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[l] at 9/22/19 9:30am
Fiat Money Cannibalization In America

Authored by EconomicPrism's MN Gordon, annotated by Acting-Man's Pater Tenebrarum,

An Odd Combination of Serenity and Panic

The United States, with untroubled ease, continued its approach toward catastrophe this week.  The Federal Reserve cut the federal funds rate 25 basis points, thus furthering its program of mass money debasement.  Yet, on the surface, all still remained in the superlative.

S&P 500 Index, weekly: serenely perched near all time highs, in permanently high plateau nirvana. [PT]

Stocks smiled down on investors from their perch upon what Irving Fischer once called “a permanently high plateau.”  As of the market close on Thursday, the Dow Jones Industrial Average held above 27,000, the S&P 500 above 3,000, and the NASDAQ above 8,000.  401k accounts, to the delight of working stiffs of all ages, origins, and orientations, are swollen beyond expectations.

Below the surface, however, the overnight funding market was subject to much weeping and gnashing of teeth.  Sometime between Monday night and Tuesday morning the overnight repurchase agreement (repo) rate hit 10 percent. Short-term liquidity markets essentially broke.

After several technical glitches, the Fed executed its first repo operation in a decade – $53 billion – to keep the interbank funding market flowing.  Zero Hedge documented the chaos real time. 

This was followed up with additional repo operations on Wednesday and Thursday – at $75 billion a pop, and both oversubscribed.  Perhaps Fed repo operations will be a daily occurrence, at least until the Fed launches QE4.

US overnight repo rate – as Fed chair Jerome Powell remarked: “Funding pressures in money markets are elevated this week”. Evidently, nothing escapes his eagle eyes. [PT]

At the same time, the effective federal funds rate – the upper range limit of the federal funds rate – continues to push above the rate the Federal Reserve pays on excess reserves (IOER).  In other words, the Fed’s primary tool for price fixing credit markets is not behaving according to plan.  Greater Fed intervention will be needed to keep things in line.

The fate of Fed projections… this may explain why the Fed was apparently surprised by the recent developments in overnight funding markets. [PT]

Centrally Planned Credit Markets

No doubt, these are the sorts of pickles that central planners invariably find themselves in.  At the heart of the matter is lack of cooperation. The planners push credit markets one way and the credit markets react in unanticipated and unexpected ways.

Remember, in centrally planned economies, supply and demand are not allowed to naturally adjust and equilibrate.  This often results in supply shortages and strange phenomena like store shelves with potato peelers and no potatoes.  Centrally planned credit markets are no different.

Through its interest rate price control policies the Fed creates an environment for liquidity mismatches (i.e. supply and demand disparities). Then the Fed must intervene with even greater price controls to arbiter them. This in turn compounds the mistakes; layering and levering them up to the extreme.

Somehow the clever fellows, as they devise plans upon plans from cushy chairs within the climate controlled Eccles Building, are unaware they are chasing the wild goose. For example, here is an excerpt from the Fed’s recent implementation note:

“Effective September 19, 2019, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 1-3/4 to 2 percent, including overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 1.70 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per-counterparty limit of $30 billion per day.”

What to make of it?

First, the central planners are winging it.  Second, there is no happy end to this madness.  Third, there will be hell to pay – and you will get to pay for it.

Central planners, confidently forging ahead… [PT]

Fiat Money Cannibalization in America

While in office, former vice president Dick Cheney once commented that “deficits don’t matter”.  To be fair, politics – not fiscal policy – was the context of Cheney’s remark.  His implication was that ‘deficits don’t matter to voters.’  He was right then, and he is right now.

Most voters don’t give a rip about deficits.  So, too, most members of Congress don’t care about deficits.  If you recall, there was no real resistance to the recent suspension of the debt ceiling and federal spending increases. Voters demanded it. Congress obliged with little deliberation. The fact is all pretense of fiscal restraint at the national level disappeared with the Tea Party movement over the last decade.

The population at large has come to believe it can get something for nothing – including free food, free drugs, free retirement, and free money – via the ‘power of the purse’.  People believe the government can spend without limits and indefinitely kick the debt can down the road. They believe there will be no consequences for this complete failure of discretion.

Dick Cheney… the mythical creature that “exists neither in the executive branch nor the legislative, yet simultaneously in both. He is neither man nor beast, yet has elements of the twain. He is at once everything and nothing, substance without form, shape without motion, time without reason…he is the Highlander” (according to John Oliver). In this image he seems to be telling someone off. His remark on the importance of deficits, or rather the lack thereof, is  destined to haunt him forever. [PT]

Voters couldn’t be more wrong.  Contrary to what Cheney said, deficits do matter.  And voters should care about them.

The U.S. budget deficit has already topped $1 trillion for the first time since 2012, and there is still one month in the fiscal year to go.  When the economy slips into reverse deficits could easily jump to $2 trillion.  Interest rates could also slip and slide even lower, perhaps into negative, like in much of Europe and Japan.

Of course, the Fed will keep pushing the limits of what it can and cannot control in a futile attempt to hold things together.  It will supply a continuous flood of liquidity to credit markets with no reservation.  What choice does it have?

Failure of the debt based fiat money system is at stake. The Fed will do everything it can to keep it alive.  It will keep at it, debasing the dollar around the clock, until the precise moment it cannibalizes itself.

Holding some gold – or silver – at this juncture is of supreme importance.

Tyler Durden Sun, 09/22/2019 - 11:30 Tags Business Finance
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[l] at 9/22/19 9:00am
US Army Smashes Recruitment Goals By Preying On Hopeless Millennials With Student Debt 

The US Army has finally discovered the secret formula, well not a secret anymore, in attracting snowflake millennials into the Army ahead of a possible shooting war with Iran and or down the road, with China. That is, target millennials who are suffering from the student debt crisis, reported Vice News.

The Army smashed its 2019 recruiting goal, after falling short by 6,500 last year, said the head of Army Recruiting Command Maj. Gen. Frank Muth. He told reporters last week that much of the success was a new marketing strategy geared towards millennials with student debt.

"One of the national crises right now is student loans, so $31,000 is the average," Muth told reporters. "You can get out [of the Army] after four years, 100 percent paid for state college anywhere in the United States."

This year's recruitment push wasn't entirely based on patriotism, but instead, targeted millennials who wanted to escape from their insurmountable student debts.

This is one of the first instances where the Department of Defense (DoD) hasn't used patriotism as a case to urge young adults to join the Army and or any other service.

During the marketing campaign, the Army targeted young adults on social media, as shown in a tweet from Army recruiters in Chicago:

"#PleaseAWomanIn5Words (or man). I'll pay your student loans! #ArmyTeamChicago”

#PleaseAWomanIn5Words (or man). I'll pay your student loans! #ArmyTeamChicago pic.twitter.com/TyI4cUlekE
— Army Chicago (@ArmyChicago) September 16, 2019

According to Vice News, Georgia Parke, a communications director for Bernie Sanders, criticized the new approach, indicating "if we cancel student debt who will fight the endless wars?

hmmm yeah maybe this is why its taking so fucking long to address/fix the student loan debt problem in america. the military has no f u c k i n g business preying on young, poor kids that simply want an education. you shouldnt have to fucking join the army to pay for school. https://t.co/fyp0vfr9sf

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[l] at 9/22/19 8:25am
Tulsi Gabbard Slams Trump Over Saudi Policy

Authored by Tom Luongo,

Rep. and Presidential candidate Tulsi Gabbard (D-HI) brought the hammer and the house down on Twitter for calling out President Trump on subordinating the US military to a foreign power’s prerogative.


Trump awaits instructions from his Saudi masters. Having our country act as Saudi Arabia's bitch is not "America First." https://t.co/kJOCpqwaQS

— Tulsi Gabbard (@TulsiGabbard) September 16, 2019

She was completely right to take this tack with Trump here. And Trump was completely right, for once, to ignore a challenge to his authority and persona. Because had he done so, he would have boosted Gabbard as a real challenger to him in 2020. Trump knows that in politics you never attack down unless there is no down side.

Gabbard’s uncompromising honesty and principles on these important foreign policy positions give her the moral high ground.

Trump can’t respond to that without betraying his entire Presidential aura.

She is correct that US citizens who sign up for the military take an oath to protect and defend the constitution and the people of the United States. They did not take an oath to protect foreign dictators incapable of basic defense of their most precious and valuable real estate.

This is especially true when said dictators are the aggressors in a war of conquest against their neighbors. After more than four years of fighting, using weapons produced by the United States, with assistance by US military advisers, the Saudi Arabians have completely botched their war in Yemen, committing dozens, if not hundreds, of despicable attacks on civilian targets without anything to show for it but animosity and, now, wholly insecure infrastructure.

That this infrastructure is vital to the global economy should be irrelevant to Trump’s calculus as to where to send US troops and war materiel. That was something Saudi Arabia’s Clown Prince, Mohammed bin Salman should have considered before starting this war back in 2015.

The Houthi rebels in Northern Yemen claimed responsibility for the attack on the Abqaiq gas processing facility as a direct consequence of Saudi aggression. Of course, they are backed by Iran and Iranian technology.

It’s nearly a week after the event and we still don’t know for sure what happened. We have vague assurances from anonymous sources with the US and Saudi governments but no concrete details other than what was hit and how.

More questions abound, still, than answers.

That Trump ultimately decided against going to war with Iran over this incident doesn’t negate Gabbard’s attack on him. It was cogent given the moment and is principled in how US troops should be used.

In all of this discussion about a potential war with Iran no one in the Trump administration or anywhere else have made a credible argument as to what actual threat Iran poses to the people of the United States.

Vague proclamations by Iranian politicians of “death to America” are, ultimately far less threatening or interesting than the parade of US Senators and Congresscritters saying that Iran is a “rogue regime” and it should be wiped off the face of the earth.

Are our sensibilities so fragile that we can’t handle a little criticism from people we have waged war by proxy with for over 70 years?

How is this any different than the average tweet by Lindsay Graham (R-AIPAC)?

We have senior officials, like the Secretary of State and the erstwhile National Security Adviser calling Iran ‘evil’ and we have officially lumped their army in with the same lot of terrorists as Al-Qaeda and ISIS. We have sanctioned their government and individuals within it.

Never forget that you reap what you sow in this life. And any animosity Iran and Iranians bear towards the US and Americans is richly deserved. The reverse, however, is difficult to make a case for.

Because, little factoid, Iran hasn’t attacked anyone in a span of time that is longer than the US has been a country.

Iran threatens Israel in the same way that Israel threatens it. Saudi Arabia threatens Iran as an oil competitor and religious one.

And the idea that the President of the United States should entertain even a mere thought of going to war with Iran over an attack on Saudi oil production should be anathema to anyone with two brain cells to rub together and make a spark.

Because at the end of the day this is not our fight. This is a fight between enemies made rich by oil in some cases (Saudi, Iran), political clout in high places in the US and U.K. in others (Israel) and friends in other high places and cultural integrity (Iran).

This is a cultural and religious conflict we barely understand and cannot change the dynamics of by blundering in with weapons of mass destruction. It is precisely because we take sides in this conflict that this conflict never ends.

And it is a conflict that dovetails with prevailing ‘wisdom’ in the West about how to maintain control over the planet that dates back more than 150 years. And that is why we do what we do. But it is time for that worldview to end.

It’s time bury Mackinder’s ideas alongside his corpse.

To Trump’s credit he seems to have realized that this incident was another like the events which led up to the US Global Hawk drone getting shot down in June. It was designed to get him to over-commit to a policy which would engulf the world in a war that only a very few powerful and highly placed want.

Even the tweet that Gabbard called him out on was carefully worded to cool things down and hint that he wasn’t prepared to respond militarily to this incident. As Gabbard climbs in the polls and is treated worse than Bernie Sanders in 2016 and Ron Paul by the Republicans in 2008 and 2012, she will hold Trump to account on foreign policy with an ever-growing clout and moral clarity which bodes well for the future of US involvement overseas.

And, like Nigel Farage in the U.K. offering the Tories a non-aggression pact to get a real Brexit over the finish line, Gabbard should put country before career and applaud Trump when he doesn’t act like Saudi Arabia’s “Bitch.” That will win her even more votes and more respect among the silent majority who are not in the throes of Trump Derangement Syndrome on both the Left and the Right.

