House Panel Refers IRS’ “Teaparty Nemesis” Lois Lerner For Criminal Prosecution

The woman at the center of the IRS-Tea-Party-Targeting debacle is back in the limelight once again as the House Ways and Means Committee voted 23-14 to formally ask the Justice Department to investigate the ex-IRS official. As Fox notes, this appears to be an escalation by the Republicans to confront Lerner over her role in the agency’s controversial practice of singling out conservative groups seeking tax-exempt status for extra scrutiny. On another front, a separate committee will vote Thursday on whether to hold her in contempt of Congress for twice refusing to testify on the scandal. Democrats called the move “unprecedented.” The question, of course, is just how more ‘da fifs’ can she plead.

As Fox reports, the rare session on Wednesday to consider a criminal referral produced some partisan fireworks, as Democrats called the move against Lerner “unprecedented.”

Rep. Sandy Levin, D-Mich., initially tried to keep the deliberations open to the public and press, triggering a dispute with the chairman as he tried to raise a “point of order.”

Chairman Dave Camp, R-Mich., then told Levin to “chill out.”

“I’m very chilled out,” he responded.

Despite Levin’s objections — and opposition from the rest of the Democrats on the committee — lawmakers broke into closed session to debate the measure. After returning, they quickly approved the criminal referral.

A day earlier, the House Oversight and Government Reform Committee formally laid out its case for contempt in a new report.

“Lois Lerner’s testimony is critical to the committee’s investigation,” the oversight report stated.

“Without her testimony, the full extent of the IRS’s targeting of Tea Party applications cannot be known, and the committee will be unable to fully complete its work.”

The report repeatedly called out for Lerner for refusing to cooperate with the committee’s investigation.

During her first appearance before the committee last year, Lerner gave an opening statement and then invoked her Fifth Amendment right against self-incrimination three times before being excused. Last month, she was before the lawmakers once more, once again exercising her Fifth Amendment rights.

Here is what we have heard from Lerner so far…

“I have not done anything wrong,” she said.

“I have not broken any laws. I have not violated any IRS rules or regulations, and I have not provided false information to this or any other committee.”

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Consumer Spending “Recovery” Stalls As Pent-Up Demand Fails To Appear

For the first time since the ‘recovery’ began, Gallup reports that consumer’s average daily spending flatlined year-over-year. As Gallup concludes, at a daily rate of $87, Americans’ average daily spending in March looks positive by comparison to spending over the past five years. But the stall in spending, both month-over-month and compared with a year ago, most likely signals a continuation of the lackluster retail sales seen so far in 2014. While government data suggested that retail sales rebounded in February (though still the weakest YoY since Nov 2009), the Gallup data appears to confirm the post-weather pent-up-demand has failed to arrive.

First YoY drop since the recession…

and the pent-up demand from a post-weather hibernation has not occurred…

Source: Gallup

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Fed To The Sharks, Part 2: Housing And The Death Of The Middle Class

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The Fed sacrificed the foundation of middle class wealth–stable housing values–to boost bank profits.

Lest you think the phrase "death of the middle class" is hyperbole, please examine these two charts, keeping in mind the middle class by definition must be in the middle of income/wealth distribution–conventionally, between 40% and 80%, i.e. the 40% between the bottom 40% and the top 20%.

See that little red wedge? That's the bottom 80%–the entire middle class and everyone below the middle class.

Here's another look at the wealth distribution: the middle class's share of wealth is modest, unless you define the top slice of households just below the top 1% as "middle class." But since the top 19% cannot be in the "middle," attempting to boost the wealth of the middle class by including the wealthy is truly Orwellian.

Why has the middle class eroded? We can start by looking at income. As noted yesterday in Fed to the Sharks, Part 1, household income for the bottom 90% has stagnated for 40 years.

The next chart shows how financialization boosted asset valuations in waves of boom and bust. Some of the first two waves of financialization leaked into wages, but the Fed's bubble-blowing since 2009 has failed miserably to increase incomes: disposable income fell off a cliff in 2009 and has continued falling, despite the Fed's blowing new bubbles in bonds, stocks and housing.

So what does the Fed have to do with the death of the middle class? As noted in What's the Primary Cause of Wealth Inequality? Financialization (March 24, 2014), the short answer is when investment returns exceed economic growth, the rich get richer, increasing inequality.

And when do investment returns exceed economic growth? When the Federal Reserve makes credit very cheap for financiers and speculators, which drives up asset prices as everyone with access to cheap credit bids up assets.

