The Moment Of Truth – What The Charts Say

Via NorthmanTrader.com,

We have arrived. The moment of truth. If you have followed my writings you know I’ve been talking about the January gap fill and major MA reconnects to come for quite some time. No matter whether you believe this to be a bull market ready to re-assert itself or you view the recent rally in the context of a bear market about to unfold you must acknowledge the pivotal nature of where the market now finds itself in the days ahead.

The $SPX has just rallied 11.6% off of the February lows and is about to return to the scene of the crime: The January gap. In doing so it has traversed all resistance in a virtual straight line in a multi week rally ever so reminiscent of similar rallies we have witnessed in the past 2 years:

What did all these rallies have in common besides being uninterrupted? Well for one they all ultimately failed and ironically right around that topping zone that has formed over the same time period. Also all of these rallies began after a correction into the 1800 zone and invariably ended with promises of or more actual central bank action. In October 2014 it was the infamous Bullard bottom, last year it was promises of more QE by the ECB and policy action by the PBOC and of course this year we just witnessed further central bank action by the BOJ and the ECB and an array of Fed speakers hinting at delays in further rate hikes. Dudley in particular had a positive impact spurring a rally in financials. And of course any correction creates oversold corrections and so rallies make sense in this context.

 

And so we find ourselves at a critical stage of MA reconnects:

DJIA W

What hasn’t happened during any of these rallies is a sense of an improving revenue or earnings growth picture. Both have deteriorated during the same time frames and hence wanting to attach any fundamental improvement as an explanation for a large rally seems a bit of a stretch in light of the facts:

No, fundamentals have long not mattered in this market. Markets are driven by supply and demand and demand vanished quite a bit during the recent earnings period and buybacks were forced to be dormant, hence a very quick drop in prices occurred accelerated by a massive drop in oil prices. But now buybacks are back with a record vengeance and crude price have just rallied back over 47%.

 

So in context of extremely oversold conditions, returning demand from buybacks, and massive central bank interventions a strong rally is not a surprise. Just don’t confuse it with an improving fundamental picture.

Also not a surprise is the simple fact that markets are reconnecting with major moving averages. I’ve outlined these in the past and one of the key ones to watch is the nifty 50, the weekly 50MA. Why? Because it, more than any other MA, has proved to be a key pivot point for markets at key turning points.

Both the 2000 and 2007 corrections began with a break below it and were confirmed by a subsequent failure to recapture it on a weekly basis. The data is self evident:

SPXW

Friday’s close of 2022 brings us within a mere 11 handles of the weekly 50MA.

Similarly the $ES shows us how critical the next few days may be:

ESW

Now consider the context: Next week brings a number of key events that all can toss this market around in a major way. Not to mention key primary elections in the US, we have $VIX roll-over, the FOMC, the BOJ and of course OPEX.

We’ve talked about OPEX plenty in technical charts so I do not need to repeat it here. But it should be clear that the ammunition is there to try to force a tag of the weekly 50MA and to potentially fill the open January gap:

SPY

So we have event potential to create the price tag, but one might also want to consider the historical context. In 2008 we experienced a very similar set of events: A violent down gap in January, an aggressive correction resulting in a double bottom and then a rally to fill the January gap. What happened then is history:

2008

We also have a technical context and this context suggests that any further price acceleration may meet a sudden and potential violent end. Consider this recent rally in context of these technical chart readings:

$BPSPX is cooked to the upside showing a potential negative divergence:

BPSPX

$NYSI is jammed to the max:

NYSI W

And the $NYMO has been putting in massive overbought readings over the past 2 weeks:

NYMOW

But more concerning are the longer term structural patterns.

Namely in the $VIX:

VIX W

And the Value Line Geometric Index:

XVG Monthly

None of these suggests the dawning of a new bull market is about to begin.

And why should it? Earnings expansion? The incredible lack of productivity growth in the economy? Desperate central bankers forcing ever more negative rates on society? FOMO? Buybacks? If that’s the basis for the bull case then say so.

Bailouts and QE were always about saving the banks and to re-inflate damaged assets prices that had made most bank balance sheets untenable. How is that going? Central bankers across the world have been adamant about ensuring the world that banks are safe and doing so much better and can pass all stress tests.

Have you looked at the bank with the largest derivative exposure in the world, Deutsche Bank, lately?

DB

The entire banking index?

BKX

Banks love rate hikes? Really?

XLF

No there’s a reason the BOJ and ECB are going all in. Fund manager Gundlach has outlined these concerns well in a presentation this week.  And so it’s no surprise the ECB is now cutting rates further and adding to QE going forward at a clip of 80 billion Euro a month. Can anyone imagine what would happen if they didn’t? Nobody can, hence they rather imagine the opposite. PIMCO is even suggesting that the ECB’s next step may be to buy blue chip stocks altogether. Not kidding. And why not? The BOJ is buying ETFs, the SNB is buying individual stocks, so why not the ECB?

In summary the state of affairs: 7 years after the financial crisis market lows US markets find themselves below the weekly 50 MA and having just rallied back 11.6%, they are vastly overbought on the heels of additional massive central bank interventions and the alleviation of oversold readings.

So Janet Yellen wants to hike more this coming week?