Along with this, the likely end of Netanyahu’s political career should mark a sea change in US policy. While AIPAC’s pull is still very strong in the US, Israel’s commitment to an aggressive foreign policy with an uncommitted President should falter under a new government without its Agitator-in-Chief.

And without that animus propelling events along eventually cooler heads will prevail, and the present dynamic will change.

Trump made an enormous mistake pulling out of the JCPOA. That genie cannot be put back in the bottle. The question now is does he have the sense and the humility to realize his board position has materially weakened to the point where the probability of a rout is rising?

2020 for him has to be about making good on his promises to end the Empire building and improving relations with Russia. With Putin openly trolling him and the Saudis recently over weapon sales the odds of the latter happening are low.

But he can still make good on the former. Trump has lost so much of his goodwill with the people he’s ‘negotiating with’ that there is little to no wiggle room left. He has no leverage and he’s got no goodwill.

I saw this coming the day he bombed the Al-Shairat airbase in April 2017. I said then that it was one of the biggest geopolitical mistakes ever. It set the stage for all the others because it showed us just how out of his depth Trump was on foreign affairs. It set him back with both Putin and Chinese Premier Xi and it also showed how easily he could be manipulated by his staff and their rotten information.

It’s a deep hole he’s dug for himself. But there are still people who want to help him climb out of it. Gabbard’s ‘bitch slap’ is an example of the kind of tough love he needs to right his Presidency’s ship.

His base needs to do that a little more often and then maybe, just maybe, we’d get somewhere.

Tyler Durden Sun, 09/22/2019 - 10:25 Tags Politics War Conflict
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[l] at 9/22/19 7:50am
Meet America's "Economic Refugees": Retirees Who Opt To Live Abroad

What middle-class American couple wouldn't want to spend their golden years lounging around a 3,000 square foot penthouse apartment? For many, that's the dream. However, the impact of the financial crisis and a rising cost of living in the US is forcing more Americans to consider more adventurous alternatives, like moving to South America.

One couple, Cynthia and Edd Staton, moved to Ecuador in 2010 after the financial crisis nearly wiped out their savings. The couple still receive their social security checks, and in Ecuador, that amount, plus what savings they have left, is more than enough for them to get by.

Every month, the couple sets aside a modest budget of $2,000. That covers their rent in a 3,000 square foot Ecuadorian penthouse in Cuenca, the city where they live. They have a housekeeper, they eat out regularly, and they never complain about health-care costs.

Occasionally the two will wander through their gym or take a few laps in their swimming pool.

According to CBS News (citing SSA data), the number of retirees who draw Social Security and live outside the US increased by 40% to more than 413,000 during the ten years between 2007 and 2017. This increase coincides with a massive run-up in the cost of housing in the US, particularly in expensive metropolitan areas along the coasts.

To be sure, ~400,000 is still only a small fraction of the 42 million American retirees who collect social security. But it reflects the financial realities for a growing number of baby boomers who are hitting 65 without nearly enough set aside.

Even though the median retirement savings for a 65-year-old American has climbed to $152,000, the highest in history, 1 in 5 retirees say they haven't yet recovered from the financial crisis, and worry they won't have enough to tide them over.

"Their idea of what they could afford in retirement isn't matching reality," Prescher said about retirees who move abroad because of finances. "No one knows what will happen with health care in the U.S. - it's hugely uncertain."

One expat has come up with a term for Americans like the Staton's: 'economic refugees.'

Americans who opt to retire outside the U.S. are driven by different motivations, said Dan Prescher, senior editor at International Living, a publication geared to people who want to live or retire abroad. Prescher and his wife, originally from Nebraska, now live in Mexico, where they were drawn because of the better weather.

Some are baby boomers who "now can have that great adventure they always wanted," he said. Others are what the Statons describe as "economic refugees," or Americans who are worried about managing retirement on a limited budget.

Even though Americans who are at least 65 are covered by Medicare, out-of-pocket health-care costs for retirees increase every year. One study found that the typical couple will need a total of $285,000 to cover health expenses in their retirement decades, as Medicare doesn't cover most dental work and long-term care. Consumers must also pay copays and deductibles and other fees.

Joining a national health care system in a country with lower medical prices than in the US can help lighten the impact on the wallet.

Ultimately, this amounts to a kind of welfare arbitrage: US Americans collect social security, but move to a developing country where every greenback goes a lot further, and health care is much, much cheaper.

Tyler Durden Sun, 09/22/2019 - 09:50 Tags Social Issues Labor
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[l] at 9/22/19 7:15am
Europe: The Cracks Are Beginning To Show

Authored by Frank Lee via Off-Guardian.org,

Is the EU experiment coming to an end? Europe considers its options...


2014: The expansion of NATO in the late 20th and early 21st centuries had posed a serious strategic threat to Russia’s security. In 1999 the Czech Republic, Hungary and Poland joined NATO. In 2004 they were followed by the Baltics, Romania, Bulgaria, Slovakia and Slovenia; Albania and Croatia joined in 2009.

This influx was in addition to most of the western European states which had been members of NATO since the ‘Iron Curtain’ came down soon after hostilities had ceased in Europe in 1945. In all, 28 countries are now members of the alliance. Non-NATO members including, Sweden, Finland, were brought into line with EU/NATO policy after their accession to the Lisbon Treaty. Thus economically, politically and militarily the West had arrived at Russia’s western borders.

Viewed retrospectively, however, this was the high point of NATO hegemony. The juggernaut seemed to be at the height of its power, but the turning points had already come with the brief Russo-Georgia war in 2008 and then Ukraine 2014/15 when Russia said nyet.


Colour revolutions financed by US Non-Governmental Organizations (NGOs) in the shape of the National Endowment for Democracy (NED), US-AID, and Human Rights Watch (HRW) were complementary to the EU/NATO expansion eastwards and had targeted both Georgia and Ukraine. Additionally, Soros’s Open Society and its many tentacles also took part in these operations.

The NED could not be called an NGO since it was funded directly by the US government which made it a “GO”. This was openly admitted later by Victoria Nuland – Under Secretary of State for Eurasian and East European Affairs, and Wife of leading neo-con warmonger Robert Kagan – during a talk which she gave at the Washington press club. (See the you tube). Ms Nuland also took the opportunity to inform the audience that the going rate for colour revolutions was US$5 billion.


The first political drive into Ukraine began with the Orange Revolution of 2004 with Yuliya Tymoshenko and Victor Yuschenko taking power. But this didn’t last long as both were congenitally corrupt and soon fell out with each other over the share of the spoils.

Victor Yanukovich whose base was in the Eastern oblasts of Donetsk and Lugansk and head of the Party of the Regions, was elected President of Ukraine in 2010. Yanukovich, never particularly popular in the west and central Ukraine, was ousted in the coup of 2014 supported by NATO/EU, the above-mentioned NGOs, and a motley collection of oligarchs, centre-right politicians and outright neo-fascists from Lviv, and Ternopol the far west of the country (Galicia).

Now the political drive was augmented by a military drive involving armed conflict in a war in the East of the country which is still ongoing. The new ‘President’ Poroshenko (ex-Finance Minister in Yanukovich’s 2010 government) launched what he called an ‘anti-terrorist’ operation which was to last a few hours at most.

Five years later the conflict is still simmering in the Donetsk and Lugansk regions in the Russian-speaking east of the country. Ultra-nationalist irregular militias from the western provinces and the Ukie regular army were meant to push right up to the Ukraine/Russian frontier and possibly deploy ABM systems.

Well, that was the plan. But we should all know by now about military plans. As the Prussian soldier and military strategist Helmuth von Moltke the Elder succinctly put it: “No battle plan ever survives first contact with the enemy.” Obviously the Ukies were not au fait with Herr Moltke and his works.

Additionally, the Russian naval base in Sevastopol/Crimea was being eyed by the US Sixth Fleet for future operations in the Black Sea. The Russians had been in occupation of this base for centuries and had some 16 thousand Russian servicemen permanently stationed there, with the additional proviso in the lease that another 10 thousand could be mobilised if necessary.

Russia paid Ukraine some $500 million annual rent for the use of the base and held the lease until 2042.


As it turned out the EU/NATO plan was stopped in its tracks mainly due to the fact that both in the Don Bass as well as in the Crimea the population was ethnically Russian.

The Crimean population did not recognise the putschists in Kiev as their government since the illegal regime had come to power by violent means and had also banned sizeable opposition political parties – e.g., the Party of the Regions and Ukrainian Communist party, the predominantly Eastern Ukrainian political entities.

Crimean people therefore transferred their loyalties to Russia eventually seceding from Ukraine to become part of the Russian Federation. In the Donetsk and Lugansk oblasts the Ukrainian military met with stiff resistance and were halted by the heavy defeats firstly at Ilovaisk in 2014, and then Debaltsevo 2015.

Hastily formed local para-military forces, aided by Russian artillery, arms and high-tech Electronic Warfare played a crucial role in these operations. Since that time, and apart from the occasional shelling from the Ukrainian side, the war has settled into a frozen conflict.

(A note in passing: the continued Ukrainian shelling of Don Bass civilians which is of course contrary to UN law, receives no attention whatsoever in the western media (why am I not surprised?) neither do the obscene rallies of up to 20,000 ultra-nationalists which take place in Kiev every January celebrating the birthday of the war criminal Stepan Bandera and the Ukrainian Insurgent Army UPA. Banners, Torchlight processions, pictures of Bandera, pure Leni Riefenstahl Nazi rally pastiche.)


2019: After all the promises, EU flags, and hoopla in Independence Square (Kiev) the Ukrainian economy is now a shambles and Ukraine is the poorest country in Europe apart from Moldova.

The ‘Government’ (exited by Poroshenko and succeeded by the ex-comedian Zelenski who received a very large majority vote, due to the fact that the mass of the population want peace) is only kept in power by the oligarchs, principally Kolomoisky, and the armed ultra-nationalist militias, as well as handouts from the IMF.

There was a very famous line from the East European Marxist, Karl Radek:

‘Fascism is the iron hoop around the broken barrel of capitalism.’

Much the same can be said about Ukraine.


Coincidental with these events the economic situation in Europe has entered into a turbulent period. I hesitate to use the word ‘crisis’ but consider the core of the system, Germany, which if not actually in recession then is very near.

Growth Year on Year (YoY) from July 2018, July 2019 is 0.4% – what you would expect in the middle of a depression. UK’s growth figures are slightly better coming in at 1.2% YoY. Poor old Italy recorded a GDP growth of -0.1% YoY, (that’s a minus sign by the way).

Rubbing in the salt Italy has a Debt-to-GDP ratio of 132% and finally France YoY growth rate of 1.4% and a debt-to-GDP of 97%. That’s the big four in the EU/Eurozone.

So, the biggest economies in EU/Eurozone have a growth rate ranging from -0.1% to 1.4%. Oh, and I almost forgot negative interest rates are now becoming the norm in euroland and 85% of German Bunds are non-performing and/or interest rate negative.

Not very encouraging, and now the ECB is getting geared up for another round of QE, which means that the euro is going to be devalued. Of course, the Americans aren’t going to be best pleased with this turn of events.

With the exception of the Atlanticist knuckleheads – the UK, Poland and the Baltics – there is now a discernible rift taking place between the US and its Vassal states in Europe. For starters Germany in its present economic travails is not going to welcome any increased costs for its export industries.

Most importantly this includes raw material costs which underpins Germany’s manufacturing/export sector. Natural Gas and oil are piped to Germany from Russia and the construction of Nordstream 2 is crucial to the German economy but is infuriating the Americans who want to force, repeat force, Germany to buy more expensive, less reliable, Liquified Natural Gas (LNG) and are threatening to sanction any company and/or state to get their own way.


This is a clearly a re-run of history and a moment of truth for the Germans. Do they do what the Americans tell them, which would be akin to committing economic suicide, or will they pursue their national interests as they really ought to be doing . This was precisely the setting in 1985 though this time with Japan the object of US financial and economic destabilisation.

The Plaza Accord, as it was called, was a joint-agreement, signed on 22 September 1985, at the Plaza Hotel in New York City, between France, West Germany, Japan, the United States, and the United Kingdom, to depreciate the U.S. dollar in relation to the Japanese yen and German Mark.

The signing of the Plaza Accord was significant in that it reflected Japan’s emergence as a player in managing the international monetary system. However, the bad news was the resulting recessionary impact which pushed up the value of the Yen against the dollar in Japan’s export-dependent economy.