Low interest rates and free-flowing credit inflate bubbles. We can discern an implicit agenda in the Fed's policy of making credit cheap and abundant: since income for the bottom 90% is stagnating, the only way to boost consumption and debt is to inflate an asset owned by middle class households: housing.

Unfortunately, credit-driven speculative bubbles inevitably burst and housing valuations crashed.

The Fed responded to the housing crash with an unprecedented policy of buying over $1 trillion in home mortgages (mortgage-backed securities), roughly 10% of all existing mortgages in the U.S. In conjunction with the Fed's other policies (purchasing Treasury bonds and relaxing banking rules) and the opening of the loose-lending FHA spigots, housing recovered nicely–until the Fed slackened the pace of its purchases of bonds and mortgages. Housing immediately began trending down.

In response, the Fed restarted buying Treasuries and mortgages in enormous quantities. And sure enough, housing recovered.

But asset bubbles do not replace income or savings. The only way to benefit from bubbles in housing is to trade: buy in at the bottom and sell out at the top.

In essence, the Fed's bubble-blowing forced every homeowner into becoming a speculator.

There's another agenda at work of course: increasing debt and bank profits derived from debt. What better way to insure banking profits than to spark a speculative bubble in the core asset of the middle class–housing. Rising prices created temporary (and enticing) home equity that could be tapped with a loan (HELOCs–home equity line of credit), and the temptation to selling out and moving up the food chain to a bigger home and bigger mortgage was equally compelling.

Even better, banks and Wall Street had perfected the securitization of once-safe home mortgages. Banks had no need to take on the risk of holding mortgages–the big money was in originating the mortgages, packaging them into securities and selling the tranches to investors.

The much-ballyhooed "ownership society" turned out to be ownership of debt, not equity. Debt is profitable for banks; people owning homes free and clear is not.

In effect, the Fed sacrificed the foundation of middle class wealth–stable housing values–to boost bank profits. Take a look at what happened to financial profits in the 2002-2007 housing bubble: they skyrocketed to new heights. And look what happened when housing and the banks' securitization scams blew up: financial profits completely collapsed.

Middle class wealth was Fed to the sharks. As the current housing bubble deflates, the investor-buyers who fueled the rally are exiting en masse: what's the value of an asset when the bid vanishes, i.e. there's nobody left who's willing to pay today's prices?

The Fed has failed to restore middle class wealth with its latest housing bubble, and the costs of the bubble's collapse will fall not on the Fed but on those who believed the recovery was more than Fed manipulation.

via Zero Hedge http://ift.tt/1n3Uhn4 Tyler Durden

Ban Knives? High School Student Goes On Stabbing Rampage In Pennsylvania School

Another day another dismal headline of some killing spree and while the American people is becoming almost numb to these dreadful occurrences, this one was different. As Reuters reports, twenty people were injured, at least nine seriously, when a student at a Pittsburgh-area high school went on a stabbing rampage early on Wednesday. We are sure the administration is closely watching the events and considering what actions to take to ensure this does not happen again. The good news, for now, is that no one has died but indications are that these are very serious injuries.

As Reuters reports, seven students between the ages of 15 and 17 and one adult were admitted to Forbes Regional Hospital in Monroeville, Pennsylvania, with stab wounds.

“These are all very serious injuries,” hospital spokesman Jesse Miller said in a telephone interview.

The attacks took place in several classrooms and hallways as the school day began at Franklin Regional High School in Murrysville, 20 miles east of Pittsburgh, county emergency management officials said. The first 911 call was received at 7:13 a.m. EDT.

Three of the patients admitted were in surgery and all eight were in critical condition, hospital spokesman Miller said.

He said a ninth patient who had arrived at the hospital was airlifted to another facility.

The school district posted an emergency message on its website on Wednesday.

“A critical incident has occurred at the high school,” the message said. “All elementary schools are canceled, the middle school and high school students are secure.”

Zak Amsler, a 17-year-old junior at the school, said the attack occurred just before his first class was scheduled to begin.

“I saw a girl with blood running out of her sleeve,” Amsler said as he waited to pick up his younger sister, a student at the nearby middle school. “It was pretty mind-blowing.”

Stevens, the county official, noted that the scene had been contained. “The students that are here are safe,” he told reporters.

It’s not just the US though, as CBC reports, 4 people were stabbed in a Toronto office today:

One man is in custody after Toronto police say at least four people were stabbed at an office building in the northern part of the city today.

