February 21, 2014

Elite Free Trade: Smell the Panic

How to make the world $600 billion poorer ... Barack Obama's unwillingness to fight for free trade is an expensive mistake ... In July 2008, Barack Obama, then a candidate for the presidency, declared before an adoring crowd in Berlin that "true partnership and true progress [require] constant work and sustained sacrifice." So it is with free trade. If not championed by leaders who understand its broad benefits, it will constantly be eroded by narrow economic nationalism. Mr Obama now appears to be surrendering to protectionists within his own party. – The Economist 

Dominant Social Theme: Free trade is the best and this fellow Barack ought to get with the program. 

Free-Market Analysis: The power elite does not take kindly to political interference with one of its most sacred causes – so-called free trade. 

We say "so-called" because the kind of free trade being practiced by nation-states these days is anything but "free." Each modern free-trade agreement comes attached to many thousands of pages of "fine type" that makes such agreements "managed." 

And even more problematic, these agreements are written in part for the world's multinational corporations – titanic companies that would not exist without corporate personhood. Absent the force of the state propping up these corporations, they would subside into limited partnerships. 

 Between state-mandated corporate personhood and monopoly central banking, the modern business scene cannot be considered remotely a "free market." 

Within this context, it's a miracle that entrepreneurial startups take place and succeed. But some always do, mostly when a niche market is discovered that the giants have not yet swallowed up for one reason or another. The nascent marijuana industry – as we have been covering – looks to be one of these. 

These occasional opportunities are anomalous. The real thrust of the world's economic diplomacy is "managed trade." And this Economist article – bearing in mind The Economist is partially owned by one of the most powerful banking interests in the world – can be construed at least as a veiled warning to Barack Obama that he ought to be more aggressive about the issue. 

Here's more: 

If he cannot drag Democrats back to their senses, the world will lose its best opportunity in two decades for a burst of liberalisation. It will also be a signal that America is giving up its role as defender of an open global economy in the same way that Mr Obama has retreated in foreign policy. 

Mr Obama did little to promote free trade during his first term, but has seemed bolder in his second. He launched America into ambitious new deals with large Pacific economies and the European Union, breathing new life into global trade talks. Momentum built up; the "constant work and sacrifice" paid dividends. ... 

Tactically, even a short delay could prove fatal to both deals. Pacific negotiations have been extended while America and Japan hammer out compromises on agriculture. Why should Japanese politicians risk infuriating their farmers when any agreement can be torn up on Capitol Hill? 

The deal with the EU was meant to be done swiftly—perhaps in as little as two years—to keep politics from mucking it up. Europe's leaders will now doubt America's commitment, given how feebly Mr Obama has fought for fast-track. ... 

And for this Mr Obama deserves some blame. He is far more ardent in bemoaning inequality than in explaining why an American retreat from the world would be the wrong way to address it. He seldom mentions, for example, that cheap imports help the poor by cutting their shopping bills, and so reduce inequality of consumption. 

It's not a zero-sum world There is nothing inevitable about globalisation. Governments have put up barriers before—with disastrous consequences during the 1930s—and could do so again. So it is alarming when America, the mainstay of an open global economy, gives off isolationist signals.

 Do you detect a sustained if low-key note of irritation in this text? This unusual Economist article seems a bit more pointed than most, almost like a message. Three observations ... 

First, that the internationalist community is panicking – at least a bit – that things are not moving as fast as they ought to. "There is nothing inevitable about free trade," according to the article. That's a comforting thought for us, but not to The Economist. 

 Second, we note the statement, "Mr Obama did little to promote free trade during his first term." Does this perhaps put Obama on notice? He is said to be doing more in his second term but the tone of the article is decidedly unenthusiastic and even disapproving. 

Finally, the article states that it is "alarming when America ... gives off isolationist signals." 

This is especially strong language. Using code words, The Economist is seeking the reversal of the republican trend that began with Ron Paul and the tea party and has only increased in strength since then. 

This is at least a yelp in anger and one Obama might do well to consider seriously. From what we understand, when Richard Nixon (possibly) ignored the growing irritation of the banking community regarding free trade, he soon found himself in front a helicopter waving farewell. 

This isn't our conclusion. Here an excerpt from a "revisionist history" of Nixon's rise and fall by Will Banyan:

 ... Nixon and Kissinger actually broke with the Eastern Establishment's by then crumbling Cold War consensus. An analysis of their words and deeds while in power reveals that they took advantage of Establishment divisions to decisively reject the compromise with the liberal internationalist faction and pursue their own agenda. 

Instead of putting their faith in international institutions and free trade, Nixon and Kissinger sought to protect US national interests, as they perceived them, through a policy of secretive Realpolitik ... Under Nixon's leadership ... the [framework] liberal internationalists had been patiently constructing since 1945, was subject to its first serious internal challenge. 

In time, though, the Nixon Administration's decidedly uncompromising Realpolitik was to become a galvanising force for Eastern Establishment, leading to the emergence of a truly transnational elite and a radically revised agenda ... 

We have no idea whether the dissatisfaction noted in this article will spill over into action, as it apparently did with Nixon and then with Bill Clinton. But US presidents are a great deal more beholden to globalist agendas than they are to national goals and objectives, in our view. 

 Conclusion This is yet another sign that the power elite is expecting more of Obama than he is delivering. No wonder his hair is graying. 


