Thursday, March 31, 2016

Fed Admits it is the World’s Central Bank – not just the USA Central Bank

by Martin Armstrong
Janet Yellen signaled that the Fed is grappling with the problem I have been warning about; the dollar has become the de facto only real currency and the Fed is indeed becoming the world’s central bank. Yellen has admitted that the Fed is being lobbied by everyone to surrender its domestic policy objectives to international. This is precisely what took place in 1927. Yellen stated that the Fed should worry less about inflation domestically than about global growth risks. While pointing to the slowdown in China and depressed commodity prices, Europe is a real basket case. She used the words that the Fed must consider “caution is especially warranted” when it comes to raising interest rates. This has put most Fed watchers off to expecting any possible rate hike into retirement as they expect nothing before September. The BREXIT will most likely be rigged because it is exactly opposite of what they are telling the Brits that they will be isolated and the economy will collapse if the exit the EU. Nobody says Britain did fine before it joined only in 1973 or that it is the other-way-around; with BREXIT, Europe will fail. This heated issue in Britain is most likely the final nail in the coffin. Britain will collapse with the Euro and should have just handed its sovereignty to Brussels. Europe will never reform so it will be all go down together. The political risk in Europe is tremendous and Yellen cannot prevent that with simply interest rates.
It is ironic that it is also the same conditions setting up today as was the case in 1927. The Fed back then lowered US rates to try to deflect the capital inflows to help bailout Europe. The markets eventually backfired and capital shifted pouring into the USA doubling the US share market despite doubling interest rates to try to prevent the crisis they helped to create. This all led to the 1931 Sovereign Debt Crisis and those economic declines resulted in political chaos. In 1933 FDR came to power. But so did Hitler and Mao. That was all made possible because of the collapse in government debt. We are in the very same position today and the Fed is surrendering domestic policy objective for international concerns.

What is astonishing is just how brainwashed society has become. They cheer lower interest rates as if this will eventually work to stimulate the economy and markets. Interest rates decline with economic declines and rise with economic booms. The analysis on TV is just ass-backwards. When a stock is doing well, the price rises because there is a bidding war. Mr. Larry Summers, the father of negative interest rates, admits he cannot forecast anything. Yet he advocates manipulation without any understanding the consequence of his theories in pure stupidity and remains clueless as to history or how markets even move. We can see that the Fed raised rates from 3.5% in 1927 up to 6% in 1929 and the stock market doubled on capital inflows. The Fed cannot lower US rates to prevent a crisis in Europe or to reverse the Chinese economy no less bring a bid back to commodities when the economy is not expanding. As the stock market rises, Congress will criticize the Fed for making the rich richer, and the Fed will then be forced to return to domestic policy objectives raising rate to try to stop the rally. Yet the rally will begin to take off when the public at large begins to realize government is in trouble. This is part of the 4 elections coming with the Year from Political Hell.
The risks and the reality that the Fed has lost any real ability to manage the economy have become so real, it is slapping people in the face and still they cannot see it. The Fed has little conventional monetary policy ammunition to counteract a downturn at this time. Larry Summers’ negative interest rates are destroying the fabric of the global economy. Far too many pension funds are unfunded and many countries in Europe by law require they be managed conservatively and invest EXCLUSIVELY in government bonds. The risks of total meltdown beginning in 2017 are on the horizon.
Yellen has inherited a complete nightmare. This decision to delay the long-awaited liftoff from a zero interest rate illustrates that the world economy is totally screwed. There is a lot of speculation about why the Fed seems so reluctant to “normalize monetary policy”. However, besides the normal issues such as low inflation, weak wage gains, and strong job growth, the real issue nobody seems to look has been the fact that government are now crack addicts on life-support with negative rates. A hike will increase the Federal deficits of all countries globally. The smart institutional clients coming to our World Economic Conferences have shifted their portfolios selling government debt and moving to blue-chip corporate. Corporate debt is the only alternative to government debt in crisis and emerging market debt other bought thinking they have no risk since it is dollar denominated. When government debt goes bust, you get absolutely nothing and they can change the law at any given moment. They can re-denominate your debt holdings as well as extend the maturity and there is absolutely nothing any bondholder can possible do.

World’s central bank? The word ‘global’ pops up 11 times in Fed Chair Yellen’s speech… US monetary base expansion & S&P500…quite a tight correlation..

World's central bank? The word 'global' pops up 11 times in Chair Yellen's speech. 

