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Former Mob Boss Warns Of Stock Market Crash: “I Don’t Trust Wall Street… Buy Gold And Silver” / Mac Slavo / August 21st, 2014

If you want to know how crooks behave and what you can do to protect yourself, why not ask a former mob boss?

Michael Franzese was once a captain in the Colombo crime family and generated tens of millions of dollars for his bosses with a scheme that involved skimming gas taxes from the state of New York. He was so successful, in fact, that he was perceived as a threat to the family and almost had his wings clipped by the higher ups. Shortly thereafter Franzese walked away from the mob, a move that eventually led to a contract being put out on his life by his very own father.

Today Franzese is a motivational speaker and author. He remains one of the top money producers in mafia history and his insights into how crooks and scammers in high level positions operate may save you a whole lot of money and heartache.

According to Franzese, Wall Street can’t be trusted and he would never invest his money with a well dressed fast talking stock broker. Moreover, Franzese believes that the stock market is in a massive bubble that will soon collapse and he offers up some advice for those who want to protect their wealth from being vaporized overnight.

In his book I’ll Make You An Offer You Can’t Refuse, Franzese gives some advice on how to run a successful business and shares two key investment tips. First, stay out of the stock market. Second, buy gold and silver.


Ukraine Issues Statement On “Illegal” Entry By Russian Convoy, Warns Of “Planned Provocation” / by Tyler Durden / 08/22/2014 09:49

Because the comedy never ends. Btw, how is that “evidence” of a destroyed Russian convoy coming along… or the MH-17 ATC tapes? Any minute now?

From the Ukraine Ministry of Foreign Affairs:

Statement of the MFA of Ukraine in connection with illegal crossing of the state border of Ukraine by the Russian convoy

On August, 22 Russia began smuggling humanitarian aid to Ukraine, ignoring established international rules, procedures and agreements, without the consent and escort of the International Committee of the Red Cross.

Although the border and customs services of Ukraine have already started clearance of the Russian convoy, in the morning Ukrainian officials were blocked by the Russian forces and detached from the inspection of the rest of the trucks in the column, despite previous agreements and the fact that they had been invited to the territory of Russia. We are concerned about the safety of our employees. Moreover, deep concern is raised because so far neither Ukrainian side nor the ICRC are aware of the content of the cargo.


Market Report: Summer drift continues / By Alasdair Macleod / 22 August 2014

Gold drifted lower this week, with the price undermined by lack of interest on low volume and a slightly more hawkish tone in the FOMC minutes released on Wednesday. The chart below, of gold and open interest on Comex, shows how the price has declined while open interest has hardly budged from its historically low level.

The underlying factor has been dollar strength rather than gold’s weakness. Since last Friday the dollar has risen nearly 1% against the euro and pound and 1½% against the yen; so a 2% fall for gold against the dollar is not a big deal. Furthermore oil prices have fallen this week with US crude down nearly 2%.

The dollar’s strength was fuelled by the FOMC’s minutes, which recognise that the improvement in the labour market has been somewhat better than expected. Even though the Committee downgraded its expectations for GDP growth slightly, analysts view the improvement in unemployment numbers as more important. Sterling had been benefiting recently from the same story until Mark Carney at the BoE seized upon the fall in average earnings cum-bonuses as an excuse to defuse expectations of an early rise in interest rates.


Real Homes of Genius: A search for small homes in Culver City. High prices for 700 and 800 square feet of stucco box joy. / Dr. Housing Bubble / 21 Aug, 2014

Southern California is truly a unique place. Once the family planning part of life takes place, people go into house lusting mode overdrive. The Viagra of house hunting is all those remodeling and house flipping shows. I’m sure many of you saw a recent study that showed the cost of raising one child to be somewhere close to $250,000. This is important because many people are paying sky-high housing costs to own a home in areas with crappy or mediocre schools. They will need to send their kids to private school if they want to provide them an education that a $700,000 crap shack would entail. Maybe they’ll take a class on economic history and how following the herd is rarely a sound foundation. Also, with the cost of attending college setting new records, what will it cost when those young kids of today go to college in 17 or 18 years? They rarely factor in these future costs when they purchase a home. Why think about that when squeezing every last nickel into a mortgage payment is the dream of many SoCal residents? Screw retirement planning or focusing on the true cost of raising a family, the ultimate goal is own that prime location home. You better make sure you have extra room for when those kids boomerang back onto your Taco Tuesdays and Karaoke Fridays. Set a nice seat and plate for the Fancy Feast weekends. Let us go shopping for some homes in Culver City!

