Christmas In Venezuela: What It"s Like After Socialism Destroys Your Country

Authored by Daisy Luther via The Organic Prepper blog,

The situation in Venezuela is grim and not getting any better.

A socialist government has destroyed what used to be one of the healthiest economies in the world and turned it into something for which few were prepared. As we get ready for the holidays here in America, with our usual spending frenzies and feasts, Christmas in Venezuela is looking a lot different than it did a mere decade ago. Maybe some of the young people who think socialism is the answer to all our societal woes will read this and realize that this form of government doesn’t work – it destroys all hope.

Last week, I got an email from a prepper named J.G. Martinez D, or Jose. He offered to send me some on-the-ground articles for as long as the internet is up and running. I thought, given the season, that it would be interesting to follow up the interview with Selco regarding his SHTF Christmas with an interview about Christmas in Venezuela. Jose is one of the few people in Venezuela who was a prepper before this collapse happened so his perspective is quite valuable.

Can you tell us a bit about yourself?

I am an upper middle class, professional former worker of the oil state company, in my 40s. A Bachelor’s degree from one of the best national Universities. I have a small 4 members family, plus two cats and a dog. An old but in good shape SUV, a good 150 square meters house in a nice neighborhood, in a small but (formerly) prosperous city with two middle size malls. Everything in the period 2004-2012 was just fine. After that period, the economy started a declining trend that has been increasing faster each week.

Being a prepper, and having experienced two major similar crisis in my lifetime (civil turmoil 1989, and Caracas coup d’état in 1992), inspired me to find a second (and even a third) income source and some months’ worth of food at home. I started to write for a Forex blog, and earning some extra cash for preppings: a genset, (now used twice weekly because of the power cuts) additional freezers, a CNC machine for a home-based small business, and some professional audio equipment for voice over and podcast broadcasting, another economical activity that I enjoy, after my career in the oil company stopped. A water tank with a concrete base (the power cuts stop the water supply pumping system), and reinforced bars for the windows, enclosing the patio for security, and some other improvements.

This has allowed my family to deal with most of the terrible situation in Venezuela. I am now outside the country, planning for the exile of my family. I know things are going to get a lot worse before they start to get better, and don´t want them there once the shooting begins.

Tell me a little bit about the traditions in Venezuela. What was Christmas like before the economic collapse?

Christmas in Venezuela was one of the most popular times of the year, after school holidays. A lot of people, mostly in the big cities, went to the beach to enjoy those free days. Venezuelans are very family-oriented people. For us, Christmas is a season for being with family even in the entire year we have not been able to visit them. There was an exodus from one side of the country to the other one, people traveling in all directions to gather with their beloved ones, mainly from the big cities to the province states.

Since December 1^st, shops, coffees, restaurants, houses, entire subdivisions and streets, government offices, schools, and all kind of business were decorated and the traditional “Nacimientos” or representations of baby Jesus birth in the crib, with Saint Joseph, virgin Maria, and the three wizard kings. There were contests with the most elaborated Nacimiento would be the winner. And the traditional living Nacimiento.

The general environment was a happy one, one of hope and confidence in the future. One of our Christmas carols, called “gaita” totally unrelated to the western anglophone ones, are played with drums and all kind of instruments, and for the untrained ears, it could sound something like merengue. It has been a totally pleasant surprise for the foreigners to come to a church for the services and find people dancing and singing traditional songs. Lights and all kind of ornaments hanged from doors, walls, windows and every imaginable place.

Malls were full with people buying all kind of presents, and temporary employment was a permanent need for the merchants since the first day of December.  All kind of toys and kid’s articles were sold even in the streets, for the baby Jesus birth night.

Many people piled up their mattresses, pots, and pans in the family car, heading for wonderful vacation destinations like Isla Margarita, with lots of beautiful beaches, or the mountains in Merida, in Los Andes. Another tradition is buying new clothing and or shoes (“estrenos”) for the 24, 25, and 31 December evening, to dress up in dinner while the children played with their new toys, and receiving the new year with the best new clothing to ask for prosperity.

How have the traditions you described above changed now that there is very little money?

Without money, and cash scarcity, traveling is very hard. Many people have restricted their family gatherings. Prices of bus tickets are very high for the common person, and airplane tickets are a joke. 75% of the national flights fleet is on hold because of lack of maintenance.

I have not known of anyone with kids in the last 4 years that could buy a new attire for themselves to use on the 24 and 31 December nights. Most of the available money is for 24/31 December dinner, or kid’s toys, if any.

Many kids these years have received a very simple toy, instead of those most expensive and fancy ones. And many others have not been able to receive any toy at all. They have seen people looking inside the garbage bags for food, and despite their age they seem to understand what is happening and don’t ask for expensive toys to baby Jesus, leaving the parents to relieve some pressure and get them whatever they can.

However, the hard part is that many kids were used to going to visit their grandparents, and nowadays this kind of family trips are just not possible. There is no cash, collapsed transportation, no parts for the family cars. You get the picture.

What was your traditional Christmas dinner before?

Our family Christmas dinner includes roasted pork leg, with olives and capers; a special loaf of bread (“pan de jamon”) with lots of olives, ham, bacon, and capers inside, and hen salad, with potatoes, carrots, mayonnaise, petit pois, the very unique and traditional “Hallaca”. This is sort of an envelope with banana leaves, filled up with a tasty mixture: beef and pork stew, olives, boiled eggs (recipe varies with the region, East, Center, West, and/or the origin of the family), surrounded by a mass elaborated with the corn flour, the same we use for the arepas. It was common to cook about 150 or 200 hallacas for a 4-person family.

For bigger families, everyone collaborated with money and the hallacas-making was a team labor, with over 10 people or more, and the result was 1200 or 1500 hallacas. A family of four, like us, with 100 hallacas, a roasted leg, and a huge bowl of hen salad in our extra freezer, we would eat hallacas and Christmas food until middle January!

Normally, since my childhood, in our table on Christmas Eve, there were grapes, apples, dried fruits, raisins, nuts, and even hazelnuts. Most of these were imported (we only grow grapes in some places), but there were plenty of all this in the middle class tables the Christmas and New Year eve. For dessert, a sweet called “dulce de lechoza”, made with slices of green papaya, boiled with lots of sugar and clove, served with a slice of Christmas cake, a cake with raisins, chocolate, dried fruits and some rum, called “Torta negra” or Black Cake. There is a very traditional punch, mainly for ladies, called “Ponche Crema”, with a secret recipe invented 140 years ago by Eliodoro Gonzalez, a chemist from Caracas.

Of course, most of the people could afford a whisky bottle. Most of the time we had some cider for the New Years Eve toast to receive the incoming year; people who could afford it bought champagne.

Before, it was common for someone who was shopping or just passing by, to go to wish a merry Christmas to a friend and receive a plastic bag with 6 or 8 hallacas “so you can taste them”, and some “Dulce de lechoza” or Torta Negra.

What are families eating for Christmas dinner now?

Nowadays, families are mostly eating beans and lentils, whenever they can be found, and white rice, sometimes hard to find. Middle class made an extra effort for at least one hallaca for each member of the family at the Christmas dinner eve, and mostly bought to people who makes a temporary business by preparing, cooking and selling hallacas. Those who can afford to make hallacas at home are not too many, and people does not give away hallacas to friends and family so often. The most easy meal for Christmas dinner seems to be just the hen salad. There are no wheat flour at fair prices for ham bread or cake, nor olives or other ingredients at affordable prices. Instead of a complete pork leg, some people just buy (if they can find it)some pork meat and roast it in the oven, just for Christmas Eve.

Fortunately last year we had bought a lot of staples for hallacas and other things for the dinner in August, like a small frozen pork leg and flour, and we were able to deal not just the high prices, but the scarcity as well. Our Christmas dinner was a very normal one, a little bit sad, as you may suppose. A lot of neighbors have left the country, and their houses were empty and silent. The subdivision main street once filled with kids in bicycles, dogs and people with babies, now looks like a ghost town.

What kind of gifts are people giving this year? How are they acquiring them?

Pricing of the toys, after 18 years of currency control exchange, makes them extremely hard to afford. Families with many children just don’t buy toys, or new clothing. All the money goes for feeding needs, if some staples can be found somewhere.

