Following yesterday’s OPEC “production freeze” meeting in Doha which ended in total failure, where in a seemingly last minute change of heart Saudi Arabia and specifically its deputy crown prince bin Salman revised the terms of the agreement demanding Iran participate in the freeze after all knowing well it won’t, oil crashed and with it so did the strategy of jawboning for the past 2 months had been exposed for what it was: a desperate attempt to keep oil prices stable and “crush shorts” while global demand slowly picked up.

As a result what followed was crude’s biggest drop in months, a plunge of some 7% in the early Sunday trading hours, which also dragged down US equity markets and currencies of commodity-exporting nations. Furthermore, as can be seen in the chart below, with oil the most important commodity for global stock prices, many wondered if central banks would allow this drop to persist: after all by now everyone knows central banks’ only mandate is keeping asset prices propped up.

And whether it was central banks, or chronic BTFDers, just 12 hours after oil opened for trading with a loud crash, the commodity has nearly wiped out all losses, and both brent and WTI were down barely 2%, leading to both European stocks and US equity futures virtually unchanged on the session.  Most of the losses were wiped out just after the European open, with WTI Jun’16 futures breaking back above USD 40/bbl to take out USD 40.50/bbl to the upside in the process. Almost as if the market was waiting for the ECB to start buying.

The Stoxx Europe 600 Index was little changed, after earlier sliding 1.4 percent, and U.S. equity-index futures also pared declines.

Whether oil’s dramatic overnight reversal will persist, however, remains to be seen: we expect OPEC nations will desperately try to figure out what the proper “jawboning” headline is to launch algo buying programs, now that “Doha freeze” has been exhausted. One early candidate has emerged:

• RUSSIA TO HOLD TALKS W/ SAUDIS ON OIL OUTPUT FREEZE:RIA

Then again, Iran once again refuses to comply, and with good reason – it is right to demand to be able to produce as much as it did before the US sanctions.

• IRAN ISN’T RESPONSIBLE FOR OIL OVERSUPPLY: ZANGANEH ON RADIO

So for now, all eyes are on oil.

“Oil is the most dominant theme today,” said Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt. “It is a relatively clear pattern of commodity currencies being under pressure. On the other hand there is general risk aversion on the rise, which is supporting safe-haven currencies like the yen.”

One catalyst that is helping prop up oil prices is Kuwait whose crude production tumbled by 60% to 1.1 million barrels a day and its refineries scaled back operations as the state oil company took emergency measures Sunday to cope with the first day of an open-ended labor strike. Kuwait produced 2.81 million barrels a day last month, making it OPEC’s fourth-largest member.

In the other top story overnight, lawmakers in Brazil’s lower house of Congress reached the threshold of 342 votes needed to advance the motion to impeach Rousseff to the Senate on Sunday.

Morgan Stanley, is among companies reporting earnings on Monday after financial firms led stocks higher last week, with JPMorgan Chase & Co. and Bank of America Corp. climbing after announcing reductions in first-quarter expenses that beat analysts’ estimates. International Business Machines Corp. and Netflix Inc. are also due to release results.

This is where the markets stand now:

• S&P 500 futures down 0.2% to 2071
• Stoxx 600 down 0.2% to 342
• FTSE 100 down 0.2% to 6329
• DAX down 0.3% to 10024
• German 10Yr yield up less than 1bp to 0.13%
• Italian 10Yr yield down less than 1bp to 1.33%
• Spanish 10Yr yield up less than 1bp to 1.5%
• S&P GSCI Index down 1.2% to 332.3
• MSCI Asia Pacific down 1.5% to 130
• Nikkei 225 down 3.4% to 16276
• Hang Seng down 0.7% to 21162
• Shanghai Composite down 1.4% to 3034
• S&P/ASX 200 down 0.4% to 5137
• US 10-yr yield down 2bps to 1.74%
• Dollar Index down 0.1% to 94.6
• WTI Crude futures down 3% to $39.14
• Brent Futures down 2.4% to $42.07
• Gold spot up 0.1% to $1,235
• Silver spot down 0.3% to $16.19

Global Top News

• Oil Plunges After Output Talks Fail Amid Saudi Demands Over Iran: no Doha deal as Saudi insists all OPEC members must join
• Verizon Said to Lead Bids for Yahoo, Wall Street Journal Reports: Time Inc., Alphabet, IAC/InterActiveCorp dropped out
• McGraw Hill Sells J.D. Power Unit to XIO Group for $1.1 Billion: sale expected to close in third quarter
• Rousseff Hangs by a Thread After Losing Impeachment Vote: Rousseff open to dialogue, but not demoralized by vote
• Japanese Stocks Tumble After Oil Talks Deadlock as Yen Advances: insurers, Sony, Toyota drop in wake of deadly earthquake
• Amazon Rivals Netflix With Stand-Alone Video Subscriptions: Amazon Prime will be available on monthly payment plan of $10.99
• Disney’s on a roll as ‘Jungle Book’ Opens at $103.6 Million: debut was third-biggest so far this year, ComScore says
• Autohome Gets Takeover Bid From CEO’s Group, Topping Ping An: takeover proposal follows Ping An offer to buy Telstra’s stake

Looking at regional markets, Asian equities began the week on the back-foot, as oil prices slumped after output freeze talks in Doha failed. Nikkei 225 (-3.4%) underperformed in the aftermath of another earthquake over the weekend which has resulted in losses in insurers and has disrupted several large manufacturers’ operations, while a firmer JPY also added to the tone. ASX 200 (-0.4%) was led lower by energy names following the failure to strike an output freeze deal as Saudi demanded that Iran be included in an agreement, while Iran had shunned the meeting. Shanghai Comp (-1.4%) also conformed to the risk-averse tone despite continued improvement in home prices (Y/Y +4.9% vs. Prey. 3.6%), as the rampant property sector could also encourage inflows from stocks. 10yr JGBs traded marginally higher amid the risk-averse tone and the BoJ in the market for JPY 450b1n 5-10yr JGBs, which 20yr also yields decline to fresh record lows.

Asian top news:

• China Home-Price Gains Spread as Easing Measures Spur Demand: New-home prices climbed in 62 cities in March, 47 in Feb.
• Credit Suisse to Halt Earnings Previews in Japan Following Probe: Firm won’t allow analysts to visit cos. to gather information before they report earnings,
• High-Frequency Trading Chief Lashes Out at Proposed India Probe: Panel advising India’s regulator recommended investigation
• Alipay Owner Said to Start Shanghai IPO Process as Soon as 2016: Alibaba affiliate said to meet need for 3-years of profit
• CIMB’s Nazir Takes Leave Amid Audit of Political Fund Transfers: Bank chairman helped distribute funds to politicians in 2013
• Quake Death Toll Rises in Japan as Economic Impact Spreads: Toyota said oper. profit may drop as supplies disrupted
• Siliconware Says Tsinghua Unigroup Deal on Hold: possibility of investment depends on interaction between China, Taiwan govts

European stocks began the week under pressure, weighed on by energy names in the wake of the failed Doha meeting. Although equities later pared the majority of their opening losses, given that expectations of a significant deal coming to fruition had been somewhat small. Elsewhere, Italian banks are lower across the board this morning as doubts continue to mount over whether the new bank bailout fund has the means to revive the sector with some of the funds with investors themselves cynical about its prospects

The risk averse sentiment across Europe has sparked flight-to-quality flow into fixed income markets with Bunds remaining in close proximity to 164.00. However, German paper pulled back from their highs by mid-morning amid the turnaround in equities, allied with another heavy bout of supply this week, with an estimated EUR 20bIn worth of issuance.

