Submitted by Nicholas Colas of Convergex

Three Fed Thoughts, One Conclusion

We learned one thing yesterday: the U.S. Federal Reserve is in the same position as the rest of us when it comes to forecasting the future path of economic growth.  Nobody really “Knows” anything right now.  From that touchstone observation, we add two additional points.  First, if you think the Fed is going to reverse course any time soon, be aware that neither Fed Funds Futures nor the 2 Year Treasury agree with you. Both discount a slow but perceptible increase in rates this year.  Second, it pays to think a little more long term than just 2016.  For example, consider that Chair Yellen has exactly 2 years left in that role before the next U.S. President can opt for someone else. What does she want her legacy to be?  Not, I think, the Chair that failed to get (and keep) Fed Funds off the zero lower bound.

There is an old adage in economic circles that “Stock market indexes have predicted nine of the last five recessions”. The author of that statement is none other than Nobel Prize winner Paul Samuelson, who concluded the observation with “And its mistakes were beauties”.  Fair enough – equity markets are notoriously fickle.  But market watchers would be fair in asking, “Fine…  But how many recessions have “Blue chip” economists called correctly?”

It is in that philosophical cage match that investors and the Federal Reserve find themselves just now. Global equity market volatility combined with ever-lower crude oil prices are like a traffic signal turning from yellow to red.  And red is also pretty much all you see on the screen.  The economics-minded stewards at the Fed see an entirely different picture: low notional unemployment, the dry powder for consumer spending in the form of lower oil prices, and easy monetary policy around the world.  For them, the light is turning green.

But one side will be right, and one side will be wrong. The dichotomy is too stark for any other conclusion.

Looking through the Fed’s statement today, I had three observations about how the central bank is weighing these facts versus how capital markets perceive them.

Point #1: The Federal Reserve’s cautious stance shows they don’t know any more than capital markets do about the current trajectory of global economic growth.  They see the volatility in equity markets and oil’s slippery slope but are keenly aware that markets are fickle.  Just think back to the August 2015 bout of volatility and how the Fed seemed to put off a September rate increase because of it. Whether that was optics or reality, it set a precedent that global equity market volatility could alter Fed policy.  Look for the Fed to wait on the real economic data that surrounds its dual employment and inflation mandate before it fundamentally changes course.

There’s one exception to that observation, at least by historical Fed policy standards: a market crash caused by external events.  A 1987-style meltdown isn’t enough since the central bank playbook there is to simply ensure the system has the liquidity it needs.  If there were a geopolitical shock, however, that’s a different page in the playbook.  Barring such an event, however, the Fed is going to take its time in 2016.  An S&P 500 that grinds lower by another 5-10% isn’t likely going to change that.

Point #2: While plenty of market watchers are calling for a return to zero interest rates and maybe more quantitative easing, some tell-tale capital markets disagree those events are in the cards.  Fed Funds Futures peg the chance of a July rate increase at 50% and put the chance of higher rates by year-end at 68%.  Two year Treasuries – the hair trigger of the yield curve for changes in Fed policy – yield 83 basis points.  That’s down from over 100 basis points late last year but still higher than September 2015 when the market was sure the Fed was going to increase rates.  The point here is that these markets are not forecasting a return to zero interest rates.  Not even close.

For the sake of completeness, there are two markets that have their doubts.  Gold prices are up from their 2015 lows of $1,050/troy ounce to $1,125 currently.  Given that the yellow metal has been in a vicious bear market since 2011, that is a notable reversal of fortune and could be the canary in the coalmine chirping a warning about further fiat currency debasement.  The other market worth a mention is the 10-year U.S. Treasury note.  At a 2.0% yield, it signals a vote of no confidence in the Fed’s hope that inflation will return to desired levels any time soon.

Point #3: Fed Chair Janet Yellen has exactly 2 years left in that position before the next President has a chance to consider reappointing her or choosing a new person to fill the slot. Think of the Federal Reserve as either a blue chip public company or major branch of the U.S. government.  In both cases, the people that run them give serious thought to their legacy – what they did to shape the organization’s goals and what specific accomplishment they achieved.

Through that lens, the conversation about Fed policy in 2016 takes on a different hue.  In retrospect, every Fed Chair has their emblematic “Achievement”: Paul Volcker (tamed inflation), Alan Greenspan (the 90s expansion), Ben Bernanke (saved the financial system).  For Janet Yellen, her prospective accomplishment must be “Got things back to normal”.  That means getting interest rates far away from the zero lower bound if at all possible.  If for this reason, and no other, the Fed is going to raise rates in 2016 barring a shock to the system.

The conclusion here: you dance with who you brung, and this Fed is our date to the prom. They don’t have any greater level of clarity about how this year is going to shape up than the marginal investor setting equity prices or an oil trader looking for direction in that market. This is patently different from the period from 2008 – 2015, when the Fed was clear about its perspective and knew exactly which policy levers to pull. Perhaps they were wrong, but they were never in doubt.

Now, there’s enough doubt for everyone: markets, central banks, consumers, governments. Everyone. The best thing we can say about that: if markets accept that the Fed is no better informed than they are, maybe investors will devote more time to stock fundamentals and intrinsic value analysis. Without a doubt there are cheap stocks in the current global equity market.  Now, perhaps, we have the time to look for them instead of worrying so much about the Fed.

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As we do every quarter, just before CAT announces its result, we show the monthly retail sales for the heavy industrial conglomerate, and in the month of December things went from really bad to even worse, when the company reported what in our estimate was the worst month since the financial crisis, with global retail sales matching the worst annual decline this decade, while the duration of the sales contraction is now unprecedented in company history.

 

Today, CAT confirmed the flow through from this depressed picture when it announced that not only did revenue tumble by 23% to $11 billion, but it missed already deeply cut estimates of $11.4 billion, leading to a 111% collapse in operating profit which from $1.1 billion turned into a $114 million loss in the quarter. To be sure, the company tried to pull an Alcoa and stuff massive restructuring charges in the quarter amounting to $689, boosting non-GAAP EPS by $0.89 to $0.74, however one can simply ignore this latest accounting fudge attempt.

Then there was the topic of ongoing inventory liquidation:

Inventory declined about $1.45 billion during the fourth quarter of 2015. For the full year, inventory decreased about $2.5 billion. “Caterpillar inventory declined $1.45 billion during the fourth quarter of 2015, compared to a decline of about $1.1 billion during the fourth quarter of 2014.  A fourth-quarter decrease is not unusual, as some of our businesses ship long lead-time capital goods in the fourth quarter.  For the full year of 2015, Caterpillar inventory declined about $2.5 billion. While we believe our inventory levels are not excessive, we are anticipating that lower sales and our ongoing Lean initiatives will result in some reduction in inventory in 2016.”

Expect much more GDP-reducing inventory liquidation in the months ahead.