Old toys, in good shape, are sold in garage sales, mainly from struggling middle class people, but that was the last two years…because the middle class is running away from the country. People who can’t afford to buy new toys just trade work hours, or buy used cheaper toys. With a pair of shoes costing several minimum wages, many people is not buying anything else but basic staples. Other people who really wants to give something are using as gifts previously used items. There is not enough money in people’s hands.

Prepping allowed us to get the toys for our child early, in September, so we are not with the last minute rush.

How are children dealing with the changes during the holiday season? Is it easier or more difficult for them than the adults?

Many children are pretty aware of the situation. Middle class kids have noticed the people roaming in the streets and ripping the garbage bags looking for something to eat, and asking for bread, money or something outside bakeries, malls and supermarkets.

They have come to understand, the hard way, that everyone is having a rough time, and they are lucky to have a good house, that their relatives (mostly) still have a car they can use (many of middle class families cars are awaiting for non-affordable spare parts like tires, batteries or others).

This said, children know that anything Baby Jesus or Santa could bring along is a plus. It is touching to read that in their letters, they have asked for toys as well for the poor children. They see their parent’s faces arriving at home with a couple of grocery bags, and hear the adults conversations about the crisis. It is has been very hard for many of them. I have known by mouth of a psychologist friend of us that his little patients (he works mainly with children) are having nightmares and night terrors associated to what they see on the streets. Everyone is having a hard time.

What are some of the creative solutions that people are coming up with to make the holidays special?

People are trying to deal with the situation by means of making clear to the kids that what is important is being healthy, and that the family is all together, for instance. But the most needy are having a harsh time.

Some people has risen chickens for Christmas dinner, in whatever space they had available, but with the danger to be robbed. Other people puts together whatever cash they can find, scarce as well, and buy in bakeries all the ham bread and other stuff, to resell in the streets.

They generate scarcity in the bakeries, and inflate the prices to awesome levels. I have known that in coastal towns like those all around Margarita Island, they are using fish in the Hallacas, instead of beef and pork, for example. And instead of hen salad, sardines salad. My wife is using some sugar substitutes, as a traditional cane juice.

Are politics/government affecting the holidays in any way? Are they providing any type of relief or treats for families? Are they offering any suggestions to make this time of year more special?

Sure, they are trying to wash their nasty face with handouts. The relief, or treats was a Christmas bonus for those holding that carnet imposed by the Government to their supposed followers, and it was not even for all of the carnet holders neither.

They openly offered pork legs, toys and other goodies at low prices for those who vote for the Socialist Party. Of course this was all lies. The goodies are for the NGs, for the riot police, and the military who suffocated the recent demonstrations with over 130 persons killed.

Do you have any stories you could share of post-collapse Christmas in Venezuela?

The worst of the collapse has not been seen yet. But it is quite remarkable to notice that in other countries, the rush for electronic appliances sales generate turmoil in the stores, meanwhile in Venezuela it is the access to basic staples.

My wife was casually in a small supermarket a few days ago, when unexpectedly a couple of employees started nervously to stack powdered milk in the shelves. This is one of the most precious staples in Venezuela, much more than the liquid milk, for reasons known only to Venezuelans, and that I myself can´t explain despite being a Venezuelan. Maybe the low price, and that it can be stashed for a long time.

So there were some soldiers custodying the supermarket, and ask the people to make a line. Suddenly, a large amount of people invaded the supermarket, and pushed aside the two employees, who fell to the ground under the avalanche of people. My wife took the kid to her side, just on time so the horde would not push him and knock him to the ground and step on him. My wife, terrified with that scene, once she was able to move around to get if she could get a package, stood next to a soldier. My kid look at the soldier and, innocently asked with his little voice if he could get him some milk for his cereal. The soldier look down on the kid, and just patted his little head, with a knot in his throat, looking at my wife with a sense of impotence.

Would you be prepared?

The stories of Christmas in Venezuela should be eye-opening to anyone who is trying to get prepared for a long-term event.

The way that life has changed there is stark, dramatic, and something that could happen in any country in which the government turns to socialism. Would you be prepared for life in a collapse situation? Would you be able to provide special things for those you love to make the holidays a little bit happier?

Nomi Prins: "Dark Money" Runs The World

Authored by Nomi Prins via The Daily Reckoning,

Few people know financial markets’ biggest secret...

For the last 40 years, most people believed the stock market always goes up. Simply buy and hold long enough, the theory went, and you could sit back and watch the money accumulate in your account. No thought or hard work needed.

It was a nifty strategy — until the idea burned most investors in 2008. Almost a decade later, the scar tissue is still fresh for many investors.

Even today, after the U.S. stock market has rallied by 271% since the bottom on March 6, 2009 — nearly tripling investors’ money — only about half of Americans are invested in the stock market, according to NPR. That’s down from two-thirds compared to a decade ago.

The rest are in cash on the sidelines. Maybe that’s been you.

And who can blame you? “Fool me once, shame on you,” the saying goes. “Fool me twice, shame on me.”

Last June, Fortune surveyed readers. 71% of respondents said “the economic system in the U.S. is rigged in favor of certain groups.”

A few years earlier, the Los Angeles Times reported “Poll finds 64% of voters believe stock market is rigged against them…”

They’re not wrong.

Somebody’s made gains from all of those sectors in the stock market. It just hasn’t been Main Street.

Since I’ve left the world of big banking, I’ve made it my mission to change that. That leads me to the catalyst for my new project…

Dark money.

Dark money is the #1 secret life force of today’s rigged financial markets. It drives whole markets up and down. It’s the reason for today’s financial bubbles.

On Wall Street, knowledge of and access to dark money means trillions of dollars per year flowing in and around global stock, bond and derivatives markets.

I learned this firsthand from my career on Wall Street. My first full year working on Wall Street was in 1987.

I wasn’t talking about “dark money” or central bank collusion back then. I was just starting out.

Eventually, I would uncover how the dark money system works… how it has corrupted our financial system… and encouraged greed to the point of crisis like in 2008.

When I moved abroad to create and run the analytics department at Bear Stearns London as senior managing director, I got my first look at how dark money flows and its effects cross borders.

The “dark money” comes from central banks. In essence, central banks “print” money or electronically fabricate money by buying bonds or stocks. They use other tools like adjusting interest rate policy and currency agreements with other central banks to pump liquidity into the financial system.

That dark money goes to the biggest private banks and financial institutions first. From there, it spreads out in seemingly infinite directions affecting different financial assets in different ways.

Yet these dark money flows stretch around the world according to a pattern of power, influence and, of course, wealth for select groups. To be a part of the dark money elite means to have control over many. How elite is a matter of degree.

These is not built upon conspiracy theories. To the contrary, alliances make perfect sense and operate publicly. Even better, their exclusive dealings and the consequences that follow are foreseeable — but only if you understand how the system works and follow the dark money flows.

It’s easy to see how this dark money affects the stock market at a high level, because we can monitor its constant movement.

Here’s the smoking gun:

The red line shows you how much “dark money” the Federal Reserve has printed since 2008.

The blue line shows you the S&P 500.

They move together — more dark money drives the market higher. Much higher.

There are dark money charts from around the world, just like the one I showed you for the Federal Reserve and U.S. stock market.

Look at this “dark money” chart from Japan, for example:

The blue line shows the dark money created by their central bank, The Bank of Japan. The red line shows Japan’s major stock index, the Nikkei 225, going up as well. The dark money drove the market much higher over the past eight years.

Or, look at this “dark money” chart from the U.K.:

Again, the blue line shows the “dark money” created since 2009 by the U.K.’s central bank, The Bank of England. The red line shows how the FTSE 100, their stock index, has followed higher in lock-step.

To invest profitably in financial markets, you need to understand the hidden power relationships that drive financial and political events. Ideologies and personal associations among elites are oblivious to political party lines and international boundaries. So is dark money.

And So Begins The Rug-Yank Phase Of Fed Policy

Authored by MN Gordon via EconomicPrism.com,

The political differences of today’s leading two parties are not over ultimate questions of principles.  Rather, they’re over opposing answers to the question of how a goal can be achieved with the least sacrifice.  For lawmakers, the goal is to promise the populace something for nothing while pretending to make good on it.

