Tag: finance

One could see this one coming from a mile away.

It was a week ago that we highlighted the latest implied IMF proposal on how to reduce income inequality, quietly highlighted in its paper titled “Fiscal Policy and Income Inequality“. The key fragment in the paper said the following:

Some taxes levied on wealth, especially on immovable property, are also an option for economies seeking more progressive taxation. Wealth taxes, of various kinds, target the same underlying base as capital income taxes, namely assets. They could thus be considered as a potential source of progressive taxation, especially where taxes on capital incomes (including on real estate) are low or largely evaded. There are different types of wealth taxes, such as recurrent taxes on property or net wealth, transaction taxes, and inheritance and gift taxes. Over the past decades, revenue from these taxes has not kept up with the surge in wealth as a share of GDP (see earlier section) and, as a result, the effective tax rate has dropped from an average of around 0.9 percent in 1970 to approximately 0.5 percent today. The prospect of raising additional revenue from the various types of wealth taxation was recently discussed in IMF (2013b) and their role in reducing inequality can be summarized as follows.

• Property taxes are equitable and efficient, but underutilized in many economies. The average yield of property taxes in 65 economies (for which data are available) in the 2000s was around 1 percent of GDP, but in developing economies it averages only half of that (Bahl and Martínez-Vázquez, 2008). There is considerable scope to exploit this tax more fully, both as a revenue source and as a redistributive instrument, although effective implementation will require a sizable investment in administrative infrastructure, particularly in developing economies (Norregaard, 2013).

We summed this up as follows: “if you are buying a house, enjoy the low mortgage (for now… and don’t forget – if and when the time comes to sell, the buyer better be able to afford your selling price and the monthly mortgage payment should the 30 Year mortgage rise from the current 4.2% to 6%, 7% or much higher, which all those who forecast an improving economy hope happens), but what will really determine the affordability of that piece of property you have your eyes set on, are the property taxes. Because they are about to skyrocket.”

Sure enough, a week later the Telegraph reports that UK Treasury officials have begun work on a mansion tax that could be levied as soon as next year, citing  a Cabinet minister.

“Danny Alexander, the Liberal Democrat Chief Secretary to the Treasury, told The Telegraph that officials had done “a lot of work” on the best way to impose the charge. The preparatory work would mean that a Government elected next year might be able to introduce the charge soon after taking office.  Mr Alexander said there was growing political support for a tax on expensive houses, saying owners should pay more to help balance the books.

After all it’s only fair. It is also only fair, for now, to only tax the uber-rich, who are so defined merely in the eye of the populist beholder. However, said definition tends to be fluid, and what will be a tax on, i.e., £2  million properties tomorrow, will be lowered to £1  million, £500,000 and so on, in 2, 3, etc, years.

And in a world which as Zero Hedge first defined years ago as shaped by the “fairness doctrine“, the one word that was so far missing from this article, can be found momentarily:

“There’s a consensus among the public that a modest additional levy on higher value properties is a fair and reasonable thing to do in the context of further deficit reduction,” he said. “It’s important that the burden is shared.”

There you have it: “fair.” Because there is nothing quite like shaping fiscal (and monetary) policy based on what the du jour definition of fair is to 1 person… or a billion. Especially if that billion has a vote in the “democratic” process.

It gets betters:

Mr Alexander said the new tax would not be “punitive” and insisted that the Lib Dems remained in favour of wealth creation.

So if it’s not “punitive” it must be… rewarding? And how long until the definition of fair, far short of the projected tax windfall, is expanded to include more and more, until those who were previously for the “fair” tax, suddenly become ensnared by it? As for wealth creation, perhaps in addition to the fairness doctrine it is time to be honest about what socialism really means: “wealth redistribution.”

Telegraph continues:

That may be a seen as a challenge to Vince Cable, the Business Secretary, who first called for the mansion tax and has criticised high earners.

 

The Lib Dems and Labour are both in favour of a tax on expensive houses. Labour says the money raised could fund a new lower 10p rate of income tax.

 

The Lib Dems have suggested that the tax should fall on houses valued at £2  million and more.

 

The Treasury last year estimated that about 55,000 homes are in that range, though the Lib Dems say the figure is closer to 70,000.

To be sure not everyone is for the tax:

David Cameron has opposed a mansion tax but George Osborne, the Chancellor, is said to be more open to the idea. Most of the homes that might be affected are in London and the south-east of England.

 

Boris Johnson, the Tory Mayor of London, promised last week to oppose any move towards the tax, which he described as “brutally unfair on people who happen to be living in family homes”.

 

Some critics have questioned the practicality of the policy, asking how the State would arrive at valuations for houses.

Well, they will simply draw a redline above any number they deem “unfair”, duh. As for the London housing bubble, it may have finally popped, now that all those who bought mansions in London will “suddenly” find themselves at the “fair tax” mercy of yet another wealth redistributionist government.

Unfortunately, for the UK, the “mansion tax” idea, , gloriously populist as it may be, may be too little too late.

As we reported late last week in “The Music Just Ended: “Wealthy” Chinese Are Liquidating Offshore Luxury Homes In Scramble For Cash“, the Chinese offshore real estate buying juggernaut has now ended courtesy of what appears to be China’s credit bubble bursting. So if the liquidation wave truly picks up, and since there is no greater fool left (you can forget about sanctioned Russian oligarchs investing more cash in the City in a world where asset freezes and confiscations are all too real), very soon London may find that there is nobody in the “fair” real estate taxation category left to tax.