I can’t say if she will or won’t, but either way markets are faced with the nifty 50 at 2033 and January gap fill. Maybe it will all magically sort itself, but at best markets may be faced with some sort of pullback to fill some of the open gaps below in the weeks to come before mounting a lasting rally above the January gap. At worst it was indeed a rally in context of an emerging bear market and the monthly chart will fulfill its structural promise:

SPXM

All I can surmise here is that so far we remain in range and that the answer whether this is a bull or bear market will ultimately have to be proven out by price:

Maybe we will know more after OPEX.

 


via Zero Hedge http://ift.tt/1pDxpl9 Tyler Durden

Encryption Makes Us Safe, Says Sen. Mark Warner at SXSW

Mark Warner addresses SXSWDuring a panel this morning at South by Southwest Interactive (SXSWi) on how government can be better supporting entrepreneurs, Sen. Mark Warner (D–Va.) at one point steered the conversation toward the importance of “digital security,” specifically raising the locked iPhone controversy as an example.

“I firmly believe that encryption makes us safe,” he said. “We need encrypted systems. If we throw this into the political realm and we come up with a static one-time solution, we could end up not making Americans safer, but simply driving all the bad guys to use foreign-based hardware and software. That’s not where we want to end up.”

To recap, the FBI is demanding Apple help it get into a locked device that belonged to one of the deceased San Bernardino terrorists. The tech giant is insisting that any steps it might take to weaken the phone’s security settings would render all its customers’ information less secure and is refusing to comply.

Warner’s position isn’t that Apple is right and law enforcement should stand down, though. He thinks it’s important for Congress to develop a policy solution for future conflicts that’s respectful of the concerns all sides. “Frankly, it’s disappointing to me that both Apple and the Justice Department and the FBI are taking such absolutist positions,” he told me. “Having this litigated out in a variety of courts around the country is not the way to get this resolved.”

His solution is to convene a 9/11-style “commission” to work through how situations like this ought to be handled going forward. He acknowledged to me that “often a commission ends up being a Washington way to punt on a problem,” but believes that because “this is one that’s so complex and so necessary that we get right,” it makes sense to bring people together “and force those conversations to take place.”

“There are technological solutions that will protect our privacy and still allow us to go after the bad guys. But you’ve got to get everybody in a room—the technologists, the civil libertarians, the intel community, and think about this not only in terms of the current state of play,” but also in terms of what might be coming, he said during the panel. “Because if you think this is tough, wait until we move into the so-called ‘Internet of Things’…The privacy concerns are going to be exponentially larger, and we need to get ahead of that.”

from Hit & Run http://ift.tt/1Mekz1J
via IFTTT

The Main Casualty of Cancelled Trump Rally Is The Idea of Free Speech

So Donald Trump, the repellent and bullying frontrunner for the Republican presidential nomination, cancelled a rally in Chicago yesterday after things got testy in a way he didn’t care for. That’s his prerogative, of course, though accounts vary as to whether the situation was as threatening as the Trump campaign claimed. Things had gotten ugly at a St. Louis event prior to Chicago, but then again, Trump himself has vaguely sanctioned violent reprisals against demonstrators at his events.

That sort of thing has progs such as Rachel Maddow insinuating that The Donald is working some sort of Black Hundreds program, creating a situation that can only be solved by…the guy who creates it:

“Violence at these events, which may start organically, is in effect spot lit and encouraged to the point where it becomes something that is legitimately out of control of anyone,” she explained. “And then the spectacle of political violence is itself seen as something that is a problem that needs to be solved by this strongman character who incited the initial event in the first place.”

Yeah, not so much. At the same time that Trump and at least some of his followers are cretinous goons, there’s an equally problematic counter-dynamic at work as well: The anti-free-speech mentality that’s extremely pervasive throughout the American left that is summed by the slogan of a prominent Bernie Sanders supporter who helped organize the anti-Trump show in Chicago: “Everyone, get your tickets to this. We’re all going in!!!! ‪#‎SHUTITDOWN‬.”

Shut it down! How cool is that? It’s just like a college campus, where speakers aren’t challenged on unpopular viewpoints but simply disinvited or shouted down to a degree that a thug’s veto prevails.

Gregu Lukianoff, head honcho at The Foundation for Individual Rights in Education (FIRE), has articulated that we haven’t been debating about the conditions under which free speech might be allowed for some years now. Instead, and far more troubling, we are debating whether the idea of free speech can even be justified anymore. On both the left and the right (which has its own version of political correctness and has rarely been slow to drown out voices with which it disagrees), most people are pushing for what Lukianoff says is “freedom from speech.” Public debate, it seems, is no longer a means by which to search for truth and common ground, but only a venue for speech that expresses unthinking solidarity.

Trump and his campaign should categorically disown violence among the candidate’s followers. And anti-Trumpers need to learn the difference between protesting and eradicating speech in the public square.