Take the latest tax bill, for instance.  The GOP wants to tax less and spend more.  The Democrat party wants to tax more and spend even more.  We don’t recall seeing any proposals to tax less, spend less, and shrink the size of the state.  And why would we?

Today’s central planners and social engineers are enlightened and progressive.  They know much more about anything and everything than the rest of us.  In particular, they share a general sense that they know how to spend your money better than you.

At best, the central planners call your money to Washington so they can then distribute it back to your friends and neighbors.  In reality, the lawmakers call your money to Washington where they distribute it to their friends and neighbors – not yours.  This is not a matter of opinion.  It’s a matter of fact.

Is it a coincidence that the top three wealthiest counties in the country are in the shadow of the Capitol in the D.C. suburbs?  What it is exactly that the residents of these counties do that’s of tangible value is unclear.  However, what is clear is that bogus government jobs in Loudoun County and Fairfax County, Virginia, pay big bucks.  But that’s not all…

Garbage In Garbage Out

Further up the eastern seaboard, Wall Street has a good thing going too.  The big bankers and brokers make big bucks extracting capital from Main Street America.  That’s a fair characterization, right?

Perhaps the big bankers and brokers really are efficiently allocating capital to its highest and best use.  Who knows?  But as far as we can tell, they’re gambling with other people’s money – and collecting fees regardless of how their coin tosses fall.  It’s always, ‘heads I win, tails you lose.’  Not a bad fugazi gig, if you can get it.

Of course, the cornerstone of it all is the Federal Reserve.  Through what they call “open market operations,” the Fed rigs the game in Washington’s and Wall Street’s favor.  Indeed, the process is really quite elegant.

Under the smokescreen cover of garbage in economic data, the Fed’s economists produce garbage out bar charts and line graphs.  These, in short, are fabricated depictions of the economy’s growth, consumer and producer prices, personal consumption expenditures, unemployment rate, and whatever other aggregate metrics are deemed to be of vital importance.  What’s more, these fabricated depictions serve as the basis for the Fed’s monetary policy decisions.

Do the graphs show price inflation heating up or cooling down?  What about GDP or the unemployment rate?  Is one going up while the other’s going down?  Is one going down while the other’s going up?

The Federal Open Market Committee (FOMC) deliberates over these questions about every six weeks.  Then the Fed goes to work inflating the nation’s money supply, with the occasional rug yank, for the stated purpose of getting the charts and graphs to illustrate the garbage data to their liking.  What to make of it?

The Rug Yank Phase of Fed Policy

From the outside, the Fed’s economists and planners appear to be esteemed professionals, making decisions with the intent of providing for the greater good of the country.  They even attend economic conferences and forums where they present their latest research findings on abstract topics like liquidity traps.  Some of their studies even include footnotes, as if the professional economists are building upon a concrete knowledge base of human intellect.

Yet beneath this cover of bogus science, the real sausage is made.  Capital is borrowed into existence where it is directed to Washington and Wall Street.  There, having first dibs on this phony money, Washington and Wall Street get to spend it as if it has real value.

However, the real value does not coming from the Fed’s phony money.  In fact, as this new phony money appears on the scene, it extracts incremental wealth from the workers and producers across the country that – through their time, talent, and labor – created the wealth to begin with.

At the moment, we’re in the rug yank phase of the Fed’s monetary policy.  This is where they reel back credit ever so slightly after letting it run wild over the last decade.  This tightening of credit markets has the effect of pulling the rug out from under financial markets and the economy.

Monetary policy, without question, is not an exact science.  It’s rudimentary guess work that’s based on committee interpretations of bogus data.  This week, the FOMC raised the federal funds rate by 0.25 percent to between 1.25 and 1.5 percent.  This marks the third increase this year and the fifth increase this cycle.

Incidentally, Janet Yellen also delivered her last press conference as Chair of the Federal Reserve, though she’ll likely still Chair the FOMC meeting scheduled for late January.  Then Jay “Count Dracula” Powell will take over the helm of the nation’s central bank.  The broad expectation is for Powell to continue the rate increase playbook that Yellen has laid out, which includes three quarter percent hikes in 2018.

We wish Powell the best in his endeavors.  But we suspect he’ll unwittingly pull the rug out from under financial markets and the economy before he completes his first year.  After that, the fun really begins.

"You Grow Up Wanting To Be Luke Skywalker, Then Realize You"ve Become A Stormtrooper For The Empire"

Authored by US Army combat veteran Daniel Crimmins via Upriser.com,

You grew up wanting so bad to be Luke Skywalker, but you realize that you were basically a Stormtrooper, a faceless, nameless rifleman, carrying a spear for empire, and you start to accept the startlingly obvious truth that these are people like you.

Question: How do you Americans as a people walk around head held high, knowing that every few months your country is committing a 9/11 size atrocity to other people. Imagine if the 9/11 terror attacks were happening in America every few months. Again and again, innocent people dying all around you. Your brothers and sisters. For no reason.

Daniel Crimmins from U.S. Army 3rd Infantry Division answered:

Many of us are unable. Many of us watched 9/11, and accepted the government and media’s definition of the attack as a act of war rather than a criminal action. A smaller portion, drifting along passively thought a major war was coming, that people we knew were going to fight and die. Some of us maybe worried about our younger brother being drafted, despite being in college. Now, it seems stupid, but in the 72 hours after 9/11, some Americans, maybe suffering from depression, certainly with a mind shaped by comic books and action movies, ate up the “us vs. them” good vs. evil rhetoric spouted by the cowboy in chief. After all, he was the president, and no matter how bright you might think yourself, you can still be swayed by passion and emotion, led to terrible decisions.

Some of us, therefore, left our dorm rooms, and walked down Main Street to the recruiter’s office. Some of us were genuinely surprised the office wasn’t full to bursting of young men eager to avenge their fallen countrymen. Some of us were genuinely surprised when we had to push the recruiter to stop trying to sell desk jobs and just let us join the damn Infantry.

Image via Upriser.com

Some of us got enlisted, then, and went down to Georgia, head high to mask the anxiety and fear they might have helped. Perhaps some number of Americans in this situation discovered that maybe it hadn’t been the best idea, but would be goddamned if they were going to admit it, and let everyone back home smuggly remark on how right they were.

So they persevere. They learn to work as a unit, to look past personality issues, to see each other as Soldiers rather than as a race, or economic status, or any of the other things people hate about each other. They learn to kill.

Then some of these people, perhaps while sitting hungover in the platoon area in the Republic of Korea hear that we have invaded Iraq. They have “Big Scary Bombs”, and Saddam Hussein, the secular Arab dictator had somehow colluded with the devoutly religious Osama Bin Laden to attack the US. They hated our freedom, you see.

Then some of these young American men might transfer back to Georgia and be assigned to the 3rd Infantry Division, and end up in Iraq in January of 2005. And maybe these kids, still drunk on Fox News and fantasies of glory and renown being enough to win their ex-girlfriends back, are excited to go to Iraq. Sure, we hadn’t found any WMDs yet, and we had Hussein in custody, but they were still somehow a threat and had to be dragged kicking and screaming into Jeffersonian democracy. Inside every dirka is a good American, yearning to be free.

So you fight. You kill. Watch friends die. Its usually quick, almost never quiet, but for the rest of your life, when you remember sitting at the bar with them, they’re blown open. You picture the nights you spent downtown at Scruffy Murphy’s, but instead of the stupid hookah shell necklace, your boy’s jaw is blown off, and his left eye is ruined, and he’s screaming.

You fight, you kill, you watch friends die, and you notice a distinct lack of change. You kick in doors and tell terrified women to sit on the floor while you and your friends ransack their home, tearing the place apart, because they might be hiding weapons. There is no reason to believe this house in particular is enemy, same for the next one, and the one after that, or the seven before; they just happened to be there, and maybe they had weapons. Probably not, they almost never did. There were a few times when we had deliberate raids based on solid intel and we’d turn up some stuff, but generally we were just tossing houses because we could.

Then maybe your FISTer [field artillery forward observer] forgets to carry the remainder, and drops a mess of mortars on the village your supposed to protect. Maybe the big Iraqi running at you screaming was just mentally ill. Of course, you won’t know this until after you’ve put seven rounds through his rib cage, and his wailing, ancient mother is cradling his body, spitting at you.