But that’s ok – because that’s when one simply expands the definition of what is fair to include the not so wealthy… and then again…. and again.

Finally, if anyone is still confused, the IMF-proposed “mansion tax” is most certainly coming to the US, and every other insolvent “developed world” nation, next.

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

As of Friday, the Ukraine has, as we predicted a month ago, been officially divided in two.  As AP reported earlier, “two almost simultaneous signatures Friday on opposite sides of Europe deepened the divide between East and West, as Russia formally annexed Crimea and the European Union pulled Ukraine closer into its orbit. In this “new post-Cold War order,” as the Ukrainian prime minister called it, besieged Ukrainian troops on the Crimean Peninsula faced a critical choice: leave, join the Russian military or demobilize. Ukraine was working on evacuating its outnumbered troops in Crimea, but some said they were still awaiting orders.”

However, it appears it is not so much a question of figuring out how to evacuate the troops, but rather motivating them. As RIA reports, “less than 2,000 of Ukrainian troops serving in Crimea decided to leave the peninsula for Ukraine, the Russian Defense Ministry said on Saturday. “As of March 21, less than 2,000 out of 18,000 Ukrainian servicemen staying on the territory of the Republic of Crimea decided to go to Ukraine,” the ministry said in a statement.

Those willing to continue their service in the Ukrainian armed forces will be provided with transport to carry their families and belongings to the Ukrainian territory, the ministry added. So while Russia is saying good riddance of foreign troops situation in its brand new territory, it is at least being kind enough to provide the means to depart.

Meanwhile, Russia, already in control of the critical warm water port of Sevastopol, just became the brand new owner of virtually the entire Ukraine navy fleet.

A total of 147 military units in Crimea have hoisted Russian flags instead of Ukrainian and applied to join the Russian armed forces.

 

“St. Andrew’s flags of the Russian Navy have been raised on 54 out of 67 vessels of the Ukrainian Navy, including eight warships and one submarine,” the defense ministry said.

 

Ukraine’s only submarine, the Zaporizhzhia, joined the Russian Black Sea Fleet earlier on Saturday and will be soon relocated to its base.

So while the last vestiges of Ukraine military presence in the Crimea slowly disappear, one place that still refuses to give in to Russians, is the Belbek air force base in east Crimea, made known several weeks ago for the stand off between Russian and Ukraine troops. As shown on the picture below, the troops are waiting for order from Kiev, while the Russian soldiers have all the time in the world to wait as the besieged base is emptied out. AFP adds that some 200 unarmed pro-Russian protesters stormed the base, as the soldiers have barricaded inside and are throwing smoke bombs.

 

Ukrainian commander at Belbek airforce base in #Crimea has told his forces to stand their ground despite Russian deadline to leave

— Sky News Newsdesk (@SkyNewsBreak) March 22, 2014

All of that is to be expected. However, what one should pay close attention to, is the latest pro-Russia rally which is taking place in the Eastern city of Donetsk, one where the crowd earlier was chanting for a return of the pre-coup Ukraine president, Yanukovich.

?????? ????? ?????? http://ift.tt/1jfc5hl

— ???????? ???? (@vezhlivo) March 22, 2014

Why the importance? Because whether the protest is real or fabricated, any additional provocations against the prevailing pro-Russian population will surely be used as a pretext by Putin to continue his “expansion” campaign into East Ukraine under the same pretext as he has made all too clear previously: to protect the minority population. And, as the west has shown all too clearly with a whole lot of meaningless sanctions, there is nobody to stop him.

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

 

Friday’s AM fix was USD 1,338.50, EUR 970.21 and GBP 810.57 per ounce.

Thurday’s AM fix was USD 1,327.00, EUR 962.64 and GBP 802.78 per ounce.     

Yesterday, gold climbed $15.27 to $1342.27 at about 7AM EST before it fell back off in New York, but it still ended with a gain of 0.44%. Silver rose to as high as $20.579 at one point, but it then fell back off and ended unchanged on the day.

Euro gold rose to about €966, platinum gained $2.30 to $1432.00, and copper climbed slightly to about $2.95. Palladium prices, meanwhile, closed at a level not seen in more than 2 years with the rally linked to worries about risks to Russian supplies of the metal.

Palladium surged 3.1% to the highest since 2011 on concern supply from Russia may be restricted.

Gold finished higher on Friday, partially recovering from a four-session losing streak on the back of a weaker U.S. dollar, but the metal’s prices still suffered from their worst weekly loss since November – down over 3.5%.



Gold in U.S. Dollars, 5 Days – (Bloomberg)

Gold had become overbought after its surge to 6 month highs and was due profit taking and a correction. A perception of an abatement of tensions between Russia and the West has contributed to the pullback this week. Momentum could lead to further falls next week but we expect weakness will be short lived.

 

Gold’s Technicals
There is a risk that gold could fall below immediate support at $1,320/oz and the next levels of support are at $1,300, $1,240 and then back where we started the year at $1,200. A 50% retracement would not be unusual after the speed of recent gains and that would take us to the psychological level of $1,300/oz again.  

