Tag: finance

From: TheDailyBell.com

 

Russia leaves the Dollar based monetary system and adopts a system of Sovereign Currency. The implications are phenomenal! “In 1990 the first priority of Washington and the IMF was to pressure Yeltsin and the Duma to “privatize” the State Bank of Russia, under a Constitutional amendment that mandated the new Central Bank of Russia, like the Federal Reserve or European Central Bank, be a purely monetarist entity whose only mandate is to control inflation and stabilize the Ruble. In effect, money creation in Russia was removed from state sovereignty and tied to the US dollar.”

2016: “The Stolypin club report advises to increase the investment, pumping up the economy with money from the state budget and by the issue of the Bank of Russia”. Putin decided to follow the Stolypin club advice as the new monetary policy of the country. -Before It’s News

Money is changing fast and the US dollar is going to crash.

Here’s an excerpt from yet another recently published article (translated from the Russian) describing how the ruble may now evolve (here).

We must nationalize the ruble. What does it mean? It means that we must separate the internal markets from the external ones.

… Thus, the first step for Russia is secession from the IMF and others similar institutions designed to keep the entire world in bondage. The dollar noose must be cut.

Now the amount of printed rubles will not be determined by how many dollars we have but by the actual needs of our economy.

… We have absolutely no need in the central bank in its current form, but we do need a financial regular. Under any regime, it was the Treasury that performed this function. Let it remain the same now regardless of the official name. It may continue to be called the Central Bank. If the essence is changed, there is no need in changing plaques.

You can also see an article (here) that goes into this issue more deeply and claims that Putin has in mind backing a portion of the ruble with gold as well. (We should note there are claims the  ruble is backed by gold already.)

The dramatic – historical – Russian currency changes (if these articles are accurate) seem a little difficult to discern in full at this moment, but obviously things are changing fast. And they are changing for China’s “money” as well. In fact, some have speculated China and Russia could launch a joint, gold-backed currency (here, see bottom of article).

At the beginning of October, the yuan joins the IMF’s SDR  basket (here). This means that major international institutions can issue bonds payable in yuan (actually RMB, the Chinese external currency).

And that is just what has happened already. The World Bank is issuing a large yuan/RMB tranche and this will be the first of many (here).

Investors who want to place funds in RMB rather than dollars will use the new yuan/RMB-based instruments. The US will continue to print dollars but those dollars may not find a home abroad so easily. Instead they may circulate back into the US economy creating significant price inflation.

The US was able to do so much damage domestically and abroad because of its virtually unlimited spending power. It’s been able to prosecute endless, horrible wars and imprison up to five percent of its adult population at any one time.

Now things are changing. Between the Russian announcement and yuan/RMB convertibility, the US will gradually have more trouble printing money at will. Perhaps the corrupt military-industrial complex will be impelled to shrink and large-scale social programs like the wretched Obamacare will have more difficulty with funding as well.

As a libertarian publication, we should rejoice over the upcoming starvation of the US fedgov.

But we will not. We are well aware that the same banking influences that created the monstrous, modern state is ruining US and the West generally in order to build up a more febrile internationalism.

The BRICs, invented by Goldman Sachs are part of it. So is this reconfiguration of reserve currencies.

It seems natural, of course, as “directed history”always does. But it is not natural in the slightest. From what we can tell, it is pre-planned.

Remember both the IMF and the World Bank are controlled by the US. And yet it is these two organizations that are facilitating the rise of the yuan/RMB.

Also, please pay attention to how Russia will issue rubles into the economic system (from the same translated article we quoted previously):

How can we calculate [how many rubles Russia needs]? In exactly the same way as the United States calculates the amount of dollars needed for its economy. Just as the European Union does the same.

The best justification would be that from now on Russia issues rubles based on the value (in rubles) of all natural resources explored on its territory. It is quite amusing that subsequent steps are no rocket science; they are dictated by common sense itself. Since we are breaking down the disadvantageous system,

Putin may be taking a big step, but by circumventing his central bank (initially imposed by the West) he can be seen as moving toward more state control of Russian currency.

And for years, we have debated heatedly with people like Ellen Brown (here) who believe that federal governments can do a much better job of printing money than quasi-independent central banks.

Good Lord! What’s wrong with a little monetary freedom?

All Putin has to do if he wants a healthy currency is declare that the new ruble will be backed by gold and that its issuance will be a private or regional matter.

Let a thousand gold mines bloom. Let the circulation of gold and its related paper notes travel up or down depending on quantity and demand – not the determinations of yet another shadowy, elite clique.

This is the way the US ran before the Civil War and created one of the world’s most prosperous and freest cultures. Those in the US live yet on the dregs of that “golden” period.

But this is not well understood. As time goes on the often-illiterate alternative media may join in hosannas for Putin’s upcoming currency shift. But, again, just because “Russia” will now control its currency instead of a central bank reporting to the IMF, doesn’t necessarily create a better system.

Of course, the argument will be made this sort of system is what Hitler installed in Nazi Germany in order to create the German “miracle” of the 1930s (which we are supposedly not able to talk about). But that system might have destroyed itself over time. Surely it would have.

To begin with, such systems may work very well. But since the “money” is being created by human deciders rather than the competitive market, distortions are inevitable. Price-fixing, which is what it is, never works.

And while we are making the point that this newfound ruble freedom may not be so profound as advertised, let us note that the advent of a currency war is being accompanied by military tension as well.