February 20, 2014

GE Sues IRS For $658 Million Tax Refund

As goes GE so goes...? Not satisfied with the increasing offshoring of taxation (amid the Double Irish with a Dutch Sandwich and so on), US corporations are increasingly digging elsewhere in the vain hope of finding "revenue" to keep the shareholder dream alive. While GE is not alone in this, its latest move perfectly summarizes the farce that US accounting (and tax) regulations have become (and Immelt's angelic position advising Obama on jobs and the economy). As Reuters reports, GE is suing the Internal Revenue Service for a $658 million tax refund related to a tax loss the company claimed as it exited the reinsurance market more than a decade ago.

In a civil complaint filed on Friday in U.S. District Court for Connecticut, GE said the IRS wrongly disallowed a $2.2 billion loss it claimed from the 2003 sale of a reinsurance subsidiary.

The complaint said GE, a large conglomerate that sells jet engines and financial products, is owed a $439.3 million federal income tax refund plus $219 million in interest. A court date has yet to be set.

"The dispute involves a good-faith difference of opinion over the tax consequences of a restructuring done more than a decade ago," GE spokesman Seth Martin said in a statement. "While we have paid the taxes in question, we believe it is in all parties' interests to resolve this through a court decision," he said.

GE is arguing that due to the 2003 sale of a struggling reinsurance business, ERC Life Reinsurance Corp, it could carry back tax losses into years it had taxable gains, according to GE's court filing.

The IRS had disagreed with GE's claims for losses and reversed a tentative tax refund to the company in 2004, the court filing said. 

GE, based in Fairfield, Connecticut, has faced public scrutiny from watchdog groups for its low effective tax rate.

Chief Executive Jeff Immelt, a top adviser to President Barack Obama on jobs and the economy, has said repeatedly the United States ought to reform its corporate tax code.

We are sure Immelt has lots more to teach the President...

February 19, 2014

Does The Trail Of Dead Bankers Lead Somewhere?

What are we to make of this sudden rash of banker suicides?  Does this trail of dead bankers lead somewhere?  Or could it be just a coincidence that so many bankers have died in such close proximity?  I will be perfectly honest and admit that I do not know what is going on.  But there are some common themes that seem to link at least some of these deaths together.  First of all, most of these men were in good health and in their prime working years.  Secondly, most of these "suicides" seem to have come out of nowhere and were a total surprise to their families.  Thirdly, three of the dead bankers worked for JP Morgan.  Fourthly, several of these individuals were either involved in foreign exchange trading or the trading of derivatives in some way.  So when "a foreign exchange trader" jumped to his death from the top of JP Morgan's Hong Kong headquarters this morning, that definitely raised my eyebrows.  These dead bankers are starting to pile up, and something definitely stinks about this whole thing.

What would cause a young man that is making really good money to jump off of a 30 story building?  The following is how the South China Morning Post described the dramatic suicide of 33-year-old Li Jie...
An investment banker at JP Morgan jumped to his death from the roof of the bank's headquarters in Central yesterday. 
Witnesses said the man went to the roof of the 30-storey Chater House in the heart of Hong Kong's central business district and, despite attempts to talk him down, jumped to his death.
If this was just an isolated incident, nobody would really take notice.

But this is now the 7th suspicious banker death that we have witnessed in just the past few weeks...
- On January 26, former Deutsche Bank executive Broeksmit was found dead at his South Kensington home after police responded to reports of a man found hanging at a house. According to reports, Broeksmit had “close ties to co-chief executive Anshu Jain.”
- Gabriel Magee, a 39-year-old senior manager at JP Morgan’s European headquarters, jumped 500ft from the top of the bank’s headquarters in central London on January 27, landing on an adjacent 9 story roof. 
- Mike Dueker, the chief economist at Russell Investments, fell down a 50 foot embankment in what police are describing as a suicide. He was reported missing on January 29 by friends, who said he had been “having problems at work.” 
- Richard Talley, 57, founder of American Title Services in Centennial, Colorado, was also found dead earlier this month after apparently shooting himself with a nail gun
- 37-year-old JP Morgan executive director Ryan Henry Crane died last week. 
- Tim Dickenson, a U.K.-based communications director at Swiss Re AG, also died last month, although the circumstances surrounding his death are still unknown.
So did all of those men actually kill themselves?

Well, there is reason to believe that at least some of those deaths may not have been suicides after all.

For example, before throwing himself off of JP Morgan's headquarters in London, Gabriel Magee had actually made plans for later that evening...
There was no indication Magee was going to kill himself at all. In fact, Magee’s girlfriend had received an email from him the night before saying he was finishing up work and would be home soon.
And 57-year-old Richard Talley was found "with eight nail gun wounds to his torso and head" in his own garage.

How in the world was he able to accomplish that?

Like I said, something really stinks about all of this.

Meanwhile, things continue to deteriorate financially around the globe.  Just consider some of the things that have happened in the last 48 hours...

-According to the Bangkok Post, people are "stampeding to yank their deposits out of banks" in Thailand right now.

-Venezuela is coming apart at the seams.  Just check out the photos in this article.

-The unemployment rate in South Africa is above 24 percent.

-Ukraine is on the verge of total collapse...
Three weeks of uneasy truce between the Ukrainian government and Western-oriented protesters ended Tuesday with an outburst of violence in which at least three people were killed, prompting a warning from authorities of a crackdown to restore order. Protesters outside the Ukrainian parliament hurled broken bricks and Molotov cocktails at police, who responded with stun grenades and rubber bullets.
-This week we learned that the level of bad loans in Spain has risen to a new all-time high of 13.6 percent.

-China is starting to quietly sell off U.S. debt.  Already, Chinese U.S. Treasury holdings are down to their lowest level in almost a year.

-During the 4th quarter of 2013, U.S. consumer debt rose at the fastest pace since 2007.