Gold in U.S. Dollars, 1 Year – (Bloomberg)

A political solution needs to be found as governments continue to opt for economic sanctions of various degrees, it could degenerate into a full blown trade and economic war. Were this to occur the benefits of free trade and globalization that we have seen in recent history would be at risk – creating real challenges for the global economy.

The premiums that risk assets such as stock markets command could quickly be lost as market participants reevaluate asset allocations in the light of the more risky economic and geopolitical situation.

Gold in U.S. Dollars, 43 Years – (Bloomberg)

Hopefully, calm and wise counsel will prevail and a diplomatic political solution will be found. However, in the meantime, gold continues to be an important asset to own in order to hedge these and other geopolitical and economic risks.

 

Yellen At Fed – Print Baby Print
It was very welcome to see a woman taking over the helm of the Federal Reserve. However, we cannot allow our goodwill in this regard to cloud judgement and impact our analysis of her and the Fed’s performance and policies.

Yellen gave mixed messages, both on the economy and on monetary policy, but market participants have chosen to focus on some of the more hawkish comments that she made. She acknowledged that the Fed may have been too optimistic about the economic outlook recently. Yet, she and the Fed largely stuck to their projections for how growth and inflation will unfold in the coming years.

 

It is important to remember that the Fed did not predict or foresee at all the sub prime crisis, the housing bubble, Bear Stearns, Lehman, the global financial crisis and subsequent recession.

The dollar is set to be structurally weak in the coming years given the still significant imbalances in the U.S. economy and still very poor fiscal state of the economy. No amount of jaw boning or Fed tinkering with interest rates will change that.

While interest rates may rise from nearly 0%, they are set to remain low for the foreseeable future. At least until the bond markets decide to enforce fiscal discipline on the U.S. Then interest rates will likely rise substantially leading to a severe U.S. recession.


US Govt 10 Year Yield, 1971 to March 2014 – (Bloomberg)

On a long term basis, it is likely that the dollar will remain weak and gold’s bull market will continue until the end of the interest rate tightening cycle which will likely be between 2020 and 2025.

This was seen in the 1970s when interest rates surged higher that decade from a low in March 1971, to a high in September 1981. The U.S. 10 Year went from 5.38% to 15.84% during that period and gold rose from near $35/oz to over $850/oz in January 1980 (see charts).

 

Thus, contrary to the popular perception, rising interest rates are not bearish for gold. High interest rates and real positive interest rates in a sound economy are very bearish for gold prices and will burst the coming gold bubble. However, that is a long way off – likely between 2018 and 2025 and likely when gold prices are well above their inflation adjusted high (CPI) of $2,500/oz. Indeed, longer term prices over $4,000/oz or $5,000/oz are quite feasible.

EU Agrees Banking Union – Bail-Ins Cometh … 

In the early hours of yesterday morning European Union politicians struck a deal on legislation to create a single agency to handle failing banks and bail-ins in the Eurozone after another all night negotiating marathon ahead of a summit of EU leaders starting in Brussels today.

German Finance Minister Wolfgang Schaeuble was drawn into the talks around 0530 GMT as the negotiations dragged on into the night. The politicians emerged around 0715 GMT with the deal, which now will need formal approval by the European Parliament and by national governments.

Negotiators persuaded nations that had been opposed to the proposed Single Resolution Mechanism and the legislation for bail-ins to agree.

Insolvent banks will be treated equally regardless of the country they are based in. Failed banks creditors, both bond holders and depositors, will be subject to bail-ins in the same way in all countries.

“It’s a very good agreement,” European Central Bank President Mario Draghi said before the meeting of EU leaders in the Belgian capital. The banking union was shaped in part by Draghi and he hailed the compromise plan as “great progress for a better banking union. Two pillars are now in place.”

Plans for a single banking union were put together two years ago due to fears for the euro and the EU’s 6,000 banks. Countries wanted to break the link between sovereigns and insolvent banks to ensure taxpayers were not forced to bail out insolvent banks and to prevent contagion and a systemic crisis.

It had already been agreed that shareholders and importantly now depositors will be bailed in before the single resolution fund can be tapped. About 100 banks plus transnationals and those already bailed out will come under the direct supervision of the ECB from January.

While most of the coverage is on the European Union member states and the European Parliament agreeing the final details of a single resolution mechanism (SRM) to wind up failing banks, there is little coverage of the developing bail-in regimes and the heightened risk that depositors in the Eurozone now face.  

Banks in the Eurozone remain extremely vulnerable. Our research on bail-ins and the developing bail-in regimes clearly shows how banks remain very vulnerable and it is now the case that in the event of bank failure, your deposits could be confiscated as happened in Cyprus.

It is important to realise that not just the EU but also the UK, the U.S., Canada, Australia, New Zealand and most G20 nations all have plans for bail-ins in the event that banks and other large financial institutions get into difficulty.

The coming bail-ins will pose real challenges and risks to investors and of course depositors – both household and corporate. Return of capital, rather than return on capital will assume greater importance.

Evaluating counterparty risk and only using the safest banks, investment providers and financial institutions will become essential in order to protect and grow wealth.

It is important that one owns physical coins and bars, legally in your name, outside the banking system. Paper or electronic forms of gold investment should be avoided as they along with cash deposits could be subject to bail-ins.