In a society that is built upon free speech—and in which individuals and groups have never had such abilities to voice their viewpoints—appealing to the worst instincts in people can only end badly. And with even more people evacuating politics as a meaningful avenue for building anything other than greater and greater resentments.

from Hit & Run http://ift.tt/1pmqpcD
via IFTTT

4 Things to Know About Sri Srinivasan, Obama’s Potential Nominee to Replace Scalia on the Supreme Court

President Barack Obama is expected soon to announce his nominee to replace the late Justice Antonin Scalia on the U.S. Supreme Court. According to multiple reports, Obama is deciding among a shortlist of five candidates. Among those five, one in particular has struck many court watchers as a potential frontrunner. That candidate is Sri Srinivasan, who currently sits as a judge on the U.S. Court of Appeals for the District of Columbia Circuit.

Srinivasan has certainly got the right sort of resume for the job. He was confirmed to the D.C. Circuit by a Senate vote of 97-0, had a successful private legal practice, and served multiple stints in the office of solicitor general, including a period as principal deputy solicitor general for the Obama administration. He clerked for Judge J. Harvie Wilkinson on the U.S. Court of Appeals for the 4th Circuit and for Justice Sandra Day O’Connor on the Supreme Court, both Republican appointees. If he’s actually confirmed Srinivasan would also make history as both the first Asian-American and the first Indian-American to sit on the high court.

We don’t yet know whose name Obama will put forward. But for the sake of argument, let’s assume Srinivasan is going to be the nominee. Where does he stand on the issues? What do we need to know about his legal philosophy? Here are four areas of the law where Srinivasan’s legal record is likely to come under scrutiny.

Religious Liberty

In 2012 Srinivasan served as counsel of record for private respondent Cheryl Peach in Hosanna-Tabor Evangelical Lutheran Church and School v. Equal Employment Opportunity Commission. Srinivasan and the EEOC both took the position that the “ministerial exception” to federal anti-discrimination law should not shield a parochial school from a disability lawsuit filed by a discharged teacher (Peach). According to the school, on the other hand, its internal personnel decisions are protected by the First Amendment and its requirement that Congress make no law “prohibiting the free exercise” of religion.

The Supreme Court ruled 9-0 against Srinivasan’s client and against the EEOC. “By imposing an unwanted minister,” Chief Justice John Roberts wrote, “the state infringes the Free Exercise Clause, which protects a religious group’s right to shape its own faith and mission through its appointments.”

With disputes over the scope of religious liberty increasingly appearing on the federal docket, this case is likely to figure prominently in any discussion of Srinivasan’s record.

Corporate Litigation

“It’s understandable that liberals might look skeptically at Srinivasan.” So wrote the progressive magazine Mother Jones in 2013. Why? Because when Srinivasan was a lawyer working in private practice, Mother Jones observed, he “defended corporate clients against unions and plaintiffs alleging human rights abuses.” Not exactly the sort of ringing endorsement that’s going to win big cheers at a Bernie Sanders’ rally.

There is one case in particular that’s likely to disconcert Srinivasan’s potential progressive supporters. That case is Skilling v. United States, in which Srinivasan represented former Enron chief Jeffrey Skilling, who claimed that he did not receive a fair trial when he was convicted of fraud. Srinivasan lost that case in a 9-0 decision written by liberal Justice Ruth Bader Ginsburg.

Gay Marriage

In June 2013 the Supreme Court ruled 5-4 in United States v. Windsor that the federal government violated the Constitution when it refused to recognize same-sex marriages that had been legally recognized by state governments. Section 3 of the 1996 Defense of Marriage Act, Justice Anthony Kennedy wrote, “violates basic due process and equal protection principles.” That part of DOMA was struck down.

The Obama administration ultimately sided with Edith Windsor in that case. In the March 2013 oral arguments, a key part of the administration’s case against DOMA was argued before the Court by Srinivasan, who was then serving as principal deputy solicitor general.

For those conservatives who still consider gay marriage to be a fighting issue, Srinivasan’s role in DOMA’s demise may be a factor in a SCOTUS confirmation fight. (That is of course assuming the Senate ends up holding hearings in the first place, something that Senate Republicans are vowing not to do.)

Unreasonable Searches and Seizures

The Fourth Amendment protects “the right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures.” Yet that textual command did not stop the Obama administration from arguing that law enforcement officials should be allowed to attach a GPS tracking device to a car without first obtaining a warrant. “If you win this case,” Justice Stephen Breyer said to Deputy Solicitor General Michael Dreeben during the November 2011 oral argument in United States v. Jones, “there is nothing to prevent the police or the government from monitoring 24 hours a day the public movement of every citizen of the United States.”

In the end, the Supreme Court rejected the Obama administration’s position 9-0. “It is important to be clear about what occurred in this case,” declared Justice Antonin Scalia. “The Government physically occupied private property for the purpose of obtaining information. We have no doubt that such a physical intrusion would have been considered a ‘search’ within the meaning of the Fourth Amendment when it was adopted.”

Civil libertarians can take heart on this one. Sri Srinivasan was part of the winning legal team that represented Antoine Jones and thereby helped secure this important Fourth Amendment victory.

from Hit & Run http://ift.tt/1U8rhOc
via IFTTT

Trump Blames “Organized Thugs” For Violence, Establishment Blames Trump

Amid confusion over the cancellation (due to more security concerns) of today's rally in Ohio – since denied by Trump campaign officials – the finger of blame for last night's violent protests is wending its way through the mainstream media. First Cruz, then Rubio, followed this morning by Hillary, Kasich, and even Bernie (among various talking heads and 'spinners') all point to Trump's campaign "for creating an environment of division." Trump (and his supporters) see the sudden eruption of 1000s of well coordinated protesters as oddly coincidental ahead of Super Tuesday 3 next week noting that, rather against the establishment's hopes, "The organized group of people, many of them thugs, who shut down our First Amendment rights in Chicago, have totally energized America!"

