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If Fox asked Facebook to tabulate the number of viewers at tonight’s GOP republican debate in Des Moines, Iowa, the answer would probably be over 1 billion. The reality is that most potential viewers will likely be hijacked to tonight’s “alternative” event, the one taking place just a few miles away at Drake University where Donald Trump – why is boycotting the Fox News debate – will address Wounded Warriors & Veterans but what he will really do is school the rest of the republican field how to control the media narrative and to remain constantly in the spotlight especially when he is nowhere near it.

As WSJ writes, Donald Trump‘s attempt to steal some of the limelight from the Fox News debate drew thousands to the campus of Drake University, a few miles away from where the official debate is being held. The line included hundreds of Drake students, many of whom said they were just curious to see Mr. Trump up close, but also some students who plan to caucus for the Republican front-runner on Monday night. However, many of the young people outside won’t get the chance to see him because the building only holds 700 or so people, leaving many standing outside in the cold.

Meanwhile, as Trump does his event, seven candidates are set to debate, starting at 9 p.m. ET. Here is what the lineup looks like (including Trump).

Few will watch this particular event.

Live webcast below from the event spearheaded by the republican who is now leaps and bounds ahead of the competition in Iowa, New Hampshire and South Carolina.

via Zero Hedge http://ift.tt/1SN1Z7U Tyler Durden

Submitted by Jeffrey Snider via Alhambra Investment Partners,

The simple fact of the matter is that gold is no longer money and hasn’t been treated that way in decades. It is a frustrating and often woeful outcome, but deference isn’t a reason to color judgement. As an investment, which is more like what gold has become, it isn’t all that straight, either. Gold behaves in many circumstances erratically; often violently so. In 2008, gold crashed three times; but it also came back (and then some) three times. The metal remains stuck in some orthodox limbo of duality, sometimes acting an investment while at others, more rarely, as almost reclaiming its former status.

The junction of that dyad format is wholesale collateral. It is a difficult and dense topic because it plumbs the very depths of the wholesale arrangement – factors like leasing, swaps and collateralized lending through binary bespoke arrangements. It is there that I think it helps to form the narrative, however, starting by reviewing what the BIS was up to in late 2009 and early 2010. I am going to borrow heavily from an article I wrote in April 2013 that describes the events in question but this is one of those times when you should read the whole thing.

Back in July 2010, the Wall Street Journal caused some commotion when it happened to notice in the annual report for the Bank for International Settlements the sudden appearance of gold swap operations to the tune of 346 tons. Subsequent investigation by media outlets, including the Financial Times, reported that the BIS had indeed swapped in 346 tons of gold holdings from ten European commercial banks. That was highly unusual in that gold swaps are typically conducted between and among central banks.

 

Included in that list of commercial banks were, according to the Financial Times, HSBC, BNP Paribas and Société Générale. The timing of the swaps was pinned down to sometime between December 2009 and January 2010 – just as the world was getting reacquainted with the Greek Republic.

In other words, “dollar” problems had been reborn despite QE1 and ZIRP (and the follow-on programs at the ECB, SNB and elsewhere) because European banks, in particular, had swapped “toxic” MBS collateral for “toxic” PIIGS sovereigns. Now, like MBS before it, even government bonds were becoming non-negotiable in repo (haircuts) and derivative collateral. Stuck not long after the last crisis, banks were in a tight spot since no central bank appeared ready to commit to another great effort so soon risking what they found a fragile but fruitful early revival. Banks then turned to the BIS in what only can be interpreted as great desperation for survivorship.

The amount of physical bullion purchased by private investors in the decade of the 2000’s had ended at custodial accounts in various commercial banks. Some of these investors were discerning and suspicious enough to demand allocated accounts. Some were not. Unallocated gold can get pooled into a house custodial account with rights over custody being retained by the bank, not the investor. In this case, said investor owns not gold, but rather a bank liability payable in gold.

 

Unallocated gold in pooled accounts residing in a bank with growing funding stress makes for a rather easy liquidity target. The gold market offers depth in a broad range of currencies. Gold markets are also very well interconnected, between the physical market in London and various paper markets, particularly the CME in Chicago.

 

In the case of the large gold swap in 2010, the commercial banks accessed dollar liquidity “off-market” since the BIS simply held the bullion in its custody. Being accustomed to holding physical gold, it did have $23 billion, about 1,200 tons already on account, meant no additional hassle. The BIS surely incurred storage and administrative costs, but they would easily be absorbed by the interest rate the banks would pay on this collateralized loan (essentially the gold swap in this case amounted to a dollar denominated loan with gold bullion held as collateral by the BIS).

The reason that customers’ unallocated gold was such an “easy liquidity target” for banks in tight spots was that gold in that position had become a liability of the bank rather than being construed, as it should have under purely monetary terms, in constructive bailment. Unallocated gold was nothing more than another kind of deposit account; you didn’t actually own gold but possessed instead a financial claim on gold through the bank. Under bank liability, the bank may do what it wishes so long as it presumes meaningful care in being able to deliver any physical gold (not specific bars) upon convertibility.

On December 7, 2011, the Financial Times reported that:

Gold dealers said that banks – primarily based in France and Italy – had been actively lending gold in the market in exchange for dollars in the past week

There were rumors (admittedly unsubstantiated to this day) that a large bank (or two) in France was to be declared insolvent on December 8; only a week earlier, on November 30, 2011, the Fed had announced a sudden alteration to its dollar swap lines with five reciprocating central banks, both reducing the cost (OIS +50 instead of OIS +100) but more intriguingly mentioning “temporary bilateral swap agreements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant.” Then on December 8, the ECB announced their trillion, the LTRO’s.