Educate yourself about this emerging threat to your livelihood by reading:
Bail-In Guide: Protecting your Savings In The Coming Bail-In Era (10 pages)

Bail-In Research: From Bail-Outs to Bail-Ins: Risks and Ramifications (50 pages)  

via Zero Hedge http://ift.tt/1gIYGWV GoldCore

Forget easy women, keg-standing frat-boys, and Richard Simmons twerking; this has to be the oddest mixed message marketing by the administration yet…

 

Perfect for the back of your VW Beetle…

 

Or your artist sketchpad…

 

Or your Apple laptop…

 

 

We are sure Christopher Gadsden will get the irony as he rolls over in his grave…

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

As was reported earlier, the Turkish premier, embroiled in what increasingly appears a career terminating corruption and embezzlement scandal (it is not exactly clear yet just how involved the CIA is in this particular upcoming government overthrow), blocked Turkey’s access to Twitter last night, hours after vowing to “destroy twitter.” The idiocy of this escalation against dissemination of information in the internet age needs no comment. Well maybe one. This is what we said in our post from this morning: “since Turkey will certainly not stop at just Twitter, here is what is coming next: “Last week, Erdogan said the country could also block Facebook and YouTube.” It now appears that at least half of this threat is about to materialize because moments ago Google just announced that it would not remove a previously uploaded video, one in which Erdogan tells his son to hide money from investigators (one which can be seen here), and which Erdogan demanded be pulled from Google (seemingly unaware that by doing so he simply made sure that everyone saw it). This means that within days, if not hours, Turkey will likely block Google-owned YouTube, if not Google itself.

From the WSJ:

Google Inc. has declined Turkish government requests to remove YouTube videos alleging government corruption, people familiar with the matter said, the latest sign of resistance to a crackdown against social media led by Turkish Prime Minister Recep Tayyip Erdogan.

 

Turkish authorities have in recent weeks asked Google to block the videos from YouTube’s Turkish website, the people familiar with the matter said. But amid a national scandal over corruption allegations, Google refused to comply because it believes the requests to be legally invalid, the people added.

 

Google’s refusal to remove videos raises the specter that Turkey could move to block access to YouTube within the country, after blocking the microblogging service Twitter Inc. late Thursday night. Both sites have been central conduits for allegations of corruption against Mr. Erdogan’s government and faced public threats of a blackout by Mr. Erdogan. 

 

Some people within Google had feared a YouTube blackout could be imminent, after the Twitter takedown, the people familiar with the matter said. “We feel an immediate threat,” one of the people said.

Sadly in Erodgan’s berserk regime, this is not only possible but very probable.

Still, one wonders why Google would not relent in this particular case, after recent revelations that the major internet companies have cooperated over the years with the NSA, contrary to their vocal denials in public. Surely, compromising with its principles and ethics would be nothing new to a company which once swore to “do no evil.” Especially since Google realizes quite well by not complying with the government’s demand it is making the overthrow of Erdogan’s regime, violent or otherwise, that much more likely.

Either way, even without Google’s aid it already appeared that Erdogan’s days are numbered when not only the opposition but the figurehead president himself condemned the Twitter blockage.

Opposition politicians decried the move as that of a dictatorship. Turkish President Abdullah Gul, who has a largely symbolic role, also came down against the blackout, using Twitter to write that “wholesale shuttering of social media platforms cannot be approved.”

Alas, with the government in full out despotic mode, however one which would work in the 1970s but certainly not in an age of instant information exchange, further escalations of locking out internet provides will certainly accelerate until finally the information and entertainment starved country says enough.

We eagerly look forward to see which particular pro-Western agent is groomed to take Erdogan’s place. After all remember: those Qatari gas pipelines that in a parallel universe, one without Putin, would have already been transporting nat gas under Syria, would enter Europe under Turkey.

Which makes one wonder – just what is the real goal here?

As for Turkey, we urge the population, largely removed from all Machiavellian moves behind the scenes, to catch up on their favorite YouTube clips: they will shortly disappear for good.

via Zero Hedge http://ift.tt/1lYXO5w Tyler Durden

Authored by Joyce Poon, Gavekal Asia Research Director,

In the 16 months since Japanese Prime Minister Shinzo Abe launched his bold plan to reflate Japan’s shrinking economy the yen has depreciated by 22% against the dollar, 28% against the euro and 24% against the renminbi. The hope was to stimulate trade and push the current account decisively into the black. Yet the reverse has occurred. Japan’s external position has worsened due to anemic export growth and a spiraling energy import bill: in January it recorded a record monthly trade deficit of ¥2.8trn ($27.4bn). Having eked out a 0.7% current account surplus in 2013, Japan may this year swing into deficit for the first time since 1980. So why is the medicine not working?

The standard response revolves around timing issues: the so called J-curve effect usually means that the boost to exports after a currency devaluation lags the rise in the value of imports by about 12-18 months. In addition, consumers may be busily buying goods ahead of April’s scheduled sales tax increase, temporarily jacking up imports. On a more structural note, there is also the suspicion that exports are not benefitting from the cheaper yen partly because so much production has been pushed offshore.

