New World Disorder: Emerging Division Between East And West Threatens To Plunge The Globe Into Chaos
by ilene - July 23rd, 2014 8:59 pm
New World Disorder: Emerging Division Between East And West Threatens To Plunge The Globe Into Chaos
Courtesy of Michael Snyder, the Economic Collapse
In general, over the last several decades the world has experienced an unprecedented era of peace and prosperity. The opening up of relations with China and the "end of the Cold War" resulted in an extended period of cooperation between east and west that was truly unique in the annals of history.
But things are shifting. The civil war in Ukraine and the crash of MH17 have created an enormous amount of tension between the United States and Russia, and many analysts believe that relations between the two superpowers are now even worse than they were during the end of the Cold War era. In addition, the indictment of five PLA officers for cyber espionage and sharp disagreements over China's territorial claims in the South China Sea (among other issues) have caused U.S. relations with China to dip to their lowest point since at least 1989. So could the emerging division between the east and the west ultimately plunge us into a period of global chaos? And what would that mean for the world economy?
For as long as most Americans can remember, the U.S. dollar and the U.S. financial system have been overwhelmingly dominant. But now the powers of the east appear to be determined to break this monopoly. Four of the BRICS nations (China, Russia, India and Brazil) are on the list of the top ten biggest economies on the planet, and they are starting to make moves to become much less dependent on the U.S.-centered financial system of the western world. For example, just last week the BRICS nations established two new institutions which are intended to be alternatives to the World Bank and the IMF…
So in their summit, from July 14 to 16, the five BRICS announced two major initiatives aimed squarely at increasing their power in global finance. They announced the launch of the New Development Bank, headquartered in Shanghai, that will offer financing for development projects in the emerging world. The bank will act as an alternative to the Washington, D.C.—based World Bank. The BRICS also formed what they’re calling a Contingent Reserve Arrangement, a series
by ilene - July 23rd, 2014 7:13 pm
Courtesy of David Stockman
The 2008 Wall Street meltdown is long forgotten, having been washed away by a tsunami of central bank liquidity. Indeed, the S&P closed yesterday at 1,983—or up by nearly 200% from its March 2009 low. Yet four cardinal measures of Main Street economic health convey nothing like a 2X pick-up from the post-crisis bottom.
To wit, in June the count of breadwinner jobs was 68.5 million or 5% below were it stood as the crisis got underway. Likewise, business investment in real plant and equipment is still 5% below its late 2007 peak. So too with the real median family income at about $53k—its still down by 6%. And unlike past cycles where safety net programs like food stamps shed recipients as the recovery gained momentum, there are still nearly 47 million Americans in the program compared to 30 million in March 2009.
This juxtaposition has been explained away by Wall Street stock touts under the heading that “this time is different”. Markets have allegedly sprung loose from their moorings in the real economy owing to record corporate profits and an upward re-rating of PE multiples reflecting lower than historical interest rates. And, indeed, the raw facts can be marshaled to this end.
As shown in the stunning chart below, profits have doubled as a share of corporate net value added since the turn of the century. Likewise, when measured against GDP, profits are at 60-year highs.
This is just the trouble, however. The robust rate of profit growth during recent years reflects a one-time gain in the profit share of factor income. This gain in all probability cannot be replicated again during the next decade, and, in fact, is extremely vulnerable to the mean reversion so evident in the historical data above. Indeed, that may have already begun during the first quarter of 2014 when the profit share dropped sharply as shown in both charts above.
The same can be said of low interest rates. After an unprecedented 33-year descent, the yield on the 10-year treasury benchmark has nowhere
by ilene - July 23rd, 2014 6:06 pm
Courtesy of Bill Bonner
US stocks dropped on Thursday, after news broke that someone shot down a Malaysian passenger airplane over eastern Ukraine. Then came the report that Israel had ordered a ground assault on Gaza. The Dow lost 161 points. Gold shot up $17 an ounce.
This comes only days after the Princess of Peace, Janet Yellen, assured investors that most stocks were fairly priced. We don’t doubt that she was right. Prices are set by willing buyers and sellers, operating on the basis of what they know at the time.