The 2015 summary via the CEO:

This past year was a difficult one for many of the industries and customers we serve.  Sales and revenues for 2015 were nearly 15 percent lower than 2014 and 29 percent off the 2012 peak.  The two most significant reasons for the decline from 2014 were weakening economic growth and substantially lower commodity prices.  The impact of weak economic growth was most pronounced in developing countries, such as China and Brazil.  Lower oil prices had a substantial negative impact on the portion of Energy & Transportation that supports oil drilling and well servicing, where new order rates in 2015 were down close to 90 percent from 2014.

 

“We anticipated about $5 billion of the $8 billion sales and revenues decline in our January 2015 outlook as we started the year.  Actual sales and revenues were about $3 billion below that $50 billion outlook because of steeper than expected declines in oil prices, a stronger U.S. dollar, weaker construction equipment sales and lower than expected mining-related sales in Resource Industries,” added Oberhelman.

Who is to blame? Why China… and the strong dollar of course:

In Asia/Pacific, the sales decline was primarily due to lower sales in China and India and the unfavorable impact of currency.  The most significant decline was in China, a result of continued weak residential and nonresidential construction activity.  The unfavorable impact of currency was primarily due to the weaker Japanese yen and Australian dollar. 

But where things get really messy was the company’s guidance which was absolutely obliterated, and saw CAT slashing its 2016 revenue projection cut from the $45.5 billion forecast as recently as last October to a range of $40-$44, or a $42 billion midpoint, a cut of nearly nearly 8 in just three months! This is what the company said:

The outlook for 2016 sales and revenues does not anticipate improvement in world economic growth or commodity prices.  Sales and revenues are expected to be in a range of $40 to $44 billion – a mid-point of $42 billion.  The mid-point of the range reflects a decline of about $3.5 billion from last October’s preliminary outlook for 2016 sales and revenues and a year-over-year decline of about 10 percent.  The decrease from last October’s preliminary outlook is largely a result of continued declines in commodity prices and economic weakness in developing countries. 

Some additional color from CEO Oberhelman:

“Our outlook reflects struggling oil and other commodity markets, and continued economic weakness in developing countries.  While the U.S. and European economies are showing signs of stability, the global economy remains under pressure.  While we manage through these difficult economic times with substantial restructuring actions to lower costs, we are also preparing for the long term.  We are continuing substantial investments in R&D and our digital capabilities.  These investments will be positive for Caterpillar and our customers through connected fleets and jobsites and access to data and predictive analytics.  Investing in the future is important to improving productivity and the bottom line – for Caterpillar and our customers over the long term.  While it is tough to predict when an economic recovery will happen, the investments we are making and the actions we are taking to lower our cost structure and improve quality and our market position will help deliver better results when a recovery comes,” said Oberhelman.

Good luck.

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Japan’s economy minister Akira Amari “searched his memory” and doesn’t recall putting an envelope of cash in his pocket.

Nevertheless, the 66-year-old resigned on Thursday amid reports he accepted a $100,000 bribe from a construction company in exchange for political favors.

“I haven’t broken any laws,” Amari said last Friday, before promising to answer further questions once he had a chance to “conform his memories.”

As it turns out, Amari does recall receiving gifts from the company but those gifts were accepted as a “political donation.” No mafia-style cash envelopes were exchanged, he insists. “Putting money in my suit pocket in front of a visitor would be lacking dignity as a human being,” he said.

But even as the minister maintained his innocence, he decided to fall on his sword for the sake of Japan’s Quixote-esque fight against deflation. “We need to pass legislation through Parliament for steps to beat deflation and create a strong economy as soon as possible,” he said on Thursday. “Anything that hampers this must be eliminated, and I’m no exception.”

As Reuters notes, “Amari is a close ally of the prime minister, is a core member of his policy team, and led Japan’s negotiations for the Trans-Pacific Partnership free trade bloc.”

“This is definitely not good news for Abe and it’s going to make it harder to sell the TPP,” Jeffrey Kingston, director of Asian studies at Temple University’s Japan campus told Reuters. “Corruption is just not something that goes down well with voters [and] it’s going to be a bit of a rough road.”

Yes, “a bit of a rough road,” or as BBC’s Mariko Oi puts it, “the biggest scandal the Abe administration has faced” thus far.

Amari was the architect of Abenomics and “his resignation will probably raise even more questions over Abe’s economic policies,” Oi continues.

As for the “political donations,” Amari says the confusion arose because the cash was mishandled by his “secretaries” who allegedly spent 3 million yen of the illicit funds.

“I decided to resign my cabinet position today in consideration of my responsibility to oversee my secretary as a national lawmaker, my duty as a minister, and my pride as a politician,” a tearful Amari declared.

As Bloomberg reports, Amari is “the most influential minister to step down since Abe took office in December 2012.” 

“The resignation of one of the leading members in the Abe cabinet hurts the policy implementation capacity of Abenomics,” Minori Uchida, head of global markets research at Bank of Tokyo-Mitsubishi UFJ said, earlier today.

Right. Of course the other thing that “hurts the policy implementation capacity of Abenomics” is that Abenomics simply hasn’t worked to pull the country out of deflation. Amari was one of three officials (Abe and BoJ governor Kuroda being the other two) who delivered near daily soundbites promising that the government would hit its 2% inflation target even if it killed them. 

To whatever extent the market doubted the viability of Abenomics, Amari’s exit will only make the situation worse according to pretty much every commentator who’s weighed in thus far. 

Nobuteru Ishihara, a former minister and secretary-general of the ruling Liberal Democratic Party, will step in as economy minister.

In the end, we suppose it says something about Abe’s cabinet that they can’t even seem to do graft right. $100,000 isn’t exactly a large sum when it comes to bribes and illicit kickbacks. Just ask a politician in Brazil. 

We close with a quote from the disgraced minister, who says he risked his own life tilting at deflationary windmills.

“I worked without sleep or rest. After Prime Minister Abe put my self at the helm of Abenomics, I put my life on the line for my national duty over the past three years.”

*  *  *

Full article from Shukan Bunshun on the alleged bribes

And in public secretary Amari Akira TPP Minister (66), that there is a suspicion of mediation gain punishment law violations and Political Funds Control Law it found an interview of Shukan Bunshun.Depending on the coverage Affairs personnel of Shukan Bunshun of construction company in Chiba Prefecture, it was testimony to exchange money on the basis of the notes and recordings.

According to this man, Tour of the compensation of road construction Urban Renaissance Agency (UR) is doing, and request a man of influence in the Amari office. Over the past three years, Minister Amari and local Yamato office director, shaking Kenichi (public first secretary) and continued funding and entertainment Suzuki RyoMakoto policy secretary, only those total that remains is evidence 12 million yen and that up to.?