Maybe when you get back to the FOB [Forward Operating Base], the Platoon Sergeant tells you you did the right thing; next time, it might be a suicide bomber. They tell you it was an honest mistake, it wasn’t your fault. They tell you to go get some chow, take a shower if the water works, and sleep it off. You did good work that day, apparently.

Chris Hondros" well-known "One Night in Tal Afar" photograph (Getty Images) showing the aftermath of a checkpoint shooting - Samar Hassan, 5, screams after her parents were killed after their car unwittingly approached a US Army checkpoint at dusk in Tal Afar, Iraq.

During chow, the TV is on AFN, and they are rebroadcasting some Fox News show, and you’re hearing about drone strikes, and all the great things we’re doing, and you can’t help but see that poor dumb assholes face, looking past his mother as he bleeds to death. He’s in pain, obviously, but he has the most perfectly confused look on his face. He doesn’t comprehend what’s happening. Little more hot sauce on your eggs doesn’t really help.

Then you realize you haven’t seen anything to support the idea that these poor fuckers are a threat to your home. You look around and you see all he contractors making six figure salaries to fix your shit, train Iraqis, maintain the ridiculous SUVs the KBR dicks ride around in. You consider the fact that every 25mm shell costs about forty bucks, and your company has been handing those fuckers out like shrapnel flavored parade candies. You think about all the fuel you’re going through, all the ammo and missiles and grenades. You think about every time you lose a vehicle, the Army buys a new one. Maybe you start to see a lot of people making a lot of money on huge amounts of human suffering.

Then you go on leave, and realize that Ayn Rand has no idea what the fuck she’s talking about. You realize that Fox News and Limbaugh and John McCain don’t respect you or your buddies. They don’t give a fuck if you get a parade or a box when you get home, you’re nothing to them but a prop.

Then you get out, and you hate the news. You hate the apathy, and you hate the murder being carried out in your name. You grew up wanting so bad to be Luke Skywalker, but you realize that you were basically a Stormtrooper, a faceless, nameless rifleman, carrying a spear for empire, and you start to accept the startlingly obvious truth that these are people like you.

Maybe your heart breaks a little every time some asshole brags about a “successful” drone strike.

Your statement is correct enough; if all of America was one dude, that dude would not give a shit about the little brown people we’re burning and crushing and choking to death. We aren’t all like that, but it makes me incredibly, profoundly sad to see what my country actually is.

Some of us care, and I think there are more every day.

"None Of The Problems Are Solved" Despite Global "Plunge Protection" Overnight

When many American traders went to bed last night, China was tumbling, the euro was in trouble, and US equity futures were notching lower. Then, as former fund manager Richard Breslow scoffs, it appears the world "reconsidered" and everything rallied to erase any sign of discontent or uncertainty by the time everyone woke up...

Via Bloomberg,

Apparently, the word of the day is “reconsider.”

Across a whole host of assets, we got somewhat violent moves early in the 24-hour trading cycle that managed to unwind themselves over the course of the day.

I kept being told that the euro, Chinese equities, U.S. equity futures, gold, bond yields, Eurostoxx 50, and so on, all reversed their opening, sometimes gap, moves after the market reconsidered what it all meant.

Of course, that’s being a bit too kind. It would be more accurate to say things turned around when traders actually considered things for the first time. But this all matters more than just a collection of knee-jerk reactions that have come to naught as another trading region came in.

 

North America isn’t being asked to break the tie and decide who was right. They are being told that they can afford to ignore the news that propelled things in the first place. After all, we’re right back where we started. No harm, no foul. That would be a mistake, as once again we keep muddling-up short-term and long-term information as if they should be discounted by the same rate and assuming we should trade without benefit of context.

 

 

Chinese equities opened lower leaving gaps from last Friday’s close.

 

 

Big swings: the Shenzhen dropped a quick 2.1% before staging a relentless rally throughout the day to finish up by 0.9%. No leap on the close, just a steady rally.

 

 

The commentary at the lows was as dire as the dismissive tone was at the close.

 

The PBOC proposed additional regulations to curb the run-away shadow banking industry. What was described in the morning as policies that would cause a flood of outflows from various short-term investments were later described as likely to attract foreign inflows. Wait, we’re not collapsing through the last lines of support any more? What a gift -- buy!

 

The message from this is that, once again, the PBOC is delivering on what they have warned about and promised to address. Perhaps instead of trying to deconstruct the “real” Chinese intentions based on outmoded epigrams, we should start to listen to what they’re actually saying. And accept that regulation isn’t bad by definition. Sometimes a healthier Main Street can actually be good for equities--the old-fashioned way. But it would be folly to decide these new regulations must not be all important because of the day’s price action.

 

European shares and the euro were hit early on the German coalition talks collapse.

 

 

What began as “markets are being roiled” quickly turned to markets “shrugged it off.” Hardly. They recovered on the very fortuitously timed announcement that Volkswagen was going to spend an additional EU25B over the next five years on its core brand. That’s hard and good news. May even help out with Germany’s hopelessly flat Phillips curve.

 

 

But don’t think, Chancellor Merkel on her back foot isn’t something with negative possibilities that make it foolish to dismiss. Just hard to enumerate the immediate implications.

As Breslow concludes, the mirage of markets" ignorance does not mean anything is solved.

Some of the other realities to keep factoring into your analysis and avoid being lulled into ignoring include:

• Brexit wasn’t solved because today’s headline was upbeat, it’s serial noise;


• you’ve no way of handicapping Nafta as each debating point is aired;


• no one has a firm handle on the Middle-East;


• and U.S. tax reform may end up just stoking the debate of whether a bad deal is better than no deal.

Don’t ever let someone tell you the really big news is the ones you can afford to ignore

And it appears we"re gonna need more "help"...

Osama Bin Laden’s Brother Arrested In Saudi Crackdown

Among the numerous high-profile figures arrested overnight in Saudi Arabia on “anti-corruption” charges, in addition to the shocking detention of prince Alwalaleed bin-Talal another unexpected name has emerged: that of Bakr bin Laden, chairman of Saudi Binladin Group and brother of Osama bin Laden. The Binladin Group is one of the biggest construction companies, with an annual turnover of $30 billion. It was carrying out the expansion of the Kaaba complex.

Bakr bin Laden

The family rejected al-Qaeda"s former leader, Osama Bin Ladin, because he was involved in terrorist activities in the 1990s. A quick primer on the Binladin Group from the WSJ:

Based in Jeddah and [ZH: formerly] favored by Saudi Arabia"s royal family, Saudi Binladin Group derives billions in annual revenue from a wide range of enterprises, including mosque construction, telecommunications and selling Snapple soft drinks in Saudi Arabia. Although the family"s U.S. spokesman says Saudi Binladin Group is wholly owned by the extended bin Laden family, not including Osama, he said he could provide no information on exactly which members have an equity interest in the company.

 

British paging company Multitone Electronics PLC said it was shocked to learn that its reseller in Saudi Arabia, Baud Telecommunications Ltd., is owned by the Binladin Group. "You"re joking," Chief Executive Michael Walker said. "Oh bloody! I didn"t know. I thought it was just Baud Telecom."

 

* * * 

 

The family has donated to colleges, Islamic organizations and other nonprofit causes in both England and the U.S. Abdullah, one of Mr. bin Laden"s brothers, received a master"s degree in law from Harvard Law School in 1992.

 

Two years later, on a fundraising trip to the Middle East, the law school"s dean made a pitch to another brother, Sheik Bakr Mohammed bin Laden, chairman of the family group. Bakr and the group subsequently donated $1 million to the law school, half for a visiting scholars program and half for financial aid for law students from the Muslim world. The family also gave $1 million to Harvard"s Graduate School of Design in 1993.

 

Robert Clark, the law school dean, said the gift was intended "to promote mutual understanding between scholars trained in Islamic legal systems and those trained in Western legal systems. We need that more than ever."

 

Still, outside the Arab world, the Binladin name has become an increasing liability. Until a year and a half ago, the group had a prominent storefront on the main street of Astana in the new Kazakhstan, with a contract to create the city"s master plan. Then, although the Kazak government believed the company"s assurances that it was not linked to Mr. bin Laden, President Nursultan Nazarbayev dropped the company just in case someone got the wrong idea, a government official said.

