Currencies – Sterling’s trading range amid political & interest rate risk 

Stock Pick – Fox surges 30% on news of Wall Street bidding war! 

Value in major emerging market currencies? Indian rupee, Thai baht, Mexico peso (NAFTA blowup risk overdone), South African rand (Ditto with Zuma/Gupta risk) and the Russian rouble, where central banks have sacrificed stronger currencies in the quest to build reserves. it is surreal to see Bitcoin’s implied volatility surge from only 20% this summer to 100% in October. The little leveraged lambs are being led to the slaughter us they happily climb aboard this lunatic roller coaster. Yalla, habibi!

Interested in precious metals investing or storage? Contact us HERE 

Posted with permission and written by John Rubino CLICK HERE FOR ORIGINAL)

By now everyone with an Internet connection is aware of the “ransomware” attack that shut down hundreds of thousands of computers over the weekend.

The fact that the onslaught is just beginning — as the military-grade hacking tools developed by the NSA and recently leaked are weaponized by hackers and released into the wild — should, you’d think, be worrisome.

Most people are probably also aware that North Korea, which claims to have nuclear weapons, just tested a missile capable of carrying a payload to the capital cities of its neighbors. See Putin says world shouldn’t threaten North Korea, after latest missile landed near Russia.

And yet here we are with global stock markets hitting new highs, as if the world is a stable, well-managed, nearly risk-free place. It’s easy to understand cybersecurity and defense stocks doing well today. But banks and home builders? Seems like their world is anything but benign.

So what’s happening? The same thing that’s been happening for many years. The world’s governments are reacting to uncertainty with massive infusions of newly-created currency. Below, for instance, is the European Central Bank’s balance sheet – a proxy for how many new euros it has created and dumped into the economy. Note that the line went parabolic in 2014 and shows no sign of flattening. Fully one trillion new euros hit the market in 2016 and have to go somewhere. For the 1%, it’s apparently easy to relax and buy Apple and Google when that much cash keeps flowing in.

And Europe is frugal compared to China, where total credit growth (public and private combined) is on track to approach $3.5 trillion this year. That would be a record year for even the US. For a developing country like China it’s ridiculous.

Speaking of the US, here’s Credit Bubble Bulletin’s Doug Noland on what we’re up to:

I expect U.S. system Credit growth to surpass $2.2 TN this year, roughly broken down by the government sector ($850bn), Business ($750bn), Household Mortgage ($350bn) and Consumer Credit ($250bn). Another big federal deficit is expected, with the perception of a blank checkbook ensuring that deficits inflate until the markets decide otherwise. Rising home prices coupled with low mortgage rates ensure a 2017 expansion of mortgage borrowings. Loose financial conditions and record debt issuance would seem to ensure another big year of Business debt growth. And while there appears to be some tightening in subprime auto and Credit cards, I would be surprised to see Consumer Credit expand by much less than 2016. As such, the relatively stable outlook for U.S. Credit growth certainly supports the global liquidity and market backdrop.

None of this is surprising. The tens of trillions of dollars borrowed in the recent past were largely misspent, so to prevent a crisis of epic proportions, ever-greater amounts of credit have to be created and disseminated. Inflate or die, as the saying goes.

To call this a classic Ponzi scheme is by now too obvious to be worth explaining. No society has ever created this much debt, and seen so much of it become non-performing. Which is the same thing as saying no society has ever set itself up for such a sudden, dramatic change in sentiment when something big finally goes wrong.

Questions or comments about this article? Leave your thoughts HERE.

Posted with permission and written by John Rubino CLICK HERE FOR ORIGINAL)

ROGER AILES DEAD

— MATT DRUDGE (@DRUDGE) May 18, 2017

Media giant Roger Ailes, who resigned as chairman and CEO of Fox News amid sexual harassment allegations last year, has died at the age of 77. His death was first reported by the Drudge Report. No cause of death was given.

The statement shared by his wife Elizabeth Ailes read as follows:

I am profoundly sad and heartbroken to report that my husband, Roger Ailes, passed away this morning. Roger was a loving husband to me, to his son Zachary, and a loyal friend to many. He was also a patriot, profoundly grateful to live in a country that gave him so much opportunity to work hard, to rise—and to give back. During a career that stretched over more than five decades, his work in entertainment, in politics, and in news affected the lives of many millions. And so even as we mourn his death, we celebrate his life…

Shortly after, Fox confirmed:

Breaking News: Former Fox News chairman and CEO Roger Ailes has died, his family announced. pic.twitter.com/AksPdNSZaI

— Fox News (@FoxNews) May 18, 2017

Ailes founded Fox News and helped shape the modern cable news landscape in the process. For the last 15 years, the conservative outlet regularly trounced its arch rival CNN in the ratings.

But his time with the network and his association with Mr Murdoch ended in disgrace last year when he was fired following an investigation into claims that he sexually harassed Gretchen Carlson, a former presenter.

Ailes resigned as head of Fox News in July 2016 after 20 years leading the network, amid allegations that he sexually harassed Gretchen Carlson, a former presenter.

The citizens of Sweden are perhaps closer to completely giving up a component of their individual sovereignty than any other country on earth.  In a world where government’s abuse of power and intrusion into the personal lives of its blissfully ignorant enablers grows more disturbing by the day, at least for now, cash offers the one opportunity to transact in a truly anonymous way.

That said, Swedes are ditching their physical currency at a breakneck pace with notes and coins in circulation dropping consistently for the past 6 years and down over 15% in 2016 alone.

According to the following chart from Bloomberg, notes and coins in public circulation dropped to an average of 56.8 billion kronor, just $6.4 billion, in the first quarter of this year, the lowest level since 1990 and more than 40% below its 2007 peak with the pace of the decline accelerating to its fastest ever in 2016.

As Bloomberg notes, the avoidance of cash has become so prevalent in Sweden that churches, and even the homeless, now accept plastic and/or digital payments.

A growing number of Swedish parishes have started taking donations via mobile apps. Uppsala’s 13th-century cathedral also accepts credit cards.

The churches’ drive to keep up with the times is the latest sign of Sweden’s rapid shift to a world without notes and coins. Most of the country’s bank branches have stopped handling cash; some shops and museums now only accept plastic; and even Stockholm’s homeless have started accepting cards as payment for their magazine. Go to a flea market, and the seller is more likely to ask to be paid via Sweden’s popular Swish app than with cash.

“Fifteen years ago I would withdraw my entire salary and put it in my wallet, so I knew how much I had left, but these days I never really carry cash,” said Lasse Svard, the acting vicar at the parish of Jarna-Vardinge, about 50 kilometers (31 miles) south of Stockholm.

“A drive for innovation has been created in Sweden to come up with cost-effective and user-friendly alternatives to cash,” Skingsley said. Cash is likely to “more or less disappear” as a means of payment in the private sector, she said.

Of course, we should all promptly ignore the negative, unintended consequences of a cashless society in the name of “innovation.”  Forget about the ultimate power and control it gives to governments to track your every move and to Central Banks to ram their reckless policies down your throat.

And you shouldn’t t worry too much about those cyber attacks either…because those things rarely happen these days…”Worst-Ever Recorded” Ransomware Attack Strikes Over 57,000 Users Worldwide, Using NSA-Leaked Tools“.

After dismal housing starts and permits data yesterday, the ‘housing recovery’ narrative took another knock this morning as mortgage applications tumbled 4.1% last week – the biggest drop since December 2016.

While mortgage rates were unchanged, both purchases and refis fell notably…

• Purchases down 2.7% after rising 1.7% in prior week
• Refis fell 5.7% after rising 3.3% in prior week

Perhaps additionally of note the government’s programs saw a dramatic drop off in the last week…

Earlier today, RBC’s Charlie McElligott explained why today’s action is indicative of one or more energy/risk-neutral/value funds blowing up. Now he looks at the underlying cause, and attributes it to the inability of investors to discriminate between real and imaginary threats in what has now become a “deafening cacophony of noise.”

THE DOLLAR MELTDOWN

We are currently in the midst of a sixth-consecutive day of declines for the USD.  The past week’s acceleration of legacy ‘long Dollar’ liquidations (as new EUR longs are built as well) sees absolute trade-weighted indices (BBDXY, DXY) AND net USD spec positioning back at pre-election levels.  This move in Dollar is primarily occurring on two fronts:

1. The tightening of US / EU rates differentials, as US data has softened simultaneously into the ECB accelerating their ‘less dovish’ / tapering rhetoric.  As such, we see EUR making highs since pre-election.
2. The ever-mounting storm clouds over the Trump administration, with the increasingly ‘unhinged’ President now under-fire via the Comey ‘memo’ communicating pressure from DJT with regards to the FBI’s Mike Flynn investigation, telling the then-Director “I hope you can let this go” (we are now hearing calls for “impeachment” growing louder, although legally by those comments alone, it is highly debatable as to whether this is ‘tampering’ / ‘obstruction’).

US / EU rates differentials dictating Dollar direction, and mirrors the decline in net spec longs

VOL AND ‘WHITE NOISE’:

The largest implications of the Dollar-move from an FX perspective are with Euro shorts (a greater than 2SD % move higher over the past four sessions) and Yen shorts ($/Y -150pips from yesterday’s highs), although the broad FX market volatility remains in the same ‘zombie-state’ as other asset classes, with CVIX just +3.9% WTD.

This brings up another point: ‘short vol’ has been a ‘loaded’ and profitable factor across all major asset classes for years now…not just equities.  And from a 30k foot view–outside of the performance derived from ‘short vol,’ central bank rate suppression / intervention and the growth of ‘negative convexity’ strategies—it increasingly feels like this broad and painfully constant “uncertainty” meme is a large part of the ‘low volatility problem’ in-and-of-itself.  The “rolling crisis” world we’ve operated in since ’07 has only gotten worse with armchair quarterbacking from the 24/7 news media now being escalated exponentially via social media.

The punchline: the cacophony of noise is deafening, so much so that investors have become utterly desensitized to what constitutes an actual threat to their portfolios versus what is just ‘static.’  The path-of-least-resistance implication?  Tune it out and stay ‘long-and-strong’ under the guise of ‘slow but realizing economic recovery’ and central bank ‘puts.’  The rest is simply “paying-away performance” via hedging that saps alpha, which in light of a world of negligible yield, is not a viable option.

So you either profit from it (sell vol and collect premium) or you go unhedged.  Caveat emptor.

* * *

Here is another way of visualizing this: the correlation between “crisis” stories and VIX has recently gone negative.

Authored by Charles Hugh-Smith via OfTwoMinds blog,

The system is disintegrating, and slapping a “reformist” coat of paint over the dryrot cannot renew the structural timbers that have rotted to their very core.

I confess to being amused by the mainstream media’s implicit view that everything would be peachy if only Trump wasn’t president. Memo to MSM: the nation is fragmenting for reasons that have nothing to do with who’s president, or indeed, which party is the majority in Congress, who sits on the Supreme Court, or any other facet of governance.

The nation is fracturing and fragmenting because the Status Quo is failing the majority of the citizenry. The protected few are reaping all the benefits of the Status Quo, at the expense of the unprotected many.

As I have outlined many times, this unsustainable asymmetry is the only possible outcome of our socio-economic system, which is dominated by these forces:

1. Globalization–free flow of capital, labor arbitrage

2. Nearly free money from central banks for financiers and corporations

3. Pay-to-play “democracy”

4. State protected cartels that privatize gains and socialize losses

5. A system stripped of self-correcting feedback and accountability

Once you understand the inputs and structure, you realize there is no other possible output other than unsustainably expanding debt and wealth/income inequality. Policy tweaks cannot change the output; all they do is provide an illusion of reform that serves the need of those at the top to obscure the systemic injustices and unsustainability of the extractive, exploitive, predatory, parasitic system that’s enriching them.

What do people do when centralized systems fail to deliver what was promised? They fragment into smaller “tribes” and find fewer reasons to cooperate in centralized systems. As historian-economist Peter Turchin explained in his 2016 book Ages of Discord, human history manifests cycles of social disintegration and integration in which the impulse to cooperate in large social structures waxes and wanes.

Turchin identified 25-year cycles that combine into roughly 50-year cycles, comparable (though not identical with) Kondratieff’s proposed economic cycles.

These 50-year cycles are part of longer 150 to 200-year cycles that move from cooperation through an age of discord and disintegration to a new era of cooperation.

This work draws upon his previous books, including War and Peace and War: The Rise and Fall of Empires, which I referenced in Following in Ancient Rome’s Footsteps: Moral Decay, Rising Wealth Inequality (September 30, 2015) and The Lesson of Empires: Once Privilege Limits Social Mobility, Collapse Is Inevitable (April 18, 2016).

These long cycles parallel the cyclical analysis of David Hackett Fischer, whose masterwork The Great Wave: Price Revolutions and the Rhythm of History I’ve referenced many times over the years, most recently in We’ve Entered an Era of Rising Instability and Uncertainty (July 18, 2016).

Turchin’s model identifies three primary forces in these cycles:

1. An over-supply of labor that suppresses real (inflation-adjusted) wages

2. An overproduction of essentially parasitic Elites

3. A deterioration in central state finances (over-indebtedness, decline in tax revenues, increase in state dependents, fiscal burdens of war, etc.)

These combine to influence the social order, which is characterized in eras of discord by declining loyalty to self-serving special interests (disintegration) and in eras of cooperation by a willingness to compromise for the good of the entire society (integration).

As I have often explained, centralization is now a disruptive drag rather than a benefit. Centralization provided widespread gains in efficiencies in its boost phase, but now that it is sliding down the S-curve, it only benefits the few at the expense of the many.

The returns on centralization have diminished to less than zero: centralization’s primary outputs are now corruption, lack of accountability, cronyism, complexity moats and bureaucratic thickets that obscure the self-serving nature of centralized power.

State of Denial: The Economy No Longer Works As It Did in the Past (May 16, 2017)

The structural failure of our political-economic system cannot be remedied by electing a new president or swapping failed political parties. The system is disintegrating, and slapping a “reformist” coat of paint over the dryrot cannot renew the structural timbers that have rotted to their very core.

Identifying cycles can be a parlor game, but there is no denying that we’re deep into a disintegrative phase that will probably come to a head between 2021 and 2029.

Despite the elites’ desperate hope that recent ‘losses’ in Holland France ‘prove’ the anti-establishment movement is fading (although they all saw soaring popularity), with Europeans ready to protest, there are still numerous regions urging secession…

There have been 486 military conlicts in Europe in the last 2000 years and while the last decade or two has been ‘peaceful’, we suspect that will not last.

As BofAML’s Transforming World Atlas details, many areas in Europe have strong secessionist movements (e.g. Scotland, Catalonia, Basque, Flanders, Veneto) or have political parties agitating for greater ruling autonomy.