-U.S. homebuilder confidence just experienced the largest one month decline ever recorded.

-George Soros has doubled his bet that the S&P 500 is going to crash.  His total bet is now up to about $1,300,000,000.

For many more signs of financial trouble all over the planet, please see my previous article entitled "20 Signs That The Global Economic Crisis Is Starting To Catch Fire".

Could some of these deaths have something to do with this emerging financial crisis?

That is a very good question.

Once again, I will be the first one to admit that I simply do not know why so many bankers are dying.

But one thing is for certain - dead bankers don't talk.

Everyone knows that there is a massive amount of corruption in our banking system.  If the truth about all of this corruption was to ever actually come out and justice was actually served, we would see a huge wave of very important people go to prison.

In addition, it is an open secret that Wall Street has been transformed into the largest casino in the history of the world over the past several decades.  Our big banks have become more reckless than ever, and trillions of dollars are riding on the decisions that are being made every day.  In such an environment, it is expected that you will be loyal to the firm that you work for and that you will keep your mouth shut about the secrets that you know.

In the final analysis, there is really not that much difference between how mobsters operate and how Wall Street operates.

If you cross the line, you may end up paying a very great price.

February 18, 2014

"Soros Put" Hits Record As Billionaire's Downside Hedge Rises By 154% in Q4 To $1.3 Billion

A curious finding emerged in the latest 13F by Soros Fund Management, the family office investment vehicle managing the personal wealth of George Soros.

Actually, two curious findings: the first was that the disclosed Assets Under Management as of December 31, 2013 rose to a record $11.8 billion (this excludes netting and margin, and whatever one-time positions Soros may have gotten an SEC exemption to not disclose: for a recent instance of this, see Greenlight Capital's Micron fiasco, and the subsequent lawsuit of Seeking Alpha which led to the breach of David Einhorn's holdings confidentiality).

The second one is that the "Soros put", a legacy hedge position that the 83-year old has been rolling over every quarter since 2010, just rose to a record $1.3 billion or the notional equivalent of some 7.09 million SPY-equivalent shares. Since this was an increase of 154% Q/Q this has some people concerned that the author of 'reflexivity' and the founder of "open societies" may be anticipating some major market downside.

Then again, as the chart below shows, as a percentage of total AUM, the put position rose to 11.1% of his notional holdings. By way of reference, as of June 30 2013, his SPY put may have had a smaller notional value, but it represented both more shares (7.8 million), and was far greater as a % of AUM, at 13.5%. 

Finally, remember that what was disclosed on Friday is a snapshot of Soros' holdings as of 45 days ago. What he may or may not have done with his hedge since then is largely unknown, and since there are no investor letters, there is no way of knowing even on a leaked basis how the billionaire has since positioned for the market.

That said, while the SPY puts are most likely simply a hedge to his overall bullish exposure, perhaps more notable was the $25 million call position that Soros put on the gold miners ETF which has been beaten into oblivion over the past year, in the fourth quarter. Does Soros think that it is finally the miners' turn to shine?

February 17, 2014

"Money Launderer Until Proven Innocent" - Italy Imposes 20% Tax Withholding On All Inbound Money Transfers

While the propaganda surrounding Europe's "recovery" has reached deafening levels, what is going on behind the scenes is quite the opposite, and in the latest example that Europe is increasingly formalizing a regime of implicit capital controls, we learn that Italy has just ordered banks to withhold a 20% tax on all inbound wire transfers: a decree which on to of everything will apply retroactively to February 1. As Il Sole reports, "the deductions will be automatic (unless prior request for exclusion), and then it will be up to the taxpayer to prove that the money is not in the nature of compensation "income." In other words, as of this moment, but really starting two weeks ago, all Italians are money launderers unless proven innocent.
Some more details on Italy's latest decision to limit capital flows into the country, Google translated:
... the collection is the result of the decision to consider any transfer from abroad and directed to an individual Italian, as a component of taxable income, subject to proof to the contrary, which must be date the taxpayer receives the sum on your account. However, the first payments to the Treasury by intermediaries (mainly banks) will be performed July 16, so that the deemed payment accrued from February 1 until June 30 (and therefore set aside and with interest). Next, you will pay the withholding every 16th of the month following the effective perception of the sum. In fact, all taxpayers who receive a transfer from abroad on their personal account - and not professional or business - will be applied to the deduction, as an advance which will then be computed in the annual tax return.
What Italy appears to be focusing on are direct income payments where individuals get compensation via bank transfer. Of course, since the tax is superceding, good luck to any Italian citizen explaining the origin of every inbound money transfer and it is in accordance with the law. `
It is, therefore, a real "held" that will not be applied only in the case where the taxpayer proves that the amount received or quenched and does not have a connotation income but only and exclusively sheet: for example, the transfer incoming could be a return of a loan made in the past, or the return of a deposit, the date for the conduct of a house leased abroad.
Reasoning aside, what Italy just did is enforce a "shotgun" withholding tax on all inbound money:
The mechanism that provides a primary role to the bank official that is to receive the declaration of the taxpayer and evaluate it. In any case, you make the deduction or not, the name of the recipient will be reported by the bank Revenue Agency. And the taxpayer has until February 28 of the year following the year of the deduction to attest to the improper application of withholding tax to the bank and ask for a refund.
Even Il Sole admits that the new tax is so ad hoc that confusion will surely follow:
As is apparent from the wording of the measure, there is not even a standard for the development of self but, certainly, there will be a "balancing" between assets and funds held abroad (the RW of the UNICO) and income flows in entry: in short, it is likely that the intermediary in addition to the self-certification may require a taxable person to the performance of the RW framework from which we must infer what good has originated the incoming cash flow.

