Wednesday, January 13, 2016

Supreme Court Appears Ready To Bankrupt Public-Employee Unions

After a decades-long effort to place ideologically committed “movement” members in the judicial branch of government, funded by extremely wealthy individuals and their corporations, it looks like the resulting corporate/conservative wing of the Supreme Court is ready to make a ruling that would bankrupt public-employee unions. And clearly already-decimated private-sector unions will be the next target.


The Supreme Court heard oral arguments Monday in the case of Friedrichs v. California Teachers Association. In this case the Court is asked to overturn a unanimous 1977 case that said public-employee unions can charge nonmembers a fee to cover the cost of the services the unions are required by law to provide those nonmembers. The fee does not cover political activities of the union, only the cost of services the unions must, by law, provide.
If the corporate/billionaire class gets its way – and it looks like it will – the terrible inequality you see in the country today is nothing compared to what’s coming. Having grabbed all the income gains since the recession, having wiped out the middle class, having pushed so much to the top that a few families now have more wealth than all of the rest of us combined, now the corporate/billionaire class is coming after the rest of the money in the economy.
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It’s Now All But Certain That Pension Funds Will Soon Start Blowing Up, Either Defaulting On Promised Benefit Or Bond Payments, Leveraging Themselves For One Last Roll Of The Dice, Or Demanding New Taxes That Cause Local Political Chaos.

by John Rubino
Faced with spiking volatility in pretty much every market, it’s natural and reasonable to sell some risky assets and hide out in cash until the dust settles. So it’s not a surprise to hear that pension funds are doing just that.

Pensions, Mutual Funds Turn Back to Cash

(Wall Street Journal) – U.S. public pension funds and open-end mutual funds are keeping a greater share of their assets in cash as a result of both market jitters and demographic changes.U.S. public pension plans and mutual funds are sheltering more of their holdings in cash than they have in years, a sign of growing stress in financial markets.
The ultradefensive stance reflects investors’ skittishness about global economic growth and uncertain prospects for further gains in assets. Pension funds have the added need to cut more checks as Americans retire in greater numbers, while mutual funds want cash to cover the risk that investors spooked by volatile markets will pull out more of their money.
Large public retirement systems and open-end U.S. mutual funds have yanked nearly $200 billion from the market since mid-2014, according to a Wall Street Journal analysis of the most recent data available from Wilshire Trust Universe Comparison Service, Morningstar Inc. and the federal government.
That leaves pension funds with the highest cash levels as a percentage of assets since 2004. For mutual funds, the percentage of assets held in cash was the highest for the end of any quarter since at least 2007.
The data run through Sept. 30, but many money managers say they remain very conservative. Pension consultants say some fund managers are considering socking even more of their assets into cash as they wait for the markets to calm down.
“Some clients are asking us, ‘Would we be crazy to put 10% or 15% of our assets into cash?’,” said Michael A. Moran, a pension strategist at Goldman Sachs Asset Management.
Unfortunately for pension funds, hiding out in cash doesn’t work the same way as for you and me. Most of these funds (set up to give teachers, firefighters and other good people a decent retirement) are required to generate returns of 8% to avoid stiffing their beneficiaries. And since cash earns zero these days, every dollar invested this way drops these (in many cases already woefully undercapitalized) funds deeper into a hole from which most will never escape.
Just to be clear, pension funds — the last remaining link to middle class money for millions of Americans — aren’t to blame for any of this. The culprits are the mayors and governors who bought off their public sector unions with promises that would never be kept, and a federal government that’s papering over its own malfeasance by lowering interest rates to levels that make it impossible for anyone to generate a reasonable low-risk return.
But however they got here, it’s now all but certain that pension funds will soon start blowing up, either defaulting on promised benefit or bond payments, leveraging themselves for one last roll of the dice, or demanding new taxes that cause local political chaos.
When they do, they’ll add their own brand of crazy to the mix of imploding junk bonds, derivatives and equities that will make 2016 such a fun year to watch from a safe distance.
For a glimpse of the future for dozens of state and local pension plans, pay a quick visit to Illinois:

Record budget impasse belies fix to pension disaster in Illinois

(Chicago Tribune) – As 2015 draws to a close, Illinois marks half a year without a budget. No spending plan has driven up borrowing costs, sunk its credit rating, and perhaps worst of all, exacerbated the state’s biggest problem: its underfunded pensions.Home to the least-funded state retirement system in the nation, Illinois has $111 billion of pension debt, which breaks down to more than $8,000 per resident. Partisan gridlock has produced the longest budget impasse in Illinois history. The stalemate has not only weakened state finances, it has kept lawmakers from finding a fix for those mounting liabilities.
Illinois’s fiscal health will deteriorate further without a budget, hindering its ability to mend its pension system. Moody’s Investors Service dropped Illinois, already the worst- rated state, to the lowest investment-grade tier in October as the budget stalemate dragged on. Last month, Moody’s warned that pensions are Illinois’s “greatest challenge.”
It’s been seven months since the Illinois Supreme Court rejected the state’s solution. Justices threw out the 2013 restructuring that took six attempts over 16 months to pass, despite one-party rule at the time. The measure was projected to save $145 billion over 30 years by limiting cost-of-living adjustments and raising the retirement age.
Illinois enters 2016 snarled in partisan bickering as Gov. Bruce Rauner, the state’s first Republican chief executive in 12 years, and the Democrat-controlled legislature can’t agree on annual appropriations, much less an overhaul of a retirement system that must withstand an inevitable legal challenge. The state constitution bans reducing worker retirement benefits.
In July, Rauner laid out a plan to create a tiered system to cut retirement liabilities. At the time, he said it would save taxpayers billions of dollars. The proposal, which included a measure to allow municipalities to file for bankruptcy protection, was never introduced, according to Catherine Kelly, his spokeswoman.
Illinois is set to pay about $7.5 billion to pensions this fiscal year, and another $7.8 billion in the year that starts July 1, according to the Civic Federation, citing preliminary estimates by the retirements systems.
Even with the record budget impasse, about one of every $5 from the state’s general fund coffers is going toward pensions, according to a Civic Federation report that cites estimates from Illinois Senate Democrats published on Aug. 13. The state’s four plans are only 42 percent funded based on the market value of assets, according to the Commission on Government Forecasting and Accountability. That compares to 60 percent a decade earlier.
The lack of a budget forced the state comptroller to delay a $560 million November payment to the state retirement system. Illinois’s unpaid bills totaled $7.6 billion as of Dec. 18, according to that office. The November retirement payment will be paid in the spring when the state has more revenue from income tax collections, according to the comptroller’s staff.
While Comptroller Leslie Geissler Munger has said bond payments are prioritized, the lack of budget has shaken some investors’ confidence. Illinois hasn’t sold bonds since April 2014, a record borrowing drought. The spread on its existing debt has widened. Investors demand 1.8 percentage points of extra yield to own 30-year Illinois bonds, the most among the 20 states tracked by Bloomberg. When the spread climbs, that’s reflecting that investors think the problem is getting worse, said Richard Ciccarone, Chicago-based chief executive officer of Merritt Research Services.
“What’s the root cause of why we’re in the problem we’re in?” Ciccarone said. “It’s down to the pensions.”
Illinois is like a patient in the emergency room, said Paul Mansour at Conning, which oversees $11 billion of munis, including Illinois securities. The budget stalemate is the crisis at hand, and the unfunded pension liabilities is the chronic disease that’s only getting worse. The budget standoff is hurting future negotiations on pension changes, he said.
If this sounds a little like what Greece went through in 2015, that’s because it is. Both Illinois and Greece are failed states destined to default on their bonds unless bailed out by the central government. And since bail-outs are unpopular, it takes a crisis to focus enough minds to get one done.
In Illinois’ case the crisis will take the form of a bond default by Chicago or one of its sub-units, which sends the muni bond market into turmoil — just as several other markets (energy junk bonds, sub-prime auto loans, emerging market US$ loans come to mind) are blowing up.
And this is just the beginning. The US has plenty of other Illinois-level pension crises waiting to happen. So depending on the form they take (defaults or bail-outs or some combination there-of) pensions will spice things up in the coming year.

After Noble, Here Are The Next 18 US Energy Companies To Be Junked

Following Noble Group's downgrade to junk and "Enron moment," we thought it worth considering who is next to be junked?
Judging by the market's expectations, there are now 110 credits that are rated "investment grade" but trade like junk, and as Markit's Neil Mehta notes, this is up from just 21 in November.