 

In 1999, the group changed the name of its telecommunications division from Binladin to Baud. John Dickson, a Baud manager, says the switch reflects a desire to choose a more modern name. Baud means distance in Arabic, and in English it is a measurement of speed.

As the WSJ concluded back in 2001, "In the Arab world the Binladin name is looked upon with "absolute reverence - like IBM."

Not any more, even though the reason why the Binladen chairman has fallen out of grace with the Saudi royalty has yet to be determined.

As a reminder, a total of eleven princes, four current ministers and dozens of former ministers were among those who were detained. A list of those detained includes:

• Bakr bin Laden, chairman of Saudi Binladin Group;


• Prince Alwaleed bin Talal, chairman of Kingdom Holding;


• Prince Miteb bin Abdullah, minister of the National Guard;


• Prince Turki bin Abdullah, former governor of Riyadh province;


• Khalid al-Tuwaijri, former chief of the Royal Court;


• Adel Fakeih, Minister of Economy and Planning;


• Ibrahim al-Assaf, former finance minister;


• Abdullah al-Sultan, commander of the Saudi navy;


• Mohammad al-Tobaishi, former head of protocol at the Royal Court;


• Amr al-Dabbagh, former governor of Saudi Arabian General Investment Authority;


• Alwaleed al-Ibrahim, owner of television network MBC;


• Khalid al-Mulheim, former director-general at Saudi Arabian Airlines;


• Saoud al-Daweesh , former chief executive of Saudi Telecom;


• Prince Turki bin Nasser, former head of the Presidency of Meteorology and Environment;


• Prince Fahad bin Abdullah bin Mohammad al-Saud, former deputy defence minister;


• Saleh Kamel, businessman;


• Mohammad al-Amoudi, businessman;

As reported overnight, many of the detainees were held at the opulent Ritz-Carlton hotel in the diplomatic quarter of Riyadh. The hotel’s exterior gate was shuttered on Sunday morning and guards turned away a Reuters reporter, saying it had been closed for security reasons though private cars and ambulances were seen entering through a rear entrance. Ironically, the hotel and an adjacent facility were the site of an international conference promoting Saudi Arabia as an investment destination just 10 days ago attended by at least one of those now being held for questioning.

People on Twitter applauded the arrests of certain ministers with some comparing them to Germany"s “the night of the long knives.” The arrest orders came from an anti-corruption committee just hours after the King Salman issued a Royal Decree to form the committee, which is headed by Crown Prince Mohammed bin Salman. The new body was given broad powers to investigate cases, issue arrest warrants and travel restrictions, and seize assets. “The homeland will not exist unless corruption is uprooted and the corrupt are held accountable,” the royal decree said.

As Reuters adds, the line between public funds and royal money is not always clear in Saudi Arabia, an absolute monarchy ruled by an Islamic system in which law is not systematically codified and no elected parliament exists. WikiLeaks has detailed the huge monthly stipends that every Saudi royal receives as well as various money-making schemes some have used to finance lavish lifestyles. In September the king announced that a ban on women driving would be lifted, while Prince Mohammed is trying to break decades of conservative tradition by promoting public entertainment and visits by foreign tourists.

Analysts say the arrests were another pre-emptive measure by the crown prince to remove powerful figures as he exerts control over the world’s leading oil exporter. Others have speculated that the move was a "countercoup" similar to that conducted in June by crown prince Mohammad bin Salman to cement his control on Saudi power.

The royal decree said the arrests were in response to “exploitation by some of the weak souls who have put their own interests above the public interest, in order to, illicitly, accrue money.”

The real reason behind the arrests: to shore up power, remove even more potential opponents and threats, all under the guise of cracking down on corruption, a page taken right out Xi Jinping playbook as he sought to - and eventually became last month"s - China"s quasi emperor.

The most recent crackdown breaks with the tradition of consensus within the ruling family, wrote James Dorsey, a senior fellow at Singapore’s S. Rajaratnam School of International Studies.

 

“Prince Mohammed, rather than forging alliances, is extending his iron grip to the ruling family, the military, and the National Guard to counter what appears to be more widespread opposition within the family as well as the military to his reforms and the Yemen war,” he said. Scholar Joseph Kechichian said the interests of the Al Saud, however, would remain protected.

 

“Both King Salman and heir apparent Mohammed bin Salman are fully committed to them. What they wish to instill, and seem determined to execute, is to modernize the ruling establishment, not just for the 2030 horizon but beyond it too,” he said.

Yet while Xi Jinping"s demi-god status is safe - at least until China"s middle class revolts - that of Mohammed bin Salman may be far more precarious in the coming weeks, especially if he overestimated his power and influence, and the two consecutive countercoups ultimately lead to precisely what he fears the most: a coup - either peaceful or not so much - that ultimately removes him from power.

The $2 Trillion Hole: "In 2019, Central Bank Liquidity Finally Turns Negative"

In all the euphoria over yesterday"s "dovish taper" by the ECB, markets appear to have forgotten one thing: the great Central Bank liquidity tide, which generated over $2 trillion in central bank purchasing power in 2017 alone - and which as Bank of America said last month is the only reason why stocks are at record highs, is now on its way out.

This was a point first made by Deutsche Bank"s Alan Ruskin two weeks ago, who looked at the collapse in global vol, and concluded that "as we look at what could shake the panoply of low vol forces, it is the thaw in Central Bank policy as they retreat from emergency measures that is potentially most intriguing/worrying. We are likely to be nearing a low point for major market bond and equity vol, and if the catalyst is policy it will likely come from positive volatility QE ‘flow effect’ being more powerful than the vol depressant ‘stock effect’. To twist a phrase from another well know Chicago economist: Vol may not always and everywhere be a monetary phenomena – but this is the first place to look for economic catalysts over the coming year."

He showed this great receding tide of liquidity in the following chart projecting central bank "flows" over the next two years, and which showed that "by the end of next year, the combined expansion of all the major Central Bank balance sheets will have collapsed from a 12 month growth rate of $2 trillion per annum to zero."

Shortly after, Fasanara Capital"s Francesco Filia used this core observation in his own bearish forecast, when he wrote that "the undoing of loose monetary policies (NIRP, ZIRP), and the transitioning from "Peak Quantitative Easing" to Quantitative Tightening, will create a liquidity withdrawal of over $1 trillion in 2018 alone. The reaction of the passive community will determine the speed of the adjustment in the pricing for both safe and risk assets."

Fast forward to today, when Bank of America"s Barnaby Martin is the latest analyst to pick up on this theme of great liquidity withdrawal.

Looking at (and past) the ECB"s announcement, Martin writes that "as expected, Mario Draghi took a knife to the ECB"s quantitative easing programme yesterday. From January 2018, monthly asset purchases will decline from €60bn to €30bn, and continue for another 9m (and remain open ended). The ECB now joins an array of central banks across the globe that are either shrinking their balance sheets or heavily scaling back bond buying."

So far so good, and in itself, this structural tightening when coupled with the open-ended nature of the ECB"s taper was ultimately perceived as very dovish for markets, sending not only the EUR plunging over 200 pips in the past 2 days, but sending Eurozone yields jumping, as the ECB telegraphed it was very much uncertain when, and if, it would truly be able to untangle itself from QE, especially since the ECB still can increase the 33% limit on bond purchases if needed be after 2018 to return back to a quantitative easing paradigm, one which may well include the direct purchase of equities and ETFs, as in the case of the SNB and BOJ.

Furthermore, as Martin adds, heading into the ECB decision "the market had a warm reception for yesterday"s big QE cut: 5yr bund yields declined 5bp, European equities finished the day up 1.3% and iTraxx credit spreads ended 2bp tighter. In fact, we think markets were very relaxed heading into yesterday"s landmark decision. Chart 2 shows that European rates volatility reached an all-time low of 33.2 towards the end of last week. Such was the market"s comfort with the notion that Draghi would offset the drop in QE with heavy doses of forward guidance…and he indeed delivered lots on this front yesterday"

However, as Ruskin and Filia warn, Martin underscores that it is the bigger point that is ignored by markets, namely that it is all about the "flow" of central bank purchases. And in this context, the BofA strategist warns that it will take just over a year before the global liquidity tide not only reaches zero, but turns negative... some time in early 2019.