On November 30, 2011, the Fed finally relented to unlimited dollar swaps at a low premium (OIS + 50). But still banks were looking to gold leases. So much so that we have no idea at what rates these transactions were occurring. The same Financial Times article cited above quoted “traders” as indicating:

 

“…few, if any, banks were likely to receive the published rates since they have been skewed in recent months by a widespread reluctance among bullion banks to take gold for dollars.”

 

The implication here is that “markets” had no reasonable idea how desperate for dollars some banks had become. It is no surprise in that context that the very day after the Financial Times published that article the ECB announced its massive lending facilities through the LTRO’s. In conjunction with the Fed’s swap lines, the two central banks, coordinating with other central banks, aimed to end the liquidity crisis through massive money stock means.

The relevance of this particularly unnoticed angle in the 2011 re-crisis is the behavior of gold since that point. As noted a few days ago, gold has only come lower as if to signal the “deflationary” impulse of the imploding eurodollar; and that makes sense as that particular time and flow of circumstances was in many ways convincing that there was never going to be a possible pathway to recreating or revisiting the pre-crisis financial system – as every central bank intended and still intends to this day.

What we don’t know, probably can’t know, is how much gold was traded and where it all ended up during that time. In the more traditional setup of gold swaps, the practical effect was for producers to dislodge stored gold sitting in central bank vaults around the world. It was win-win for central banks because they got to both actualize gold into an interest-earning investment while also, through quite dubious accounting rules, never admitting that gold was gone (all activity contained under a single line item: gold and gold receivables; and you never knew how much was the latter and how little the former).

The 2011 episode with the BIS reversed in many ways the causal flows of physical, assuming it was physical at all. Commercial banks that had been receiving customer deposits of the metal were now turning it over the central bank of central banks out of “dollar” (and euro, likely even euroeuro) desperation. While we can’t figure out where the physical gold ends up, we can at least recognize the fingerprints of the gold collateral/liquidity arrangement in various forms such as the stretching of claims on gold in “physical” markets such as COMEX; the more gold swaps churn physical or its approximates, the more opportunity there was to create “paper supply.”

This is the hard part for those who appreciate real money, as money is itself an asset without liability. But here are banks and central banks abusing gold to turn it into just another agent of rehypothecation – further distorting capitalism’s foundational respect for property rights into more financial terms that obey no such constraint (MF Global being the institution caught at it). I wrote about this in May 2013, explaining why, in general, gold leasing in these kinds of situations is negative on gold price:

The accounting rules are such that the central bank continues to hold “gold” on its books despite the leasing arrangement that moved that actual physical metal into the marketplace. Thus the market has actual gold sold into it while central banks report no loss of supply (under the accounting line “gold and gold receivables”). Since these are opaque transactions, nobody really knows what has been leased out and what actually remains.

 

Gold lending takes a similar form. Banks typically hold client gold in unallocated accounts – this is intentional since unallocated accounts have smaller fees and clients have not been educated as to the legal distinctions. Unallocated gold is a liability of the bank; the client continues to hold title to physical bullion, but that is in the form of a “paper” promise by the bank to deliver future gold. Often, the agreement that creates the unallocated arrangement even allows for the bank custodian to settle the client claim in cash under certain circumstances.

 

Therefore, the bank can use the unallocated metal toward its own purposes, in exactly the same way that prime brokers rehypothecate hedge fund credit holdings in margin accounts. In a gold lending relationship, the bank uses the unallocated gold as collateral for cash (in whichever currency is needed, which is one of the appeals of using bullion for collateral). Now, the gold is in the hands of an intermediary that, apart from any haircut set with the borrowing bank, is at price risk. The cash lending bank will either sell the gold outright, since it only has to replace metal at the end of the agreement, or hedge its collateral position (based on the cost of selling futures).

That would also hold for central bank claims in the prevailing leg of an earlier swap arrangement. Like rehypothecated treasury securities in repo, all that matters is balance sheet ledgers between counterparties agree on balance at the end of the day; each and every day. So long as that happens, there are no cascading triggers that reveal the fractioning.

While my intent in revisiting the gold crash in 2013 was to add to the weight of financial warnings that have occurred almost regularly since then about the fate of the global “dollar” system, it was a ZeroHedge article from yesterday that brought it further into focus – particularly the current unknown (out)flow of physical metal that “somehow” left undisturbed the futures volume (the paper gold). From that article:

This means that the ratio which we have been carefully tracking since August 2015 when it first blew out, namely the “coverage ratio” that shows the total number of gold claims relative to the physical gold that “backs” such potential delivery requests, – or simply said physical-to-paper gold dilution – just exploded.

 

As the chart below shows – which is disturbing without any further context – the 40 million ounces of gold open interest and the record low 74 thousand ounces of registered gold imply that as of Monday’s close there was a whopping 542 ounces in potential paper claims to every ounces [sic] of physical gold. Call it a 0.2% dilution factor.

Is that the anguishing end of years of “dollar” liquidity being literally swapped for physical and paper gold? Much more so the latter? It is, of course, impossible to determine but there are so many corroborating factors that the suggestion is at the very least compelling; and thus why gold has been warning about the eurodollar system since 2013 and really 2011. The fact that gold had so much collateral appeal at that time speaks to that very notion; the artificial MBS “toxic waste” that stood for it during the ravenous runup to 2007 was no sustainable substitute for a small monetary system, let alone the global predicate for global finance and trade.

Pre-2011 (Gold and Comex Cover were highly correlated)

 

Post-2011 (Gold and Comex Cover were almost perfectly anti-correlated)

[ZH: Something 'broke' in the gold complex when China devalued]

To that fact, banks were forced throughout 2007-09 and again in 2011 (2013 too? How about 2015?) to alternate funding means no matter how distasteful (to the eurodollar practitioner, gold stands against all of it). Wholesale banking in its purest distillation is a system that seeks to fraction every kind of liability no matter original intent or even customer intent (banks are the central focus, where their balance sheet and financial resources stand as “money”) – to the point of fractions upon fractions; rehypothecations of rehypothecations. It went so badly that the system seems to have repurposed gold once more, the only asset where fractioning is still sensitive enough to signal the desperation. In other words, if the eurodollar and wholesale banking system had been sliced to such a thin margin again by 2011 so as to so heavily depend on the modern duality of gold, it not only would not survive it literally could not survive. The paper dilution we see now may just be that judgement finally seeking open admission.

via Zero Hedge http://ift.tt/1SN20st Tyler Durden

On Tuesday we learned that Malaysian PM Najib Razak won’t have too much explaining to do domestically when it comes to why Saudi Arabia decided in 2013 to make a $681 million “donation” to his personal bank account.