Source: @NeilCredit
There are 18 US Energy names (and 23 globally) that are currently traded at CDS levels implying junk status, with Diamond Offshore, Nabors, and Encana top of the list.
And finally, away from the energy complex, we note that Freeport McMoran is at the top of the list of likely junk downgrades and today's carnage has extended Carl Icahn's losses.

... as it seems FCX stockholders are getting the joke...
Freeport-McMoRan Inc
(1739bps; Av BBB; Imp CCC)

The US copper and gold producer has seen its 5-yr CDS spread trading at implied junk levels for the last six months. Troubles have intensified over the past month and credit spreads now imply a 79% chance of default within the next five years. Moody’s placed the $6bn company on review for a possible downgrade just last week.

Deutsche Bank Continues its Exit From Markets

by Martin Armstrong
Deutsche Bank sold off its gold storage facility in London as it continues to exit from the financial markets and contracts back to being a core bank. The gold vault was bought by the world’s largest bank in terms of market value and assets under management, which believe it or not, is now the Industrial and Commercial Bank of China through its Standard Bank subsidiary. The vault opened its doors mid-2014 and can hold 1,500 tonnes (more than 50 million ounces of gold) and earns storage fees.

401k’s are About to Get Wiped Out #2016Collapse

Full Transcript:
The Economy is Imploding
For the past 7 years the world has been living through a really ugly experiment, hyper-Keynesian economics.
Stimulus, low interest rates, quantative easing, and plenty of fraud to go around from government statistics, to the lack of honest accounting with the suspension of marking current assets, to current market prices.
For years investors were bullish on China, a country that was hailed as a great success from central planning, a state run economy with some capitalism, perhaps a model others could look to in the future.
As China fueled commodity consumption for the past 15 years, now the world has to take a serious look at what they accomplished.
Ghost cities, $50 billion dollar bridges to no where, were all part of an economy and job market built on air.
Now, as reality sets in for China’s future growth, a new reality needs to set in for investors, the fact that we have no idea what will be China’s new normal….Because even once they hit bottom, they’ve already built cities for the next 20 years. Think of the harm this has done to a construction worker looking to enter the workforce in 5 years, what’s the point, the cities of 2025, were built in 2010.
For commodity investors, this is a disaster, which is why we suggest anyone buying a resource stock today, should also seriously consider having a position a China bear fund or ETF like CHAD.
Here in the U.S., oil companies since 2009 have borrowed at artificially low interest rates, in order to produce higher cost oil from fracking…Which has now helped flood the world in oil.
Only now we have lower oil prices, higher interest rates for the oil frackers, and an almost certain default as these companies can’t pay the debt back, especially with lower oil prices that for the most part are unprofitable for unconventional drillers.
So what does an oil executive do in this scenario, well so far they’ve tried to make up losing money on oil with volume, which obviously has only made the problem much worse.
All around the world, stock markets are crashing, Brazil is in Depression, China and Europe are in recession, and Canada and the U.S. look to be entering an official recession in 2016. has just put together an action plan for 2016.
Included in this report, is what to do now with your money, on asset allocation, cash, gold, and how to best hedge as the entire global economy implodes.
The central planners have truly made the reset of 2008, ten times worse, and unfortunately there is no silver bullet, but we believe we have put your best options forward.
Download our free report, at
Our 2016 Guide Includes the top 7 trends we see for the next year and what actions to take.
In just the first week of January, as markets melted down, our members are up considerably, as we suggested to short China last month, and go long a
specific high quality gold company, which rose 26%while major indexes melted down, Go to and and receive our 2016 Guide
with actions to take, with our Weekly Wealth Digest updates every Wednesday.
Personal Finance, for the New Economy!

