Tag: finance

Yesterday we outlined that Central Banks’ War on Cash is about to go into Hyperdrive.

Today we’re discussing just the policies Central Banks are already working to implement to eviscerate savings.

Globally, over 50% of Government bonds currently yield 1% or less. These are bonds that are negative in real terms meaning they are trailing well below the rate of inflation.

Even more astounding is the fact that over $7 trillion in debt currently have negative yields in nominal terms, meaning the bond literally has a negative yield when it trades.

This means that when an investor buys these bonds, he or she pays the Government for the right to own. There is NO rate of return; by buying these bonds you are literally incinerating your capital. Large bond funds that are required to own certain types of bonds have no choice but to lose money.

However, this is just the start.

Back in 1999, the Fed published a paper suggesting the implementation of a “carry tax” or taxing actual physical cash using an expiration date if depositors aren’t willing to spend the money.

The paper, written 16 years ago, suggested that if the Fed were to find that zero interest rates didn’t induce economic growth, it could try one of three things:

1)   Buy assets (QE)

2)   Money transfers (literally HAND OUT money through various vehicles)

3)   A carry tax (meaning tax the value of actual physical cash that is taken out of the system)

We've already seen six years of ZIRP and $3 trillion in QE. Next up are outright money transfers and a carry tax on physical cash.

What is a "carry tax"?

The idea here is that since it costs relatively little to store physical cash (the cost of buying a safe), the Fed should be permitted to “tax” physical cash to force cash holders to spend it (put it back into the banking system) or invest it.

The way this would work is that the cash would have some kind of magnetic strip that would record the date that it was withdrawn. Whenever the bill was finally deposited in a bank again, the receiving bank would use this data to deduct a certain percentage of the bill’s value as a “tax” for holding it.

For instance, if the rate was 5% per month and you took out a $100 bill for two months and then deposited it, the receiving bank would only register the bill as being worth $90.25 ($100* 0.95=$95 or the first month, and then $95 *0.95= $90.25 for the second month).

 It sounds like absolute insanity, but I can assure you that Central Banks take these sorts of proposals very seriously.  QE sounded completely insane back in 1999 and we’ve already seen three rounds of it amounting to over $3 trillion.

No one would have believed the Fed could get away with printing $3 trillion for QE in 1999, but it has happened already. And given that it has failed to boost consumer spending/ economic growth, I wouldn’t at all surprised to see the Fed float one of the other ideas in the coming months.

The time to take action is now!

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Remember the vicious cycle that threatened the entire European banking sector in 2012?

It went something like this: over indebted sovereigns depended on domestic banks to buy their debt, but when yields on that debt spiked, the banks took a hit, inhibiting their ability to fund the sovereign, whose yields would then rise some more, further curtailing banks’ ability to help out, and so on and so forth.

Well don’t look now, but central bankers’ headlong plunge into NIRP-dom has created another “doom loop” whereby negative rates weaken banks whose profits are already crimped by the new regulatory regime, sharply lower revenue from trading, and billions in fines. Weak banks then pull back on lending, thus weakening the economy further and compelling policy makers to take rates even lower in a self-perpetuating death spiral. Meanwhile, bank stocks plunge raising questions about the entire sector’s viability and that, in turn, raises the specter of yet another financial market meltdown.

Below, find the diagram that illustrates this dynamic followed by a bit of color from WSJ:

From WSJ:

In a way, the move below zero was a gamble. The theory went like this: Banks would take a hit, but negative rates would get the economy moving. A stronger economy would, in turn, help the banks recover.

 

It appears that wager isn’t working.

 

The consequences are deeply worrying. Weak banks may now drag the economy down further. And with the economy weak and deflation—a damaging spiral of falling wages and prices—looming, central banks that have gone negative will be loath to turn around and raise rates.

 

Moreover, central banks have few other levers to escape that doom loop. The ECB has instituted a bond-buying program, but President Mario Draghi last month indicated he was ready to launch additional monetary stimulus in March. Japan’s decision to implement negative rates follows three years of aggressive monetary easing, aimed at ending two decades of low inflation and stagnant growth.

 

The pushes into negative territory also amount to a sort of competitive currency war that no one seems willing to call off.

 

Major economies around the world are desperate to spur inflation; one way to do that is to cut interest rates, which typically would make their currencies less attractive. Lower currencies raise the prices of imported goods and boost the fortunes of exporters.

 

Switzerland, Sweden and Denmark have all used negative rates to help ward off inflows of foreign funds that push up their currencies. Economists said an aim of the Bank of Japan’s move to negative rates last month was to weaken the yen. It hasn’t worked: The yen shot up Thursday and is stronger than it was before the rate cut.

 

The move below zero compounds the miseries for lenders in those countries. Banks traditionally make a profit by lending at higher interest rates than the rates they pay on deposits, a difference called the net interest margin. Low rates have already squeezed that margin, and banks’ funding costs from other sources, such as bond markets, have surged this year.

 

German banks earn roughly 75% of their income from the margin between rates on savings accounts and the loans they make, according to statistics from the

 

Bundesbank, the country’s central bank. Plunging rates dragged German banks’ interest revenue down to €204 billion ($230 billion) in 2014 from €419 billion in 2007, according to the Bundesbank.

 

Negative rates cost Danish banks more than 1 billion kroner ($151 million) last year, according to a lobbying group for Denmark’s banking sector.

Consider that and then have a look at the following chart, which certainly seems to indicate that we are on step 8 in WSJ’s doom loop…

Step 9 is when things really start to go south for the real economy. So buckle up. 

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As we have reported previously on various occasions things are bad for European banks: from DB’s record wide 5Y Sub CDS, to Credit Suisse record low stock price, to everyone else inbetween. But did you know that for most European banks, 2016 is shaping up far worse than the dreaded 2008? As the following chart from Reuters shows, the year-to-date stock price performance for most European banks is on pace to far surpass – to the downside – the dreadful for the global financial system 2008.

As Reuters puts its it, “Euro zone banks have seen their shares plummet by nearly 30 percent and yields on their bonds surge since the start of the year, as investors worried about thinning profits and uncomfortably high levels of bad loans in some countries.”

This is shown in the chart below.

 

One problem resulting from this collapse is well framed by Reuters: “A protracted selloff in the shares and bonds of euro zone banks has the potential to knock the fragile economic recovery off track by raising financing costs for banks, limiting their ability to lend. It may also undo some of what the European Central Bank has been trying to do to increase bank lending an pump up inflation via spending.