Conclusion: Whether such tensions are legitimate or dramatized is difficult to say. But given elite banking control of so much around the world, we would not be surprised if we are simply being exposed to a gigantic performance of sorts directed from the top down.Ironically, despite apparent “setbacks,” London’s City surely leads the way.

See more at TheDailyBell.com

via http://ift.tt/2bqQaSn TDB

On Thursday evening, alongside Trump’s unexpected statement of “regret“, Bill Clinton made another just as important announcement when he said that should Hillary become president, the $2 billion Clinton Family foundation will no longer accept money from any corporate and foreign donors and will bring an end to its annual Clinton Global Initiative meeting regardless of the outcome of the November election.  To this we responded that this was to be expected: after all “once Hillary is president, she will no longer need a backdoor way of legally receiving Saudi and other foreign money: at that moment, billions in Saudi dollars will be deemed perfectly acceptable for passage through the front door, mostly in exchange for weapons and ammo.”

Other had similar reactions, with the announcement drawing skepticism on Friday mostly from the right left as critics wondered why the Clintons have never before cut off corporate and overseas money to their charity, and more importantly why they would wait until after the election to do so. Republican National Committee Chairman Reince Priebus tweeted Friday that the Clintons’ continued acceptance of those dollars during the presidential campaign is a “massive, ongoing conflict of interest.”

The left also spoke up, when Nina Turner, a former Ohio state senator who was a leading surrogate for Clinton’s rival in the Democratic primary race, Sen. Bernie Sanders (Vt.), said the restrictions were a good step but should be imposed immediately. “In my opinion, and in the opinion of lots of Americans, this should have been done long ago,” she said.

As it turns out, the self-impossed restrictions would be more stringent than those put in place while Clinton was secretary of state – ironically when the temptation to bribe the top US diplomat was far higher –  when the foundation was merely required to seek State Department approval to accept new donations from foreign governments, permitting the charity to accept millions of dollars from governments and wealthy interests all over the world. They would also be stricter than the policy adopted when Clinton launched her campaign that placed some limits on foreign government funding but allowed corporate and individual donations, for the simple reason that Hillary was willing the accept cash for any and all future favors.

Others questioned why Clinton had now decided that the foundation should rule out donations that she apparently thought were acceptable during her tenure as the country’s top diplomat. “Is it ok to accept foreign and corporate money when Secretary of State but not when POTUS???” Donald Trump Jr., son of the Republican nominee, tweeted Thursday night.

But how much of the Foundation cash actually came from abroad? According to a WaPo analysis of disclosed donors, more than half of the Clinton Foundation’s major donors would be prevented from contributing to the charity under the proposed self-imposed ban.  The analysis, which examined donor lists posted on the foundation’s website, found that 53% of the donors who have given $1 million or more to the charity are corporations or foreign citizens, groups or governments.

The list includes the governments of Saudi Arabia and Australia, the British bank Barclay’s, and major U.S. companies such as Coca-Cola and ExxonMobil.

According to public record, there are at least 59 donors who “donated” between $1 and $5 million, 5 who donated between $5 and $10 million, 11 who donated between $10 and $25 million, and 2 who donated in the top, $25+ million bracket (the full bracket breakdown can be found here).

As the WaPo puts it, “the findings underscore the extent to which the Clintons’ sprawling global charity has come to rely on financial support from industries and overseas interests, a point that has drawn criticism from Republicans and some liberals who have said the donations represent conflicts of interest for a potential president.”

The foundation’s spokesman had a canned, prepared response: Craig Minassian said that the limits would be imposed “to avoid perception issues while ensuring the people who depend on our programs continue to be served.”

But isn’t blocking outside funding essentally confirming that all the Foundation does is peddle influence, and confirming all those “perception issues”? Issues such as this: nearly half of likely voters, 47%, said they were bothered a lot by the foundation’s acceptance of money from foreign countries while Clinton was secretary of state, according to a Bloomberg News poll in June. That’s similar to the 45% of voters who were bothered by Trump’s refusal to release his tax returns.

Minassian did not directly answer questions about why the restrictions would be tighter than they were when Clinton was at State. As for why they would not be imposed until after the election, he said that the foundation did not want to presume the outcome and that taking action “before then would needlessly hurt people who are being helped by our charitable work around the world.”

There are other questions: why – if Hillary loses – will the foundation continue to accept foreign cash, even if it would henceforth suggest the pandering to wealthy foreign special interest groups; although the answer is quickly answered – should Hillary lose, her political career, and her presidential aspirations will be finished, and as such nobody will donate further as no possible future favors could be recovered from a post-loss Hillary.

Another relevant point, brought up by WaPo, is that the announcement of the new rules is unlikely to defuse the foundation as a potent campaign issue.

Critics seized on the fact that the restrictions would go into effect only in November, if Clinton was elected, meaning donors could race to give money before the deadline — but in time to curry favor with a Democratic nominee who is leading in the polls. The left-leaning columnist Jonathan Chait wrote on the website of New York magazine Friday that the new policy is an “inadequate response to the conflicts of interest inherent in the Clinton Foundation” and demonstrates that Clinton “has not fully grasped the severity of her reputational problem.”

Even with the restrictions wealthy individuals would have the opportunity to use foundation donations as “chits” he said. “Ultimately, there is no way around this problem without closing down the Clinton Foundation altogether,” he wrote.

Which also confirms what many critics – mostly on the right – had been saying all along, namely that it is not a question of when the Foundation should be shuttered, but why it has accepted hundreds of millions in mostly foreign donations over the years, which is the clearest form of buying favors from a person who has never made a secret of her intention of being US president one day.