Following Chicago's chaos, it appears, as Reuters reports, today's Ohio rally was also under pressure from security concerns, but the cancellation has been denied:

A spokeswoman for U.S. Republican presidential front-runner Donald Trump on Saturday denied a media report that he had canceled an Ohio rally because of security concerns.

 

The Cincinnati.com news website had quoted Eric Deters, a local spokesman for Trump's campaign, as saying the candidate's Secret Service security detail could not complete preparations in time to hold the event on Sunday at Cincinnati's Duke Energy Convention Center.

 

But Trump spokeswoman Hope Hicks said in an email: "We don't know Eric Deters. There has been no cancellation."

Trump says on Twitter that, "The rally in Cincinnati is ON. Media put out false reports that it was cancelled."

"Will be great — love you Ohio!" he adds.

Trump had said in an interview with MSNBC on Friday that, "You can't have a rally in a major city in this country anymore without violence or potential violence."

However, the squabbles continue – over who is to blame (as Slate.com reports)

Five people were arrested Friday night and two officers were injured in skirmishes that broke out after Donald Trump abruptly canceled a Chicago rally on Friday.

 

Rivals quickly pointed the finger at Trump, saying that the violence at his rallies reflect the tenor of the frontrunner’s campaign.

 

“A campaign bears responsibility for creating an environment,” said Ted Cruz. “The predictable consequence of [Trump’s comments] is it escalates. Today is unlikely to be the last such instance.”

 

Sharp words from Marco Rubio about Donald Trump and the mess at Trump's canceled rally in Chicago: "I believe Donald Trump as our nominee is going to shatter and fracture the Republican Party and the conservative movement," Rubio says that some of the blame for what happened Friday night in Chicago lies with the protesters, but he says much of the divisiveness is in Trump's hands. Rubio says Trump is feeding into some voters' anger and bitterness and is manipulating that for votes…"You saw those images last night of people … often divided up on racial lines in many cases. Police officers bleeding from the head reminiscent of images from the '60s. I mean, we're going backwards here. This a frightening, grotesque, and disturbing development in American politics."

 

John Kasich also criticized Trump along the same lines: “Tonight the seeds of division that Donald Trump has been sowing this whole campaign finally bore fruit, and it was ugly.” He said during a stop in Cincinnati that there's "no place for a national leader to prey on the fears of people."

 

Sen. Bernie Sanders also got in the game and tweeted a thinly veiled shot at Trump:

And Hillary issued a statement: Violence has no place in our politics. We should use our words and deeds to bring Americans together.

But as Fusion reports, several things about the statement left people with a bad taste in their mouths. Chief among them were her invocation of the Charleston massacre and her lack of stated support for the protesters challenging Trump in Chicago.

The Associated Press chips in…

Since casting Mexicans immigrants as rapists and criminals in his June announcement speech, Trump has encouraged supporters to embrace anger tinged with xenophobia. In recent weeks, his rallies have featured several minor incidents of violence involving protesters, almost all of them minorities, with Trump repeatedly encouraging his supporters to fight back—and to do so with violence if necessary.

But Donald Trump had no doubts about who was to blame for the shocking violence: organized “thugs.”

Trump tweeted on Saturday: "The organized group of people, many of them thugs, who shut down our First Amendment rights in Chicago, have totally energized America!"

 

Protesters at planned Chicago rally yesterday were “very professionally done,” Donald Trump says in Dayton, Ohio.

 

Says his supporters were “harassed” by people backing Bernie Sanders

 

“Bernie should tell his people to ‘stop’”

 

“When they have organized, professionally staged wise-guys, we have to fight back”

We are sure this is not the last time "organized" protesters will suddenly appear en masse to provoke reactions and vioently protest Trump's freedom of speech – don;t they know that a Trump rally is not a "safe space"? There is anger in America.

Finally, this:


via Zero Hedge http://ift.tt/1pDrL2z Tyler Durden

Gold Is The Only Sound Money

Submitted by Alasdair Macleod via GoldMoney.com,

This article notes that the technical situation for the gold price has sharply improved, to the evident surprise of many mainstream analysts. It discusses possible reasons behind the turnaround, and implications for the future.

Technicals

The technical situation is shown in the chart below.

 

Golden Cross

A "golden cross", with the 55 day moving average crossing above the 200 day moving average with both of them on a rising trend, and the share price above both these moving averages, has now occurred. This is generally taken by traders to indicate the bear trend has reversed, and a bull market is now in place.

More interestingly, this change of direction is combined with a bullish pennant pattern, which commenced on 11th February and completed on 3rd March, taking precisely three weeks. This is shown by the dotted lines. The intraday price movements (not shown) conform exactly to the pattern, and the break-out on 4th March saw high volume with an increase to a record amount of outstanding Comex contracts.

