.

Let’s also not forget the flaws of assuming a normal distribution in asset markets, which have   “fat tails”  and skewed distributions,  which is evident with this data,  post 1997.

It may be the result of many things, including the rise of the internet and moral hazard.

The result of the cumulative effects of 1987 stock market bailout,  the 1995 Mexican Peso bailout, and the 1997 Asian Financial Crisis, where western policymakers immunized investors from taking long-term losses.   Thus, 1997 may have been the year markets finally realized and recognized the “Greenspan Put” was alive and for real.

Deleveraging     

Granted there has been some deleveraging by households since the great recession, mainly in mortgage debt, so some of the increase in net worth could be the result of slower growth in liabilities.  In additon, some may  be due slower nominal GDP growth.

More analysis is needed to confirm these alternative hypotheses but you don’t pay us enough for us to put in the extra effort.

We did construct a nice table for you, however, and our conclusion of the above alternative explanations?  De minimus.

It’s all asset inflation the result of the expansion of global central bank balance sheets.

Pension Entitlements

One of the results that really surprised us most in our analysis was the rapid rise in pension entitlements as a proportion of household wealth.

We don’t view this as positive as about 30 percent of pensions, on average, are currently underfunded.  Either contributions are going to be dramatically increased or pensions will be restructured and future payouts reduced.

Either case will be bad for demand and the economy.

The alternative is to cut current services, which is also already taking place. Again, it will only add to the “clash of generations” and more political conflict.

We eventually believe the pension shortfalls will become so large the federal government will be forced to nationalize and monetize them leading to inflation.  We have a lot of experience in countries that have resorted to such policies.

Unfunded pensions are nothing more than “fake wealth.”

Conclusion

Several times a week I walk with a good friend who could have played center field for the Cleveland Indians.   But he had a higher calling.  Let’s call him Joltin’ Joe (JJ).

We have been friends for years and have seen many asset cycles.

We live in a lovely county in Northern California, which is in the midst of another raging housing bubble.   The median income for the county is around $61,000, up about 16 percent from the year 2000.   The median house price is $639,000,  which has more than doubled from $319,000 in March 2012.

Fundamentals dictate that the median price should be, more or less three and half times the median income, or around $215,000.   Let’s add another $50K for the California sunshine premium,  though it was 111 degrees here on Saturday!

At an expected or fundamental value of $265,000, that puts the current median home price in our county 140 percent overvalued.

In general, housing prices should move with inflation and wages.  Such a large change in relative prices is a massive transfer of wealth from the young to the older generations, who own most of the housing stock.

That is if the young are gullible enough to pay these prices.  Again,  more potential conflict leading to the clash of generations.

JJ’s Observations

JJ likes to talk about the housing market.   He is very astute noting that this housing bubble is different than the last one just ten years ago.  There isn’t the leverage that there was in 2007.

A lack of supply drives this housing bubble

Hedge funds, private equity firms, and other investors swooped in during the crash and bought up many of the modest homes in foreclosure.   They then foreclosed on the buyers and are now raising rents on their newly owned homes.

People, such as “The Foreclosure King”  (and you know who I am talking about), who would be living under a bridge or freeway if they were not bailed out by the U.S. taxpayer and the Fed during the financial crisis, somehow think they deserve and are entitled to their dubiious created wealth.    Now they are gouging the younger renters, some of who they probably foreclosed on,   who are now priced out of the market and can’t afford to buy a home.   These people are the new “welfare queens.”

Wonder why the body politic is so angry?

Economic anxiety will only lead to greater political instability.

A Mean Regression To The Mean

JJ is not an economist.  I tell him to be patient unless he wants to day trade and try and flip houses, which can be very profitable if your timing is right and you get out before the bubble pops.

There are few people who do,  however.  Greed usually overpowers common sense when you’re making that kind of easy money.

Assets, whether it be stocks, bonds, emerging market debt, or houses will eventually regress to their mean or fundamental value.  They inevitably always overshoot, creating incredible buying opportunities.