The selloff makes it more expensive for banks to raise capital on the market by selling shares or bonds.

 

If this situation were to last, it would dent banks’ capacity to grow their balance sheets by extending new loans to companies and households. This would jeopardise a tentative rebound in lending driven by the ECB’s ultra-easy monetary policy.

 

“This can have an impact on the economy, which is bank dependent in Europe,” said Sascha Steffen, professor of finance at the University of Mannheim. “And of course it puts more pressure on the ECB because it doesn’t help it bring back inflation.”

 

Bank lending in the euro zone started growing again in 2015 after shrinking for three years, but data for December data pointed to a loss of momentum.

 

* * *

 

But the sheer magnitude of the market rout shows investors are losing confidence in the sector.  A key transmission channel is the market for Additional Tier 1 (AT1) notes – bonds that can be converted into equity under certain conditions and on which the issuer can decide whether or not to make coupon payments.

 

* * *

 

“For the past year, ECB easing has been accompanied by private banks’ easing of credit conditions,” said Marco Troiano, a director at ratings agency Scope. “If market volatility reverses this, banks would tighten lending, negating some of the ECB’s efforts.”

In other words, after the BOJ’s and the Fed’s recent policy failures, unless the ECB stabilizes Europe’s banking sector, it too will have committed the gravest of central bank sins: policy error.

The problem, however, as Deutsche Bank explained very well in the post preceding this, is that there is a problem: while the market is desperately begging for a circuit breaker, nobody – certainly not the ECB – has any idea either what it should look like, or whether it could work.

 

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Having been at the forefront of the recent collapse in core European bank stock prices, Deutsche Bank has – as we first reported last weekend – been ‘crying uncle’ but not in a way most would expect: instead of begging for more central bank easing, DB told the ECB (and BOJ) to stop easing as negative rates and more excess liquidity, are crushing it. This is why central banks are trapped, because they are damned if they don’t ease any more with the global economy on the edge of recession, and damned if they ease further, pushing bank default risk even higher.

Which brings us to this morning’s note from DB’s Jim Reid who puts it best: “Markets are crying out for a circuit breaker at the moment.” 

There is just one problem: nobody knows what this circuit breaks would and should be, or if it would even work.

From today’s Early Morning Reid

Markets are crying out for a circuit breaker at the moment. There is lots of talk about whether the ECB could buy senior bank debt and also whether Europe might look to bring in their own version of TARP. The former brings a whole host of moral hazard, political, legal and logistical questions especially in a bank bail-in regime. Before the ECB embarked on each of their government bond purchases (from Greece in 2010 to QE in 2015) there were similar arguments so it’s not an insurmountable challenge but it’s not a policy that is likely to be conducted overnight. With regards to TARP, remember this was a government led initiative and achieving a similar one in Europe with all the different governments having to agree on it would be a challenge to say the least. It’s not as if Angela Merkel doesn’t have her work cut out dealing with the migration crisis/backlash.

 

The problem for the ECB is that there are increasing worries that another deeper cut into negative deposit rate territory will create more negative sentiment for the banks due to what it might do to their profitability. Is this just a passing concern or has the market now moved against negative deposit rates? If it is the latter then central banks had better decide on an alternative quickly. The ECB will certainly have a tough 4 weeks trying to design further stimulus / market support that hits the mark ahead of their hotly anticipated March 10th meeting.

In other words, much more important than the Fed’s March meeting (when it will certainly not hike rates), the ECB’s March meeting may be the one that makes or breaks Eurozone banks if Draghi finds no middle ground between throwing even more negatve rate kitchen sinks at the problem – which has crushed Europe’s banks – and doing nothing – which in December crushed Europe’s asset managers when the EUR soared the most since the Fed’s announcement of QE1.

Which means that in addition to the BOJ and the Fed, the ECB is the latest central banks which is now trapped.

via Zero Hedge http://ift.tt/1Pr4mJQ Tyler Durden

• Yellen’s dilemma: A downturn with no easy response (Reuters)
• Clinton, Sanders clash over Obama as they vie for minority votes (Reuters)
• Risk Grows of Markets Sparking Recession (WSJ)
• Global Stock Rout Eases Amid Oil Advance as German Bonds Decline (BBG)
• U.S. Benchmark Yield Will Be at Record Low in March at This Rate (BBG)
• Oil Prices Rally on Hopes of Production Cuts (WSJ)
• More Cuts Loom as Oil Nears $25 (WSJ)
• Euro-Area Maintains Momentum as Turmoil Threatens Outlook (BBG)
• Major powers agree to plan for ‘cessation of hostilities’ in Syria (Reuters)
• Dimon Just Spent a Year’s Pay on JPMorgan Stock After Bank Rout (BBG)
• Market Meltdown Threatens Japan’s Economic-Revival Plan (WSJ)
• Five-Decade Market Pro Who Called Bond Rally Sees 1% U.S. Yields (BBG)
• Facebook Steps Up Efforts Against Terrorism (WSJ)
• Oregon occupiers warn authorities of booby traps at refuge (Reuters)
• South Africa’s Zuma Faces Gravest Challenge Yet (WSJ)
• Have Millennials Made Quitting More Common? (BBG)
• Elon Musk’s vision is not for the faint of heart (Reuters)

 

 

Overnight Media Digest

WSJ

– World powers agreed early Friday to reach a cease-fire in Syria in one week, allowing aid in but giving Russia and the Assad regime time to press an offensive that has expanded the Kremlin’s clout in the region.(http://on.wsj.com/1SjRj0o)

– In a Democratic presidential debate on Thursday, Hillary Clinton pressed Bernie Sanders on the viability of his proposals for free health care and college tuition, and the latter didn’t hesitate to stand by his proposal to impose new taxes on the wealthy and Wall Street to provide those new services. (http://on.wsj.com/1QvnHY0)

– As crude prices slide toward $25 a barrel, many oil companies have little choice but to start making the steep cost cuts they have avoided up until now, jettisoning every well that can’t break even or isn’t needed to keep the lights on.(http://on.wsj.com/1TbKgpF)

– South Africa’s unraveling economy and a string of corruption scandals are coalescing into the gravest challenge for President Jacob Zuma in seven years in office.(http://on.wsj.com/1TV9ol9)

– As government pressure mounts, Facebook is speeding its process to remove and investigate terrorist content. It has assembled a team focused on terrorist content and is helping promote posts that aim to discredit militant groups like Islamic State. (http://on.wsj.com/1TVJNse)

 

FT

* Ministers have not yet claimed millions of pounds in EU compensation for UK’s devastating December floods, which was followed by many other storms. Time is running out and there is confusion over which department should submit the request.