Of course, what will end up happening, is that more Italians- especially the wealthiest ones - will open bank accounts either in other Eurozone nations that have not established such a draconian wire transfer regime, or - more realistically - in such New Normal tax havens as Singapore now that Switzerland's main business model for centuries has been destroyed. The end result will be even less capital inflows into Italy - just the opposite of what the desperate Italian government is trying to achieve. But that is a concern for the next Italian government and the one promptly replacing it. For the time being, let's all pretend Europe is fixed, even as it prepares for the nuclear option: the confiscation of retirement savings.

February 14, 2014

EU Sign of the Times?

The eurozone crisis is just getting started. The project to impose political union is bringing economic ruin, making the legitimacy of the EU project ever more vulnerable ... In countries more obviously affected by the euro's financial crisis, disillusionment with the European project and its institutions is already extreme. Traditional centrist parties are finding it ever harder to hold the line ... Switzerland's referendum vote against the free movement of labour, the ruling by the German Constitutional Court on the European Central Bank's (ECB) attempts to save the euro, and the warning to Scotland that it won't be allowed to keep the pound if it votes for independence – these might seem unrelated, but in truth they are all part of an increasingly explosive stand-off between the forces of national sovereignty on the one hand, and political and economic integration on the other. – UK Telegraph 

Dominant Social Theme: The success of the European Union and euro speaks for itself! 

Free-Market Analysis: This seems to be a week for the mainstream media to speak plainly about the Afflictions of the Age (see other article on the Fed, this issue). This article does something that is not usually done: It questions not just the euro but the viability of the EU itself. 

We read the weary articles questioning whether the euro can long survive in its present form, but these speculations are a pale substitute for what should be discussed, which is whether the damnable EU, with all its corruption and authoritarian centralization, should itself survive. 

Created in deceit, nurtured on lies, expanded via untruths, the EU deserves to die – and not a lingering death but a quick one. Unfortunately, that is not what is planned. 

Those fronting the EU and those behind it – mostly the globalists populating London's City – have grandiose plans. They wish to reconstitute Charlemagne's Holy Roman Empire ... only they wish to do it by subterfuge rather than outright conquest. 

But as we and others have long predicted, secrecy is not a very viable option in this era of the Internet. In fact, what we call the Internet Reformation has seemingly blown up the entire structure of carefully constructed subterfuges that may go back hundreds of years. 

Of course, this article doesn't touch directly on the larger history, but it does provide a frame of reference about the EU that is most unusual to encounter in the mainstream media. 

Here's more: 

With elections in May likely to give rise to the most Eurosceptic parliament in the EU's history, Europe's long-running financial and economic crisis is threatening to spill over into an all-encompassing political one. According to Berlin and Brussels, Europe's dark night of the soul – its most serious crisis since the Second World War – is now essentially behind us, with the promise of a slowly recovering economy and renewed political harmony to come. 

To my mind, it has hardly begun. Europe's epic attempt to impose political union on widely divergent countries is being broken on the back of economic hardship, popular discontent, and financial disintegration. Virtually all successful currency unions start with political union, and then proceed through shared insurance, institutions, and fiscal arrangements to a common form of exchange. 

Europe, it hardly needs saying, is trying to do it the other way round; it has forced monetary union on an unsuspecting public, and now, via the resulting financial crisis, hopes to bulldoze through the shared fiscal and political arrangements that might eventually make it work, culminating ultimately in a United States of Europe.

 ... Last week, the German Constitutional Court did a remarkable thing; it outsourced final assessment of the ECB's policy of doing "whatever it takes to save the euro" to the European Court of Justice (ECJ). This seemingly innocuous passing of the buck can be read two ways. 

To believers in the European project, it's a positive development which removes a key threat to evolution of the single currency into a more sustainable form. Germany seems to have given up its right to veto whatever it deems to be monetary financing of struggling governments, and instead given the final say to the ECJ, which because it nearly always adopts an integrationist approach, is almost certain to give the thumbs up. 

But there is a less benign way of looking at the German court's ruling, for it contained a sting in the tail. Yes, the ECJ must decide, but the judges then went on to say that the ECB's policies did indeed amount to monetary financing and were therefore in all probability illegal. 

Next to God and the Bundesbank, there is no higher or more trusted authority in Germany than the Constitutional Court, so when the ECJ determines to contradict it, there's going to be an almighty backlash. German acquiescence in the euro will begin to fracture. In countries more obviously affected by the euro's financial crisis, disillusionment with the European project and its institutions is already extreme. 

Do you see what we mean? This article provides us with a blunt analysis and then puts the German Constitutional Court decision into context. It is, of course, a little-noted decision in the Anglo-centric West, but it is apparently a most important one nonetheless. 

Unusual is a mild term to describe this article. The tone is not sorrowful, as it is with so many reports on this subject, but positively irritated, even polemic. One gets the feeling the author is truly passionate about the criminality inherent in the EU project. 

For us this is a refreshing change of pace. The article presents a lot of the points we've been making for years about the EU. The euro is the least of its problems and the dysfunctional scheme to create a closer political union based on the failure of the euro may not be viable in the hyper-connected era of the Internet. 

The article's conclusion focuses on the "arrogance of political leaders who think they know better ..." And then comes this passionate statement: "Today they deliver only economic ruin, making their position, and the legitimacy of the EU project, ever more vulnerable." 

This is what we too have been arguing and this article seems more like a cri de couer than the ordinary pablum served up on a regular basis in the mainstream media. 

Conclusion At some point even the most devious of schemes may begin to collapse. Is this article a sign of the times?