This may all be true, but there is more to the story than the trade data. After all, a big devaluation has a ricochet effect across the broad economy that changes the outlook for producers, consumers, the government and providers of capital. The transmission mechanism can be thought as working in the following way. Consumers are immediately hit with an implicit “tax” as imported goods cost more, while export-oriented firms get an effective subsidy. In the capital markets, the effect is to lower the value of domestic bonds in foreign currency terms, with the result that yields rise. This means that the cost to the government of financing its deficit rises, forcing a reduction in government spending. As a result of these effects, resources are shifted from the household and government sectors and into the corporate sector. The effect of this resource reallocation should be to boost productivity, which in turn initiates a virtuous circle of rising incomes and ultimately higher consumption.

Unfortunately, Japan defies this textbook paradigm because in addition to devaluing, it is also engaging in massive quantitative easing. This keeps bond yields low, enabling the government to keep financing its deficit at low cost. There is thus no incentive for the government to cut spending— and in fact the consumption tax hike will be offset by even more spending. Furthermore, low bond yields suppress the financial income of household savers.

The end result of all this is that the government bears none of the burden of the adjustment and the household sector bears all of it, through higher import costs and lower financial income. With the household sector’s spending power thus crimped, companies have no incentive to invest in domestically-focused production. Instead, all their investment will be geared toward exports—mercantilism on steroids.

A mercantilist policy can feel like it is working during periods when strong global growth allows excess exports to be absorbed without ruinous price falls. Between 2001 and 2006 the yen devalued by almost 40% on a real effective exchange rate basis and Japan’s current account improved sharply. Japan may not have won back its global competitiveness (its share of the global export pie fell by 1.5 percentage points in the period), but strong external conditions did allow exports to grow 9% a year in dollar terms.

Today, Japanese exporters do not face such benign conditions and any successful mercantilist boost can only come from eating the lunch of rivals.

Since all the leading economies favor policies that support production over consumption, the world is getting more goods than it can absorb. The result is ongoing price declines, which have the effect of deferring the ultimate global recovery.

What this means is that Japan’s ultra-mercantilism is self defeating. In a global environment of weak demand and disinflation any volume increase in its exports will have to be paid for through price reductions. To be sure, in the short term the trade balance is likely to improve somewhat as a result of the J-curve effect taking hold. But in the longer term Japan looks to be entering a cycle where it must run harder just to stand still.

There are a few ways this could all end happily. Japan might embrace a structural reform agenda that boosts productivity, raises wages and pushes up domestic demand. Alternatively, world growth could surprise on the upside, creating a rerun of 2001-06. Energy prices could collapse, closing Japan’s trade deficit and reducing the incentives for mercantilist policy. But we are not holding our breath on any of these possibilities.

Instead, Japan’s most likely path is that the yen keeps falling, the BoJ keeps printing money, and the dollar value of exports stagnates as devaluation and price cuts offset any volume increases. And so, paradoxically, the current account will continue to deteriorate into permanent deficit, despite ultra-mercantilism. At this point the game will have changed in Japan and Abenomics will have manifestly failed to deliver on its stated objectives.

via Zero Hedge http://ift.tt/1jjfTK4 Tyler Durden

With home-ownership rates collapsing and the likelihood of 'wealth taxes' potentially weighing on even the oligarchs and 1%-ers willingness to throw cash at US housing, we thought the following rusting hulks of a bye-gone era in a strorage yard deep in Middle America…

 

The American Homeownership Dream is officially dead…

 

And here are the bodies…

 

h/t SandP

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

Submitted by Pater Tenebrarum of Acting-Man blog,

Valiant Knight of Government-Approved Information Rides to the Rescue

Look who is warning us again about the great harm conspiracy theories are doing to the minds of impressionable citizens everywhere: Cass Sunstein has emerged at Bloomberg, to once again plead for 'correction' of the many conspiracy theories that are disseminated on that pesky new medium, the intertubes, seemingly without inhibition. Contrary to the infamous paper in which he described how to precisely combat the spreading of false information that lacks the government's seal of approval, he doesn't list his favored censorship and disinformation techniques outright this time, but it is certainly implied that 'something must be done'.

With regard to conspiracy theories, there is a long history of dangerous thought entering the minds of deluded citizens. There were people who long doubted the official version of the Gulf of Tonkin incident, or those who believed that the government's minions were capable of thinking up other 'false flag' activities such as 'Operation Northwoods', or the poor confused souls who argued that Iraq's 'weapons of mass destruction' were a trumped-up pretext for war based on thoroughly politicized intelligence, or the mean-spirited  traitors who charged that the US military killed a Reuter journalist and his helpers in Iraq and then covered it up, or the completely delusional paranoiacs who asserted for many years that the NSA was literally recording everything. Next they're going to say that the official version of the WTC attack lacks credibility, in spite of its enshrinement as unassailable truth following the government's decision to investigate itself!

We incidentally even know of certain people who routinely assert that the scientific and utterly wertfrei monetary policy enacted by well-meaning central banks is harmful and favors certain groups in society over others! Surely such highly dangerous attempts to foment popular dissent need to be properly suppressed before they irreparably disturb the social harmony of the Collective.

Also, consider for a moment the honest and well-intentioned politicians and bureaucrats who advanced the schemes listed above in the national interest. It was only their self-less concern for our well-being that drove them to make a tiny mistake here or there. By accusing them of nefarious motives, the conspiracy theorists have undoubtedly deeply hurt their feelings. It is an outrage crying out for rectification.