Chart 1 shows year-over-year changes in global asset purchases by central banks (we also include China FX reserves here). Given this year"s slowdown in ECB and BoJ QE (the latter, in particular, is striking in USD terms), we are well past the peak in global asset buying by central banks. But with the Fed now embarking on balance sheet shrinkage, the start of 2019 should mark the point where year-over-year asset purchases finally turn negative - a trend change that will come after four straight years of expansion.

Still, despite virtually every strategist on Wall Street being familiar with this chart, few if any want to believe it. In fact, the favorable reception to what is fundamental a tightening shift by the ECB poses what Martin notes, is a the big risk to corporate bond markets, "for as long as the ECB"s message on rates is dovish, the incessant inflow story into European credit is unlikely to die. And big inflows mean "overwhelming" credit technicals would persist for the foreseeable future (see chart 3 below). Thus, credit bubbles become a legitimate risk down the line."

To be sure, there is just one event that could end this hypnotized paralysis: inflation, which however stubbornly refuses to emerge, which is why "the market seems to have dismissed the idea that inflation could surprise to the upside" However, "should it rise quicker than expected, we sense the dovish rhetoric from central banks would quickly change. And we believe that this may be all that"s needed to snuff out the great "reach for yield" trade that is currently gripping European corporate bonds."

And therein lies the rub: will inflation finally appear and prevent the world"s biggest asset bubble from becoming even bigger, or - as Eric Peters warned two weeks ago - will the "Nightmare Scenario" for the Fed emerge, and even as asset prices rise ever higher, inflation remains dormant:

If we don’t see a sustained cyclical jump in wages, then yields won’t go up. And if yields don’t go up, then the asset price ascent will accelerate... Which will lead us into a 2018 that looks like what we had expected out of 2017; a war against inequality, a battle for Main Street at the expense of Wall Street, an Occupy Silicon Valley movement. Then you’ll have this nightmare for the next Federal Reserve chief, because they’ll have to pop a bubble.

In conclusion, we go back to the person who first observed the dramatic shift in central bank flow, Citi"s Matt King, who had this to say:

To us, QE flows (i.e. marginal net purchases) rather than the stock of central bank holdings are the more important driver of asset prices. As we noted recently, if all major European investor types are already net selling or at least not buying € FI securities at prevailing market prices, then why should they stop or even start buying when the safety is withdrawn? Unless you have an emphatic answer, then with ECB QE falling by at least €500bn next year, according to our economists, and the Fed reducing its holdings of securities by almost $500bn at the same time, it would perhaps be best to tread cautiously.

Dow 500,000?

Authored by Lance Roberts via RealInvestmentAdvice.com,

I genuinely admire Morgan Housel. I think he is a brilliant and talented writer. However, he sent out a tweet on Friday that really struck a chord with me.

If you"re less than 50 years old and the market returns at least 5% a year on average the Dow will hit 100,000 in most of your lifetimes. Less than age 30, it"ll hit 500,000 for most of you. Enjoy the weekend.

— Morgan Housel (@morganhousel) October 20, 2017

It’s an innocuous tweet, meant with the best of intentions to leave you with a sense of optimism as you headed into your weekend.

I get it. Really.

As Bob Farrell once quipped:

“Bull markets are more fun than bear markets.” 

Bull markets also “sell” financial products, services, and offerings. Wall Street makes money selling products and services to “Main Street” who makes money with higher prices. Financial media makes money as advertisers market their “wares.” Being bullish also gets views, likes, comments, and shares. Bull markets thrive when “greed” erases the memories of previous “bear market” losses.

As Gordon Gecko said:

“Greed is good.” 

The problem with being “bullish all the time” is that it is also very dangerous.

This is particularly the case in late-stage “bull markets,” where poor investment decisions, and excessive portfolio “risk,” are masked by seemingly ever-rising prices. Previously bad investment ideas, products, and strategies tend to resurface in a different form or package. Investment strategies like “buy and hold” and “dollar cost averaging” become popular even though they are absolutely guaranteed to leave you well short of your financial objectives in the future.

So, what does this have to do with Morgan’s tweet?

It has everything to do with one of my “pet peeves,” and the biggest fallacy pushed by Wall Street today – “compound returns.”

Markets Don’t Compound

Morgan states that in 30-years, if the Dow grows at just 5% annually, it will hit 500,000. However, if the Dow actually compounded returns at 5%, in the future, as Morgan suggests, it would have done so in the past and would ALREADY be at 500,000. 

But it’s not. We are just stuck here at a crappy ole’ 23,000.

There is a huge difference between compound returns and average returns. The historical return of the markets since 1900, including dividends, has averaged a much higher rate of return than just 5% annually. Therefore, the Dow should actually be much closer to 1,000,000 than just 500,000.

But it’s not.

Nope…we are just hanging out way down here at 23,000.

Why? Because crashes matter. This is particularly the case when it comes to your financial goals and investing time horizons.

Think about it this way.

If “buy and hold” investing worked the way that it is preached, then why are the financial statistics of 80% of Americans so poor?

The three biggest factors are: 

1. Destruction of capital;


2. Lack of savings, and;


3. Time.

While lost capital gain be regained, the time lost “getting back to even,” cannot be. Unfortunately, we don’t live forever, and time is our ultimate enemy. This is also, after two major bear markets, the majority of “boomers” are simply unprepared financially for retirement. 

It is also the reason why we are facing a massive “pension crisis” in the not so distant future as capital destruction, low contribution rates, and over-estimation of returns has led to massive shortfalls to meet required distributions in the future.

Who wouldn’t love a world where everyone just invests some money, the markets rise 6% annually and everyone one’s a winner. 

Unfortunately, there is a vast difference between an “index” which benefits from share buybacks, substitutions, and market capitalization weighting versus a portfolio invested in actual dollars. The chart below shows the S&P 500 index (nominal since that is the way it is primarily discussed) versus the actual, inflation-adjusted value, of a $100,000 investment and compared to the 6% annual return rate promised by Wall Street.

See the problem? People 30-years ago who were hoping to retire, simply can’t. It will likely be the case for individuals today looking to retire 30-years from now.

With markets now back to the second highest level of valuations on record, forward returns over the next 10-years are going to be substantially lower than they have been over the past 10-years.

That isn’t being bearish. That is just math.

Dr. John Hussman previously wrote the most salient point on this topic.

“Put simply, most apparent ‘opportunities’ to obtain investment returns above zero in conventional assets over the coming decade are based on a misunderstanding of valuations, total returns, and historical yield relationships. At current valuations, virtually everything is priced for a decade of zero.” 

Throughout history, bull market cycles are only one-half of the “full market” cycle. This is because during every “bull market” cycle the markets, and economy, build up excesses which are “reverted” during the following “bear market.”

As Sir Issac Newton once stated:

“What goes up, must come down.” 

Looking beyond the very short-term overly optimistic view of “this time is different,” the coming unwinding of current speculative extremes will occur with the completion of the current market cycle. As I noted in this past weekend’s missive:

“Also, when we look at 20-year trailing returns, there is sufficient historical evidence to suggest total, real returns, will decline towards zero over the next 3-years from 7% annualized currently. 

(These are trailing 20-year total real returns, not forward)”

“Re-read that last sentence again and look closely at the chart above. From current valuation levels, the annualized return on stocks by the end of the current 20-year cycle will be close to 0%. A decline in the next 3-years of only 30%, the average drawdown during a recession, will achieve that goal.”

The second-half of this current cycle will begin likely sooner, rather than later. As stated, it is a function of time (length of market cycles), math (valuations) and physics (price deviations for long-term means.)

I am not bullish or bearish.

My job as a portfolio manager is simple; invest money in a manner that creates returns on a short-term basis while reducing the possibility of catastrophic losses over the long-term.

While “bulls have more fun” while markets are rising, both “bulls” and “bears” are owned by the “broken clock” syndrome during the completion of the full-market cycle.

The biggest secret in achieving long-term investment success is not necessarily being “right” during the first half of the cycle, but by not being “wrong” during the second half.