Finally, while the fate of the Clinton Foundation is being decided, Hillary’s key financial backers continue to make their presence felt, and as Politico reported today, just two megadonors accounted for almost two-thirds of the July contributions to Hillary Clinton’s main super PAC in July. They were investors Donald Sussman, founder of the Paloma Partner hedge fund, and Daniel Abraham, each gave $3 million to Priorities USA Action. The super PAC’s total haul was $9.9 million, down from $11.9 million in June. The group finished July with $38.7 million cash on hand.

Other donors included Jay Robert and Mary Kathryn Pritzker with $450,000 each and, of course, billionaire George Soros, who gave $35,308.

via http://ift.tt/2b8bTgT Tyler Durden

“Reject cynicism. Reject fear” exclaimed an exuberant Barack Obama, adding that “America is already great.” The problem with all this bravado is… you can’t eat ‘hope’ and ‘faith’ does not put gas in the tank.

The reality is that economic growth in America is collapsing – expectations of 2016 growth has been cut in half from over 3.0% to just 1.5% this week… as US equity markets reach new record highs…

 

The farcical humor of reality is that Black Americans – who appear hell bent on electing four more years of Obamanomics – have seen black income inequality soar and black youth unemployment unchanged since the first black president came to office…

During the reign of the first black president, white youth unemployment has plunged from 19.0% to just 14.1%; while black youth unemployment has barely budged at 31.2% (from 32.8%) – more than double that of whites.

If that doesn’t make you laugh, we don’t know what will. Maybe Trump is right – “what do you have to lose?”

“Look at how much African American communities have suffered under Democratic control,” Trump said to his supporters.

 

“To those hurting, I say, ‘What do you have to lose by trying something new like Trump?’ You’re living in poverty, your schools are no good, you have no jobs, 58 percent of your youth is unemployed. What the hell do you have to lose?”

Facing reality is not cynicism – it is practical survival. Fear is the exact right sentiment since everyone knows deep-down that pain is coming and there is a need to prepare. Blindly following the same path that has led us here, because “have you seen the other guy” is just propaganda to placate the dismal reality that leaves two-thirds of Americans proclaiming “something’s wrong” in America.

Simply put – the arrogance in demanding the citizenry relax and embrace hope when hope-and-change have led to the most indebted (and weakest growth) nation in the world is concerningly humorous.

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

From the Slope of Hope: Quite a few years ago, here in the San Francisco Bay Area, there was a news story in which a woman was heading back to Oakland (one of the three larger cities here) from somewhere else in the United States. As the story is told, an announcement came over the airport loudspeaker stating that the flight to “Auckland” (that is, in New Zealand) was boarding at such-and-so a gate, and, misunderstanding the city’s name, she got on board that aircraft and took a much longer flight than expected. (Perhaps that is why, these days, the airline crew is emphatic about WHERE that particular aircraft is going…….)

Anyway, the article also mentioned that someone had already bought the rights to the story in case they wanted to do a movie about it. I was quite puzzled at this, because I wondered to myself: how is this any more interesting than a two-minute story one might share at a cocktail party and have a couple of laughs about? You can’t make a MOVIE out of this little anecdote, can you?

Norm MacDonald, a comedian whose subtle humor I love, was thinking along these same lines when he claimed to own the story rights to the Sully landing on the Hudson River back in January of 2009. The whole interview from February 2009 is below, although the Sully part begins about 5:15 into the video (the whole thing is fun to watch, of course). So before I go on, check it out……..and keep in mind, the emergency landing had taken place the month prior:

You’ll excuse my surprise that now, seven years later, they’ve actually made a major big-budget big-star movie out of this goddamned anecdote. Now, listen, I think Sully is cool and all, and this beats the Auckland anecdote by a couple of minutes (in terms of cocktail party chatter), but for the love of God, this is ridiculous. I watched the trailer, and they seem to have padded the holy hell out of the story (as you shall soon see). Here, just watch the clip and save yourself twelve bucks. You’re welcome.

If I may be so bold, I think the producers behind this are going to see a Ben-Hur-remake style loss on this sucker. I can be wrong judging the public tastes at times, but this is just plain silly.

via http://ift.tt/2b6rdRh Tim Knight from Slope of Hope

Submitted by Stephen McBride of Mauldin Economics via ValueWalk

6 Charts That Show the Number One Reason Gold Is Going Higher

Asset prices are at all-time highs around the world. Since 2008, assets under management have increased by a whopping 43%. The reason? Institutional investors have been taking advantage, gobbling up all they can get.

 

But while institutions have been on a buying spree, there is one asset they have neglected.

And, best of all, there’s no risk attached to owning it.

 

Best Performing Asset Ignored

This asset is considered the best investment of 2016. It’s outperformed the S&P 500 and USD by 19% and 29%, respectively. It is also the only financial asset that is not simultaneously someone else’s liability.

That asset is gold. Up 26% year to date. However, as a percentage of global financial assets, it is near all-time lows.

 

Gold made up 5% of global financial assets in 1960. Today it is a meager 0.58%.

If that figure returned to its 1980 figure of 2.74%, that would translate into an additional $2.5 trillion flowing into gold and gold stocks. That’s eight times the current market cap of the entire gold industry, which now stands at $324.4 billion.

With the current uncertainty, NIRP, and ZIRP, gold is once more seen as a hedge against inflation.

Since the bear market began in 2011, demand for gold bullion and coins has increased.

But investment demand has stayed low, until now.