 

What 'Needs to Be Done'

Cass Sunstein certainly knows what needs to be done to ensure that the geistige Volksgesundheit is maintained. The intertubes simply must be corralled to reduce the great harm all this conspiracy theorizing inflicts. In his 2008 paper 'Conspiracy Theories' written with Adrian Vermeule, he proposed the following eminently reasonable measures:

1. Government might ban conspiracy theorizing.
2. Government might impose some kind of tax, financial or otherwise, on those who disseminate such theories.
3. Government might itself engage in counter-speech, marshaling arguments to discredit conspiracy theories.
4. Government might formally hire credible private parties to engage in counter-speech.
5. Government might engage in informal communication with such parties, encouraging them to help."

Surely number (1) would be most effective and help to conserve resources. But where would be the fun in that? Intellectual combat with the deluded masses is surely more satisfying. We are therefore informed that:

However, the authors advocate that each "instrument has a distinctive set of potential effects, or costs and benefits, and each will have a place under imaginable conditions. However, our main policy idea is that government should engage in cognitive infiltration of the groups that produce conspiracy theories, which involves a mix of (3), (4) and (5)”

We should be grateful that these social engineers are thinking up such excellent ways of protecting the already overloaded neural circuits of the citizenry. Incidentally, it seems actually quite possible that the NSA has heard about these useful proposals, considering that its agents “Infiltrate the Internet to Manipulate, Deceive, and Destroy Reputations” according to Glenn Greenwald. See, we are already protected!

As a result, have every reason to feel all 'snuggly and secure', as Mark Fiore points out in the video below, which nicely summarizes why we have absolutely nothing to fear.

Snuggly and secure! You have nothing to fear, citizen! As long as you have nothing to hide, are not blowing any whistles you treasonous leaker, or exhibit undue interest in the Bill of Rights.

 

Techniques of the Demagogue

Sunstein's recent Bloomberg article is quite interesting though in that it nicely demonstrates the demagogic techniques employed in advancing statist interests. One can immediately see that he has learned a few lessons from the push-back he received the first time around. As noted above, he refrains this time from telling us in detail what government should actually do in order to 'reduce the harm from conspiracy theories'.

He merely asserts that such harm exists, encouraging readers to think about  how it might be reduced. He mentions in closing that 'we' need to “persuade the conspiracy theorists to find their way around to the truth”,  but he doesn't say how.

Whenever an author invokes 'us', asserting that 'we' must do this or that, what he really means is actually that the government's apparatus of coercion and compulsion must be set into motion to attain certain goals the author approves of. In recent weeks we have e.g. heard that 'we' must bail out the Ukraine financially, or that 'we' must punish Mr. Putin and his henchmen with sanctions, but this is of course not a call to voluntarily engage in these activities. It is simply an announcement, informing us that those steering the government apparatus will do all these things. 'We' only figure in the sense that 'we' are going to pay for it all (and certainly not voluntarily).

So when Sunstein says that 'we' must 'help' those poor deluded conspiracy theorists, he is actually saying the same things he was saying before, only in a less direct manner. It means the government must intervene.

The other technique on display is the 'straw man' technique. Discussing conspiracy theories in detail, Sunstein deliberately lists many that can either be very easily disproved, or of which it can be assumed that most readers will immediately classify them as nonsense.

At one point he tries to assure us that his approach is evenhanded by conceding that a number of conspiracy theories have later turned out to be the truth, but he immediately reverts to his previous condescending tone, belittling those who show an interest in investigating government misdeeds. He lists three examples: the Watergate scandal, the CIA's MK Ultra program, and the fact that 'aliens have really landed in Roswell' –  in other words, he only lists two examples and immediately downplays their importance by adding a plainly ridiculous third one to the list.

 

Degrees of Harm

It could even be conceded arguendo that Sunstein succeeds in demonstrating that harm is sometimes inflicted, as e.g. in the context of conspiracy theories surrounding vaccines (we actually don't know what these theories assert, not having delved into the subject in detail; however, the history of modern medicine certainly suggests that a great many scourges that have plagued mankind have been successfully vanquished with the help of vaccines).

So it may be true that there are a small handful of cases when belief in a conspiracy theory might actually harm those believing it. But so what?

Sunstein's proposals as formulated in his original paper (and we have no reason to believe that he has changed his opinion on these points) are infinitely more harmful. Life is never without risks, but the wrongheaded belief held by social engineers that the government must eliminate every last one of them by intervening in every nook and cranny of our lives can ultimately only end in tyranny.

The ubiquitous and all-encompassing surveillance state that has been installed to allegedly 'protect us from terrorists' is actually an excellent example of how extremely misguided these attempts to shield us from every conceivable evil are. The reality is in this case that the threat is statistically minuscule; as we have previously noted, more Americans die from drowning in their bathtubs and even from merely falling off a chairs than from terrorist attacks. And yet, no-one has proposed to spend tens of billions every year to keep tabs on the citizenry's evil furniture, at least not yet. The danger that the gathering of every last scrap of data will be abused is orders of magnitude greater than the danger emanating from terrorists.

Central bank policy is yet another example: the attempt to spare us the pain of economic busts only leads to even bigger economic catastrophes down the road. This has only recently been demonstrated when the interventions following the bursting of the technology bubble resulted in its replacement by the housing bubble. In the end, a far more painful recession than the one the initial intervention sought to mitigate resulted. The same principle will be demonstrated again when the current echo bubble bursts at some point in the future.