Just as the Los Angeles Dodgers are now doing, regressing to the mean and overshooting their true potential, while in the midst of their own Sports Illustrated jinx.

Diiferent Type Of Asset Bubble

This asset bubble is different.

It is larger, encompasses almost all asset classes, may inflate much further, will  likely last longer than many expect, and will be harder to burst because the global central banks have taken $13-15 trillion in assets out of the markets, creating artificial asset supply shortages,  and repressed interest rates to zero or below.  Leaving few alternatives but to chase risk assets.

Enjoy riding the bubble.  It is fun making money in bubbles and you can become very rich if you time it and get out it time.

It is getting late, however, and there are an increasing number of events looming on the horizon that can knock the markets for a loop.

Also be careful on the short side.  Wait for the markets to break.

When the bubble does burst, and it may take some time, it will be one helluva “mean” regression to the mean.

Or it could crash next month.  Timing is tricky.

We are waiting for the S&P500 to make the cover of Sports Illustrated.  We may waiting a long time, however, as very few believe these asset markets are driven by real lasting organic fundamentals.

Good luck, comrades.

 

via http://ift.tt/2vW07FF Tyler Durden

“Like Moths To The Flame”: ISIS Fighters Cut Down While Approaching Stranded Convoy

A convoy of buses containing hundreds of lightly armed ISIS terrorists and their family members remains stuck in the Syrian desert and pinned down as US and coalition planes continue to pick off militants who stray too far from the group. External ISIS vehicles have also tried to access and aid the group, but as US coalition spokesman Army Col. Ryan S. Dillon stated, coalition aircraft are picking them off as they come close "like moths to the flame."

Dillon estimated that over 40 ISIS vehicles were destroyed, including nearly 100 terrorists killed, while heading toward the convoy as the coalition has been "able to continue to just observe and pick them off one at a time.” But on Friday afternoon the US alliance announced the sudden withdrawal of its surveillance aircraft over the site at Russia's request, publishing the following statement:

At approximately 7am GMT Sept. 8, Syrian pro-regime forces advanced past the 11-bus convoy of ISIS terrorists and non-combatants in the eastern Syrian desert. To ensure safe de-confliction of efforts to defeat ISIS, coalition surveillance aircraft departed the adjacent airspace at the request of Russian officials during their assault on Dawyr Az Zawyr.


The Syrian Army and Hezbollah in the Qara area in Syria's Qalamoun mountains when the ISIS bus convoy deal was initiated on August 28, 2017. Photo source: AFP/Louai Beshara


ISIS convoy in Syria. Photo source: Louai Beshara/Agence France-Presse

The convoy has been stranded in no-man's land on the Syrian battlefield since at least last Wednesday (9/30) after its progress was halted by US coalition airstrikes along the evacuation route, including a key bridge. The Lebanese government and Hezbollah arranged a deal with Syria to allow the convoy to pass as ISIS fighters and their families were transferred from northeast Lebanon after loosing a decisive battle there. In exchange, ISIS handed over the bodies of previously kidnapped Lebanese soldiers as well as a the body of an Iranian Revolutionary Guards officer to Hezbollah.

The deal, which President Assad acknowledged as "an embarrassment" has been mired in controversy as it would result in experienced ISIS fighters being dropped in eastern Syria along the Iraq border. Both Iraq and the US have vociferously protested the arrangement, essentially labeling the deal an intentional terror transfer that will hinder Iraq's ongoing anti-ISIS fight. 

But US officials have failed to acknowledged that the deal was first and foremost brokered by the Lebanese government, specifically Prime Minister Saad Hariri and President Michel Aoun. A reluctant Assad agreed to let the convoy pass after the personal intervention of Nasrallah, who argued the deal would result in fewer Lebanese lives lost as the army sought to root out the final few hundred ISIS fighters in the border region of Arsal after their recent overall defeat (in what was set to be a "fight to the death" scenario). The United States has given over $1 billion in military aid to Lebanon over the past years, and itself contributed US special forces support for the successful Arsal anti-ISIS campaign. While the US coalition has highlighted Hezbollah's role in the deal, it has conveniently side-stepped the lead role of its own allies in the Lebanese government.  