The small and the restless

I love it when I post some of the current examples of homes in Southern California and get e-mails from folks outside of the region. “Are you people insane?” or “I can’t believe people are willing to pay this price for THAT!” But people do. Boom and bust folks. The past never happened. Those millions that got screwed in the last bust are like the failed Hollywood movie of yesterday. People are eager to be part of this new Blockbuster! Of course the housing market has slowed down and sales are dropping while prices are stagnating during the hot and steamy summer months.


JPM’s Three Scenarios Of How The Ukraine Conflict Plays Out / by Tyler Durden / 08/22/2014 09:34

With USDJPY algos, and thus the S&P, reacting as if stung like bees by every fabricated headline emerging out of Ukraine (only to reverse the move promptly after once the market realizes the biggest war in Ukraine continues to be one of disinformation), there appears to be far more confusion about how the Ukraine conflict will play out than what the Fed will do (recall that everyone is certain today Yellen will release even more dovishness). So to help out with the confusion here are three scenarios and trades from JPM, on how the Ukraine conflict may play out, if only in capital markets.

  The market continues to be headline driven, with frequent surprises, since the onset of the Ukrainian crisis in March, yet the signs of de-escalation are emerging more frequently. We try to address the “what’s next and what to do” among investors’ FAQs. The effect of the crisis and sanctions becomes clearer through performance comparisons for Russia vs. EMs with more granularities provided through the industrial sector indices’ comps. Not surprisingly, the biggest damage can be seen in Energy and Financials, as both have some major names already sanctioned. These remain in a risk zone, yet it’s fair to assume that the de-escalation would warrant a symmetrical recovery trade. We assess the potential scenarios and strategies here.

When ‘Anti-Government’ Violence Erupts, Who Is Really At Fault? / Brandon Smith / 22 August 2014 02:26 

This past week, I have been examining a recently leaked document from the Department Of Homeland Security entitled “Domestic Violent Extremists Pose A Threat To Government Officials And Law Enforcement.” (Yes; the title leaves nothing to the imagination.)

Generally, such documents are not classified. But it is internally accepted within establishment agencies that they should not be shared with the public. Similar documents like the Missouri Information Analysis Center report titled “The Modern Militia Movement” and the Virginia Fusion Center’s Terrorism Threat Assessment are not designed to import in-depth knowledge to law enforcement. In fact, if you actually investigate these white papers thoroughly, you will find they read like a mentally challenged middle-school student’s last-minute book report on liberty groups in America.

Rather than convey the complexity of the conflict between federal bureaucracy and constitutionalists, the papers linked above are meant to indoctrinate law enforcement officials against even considering what we have to say or why we take the actions we take.

Often, the Southern Poverty Law Center, a shameless propaganda outlet known for its Saul Alinsky tactics, is tapped as the primary source of “data” for these reports. At no time have I ever seen a government report on “domestic extremism” accusing liberty activists that actually allows a subset of the liberty movement to personally describe our position.

Often, the DHS will claim to LEOs that there is a “disparity in our beliefs that makes us unpredictable” or that they do not have a full understanding of our motivations during a particular event. The confrontation at Cliven Bundy’s ranch was the latest shock, after which federal officials acted as though the standoff attitude of armed liberty activists was incomprehensible.
The reality is that establishment cronies know all too well why Americans are angered to the point of taking up arms.


Ira Epstein’s Gold Report / By Ira Epstein, The Linn Group / 22 August 2014

A positive for gold is that China just allowed three more banks, including a foreign lender, to import gold into China. This is yet another sign that China, the world’s largest gold buyer, is getting very serious about making Shanghai a gold trading hub. Fifteen banks are now licensed to import gold into China. Licensing does not mean the banks have to import at this moment. They will begin to import when gold demand picks up. What’s important is that this is a very important step being made my China to make it a very important player both in determining gold fix prices and in trade.

Gold hasn’t moved much since my last report. Silver and copper have been the movers, but mainly to the downside. Gold has not been able to hold gains provided by the Ukrainian or Israeli world conflicts. The next event gold traders will be looking at are statements out of Jackson Hole, Wyoming where Central Bankers meet starting now. Analysts will be looking at the speeches Central Bankers make to get an idea about where in the interest rate cycle each banker is.  We’ve seen the Bank of England step back in terms of raising its interest rates. The “thought” was that the Bank of England would have been the first of the major Central Banks to begin the process of raising interest rates. The US might take over that role.

In my last Gold Report I stated and continue to state that a higher trend is at hand in the Dollar. Investors who dumped their currency in favor of owning gold which is priced in Dollars have been able to avoid some of the decline they’d have felt if they just held their currency. An added bonus to them would have been if gold had rallied, but it hasn’t.