The other technical qualifications for a pennant are also fully satisfied. It follows a sharp rise, is a consolidation lasting no more than three or at most four weeks, volume diminished while the pattern played out (taking Comex volumes as proxy), and the break-out was a resumption of the trend. It therefore appears to be a text-book example.

Pennants give us a price objective, which equates to the preceding rise from its breakout point. This yields a minimum price target of approximately $1400, which with pennants can happen quite quickly. And that helps explain, from a purely technical point of view, the seemingly unstoppable strength in the gold price.

Technical analysis is the justification for investors to consider and take action in capital markets, without having to understand the underlying reasons why prices change. Indeed, in these days of seemingly infinite quantities of bank credit being applied to financial speculation, price trends are being driven day-to-day by charts, making prices dependent on the application of credit rather than fundamental appraisals of prospective values.

Technical analysis is notoriously fallible, encouraging action independent from rational thought. We are told that flows into gold ETFs have been positive for the last forty days. But if we ask the question, whether or not the buyers of physical gold represented by paper entitlements are doing so for financial protection, or alternatively are energised by the hope of rising prices, one must conclude that it is most probably the latter.

Put another way, technical analysis is justified on the basis that by encouraging the madness of crowds, it works, and there is plenty of loose money slopping around the markets to ensure it might. This really is not good enough. A reasoned understanding of what gold actually is, an appreciation of vested interests, and an analysis of the practical consequences of investment flows, is vital for us as individuals if we are not to be whipsawed in volatile markets.

The gold price started 2016 with all the big investment firms bullish of the dollar and bearish of commodities and gold. It is from such extremes in sentiment that sharp reversals take place: it's a case of everyone having sold all for dollars and there being no material sellers left to sell. If this is all that's involved this time, the previous trends for a rising dollar and therefore a falling gold price could well resume when these positions are sufficiently unwound.

To establish whether or not this is the case we must turn to fundamentals, which requires us to discard the conventional analytical approach. We must stop thinking gold is rising, when what is actually happening is that the dollar is falling. Nearly all economists and market traders have it back to front. Gold has no variable fundamentals, the condition that qualifies it uniquely as sound money. It is the currency it is measured in that has all the variable fundamentals, and that is where we must look.

Fundamentals

When we look at the dollar price of gold, we naturally think that it is gold that is moving. But we are comparing two forms of money, gold that is not in general circulation, against the dollar that has supplanted it. And given that it is the dollar that is issued in any quantity desired by both the US Government and through fluctuations of bank credit, it is the dollar which ultimately depends on the market's assessment. The constant in this comparison for anything other than short-term trend-chasing is simply gold. Economists who argue otherwise are slaves to macroeconomic fashion rather than rational price theory.

Understanding that measured in gold it is the price of the dollar falling makes sense of what is happening. It points us to the dollar's fundamentals, not so much against other currencies that share many of the dollar's characteristics, but against commodities. And in Table 1 we can see that the dollar's purchasing power has been falling against other key commodities as well against gold.

Table 1. Selected commodities: fall in US$'s purchasing power

chart gm insights

The turnaround in the dollar's fortunes has been sudden, taking less than three months. The US dollar has been excessively overbought, predictably followed by a subsequent fall in its purchasing power against many key commodities. And there are good reasons for it to fall even further. They centre on the damage being inflicted on the dollar's position as the world's reserve currency. China and Russia are leading the charge to do away with the dollar, and China in particular is deliberately promoting the yuan as the dollar's substitute for international settlements with all her trading partners. The dollar's role in pricing commodities is becoming an anomaly, because China does more international trade than America by far.

That helps explain the long-term prospects for the dollar, which has yet to discount a reduction of the quantity of dollars in international circulation. Unless it is balanced by a contraction of credit on the American banks' balance sheets, a reduction in offshore dollars will inevitably result in the dollar's purchasing power tending to fall. But there is also renewed demand for commodities to add to the mix, coming from China.

China is about to embark on a colossal programme of infrastructure spending. Not only will this fill out many of the deficiencies in China's domestic infrastructure, but it is also earmarked for a vast course of industrialisation involving the whole of Asia. Cynics are sure to be correct in decrying the wasteful inefficiencies of state spending of this sort, but they are missing the point.

The point is that China has told us she values the dollar less than she does the commodities required to satisfy her thirteenth five-year plan, and the ones that will follow. This plan commenced with the Chinese new year, so she will already be looking to swap most of her stockpile of dollars for stockpiles of the required raw materials. Last year, China carefully laid down the groundwork for this action.

It was vital for China to control the risks to her own currency that would arise from the planned disposal of the majority of her dollar reserves. This was always her primary motivation for lobbying the IMF to include the yuan in the SDR, and also for her recently declared policy of managing it against a trade-weighted basket of currencies. So long as the yuan is measured against the dollar alone, it is an invitation for foreign speculators to attack it against their preferred unit of account. Attacking a currency where foreign exchange policy is more widely defined introduces great uncertainty into a speculative trade. The change in foreign exchange policy simply gives China the cover to sell her overvalued dollars for undervalued commodities.