Police said the attack happened just after 9:30 a.m. ET on the fifth floor of an office complex at 4110 Yonge St., near York Mills Avenue.

Police received multiple 911 calls of an assailant attacking people with a sharp object.

A man and a woman in their 30s are among the people who were stabbed. The two suffered multiple, serious stab wounds, according to police, and are in critical condition in hospital.

Two other men whose ages are not known were transported with serious wounds to a trauma centre.

So what next? Spoons only at lunch? Knives issued only with RFIDs?

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Baltic Dry Collapses To Worst Start To A Year On Record

If you listen very carefully, you will still hear absolutely nothing from any talking-heads of the utter collapse that the last few weeks have witnessed in the Baltic Dry shipping index. The Baltic Dry has dropped 12 days in a row and plunged back to $1061 – its lowest since August 2013. This is the worst start to a year on record… must be the weather.

The Baltic Dry has dropped 12 days in a row and is now back to its lowest levels since August 2013… and almost post-crisis lows…

Which is the worst start to a year since records began 30 years ago…

The last time we saw a year start like this was 2012 which saw massive concerted co-ordinated central bank easing in Q3 to save us all… it seems that is not coming anytime soon this time…

Data: Bloomberg

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No One Will Ring The Bell At The Top

Submitted by Lance Roberts of STA Wealth Management,

The market has had a rough start of the year flipping between positive and negative year-to-date returns. However, despite all of the recent turmoil from an emerging markets scare, concerns over how soon the Fed will start to hike interest rates and signs of deterioration in the underlying technical foundations of the market, investors remain extremely optimistic about their investments. It is, of course, at these times that investors should start to become more cautious about the risk they undertake. Unfortunately, the "greed factor," combined with the ever bullish Wall Street "buy and hold so I can charge you a fee" advice, often deafens the voice of common sense.

One of my favorite quotes of all time is from Howard Marks who stated:

"Resisting – and thereby achieving success as a contrarian – isn't easy. Things combine to make it difficult; including natural herd tendencies and the pain imposed by being out of step, since momentum invariably makes pro-cyclical actions look correct for a while. (That's why it's essential to remember that 'being too far ahead of your time is indistinguishable from being wrong.')

Given the uncertain nature of the future, and thus the difficulty of being confident your position is the right one – especially as price moves against you – it's challenging to be a lonely contrarian."

That quote is truest at extremes as markets can remain "irrational" far longer than would otherwise seem logical. This is particularly the case when, despite clear signs of overvaluation and excess, central banks worldwide are dumping liquidity into economies in a desperate attempt to "resolve a debt bubble with more debt."

It is interesting that when you ask most people if they would bet heavily on a "pair of deuces" in a game of poker, they will quickly tell you "no." When asked why, they clearly understand that the "risk to reward" ratio is clearly not in their favor. However, when it comes to the investing the greater the risk of loss, the more they want to invest. It is a curious thing particularly when considering that the bets in poker are miniscule as compared to an individual's "life savings" in the investment game.

However, that is where we clearly find ourselves today. There was never a clearer sign of excessive bullish optimism than what is currently found within the levels of margin debt. Even as the markets sold off sharply in February, investors sharply levered up portfolios and increasing overall portfolio risk.

Even professional investors, who are supposed to be the "smart money," are currently at the highest levels of bullishness seen since 1990. (The chart below is the 4-month moving average of the net-difference between bullish and bearish sentiment.)

Franklin Roosevelt, during his first inaugural address, made one of his most famous statements:

"So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself…"

However, when it comes to the stock market it is the "lack of fear" that we should be most fearful of. Throughout human history, the emotions of "fear" and "greed" have influenced market dynamics. From soaring bull markets to crashing bear markets, tulip bubbles to the South Sea, railroads to technology; the emotions of greed, fear, panic, hope and despair have remained a constant driver of investor behavior. The chart below, which I have discussed previously, shows the investor psychology cycle overlaid against the S&P 500 and the 3-month average of net equity fund inflows by investors. The longer that an advance occurs in the market, the more complacent that investors tend to become.

Complacency is like a "warm blanket on a freezing day." No matter how badly you want something, you are likely to defer action because it will require leaving the "cozy comfort" the blanket affords you. When it comes to the markets, that complacency can be detrimental to your long term financial health. The chart below shows the 6-month average of the volatility index (VIX) which represents the level of "fear" by investors of a potential market correction.

The current levels of investor complacency are more usually associated with late stage bull markets rather than the beginning of new ones. Of course, if you think about it, this only makes sense if you refer back to the investor psychology chart above.