European political union remains elusive, so does fiscal union, and monetary union is tarred by the fact that nine EU countries – soon to be eight – (Bulgaria, Croatia, Czech Republic, Denmark, Hungary, Poland, Romania, Sweden, and The UK) do not use the Euro.

For years we’ve written about the fact that Americans, young to old, are lousy savers (see “Retirement Crisis Looms As Average U.S. Household Has Saved $2,500 For Retirement“). Of course, they have to be because how else can a mature economy continue to grow unless every single person levers every asset they own to the maximum extent possible and then spends all of that money?  Anything less would mean that all of Janet Yellen’s efforts have been a colossal waste. Meanwhile, this inherent inability to save is awful news for a nation that faces a massive wave of baby boomer retirements over the next 20 years.

All that said, we were somewhat shocked to come across a report from money manager United Income which effectively argues that American retirees are saving too much money rather than too little.  To summarize the thesis, United Income argues that retirees become more conservative as they grow older which causes them to save more and allocate less to equities…which is, of course, a somewhat self-serving conclusion but never mind that.

Innovations in medicine and technology have extended human life by over 30 years since 1900. This has helped to double the amount of time the average adult now spends in retirement compared to several decades ago. But, the benefits of longer lives and retirement may be limited if older households curb their consumption or investment in preventive health measures because they are overly pessimistic about their future financial health. Overly negative viewpoints toward the future may also create self-fulfilling economic problems if it leads to an overly aggressive fixed-income portfolio. To assess these possibilities, we analyze consumer sentiment and spending data from the University of Michigan that was commissioned by the Social Security Administration and U.S. Commerce Department, among other federal agencies.

The only problem with the theory is that, intentional or otherwise, it’s based on a complete misinterpretation of data.  Per the chart below, United Income referenced the growth in “Mean Net Wealth” as evidence that retirees are hoarding too much cash.

Unfortunately, when combined with the fact that “Median Net Wealth” is actually shrinking, it’s easy to deduce that while the majority of American retirees are actually spending their retirement income (and then some), there is a group of super wealthy old folks who simply can’t spend enough money to offset annual investment income growth….which speaks more to the growing wealth gap than to some economic fear that is causing retirees to hoard cash.

In this context, it’s not too difficult to understand why aggregate YoY spending trends collapse as old folks get older.  The most wealthy retirees can only find so many ways to burn their massive nest eggs which means that, at least for these folks, YoY spending doesn’t grow but retirement balances do…

…while the overwhelming majority of people simply run out of cash and have to cut every corner possible to survive….

But we’re sure the report from United Income, as misleading as it may be, will undoubtedly convince more retirees to allocate more money to equities…all of which will inflate this ETF-induced equity bubble even more, all while adding to United’s fee income…It’s one of those ‘win-win’ deals.

After a big plunge in March (it’s the weather, stupid), Housing Starts were expected to rebound in April… but did not! Starts dropped 2.6% in April, after March’s 6.6% drop. Building Permits also tumbled 2.5% MoM – also multiple standard-deviations below expectations.

Single family permits dropped to 789K, the lowest since November (and multi-family is also at its lowest since Nov)

The following map, from BofaML’s Transforming World Atlas, shows the world mapped proportionally by country according to the number of times mentioned  by President Trump in his tweets and speeches (campaign and presidency)…

Source: BofAML

The Top 8 are: USA, China, Syria, Russia, Iraq, Mexico, Iran, and United Kingdom

Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

By the end of this month, Defense Secretary James Mattis and National Security Advisor HR McMaster will deliver to President Trump their plans for military escalations in Afghanistan, Iraq, and Syria. President Trump would be wise to rip the plans up and send his national security team back to the drawing board – or replace them.

There is no way another “surge” in Afghanistan and Iraq (plus a new one in Syria) puts America first. There is no way doing the same thing over again will succeed any better than it did the last time.

Near the tenth anniversary of the US war on Afghanistan – seven years ago – I went to the Floor of Congress to point out that the war makes no sense.

The original authorization had little to do with eliminating the Taliban. It was a resolution to retaliate against those who attacked the United States on September 11, 2001. From what we know now, the government of Saudi Arabia had far more to do with the financing and planning of 9/11 than did the Taliban. But we’re still pumping money into that lost cause. We are still killing Afghanis and in so doing creating the next generation of terrorists.

The war against ISIS will not end with its defeat in Mosul and Raqqa. We will not pack up and go home. Instead, the Pentagon and State Department have both said that US troops would remain in Iraq after ISIS is defeated. The continued presence of US troops in Iraq will provide all the recruiting needed for more ISIS or ISIS-like resistance groups to arise, which will in turn lead to a permanent US occupation of Iraq. The US “experts” have completely misdiagnosed the problem so it no surprise that their solutions will not work. They have claimed that al-Qaeda and ISIS arose in Iraq because we left, when actually they arose because we invaded in the first place.

General David Petraeus is said to have a lot of influence over HR McMaster, and in Syria he is pushing for the kind of US troop “surge” that he still believes was successful in Iraq. The two are said to favor thousands of US troops to fight ISIS in eastern Syria instead of relying on the US-sponsored and Kurdish-led Syrian Democratic Forces to do the job. This “surge” into Syria would also lead to a lengthy US occupation of a large part of that country, as it is unlikely that the US would return the territory to the Syrian government. Would it remain an outpost of armed rebels that could be unleashed on Assad at the US President’s will? It’s hard to know from week to week whether “regime change” in Syria is a US priority or not. But we do know that a long-term US occupation of half of Syria would be illegal, dangerous, and enormously expensive.

President Trump’s Generals all seem to be pushing for a major US military escalation in the Middle East and south Asia. The President goes back and forth, one minute saying “we’re not going into Syria,” while the next seeming to favor another surge. He has given the military much decision-making latitude and may be persuaded by his Generals that the only solution is to go in big. If he follows such advice, it is likely his presidency itself will be buried in that graveyard of empires.

Authored by Gwynne Dyer via BangorDailyNews.com,

“I am no Mussolini,” Venezuela’s beleaguered President Nicolas Maduro insisted on television early this month. But if things go on this way, he could end up like Mussolini. That would be very unfortunate for him and also for Venezuela.

The daily street protests against Maduro’s rule are in their second month, and around 40 people have already been killed, most of them by the police. “Molotov cocktails” (fire-bombs) are old hat; the new fashion is for “poopootovs” — containers of human or animal excrement that are thrown at the security forces. Nobody knows when it will all end, but most people fear it will end badly.

It didn’t begin all that badly. Hugo Chavez, a radical former army officer who led a failed coup attempt in 1992, was elected to the presidency quite legitimately in 1998. Venezuela was the richest country in South America because of its oil wealth, but most of the 31 million Venezuelans were very poor, and Chavez proposed to change that.

He had strong popular support – majorities of around 60 percent in the 2002 and 2006 elections and still 55 percent even in 2012 – and he had lots of money to give to the poor. But he died of cancer in 2013, and his successor, a former bus driver called Nicolas Maduro, got barely 50 percent of the vote in a special election later that year. He has not had a quiet moment since.

The problem is money. Chavez ran up massive deficits to finance his spending on health, education and housing, which really did transform the lives of many of Venezuela’s poor, but the bills only came in after he died. The world price of oil collapsed, Venezuela’s income did too, and everything went sour.

Now Venezuela has the highest inflation in the world — 700 percent this year — and the economy has shrunk by almost one-fifth. There are chronic shortages of food and medicines: three-quarters of Venezuelans say they are eating less than two meals a day, and the child death rate is up by 30 percent. And a lot of people, including former Maduro supporters, are very angry.

To stay in power, Maduro must avoid an election, and the next presidential election is due next year. The opposition had already won a two-thirds majority in the National Assembly in 2015, so Maduro’s first move, in late March, was to have the Supreme Court (packed with his supporters) simply declare that the National Assembly was “in contempt” of the country’s laws and shut it down.

That was what brought the protesters out on the streets in such numbers that three days later Maduro lost his nerve and the Supreme Court revoked its decree. But the protests, fueled by the growing shortages of practically everything, just kept going, and now the demonstrators were demanding that the next presidential election be brought forward from 2018 to this year.

Maduro is cornered. He could not win a presidential election this year, or in 2018 either. It’s not even certain that the rank-and-file of the security forces can be relied on to defend him forever. So he has played his last card: a new constitution.

The last constitution was written by Chavez himself and adopted in 1999. At the time, he said it was the best in the world and promised it would last for centuries, but on May 1st Maduro said the country needs a new one. He is going to call a “constituent assembly” to write it, although he was vague on how its members would be chosen. Some might be elected, and others would be chosen from “social organisations” (i.e. his cronies).

The Chavez constitution does not give Maduro the authority to do this, but the man is desperate. He needs an excuse to postpone elections he knows he would lose, and this is the best he can come up with. It won’t work, because the opposition understands his game and will not accept it. The country is drifting towards civil war.

“I don’t want a civil war,” Maduro said while announcing his constituent assembly, but he is laying the foundations for one. He might even win it, in the short term, if the army and police stay loyal to him. But in the longer run he really does risk ending up like Mussolini: executed without trial and hanging upside-down in a public square.

Having surged to its highest since Oct 2014 early in the year on the back of Trumptopian exuberance, Empire Fed’s manufacturing survey crashed back to -1.0 in May

4 standard deviations below expectations.

This is the worst (and first) contractionary print since October 2016 as New Orders crash from 7-year highs to 7-month lows.

Prices paid and received both fell (deflationary threat from China), inventories shrank (bad for GDP), average workweek and number of employees dropped (not making America great again), and future capex expectations plunged to 7 month lows.

All in all – a perfect reflection of the death of animal spirits and why paying attention to the the spikes in these surveys – while ignoring ‘hard’ data – is a fool’s errand.

Authored by Federico Pieraccini via The Strategic Culture Foundation,

With Moon Jae-In’s victory in South Korea, the period of tension on the Korean Peninsula is likely to end. With the rise to power of the new president, South Korea can expect a sharp decline in hostilities with North Korea as well as a resumption of dialogue with China.

An expected and highly anticipated victory was confirmed in South Korea on May 9, with candidate Moon winning South Korea’s presidential race over his rivals Hong Joon-pyo (Liberty Korea Party) and Ahn Cheol-soo (People’s Party). After the resignation and arrest of former President Park Geun-hye over an immense corruption scandal, public opinion turned away from her party in favour of the main opposition representative, a center-left lawyer specializing in humanitarian issues.

Moon spent several years in the opposition party advocating for greater cooperation in the region and dialogue with Pyongyang as well as with Beijing, representing quite a contrast to Guen-Hye’s pro-Americanism. Along the lines of Duterte in the Philippines, Moon intends to resume dialogue with all partners in order not to limit his options in the international arena. Such an approach reflects the essence of the multipolar world order: cooperation and dialogue with all partners in order to achieve a win-win outcome.

Looking at the situation in the region, the victory of a politician who seems to have every intention of negotiating an agreement rather than supporting military escalation seems to provide for a hopeful future for China and her neighbors. The level of cooperation and trade between South Korea and China is fundamental to the economy of both countries, so a return to the negotiating table over the issues surrounding the deployment of THAAD are a hopeful sign that the business communities of China and South Korea value deeply.

Duterte Strategy

The United States is again faced with a Filipino-like scenario. Historically, South Korea and the Philippines have always been two fundamental US allies, more concerned with Washington’s interests than their own national political agendas. Over the last few decades, both countries have been governed by politicians careful not to upset the sensibilities of US policy makers. South Korea and the Philippines are at the heart of the political strategy Obama called the Asian Pivot, more explicitly, a policy aimed at containing China and its expansion as a regional hegemon in Asia.

Following the Trump administration’s focus and threats against North Korea in recent weeks, war has seemed more likely on the peninsula. But with Moon’s victory, it has probably been permanently excluded as a possibility. In several interviews weeks prior to the election, Moon stated that a war between the US and the North Korea would constitute an impossible burden for South Korea to sustain. Moon is very realistic about the conventional deterrence that North Korea possesses, maybe even more so than the nuclear development.

Even though Trump has said he is willing to meet with Kim Jong-un, most of his decisions seem to depend on the hawks surrounding him. Looking at the first hundred days of the Trump administration shows a remarkable departure from electoral promises, with the influence of generals he nominated, leading to various escalations in the hot regions of the world. Bottom line is, Trump’s intentions and words matter to a certain extent as US posture in the region seems to be guided by military generals and inner circle family members. Fortunately for the world, the tentative moves in Syria and Afghanistan have not amounted to much, such as with the bombing of the Shayrat airbase or the show in Afghanistan involving the MOAB.

THAAD to Divide

The deployment of the THAAD system continues as part of a belligerent attitude towards North Korea. The strong and firm rhetoric of Pyongyang is justified and not surprising given the context and the threats facing the country in wake of US provocations. The deployment of THAAD has had consequences, such as increasing tensions between South Korea and China. Moon’s victory goes contrary to the goal of the US policy-makers in Washington to isolate China. In this light, the hurried deployment of THAAD before the South Korean election obliged the probable winner, Moon, to be faced with an accomplished fact. This first step makes it clear what Washington’s attitude towards the new South Korean president will be.

The THAAD has also been deployed to antagonize the most frustrating point between Seoul and Beijing: North Korea. The measure was intentionally taken by Washington to pressure Seoul. THAAD has all the characteristics of a Trojan horse. Placed to reassure an ally (Seoul) against a fake-threat (Pyongyang), it becomes a weapon against China that puts in place a system, only a few hundred miles from its border, potentially able to affect China’s strategic nuclear forces. The US military accelerated the deployment of THAAD in the knowledge that this would immediately place the future president in a difficult situation, in that removing THAAD would not be easy in the face of huge American pressure. This may perhaps be Moon’s first challenge; to use the dismantling of THAAD as a means of exchange with Beijing to return to a normal relationship of co-operation. If Beijing wants to believe Moon’s goodwill in eliminating the THAAD system, it may begin to loosen some of the measures imposed on Seoul as retaliation for the deployment of the US system.

Multipolar world to the rescue

In this scenario, one must not make the mistake of believing that Moon’s victory means that a major US ally will cease its support for Washington. As always, in this era of transition from a unipolar to a multipolar world, the pressure that Washington will decide to apply to South Korea will affect the nature of the US-ROK alliance. The United States will have to abandon the warlike posture so dear to Mattis, McMaster and Admiral Harris (the commander of the US Pacific Fleet). In this Tillerson as a realist might be the right man at the right place to negotiate with Moon. Potentially it could be possible to solve the problem in whole by dealing with North Korea, although that seems unlikely given the pressures the deep state will put on the administration to continue using North Korea to create instability in the region.