China's actions are likely to lead to a major shift in macroeconomic expectations over the coming months. With the dollar's purchasing power continuing to fall relative to energy and industrial commodities, China's commodity suppliers will find the burden of their dollar-denominated debt relative to their output rapidly swinging in their favour. Gone, or at least deferred, will be the nightmare of commodity-related debts undermining the global financial system. There will, of course, still be bad debts, such as in the US shale-oil industry, and also problems for some resource-rich countries, such as Brazil, where the financial damage has already been considerable and may be ongoing. But for western investors, their current preference for safety in low, or even negative-yielding government debt, will be replaced by the opportunities offered in recovering emerging markets.

Standing back from the day-to-day introspection of western capital markets, it has been interesting to watch this financial train-wreck begin to materialise. Western central banks by debasing their currencies have produced little more than financial ammunition for speculation on a grand scale. We saw the effect of a flood of this accumulation into the dollar over the last eighteen months, and we are about to see the opposite effect as it ebbs away. And as speculative flows reverse, the dollar will increasingly be sold by stale bulls in preference for commodities. Much of China's dollar stockpile, along with increasingly redundant petrodollars from the Middle East, will also be sold, putting further downward pressure on the dollar's purchasing power.

A weakening dollar will become the next headache for the Fed, because the fall in its purchasing power will feed into a revival of price inflation without a pick-up in economic activity. Current market expectations of negative interest rates will inevitably switch to an anticipation of rising interest rate to contain the fall in the dollar's purchasing power. And as the dollar's fall in purchasing power against commodities progresses, the solvency of many domestic borrowers and even of the US government itself will become an additional risk to the dollar.

While we can now see reasons emerging for the US dollar's future loss of purchasing power, we can see the same conditions broadly affecting the other major currencies. Like the dollar, these currencies are all valued on the basis of their government promises, but it is not the purpose of this article to compare their merits. Gold alone does not suffer the disadvantage of having a government issuer, its above-ground stock increasing at an estimated rate that is similar to global population growth. Gold is not required to rise, as the term bull market suggests. Its purchasing power is likely to be considerably more stable than that of paper currencies over the long term. We do not have to make guesses over gold's future purchasing power.

Instead, the future price of gold depends on what happens to the purchasing power of the paper currencies in which it is measured. No case needs to be made for its usefulness or even its value, because it is the only sound money there is, no more and no less than that.


via Zero Hedge http://ift.tt/1pmje4f Tyler Durden

North Korean Submarine “Goes Missing” During “Largest Ever” US, South Korea Assault Drill

In response to the rising belligerence by North Korea, and its increasingly more frequent rocket launches, U.S. and South Korean troops staged a massive amphibious landing exercise Saturday, storming simulated North Korean beach defenses amid and threats by Pyongyang to annihilate its enemies.

The landing and assault drills on South Korea’s east coast were part of eight weeks of joint exercises between the allies which the South has said are the largest ever. As Reuters reports, the North has denounced the exercises as “nuclear war moves” and threatened to respond with an all-out offensive.

The clip below shows the large joint amphibious landing exercise near Pohang on Saturday, simulating an assault on a mock North Korean beach.  The exercise involved around 30 US and South Korean ships, carrying over 50 marine aircraft, and numerous amphibious armoured personnel carriers.

 

“We sincerely believe in peace through strength. And it is in our strength of our alliance that we believe that we can deter and avoid war,” stated U.S. Marine Corps Brig. General John Jansen in a statement to the press.

Below are photos of the South Korean (blue headbands) and U.S. Marines taking positions as amphibious assault vehicles of the South Korean Marine Corps fire smoke bombs:

Tension on the Korean peninsula has been high since the North conducted its fourth nuclear test in January and followed that with a long-range rocket launch last month, triggering new U.N. sanctions.

About 55 U.S. marine aircraft and 30 U.S. and South Korean ships, including the USS Bonhomme Richard and USS Boxer, which carry AV-8B Harrier attack jets and V-22 Osprey aircrafts, took part in the assault on beaches near Pohang city, the U.S. navy said.

“They will penetrate notional enemy beach defenses, establish a beach head, and rapidly transition forces and sustainment ashore,” the U.S. military based in South Korea said in a statement before the exercise.

Meanwhile, the increasingly irrational North’s military said it was prepared to counter the U.S. and South Korean forces “with an ultra-precision blitzkrieg strike of the Korean style”.

“The revolutionary armed forces of the DPRK holding tightly the arms to annihilate the enemies with towering hatred for them are waiting for the dignified Supreme Command to issue an order to launch a preemptive strike of justice,” it said in comments carried by the state KCNA news agency.

While anyone will hardly lose sleep over yet another threat by North Korea, a more troubling development emerged on Saturday when CNN reported that North Korea has been searching for one of its submarines that has been missing for days off its east coast.

The submarine may be adrift under the sea or have sunk, perhaps after a technical problem during an exercise, CNN quoted U.S. officials with intelligence of secret U.S. monitoring of the North’s activities as saying.  

A South Korean defence ministry told AFP Seoul was investigating the reports. Pentagon officials declined to comment on the matter. The US military had been observing the submarine off the North’s eastern coast, CNN said, citing three US officials familiar with the incident.