* Water companies are persuading the government to exempt them from stricter tax rules on interest costs which is likely to be announced in next month’s Budget. The utilities, mostly debt-laden, say that proposed changes threaten to push up customers’ bills.

* UK is being pressurised to clarify how and when the police and spies are given access to private communications. As militant threats from ISIS intensifies, it is only important that any new law grants the UK authorities the powers they need to keep the country safe.

* Ministers have less than two months to bring out a new system for financing cancer drugs in the NHS as a 340 million pound-a-year fund set up by David Cameron to plug gaps in treatment, is set to expire.

 

NYT

– The Swedish central bank’s decision on Thursday to lower its short-term rate to minus 0.50 percent from minus 0.35 percent, has heightened fears that brazen actions by central bankers are now making things worse, not better.(http://nyti.ms/1QvcKG2)

– Though the investors are fearing a global downturn and betting for no hike before 2017, the Fed expects the domestic economy to keep chugging along and says it’s thinking about raising its benchmark interest rate again as soon as March.(http://nyti.ms/1o4Sbcw)

– Billionaire investors Carl Icahn and John Paulson, who have been agitating for the breakup of American International Group, have reached an agreement to join the insurer’s board. (http://nyti.ms/20YKXFh)

– Internet radio service Pandora Media has held discussions about selling the company, and is working with Morgan Stanley to meet with potential buyers, according to people briefed on the talks. (http://nyti.ms/1SLayR3)

 

Canada

THE GLOBE AND MAIL

** The Ontario government will unveil a strategy in June to combat human trafficking, and while it will not focus solely on indigenous women, the province acknowledges that the exploitation “overwhelmingly” affects indigenous women. (http://bit.ly/1V8iY2z)

** Voters in an Ontario by-election have meted out a harsh blow to Premier Kathleen Wynne’s Liberals, handing a 24-point victory to the Progressive Conservatives in Whitby-Oshawa. (http://bit.ly/1owJiZL)

** Big Plastic is laying down the legal gauntlet against a Montreal suburb that is looking at banning plastic bags later this year. The Canadian Plastic Bag Association served the City of Brossard with a legal letter on Thursday demanding it back off on its proposed shopping-bag bylaw. Officials in the town are expected to pass a bylaw next Tuesday that would see a ban come into effect by September. (http://bit.ly/1V8n2je)

NATIONAL POST

** The multi-billion dollar sole source deal to build a new fleet of warships for the Royal Canadian Navy is being reviewed by a newly-formed Cabinet committee set up to take a closer look at controversial defence procurement contracts. (http://bit.ly/1Rvz9I9)

** Canada could be among a handful of countries to adopt negative interest rates in the next two years as the European policy experiment gains popularity, says a new report from Citigroup. (http://bit.ly/1QvUqN2)

** TransCanada Corp said Thursday more layoffs are expected as the energy sector grapples with plunging oil prices, after confirming it let go 10 percent of workforce in the fourth quarter. (http://bit.ly/1ovNDME)

 

Britain

The Times

Shire Plc has called time on its $50 billion acquisition spree as it attempts to digest its biggest deal yet. The FTSE 100 pharmaceuticals group expects its $32 billion acquisition of Baxalta Inc to close this year and said it would concentrate on integrating the American business before embarking on any other deals. (http://thetim.es/1PGqCgI)

Sweden added to the turmoil in financial markets yesterday by cutting its main interest rate deeper into negative territory in an effort to boost the economy and stave off the threat of deflation. (http://thetim.es/1PGqH46)

The Guardian

The Dublin-based banana company Fyffes Plc has been accused by the GMB trade union of having “no respect” for workers’ rights, amid allegations that staff on Central American fruit plantations are being serially mistreated. (http://bit.ly/1PGqUnK)

Justin King, the former boss of J Sainsbury Plc, has waded into the row over the tax paid by multinationals such as Amazon and eBay, saying it was unfair that traditional retailers must pay huge rates bills for services such as roads and waste collection, while their online rivals paid little but received the same benefits. (http://bit.ly/1PGramO)

The Telegraph

Staff at Guardian Media Group are bracing for further job cuts as the company looks to slash costs by 20 percent in the face of widening losses. (http://bit.ly/1PGrgef)

SuperGroup Plc founder Julian Dunkerton is selling a 4.9 percent stake worth 53 million pounds ($76.69 million) in his first share sale since the fashion retailer listed on the stock market six years ago. It is understood that Dunkerton is selling 4 million shares to fund a recent divorce settlement. (http://bit.ly/1PGrli3)

Sky News

PricewaterhouseCoopers has become one of the UK’s biggest private sector employers so far to engage staff on the merits of Britain’s membership in the European Union. Sky News understands that the ‘big four’ accountancy firm last week held an event for more than 100 UK partners to discuss the implications of Brexit. (http://bit.ly/1PGrqlY)

The Independent

Matt Brittin, president of Google’s European, Middle Eastern and African arm, told the Public Accounts Committee that he was not sure what his basic salary was. The Public Accounts Committee is currently conducting an inquiry into a tax settlement announced between Google and HMRC. (http://ind.pn/1PGrsdy)

J Sainsbury Plc has said it will be the first UK retailer to call time on multi-buy and buy-one-get-one-free promotions. The supermarket operator said that by August, customers will no longer see the deals across brand products and its own-brand soft drinks, confectionary, biscuits and crisps. (http://ind.pn/1PGrxxG)

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It was just over a year ago that Greece elected Alexis Tsipras and Syriza amid a flurry of anti-austerity sentiment.

Things didn’t exactly go as planned.

The new PM and his “radical” finance minister Yanis Varoufakis thought they could shake things up in Brussels and wrench Greece from the clutches of Berlin-style fiscal rectitude. As it turns out, Wolfgang Schaeuble is not a man who is easily bested at the bargaining table and after more than six months of negotiations, the imposition of capital controls, a referendum on the euro that Tsipras promptly sold down the river, Greeks ended up facing an outright depression.

In the end, Varoufakis unceremoniously resigned and Tsipras agreed to a third bailout before calling for snap elections that would ultimately see the PM re-elected albeit at the helm of a party that was completely gutted by the arduous bailout talks.

As we and quite a few others warned, the new bailout and the attached terms would do exactly nothing to turn the Greek economy around. We’re all for being responsible with the budget but you can’t very well implement fiscal retrenchment during a depression unless you intend to remain in said depression in perpetuity, but alas, that’s exactly what Brussels forced Greece to do and on Friday we learn that the country has slipped back into recession.