The point here is simple. The combined levels of bullish optimism, lack of concern about a possible market correction (don't worry the Fed has the markets back), and rising levels of leverage in markets provide the "ingredients" for a more severe market correction. However, it is important to understand that these ingredients by themselves are inert. It is because they are inert that they are quickly dismissed under the guise that "this time is different."

Like a thermite reaction, when these relatively inert ingredients are ignited by a catalyst they will burn extremely hot. Unfortunately, there is no way to know exactly what that catalyst will be or when it will occur. The problem for individuals is that they are trapped by the combustion an unable to extract themselves in time.

I recently wrote an article entitled "OMG! Not Another Comparison Chart" because there have been too many of these types of charts lately. The reason I make that distinction is that the next chart is NOT a comparison for the purposes of stating this market is like a previous one. Rather, it is an analysis of what a market topping pattern looks like.

As you can see, during the initial phases of a topping process complacency as shown by the 3-month volatility index at the bottom remains low. As the markets rise, investor confidence builds leading to a "willful" blindness of the inherent risks. This confidence remains during the topping process which can take months to complete. With individuals focused on the extremely short term market movements (the tree) they miss the fact that the forest is on fire around them. However, as shown, by the time investors realize the markets have broken it is generally too late.

As Seth Klarman recently wrote:

"The survivors pledged to themselves that they would forever be more careful, less greedy, less short-term oriented.

But here we are again, mired in a euphoric environment in which some securities have risen in price beyond all reason, where leverage is returning to rainy markets and asset classes, and where caution seems radical and risk-taking the prudent course. Not surprisingly, lessons learned in 2008 were only learned temporarily. These are the inevitable cycles of greed and fear, of peaks and troughs.

Can we say when it will end? No. Can we say that it will end? Yes. And when it ends and the trend reverses, here is what we can say for sure. Few will be ready. Few will be prepared."

It is in that statement that we find the unfortunate truth. Individuals are once again told that this time will be different. Anyone who dares speak against the clergy of bullishness is immediately chastised for heresy. Yet, in the end, no one will ring the bell at the top and ask everyone to please exit the building in an orderly fashion. Rather, it will be "Constanza moment" as the adults (professionals) trample the children (retail) to flee the building in a moment of panic.

It is only then that anyone will ask the question of "why?" Why didn't anyone warn me? Why did this happen? Why didn't we see it coming? Why didn't someone do something about it?

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An Iowa City with a Population of 7,000 Will Receive Armored Military Vehicle

I’ve covered the militarization of the domestic police force on several occasions on this website. For those of you who need a refresher, I suggest reading the following:

There are Over 50,000 SWAT Team Raids Annually in America

Retired Marine Colonel to New Hampshire City Council: “We’re Building a Domestic Army”

Video of the Day – Thuggish Militarized Police Terrorize and SWAT Team Iowa Family.

Moving along to the subject of today’s absurdity, the tiny city of Washington, Iowa with a population of 7,000 and 11 police officers, will be receiving a Mine Resistant Ambush Protected (MRAP) vehicle. Yes, they will be employing one of these in the field:

MRAP

These things normally cosy $500,000, but will be given to Washington, Iowa for free under a Defense Department program that gives surplus military equipment to domestic law enforcement.

Matthew Byrd writes in the Daily Iowan that:

Sometimes the news is just so drearily awful that you have to sit back and almost appreciate the pure comedy induced by it.

Take this item from Washington, Iowa, where the local police have recently acquired an MRAP vehicle (short for Mine Resistance Ambush Protected) through a Defense Department program that donates excess vehicles originally produced for the wars in Iraq and Afghanistan to local police departments across the United States, including other Iowa towns such as Mason City and Storm Lake.

The MRAP weighs an impressive 49,000 pounds, stands 10-feet tall, and possesses a whopping six-wheel drive. Originally designed to resist landmines and IEDs, it sure seems like the MRAP will come in handy for the notorious war zone otherwise known as Washington County, Iowa.

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Wholesale Inventory Build Slows As Sales Miss 3rd Month In A Row

Wholesale inventory growth slowed to 0.5% (for Feb) from a revised 0.8% pick up in January but met expectations as it seems the much-hoped for weather recovery remains missing in action. This is the 2nd slowest rate of inventory increase in 7 months. Wholesale Sales did bounce back from the utter collapse last month but not as much as expected – rising 0.7% vs 1.0% expectations – missing for the 3rd month in a row. The combination leaves inventory/sales overall at its highest in 16 months.