For the past week and a half a catch-22 standoff has developed: Syria made a difficult and embarrassing deal – in Hezbollah leader's Hassan Nasrallah's words "for the sake of Lebanon" – yet it's a deal which is going unfulfilled as the US coalition intervened to stop the evacuation. At the same time Hezbollah fighters are escorting the convoy as part of upholding its end of the bargain. Friday's Operation Inherent Resolve statement confirms that though Russia waived off American surveillance in the area, the coalition's stance has not changed, nor does it appear that the remaining ISIS buses have moved:

“From the start of this situation on Aug. 29, we have placed responsibility for the buses and passengers on the Syrian regime, who in conjunction with Lebanese Hezbollah brokered a deal with ISIS to move its terrorists into Iraq,” said Brig. Gen. Jon Braga, director of operations for the Coalition. “The regime’s advance past the convoy underlines continued Syrian responsibility for the buses and terrorists. As always, we will do our utmost to ensure that the ISIS terrorists do not move toward the border of our Iraqi partners,” said Braga.

The ISIS fighters and their families have continued to be provided food and water through Syrian government lines. The group exited Lebanon with 17 chartered buses along with an unknown number of individual vehicles – all attempting to make it to ISIS held Abu Kamal in Deir Ezzor Province close to the Iraq border, but that number was reduced to 11 this week as 6 buses returned to an unknown fate in Syrian government territory. In a speech announcing specifics at the beginning of the evacuation, Nasrallah put the original numbers at 308 ISIS fighters and 331 civilian family members in the convoy.  Wounded ISIS members travelling in ambulances reportedly made it to Islamic State territory ahead of the convoy last week. 

The US coalition has stated its desire to separate the militants from their families in order to destroy the ISIS terrorists. Apparently there are even pregnant women in the group – this according to Hezbollah's Al Manar news network. The US issued a statement Tuesday, saying, “Coalition leaders have communicated a course of action to the Russians, providing the Syrian regime an opportunity to remove the women and children from this situation.”

Though the whole arrangement is one of the more bizarre deals to come out of the Syrian war, it's been widely seen as a blow to ISIS propaganda and recruiting efforts. Last week Middle East correspondent Robert Fisk reported, "some ISIS leaders in Syria did not want members of the group who had surrendered territory to be welcomed back into the so-called caliphate, and the militants should have fought to the death instead." Other observers of Islamic State social media accounts have noted that ISIS members initially reacted in disbelief, claiming the entire brokered deal and ISIS retreat to be a fiction of Hezbollah media.

With the Syrian Army's assault on Deir Ezzor city successfully underway, it is likely that Assad's calculation was to allow the pressure to be let off Lebanon (and perhaps repaying a favor to Hezbollah, which has sacrificed much to defend Syria) with the thinking that the ISIS stronghold of Deir Ezzor Province would be the next to be pummeled anyway. In meantime, this stranded ISIS convoy episode continues to be among the more bizarre waiting games of the entire war.

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A Lawsuit Over Starburst Calorie Counts: New at Reason

StarburstLast week, the Chicago Tribune reported that an area man had sued eminent Chicago-based candy maker Wrigley, alleging the packaging of the company’s Starburst candies deceived him.

Plaintiff Artur Tyksinski alleges the front of the company’s Starburst package he allegedly purchased claims the candy contains ten fewer calories per piece (130) than the FDA-mandated “Nutrition Facts” panel on the back of the package says it actually contains (140).

“Artur Tyksinski never would have bought the corn syrup- and sugar-sweetened Gummies Sours candy at a Chicago-area drugstore earlier this year had he known it contained 8 percent more calories,” the Tribune reports. Food law expert Baylen Linnekin takes a critical look.

View this article.

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