Worse still this created an incentive for the expansionary monetary policies that led to the Japanese asset price bubble of the late 1980s. The Plaza Accord contributed to the Japanese asset price bubble, which progressed into a protracted period of deflation and low growth in Japan known as the first Lost Decade. Has Germany, and by implication Europe learned the lesson one wonders?

Bearing this in mind it should also be noted that Germany is a big investor in Russia.

Russia remains one of the top investment destinations for German businesses, despite tensions between Washington and countries facing steep sanctions, including the European Union.

Within the first quarter of 2019, foreign direct investment by German businesses in Russia has seen a 33 percent increase compared to the same period a year earlier, totalling €1.76 billion ($1.98 billion), according to a statement released by the Russian-German Chamber of Commerce.

“Despite weak market conditions, German companies continue to believe in the Russian market,” said Matthias Schepp, the chamber’s chairman, on Thursday, highlighting the upward trend of German business in Russia.

Although the Russian economy was at a standstill from 2014-2017 mainly due to sanctions that had been imposed over the Ukrainian crisis in 2014, Germany has remained a stable business partner. Europe’s largest economy has 10 times more companies registered in Russia than the other European Union states, accounting for nearly 4,500 companies.

[Caspian News, 8/7/19]

German big business, therefore, likely does not want to see its exports blocked in order to appease US geopolitical ambitions. And there is little sympathy among most of the German public for the ongoing US/NATO occupation. The decline of the SPD and CDU and rise of the AfD are indicative of this trend.

In a recent study it was found that the traditional relationship between Germany and the US was beginning to fray.

Americans and Germans have vastly different opinions of their bilateral relationship, but they tend to agree on issues such as cooperation with other European allies and support for NATO, according to the results of parallel surveys conducted in the United States by Pew Research Centre and in Germany by Körber-Stiftung in the fall of 2018.

In the U.S., seven-in-ten say that relations with Germany are good, a sentiment that has not changed much in the past year. Germans, on the other hand, are much more negative: 73% say that relations with the U.S. are bad, a 17-percentage-point increase since 2017.

Nearly three-quarters of Germans are also convinced that a foreign policy path independent from the U.S. is preferable to the two countries remaining as close as they have been in the past. But about two-thirds in the U.S. want to stay close to Germany and America’s European allies.

Similarly, while 41% of Germans say they want more cooperation with the U.S., fully seven-in-ten Americans want more cooperation with Germany. And Germans are about twice as likely as Americans to want more cooperation with Russia. All this is happening against a backdrop of previously released research showing a sharply negative turn in America’s image among Germans.

[Pew Research Centre, Nov. 2018]

Interestingly enough the most pro-NATO, pro-American outfit has been Daniel Cohn-Bendit’s Green Party – Die Grunnen. It seems that the 1968 version of Danny the Red, has transmuted into the 21st century Danny the Rat.


Now joining the chorus of a possible EU independence from US is none other than Emmanuel Macron. In what seemed completely out of character perhaps, were Macron’s perorations which were eerily reminiscent of Charles De Gaulle both in their timing and sentiments. There was a clear message that the old Atlanticist geopolitical and economic global order has had its day. Lèse-majesté Indeed.

[See The Saker for a full account – The Unz Review, 12 September 2019]


Earlier a similar break from current orthodoxy came surprisingly from the Chairman of the Bank of England, ex-Goldman Sachs former employee, Mark Carney, which took place at Jackson Hole Symposium 2019 23 August 2019. Herewith a brief resume from the Financial Times:

Mark Carney, the Bank of England governor, has said that the world’s reliance on the US dollar “won’t hold” and needs to be replaced by a new international monetary and financial system based on many more global currencies. In a speech at the annual Jackson Hole gathering of central bankers in the US, he called for the IMF to take charge of a new system of currencies, ensuring emerging economies from destructive capital outflows in dollars and removing their need to hoard US currency. In the longer term the IMF could “change the game” by building a multipolar system, he said.”

- Financial Times, 23/8/19 (paywall)

So, there we have it. Neo-liberalism and Globalization (which is neoliberalism writ large) no longer works. The holy trinity of free movement of labour, capital and commodities is no longer fit for purpose. Similarly, with the dollar, which isa key part of the present defunct global monetary and financial system. A new global currency needs to be constructed, which is precisely what Keynes argued in 1944. In fact, this is not news when restricted to opponents of globalization and neoliberalism, but it is news when being articulated by leading establishment figures such as Carney.

With all due respect to Antonio Gramsci I think the new is being born. The accelerating pace of events is leaving the know-nothing talking heads and their ilk in its wake. The view from the United States? Conspicuous by its absence.

They simply seem unable to fathom what is going on in the world. Thus, a geopolitical and economic fissure of San Andreas dimensions seems to have become a fait accompli between the US and the Eurasian bloc; this process, albeit in its earlier stages, now also seems to be developing between Europe and the US.

The post war paradigm seems to be coming under relentless pressures, both internal and external. The fact that Carney, as spokesman, feels it appropriate to point out this fact as the representative of such an Atlanticist basket-case as the UK makes these views even more significant.

The move from a unipolar to a multipolar world just got another big (and perhaps definitive) push.

Next up: 2020?

Tyler Durden Sun, 09/22/2019 - 09:15 Tags Politics
[*] [-] [-] [x] [A+] [a-]  
[l] at 9/22/19 6:30am
Global Carmageddon Continues: Mexico Total Vehicle Exports Crushed 12.7% In August

In short, it looks like all hell is breaking loose for the auto industry, which continues to show signs of a profound global recession. 

First, we saw Chinese auto sales fall 14 times in the last 15 months under the weight of a trade war and a far overextended consumer. U.S. auto sales have followed suit and are expected to continue to fall 2.2% percent in the back half of 2019. General Motors has found itself dealing with its first UAW strike in 12 years and now, the warning bells are also starting to be audible from Mexico. 

Mexico saw its total vehicle exports collapse 12.7% in August, a sharp drop for one of the biggest exporters of vehicles in the world, according to new data from FreightWaves. Companies like Ford, Honda, Fiat-Chrysler, Toyota, BMW, GM, Kia, Mazda, Nissan, Volkswagen, and Audi all have manufacturing plants in Mexico. 

Manufacturers shipped 281,811 units in August compared to 322,779 in August 2018, according to data from the Mexican National Institute of Statistics and Geography (INEGI) and the Mexican Association of the Automotive Industry (AMIA). AMIA President Eduardo Solís Sánchez is blaming the decline on "lower demand from the U.S., Canada and Brazil". The three counties combined represent 90% of all Mexican auto exports.

While exports are still up 1.5% year to date, auto production has fallen almost 1% to 2.6 million units. 

Solis said during a recent press conference: “There are brands that have indicated changes in their production lines [Nissan and Mazda] and others that after a drop in demand for the models have had to make adjustments. Even [Honda] said publicly that it will close a shift because of the low demand it is having for its HR-V model.”

Mazda was one of the hardest hit names, reporting that its export volume from its Mazda3 model plant dropped 66% in August. Audi reported that exports of its Q5 crossover fell 61%. Volkswagen exports from Mexico were down 38%, Fiat exports dropped 32% and Kia exports fell 23%.  

Ford, Nissan and Honda reported increases in exports - 24.5%, 0.8% and 293%, respectively. However, Honda's numbers were an aberration due to a flood that shut down the automaker's plant last August.

Meanwhile, sales of cars manufactured in Mexico in the U.S. increased 10.5% to 1.6 million from 1.5 million the year prior. 

Óscar Albin Santos, executive president of the National Auto Parts Industry in Mexico, still expects 3% growth in production and exports this year. We'll undoubtedly check back in with this optimistic estimate as we head toward the end of the year.  

He commented that the US-Mexico-Canada trade agreement is "crucial" to give the auto industry certainty to continue making investments.

The USMCA is currently stalled in the U.S. Congress.

Tyler Durden Sun, 09/22/2019 - 08:30 Tags Business Finance
[*] [-] [-] [x] [A+] [a-]  
[l] at 9/22/19 5:45am
US Military Starting To Use China As 'Bad Guys' During War Games

While the Trump administration and Beijing continue to spar over trade, the Pentagon has been quietly shifting towards a military threat from China during readiness drills according to SCMP.

US Navy sailors take part in a drill during a joint exercise with Asean members in the Gulf of Thailand at the start of the month. Photo: AFP/US Navy via SCMP

Last week, US and Japanese troops conducted a joint war game exercise using land-to-ship missiles on an enemy ship from the city of Kumamoto located on the southern island of Kyushu - reportedly "keeping in mind China’s increasing maritime activities," according to local media.  

In another drill last week off the coast of Virginia last week - 28 vessels were put through the paces to simulate transporting a mass of troops and equipment to a major conflict overseas. 

Meanwhile, the US conducted five days of drills with ASEAN (Association of Southeast Asian Nations) forces at the beginning of September - the first such drills between America and the 10 member nations. As SCMP notes, "Four of those countries – Brunei, Malaysia, the Philippines and Vietnam – have territorial disputes with Beijing over the South China Sea."

Lastly, in yet another drill last month, US marines practiced seizing airfields and islands in the East and South China Seas near the Philippines and the Japanese island of Okinawa. 

According to the report, "Observers said the Pentagon and the PLA had been increasingly focused on each other in their war game scenarios.

"China’s military modernization since the early 1990s has been almost entirely focused on countering American capabilities," said John Lee, a senior fellow at the Hudson Institute in Washington. 

"From this point of view, it is natural to expect that many American military exercises would have China in mind."

While the US is not a claimant in the South China Sea, it regards the area as part of its Indo-Pacific strategy to contain China’s military expansion in the Pacific and Indian oceans – a strategy that has had Beijing on alert.

Since a major overhaul of the PLA that began in 2015, the Chinese military has emphasised the importance of “real war” exercises and stepped up the frequency, scale and intensity of such drills.

Hong Kong-based military commentator Song Zhongping said Beijing was responding to what it saw as “strategic threats”.

“China feels that it is facing a lot of external strategic threats – especially from the US,” Song said. -SCMP

According to retired PLA colonel Yue Gang, the United States is seeking support from its allies to expand its influence by working with regional allies, including "Japan, South Korea, Thailand, the Philippines and Australia," all of which have participated in joint military exercises over the last few months. 

Yue said that the recent US military moves were carefully choreographed to align with its other geopolitical efforts - in particular the trade talks. 

"[China] should see through the rhetoric and realize its purpose, and be clear that a counter move would not necessarily be something that could lead to a war." 

Tyler Durden Sun, 09/22/2019 - 07:45 Tags Politics War Conflict
[*] [-] [-] [x] [A+] [a-]  
[l] at 9/21/19 9:15pm
On Campus Of 30,000 Students, Less Than 10 Attend University’s White Privilege Workshop

Submitted by Emma Schambach of The College Fix

Only nine students showed up to take part in the University of North Carolina at Charlotte’s workshop series focused on teaching students about white privilege and related topics. The total number of students in the audience for the first “White Consciousness Conversation,” held Sept. 10, was nine — but two were students there not as participants but as journalists mainly to observe. One was from The College Fix and another from the Niner Times campus newspaper.

Of the remaining seven students, five are members of the university’s conservative Young Americans for Freedom chapter, who were there more out of curiosity and concern about the nature of the seminar and its taxpayer-funded narrative as opposed to learning about how they allegedly perpetuate racism and inequality as Americans with white skin.

Finally, the other two students attended because their professors offered them extra credit to do so, they told The Fix.

With that, it appears the relatively new “White Consciousness Conversations” at UNC Charlotte, which boasts a student population of nearly 30,000, drew .02 percent of its student population.

Facilitators of the workshop did not respond to a subsequent request for comment from The College Fix about what they thought of the event’s low turnout.

According to the university’s website, the conversations aim to help students understand “the meaning and implications of whiteness” and how “engaging in anti-racist practice is crucial in creating racial equity.”

“This space is for all undergraduate and graduate students at UNC Charlotte who are interested in engaging in conversations to assist in their understanding of how racism is perpetuated individually, culturally, and systemically,” the website states.

The workshops first made national headlines in fall 2018 after they were advertised as only for white people. After backlash, campus leaders scrubbed and reworded the original advertisements. But the national attention, and the progressive focus of the workshops, is what drew members of YAF to the Sept. 10 workshop — as opposed to the notion that they agree with the narrative. (The author of this piece is also a member of YAF.)