 

The Conspiracy Theory of History

Finally, it should be clear that what one might term a 'conspiracy theory of history' often comes a lot closer to the truth than the officially approved line that is taught in public schools. The one thing that should be clear to every astute observer is that governments routinely lie. They sometimes even admit it, such as JC Juncker did in his function as president of the euro group of finance ministers (this incident serves as an example of how brazen the ruling class has become in modern times; they don't even care anymore how transparent they are).

The fact that governments are lying routinely and are keeping a great many of their activities secret in allegedly 'free societies' is what provides the fertilizer for conspiracy theories. Even in the rare cases when governments tell the truth, many people are no longer inclined to believe them. Distrust of government is however not akin to a mental disease – it is rather a sign that one is alert and keeping one's eyes open. It is also a necessary and healthy approach that provides a small, but important contribution to keeping government abuses in check.

As Murray Rothbard pointed out:

“Anytime that a hard-nosed analysis is put forth of who our rulers are, of how their political and economic interests interlock, it is invariably denounced by Establishment liberals and conservatives (and even by many libertarians) as a "conspiracy theory of history," "paranoid," "economic determinist," and even "Marxist." These smear labels are applied across the board, even though such realistic analyses can be, and have been, made from any and all parts of the economic spectrum, from the John Birch Society to the Communist Party. The most common label is "conspiracy theorist," almost always leveled as a hostile epithet rather than adopted by the "conspiracy theorist" himself.

 

It is no wonder that usually these realistic analyses are spelled out by various "extremists" who are outside the Establishment consensus. For it is vital to the continued rule of the State apparatus that it have legitimacy and even sanctity in the eyes of the public, and it is vital to that sanctity that our politicians and bureaucrats be deemed to be disembodied spirits solely devoted to the "public good." Once let the cat out of the bag that these spirits are all too often grounded in the solid earth of advancing a set of economic interests through use of the State, and the basic mystique of government begins to collapse.”

(emphasis added)

And this, in a nutshell, is what is really behind Mr. Sunstein's concern with 'conspiracy theories'. It is all about preserving the State's perceived right to rule by letting nothing intrude on the notion that politicians and bureaucrats are 'disembodied spirits solely devoted to the public good' rather than people who pursue their own personal interests.

 

Former government advisor Cass Sunstein: still concerned about 'conspiracy theories'

via Zero Hedge http://ift.tt/OIQW0N Tyler Durden

 

 

“Ghost gazumping is when the seller asks the buyer for more money at the last minute, even though there is no rival offer.”

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Via Planet Ponzi:  The Chancellor Said This Time Would Be Different

via Zero Hedge http://ift.tt/1f0OhGp williambanzai7

Despite the total collapse (flattening) in the Treasury yield curve in the last 2 days, Citi's FX Technicals group is convinced that we have seen a turn in fixed income that will see significantly higher yields in the years ahead and notably higher yields by this yearend also. Furthermore, they believe this will initially come from the belief in a continued taper, and the curve will initially steepen (2’s versus 5’s and 2’s versus 10’s). This normalization, they add, will be a good thing – QE encourages misallocation of capital and poor business decisions which has a negative feedback loop into the economy – but add (as long as yields do not go too far too fast like last year).

 

Citi FX Technicals,

We continue to expect a return to test and likely break the trend highs posted in Sept 2013 (2 and 5 year yields) and Jan 2014 (10 and 30 year yields)

2’s versus 5’s chart (One of our favourite charts of all time) making a comeback?

This is a chart that we have historically referred to as “the best interest rate chart in the World”

On 3 occasions in the last quarter century we have seen this chart go to +161 basis points and on 3 occasions we have seen it move to the area around -20 basis points. In 5 of those 6 periods we have seen this being a precursor to a shift in Fed policy.

The exception to this rule was when we turned off the +161 level seen in 2009. In the prior 2 occasions the flattening off this level was a “bear-flattening” as the market anticipated that we were moving to a tightening in Fed policy (Just as the rises from inversion were bull steepenings as the market anticipated an easing of Fed policy.)

The flattening we saw from the 2009 peak was NOT a bear flattening and it was NOT the market anticipating a Fed tightening but quite the contrary. The flattening was “interference”, more commonly known as QE. This caused the curve to bull flatten as Fed monetary policy moved to the long end of the curve….so it really was “different this time”

However, in early May 2013 as this curve stood around +45 basis points we got the very first compelling suggestion from the Fed (Ben Bernanke) that this ultra-loose unorthodox monetary policy may have served his purpose and that tapering may come into play (Not a moment too soon in our view)

Since then the curve has been “bear steepening”. Some people (the Fed included) will tell you that this is not tightening. Wake up call- If the part of the curve you are now playing in moves up in yield because of what you (the Fed) has said or done then you have been responsible for a tightening in monetary conditions. That is ok. It is the right thing to do, but call it like it is.

So long term rates are “normalizing”. Normalizing is not the “dirty word” that most people would like you to believe. Normalizing is a good thing. It starts to discourage misallocation of capital. It stops mispricing of risk. It forces companies to make investment/business decisions. It allows financial markets to function. Normal is better than abnormal.

So with the Fed “moving out of the way” long term yields headed higher and the curve above steepened again. We had no real concern with that, although felt that the initial move was “too far too fast” and might create a drag that would need time to offset.