February 13, 2014

Reality of Inflation's Outcome?

Bank of England Inflation Report: no rate hike while recovery remains 'unsustainable and unbalanced' ... Bank severs link between unemployment rate and an interest rate hike, and caveats bullish growth assessment with concerns that the recovery is currently unsustainable. Interest rates are unlikely to rise before 2015, the Bank of England signalled on Wednesday, as it warned the recovery was still too unbalanced to support a rate hike. A bullish growth assessment on Wednesday was caveated by concerns that the recovery was currently unsustainable and unbalanced. – Telegraph

Dominant Social Theme: We're almost there and we just have to print a little more to be sure ...

Free-Market Analysis: Print, print, print. Miles of newsprint have been wasted writing about "tapering" and "tightening" when, in fact, there is none.

Yesterday, new Federal Reserve chair Janet Yellen made it clear in what Bloomberg called "interminable" testimony that the Fed intended to remain "accommodative." What this means is that the central bank will use many of the tools at its disposal to keep the money flowing.

Chief among the tools the Fed has is interest rates. By keeping rates below the "natural rate" (whatever that may be) central bankers can eventually turn a bust into a boom via credit expansion. When rates are virtually nonexistent it is significantly easier to boost money circulation than when rates are sky high. And they haven't been high for decades.

In any event, on the heels of Janet Yellen comes the smoothest used-car dealer of them all, the man who has been called "the best central banker of his era," whatever that means. Of course, Carney has apparently left behind a god-awful real-estate bubble in his native Canada due to excessive money printing, and presumably that is why he was flown to England – to create the same kind of asset inflation.

And now, Carney has struck. Jettisoning the happy talk of predecessors and economic "experts," he has announced that rates will not rise for the foreseeable future because the much-vaunted British recovery is actually nil. Here's more from the article:

Interest rates are unlikely to rise before 2015, the Bank of England signaled on Wednesday, as it warned the economy was still too weak to support an increase. The Bank revised up its 2014 growth forecast to 3.4pc, from an estimate of 2.8pc in November. It also raised its forecasts for 2015 and 2016 to 2.7pc and 2.8pc. However, the bullish estimates were qualified by concerns that the recovery was unsustainable and unbalanced.

The Bank also severed the link between the unemployment rate and an interest rate hike, switching to a broad range of measures including wage growth and business investment to assess Britain's ability to support a rate rise.

The Bank pledged yesterday to:

• Keep rates low until growth runs closer to its potential.
• Raise rates slowly even when the economy improves.
• Change course if conditions worsen.
• Maintain QE at £375bn until rates rise.

The Bank believes the UK economy is running at around 1.5pc below its potential, and said it would need to make up more lost ground before it would consider raising rates from their record low of 0.5pc.

The Bank said productivity was much weaker than expected, while surveys pointed to less slack in the economy. "The Monetary Policy Committee (MPC) has taken a cautious approach," said Mark Carney, the Bank's Governor.

"We've learned that as yet the recovery is neither balanced nor sustainable. A few quarters of above trend growth driven by household spending are a good start but they aren't sufficient for sustained momentum. "The MPC will not take risks with the recovery."

... Charlie Bean, a deputy governor of the Bank, said the first rate hike would come before the economy hit full steam, which it predicts will happen at the beginning of 2017. "I think it's reasonable to expect that you'd want to start tightening policy before slack is completely eliminated," said Mr Bean. "If you tighten too early, there's a risk of foregoing some of those endogenous productivity gains. Too late [and] inflation could take-off."

Aye, there's the rub – presented in the last graf. The timing of the "tightening" is what's important. And, of course, we are not meant to wonder how in the bowels of central banks around the world, good, gray men arrive at the decision as to when to tighten and how.

Because, in fact, they do not have the tools to figure out when and how. All central bankers have is backwards-looking indicators and thus predictions amount to no more than guesswork. Central banking is presented by the bought-and-paid-for mainstream media as a science when it is nothing more than a kind of economic mumbo-jumbo.

The same could be said for Carney's big announcement that Britain's economy was unsustainable and unbalanced. It sounds like he has gotten the UK confused with Sochi and figure skating.

All that can really be grasped from Carney's generalities is that the Bank of England intends to continue to print money at full speed. And this corresponds to what Yellen is to do in the US, what the ECB is doing, what Japan is doing and, of course, what China has been doing at hyperspeed literally for decades: making the printing presses sing.

Along the way, we've had – in recent times – the crash of 1987, the recession of the early 1990s, the tech bubble of the later 1990s, the tech crash of 2001, the housing bubble of the 2000s, the disastrous housing bust of 2008, the stock market implosion of 2009 and now the boom of the early 'teens.

Always they print.

And in between they point fingers at regulators, corporate "crooks" and politicians who are presumably to blame for the business cycles that they themselves instigate and generate.

This boom, too, will end ruinously and yet, outside of the alternative press, no one is writing about the extreme recklessness of central banking and its surprising – yet almost inevitable – escalation.

An unbiased observer watching from a distance would surely conclude two things from the just-announced intentions of US and British central bankers to continue to stimulate aggressively: First, these intentions are as rash as they are deliberate and second, those at the helm obviously want another great bust.

This is exactly what we've been writing, of course. They're pushing a Wall Street Party as hard as they can. And they know full well the harder they push the worse it will be in the end.

From a boom to end all booms – with plenty of prosperity for all – to a ruinous bust that is perhaps intended to usher in a good deal more globalization: This would seem to be the plan. These men and women, impeccably groomed and soft-spoken, are surely – in a sense – silk-clad thugs: What they are preparing for the West will likely cause blood to flow in the streets.