GDP contracted 0.6% in Q4 after shrinking 1.4% in Q3. “With opposition mounting to the government’s pension reform plan, the European Union pressuring it to stem the tide of refugees entering the country and the global market rout hastening the sell-off in Greek assets, dark clouds are gathering again,” Bloomberg writes. Ironically, capital controls appear to have helped the economy perform better than expected: “The economy fared less badly than those initial expectations in part due to a 90 percent annualized increase in cashless payments since the introduction of capital controls in June, shifting activity out of the shadow economy.” Another justification for banning cash we suppose.

Earlier this month we noted that Greek bank stocks were cut in half in just a matter of 72 hours while Greek equities as a whole had fallen to their lowest levels since 1989. Yields on the Greek 10Y had spiked back above 10%.

Greece, sources told MNI, “seems unable to deliver” on a number of measures Brussels says Athens needs to implement an effective fiscal consolidation plan. “We agreed to disagree,” one official said. “Judging from (last week’s) talks, the negotiations could drag for months. Anyway, I don’t see any real funding needs for Greece until June,” the official went on to note.

Maybe not, but things are getting dicey again. Tsipras faced the largest public revolt he’s seen since his re-election earlier this month when a massive general strike that cancelled flights, ferries and public transport, shut down schools, courts and pharmacies, and left public hospitals with emergency staff. Even the undertakers were striking.

Tens of thousands took to the streets to protest pension reforms and in relatively short order, it was 2015 all over again. 

And it didn’t stop there. “Greek riot police fired tear gas at farmers protesting against pension reform plans on Friday who hurled stones at the agriculture ministry in central Athens ahead of a major demonstration outside parliament scheduled for later in the day,” Reuters reported on Friday. “Under the planned reform of the pension system demanded by Greece’s international lenders, farmers face a tripling of their social security contributions and higher income tax.” Here are some images from the scene: 

So no, Greece is not “fixed.” And even as the farmers swear “they won’t make us bend,” something will have to give because as Poul Thomsen, head of the International Monetary Fund’s European Department wrote in a blog post on Thursday, “Grexit fears to resurface once again [if all sides adopt] a plan built on over-optimistic assumptions.”

In other words: the reforms are a must if Greece wants to remain in the euro and those reforms entail tough times ahead for the farmers and for everyone else living in the socialist paradise. 

Throw in a couple of hundred thousand refugees that are lliterally arriving in boats and you’ve got a particularly precarious situation that will likely devolve into the type of chaos shown above on an increasingly frequent basis.

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There was some hope in early Japanese trading that after a seemingly endless rout in the USDJPY, which has seen the Yen surge the most in the past two weeks since the 1998 Asian crisis, the BOJ would intervene, if not via policy where it has botched things up beyond repair then directly by selling Yen on the tape: the reason for this is not only yesterday’s direct intervention that sent the USDJPY soaring by over 150 pips briefly, but also after a report that Finance Ministry’s FX chief Masatsugu Asakawa met deputy chief cabinet secretary to discuss market issues; this was followed by a meeting between Kuroda and Abe the news of which promptly allowed the USDJPY to rise to 113.

However, it was not meant to be, and when there was no major intervention during the BOJ’s preferred hours of 9-11, the USDJPY proceeded to tumble all the way down to 111.60, from where it has rebounded modestly and is now trading around 112.45.

As a result, the Nikkei 225 plunged another 4.8%, and following prior day losses of 2.3% and 5.4%, Japan’s stock market is now down a whopping 20% just this past week! Perhaps putting all those pensions in stocks was not such a great idea.

Elsewhere, with China still closed, the Hang Seng Index fell 1.2% to 18,319.58, its lowest close since June 2012; it has fallen 5% this week.

However, while Japan crashed and burned, the feeling of some fleeting optimism returned after oil halted its plunge after hitting a 13 year low yesterday following an out of context statement from the U.A.E. minister, who said that “everyone is ready to cooperate,” U.A.E. Oil Minister Suhail Al Mazrouei told Sky News Arabia in Arabic-language interview that was originally posted to website Feb. 10. He added that “Prices are not appropriate, I won’t say for the majority only, but for all producers” which is a far cry from the imminent OPEC supply cut he was spun as saying. Still, for now the algos are happy and his comment helped push oil about 5% higher. It won’t last.

Oil also helped Europe, where the Stoxx Europe 600 Index rallied from its lowest close since September 2013 following a Commerzbank AG (+17%) report that led financial institutions higher after saying it returned to profit, while miners and energy producers rose with commodities.

Still, few are optimistic, especially after Marko Kolanovic latest note which sees not only near-term risks, but a potential recession that could be worse than the 2008-2009 crisis.

Here is an example of the hyperbolic pessimism out there: “I’d be weary of calling anything a lasting rebound until I see it,” said Ben Kumar, an investment manager at Seven Investment Management told Bloomberg. “It’s crazy that the market is priced for recession and a complete failure of the financial system. But you wouldn’t want to call it the end of the rout quite yet. Nobody wants to be the first bull now.” Uhm, the S&P is about 15% below its all time high: you will know when the market is priced for a “complete failure of the financial system” – this is not it.

The yield on 10-year Treasuries rose after reaching the lowest since 2012 on Thursday. In Asian trading, Japanese stocks capped their worst week since 2008 and currencies from New Zealand to Thailand slumped.

Industrial metals also advanced. Nickel climbed 1.1 percent to $7,675 a metric ton, rebounding from a 13-year low. Copper rose 1 percent and aluminum added 0.6 percent.

Gold was modestly down from its highest levels in over a year, trading at $1242, and is headed for its biggest weekly gain in four years as investors sought out havens. Silver dropped 0.7 percent.