 

Investment demand for gold rose 122% from Q1 2015–Q1 2016. Money flowing into Gold ETF’s jumped over 300%.

However, we haven’t seen capital migration from general financial assets into gold.

So, where have these bullish inflows come from?

 

The Biggest Hedge Funds Are Flocking Into Gold

2016 has brought some of the world’s biggest hedge funds into gold.

Stanley Druckenmiller warned investors to “get out of the stock market.” His firm now holds a 30% position in gold, the firm’s largest currency position.

George Soros cut his US holdings by 37% in Q1 2016. He then purchased 1.05 million shares in the SPDR Gold Trust and took a $264 million stake in the world’s biggest gold producer, Barrack Gold.

Although hedge funds mean large investments, they’re not the main reason gold is flying.

 

Pension Funds Are Pushed Into A Corner

The task of pension funds is to generate stable growth over the long term. This has become increasingly hard with volatile equity markets and low to negative bond yields.

During economic turmoil, investors have usually turned to bonds (Grey areas indicate recession).

 

But with yields at or below zero, they are no longer yielding real returns for funds.

Although equity markets have risen, general sentiment has been cautious given the recent volatility.

 

Pension funds in the US totalled $22 trillion at the end of 2015. As a result of poor performance, they are now running a $3.4 trillion deficit. The reality is that the traditional yield sources are either non-existent or too volatile.

Where will pension funds find a way back to profitability?

 

What Happens If Pension Funds Shift Just 0.3% Of Assets Into Gold

The typical pension fund is estimated to hold about 0.15% in gold and another 0.15% in gold mining companies. A total of 0.30% of their overall holdings.

If the US pension funds doubled their gold holdings to 0.6%, this would mean an extra $132 billion flooding into the market.

The World Gold Council estimated that gold demand in 2015 amounted to $334 billion. So this small move from funds would lift investment demand by 39%.

Of course, some of the capital will be allocated to gold equities. The market cap of the five largest gold companies is $81.2 billion.

Given the gold market size, even modest capital migration from these funds would send gold demand soaring.

As the chart below shows, weak equity sentiment is positive for gold.

 

With ZIRP, NIRP, and increasing volatility in the markets, it’s only a matter of time before funds will turn to gold.

Although gold is up 26% YTD, the above scenario shows that now is a perfect time to enter the gold markets for long-term investors.

via http://ift.tt/2b6qPCt Tyler Durden

Earlier this week we wrote about 29-year-old Navy sailor, Kristian Saucier, who had plead guilty to espionage charges for snapping 6 photos of classified areas of a nuclear submarine and was facing up to 78 months in prison for his "crime" (see "Convicted Spy Is Using Hillary's "Lack Of Intent" Defense To Seek Leniency").  Even though he knew the pictures were classified, Saucier said he took them to "be able to show his family and future children what he did while he was in the Navy" and denied ever showing the pictures to any "unauthorized recipients." 

Saucier's attorney used the "Clinton Defense" at his sentencing hearing earlier this week, arguing that he possessed just 6 sensitive photographs which was "far less than Clinton’s 110 emails" that were ultimately deemed to contain classified information.  Saucier's attorney went on to argue that “…it will be unjust and unfair for Mr. Saucier to receive any sentence other than probation for a crime those more powerful than him will likely avoid.” 

Unsurprisingly, Saucier didn't make out quite as well as Clinton but the "Clinton Defense" may have resulted in some level of leniency in his sentencing.  According to The Hill, Saucier was facing up to 78 months in prison for his admission to "mishandling information" but a federal judge on Friday sentenced him to 12 months instead.  Greg Rinckey, Saucier’s lawyer, said that while the judge indicated Clinton's case did not factor into the sentencing, he believes it played a small, albeit favorable role.

“Honestly did it help our case? I’m sure it did.  We were very concerned that some people that are in high, powerful positions within the United States are selectively prosecuted. So I think it was a valid rationale.”

Clinton will also be mentioned in a separate upcoming case involving Major Jason Brezler.  Brezler is being discharged from the Marine Corps for "mishandling classified information" after using his personal email account in 2012 to send a classified briefing document to fellow Marines in Afghanistan.  The email was intended to warn fellow soldiers about the potential threat posed by an Afghan police chief.  Brezler subsequently self-reported his actions to the military.  Brezler's attorney, Michael Bowe, commented on the apparent double standard in applying the same laws to Clinton versus others who have committed "far less alleged misconduct":

“The FBI has found that Secretary Clinton was ‘extremely careless’ in her handling of classified information by, among other things, intentionally setting up a secret home server housing highly classified information." 

 

“Nevertheless, the current commander-in-chief has publicly stated that none of this impairs her 'excellent ability to serve', including as the next commander-in-chief.  If that is so, then the current commander-in-chief should apply the same standard to Major Brezler and all those serving in his administration who have been found unfit to serve for far, far less alleged misconduct.”

 

“Certainly, if Secretary Clinton becomes the next commander-in-chief it would the ultimate hypocrisy for her to declare others unfit for service based on alleged misconduct equal to or less serious than that she herself engaged."

Meanwhile, Bradley Moss, a lawyer specializing in national security and security clearance law, said he did not expect the "Clinton Defense" to necessarily be "effective" in getting cases tossed out.  That said, he does suspect it will continue to be used as "leverage" to help get reduced sentencing for the accused.   

“It’s being brought in to say, ‘Look, my guy is a simple rank-and-file person who did these three little things. Hillary Clinton … did all this, and they didn't do anything to her.  It’s just being thrown in to try to sway the judge however little much it can, to say that something stinks in the state of Denmark.”