Several students said they were open to hearing new perspectives, but also wanted to voice our own opinions on the matter.

The two-hour meeting was led by two campus diversity facilitators who spoke on topics such as feminism, white privilege, toxic masculinity and LGBTQ equality, and outlined their own definition of racism, one that claims that while racial discrimination can be targeted at anyone, by anyone, racism itself stems inherently from white people and their “whiteness.”

At the end of the workshop, at least two conservative students said the information presented seemed focused on blaming white people and whiteness for racism.

“I went into the event with an open mind, I wanted to learn what my peers thought about how the concept of whiteness ties into racism, whether or not it is an issue on our campus, and how we, as students, can create change if it was necessary,” YAF member Kelly VonEnde told The College Fix.

“I understand that racism is the dicrimination against someone based on their race. I believe that a person of any race can be discriminatory towards a person of any other race and that it would be considered racism. However, I was told that my definition better described as racial discrimination and that racism … can only flow from ‘whiteness’ and its inherent power. This definition made me feel as if I was in the wrong for simply being myself and accepting the body I was born with.”

“I think the creators of this event had good intentions, but … we had two different definitions of racism. Unfortunately, if we can’t agree on the definition of racism then we can’t make any meaningful steps towards productive change,” VonEnde said.

YAF member Cameron Smith echoed a similar sentiment.

He said the statements from the facilitators were vague and contradictory and “attempted to distort evidence in order to advance a specific narrative.”

“University-sponsored events like these are deeply concerning,” he said, “especially when some students who aren’t as politically active may hear one-sided theories, which are divisive without being shown any plausible solutions to their proposed issue of racial tension on campus.”

Tyler Durden Sat, 09/21/2019 - 23:15 Tags Education Social Issues
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[l] at 9/21/19 8:45pm
North America's Bird Population Is Collapsing – Nearly 3 Billion Wiped Out Since 1970

Authored by Michael Snyder via The Economic Collapse blog,

All around us, our world is literally in a state of collapse, but most people don’t seem to care.  I spend much of my time writing about the inevitable collapse of our economic and financial systems, but they are only one part of the story. 

These days, millions upon millions of us are spending countless hours in this “virtual world” that we have created, and that is preventing many of us from understanding what is really going on in “the real world”.  Where I live, I can literally keep the doors wide open for hours without worrying about bugs coming in, because insect populations are disappearing at a pace that is frightening.  They are calling it “the insect apocalypse”, and some scientists are warning that they could all be gone in 100 years.  And this dramatic decline in the insect population is one of the main reasons why North America’s bird population is collapsing.  In the old days, I remember the singing of birds often greeting me in the morning, but these days I am never awakened by birds.  That might make sense if I lived right in the middle of a major city, but I don’t.  I live in a very rural location, and I do see birds out here, but not nearly as many as I would expect.

Sadly, the scientific evidence is confirming what many of us had feared.  According to a scientific study that was just released, North America’s bird population has fallen by “nearly 3 billion birds since 1970″…

If you’ve noticed fewer birds in your backyard than you used to, you’re not mistaken.

North America has lost nearly 3 billion birds since 1970, a study said Thursday, which also found significant population declines among hundreds of bird species, including those once considered plentiful.

On second thought, I don’t know if the term “collapse” is strong enough to describe what we are facing.

In 1970, there were about 10 billion birds in North America.

Now, there are about 7 billion.

When are we finally going to admit that we have a major crisis on our hands?

Hopefully it will be before the count gets to zero.

Overall, we are talking about a total decline of approximately 30 percent

“We saw this tremendous net loss across the entire bird community,” says Ken Rosenberg, an applied conservation scientist at the Cornell Lab of Ornithology in Ithaca, N.Y. “By our estimates, it’s a 30% loss in the total number of breeding birds.”

Could humanity survive without birds?

Probably, but this is yet another sign that the planetary food chain is in the process of totally breaking down.  Despite all of our advanced technology, we are not going to survive without an environment that supports life, and at this moment that environment is being destroyed at a staggering pace.

According to the lead author of the study, the evidence they compiled “showed pervasive losses among common birds across all habitats, including backyard birds”…

“Multiple, independent lines of evidence show a massive reduction in the abundance of birds,” said study lead author Ken Rosenberg, a senior scientist at the Cornell Lab of Ornithology and American Bird Conservancy, in a statement. “We expected to see continuing declines of threatened species. But for the first time, the results also showed pervasive losses among common birds across all habitats, including backyard birds.”

I like having birds in my backyard.  In fact, I wish that I had a whole lot more.

Two of the largest factors being blamed for this stunning decline are “toxic pesticides” and “insect decline”.  We have already talked about the “insect apocalypse” which is raging all around us, but I should say a few words about pesticides.  Yes, they may help to protect our crops and our lawns, but in the process we are literally poisoning everything.

And that includes ourselves.  According to the Centers for Disease Control and Prevention, “there are traces of 29 different pesticides in the average American’s body”, and many believe that this is one of the reasons why cancer rates have skyrocketed in recent decades.

These days it seems like just about everyone knows at least one person with cancer.  If you are one of those rare people that doesn’t know a single person with cancer, please leave a comment below, because I would love to hear your story.  It has been estimated that one out of every three women and one out of every two men will get cancer in their lifetimes, but considering the rate that we are currently polluting our environment those estimates may be too conservative.

Without a doubt, several of the big pesticide companies are some of the most evil corporations on the entire planet, and yet most Americans don’t really seem to care about the death and destruction that they have unleashed all around us.

As with so many other things, this is yet another example that shows that we have no future on the path that we are currently on, and the clock is ticking.

Don’t you want a world in which the birds sing to you in the morning?  Pete Marra, one of the scientists involved in the study, told the press that a number of bird species “that were very common when I was a kid” are among those being hit the hardest…

“We can all talk through the stories about there being fewer and fewer birds, but it’s not until you really put the numbers on it that you can really grasp the magnitude of these results,” Marra said. “We’re now seeing common species that have declined, things like red-winged blackbirds and grackles and meadowlarks — species that I grew up with, that were very common when I was a kid. That is the most surprising and most disturbing part.”

Everywhere around us, we can see decay, decline or collapse.  This stunning drop in the bird population is just one more example.

But just like with so many other issues, most people don’t really care, and most people certainly don’t want to change.

So in the end we will reap what we have sown, and it will not be pleasant.

Tyler Durden Sat, 09/21/2019 - 22:45 Tags Environment
[*] [-] [-] [x] [A+] [a-]  
[l] at 9/21/19 8:21pm
These Are The Banks Where The Fed's $1.4 Trillion In Reserves Are Parked

Over the past few days there has been much confusion over the repocalpyse that shook the overnight funding market, and just as much confusion over the definition of reserves which some banks were unwilling to part with, other banks were desperate for, and in the end both Powell and the former head of the NY Fed's markets desk admitted that Quantitative Tightening had been taken too far, and the total amount of reserves in the system was too low and would have be increased.

And while the book is yet to be written on the causes for last week's shocking move higher in repo rates, which sent general collateral as high as 10%, a record print in a time of $1.4 trillion in excess reserves, we can shed some clarity on the definition of "reserves." While there is universe of semantic gymnastics when it comes to explaining what reserves are, the  most basic definition is quite simply "cash", however not cash in circulation but rather cash (and deposits) held in the bank's account with the Federal Reserve (which is where its name comes from).

This means that there should be a de facto identity between the total amount of cash in the US banking system and the amount of total (minimum required plus excess) reserves. And sure enough, if only looks at the Fed's weekly H.8 statement, which lists the "Assets and Liabilities of Commercial Banks in the United States", if one adds across the various banking cash aggregates in the US, what one gets is precisely the total amount of reserves.

This is seen in the chart below, which adds across the weekly cash for both small and large domestic commercial banks operating in the US (blue and red shaded areas) as well as foreign commercial banks (yellow shaded) operating in the US. The black line, meanwhile, shows the total amount of reserve balances with Federal Reserve Banks. By definition these two numbers have to be virtually identical, and sure enough, they are.

Why is the above information important?

Because as the FT reported on Friday as part of its interview with the NY Fed's hapless and confused career-economist president, John Williams (who back in May inexplicably fired the man most intimately familiar with the plumbing of the US financial system, the NY Fed's market desk head Simon Potter), the NY Fed president said that it was "looking at why cash failed to move from banks’ accounts at the Fed into the repo market, where banks and investors borrow money in exchange for Treasuries to cover short-term funding needs."

Additionally, as Lorie Logan, senior vice-president in the markets group, told the FT, "Reserves are concentrated, the excess reserves relative to the minimum level each bank is demanding is concentrated. And the key question is how those reserves, as the level was coming down, would get redistributed, and how smooth that redistribution process would be."

In short, the NY Fed is looking at the banks that comprise the three aggregate levels above, and is trying to figure out why they did not hand out their cash to other banks that were in desperate need for liquidity, and why said reserves were so "concentrated", i.e., sticky, so as to precipitate a funding crisis which was only halted when the Fed stepped in.

Alas, John Williams did not elaborate, so we will do so for him: the Fed is not only trying to figure out why banks with excess cash/reserves parked at the Fed did not offer it to their more troubled peers, but why they refused to do so even though any such loan would be perfectly collateralized by money-good securities such as Treasuries, MBS and Agency debt.

One possible explanation: the banks that should have lent out cash did not do so because they were afraid that i) the borrower would not be able to return the cash on the next day and ii) any potential failure in the banking system would lead to a collapse of the repo system, potentially making their ultra-safe collateral impaired, if not worthless. Hence, their desire to hold on to cash... and dear life.

In any event, if Williams really wants to find out why banks failed to step in and prevent last week's repocalypse, he should start with the banks that are laid out in the chart above- and maybe he should focus first and foremost on the foreign banks that currently have $521 billion in cash parked at the Fed, on which they - the foreign banks - are collecting 1.80% in annual interest.

And once the NY Fed is done with this exercise, it may want to quickly found out the flip side of the equation: which banks were so desperate for liquidity last week they not only risked being seen using the Fed's overnight repo operation, which in this day and age of $1.4 trillion in excess reserves carries the same stigma as using the Discount Window in the days before the Lehman failure, but did so by oversubscribing the Fed's $75 billion repo facility for 3 days straight. In short, one or more banks are in dire need of just over $75 billion in liquidity, and the Fed better figure out who they are... before some financial reporter does, reveals their name and start what may soon be the biggest bank run since the financial crisis.

Tyler Durden Sat, 09/21/2019 - 22:21 Tags Business Finance
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[l] at 9/21/19 7:15pm
Deja Vu 2000 Or Flashback 2007? (Part 2)

Authored by David Hay via Evergreen Gavekal blog,  Read Part 1 here

“The experience in Japan, Europe, or even the US, is that once you get into a near-zero interest-rate regime, it’s kind of a black hole. The economy tends to be pulled in, and once there, it’s difficult to escape.” - Larry Summers, former US Secretary of the Treasury.

“The US economy is in far worse shape than the Q2 GDP data suggest. Only the consumer is preventing a recession at the moment, and that is only happening because of stepped-up credit usage and a corresponding dip in the savings rate.” - David Rosenberg.

“The best signal of a recession is not an inverted yield curve. It’s the inversion occurring and then going away.” - DoubleLine Funds lead portfolio manager, Jeffrey Gundlach

  • Evidence, such as the yield curve inversion, is mounting that later this year, or in the first half of 2020, the US could find itself in the midst of a recession.

  • However, it’s fair to note that not all US recession indicator warnings are lit up.

  • The planet’s banks are facing a trifecta of troubles from zero and sub-zero rates, generally inverted yield curves, and tight credit spreads.

  • The eradication of interest rates is also the kiss of death for insurance companies, pension plans, and retired investors.

  • In our view, a window of opportunity has opened up with certain high-yield equities that are in out-of-favor industries.


Let’s return to one of the most pressing questions facing investors right now, one we also discussed last week: Namely, how probable is a recession this year or next? The renowned David Rosenberg, who was one of the handful of economists to predict the 2007 downturn, thinks the US may be in one now. Evergreen doubts that, but the evidence is mounting that perhaps later this year, or in the first half of 2020, we could be in the midst of one (a topic I’ll return to at the close of this “Bubble 3.0” chapter).