What they knew on Wednesday was that Yellen had their backs. Thursday, they weren’t so sure. Friday’s another matter …
Swinging Both Ways
Fair – in the context of market prices – has nothing to do with it. Mr. Market goeth whither he wouldst… given the facts on the ground and the theories in the air. The important questions: Does Mr. Market intend to take prices down now? Can Yellen manipulate them higher faster than he can push them down?
Helpful as always, we have no answer to either question. Instead, we have something more important to tell you. It’s an instinct, an intuition and an observation: Prices always go both ways.
No, we are not revealing any deep market secret. Nor any special insight into the world’s crises. We are just observing that trouble comes when it is needed. Markets can’t go in only one direction forever. Sooner or later, they need a reason to turn around.
Here’s another important insight: The longer the trouble is held off, the more trouble there is waiting to express itself. US stock prices and corporate earnings are near all-time highs. Those two facts seem to click. But they warn us too: Lows follow highs.
At highs it always seems like it cannot go down – and then it does – click to enlarge.
A Crowded Theater
Debt is at all time highs, too. And the cost of capital – expressed as
by ilene - July 23rd, 2014 5:56 pm
Courtesy of Pater Tenebrarum, Acting-Man
Property Rights of Money Market Fund Investors Are Weakened
Here is one more reason (as if one was needed …) why one should hold physical gold outside of the system for insurance purposes. We already briefly alluded to the new rules that are mulled with respect to bond funds, but it seems that they are now implemented for money market funds first.
U.S. regulators are expected to adopt rules on Wednesday that force "prime" money market funds used by large institutions to float their share price. Proponents have suggested that moving from the current stable $1 per share net asset value (NAV) to a floating NAV would help prevent investors from getting spooked by the prospect of funds "breaking the buck," or falling lower than that amount.
The Securities and Exchange Commission is also likely to finalize a second provision that will permit fund boards to lower so-called redemption "gates" or charge fees in stressed market conditions, according to people familiar with the matter.
The reform will impact a wide variety of asset managers, from Blackrock Inc, Fidelity and Vanguard to Charles Schwab Corp, Pimco and Federated Investors Inc. The two-pronged reform for the $2.6 trillion industry comes after a long battle between the SEC, the
by ilene - July 23rd, 2014 4:08 pm
Courtesy of Zero Hedge
There is no better way to describe what the recently departed CFTC commissioner Scott O'Malia just did when he bailed from the commodity watchdog to become the new head of the International Swaps and Derivatives Association, aka ISDA, the biggest banking group that has constantly opposed every intervention and attempt to regulate the swaps market by the CFTC since the Lehman crisis, than an epic farce.
For those who are unaware ISDA is a global OTC derivative lobby group, counting the world's largest investment banks among its members, and has frequently fought regulatory efforts to reform the market after the financial crisis. ISDA itself was exposed as a complete joke during the European crisis when due to the overhang of avoiding Europe's insolvent reality, it made CDS protection obsolete as protection from sovereign restructurings and credit events, in the process crushing one of the key ways to hedge for credit event risk.
A member of the U.S. Commodity Futures Trading Commission will become the new head of a bank lobby group that is fighting the derivatives regulator in court over a crucial new rule curtailing Wall Street.
The International Swaps and Derivatives Association said on Wednesday that Scott O'Malia, a Republican who often voted against new CFTC policy in the wake of the financial crisis, will become the trade group's next chief executive.
O'Malia will start his new job as of Aug. 18, ISDA said. The news came only days after O'Malia said he planned to leave the CFTC as of Aug. 8.
ISDA is one of three banking groups that sued the CFTC in December, hoping to beat back tough trading guidelines for U.S. companies doing business overseas, which they fear could hurt markets and cut profits.
The two sides are set to face each other in a first hearing in a federal court in Washington next week.
Even an otherwise impartial Reuters appears outraged by this blatant and painfully clear example of government capture of "public servants" by those who have dangle carrots of money in exchange for lobby (and future employment promise) favors, and thus set the rules, courtesy of people like O'Malia.