Roundup Of Key Research Papers At Jackson Hole / by Tyler Durden / 08/22/2014 09:12

With all eyes and ears firmly focused Janet Yellen’s opening oratory this morning (due at 10ET), the contents of the rest of the conference appear to have been forgotten (and yet in the past have been among the most crucial to comprehend central banks’ actions after the fact – forward guidance and QE for 2). As Bloomberg BusinessWeek reportsrobots don’t steal jobs, the U.S. labor market is less flexible than it was, and workers haven’t suffered unprecedented periods out of work (and rehiring odds are the same as always), are among the conclusions of key papers being presented at the symposium, along with (unsurprisingly) findings that policymakers would benefit from a better understanding of labor market dynamics. The following is a brief review of their contents…

Robots and computers don’t steal as many jobs as some believe, and automation actually benefits many workersMassachusetts Institute of Technology Professor David Autor said in his paper.

A key reason humans aren’t obsolete yet is that simple tasks such as visually identifying a chair, which any child can do, aren’t so easy for engineers to teach to computers, Autor said.

Journalists and expert commentators overstate the extent of machine substitution for human labor and ignore the strong complementarities that increase productivity, raise earnings, and augment demand for skilled labor,” he wrote. “Challenges to substituting machines for workers in tasks requiring flexibility, judgment, and common sense remain immense.”


Out With the Old – In With the Same / Dr. Jeffrey Lewis  / Aug 21, 2014

The further markets become detached from reality, the greater the need for distraction. Justice is displaced by a rash of propaganda. The methods may be absurd, but they are effective.

Over the summer, the big news in the world of silver has been the official end to the old (London fix) and the beginning of the new (electronic) fixing.

It has been a very slow and uneventful beginning to say the least. Confusion over who would ultimately participate culminated in a great distraction from what truly ails price discovery in the silver market.

The London fix was archaic.

It was an obscure old men’s pricing club that became obsolete as the COMEX came to full fruition under guidance of the CME.

COMEX remains the real center of corruption. From New York – via Washington, D.C. Essentially, the fix narrative forms a layer of protection around the COMEX and CME. These are the two entities that no one will touch outside of the blog fringe.

It’s like all serious discussions involving economic indicators. Without acknowledging that the measuring stick is broken, there really isn’t anything to discuss.


SCO and Mackinder’s prophecy / By Alasdair Macleod / 22 August 2014

There will be a defining geopolitical event next month when India, Pakistan, Iran and Mongolia become full members of the Shanghai Cooperation Organisation (SCO). This will increase the population of SCO members to an estimated 3.05 billion. We should care about this because it is the intention of the SCO to do away with the US dollar for trade settlement.

The nations joining in September are currently designated as Observer States and the only one left will be Afghanistan, which will presumably join when it can untie itself from NATO. Dialog Partners, defined as states which share the goals and principals of the SCO and wish to develop mutually beneficial relations, include Belarus Sri Lanka and Turkey. Turkey is of special interest because it has been a long-standing NATO member. It had hoped to join the EU but it became clear that this was never going to happen. Instead under the leadership of Recep Erdoğan Turkey is moving towards the SCO.

Erdoğan was re-elected earlier this month by a comfortable majority and it will be interesting to see how quickly Turkey’s new alignment evolves. Erdoğan must be aware that Asia is on the up while the EU declines, in which case Turkey as a front-line state is better off joining the SCO.


Jackson Hole: Myth of the All Powerful Central Banker Continues / By Mark O’Byrne / 22 August 2014

Myth of the All Powerful Central Banker Continues In Jackson Hole  
The myth of the all powerful central banker continues in Jackson Hole today.

Markets wait with bated breath for Fed Chair Janet Yellen’s and ECB Mario Draghi’s speeches at the annual gathering of central bankers in Jackson Hole, Wyoming later today.

Market participants are focussed again on the short term and the silly ‘will she, won’t she?’ debate regarding Bernanke’s successor Yellen at the Jackson Hole symposium.

Yellen will likely obfuscate and not give clear guidance regarding monetary policy as Bernanke and Greenspan were past masters at.

We believe that further QE and money printing remains very likely given the poor structural state of the U.S. economy. We advise investors to fade out the short term noise emanating from Jackson Hole and from assorted policy makers on both sides of the Atlantic and focus on the reality that further monetary easing and currency debasement will continue for the foreseeable future.


Dour Comments By China’s Leading Supply Chain Manager Reinforce Citi’s View For €1 Trillion ECB QE / by Tyler Durden / 08/22/2014 08:52 -0400

While the US Q2 earnings season is now largely in the history books, an interesting place to get some additional commentary on the world economy is none other than China’s leading global sourcing/supply-chain management firm Li & Fung, which “supplies high-volume, time-sensitive consumer goods from an extensive global network of suppliers and distributors”, which had some interesting comments on the current state of global economic developments.