 

“It's meant to be something that says, ‘And given everything else I’ve told you, let me throw on this one last piece to try to push you across the finish line to get you to agree with my theory’.  It's just an additional piece of leverage … just to try to put some icing on the cake.”

Rear Admiral Thomas Brooks, and former head of Navy intelligence, recently wrote about the "Clinton Defense" in the August issue of Proceedings Magazine.  Among other things, Brooks points out that if Clinton were still a government employee her actions would have repercussions which could include loss of security clearance and/or termination.  Brooks pointed to the case of Major Brezler to highlight the double standard between "political elites" and "rank-and-file" personnel. 

Were Mrs. Clinton still a government employee, administrative actions could be taken against her, to include the loss of clearances and possibly termination. But she is no longer a government official, and no action of any kind is likely to be taken.

…leaves the appearance that political elites are not subject to the same rules as the rank-and-file and need not live up to the security oaths they sign. Other government employees will be held to the letter of the law, sometimes applied in what appears to be an arbitrary and capricious fashion. Recent examples here include the Navy reservist who was punished for accidentally possessing classified material on a personal thumb drive and a Marine in Afghanistan who used his personal email to warn his comrades of danger.

We too are somewhat skeptical of the "effectiveness" of the "Clinton Defense" when applied to the cases of rank-and-file personnel who don't carry the benefits that come along with Clinton's political clout.  Nor do we suspect the hypocrisy of such double standards will in any away impact Clinton's path to the Presidency.  Alas, anything less would require a discerning electorate motivated by facts and figures rather than the overly polarized, blindly loyal lemmings which currently determine national elections. 

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

Submitted by Dana Lyons of J. Lyons Fund Management

Near-term volatility expectations are currently on a stretch of unprecedentedly low levels.

 About a month ago, we began to take note of investor complacency creeping into the stock market. At the time, the major averages had recently broken out to all-time highs amidst strong breadth readings and favorable seasonality. Thus, such complacency, or optimism, was arguably warranted. As such, our take was that the positive price action and participation was certainly enough to override the budding excessive bullishness. We have seen that, in such circumstances, sentiment extremes can persist for an extended period of time before any negative consequences unfold. Indeed, the markets have continued to creep higher ever since, along with investors’ optimism. At this point, however, sentiment is getting to the point where it is a legitimate red flag, in our view. In fact, by one measure, the market has never witnessed a stretch of such investor complacency.

The measure to which we are referring is the same as that noted in the late July post above, and pertains to investors’ volatility expectations. As we wrote:

One way of using volatility to measure the extent of investor nervousness is by comparing near-term volatility expectations versus those farther out. For example, the VIX is actually the 1-month S&P 500 volatility index. Meanwhile, the VXV is the 3-month volatility index. Typically, the VIX will be lower than the VXV as there is less time in the near-term for volatility rises to occur. When investors get especially nervous (usually during a selloff), near-term volatility expectations can actually rise above those farther out, i.e., the VIX/VXV ratio rises above 1.00. Conversely, during times of complacency, the VIX will drop to relatively low levels versus the VXV; historically, under 0.80 may be considered complacent.

At the time, the VIX/VXV ratio had actually dropped below 0.78, a level it had only reached on 14 prior days since the inception of the VXV in late 2007. As we noted, such complacency can persist for a short while, especially amidst positive developments elsewhere in the equity markets. However, at this point complacency has extended beyond any historical precedent. Specifically, while just 14 days in the past 9 years (prior to July) had ever seen VIX/VXV readings below 0.78, this week saw the 21-day average (approximately 1-month) drop below that level.

 

Obviously, the market can almost literally do anything – there are no rules. Thus, it may continue to accommodate investors’ lack of volatility expectations for a while longer. However, we are already in uncharted waters. The only time the 1-month average VIX/VXV dropped even below 0.80 was in March 2012. FWIW, the ratio remained below 0.80 for the next 11 days. Meanwhile, the S&P 500 gained a maximum of just 1% as it meandered sideways for the next 5 weeks before getting clipped for nearly 10% over the subsequent month.

Again, we don’t have a script for what will play out here (there is no script for a VIX/VXV ratio this low). The 2012 outcome is just one potential template. There are still enough positives in the equity market in the near-term that could certainly keep the stock market propped up for the time being. And we do not have any major signals at this point to suggest bailing out of stocks en masse.

However, we do consider this data point to be one that warrants our attention. Therefore, we would perhaps raise the proverbial “DefCon” from 1 to 2. While that may not mean taking much defensive action yet, it should at least up one’s readiness, whether that means tightening stops, looking for hedges or just plain being more prepared.

At the very least, we would recommend investors not get lulled to sleep by the present calm in the markets.

*  *  *

Especially considering the record short VIX and long Dow, Nasdaq positioning among futures speculators…

via http://ift.tt/2bvIX6V Tyler Durden

In his latest letter, Elliott Management’s Paul Singer reached new levels of bearishness, warning that the “bond market is broken”,  the loss of confidence from the failure of central bank actions “could be severe” and that “the ultimate breakdown (or series of breakdowns) from this environment is likely to be surprising, sudden, intense, and large.”

* * *

Overnight, one of the best credit analysts, Citi’s Matt King, followed up on Singer’s gloomy observations with a presentation showing seven signs why markets are deeply dysfunctional, highlighting the numerous “broken relationships” that have emerged as a result of central bank meddling, “from profits to political uncertainty, and spreads to standard deviations, traditional market relationships are being turned on their heads” and admits that “yes, it’s monetary policy we demonstrate is driving everything. And yet here too, there are worrying signs of what may become a breakdown.”