Conn Hallinan’s 2015 “Are You Serious?” Awards

The First Amendment Award to U.S. Defense Secretary Ashton Carter for issuing a new Law Of War manual that defines reporters as “unprivileged belligerents” who will lose their “privileged” status by “the relaying of information” which “could constitute taking a direct part in hostilities.” Translation? If you report you are in the same class as members of al-Qaeda.
A Pentagon spokesperson said that the military “supports and respects the vital work that journalists perform.” Just so long as they keep what they see, hear, and discover to themselves? Professor of constitutional law Heidi Kitrosser called the language “alarming.”
Runner-up is the U.S. Military College at West Point for hiring Assistant Professor of Law William C. Bradford, who argues that the military should target “legal scholars” who are critical of the “war on terrorism.” Such critics are “treasonous,” he says. Bradford proposes going after “law school facilities, scholars’ home offices and media outlets where they give interviews.”  Bradford also favors attacking “Islamic holy sites,” even if that means “great destruction, innumerable enemy casualties, and civilian collateral damage.”
The Little Bo Peep Award for losing track of things goes to the U.S. Defense Department for being unable to account for $35 billion in construction aid to Afghanistan, which is about $14 billion more than the country’s GDP. The U.S. has spent $107.5 billion on reconstruction in Afghanistan, more than the Marshall Plan. Most of it went to private contractors.
The Pentagon response to the report by the Special Inspector General for Afghanistan on the missing funds was to declare that all such information was now classified, because it might provide “sensitive information for those that threaten our forces and Afghan forces.” It has since partially backed off that declaration.
While it is only pocket change compared to Afghanistan, the Pentagon also could not account for more than $500 million in military aid to Yemen. The U.S. is currently aiding Saudi Arabia and a number of other Gulf monarchies that are bombing Houthi rebels battling the Yemeni government. Much of that aid was supposed to go for fighting Al-Qaeda in the Arabian Peninsula (AQAP), against which the U.S. is also waging a drone war.  The most effective foes of AQAP are the Shiite Houthis. So we are supporting the Saudis and their allies against the Houthis, while fighting Al-Qaeda in Yemen, Somalia, Afghanistan, and Iraq.
If the reader is confused, Dispatches (Conn Hallinan’s Dispatches from the Edge) suggests taking a strong painkiller and lying down.
The George Orwell Award for Language goes to the intelligence gathering organizations of the “Five Eyes” surveillance alliance — the U.S., Britain, Canada, Australia, and New Zealand — who changed the words “mass surveillance” to  “bulk collection.” The linguistic gymnastics allows the Five to claim that they are not violating Article 8 of the European Convention on Human Rights. In the 2000 decision of Amann v. Switzerland, the Court found that it was illegal to store information on an individual’s private life.
As investigative journalist Glen Greenwald points out, the name switch is similar to replacing the world “torture” with “enhanced interrogation techniques.” The first is illegal, the second vague enough for interrogators to claim they are not violating the International Convention Against Torture.
A runner-up is the U.S. Defense Department, which changed the scary title of “Air Sea Battle” to describe the U.S.’s current military doctrine vis-à-vis China, to “Joint Concept for Access and Maneuver in the Global Commons.” The Air Sea Battle doctrine calls for bottling up China’s navy, launching missile attacks to destroy command centers, and landing troops on the Chinese mainland. It includes scenarios for the use of nuclear weapons. “Global Commons,” on the other hand, sounds like a picnic on the lawn.
The Lassie Come Home Award to the U.S. Marine Corps for creating a 160-pound robot dog that will “enhance the Marine Corps war-fighting capabilities,” according to Captain James Pineiro. Pineiro heads up the Corp’s Warfighting Laboratory at Quantico, Virginia. “We see it as a great potential for the future dismounted infantry.”
The Defense Advanced Research Projects Agency is also designing an autonomous fighting robot. Can the Terminator be far off?
The Golden Lemon Award goes to Lockheed Martin, the biggest arms manufacturer in the world, which has managed to produce two stunningly expensive weapons systems that don’t work.
The F-35 Lighting II is the single most expensive weapons system in U.S. history: $1.5 trillion. It is supposed to replace all other fighter-bomber aircraft in the American arsenal, including the F-15, F-16 and F-18, and will begin deployment in 2016.
Slight problem.