It’s okay to be “always be bullish” with your attitude, just not with your money.

Janet Yellen's 78-Month Plan For The National Monetary Policy Of The United States

Authored by Economic Prism"s MN Gordon via Acting-Man.com,

Past the Point of No Return

Adventures in depravity are nearly always confronted with the unpleasant reality that stopping the degeneracy is much more difficult than starting it.  This realization, and the unsettling feeling that comes with it, usually surfaces just after passing the point of no return.  That’s when the cucumber has pickled over and the prospect of turning back is no longer an option.

Depravity and bedlam through the ages. The blue barge of perdition in the lower middle ferries the depraved and degenerate to their final destination, a small slice of which can be glimpsed above… [PT]

In late November 2008, Federal Reserve Chairman Ben Bernanke put in place a fait accompli.  But he didn’t recognize it at the time.  For he was blinded by his myopic prejudices.

Bernanke, a self-fancied Great Depression history buff with the highest academic credentials, gazed back 80 years, observed several credit market parallels, and then made a preconceived diagnosis.  After that, he picked up his copy of A Monetary History of the United States by Milton Friedman and Anna Schwartz, turned to the chapter on the Great Depression, and got to work expanding the Fed’s balance sheet.

Now here is something all those “Great Depression experts” always neglect to mention: the Fed’s holdings of government securities expanded my more than 400% between late 1929 and early 1933. Friedman’s often repeated assertion that the Fed “didn’t pump enough” in the early 1930s – which is held up as the gospel truth by nearly everyone – is simply untrue. It is true that the money supply collapsed anyway – but not because the Fed didn’t try to pump it up. Many contingent circumstances mitigated against money supply expansion: too many banks went bankrupt, taking all their uncovered deposit money to money heaven, as there was no FDIC insurance; only 50% of all banks were even members of the Federal Reserve system; no-one wanted to borrow or lend in view of the massive economic contraction and the Hoover administration’s ill-conceived interventionism. We can also tentatively conclude that the economy’s pool of real funding was under great pressure, which was exacerbated as a result of the trade war triggered by the protectionist Smoot-Hawley tariff enacted in June 1930. The collapse in international trade and investment meant that the pool of savings of the rest of the globe was no longer accessible. [PT]

Bernanke’s dirty deed commenced with the purchase of $600 billion in mortgage-backed securities, using digital monetary credits conjured up from thin air.  By March 2009, he’d run up the Fed’s balance sheet from $900 billion to $1.75 trillion.  Then, over the next five years, he ballooned it out to $4.5 trillion.

All the while, Bernanke flattered his ego with platitudes that he was preventing Great Depression II.  Did it ever occur to him he was merely postponing a much-needed financial liquidation and rebalancing?  Did he comprehend that his actions were distorting the economy further and setting it up for an even greater bust?

US broad true money supply TMS-2 and assets held by the Federal Reserve… and the perpetrator seen through the lens of various observers. [PT] – click to enlarge.

 

Normalization Principles and Plans

Perhaps Bernanke understood exactly what he was doing.  As many readers have insisted over the years, the Fed works for the big banks and big money interests.  Not Main Street. Regardless, the Fed recognizes that the optics of its $4.5 trillion balance sheet have become a bit skewed.  The Great Recession officially ended over eight years ago.  Why is the Fed’s balance sheet still extremely bloated?

On Wednesday, Fed Chair Janet Yellen attempted to clarify what the Fed is going to do about it.  Following the two day Federal Open Market Committee meeting, the Fed issued its customary statement.  Therein, it mentioned that balance sheet normalization would be initiated in October.  The referenced implementation note offered details on how the Fed will go about contracting its balance sheet:

“Effective in October 2017, the Committee directs the [Open Market] Desk to roll over at auction the amount of principal payments from the Federal Reserve’s holdings of Treasury securities maturing during each calendar month that exceeds $6 billion, and to reinvest in agency mortgage-backed securities the amount of principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities received during each calendar month that exceeds $4 billion.”

Ms. Yellen mentioned that the run-down of the balance sheet was going to be akin to “watching paint dry” – this is certainly true, considering its current size of around $4.5 trillion and the relatively small initial monthly drawdowns of $10 billion. But reductions by $50 billion per month are quite sizable and the markets are very likely to anticipate the effects at some point. In other words, this exercise in quantitative tightening could get a lot more exciting rather sooner than expected. [PT]

Moreover, if we correctly interpreted the Fed’s June 2017 Addendum to the Policy Normalization Principles and Plans, the Fed plans to increase this initial $10 billion balance sheet contraction every three months by increments of $10 billion until they reach $50 billion per month.  Then they’ll let it ride until they’re back to normal; though, it is unclear what the Fed believes normal is.  What to make of it?

Janet Yellen’s 78-Month Plan for the National Monetary Policy of the United States

By our back of the napkin calculation, starting with October’s initial $10 billion reduction, then incrementally increasing the reduction by $10 billion each quarter until hitting $50 billion per month, and then contracting by $50 billion a month from there, it will take 78-months for the Fed to get its balance sheet back to $900 billion (i.e., where it was before Bernanke’s act of depravity).  Thus, in roughly six and a half years, or in March 2024, monetary policy will be back to normal.

If you recall, the Soviets operated under five-year plans for the development of the national economy of the USSR.  Now, Yellen, an ardent central planner and control freak, has charted the Fed’s 78-month plan for the national monetary policy of the United States.  Have you ever heard of something so ridiculous?

However, while the Soviets were zealous believers in their plans, we suspect the Fed will be as committed to the cause as a fat person to a New Year’s Day diet.  In truth, the Fed will never, ever reduce its balance sheet to $900 billion.  They won’t even get close; they are well past the point of no return.

In the early 1930s the Soviet planners under Stalin had a great idea: why not fulfill the 5 year plan in four years? This showed that nothing was impossible for the “new Soviet man” and two plus two was henceforth five. As Marxists will explain, this is in perfect keeping with the rules of polylogism. Even the laws of mathematics must bend to proletarian logic. [PT]

For starters, financial markets will not allow the Fed to execute its 78-month tightening program according to plan.  At some point, credit markets will have a severe reaction.  This would ripple through stock markets and nearly all assets that are propped up by cheap credit.

What’s more, if this doesn’t panic the Fed from its master 78-month monetary policy plan, the economy will.  No doubt, at some point within the next 78-months the U.S. economy will shrink.  What will the Fed do then? Will they continue to tighten in the face of a contracting economy?

Guess who’s lying in wait… it will be found out that a creature long held to be extinct was merely hibernating in its cave, sharpening its claws. [PT]

No way.  They will ease, and then they will ease some more.  They won’t stop until it is near impossible for an honest person to work hard, save their money, and pay their way in life. Many fine fellows were already pickled over by the Fed in the last easing cycle and lost their way. More are bound to follow.

Eric Peters:"From Here Do You Want To Remain Long Crap? And Short Quality?"

It is Sunday which means Eric Peters, the CIO of One River Asset Management, has published his latest weekly assortment of anecdotes and vignettes selected from the life of a hedge fund manager (always in the 3rd person), which today focuses on the quandary facing the Fed (hiking rates hurts Wall Street, but does it help Main Street?), portfolio positioning (does mean-reversion spell the end of the two best trades of the year, long EM and equities), trapped central banks and the Stockholm Syndrome (the inability by Sweden and ECB to tighten even as they forecast economic growth) and China"s ongoing nationalization of its financial system. In a subsequent post we will also present his 4 anecdotes on the life of a CIO from the perspective of everyday events.

So without further ado, here is Eric Peters with his latest weekend notes.

Real Wealth:

“The irony is that the people who are least sensitive to interest rates are the most affected by low interest rates,” said the CIO. “In most cycles, the collapse in interest rates would have sparked a massive real estate cycle, driven particularly by those who need loans.” But not this time.

“The real activity has been in places like NYC where people are least in need of mortgages.” But their wealth has exploded indirectly through low rates via the rise in asset prices. “I wouldn’t bank on that lasting for much longer, though I’m not sure what’s next.” 

“The real economy hasn’t gotten over-leveraged as a result of low rates,” continued the same CIO. “But the financial economy sure has.” Corporate debt issuance, share buybacks, financial engineering of all stripes. “But what is the Fed going to do? Hike rates to hurt rich people?” he asked.