European top news:

• Draghi Seen Putting ECB Stimulus Back on Agenda After Summer: analysts say ECB could add asset purchases or cut rates again
• Osborne Warns of Decades of Economic Pain If U.K. Quits EU: Brexit would knock 6% off U.K. GDP by 2030, Treasury argues
• World’s Biggest Miner Says Brexit Would Harm China View of U.K.: Obama to say Britain should stay in EU in London this week
• CaixaBank Bids EU908m for Rest of Banco BPI: offer is subject to scrapping a voting-rights limit at BPI
• Immofinanz Buying 26% of CA Immo in First Step to Merger: companies revisit last year’s hostile battle on friendly terms
• Banker Unrest Threatens Credit Suisse, Deutsche Bank Turnarounds: CEOs Thiam, Cryan face rising discontent
• Hutchison U.K. Mobile Deal Said to Face EU Veto Within Weeks: EU block may halt wave of recent telecoms consolidation

In FX, today has seen a morning of consolidation in the FX markets, with USD/CAD buying seen as the obvious trade in the wake of the collapsed talks in Doha. Given the signals given ahead of the meeting, the Saudi objection to Iran’s omission to an agreement was the clear writing to the wall, so the dip in Oil has been corrected accordingly leading the CAD off its lows. We gapped up to 1.2950 in the spot rate, and after rejecting a move on 1.3000, we have since moved back under 1.2900 to suggest a gap readjustment. AUD and NZD saw similar moves in line with CAD, but we have seen .7700 and .6900 levels reclaimed, but the recent highs look a stretch as yet. The USD index is threatening lower though, so expect a further extension (higher) in the commodity linked currencies, with the EUR and GBP also better bid as a result. USD/JPY is caught in the crossfire, but after more earthquakes in Japan, the pair has been pressured to sub 108.00 again, though briefly so as yet with a modest recovery in the Euro bourses aiding the upturn to just shy of 108.50.

The story of the overnight session so far has been that of commodities and specifically oil, after OPEC and Non-OPEC producers failed to agree to an output freeze deal as Saudi demanded that Iran be part of an agreement and Iran refused to attend the meeting in Doha. (Telegraph) There were comments from several oil ministers including Qatar’s who stated that OPEC needed more time. Furthermore, Russia’s oil minister said that Iran was not the reason behind the breakdown in talks and that the door is not shut for a production freeze, while Nigeria’s oil minister suggested that OPEC should shift to a majority vote system.

The energy complex saw initial downside today after the failed Doha talks, however much of the losses have been paired during the European morning, with WTI Jun’16 futures breaking back above USD 40/bbl to take out USD 40.50/bbl to the upside in the process. In terms of the metals complex, gold prices saw mild support amid risk-averse sentiment, although subdued price action during European hours, while overnight iron ore prices coat-tailed on steel advances which were underpinned by seasonal demand.

Bulletin Headline Summary from RanSquawl and Bloomberg

• The OPEC/non-OPEC talks in Doha over the weekend failed to lead to an agreement, with the fallout seeing downside in oil, and softness in commodity-linked currencies and energy names.
• Much of the immediate fallout from Doha saw a paring during European hours, with many suggesting that chances of a significant deal coming to fruition had been somewhat small.
• Today’s economic calendar is light in data and will see focus fall on potential comments from Fed’s Rosengren, Dudley and Kashkari.

US Event Calendar

• 8:30am: Fed’s Dudley speaks in New York
• 10am: NAHB Housing Market Index, April, est. 59 (prior 58)
• 12:30pm: Fed’s Kashkari speaks in Minneapolis
• 7:00pm: Fed’s Rosengren speaks in New Britain, Conn.

DB’s Jim Reid concludes the overnight wrap

All eyes on oil this morning as the long awaited producers meeting in Doha ended in disappointment last night. Following extended talks, OPEC members and major producers walked away without any agreement on a production freeze. Prior to this, the WSJ had suggested that a draft accord had been circulated calling for a freeze at January levels until the end of October. Saudi Arabia seems to have taken a harder stance however with the major sticking point the lack of participation from Iran, who failed to even send a representative to the meeting. Following the end of the meeting, the energy minister of Qatar was however cited as saying that OPEC members will continue to consult between themselves as well as non-OPEC members up until June with the bi-annual OPEC meeting set to be held on June 2nd.

The immediate reaction when markets opened this morning was for WTI to plunge over 7% and touch a low of $37.61/bbl (after closing at $40.36/bbl on Friday). Oil has since pared part of those heavy losses and is currently hovering just shy of $38.50/bbl (still nearly -5% on the day). The losses have dragged bourses in Asia lower. The Nikkei (-3.08%) is leading the way, not helped by a near +1% safe haven rally for the Yen. Elsewhere the Shanghai Comp is -1.31%, while the Hang Seng (-1.20%), ASX (-0.22%) and Kospi (-0.48%) are all in the red. Commodity sensitive currencies are up to a percent down this morning, while credit markets are unsurprisingly a couple of basis points wider. US equity index futures are also in the red to the tune of half a percent or so.

Meanwhile, the news of the lack of an agreement at yesterday’s meeting is interestingly also coinciding with the news of a forced production cut from Kuwait following a public sector strike which started on Sunday. The Kuwait Oil Company announced in a statement that the OPEC member is to slash production from the usual 3million barrels a day, to just 1.1million barrels a day. Public sector workers are protesting on the back of plans to make cuts to wages and incentives, with the FT reporting that unions had called for the reforms to be cancelled prior to commencing yesterday’s strike. It’s hard to know if this is helping to support a floor on the drop in the Oil price this morning, and ultimately how long this strike will go on for and therefore the overall importance of it, but it’ll be worth keeping an eye on how things progress.

Elsewhere, the other headline grabber this morning is the latest political update out of Brazil where the key lower house vote has happened overnight. Crucially, Congress have voted in favour of President Rousseff’s impeachment, reaching the required threshold of 342 votes. That clears the way for the motion to be passed over to the Senate where it will go in front of a special committee where a simple majority vote (from 81 members) will be taken. Should that majority be reached, then an official impeachment trial is launched, with Rousseff subsequently temporarily removed from office during the trial and Vice-President Temer stepping in.

Moving on to this week now. Although we’ll fully preview it at the end the highlights are tomorrow’s ECB lending survey, the ECB meeting on Thursday, the global flash PMI numbers on Friday and from earnings season as 104 S&P 500 companies and 46 Eurostoxx firms report this week including the remaining banks and also some of the big bellwether tech names. It’ll also be worth keeping a final eye on the Fedspeak tonight (particularly Dudley given his views have been closely aligned with Yellen) with the blackout period kicking in thereafter ahead of the April 26th and 27th FOMC meeting.

With regards to the ECB, their lending survey may offer clues about how Q1 volatility and especially the poor equity performance of banks has impacted lending if at all. Lending rates fell in February and net new lending was positive and while it might still be too early to tell it’s an important release all the same and due out at 9am BST tomorrow.

With regards to their meeting on Thursday, the main focus will likely be on any additional info they can give on their upcoming corporate bond purchasing scheme. They are sure to be asked for more details so it’ll be interesting if they have any. On this topic Michal Jezek in my team has just published a report “How Might Default Risk Shape the ECB Corporate Bond Purchase”. In the report, we explain why we believe the size of the ECB’s corporate bond purchase programme should not be constrained by concerns about default losses, at least not anywhere near current spread levels. We therefore expect the ECB to move all the way down to BBBs rather than keep the programme smaller and stick to higher-rated bonds. However, diversification is a key default-risk-management tool. We estimate that if the ECB aimed to passively buy a slice of the relevant market portfolio but self-imposed a 2% cap on single-issuer exposures, the effective eligible universe would shrink by 12%. With a 1% cap, it would shrink by 38% to about €350bn. Still, we think that even with such a diversification restriction the ECB should be able to build up a portfolio in line with our baseline expectation of monthly purchases averaging €3-5bn, presumably including the primary market. We also think that as long as the ECB can take a portfolio view on default losses, it would make little sense to automatically sell fallen angel corporate debt.