As the Telegraph adds, the US Naval Institute (USNI) News said the submarine was presumed sunk. “The speculation is that it sank”, an unidentified US official was quoted as telling the USNI News.

“The North Koreans have not made an attempt to indicate there is something wrong or that they require help or some type of assistance.”

North Korea has said it is developing submarine-launched ballistic missiles although doubts about that were raised after Western experts said publicly released footage of tests appeared to be fake.

Of course, if instead of sinking, the NorKo sub is quietly making its way to Calfornia coast to “annihilate the enemies with towering hatred” and “are waiting for the dignified Supreme Command to issue an order to launch a preemptive strike of justice” it would look something like this:


via Zero Hedge http://ift.tt/1QOOL8V Tyler Durden

President Obama Wants a Back Door on Your Phone. But Not on His.

In yesterday’s South by Southwest keynote address, President Obama took a firm stand against strong encryption. Standing before an audience of over two thousand technology enthusiasts, Obama explained why the government needs back door access to all personal communication devices.

If it was technologically possible to make an impenetrable device where there’s no door at all, then how do we apprehend the child pornographer? How do we disrupt a terrorist plot? How do we even do a simple thing like tax enforcement? If government can’t get in, then everyone’s walking around with a Swiss bank account in their pocket. There has to be some concession to get into that information somewhere.

Obama didn’t specifically discuss Apple’s case with the FBI, though the inference is clear. The president is not content with unlocking the individual phones of suspected criminals. He’s asking for specific security protections to be permanently removed from all electronic devices. Because terrorists, child pornographers, and tax dodgers exist, no private citizen should have the right to secure communications.

Photo by Pete Souza, The White House

Buried inside the President’s appeals to fear is a principle that’s widely understood by security professionals: A back door for the government is, in practice, indistinguishable from a security flaw that makes communication devices vulnerable for everyone.

As Alex Abdo of the ACLU put it, “If the FBI can force Apple to hack into its customers’ devices, then so too can every repressive regime in the rest of the world.”

The sentiment was echoed by Edward Snowden, who has called Apple legal battles with the FBI, “the most important tech case in a decade.” In a recent interview with Reason TV. Snowden characterized the issue in stark terms. “It’s a binary choice: Either all of us have security or none of us have security.” 

Watch Snowden’s extended comments on Apple vs. the FBI below, starting at the 0:53 minute mark.

In the coming months, Obama’s hypothetical concerns may become a lot less speculative. Apple is widely believed to be making an impenetrable iPhone, possibly for sale within the coming year, which could render recent legal wrangling moot. 

Paradoxically, Obama also used his keynote address to encourage citizens to use technology to reclaim American democracy. “We systematically make it harder for our citizens to vote,” he said. “It is much easier to order pizza or a trip than it is for you to exercise the single most important task in democracy.”

In theory, voting online is long overdue. But at the very least, a digital election would seem to require the very kind of secure, encrypted communication that the president wants to abolish.

Bonus irony: President Obama still uses a Blackberry because he’s not allowed to use the latest technology… for security reasons.

from Hit & Run http://ift.tt/1U8kpjY
via IFTTT

JPMorgan: “The ECB Could Purchase Equities Next”

On Thursday, after the ECB’s stunning announcement that it would for the first time start monetizing corporate debt, we joked – or so we thought – that “within 6-9 months we expect to add a chart showing Europe’s junk bond market which will be next on the monetization menu, followed shortly after by equities and kitchen sinks.“

As it turns out, this wasn’t a joke, and overnight JPM’s Nikolaos Panigirtzoglou explained what to “expect” next from the ECB:

To the extent this week’s ECB decision marks a shift towards private sector asset purchases, the ammunition the ECB has expands hugely.

 

Assuming the ECB will be willing to navigate eventually into other private sector asset classes, the asset universe for QE purchases could expand to include uncovered bank bonds, bank loans and equities.

Will the ECB buy equities outright? Of course: after all the reason for all the “helicopter money” and cash ban talk is because central banks are now utterly desperate and have their backs against the wall. They will try anything, including what until just years ago was considered absolutely insanity: buying stocks outright.

Incidentally, at just the same time as the above “joke”, we said something else which we thought was sarcasm: that corporations would take advantage of the ECB-guaranteed IG bid to issue debt and, having nothing else to do with the proceeds, use the funds to buyback their own stock, a rerun of what has been happening in the US for the past 4 years.

This too was not a “joke”, and here is JPM again explaining that we were spot on:

The ECB’s corporate bond program will result to lower financing costs and more limited financial distress over time. This coupled with elevated Equity Risk Premia will increase the incentive for European companies to buy back their own shares. We thus see a higher chance that share buyback activity will improve in Europe from its current dormant phase.

Finally, we predicted that the most acute impact of the ECB’s corporate QE action would be to impair an already painfully illiquid corporate bond market: “ECB purchases of company securities could serve to limit liquidity in a market where investors say it’s become harder to trade after banks cut their bond holdings to preserve capital in response to tougher rules.“

And, lo and behold, JPM just confirmed this as well, estimating that the ECB can purchase at most €3.5 -€6 BN in bonds per month before it damages the market, and that in general “ECB corporate bond purchase program will be more difficult and more fragmented from an implementation perspective, than either the government bond or the covered bond purchase program“:

Another implication of the ECB corporate bond purchase program is related to the liquidity of the European corporate bond market. Under what conditions will prospective ECB purchases be damaging for the liquidity of the European corporate bond market? How does this liquidity compare to the liquidity of other segments of fixed income markets such as government bonds, covered bonds and asset backed securities where the ECB has been purchasing bonds for a year now?