Here is the summary of their latest results commentary from Deutsche Bank:

 Li & Fung’s latest results yesterday offered some interesting anecdotes. The company’s performance for the first 6 months was hampered by ongoing macroeconomic weakness, geopolitical and weather events in its key destination markets (US and Europe). Price discounting remains a theme in US retail even beyond the end of June. The company also noted a reduction of foreign tourist flow by Russian tourists into Europe which is affecting retail markets there. This fits consistently well with some of the ECB’s geopolitical concerns outlined at its previous policy meeting.


3 Reasons why gold is set to rally / Dave in Denver / August 22, 2014 at 07:30

In recent months there has been renewed investor interest in gold, with the first half of 2014 seeing the gold price rise by 10 per cent.

Investors have also tempered their gold ETF selling year on year. Last year saw global gold ETF holdings decline by 33 per cent as investors priced in tapering of QE and higher interest rates, but this year has seen a change in sentiment as year-to-date ETF holdings have only declined by 1.8 per cent.

Performance of indices in the first half of 2014

Source: FE Analytics

We believe that three primary factors are likely to generate further interest in gold from investors, and subsequently gold ETF inflows, driving the gold price higher: 

1. Inflation potentially entering the system 

Inflation has long been suggested as a potential consequence of unprecedented money creation by the world’s central banks over the last few years. There are signs that it may slowly be emerging in 2014. 

US inflation data for May 2014 showed a 0.4 per cent month-on-month increase in consumer prices, which was twice as large as the consensus forecast of 0.2 per cent, and it pushed the annual inflation rate up to 2.1 from 2.0 per cent in April.


We Are Just Beginning To Experience A Global Hyperinflation / August 22, 2014

Today a 42-year market veteran warned King World News that we are just at the beginning stages of a global hyperinflation.  Below is what Egon von Greyerz, founder of Matterhorn Asset Management out of Switzerland, had to say in this fascinating interview.

Greyerz:  “Eric, markets are behaving exactly as one would expect at the end of a major economic era.  That is, markets are totally divorced from the reality of what is going on both economically and geopolitically.  Markets are now in a manic phase, driven by false hope and momentum….


Central Banking at Jackson Hole: Simplistic Dialectic, Significant Ramifications / By Staff News & Analysis / August 22, 2014

Janet Yellen Takes On Jackson Hole … The economic-policy debate in the U.S. is moving from, “Why is the recovery so sluggish?” to “Is inflation starting to get out of hand?” This shift is premature, to say the least. Federal Reserve Chair Janet Yellen should say so Friday when she addresses the annual summer confab of central bankers in Jackson Hole, Wyoming. – Bloomberg editorial

Dominant Social Theme: The question that cries out for an answer is whether Janet Yellen should raise rates.

Free-Market Analysis: Like Reuters, Bloomberg is a creature of the establishment and you can read Bloomberg editorials (especially) to garner an inkling about how we ought to be perceiving one of the most important dominant social themes of all: Central banking and the endlessly discussed deployment of its monetary arsenal.

In this case, as before – and as we have maintained – central bankers meeting this weekend at Jackson Hole will palaver earnestly but come up with reasons why monetary policy and interest rates should remain fairly “unchanged.”

Such a decision will be debated endlessly and reported earnestly. In fact, the amount of ink devoted to whether central bankers should raise interest rates or not is truly staggering. And it is not by accident. The simplistic conversation is meant to suck up all the oxygen in the room.

In this case, as before – and as we have maintained – central bankers meeting this weekend at Jackson Hole will palaver earnestly but come up with reasons why monetary policy and interest rates should remain fairly “unchanged.”

Such a decision will be debated endlessly and reported earnestly. In fact, the amount of ink devoted to whether central bankers should raise interest rates or not is truly staggering. And it is not by accident. The simplistic conversation is meant to suck up all the oxygen in the room.

By discussing the “rate question” along with other central bank issues, we inevitably cease to discuss the one REAL issue, which is why central banks exist at all and why central bankers ought to be stopped from manipulating money with endless monetary “tools.”

This Bloomberg editorial, however, is a perfect example of how to retain the dialectic at full force. There is no question as to whether a group of good gray men should have the power to move markets. The question is only how should they do so.


You Can’t Run an Economy with Spreadsheets / by Nicolás Cachanosky / Friday, August 22, 2014 

Argentina’s economic minister, Axel Kicillof, has become famous for his assertion that it is possible to centrally manage the economy now because we have spreadsheets such as Microsoft Excel. This assertion comes from the mistaken view that the cost of production determines final prices, and it reveals a profound misunderstanding of the market process. This issue, however, is not new. The first half of the twentieth century witnessed the debate over economic calculation under socialism. Apparently, Argentine officials have much to learn from this old debate. The problem is not whether or not we have powerful spreadsheets at our disposal; the problem is the impossibility of successfully creating a centrally-planned market.