For the benefit of those who are still stuck trading in the “market” we present King’s entire must read presentation “Seven signs markets are deeply dysfunctional”, which we doubt will lead to smarter investing decisions, will at least provide some perspective on what we have dubbed since 2009, is a thoroughly broken market, something even the WSJ recently admitted.

Distortion breeds dysfunction

From Bill Gross’ dirty engine oil to Paul Singer’s broken bond market, investors are bemoaning a breakdown in normal market functioning. Cynics might say they’re apologizing for underperforming straight bond and equity indices – except that just about every market participant we speak to feels the same way, no matter what their asset class and no matter how stellar their returns. Just about the only people who aren’t convinced are the central banks.

Unfortunately that gulf in world view runs so deep that we doubt anything anyone says will change it – even as central banks are increasingly admitting that their models aren’t working. But here are seven reasons why we side with the investors.

And just to make things absolutely clear, no, that doesn’t mean we think the solution is for central banks to double up. “Pound for pound”, corporate bond purchases and other forms of even more extreme policy, rather than fixing things, will lead to even more dysfunction in our view. Twice zero is still zero – or, perhaps better – two times a negative is an even greater negative.

1. Is macro really this important?

As many a fundamental analyst has found to their cost, macro factors are more important these days. But should they really be more important now than they were at the height of the financial crisis? Our equity quants find that they are (Figure 1).

When there’s only one factor dominating markets, it inevitably forces investors the same way round. No wonder the quants’ macro factor correlates with the IMF’s cross-market herding metric (Figure 2).

2. Defaults don’t matter

With macro this dominant, credit no longer seems bothered by defaults. S&P pointed out this week that YTD defaults have now equalled last year’s full-year total, and are running at their highest pace since 2009. Once upon a time, that would have been associated with spread widening (Figure 3). But not this year.

There are mitigating factors, of course. More than half the defaults have been in the energy sector, so perhaps the broader market has no reason to fret. Spreads do usually lead defaults somewhat, so perhaps the default rate is about to plummet. But it’s hard to avoid the feeling that normal spread movements have been suppressed.

In Europe the history is much shorter – but here too, an unusually tight spread (never mind yield) is currently accompanied by a decidedly average level of defaults (Figure 4).

3. Fundamentals don’t matter

It’s not just in high yield where this is happening. Corporate spreads traditionally follow corporate leverage. Yet ever since 2011, the correlation has broken down (Figure 5).

You might argue that that’s because interest coverage is still fine. But it’s interesting that equity correlations with their own fundamentals broke down at more or less the same point. Pre-2011, downward revisions to consensus earnings expectations were accompanied by market sell-offs. Post 2012, they haven’t seemed to matter (Figure 6).

This relationship – and its subsequent breakdown – holds in just about every equity market. But there are signs of it re-establishing itself, particularly in the Euro area and Japan – a point we’ll return to later.

4. Uncertainty doesn’t matter

Perhaps it’s just the bottom-up newsflow the markets are ignoring. But no, on at least some metrics it turns out that macro news doesn’t matter either.

The Baker, Bloom & Davis economic policy uncertainty indices – which track, among other things, the number of references to “uncertainty” in the news – have for years had an almost uncanny correlation with spreads. This year, it’s broken down (Figure 7).

If you’re tempted to argue that that’s just a Brexit effect, note that the same seems to be happening in the US, albeit to a lesser extent (Figure 8). Besides, does it really make sense that the FTSE 250 is within a whisker of pre-Brexit levels? Just how many foreign acquisitions of UK midcaps are you expecting? At least in credit (where spreads have since rallied some 50bp) we have the excuse of the BoE propping up the market.

5. Traditional relationships have reversed

Almost the first thing we learned about credit spreads was that they were negatively correlated with rate movements. Repeat after me: “Economy does well – spreads do well – rates do badly. Economy does badly – spreads do badly – rates do well.” Indeed, that negative correlation (and the correspondingly high Sharpe ratio on total returns) has been the foundation for many an investment in credit.

Woe betide anyone who’s been counting on that recently. While it’s never completely clear-cut, these days what’s good for rates is good for credit (and equities) too. Either it all rallies, in a gigantic reach for yield – or it all sells off. The benefits of diversification just went completely out of the window. No wonder investors are hiding in alternatives: at least they don’t have to mark to market.

Along the way, some other long-held correlations seem to be reversing too. Drops in inflation expectations used to be bad news for spreads, but since the start of this year they’ve looked more like good news (Figure 11). The only exception is in financials, where yield curve flattening is still associated with underperformance.

Similarly for the correlation geeks, it used to be that when markets were all moving together in response to some macro shock, volatility would rise too. Now they’re all moving together and yet vol just seems to have died (Figure 12).

6. Vol has been suppressed

Is such a lack of volatility normal? Last time we were at these levels, in 2014, cross-asset correlations were much lower. And yet with the exception of $/¥, £/$ and perhaps rates vol, the pattern is the same everywhere (Figure 13).

The next three months will see US elections, an Italian referendum which could possibly see the government fall, the potential for helicopter money in Japan, and a combination of negative growth and fiscal stimulus in the UK. What factor could possibly be so overwhelming that it makes none of this worth hedging against?