Fed Credibility Dwindles, Pension Funding Crisis Looms

pension_collapseBy Clint Stiegner
Fed officials jawbone the markets and spread disinformation. They figure it’s part of their job as central planners. It’s not enough to pull the levers and twist the knobs on interest rates, the money supply, and asset prices. They also use propaganda to manage investor psychology. It’s all smoke and mirrors.
Frustrated metals investors wonder just how long officials will maintain their hold over markets when so much of what they say turns out to be garbage and so much of what they do ends in failure.
The answer is perhaps not much longer. There are real cracks emerging in the credibility of Fed banksters. It has taken years, but investors and pundits are finally questioning whether the Fed knows what it’s doing. They have progressed from the blind worship of Alan Greenspan, who engineered first the bubble and then the housing bubble that made people feel so wealthy, to wondering if they can believe a word Janet Yellen says.
Following the most recent FOMC meeting, CNBC’s Steve Liesman, heretofore one of the Fed’s biggest apologists, asked Janet Yellen this difficult question; “Does the Fed have a credibility problem in the sense that it says it will do one thing under certain conditions, but doesn’t end up doing it?”
Yellen responded with typical “Fedspeak” and did nothing to shore up confidence:
Well, let me start — let me start with the question of the Fed’s credibility. And you used the word “promises” in connection with that. And as I tried to emphasize in my opening statement, the paths that the participants project for the Federal Funds rate and how it will evolve are not a pre-set plan or commitment or promise of the committee.
Indeed, they are not even — the median should not be interpreted as a committee-endorsed forecast. And there’s a lot of uncertainty around each participant’s projection. And they will evolve. Those assessments of appropriate policy are completely contingent on each participant’s forecasts of the economy and how economic events will unfold. And they are, of course, uncertain. And you should fully expect that forecasts for the appropriate path of policy on the part of all participants will evolve over time as shocks, positive or negative, hit the economy that alter those forecasts. So, you have seen a shift this time in most participants’ assessments of the appropriate path for policy. And as I tried to indicate, I think that largely reflects a somewhat slower projected path for global growth — for growth in the global economy outside the United States, and for some tightening in credit conditions in the form of an increase in spreads. And those changes in financial conditions and in the path of the global economy have induced changes in the assessment of individual participants in what path is appropriate to achieve our objectives.
Translation: Yellen and the rest of the FOMC find the economy totally unpredictable and no one should rely on what they say.
Evidence shows that investors are losing faith as they realize just how artificial and micro-managed the markets are. Steve St. Angelo from reports on the collapse of trading volume in Dow Jones stocks, even as stock prices move higher. Fewer and fewer retail investors care to play, while a handful of major investors – almost certainly including the Fed and its primary dealer banks – busily “paint the tape” with a picture of growth.
stockmarket-abnormal-tradingConfidence may erode slowly, but at some point markets can collapse suddenly. Fed officials and their misguided policy is vulnerable now to some trigger event that destroys whatever faith people still have.
The chickens are coming home to roost. For example, last week the city of Chicago lost the battle to curb public employee pensions. The Illinois Supreme Court upheld the state’s constitution which protects public pensions from being “diminished or impaired.” Now Chicago will struggle to avoid bankruptcy as it must find billions of dollars to shore up its massively underfunded pension obligations.
Much of the blame for the debacle in Chicago and for huge pension shortfalls across the country should be laid at the feet of the Fed and its Zero Interest Rate Policy. These retirement funds planned for much higher interest yields than the Fed has permitted in the last several years.
Now pensions are woefully short of what is needed to meet their obligations and some very hard choices must soon be made. Elected officials will need to decide whether to impose major tax hikes to cover the generous benefits that were promised, make big cuts (where allowed), or default.
Retirees have long been frustrated that banks pay nothing in interest on savings, and yet they are getting crushed by a rising cost of living. (This problem has been discussed frequently by our friend Larry Parks of the Foundation for the Advancement of Monetary Education).
So far, the above concerns have not held much sway at Fed policy meetings. Perhaps the burgeoning pension crisis will be the final straw.
Top Image Source
Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals‘ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

UK plans to track all internet connections could cost £1bn, campaigners warn

Home Office is told its plans in the snooper’s charter to retain web browsing history of all British citizens for 12 months would cost in excess of £1bn
Person pressing delete button on laptop
The £1bn price tag far exceeds the official Home Office estimate of £174m over 10 years. Photograph: Dominic Lipinski/PA 
Government plans to track every website visited by every British citizen could cost more than £1bn, privacy campaigners have estimated.
The £1bn estimate for the cost of requiring phone and internet companies to retain everyone’s internet connection records and store them for 12 months is based on a similar scheme in Denmark, which was recently dropped on grounds of cost.
The Don’t Spy on Us coalition, which includes the Open Rights Group and Privacy International, says that the £1bn price tag for the new powers for the police and security services to access everyone’s web browsing history compares with the initial official Home Office estimate of only £174m over 10 years.
The British internet industry has already made clear that it regards the £174m figure as an underestimate. The president of BT Security has told MPs that the allocated amount would only cover BT’s costs, and Virgin Media has said its costs will be “in the tens of millions”. The Home Office is reconsidering its initial cost estimate.
The Danish government recently shelved similar proposals to monitor the web browsing habits of Danish citizens after accountancy giant Ernst & Young, confirmed it would cost 1bn Danish kroner (£105m) to implement. This estimate only covered the equipment investment and did not include annual operating costs.
Don’t Spy on Us says that as Britain’s population, at 64 million, is more than 11 times that of Denmark’s 5.6 million, the cost of a similar internet record system in Britain would be more than £1bn. It estimates that this bill, which is to be paid in full by the Home Office, is equivalent to the cost of employing 3,000 more full-time police officers.
Alistair Carmichael, Lib Dems’ home affairs spokesman, called the bill a ‘huge waste of money’. Photograph: Murdo Macleod for the Guardian
Eric King, director of Don’t Spy on Us, said: “The government is trying to force internet service providers to collect all of our internet connection records, but refuses to listen when they express concerns about the cost and feasibility of their proposals. As in Denmark, the government should commission an independent cost analysis to clarify the true cost of collecting internet connection records.”

The demand for an independent cost assessment has also been backed by the Liberal Democrats. The party’s home affairs spokesman, Alistair Carmichael, said: “Splurging £1.2bn on hoovering up everyone’s data all of the time sounds like a huge waste of money – and might not even work. It would be far better to divert these resources to following up on leads and ensuring there are enough police on our streets.”
The Home Office has indicated it is re-assessing the cost implications of retaining internet connection records, which is an important proposal in its investigatory powers bill, known as the snooper’s charter.
A Home Office spokesperson said: “There are a number of fundamental differences between our bill and the Danish model, and the independent joint committee of parliament acknowledged this. It is absolutely incorrect to suggest we are implementing the Danish model.
“We have worked closely with communications service providers (CSPs) to carefully estimate the cost of implementing a system to retain internet connection records. And we will continue to work with CSPs to refine that cost as the bill progresses,” they said.
“We are determined to implement the legislation in a way that will deliver the maximum operational benefit for the police and law enforcement agencies. Our proposals provide a comprehensive and comprehensible framework for investigatory powers, with robust safeguards and world-leading oversight.”


States’ New Push: Food Stamp Recipients Must Work or Volunteer

Photo Credit Christopher Campbell
Photo Credit Christopher Campbell

(WASHINGTON)  More and more states are moving to require able-bodied adults to work in exchange for food stamps.
During the last recession, President Obama allowed states to suspend a requirement that able-bodied adults without children work at least 20 hours per week or participate in a training program to receive benefits for more than three months.
Despite a large decrease in the unemployment rate since then, more than 40 states still do not require welfare recipients to work.
That seems to be changing, however, as a new policy went into effect in Mississippi today, requiring residents to work or volunteer 20 hours a week to qualify for food stamps.
Other states are considering similar legislation.
Judge Alex Ferrer explained on “Fox and Friends” that this is an effective way of preventing people from gaming the system and simply avoiding work on the government’s dime.
He explained that it removes the excuse of not being able to find a job, because food stamp recipients can also volunteer and provide community service.