At the turn of the century Ludwig von Mises, Max Weber, and Boris Brutzkus independently offered critiques on the socialist commonwealth, understood to be a society where there is no privately-held means of production. Mises was simple and direct. Unlike families or small tribes, where there is intimate knowledge among members, a large society requires prices to organize efficiently. The socialists, argues Mises, are quick to point out market failures, but are silent on how to efficiently organize the socialist commonwealth without the existence of prices. Marx, who does not offer an explanation of how socialism would work once capitalism withers away, calls the socialists (i.e., Saint-Simon and Fourier), who do describe the resulting socialist community, “utopians.” Without economic calculation to reveal which activities add value to society (profits) and which do not (losses), it is an illusion to assume that efficiency would just happen. Arguments other than economic calculation can be put forward as a principle to organize society, but the question of how economic efficiency is achieved remains unanswered.


A Perilous Derivatives-Berg / Pater Tenebrarum / August 22, 2014

Derivatives and the Credit Bubble

In principle, there is absolutely nothing wrong with derivatives. They serve a valuable function, by transferring risk from those who don’t want to be exposed to it to those who are willing to take risk on in their stead for a fee. However, since the adoption of the pure fiat money system, credit growth has literally gone “parabolic” all over the world. This growth in outstanding credit has been spurred on by interest rates that have been declining for more than three decades.

Larger and larger borrowings have become feasible as the cost of credit has fallen, and this has in turn spawned an unprecedented boom in financial engineering.

When critics mentioned in the past that this had created systemic dangers, their  objections were always waved away with two main arguments: firstly, the amount of net derivatives exposure is only a fraction of the outstanding gross amounts, as so many contracts are netted out (i.e., things are not as bad as they look). Secondly, the system had proven resilient whenever financial system stresses occurred. Perhaps not as resilient as it seemed, considering that these crises as a rule required heavy central bank interventions and/or bailouts in various shapes and forms. Would the system have been as resilient if those had not occurred? We have some doubts with regard to that


Russia Busts European Sanctioned-Fruit Smuggling Ring / by Tyler Durden / 08/22/2014 08:15 -0400

Just days after Russia banned the import of various foods from sanctions-supporting nations, VZ reports Russia’s food safety ministry Rosselhoznadzor has discovered fruit being smuggled in via Belarus that was restamped as being from Zimbabwe and various other non-sanctioned nations. It appears the smuggling nation culprits are Poland, Slovenia, and Greece and Russia is now “actively monitoring the situation,” suggesting they may extend import bans to Belarus also if the situation continues. In addition, Rosselhoznadzor intends in the future to move to a system of electronic certification of goods in transit.

As VZ reports (via Google Translate),

 Rosselhoznadzor for a few days gave delivery to Russia via Belarus parties apples, peaches, plums, tomatoes without specifying the country of origin or an indication of permitted Turkey, Serbia, Macedonia, and a number of African countries, including Zimbabwe. However, phytosanitary documents of origin have not been parties or they caused suspicion among Russian inspectors. During the inspection it was found that fruits and vegetables imported from Poland, Slovenia, the Netherlands, Lithuania and some other EU countries, he continued. A number of parties had no permits phytosanitary documents Belarus.

“Some EU countries have started to send products to Belarus, without specifying the actual country of origin. and we found that it is Poland and Greece, because there is no evidence of Macedonian origin”, – he said, reports ITAR-TASS .


Dow Searching For Secondary Top / Austin Galt / August 21, 2014

The Dow continues its tremendous rally from recent lows. I have stated before that it is my opinion that this is a bear market rally. Has anything happened to change that opinion? Nope, but I’ve sure got a good case of the heebie-jeebies! Let’s revise the charts to see why.


What a rally! One last hurrah for the bulls perhaps? I think so, but it’s cutting it close. I have added Fibonacci retracement levels of the move down from all time highs to the recent low. While I expected a deep retracement, I didn’t think it would get this high. I was targeting the 76.4% level at 16958 and I positioned myself accordingly. Then price just seemed to take that level in its stride. I’m generally not a day trader but I was left with no option here. A nice little sell low, buy high action. As Homer Simpson would say, “Doh!”.


The WGC’s Gold Supply-Demand Nonsense / Pater Tenebrarum / August 22, 2014

WGC Continues Not to Understand Gold Market

The WSJ recently reported on the latest gold supply-demand report issued by the World Gold Council. It isn’t really a surprise to us, but it is nevertheless astonishing that an organization that is supposedly focused on gold can get the market’s most fundamental aspects so utterly wrong. The WSJ article is entitled Global Gold Demand Down 16%”.That sounds like a lot, right? Here are excerpts from the article:

“Global demand for gold slumped in the second quarter as Chinese and Indian buying returned to more stable levels following a record-breaking quarter a year earlier, the World Gold Council said Thursday.