This is why much of the region’s future will remain subordinated to potential negotiations between Beijing, Pyongyang and Seoul on the Korean peninsula, especially after Moon’s victory. If these three nations succeed in finding common ground on which to set upon a path of reconciliation, the region will benefit greatly. Of course, in this context, the one most likely to lose influence is the United States. If Washington wants to remain relevant, it should abandon the Chinese containment plan through the Korean peninsula by exploiting North Korean problems. If they instead decide to try to sabotage any peace agreement in the peninsula, this will only push Seoul and Pyongyang even closer together, to Beijing’s great pleasure.

Recent years have seen a mounting showdown between the old world order configuration based on chaos and destruction and led by Washington, and the new multipolar order that focuses on win-win opportunities, dialogue and sincere cooperation. If Washington decides not to accept the new rules of the game, where it can no longer dictate the law, it will end up producing more damage against itself than any foreign country could actually do, in actual fact accelerating the formation of the multipolar world and putting to bed the unipolar world order for good.

While equity volatility has collapsed to record lows (amid the biggest increase in net VIX shorts in 9 months), positioning across bond, FX, money market, and commodity markets has been shifting massively in recent weeks.

As US Macro data has crashed to its weakest and most negative in 12 months…

US equity complacency has hit record lows…

As Speculators add to VIX shorts by the most in 9 months…

But as traders dump equity protection they are surging into safe havens like bonds. 10Y Treasury specs are the longest since Dec 2007

But aggregate Treasury complex positioning (in 10Y equivalents) shifted back into bearish territory in the last two weeks as Eurodollar shorts (bets on rate hikes) increased back near record shorts…

However, while Eurodollar shorts (rate hike bets) have increased, it appears traders are shifting the timing further out as open interest shifts notably further out and call options (implicitly betting on lower rates, not higher) are dominating trading in recent days (as economic data crashes)…

And as rate hike expectations drop, so net USD longs tumble to the lowest since September 2016…

With EUR positionig has soared back into a long position (the longest since May 2014)

As Loonie net shorts hit an all-time record high…

And Sterling net shorts are the lowest since Brexit…

And while Chinese raw materials prices have been plunging (and crude stabilizing, near lows), NatGas futures positioning has surged to a net long for the first time since December 2006…

That’s a lot of major market moves considering how ‘dead’ stocks are… for now.

Having single-handedly hounded Home Capital Group – the company which we predicted in 2015 would be “ground zero” for any potential Canadian financial crisis, and has emerged as the Canada’s equivalent to the infamous New Century which in 2007 presaged the upcoming global financial crisis – into near oblivion, noted chicken-farmer and short-seller, Marc Cohodes, over the weekend revealed the full details behind his latest short thesis: Canadian oil and gas service provider, Badger Daylighting.

Badger, for those unfamiliar, is a company which uses a technique called hydrovac excavation, in which pressurized water and a powerful vacuum are used to expose buried pipes and cables.

The company, with the unfortunate Toronto Ticker “BAD“, already had a bad day on Friday when it revealed earnings and revenues that badly missed consensus expectations. Insult was added to injury after Cohodes, who most recently gained prominence for his short bet on Home Capital Group, previewed pages of a negative presentation on Badger to his Twitter feed Friday, saying that the shares are overvalued and that there are low barriers to entry.

As a result, BAD shares plunged as much as 28% to C$22 in Toronto, the biggest intraday decline since November 2006, after previously dropping 4.8% YTD. To be sure, on Friday Badger CEO Paul Vanderberg, without in depth knowledge of Cohodes’ thesis, responded to Cohodes saying “my focus on that is really not to focus on it” during the earnings call and adding that “I don’t agree with the thesis.” Obviously, especially since neither he nor anyone else had seen or read it.

Chief Financial Officer Jerry Schiefelbein also responded, saying Badger is working to train new workers and managers on how to operate more efficiently, which should help reduce costs. He said the company’s first-quarter sales were “pretty good” following a couple of tough years. As for Cohodes’ criticism about low barriers to entry, Schiefelbein was quoted by Bloomberg saying tat Badger’s size gives it an advantage over mom-and-pop shops that would seek to compete with the company. Badger can tackle bigger projects for municipalities, has safety systems that larger customers require and it can move assets to markets where there is more demand, he said. “It’s not just digging holes in the ground.”

After Friday’s fireworks, BAD shares tumbled to roughly 7.7x EBITDA. That may be just the beginning (of the end): according to Cohodes’ thesis which was released overnight, they are likely to drop much lower.

Below are the summary (dis)investment highlights from Cohodes’ presentation on BAD released overnight, and titled “Last One Out has to Turn Out the Badger Daylight“

BAD business

• Tried and failed strategy (e.g. H2X, LLC)
  • No moat, anyone can compete or insource, buy out of bankruptcy
  • US oversaturated (market already grown > 20x, no longer novel)
  • Price pressured, “public utilities can’t afford” to pay BAD’s prices
  • Overvalued, NYSE:CLH bought TSX.V:LSI for 1x sales on 5/11, $0.3m/truck; Strong competitor coming in at 20-30% lower cost than BAD’s cost to build

• Real growth?
  • 40% fleet idle? Many locations are empty lots, listing driver’s cell #
  • Cannibalize the franchise (franchised was 90%, now 20%): liability > $170m; “squeeze ‘em out” once market is proven and local relationships set
  • Franchisee bears the risk of overexpansion
  • BAD threatens to repo franchisee’s trucks if sales quotas missed

BAD accounting

• Industry collapsing, why BAD’s numbers held up?
• “Other Revenue,” other questionable reserves?
• Is there anything off balance sheet (OBS)?

BAD people

• Last one out has to turn out the Badger Daylight
  • Departures: CEO, CFO, VP of OPS (#3), AUDITOR, Member of Audit
  • Mass departure coincidence or did they all leave for a reason?

• Who holds the bag?
  • Current CFO’s last co. went bust, not an accountant, not a CPA
  • Current CEO admits “I know very little about hydrovac”

BAD investors

• What was the purpose of BAD management meeting with investors late March & early April?
  • BAD announced earnings 70% below expectations on May 12, 2017
  • Did BAD management mislead investors or did BAD management not have the internal controls to know how business performing?
• Turtle Creek Asset Management is No.1 holder (15%)
  • Turtle Creek is the largest (19%) holder of Home Capital Group (TSX:HCG)
  • Partners: Andrew Brenton, Jeff Cole, Jeff Hebel
  • At Feb 15 2017 annual meeting Brenton stated, “First step is picking the right kind of company. We are looking for honest companies… Today we believe, give or take, all our companies pass these tests. … Jeff Hebel is partner on Badger….passed all our tests; now we are trimming – don’t know where share price goes from here…we know what we’ll do at $40 or in teens… We think a lot about tax”

Full presentation below (link)

Finally, for those who wish to hear Cohodes’ full presentation at the 2016 Grant’s Interest Rate Conference, which contained this famous phrase “free speech isn’t free unless you’re a bull; we live in a country where it’s ok to sit down when the nationa lanthem plays, but if you don’t have an opinion that the cartoon netrowk, aka CNBC believes in, you don’t necessarily have rights“, here is your chance.

Three former employees of Donald Trump claim to have personally witnessed him recording phone calls at Trump Tower in New York, and a fourth person said a recording of him was entered into evidence in a lawsuit – the Wall St. Journal reports.

Mr. Trump sometimes taped phone conversations with associates and others from his Trump Tower office in New York, according to three people who say they have direct knowledge of the recordings.

Mr. Trump had one or more recording devices that he used to tape his phone calls from his office, the three people said. All are former high-level employees who worked for Mr. Trump over a span of three decades. They said they saw devices in use recording phone calls.

One employee claims Trump recorded ‘virtually everything’

“He recorded virtually everything in the office,” one former high-level Trump Organization employee said. “I know many of my conversations when I called him were recorded before and after I was working there.

The new claims come on the heels of a Friday Tweet from the President suggesting former FBI Director James Comey better check himself before he further wrecks himself.

James Comey better hope that there are no “tapes” of our conversations before he starts leaking to the press!

— Donald J. Trump (@realDonaldTrump) May 12, 2017

Hours later, Comey announced he wouldn’t be testifying before a closed session of the Senate Intelligence Committee.

“It is our hope in the not-too-distant future that we can find a time for [Comey] to come in and talk to our Committee” -Vice Chairman Mark Werner (D-VA)

Thursday evening, the President made waves in an interview with NBC News’ Lester Holt when he said that Comey requested a dinner in which he asked to keep his job as FBI Director, and allegedly told the President that he wasn’t under investigation:

It is unclear whether Trump’s tweet the next day about ‘tapes’ was in reference to the dinner with Comey or other conversations with the former FBI director.

Trump’s attorney responds

According to the WSJ, Trump’s personal attorney Michael Cohen said he wasn’t aware of any such recording devices;

“In the decade that I worked for Mr. Trump, I have never seen a recording device attached to his phone, nor am I aware of any occasion where he taped a conversation.”

During a Friday briefing with the press, White House Press Secretary Sean Spicer did not comment on whether or not the President had made recordings featuring the former FBI Director, or whether the President records conversations at the White House.

If true, is it legal?

Recording a conversation in New York or Washington isn’t illegal as long as at least one party knows it’s happening. Florida, where Trump spends a lot of time at his mar-a-lago resort, requires all parties to consent to being taped unless it’s in public.

Democrats flip out over tweet, Wikileaks makes a friendly offer

In response to Trump’s Friday morning tweet, congressman Raja Krishnamoorthi (D-IL) shot off a harshly worded letter to Trump’s attorney seeking answers about the suspected recording.

Raja Krishnamoorthi (D-IL, where else) shoots off harshly worded letter demanding answers. pic.twitter.com/HgxmI6WKzc

— ZeroPointNow (@ZeroPointNow) May 14, 2017

@realDonaldTrump If there are–you know where to send them: https://t.co/cLRcuIiQXz

— WikiLeaks (@wikileaks) May 12, 2017

Previous recording activities on record

During a 1989 lawsuit against Trump’s Atlantic City casino, the owners of the Sands, Pratt Hotel Corp, sued the Trump organization for interfering with their attempts to buy a construction project near Trump Plaza Casino. In court, Trump’s legal team presented a recording Trump had made of a conversation between himself and the president of Pratt, William Weidner – in order to show that Weidner had lied on the stand.

In another incident during the 2016 presidential campaign a reporter for the WSJ sat down with Mr. Trump for an interview, informing him that he planned to tape – to which Trump replied he would be taping as well. Trump then slid a newspaper across his desk with a smartphone underneath, presumably recording.

Indeed, it appears that former FBI Director James Comey should watch what he says – perhaps explaining his refusal to testify before the Senate Intelligence Committee next week.

Content originally generated at iBankCoin.com * Follow on Twitter @ZeroPointNow

Authored by Paul Criag Roberts,

“Fifty years ago, the streets of Leningrad taught me one thing: If a fight is inevitable, you must strike first.” Vladimir Putin

In George Orwell’s 1949 dystopian novel, 1984, information that no longer is consistent with Big Brother’s explanations is chucked down the Memory Hole. In the real American dystopia in which we currently live, the information is never reported at all.

On April 26 – 16 days ago – Lt. Gen. Viktor Poznihir, Deputy Chief of the Main Operations Directorate of the Russian Armed Forces, stated at the Moscow International Security Conference that the Operations Command of the Russian General Staff has concluded that Washington is preparing a nuclear first strike on Russia.

See:

https://www.rt.com/news/386276-us-missile-shield-russia-strike/ 

http://www.fort-russ.com/2017/04/us-forces-preparing-sudden-nuclear.html 

https://www.times-gazette.com/ap%20general%20news/2016/10/12/russia-china-to-mull-joint-response-to-us-missile-shield  

http://themillenniumreport.com/2017/04/us-forces-preparing-sudden-nuclear-strike-on-russia-moscow-security-conference/ 

The Times-Gazett in Ashland, Ohio, was the only US print media that a Google search could turn up that reported this most alarming of all announcements. A Google search turned up no reports on US TV, and none on Canadian, Australian, European, or any other media except RT and Internet sites.

I have been unable to find any report that any US Senator or Representative or any European, Canadian, or Australian politician has raised a voice of concern.

No one in Washington got on the telephone to tell Putin that this was all a mistake, that the US was not preparing a nuclear first strike on Russia, or ask Putin how this serious situation could be defused.

Americans do not even know about it, except for our readers.

I would have expected at least that the CIA would have planted the story in the Washington Post, the New York Times, CNN, MSNBC, and NPR that General Poznihir was expressing his personal opinion, nothing to be taken seriously. But apparently Americans and their European vassals are not to even know that such an accussation was made.

As I reported some time ago and more recently in my column about North Korea, the Chinese leadership has also concluded that the US intends a nuclear first strike against China.

Alone either Russia or China can destroy the US. If they act together, the destruction of the US would be redundant. What is the intelligence, if any, and morality, clearly none, of the US leadership that recklessly and irresponsibly invites Russia and China to preempt Washington’s attack on them with an attack on the US?

Surely not even insouciant Americans are so stupid as to think that Russia and China will just sit there and wait for Washington’s nuclear attack.

I lived through every stage of the Cold War. I participated in it. Never in my life have I experienced the situation where two nuclear powers were convinced that the third was going to surprise them with a nuclear attack.

I supported Trump because he, unlike Hillary, said he would normalize relations with Russia. Instead he has raised the tensions between the nuclear powers. Nothing is more irresponsible or dangerous.

We currently are in the most dangerous situation of my lifetime, and there is ZERO AWARENESS AND NO DISCUSSION!

How can this be? Putin has been issuing warnings for years. He has told the Western presstitute media on more than one occasion that they, in their dishonesty, are pushing the world to nuclear war. Putin has said over and over, “I issue warnings and no one hears.” “How do I get through to you?”

Maybe the morons will hear when mushroom clouds appear over Washington and New York, and Europe ceases to exist, as it will if Europe continues the confrontation with Russia as is required from Washington’s well-paid vassals.

Within the last several years I reported the Chinese government’s reaction to US war plans for a nuclear strike on China. The Chinese showed how their submarines would destroy the West Coast of the US and their ICBMs would finish off the rest of the country.

I reported all of this, and it produced no response. The Memory Hole wasn’t needed, as neither Washington nor the presstitutes nor the Internet noticed. This is insouciance to the thousandth degree.

In America and its subservient, crawling on their knees vassal states, the information never gets reported, so it never has to be put down the Memory Hole.

If you convince someone that you are going to kill them, they are going to kill you first. A government, such as what exists in Washington, that convinces powerful countries that they are targeted, is a government that has no respect whatsoever for the lives of its own people or the peoples of the world or for any life on planet Earth.