Moving on. Aside from the Doha events, the only other snippet of news from the weekend came from the IMF’s spring meetings, although in truth not much new material appears to have come out of these. IMF Chief Lagarde summed up the mood from officials as having an overall lower level of anxiety relative to their last meeting, with officials demonstrating ‘a collective endeavour to indentify the solution and the responses to the global economic situation’. Some of the talks also focused on FX policy with members reiterating that they would ‘reaffirm previous exchange-rate commitments, including that we will refrain from competitive devaluations’.
A quick recap of how we closed out last week on Friday. Risk assets finished on a bit of a whimper with much of that being attributed to heavy losses in the energy sector as Oil prices moved steadily lower with expectations declining (now justified) ahead of Doha. Some soft US data didn’t help (more on that shortly) while Citigroup became the latest bank to report earnings in the sector. A beat at both the earnings and top line were recorded with the theme being similar to what we’ve seen insofar with much of that profit beat being cost cut driven. The S&P 500 eventually closed with a modest -0.10% loss although the five-day return was still a healthy +1.62%. US credit indices were a smidgen wider while in Europe it was credit which was the relative underperformer on Friday, the iTraxx Crossover in particular ending 10bps wider while the Stoxx 600 closed -0.35% for its first negative day in over a week.

With regards to that data out of the US on Friday, most notable early on was the steeper than expected fall in industrial production last month (-0.6% mom vs. -0.1% expected), the second consecutive monthly decline of that magnitude with the mining and utility sectors leading much of the softness. Manufacturing production (-0.3% mom vs. +0.1% expected) was also down. That said the first factory reading for April was supportive. The NY Fed’s empire manufacturing survey revealed a near 9pt rise to 9.6 (vs. 2.0 expected) and the highest level for that series since January 2015 with new orders, employment and prices paid all strengthening. Elsewhere, the first release of the April University of Michigan consumer sentiment reading revealed an unexpected 1.3pt fall in the index to 89.7 (vs. 92.0 expected) with the expectations component leading much of that. One year inflation expectations were unchanged at 2.7% however it was noted that 5-10y expectations tumbled two-tenths to 2.5%.

Staying in the US, Chicago Fed President Evans was also out with comments on Friday, saying (unsurprisingly) that there is a ‘high hurdle’ for any tightening in policy from the Fed next week. A lot of Evans’ comments were focused on the inflation picture however which he highlighted as informing the Fed’s decisions in the near term.

With the Fed meeting next week, there’s little in the way of Fedspeak although today we will hear Dudley give opening remarks at a conference this afternoon, followed by Kashkari and Rosengren later this evening. The BoE’s Carney is due to speak in Parliament tomorrow afternoon, while on the US election front we’ll get the NY primary tomorrow.

Earnings season ramps up too and we’ll see 104 S&P 500 companies report. The highlights are the tech names and we’ll get reports from IBM and Netflix today, Yahoo and Intel tomorrow followed by Alphabet, Microsoft and Verizon on Thursday. Away from the tech names we’ll also hear from Pepsico (today), Morgan Stanley (today), Goldman Sachs (Tuesday), Johnson & Johnson (Tuesday), Coca-Cola (Wednesday), General Motors (Thursday), Schlumberger (Thursday), Caterpillar (Friday), General Electric (Friday) and McDonalds (Friday). Meanwhile in Europe we’ll get the latest earnings reports from 46 Eurostoxx companies.

via http://ift.tt/1SpeZBA Tyler Durden

 

 

 

The Nature of a Career Politician

Written by Jeff Thomas (CLICK FOR ORIGINAL)

 

 

 

 

Recently, David Cameron presented to the British public his White Paper on whether the UK should remain in the EU, in preparation for the June referendum. For those who are unfamiliar with the referendum, it’s intended to resolve the degree to which the UK caves to an un-elected uber-government in Brussels, in trade for purported benefits of an all-Europe trade partnership, or whether it chooses independence – going through the hard work of creating individual agreements with EU countries, but gaining the ability to unilaterally make its own decisions regarding such weighty issues as migration, borderlessness, human rights, etc.

The migration issue is a major one. After much hand-wringing between the UK Government and the EU, a settlement has been arrived at that Brussels says it won’t budge on. In order to retain the UK in the EU, it will grant a seven year holiday on full-access to in-work benefits by newly-arrived migrants. In his White Paper, Mister Cameron presents this “emergency brake” as a major concession that he has achieved with the EU. However, what this concession really means is that the UK will bear the blows from a smaller cudgel for the next seven years, after which, the larger cudgel will be employed on a permanent basis.

He seems a bit baffled that British citizens are not impressed at his achievement, and it’s this character flaw that separates him (along with other political leaders) from the British people – he truly doesn’t “get” why the populace is not pleased to be temporarily beaten with the lesser cudgel for a limited period, followed by the permanent use of the larger cudgel.

To the average citizen, this should be easy to understand, yet this character flaw is the norm amongst not only British politicians, but virtually all career politicians, everywhere.

In my years of working closely with government leaders (and would-be leaders) from my own country and internationally, I’ve learned over time that there’s a mind-set that’s common to those who have made politics their life’s work. They think fundamentally differently from businesspeople, who learn to make things work both practically and economically over an extended period. They must do so, or go out of business. Political leaders, however, don’t have this restriction. For them, the job is not one of being profitable and effective in satisfying the public with a good or service. For them, profitability is irrelevant.Further, they need not satisfy the public; they need merely to succeed in imposing their programmes onto the public.

Politicians approach life from an entirely different viewpoint from businesspeople and businesspeople almost invariably fail to understand this. Although a former businessman who has entered public life may be able to place a foot in each camp successfully, those who enter politics early on, or those who have an initial career in the Civil Service, but later switch to politics, lack the fundamental understanding of the workings of economics and the free market.

They don’t so much seek to undermine the free market as much as they simply don’t recognize its relevance. (This, understandably, is a fact that businessmen find hard to acknowledge or adapt to, when dealing with political leaders.)

Career politicians assume that the nature of leadership is to burden the populace with legislation and taxation. They truly don’t understand the concept of limited government. It’s an absurd anomaly to them, so the question is therefore only the manner in which they burden the populace. Lessening the burden is simply not an issue. Whilst they understand that voters wish to be told that the burden will be diminished, it’s not by any means the intent of leaders to do so. In a politician’s mind, the purpose of the existence of the populace is to fill the trough for the leaders. And, of course, the fuller, the better.

In working for, with and (often) against political leaders on issues, I’ve found this to be almost universally true, regardless of which country they represent. Indeed, I’ve rarely been successful when appealing to any leader to drop a proposal because it might not in the interest of the populace. I have, however, often been successful in getting a leader to drop a proposal when I’ve advised him that it may be used by the opposition to cost him votes in the next election.

Again, the only exceptions to this have been those who were not career politicians. Regardless of whether I was dealing with my own country’s leaders, British Parliamentarians, or US Congressmen, virtually all of them have been career politicians and have, by definition, regarded their own position of power to be the primary concern.

The UK has had career politicians since time immemorial; the US had its first presidential career politician as early as 1825, in John Quincy Adams. In my own country, career politicians are not quite as common as in the US and UK. Consequently, we enjoy a somewhat more enlightened perception amongst our political leaders than the US and UK. Many come from the private sector and successfully return to it after they leave office. (It’s also true that career politicians I’ve known that have been ousted typically have had a difficult time obtaining and retaining employment after leaving office, as they simply don’t understandbusiness or real life.)

This suggests that there should be term limits for politicians; that no one should serve in political office for more than a given number of terms. (Two? Three? Four?) This would certainly serve to keep the mix more healthy.