Qing Island director you have set a meeting was responded that they “do not was brought in the form of donations” to the coverage of Shukan Bunshun. However, there is no description in Amari’s political fund income and expenditure report.?The November 14, 2013, and met with the Minister of room to Amari minister. Along with Toraya of jelly that entered the box of paulownia, the ¥ 500,000 cash was placed in an envelope that was me, “This is a thank-you.”

Nobuo Mr. Gohara of attorney in the original Tokyo District Public Prosecutors Office prosecutor, a series of financial interactions Political Funds Control Law violation was pointed out that there is a suspicion of mediation gain punishment law.

TPP is in the refrain of the Diet approval, likely to raise the voices questioning the eligibility of Amari minister.

*  *  *

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• Unease over Fed rate path dents European stocks (Reuters)
• Global Stocks Pressured After Fed Statement (WSJ)
• Japan’s Economy Minister Amari to Resign Over Graft Scandal (BBG)
• Authorities working to clear remaining protesters in Oregon occupation (Reuters)
• China Sharpens Efforts to Halt Money Outflow (WSJ)
• Eurozone January Economic Sentiment Falls Sharply, Hits 5-Mth Low (MNI)
• Glencore Said to Store Oil in Ships Off Singapore Amid Contango (BBG)
• Investors Hedge Bets on Crude-Oil Revival (WSJ)
• Deutsche Bank Securities Unit Reports Loss on Revenue Slump (BBG)
• Deutsche Bank Board Members Won’t Get 2015 Bonuses, Cryan Says (BBG)
• The One White-Collar Job in Hot Demand in Busted Brazil Economy (BBG)
• Ford Posts $1.9 Billion Profit: North America operations lifted by record U.S. industry sales (WSJ)
• EU’s Too-Big-to-Fail Bank Bill Won’t Be Withdrawn, Hill Says (BBG)
• The $29 Trillion Corporate Debt Hangover That Could Spark a Recession (BBG)
• South Africa Sees 32,000 Possible Mining Job Cuts, Minister Says (BBG)
•  Weekly carload traffic down nearly 20% (Railway Age)
• Campaigning in style: How Jeb Bush blew through his warchest (Reuters)
• Europe Faces Another Million Refugees This Year, UN Report Says (BBG)

 

 

Overnight Media Digest

WSJ

– Alibaba Group Holding Ltd reached a roughly $900 million deal to sell its stake in Meituan-Dianping, which is China’s largest online provider of movie ticketing, restaurant bookings and other on-demand services, as the Internet giant builds its own competing platform. (http://on.wsj.com/1SkMend)

– Federal Reserve officials expressed worry about financial-market turbulence and slow economic growth abroad, leaving doubts about whether the central bank will raise interest rates as early as March. (http://on.wsj.com/1SkMvqc)

– Facebook Inc posted more than $1 billion in quarterly profit for the first time, showing the social network’s mobile strength as advertisers increasingly look to reach younger users. (http://on.wsj.com/1SkMCBV)

– Federal inspectors found “deficient practices” at a Theranos Inc laboratory that “pose immediate jeopardy to patient health and safety”,. The Centers for Medicare and Medicaid Services said an inspection completed in November uncovered five major infractions that violate the federal law governing clinical labs. (http://on.wsj.com/1SkMNNK)

– If BG Group Plc investors support the deal on Thursday as analysts and investors expect, the combination would nearly double Royal Dutch Shell Plc’s production of liquefied natural gas within two years, and turn it into the world’s largest marketer of the fuel by the end of the decade. (http://on.wsj.com/1SkN6YU)

 

FT

French utility EDF said in a statement on Wednesday that its board had agreed to buy the reactor business of Areva based on a value of 2.5 billion euros.

British Prime Minister David Cameron will fly to Aberdeen, Scotland, on Thursday to announce a 250-million-pound ($356.20-million) package to prop up the North Sea oil industry.

In October last year, Zeus Capital announced that it will acquire rival broker Novum Securities. However, that plan appears on the brink of falling apart as the Financial Conduct Authority plans to bring tax fraud charges against Zeus co-founder Richard Hughes.

Five former brokers were acquitted on Wednesday of conspiring with convicted trader Tom Hayes to manipulate crucial benchmark interest rates as London’s second Libor trial dealt a blow to the UK’s Serious Fraud Office.

 

NYT

– Even as petroleum prices plummet and the kingdom burns through its financial reserves, the Saudis are betting they can win an oil war of attrition. (http://nyti.ms/1PUnxsX)

– A report from the New York attorney general portrays a complex business in which technologically adept ticket brokers are able to profit at the expense of ordinary fans. (http://nyti.ms/23vhOnh)

– Gilead Sciences may face legal action in Massachusetts unless it drops prices for its hepatitis C drugs. In California, it is being sued over patents for an H.I.V. treatment. (http://nyti.ms/1KcfUBy)

– The quarter was another blockbuster for Facebook Inc and its shares jumped in after-hours trading. (http://nyti.ms/1SLtQoO)

 

Canada

THE GLOBE AND MAIL

** Bombardier Inc was sued on Wednesday for at least C$14.2 million ($10.1 million) by a unit of Comerica Inc , after the Canadian aircraft maker was unable to find buyers for four planes whose leases had expired. (http://bit.ly/1Sl1L6c)

** Rogers Communications chief executive Guy Laurence is defending the escalating prices of wireless plans, comparing the value customers get from the money cellular carriers pour into their networks every year to the cost of a daily coffee. (http://bit.ly/1Sl1MHk)

** Housing markets across the Prairies are showing major signs of stress as job losses mount in the energy sector and rental vacancy rates soar, Canada’s federal housing agency, Canada Mortgage and Housing Corp, warned in a quarterly assessment. (http://bit.ly/1Sl1Yqh)

NATIONAL POST

** The federal government will take extra time to weigh approvals for both the Energy East and Trans Mountain pipeline projects, and will assess both projects’ impacts on Canada’s greenhouse gas emissions. (http://bit.ly/1Sl2fcy)

** Canada’s top energy regulator, the National Energy Board, forecasts crude oil production in the country to grow 56 percent to reach 6.1 million barrels per day by 2040 from its current level of 4.3 million bpd. (http://bit.ly/1Sl2oge)

** Canadian vehicle sales will be flat in 2016 as weakness in commodity-producing provinces is offset by strength in the industrial heartland, according to a new report from Scotiabank. (http://bit.ly/1Sl2rbX)

 

Britain

The Times

The trial of six brokers accused of rigging Libor ended in defeat for the Serious Fraud Office yesterday when a jury cleared five of the men. (http://thetim.es/1OZ9hPG)

The chances that the payment protection insurance scandal will exceed £30 billion rose yesterday after Santander took a fresh £450 million provision to pay compensation. (http://thetim.es/1KGeJ8p)

The Guardian

Shell has won shareholder approval for its £35bn takeover of BG Group despite nearly a fifth of investors opposing the deal. (http://bit.ly/1VrjqIQ)