Washington's regulatory agencies have bought billions of rounds of bullets and continue to arm themselves with the latest military gear. What do they know?


February 12, 2014

No Janet Yellen, The Economy Is NOT “Getting Better”

On Tuesday, new Federal Reserve Chairman Janet Yellen went before Congress and confidently declared that "the economic recovery gained greater traction in the second half of last year" and that "substantial progress has been made in restoring the economy to health".  This resulted in glowing headlines throughout the mainstream media such as this one from USA Today: "Yellen: Economy is improving at moderate pace".  Sadly, tens of millions of Americans are going to believe what the mainstream media is telling them.  But it isn't the truth.  As you will see below, there are all sorts of signs that the economy is taking a turn for the worse.  And when the next great economic crisis does strike, most Americans will be completely and totally unprepared because they trusted our "leaders" when they told us that everything would be just fine.

It is amazing how deceived people can be.  Just consider the case of 56-year-old Brian Perry.  He is a former law clerk that has applied for nearly 1,500 jobs since 2008 without any success.  But he says that he is "optimistic" that he will get another job soon because he believes that the economy is recovering...
By his own count, Brian Perry has applied for nearly 1,500 jobs since being let go as a law clerk in 2008. The 56-year old Perry lives in Rhode Island, where the 9.1 percent unemployment rate is 2.5 percentage points above the national average.
Perry remains optimistic that a job is forthcoming. He thinks a more robust economy would create better opportunities for the long-term unemployed like him.
Let us certainly hope that Perry does find a new job soon.  But if he does, it won't be because we are experiencing an "economic recovery".  Just consider the following facts...

-In January, we were told that the U.S. economy "created" 113,000 new jobs.  But that figure was arrived at only after adding a massive seasonal adjustment.  In reality, the U.S. economy actually lost 2.87 million jobs in January.  During the past decade, the only time the U.S. economy has lost more jobs in January was during 2009.  At that time, the U.S. economy was suffering through the peak of the worst economic downturn since the Great Depression.

-Prominent retailers are closing hundreds of stores all over the United States.  Things have gotten so bad that some are calling this a "retail apocalypse"...
  • JC Penney, which lost $586 million in three months in 2013, is planning to close 33 stores in 19 states and lay off 2,000 people. JC Penney’s stock has lost 84 percent of its value since February 2012.
  • Sears has decided to shut down its flagship store in Downtown Chicago, and it has closed 300 stores in the United States since 2010. Stock analyst Brian Sozzi noted that Sear’s inventory levels have fallen by 23.7 percent since 2006. He also noted that Sears had $4.4 billion in cash and equivalents in 2005 but $609 million in cash and equivalents in 2012. Sozzi, who calls himself a guerrilla analyst, has a blog full of disturbing pictures of empty Sears stores.
  • Macy’s, one of the few retail success stories, is planning to close five stores and eliminate 2,500 jobs.
  • Radio Shack is preparing to close 500 stores, according to The Wall Street Journal.
  • Best Buy recently closed 50 stores and eliminated 950 jobs at stores in Canada.
  • Target announced plans to eliminate 475 jobs and not fill 700 empty positions to reduce costs.
  • Aeropostale is planning to close 175 stores.
  • Blockbuster has closed down all of its stores.
-McDonald's is reporting that sales at established U.S. locations were down 3.3 percent in January.

-In January, real disposable income in the U.S. experienced the largest year over year decline that we have seen since 1974.

-As I wrote about the other day, the number of "planned job cuts" in January was 12 percent higher than 12 months earlier, and it was actually 47 percent higher than in December.

-Only 35 percent of all Americans say that they are better off financially than they were a year ago.

-What is happening to the U.S. stock market right now very closely resembles what happened to the U.S. stock market just before the horrific stock market crash of 1929.  Just check out the chart in this article.

For dozens more statistics that show that the U.S. economy is not improving, please see this article and this article.

Meanwhile, things continue to unravel all around the rest of the globe as well.

In previous articles, I have detailed how the reckless money printing by the Federal Reserve has inflated massive financial bubbles in emerging markets all over the planet.  Now that the Fed is "tapering", those bubbles are starting to burst and we are witnessing a tremendous amount of economic chaos.  Here are three more examples...

#1 Ghana:
Ghanaian Economist Dr. Theo Richardson says Ghana’s economy will crash by June this year if the Bank of Ghana continues with its kneejerk measures to rescue the cedi.
“The government is facing liquidity problems and if we don’t get the appropriate remedies to address the issues at hand the situation may worsen and by June the economy may crash,” Dr. Richardson said.
With only $24.5 billion left in FX reserves after valiantly defending major capital outflows since the Fed's Taper announcement, the Kazakhstan central bank has devalued the currency (Tenge) by 19% - its largest adjustment since 2009. At 185 KZT to the USD, this is the weakest the currency has ever been as the central bank cites weakness in the Russian Ruble and "speculation" against its currency as drivers of the outflows (which will be "exhausted" by this devaluation according to the bank). The new level will improve the country's competitiveness (they are potassium heavy) but one wonders whether, unless Yellen folds whether it will help the outflows at all.
#3 India:
In the wake of a global stock market sell-off driven by worries over slower growth in emerging markets, the head of India's central bank, Raghuram Rajan, criticized the U.S. Federal Reserve as it pressed on with plans to dial back its monthly bond purchases: "International monetary co-operation has broken down," said Rajan, who added that "the U.S. should worry about the effects of its polices on the rest of the world."
We have reached a "turning point" for the global financial system.  Things are beginning to fall apart both in the United States and all around the world.
But at least the dogs at the White House are eating well.  Just consider the following photo that was recently tweeted by Michelle Obama...