Najib’s political opponents have accused the PM of deliberately undermining an investigation into where the money came from. The public has also angrily asked for transparency and in August, street protests led by former PM Mahathir Mohamad were held in Kuala Lumpur. “I don’t believe it is a donation,” Mahathir said at the time. “I don’t believe anybody would give [that much], whether an Arab, or anybody.”

No, probably not.

In short, no one is buying Najib’s story except, apparently, Malaysia’s top prosecutor Attorney General Mohamed Apandi who ordered the probe into the transfer closed earlier this week.

Like many other Malaysians, Mahathir has some questions for Apandi and Najib. Here are a few:

• “It seems there was a letter by a Saudi stating that a sum of US$681 million or RM2.08 billion was a donation for the PM’s contribution to the fight against Islamic terrorists. Who is this Arab?”
• “How does he have the huge sum of money to give away?”
• “What is his business?”
• “What is his bank?”
• “How was the money transferred?”
• “What documents prove these?”
• “Just a letter from a deceased person or some non-entity is enough for the A-G?“

And some more:

• “How and when was this done?”
• “We are told the balance is frozen by Singapore. Can Singapore explain the unfreezing and the delivery back to the Saudis?”
• “Or does Singapore also believe in the free gift story, the letter and the Saudi admission?”

All great questions. Questions which will likely never be answered. 

As those who have followed the 1MDB story will recall, the fund has strong ties to Goldman and more specifically to Tim Leissner, chairman of the bank’s Southeast Asia ops. 

1MDB was set up by Najib six years ago and has been the subject of intense scrutiny for borrowing $11 billion to fund questionable acquisitions. $6.5 billion of that debt came from three bond deals underwritten by Goldman and orchestrated by Leissner, who is married to hip hop mogul Russell Simmons’ ex-wife Kimora Lee who, in turn, is good friends with Najib’s controversial wife Rosmah Manso.

What Goldman did, apparently, is arrange for three private placements, one for $3 billion and two for $1.75 billion each back in 2013 and 2012, respectively. Goldman bought the bonds for its own book at 90 cents on the dollar with plans to sell them later at a profit.

Now, just as Najib is cleared by Malaysia’s top prosecutor and amid multiple 1MDB investigations unfolding in other countries, Tim Leissner is taking a leave of absence from Goldman and is leaving Singapore for Los Angeles. 

“Leissner, who has been with Goldman Sachs for almost 18 years and was most recently Singapore-based chairman of its Southeast Asia operations, remains an employee,” Bloomberg reports. “The bank’s dealings with the country’s state-owned investment company, 1Malaysia Development Bhd., drew public scrutiny because of the high fees Goldman was paid.”

“His departure comes as Najib Razak, Malaysia’s prime minister, fights to extricate himself from a donations scandal alleged to be linked to the investment fund, known as 1MDB,” FT adds. “[Leissner’s] close relationships with top officials in Kuala Lumpur produced what one executive described as a ‘golden period’ for the bank.”

The ubiquitous “people familiar with the matter” say Goldman was unhappy with the amount of time Leissner spent in Los Angeles where his wife is busy building a fashion business.

Whether or not Leissner’s leave and decision to high tail it out of Singapore has anything to do with the 1MDB scandal is an open question, but the timing certainly looks curious. 

Incidentally, Leissner will have plenty of places to stay in L.A.

Najib’s stepson and Jho Low (described as a “close family friend”) own a $39 million mansion on Oriole Drive in the Hollywood Hills in Los Angeles, the L’Ermitage Hotel in Beverly Hills, a home in Beverly Hills known as the pyramid house for a gold pyramid in its garden, as well as other properties in the Los Angeles area.

via Zero Hedge http://ift.tt/20wiw1p Tyler Durden

Submitted by Eric Zuesse via Strategic-Culture.org,

On January 21st, George Soros, who has throughout his life been passionately opposed not just to communism but also to Russia, has finally stated in a Bloomberg News interview at the World Economic Forum, that the United States (and possibly the EU, but he says that the EU is in terrible economic shape itself) must now fund a new Marshall Plan for all of Europe, including, this time, even his bête noire: Russia.

However, is he ending, or merely suspending, his lifelong war against Russia? Let’s look at the evidence, including the background for his comments here – the crucial background in order to understand his statement is provided in the links here:

Previously, he had been urging both the United States and the EU to pump variously $20 billion (in some of his articles) to $50 billion (in others) more into Ukraine’s war to seize back control over Ukraine’s former regions of Crimea and of Donbass, both of which had voted overwhelmingly (75 % in Crimea and over 90 % in Donbass) for the democratically elected Ukrainian President, Viktor Yanukovych, whom Obama overthrew on 20 February 2014 in a bloody staged coup whose gunmen were mainly from Ukraine’s two racist-fascist or ideologically Nazi parties and were all paid by the US via laundered funds through the CIA. Those two regions of Ukraine are strongly pro-Russian and anti-Nazi – they were anti-Nazi in World War II, and are anti-Nazi today.

However, now that the US-led effort to re-arm the Ukrainian government that it had installed, and to enable them to go to war yet a second time, attempting to seize (or reabsorb) Crimea and Donbass, has failed, and US President Barack Obama has thus at least temporarily given up in all but rhetoric his determination to enable Ukraine to crush those regions, George Soros is stepping back in.