Moreover, just this week the man considered the new King of Bonds, Jeff Gundlach, made the bold call that he believes there is a 75% chance of a US recession prior to next year’s presidential election. This is despite a growing chorus in the financial media lately singing the tune that the global economy is reviving. (Presumably, per his quote at the top of page 1, the reason he believes an “un-inversion” is problematic is that these happen when the Fed is panicking and furiously cutting rates to stave off a recession.)

Again, returning to the inversion of the yield curve, a striking aspect is how virtually the entire curve is flipped, which is a rare occurrence. As David Rosenberg wrote two weeks ago in his daily Breakfast with Dave (a must read, in my opinion, for any serious investor), the Fed pays the most attention to the 3-month T-bill versus the 10-year T-note. As well they should; when that has stayed inverted for at least three straight months, a recession has occurred 100% of the time. Guess what just happened?

As David wrote on August 26th, “When it (the curve) was only flattening a year ago, the bulls said ‘it’ll never invert.’ When it began to, the bulls said “only 2s/10s matter.’* When that inverted, the bulls said, ‘it’s different this time’. Good grief.”

Senior Fed officials have been right in there with the no-worries consensus on the inverted yield curve but at least one of them is breaking with their complacent ranks. St. Louis Fed-head James Bullard recently insisted that our central bank’s main priority should be normalizing the yield curve. He added that he has no interest in hearing any of his colleagues’ rationalizations about why this time is different, perhaps because he’s laser-focused on the chart above showing the 3-month/10-year inversion.

As David Rosenberg further wrote in his 8/26 Breakfast with Dave missive, “…the reality is that it is a very rare circumstance when the ENTIRE yield curve is inverted from the Fed funds to the 30-year Treasury bond…So we have 50 years’ worth of data and nine periods where the entire yield curve…inverted. I’m sure it’s always different to some, but of these nine episodes (where a full inversion occurred), we had eight recessions to follow.”

Similarly, my great friend Grant Williams recently wrote that the New York Fed’s treasury spread monitor has had a flawless recession forecasting record since 1960. This is most ironic since the Fed itself has missed every one, not just over the last 60 years but going all the way back to the end of WWII.

Source: Things That Make You Go Hmmm

As you likely surmised, the New York Fed’s indicator is strictly a function of the yield curve. Consequently, James (No Bull) Bullard’s appraisal on the urgency of normalizing the yield curve is certainly logical.

The way in which the Fed would try to get the curve uninverted is to slash interest rates fast and hard. It might also seek to “twist” the yield curve, as it has done in the past, by selling longer term securities (thereby driving their prices down and yields up) and buying shorter maturities (pushing their rates down).

*The inversion of the 2-year vs the 10-year treasury notes.

Regardless, the majority of commentators continue to diss the yield curve’s message. Frankly, I would have more sympathy for this view if it wasn’t for the swelling body of evidence indicating this expansion is close to fork-sticking time. Past EVAs have often discussed the Chicago National Activity Index because it is the broadest of all US economic measures, consisting of 85 different components. This index has eroded in seven of the past eight months. This isn’t proof-positive of a looming contraction but it’s a serious alarm bell.   Additionally, the closely-watched US ISM (Institute of Supply Management) manufacturing index was reported earlier this month and it was a dismal 49.1 (below 50 signifies contraction). Worse yet, the forward-looking New Orders sub-index was a very weak 47.2.

The stock market is clearly sniffing this out. The cyclical elements of the S&P 500 were recently down 17% from their peak levels, not far from actual bear market territory, defined as falling more than 20% from a zenith point. (This week has seen a partial reversal of this decline.)

As we’ve often noted in these pages, the shining star of this expansion has been the jobs market. But as we’ve also been observing in earlier EVAs, labor market conditions are fraying. Lately, that’s turned into an outright rip. The Bureau of Labor Statistics recently announced a 500,000-job downward revision through this past March.

Make Job Creation Great Again

Source: Bureau of Labor Statistics, Danielle DiMartino Booth

Speaking of revisions, and returning to the earnings theme, there was a recent momentous recalculation by the government that has received little notice outside of these pages, Charles Schwab’s Liz Ann Sonders, David Rosenberg and another friend of mine, Danielle DiMartino Booth. This revision had the effect of erasing all pre-tax profit growth for Corporate America back to—are you ready for this—year-end 2011.

For some reason, when the perma-bulls briefly concede this point, they invariably say since 2016. While that’s technically true, what they fail to mention is that the earlier earnings recession in 2015 brought profits back to where they were at the end of 2011. Note that this is on a pre-tax basis for both public and private companies, so it excludes the steroid effect of the Trump corporate tax cut and also the ultimate performance-enhancing drug of share buy-backs. There’s little doubt that the Fed’s eight-year suppression of interest rates, before it belatedly tried to raise them back to “normal”, was the great enabler of the stock repurchase mania. (Note that it was only able to raise up to 2 3/8% on the fed funds rate before the market started cracking; this is the first time since the 1930s, by the way, that such a miniscule interest level caused a stock market seizure.)

It’s fair to note that not all US recession indicator warnings are lit up. The Index of Leading Economic Indicators (LEIs) still looks reasonably robust, as does consumer spending (though the latter has been goosed lately by rising borrowings and falling savings). Moreover, credit spreads (the yield difference between US government and corporate bonds) remain tight. These often begin to widen materially before serious economic and market dislocations occur. However, in last year’s traumatic fourth quarter, credit spreads seemed to follow the stock market rather than lead it, a most unusual development.

But there might be another message from both the yield curve and credit spreads that the never-say-die crowd is missing. In a recent riveting interview, Donald Amstad of Aberdeen Standard makes the critical point that the banking industry’s profitability is driven by three key factors: high interest rates (at least well above zero), steep yield curves (deposit rates low and further-out lending rates well above those), and wide credit spreads (because banks are essentially spread investors, borrowing at near government bond rates and lending out, usually, at higher yields to at least somewhat risky borrowers, like companies and consumers).

Consequently, the planet’s banks are facing a trifecta of troubles from zero and sub-zero rates, generally inverted yield curves, and tight credit spreads. Undoubtedly, those profit-sucking factors are why European bank stocks recently broke below their global financial crisis lows. Think about that for a moment: eurozone banking shares hit a lower low last month than was seen during the worst financial panic since the Great Depression.

Source: Bloomberg, Evergreen Gavekal

It’s not a lot better in the rest of the developed world, even in the US which, at least for now, still has positive interest rates, notwithstanding the inverted yield curve in the States. The chart of American banks looks a lot better than their European counterparts but it’s not great. And neither is the trading pattern of Japan’s banking sector.

Source: Bloomberg, Evergreen Gavekal

Of course, as noted in prior EVAs, the eradication of interest rates is also the kiss of death for insurance companies, pension plans, and the retired, or soon to be, investor class, a point vehemently made in last month’s Guest EVA, “The Disaster of Negative Interest Policy”. John Maynard Keynes, the progenitor of both Keynesian economics and the term “euthanasia of the rentier*” must be grinning from ear-to-ear these days from wherever his soul resides. The mega-problem, though, is that it’s nearly impossible to have a healthy economy without a healthy banking system.

As we know, minimal to non-existent interest rates have done the double prop-up duty of pushing older investors into stocks (more to follow on this shortly) and providing corporations with cheap financing with which to repurchase their own shares. These are certainly two key reasons why the S&P 500 has been remarkably resilient despite a long and growing list of risks, some of the mega-variety (like the escalating trade war). This is why US stocks trade at one of the most generous multiples of overall corporate earnings ever seen, outside of the last few years of the tech bubble.

Stocks Very High Verses Overall Corporate Profits

Source: Ned Davis Research, August 28th, 2019

*Rentier is a synonym, in this case, for lender or investor.

Despite the big downward revision to pre-tax profits, after-tax earnings per share remain quite lofty, though they are clearly eroding. Thus, the US stock market is elevated even compared to what are likely to be top-of-the-cycle profits. In addition to the recent profits downshift, the following chart from my friend Paban Pandey in his always interesting Hedgopia service shows the growing gap (sorry) between GAAP (Generally Accepted Accounting Principle earnings) and non-GAAP (earnings minus all the bad stuff companies want you to ignore).   This growing differential is a classic sign the end is nigh for this particular profits bull market.

Note that the GAAP/Non-GAAP comparison really gapped (there I go again) in 2007 right before the Great Recession. In fact, on a percentage basis that one year was worse than any seen recently. However, the persistence of the wide differential since 2016 is noteworthy. On a cumulative basis, the spread between fact and fiction appears to be the greatest ever seen prior to the onset of a recession and bear market over the last 30 years. Yet, how often do you hear about this in the mainstream financial media? How about almost never.

Once again, though, the market may have picked up the scent. The S&P has risen just 5% from where it was in January of 2018, despite this week’s rally (which, fortunately, has been led by the undervalued part of the two-tier market we’ve been talking about). Coincidentally, I began this “Bubble 3.0” series a month earlier, in December, 2017. The main focus of my ire at the time was the biggest bubble in human history: Bitcoin and the other crypto currencies. Since then, we’ve had a series of other bubbles such as in pot stocks like Tilray, US new issues (IPOs), and allegedly high-growth momentum stocks.

Source: Bloomberg, Evergreen Gavekal

(TLRY is a leading cannabis stock, the IPO ETF tracks new issues, and the MTUM ETF is comprised of stocks with strong price momentum, i.e., the high-flyers.)

As in last year’s fourth quarter, though, there is good news, albeit likely premature. Back on December 14th, 2018, we ran a Special Edition EVA titled “The Stealth Bear Market”. In it I wrote, referring to the carnage that had already occurred (with much more to go before the trough ten days later on Christmas Eve): “Consequently, it’s becoming hard to maintain a negative attitude toward the overall US stock market. It’s more accurate, I think, to say that large portions of it remain over-priced—in many cases, obscenely—while a growing share is looking downright appetizing.”

To that, after a brutal August this year, I would say “ditto”. The reality is that most of the obscenely over-priced issues have become even more X-rated. As earnings growth has become increasingly scarce, investors have plowed into the ultra-high P/E names (if they have any E, at all), bidding them higher and higher (as my personal short book can painfully attest!). Unless market history is now totally bunk (nod to Henry Ford), most of these will at some point disappoint their fan base, causing their market values to do a cliff-dive worthy of one of those brave souls down in Acapulco.

On the positive side, the recent pummeling of value names this summer, especially last month, has recreated another bargain hunting opportunity including in two of America’s finest companies, both of which can be had for under seven times earnings. And, no, they aren’t energy stocks! However, one in that detested sector, and which we hold for clients (unfortunately, at this point), sells for roughly one times what it earned two years ago. Yes, that would be a P/E of uno though earnings are now extremely depressed.

One of the blue-chip companies mentioned above is trading for under seven times earnings also carries a yield of 5%. This is where things get especially interesting in our view. Dozens of stocks, both in the US and overseas, have been hit hard recently. In many cases, they are yielding 4% or more. These yields already look mouth-watering versus US interest rates (and positively irresistible compared to rates in all other “rich” countries). Should rates in America tumble down closer to where they are in the rest of the world, 4% or higher yields will look even more alluring.

Accordingly, in our view, a window of opportunity has opened up with these high-yield equities that are in out-of-favor industries. By far, the energy sector offers the most luscious yields, especially with oil and gas infrastructure names that in many cases yield over 10% and with good-to-strong coverage of their payouts. But many other sectors also have stocks paying at least 4%. In days gone by, that was kind of a ho-hummer but for the world we now live in it has become the 4% solution to what ails most portfolios. It’s frustrating that investors need to take the risk of depreciation to earn 4% or 5% cash flow returns but this reality isn’t likely to change in the foreseeable future; actually, should the US be on the cusp of recession, yield starvation is almost certain to get worse, not better.

(Ironically this week has seen a powerful shift away from what I’ve been calling the COPS—as in, Crazy Over-Priced Stocks—and into the value-type issues favorably mentioned above. This is what happened back in 2000 but, of course, it’s premature to say this is the start of a “Great Rotation” out of inflated momentum stocks into far cheaper issues, often with juicy yields. This week has also brought a steepening of the yield curve due to a sell-off in longer term treasuries; we doubt that will continue for much longer based on the weakening trend in the US economy.)