7. It’s all about monetary policy (and even this is wearing thin)

The answer, of course, is monetary policy. As all these fundamental relationships have broken down, in one market after another we’ve found that what’s replaced them has been global central bank liquidity (Figure 14). Portfolio managers are buying not because their analysts tell them assets are cheap; they’re buying because they have inflows. And when the central bank liquidity taps are turned on, they figure there are still more inflows to come.

 

That, though, is why markets are so badly broken.

A properly functioning market is a heterogeneous one: one where some investors are top-down, yet others are bottom-up; some invest long-term, others invest short-term; some look at fundamentals, others look at technical. That’s what makes for a two-way, continuous market. A market where all investors are forced to look at the same factor will inevitably be dysfunctional – grinding tighter today, yet prone to sudden reversals tomorrow when the inflows dry up. And yet anyone trying to hedge against such an eventuality inevitably underperforms.

All that said, there do seem to be some cracks appearing. Central bank liquidity no longer refreshes all the parts it used to. There are inflows to credit, but not really to equities. € credit spreads are rallying sharply, but only because the ECB is buying them directly (Figure 17 left); the same applies in £. Both the Euro Stoxx (-9% YTD) and the Nikkei (-13%) are struggling, ongoing QE programmes notwithstanding (Figure 17 middle). Inflation breakevens – the most direct reason for central banks buying risky assets – are falling further still (Figure 17 right).

Most doctors – and even patients – know that when a course of drugs seems not to be working, you don’t simply keep on doubling the dosage. This applies particularly when the patient, if no longer as sprightly as they used to be, is nevertheless doing more or less fine. The side effects of such a course are more likely to kill than to cure. Yet this is what central banks now seem intent on doing. They have too much invested in their models to consider changing them in our view.

If all goes well, this should produce more of the same: ever tighter spreads; ever more handwringing over a stagnating global economy; ever greater dysfunction in markets. That is indeed our forecast.

And yet the more stretched all these relationships become, and the more extreme the central banks’ policies, the greater is the tail risk, and the more nervous we become about investing in line with these forecasts. It’s not just the risk of Bill Gross’ “sputtering engine”; it’s the risk that Paul Singer is right, and that the end of the current environment proves “surprising, sudden, intense, and large”.

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

By EconMatters

The Reason for the large move in the Oil Market over the last 7 trading days, has to do with the record level of shorts that had to cover before the September Futures contract expired. This had nothing to do with the fundamentals of the oil market. With the record level of Oil production by the Saudis in July and August a freeze at these levels is absolutely meaningless and bearish for the oil market rebalancing anytime soon.

 

 

 

© EconMatters All Rights Reserved | Facebook | Twitter | YouTube | Email Digest | Kindle    

via http://ift.tt/2blC33x EconMatters

Submitted by Alex Christoforou of The Duran

We noted in a previous post how important Ukraine was to George Soros, with documents from DC Leaks that show Soros, and his Open Society NGO, scouring the Greek media and political landscape to push the benefits of his Ukraine coup upon a Russian leaning Greek society.

Now more documents, in the massive 2,500 leaked tranche, show the immense power and control Soros had over Ukraine immediately following the illegal Maidan government overthrow.

Soros and his NGO executives held detailed and extensive meetings with just about every actor involved in the Maidan coup: from US Ambassador Geoffrey Pyatt, to Ukraine’s Ministers of Foreign Affairs, Justice, Health, and Education.

The only person missing was Victoria Nuland, though we are sure those meeting minutes are waiting to see the light of day.

Plans to subvert and undermine Russian influence and cultural ties to Ukraine are a central focus of every conversation. US hard power, and EU soft power, is central towards bringing Ukraine into the neo-liberal model that Soros champions, while bringing Russia to its economic knees.

Soros’ NGO,  International Renaissance Foundation (IRF) plays a key role in the formation of the “New Ukraine”…the term Soros frequently uses when referring to his Ukraine project.

In a document titled, “Breakfast with US Ambassador Geoffrey Pyatt”, George Soros, (aka GS), discusses Ukraine’s future with:

Geoffrey Pyatt (US Ambassador to Ukraine); David Meale (Economic Counsellor to the Ambassador); Lenny Benardo (OSF); Yevhen Bystrytsky (Executive Director, IRF); Oleksandr Sushko (Board Chair, IRF); Ivan Krastev (Chariman, Centre for Liberal Studies); Sabine Freizer (OSF); Deff Barton (Director, USAID, Ukraine)

The meeting took place on March 31, 2014, just a few months after the Maidan coup, and weeks before a full out civil war erupted, after Ukraine forces attacked the Donbass.

In the meeting, US Ambassador Pyatt outlines the general goal for fighting a PR war against Putin, for which GS is more than happy to assist.

Ambassador: The short term issue that needs to be addressed will be the problem in getting the message out from the government through professional PR tools, especially given Putin’s own professional smear campaigns.

 

GS: Agreement on the strategic communications issue—providing professional PR assistance to Ukrainian government would be very useful. Gave an overview of the Crisis Media Center set up by IRF and the need for Yatseniuk to do more interviews with them that address directly with journalists and the public the current criticisms of his decision making.

Pyatt pushes the idea of decentralization of power for the New Ukraine, without moving towards Lavrov’s recommendation for a federalized Ukraine.

GS notes that a federalization model would result in Russia gaining influence over eastern regions in Ukraine, something that GS strictly opposes.

Ambassador: Lavrov has been pushing the line about constitutional reform and the concept of federalization in Russia. The USG reaffirmed it will not negotiate over the heads of the Ukrainians on the constitutional reform issue and that Ukraine needs to decide on this issue for itself. He noted that there are templates for devolution that can be used in this context but that the struggle will be to figure out how to move forward with decentralization without feeding into Russian agenda.