Such a government as Washington is evil beyond all measure, as are the media whores and European, Canadian, Australian, and Japanese vassal states that serve Washington at the expense of their own citizens.

Despite all their efforts to believe otherwise, the Russian and Chinese leaderships have finally arrived, belatedly, at the realization that Washington is evil to the core and is the agent of Satan.

For Russia and China, the Satanic Evil that rules in the West has reduced the choice for Russia and China to them or us.

When we looked at subprime auto delinquencies most recently, we found some troubling trends: first, in February, we showed that 61+ day delinquencies in General Motors’ subprime securitization book would support a rather bleak thesis for future auto sales, and specifically the demand side of the equation, with January 2017 delinquency rates soaring to the highest levels since late 2009/early 2010. 

Ironically, this hasn’t stopped lenders from providing financing, and according to Morgan Stanley since 2010, the share of Subprime Auto ABS origination that has come from deep subprime deals has increased from 5.1% to 32.5%, suggesting that yield-starved buyside will put “other people’s money” into anything as long as it provides a slightly higher yield.

Meanwhile, the subprime shock has already impacted the broader market, observed with the latest monthly auto sales data which declined four month in a row heading into May. An even bleaker picture of the subprime market emerged a month later when looking at the latest securitization analysis from Morgan Stanley which revealed that 60+ day delinquencies at 266 subprime auto ABS deals were surging – despite low unemployment, high consumer confidence and debt-to-income ratios at 30-year lows – back to ‘great recession’ levels. Meanwhile, loss severities were also shooting higher just as used car prices were sliding.

In part, this tied in with the overnight look at the “flood of off-lease vehicles“, according to which by the end of 2019, an estimated 12 million low-mileage vehicles are coming off leases inked during a 2014-2016 spurt in new auto sales, which is set to put even more pressure on used (and new) car prices for the foreseeable future.

As Reuters noted, a computer search for available used vehicles within 150 miles of Reel revealed an eye-popping figure: 668 Escapes. That’s enough to put more than 40 percent of the inhabitants of this small northeastern Ohio town, population 1,600, into the popular crossover. A search for the Chevrolet Equinox, a comparable crossover, showed 461 available.

“The automakers have flooded the market,” said Reel, owner of Reel’s Auto in Orwell, Ohio, about 40 miles east of Cleveland.

The above trends validate a recent bearish Morgan Stanley analysis, which forecast that the plunge in used car prices is just getting started, and in a bear case, the bank sees used car prices dropping by up to 50% over the next 5 years.

* * *

However, in an even more troubling development for US consumers, it now appears that the other shoe for the US auto market has finally also dropped, and according to analyses by both Morgan Stanley and S&P, losses on prime auto loans are also surging.

In the latest note by Morgan Stanley’s Jeen Ng, the analyst reports that “fundamental performance deterioration has not been confined to Subprime. Both 60+ day delinquencies and default rates in Prime ABS pools have nearly doubled from their post-crisis lows.”

A slightly better picture – at least according to MS data – emerges in terms of loss severities. Still, while subprime losses are far worse, the deterioration among prime loans is unmistakable: compared to peak levels, 60+ day delinquencies in Prime auto loan pools are roughly 65% of the way back, whereas Subprime pools are close to 95% of their peak levels. On the default rate side, the deterioration is somewhat more subdued, with Subprime over 80% of the way back to prior peaks while Prime has yet to reach the 45% mark.

One troubling observation, as confirmed in the recent Fed Senior Loan Officers Survey is that credit standards have continued to ease: as in Subprime, some of the ongoing Prime deterioration can be attributed to a relaxing of credit standards.

Aggregate credit scores have decreased by about 5 points, which while easier is not even half as much as the 10+ point deterioration in Subprime. The same is true for longer origination terms. Most Prime issuers have extended loan terms by 3-4 months over the past 5 years. In Subprime, extension in most cases has been longer than 10 months. These easier standards can help explain both why delinquencies and defaults are higher, according to Ng. Also, keep in mind, there is a limit as to how far Prime issuers can expand their credit box in the form of lower credit scores before the deals become Subprime.

Some more observations from Morgan Stanley, which finds a particular deterioration in recent loan issuance at Huyndai and Mercedes:

As auto lenders expand their credit box to weaker credit borrowers, we should expect to see poorer credit performance among more recent deals relative to the more seasoned ones.

Across the OEM originators above, we see a very consistent shift in lending standards over time – marginally longer loan terms, higher credit scores and lower used car composition. Overall, the longer loan terms and higher credit scores have offsetting effects on fundamental performance. If we look at the 60+ delinquencies and 3-month CDR curves by vintage, we don’t necessarily observe performance  deterioration over time, and for some issuers we even see relative outperformance among recent deals. However, we do see higher severities among recent vintages, which we can at least partly attribute to the decline in used car values.

HART (Hyundai) and MBART (Mercedes Benz) serve as exceptions to the above, with a higher % of used vehicles and FICO migration of less than +10 points over the last 7 years. They are also the two shelves which show the most pronounced performance shift. TAOT (Toyota) also extended their credit score by less than 10 points, but their change in origination loan terms has been minimal and they have a lower  composition of used vehicles over time.

Additionally, in terms of loss severities, the bank finds that all originator types appear to be trending higher in similar fashion, with non-bank originators printing the lowest recovery values. OEM originators overtook bank originators to see the highest recovery values last year.

* * *

In a separate, and even more downbeat report, S&P Global Ratings analyst Ann Matin noted that losses in bonds tied to “prime auto loans have surged surged in recent months from a year ago, hurt by falling recoveries” and notes that prime net losses rose to 0.73% in February from 0.57% in same month last year. According to S&P, bonds from some issuers that have become a larger share of the index, including Mechanics Bank’s California Republic and TCF Financial Corp., and both are contributing to those higher losses.  Additionally, the rating agency referred to the abovementioned loan losses at Huyndai, stating that “we’ve increased our expected cumulative net loss levels for certain issuers, including Hyundai’s most recent transaction, HART 2017-A.”

Margin also wrote that prime asset-backed deals issued in 2015 seem to be performing worse, comparatively, than those sold between 2010 and 2014, and the deterioration in loans made to strong credit borrowers has forced S&P to revise its net loss expectations for various bonds.

* * *

To summarize: subprime loan losses have been surging alongside loss severities (with the buyside happy to soak up any and all issuance, regardless of underlying fundamentals), as recoveries slide, and in recent months this deterioration has finally shifted over to prime loans. Meanwhile, used car prices are tumbling, while new car sales have declined for 4 consecutive months as auto loan demand among tapped out consumers has tumbled. Meanwhile, millions of used cars are about to hit the market as they come off lease, which in turn will further pressure used car prices and new car sales.

So what happens next?  Here, we’ll repeat what we concluded last night:

Unstable used car prices will almost certainly reduce OEM reliance on leases as the implied 3-year depreciation (or residual values, if you prefer) will make them all but completely uneconomical: remember, Americans only care about that monthly payment.  Meanwhile, the relative value between used and new cars will tilt heavily in favor of the used market.  Thankfully Americans will still be able to buy that Mercedes they require to get back and forth from their minimum wage jobs, while maintaining a monthly payment of $500 or less, but it will just have to have 30,000 miles on it.

Of course, the OEMs of the world won’t admit that their game is over until it’s way too late.  So, they’ll keep right on producing new cars to cover a 17-18mm SAAR environment up until the point they face an outright revolt from their dealer networks.  At that point, however, dealer inventories will be so high that Detroit will be forced to shutdown for months on end while new car prices are slashed to reduce the massive inventory glut.  Tanking new car prices will put even more pressure on used car prices which will mark the beginning of the death spiral that will result in a new round of inevitable auto bankruptcies, catalyzing the next economic contraction… assuming one hadn’t started already.

     “The hope that consumer and business spending will surge is probably just that, hope.”

      – Joel Naroff, President of Naroff Economic Advisors and TDn2K Economist

So another chain restaurant is “preparing” to bite the dust. Ignite Restaurant Group, which operates the Joe’s Crab Shack chain with 113 locations and the Brick House Tavern chain with 25 locations, and used to operate the Romano’s Macaroni Grill chain with 150 locations until it sold it in 2015, is preparing to file for bankruptcy, “people familiar with the matter” told Bloomberg.

In the quarter ended September 26, 2016, the last quarter for which the company bothered to release an earnings report, same-store sales fell 6.8%; total revenues plunged 10% to $120 million.

A liquidity problem turns into a solvency problem: It had $729,000 of cash and about $26 million of “available borrowing capacity under its current credit facility.” Not exactly a lot, considering that the company lost $15.2 million in Q3, up from a loss of $4 million in Q3 2015.

It had $179 million in liabilities, including $113 million in long-term debt. It shares, which had traded as high as $19 in 2013, have consistently trended lower since, became a penny stock last year, and are now just about worthless (2 cents).

For chain restaurants, it’s really tough out there.

Industry-wide, same-store foot traffic fell 3.3% in April year-over-year. For the past three months, traffic is down 3.9%. Same-store sales in April fell 1.0% are down 1.8% for the past three months, according to TDn2K’s Restaurant Industry Snapshot.

Food sales and alcohol sales both were down. As traffic dropped, the average check increased 2.3%, less than the rate of inflation.

Q1 had been the fifth quarter in a row of year-over-year sales declines. Now everyone is hoping Q2 will be different. But April’s numbers aren’t auspicious. And no one wants six quarters in a row of this. “The last time the industry experienced a similar period was in 2009 and the first half of 2010,” the March report had pointed out. April has moved the needle further in that direction.

There were some regional differences:

• The least bad region was California where traffic fell only 0.7% and same store sales inched up 1.9%.
• The worst region was the Southwest where traffic dropped 4.9% and sales 2.7%.
• Sales fell in three-quarters of the nearly 200 markets.

The segments with sales increases:

Fine dining (includes some expensive chain steak houses) and upscale casual. They offer a “more experience-based dining proposition for a less price-sensitive consumer.” So the folks with money are still spending it on restaurants. Family dining also showed sales increases.

The segments with sales declines – the lower end:

Fast casual and quick service – “After years of positive growth and being one of the top performing industry segments, quick service has experienced a downturn in 2017,” the report said. And then there’s casual dining for which “struggles continue although the rate of decline has lessened somewhat,” with average same-store sales in 2017 down 2.9% compared to the 4.1% dive in the second half of 2016.

The report, which is based on data from over 27,000 restaurant locations and 155 brands with $67 billion in annual revenues, gingerly blamed the Easter holiday because it occurred in April rather than in March (as last year). For the largest segments of the industry – quick service and casual dining – the Easter holiday likely hurt sales. But the smaller segments – fine dining, upscale casual, and family dining – “appear to have been positively affected by the shift in the Easter holiday.”

Under this theory, March should have benefited from the shift of the Easter holidays. But in March foot traffic fell 3.4% and same-store sales fell 1.1%. And in February, foot traffic plunged 5.0% and same-store sales 3.7%. The debacle was blamed on $65 billion in delayed tax refunds from the IRS. But those refunds started gushing out in the second half of February and were caught up by the end of February, and so March and April should have been, and were expected to be, the months when all this cash would suddenly show up. But no.

Last week’s Bank of America credit and debit card spending report showed the same: spending at food service and drinking places has crashed over the past two years, and is fast approaching the X-axis.

There’s hope, however. Of sorts. The report pointed out that “sales started softening considerably” last June. “This translates into easier comparisons when calculating this year’s sales growth rates.” So the numbers in the second half this year might still be crappy, but because the second half last year was so terrible, the year-over-year comparison might look a little better. That’s the hope.

TDn2K’s economist Joel Naroff blamed the slow growth of the economy in Q1 on “mediocre” consumer spending. And this might be an issue going forward: “The rising household debt load is likely to suppress consumption, including eating out.”

Ah, consumer debt, after years of loading up on it, is now hobbling discretionary spending. Who would have thought? And he goes on:

“The hope that consumer and business spending will surge is probably just that, hope.”

“That said, the economy should rebound this quarter but it looks like we are in for another year of 2.25% growth [by comparison, in 2016, the economy grew only 1.6%]. While that pace is not likely

to make anyone happy, it is enough for the labor market to tighten further and the Fed to continue raising rates, possibly as soon as June.”

And higher rates would be the next skillet to drop on our over-indebted chain restaurants. But they’re coming. Inflation pressures further up the pipeline rose the most in five years.

Readers are familiar with the various microwave and laser arrays located at the real New York Stock Exchange in Mahwah, New Jersey, both of which we have written about in the past.

Microwave tower located next to the NYSE in Mahwah, NJ.

This article, however, is not about the familiar antennas off Route 17 in New Jersey. Instead, demonstrating to what lengths the high frequency traders will go for just a few millisecond advantage – which makes in the HFT world makes all the different between billions in profits and losses – Bloomberg reports that a mysterious antenna has emerged in an empty field in Aurora, near Chicago, and a trading fortune depends on it.

Strange? Of course: as BBG’s Brian Louis admits “it was an odd transaction from the outset: $14 million, double the going rate, for a 31-acre plot of flat, undeveloped land just west of Chicago. In the nine months since, the curious use of the space has only added to the intrigue. A single, nondescript pole with two antennas was erected by a row of shrubs. Some supporting equipment was rolled in. That’s it.”

As it turns out, those antennas – as readers may imagine – were anything but ordinary. Same goes for the buyer of the property: anything but your typical land investor, although the name will be all too familiar to those who have followed our reporting on HFT over the years: it was Jump Trading LLC, “a legendary and secretive trading firm that’s a major player in some of the most important financial markets.”

Equipment on land purchased by an affiliate of Jump Trading

Jump Trading affiliate World Class Wireless purchased the 31-acre lot for $14 million, according to county records. “They paid probably twice as much as it’s worth,” said David Friedlandof Cushman & Wakefield. “I don’t see anyone else paying close to that price.”

There was a reason why Jump overpaid so much: it was an investment into guaranteed future returns.

Because ultimately the purchase was all about the location: just across the street lies the data center for CME Group, the world’s biggest futures exchange. By placing its antennas so close to CME’s servers, Jump hopes to shave maybe a microsecond off its reaction time, enough to separate a winning from a losing bid in trading that takes place at almost the speed of light. Enough to make billions in profits if done successfully millions of times every minute for year.

As Bloomberg describes the land grab, “it was the latest, and perhaps boldest, salvo in an escalating war that’s being waged to stay competitive in the high-speed trading business.”

The war is one of proximity — to see who can get data in and out of CME the quickest. A company called McKay Brothers LLC recently won approval to build the tallest microwave tower in the area while another, Webline Holdings LLC, has installed microwave dishes on a utility pole just outside the data center.

“It tells you how valuable being just a little bit faster is,” said Michael Goldstein, a finance professor at Babson College in Babson Park, Massachusetts. “People say seconds matter. This is microseconds matter.”