The likelihood of this coming about? Don’t hold your breath. No politician is going to vote to limit the amount of time he will be able to use the system to his own ends.

So, then, what about that UK referendum?

The purpose of this article is to offer insights into the thought process of career politicians, to assist the reader in predicting how his political leaders will act in any given situation, so it began with an example – that of the UK Government’s settlement with the EU with regard to the upcoming referendum as to whether to remain in the EU.

However, an associate has asked that I additionally offer an assessment as to how I feel the EU question is likely to be resolved following the referendum in June, given the true nature of political leaders. So, let’s have a look at that.

Certainly, they’ve already revealed their objective. Mister Cameron’s White Paper goes on at length (39 pages of encouragement) to recommend remaining in the Union. He describes it as “the best of both worlds … influencing the decisions that affect us, in the driving seat of the world’s biggest market,” yet, “we will be out of the parts of Europe that do not work for us.”

Mister Cameron also offers a warning as to what will become of Britain, should she leave the EU. “Leaving Europe would threaten our economic and national security … at a time of uncertainty – a leap in the dark.”

Of particular interest is his repeated reminder that, “The central element of the deal that the Government has secured is an International Law Decision … and cannot be amended or revoked unless all member States, including the UK agree…the International Law Decision is legally-binding and irreversible.”

Mister Cameron goes on at length to describe the “protection” that this allows the UK, as it would mean that the EU could not unilaterally apply greater demands on the UK without unanimous approval by all EU nations, including the UK. What he does not say, however, is that this agreement is reciprocal, which means that, although the UK may opt out of the EU now, the settlement presently under review requires that, should the UK choose to remain in the EU, it cannot in future make a Brexit unless all the 28 Member States agree unanimously. From that day forward, the UK will be on-board the EU train, even if it heads off an economic cliff. (Oh-oh.)

Mister Cameron closes with the comment, “It offers us certainty. We are stronger, safer and better off in the EU, compared to years of disruption and the uncertainty of leaving for an unknown destination outside.” The reader is left with the scary image of the UK being outside in the cold, poorly-clothed and with nothing to eat. Of course, this image is an inaccurate one, as, EU or no EU, individual European States will still seek trade with Britain, as it’s vital to the EU economy – an economy that’s presently nearing collapse.

So, to put the situation more simply, the EU train is approaching an economic cliff. It’s made a final stop, prior to resuming travel, in order for British passengers to get off, if they so choose. In order to keep them on board, they’ve offered a few concessions – offering to make the seating a bit more comfy. However, once the UK has agreed to resume travel, they’ll be strapped into their seats with no further opportunity to exit the train, even as it heads inexorably toward the cliff. Although a Brexit now would cause moreimmediate pain than to stay in, in the long run, all things being equal , Britain would be the first to escape the doomed train, and the first to recover, following the crash.

So, that’s it, then … Britons need to vote in favour of the Brexit?

Well, actually, in spite of all the above, not necessarily. And that’s because, all things are not equal. There’s a rather large fly in the ointment and that’s that that the process of withdrawal is rigged in favour of the EU. They have the option of prolonging the Brexit, so that it might take as long as a decade or more to negotiate. During that time, the EU would be free to carry on passing new legislation that was unfavourable to the UK. Would they do so? Unquestionably, yes. They would make an example of Britain, doing all in their power to demonstrate what happens to defectors. They would do this, even to the detriment of other Member-States. (Remember, this is not about progress, it’s about power. Brussels has positioned itself formore power and the deck has been rigged to assure that they get it.)

The upshot is that, if Britain could withdraw from the EU quickly, it would be in for a rough road initially, but, ultimately, would be recovering, just as the EU was collapsing. It would therefore emerge as a healthier economy, with the advantage with regard to future negotiations.

But that will not occur. The EU will prolong the Brexit and make it as painful for the British people as possible. We cannot know how vindictive the EU might be, or even can be. Consequently, there can be no clear answer as to whether it’s best to exit now, or stay on board and hope for the best. Either way, it will bevery painful for the UK. What we can’t know is which choice will be worse. Certainly, the EU will ultimately collapse and all bets will then be off. There will be a re-shuffle of the European deck and entirely new agreements to be considered.

Armed with our understanding as to the nature of career politicians, we can anticipate that what we’re likely to witness will be the EU and the UK Government working in concert to expand their mutual power, whilst Britain, as a nation, pays the price.

 

Please email with any questions about this article or precious metals HERE

 

 

The Nature of a Career Politician

Written by Jeff Thomas (CLICK FOR ORIGINAL)

 

 

via http://ift.tt/1Ni8XQY Sprott Money

The full article can be downloaded as PDF here.

Introduction

The financial media are beginning to entertain the viewpoint that the recent policies of the Federal Reserve, ranging from zero-rates to quantitative easing to bank bailouts, are an important cause of rising inequality not only in the US but around the world. This past week, multiple media sources published an op-ed by eminent scholar George Gilder to this effect. Yet articles such as these are the exceptions that prove the rule that the financial media remains strongly biased against the monetary discipline that could be restored by returning to a gold standard. By way of example, in a typically biased article previously published by Reuters back in 2013, Professor Charles Postel misreads history, misapplies economic theory, and employs not only rhetorical but also logical tricks to argue that a return to a gold standard would favor the wealthy, when in fact the opposite is demonstrably true. As this article is so typical of what we seek to rebut, we publish it here, and now.

Frequently one can tell by the title of an opinion piece whether it is going to consist of quality arguments or just meretricious mudslinging. Professor Charles Postel of San Francisco State University boldly announces the latter in choosing to title his recent tirade against sound money, Why Conservatives Spin Fairytales About the Gold Standard.

Indeed, right from the start, the reader is presented with the following rhetorical feint:

At few points since the Fed’s founding in 1913 has it taken such sustained fire. It’s taking fire from the left, because its policies favor Goldman Sachs, Bank of America and the other financial corporations that are most responsible for the 2008 financial meltdown and the Great Recession. But it is also taking fire from the right.

While acknowledging that the Fed is under attack from the left, he then proceeds to focus exclusively on debunking hard-money Fed criticism from the right, which is supposedly based on ‘fairytales’. While politics is largely if not entirely about fairytales, history shouldn’t be. As a historian, Mr Postel should know the difference. But as one reads further into the article it becomes clear either that he doesn’t, or that his anti-gold-standard agenda is best advanced by spinning fairytales of his own. For a start, he completely ignores the fact that elastic, fiat money is both what facilitated the bubble that caused the 2008 meltdown and what enabled the subsequent bank bailouts, neither of which would or could have occurred had the Fed been constrained by a fixed money supply.

 

REWRITING THE HISTORY OF THE FEDERAL RESERVE ACT

Moving farther back into history, Mr Postel writes the following fairytale about how the American public felt about the creation and early years of the Federal Reserve System:

In the years after 1913, the need for a flexible and regulated money supply was widely accepted across the political spectrum.

This is complete poppycock. First of all, the Federal Reserve Act was initially drafted in secrecy by a small group of elite Wall Street bankers and Senators on Jekyll Island, deliberately out of the public eye. Second, it was passed at the start of the Christmas holidays in 1913, with a large number of Representatives and Senators absent. In the Senate there were 43 ‘yeas’, 23 ‘nays’ and 27 absent (and more on the record as opposed than not). This hardly implies widespread support. Indeed, it suggests that the Act was conceived in secret and brought to a vote during holidays precisely because public opinion was opposed. Did this change dramatically in the following years? Well, given that the Fed did not begin to actively manage the money supply until the late 1920s, it is fallacious to argue that (non-existent) monetary activism was ‘widely accepted’ at this time.