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La Quandy Crush

Oops. Another day, another failed IPO. Private equity group Blackstone’s darling La Quinta IPO’d at $17 last night raising $650 million (at a multiple of 47 times last year’s earnings). This was already below the low end of the range ($18 to $21) but this morning’s open shows it seems the ‘public’ is not buying the hyper-growth story anymore….

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Russia And China About To Sign “Holy Grail” Gas Deal

Several weeks ago we reported that in response to ongoing alienation of Russia by the west Putin was aggressively setting the stage for Russia’s eastward expansion, set to culminate with a “holy grail” gas deal with China. We said that “while Europe is furiously scrambling to find alternative sources of energy should Gazprom pull the plug on natgas exports to Germany and Europe (the imminent surge in Ukraine gas prices by 40% is probably the best indication of what the outcome would be), Russia is preparing the announcement of the “Holy Grail” energy deal with none other than China, a move which would send geopolitical shockwaves around the world and bind the two nations in a commodity-backed axis.”

Reuters added, reflecting on the recent trip of Rosneft executive chairman to Asia, that “the underlying message from the head of Russia’s biggest oil company, Rosneft, was clear: If Europe and the United States isolate Russia, Moscow will look East for new business, energy deals, military contracts and political alliances. The Holy Grail for Moscow is a natural gas supply deal with China that is apparently now close after years of negotiations. If it can be signed when Putin visits China in May, he will be able to hold it up to show that global power has shifted eastwards and he does not need the West.”

It’s time for an update. According to Itar-Tass, “Russia’s Gazprom and China are poised to conclude a gas supply contract in coming weeks, the first in a series of energy projects planned between the two countries. “We’re working now to sign a gas contract in May,” said Deputy Prime Minister Arkady Dvorkovich. “Consultations are continuing and Gazprom’s leaders are holding talks with Chinese partners on the contract terms. We hope to conclude the contract in May and believe it should come into effect by the year end.”

The key sticking point remains the price: “Base price is the only problem to be solved,” Dvorkovich said on Wednesday at a session of a Russia-China intergovernmental commission on energy co-operation, co-chaired by Chinese Vice-Premier Zhang Gaoli.” However, even if Russia concedes the topline to China, it will surely “more than make up for it in volume” to borrow a line from Amazon, and furthermore the geopolitical implications from such a deal, not to mention the increase in national leverage vis-a-vis its dealings with Europe and the West, will more than make up for any immediately revenue shortfalls.

But wait – there’s more in the rapidly shifting geopolitical axis which increasingly positions Russias as a key commodity source for China:

In other plans, Russian company Novatek’s Yamal region LNG (liquefied natural gas) project was near ready for signing, Drovkovich said. Russia’s Rosneft had several interesting plans “seeking to increase maritime supplies by several million tonnes per year,” he said.

“Russia and China have agreed to jointly develop gas fields in (Russia’s far eastern) Sakhalin and East Siberia,” Dvorkovich said. “We have discussed co-operation in the coal sphere, agreeing to develop deposits, supply equipment and build electric power plants as well as providing China with additional electricity supplies”.

“We’re finding mutually advantageous decisions on certain projects that will allow us to implement them in the shortest period of time,” Dvorkovich added. Conditions were right to speed the Tianjin oil refinery project and to build a petrochemical facility, he said.

This is happening as Ukraine announced overnight that it won’t import Russian gas in April due to the surge in price that Gazprom is demanding from the US proxy state, and following ongoing Gazprom invoiving of how much Ukraine owes it which at last count was well over $2 billion – an amount which we be funded from the still to be finalized western aid to be provided for Ukraine.

Of course, at this pace, Ukraine and even Europe, will become far less meaningful markets to Russia as Putin prepares to announce what indeed would be the holy grail of gas supply deals, one that reduces Russia’s reliance on European energy imports and substantially raises Russia’s relevance to China as the two countries increasingly become the bestest of buddies.

Which certainly is also why, as Bloomberg reported this morning, “in the talks between China and U.S.’s Hagel overnight, the Chinese are taking a different tack. Rather than argue the merits of the disputed islands/history, they seem instead to say that it’s none of the U.S. business to get mixed up in something in another part of the world and between two sovereign nations.

Bloomberg’s conclusion: “Not only is this probably music to Putin’s ears, it also serves to ratchet up the tensions.”

Just wait to see how “ratcheted up” tensions will be once Russia and China are finally locked into a bearhug of mutual codependence.