It’s certainly not time to switch completely from risk-free CDs and treasuries into stocks paying 4% or more. In a bear market/recession, even these are likely to go down further. But, in our view, it’s appropriate to be dollar-cost-averaging right now into a collection of high-yielding equities, being prepared to buy more on further weakness, which is entirely possible, even probable.

A mega-risk that could certainly trigger another market dive like we saw late last year, is what’s occurring on the political front. The odds of a Democratic party sweep in November of 2020 appear to be rising. Based on the stridently anti-business tone of the leading Democratic candidates, the stock market is likely to begin discounting this possibility—like by discounting stock prices well below where they trade today. Of course, Evergreen believes the COPS are most in harm’s way (and I mean in a big way).

On the other hand, should Mr. Trump decide to abandon his trade war against China, that could cause a polar opposite reaction. If such a détente looked real and durable, it could create the long-awaited blow-off top and crescendo to this, the longest running bull market in history. However, to avoid a recession, it better happen pronto, if not sooner.

It hit me over Labor Day weekend, as I was laboring on this EVA, that 12 years ago almost to the day, my wife and I were on our 30th anniversary trip (about six weeks after our actual anniversary). We were on the island of Maui staying at the Fairmont Kea Lani and, just like now, I was working on an EVA. It would turn out to be one of my most unpopular ever (and that’s really saying something!) because in it I went out on a very lonely limb and said the odds favored a recession in 2008. Little did I know how devastating it would turn out to be but at least I warned that a downturn was likely coming.

The eerie thing is that as I write this, we are back at the same hotel for the first time since I created that warning letter in the late summer of 2007. Maybe it’s just a coincidence I should ignore and if the preponderance of evidence wasn’t piling up on the negative side of the ledger I would. But, that’s not the case. The scales have tipped far enough to the downside for me to once again say, the likelihood is the US will endure a recession next year.   If so, hopefully, it will be mild. Wait a second—that’s another thing I wrote 12 years ago! Let’s pray that hope isn’t wrong again.

Tyler Durden Sat, 09/21/2019 - 21:15 Tags Business Finance
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[l] at 9/21/19 6:45pm
Home Flippers See Profits Shrink In Latest Sign Housing Boom Is Coming To An End

The US housing market is in the middle of modest rebound, but speculators might have played a bigger role in this comeback than many might imagine. According to ATTOM Data Solutions' report on home flipping during the second quarter, some 59,876 single family homes were flipped during the quarter, up 12.4% from Q1 2019, but down 5.2% from a year ago. Meanwhile, profits for home-flippers shrank but just a sliver when compared with the same period from a year ago, as well as the prior quarter.

The homes flipped during Q2 represented 5.9% of total homes sold in the US during the quarter, down from a post-recession high of 7.2% from Q1. Those homes generated gross profits of $62,700, up 2% from Q1, but down 2% from a year ago.

The typical gross flipping profit of $62,700 in Q2 2019 amounted to a return on investment of 39.9%, compared with the original purchase price. That's down from a 40.9% gross flipping ROI in Q1 2019, and down from a margin of 44.4% in Q2 2018. As the housing market has peaked, profitability has fallen six quarters in a row, as well as during eight of the last ten quarters.

One housing-market analyst quoted in ATTOM's report explained how falling profits for home-flippers reflects a softening US housing market.

"Home flipping keeps getting less and less profitable, which is another marker that the post-recession housing boom is softening or may be coming to an end," said Todd Teta, chief product officer at ATTOM Data Solutions. "Flipping houses is still a good business to be in and profits are healthy in most parts of the country. But push-and-pull forces in the housing market appear to be working less and less in investors’ favor. That’s leading to declining profits and a business that is nowhere near as good as it was a few years ago."

Despite the pullback in profits, more flippers are trying their hand at the investment strategy. Out of the 149 Metropolitan Statistical Areas analyzed by ATTOM, 104 (about 70%) saw a YoY increase in the rate of home flipping. Some areas reached new peaks during the quarter, including Charlotte, San Antonio, Pittsburgh, Oklahoma City and Raleigh.

It's not hard to see why: Though some investors inevitably lose tens of thousands of dollars, if not more, in projects gone awry. But many have also recorded massive returns, sometimes doubling their money.

ATTOM chose to break this down in an interesting way: Instead of listing the number of individual cases (which would be time-consuming and nearly impossible to compile), ATTOM instead analyzed the average ROI from the 149 MSAs examined in the report, and determined how many topped 100%. A few examples include: Scranton, Pittsburgh, Reading, Penn., Kingsport Tenn. and Augusta.

Meanwhile, markets with the smallest rates of return included Raleigh, Las Vegas, Phoenix, San Antonio and San Francisco.

The average time to flip a home during Q2 was 184 days to complete the flip, up slightly from the 180-day average recorded in Q1.

Sixteen zip codes had home-flipping rates of at least 25%, meaning that home flips accounted for 25% of home sales.

And finally, of the 59,876 homes flipped during the second quarter, 14.4% were sold to a buyer relying on an FHA program to backstop his or her mortgage, meaning that buyers of flipped homes are very likely often first-time buyers.

One thing ATTOM didn't examine in its report: What kind of impact so-called iBuyers, companies that will buy and flip a home more or less electronically with minimal work on the part of the sellers. Steve Eisman, of 'The Big Short' fame, has said he's betting against Zillow, largely because of its expansion into the iBuyer business. Here's why.

Zillow has one of the most flawed business models I’ve seen in a very, very long time.

The part of it I find the most problematic is what they call, I believe, their iHome business, their internet buying business, where they actually go out and buy homes and flip them. I actually think the company doesn’t understand the real risks of this business, which are massive.

There are thousands of mini-markets all over the United States. They’re all local. They’re all extremely different. They all have incredibly different risks.

This is a capital-intensive business. I know only one thing for certain. Between now and five years from now, assuming the company has some level of success, there will be massive problems that they will uncover. I’m sure there'll be write-downs, I’m sure there’ll  be impairments. And I’m convinced that the investor base doesn’t have a clue about what this business is really all about.

So far, Eisman's Zillow short has proved profitable. Looks like that trend will continue, at least for the near-term.

Tyler Durden Sat, 09/21/2019 - 20:45 Tags Business Finance
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[l] at 9/21/19 6:15pm
Moscow Slams US General For Plan To Destroy Russia's Air Defenses

Authored by Jason Ditz via AntiWar.com,

It goes without saying that the US and Russia both have many, many plans to attack one another. Generally speaking, however, it’s been treated as bad form to bring them up, and worse form to brag about them.

So Russia is criticizing US General Jeffrey Harrigian for talking up how the US has plans to destroy all air defenses in the Russian exclave of Kaliningrad, saying there should be “no doubt” the US could do it.

Iskander-M via RT

US General Jeffrey Harrigian said on Tuesday that "If we have to go in there to take down, for instance, the Kaliningrad IADS (Integrated Air Defense System), let there be no doubt we have a plan to go after that," the Breaking Defense magazine reported.

Russian Foreign Ministry officials say they consider the statement a “threat” and also particularly irresponsible, while the Defense Ministry said that Kaliningrad is well defended from US aggression.

"Firstly we consider this a threat. Secondly, we consider such statements to be absolutely irresponsible," Russia's Ministry of Defense said.

"The region of Kaliningrad is reliably protected from any aggressive 'plans' developed in Europe by US generals passing through," it added.

US forces in Poland often conduct wargames settling around moving north into Kaliningrad, and the region is small enough that the US could probably take it, at least for a time, in the event of a war.

Bastian Coastal Defense Missile Systems 

That probably doesn’t matter, however, as a full-scale ground war between the US and Russia where they’re seizing territory almost certainly would escalate into a nuclear conflict, and by the time the general is proven right, tens or hundreds of millions of people are about to be killed in a conflagration.

Tyler Durden Sat, 09/21/2019 - 20:15 Tags War Conflict
[*] [-] [-] [x] [A+] [a-]  
[l] at 9/21/19 5:45pm
12 Tons Of Cocaine Worth $575 Million Seized In Malaysia's Largest Drug Bust

Royal Malaysia Police have seized 12 tons of cocaine worth about $575 million in the most massive drug bust ever in the country, reported Malay Mail

The cocaine, found at the North Butterworth Container Terminal (NBCT) earlier this month, was divided in three 40ft shipping containers, which had 60 sacks of charcoal blended with the drug, a new technique used by drug smugglers to evade drug-sniffing dogs and or electronic sniffers.

Inspector-General of Police Tan Sri Abdul Hamid Bador said in a press conference on Sept 20 that government forces conducting Op Eagle, a drug busting operation at the country, deployed new technology that discovered the drugs.  

"Normal drug-detecting technology would not be able to detect it. (But) our chemistry department has advanced technology that was able to detect the cocaine among the coal," Abdul Hamid said.


Abdul Hamid said the drugs originated in South America and were transited via containership to Malaysia, with the intent of distributing across Asia.  

"With the hard work and experience of the members of the chemistry department, we were able to uncover the hidden cocaine."

All three containers were declared as coal, was the biggest drug bust in the country's history he said at the press conference. 

Abdul Hamid added that police have arrested a man, aged 29, who was responsible for handling the containers at NBCT. 

The man tested positive for methamphetamine at the time of the incident and will remain in jail until Sept 23. There is no word from authorities if the man is associated with the drug cartel responsible for shipping the cocaine from South America or the distribution network in Malaysia. 

Last month, police seized nearly 3.7 tons of ketamine and cocaine worth about $161 million. The sacks of drugs were found at a commercial facility in Puncak Alam, on the outskirts of Kuala Lumpur, during a raid by government forces on Aug 18. 

The series of drug seizures in Malaysia shows the country is a transit point for international drug cartels. Authorities provided very little detail of where the drugs were headed next. 

So we used various known shipping routes in the region to gain a perspective of where the end destination could've been. And judging by our map below, it's likely these drugs were headed towards China and or Japan, and or Australia. 

It remains unclear if JPMorgan had any ownership claim to the ship that delivered the CoCo's (i.e., cocaine containers) to Malaysia the same way that JPMorgan owned the ship - the MSC Gayane - that was busted for transporting a record $1.3 billion worth of cocaine in Philadelphia this past June.

Tyler Durden Sat, 09/21/2019 - 19:45
[*] [+] [-] [x] [A+] [a-]  
[l] at 9/21/19 5:15pm
"This Is The Most Alarming Trend In The Market": 1 In 4 Luxury NYC Apartments Remain Unsold Over The Past 5 Years

Across the US, but especially in coastal cities like New York and San Francisco, the ultraluxury property market increasingly looks like a buyers' market. Ever since the market for condos peaked three years ago, it has been rapidly cooling off across the most popular urban markets.

We've been documenting this trend for a few years now, and according to a new report by the website StreetEasy that was cited by the New York Times this week, there are now more than 16,200 condo units across 682 new buildings completed in New York City that have appeared since 2013, and 25% remain unsold, roughly 4,050, most of them in luxury buildings.

The biggest difference between the the last recession and the conditions in today's market are that projects aren't stalling out today, perhaps due to the overabundance of cheap credit that has made virtually every unprofitable company into a "corporate zombie" which can continue existing largely thanks to record low interest rates.

"I think we’re being really conservative," said Grant Long, StreetEasy's senior economist, noting that the study looked specifically at ground-up new construction that has begun to close contracts. Sales in buildings converted to condos, a relatively small segment, were not counted, because they are harder to reliably track. And there are thousands more units in under-construction buildings that have not begun closings but suffer from the same market dynamics."

Projects have not stalled as they did in the post-recession market of 2008, and new buildings are still on the rise, but there are signs that some developers are nearing a turning point. Already the prices at several new towers have been reduced, either directly or through concessions like waived common charges and transfer taxes, and some may soon be forced to cut deeper. Tactics from past cycles could also be making a comeback: bulk sales of unsold units to investors, condos converting to rentals en masse, and multimillion-dollar “rent-to-own” options for sprawling apartments — a four-bedroom, yours for just $22,500 a month.

In a city where brokers are accustomed to selling condos months, and even years, before construction is finished, this sudden freeze has left many confused as to the cause.

"That to me is the most alarming trend here," said Mr. Long. "That’s the group of folks that could go away at any minute - if there’s a recession, people just want to put their money in Treasury bonds," he said, referring to a lower-risk investment strategy.