Market Wrap

• S&P 500 futures up 1.2% to 1846
• Stoxx 600 up 1.8% to 309
• FTSE 100 up 1.5% to 5622
• DAX up 1.4% to 8872
• German 10Yr yield up 3bps to 0.21%
• Italian 10Yr yield down 2bps to 1.69%
• Spanish 10Yr yieldunchanged at 1.78%
• MSCI Asia Pacific down 2.9% to 113
• Nikkei 225 down 4.8% to 14953
• Hang Seng down 1.2% to 18320
• Shanghai Composite closed
• S&P/ASX 200 down 1.2% to 4765
• US 10-yr yield up 2bps to 1.68%
• Dollar Index up 0.17% to 95.72
• WTI Crude futures up 4.5% to $27.40
• Brent Futures up 4.9% to $31.53
• Gold spot unch at $1,242
• Silver spot down 0.7% to $15.65

Global Top News

• Syria Truce Set for Next Week as U.S., Russia Back Peace Bid: Munich summit of 17 nations produces accord on cease- fire
• Cameron and Merkel Head to Hamburg as EU Deal Nears Completion: PM in final push for new U.K. membership terms
• Euro Area Stalls Deal to Shield London Banks From EU Rules: Diplomats only make progress on technical and legal points
• Commerzbank Said to Have Shortlist for Successor to CEO Blessing: cites note to staff obtained by Bloomberg
• DBS, OCBC Said to Submit Bids for Barclays’s Asia Wealth Unit: The two Singapore-based cos submitted non-binding bids for the business, according to people familiar
• Deutsche Bank Ranks Last on Capital Gauge Where Citigroup Excels: U.S. banks outrank Europe’s as regulators demand more capital
• Templeton’s $5.9b Bet on Brazil Bonds Paying Off in 2016: Fund >doubled holdings of Brazil debt last quarter, while country’s local-currency bonds have returned 4.7% this year
• Pandora Said to Explore Sale of Company as Losses Mount: Online radio provider’s talks are said to be preliminary
• Goldman Sachs Bankers Said to Depart on Guidelines Breach: Two bankers in Dubai, one in London said to leave in December

Going quickly through regional markets, we start in Asia where the equity market rout continued with fuel was added to the fire with concerns rising over the health of the financial sector following yesterday’s poor earnings from SocGen. Subsequently, Nikkei 225 (-4.8%) yet again experienced another bout of heavy selling pressure amid the rampant JPY, as such, the index has now fallen over 20% YTD. ASX 200 (-0.8%) and the Hang Seng (-0.9%) were dragged lower with losses in financial names, however the latter pulled off worst levels with energy names providing some leeway following the uptick in crude prices. JGB’s fell following spill-over selling in USTs while notable underperformance had been observed in the belly of the curve.

Top Asian News

• BOJ Seen as Toothless for Yen Bulls Boosting Currency Forecasts: Barclays sees yen climbing to 95/USD by yr end
• Cash Crunch in India Flips Company Bond Curve as Debt Costs Rise: India’s cash squeeze flipped corporate bond yield curve, making borrowers pay more for s-t debt than they have for almost a yr
• Asia’s Rich Urged to Buy Yen as BOJ Negative Rates Backfire: CS is advising private-banking clients to buy yen vs euro or S. Korean won
• China Turns a Glut of Oil Into a Flood of Diesel Swamping Asia: China’s total net exports of oil products will rise 31% this yr to 25m metric tons
• Rio Tinto Sees Mining Distress Spreading to Majors: Rio has M&A target list for mines not yet for sale, CEO says

European equities take a breather following a hectic week of huge intraday day moves as the banking sector once again comes into focus. One bank under the spotlight is Commerzbank (+16.7%), recover their intraweek losses in today’s trade, following a positively received earnings report. In turn financials outperform in Europe, improving the risk sentiment, with equities higher across the board. Energy is also among the best performing sectors with WTI Mar’16 futures up around a dollar in the session, holding onto the USD 27.00 handle.
In line with the long awaited return of risk on sentiment, fixed income products take a hit, with Bunds trading lower by some 50 ticks but still retaining the 165.0 level. Elsewhere peripheral spreads widen, with PE/GE spread wider by 0.8bps, amid concerns over the country’s budget plans

Top European News

• PAI Partners Said to Weigh Bid for Dental Clinic Chain Vitaldent: Co. could be valued at about EU500m
• Commerzbank Jumps After Fourth-Quarter Profit Beats Estimates: Bank expects ‘slight’ increase in profit this year from 2015
• Whisky Makers Want a Single Market for Single Malt, Not ‘Brexit’: Diageo, Pernod Ricard among cos supporting free market
• SocGen CIB Earnings Constrained, Cut to Neutral at Mediobanca: SocGen delivering on capital, missing on earnings, Mediobanca says
• Thyssenkrupp Posts Net Loss on Record Chinese Steel Imports: Co. says it needs materials recovery to meet profit target

In FX, the euro declined the most in a week against the dollar, falling 0.3 percent to $1.1287. Europe’s currency slid for a third day against the yen, dropping 0.1 percent to 127.12. The yen was little changed at 112.45, set for its biggest two-week gain versus the dollar since 1998, sparking speculation that authorities will intervene to weaken it. New Zealand’s dollar lost 0.7 percent. The Thai baht slid 0.9 percent, the most since October and the South Korean won fell 0.7 percent. An index of 20 developing-nation currencies declined less than 0.1 percent Friday, taking its drop this week to 0.6 percent, the most since Jan. 15. The gauge is down 1.4 percent this year and reached a record low in January.

In commodities, Brent and WTI have managed to hold on to their modest recovery after major declines this week, following comments from the UAE oil minister saying ‘everyone is ready to cooperate’ yesterdays, and analysts pondering the thought of producers dropping production rates to bolster markets. Gold is still holding up well on the risk on sentiment we have seen in recent days which saw its largest one day rise in seven years, with the next support coming in at 1232.59/oz. Industrials are mostly trading higher with the emptions of tin that has seen a fall of 0.90%. In the European session there has been a lack of fundamental news for commodities.

Looking at the day ahead, there’s a busier calendar for data for us to
sift through today. The key release of note in Europe will be the Q4 GDP
report for the Euro area where the print came in at 0.3%, just as expected. In the US the main focus will be on the
January retail sales report. Current market expectations are for a +0.1%
mom headline and +0.3% ex auto and gas print. Remember to keep an eye
on the retail control component given it’s a direct input into GDP. Away
from this in the US we’ll also see the January import price index
reading, December business inventories and the first estimate of the
University of Michigan consumer sentiment survey for February. In terms
of Central Bank speakers the Fed’s Dudley is due to speak at 10:00am GMT.