Soros had, himself, via his International Renaissance Fund, helped to finance the overthrow of Yanukovych. He is now urging that the US (and maybe Europe) help Europe including Russia, to recover from the damages that the US had imposed upon that broader Europe – imposed by means of Obama’s invasions and coups in not only Ukraine but also in the Middle East. (After all, most of the refugees into Europe come from America’s invasions of Iraq, Libya, and Syria, and from the support of jihadists there by America’s Saudi, Qatari, and UAE allies. The refugee-crisis is generated by America and its allies.) Soros says that the fleeing refugees from the Middle East into Europe will break the EU unless stopped, and that US taxpayers (and maybe EU taxpayers) thus now need to fund the salvation of all of those countries which the US – largely at Soros’s own urging and with his help – has all but destroyed. Perhaps he just wants Western taxpayers to bail him out.

His comment attributes, as being the precedent for his current support of a taxpayer-bailout for Europe including Russia, his prior, 1989, support of a bailout of Eastern Europe including Russia. However, at that time, he was looking for public funds to create debts that those then-communist nations would have toward Western taxpayers. His proposal was rejected, because democracy was, at that time, strong enough in the West, so that the public’s rejection of it caused his proposal to be politically impossible to achieve. The situation is drastically different now, after the Harvard Economics Department and George Soros guided the Russian government into a ‘capitalism’ that’s crony-capitalism or «fascism», from which Harvard University and George Soros extracted billions in giveaways of state property from formerly communist countries that were insider-dealt to not only Russia’s and Ukraine’s (etc.) insiders, but also to America’s, including especially Soros himself (and that link is also here). That link presents the great Janine Wedel reporting that, as a result of one particular insider-rigged auction, «H.M.C. [Harvard Management Company] and Soros became significant shareholders in Novolipetsk, Russia's second-largest steel mill, and Sidanko Oil, whose reserves exceed those of Mobil».

Ukraine is one of the countries that was stripped this way, and it more recently was taken over by the United States, with Soros’s help, and stripped even more.

The post-Soros, post-Obama, coup-government of Ukraine is essentially bankrupt after all of their ‘anti-corruption’ verbiage has collided with their total-corruption policies in Ukraine, just as had happened under Yeltsin in Russia, so that, notwithstanding Soros’s urgings for $20B+ of Western taxpayer funds to be contributed to that government, it simply won’t happen. Soros therefore now is urging his new proposal for a «Marshall Plan», not only to get Eastern Europe deeper into debt to Western governments, but, perhaps, also to enable Soros’ own investments in Eastern Europe (including Russia) to turn profits for him. Only with taxpayer assistance can such investments now be made profitable.

That’s the problem with private-investor meddling in foreign policies: governments become controlled by international aristocrats.

*  *  *

Here is the transcript of this brief interview-segment, from a Bloomberg, which cannot be accurately understood without reference to the links that were provided in that restatement here of his statement – those links document the reality behind what he is here asserting:

SOROS: The European Union is in an existential crisis, and it needs to get out of that because of the migration problem [which] is effectively distressing the European Union – it’s falling apart, and that’s a time when you need to have a major initiative, a Marshall Plan. It’s absolutely appropriate. It’s amazing that it comes from Schaivo, who has been one of the proponents of Bundesbank orthodoxy, but I have been in favor of it all along. I was propose[ing] a Marshall Plan for Eastern Europe more than twenty-five years ago [before the end of the USSR], in 1989 in Potsdam, when Potsdam was still in Eastern Germany, and I said this would be a Marshall Plan for Eastern Europe including Russia, and it should be financed by the Europeans for a change, and actually led by the – representative, who started laughing, and the front of the Algemeine [Zeitung] reported that my proposal was greeted with amusement. Now I think this proposal should not be treated with amusement. This should be taken very seriously. It’s going to have a very difficult time passing, because there’s a lot of dissension now, part of the disintegration, but I think it needs public and enthusiastic support. But I think that most people know that something has gone catastrophically wrong and it has to be put right.

 

INTERVIEWER: Is there a danger of break-up. Last year we were worried about Greece, what should we be worried about this year?

 

SOROS: I think Greece is still a problem. It’s the one problem that has no solution, because it has been so messed-up that you can only muddle along. But there is no solution, and actually that problem is now coming to the boiling point again. You can see it on the face of the press, but [it] is not a major problem in the scheme of things.

via Zero Hedge http://ift.tt/1lYKUcL Tyler Durden

While China’s currency devaluation has, alongside the price of commodities, become one of the two key drivers of market volatility and tubulence around the globe, when it comes to risk, one far more important Chinese metric is the actual amount of capital that leaves the nation.

The reason for this is that as explained over the weekend, in a world where Quantitative Tightening by EMs and SWFs has emerged as a powerful counterforce to Quantitative Easing – or liquidity injections – by developed central banks, what matters for global risk levels is the net effect of these two opposing money flows.

Of all the global “quantitative tighteners”, the biggest culprit is China, which has seen over $1 trillion in reserve selling since the summer of 2014, the direct result of a virtually identical amount in capital outflows.

Furthermore in for a “closed’ Capital Account system like is China, the selling of FX reserves is a direct function of capital outflows, so the only real data needed to extrapolate not only the matched reserve selling and thus Quantitative Tightening, but also the direct impact onglobal risk assets, is how much capital outflow has taken place.

This takes place in one of two ways: by relying on official Chinese historical data, or by estimating how much outflows take place on a concurrent basis, thus allowing one to estimate how much capital is flowing out in real time. Indicatively, China’s SAFE released onshore FX settlement data for the whole banking system (PBoC+banks), suggesting some $97bn of FX outflows in Dec, which is broadly in line with the fall in official reserves.