It also tells you something else: at its core, modern trading is simply about being faster than your competition: no thinking goes into the trade, only reaction times matter. That, and frontrunning your competition. Some more details about this literal land grab:

In October 2015, McKay Brothers, a company that sells access to its microwave network to high-speed traders, leased land diagonal to the CME data center, under the name Pierce Broadband LLC, according to DuPage County property records.

Last month, the county gave McKay approval to erect a 350-foot high microwave tower that could be 600 feet closer to the data center than its current location, records show. Two trading firms, IMC BV and Tower Research Capital LLC, own minority stakes in McKay. Co-founder Stephane Tyc said his firm may never build the tower but it would be part of the firm’s continual efforts to speed transmission time.

Then there’s Webline Holdings. In November 2015, it was granted a license to operate microwave equipment on a utility pole just outside the data center, according to Federal Communications Commission records. Webline has licenses for a microwave network stretching from Aurora to Carteret, New Jersey, where Nasdaq Inc.’s data center is located. Messages left for Webline were not returned.

Back to the mysterious antenna: according to Bloomberg, the license for the transmission dishes is held by a joint venture between World Class and a unit of KCG Holdings, another HFT trading firm that was recently acquired by Virtu Financial. In other words, the “who is who” of HFT has been unleashed on an empty field near Chicago, and to the builder will go the spoils.

It could be billions in revenues.

* * *

After all this frentic building of microwave tower, who is closest to the CME servers? It is unclear. Trading data first leaves CME computers via fiber cable, and then to nearby antennas that send it by microwave to other towers until it reaches New Jersey, where all the major U.S. stock exchanges house their computers. The moves in Aurora are intended to reduce the time that the data is conveyed through cable; the practical impact is shaving off a millisecond or maybe even a few nanoseconds.

At its core, the race is about latency arbitrage, and not being the slowest firm on the block – a recipe for financial ruin. Sending data back and forth between the U.S. Midwest and East Coast allows high-frequency traders to profit from price differences for related assets, including S&P 500 Index futures in Illinois and stock prices in New Jersey. Those arbitrage opportunities often last only tiny fractions of a second.

Ironically, all the land grab and overpriced land purchases could be made obsolete with one simple decision: a microwave tower could be installed on the roof of the CME data center to eliminate the need for jockeying around the site, the same way the NYSE has a microwave tower next to its NJ headquarters. The exchange is indeed looking at allowing roof access, along with CyrusOne, the company that bought the data center last year, CME said in a statement. Traders being traders, however, they may continue to battle, this time for the most advantageous position on the microwave tower itself.

“We are confident the CME can provide an alternate and better solution which offers a level playing field to all participants,” said McKay’s Tyc.

Which is ironic because at its core, modern High Frequency Trade is about everything but a level playing field: after all there are millions of traders to be frontrun, take that away, and the HFT parasites of the world have no advantage whatsoever.

What should we make of the global ransomware attacks which happened today?

We’ve documented that the intelligence services intentionally create digital vulnerabilities, then intentionally leave them open … leaving us exposed and insecure.

Washington’s Blog asked the highest level NSA whistleblower ever* – Bill Binney – what he thinks of the attacks.

Binney told us:

This is what I called short sighted finite thinking on the part of the Intelligence Community managers.

This is also what I called (for some years now) a swindle of the tax payers. First, they find or create weaknesses then they don’t fix these weaknesses so we are all vulnerable to attack.

Then, when attacks occur, they say they need more money for cyber security — a total swindle!!! [Indeed.]

This is only the second swindle of the public. The first was terror efforts by saying we need to collect everything to stop terror — another lie. They said that because to collect everything takes lots and lots of money.

Then, when the terror attack occurs, they say they need more money, people and data to stop terror. Another swindle from the start. [The war on terror is a “self-licking ice cream cone”, because it creates many more terrorists than it stops.]

And, finally, the latest swindle “THE RUSSIANS DID IT.” This is an effort to start a new cold war which means another bigger swindle of US tax payers.

For cyber security, I would suggest the president order NSA, CIA and any others to fix the cyber problems they know about; then, maybe we will start to have some cyber security.

The bottom line is that our intelligence services should start concentrating on actually defending us, rather than focusing on offensive mischief.

* Binney is the NSA executive who created the agency’s mass surveillance program for digital information, who served as the senior technical director within the agency, who managed six thousand NSA employees, the 36-year NSA veteran widely regarded as a “legend” within the agency and the NSA’s best-ever analyst and code-breaker, who mapped out the Soviet command-and-control structure before anyone else knew how, and so predicted Soviet invasions before they happened (“in the 1970s, he decrypted the Soviet Union’s command system, which provided the US and its allies with real-time surveillance of all Soviet troop movements and Russian atomic weapons”).

Binney is the real McCoy. As we noted in 2013, Binney has been interviewed by virtually all of the mainstream media, including CBS, ABC, CNN, New York Times, USA Today, Fox News, PBS and many others.

By Chris at www.CapitalistExploits.at

What in God’s name is happening?

It’s not a high.

It’s a record high.

Sweet mother of Mary…

As we can see from the above chart courtesy of the FT, emerging markets sold a record amount of government debt in the first quarter of this year.

More from the FT here:

“Data from Dealogic, a research firm, show that sovereign bond sales from emerging markets rose to $69.6bn in the first three months of the year, an increase of 48 per cent from a year ago and a record amount for a single quarter. Corporate bond sales by companies in developing countries also surged, rising 135 per cent year on year in the first quarter to $105bn, according to Bloomberg data.”

This reminds me of Donny Hathaway’s song Giving Up:

Giving up

 Is hard to do

 When you really

 Love someone

 Giving up

 So hard to do

When you still depend upon

Her warm and tender touch

Her kiss and her caress

Ooh, they used to

Mean so much

And bring you happiness

Giving up

So hard to do
I’ve tried

But it just ain’t no use

Giving up

So hard to do
I said I’ve tried

But it just ain’t no use

It’s understandable. Investors have been richly rewarded for so so long by investing in bankrupt countries. Giving up is so very hard to do.

According to Bank of America Merrill Lynch, emerging-market debt funds have collected new money for 10 straight weeks. And while that’s been taking place, U.S. stock funds had $14.5 billion of outflows in just one week – the most in well over a year.

Out of equities and into bonds, which really proves just how screwed up the markets have become.

Context is … Everything

“A bull market in the US Dollar is underway and its magnitude and duration are likely to catch everyone by surprise. I believe it isn’t out of the question for the USD Index to advance by at least 50% within the next 5 years. If this forecast proves correct, there will be profound ramifications for the global economy and many financial markets, particularly emerging markets.”

Lucky, I guess.

The fact is this wasn’t guess work.

Global dollar liquidity was contracting sharply, and human nature being what it is investors were extrapolating linear outcomes in a non-linear world.

In market speak implied volatility was the lowest since Adam bit into the apple. Wonderful stuff.

The reason for pointing this out is because all that dollar debt sitting outside of the land of apple pie quite quickly becomes a serious liability when the dollar begins to move against you and your investments are in something other than dollars.

The good old carry trade works spectacularly when the borrowed currency stays flat or indeed depreciates and not so spectacularly when it doesn’t.

Let’s return for a minute to the rapid accumulation of emerging markets debt, currently growing exponentially. It’s worth pointing out that this is all taking place while dollar liquidity is contracting and the charts are looking increasingly bullish for the Dollar Index.

I’m not sure what lands up setting of the next leg in the dollar bull market but emerging markets bond holders stand to get torched as they’re sitting on a fault line which when it shakes measures 9.4 on the Richter scale.

Clearly, you know where I stand on this issue but I’m curious what my readers think.

Question

Cast your vote here and also see what others think is going on

– Chris

“Every bubble consists of a trend that can be observed in the real world and a misconception relating to that trend.” — George Soros

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Following what many have described as a threat from President Trump earlier this morning directed at former FBI Director James Comey, WikiLeaks has just blasted out the following tweet offering a $100,000 reward for the “Trump-Comey tapes.”  Moreover, folks who want to up the reward are encouraged to send bit coins.

“WikiLeaks offers US$100k for the Trump-Comey tapes. To increase the
reward send Bitcoin to reward address: 1FfzC3KrbrJ3CRbz4hqHnxSqvYfy9M5CT”

WikiLeaks offers US$100k for the Trump-Comey tapes. To increase the reward send Bitcoin to reward address: 1FfzC3KrbrJ3CRbz4hqHnxSqvYfy9M5CT pic.twitter.com/CJInYx4fcw

— WikiLeaks (@wikileaks) May 12, 2017

Of course, the message is a direct response to Trump’s tweet from earlier which implied that there may in fact be recordings of his conversations with Comey.

James Comey better hope that there are no “tapes” of our conversations before he starts leaking to the press!

— Donald J. Trump (@realDonaldTrump) May 12, 2017

For a White House that has been plagued with leaks from day 1, we have to imagine this added incentive is somewhat concerning for a Presidency under siege from all angles.

Earlier today, when looking at BofA’s internal credit and debit card data, we warned to expect a miss in retail sales:

And, sure enough, the actual spending data once again did not disappoint when moments ago the Census reported April retail sales which, well, did disappoint across the board:

• Retail Sales up 0.4%, missing expectations of +0.6%,  up from an upward revised 0.1%
• Retail sales up 4.5% Y/Y, down from 5.2% in April
• Retail sales less autos rose 0.3% in April, est. 0.5%, unchanged from last month’s revised 0.3%
• Retail sales ex-auto dealers, building materials and gasoline stations rose 0.2% in April
• Retail sales ‘control group’ rose 0.2% m/m in April

Visually:

While increases were posted across most sectors, they were uninspiring with the exception of online sales. aka “nonstore retailers” which rose 1.4% in April, and are up a whopping 11.9% Y/Y

And now, bring on the downward revisions to Q2 GDP.

We recommend viewing the full-size version of today’s infographic by clicking here.

Everyone knows that the U.S. Federal Government has roughly $20 trillion of debt. A question we often get, however, is who exactly owns all these treasuries? And if it’s held abroad by countries like China, what portion do they hold?

Today’s infographic comes from TitleMax, and it looks at who owns U.S. debt internationally, as well as the debt from other countries that is held by the U.S.

WHO HOLDS U.S. DEBT?

Federal government debt in the United States can be broadly placed in two categories: “Debt held by the public” and “Intragovernmental debt”. The former category includes securities held by individual investors, corporations, local and state governments, the Federal Reserve, and foreign governments.

Meanwhile, intragovernmental debt includes securities held in accounts administered by other federal authorities. This category, for example, would include treasuries owed to the Social Security Trust Fund.

Here’s the tallies of these two categories as of December 2016:

DEBT HELD BY THE PUBLIC

“Debt held by the public” is the most interesting of these, and it can be further broken down:

*Note: Data for Fed is for marketable securities only. All data in this table from September 2016.

About 43% of all debt held by the public is actually owned by foreign governments, corporations, and individuals.

U.S. DEBT HELD INTERNATIONALLY

Here’s how that breaks down by country:

While China growth has been slowing, and monetary conditions tightening, few (if any) have predicted any prolonged deflation (let alone a recession), yet overnight – for the first time ever – the $1.7 trillion Chinese bond market inverted, flashing a warning signal to the world that something is wrong.

Early on Thursday, the five-year yield rose to 3.71%, breaking above the 10-year yield for the first time since records began – even though the latter, at 3.68%, was near a 25-month high.

Some of the overnight weakness in the 10Y yield was eased by reports that PBOC would offer some Medium-Term Loans.

Of course it’s not just bonds that are getting dumped…

But, as The Wall Street Journal writes, such a “yield-curve inversion” defies normal market logic that bonds requiring a longer commitment should compensate investors with a higher return. It usually reflects investor pessimism about a country’s long-term growth and inflation prospects.

Perplexed traders and analysts offered up many excuses…

“Many of us are scratching our heads for an explanation because this kind of curve inversion is absolutely not normal,” said Wang Ming, a partner at Shanghai Yaozhi Asset Management Co., a bond fund that manages 2 billion yuan ($289.66 million) in assets.

“The inversion is a form of mispricing in the bond market,” said Liu Dongliang, senior analyst at China Merchants Bank . “The fact that no one is taking the bargain despite the higher yield on the five-year bond just shows how depressed investors’ mood is.”

“It’s really difficult to predict when the selloff or such anomalies will end because China’s bond market is reacting to the regulatory crackdown only and is no longer reflecting economic fundamentals,” said China Merchants Bank’s Mr. Liu.

But of course, the reality is – without massive and contonued credit creation, there are very large questions about just how ‘dynamic’ Chinese growth could be and while technical flows are certainly part of the reasoning for 5Y yields rising, the question is, why wouldn’t the rest of the world pile in to ‘reach for yield’… unless the fundamentals really did have them worried?

With the narrative of how the Comey firing went down in constant flux (The White House and President Trump contradicting each other), WSJ reports that Deputy Attorney General Rod Rosenstein pressed White House counsel Don McGahn to correct what he felt was an inaccurate White House depiction of the events surrounding FBI Director James Comey’s firing, according to a person familiar with the conversation.

If you’re confused – we don’t blame you. Here is how this has played out… we think.

Pretext: On Monday Trump met with Rosenstein where they discussed Mr. Comey’s job performance. At the White House’s prompting, Rosenstein Tuesday wrote a memo to the president detailing his concerns about the director’s conduct.

In that letter, Mr. Rosenstein never expressly recommended that Mr. Comey be fired.

1) Trump administration seems to try to scapegoat Deput AG Rosenstein as being pivotal in the decision to fire FBI Director Comey.

 The president’s termination letter to Mr. Comey, written on the same day, began by pointing to the memos he had received from the attorney general and deputy attorney general, and offered no further explanation for his decision to fire him.

White House releases a memo written by the Deputy AG, which contained Rosenstein’s recommendation to sack Comey citing the FBI director’s handling of the FBI’s investigation into Hillary Clinton’s private server as a reason for Comey’s dismissal.

…

Sarah Sanders, a White House spokeswoman, told Fox News on Tuesday that Mr. Trump had reacted after receiving a “clear and direct and very strong recommendation from the deputy attorney general.”

Ms. Sanders, on MSNBC the following morning, said the reason for the dismissal was “real simple … The deputy attorney general made a very strong recommendation.”

Wednesday morning, Vice President Mike Pence, speaking to reporters at the Capitol, repeatedly pointed to Mr. Rosenstein’s letter while describing the president’s decision.

2) The Washington Post reports that Rosenstein threatened to quit over the assertion

As a result of the “alleged scapegoating”, Rosenstein has “threatened to resign after the narrative emerging from the White House on Tuesday evening cast him as a prime mover of the decision to fire Comey and that the president acted only on his recommendation.” With the WaPo once again quoting an unnamed person “close to the White House, who spoke on the condition of anonymity because of the sensitivity of the matter” one should as usual take this with a grain of salt.