(The eventual onset of Fed activism had its roots in WWI, which left the European economies devastated and led to a series of European currency devaluations and associated capital flight into the US, leaving the dollar by far the strongest currency in the world and contributing to a stock market bubble. By 1927, the ‘Roaring ‘20s’ were in full-swing in the dance halls and on Wall Street. But that was when the Federal Reserve finally became activist, goosing the financial markets with a jolt of easy money at the request of Great Britain, mired in recession as a result of Chancellor of the Exchequer Churchill’s horribly botched re-pegging of sterling to gold in 1925. The result, we know, was an investment boom which turned to bust in late 1929, a key contributing element to the Great Depression which followed.)

 

IS CHEAP FOOD A GOOD THING, OR BAD?

Mr Postel also highlights the prominent political debate about monetary policy that took place in the late 19th century. Indeed, monetary policy was such an important issue by the late 1800s that William Jennings Bryan famously won the 1896 Democratic nomination for president with his ‘Cross of Gold’ speech advocating inflationism.

Inflationism was popular with farmers, who were struggling to service debts they accumulated years earlier when grains prices were soaring due to the lingering inflationary effects of the Civil War. The introduction of mechanized agriculture put an end to rising crop prices as farm productivity soared. This innovation, arguably the greatest technological advancement in human history, enabled a more widespread industrial revolution through urbanization.

Mr Postel primarily blames the gold standard for the plight of indebted farmers at the time. That they suffered during this period is lamentable. But to ‘blame’ the gold standard for the breathtaking technological advancement, rapid economic growth and rising living standards in general that took place around the end of the 19th century is a bizarre rhetorical twist indicating an agenda.

He then observes, not incorrectly, that inflationism benefits borrowers generally. But then he makes the mistake of assuming that savers are necessarily the ‘haves’ and the borrowers are the ‘have nots’. Is he unaware that the most leveraged borrowers in the economy today are the biggest, too-big-too-fail banks? That were those banks to fail, the losses would fall disproportionately on their predominantly wealthy bondholders?! Perhaps this explains his confusion that somehow a gold standard would benefit Wall St and the wealthy, when in fact the exact opposite would be the case.

Additional fairytales follow. He claims the recent effort to audit the Fed is some radical conservative policy, even though there is bipartisan support for increasing transparency into the Fed’s shadowy dealings, including those with foreign banks, which have been the largest recipients of the Fed’s various emergency lending facilities. Would he prefer that the public continue to be kept in the dark about such matters? (One wonders how he feels about the recent NSA spying revelations and lack of public transparency in that area.)

 

A CLOSET CRONY-CAPITALIST?

Mr Postel goes on to characterize David Stockman’s tour de force critique of crony capitalism, The Great Deformation, as a ‘jeremiad’. Is he secretly in favor of crony capitalism? Perhaps not, but does he disagree that the Fed’s unprecedented financing of bank bail-outs and ongoing money manipulations have enriched primarily the crony capitalists that have taken over Wall Street, as Mr Stockman demonstrates in detail in his book?

While his piece relies primarily on historical example to push his money manipulation agenda, Mr Postel’s ignorance of monetary theory is also evident. For example, he suggests that gold should not serve as money because it can be subject to speculative bubbles. Well, so can the price of paper. Whether in order to make something the legal tender you place a stamp on a piece of paper or on a coin of gold is largely beside the point. What is not is that the supply of paper money is potentially infinite, yet the supply of gold is relatively fixed. Now which of these two, stable versus manipulated money, do you think, encourages more speculation? The question answers itself, which may explain why Mr Postel fails to ask it.

 

A TOUGH ACT TO FOLLOW

Having demonstrated in this piece his tendency to historical omission, his poor understanding of monetary theory, and his proclivity for rhetorical feints and ad hominem attacks, one is left wondering what will follow. Perhaps Mr Postel’s next effort will ‘blame’ the introduction of the computer, modern telecommunications and the internet for pushing down prices for a huge range of goods and services. Perhaps he will omit any mention of the rampant monetary inflation that continues enriching the asset-rich, crony-capitalist ‘haves’ on Wall Street at the expense of the asset-poor ‘have nots’ on Main St. Perhaps he will suggest that, given low price inflation, the monetary inflation still isn’t rampant enough. But no matter how hard he tries, he will fail to convince that the gold standard, long since abandoned, caused the Second Great Depression.

This failure, of course, might lead his readers to ask themselves: If the Second Great Depression has occurred under an activist, fiat money regime, should we still blame a rigid gold standard for the First Great Depression? Now how do you think they will answer that, Mr Postel? Well, I have an idea.

via http://ift.tt/1XE83i6 Gold Money

Wolf Richter   wolfstreet.com

The amount it costs to ship containers from China to ports around the world, a function of the quantity of goods to be shipped and the supply of vessels to ship them, just dropped to a new historic low.

The China Containerized Freight Index (CCFI) tracks contractual and spot-market rates for shipping containers from major ports in China to 14 regions around the world. It reflects the unpolished and ugly reality of the shipping industry in an environment of deteriorating global trade.

For the latest reporting week, the index dropped 0.6% to 636.14, its lowest level ever. It has plunged 41% from the already low levels in February last year, and 36% since its inception in 1998 when it was set at 1,000. This chart shows the continuing collapse of containerized freight rates from China to the rest of the world:

The Shanghai Containerized Freight Index (SCFI), which tracks spot-market rates (not contractual rates) of shipping containers from Shanghai to 15 destinations around the world, dropped 3.6% for the latest reporting week to 472, after another failed price recovery. It’s down 58% from February last year.

Rates to Europe plunged $20 per twenty-foot equivalent unit container (TEU) to $271; to the Mediterranean, rates plunged $29 to $409 per TEU. To the US West Coast, rates plunged 9.3% or $79 to $770 per forty-foot equivalent unit (FEU).

A year ago, the spot rates to the West Coast had already fallen 10% year-over-year, and there had been a lot of hand-wringing about them. At the time, they were $1,932 per FEU. Now they’re at $770 per FEU. In one year, these spot rates have collapsed by 60%!

During the big plunge last year and earlier this year, the saving grace was the price of bunker fuel, which was plunging along with the price of oil. For example, according to Platts, bunker of the grade IFO380 in Los Angeles had hit a low of $118 per metric ton in mid-January. But it has since soared 91% to $225!

Bunker prices differ, depending on grade and location around the world, and not all made this sort of break-neck snap-back price reversal. For example, IFO380 in Rotterdam soared “only” 61% from $109/mt in mid-January to $176/mt. Other locations and grades experienced lower price increases. But all bunker prices everywhere have risen sharply.

So the ballyhooed notion that carriers, under pressure from competition, are simply passing on their fuel savings to their customers has now died an ignominious death. Instead, their margins are getting crushed.

But there are some real reasons for the collapse in freight rates from China to destinations around the world: China’s exports have plunged. For the January through March period – to iron out the monthly volatility associated with the Lunar New Year holiday – exports are down 9.6% year-over year. Specifically:

• To the US -8.8%
• To Hong Kong -6.5%
• To Japan -5.5%
• To South Korea -11.2%
• To Taiwan -3.7%
• To the countries in the ASEAN -13.7%
• To the EU -6.9%
• To South Africa -29.6% (!)
• To Brazil -47.2% (!!)
• To Australia -1.9%
• To New Zealand -12.4%.

Exports ticked up just a tiny bit to only two major countries: India (+0.2%) and Russia (+0.2%).

So demand for transporting containers from China to other parts of the world has withered, just when the supply of container ships has reached catastrophic levels of overcapacity.

Last year, what had already been an overcapacity problem turned into a self-inflicted nightmare for carriers. They’d assumed ever since the bouts of QE and zero-interest-rate policies started that central banks had their back. They’d smelled the lure of cheap money. And they’d fallen for the central-bank propaganda that “bold” monetary policies could actually stimulate the real economy, the goods-consuming economy. And so, imagining years of big-fat growth, they ordered ships, including the newest mega-sized container ships. And as these new ships were delivered over the past couple of years, carriers embarked on a fight for market share by cutting prices.