In mid-March (A week after our bulletin on 07 March titled “Major reversal higher in US yields looks likely”) 10 year yields stood at 2.60%-Just shy of our 2.50% target expressed at the start of the year and just above the low of this year’s down move at 2.57%. More importantly that was the same level we had seen in last year’s up move by June 2013.

So after the initial surge in yields we have had the correction/consolidation necessary to “work that move off” (relatively unchanged levels for about 9 months) and set the platform, in our view, for the next move higher.

So what do we expect now?

• We expect the curve above to further steepen as 5 year yields head higher more aggressively than 2 year yields. That is because at this point Fed policy is changing at the longer end of the curve but not YET at the Fed funds level.
• We would not be surprised if we see this curve head right back to 161 basis points again as Fed interference becomes less and less.
• At that point, looking at the historical perspective, we would expect the bear steepening to then “morph” into a bear flattening as the market begins to realize that the timeline for a move by the Fed on the Fed funds rate is not going to be as long as they thought.
• At that point 2 year yields are going to head sharply higher and rise at a pace greater than 5 year yields causing the curve to bear-flatten in a traditional type of way

US 2 year yield: New highs in the move look imminent

Following the recent 76.4% pullback the 2 year yield is now re-testing the Jan high at 43 basis points.

A close above would suggest gains towards the channel top at 59 basis points quite quickly.

A close above here would suggest that it could revisit the 2011 peak around 88-89 basis points.

US2 year yield minus Fed funds- Has it just become relevant again for the first time in 7 years?

Going back to the start of the Fed PUT era (beginning with Alan Greenspan, the Ben Bernanke and now Janet Yellen) all policy changes from the cycle low/high in the Fed funds rate have been preceded by a large gap opening up between the 2 year yield and the Fed funds rate ). This gap has regularly been in excess of 100 basis points before the Fed capitulates and moves short-term rates. (Including in 2007)

This may well suggest that we are going to have to see that break of 89 basis points on the 2 year yield and a move towards that 1.43% level before the Fed capitulates on the Fed funds rate (That normally happens earlier than they would guide) and raises short term rates.

If we look at the present Fed funds rate (Zero-25 basis points) this suggests that once we start heading into the 1.20-1.50% range in 2 year yields that a Fed hike is likely pretty imminent. As we mentioned above, we believe that a break of 89 basis points on the 2 year yield may well be the early warning sign that this development is materializing.

1994, 2004, 2014????. Might the shock be that the Fed could be grudgingly tightening by late 2014 (An equal time line to the 1994-2004 gap would suggest end November 2014) just as it was grudgingly easing by late 2007 despite being quite hawkish earlier that year?

US 5 year yield: breaking out of the triangle consolidation

Testing the triangle neckline at 1.73%

Above here resistance is met at:

– 1.86%: (Converged downward sloping and horizontal trend lines)
– 2.42%: Feb 2011 high
– 2.99%: June 2009 high.

US 10 year yield weekly chart- Set to head back to the trend highs.

Posted an outside week 2 weeks ago (As did every part of the curve from 2 year to 30 year yields) suggesting higher yields are in prospect.

We saw this in July 2012 and again in April 2013 as weekly momentum turned up.

That was a precursor to low to high moves of 70 and 144 basis points respectively (Average of about 107 basis points over 8 months).

If repeated, that would suggest the following by later this year (November)

– A repeat of the 2012 move would take us to 3.29%
– A repeat of the average would take us to 3.66%
– A repeat of the 2013 move would take us to 4.03%

A move through the double highs at 3.00-3.05% (Sept-Dec 2013) would suggest a topside acceleration. The top of this channel stands at 3.59% but is rising sharply and will converge with the horizontal resistance around 3.77% in early May.

US 10 year yield monthly chart- Back to test the channel top?

Along with the good resistance at 3.77% (Feb 2011 high) we have some good levels above there

– 3.80-3.85%- Long term channel top going back 20 years
– 4.00-4.01%- double top from June 2009/April 2010
– 4.27%- June 2008 peak
– 5.25-5.32%- 2007 cycle peaks

We are certainly convinced that we will go and re-test that area around 3.77-3.85% (Probably this year) with the potential to head higher still.

Citi's optimistic conclusion:

We have said for a very long time that we were “optimists” on the US coming out of this downturn but that it was going to take longer than people thought. For many years the phrase “green shoots” was used only for hopes to be dashed.

• Are we growing as much as we would like? No
• Has employment improved as much as we would like? No
• Has housing strengthened as much as we would like? No

But the “Green shoots” are definitely there now and need to be “nurtured” by normalization not “flooded” by QE.
We believe ending QE and then moving into a more normal interest rate environment that rewards all savers rather than the marginal borrower, that forces businesses to make business decisions, that encourages risk adjusted allocation of capital and more thoughtful Capex decisions is unequivocally positive.

 

We applaud Janet Yellen’s bold comments yesterday and encourage her to “hold the line”. It’s the right thing to do, not necessarily the easy thing to do. If her Fed does that it may well be the first Fed since Paul Volcker that has had the nerve to do so and we feel sure that it will culminate in a more positive outcome than the 5 ½ years of misguided QE has yielded.

via Zero Hedge http://ift.tt/1gjXCP4 Tyler Durden