3) The Justice Department denies that this happened, on the record.

CNN’s @LauraAJarrett – DOJ on the record: Rosenstein did not threaten to resign

4) President Trump then admits in an Interview with NBC News that he would have fired him no matter what the view of Rosenstein and Sessions.

Trump then added that he was going to fire FBI Director James Comey “regardless” of what the Justice Department recommended,

5) The Wall Street Journal, citing unnamed sources, then reiterates the stroy from earlier that Rosenstein did threaten to quit and demanded that The White House clear up the timeline – to avoid making him a scapegoat.

Mr. Rosenstein left the impression that he couldn’t work in an environment where facts weren’t accurately reported, the person said. The deputy attorney general objected to statements by White House aides citing Mr. Rosenstein’s critical assessment of Mr.Comey’s job performance to justify the firing.

Mr. Rosenstein grew more distressed when, in television interviews that evening, White House advisers reiterated that the decision was made in response to the Justice Department’s recommendation.

Mr. Rosenstein called Mr. McGahn and urged them to correct the record.

6) The White House spokesperson Sarah Huckabee Sanders admits that she didnt have all the facts when she released the detailed timeline yesterday.

See, clear as mud. We suspect there is plenty more to unravel here.

For the 3rd month in a row, US Producer Prices have risen at a faster rate than The Fed’s mandate. April healdine PPI rose 2.5% YoY – the most since Feb 2012, and well above the highest anayst estimate, despite disinflationary credit impulse pressures from China being seen in industrial metals. The biggest driver is surging costs for investment advice!

Core PPI (ex food and energy) rose 1.9% YoY – also above highest estimates – to the highest since Dec 2014.

The full breakdown shows that over a quarter of the April advance in the index for final demand services is attributable to prices for securities brokerage, dealing, investment advice, and related services, which increased 6.6 percent. The indexes for guestroom rental; loan services (partial); machinery, equipment, parts, and supplies wholesaling; portfolio management; and airline passenger services also moved higher.

In April, the index for cigarettes moved up 2.2 percent. Prices for gasoline, fresh and dry vegetables, fresh fruits and melons, residential natural gas, and pharmaceutical preparations also advanced. Conversely, the index for jet fuel fell 6.1 percent. Prices for carbon steel scrap and oilseeds also declined

In contrast, margins for fuels and lubricants retailing dropped 14.6 percent. The indexes for food and alcohol retailing and for deposit services (partial) also fell.

So Q1 saw The Fed hike as GDP growth plummeted (weakest quarterly growth for a rate hike since 1980) and inflation surged… this won’t end well.

Authored by Whitney Webb via TheAntiMedia.org,

When the U.S. overthrew the Taliban in the wake of 9/11 as part of its newly launched “war on terror,” it set the stage for the explosive growth of Afghanistan’s dying opium industry. A few short months before the invasion took place, the Taliban made headlines for having “dramatically ended the country’s massive opium trade” after the leader of the fundamentalist group had declared the substance to be un-Islamic. At the time, Afghanistan’s opium was used to produce 75 percent of the world’s heroin.

But despite being squashed by the Taliban, the opium market made a dramatic comeback immediately following the U.S. invasion in October 2001. Not only was the opium trade restored, it surged drastically – rising from a production level of 185 tons under the Taliban (before the production ban) to 3,400 tons in 2002.

Over a decade later, the amount of opium harvested annually continues to rise. Afghanistan’s opium is now used to produce 90 percent of the world’s heroin. This increase has been directly overseen by U.S. forces, who openly guard Afghanistan’s poppy fields. Indeed, during that same time, the U.S. government claims to have spent $8.4 billion on counternarcotic programs within Afghanistan.

The dramatic increase in opium production in post-invasion Afghanistan has sparked speculation regarding the motives behind the aggressive action that the U.S. has recently taken towards North Korea, which is also a major opium producer.

While government-sanctioned opium production took a hit after Kim Jong-un assumed power in 2011, things have changed drastically in recent months, largely due to Chinese sanctions that were announced in mid-February. The sanctions, created in response to a North Korean ballistic missile test, led China to refuse imports of North Korean coal. Coal represents 40 percent of North Korea’s exports to China.

That drastic hit to the North Korean economy has apparently forced Kim Jong-un’s hand, as opium production has once again picked up. Kang Cheol-hwan, a North Korean defector and president of the North Korea Strategy Center, told the Yonhap News Agency that “the North is cultivating poppy fields again for drug smuggling as a way to secure funds to manage its regime.”

While North Korea’s opium production is small compared to that of post-invasion Afghanistan, it is still significant. North Korea, according to the Chosun Ilbo, produces around 40 tons of opium annually — comparable to Pakistan’s opium industry. Most of its opium is smuggled into and sold in China and cannot be targeted by sanctions, since it is hard to trace on the black market.

Some have speculated that North Korea’s return to opium production has caught the attention of the CIA, as the intelligence agency has a history of involving itself in opium trade and drug-running in general, as evidenced by its well-documented habit of managing drug supplies from Latin America to Asia.

In addition, opioid addiction – in the form of both legal opiate painkillers and illegal drugs – is growing out of control in the U.S., with more opium being consumed within America than ever before. The onset of this epidemic coincided with the U.S.’ occupation of Afghanistan as, between 2002 and 2013, U.S. heroin use jumped by 63 percent, reaching a 20-year high. Heroin overdoses quadrupled in the U.S. within that same timeframe.

The U.S. government’s actions also suggest that it seeks to protect opium production, as has been made clear in its occupation of Afghanistan. For instance, the U.S. vehemently opposes opium legalization efforts and the State Department refuses to acknowledge eradicating opium as a primary goal, despite the billions that have been spent on counternarcotic programs.

With tension increasing on the Korean Peninsula, the U.S. has put “all options on the table” in order  to prevent further missile tests and “provocations” from the Kim Jong-un regime, including warnings that the U.S. may soon find itself in a “major, major conflict” with North Korea.

If North Korea finds itself targeted for regime change, history suggests that the U.S. military may end up guarding its poppy fields as well.

Just hours after the Fed’s March “dovish” rate hike, when stocks paradoxically surged to all time highs and yields tumbled, Goldman found something strange: “surprisingly, financial markets took the meeting as a large dovish surprise—the third-largest at an FOMC meeting since 2000 outside the financial crisis, based on the co-movement of different asset prices.” Even more surprising is that according to Goldman, its financial conditions index, “eased sharply, by the equivalent of almost one full cut in the federal funds rate.” In other words, the Fed’s 0.25% rate hike had the same effect as a 0.25% race cut!

Goldman’s Jan Hatzius then went on to note that this was “almost certainly not” the desired outcome that Janet Yellen had been going after, and that markets had in fact misread the Fed’s tightening intentions. The Goldman chief economist then asked rhetorically “how will the committee respond to this potentially undesired move” and answered “at the margin, it will likely make them more inclined to tighten policy. Using today’s estimated close, our FCI impulse model now implies a boost of about ½pp to real GDP growth in 2017, from a starting point of roughly full employment and inflation close to the target. So further FCI easing implies at least some risk of economic overheating—which in turn would increase the risk of recession further down the road. We expect the committee to lean against such an easing over time.”

Nearly two months later, with stocks at new all time highs, and financial conditions even easier than they were the first time Goldman warned that the market had misread the Fed’s intentions, Goldman goes back to this most sensitive of topics and writes that despite two rate hikes and indications of impending balance sheet runoff, financial conditions have continued to ease over the past six months.

Despite two rate hikes and indications of impending balance sheet runoff, financial conditions have continued to loosen in recent months. Our financial conditions index is now about 50bp below its November 2016 average and near the easiest levels of the past two years.

Hatzius then asks if – in not so many words – the Fed has lost control of the market, or if the Fed will simply have to punish the market with a “monetary policy shock” to make it clear that the Fed demands tighter conditions to delay the next recession. To wit:

Does this mean that 1) monetary policy has lost its ability to affect financial conditions or 2) Fed officials just need to deliver more rate hikes if they want to bring about an FCI tightening?

According to Hatzius, “the answer is 2)” and that the Fed has not lost control of the market just yet. Which brings up another question:

If the Fed retains its ability to steer financial conditions, why have financial conditions eased recently despite ongoing hikes? The answer is that Fed policy—especially Fed policy communicated around FOMC meetings—only accounts for a relatively small part of the ups and downs of financial conditions. And other developments such as the sharp pickup in global growth have been helpful for US financial conditions by boosting risk assets while keeping the US dollar from appreciating sharply in response to higher short-term interest rates. While it is difficult to say whether future non-monetary policy shocks will be positive or negative for US financial conditions, our finding that the impact of Fed policy on financial conditions remains (at least) similar to the longer-term average suggests that Fed officials should be able to achieve their goals for financial conditions by moving the funds rate if they try hard enough.

Fed Policy Retains Sizable Impact

What Goldman really meant to say is that the Fed’s 50 bps in rate hikes since December have been drowned and offset by the trillions in new credit created out of China. That credit expansion is now ending however, and China’s credit impulse has tumbled into negative territory (but that’s a different topic).

Going back to Goldman, Hatzius adds that “we find that the sensitivity of financial conditions to monetary policy shocks has been quite high recently, at least when we identify these shocks using bond market moves around FOMC meetings. This suggests that the easing of financial conditions is due to other factors, most obviously the improved global environment, not reduced traction of monetary policy.”

What form will this monetary tightening “shock” take place? “

Our best (though uncertain) answer is that the committee will need to deliver 50-75bp more hikes per year than priced in the forwards to stabilize the economy at full employment. This is roughly consistent with our current funds rate call that we will see an average of 3-4 hikes per year through the end of 2019, compared with market pricing of just over 1 hike.”

Of course, if Goldman is wrong and the Fed has no intention of sending risk assets into a tailspin with a monetary policy “shock”, then there is no saying just how much further the combined effort of China’s gargantuan, if cooling, credit expansion, coupled with the “dovishly” hiking Fed can take stocks. However, by now it is becoming clear to even the most resentful permabulls – and even Goldman  – that the longer the Fed delays the day of reckoning out of pure fear of the unknown, the greater the chaos and loss in asset values when the Fed no longer has the luxury of picking when to pull the switch.

The Dow just suddenly plunged as Boeing stock crashed following headlines that the aircraft manufacturer will temporarily suspend 737 Max flight due to engine issues…

• *BOEING TEMPORARILY SUSPENDS 737 MAX FLIGHTS ON ENGINE ISSUE
• *BA: POTENTIAL MFG QUALITY ESCAPE W/LPT DISCS IN LEAP 1B ENGINES
• *BOEING SAYS IT’S WORKING WITH CFM TO INSPECT DISCS IN QUESTION
• *BOEING SAYS MAX PRODUCTION WILL CONTINUE
• *BOEING SAYS PLAN REMAINS TO BEGIN MAX DELIVERIES IN MAY

As Bloomberg reports, Boeing said it would temporarily suspend flights of its new 737 Max jetliner as engine issues came to light days before deliveries were to begin to airline customers.

Engine supplier CFM, a venture of General Electric Co. and Safran SA, notified Boeing of a manufacturing issue with low-pressure turbine discs, according to a statement Wednesday by the planemaker.

And that is smacking The Dow…

Boeing is not alone…

• *ROCKWELL COLLLINS, SPIRIT AERO, TEXTRON, UTX DROP TO LOWS

As we reported last night, pretty much no one within the FBI had the slightest idea that Comey’s firing was coming.  Even Comey himself, according to the New York Times, learned of his dismissal on the news and thought it was just a prank.

Not surprisingly, this sudden and shocking ouster of an FBI director that has led an agency of 56 U.S. field offices and 30,000 employees for 6.5 years has created some turmoil inside the FBI.  Agency staff scheduled an emergency high-level meeting last night amid speculation about who would replace Comey in the top job and explore next steps for the law-enforcement agency.

One top FBI official told Reuters that the FBI had no idea the Trump administration was considering dismissing Comey and the news “took even top officials by surprise.”

Of course, with Comey’s dismissal coming right in the middle of an investigation into Russian election meddling, the sudden move by Trump has drawn intense backlack from the left with even some Republicans calling the timing ‘troubling.’

Deputy Director Andrew McCabe was expected to step in for now, but he is unlikely to be nominated by Trump for the director’s post, said two former FBI officials.

Several names have arisen as potential Comey replacements including Dana Boente, the number 3 at the DOJ, and Trey Gowdy, a Republican Representative in Congress.  That said, given the suspicions around the timing of Comey’s ouster, we suspect that any replacement will have to be viewed as somewhat non-partisan.  The new director must be appointed by Trump and confirmed by the U.S. Senate.

One possible contender for director of the Federal Bureau of Investigation is Dana Boente, No. 3 at the Justice Department and former acting attorney general, said the two former FBI officials.

Other potential choices include Republican Representative Trey Gowdy, a former prosecutor who led a congressional inquiry into former secretary of state and 2016 Democratic presidential nominee Hillary Clinton’s role in the 2012 attacks on the U.S. Consulate in Benghazi, Libya.

Close campaign allies of Trump include former New York Mayor Rudy Giuliani and Milwaukee County, Wisconsin, Sheriff David Clarke. But both men would be seen as highly political nominees for an agency designed to be independent.

“The White House has to avoid all the politicos if they are going to get a nominee through the Senate,” said one of the former FBI officials.

Should be a fun-filled day with plenty of mainstream media outrage.  We simply can’t wait for Maxine Waters to re-assert her calls for Trump’s immediate impeachment.

Authored by Carey Wedler via TheAntiMedia.org,

Only one lawyer who prosecuted the Nuremberg trials is still alive today, and he has an important message for the world: war is not the answer.

60 Minutes recently interviewed Ben Ferencz, a son of Romanian Jewish immigrants who found refuge in the United States. His father worked as a janitor, and Ben was the first person in his family to go to college. After Japan’s attack on Pearl Harbor, he was driven to enlist in the military.

Due to his short stature, the Air Force rejected him, as did the Marines. He eventually finished his education at Harvard and went on to join the Army, landing at Normandy and fighting in the Battle of the Bulge.

Because of his legal training, Ferencz was transferred to a new unit in General Patton’s Third Army, where he was tasked with gathering evidence from concentration camps as the U.S. Army liberated them. That information was going to be used to prosecute war crimes.

He says he is still haunted by what he saw and the stories he heard, remembering the story of a son whose father had hidden bread for him under his arm every night so other prisoners couldn’t steal it.

Though he returned home to the United States, he has soon summoned again. General Telford Taylor, who was in charge of the Nuremberg trials, requested Ferencz’ legal expertise, sending him multiple binders of top secret documents from the Nazi regime.