But much more important is the question what is taking place right now, the answer to which can either wait until SAFE releases January data in several weeks… or rely on day to day estimates of outflows in the form of central bank FX intervention. 

Luckily, we have just that.

According to a Goldman report, so far in January “there has been around $USD 185bn of intervention (with the recent intervention predominantly taking place in the onshore market)” split roughly $143 billion on the domestic side and $42 billion on the offshore Yuan side.

This would make January the month with the second largest amount of intervention since August 2015, and thus the second highest month of capital outflows, and would explain the ongoing deterioration across global asset classes as China’s various FX reserve managers have been forced to sell not just government bonds but equities as well. 

Goldman also calculates that “total intervention over the last 6 months, using our estimates, sums to USD 775bn.” Run-rating this amount would suggest that nearly $1.6 trillion in Quantiative Tightening is taking place just due to China’s attempts to stem capital flight. This number excludes the hundreds of billions in reserves that all other petrodollar and EM nations have to liquidate as well to prevent the rapid devaluation of their own currencies as the world remains caught in the global dollar margin call we first explained in early 2015.

The implications from this are two-fold:

• For the selling culprit, responsible for the recent market weakness look no further than China, whose reverse “flow” has been responsible for the terrible start to 2016 capital markets.
• For the Beijing politburo, halting capital outflows is becoming a matter of life or death, because there are only so many liquid reserves China can liquidate before it enters dangerous territory; worse, the less the reserves, the greater the desire will be on behalf of the local population to take their money and run.

Of course, China’s rabid defense of further capital outflows means that its original intent, to devalue the Yuan to a degree that boosts its economy via exports, has been put on hiatus, or in other words China is trapped, and instead of an external rebalancing it is forced to boost its economy in the one way it knows best: by issuing ever more debt. However, with China’s total debt now estimated at 350% of GDP, it only has a finite amount of time before the debt bubble finally pops as well.

In other words, for China there is, as of this moment, quite literally no way out, and what’s worse the longer it delay the decision of how it will reset its economy, the worse it will be for global risk markets.

via Zero Hedge http://ift.tt/1nSephV Tyler Durden

Submitted by Richard Ebeling via EpicTimes.com,

President Barack Obama delivered his final State of the Union address on January 12, 2016, and devoted most of the time to defending his “legacy” of bigger and more intrusive government, with an emphasis on the other aspects of personal and social life he wished could come under the blanket of more political paternalism, if only there was enough time before he leaves office on January 20, 2017.

But suppose that, instead, Obama had had an epiphany shortly before he spoke before the Congress on January 12^th. Imagine that he had had a realization that the Progressive and political paternalistic ideas that he has believed in, espoused and implemented during his first seven years in the office of the presidency had been wrong and misguided.

What if he had discovered the ideas, say, of Ayn Rand, Henry Hazlitt, Milton Friedman, and F. A. Hayek, for example? Suppose that he realized that the true principles of a free society were to be found in the ideas and ideals of individual rights and liberty, free markets and competitive enterprise?

What if the president offered, instead, an agenda for freedom rather than one of paternalism? What would the State of the Union address be like if he had such an epiphany for defending individual liberty rather than more unrestricted government license over our lives?

Let us imagine what he might have said, instead of the words he actually spoke:

“My fellow Americans, I come before you tonight to deliver my seventh and last State of the Union address at a time of continuing economic uncertainty and social tensions across our great nation.

 

“I have spoken to you more than once about the country’s need for ‘hope and change.’ But I now realize that we must look for that hope and change in a far different direction that the one I’ve talked about and argued for in previous years.

 

 

The Free Individual and His Creative Mind

 

“I was wrong a couple of years ago when I said that the man who owns a business did not ‘make it.’ I assumed that improvements in the human condition only result from the actions of the ‘collective,’ as if the ‘collective’ was a living, breathing, thinking being, separate from the individuals who make up the society.

 

“I now understand and appreciate from reading Ayn Rand that ‘society’ is merely a sometimes convenient, but often confusing, shorthand for the resulting outcomes of the interactions and associative actions and activities of individual human beings. There is no ‘society’ independent from the thinking, valuing and acting individuals in the world.

 

“And, furthermore, if anything is built its possibility can and only does begin as a creative thought and idea in the mind of a real, distinct individual man or woman. The ‘idea’ must precede the ‘deed,’ and the idea only can come from an individual human mind. There is no collective brain.”

 

“My fellow Americans, you do not exist to live and work for ‘society.’ You have a right to your own life, to live it as you think right and best for yourself, through peaceful, honest and productive work. The achievements of ‘society’ are the outcome of voluntary and mutually beneficial exchanges and associations among free men.

 

“Our Founding Fathers understood this when they signed the Declaration of Independence and promulgated the U.S. Constitution. Man and his rights precede government, and government’s role in society is not to control or direct the actions of men, but to secure and protect their individual rights to life, liberty and honestly acquired property.

 

Freedom and Knowledge

 

“Starting tomorrow, I am instructing Treasury Secretary Jack Lew to prepare a set of budget proposals, the goal of which will be a balanced budget before the end of the current fiscal year. And not through raising taxes, but through across-the-board cuts in government spending.

 

“If we are to restore a thriving and fully employed economy in America it will require getting resources out of the wasteful hands of government, and back under the control and guidance of the private and productive citizens whose work, saving, investment and creativity are the only basis and source of our improving standard of living.

 

“I now understand that economic growth and opportunity only come from freeing the minds of every American so all may benefit from what others may know. I have learned from F. A. Hayek that it has been a great arrogance on my part and practically everyone else in government for a very long time to believe that we can know enough to direct and plan the actions of multitudes of people in an ever-more complex society.

 

“All the knowledge of how, where and when to do things that make ‘society’ work and creatively improve cannot be known by any one person or group of people in Washington, D.C. The ‘knowledge of the world’ is dispersed and decentralized among all the minds of all the people in society. We must appreciate that the free market is not only a market place of goods, but of ideas that result in the producing of those goods.