One of the most powerful opponents of Google’s controversial tax structures, European tax commissioner Pierre Moscovici, is expected on Thursday to call on Britain and Ireland to drop their objections to radical tax reform across the EU. (http://bit.ly/1Vshi3M)

The Telegraph

Royal Bank of Scotland has set aside an extra £2.5bn to cover legal bills, compensation payouts and reduced income due to low interest rates, just weeks before it announces its financial results for 2015. (http://bit.ly/20rZMjj)

The City watchdog has issued a warning to people considering taking out a self-certification mortgage from a company based outside the UK. (http://bit.ly/1nxKhsz)

Sky News

A fund backed by Britain’s biggest banks has agreed to back a fast-growing app-based advertising platform founded by a trio of 20-something entrepreneurs. (http://bit.ly/1UrHzPi)

Apple’s Safari browser suddenly crashed on iPhones, iPads and Macs worldwide on Wednesday. (http://bit.ly/1SbPgvA)

The Independent

Scotch whisky makers have called on the UK Government to cut tax on the bottle from an “onerous” 76 per cent. (http://ind.pn/1OZ4ca7)

America’s central bank stressed today that it is “closely watching” global markets in the wake of January’s turmoil, suggesting that it is likely to slow the pace of its monetary tightening. (http://ind.pn/1PTLqRr)

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Following the Fed’s disappointing “dovish, but not dovish enough” statement which effectively admitted Yellen had committed policy error by hiking just as the US economy “was slowing down” which in turn lowered the odds of a March rate hike to just 18%, it was up to oil to pick up the correlation torch, and so it did, rising in an otherwise mixed session which has seen European stocks slide on continued weakness surrounding Italian banks, many of which have been halted limit down, while Asia was unable to pick a direction after the resignation of Japan’s “Abenomics” minister Akira Amari to over a graft scandal and yet another rout for Chinese stocks.

Before we get to the US, we should note what is going on in China where the Shanghai Composite Index fell by another 2.9% to 2655.66, capping a 9.6 percent retreat over three days, as concern a weakening economy will reduce corporate profits overshadowed the biggest cash injection into the financial markets in three years. The SHCOMP closed at the lowest level since November 2014, taking its decline for the year to 25 percent, the most since 2008. As Bloomberg notes, authorities continue to take measures to stabilize the nation’s financial markets but having most of their time focused on propping up the devaluing currency, they appear to have left equity investors to fend for themselves.

This week’s net injection of 590 billion yuan ($90 billion) into the money markets ahead of the start of the Chinese new year was the biggest since February 2013, however it wasn’t big enough. Further declines in the equity benchmark could be on the way. Strategists and technical analysts surveyed by Bloomberg are targeting a bottom of 2,500, compared with 2,656 today. Since the Shanghai Composite Index reached a record high on June 12 it has plummeted 48 percent. As can bee seen on the chart below, it remains the world’s worst performing major equity index in 2016.

Away from Asia, futures on the Nasdaq 100 Index climbed driven by Facebook which jumped 12% in early New York trading after posting another record earnings period. Technology peers also rallied, with more than 2 percent gains each in Google parent Alphabet Inc., Apple Inc., Netflix Inc., Amazon.com Inc. and Microsoft Corp. Amazon and Microsoft are due to report results today, along with some 50 other Standard & Poor’s 500 Index members.

And while Europe was initially happy to track oil modestly higher, it has since then stumbled deep in the red following the latest bout of risk in Italy where banks fell for the second day, leading the FTSE MIB to underperform the broader European market, and pushing the FTSE Italia All-Share Banks index down 4.2% as of 12:18pm CET. Indeed, this morning has been a a freeze fest, with Pop. Milano, UniCredit, Monte Paschi, Pop. Emilia shares halted; down ~5% or more after Banca Akros says price of the “bad bank” guarantee looks rather costly, doubts many Italian banks will be interested in using it to offload bad loans.

The one silver lining has been the MSCI Emerging Markets Index which rose for a second day and Gulf stocks were on course for their best week since December 2014. as U.S. crude headed for a three-day advance, helping boost currencies of commodity-exporting nations. “Emerging-market assets are rallying across the board today as the Fed sounded relatively dovish watching global developments,” said Bernd Berg, an emerging markets strategist in London at Societe Generale SA. “A March Fed rate hike looks increasingly unlikely now. I think we are now entering a risk-on phase and oil-related currencies will post a sizable rally.”

However, that may not last: with the futures picture changing dramatically, moments ago US equity futures slid as Oil erased all of its losses for the day:

• WTI CRUDE ERASES GAINS, TRADES LITTLE CHANGED AT $32.26/BBL
• WTI Crude Erases Earlier Advance, Dips 0.4% to $32.16/Bbl
• S&P FUTURES QUICKLY TURN LOWER; OIL FALLS; EU STOCKS DROPPING

And then as oil was sliding, a familiar headline reappeared:

• RUSSIAN ENERGY MINISTER NOVAK SAYS OPEC IS TRYING TO ORGANISE MEETING OF OPEC AND NON-OPEC COUNTRIES IN FEB

Maybe it can work for a second day in a row.

And while risk levels are changing rapidly and violently by the minute, this is roughly where we stand

• S&P 500 futures down 0.1% to 1872
• Stoxx 600 down 1.0% to 336.8
• MSCI Asia Pacific up less than 0.1% to 120
• Nikkei 225 down 0.7% to 17041
• Hang Seng up 0.8% to 19196
• Shanghai Composite down 2.9% to 2656
• S&P/ASX 200 up 0.6% to 4976
• US 10-yr yield up 2bps to 2.02%
• Dollar Index down 0.11% to 98.8
• WTI Crude futures up 1.6% to $32.83
• Gold spot down 0.6% to $1,118
• Silver spot down 0.4% to $14.43

A quick stroll through regional markets, we find Asian equity markets traded mixed having initially shrugged off the negative lead from Wall St . ASX 200 (+0.6%) outperformed amid gains in commodity names after crude briefly regained the USD 32/bbl level, while the Nikkei 225 (+0.7%) saw indecisive trade with participants tentative ahead of the BoJ policy decision tomorrow. Shanghai Comp (-2.9%) extended on its weakening trend, although is off its worst levels after the PBoC injected CNY 340b1n into the inter-bank market. 10yr JGBs traded lower, amid a suspected lack of buyers as participants await tomorrow’s conclusion to aforementioned policy meeting in which the BoJ is widely expected to remain on hold.

European indices trade in negative territory amid choppy trade with stabilizing oil markets failing to give stocks a lift. As North American participant come to their desks, stocks are gradually approaching their post-FOMC levels, after a cautious Fed revealed they are not blind to the risks the global economy faces, which resulted in pressure upon stock markets and a flight to safe-haven assets. Energy is supporting stocks, with the sector outperforming in the Euro Stoxx 600. The SMI (-1.5%) is the notable underperformer amongst the premier indices, its second largest component Roche (-4.3% ) weighing it down after predicting a less than stellar outlook for the coming year, with sales expected to grow in mid to low single digits.