What's worse, a growing share of condos sold in recent years have been quietly re-listed as rentals by the investors who bought them, the NYT reports. Just how reluctant are buyers to try their hand at flipping? Of the 12,133 new condos sold in NYC between January 2013 and August 2019, 38% have appeared on StreetEasy as rentals.

But so far, the most impacted elements of the housing downturn in markets like NYC have been in the ultraluxury market. Over the past few years, Manhattan in particular kick-started the trend toward bigger, fancier apartments, which afforded foreign oligarchs and billionaires an easy, "no questions asked" way to park their ill-gotten gains. However, following a recent crackdown on anonymous purchases of trophy real estate coupled with the depressed market in commodities which has elimanted the Arab and Russian buyers, not to mention China's aggressive crackdown on foreign outflows, Manhattan is now hurting the most.

Take the super-tall One57 tower, completed in 2014 and considered the forerunner of Billionaires’ Row, a once largely commercial corridor around 57th Street in Midtown, which remains about 20% unsold, with 27 of roughly 132 multimillion-dollar apartments still held by the developer, according to Jonathan J. Miller, the president of Miller Samuel Real Estate Appraisers & Consultants.

That’s mind-blowing,” Miller said, because the building actually began marketing eight years ago, in 2011, and a typical building might sell out in two to three years in a balanced market.

In an analysis of seven luxury towers on and around Billionaires’ Row, including pending sales, almost 40% of units remain unsold, Miller said. Another competitor, Central Park Tower, set to become the tallest and, by some measures, the most expensive residential building in New York, has not released any sales data.

One expert said the biggest difference between the last recession and today is that projects aren't stalling out today. In a city where brokers are accustomed to selling condos months before construction is even finished, this sudden freeze in demand is particularly jarring for sellers.

"That to me is the most alarming trend here," said Mr. Long. "That’s the group of folks that could go away at any minute - if there’s a recession, people just want to put their money in Treasury bonds," he said, referring to a lower-risk investment strategy.

By Miller’s count, which includes buildings that are still under construction, there are over 9,000 unsold new units in Manhattan. (His estimate includes so-called “shadow inventory,” which developers strategically do not list for sale to hold off for a stronger market.) At the current pace of sales, it would take nine years to sell them - a daunting timeline that could be reduced if sales were to accelerate, but there are few reasons to expect such a surge in the short term, he said.

Tyler Durden Sat, 09/21/2019 - 19:15 Tags Business Finance
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[l] at 9/21/19 4:45pm
"What Were You Like At 17?": Maher Defends Kavanaugh In Fiery Exchange With Liberal Guests

On his show Friday night, Bill Maher and his panel got into a heated debate over the "new" allegations about Brett Kavanaugh - yes, the ones even his accuser can't remember. Maher even turned on his liberal comrades, adopting the position that rehashing events from when Kavanaugh was 17 years old hurt the Democrats in 2018... and could hurt them again.

Citing polling from 2018, Maher said that Democrats could have done better in the midterm elections had it not been for the Kavanaugh hearings: "People did not like going after a guy for what he did in high school. It looked bad and now Democrats are talking about impeaching him again?” Maher said. 

Guest Andrew Sullivan seemed to agree. "He probably did some shitty things in high school drunk," he said. 

And when liberal guest Heather McGhee tried to jump in, asking “May the woman please speak about what this felt like?”, Sullivan shot her down immediately: “Please don’t play that card. You’re making my point.”

When Kavanaugh's temperament was brought up, Sullivan responded: “You try maintaining a good temperament when you’re being accused of something, you had no idea it was coming at you, came at the last minute, and that happened years and years and years ago.”

As McGhee tried to make the point that being a Supreme Court justice isn't just a "normal job", Maher immediately fired back: “So you’re saying at 17 you have to have your fully formed character?”

He continued: “Live in reality, man! That’s who they put up. We don’t have the votes, and now we lost seats! Are we gonna do it again? Ruth Bader Ginsburg said glowing things about him… What were you like at 17?”

You can watch the full clip, via Mediaite here:


Tyler Durden Sat, 09/21/2019 - 18:45 Tags Politics
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[l] at 9/21/19 4:15pm
Jeffrey Epstein Paid Doctors To Drug 'Sex Slaves': Report

Victims of dead pedophile Jeffrey Epstein say he paid doctors and psychiatrists to dope them up with anti-anxiety and antidepressant medications, according to a new report in the Miami Herald

"There were doctors and psychiatrists and gynecologist visits. There were dentists who whitened our teeth. There was a doctor who gave me Xanax. What doctor in their right mind, who is supposed to protect their patients, gives girls and young women Xanax?" said victim Virginia Giuffre, who was recruited into Epstein's world when she was just 16-years-old. 

Giuffre sat down with fellow accusers Sarah Ransome and Marijke Chartouni to discuss their experiences - just three of the 60 victims uncovered by the Miami Herald's Julie Brown

Ransome - a South Africa native who successfully sued Epstein and his former partner, Ghislaine Maxwell, finds it hard to believe that high-profile people in Epstein's orbit had no idea what was going on

"I find it so funny with all these people, after Jeffrey was arrested, saying ‘we didn’t know — we didn’t see anything," she said. "Jeffrey was always surrounded by girls, always. And these weren’t normal girls. You could see it in our faces. ... We were damaged, we were medicated. How can you sit in front of a group of girls with Jeffrey and say ‘we just didn’t know it’? You had to know."

*/ /*-->*/ /*-->*/ /*-->*/ As 

Following Epstein's death, federal authorities in New York are now focusing their efforts on Maxwell - Epstein's alleged 'madam' and chief operator of his sex trafficking scheme - along with other potential co-conspirators, including doctors and lawyers who may have helped him.

Besides Maxwell, the other possible accomplices named in court documents are Sarah Kellen, Nadia Marcinkova, Lesley Groff, Adriana Ross and Jean-Luc Brunel, owner of Mc2 modeling agency, based in Miami. All of them, in court papers, have either denied being involved or have invoked their Fifth Amendment right against self-incrimination. -Miami Herald

According to Fort Lauderdale-based attorney Bradley Edwards who represents several of Epstein's victims, "He would find out they have no home, no car, that they need a place to live, and he would provide a place to live. He can get you to the best doctors. Sometimes he would do that and sometimes he wouldn’t do that, but the promise was real because as soon as you walk into his house and see there are legitimate cooks, chefs, and assistants, everybody catering to him — it gives this air of legitimacy. I mean, everybody in this whole entire mansion can’t possibly be running an illegal sex trafficking operation, right?"

Tyler Durden Sat, 09/21/2019 - 18:15
[*] [-] [-] [x] [A+] [a-]  
[l] at 9/21/19 3:45pm
Why Are So Many Top-Tier College Girls Turning To 'Soft Prostitution'?

Are you a rich guy who wants to bang debt-laden college girls with all your extra money? 

Are you a struggling college girl facing decades of six-figure debt so you can follow your unsinkable dreams? 

Great news; thanks to the internet, your bases are covered! As we've previously reported (here and here), 'soft prostitution' may have been going on for a long time - but its normalization is relatively new - and undoubtedly linked to the $1.5 trillion+ student debt problem. 

As an example, according to 'sugar daddy / sugar baby' website SeekingArrangement, there are 1,304 students at Georgia State University signed up to be Sugar Babies right now - up from just 306 in 2018

Given that there are 15,277 female students at Georgia State, -  nearly one in ten girls at the college are willing to whore themselves out to make ends meet. 

Top 20 Sugar Baby colleges

Of this list,  several universities are considered top-tier  - such as UCLA, University of Southern California, Columbia and New York University

According to Seeking.com, "Sugar Babies do not want to be in monotonous, traditional relationships prescribed by society — that no longer works today. Rather, she is seeking a modern relationship — one that is different and matches her ambition and drive — with a romantic partner who can play the traditional role of provider or gentleman, without placing unreasonable limitations on personal growth," according to the website. 

Overall, there are 2.7 million US students signed up and 4.7 million worldwide. 

According to the website, "Students registered on SeekingArrangement get help paying for tuition and even more benefits. Finding the right Sugar Daddy can help students gain access to the right network and opportunities. College Sugar Babies can also get help paying for other college-related costs, such as books and housing.

And while the site claims 4.5 million students across the globe, SeekingArrangement says it has 20 million members worldwide - of which students are most common.

What do they Sugar Babies do with the money they earn with their vaginas? 30% is spent on tuition and other school related expenses, while 25% goes towards living expenses

Meanwhile, the average Sugar Daddy is 41-years-old and has an annual income of $250,000. Most common professions are Tech Entrepreneur and CEO are their two top occupations, followed by Developer, Financier, Lawyer and Physician. 

As for cities - New York tops the list, followed by London, Toronto and Los Angeles. 

Follow your dreams people. 

Tyler Durden Sat, 09/21/2019 - 17:45 Tags Education
[*] [-] [-] [x] [A+] [a-]  
[l] at 9/21/19 3:15pm
The Weird Obsessions Of Central Bankers, Part 1

Authored by Pater Tenebrarum via Acting-Man.com,

How to Hang on to Greenland

Jim Bianco, head of the eponymous research firm, handily won the internet last Thursday with the following tweet:

Jim Bianco has an excellent idea as to how Denmark might after all be able to hang on to Greenland, a territory coveted by His Eminence, POTUS GEESG Donald Trump (GEESG= God Emperor & Exceedingly Stable Genius).

Evidently the mad Danes running the central bank of this Northern European socialist paradise were reacting to the ECB Council’s decision earlier that day to carpet-bomb the euro zone economy with another dose of monetary napalm.

The sad spectacle was the outcome of the penultimate ECB meeting chaired by Mario Draghi, who will undoubtedly enter the history books in the “what not to do” section, inter alia as the only central bank chieftain who didn’t raise interest rates even once during his entire term.

Mario Draghi, the scourge of Old World savers

The Beatings Will Continue Until Morale Improves… or Something

The following tablet engraved with decisions was handed down from the Europe’s Central Planning Olympus:

(1) The interest rate on the deposit facility will be decreased by 10 basis points to -0.50%. The interest rate on the main refinancing operations and the rate on the marginal lending facility will remain unchanged at their current levels of 0.00% and 0.25% respectively. The Governing Council now expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.

(2) Net purchases will be restarted under the Governing Council’s asset purchase program (APP) at a monthly pace of €20 billion as from 1 November. The Governing Council expects them to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.

(3) Reinvestment of the principal payments from maturing securities purchased under the APP will continue, in full, for an extended period of time past the date when the Governing Council starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favorable liquidity conditions and an ample degree of monetary accommodation.

(4) The modalities of the new series of quarterly targeted longer-term refinancing operations (TLTRO III) will be changed to preserve favorable bank lending conditions, ensure the smooth transmission of monetary policy and further support the accommodative stance of monetary policy. The interest rate in each operation will now be set at the level of the average rate applied in the euro-system’s main refinancing operations over the life of the respective TLTRO. For banks whose eligible net lending exceeds a benchmark, the rate applied in TLTRO III operations will be lower, and can be as low as the average interest rate on the deposit facility prevailing over the life of the operation. The maturity of the operations will be extended from two to three years.

(5) In order to support the bank-based transmission of monetary policy, a two-tier system for reserve remuneration will be introduced, in which part of banks’ holdings of excess liquidity will be exempt from the negative deposit facility rate.”

(emphasis added)

We will briefly comment on points 2–5 of this long list of interventions below and focus on the first one in Part 2.

Regarding point (2), the resumption of QE: market participants reportedly expected that €40 billion in monthly purchases were in the offing and were therefore somewhat disappointed by the announcement. European bond markets have become junkies, and QE is their heroin.

Disappointment disturbance in the negative yields farce: yields on German Bunds rise to minus 44.5 basis points in the wake of the ECB announcement…

Point (3) means that the central bank’s balance sheet is not going to shrink for a long time to come –  hence all the money created by the original QE program will continue to slosh around in the economy. This is less of a problem than the decision to create even more money ex nihilo, since prices and economic activity have in the meantime adjusted. This is evident by the fact that the brief sugar high provided by previous QE operations has completely dissipated.

Regarding point (4), the modalities of the TLTRO-3 program are now such that banks will be able to borrow funds at interest rates ranging from zero to minus 0.5%, i.e., they will be paid for borrowing money from the ECB. Why this is even called an “interest rate” is a bit of a mystery.