 

“Government regulations, restrictions, prohibitions, subsidies and plans get in the way of the competitive process that is a great vehicle of ‘discovery’ to find out who, in fact, can creatively imagine and bring to market the new and better products, in greater quantities and lower prices that benefit all in society – especially the poor and less well-off who, year after year, gain from more and less expensive goods available and within their modest economic reach.

 

“It has been a great ‘pretense of knowledge’ on my part to presume that I, as president of the United States, can know who might ‘win’ the market ‘race’ of competitive improvement and excellence before allowing the process of market competition to serve as the motive and incentive for people to discover within themselves what they are capable of doing and producing.

 

 

Unintended Consequences and the Minimum Wage

 

“I know that many who have supported me over the years will be wondering how I could turn my back on all those who have looked to me as the great hope for ‘social justice’ and ‘fairness’ in society. Do I no longer care about the poor, the underprivileged, and the needy?

 

“I now understand after reading Henry Hazlitt that much that seems to be helpful government policy in the short-run can have longer run negative consequences for many of the very people we sincerely wish to help. We must look beyond what is immediately ‘seen’ to what is ‘unseen': the impact of these policies when we look past today to see the effects they will have tomorrow.

 

“For that reason, rather than calling for an increase in the government-mandated minimum wage, I will be proposing to the Congress the abolition of the federal minimum wage law. I will also be highly recommending that the various state governments should abolish their minimum wage statutes, as well.

 

“None of us pays more for anything than we think it is worth, in terms of its value to us and what we can afford to spend. And if something goes up in price, we often think twice before we continue to buy as much of it as we have in the past. We ask ourselves, ‘Is it really worth that higher price, and is it worth buying less of other things to keep buying as much of it as we’ve bought before, because the extra expense to purchase the same amount will have to come out of buying less of something else, since our limited financial means only go so far?’

 

“The only source of an employer’s financial means to pay his workers their wages is the revenues he receives from the customers who buy his product. If the government mandates that he must pay his workers a minimum wage above the market wage, he will have to decide if the value of what some of those workers contribute to make those products that help him earn that consumer revenue is now less than what the government says he must pay them. If he finds that some of them are not worth the minimum wage he will let them go, and other new jobs that he might have offered will not be financially worth opening up.

 

“Thus, many of the very people – the poor and low-skilled – who can most benefit from an entry level job that offers them on-the-job training, experience and a chance to have their feet on the first rung of the ladder to a better life, will be denied that opportunity because the government minimum wage law prices them out of the market.

 

“I sincerely care too much about those people to leave them possibly permanently behind due to such a misguided and counterproductive policy as our minimum wage law.”

 

Free Markets and Real Opportunity

 

“We must appreciate, as reading Milton Friedman has taught me, that the free competitive market is the ‘great leveler’ that frees people from the artificial barriers to entry and opportunity that only government controls and regulations can place in the way of the poor and less well off from rising out of poverty and low standards of living.

 

“A free society of free people will always be a society of unequal outcomes. Each of us is a unique and distinct individual from the rest of humanity. That is the reason we should respect each individual’s right to his own life and liberty, since he or she is ‘one of a kind,’ never to be seen again on the face of this planet. We should respect and value them, and not presume to tell them how they should live their only sojourn on this earth. Their life is too precious, if indeed we value ‘the person,’ as we say we do, to make them a slave to how we think they should live.

 

“But because we all possess degrees of uniqueness in our inborn differences, our inclinations and desires, and our drive and determinations to set and try to achieve goals in our life, the resulting outcomes will be different in various ways from that of others.

 

“It is also the case that how we find ways and decide to earn a living is valued differently by our fellow men. Thus, how much we may earn in the market place is to a great extent a result of by how much our fellow human beings value the services we can offer them in exchange for what we wish to buy from them in the arena of free, competitive trade.”

 

 

Freedom and Benevolence

 

“Does that mean that those who are less well off than ourselves may not need and deserve a ‘helping hand’? All people of good will and benevolence might rightly have a sense of assisting those who they think deserve and may benefit from such support.

 

“But such good will and benevolence cannot be forced or made either ‘moral’ or ‘right’ by compelling a false philanthropy through government coerced redistribution of wealth. It not only undermines a proper and rightly human sense of concern for one’s fellow men, but leads to many wasteful and misdirected uses and abuses of the taxpayer’s hard-earned money.

 

“For this reason, I will be proposing over the last year of my presidency the repeal of the Department of Health and Human Resources, as well as the Departments of Education, Housing and Urban Development, Labor, Commerce, Transportation, Energy and Agriculture.”

 

Free Markets for Better Health Care

 

“This now gets me, my fellow Americans, to the hardest policy decision I am going to propose to Congress in the current session. I came into office with the hope and dream of assuring affordable health care to each and every American. I even took pride when my opponents began to call the Affordable Care Act, ‘ObamaCare.’

 

“I call upon the Congress to immediately repeal the Affordable Care Act. Everything that I have now learned from reading Hayek, Hazlitt, Friedman and Rand has taught me that turning over the health care industry and medical service to the regulatory and planning control of the government will lead to nothing but disaster for the nation.

 

“We do need better health care, at more affordable rates and prices, with improved coverage. But that can only come by freeing those creative minds of the market place in a setting of the most open competition as is possible. We must set loose the same competitive discovery process that has given all those other innovative miracles of more, better and less expensive goods and services over the years and decades.

 

“Deregulation of the medical profession and deregulation of the health insurance industry must be our new policy. Individuals should be free to decide and choose their own health plans and trade-offs, and the unrestrained profit motive must be taken advantage of to incentivize the offering of health insurance coverage and medical care quality improvements.