Make $250K/year? Palo Alto wants to help pay your rent

 In an incredible move, Palo Alto is considering subsidizing housing for the almost 1%-ers – those making between $150,000 and $250,000 a year. This is how much influence the tech industry has on the city, and this is how out of whack their economy has become as a result. The Resident discusses. Follow The Resident at

Revealed: DEA's $86 million plane bought to fly missions in Afghanistan is still grounded seven years later... and the agency has since ceased aviation operations there

  • The plane was bought to fly surveillance and counter-narcotics missions 
  • High-tech spy plane was supposed to be completed in December 2012 
  • Project was plagued by missteps and cost four times initial estimated cost 
  • Unlikely to ever fly in Afghanistan as DEA has ceased aviation ops there 
  • It is now estimated to be completed in June and DEA intends to fly the plane in the Caribbean, Central America and South America

A specialized plane bought by the Drug Enforcement Administration to fly missions in Afghanistan - costing taxpayers $86 million - has remained grounded for seven years, a report revealed.
The drug agency bought the plane seven years ago to fly surveillance and counter-narcotics missions is still grounded in Delaware and will likely will never fly in Asia, according to a scathing audit released on Wednesday.
The review by the Justice Department's inspector general, which was spurred by a July 2014 whistleblower's report, found that the Global Discovery program to modify the ATR 42-500 aircraft to provide the DEA with advanced surveillance capabilities was supposed to be completed in December 2012.
But the project, part of an agreement with the Defense Department, has been plagued by missteps costing the agencies four times the initial estimated cost.
A specialized plane at the DEA to fly missions in Afghanistan that has cost taxpayers $86 million has remained grounded for seven years. Above, a photo taken in April 2015 shows the DEA's ATR 42-500 at the Defense Department's subcontractor's facility
A specialized plane at the DEA to fly missions in Afghanistan that has cost taxpayers $86 million has remained grounded for seven years. Above, a photo taken in April 2015 shows the DEA's ATR 42-500 at the Defense Department's subcontractor's facility
The report said it was unlikely the plane will ever fly in Afghanistan because the DEA has since ceased aviation operations there.
'Our findings raise serious questions as to whether the DEA was able to meet the operational needs for which its presence was requested in Afghanistan,' the review said.
In a statement, the DEA said that it agreed it 'can and should provide better oversight of its operational funding' and was reviewing its policies and procedures.

The drug agency spent $8.5 million on parts for the plane - including $5 million in spare engines - 'the majority of which cannot be used utilized on any other aircraft in its fleet.'
The Defense Department built a $2 million hangar in Afghanistan for the plane that was never used and likely never will be, the report said.
The audit also found that the DEA didn't fully comply with federal procedures when it purchased the aircraft, spending nearly $3 million more than it had previously estimated for the $8.6 million aircraft.
The DEA also charged about $2.5 million in improper expenditures billed under the agreement with the Defense Department, including for costs associated with aircrafts and personnel who were entirely unrelated to the agency's Afghanistan operations.
That included $8,122 in unallowable travel related to missions in Haiti, the Bahamas, Peru and Florida.
The review also found the DEA's Aviation Division lacked adequate policies and procedures for receiving, reviewing and paying contractors with no requirement that any documentation be approved before personnel were paid.
When modifications were improperly done on the plane, the Defense Department poured more money into the effort.
The plane, which has missed every scheduled delivery date, is now estimated to be completed in June - nearly one year after the DEA pulled out of Afghanistan.
The report said the DEA intends to fly the plane in the Caribbean, Central America and South America.
The report made 13 recommendations to improve oversight of its aviation operations agreements and the problematic program.
The drug agency has already acted on two recommendations, according to the inspector general's office.
That includes ensuring foreign offices are now required to provide supporting documentation to be paid for work. The agency said it's also now established an electronic method for pilots to submit mission reports to make sure program data is accurate.
In its formal reply to the audit, the DEA said that based on previous positive experiences using Defense Department contractors to modify its aircraft it 'had no indication that the Global Discovery modification would encounter the significant delays and problems that ultimately occurred.'

Attention President Obama: One Third Of U.S. Households Can No Longer Afford Food, Rent And Transportation

While the Fed has long been focusing on the revenue part of the household income statement (which unfortunately has not been rising nearly fast enough to stimulate benign inflation in the form of nominal wages rising at the Fed's preferred clip of 3.5% or higher), one largely ignored aspect of said balance sheet has been the expense side: after all, for any money to be left over and saved, income has to surpass expenses. However, according to a striking new Pew study while household spending has returned to pre-recession levels (the average household spent $36,800 in 2014) incomes have not. 
Specifically, while the median income had fallen by 13% from 2004 levels over the next decade, expenditures had increased by nearly 14%. But nobody was more impacted than the one-third of households which the study defines as "low-income." Pew finds that while all households had less slack in their budgets in 2014 than in 2004, lower-income households went into the red by over $2,300.
In other words, approximately one third of American households were no longer able to cover the core necessities - food, housing and transportation - with average income. 
According to Pew, households spent more in 2014 than they did in 1996, after adjusting for inflation; this holds whether the figures are based on averages (means) or medians. The typical household saw its expenditures grow by more than 25 percent, from $29,400 in 1996 to $36,800 in 2014. Mean expenditures grew 27 percent since 1996, rising from $43,200 to $54,800.
The problem is that incomes have not kept up: from 2004 to 2008, median household income grew by only 1.5 percent, while median expenditures increased by about 11 percent. During that period, the expenditure-to-income ratio (the percentage of a household’s budget used for spending) jumped by 9 percent. As the recovery began, median household expenditures returned to pre-crisis levels, but median household income continued to contract. By 2014, median income had fallen by 13 percent from 2004 levels, while expenditures had increased by nearly 14 percent. This change in the expenditure-to-income ratio in the years following the financial crisis is a clear indication of why and how households feel financially strained.  