In FX, Risk tone is mixed and as such short term speculators have taken the opportunity to buy USD/JPY this morning, taking encouragement from the domestic and offshore buying seen overnight. News that the Japanese Econ Min Amari will step down prompted a brief hit, but this looks to be short lived with the push for 119.00 back on in anticipation of the BoJ meeting this evening.

A gauge of 20 emerging-market currencies rose for a third day, gaining 0.4 percent.  Russia’s ruble led the advance, climbing 1.3 percent in a third day of gains. Malaysia’s ringgit strengthened 1.1 percent, after Prime Minister Najib Razak maintained his fiscal-deficit target and announced measures to shore up an economy hit by a plunge in oil. Turkey’s lira and South Africa’s rand appreciated at 0.7 percent.

The pound advanced versus most of its 16 major peers after a report showed the U.K.’s economic expansion accelerated in the fourth quarter. Britain’s economy grew 0.5 percent in the final three months of 2015, from 0.4 percent in the third quarter, matching to the median forecast of analysts surveyed by Bloomberg.a

In commodities, West Texas Intermediate crude rose 0.7 percent to $32.54 a barrel after gaining 6.4 percent over the past two days. It’s recovering after falling to $26.19 on Jan. 20, its lowest since 2003.

The worldwide surplus will decline this year even after Iran adds an expected 500,000 barrels a day of output, United Arab Emirates Energy Minister Suhail Al Mazrouei said on his Twitter account. U.S. crude inventories increased by 8.38 million barrels last week, the biggest gain in volume since April, according to a weekly report from the Energy Information Administration.

Looking at the US calendar we’ve got last week’s initial jobless claims reading before the important preliminary December durable and capital goods orders data. Last month’s pending home sales data follows this and we close with the Kansas City Fed manufacturing activity index reading. Earnings wise today we’ve got 52 S&P 500 companies set to report with the highlights being Amazon (after-market), Caterpillar (before the open), Microsoft (after-market) and Ford Motor (before the open).

Global Top News

• Deutsche Bank Securities Unit Reports Loss on Revenue Slump: Transaction banking only unit at group to post profit gain
• Japan’s ‘Abenomics’ Minister Amari to Resign Over Graft Scandal: Economy Minister Akira Amari to resign, article alleges he took cash
• company in breach of law
• U.K. Economy Gained Momentum at End of 2015 on Services Growth: GDP rose 0.5% in 4Q
• Euro-Area Economic Confidence Declines to Lowest in Five Months: Indicator falls to 105 in January from 106.7 in December
• Roche Declines After Full-Year Profit Misses Analyst Estimates: Co. sees 2016 sales having low- to mid-single digit growth
• China’s Money-Market Operations Inject Most Cash in Three Years: PBOC’s reverse repos add a net 590b yuan this week
• Google Tax Deal May Be Next in Line for EU Probe, Vestager Says: EU competition chief Margrethe Vestager said she’s ready to investigate Google parent Alphabet’s GBP130m U.K. tax deal
• Takata CEO Said to Face Pressure to Resign as Crisis Deepens: Honda said to be more receptive on support if CEO resigns
• Wynn Resorts, Boston Reach Settlement on Everett Casino: Globe
• Apple May Introduce New IPad at March Event: 9to5Mac
• NetApp Said to Close SolidFire Deal Next Week: CRN
• Alibaba Said to Sell Meituan-Dianping Stake in $900m Deal: WSJ

 

Bulletin Headline Summary from RanSquawk and Bloomberg:

• Brent and WTI continue to grind higher, looking to test USD 34.00 and USD 33.00 respectively, in spite of the large DoE build seen yesterday
• European indices trade in negative territory amid choppy trade with stabilizing oil markets failing to give stocks a lift
• Looking ahead, highlights include German national CPI, UK GDP, US weekly jobless data, durable goods and pending home sales, comments from ECB’s Costa, Nowotny and Weidmann andf Microsoft earnings
• Treasuries lower in overnight trading before this week’s U.S. auctions conclude with $29b 7Y notes, WI yield 1.78%, compares with 2.161% awarded in Dec., highest 7Y auction stop since 2.235% in Sept. 2014.
• Federal Reserve Chair Janet Yellen and her colleagues have opened the door to a change in their outlook for the economy this year, and possibly a slower pace of interest-rate hikes that would make a move in March less likely
• There’s been speculation recently about whether the U.S. and the world are about to sink into recession. Underpinning much of the angst is an unprecedented $29 trillion corporate bond binge that has left many companies more indebted than ever
• Threats to financial stability include long-term impact on risk-taking of “persistently low interest rates,” increasing debt and declining credit quality in U.S. companies and emerging markets, according to Office of Financial Research’s annual report
• The U.K. economy gained a little momentum at the end of last year, thanks entirely to the services industry. 4Q GDP rose 0.5% from the previous three months, when it expanded 0.4%
• Spanish unemployment dropped to 20.9% from 21.2% the previous quarter to its lowest in almost five years, as Acting PM Mariano Rajoy struggles to form a government following an inconclusive election
• Euro-area economic confidence slumped to 105 from a revised 106.7 in December, the lowest since August, strengthening the European Central Bank’s case for increasing stimulus
• Currency traders are writing off Haruhiko Kuroda’s ability to weaken the yen the way he did in 2014, when he expanded his record monetary stimulus program
• Japanese Economy Minister Akira Amari resigned amid allegations he received money in return for favors. A tearful Amari apologized for the scandal, saying any cash received by his office was a political donation
• $2b IG corporates priced yesterday along with $300m HY. BofAML Corporate Master Index OAS 1bp wider yesterday at +200; 2015 range 180/129. High Yield Master II OAS tightened 5bp to +778; 2015 range 733/438
• Sovereign 10Y bond yields mostly steady. Asian stocks mixed, European stocks drop; U.S. equity-index futures rise. Crude oil rises,

US Economic Calendar

• 8:30am: Initial Jobless Claims, Jan. 23, est. 281k (prior 293k); Continuing Claims, Jan. 16, est. 2.218m (prior 2.208m)
• 8:30am: Durable Goods Orders, Dec. P, est. -0.7% (prior 0.0%)
  • Durables Ex-Transportation, Dec. P, est. -0.1% (prior 0%)
  • Cap Goods Orders Non-Def Ex-Air, Dec. P, est. -0.2% (prior -0.3%)
  • Cap Goods Ship Non-Def Ex-Air, Dec. P, est. 0.8% (prior -0.6%)
• 9:45am: Bloomberg Consumer Comfort, Jan. 24 (prior 44)
• 10:00am: Pending Home Sales m/m, Dec., est. 0.9% (prior -0.9%)
• Pending Home Sales NSA y/y, Dec., est. 4.8% (prior 5.1%)
• 11:00am: Kansas City Fed Mfg Activity, Jan., est. -10 (prior -9)

DB’s Jim Reid concludes the overnight wrap

Looking at our screens this morning, it’s been a relatively mixed start for bourses in Asia but after a weak open, some positive sentiment is returning as we reach the midday break. There’s been gains this morning for the Hang Seng (+0.18%), Kospi (+0.31%) and ASX (+0.60%) after all three opened in the red, while in Japan the Nikkei is currently -0.44% but opened down nearly -1.5% following the FOMC selloff in the US last night. China is bucking the trend with markets seemingly struggling to trade with any conviction. The Shanghai Comp is currently -0.59% but has swung between gains and losses this morning. Elsewhere WTI is off around a percent in Asia and back below $32/bbl. Datawise the only release of note has been a softer than expected Japanese retail sales print (-0.2% mom vs. +1.0% expected).