This culminated in 2015 with the delivery of new ships that added a record 1.7 million TEU of capacity to the global fleet, just when growth in global trade was grinding down. At the same time, according to Drewry, the amount of capacity scrapped in the year plunged by nearly half, with only 195,000 TEU of global capacity taken out.

Why? “Because demolition prices were less attractive….”

Like so many things in this world where free money created overcapacity, the rates paid for ships to be scrapped has plunged from around $475 per ldt (light displacement tonnage, the weight of the vessel including hull, machinery, and equipment) in 2012 to around $290/ldt recently.

So far this year, scrapping activity has picked up. And everyone is hoping that this will alleviate the problem. But it’s not going to help much, according to Drewry:

As we have highlighted before scrapping alone does very little to redress the supply-demand imbalance – last year’s scrapping total was equivalent to just 1% of the cellular fleet….

Now carriers are hoping that the huge general rate increases they announced for May 1 – in some cases more than doubling current rates – will stick. But they tried that last spring, when overcapacity wasn’t nearly as bad, and it didn’t work. So will they have more luck this year? The Journal of Commerce put it this way: “Conditions are hardly optimal for raising rates.”

The Chinese have among the highest savings rates in the world. But 75% of their wealth is in real estate. They’ve overinvested in one illiquid and bubbly asset that they wrongly believe can only go higher. But when prices break down, it will devastate consumer demand and reverberate around the world. Read… This Will Be Largest Evaporation of Wealth in Modern History

via http://ift.tt/20P7EeP testosteronepit

Submitted by Dan Sanchez via AntiWar.com,

What if a presidential candidate threw a political rally, and nobody came? What if a government held an election, and nobody voted? What if that same government started a war, and nobody participated, whether in body or in spirit?

These questions are related.

Election season is trudging on, as are the wars. Many fans of peace hold out hope that if the former turns out a certain way, the latter may at last be mitigated.

Some are terrified of Hillary Clinton. And who can blame them? As Secretary of State, “Dick Cheney in a pantsuit” was midwife to so many of the disasters that wrack the world with bloodshed and chaos to this day. Many anti-war folk of a left-leaning persuasion are flocking to Bernie Sanders.

Others are more concerned with finally toppling the neocons from their perches of power. And who can blame them? The roots of our geopolitical plight reach back to before Clinton’s executive tenure, when the Bush administration neocons were launching their plans to remake the Greater Middle East. Many anti-war folk of the right-leaning persuasion are looking to Donald Trump to be their neocon-slayer.

But is this really the best we can do?

At the end of the day, Sanders is a moderate foreign interventionist who isn’t all too interested in foreign policy in the first place. Must anti-interventionists really settle for that in order to oppose hyper-interventionist Clinton?

And Trump actually out-hawks many Republicans when it comes to torture, the security state, civilian casualties, and blood-for-oil. Is such a man really to be the anti-war movement’s appointed champion against the neocons?

Thankfully, there is no need to support lesser warmongers in order to oppose greater ones.

Imagine if all the anti-war progressives now supporting Sanders, plus all the America-firsters now supporting Trump, were to stop flooding the internet and social media with electoral polemics. What if all that passion and digital ink was redirected to the message of peace.

Imagine “Stop the War on Yemeni Babies!” blazoned across the web instead of “Stop Hillary!” Or “Don’t Let the CIA Arm Al Qaeda in Syria” instead of “Don’t Let the Establishment Steal the Nomination from Trump.”

An intense focus on policies over personas could really turn public sentiment against the actual combat of war, and divert public attention away from its obsession with the theatrical combat of political Wrestlemania.

You may wonder, what about the consequences of the peace camp abandoning its stations in the electoral battle against the worst war hawks? What if as a result Hillary or Ted Cruz’s neocon allies sweep to victory?

A clique may seize office, but the new administration will not govern in a vacuum. All regimes must strive to preserve public legitimacy. And no regime can afford to flout too blatantly the prevailing spirit of the times. The new president may have won a majority of votes. But if only a small proportion of the country actually voted in the first place, that translates into a rather shrunken mandate.

And if the non-voting bulk of the public is stridently anti-war, that especially diminishes the president’s foreign policy mandate in particular. Faced with a sizable segment of the public intransigently opposed to war, even a militaristic president will be constrained, and may even need to draw back.  Even Richard Nixon ended a war when public opinion demanded it.

Throughout history, most reductions in tyrannical violence have had nothing to do with the ideology or virtue of office-holders. Instead, such reforms were the result of shifts in public sentiment. Under such conditions, to be a “reformer,” a politician need no redeeming quality other than being self-serving enough to shift with the wind. And if Hillary Clinton, Ted Cruz, or any other politician are anything, it is self-serving.

I’m not saying we should hope Hillary or Ted will win. I’m saying that who wins doesn’t matter nearly as much as the public’s attitude toward war and toward the Washington war machine itself.

On election day, if fewer people lined up dutifully to choose between aspiring elective emperors, and more people assembled defiantly to decry the empire itself, peace would have much better prospects.

via http://ift.tt/1XDMSwK Tyler Durden

Today, credit cards are one of the most important sources of big bank profits. However, a look at the history of credit cards shows that things weren’t always that way.

 

As VisualCapitalist's Jeff Desjardins points out, while it may seem today that credit is impersonal and calculated, credit was once a privilege built around personal trust and long-lasting relationships. In the late 19th century, stores began offering credit to their best and most trustworthy customers. Instead of paying each time they visited the shop, a regular could defer payments to the future by using store-issued metal coins or plates that had their account number engraved. Shops would record the purchase details, and add the cost of the item bought to the customer’s balance owed.

By the 1920s, shops started issuing paper cards instead of metal plates, but even these became cumbersome. Consumers had to hold different cards for each shop, and this made the sector ripe for disruption.

Diners Club, the first independent credit card company in the world, did just that in the 1950s. Their cards allowed people to make travel and entertainment purchases, even with different vendors.

Bank of America took this idea and ran with it, forever changing the history of credit cards. They launched the “BankAmericard” in Fresno, California, by sending it out to all 60,000 residents at once. Soon all consumers and vendors in the city were using the same card, and the concept of mass-mailing cards to the public spread like a wildfire.

After these risky mass mailings of credit cards eventually culminated in the Chicago Debacle of 1966, they were outlawed in the 1970s for causing “financial chaos”. With no applications required, many people including compulsive debtors, crooks, and narcotics addicts were able to receive easy credit. By the time such mass airdrops became illegal, 100 million cards had already been unleashed on the U.S. population without a need for an application.

In 1976, the BankAmericard system eventually became Visa. It was soon after this point that credit cards would enter their golden age for banks: as savings rates fell in the early 1980s, the interest rates on debt did not. Credit cards became a “cash cow”, and they’ve been a key source of bank profits ever since.

Today, 80% of U.S. households own multiple cards, and they account for just under $1 trillion of consumer debt.

via http://ift.tt/1VvsXC5 Tyler Durden

Now that the next and final phase of unorthodox monetary policy, i.e., helicopter money, has had the blessing of both Mario Draghi and Ben Bernanke, and is virtually assured, there are three questions: how to trade it; where will it be implemented first (and certainly not last), and how will it all end.

We covered the first part, how to trade it, late on Friday, courtesy of a Deutsche Bank report titled, don’t laugh, “Helicopters 101: your guide to monetary financing“

 

The next question then is: who will be (un)lucky enough to draw the first straw. The answer, according to DB, will be the same bank that as we shockingly reported at the end of January, was peer pressured into NIRP by Davos bankers, the Bank of Japan.