Worse, as the chart below shows, in 2004, typical households at the bottom had $1,500 of income left over after expenses. By 2014, this figure had decreased by $3,800, putting them $2,300 in the red. As Pew notes, "the lack of financial flexibility threatens low-income households’ financial security in the short term and their economic mobility in the long term", and as we would add, this makes them effective wards of the state to be manipulated by demagogue politicians with promises of free handouts.  
But perhaps worst of all is that typical U.S. households in the center of the income distribution range, aka America's true middle class, have seen their income after meeting all expenses (aka leftover savings) plunge from $17,000 in real terms a decade ago to a paltry $6,000 as of 2014, a plunge of 65%!

What was the reason for this big drop in residual income and jump in expenses? According to Erin Currier, project director at Pew Charitable Trusts, "over time, [lower-income groups] consistently spend more on transportation and considerably more on housing."
However, the biggest culprit by far, are soaring rental costs: "Lower income renters are spending nearly half their income on rent, while upper-income groups spend about 15% on rent. The disparity really shows that lower income families don’t have much slack in their budgets for mobility-enhancing investments like savings and wealth building."

What is particularly notable is the substantial jump in median expenditures in just 2014. This was mostly due to an odd spike in rents:
For a typical family of four (two earners and two children), while median household income increased by about $10,000 between 1996 and 2014, annual expenditures also increased by about the same amount, driven largely by higher spending for core needs: housing, food, and transportation. Although the absolute change in income and expenditures was similar, this family had less slack in its budget in 2014 than in 1996, as its expenditure-to-income ratio grew from 71 percent to 75 percent.

The reason for record high asking rents has been extensively covered here before; here is Pew's take:
Since the start of the housing crisis in 2007, homeownership rates have declined among households in the middle- and upper-income tiers. These decreases have affected the rental market, as former owners became renters, leading to rental vacancy rates at historical lows below 7 percent. The diminished supply of rental properties increased the cost of rental housing dramatically; in 2014, renters at each rung of the income ladder spent a higher share of their income on housing than they had in any year since 2004. Although both renters and homeowners spent more for housing in 2014, notable differences in the proportion of household resources going to shelter were evident across income groups, with lower-income renter households spending close to half of their pretax income on rent.
This, together with our previous report that increasingly more US households are unable to afford to purchase a home, should put to rest any speculation whether those who point out the chronic deterioration of the economy for everyone, not just the 1% who truly are doing better than ever, are "peddling fiction." 
Pew's conclusion confirms just that.
The amount of slack that families had in their budgets declined for all income groups between 2004 and 2014. This means households had less income to devote to wealth-building investments, such as short- and long-term savings, education, and life insurance. In 2004, the typical household in the lower third had a little less than $1,500 left over after accounting for annual outlays. Just 10 years later, this amount had fallen to negative $2,300, a $3,800 decline. These households may have had to use savings, get help from family and friends, or use credit to meet regular annual household expenditures. The typical household in the middle third saw its slack drop from $17,000 in 2004 to $6,000 in 2014. Of note, because income is measured before taxes, some families will have had even less slack in their budgets than this figure implies.
One final note: in the paragraph above replace "slack" with "savings" for an accurate description of what is going on.
Source: Pew Trusts

Are Buybacks The Only Thing Holding Up Markets Anymore?

by: otterwood
According to Bank of America Merrill Lynch 93% of US net buying year to date can be attributed to corporate buybacks. Corporate buybacks have accounted for $12.5 billion of the $13.4 billion of the net buying activity this year.

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The Economy Is Exponentially Riskier Than 2008, The Crash Will Be Something We Never Seen Before

War on Cash, Negative Interest Rates…Bitcoin Can Protect You – Trace Mayer Interview

02:50 Current Bitcoin Market Prices
03:50 Businesses Soon to Pay Out in Bitcoins
05:00 Bitcoin Price Floors
08:40 Now Compared to $1,000 Price in Late 2013, More Transaction Demand
12:20 Limitations of Current Fiat System
13:50 Blocksize Debate Coming to an Agreement?
18:10 Miners Agreement to Increase Transaction Capacity of Blockchain
19:30 Block Reward Halving to Increase Price
23:10 Is Bitcoin Price Manipulation Possible?
28:00 Are Central Banks Desperate to Maintain Status Quo?
32:00 Banning Cash & Negative Interest Rates in Future
33:30 Trace’s Advice for the Future, War on Cash, Price Controls

The Next Stage of “Moral Hazard?” First Ocean Freight Rates Collapse to “Zero,” China Freight Index Plunges to Record Low, Bailouts Loom