Moving on. Earnings season is ramping up with a number of bellwether corporates reporting. Much like what we saw with Apple, despite Boeing’s quarterly earnings coming in ahead of analyst estimates investors latched onto the soft outlook for the quarter and year ahead which sent shares plummeting nearly 9% lower by the close. After the close we also got some bumper numbers out of Facebook (beat both earnings and revenue expectations) which sent shares up as much as 12% in extended trading (while US equity index futures are also up this morning). That was in stark contrast to eBay however who saw its share price down double digits after the close with management outlining a slightly more difficult quarter ahead than analysts had expected. All told yesterday we saw 33 S&P 500 companies report with 18 beating revenue expectations (55%) and 27 (82%) coming ahead of earnings estimates. That was slightly better than the overall trend so far after 133 companies having reported with 52% and 80% beating sales and earnings expectations respectively.

Elsewhere, the rest of the price action in markets played second fiddle to the FOMC. European equities managed to eke out small gains yesterday after trading with losses for much of the session (Stoxx 600 closing +0.31%). Meanwhile in terms of the economic data we saw both German (9.4 vs. 9.3 expected) and French (97 vs. 96 expected) consumer confidence indicators come in a smidgen ahead of expectations. In the US the only data of note was a greater than expected surge in December new home sales (+10.8% mom vs. +2.0% expected) which rose to a ten-month high after being put down to the unseasonably warm weather last month.

Looking at the day ahead, it’s a busy one for economic data and we kick off in Germany this morning where we’ll get the December import price index print. That’s before we turn to the UK where the advanced Q4 GDP print is due to be released (+0.5% qoq expected) followed by various confidence indicators for the Euro area. Germany’s preliminary CPI report for January is due out after this. Over in the US this afternoon, we’ve got last week’s initial jobless claims reading before the important preliminary December durable and capital goods orders data. Last month’s pending home sales data follows this and we close with the Kansas City Fed manufacturing activity index reading. Earnings wise today we’ve got 52 S&P 500 companies set to report with the highlights being Amazon (after-market), Caterpillar (before the open), Microsoft (after-market) and Ford Motor (before the open).

via Zero Hedge http://ift.tt/1nq74FZ Tyler Durden

 

 

 

Precious Metals Strategy: Bullion or Jewelry?

Written by Jeff Nielson (CLICK FOR ORIGINAL)

 

 

 

 

Bullion confiscation has been a risk and concern which has been analyzed in previous commentaries and examined from different angles, so it’s not surprising that this was also the subject of a recent reader question. Part of the answer to that query raised a new topic: the “anti-bullion confiscation” strategy.

What is the easiest way for silver- and gold-holders to avoid the harm and impact of any bullion confiscation decree which might be announced? The answer is to not hold bullion, or rather, not to acquire all your precious metals holdings in the form of bullion.

By now, most readers are aware that historically, the world’s largest bullion market and thus largest repository of bullion is found in India, distributed amongst its enormous 1+ billion population. Indeed, the comically fraudulent attempt by the bankers to “liberate” some, most, or all of the 20,000 tonnes of gold estimated to be held in India was the subject of a recent commentary.

Despite the large income and wealth disparity in India, the majority of gold and silver held in India is distributed amongst its massive peasant/agrarian population. The majority of this population either refuse to use (or trust) banks, or simply lack access to such financial services altogether.

As a consequence of this reality, the modest amounts of wealth accumulated by these families is invariably held in silver and gold. However, Indians don’t carry their silver or gold in the form of coins, or even store it in the form of bars. They wear it, in the form of jewelry, typically hung around the necks of Indian women.

In North America (and the West, in general), “jewelry” and “bullion” are essentially entirely independent concepts. We buy jewelry for vanity, or to earn the favour of females; we exchange our paper currencies for silver or gold bullion as a preferred strategy for wealth preservation. Perhaps it is time for our populations to eliminate that distinction and merge these two activities into a single strategy.

Regular readers are fully aware of the criminalized nature of our governments and economies, with the nexus of all that corruption emanating from the financial sector (under the control of the banking crime syndicate). The actions of these regimes have become increasingly lawless, with the theft-of-assets known as “the bail-in” being the most extreme example to date.

In such societies, it is no wonder that the concern of bullion confiscation becomes an increasingly larger issue in the minds of precious metals holders. For this reason, “diversifying within the sector” has been a frequent theme of previous commentaries. Hold silver and gold. For those who consider themselves competent to engage in equities investments, spread some of your precious metals holdings into the extremely suppressed and undervalued gold and silver miners as well.

Now we have another example and means of diversifying within the sector: holding our physical silver and gold in the form of bullion and jewelry. We should remember that previous acts of bullion confiscation in Western societies (by the US government in 1933 and 1934) focused exclusively on bullion: coins and bars of gold and silver.

Numismatic coins were exempted from seizure. However, “bullion certificates” were included, thus in any modern confiscation, all bullion held in “funds” or “accounts” would be the first bullion seized. We cannot be certain that numismatic coins would be exempt in any future seizures.

However, there was certainly never any thought given to confiscating silver or gold jewelry in those US seizures. Even the most lawless of regimes would be extremely hesitant to attempt to invoke a jewelry confiscation as part of any broader bullion confiscation perpetrated against our populations.

The arguments against attempting to perpetrate any sort of jewelry theft or confiscation are numerous and powerful, and they begin with our still-strong cultural attachment to the world’s only form of Honest Money. Thanks to decades of anti-bullion brainwashing, only a tiny percentage of our populations currently have the prudence to store some or most of their wealth in the form of silver or gold bullion.

Conversely, all of us, except for the growing population of desperately poor, have at least a few items of gold or silver jewelry in our possessions. Indeed, with respect to the married majority, gold engagement rings and wedding bands are regarded by most as an essential symbol of that commitment. As well (particularly for the younger and/or more avante-garde segment of the population), body-piercing is now endemic in our culture.