“He gave me a bunch of binders, four binders. And these were daily reports from the Eastern Front — which unit entered which town, how many people they killed. It was classified, so many Jews, so many gypsies, so many others,” he told 60 Minutes.

“Ferencz had stumbled upon reports sent back to headquarters by secret SS units called Einsatzgruppen, or action groups. Their job had been to follow the German army as it invaded the Soviet Union in 1941,” killing communists, gypsies, and Jews, the outlet reported. These murders were independent of concentration camp exterminations and occurred in the victims’ own towns.

“They were 3,000 SS officers trained for the purpose, and directed to kill without pity or remorse, every single Jewish man, woman, and child they could lay their hands on,” Ferencz recounted.

Ultimately, his findings led him to push for an additional trial, despite the previous ones already being conducted at Nuremberg.

“When I reached over a million people murdered that way, over a million people, that’s more people than you’ve ever seen in your life, I took a sample. I got on the next plane, flew from Berlin down to Nuremberg, and I said to Taylor, ‘General, we’ve gotta put on a new trial.’“

Because the prosecutors were already stretched thin and other trials were already underway, Taylor put him in charge of handling the Einsatzgruppen. At age 27, Ferencz prosecuted 22 former commanders, all of whom plead not guilty to their crimes.

But, as Ferencz proved with written evidence, they had documented their atrocities in cold, plain language. 60 Minutes noted the Nazi reports:

“Exhibit 111: ‘In the last 10 weeks, we have liquidated around 55,000 Jews.’  Exhibit 179, from Kiev in 1941: ‘The city’s Jews were ordered to present themselves… about 34,000 reported, including women and children. After they had been made to give up their clothing and valuables, all of them were killed, which took several days.’ Exhibit 84, from Einsatzgruppen D in March of 1942: Total number executed so far: 91,678.”

Otto Ohlendorf, who led Einsatzgruppen D, actually claimed the murders were carried out in self-defense. “He was not ashamed of that. He was proud of that. He was carrying out his government’s instructions,” Ferencz told 60 Minutes.

Though Ferencz was exposed to some of the worst behavior in human history, he fell short of calling the soldiers “savages,” as the 60 Minutes interviewer referred to them. Rather, he blamed the power of patriotism and soldiers ‘just doing their jobs.’

“He’s a patriotic human being acting in the interest of his country, in his mind,” he said, speaking of soldiers who commit atrocities.

“Do you think the man who dropped the nuclear bomb on Hiroshima was a savage? Now I will tell you something very profound, which I have learned after many years. War makes murderers out of otherwise decent people. All wars, and all decent people.” [emphasis added]

Ferencz successfully prosecuted the 22 commanders he put on trial, and four were hanged. He has spent his life trying to deter war crimes and delivered the closing arguments in the first case at the International Criminal Court at the Hague in the Netherlands, which was established in 1988. He has also donated his personal life savings to a Genocide Prevention Initiative at the Holocaust Museum.

When the interviewer pressed him about his optimism in the face of continued genocide in places like Sudan — asking whether he is simply naive — he maintained his positivity and rejected the claims of those who insist war is necessary:

“Well, if it’s naive to want peace instead of war, let ’em make sure they say I’m naive. Because I want peace instead of war. If they tell me they want war instead of peace, I don’t say they’re naive, I say they’re stupid. Stupid to an incredible degree to send young people out to kill other young people they don’t even know, who never did anybody any harm, never harmed them. That is the current system. I am naive? That’s insane.”

Though the interviewer also accused of him being an idealist, he insisted the opposite — that he’s a realist. He also said:

“People get discouraged. They should remember, from me, it takes courage not to be discouraged.”

He pointed out that decades ago, freedom for women, gays, and transsexuals was unthinkable, they have now come to pass, insisting it’s also possible to end mass murder and war.

“[I]t’s a reality today. So the world is changing. And you shouldn’t — you know — be despairing because it’s never happened before. Nothing new ever happened before.”

Authored by Mike Krieger via Liberty Blitzkrieg blog,

I’m fairly certain very few of you have heard of broker price opinions, or BPOs, but it’s something I think we should all become aware of given the influence of BPOs in the market for valuing residential real estate securitized bonds.

Before we get to that, let’s revisit a little contemporary American robber baron history. In the immediate aftermath of the U.S. financial crisis, financial oligarchs immediately got to work helping Main Street climb out of the Wall Street created ditch by buying foreclosed homes from hordes of newly destitute Americans and then renting them back to those same people.

I wrote many articles about this trend over the years, starting with the January 2013 piece, America Meet Your New Slumlord: Wall Street. Here’s an excerpt:

Well they aren’t really your “new” slumlord in the sense you have been debt slaves to the financials system for decades.  What I really mean is that it is now becoming overt and literal.  Literal because financiers are now the main players in the real estate market and are buying all the homes ordinary citizens were kicked out of over the past few years.  Yep, we bailed out the financial system so that financiers with access to cheap credit can buy up all of America’s real estate so that they can then rent it back to you later.

Fast forward a few years, and private equity is frantically packaging these real estate rental properties into bonds. In order to value the real estate collateral you need some sort of appraisal, but the normal process of actually looking at properties is seen as too costly and time consuming, so market players are cutting corners by using “broker price opinions,” or BPOs.

As Bloomberg reports, this practice is coming under increased scrutiny and for good reason:

U.S. securities regulators are investigating whether bonds backed by single-family rental homes and sold by Wall Street’s biggest residential landlords used overvalued property assessments.

Radian Group Inc.’s Green River Capital unit is one of the market participants that received a request for information from the Securities and Exchange Commission in March about broker price opinions, or BPOs, the company said in a regulatory filinglate Friday. Green River provides BPOs that are used to value real estate in securitizations.

The agency has been looking at whether BPOs were wrongly inflated, and similar letters were sent to other companies, potentially serving as a starting point for an industrywide probe, according to a person with knowledge of the matter. The person asked not to be identified because the matter is private.

Green River is one of several firms that provide BPOs to the units of private-equity firms and other investors who bought up hundreds of thousands of properties in cities across the U.S. after the housing bubble burst. Many of them focused on distressed homes whose owners were evicted during the Great Recession.

Never forget, what’s good for Wall Street is good for Main Street! Also, they hate us for our freedoms.

Broker price opinions are a cheaper and less-stringent way to evaluate what a property is worth than an appraisal. Property valuations are a sensitive subject in the housing industry because regulators said inflated appraisals contributed to the housing bubble a decade ago.

The biggest private-equity landlords, led by Blackstone Group LP’s Invitation Homes, have sold more than $15 billion in bonds since 2013 backed by some 120,000 rental homes, according to data from Morningstar, and many of those deals were valued using BPOs. One recent bond deal tied to Invitation Homes was backed by guarantees from U.S. taxpayers.

Please tell me this is a joke.

The BPOs are key elements in securitizations, determining basic figures such as how much rent to charge tenants, how much leverage and risk is embedded in the deal and how much investors could recover if the bonds go sour. Many of the securities were assigned AAA grades and sold off to investors such as pension funds.

Is this 2006 or 2017?

No here’s where it gets truly disturbing.

In traditional real estate deals, these opinions help establish sales prices, but in these bond deals, they help estimate how much could be recovered in a liquidation. Some analysts say the BPOs they don’t take into account a possible plunge in home prices, and the values tend to be more optimistic than a full appraisal. Unlike appraisals, BPOs also aren’t necessarily done by a licensed professional, nor does the inspector always go inside to look around, which is standard procedure for an appraisal.

In one April securities offering of about $944.5 million, Green River submitted BPOs that relied on “drive-by” evaluations, and homes were “assumed to be repaired and in good condition,” according to a deal prospectus issued by Fannie Mae. The BPO “is not intended to be a representation as to the past, present or future market values of any of the properties.”

The underlying mortgage in that deal, tied to rental properties owned by Invitation Homes, was guaranteed by Fannie Mae. That’s the first time a taxpayer-backed home finance company has guaranteed such a loan. Freddie Mac is also looking into getting involved in the market by providing its guarantee.

When private equity landlords opted to use BPOs instead of appraisals in their securitizations, some investors expressed skepticism and bond graders applied discounts to the BPOs. Moody’s Investors Service, for example, applied a 15 percent haircut to BPO valuations when grading a transaction last August, citing inherent risks of using BPOs on residential properties instead of an appraisal.

I’m sure it’ll be fine, and if not who cares? The U.S. taxpayer is always available for a good fleecing.

Despite paying trillions in Federal taxes every year, Americans’ requests for a clear, detailed breakdown of where their money goes every year, have gone unanswered and been ignored by both Republican and Democrat administrations for one simple reason: transparency has an unpleasant way of mutating into accountability, which is the scariest thing imaginable for any career politician.

Not any more.

On Tuesday, the US Treasury launched a new website designed to track virtually every dollar – out of roughly $4 trillion – in federal spending. The new website, Beta.USAspending.gov, was created to put data into the hands of taxpayers by empowering them to track how their tax dollars are spent. The site is designed to follow federal agency spending and, for the first time, links spending data to awards distributed by the government.

In the statement, the Treasury said that “the new site provides taxpayers with the ability to track nearly USD in government spending from Washington, DC directly into their communities and cities,” says Treasury Secretary Mnuchin. “Furthermore, greater access to data will drive better decision making and strengthen accountability and transparency – qualities central to the Administration’s focus on a more innovative and effective government.”

Federal spending flows through hundreds of federal agencies and programs to thousands of companies and nonprofits and millions of individual citizens. Visitors to the site can search by location, federal agency or by keyword for a specific program or type of spending. They can also search for a specific recipient of federal funds, such as a business or university.

Treasury released this new version of the USAspending.gov site in accordance with Digital Accountability and Transparency Act (DATA Act) requirements. The DATA Act was enacted into law in May 2014 to make federal spending data more accessible, searchable, and reliable. The data on Beta.USAspending.gov is compiled by Treasury with the assistance of other federal agencies and will be updated and published on the site quarterly, with the first batch of data published in May 2017. Over the past two years, Treasury conducted extensive user research and stakeholder outreach to develop the new site.

More than just pretty charts, however, the site will likely serve as a tool for investors following along with Trump Administration proposal debates, and tracking who, where and when is set to receive several billion in excess government generosity.

The top level website can be found at the following link:

Readers eager to experiment with the website’s search can do so after the jump:

The more detailed spending breakdown by state can be found at the following link: it even lets you find spending by zip code and even recipient name.

Bitcoin is now up for 16 of the last 18 days, soaring over 50% in the last month and up almost 90% in 2017 – making its the year’s best performing currency.

There appears to be no specitic catalyst for today’s move as the surge in Japanese interest (as we detailed here) and news that Russia is considering, like Japan just did, to allow cryptocurrencies as a legal payment method are outweighing fears over ‘hard forks’, SEC rejections, and Chinese crackdowns.

One wonders whether this ‘spurious’ correlation has anything to do with Bitcoin’s rise – as Venezuela’s black market Bolivar plunges into hyperinflationary collapse, non-fiat currencies are bid…

We summarized the ongoing bitcoin frenzy as follows last week: “just as the Chinese bubble frenzy in bitcoin is fading, it may be replaced with a new one, in which thousands of Mrs. Watanabe traders shift their attention away from the FX market and toward digital currencies” and added that “If the transition is seamless, there is no telling just how far this particular bubble can grow.”

Five days later and $250 dollar higher, we are observing first hand how accurate this prediction may have been, although like last week, we have no way of telling how long this particular mania phase will last.

Authored by Jeff Thomas via InternationalMan.com,

Recently, I published the comment that, when the present debt bubble eventually pops, “governments will lose the economic power to continue their advance against economic freedom.”

The immediate reaction from one reader was, “What could we expect next?… The governments and Deep State aren’t going to ‘just go away.’”

An excellent question—one which deserves an answer.

We won’t need a crystal ball to find the answer; we can look at history. After all, this isn’t the first time a government has engaged in overreach. In fact, it’s the norm. Political leaders tend to expand countries if they can, then build them into empires, becoming increasingly oppressive along the way, then causing the collapse of the empire—generally through welfare and warfare.

The dominant empire of the world today could be said to be the US and its allies, but the hub of the wheel is the US itself, so that’s where we’ll focus. The US is so powerful that it can demand that its citizens pay tax, no matter where they may live in the world. The level of US debt has made the government so flushed with money that it could create a money-collection system that’s beyond any the world has seen.

At some point, however, debt always generates a major crash. What we can expect next will be that the governments will no longer be able to pay for all of their programmes, so they’ll have to cut back. How much will they cut back? That will depend on the severity of the collapse. In my estimation, one of the first indicators will be a stock market collapse. Will it drop by 20%? If so, that will only be a correction, and nothing will change significantly. Will it drop 40%? That’s an amount I consider very likely and would be an indicator that the economy in general will soon be taking a significant hit, with a knock-on effect as to government coffers. Will it drop 60%? That’s quite possible and would be catastrophic. The economy would then go full-on into the Greater Depression.

Unlike the Depression of the 1930s, the country will not be the largely agrarian, highly-productive country of (generally) hard-working people. It will be a society of entitlement-conscious people, who will fail to rise to the occasion. An unproductive society contributes little to its government. In addition, the worldwide credit bubble will pop and the petrodollar will be no more. That will serve to eliminate the false income that the government now relies on. The heroin syringe will be removed suddenly and the government will find itself severely strapped for cash.

So, the government will cut back dramatically—because it has no choice.

So, here’s where you get to picture yourself as the government. What areas do you maintain as sacrosanct and what others do you cut back on? It would make sense to hang on to those programmes that bring in the most revenue and cut the others, but the big-ticket items are welfare and warfare. You no longer have enough money to maintain those in full. You’ll have to cut back on them, but they’re the programmes that allow you to continue in office. Without them, you not only won’t survive the next election, you might face revolts. So, you do what you have to. You dismantle every other department as much as is possible and hope for the best. After all, your primary concern is not the survival of your country’s economy. Your primary concern is your own retention of power.

Historically, what you end up with is fewer departments surviving the cut, with each of the surviving departments operating on a skeleton crew, resulting in all of them being less effective. A good example today is Argentina. It was once the tenth most productive country in the world, but, in the 1950s, the Peróns collapsed the economy through socialism. It’s never recovered. Argentina today passes laws as regularly as any other country, but they’re considered a joke by Argentines. Especially in the outer areas, the laws are largely ignored. Whatever little the government does do is extremely inefficient.

The US has, in recent years, gone way over the top with regard to the economic enslavement of its people, but it has funded the programme through massive heroin (debt) injections. When that debt collapses, the US government will drop dramatically in terms of its ability to control its people in every way, but its main focus will then be on riot and revolt control. That aspect will be fully funded—more so than at present.