 

The Right to Ignore the State

 

“My fellow Americans, in closing let me just say that I also read the nineteenth century social philosopher of freedom, Herbert Spencer, and he has taught me is that as long as any one of you lives your life peacefully and honestly in your own affairs and in your social and market dealings with others, the government has no moral right to make any claim upon you.

 

“In other words, you have a ‘right to ignore the state,’ other than when it goes about its proper and limited business in securing and protecting the rights of each and every citizen from the violent and plundering acts of others.

 

“This is the real and only reasonable agenda for ‘hope and change’ that can bring our country freedom, prosperity and goodwill among all of our people.

 

“There is, of course, much more that we should do and can do to bring about that change for the better. That is why between now and when I leave office next year on January 20, 2017, I will be putting together proposals to repeal the powers of the NSA, bring all our troops home from around the world and call upon the Congress to abolishthe Federal Reserve System so we can move to a private, competitive banking system with a honest, market-based money such as gold.

 

“I think that the agenda for freedom, based on individual liberty, free markets and limited government that I have presented this evening can serve as a good beginning to return to the wonderful vision that our Founding Fathers hoped for when they established our great nation.

 

“Thank you, my fellow Americans, and may God Bless a reborn, truly free America.”

Barack Obama, of course, did not give such a speech to the country in his State of the Union address. But one can hope that some day there will be a president who will have been elected precisely to articulate and initiate such an agenda for individualism, liberty, and limited government in the United States.

via Zero Hedge http://ift.tt/1PDXAgV Tyler Durden

With The Fed definitely off the table, China promising nothing but daily liquidity drips, and Europe unable to do anything but jawbone, the world's bullish equity market investors are anxiously trawling for a central bank to save the world. Tonight's BoJ meeting could well be it – though judging by their past epic failures – it will be anything but successful as QE23 looms in Japan. “The need for a Kuroda bazooka is increasing,” said Yuji Shimanaka, an economist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “This is decision time for Kuroda” as additional stimulus can stop the trend of yen gains and falling stocks.

Market participants’ views on the BOJ are mixed, but leaning increasingly toward more stimulus as Japan’s growth is sputtering and inflation, at 0.3% year on year as of November, is way below the BOJ’s 2% target.

Weak exports, production and stagnant consumption weighed on growth in the fourth quarter. Despite a negative month-on-month reading for Japan’s industrial output in November, production still may have expanded in the fourth quarter, though likely not enough to offset a 1.2% drop in the third quarter. Companies’ production plans signal that the outlook for a stronger first quarter remain.

However, just as wih The Fed, despite uninspiring growth data, positive dynamics in the labor market — the basis for the BOJ’s optimism on the price outlook — remain in place.

 

Given Kuroda’s history of surprising observers, the spectrum of potential outcomes is very broad. As Bloomberg reports,

While only six of 42 economists surveyed by Bloomberg are predicting that Kuroda’s board will expand already-record stimulus this time, others didn’t rule that out. Twenty-nine expect further easing by mid-year. Citigroup Inc., JPMorgan Chase & Co. and UBS Group AG economists are among those giving additional stimulus at this meeting a more than 30 percent chance.

 

Since the BOJ’s last meeting in December, oil prices fell to a 13-year low, the yen touched a one-year high, stocks have tumbled about 10 percent this year and the outlook for faster wage growth has waned.

 

All of these things are obstacles to the BOJ hitting the 2 percent inflation target by its goal of around the six months through March 2017. The bank could announce a change to the timing of the target Friday.

 

And one possible wild card: If stimulus isn’t expanded, look for language that hints at the potential for an unscheduled policy move ahead of the next meeting, which won’t be until March 14-15. The BOJ has a new schedule for 2016, and no longer has a February meeting.

 

Friday’s meeting is the first at which the board will release the outlook report at the same time as the policy decision, which could delay the release past the typical window of between noon and 12:30 p.m. in Tokyo. Later decisions in the past were often associated with policy shifts, but that may not be the case this time.

If the board stands pat, observers would expect the yen to climb and Japanese stocks to tumble in the immediate reaction.

But that could shift, if the BOJ signals it will be watching financial markets continuously for signs of damage to the domestic outlook and will be ready to act at any time. Kuroda could emphasize that message in his 3:30 p.m. press conference — though that would be after the close of stock trading in Tokyo.

“The need for a Kuroda bazooka is increasing,” said Yuji Shimanaka, an economist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “This is decision time for Kuroda” as additional stimulus can stop the trend of yen gains and falling stocks.

Whether the BOJ pushes back the timing of reaching the 2 percent price target and if so by how much will be a key gauge to assess BOJ’s optimism or pessimism.

The BOJ now forecasts hitting the inflation target around the six months through March 2017. People familiar with discussions at the BOJ told Bloomberg last week that they are considering a delay in the schedule for a third time in less than a year.

 

If the target is postponed to some time in fiscal 2017, that points to an increasing risk for not achieving it by the end of Kuroda’s term in April 2018, according to Hideo Hayakawa, a former BOJ chief economist. If the inflation target holds firm without further stimulus, that will be an indication that Kuroda remains more optimistic than most.

 

The key is how Kuroda views the impact of the recent moves in the yen and Japanese stocks, along with concerns about China’s slowdown on Japan’s inflation expectations and corporate investment and wage plans. The economy is growing at about its potential, so it comes down to assessing confidence and whether he thinks a move Friday would strengthen sentiment.

 

The BOJ also will update its forecasts for economic growth and prices for the first time since October. Hayakawa forecast that the bank will cut the inflation projection to about 1 percent for the year starting in April from 1.4 percent.

The big question though, as Bloomberg notes, is Will Kuroda Adopt Draghi-Style Communication?

Masaaki Kanno, the chief Japan economist at JPMorgan, and UBS’s Daiju Aoki say Kuroda may indicate further easing is coming soon as European Central Bank President Mario Draghi did last week. Also, the Fed added a line in its statement this week to say it’s closely monitoring global economic and financial developments.