Bulletin Headline Summary from RanSquawk and Bloomberg

• Equities are taking a breather today after a tough week with Commerzbank leading the way higher 15%
• GBP steaming ahead, with Cable looking to trade above the weekly highs with the next resistance around 1.4665-70
• Looking ahead, US Import Prices and Retail Sales and comments from Fed’s Dudley
• Long-end Treasuries underperform overnight as European equities and bank stocks rally; retail sales and U. of Mich. sentiment today.
• Deutsche Bank’s riskiest debt was downgraded by Standard & Poor’s due to concerns that potential losses at Germany’s biggest lender could restrict its ability to pay on the obligations
• Deutsche Bank’s co-CEO John Cryan called the company’s balance sheet “rock solid” this week after the firm’s shares and bonds tumbled but its leverage ratio still lags behind every one of its main competitors
• Commerzbank jumped the most in more than two years after fourth-quarter profit beat analyst estimates, as the lender said it plans to wind down its unit for soured loans at a faster pace than forecast
• Commerzbank CEO said “no specific problem” with balance sheet, in Bloomberg TV interview
• Jamie Dimon, JPMorgan chairman and CEO, spent $26.6 million to buy shares of his bank Thursday after they tumbled to the lowest price in more than two years, bringing his total holdings to 6.75 million shares, according to a regulatory filing
• U.K. investors are harking back to 2013 and increasing bets the Bank of England will need to do more to stimulate the economy. The last time traders were this certain the central bank would cut its benchmark rate was almost three years ago
• Fresh doubts over the strength of the British economy emerged Friday as the building industry shrank more than previously estimated in the fourth quarter. Construction output fell 0.4% instead of the 0.1% decline estimated in GDP data last month
• Italy’s GDP rose 0.1% in the 4Q, its slowest pace in a year, prompting concerns that the recovery from the country’s longest recession since World War II might falter in coming months
• Germany’s GDP rose a seasonally-adjusted 0.3% in 4Q, matching the rate of the previous quarter, showing resilience amid an emerging-market slowdown that’s heightened concerns about global growth and sent equities plunging this year
• Greece entered a recession in the fourth quarter, ending a turbulent year with its economy back in the doldrums. GDP contracted 0.6% in 4Q after shrinking a revised 1.4% in the 3Q
• A top U.S. lawmaker questioned the Federal Reserve’s authority to cut interest rates below zero after Janet Yellen disclosed that the central bank was re-examining the tool as a policy option if the economy faltered
• Sovereign 10Y bond yields mixed; European stocks rise, Asian markets drop; U.S. equity-index futures rise. Crude oil and copper rally, gold falls

Key US Events

• 8:30am: Import Price Index m/m, Jan., est. -1.5% (prior -1.2%); Import Price Index y/y, Jan., est. -6.8% (prior -8.2%)
• 8:30am: Retail Sales Advance, Jan., est. 0.1% (prior -0.1%)
  • Retail Sales Ex Auto, Jan., est. 0.0% (prior -0.1%)
  • Retail Sales Ex Auto and Gas, Jan., est. 0.3% (prior 0.0%)
  • Retail Sales Control Group, Jan., est. 0.3% (prior -0.3%)
• 10:00am: Business Inventories, Dec., est. 0.1% (prior -0.2%)
• 10:00am: U. of Mich. Sentiment, Feb. P, est. 92.3 (prior 92)
  • Current Conditions, Feb. P (prior 106.4)
  • Expectations, Feb. P (prior 82.7)
  • 1 Yr Inflation, Feb. P (prior 2.5%)
  • 5-10 Yr Inflation, Feb P (prior 2.70%)
• 10:00am: Fed’s Dudley at press briefing in New York

DB’s Jim Reid completes the overnight wrap

It’s hard to know where to start with yesterday’s price action with markets gapping and buckling everywhere following the latest bout of huge risk aversion. The Asia session had thrown open a few warning signs as safe haven flows rolled in for Gold and the Yen. Once the European session kicked into gear however it was all about moves in Banks once again after two days of relative calm. The iTraxx Senior and Sub financials indices closed 12bps and 31bps wider at 140bps and 333bps respectively. The move for the latter in particular meaning it’s now at the widest level since October 2012. That helped Main and Xover widen 9bps and 29bps on the day. European equity markets were heavily hit too with the Stoxx 600 collapsing -3.68%, the 8th time it has closed lower in the last 9 sessions with yesterday’s move the worst single day loss since August. The banking sector fell 6% – not helped by some much weaker than expected results from Societe Generale. Peripheral bourses were again the underperformers with the IBEX and FTSE MIB -4.88% and -5.63% respectively.

Sentiment wasn’t much better in the first half of the US session with the S&P 500 falling as low as -2.30% and testing the January 20th intraday lows of 1810. Focus was also on the tumbling Oil price which was helping to exacerbate the selloff as WTI at one stage traded as low as $26.05/bbl (down over 5% on the day) and the lowest since May 2003. That said, energy prices then turned on a dime which helped the S&P 500 retrace slightly into the close, finishing the day at -1.23%. WTI is actually up nearly 6% this morning with the rebound being attributed to a headline out of the WSJ quoting the UAE energy minister as saying that OPEC stands ready to co-operate on production cuts. This isn’t the first time we’ve seen such a headline in recent weeks so it remains to be seen how credible this really is.

It was the move in Gold which was perhaps the most eye catching of all yesterday. Gold closed up a massive +4.14% yesterday (although had been up as much as 5%), smashing through the $1,200 mark to eventually close at $1,247. That move was in fact the largest single daily gain since January 2009 with the metal now up close to 17% YTD already. Given the magnitude of the risk off moves yesterday, all things considered the closing moves for Treasuries were a little more muted with the 10y yield eventually finishing 1bp lower at 1.659% (although in fairness it did trade as low as 1.529%) and 2y yields nearly 4bps lower at 0.650%. Moves in European rates were a bit more aggressive however with 10y Bunds down over 5bps to 0.185% and slowly but surely creeping in on those astonishing lows made last April.

There’s been little relief for risk assets in Asia this morning. Once again the focus has been on the sizeable declines for Japanese bourses after yesterday’s holiday with the Nikkei and Topix currently down over 4.5%. The Nikkei has in fact plummeted over 10% this week. This morning’s move comes despite the Yen being a touch weaker. In Australia the ASX is -1.2% while elsewhere the Hang Seng (-0.8%) and Kospi (-1.4%) are also lower. The South Korean small cap index was however temporarily halted after tumbling 8%. Credit markets are faring little better with iTraxx Aus and Asia indices 3bps and 2bps wider respectively. US equity market futures are however pointing towards a positive start, most probably reflecting a better morning for Oil.

NIRP is a big talking point currently and yesterday we got another flavor of how far central banks are prepared to push the boundaries after the Riksbank cut its benchmark repo rate by more than expected (15bps vs. 10bps expected) to -0.50%. It was telling also that the Bank acknowledged that policy could be made ‘even more expansionary if this is needed to safeguard the inflation target’.