Much of our population retains a literal physical attachment to their gold and silver. Meanwhile, for the more affluent, there is perhaps an even stronger wealth attachment to jewelry. For the wealthy of the West, just as with the peasant population of India, gold jewelry (in particular) is a symbol of wealth and status.

For these reasons (and more), it is virtually unthinkable that Western corruption would descend to the invasive extreme of any sort of jewelry confiscation. And for that reason, precious metals holders may decide that now is the time to consider acquiring jewelry as part of their overall wealth preservation strategy.

Here it must be understood that there are pros and cons involved, so even those who are most fearful of bullion confiscation — or simply most enamoured with jewelry — would not want to take this strategy to an extreme. The first con to consider here is cost (and thus efficiency). Swapping our paper for gold or silver jewelry inevitably yields far fewer ounces-per-dollar, as we pay for the craftsmanship involved in the fabrication of the jewelry followed by a retail mark-up that is usually higher than what we experience in swapping our paper for bullion.

We also need to consider the reduced liquidity of jewelry. If one needed to “raise cash” for an item of jewelry today, the options range from bad to worse. Selling jewelry back to a jeweler inevitably has a steep discount attached, meaning we lose for a second time in our paper-for-jewelry strategy. Sinking even lower, we can head to pawn shops to attempt a jewelry-for-cash swap and experience an even greater price shock as we are told what our gold or silver jewelry is (supposedly) worth.

Faced with those concerns, larger and/or wealthier precious metals holders may see foreign storage of their bullion as a means of avoiding both the risk of domestic confiscation and the transaction costs involved in storing our wealth in the form of jewelry. Yet here as well, there is no perfect strategy available.

For even those individuals who choose most wisely in shopping for a “safe” jurisdiction, the risk of bullion confiscation in this second jurisdiction will still be greater than zero. A government which appears honest today could morph into something more sinister tomorrow, or simply a new election can result in a complete change in the political landscape.

Then we have a different form of liquidity concern. Not only is there time (and cost) involved in choosing to retrieve one’s bullion held in a different jurisdiction, but we could face a far more serious impediment as we think through such a strategy.

Suppose we choose to store some of our precious metals holdings overseas, and we do so to escape a potential bullion confiscation event, and then such a seizure does occur. If we cannot legally hold gold or silver bullion, we certainly will not be able to legally ship such bullion back to our own jurisdiction (and possession) if or when we require some of that bullion to satisfy immediate liquidity demands.

Storing a large portion of our wealth overseas essentially implies a commitment to relocate, in any worst-case scenario. If we couldn’t bring our bullion home (over the foreseeable future), then we would need to move to wherever our bullion was stored. No matter how we engage in our diversification-within-the-sector strategy, we find no perfect answer.

Our governments have clearly abandoned the Rule of Law, as witnessed by the systemic, financial crime in which they not only facilitate, but participate. Given this reality, no matter how carefully we plan, we cannot be immune from all potential (lawless) acts administered with brute force by fascist regimes.

 

We have liquidity concerns. We have safety concerns. We have cost and efficiency concerns. We diversify within the sector, because no one strategy can possibly address all of these concerns. It is thus important for readers to become fully apprised of all their options (and the risks involved), and then to allocate their wealth amongst those options in a manner most personally optimal.

 

 

Please email with any questions about this article or precious metals HERE

 

 

Precious Metals Strategy: Bullion or Jewelry?

Written by Jeff Nielson (CLICK FOR ORIGINAL)

via Zero Hedge http://ift.tt/1Sdiieg Sprott Money

Submitted by John Whitehead via The Rutherford Institute,

“Never has our future been more unpredictable, never have we depended so much on political forces that cannot be trusted to follow the rules of common sense and self-interest—forces that look like sheer insanity, if judged by the standards of other centuries.” ? Hannah Arendt, The Origins of Totalitarianism

Adding yet another layer of farce to an already comical spectacle, the 2016 presidential election has been given its own reality show. Presented by Showtime, The Circus: Inside the Greatest Political Show on Earth will follow the various presidential candidates from now until Election Day.

As if we need any more proof that politics in America has been reduced to a three-ring circus complete with carnival barkers, acrobats, contortionists, jugglers, lion tamers, animal trainers, tight rope walkers, freaks, strong men, magicians, snake charmers, fire eaters, sword swallowers, knife throwers, ringmasters and clowns.

Truly, who needs bread and circuses when you have the assortment of clowns and contortionists that are running for the White House?

No matter who wins the presidential election come November, it’s a sure bet that the losers will be the American people.

Despite what is taught in school and the propaganda that is peddled by the media, the 2016 presidential election is not a populist election for a representative. Rather, it’s a gathering of shareholders to select the next CEO, a fact reinforced by the nation’s archaic electoral college system.

Anyone who believes that this election will bring about any real change in how the American government does business is either incredibly naïve, woefully out-of-touch, or oblivious to the fact that as an in-depth Princeton University study shows, we now live in an oligarchy that is “of the rich, by the rich and for the rich.”

When a country spends close to $5 billion to select what is, for all intents and purposes, a glorified homecoming king or queen to occupy the White House, while 46 million of its people live in poverty, nearly 300,000 Americans are out of work, and more than 500,000 Americans are homeless, that’s a country whose priorities are out of step with the needs of its people.

As author Noam Chomsky rightly observed, “It is important to bear in mind that political campaigns are designed by the same people who sell toothpaste and cars.”

In other words, we’re being sold a carefully crafted product by a monied elite who are masters in the art of making the public believe that they need exactly what is being sold to them, whether it’s the latest high-tech gadget, the hottest toy, or the most charismatic politician.

As political science professor Gene Sharp notes in starker terms, “Dictators are not in the business of allowing elections that could remove them from their thrones.”

To put it another way, the Establishment—the shadow government and its corporate partners that really run the show, pull the strings and dictate the policies, no matter who occupies the Oval Office—are not going to allow anyone to take office who will unravel their power structures. Those who have attempted to do so in the past have been effectively put out of commission.

So what is the solution to this blatant display of imperial elitism disguising itself as a populist exercise in representative government?

Stop playing the game. Stop supporting the system. Stop defending the insanity. Just stop.

Washington thrives on money, so stop giving them your money. Stop throwing your hard-earned dollars away on politicians and Super PACs who view you as nothing more than a means to an end. There are countless worthy grassroots organizations and nonprofits working in your community to address real needs like injustice, poverty, homelessness, etc. Support them and you’ll see change you really can believe in in your own backyard.

Politicians depend on votes, so stop giving them your vote unless they have a proven track record of listening to their constituents, abiding by their wishes and working hard to earn and keep their trust.

Stop buying into the lie that your vote matters. Your vote doesn’t elect a president. Despite the fact that there are 218 million eligible voters in this country (only half of whom actually vote), it is the electoral college, made up of 538 individuals handpicked by the candidates’ respective parties, that actually selects the next president.