Global monetary policy is at a cross-roads. Japan’s experience this year demonstrates the limits of central bank policy with the bank running out of government bonds to buy, negative rates reaching their limits and inflation expectations having almost completely unwound their Abenomics move higher…. with Japan fast approaching the limits of its existing policy response to deflation, developments need to be followed closely for signs of the next global policy innovation.

Well, “policy innovation” sure is a polite way of putting “last ditch monetary idiocy” (the same idiocy which we predicted all the way back in March 2009 will be the ultimate endgame) but besides that we agree with Deutsche Bank: Japan will be the first nation to unveil helicopter money. After all, if it isn’t monetary or Keynesian experimentation, then simple demographics will destroy the nation… unless the Fukushima fallout doesn’t do it first.

Finally, how would helicopter money failure look like? Here are some ideas from DB’s George Saravelos:

A “successful” helicopter drop, defined as generating higher growth and inflation expectations but without a permanent overshoot of the inflation target, should lead to higher and steeper yield curves, a weaker currency (at least initially) and higher equity valuations.

 

This notwithstanding, it is important to emphasize that there are alternative equilibria too. At one extreme, if the policy is not perceived as sufficient in size and impact, then the supply/demand imbalances in fixed income may be exacerbated (less issuance and debt outstanding) without a corresponding move higher in inflation expectations. This would lead to a market reaction similar to the one that followed the BoJ cut to negative rates earlier this year: lower yields, weaker equities and a stronger currency. At the other extreme, if the long-term commitment to the inflation target is challenged and central bank credibility is lost, long-dated yields would spike higher, capital flight would ensue and risk assets would substantially underperform.

In other words, at one extreme, if the market perceives the policy as a failure, credit risk and demand/supply imbalances are likely to dominate, putting even further downward pressure on yields. At the other extreme, if the policy is perceived as a loss of monetary discipline, inflation expectations would spike, leading to an aggressive re-pricing of yields higher.

Simply said: too little, and the deflationary vortex will swallow all; too much, and yields will explode.  DB continues:

A “successful” helicopter drop may therefore be easier said than done given the non-linearities involved: it needs to be big enough for nominal growth expectations to shift higher and small enough to prevent an irreversible dis-anchoring of inflation expectations above the central bank’s target. Either way, the behavior of the latter is the key defining variable both for the policy’s success as well as the asset market reaction.

Which brings us to DB’s politically correct conclusion: “under the assumption of policy “success” without fears of hyperinflation, we would conclude that bond yields rise“… the same success which DB also says “will be easier said than done”, which then means, drumroll, that the dominant outcome will be one in which “fears” of hyperinflation are justified.

In which case, please go ahead and sell your gold to Goldman: the vampire squid has repeatedly said it will buy everything you have to sell.

via http://ift.tt/1VvpPpX Tyler Durden

Authored by Mark St.Cyr,

There are many infamous con games that have been foisted upon the public for millennia. Probably none more enduring than that of Charles Ponzi which bears his name as its moniker. Yet, there’s also been another who was also just as “daring” when it came to finding ways as to extract monetary gains by ill-gotten means: Victor Lustig.

Lustig is best known as “The man who sold the Eiffel Tower.” However, it was one of his other cons that came to mind as I was thinking about the current state of monetary policy we now find ourselves in.

Lustig’s other con was a device he slated would print $100 bills. But it had a problem.

Unbeknown to his mark, this problem was also part of the deception. The problem was (as stated by Lustig) – it could only print 1 bill every 6 hours. The genius was; located within the machine it contained two genuine $100 bills. After that – blanks. You could be long gone, and quite far with that kind of head start back then. Yet, it’s once the con, ruse, or scam is finally exposed one thing is certain: You don’t want to still be around or found.

As with any con game the perpetrator knows it’s all a con. In other words, “Duh!” Yet, if you listen closely to both past as well as present Fed. members you can’t help but notice by way of their current arguments, as well as, proposals for future monetary policy. The one’s who’ve truly bought into “the con” is: themselves!

Nowhere has this been on display more than the current public writings and musings of former Fed. Chair Ben Bernanke.

If you read his latest (which I’ve tried but can’t bear that much comedy in one sitting) he lays out what he thinks (or believes) should now take place involving Congress, the Administration, and the Fed. His great idea? Create and “fill” some arbitrary account which only the Fed. or its appointed designates have control of as to “empty” or “fill” as “Congress and Administration” see fit. But here’s the punchline, ready?

“Importantly, the Congress and Administration would have the option to leave the funds unspent. If the funds were not used within a specified time, the Fed would be empowered to withdraw them.” (Insert laugh track here)

Remember, this is coming not only from the former Chair, but also, one who is quite possibly the most emblematic of current thought residing throughout central bank policy makers with an additional caveat: He’s no longer bound by the position where his thoughts need to be guarded as a voting member of such policy lunacy. In other words: he can now speak his mind openly. To which I’ll muse – that’s no laughing matter when you consider how prevalent Keynesian economics now dominate.

The latest from Bernanke exposes just how far down this “rabbit hole” central bankers have gone. So far I’ll contend – its frightful. e.g., They actually believe this subterfuge.

When I’m giving a talk, or engaged in conversation, I often use the term “con game” when describing current monetary policy and its effect on business and more. Often the term “con” at first seems to put people on the defensive as if I’m using hyperbole, or trying to make a point by using over the top styled rhetoric.

The problem is (I’ll explain) it is exactly that. e.g., Many forget “con” stands for confidence in con-game. And now that the $Dollar along with just about every other currency is all fiat based: confidence is the only variable that supports it in a fiat system. Period. And once it’s lost just as with any “con” – it ends with blinding speed and consequences.”

This is the current danger now inherent after years of QE, NIRP, ZIRP, and every other acronym that represents some form or another of central bank intervention within the markets. So adulterated have the markets now become with central bank meddling; describing them without using quotes such as “markets” seems reckless. For these are far from the markets once thought to represent free market capitalism. Today they are “markets” in name only. For just like currencies – they’re no longer backed by anything once considered tangible like gold or actual net profits via 1+1=2 accounting.

At some point printing ad infinitum, as well as, companies reporting (ad infinitum!) losses of Billions in sales and revenue while declaring “We’re killing it!” via Non-GAAP accounting will make even the most ardent supporter of Keynesian thinking question this new reality. The absurdity can only go on for so long, because, to keep up the ruse (just like suckers) more absurdity is needed. We may be reaching that end point after all these years. And the latest clue might be in the absurd recommendations emanating from central bankers themselves. For it’s becoming clearer by the day if one reads Bernanke’s latest: they think this all makes perfect sense. Talk about absurdity.

Let me pose this question: Does anyone for a moment think China would (or will) allow the Federal Reserve along with the U.S. government carte blanche as to create “piggy banks” that can be used to help bolster its position without calling into attention the absurdity of it? Especially as it holds $TRILLIONS of U.S. debt on its own books? Imagine all this while not only the U.S. but the world of central bankers and other governments push, or brow beat Chinese current policies? Or, question their numbers for authenticity? How about Russia? Or Brazil? Or __________(fill in the blank.) Think they’ll all just stand idly by as their economies teeter on the brink of insolvency as the West just prints and points fingers?

If you listen to the musings emanating from many of the central bankers today whether currently holding an active position, or one which has returned to the “private” sector. One would have to construe that they believe exactly that. i.e., Don’t worry – they’ll buy it because that’s what we want them too. And that absurdity is a glaring warning sign from my viewpoint.

This shows just how far down this absurdity “rabbit hole” we’ve gone. And it can be directly contrasted with the con games of old. For it was always a given: for the ruse to work for the benefit of the perpetrator – one must have both the sense as well as alertness to “get outta Dodge” and not to be seen again as the game blows up. Today?