“This is a gold market that is returning to balance,” Marcus Grubb, managing director of investment strategy at the World Gold Council said in an interview. “These figures reflect the exceptional quarter that was second quarter last year where we had large outflows in exchange-traded funds on the one hand and a very significant increase in physical buying on the other.”


China and India, which together account around half of global gold demand, purchased 193 tons and 204 tons of gold, respectively, in the second quarter—a sharp drop from a year earlier.


Total demand for gold was 964 metric tons in April to June, down 16% compared with 1,148 tons during the same period in 2013, the industry body said in a quarterly report. Demand for gold used in jewelry dropped by almost a third to 510 tons in the second quarter, from a year before.

The World Gold Council expects India to buy between 850 and 900 tons of gold this year, down from 975 tons last year. China is expected to buy between 900 and 1,000 tons, down from the record 1,275 tons of demand last year.

Central banks, meanwhile, bought up a net 118 tons of gold in the second quarter, a 28% jump from the year before. The main buyers were the central banks of Russia and Kazakhstan, reflecting the appetite of emerging-market countries for a hedge against dollar exposure in their reserves.

After the sharp selling in the second quarter of 2013, investments in the latest quarter rose by 4% in the three months through June, to 235 tons, reflecting more stable demand for exchange-traded funds, the WGC said.

“Investors are now comfortable owning gold again in the form of ETFs and we’ve seen a very significant stabilization,” said Mr. Grubb.

Overall supply of gold to the market—including mine supply, recycling and producer hedging—rose 10% in the second quarter to 1,078 tons, while mine production rose 4% to 765 tons, according to the WGC.


Gold retests a support level. Silver remains above its major lateral support – via StockCharts

Why the Fed Must Taper / CHARLES HUGH SMITH / THURSDAY, AUGUST 21, 2014

The Fed is being forced to end its bond-buying, cutting off the “free money for financiers” that has sustained a frothy stock market.

While the Federal Reserve presents itself as free to do whatever it pleases whenever it pleases, the reality is the Fed’s own policies are constraining its choices. Take the taper of U.S. Treasury bond purchases–the heart of quantitative easing (a.k.a. QE or more accurately free money for financiers).
The Fed has been creating money out of thin air, a.k.a. printing money, and using this new money to buy Treasury bonds.You probably know how this works:the U.S. government runs a deficit, as it spends more than it collects in tax revenues. This deficit is funded by the sale of Treasury bonds.
As the Federal deficit shrank, the Fed upped its bond-buying program (QE). As a result, the Fed was buying more bonds than the Treasury was issuing.This graph from from the excellent charting site Market Daily Briefing plots the Fed’s bond-buying (printing) and the Federal deficit (issuance ofnew bonds, which is different from rolling over the existing debt as bonds mature and must be replaced with new bonds).


Short Note Ahead of the Double Feature from Jackson Hole / by Marc Chandler / August 22, 2014

There is one focus today, and it is Yellen and Draghi’s speeches at Jackson Hole. Ahead of it, the markets lack fresh inspiration.  The US dollar has been confined to about a third of a big figure against the major currencies.
Asian equities managed to close marginally firmer, with the MSCI Asia Pacific Index gaining about 0.35%.  European bourses have found little succor in the new record high for the S&P 500, or the lower bond yields. The Dow Jones Stoxx 600 is off about a 0.25%, led by utilities and energy, but all sectors are lower.  Benchmark 10-year yields are 1-3 bp lower across the board today, which means that US Treasuries are slipping back below the 2.40% mark.
The hawkish read of the FOMC minutes and comments by hawks yesterday at Jackson Hole, but also in the media are not representative of the FOMC that identified significant under-utilization of the labor market. Plosser, who dissented at the July meeting, over forward guidance rather than advocating an immediate rate hike,  expressed concern that the Fed is falling behind the curve.    Hawkish members of the FOMC have been saying things like this for some time but have been unable to sway others.


What is Behind the Inequality Promotion? / Pater Tenebrarum / August 22, 2014

A Reader’s Take on Piketty – Belmont Boy Unconvinced

One of our regular readers who is occasionally in e-mail contact with us, recently informed us that a friend of his, who is currently off to fight forest fires somewhere in California (this explains the reference to smoke you will encounter further below), breathlessly regaled him with praise for the neo-Marxist theses of Mr. Piketty.  Our reader, who goes by the handle of “Belmont Boy” dutifully started to read Piketty’s tome, so as to be able to provide informed comment. Below you find his initial impression, which essentially refers only to the book’s introductory section. We have highlighted a few passages of his commentary we believe are especially noteworthy:

“God, this guy is wordy. I’m still plodding through his intro. His premise is that unequal wealth distribution should be the focus of economic analysis. Why? Because people tend to be envious? Why shouldn’t “growth” be the center? He talks about growth as if it just happens, with no acknowledgment that the industrial revolution could not have taken place without an accumulation and concentration of capital.