Wolf Richter,
The amount it costs to ship containers from China to ports around the world has plunged to historic lows. As container carriers are sinking deeper into trouble, whipped by lackluster global demand and rampant oversupply of container ships, they’re escalating a brutal price war with absurd consequences.
Maritime research and advisory firm Drewry (emphasis mine):
Recent news stories, backed up by anecdotal stories told to Drewry, report that carriers have quoted zero dollar freight rates to some forwarders on certain lanes out of Asia. Whether these are merely isolated cases or something more widespread is difficult to judge at the present time, but whatever the exact quantum, there is no denying the container rates are now close to the historic lows as seen in 2009.
The World Container Index, an average of spot freight rates on 11 global East-West routes connecting Asia, Europe, and the US, plunged last week to a record low of $666 per 40-foot equivalent unit container (FEU), down 73% from mid-2012!
The China Containerized Freight Index (CCFI) tells a similar story. It tracks contractual and spot-market rates for shipping containers from major ports in China to 14 regions around the world. On Friday, the index dropped 1.6% to 659.19, its lowest level ever!
It has plunged 39% from February last year and 34% since its inception in 1998 when it was set at 1,000:
Shippers and their customers are rejoicing for the moment. But the collapse in shipping rates – to “zero” in some cases, as Drewry reported – is taking its toll on the industry.
The risk of carrier bankruptcies – with the awkward side effect of stranded cargo – increases, according to Drewry, “the longer rates remain non-remunerative, while carriers will likely intensify practices such as void sailings in order to minimize the chance of that eventuality.”
In 2009, when shipping nearly came to a halt, carriers relied on other people’s money to keep going:
[C]arriers have a history of shaking off the threat of bankruptcy. In 2009 when the situation was even more precarious than it is now, carriers found ways to survive, calling upon shareholders, governments, and new investors for financial support. Terms with banks, shipyards, and charter owners were renegotiated to limit the immediate cash drain and many needed to sell off assets such as ships, terminals, and some non-core units to repair their balance sheets.
But that was the Financial Crisis. It was followed by a V-shaped recovery of shipping volume and freight rates that soon hit new highs. This time, there is no official Financial Crisis. The Fed isn’t engineering any bailouts. The world economy hasn’t come to a standstill, and there won’t be a V-shaped recovery. This will be a long, drawn-out process.
But the first national bailouts are already underway:
While the industry at large has not (yet) reach the same precipice [as in 2009], individual carriers are careering to that point much quicker than others. The most obvious case is South Korean line Hyundai Merchant Marine (HMM).
On 17 March bondholders rejected HMM’s debt rescheduling proposal and as of yet there has been no agreement from shipowners to reduce their charter rates in return for equity. The next day HMM Chairwoman Hyun Jeong-Eun resigned her position and a takeover invitation to Hyundai Motors, run by Chung Mong-Koo, who had previously fought for control of HMM, has been rejected, which suggests that government support might be its only hope.
The Korean government is already setting up a $1.2-billion fund to bail out carriers HMM and Hanjin (one of the ten largest by capacity in the world). State-owned Korea Development Bank will also chip in: it agreed, effective March 29, to give HMM a three-month extension of the principal and interest on its debt.
“The most important thing is each company’s possibility of revival,” Oceans and Fisheries Minister Kim Young-suk explained in an interview with The Korean Economic Daily on March 20.
But both would preferably survive as independent companies, he said. “If the companies get merged, file for court receivership, or are sold to a third party, they will be completely dropped out from their global alliances… it would be a huge loss for the Korean shipping industry if we lose one of them that has maintained its hard-won membership.”
So they will be bailed out. Korean taxpayers and some creditors get to eat the losses. Because in the end, there is no “free” ocean freight. And governments around the world are getting ready to shanghai their taxpayers into bailing out their carriers.
Carriers have idled about 1 million TEU (20-foot equivalent unit containers). But they have also put new ships into service, including the new mega-ships with around 19,000 TEU capacity each. And overall industry capacity continues to rise.
But taking a ship out of service for longer periods and then returning it to service is costly, according to Drewry: “In one example, the total bill for a 10,000 TEU ship in six-month cold lay-up (including shutting down most of the ship’s operating systems, repatriating most of the crew and dry-docking) came to just under $1 million.”
A big bet that higher freight rates down the road will make up for these costs. But given the current status of the industry and the global economy, those bets look risky. So far, all of them have backfired. Which leaves Drewry to conclude:
Offering zero freight rates implies a lack of self-regard for their services and an arrogance that they will be bailed out if the worst was to happen.
And this would be the next stage of “moral hazard” that was created with such fanfare, beginning in the US and then around the world, via the bailouts during the Financial Crisis.
But this wasn’t part of the rosy scenario. Read…  World Trade Collapses in Dollars, Languishes in Volume

Video: World Economic Situation: Serious Difficulties Call For Bold Measures

  Dr. Yilmaz Akyuz, Chief Economist of the intergovernmental organization South Centre, says that the 2008 financial crisis may be moving in a third wave that …

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How Many Tech Startups Are Empty Shells?

How many startups are empty shells filled with glitzy PR designed to appeal to VC newbies?
It's widely accepted that most tech startups will fail. Perhaps the core business proposition didn't pan out, or the execution was flawed, or the initial success foundered on poor management, or another startup scaled up fast enough to suck up all the oxygen in the room--there are many reasons a startup with a fair chance at success can fail.
But what if many if not most of the current batch of startups have zero chance of succeeding because they're nothing but empty shells of gaseous public relations? Coder Daniel C. recently shared his experiences interviewing at numerous tech firms, both established firms and startups.
Here are Daniel's observations:
When I first got into the high-tech field, I thought it was the only place that was safe, in other words, I really thought everyone was innovative and cutting edge. But now I am seeing something you probably have already seen being in the S.F. Bay Area, which is that a lot of companies in the high-tech sector are clueless and full of it.
I have recently been on several job interviews with high tech startups and they are the wierdest interviews. They give me a bunch of blather about their company, but they don't ask me any substantial questions about my technical expertise. Then they tell me within 24 hours that I just don't have enough experience as they would like.
Many of these companies reach out to me like I am their buddy, no formal introduction, "hey, dude, can we talk?" Some of them like to use the F word in their outreach, which totally turns me off. I think they have innovative confused with lack of professionalism.
Of the ten-plus job interviews I have been to in the high-tech field, only two actually gave me a coding challenge to prove my skills. I actually have a lot of esteem for those two companies (one of them is in London) because at least they assessed my hard skills via practical application. The rest I have no clue how they are coming to their conclusions based on a unfocused ten-minute talk about nothing.
In fact, I am noticing most of these companies are not even reviewing my portfolio, which is leading me to develop questions for them such as "Which one of my apps did you enjoy most?"
Anyway, I shared this with you because if you have any knowledge of anything similar, I would love to see an article on it. I have a hunch a lot of these companies lack direction and are probably not really drumming up a lot of business. A lot of good public relations, but not necessarily a steady stream of clients.
Thank you, Daniel, for sharing your experiences and for raising a number of key points.
The key metric for startups now is not revenues or paying clients--it's their valuations--as in Unicorn valuations of $1 billion or more.
The number of 'unicorns' in tech is booming (Business Insider, Oct. 2015)

But valuations that aren't based on revenues, paying clients and profits are notoriously prone to collapse. It is far easier to convince a venture-capital wannabe with millions of investor dollars to fund a PR-heavy startup than it is to actually build a business with paying clients, rising revenues and profits.
No wonder we're seeing accounts like this:
Top Silicon Valley VC Laments: Startups Being Funded Are "Mostly Crap & Largely Worthless"
Bubbles always seem permanent to those living within them. How many startups are empty shells filled with glitzy PR designed to appeal to VC newbies anxious to find the next Facebook? Perhaps far more than the financial media cares to admit.