So enamored with the ruse they now fall all over themselves whether on TV, radio, or print, professing what absurdity should take place next to any and all that will listen. Again, even Lustig knew printing money ex nihilo was a con. Yet today, central bankers regard that as: prudent monetary policy. The difference for a contrast in the absurdity?

Before; it landed you a session in jail. Today? It lands you a speaking gig for $250K a session.

via http://ift.tt/1Vc8rXx Tyler Durden

Euro Pacific Capital's Peter Schiff sat down with Alex Jones last week to discuss the state of the economy, and where he sees everything going from here.

Here are some notable moments from the interview.

Regarding how bad things are, and what's really going on in the economy, Schiff lays out all of the horrible economic data that has come out recently, as well as making sure to take away the crutch everyone uses to explain any and all data misses, which is weather.

"It's no way to know exactly the timetable, but obviously this economy is already back in recession, and if it's not in a recession it's certainly on the cusp of one"

 

"We could be in a negative GDP quarter right now, and I think that if the first quarter is bad the second quarter is going to be worse"

 

"The last couple years we had a rebound in the second quarter because we've had very cold winters. Well this winter was the warmest in 120 years so there is nothing to rebound from."

On the Fed, and current policies, he very bluntly points out that nothing is working, nor has it worked, but of course the central planners will try it all anyway. He also takes a moment to agree with Donald Trump regarding the fact that the U.S. is flat out, undeniably broke.

"The problem for the fed is how do they launch a new round of stimulus and still pretend the economy is in good shape."

 

"Negative interest rates are a disaster. It's not working in Japan, it's not working in Europe, it's not going to work here. Just because it doesn't work doesn't mean we're not going to do it, because everything we do doesn't work and we do it anyway. It shows desperation, that you've had all these central bankers lowering interest rates and expecting it to revive the economy. And then when they get down to zero, rather than admit that it didn't work, because clearly if you go to zero and you still haven't achieved your objective, maybe it doesn't work. Instead of admitting that they were wrong, they're now going negative."

 

"The United States, no matter how high inflation gets, we'll do our best to pretend it doesn't exist or rationalize it away because we have a lot more debt. America is broke, if you look at Europe and Japan even though there is some debt there, overall those are still creditor nations. The world still owes Europe money, the world still owes Japan money, but America owes more money than all of the other debtor nations combined. Trump is right about that, we are broke, we're flat broke, and we're living off this credit bubble and we can't prick it. Other central banks may be able to raise their rates, but the Fed can't."

On how he sees everything unfolding from this point, Peter again points out that the economy is weak and it's only a matter of time before this entire centrally planned manipulation is exposed for what it is, and becomes a disaster for the Federal Reserve. He likens how investors are behaving today to the dot-com bubble, and the beginning of the global financial crisis.

"The trigger that's going to really send us into a higher gear is going to be the admission by the Fed that the economy is weak or the markets figure it out on their own. There's not a lot of stimulus left, all they've got is potentially negative rates and a huge round of quantitative easing, and this thing is going to blow up in the Fed's face."

 

"Investors still just don't get what's going on. For the past several years everybody has been positioned as if this recovery were real, that it was sustainable, and that the Fed could normalize interest rates and everything was going to be fine. The first quarter of this year investment returns, it was the worst quarter in eighteen years for actively managed funds."

 

"The federal reserve has not solved our problems, but exacerbated them."

 

"You've got big banks like Goldman Sachs shorting gold, telling their clients to short gold. A lot of people unfortunately listen to Goldman Sachs, and they're doing the wrong thing. A lot of times the markets are just mis-priced, because so many people don't get it. Just like all the people who were buying the subprime mortgages before the bottom dropped out of the market, or all the people who were buying thos dot-com stocks for several years before they collapsed. The same thing is going to happen now."

***

Full Interview Here

via http://ift.tt/1SMmCfj Tyler Durden

When it comes to skewering logic, cause and effect, and simple facts, nobody does it quite like Goldman. Which is why when we got the just released post-mortem of the Doha deal from Goldman’s energy analysts Courvalin and Jeffrey “short gold” Currie, we fully expected them to spin today’s unprecedented OPEC failure into a bullish catalyst. Not even they were so bold. However, since Goldman apparently still has some more oil left to sell, it does spin the ongoing Kuwait strike into a catalyst that is “bullish fundamentals” and may offset some of the negative sentiment from the oil price collapse in the aftermath of what has been the most anticlimiatic two-month buildup in OPEC history.

The one piece in the below report that is not pure “duh” (or rather “D’oh”) is Goldman’s warning that “we view risks to our Saudi forecast as skewed to the upside” – if indeed the warning by the Saudi deputy crown prince Mohammed bin Salman is a hint of what’s coming, and Saudi Arabia does boost oil production by 1MM barrels overnight as bin Salman casually hinted earlier in a Bloomberg interview, then watch out below, especially since the Kuwait strike which has taken 1.7mm b/d offline is precisely the opportunity the Saudis needs to really show the world how much extra oil they can produce.

Here is Goldman’s take:

Lack of OPEC freeze is bearish sentiment but Kuwait strike is bullish fundamentals

OPEC and several non-OPEC producers failed to reach an agreement to freeze production in Doha today, Sunday April 17. Participants commented on requiring more time to reach a deal although the key stumbling block appears to be the requirement by Saudi Arabia that Iran participates. Saudi’s stance is consistent with comments by deputy crown prince Mohammed bin Salman during two interviews with Bloomberg this month (April 1 and Thursday April 13) and goes against Iran’s long held goal to quickly increase production to recover market share. On its own, we view this outcome as bearish for oil prices given consensus expectations for a “soft guidance” freeze at January production levels. But this lack of an agreement does not imply that OPEC production will recover in the short-term, as the year-to-date stabilization owes to ongoing disruptions and maintenance rather than coordination. It is further of no impact to our forecasts as year-to-date production of OPEC (ex. Iran) and Russia have remained close to our 2016 average annual forecast of 40.5 mb/d.

Further, the weekend also saw the start of Kuwait’s oil worker strike, which according to Bloomberg has led to crude production falling to as low as 1.1 mb/d from 2.85 mb/d in March, which is significant and can lend further support to the recent strength in Brent and Dubai timespreads. The level of the actual disruption remains uncertain as the latest comments of the oil sector spokesman were of unaffected oil exports and of production rates gradually improving with normal levels “not far off” (Reuters as of 3 pm EST). In addition, the Kuwait Oil Co. is aiming to find laborers to support production. But while this strike may be short lived (it is a labor dispute and not a disruption), ongoing OPEC production disruption, gradually declining non-OPEC production as well as planned maintenance in the face of resilient oil demand in 1Q have recently pointed to improving oil fundamentals. This leaves the market reaction early this week as uncertain, with risks skewed to a sharp sell-off only should the Kuwait disruption prove much smaller than suggested so far. Either way, we believe that the weekend headlines will further support the already high level of price volatility.

* * *

Beyond the end of disruptions and maintenance, there remains potential for higher production than we forecast from several OPEC members. Iran, the Neutral Zone and Libya could potentially provide additional production growth in coming months, with vessel tracking over the past two weeks pointing to rising Southern Iraq and Iran exports. Finally, while we expect Saudi production to only rise to 10.35 mb/d during 2Q-3Q16, this simply reflects a smaller than seasonal increase in Saudi crude burn for power generation, given (1) normal weather vs. last year’s average hot temperatures, (2) the ramp-up of the Wasit gas processing plant, (3) reduced fuel subsidy and government expenditures and (4) potentially reduced military demand should the Yemen truce, started April 10, prove sustainable. We therefore view risks to our Saudi forecast as skewed to the upside: it is at the guidance provided by the deputy crown prince in his latest interview with Bloomberg this week, with such volumes presented as contingent on a deal to freeze production being reached.

via http://ift.tt/1SlvyLs Tyler Durden