Of course it took time for wages to catch up: capital kept getting reinvested, and the result was the production of goods on a massive enough scale that “the masses” came to benefit. Good thing there was no onerous taxation of capital back then. It would have only served to constrain growth. Good thing no governmental central planners directed the allocation of capital. Cronies, to be sure, would have prospered…at the cost of lower growth yet.

Myself: I think it’s rather nice that in the “developed” world, at least, virtually everyone has electricity, clean water, indoor plumbing, phones, cars, and gadgets galore. It wasn’t long ago that even kings had none of that. So what if some contemporary megalomaniacal a**holes have eleven houses, eight yachts, and three airplanes?

If he’s so concerned about income inequality, he should examine why government functionaries (and academic economists) make so much more than people in a vast array of jobs who, unlike them, produce useful goods and/or provide manifestly worthwhile services.

If he did bother to examine that, he would discover the cause is extraction of wealth from the productive sector of the economy (via taxation and inflation) and its reallocation by Our Betters to activities, and to other Betters, with utter disregard for the fact that said reallocation only squanders capital. While it buys votes, of course, for those of Our Betters known as politicians.

It’s a curious thing: the most “unequal” distribution of wealth has always seemed to take place where there is the greatest centralized concentration of power. And it’s curious that, in such places, aggregate wealth, even where it once amounted to a lot, ends up amounting to not-so-much.

How can you expect me to take seriously a guy who misunderstands so fundamentally, he can write: “The price system plays a key role in coordinating the activities of millions of individuals…”? There is no “price system.” Prices are nothing but manifestations of the choices made by millions of individuals, who may often prefer not to “coordinate” their activities at all. That is what prices are, and it is all they are. Except when agents of centralized power, legitimized and facilitated by hyper-miseducated fools who concoct absurd concepts (like “price systems”) which invite coercion, invoke those concepts to justify their manipulation of prices and imposition of costs on people who would like to think they are free.

I shall look forward to arguing with you soon in person. Preferably about something other than the cockamamie ideas of Monsieur P. Meanwhile, may all that smoke around you blow elsewhere, may your air be clear and sweet.”


Sir John James Cowperthwaite, financial secretary of Hong Kong from 17 April 1961 – 30 June 1971. He was one of a kind.

(Photo via / Author unknown)

Futures Tread Water As Ukraine Tries To Steal The Jackson Hole Scene / by Tyler Durden / 08/22/2014 07:15 -0400

While today’s key events were supposed to be the Jackson speeches first by Janet Yellen at 10:00am Eastern and then by Mario Draghi at 2:30 pm, Ukraine quickly managed to steal the spotlight yet again when moments after the first Russian humanitarian aid convoys entered Ukraine allegedly without permission, Kiev first accused Russia of staging a direct invasion, even if moments later it changed its tune and said it had allowed the convoy in to “avoid provocations.” In other words, your daily dose of Ukraine disinformation, which initially managed to push futures down some 0.3% before futs regained virtually all losses on the subsequent clarifications. Expect much more conflicting, confusing and very provocative headlines out of Kiev as the local government and the CIA try to get their story straight.

In terms of overnight markets, Asian equities and credits are mostly firmer ahead of Jackson Hole. The Shanghai Composite ad HSCEI indices are both around 0.2% as they recover somewhat from yesterday’s disappointing flash manufacturing PMI. Chinese stocks are poised to close higher for the 6th consecutive week in what would be its longest streak since March 2012. Elsewhere in Asia the Nikkei is flat on the day while the Hang Seng and the KOSPI are +0.4% and +0.5%, respectively. Turning to credit, Asian IG cash continues to grind tighter amid very light supply. Key benchmarks are about 1bps tighter as we type. The UST 10-year yields are a touch firmer at 2.40% while the Dollar index is unchanged.

After initially opening flat, European equities drifted slightly lower ahead of the US crossover on position squaring ahead of Fed Chair Yellen’s appearance at Jackson Hole. The financials sector is slightly supporting the indices as European bank stocks look forward to ECB’s Draghi speech in Wyoming, expected to stress the broad divergence in monetary policy between the US and the Eurozone. Vodafone (+1.1%) shares traded in minor positive territory this morning after AT&T bid chatter was recycled in UK press. US stock futures trade relatively flat ahead of the open, with record highs still well within reach. In pre-market news, Apple (AAPL) are reportedly suffering from supply chain issues, with the drive for a thinner iPhone model is causing backlight issues, with the supply chain source remaining unsure on whether this could delay release.

There is nothing of note on today’s US econ release docket: it will be a very quiet day for data which sets up the spotlight nicely for Yellen and friends at Jackson Hole.