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Boeing Quietly Prepares To Cut 8000 Jobs

Photo Credit Othree
Photo Credit Othree

(Dominick Gates)  Since Boeing Commercial Airplanes CEO Ray Conner announced a drive to cut the workforce six weeks ago, his team has taken steps expected to eliminate 4,000 jobs by June — and that may be only halfway towards the total cuts this year.
An internal Boeing document obtained by the Seattle Times reveals that at least one company unit is targeting a 10 percent workforce reduction overall.
And people with knowledge of what’s planned say that’s roughly the percentage of jobs expected to be cut statewide. That would translate to as many as 8,000 jobs being eliminated.
Asked about the plans, Boeing said Tuesday the initial jobs eliminated include “hundreds of executives and managers” and that the 4,000 figure will be achieved through normal attrition and a voluntary buyout package for about 1,600 employees.
The workforce reduction is part of a major cost-saving push that also involves squeezing supplier costs, increasing productivity, shrinking inventory and cutting travel, overtime, services and contractor expenses — an effort that Boeing said “involves taking out billions of dollars in cost by the end of 2016.”
If enough savings cannot be found elsewhere and more job cuts are required, layoffs would come later in the year, Boeing said.
Boeing Commercial Airplanes (BCA) vice president of communications Sean McCormacksaid Tuesday that “our targets are dollar-based.”
“The more we reduce non-labor costs, the less impact there will be to jobs,” he said.
One Boeing unit in the Puget Sound area — the Test & Evaluation division that conducts flight, ground and lab tests — recently outlined very precise job-cut targets in an internal guidance document telling managers what to expect.
The workforce reduction is part of a major cost-saving push that also involves squeezing supplier costs, increasing productivity, shrinking inventory and cutting travel, overtime, services and contractor expenses — an effort that Boeing said “involves taking out billions of dollars in cost by the end of 2016.”
If enough savings cannot be found elsewhere and more job cuts are required, layoffs would come later in the year, Boeing said.
Boeing Commercial Airplanes (BCA) vice president of communications Sean McCormacksaid Tuesday that “our targets are dollar-based.”
“The more we reduce non-labor costs, the less impact there will be to jobs,” he said.
One Boeing unit in the Puget Sound area — the Test & Evaluation division that conducts flight, ground and lab tests — recently outlined very precise job-cut targets in an internal guidance document telling managers what to expect.
It begins: “We anticipate the need to reduce staffing levels about 10 percent before the end of the year.”
BCA chief executive Ray Conner first announced that job cuts were coming last month in an internal webcast to all Commercial Airplanes employees, a precise account of which has not previously been made public.
According to a Boeing transcript of that webcast, Conner said the company needed to drastically reduce costs — and thus airplane pricing — because of fierce sales competition from Airbus.
“Their biggest weapon that they’re using in the competitions today is price,” Conner told employees. “They are attacking us with price in every single campaign. And as a result of that, you know, we’re being pushed to the wall.”
Danger for Boeing
Adam Pilarksi, senior vice president with Chantilly, Va.-based aviation consultancy Avitas, said saving billions of dollars through cutting supplier costs and increasing productivity can only be a long-term goal.
“In a few years, yes, things can change. By the end of the year, are you kidding me?” he said. “The only way you quickly can reduce costs is by laying people off. There’s no magic about it.”
But Pilarski said there is a danger for Boeing in cutting too many jobs, especially as it plans to match Airbus by revving up 737 production to 57 jets per month and 787 Dreamliner production to 14 jets per month.
“I cannot see how you cut employment 10 percent and keep production levels increasing,” Pilarski said. “The two don’t go together. Something has to give.”
Many older, highly experienced blue-collar workers will be leaving the company as part of the cuts.
A person familiar with the figures said more than 1,000 Machinists applied for the buyout when it was offered this month, though Boeing may reject some of those because they have skills that cannot be let go.
The severance package, designed to appeal to those already intending to retire soon, advances full pension eligibility and also offers a week of pay for every year of service up to a maximum of 26 weeks.
Jon Holden, District 751 president of the International Association of Machinists (IAM) union, expressed surprise when informed of the potential scale of the job cuts.
“We have not been notified of these types of reduction numbers,” Holden said.

San Francisco renter pays $400 a month to live in box built inside a living room


(SAN FRANCISCO)  Amid the Bay Area’s red-hot real estate market, a newcomer to San Francisco is living in a small wooden box at his friend’s home.
Illustrator Peter Berkowitz recently moved into the box, which he described as a “pod.” The box is tucked away in a corner of the living room at his friend’s apartment, located a few blocks from the ocean.
On his blog, Berkowitz said the pod is the “coziest bedroom” he has ever had. Along with a bed, the box has a fold down desk, a cushioned backboard and LED lights for reading.
Berkowitz posted a video tour of his living space on YouTube.
The pod, which measures 8 feet long, 3.5 feet wide and 4 feet tall, cost $1,300 to build.
Berkowitz also has access to the rest of his friend’s apartment.

“I built it largely myself, with the help of some friends who kind of knew what they were doing,” Berkowitz said in an interview on Live 105’s “Kevin Klein Live” Tuesday morning.
Berkowitz told Klein that living in the pod is not without its challenges. “Putting on pants requires a bit of yoga,” he said, “but no potential injuries,” he said.
When asked what he would do if he were to build a pod again, Berkowitz said he would make it taller.
Berkowitz said he is paying $400 a month in rent, far lower than the $3,000 average rent for a one-bedroom San Francisco apartment.
“Yes, living in a pod is silly.  But the silliness is endemic to San Francisco’s absurdly high housing prices – the pod is just a solution that works for me,” Berkowitz said on his blog.
High real estate prices and rents have led to some creative ways to lower living costs. Last year, an employee at Google lived rent-free in a truck parked at the company’s headquarters in Mountain View. The employee slept in the truck, while he ate at the company cafeteria and showered at the company gym.