The only thing you’re accomplishing by taking part in the “reassurance ritual” of voting is sustaining the illusion that we have a democratic republic. What we have is a dictatorship, or as political scientists Martin Gilens and Benjamin Page more accurately term it, we are suffering from an “economic élite domination.”

Of course, we’ve done it to ourselves.

The American people have a history of choosing bread-and-circus distractions over the tedious work involved in self-government.

As a result, we have created an environment in which the economic elite (lobbyists, corporations, monied special interest groups) could dominate, rather than insisting that the views and opinions of the masses—“we the people”—dictate national policy. As the Princeton University oligarchy study indicates, our elected officials, especially those in the nation’s capital, represent the interests of the rich and powerful rather than the average citizen. As such, the citizenry has little if any impact on the policies of government.

We allowed our so-called representatives to distance themselves from us, so much so that we are prohibited from approaching them in public, all the while they enjoy intimate relationships with those who can pay for access—primarily the Wall Street financiers. There are 131 lobbyists to every Senator, reinforcing concerns that the government represents the corporate elite rather than the citizenry.

We said nothing while our elections were turned into popularity contests populated by individuals better suited to be talk-show hosts rather than intelligent, reasoned debates on issues of domestic and foreign policy by individuals with solid experience, proven track records and tested integrity.

We turned our backs on things like wisdom, sound judgment, morality and truth, shrugging them off as old-fashioned, only to find ourselves saddled with lying politicians incapable of making fair and impartial decisions.

We let ourselves be persuaded that those yokels in Washington could do a better job of running this country than we could. It’s not a new problem. As former Senator Joseph S. Clark Jr. acknowledged in a 1955 article titled, “Wanted: Better Politicians”: “[W]e have too much mediocrity in the business of running the government of the country, and it troubles me that this should be so at a time of such complexity and crisis… Government by amateurs, semi-pros, and minor-leaguers will not meet the challenge of our times. We must realize that it takes great competence to run a country which, in spite of itself, has succeeded to world leadership in a time of deadly peril.”

We indulged our craving for entertainment news at the expense of our need for balanced reporting by a news media committed to asking the hard questions of government officials. The result, as former congressman Jim Leach points out, leaves us at a grave disadvantage: “At a time when in-depth analysis of the issues of the day has never been more important, quality journalism has been jeopardized by financial considerations and undercut by purveyors of ideology who facilely design news, like clothes, to appeal to a market segment.”

We bought into the fairytale that politicians are saviors, capable of fixing what’s wrong with our communities and our lives, when in fact, most politicians lead such sheltered lives that they have no clue about what their constituents must do to make ends meet. As political scientists Morris Fiorina and Samuel Abrams conclude, “In America today, there is a disconnect between an unrepresentative political class and the citizenry it purports to represent. The political process today not only is less representative than it was a generation ago and less supported by the citizenry, but the outcomes of that process are at a minimum no better.”

We let ourselves be saddled with a two-party system and fooled into believing that there’s a difference between the Republicans and Democrats, when in fact, the two parties are exactly the same. As one commentator noted, both parties support endless war, engage in out-of-control spending, ignore the citizenry’s basic rights, have no respect for the rule of law, are bought and paid for by Big Business, care most about their own power, and have a long record of expanding government and shrinking liberty.

Then, when faced with the prospect of voting for the lesser of two evils, many simply compromise their principles and overlook the fact that the lesser of two evils is still evil.

Perhaps worst of all, we allowed the cynicism of our age and the cronyism and corruption of Beltway politics to discourage us from believing that there was any hope for the American experiment in liberty.

Granted, it’s easy to become discouraged about the state of our nation. We’re drowning under the weight of too much debt, too many wars, too much power in the hands of a centralized government, too many militarized police, too many laws, too many lobbyists, and generally too much bad news.

It’s harder to believe that change is possible, that the system can be reformed, that politicians can be principled, that courts can be just, that good can overcome evil, and that freedom will prevail.

So where does that leave us?

Benjamin Franklin provided the answer. As the delegates to the Constitutional Convention trudged out of Independence Hall on September 17, 1787, an anxious woman in the crowd waiting at the entrance inquired of Franklin, “Well, Doctor, what have we got, a republic or a monarchy?” “A republic,” Franklin replied, “if you can keep it.”

What Franklin meant, of course, is that when all is said and done, we get the government we deserve.

A healthy, representative government is hard work. It takes a citizenry that is informed about the issues, educated about how the government operates, and willing to make the sacrifices necessary to stay involved, whether that means forgoing Monday night football in order to attend a city council meeting or risking arrest by picketing in front of a politician’s office.

Most of all, it takes a citizenry willing to do more than grouse and complain.

We must act—and act responsibly—keeping in mind that the duties of citizenship extend beyond the act of voting.

The powers-that-be want us to believe that our job as citizens begins and ends on Election Day. They want us to believe that we have no right to complain about the state of the nation unless we’ve cast our vote one way or the other. They want us to remain divided over politics, hostile to those with whom we disagree politically, and intolerant of anyone or anything whose solutions to what ails this country differ from our own.

What they don’t want us talking about is the fact that the government is corrupt, the system is rigged, the politicians don’t represent us, the electoral college is a joke, most of the candidates are frauds, and, as I point out in my book Battlefield America: The War on the American People, we as a nation are repeating the mistakes of history—namely, allowing a totalitarian state to reign over us.

Former concentration camp inmate Hannah Arendt warned against this when she wrote, “No matter what the specifically national tradition or the particular spiritual source of its ideology, totalitarian government always transformed classes into masses, supplanted the party system, not by one-party dictatorships, but by mass movement, shifted the center of power from the army to the police, and established a foreign policy openly directed toward world domination.”

Clearly, “we the people” have a decision to make.

Do we simply participate in the collapse of the American republic as it degenerates toward a totalitarian regime, or do we take a stand at this moment in history and reject the pathetic excuse for government that is being fobbed off on us?

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

Last week we brought you drone footage from Homs, Syria’s third-largest city.

The clip was just the latest bit of evidence to support the contention that when the US and its allies seek to bring about regime change in the Mid-East, the results are very often far worse than whatever the political “problem” was in the first place.

What began a decade ago as a covert effort to usurp the Alawite government by playing on the sectarian divide, mushroomed over the years into an overt effort to overthrow Bashar al-Assad. Now, much like Libya, Syria is a lawless wasteland. Its infrastructure is destroyed. Its people have fled (the ones who are still alive). Its resources have been commandeered by extremists. Its cultural heritage lays in ruin.

And it’s not over yet.

With the stakes now higher than ever as the US inserts SpecOps and Russia continues to bombard rebel positions, we wonder if they’ll be anything left of the country by the end of the year. Underscoring the extent of the destruction are the following images, also from Homs.

Somehow we doubt the city would bear any resemblance to these indelible visuals were it not for Washington’s support of the “peaceful, democratic resistance.”

via Zero Hedge http://ift.tt/1Vti6oS Tyler Durden