At that point, the investor who has a bit of gold or an account in Switzerland will be too costly to go after. Political leaders will be scrambling to save themselves, and there will be far more important priorities to fund.

As a holder of wealth (no matter how small), your objective is to bridge the period from now until then. Diversify yourself as much as you can and then sit tight. The primary objective is to still have your skin on after the dust has settled.

*  *  *

Today, the US is driving itself straight into a debt-fueled economic crash. This historic financial meltdown will dwarf the Great Depression and 2008 financial crisis. It will wipe out countless investors, including many who thought they were prepared. Don’t let yourself be one of them… New York Times ­best-selling author Doug Casey and his team recently released a video with Doug’s strategy for what you can do to protect yourself. Click here to watch it.

While the hedge fund world finds itself in a time of crisis, with a “great rotation” of capital away from active management which continues to largely underperform the broader market, and toward cheaper, passive strategies, nothing could spoil the mood at one of the industry’s biggest events held today at the Lincoln Center, the 22nd annual Ira Sohn conference, where a dozen of the hedge fund industry’s most prominent names presented their best ideas.

Below is a summary of the hedge fund managers who spoke at the Sohn Conference in order of appearance, and the investment ideas they presented, courtesy of Reuters and Bloomberg.

Corvex’s Keith Meister:

• Bullish on CenturyLink; Reported 5.5% stake in 13-D today; Corvex’s largest position
• Said CenturyLink/Level 3 merger is gamechanging

Fine Capital’s Debra Fine:

• Recommends DHX Media; sees upside to C$20-C$30/share;

Pershing Square’s Bill Ackman:

• Reiterated his Howard Hughes Corp. long call
• Said South Street seaport is highly valuable citing tax efficiency and excellent locations.

Social Capital’s Chamath Palihapitiya:

• Bullish on Tesla 2022 convertible bonds
• Said there is “incredible opportunity” in the 2022 Tesla converts that the company could capture 5% of the global car market and be worth hundreds of billions of dollars

Algebris’s Davide Serra:

• Recommends shorting U.K. rates, warning of UK inflation and said that is one reason bonds are overvalued; also said Brexit will cost 7% of UK GDP over the next 8 years.
• Llikes UniCredit shares

Blue Harbour’s Cliff Robbins:

• Reiterates long Investors Bancorp which is undervalued relative to peers; sees upside to $19 due to significant growth in net income and franchise value; a potential M&A candidate

Greenlight’s David Einhorn:

• Bearish on Core Laboratories; Sees 45% downside to $65/share in “way overvalued” stocks
• Also said oil prices are unlikely to stage a V-shaped recovery, which will hit Core Lab’s business

DoubleLine’s Jeff Gundlach:

• Recommends pair trade of long EEM ETF, short S&P 500 ETF
• “When emerging markets outperform the S&P 500, active is outperforming the S&P 500”

Altimeter’s Brad Gerstner:

• Likes United Airlines Long; sees upside to as much as $235/share
• Millennials travel more than their parents; sees airlines as a secular growth story

Jericho’s Josh Resnick:

• Recommends Frontier Communications short; accused company of aggressive accounting practices; having a massive debt load and bad customer service

Glenview’s Larry Robbins:

• Likes DXC Technology: has good management, good acquisition of HPE by CSC, partnerships with innovative companies, tax reform could help
• Likes FMC: bought good assets from Dow and DuPont; transaction was advantaged to FMC. Also good lithium batter business that could be split off
• Likes Quintiles: significant strategies between Quintiles and IMS; Good for potential market share growth.

Sohn contest winner picked EBAY as long; sees ~45% upside

Next Wave Sohn picks below:

• Trafalgar’s David Copley Recommends Shorting Mirvac, JB Hi- Fi
• ThornTree’s Mark Moore Likes Liberty-Formula One
• Totem Point’s Neal Nathani Likes Xilinx
• Blockhouse’s Jack Franke Recommends Going Long MPLX
• Half Sky’s Li Ran Recommends Fevertree Drinks Long

Moments from now, at 2:30PM EST, former Acting Attorney General  Sally Yates and Former Director of National Intelligence James Clapper will take the stand before the Senate Judiciary Committee to answer more questions about the alleged “Russian Interference in the 2016 United States Election.”

As we noted earlier, President Trump submitted his question list for the Senate panel earlier this morning via Twitter:

“Ask Sally Yates, under oath, if she knows how classified information got into the newspapers soon after she explained it to W.H. Council.”

Ask Sally Yates, under oath, if she knows how classified information got into the newspapers soon after she explained it to W.H. Counsel.

— Donald J. Trump (@realDonaldTrump) May 8, 2017

Of course, Sally Yates is now most famous for her attempted “mutiny” back in late January when she refused to enforce President Trump’s travel ban executive order.  Her insubordination got her fired within a matter of just a few hours and resulted in the following statement from the White House (see “Trump Fires Acting Attorney General Yates For “Betrayal“):

Statement on the Appointment of Dana Boente as Acting Attorney General

The acting Attorney General, Sally Yates, has betrayed the Department of Justice by refusing to enforce a legal order designed to protect the citizens of the United States. This order was approved as to form and legality by the Department of Justice Office of Legal Counsel.

Ms. Yates is an Obama Administration appointee who is weak on borders and very weak on illegal immigration.

It is time to get serious about protecting our country. Calling for tougher vetting for individuals travelling from seven dangerous places is not extreme. It is reasonable and necessary to protect our country.

Tonight, President Trump relieved Ms. Yates of her duties and subsequently named Dana Boente, U.S. Attorney for the Eastern District of Virginia, to serve as Acting Attorney General until Senator Jeff Sessions is finally confirmed by the Senate, where he is being wrongly held up by Democrat senators for strictly political reasons.

“I am honored to serve President Trump in this role until Senator Sessions is confirmed. I will defend and enforce the laws of our country to ensure that our people and our nation are protected,” said Dana Boente, Acting Attorney General.

The Democrats are delaying my cabinet picks for purely political reasons. They have nothing going but to obstruct. Now have an Obama A.G.

— Donald J. Trump (@realDonaldTrump) January 31, 2017

According to a CNN report from last week, Yates is set to testify that she told the White House that Flynn might have misled the administration about the content of his communications with Ambassador Sergey Kislyak weeks before he was finally relieved of his duties by the White House.

Former Acting Attorney General Sally Yates is prepared to testify before a Senate panel next week that she gave a forceful warning to the White House regarding then-National Security Advisor Michael Flynn nearly three weeks before he was fired, contradicting the administration’s version of events, sources familiar with her account tell CNN.

In a private meeting January 26, Yates told White House Counsel Don McGahn that Flynn was lying when he denied in public and private that he had discussed US sanctions on Russia in conversations with Russian Ambassador to the US Sergei Kislyak. Flynn’s misleading comments, Yates said, made him potentially vulnerable to being compromised by Russia, according to sources familiar with her version of events. She expressed “serious concerns” to McGahn, making it clear — without making a recommendation — that Flynn could be fired.

Of course, Trump did subsequently fire Flynn in early February after reports he misled Vice President Pence and other White House officials about his conversations with Kislyak.

Tune in below for the fireworks:

Just two work days after we reported that Home Capital had already used up half of its C$2 billion emergency “lifeline” credit facility (yielding 22.5%) and was seeking additional emergency funding, on Monday Canada’s most troubled alt-mortgage lender provided a liquidity update in which it said that it had drawn an addition C$400 million on its loan, leaving just C$600 million available. At the same time, the company confirmed that the bank run at subsidiary Home Trust has failed to slowdown, and as of May 8 “deposit balances are expected to be approximately $192 million.” According to the latest data, another 50% of deposits have been pulled in the past week, and are now down over 90% since March 28.

Additionally, the company announced that its all important Total Guaranteed Investment Certificate (GIC) deposits, including Oaken and broker GICs, stood at $12.64 billion as at May 5, 2017 compared with $12.86 billion as at April 28, 2017. Oaken savings accounts stood at $167 million as at May 5, 2017 compared $222 million as at April 28, 2017.

Home Capital said that its total liquid assets stood at $1.160 billion as of end of day May 5, 2017, a number which is shrinking rapidly with each passing day.

In an amusing addition, the company said that “its advisers continue to work towards seeking lower cost sustainable funding solutions and to evaluate strategic alternatives to solidify and strengthen its successful mortgage origination platform. “

Good luck with that.

Full statement below:

Home Capital Group Inc. (“The Company” TSX: HCG) today announced that it has drawn down a total of $1.4 billion from its $2 billion credit line, the terms of which were announced by the Company on April 27, 2017.

The Company and its advisers continue to work towards seeking lower cost sustainable funding solutions and to evaluate strategic alternatives to solidify and strengthen its successful mortgage origination platform.

In addition, the Company announced the suspension of its quarterly dividend to prudently manage liquidity.  The Company’s existing mortgage portfolio continues to perform well. The Company’s liquid assets stood at $1.160 billion as of end of day May 5, 2017.

Home Trust’s High Interest Savings Account (HISA) deposit balances are expected to be approximately $192 million on Monday, May 8, 2017 after the settlement of transactions that took place on Friday, May 5, 2017.

Total Guaranteed Investment Certificate (GIC) deposits, including Oaken and broker GICs, stood at $12.64 billion as at May 5, 2017 compared with $12.86 billion as at April 28, 2017. Oaken savings accounts stood at $167 million as at May 5, 2017 compared $222 million as at April 28, 2017.

Home Trust’s GICs and HISA deposits are eligible for Canada Deposit Insurance Corp. coverage.

In a separate release, Home Capital announced that it was adding 3 new members to its board as it was continuing “governance renewal process,” adding Claude Lamoureux, former Ontario Teachers’ Pension Plan CEO/co-founder of Canadian Coalition for Good Governance, Paul Haggis, former Omers CEO, and Sharon Sallows to board.  HCG also appointed Brenda Eprile board chair; Eprile joined board as an independent director in 2016; replaces Kevin Smith, who remains on board as independent director. HCG confirmed that as reported previously, William Falk stepping down.

Finally, HCG set the annual meeting for June 29 in Toronto. It is sure to be an exciting affair.

Authored by James Holbrooks via TheAntiMedia.org,

“It was easy enough to spot my cheerleader: She was the only person shouting in a crowd of quiet, curious, shy supporters. Her visage dug with deep wrinkles, but she was full of energy and smiles. When I saw her, I merged to the right and gave her a high-five. When I did, a group of women started to cheer me, (‘Bali! Bali!’), and a bunch of kids ran toward me to get their own high-fives. The ice was broken.”

Nick Busca was a foreigner running a marathon, and up until that point, as he describes in an enlightening Quartz piece that ran Friday, the host country’s citizens had been standoffish. But as Busca would later explain, once the connection was made on the human level, everything else fell away.

Considering this first-hand account — particularly within the context of the current mainstream news headlines — it may surprise readers to know that the host nation Busca is describing is North Korea.

The marathoner opens his story with pain, explaining how his training had been inadequate for the Southeast Asia climate. Busca was in “all sorts of trouble,” he writes, when he heard his cheerleader’s words.

“Bali! Bali!,” incidentally, means “Quicker! Quicker!”

Busca explains that while he was still in physical agony, the simple human gestures were enough to bring his mind back into focus:

“However, those few words of encouragement were able to distract me temporarily from the pain and bring me back to (sur)reality: I was running the North Korea Marathon.”

This wasn’t the first time Nick Busca had run the Mangyongdae Prize International Marathon, which is held annually in the North Korean capital city of Pyongyang. He’s been running the 42-kilometer race for the past three years and says the positive feedback he got from locals this year is by no means atypical.

“It wasn’t the first time I had bonded with fellow amateur athletes in North Korea,” he writes for Quartz. “In 2014, I found myself talking to an engineering student on a chairlift at the Masik Pass Ski Resort; on the flight there from Beijing, I also chatted with a few members of a women’s soccer team who were coming back from a tournament in Asia.”

Continuing:

“The day after this year’s marathon, with our legs begging for mercy, my tour group visited a soccer academy and played with six- and seven-year-old children. In all of these occasions, when the language barrier kept our cultures apart, sports functioned as a catalyst for social interaction.”

Busca points out that the Olympic charter, which the marathoner notes is held up as “the pinnacle of how we value sports,” promotes a “peaceful society, the preservation of human dignity, and the celebration of friendship as its main values.”

He also reminds readers that even among bitter enemies, sports can act as a vehicle to find common ground as negative, even violent tendencies among participants are being expressed in “a war with the bloodshed of real conflicts.”

But perhaps the most deeply penetrating part of Busca’s narrative comes when he’s addressing the problems with the isolated country.

Acknowledging the demonization of the Kim Jong-un regime in the press and admitting that sure, a lot of what’s being said may be true, the runner says it’s difficult to consider all the negativity when encountering the actual people of North Korea — and that if you do choose to condemn, then you should direct that condemnation toward those who actually deserve it.

“It is hard to travel there without having these kinds of reports in my mind,” Busca writes of the Hermit Kingdom, “but through my journey, I learned that even when we legitimately condemn a regime, we must keep the top of its political pyramid separated from the bottom.”

Then, in moments of almost stunning clarity — sad commentary on an age where reports of drone strikes killing civilians barely register a response from the public — Busca states what would be common sense in a sane world:

“A country’s people may be subjugated to the decisions of their government, but they have their own lives and values — and deserve more than being held to the same ethical judgments we hold their leaders.”

It must be noted here that the same logic should apply to the people of any and all nations.

If you truly believe Bashar al-Assad is an evil dictator who gasses his own civilians, then hate him – but don’t let that hatred spill down to the women and children who are being blown apart by bomb-dropping robots in Syria.

If you truly believe Saddam Hussein was a ruthless authoritarian who deserved to be ousted and eventually hanged, then run with that. But don’t for a second believe that the people in the streets of Baghdad had anything to do with the atrocities you associate with their country’s leader.

Even in the United States, where Congress’ popularity stands somewhere between cockroaches and herpes — and the sitting president is the most unfavorable of all time — the public feels detached and in disagreement with the government on many issues.

And if you choose to believe that North Korea is a nuclear threat to its surrounding neighbors, terrific. But try your best to not forget this one thing: The human beings living under Kim Jong-un’s rule play no part in the decision-making.

I’ll close here with one of Busca’s lines that echoes the feeling he started the piece off with: pain.

Because for many of us, the drone strikes do register. The innocent dead are felt. We didn’t know them, but we know they didn’t deserve to die. And so, their pain, and the pain of the loved ones left behind becomes ours. Or, as Nick Busca so truthfully states:

“By the 30km mark, it doesn’t matter what country you’re from or what kind of life you live: You just want it to stop.”