* * *

The capacity of the ECB to purchase corporate bonds is also a function of the how the primary market responds to ECB buying. The primary market issuance is running at a rather slow pace of around €12bn a month currently. So again assuming ECB primary market purchases of 5%-10% of issuance, would add another €1bn per month of potential ECB buying. This capacity would naturally expand if the ECB program manages to bolster issuance going forward, e.g. if it manages to induce corporates to buy back their own equity.

 

Without an expansion of primary market capacity, the above analysis suggests that a feasible purchase pace by the ECB in order to avoid damaging the liquidity and the functioning of the European corporate bond market too much is between €3.5bn to €6bn per month.

 

Finally, another consideration for the ECB should be trade sizes and market depth. The Trax report provides data on average trade sizes across fixed income sectors, which can serve as proxy for market depth. The average trade size for IG Corporates has been €850k during 2015. This is a lot lower than that of Government bonds, at €7m, or covered bonds at €2m. This means that the ECB corporate bond purchase program will be more difficult and more fragmented from an implementation perspective, than either the government bond or the covered bond purchase program.

Said otherwise, in order not to break the already illiquid IG bond market, the ECB’s intervention will hardly make a marginal price impact aside from the implicit backstop of these securities.

Finally, here is the final “joke” we made: “The only thing the ECB will never monetize, however, is gold – perhaps because it is the only asset class that does not need central bank support?”

In retrospect, this too is not a joke, and we find it very disturbing that we now live in a world in which the only asset class that has no explicit central bank support, is a “pet rock.”


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

Slut-Shaming ‘Johns’ Shouldn’t Be Sanctioned by Police

As social media and “call out culture” elevate public shaming to a national pastime, many a hot take has been written on how this corrupts our political discourse. But barely acknowledged is the official use of online shaming by law enforcement. So it’s great to see Suzy Khimm at The New Republic tackle this topic in depth as it relates to prostitution. 

Despite the tenet of “innocent until proven guilty” in American jurisprudence, police routinely release the names and mugshots of suspected criminals before they’ve been convicted. For some serious offenses, this might make sense, especially when public dispersal of the info could help in an investigation. But most people would probably agree that it’s unfair to broadcast it everytime someone gets picked up for a petty offense. 

When it comes to prostitution, however, all decorum—and due process—tends to go out the window. Police will release pics of both sex workers and their clients to the media, who are all too willing to publish the photos. Outlets especially love to highlight whenever any of the “johns” works in some profession—professor, doctor, scientist—deemed too respectable for such shenanigans. 

“A slew of … cities have embraced john-shaming as a way to combat prostitution,” writes Khimm. “Some have published the names and photos of accused johns upon arrest on designated web sites and social media, or in press conferences.” (Some johns’ mugshots have even been plastered on billboards.)

“Shame isn’t just the side effect of catching and prosecuting criminals in an open society with an active press corps,” notes Khimm, but an active end-goal of government agents. 

Tapping into the new power of the internet, along with our very old obsession with transgressive sex, these officials hope to wield the fear of public judgment in the name of the public good, arguing that prostitution is linked to far more serious crimes than we ever thought. But by taking punishment out of the hands of law enforcement and placing it in the hands of the public, whose emotions and reactions lie beyond their control, shaming campaigns can also be messy and unpredictable. And the resulting stigma can last indefinitely. … Or as Yale law professor James Whitman told me, shaming “allows the general public to do the dirty work.”

Of course the debate over government shaming goes way back, with arguments over its sanction as old as our republic. But the Internet changes the nature of public shaming substantially. No longer will an offender only earn the gaze and opprobrium of his community members; now his or her name will long be associated with the offense for anyone anywhere who has Internet access. “The internet has vastly expanded the potential audience for public ridicule and turned the enforcement of social norms into a collective pastime, while Google’s enduring memory can allow that infamy to continue without end,” writes Khimm. 

One man Khimm spoke with, a scientist whose arrest on solicitation charges in Nassau County, New York, made major media headlines, was let go from one job and denied a promotion at another after word got out. He considered fighting the charges, but feared that would only get his name in the press more. But another of the johns arrested at the same time, pizzeria owner Louis DiMaria, is suing the county and several police officers, alleging false arrest, defamation, and a violation of his due process rights.

DiMaria was arrested in a sting after going with his friend to a hotel where—without his knowledge, DiMaria claims—the friend had arranged to hook-up with someone whom he thought was a sex worker but was actually a cop. Prosecutors eventually dropped the charges against DiMaria, but not before his name and picture were released to the media, he was let go from this position as a high-school wrestling coach, and his wife left him. 

Read Khimm’s whole piece here for more about the havoc such ploys have wreaked and how police and prosecutors justify them (hint: it involves everyone’s favorite moral panic du jour…). 

from Hit & Run http://ift.tt/1TVBGNP
via IFTTT