“Maybe that helps restore a sense of social fairness over a 20yr timeframe, but I’m not sure that it helps anyone in the near-term.” He fired up his Ferrari, heading to the Hamptons. “High rates hurt Wall Street, but how do they help Main Street?”

Old Dogs:

“Examine portfolios that have worked,” said the CIO. “And then mean-revert them to see how they make you feel.” Dogs of the Dow was a well-known example of a mean-reversion system. “Long emerging markets and long equities are the portfolios that have worked this year.” Short bonds and long dollars are the 2017 losers. “So do you still want to be long EM and equities from here? And do you want to be short bonds and long dollars?” Sometimes it’s helpful to look at the world simply. “From here, do you want to remain long crap? And short quality?” 

Stockholm Syndrome:

Sweden’s central bankers left overnight rates at -0.50% and forecast no hikes until Q3 2018. They did, however, lift 2017 GDP forecasts +1.0 to +3.2% and 2018 GDP +0.3 to +2.7%. Industrial production is surging +5.3% annually, and services output is rising +4.1%. Inflation is right on target at 2%. The economy is booming. Real rates are deeply negative, in desperate need of normalization.

But you see, European central bankers have set overnight rates at -0.40%. And the Swedes are hostage to fears of a strong krona.

Big Brother:

“China completely renationalized its financial system,” said the CIO. “They turned their backs on markets.” For a time, the PBOC had come to accept the West’s belief in the wisdom of free markets. No more. “They closed their capital account and have no plans to even reconsider the decision until 2020.” Perhaps much later.

“Allowing markets to determine exchange rates and interest rates is not part of Chinese culture.” No nation in Asia really believes in free floating financial markets.

“They can continue running this game until they open up.”

It's Can-Kicking Time Again In The Imperial City

Authored by David Stockman via The Daily Reckoning,

You have to hand it to the Donald. He speaks his mind. This week he dropped an unwelcome stink bomb on Capitol Hill during his Phoenix rant Tuesday night. If Mexico won’t pay for my wall, he seemed to say, than Congress will—-even if I have to shutdown the Imperial City to extract the first $1.6 billion of seed money:

“We’re going to get our wall,” Mr. Trump said at a rally in Phoenix. “If we have to close down our government, we’re building that wall.”

The Mexican Wall waste an estimated $20 billion needed to complete, and would place ICE agents at the border handing out guest worker papers to anyone who comes across looking for a job. That would mean more domestic production and tax revenue, and a tad less addition to the crushing national debt that Washington is handing generations to come.

It didn’t take long for Washington’s permanent political class to say “no dice” to the shutdown idea. It seems Speaker Paul Ryan has been domiciled in the Imperial City since he was 21 years old and makes no bones about his priorities.

“I don’t think anyone’s interested in having a shutdown,” House Speaker Paul Ryan said at a stop at an Intel Corp. facility in Oregon on Wednesday…….

Mr.. Ryan said he expected lawmakers would need to pass a short-term spending bill in September to give them more time to work out a broader budget agreement later this year.

What has the GOP Congress been doing the last nine months that it hasn’t enacted into law a single one of the 12 annual appropriations bills? The same bills that would provide upwards of $1.1 trillion to run the Pentagon and the domestic agencies.

The answer is simple. They’ve been deliberately burning up the clock in order to force spending measures through as emergency continuing resolutions (CRs) or 11th hour compromises to keep the government open. This has been going on for years.  It is the very reason Washington now stands on the edge of raising the national debt ceiling above $20 trillion.

So we’ve officially entered the kick-the-can season. You can count on Paul Ryan to spin and misdirect in order to obfuscate what’s actually going on. The House Speaker is about to capitulate again to the nation’s fiscal doomsday machine. Expect clever maneuvers designed to hide the truth through yet another election cycle.

That’s exactly what Ryan did back during the 2013 shutdown crisiswhen he negotiated a sell-out deal with ultra-liberal Dem Senator Murray to keep the government open through the 2014 election.

In that case, he agreed with Sen. Murray to bust the sequesters caps by $64 billion over FY2014-2015.

Per the typical routine, Ryan got $32 billionon top of the $1.01 trillion already slated to be wasted by the Pentagon during that two year period, while Murray got $32 billion more (a 3.5% increase ) to sprinkle across a myriad of domestic social programs. At the end, all parties were praised by the beltway lobbies.

Likewise, Ryan’s first act as Speaker after succeeding John Boehner following the shutdown crisis of 2015was to pass the Boehner-Obama deal that suspended the national debt limit and empowered the Obama Treasury to borrow at will.

That it did!

As of October 1, 2015, the net debt of the US was $17.66 trillion. After the Ryan-enacted debt limit suspension expired on March 15, 2017, the net debt soared to $19.82 trillion.

Paul Ryan and Continuing Resolutions in the Imperial City

This time, Speaker Ryan is going to need to deploy his best tricks to avoid a giant fiscal mishap. That’s because the White House is occupied by the Great Disrupter. By the looks of Trump’s Twitter account he’s still capable of unleashing the kind of impulsive curve ball that the Imperial City simply cannot anticipate.

Having already complicated the appropriations and CR, the Donald piled on more by suggesting GOP leadership had already screwed up raising the debt ceiling during the few days available when Congress returns from August recess.

Opined the Donald,

I requested that Mitch M & Paul R tie the Debt Ceiling legislation into the popular V.A. Bill (which just passed) for easy approval. They……didn’t do it so now we have a big deal with Dems holding them up (as usual) on Debt Ceiling approval. Could have been so easy—–now a mess!

Here’s the thing. Trump is 70 years old and has spent just eight months in the Imperial City, or about 1.0%of his life. Ryan and McConnell are collectively 122years old and have been playing their trades in the Great Swamp for 82collective years, or two-thirdsof their lives.

The rank and file Republicans on Capitol Hill desperately fear being blamed for a shutdown. They have bound themselves as hostage to both the Fiscal Doomsday machine and the main street media’s need to safeguard Uncle Sam’s credit at all costs.

CNN talking boxes would have a field day excoriating the GOP for shutting down the government. Now that the GOP allegedly controls the White House and both chambers of Congress the situation is even more muddled. Thus, as one member of the Freedom Caucus opined to the Wall Street Journal,

“A government shutdown hurts Republicans—it’s the last thing I want,” said Rep. Trent Franks (R., Ariz.), a member of the House Freedom Caucus who was at Mr. Trump’s rally Tuesday. “It is a political liability of profound significance to us.”

Many GOP lawmakers worry a shutdown or a failure to raise the government’s borrowing limit—another deadline they are facing this fall—could harm their chances of retaining the House majority in next year’s midterm elections. Treasury officials have said Congress must raise the government’s borrowing limit at some point near the end of September.

The real aim is herding legislators into the Christmas holiday. In that circumstance, as has been proven over and over in the past, not even the most resolute hawks have been able to stand by their convictions. The mantra always becomes “on to next year for real reform!”

Goldman Sachs, Debt Ceilings and Can Kicking

But perhaps this time it will be even worse. The Goldman Sachs Regency in the White House would readily sign up for the skinny bill and three-month punt. They are flat-out desperate to keep the casino at bay and the stock average from plunging.

Assuming that the Donald doesn’t blow-up the proceedings on a skinny bill, the maneuvering for a December deadline would be where the rubber could finally meet the road. That’s because there would need to be at least a $1.5 trillion debtceiling increase just to make it to December 2018 under current tax and spending policy.

The Treasury will need to borrow $500 billionor more to replenish its depleted cash balances and to pay back the funds which allowed it to pay the bills since March 15. The Treasury will be running upwards of an $800 billionannualized cash deficit between now and December 2018.

Even with a $1.5 trillion interim debt ceiling increase, there still wouldn’t be room for a single dime of tax cuts on top of the red ink that is already baked in. When it comes to Wall Street’s hope that Congress will pass a tax bill before the end of the year, or the next election – fuggedaboutit!

There’s no way to get a big enough debt ceiling increase to accommodate the current structural deficits and the Trump Stimulus, without major help from the Democrats.

The can kicking season is once again here, and this one will be like no other.