If this arrangement strikes you as perverse, that’s because it is perverse. The more new credit a bank pumps out, the better the rate that will be applied to its TLTRO borrowings. It is an additional money (and debt) creation program.

Point (5), the introduction of tiered deposit facility rates, is intended to alleviate the impact of negative rates on bank earnings. Our guess would be that the amounts falling under the exemption will be fairly small, since the negative deposit facility rate is supposed to propagate outward through overnight interbank lending rates (if a bank has to pay a 0.5% penalty rate on bank reserves deposited with the ECB, it will be happy to lend its reserves at -0.45%, since losing 0.45% is obviously better than losing 0.50%).

Obviously, none of the “non-standard” monetary policies implemented by the ECB and other central banks have even met their stated goal of boosting price inflation, not to mention economic growth. Evidently, since they are opting for even more of the same, it has yet to occur to them that their policies may actually be counter-productive.

The process is reminiscent of many previous attempts in history to revive economic activity by means of money printing.

Tyler Durden Sat, 09/21/2019 - 17:15 Tags Business Finance
[*] [+] [-] [x] [A+] [a-]  
[l] at 9/21/19 2:45pm
Canada's "Wokest" PM Just Took A Hit In The Polls After Blackface Scandal

It wasn't a good week for Canada's "wokest" leader, Justin Trudeau, after multiple images of the Liberal Party Prime Minister in 'brownface' and 'blackface' emerged. If the images from a 2001 "Arabian Nights" party released Wednesday weren't bad enough, a follow-up video showing a separate third blackface incident released soon after his public apology made things even worse, taking the cringe level higher. 

Two major polls published Saturday show that during the days encompassing the scandal emerging, Canada’s Liberal Party took a hit, however a modest one, in what could be a sign of more significant slipping to come. 

Reuters reports of the two polls' results, less than five weeks ahead of the country's Oct. 21 federal election:

Conservative leader Andrew Scheer had a 4.8 percentage-point lead against Trudeau, according to a Nanos Research poll published on Saturday for CTV and the Globe and Mail newspaper. Scheer had a 3.2 percentage-point lead in the previous survey published on Friday.

Conservatives would win 36.8% of the vote and the Liberals 32%, the poll said...

The Nanos poll was conducted over three nights until Sept. 20. The first image of Trudeau in blackface at a 2001 “Arabian Nights” party when he was a 29-year-old teacher emerged on the evening of Sept. 18.

And of the second poll, Reuters summarizes:

The Liberals were leading in a Mainstreet poll published by iPolitics on Saturday, but had lost 0.4 percentage point from the previous survey compared with a 0.2 percentage-point slide by the Conservatives.

The Mainstreet poll, conducted between Sept. 17 and 19, had the Liberals at 36.8% compared with 34.2% for the Conservatives.

Scheer, Trudeau's Conservative rival vying to replace him as PM, has been in a statistical tie with the incumbent in most polls taken for the past few months, but got the noticeable bump just as the images surfaced. 

Meanwhile the New Democratic Party (NDP) and Green Party are pouncing, and can now more easily hit Trudeau from the left, pealing off additional valuable liberal votes.

Dear @JustinTrudeau, now there’s a video.

How can we trust you to fight for racial equity in housing & employment, racial justice in schools & our immigration system?

Our realities aren’t a joke or a game.

Thinking of everyone impacted.#elxn43https://t.co/f7hRcQjho9

— Laura Mae Lindo (@LauraMaeLindo) September 19, 2019

“Almost none of the soft Liberal support is interested in tipping to the Conservatives. Any Liberal scandal doesn’t significantly increase Conservative support, but would go to the NDP or Greens,” said Marc Di Gaspero, of consumer research firm Potloc.

Analysts cited by Reuters suggest Trudeau's lingering blackface scandal might not necessarily cause a mass exodus of Liberals in terms of support, but would most likely see many more simply stay home compared to if the damning images had never emerged.

Tyler Durden Sat, 09/21/2019 - 16:45 Tags Politics
[*] [-] [-] [x] [A+] [a-]  
[l] at 9/21/19 2:15pm
Peloton IPO Guide: It Makes Sense... If 60% Of All Gym Equipment Sold Is A Peloton

Authored by Scott Willis via Grizzle.com,


At the end of the day, Peloton is a gym membership pretending to be a tech company.

We fully admit the product is exciting and unique in the market, but Peloton still faces the same problem that keeps every gym owner up at night.

People just don’t stick to a workout schedule.

Peloton is built on a business model that breaks even on the bikes with the hopes that big money is made on recurring monthly fees for digitally distributed classes.

However, with the average gym losing 50% of members within the first year, even the best technology hasn’t proven it can keep people engaged long term.

Peloton has been a smashing success, but at an IPO valuation of $10 billion, the company will have to literally take over the market for investors to avoid a loss.

To justify a valuation of $10 billion, we would have to live in a world where 40% of U.S. households with a gym membership now own a Peloton instead, up from 3% today.

Peloton may be the best piece of home exercise equipment ever invented, but at $29/sh the company is pricing in a penetration rate never achieved in history by a consumer good.

We think the company will struggle as a public company and recommend investors steer clear, or bet on a fall in price as the fundamental value is at best $14/sh and more likely $7/sh.


Peloton management realized long ago that the exercise equipment game is hard.

For this reason, they built a business model that effectively breaks even on the sale of the equipment hoping that once the bike or treadmill is in your basement you will be easier to hook on a lucrative ongoing monthly subscription.

They are the first company to successfully use technology to digitally beam an exercise class experience to your home.

Thanks to technology, Peloton can now offer half a million people a live spinning experience while only paying for one studio and one instructor. This is economies of scale on overdrive.

However, the Peloton of today still has to deal with the costs of running a large business, which go beyond just a studio and an instructor.

Peloton made about $1,500 on each subscriber in 2019, but because they’ve ramped up headcount and R&D to prepare for public company life, they ultimately lose $870 on every single customer they add.

The key for Peloton is to reach a size where corporate costs per subscriber are dwarfed by the cash generated from equipment sales and monthly subscriptions fees.

We estimate the company will breakeven by the middle of 2022 once they hit 2 million subscribers, up 300% from 600,000 today. 


As much as Peloton management likes to tell us they are revolutionizing exercise through technology, no technology can overcome the problems inherent in the subscription fitness business model.

We’ve all been there.

You sign up for a new gym membership energized by your New Year’s resolution to finally get in shape:

Week 1: “I’m going to crush it” – 4 days at the gym

Week 2: “Crushing it!” – 7 days at the gym

Week 3: “Can’t make it this Thur/Fri because of work drinks” – 4 days at the gym

Week 4: “I’ll go tomorrow” – 3 days at the gym

It’s not your fault, the human brain just seems to have problems sticking to a task, especially exercise.

To drive home the point, we came across a video review of the Peloton Tread done by a writer at website The Verge.

The writer had the motivation of training for an upcoming 5k run, but within two weeks she was already fading on her resolve.

In the final week of the month, she was down to three runs from a peak of six only two weeks before, a decrease of 50%.

According to the International Health, Racquet & Sportsclub Association (IHRSA), even the best global fitness clubs lose 34% of new members within a year.

On average the fitness industry has to replace half the customer base each year just to keep membership stable. 

According to Peloton management, the company is absolutely crushing the industry with a retention rate of 93%.

However, digging into how they actually calculate that number we can see some serious liberties are being taken.

Peloton’s attrition numbers (# who cancel) count subscribers who quit in the quarter but divides them not by the number of members who originally joined from that group but by the current membership instead.

If 100 members joined last Christmas and 20 have quit so far, attrition should be 20%, however, because 400 new members joined recently, Peloton reports retention as 20 lost over 480, or only 4%!

When you look at retention the right way, we estimate Peloton’s retention rate is more like 80% (20% quit over 12 months”.

To Peloton’s credit, 80% is potentially the highest retention rate in the industry.

This means that Peloton is currently losing only 1 in 5 members in the first year compared to a typical gym that loses half their members every year.

Attrition is still a big problem and is the reason why Peloton is not a typical technology disruptor, even though they claim to be.

Attrition requires Peloton to continually spend marketing dollars to replace members who quit, keeping them from building a truly repeatable source of high margin revenue.

We think the attrition rate at Peloton is close to an all-time low and will only go higher.

As the recent blistering growth slows and the company loses some of its high-class catchet due to ubiquity, attrition will increase closer to the industry average.


In the IPO filing Peloton estimates their immediate addressable market is 12 million households in the U.S. and another 2 million abroad.

These are consumers directly interested in purchasing a Peloton product.

Even 12 million potential customers is an aggressive goal as it would represent 50% of all U.S. households with a gym membership.

Zooming out even more, management thinks 100% of households with more than $100,000 of disposable income (36 million in the U.S.) have at one time expressed potential interest in a Peloton product and could be future customers.

Peloton is effectively telling us they think every person with a gym membership could one day own a Peloton.

Possible but highly unlikely.

Throwing out what management wants us to think, our preferred market potential is based on annual sales of exercise equipment.

According to the Sport & Industry Fitness Association (SFIA), $5.5 billion of similar exercise equipment was sold to consumers and gyms in 2018.

We estimate sales will grow to $7.5 billion by 2030.

We are talking bikes, treadmills, ellipticals and any other equipment that could likely be replaced with a Peloton.

To justify a $29/sh stock price, Peloton would have to capture 83%, or $6.2 billion of retail and gym equipment sales, in effect upending the entire gym ecosystem.

There is no way this is going to happen.

Even if we looked at the entire equipment market, worth $10.5 billion, Peleton would need a market share of 60% to be worth $29/sh.

We think the company can realistically capture 30% of its addressable equipment market, up from their current market share of 16%.


If Peloton goes public at the indicated offering price of $27-$29/sh, it would value the company at almost $10 billion dollars.

Whichever way you look value, relative to other stocks or on a fundamental basis, Peleton is overpriced.

If we compare Peloton’s forward price to sales multiple to peers, it’s coming out of the gate at a premium price.

Nautilus (NYSE: NLS), one of the only publicly-traded competitors to Peloton has never traded above 1.5x next year’s revenue even when it was growing at 25-30% a year.

SoulCycle, another private competitor, attempted to go public in 2015 at a price to sales of 5.3x, but the IPO never found enough buyers and was scrapped for good in 2018.

Peloton is hoping investors have short term memory loss as it looks to be trying for a valuation that previously fell flat with investors.

From a relative value approach, Peloton is worth far less than $10 billion.

Looking at the value of Peloton on a fundamental basis, we also struggle to get anywhere close to $29/sh.

Based on the exercise equipment market we defined in the section above, there is $7.5 billion of sales up for grabs by 2030.

If as we expect, Peloton achieves a 30% share in its market or $2.3 billion in annual sales, the stock is only worth $14.00/sh, 50% lower than the IPO price.

Below is a chart showing the buy and sell bands for this stock over time.

Though we think Peloton is only worth $14/sh at most longer-term, if you do decide to trade Peloton use this visual guide to determine when you should buy, sell or hold.


Peloton has been through six funding rounds raising $940 million.

The latest round, series F raised $550 million in August 2018 at a price of $14.44/sh.

The $29/sh IPO price is a huge jump from the last funding round which will likely create some uncertainty among institutions if $29/sh is a fair price for the stock.

Between all six rounds, insiders have an average cost basis of only $4.51 with 25% of shares issued at only $0.45/sh. Insiders are sitting on 6x-64x returns.


181 days after the S-1 was filed, the majority of insider shares can now be sold. This date falls on February 24th, 2020.

Under certain circumstances the lock-up period will expire 120 days after the filing of the S-1, falling on 12/26/2019.

Given the low cost basis of insiders, we expect at least some of the 84 million shares issued below $0.50 will be sold once the lockup expires.

The impact on the stock will all depend on short interest and the daily volume at the time.


Peloton has truly come closer than any other product to bringing the gym experience into your own home.

But though the product may be amazing, it requires significant ongoing commitment from the customer.

Consumers rarely stick with exercise goals and for that reason, Peloton has to work harder and harder just to maintain revenue let alone grow it.

For this reason, we think Peloton will struggle as a public company.

Once investors realize Peloton is on the New Year’s resolution treadmill just like every other exercise company, both the multiple and the stock price have a long way to fall.

Tyler Durden Sat, 09/21/2019 - 16:15 Tags Business Finance

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