 

GS: Federalization plan being marketed by Putin to Merkel and Obama would result in Russia gaining influence and de facto control over eastern regions in Ukraine. He noted Lavrov has clear instructions from Putin to push the line on federalization.

 

Ambassador: Secretary Kerry would be interested to hear GS’s views on the situation directly, upon return from his trip.

 

SF: There is no good positive model for federalization in region, even models of decentralization are very poor because the concept is not very common. The institutions need for decentralization do not yet exist and need to be built.

 

YB: Ukraine should pursue a decentralization policy based on the Polish decentralization model. IRF funded the development of a plan based on this model previously and those involved are now advisers to government on this issue. Noted it is also important to encourage the constitution council created y government to be more open and involve independent experts.

 

Ambassador: Constitutional reform issue as the most urgent issue facing Ukraine—there is a need to decentralize in order to push democracy down to the local level and break the systemic corruption that results from Kiev’s authority over the local governments.

 

Ambassador: Russian propaganda machine telling Kharkhiv and Donbass residents that the government in Western Ukraine is looking to take away their resources and rights through decentralization process, feeding into Lavrov’s line that the Ukrainian government is dysfunctional and not successful as a unitary state, making it a necessity to have federalization.

The participants cannot stop fixating on Russia and Putin throughout the meeting. The Ukraine project seems to be more about sticking it to Russia, then about saving a country about to fall into the abyss.

US Ambassador Pyatt hands over full control to George Soros, and point blank asks him, “what USG should be doing and what the USG is currently doing.”

Soros’ response is stunning, “Obama has been too soft on Putin.”

Ambassador: Asked GS for a critique of US policy and his thoughts on what USG should be doing.

 

GS: Will send Ambassador Pyatt copies of correspondences he previously sent to others and his article in NY Review of Books. Obama has been too soft on Putin, and there is a need to impost potent smart sanctions. He noted the need for a division of labor between the US and the EU with the US playing the bad cop role. The USG should impose sanctions on Russia for 90 days or until the Russian government recognizes the results of the presidential elections. He noted that he is most concerned about transitional justice and lustration.

 

Ambassador: USG will organize conference with the British at the end of April on financial crimes that will bring together senior level government officials and representatives of the international community to discuss where money went. He noted his worries about the complete implosion of the Party of Regions and will be speaking to IRI and NDI about offering assistance to reconstruct the party for the post-Yanukovych era.

US Ambassador Pyatt decides to take out Tymoshenko from the New Ukraine equation.

She served her purpose as a poor and sick political prisoner while Yanukovich was in power, saying that “Tymoshenko is associated with everything undignified”…

Ambassador: Personal philosophy on the greatest need for Ukraine right now is the need for national unification. This will not happen under Tymoshenko because she is perceived as a hold over of the old regime and a very divisive personality. He calls the revolution a “revolution of dignity” and Tymoshenko is associated with everything undignified.

 

GS: Need to cleanse the “original sin” that all of the current presidential candidates are marked with in order for Ukraine to move forward.

Concern over the Pravy Sector, and how to disarm, or integrate, the muscle that was used to instigate much of the violence during the Maidan is debated.

Soros even throws out his suspicion that the Privy Sector has been infiltrated, and now is working under Russia’s FSB.

GS: Belief that the Pravy Sector is an FSB plot and has been funded to destabilize Ukraine

 

Ambassador: Agreed that this was at least partly true, but the problem now is that Pravy Sector has become organic and is still armed. There is a need for the government to figure out how to demobilize and disarm the Pravy Sector.

 

GS: How can we defend against Putin’s attempts to destabilize the May elections?

 

Ambassador: The international community should send in a flood of observers from the OSCE and other institutions. The US Embassy is also currently working with the local intelligence agencies to monitor the situation and they have already found Russian agents. He noted that a second ambassador, Cliff Bond, will be brought  into the embassy to focus on the longer term questions such as decentralization, lustration, e-governance, and anti-corruption and will be coordinating with the donor community on these issues. Obama has instructed the embassy to focus primarily on economic support and assistance for Ukraine, avoiding military support or assistance.

 

GS: Hopes that going forward there will be close contact and cooperation between the US Embassy and the IRF.

The Full PDF of the 2014 George Soros minutes can be downloaded here: – Ukraine Working Group 2014-gs ukraine visitmarch 2014note.

The meeting minutes documented present a clear and conclusive case that George Soros and his International Renaissance Foundation (IRF) manipulated Ukraine into moving towards an untenable and self destructive direction.

In one meeting under the title, “Civil Society Roundtable Meeting”, Crimea fifth column schemes are advanced as viable solutions to those participating in the discussion.

Likewise we see how involved Soros was in making sure a Ukraine under federalisation is completely undermined at the highest levels, influencing Merkel and Obama to reject such initiatives.

In hindsight it has now become clear that the only way Ukraine was going to survive the coup in one piece was to move towards a federalised model of governance.

He [George Soros] noted that Ukraine is in grave danger because Putin knows he cannot allow the new Ukraine to succeed. He reiterated his points about the conversations Putin has had with Merkel and Obama about federalism and his concerns surrounding that development. He noted that he hasn’t had direct feedback yet regarding this issue and is basing his worries on second hand information about the reactions of Merkel and Obama. But he reiterated the need for the Ukrainian government to respond loudly and immediately.

via http://ift.tt/2bFr9Vd Tyler Durden