It’s Spreading – The Final Wave Of Quantitative Easing

Total trojan horse in disguise! With a majority of the world impoverished by the elite, this will be incredibly well received.
Remember, this prediction came from Chris Martenson in November 2015 and I started to see it manifest in December of 2015. It’s now spreading further and faster than I had originally thought.
Watch my original video here –…

Economic CRISIS ~ Central Banks LOSING CONFIDENCE of Fund Managers


Tuesday, March 22, 2016

Market Volatility and Your Retirement Plan

There are three near-certainties in the investing world: Markets go up, markets go down, and over time, markets have gone up. Sounds simple, doesn’t it? The challenge comes with timing. Can you stomach the ups and downs? What happens if a lengthy down stretch hits at an inopportune time?
Most retirement portfolios are structured to withstand the ebbs and flows, and even deep dives, in the markets. Still, if you’re in retirement or near it, the volatility could put you in a constant state of panic or make you realize real quick that your risk tolerance is much less merciful than you once thought.
If that’s the case, stay calm. “It’s always important to invest with a rational perspective, not an emotional one,” says Matt Sadowsky, director of retirement and annuities for TD Ameritrade. “Responding to a market correction with an emotional reaction is a bad way to handle your portfolio. Don’t sell everything because of fear.”
Your “rational” approach might look like this:
Assess the Real Situation
Nobody likes to lose money on a position or take a realized loss, but know the difference, Sadowsky says. An unrealized loss—or the loss you see on your monthly statements—is not the real McCoy. An unrealized loss is the disparity between what you bought the stock for and what it’s trading at. A realized loss is the actual dollars-and-cents dent from subtracting the sale price from the purchase price. If you can sit tight, that gap could narrow.
Rebalance the Mix
“But if you’re still worked up by the gyrations of the stock market, then you should reassess if the portfolio is properly balanced relative to the amount of risk you want to take,” Sadowsky says.
That might mean taking a more conservative approach—examples might include an 80-20 or 70-30 mix of bonds and stocks—which may need to be rebalanced if market conditions change. Or it could involve moving toward more defensive sectors like health care and utilities. It might also entail a higher proportion of bonds with higher credit ratings that, because of their perceived lower risk of default, typically carry lower interest rates.
Keep in mind that rebalancing could generate capital gains or losses that might have tax implications that challenge your retirement-funding needs. Consult with your tax professional before you act.
Jump on Opportunity
With market muddle may come opportunity. Some investors look with fresh eyes to favorite stocks that are falling because the markets are responding to outside forces like the economic stress from China this summer or currency fluctuations abroad. Retirement professionals say not to change your risk tolerance by putting your retirement funds in jeopardy, but if you can afford to and want to take on more stock, you might do so judiciously.
You might also want to use a down period to convert traditional Individual Retirement Accounts (IRAs) to Roth IRAs. “When you have your assets in a traditional IRA that has been significantly reduced by the market downturn, that might be a time to consider converting into a Roth IRA , where you’re paying taxes on the lower amount that’s being converted,” Sadowsky says. “You have to consider if you want to pay those taxes now or later. I would rather pay taxes when I have a lower tax rate and a lower asset value. Keep in mind that converting a Traditional IRA to a Roth is not for everyone. Again, here’s a reminder to consult with your tax advisor before converting.”
Rethink Your Withdrawal Strategy
“The 4% rule is a rule of thumb, not a law,” Sadowsky says. If you’re following that general canon of withdrawing 4% annually from your portfolio, adjusted for inflation, remember the ratios will change with a pullback.
For example, 4% of a $1 million account is roughly $3,300 monthly. If that account falls 20% and you don’t change the amount of dollars drawn down, you’re now looking at a 5% take down on an $800,000 account.
“Consider the longevity of your portfolio by setting a safe withdrawal rate when market valuations are low,” he says. “In a boom market, you might be more conservative.”
Turn to Cash?
Yes, cash is king, particularly in times when you don’t want to sell stocks at a loss or in a downturn.
Many financial professionals suggest that investors have at least six months’ worth of expenses covered (but up to a year’s worth if you want to be conservative) with cash in an emergency fund.
Though trading in the stock market has often been likened to gambling, remember that it’s not. Gambling is a zero-sum game, taking money from losers to give to winners. There’s no gain. Buying stock is an investment in a company, a piece of the action with “winnings” that will rise and fall with the fundamentals and management of the company—not to mention the overall economy. Remember, too, that the markets rise and fall.
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April will decide the market's fate


Getty Images
When we turned bullish in mid February, many were looking for the market to crash. While many of the bears are now capitulating and turning bullish, the potential for the market to drop to the 1700s on the S&P has not completely dissipated, and the next several weeks will tell us if we are heading to 2500 from here, or if we have to drop down to the 1700s before we rally to the 2500 region.
While the market did not follow through early this past week in the most bullish expectation I had, at no time have we broken support, and we ended the week striking the 2050-2060 target I wanted to hit.
Without any break of support, I still see the potential to head up to the 2080SPX region as early as this week. As usual, the question is the path. As long as the market remains over 2035SPX, the path can be a more direct one, which can see us strike 2080 by the middle of the week. However, if we break 2035SPX early this coming week, then we will likely drop to retest the 1995-2005SPX support region, and as long as it holds, we will then likely rally up to the 2080SPX region to complete wave iii off the February lows.
Should we actually rally up toward the 2080SPX region, I would expect to see us drop back to at least the 2027SPX region in a wave iv, as outlined in the green count on the 60-minute chart linked below. As long as the market remains over 1995-2005 support on all pullbacks into April, that will set us up to challenge the prior all-time highs in the SPX. But I do not believe we will breach the 2015 market high by much, if at all, which will then lead to a wave (2) pullback in a few months from now, which if it holds support, sets us up to rally to 2500-2600 in the SPX going into 2017.
Alternatively, if the market breaks below the 1995-2005SPX support at any point in time over the next month, it will be a strong signal that the market has not moved back into a long-term bullish posture, and I would expect that we will be testing the 1700 region later this year, as we continue within primary wave 4.
I warned in January and February of this year that we have a potential setup for a global melt up in emerging markets, commodities and U.S. equities, and much has followed through as expected so far. While we still have much to do on the upside over the next two months to confirm this case, by the summer, we will know if the market is setting up for a major bullish move into the second half of the year, or if we will be mired in a primary wave 4 into the fall, with the 1700's still being seen before the global melt up begins.
See charts illustrating the wave counts on the S&P 500 and Russell 2000.

Opinion: Government debt could bring China’s credit party to a halt

Markets ignore coming glut of new bonds from local governments

China's central bank Gov. Zhou Xiaochuan warns of growing corporate debt burdens, but the biggest (and mostly hidden) problems may be with government debt.