The speed of O'Malia's move, and ISDA's high profile, made the
by ilene - July 22nd, 2014 7:10 pm
Courtesy of Tim Richards of the PsyFi Blog
Homo sapiens is the storytelling ape. We make sense of the things that happen in the world, of the things that happen to us, and even of ourselves, through stories and narratives. Consciousness is perhaps best defined as the stories we tell of ourselves as coherent individuals passing through time.
So it's not surprising that we're inclined to favor people who tell stories over those who crunch data. Words are human, numbers – somehow – are not. But the real stories lie in the numbers and, in investment, people who tell stories without the numbers are mystics and shamans, or worse.
by ilene - July 22nd, 2014 7:04 pm
Israel’s Prime Minister Benjamin Netanyahu summed it up the other day when he said, “We use our rockets to protect our women and children; they [Hamas] use their women and children to protect their rockets.”
Some time ago, the Left adopted the Palestinians as their pet oppressed minority group so there is nothing that Israel might do that will be okay with them, except to commit suicide, that is, cease to exist — which is the stated policy of Hamas. Every time Israel refuses the suggestion that it cease to exist, the Left becomes inflamed. They cannot imagine why Israel would prefer to fight for its existence than to roll over and die.
The Palestinian leadership doesn’t really want to talk about any resolution to the enduring crisis in which Israel is granted the right to exist. That doesn’t leave a whole lot of room for negotiation, and so they have literally painted themselves into a geographical corner of the region called the Gaza Strip where one of their other policies is to grow the Palestinian population in the hopes of eventually wiping Israel off the map by sheer demographic pressure. The political Right Wing of Israel is using exactly the same tactic in the contested West Bank. All of that is tragic, of course, because when the oil age comes to an end the entire region of the southern Levant will probably support one-twentieth of the population of all ethnic groups.
The New York Times reported that street protests against Israel had broken out in London and Paris, giving the impression that some broad national sentiment was being expressed when, in fact, the protesters were from the large Muslim communities that these nations had foolishly invited to immigrate there. Has anyone in the West still failed to notice the pugnacity of Islam in our time? Islam does not want to co-exist with the West anymore than the Palestinians want to grant Israel the right to exist.
Luckily for the West, there is enough animosity between the Islamic factions to distract Islam from its mission to defeat all the great-and-small Satans cluttering up their world. All this is happening as that world lurches
by ilene - July 22nd, 2014 6:53 pm
Courtesy of Zero Hedge
Ten days ago Bloomberg reported that as a result of various tax dodges, one of the fastest-trading hedge funds in the US, Jim Simmons' Renaissance Technologies, had managed to avoid paying ordinary income tax on billions in profits, by classifying trades that often times had a holding period of minutes if not seconds, as a long-term capital gain. As part of this finding, it was reported that there would be a hearing chaired by none other than Carl "Shitty Deal" Levin scheduled for tomorrow morning when yet another tax loophole abused by not only RenTec but all of its high churn and HFT peers (because the "friends and family" Medallion is at its core the original HFT fund) would be exposed for all to see. Moments ago, in advance of tomorrow's 9:30 am hearing, the permanent subcommittee on investigations released a 93 page report on just how it was that RenTec engaged in the "improper use of this structured financial product, known as basket options."
As the preamble to the report notes:
The report outlines how Deutsche Bank AG and Barclays Bank PLC, over the course of more than a decade, sold financial products known as basket options to more than a dozen hedge funds. From 1998 to 2013, the banks sold 199 basket options to hedge funds which used them to conduct more than $100 billion in trades. The subcommittee focused on options involving two of the largest basket option users, Renaissance Technology Corp. LLC (“RenTec”) and George Weiss Associates.
The hedge funds often exercised the options shortly after the one-year mark and claimed the trading profits were eligible for the lower income tax rate that applies to long-term capital gains on assets held for at least a year. RenTec claimed it could treat the trading profits as long term gains, even though it executed an average of 26 to 39 million trades per year and held many positions for mere seconds.
Data provided by the participants indicates that basket options produced about $34 billion in trading profits for RenTec alone, and more than $1 billion in financing and trading fees for the two banks.
by Option Review - July 22nd, 2014 4:55 pm
by ilene - July 22nd, 2014 3:37 pm
Courtesy of Jesse's Cafe Americian
This is a view of how we got here and where we are going that you are unlikely to hear from the mainstream media.