Fed Chair Yellen also made an interesting acknowledgment of the potential for similar policy in her comments yesterday in the Q&A following her remarks to the Senate. While Yellen stuck to her guns in saying that she doesn’t expect the Fed to be in a position anytime soon where it is necessary to cut, she did highlight that ‘we had previously considered them and decided that they would not work well to foster accommodation back in 2010’ but that ‘in light of the experience of European countries and others that have gone to negative rates, we’re taking a look at them again because we would want to be prepared in the event that we needed to add accommodation’.

Wrapping up yesterday, the only data of note out was the latest weekly initial jobless claims print in the US which declined 16k last week to 269k (vs. 280k expected). That was in fact a low for the year and helped to nudge down the four-week average to 281k from 285k.

Looking at the day ahead, there’s a busier calendar for data for us to sift through today. The key release of note in Europe will be the Q4 GDP report for the Euro area where current market expectations are running for a +0.3% qoq print. We’ll also see Q4 GDP reports for Germany and Italy while in France we’ll see the latest quarterly employment indicators. Euro area industrial production for December is also expected. Over in the US this afternoon the main focus will be on the January retail sales report. Current market expectations are for a +0.1% mom headline and +0.3% ex auto and gas print. Remember to keep an eye on the retail control component given it’s a direct input into GDP. Away from this in the US we’ll also see the January import price index reading, December business inventories and the first estimate of the University of Michigan consumer sentiment survey for February. In terms of Central Bank speakers the Fed’s Dudley is due to speak at 3pm GMT.

via Zero Hedge http://ift.tt/1o5ZD75 Tyler Durden

By Monique Muise, as published on Global News

Canada sells nearly half of all its gold reserves

The government of Canada sold off nearly half its gold reserves in recent weeks, continuing a pattern of moving away from the precious metal as a government asset.

According to the International Monetary Fund’s International Financial Statistics, Canada held three tonnes of gold reserves as of late 2015.

 

The latest data, published last week, show the total Canadian gold reserves now stand at 1.7 tonnes. That’s just 0.1 per cent of the country’s total reserves, which also include foreign currency deposits and bonds. In comparison, the U.S. holds 8,133 tonnes of gold, while the United Kingdom weighs in at 310 tonnes.

The decision to sell came from Finance Minister Bill Morneau’s office.

“Canada’s gold reserves belong to the Government of Canada, and are held under the name of the Minister of Finance,” explained a spokesperson for the Bank of Canada on Wednesday. “Decisions relative to gold holdings are taken by the Minister of Finance.”

Reached by Global News on Wednesday evening, a spokesperson for the finance department said the sale “was done in the normal course of business for the government. The decision to sell the gold was not tied to a specific gold price, and sales are being conducted over a long period and in a controlled manner.”

This latest sell-off is indeed part of a much longer-term pattern of moving away from gold as a government-held asset. According to economist Ian Lee of the Sprott School of Business at Carleton University, Ottawa has no real reason to keep its gold reserves other than adhering to tradition.

“Under the old system, (gold) backed up currencies,” Lee explained. “The U.S. dollar was tied to gold. One ounce was worth US$35. Then in 1971, for lots of reasons I won’t get into, Richard Nixon took the United States off the gold standard.”

Gold and dollars were interchangeable until that point, he said, but in the modern financial world, the metal is no longer considered a form of currency.

“It is a precious metal, like silver … they can be sold like any asset.”

The amount of gold the Canadian government holds has therefore been falling steadily since the mid-1960s, when over 1,000 tonnes were kept tucked away. Half of those reserves were sold by 1985, and then almost all the rest were sold through the 1990s up to 2002.

By last year, Canada’s reserves were down to just three tonnes, and the latest sales have now halved that. At the current market rate, the value of 1.7 tonnes of gold comes in at just under CAD$100 million, barely a drop in the bucket when you consider the broader scope of federal finances.

According to Lee, there may soon come a time when Canada’s gold reserves are entirely a thing of the past. There are better assets to focus on, he argued, calling the government’s decision to dump gold “wise and astute.”

“It gives them more strategic flexibility to sell the gold, take the money and invest in U.S. government bonds, or United Kingdom bonds or French bonds or German bonds,” Lee said.

“Central banks can hold the government bonds of other countries, and they also hold actual dollars. The Chinese Central Bank actually holds hundreds of billions of U.S. dollars. Dollars are very liquid, so are government bonds, especially of a Western country.”

via Zero Hedge http://ift.tt/1Qbl3wg Tyler Durden

…and credit is always right in the end!

1,100 is the target…

 

High Yield bond yields and Leveraged Loan prices are at their worst since 2009 as it seems the hosepipe of QE3 liquidity (its the flow not the stock, stupid) is slowly unwound from a buybacks-are-over equity market.

via Zero Hedge http://ift.tt/1Whda6W Tyler Durden

Submitted by Brandon Smith via Alt-Market.com,

Many of us saw it coming a long time ago — increasing confrontation between liberty proponents and the corrupt federal establishment leading to increasing calls by political elites and bureaucrats to apply to American citizens the terrorism countermeasures designed for foreign combatants. It was only a matter of time and timing.

My stance has always been that the elites would wait until there was ample social and political distraction; a fog of fear allowing them to move more aggressively against anti-globalists. We are not quite there yet, but the ground is clearly being prepared.

Economic uncertainty looms large over our fiscal structure today, more so even than in 2008. Global instability is rampant, with Europe at the forefront as mass migrations of “refugees” invade wholesale. At best, most of them intend to leach off of the EU’s already failing socialist welfare structure while refusing to integrate or respect western social principles. At worst, a percentage of these migrants are members of ISIS with the goals of infiltration, disruption and coordinated destruction.

With similar immigration and transplantation measures being applied to the U.S. on a smaller scale (for now) the ISIS plague will inevitably hit our shores in a manner that will undoubtedly strike panic in the masses. I believe 2016 will be dubbed the “year of the terrorist,” and ISIS will not be the only “terrorists” in the spotlight.

While scanning the pages of mainstream propaganda machines like Reuters, I came across this little gem of an article, which outlines plans by the U.S. Justice Department to apply existing enemy combatant laws used against ISIS terrorists and their supporters to “domestic extremists,” specifically mentioning the Bundy takeover of the federal refuge in Burns, Oregon as an example.