 

By adopting the Draghi style, Kuroda could avoid disappointing the markets and buy some time as he examines the impact of stock and yen turbulence on Japan’s economy.

However, given the market's lackluster response to Draghi's promise, it appears markets are demanding action not words.

But even actions have not helped, as Alhambra's Jeff Snider previously noted, there is scarcely a block of the calendar since the “impossible” global panic in 2008 that hasn’t seen any of them doing something to expand their balance sheet or impress the “time-axis.”

 By my more conservative count, qualified as the BoJ doing something different rather than purely expanding or extending something already in progress, there have been 10 QE’s in Japan but using the numerical standard which has been applied to the Federal Reserve there may have been as many as 22 or more.

 

 

 

 

This is not so much investing or even finance as it is a cult (calling it a religion or even ideology is unjustifiably too charitable). That is the usefulness of “deflationary mindset” not so much as a matter of actual economic pathology but as a built-in, squishy appeal to “we’ll get it right next time.” And there is always, always a next time which doesn’t seem to count for much inside the cult when, in fact, it is everything.

*  *  *

But still investors await tonight's BoJ statement for any buying opportunity because this is the farce that the new normal has become.

via Zero Hedge http://ift.tt/1SeFp8s Tyler Durden

In March, Saudi Arabia’s air campaign in Yemen will enter its second year.

Riyadh began flying combat missions last year in an effort to rollback the Iran-backed militiamen who drove Yemeni President Abd Rabbuh Mansur Hadi into exile. The results of the strikes have been mixed. The Houthis were driven from Aden but the fight for Sana’a is far from over.

And while the Saudis and the Houthis battle it out, ISIS and al-Qaeda are doing what they do best: finding opportunities amid the chaos. Just today for instance, ISIS claimed responsibility for a car bomb that exploded outside of Hadi’s residence in Aden. Hadi was unharmed but six people were killed in the attack.

As you might recall, the Saudis have a rather checkered human rights record. Earlier this month, the kingdom carried out its largest mass execution in 25 years, killing 47 in what Riyadh pitched as a crackdown on “terrorists.”

That rather blatant disregard for human life has carried over into the air campaign in Yemen.

As we’ve documented extensively, Riyadh’s warplanes have “accidentally” hit everything from MSF hospitals to wedding parties and just last week, we brought you the following footage of what Yemen Health Ministry spokesman Dr. Nashwan Attab called a “heinous massacre” involving an ambulance and rescue workers.

Now, a 51-page report from a UN panel of experts on Yemen has revealed “widespread and systematic” attacks on civilian targets by Saudi planes.

The report (which was obtained by The Guardian) says the following: 

“The panel documented that the coalition had conducted airstrikes targeting civilians and civilian objects, in violation of international humanitarian law, including camps for internally displaced persons and refugees; civilian gatherings, including weddings; civilian vehicles, including buses; civilian residential areas; medical facilities; schools; mosques; markets, factories and food storage warehouses; and other essential civilian infrastructure, such as the airport in Sana’a, the port in Hudaydah and domestic transit routes.”

 

“The panel documented 119 coalition sorties relating to violations of international humanitarian law.”

And it gets worse:

“Many attacks involved multiple airstrikes on multiple civilian objects. Of the 119 sorties, the panel identified 146 targeted objects. The panel also documented three alleged cases of civilians fleeing residential bombings and being chased and shot at by helicopters.”

And worse:

The coalition’s targeting of civilians through airstrikes, either by bombing residential neighbourhoods or by treating the entire cities of Sa’dah and Maran as military targets, is a grave violation of the principles of distinction, proportionality and precaution. In certain cases, the panel found such violations to have been conducted in a widespread and systematic manner.”

And worse:

“Alongside ground-led obstructions to humanitarian distribution, the panel documented 10 coalition airstrikes on transportation routes (both sea and air routes), four road supply routes and five storage facilities for holding food aid (including two vehicles carrying aid and three warehouses and facilities storing food), along with airstrikes on an Oxfam warehouse storing equipment for a water project funded by the European Union in Sana’a. The panel also documented three coalition attacks on local food and agricultural production sites.”

So let’s see if we’ve got this straight. Over the course of 119 discrete sorties, Saudi Arabi bombed refugee camps, weddings, civilian cars, buses, people’s homes, hospitals, schools, mosques, residential neighborhoods, an Oxfam warehouse, treated “entire cities as military targets,” and chased after fleeing civilians with attack helicopters.

Not to put too fine a point on it, but that’s laughably bad – it’s just about the most egregious account of human rights abuses one could possibly imagine. 

“Human rights groups and the Labour leader, Jeremy Corbyn – who described the leaked report as disturbing – called for an immediate inquiry and a suspension of arms sales to Saudi pending its outcome,” The Guardian notes, adding that “UK arms sales to Saudi Arabia totalled £2.95bn for the first nine months of 2015, and about £7bn since Cameron took office, including a contract for 72 Eurofighter Typhoon jets.”

Of course it’s not just Britain arming the Saudis. 

In December, the US State Department approved $1.29 billion in arms sals to Riyadh including 13,000 precision guided weapons. 

According to the kingdom, those weapons will help the Saudis avoid collateral damage. “We used precision bombs in the beginning, but the stocks dwindled and we got no resupply,” NPR quotes a Saudi businessman with links to the royal family as saying. “We know we have a problem, but we must prosecute the war.”

“You can imagine them saying to everybody that is criticizing them, ‘Look, if we have better weapons, there will be less casualties,’ ” Ford M. Fraker, president of the Middle East Policy Council and a former U.S. ambassador to Saudi Arabia, said last month. “I think that is probably correct, but I think the whole issue of [collateral damage] is not one you are going to eradicate.”

No it isn’t. Especially not when the Saudis are shooting at civilians.

via Zero Hedge http://ift.tt/1KIF0Tt Tyler Durden