U.S. Mint Platinum Coins Bypassed in Rush For Gold / Ed Steer / August 22, 2014


Well, JPMorgan et al, backed by their HFT specialists, were a force to be reckoned with right from the 6:00 p.m. EDT open on Wednesday evening in New York.  The low tick came about twenty minutes before the Comex close on Thursday afternoon—and the subsequent rally made it until 3:40 p.m. EDT before running into the algorithms once again.

The high and lows ticks were reported by the CME Group as $1,292.00 and $1,273.40 in the December contract.

Gold finished the Thursday trading session at $1,276.30 spot, down $15.10 from Wednesday’s close.  Net volume was pretty decent at 136,000 contracts.


40822 – CDC Buried Vaccine Data

HyperReportPublished on Aug 22, 2014

Russian Humanitarian Convoy Enters Ukraine Without Authorization; Ukraine Considers Move “Direct Invasion” / by Tyler Durden / 08/22/2014 06:42 -0400

Update: the farce is complete, although at least this time it didn’t take Ukraine several hours to fabricate then unfabricate its plot line, because literally minutes after it accused Russia of invading, Ukraine’s foreign minister said the convoy was “allowed” to avoid provocations. He added that the rebel militants are using mortars on the convoy route and that it had taken all necessary steps to ensure cargo safety but that Russia wouldn’t discuss security for the convoy.  Nonetheless it still accused Russia’s convoy of breaking international law and said that convoy would go to separatists, not civilians, and called on its “international partners” (we suppose it means the CIA here, which apparently is feeding it this ridiculous script) to condemn the Russian convoy.

From Bloomberg:





Is the Shiller P/E Broken? / Chris Hunter / August 22, 2014

Is the Shiller P/E Broken?

By Chris Hunter, editorial director Bonner & Partners 

One of the water-cooler conversations at Bonner & Partners is whether the Shiller P/E – the valuation ratio popularized by Yale economist Robert Shiller – is worth a damn. If you’re not already familiar with the Shiller P/E, here’s a quick introduction…

The standard price-to-earnings ratio looks at a company’s share price compared to its per-share earnings. And it either looks at per-share earnings from the last four quarters (known as the trailing P/E)… or from the expected per-share earnings for the next four quarters (known as the forward or projected P/E).

The Shiller P/E works a little differently. Instead of dividing stock prices by per-share earnings over the preceding 12 months… or using per-share earnings estimates for the next 12 months… it divides stock prices by the inflation-adjusted earnings over the preceding 10 years.

According to Shiller, his measure (also known as the CAPE, which stands for “Cyclically Adjusted Price-Earnings”):

“…does so to help minimize effects of business-cycle fluctuations, and it’s helpful in comparing valuations over long horizons.”


ISIS Imminent Threat, Militarized Police in Ferguson MO, Ukraine Crisis Update and More

Greg HunterPublished on Aug 21, 2014

ISIS update, militarized police – plus the West is still inching towards war with Russia. The building of a new natural gas pipeline through Bulgaria has been stopped for the second time this week. Nearly 200 troops and a dozen NATO F-15 fighter jets are also going to Bulgaria for more war games. Meanwhile, Germany’s Leader, Angela Merkel, is saying that NATO will defend the Baltic States, if needed.

Well, it looks like ISIS (also known as ISIL) went from “JV” (as the President said earlier this year) to a full blown global terror problem in a short amount of time. Secretary of Defense Chuck Hagel said that ISIS poses an “imminent threat” to the world. Hagel also said, “This is way beyond anything we have seen. We must prepare for everything. Get Ready!”

The Ferguson, Missouri, shooting case could end up being a long drawn out case where we find out the officer was justified in shooting the victim. That’s not the real take away here. It’s the militarization of the police. Multiply Ferguson by police departments across the nation. The Federal Government is responsible for this militarization because they have supplied the military vehicles and arms.

If QE Is Ending Because It Was So Successful, Then Here Are A Few Simple Questions / by Tyler Durden on 08/21/2014 18:25

Several very simple questions from Guy Haselmann of Scotiabank:

If QE is ending because it was so successful, then why is aggressive forward guidance necessary? If QE worked so well, then why will Yellen likely need to mention ‘the elevated number of part time workers’, ‘under-utilization of labor resources’ or ‘room for improvement in the labor market’? In regard to its inflation mandate, there is no evidence that QE has had any impact other than causing asset price inflation.

Central bankers and academics have propagated QE as an elixir for all economic ailments. Eurozone economic stagnation has now unleashed vociferous calls from proselytized market pundits that it is the ECB’s turn to administer QE medicine. Shouldn’t the lack of success at achieving the desired results in the US and Japan have curtailed such hasty Pavlovian responses?