HONG KONG (MarketWatch) — China’s economy may have run out of growth before it ran out of credit, but no one told its companies.
One of the biggest China puzzles today is the seemingly never-ending ability of its corporates to access new supplies of credit, without running into trouble or someone saying no.
Some analysts warn that we are looking in the wrong place for distress; it could be building in the government bond market.
This year, China’s easy money policy has been most graphically on display through an unprecedented overseas buying spree by its companies. The latest Chinese company throwing its checkbook around is insurer Anbang with a $13.1 billion cash offer for Starwood Hotels and Resorts HOT, +4.49%   . Earlier ChemChina broke China’s record for outbound merger and acquisition activity with an offer to buy Syngenta SYNN, -0.23%  in cash for $44.1 billion.

China's Aviation Dreams Hit Turbulence
Beijing has long wanted to develop an advanced aerospace industry capable of rivaling Western giants such as Airbus and Boeing. Here is a look back at some of China's efforts so far.
In fact, in the first three months of this year, China outbound M&A activity has rocketed to $102.7 billion, almost equal to the record total of $107.5 billion for the whole of 2015, according to data from Dealogic.
Heavily geared balance sheets appear no hindrance to connected mainland companies being able to access funding.
On Monday, Shanghai shares SHCOMP, -0.60%  rallied after more, cheaper money was promised to China’s brokers for margin financing.
Yet it was possible to detect a hint of caution from the central bank governor at the weekend after the chorus of upbeat commentaries on the economy from China’s leaders in recent weeks.
Zhou Xiaochuan said that “lending as a share of [gross domestic product], especially corporate lending as a share of GDP, is too high” and also that a high leverage ratio is more prone to macroeconomic risk. Corporate gearing in China is now widely estimated at some 160% of GDP.
It is these kinds of concerns that have led Moody’s to downgrade the outlook on China’s sovereign rating at the beginning of March.
Other analysts are also turning their attention to central government debt — which has long been viewed as manageable — as these funding needs could emerge as a new fault line of distress.
Societe Generale said in a new report the government bond market faces an unprecedented supply glut due to combined local and central government bond issuance.
As the market has yet to factor in this exponential growth in government paper, it could lead to disruption, which could potentially spill over into the corporate bond market, they warn.
The upswing in issuance is due to an expanded local government debt swap program (where bad loans from special funding vehicles were swapped for debt) and central and local government fiscal deficits. In total, SG calculates this year could see a total net issuance of 7.58 trillion yuan, up by 2.66 trillion yuan from 2015.
And this paper will keep coming. The latest audit report put the amount of local government debt eligible for being swapped into bonds at a massive 15.4 trillion yuan.
SG says the market does not appear to be pricing in the supply risk in the mid- to long-term end of the market. This could lead to a steepening of the curve when the market pays more attention to the supply.
This potential fallout in the government bond market from the local authority debt cleanup shows that the central government backstop is unlikely to be painless.
Any follow-through, such as higher yields, is likely to have a negative impact on the corporate bond market.
China’s corporate bond market has already been attracting attention as a potential area of stress in recent weeks after an issuance spree amid expectations of increasing defaults.
The added strain with reliance on bond issuance is finding buyers. China’s corporate bond market has benefitted from a switch of retail money away from equities this year, yet it could still be vulnerable to further asset relocation.
Chinese regulators do appear to recognize they need more bond buyers.
Last month, the People’s Bank of China (PBoC) stated that it would allow medium- to long-term foreign institutional investors to access China’s interbank bond market without any quota restriction.
This initiative could get a push if international bond indices include Chinese bonds. Last week J.P. Morgan said it was considering adding China’s government bonds to the J.P. Morgan Government Bond Index-Emerging Markets Global Diversified index.
Still, finding foreign buyers to keep China’s debt party going might look a stretch. They will need more than index inclusion to overcome various concerns from the value of the yuan to transparency.
Within China’s opaque system of state capitalism, it is always difficult to connect the dots on who owns assets, and who is ultimately responsible for debt.
If ultimately that debt stress appears in the government bond market, once again look for the yuan USDCNH, +0.0786%   to come under pressure.

Unlike in housing bubble, home buyers now put off by rising prices


Would-be home buyers see high prices as a deterrent, not an incentive to get in the market
No bubble here....
There’s a paradox in Monday’s existing-home sales data.
Sales slid 7.1% to the lowest pace since November, the National Association of Realtors said. NAR has warned for many months that low levels of supply, which are pushing prices ever higher, will eventually cripple the market.
February’s decline may be a sign that the Realtors’ fears are coming true, although it may still turn out to be a temporary blip caused by weather, new closing regulations, and the difficulties of adjusting data to account for all those anomalies.
Still, as NAR Chief Economist Lawrence Yun said in a statement, “the main issue continues to be a supply and affordability problem. Finding the right property at an affordable price is burdening many potential buyers.”
That may sound obvious: if you can’t afford the few limited options available on the market, you’d probably give up too. It also tracks with a survey NAR published last week, which found that the share of current renters who say now is a good time to buy fell in the most recent quarter.
But it’s worth remembering, as Yun pointed out in a press conference Monday morning, that it wasn’t too long ago that higher prices drew more buyers in, rather than shutting them out.
That phenomenon was documented by Robert Shiller, one of the creators of the S&P/Case-Shiller home price index and a Nobel Prize winner for his research on asset price psychology.
In a 2007 paper, Shiller described the bubble mentality as “a feedback mechanism operating through public observations of price increases and public expectations of future price increases. The feedback can also be described as a social epidemic, where certain public conceptions and ideas lead to emotional speculative interest in the markets and, therefore, to prices increase.”
A few paragraphs later, Shiller wrote, “That the recent speculative boom has generated high expectations for future home price increases is indisputable.”
That’s vastly different than the world we live in now. In the February Fannie Mae Home Purchase Sentiment Index, survey respondents said they expect home prices to rise 1.7%. One year ago, respondents forecast prices would rise 2.5%.
In the 12 months to February, the actual price gain was 4.4%, NAR said Monday, but in recent months the yearly increase has been as high as 8.2%.
Homeowners are also less confident about the value of the equity they have in their homes. That means they’re no longer cashing out to finance other spending, as they did in the bubble years.
But it also means they may not understand how much their homes could command on the market, making them less likely to list and worsening the supply problem.