February 11, 2014

Stinking Corporate Revenues, Desperately Doctored Earnings-Per-Share

Yves here. Wolf is flagging the end-game in the efforts to present US corporate earnings as being on a decent upward trajectory. The fact that Apple disclosed last week that it spent $14 billion in a two-week period buying back stock should be seen as a massive sell signal. As one of my stock jockey buddies remarked, “If the company won’t invest in its business, why should I?”

And that’s before you get to all the other games public companies have been playing: lowering earnings guidance so they can claim to beat the easier targets, the reliance on accounting tricks (reader Scott pointed out that when IBM, famous for strained accounting to maintain earnings growth, couldn’t maintain the momentum, you knew that the economy was weaker than the cheerleaders wanted you to believe) and for many supposedly industrial companies, the use of Treasury as a profit center (for Toyota and other major manufacturers, we noted in ECONNED that financial operations accounted for roughly 25% of earnings. It’s hard to imagine that the financialization of large corporations has done anything but increase).

This level of stock buybacks isn’t opportunism; it’s tantamount to disinvestment. Yet the top brass are able to maintain or even increase their lofty pay levels using these ruses.

By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Testosterone Pit.

Last quarter was tough on large US corporations – those that make up the S&P 500 index. Unperturbed, the index, which had been soaring all year, ended 2013 up nearly 30%. But its 343 companies that have reported earnings for the last quarter so far, according to Thompson Reuters IBES, have exposed the ugly underbelly of the worldwide economy: revenue “growth.”

Growth in quotation marks because the US Consumer Price Index ticked up a relatively tame 1.5% in December from a year earlier. So beating inflation by a smidgen wouldn’t seem to be such a heroic feat. But no! Fourth quarter worldwide revenues of these US stalwarts, after inflation, actually declined.

Only one sector did well: healthcare, the monster that is eating up the US economy. Revenues grew 7.6%. Perhaps the Obamacare effect.

Other sectors had subdued revenue growth, but nevertheless growth: consumer discretionary up 3.8%, consumer staples up 1.9%. They’re the largest two sectors. Industrials up 2.3% and utilities up 4.2% – it was seriously cold in December! Technology, the high-growth sector, the grand hope for the US economy, the area where American ingenuity and creativity can still blow away all challengers… well, revenues rose a measly 5.4%. And telecom services eked out a barely visible 2.2% revenue gain. Not exactly breath-taking growth figures.

But then there were the third and fourth largest sectors: revenues in the energy sector dropped 3.4%; and in the financial sector, they plunged 11.4%.

So, while inflation was 1.5%, the S&P 500 companies that have reported so far, all put together, triumphed with year-over-year revenue growth of, drumroll please, 1%.

Those are worldwide revenues. Revenues outside the US are a big part of S&P 500 luminaries like GE and IBM. GM, for example, has long been the number one brand – though it fell to number 2 last year – in what has become the largest automotive market in the world, and one of the fastest growing ones, China. Even with this tailwind, worldwide revenues only inched up 3%.

But wait, Wall-Street hype mongers are crying out, revenues don’t matter; what matters are earnings per share. In the fourth quarter, companies pulled out all stops to show, despite the dreary revenue picture, that they could still perform miracles when it came to earnings per share, and they sweated over it, and they worked on it, pushed and fudged things, and used the most effective Wall-Street engineering that money can buy to report 9.5% growth in earnings per share.

All sectors showed EPS growth, except utilities (- 3.8%) and energy (-7.9%). Telecom services, dogged by a revenue gain of only 2.2%, booked dizzying EPS growth of 24.5%. The materials sector, equally dogged by a revenue gain of 2.4%, came up with EPS growth of 24.5%. Industrials, with sales up merely 2.3%, wound up with EPS growth of 14.1%. And then the winners of this ingenuity, the best of the best, the star, the most creative in their recklessness and the most aggressive in their accounting, were financials – whose revenues plunged 11.4%. They contrived EPS growth of 24.4%.

What the dickens is going on?

Ingenious accounting is one element, financial engineering another. Corporations can borrow nearly unlimited amounts of money in the short-term markets and through bond sales, at little cost, thanks to the Fed’s policies, and load up their balance sheets with borrowed cash, that they then plow into share buybacks. This accomplishes a number of things.

It spreads the skimpy net income over fewer shares, thus artfully goosing EPS. It’s the number that matters we’re incessantly told – because it’s the number that is the most easily manipulated.

Buyback announcements, which by sheer coincidence often come alongside revenue and earnings debacles, are designed to boost shares, or keep them from falling off a cliff. Later, as the buybacks are being executed, the additional demand for the shares drives up prices again. And best of all, the entire procedure – borrowing money to buy back shares – hollows out stockholder equity and fills the ensuing hole with debt. This has left many corporations, as far as shareholders are concerned, mere skeletons ready to topple if credit ever dries up, as it did during the financial crisis [read.... How Stockholders Get Plundered In IBM’s Hocus-Pocus Machine].

But it does one heck of a job in jacking up earnings per share.

And there’s a more insidious side effect. By plowing cash into stock buybacks rather than productive assets, such as factories or IT equipment or systems that might be a little more difficult to hack into or even (God forbid) workers, corporations are inserting their own neck into a stranglehold that will continue to crimp revenue growth. But short-term, it performs a nose job on earnings per share.

A valiant strategy in an era when central-bank money printing and interest rate repression has surgically separated reality from stock prices. In this manner, the doctored EPS growth – and particularly the “expected” doctored EPS growth for distant future quarters, which invariably is in the double digits – is bandied about as illusory justification for the gravity-defying ascent of stocks.