“Extremist groups motivated by a range of U.S.-born philosophies present a “clear and present danger,” John Carlin, the Justice Department’s chief of national security, told Reuters in an interview. “Based on recent reports and the cases we are seeing, it seems like we’re in a heightened environment.”

“Clear and present danger” is a vital phrase implemented in this statement from Carlin and he used it quite deliberately. It refers to something called the “clear and present danger doctrine or test,” a doctrine rarely used except during times of mass panic, such as during WWI and WWII. The doctrine applies specifically to the removal of 1st Amendment rights of free speech during moments of “distress.”

What does this mean, exactly? “Clear and present danger” is a legal mechanism by which the government claims the right not only to prosecute or destroy enemies of the state, but also anyone who publicly supports those same enemies through speech or writing.

Recently, the prospect of allowing the Federal Communications Commission to target and shut down websites related to ISIS has been fielded by congressional representatives. Many people have warned against this as setting a dangerous precedent by which the government could be given free license to censor and silence ANY websites they deem “harmful” to the public good, even those not tied to ISIS in any way.

Of course, overt hatred of Islamic extremism amongst conservatives is at Defcon 1 right now, and with good reason. Unfortunately, this may lead constitutional conservatives, the most stalwart proponents of free speech, to mistakenly set the stage for the erasure of free speech rights all in the name of stopping ISIS activity. The greatest proponents of constitutional liberties could very well become the greatest enemies of constitutional liberties if they fall for the ploy set up by the establishment.

The Reuters article outlines the future implications quite plainly:

The U.S. State Department designates international terrorist organizations to which it is illegal to provide “material support.” No domestic groups have that designation, helping to create a disparity in charges faced by international extremist suspects compared to domestic ones.

It has been applied in 58 of the government’s 79 Islamic State cases since 2014 against defendants who engaged in a wide range of activity, from traveling to Syria to fight alongside Islamic State to raising money for a friend who wished to do so.

Prosecutors can bring “material support” terrorism charges against defendants who aren’t linked to groups on the State Department’s list, but they have only done so twice against non-jihadist suspects since the law was enacted in 1994. The law, which prohibits supporting people who have been deemed to be terrorists by their actions, carries a maximum sentence of 15 years in prison.”

The Justice Department goes on to explain that they are “exploring” options to make “material support” charges more applicable to “domestic extremists.”

So what constitutes “material support?” Well, as mentioned earlier, John Carlin just told us. His use of the phrase “clear and present danger” denotes that 1^st Amendment speech will be restricted, ostensibly because some speech will be labeled “material support” of terrorist organizations. The liberty movement, likely in the near future, is about to be outwardly defined by the establishment as a terrorist movement, and those who support it through speech will be designated as material supporters of said terrorism.

To be utterly clear, this could apply to any and everyone who promotes anti-government sentiments online, and will likely be aimed more prominently at liberty analysts and journalists. The argument for this move is rather humorous in my view — bureaucrats and others complain that it is “not fair” that Islamic terrorists are being treated more harshly than “white rural domestic extremists” and that material support laws should be enforced against everyone equally.

Yes, that’s right, the 1^st Amendment is under threat because the Justice Department does not want to appear “racist.” At least, that is their public excuse…

I'm not sure whether it is depressing or hilariously ironic that the U.S. government (along with many other governments) is preparing the groundwork for prosecution of liberty activists for material support of terrorism when it is the government that has been proven time and again to be by far the most generous material supporter of terrorist organizations.

Will this all take place in a vacuum? Of course not. Something terrible is brewing. Another Oklahoma City-stye bombing, perhaps. Or a standoff gone horribly awry. The standoff in Oregon continues without Ammon Bundy and is about to get worse in the next week according to my information (you will see what I mean). The point is, the narrative is being finalized in preparation for whatever trigger events may be in store, and that narrative closely associates ISIS with liberty activists as being in the same category.

“As law enforcement experts confront domestic militia groups, “sovereign citizens” who do not recognize government authority, and other anti-government extremists, they also face a heightened threat from Islamic extremists like the couple who carried out the Dec. 2 shootings in San Bernardino, California.”

This is why I have consistently argued against giving any extra-judicial powers to our already bloated federal system. I am a staunch opponent of Islamic immigration and terrorism, but some people are so desperate to fight one monster that they are willing to give unlimited powers to another monster thinking it will give their minds ease. These people are fools, and they are putting the rest of us at risk.

If you want to fight ISIS, then fight them yourself. Do not give the same government that helped create ISIS and then deliberately transplanted them to Europe and the U.S. even more legal authority over our lives to supposedly “stop” ISIS. This would be absurd.

In the meantime, I would point out that regardless of how the federal government wishes to label us, the liberty movement could not be more different from the Islamic State:

1) We don’t enjoy covert funding and training from the government at large as ISIS does. (Though according to leftists, we all take our marching orders from the Koch Brothers).

 

2) Most of us were born in this country and are rather attached to it.

 

3) ISIS fights to dismantle traditional Western values. We fight to restore traditional Western values, and we will not only fight ISIS but also cultural Marxists and collectivists who share the same disdain for liberty.

 

4) Many of us are far better trained than ISIS goons, so if anything, we are a more severe threat to the enemies of free society. (We actually look down our sights when we shoot rather than hiding behind cars with the rifle over our head and squatting like a constipated dog. We can also operate their AK-47s better than they can).

 

5) We are as opposed to Sharia Law as we are to martial law. In fact, we see them as essentially the same unacceptable circumstance.

 

6) We don’t cannibalize our enemies. (Who would want to take a bite out of Henry Kissinger’s spleen?)

 

7) We might look down on the insane ramblings of today’s feminists, but at least we would not stone them, enforce female circumcision, then rape them, then throw acid in their faces, then slap a hijab on them and take away their driver’s licenses. So maybe, just maybe, we toxic masculine conservative barbarians aren’t as bad as they seem to think we are.

 

8) We understand that black pajamas are not the best camouflage, but ISIS may have better fashion sense than we do.

 

9) Our beards are all-American. Their beards are just plain creepy.

 

10) They fight to be martyred. We fight to win.

When all is said and done, who is the greater threat to you and your freedoms? A psychotic theocrat that has taken his religion so far into the forbidden zone that any evil, no matter how heinous, is justified through the circular logic of zealotry? The criminal government that funded that psycho, trained him, slapped a rocket launcher in his hands and then gave him a free plane ride to your favorite shopping mall? Or, some weirdo that stores lots of food and gas masks in his basement and every once in a while talks to you about 9/11? Come on, think about it…

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