Business success, as defined by growth in revenues and net profits and not by financial engineering and artfully fabricated EPS, is crucial to the economy. But for a quarter of a century, corporate profits have been rising at a faster rate than GDP and are now “dangerously elevated by all reasonable measures,” writes Chris Brightman, Head of Investment Management at Research Affiliates. The phenomenon is the result of a spectacular reallocation of income from labor to capital. It repressed wages and created the biggest profit bubble ever. But pressures have reached a tipping point. Read…. The Unglamorous End of the Largest Corporate Profit Bubble in History


February 10, 2014

Market Manipulations Become More Extreme, More Desperate

In two recent articles we explained the hows and whys of gold price manipulation. The manipulations are becoming more and more blatant. On February 6 the prices of gold and stock market futures were simultaneously manipulated. 

On several recent occasions gold has attempted to push through the $1,270 per ounce price. If the gold price rises beyond this level, it would trigger a flood of short-covering by the hedge funds who are "piggy-backing" on the bullion banks' manipulation of gold. The purchases by the hedge funds in order to cover their short positions would drive the gold price higher. 

With pressure being exerted by tight supplies of physical gold bars available for delivery to China, the Fed is growing more desperate to keep a lid on the price of gold. The recent large decline in the stock market threatened the Fed's policy of taking pressure off the dollar by cutting back bond purchases and reducing the amount of debt monetization.

Thursday, February 6, provided a clear picture of how the Fed protects its policy by manipulating the gold and stock markets. Gold started to move higher the night before as the Asian markets opened for trading. Gold rose steadily from $1254 up to a high of $1267 per ounce right after the Comex opened (8:20 a.m. NY time). The spike up at the open of the Comex reflected a rush of short-covering, and the stock market futures looked like they were about to turn negative on the day. However, starting at 8:50 a.m., here's what happened with Comex futures and S&P 500 stock futures (click on chart to enlarge): 

At 8:50 a.m. NY time (the graph time-scale is Denver time), 3,225 contracts hit the Comex floor. During the course of the previous 14 hours and 50 minutes of trading, about 76,000 total April contracts had traded (Globex computer system + Comex floor), less than an average of 85 contracts per minute. The 3,225 futures contracts sold in one minute caused a $15 dollar decline in the price of gold. At the same time, the stock market futures mysteriously spiked higher (click on chart to enlarge):

As you can see from the graphs, gold was forced lower while the stock market futures were forced higher. There was no apparent news or market events that would have triggered this type of reaction in either the gold or stock market. If anything, the trade deficit report, which showed a higher than expected trade deficit for December, should have been mildly bullish for gold and bearish for the stock market. Furthermore, at the same time that gold was being forced lower on the Comex, the U.S. dollar index experienced a sharp drop in price and traded below the 81 level of support. The fall in the dollar is normally bullish for gold. 

The economy is getting weaker. Fed policy is obviously failing despite recent official pronouncements that the economy is improving and that Bernanke's monetary policies succeeded. A just published study by Jing Cynthia Wu and Fan Dora Zia concludes that the the positive impact of the Federal Reserve's policy of quantitative easing is so slight as to be insignificant. The multi-trillion dollar expansion in the Federal Reserve's balance sheet lowered the unemployment rate by little more than two-tenths of one percent, raised the industrial production index by 2 percent, and brought about a mere 34,000 housing starts. (http://econweb.ucsd.edu/~faxia/pdfs/JMP.pdf) 

The renewal of the battle over the debt ceiling limit is bullish for gold and bearish for stocks. However, with the ongoing manipulation of the gold price and stock averages via gold and stock market futures, the normal workings of markets that establish true values are disrupted. 

A rising problem for the manipulators is that the West is running low on gold available for delivery to China and other Asian buyers. In January China took delivery of a record amount of gold. China has been closed since last Friday in observance of the Chinese New Year. As China resumes purchases, default on delivery moves closer. 

One way for the Fed and bullion banks to hold off defaulting on Chinese purchases is to coerce holders of gold futures contracts to settle in cash, not in delivery of gold, by driving down the price during heavy Comex delivery periods. This is what likely occurred on Feb. 6 in addition to the Fed's routine price maintenance of gold. 

As of Thurday's (Feb. 6) Comex report for Wednesday's (Feb. 5) close, there were about 616,000 ounces of gold available to be delivered from Comex vaults for February contracts totaling slightly more than 400,000 ounces, of which delivery notices for 100,000 ounces were given last Wednesday night. If the holders of the other 300,000 contracts opt to take delivery instead of cash settlement, February contracts would absorb two-thirds of Comex gold available for delivery. 

The Comex gold inventory has been a big source of gold shipments from the West to the East, resulting in a decline of the Comex gold inventory by over 4 million ounces – 113 tonnes – during the course of 2013. We know from reports from Swiss bar refiners that the 100 ounce Comex gold bars are being received by these refiners and recast into the kilo bars that the Chinese prefer and shipped to Hong Kong. With the amount of physical gold in Comex vaults rapidly being removed, the Fed/bullion banks use market ambush tactics such as those we describe above to augment and conserve the supply of gold available for delivery. 

Readers have asked if gold can continue to be shorted on the Comex once no gold is left for delivery. From what we have seen – the fixing of the LIBOR rate, the London gold price, foreign exchange rates, the price of bonds and the manipulation of gold and stock market futures prices – we don't know what the limit is to the ability of the Fed, the Treasury, the Plunge Protection Team, the Exchange Stabilization Fund, and the banks to manipulate the markets.