In dogfights with the three decade-old F-16, the F-35 routinely lost. Because it is heavy and underpowered, it is extremely difficult to turn the plane during air-to-air combat. It has a fancy 25-MM Gatling gun that gets off 3,000 rounds a minute — but the plane can only carry 180 rounds. As one Air Force official put it, “Hope you don’t miss.” Oh, and the software for the gun won’t be out until 2019.
And that’s not the only glitch.
The F-35 has stealth technology, but its Identification Friend or Foe system is so bad that pilots are required to get a visual confirmation of their target. Not a good idea when the other guys have long-range air-to-air missiles. The $600,000 high-tech helmet the pilot uses to see everything around him often doesn’t work very well, and there isn’t enough room in the cockpit to turn your head. If the helmet goes out, there is no backup landing system, so maybe you had better eject? Bad idea. The fatality rate for small pilots (those under 139 pounds) at low speeds is 98 percent, not good odds. Larger pilots do better but the changes of a broken neck are still distressingly high.
But it is not just Lockheed Martin’s airplanes that don’t work, neither do its ships.
The company’s new Littoral Combat Ship (LCS), the Milwaukee, broke down during its recent East Coast tour and had to be towed to Virginia Beach. The LCSs are designed to fight in shallow waters, but a recent Pentagon analysis says the ships would “not be survivable in a hostile combat situation.” The LCSs have been plagued with engine problems and spend more than 50 percent of their time in port being repaired. The program costs $37 billion.
And Lockheed Martin, along with Northrop Grumman and Boeing, just got a $58.2 billion contract to build the next generation Long Range Strike Bomber. Sigh.
The Great Moments In Democracy Award goes to Jyrki Katainen, Finnish vice-president of the European Commission, the executive arm of the 28-nation European Union. When Greece’s anti-austerity Syriza Party was elected, he commented, “We don’t change policies depending on elections.” So, why is it that people have elections?
A close runner-up in this category is German Finance Minister Wolfgang Schauble, who denounced Athens’ government for not cracking down on Greeks who can’t pay their taxes. The biggest tax dodger in Greece? That would be the huge German construction company, Hochtief, which has not paid the Value Added Tax for 20 years, nor made its required contributions to social security. Estimates are that the company owes Greece one billion Euros.
The Ty-D-Bol Cleanup Award to the U.S. State Department for finally agreeing to clean up plutonium contamination, the residue from three hydrogen bombs that fell near the Andalusia town of Palomares in Southern Spain in 1966. The bombs were released when a B-52 collided with an air tanker. While the bombs did not explode — Palomares and a significant section of southern Spain would not exist if they had — they broke open, spreading seven pounds highly toxic plutonium 239 over the area. Plutonium has a half-life of 24,000 years.
While there was an initial cleanup, Francisco Franco’s fascist government covered up the incident and played down the dangers of plutonium. But recent studies indicate that there is still contamination, and some of the radioactive materials are degrading into americium, a producer of dangerous gamma radiation.
When Spain re-raised the issue in 2011, the U.S. stonewalled Madrid. So why is Washington coming to an agreement now? Quid pro quo: the U.S. wants to base some of its navy at Rota in Southern Spain, and the Marines are setting up a permanent base at Moron de la Frontera.
As for nukes, the U.S. is deploying its new B61-12 guided nuclear bomb in Europe. At $11 billion it is the most expensive nuke in the U.S. arsenal. The U.S. will base the B61-12 in Germany, the Netherlands, Belgium, Italy and Turkey, a violation of Articles I and II of the Nuclear Non-Proliferation Treaty. Those two articles ban transferring nukes from a nuclear weapon state to a non-nuclear weapon state.
Dispatches assumes they will also bring lots of mops and buckets.
Buyer Beware Award to the purchasing arm of the U.S. Defense Department that sent dozens of MD-530 attack helicopters to Afghanistan to build up the Afghan Air Force. Except the McDonnell Douglas-made choppers can’t operate above 8,000 feet, which means they can’t clear many of the mountains that ring Kabul. The Afghan capital is at 6,000 feet. It also doesn’t have the range to reach Taliban-controlled areas and, according to the pilots, its guns jam all the time. The Pentagon also paid more than $400 million to give Afghanistan 16 transport planes that were in such bad condition they couldn’t fly. The planes ended up being sold as scrap for $32,000.
The Pogo Possum “We Have Met The Enemy and He Is Us” Award goes to Defense Intelligence Agency for warning Congress that “Chinese and Russian military leaders…were developing capabilities to deny [the] U.S. use of space in the event of a conflict.” Indeed, U.S. military satellites were jammed 261 times in 2015 — by the United States. Asked how many times China and Russia had jammed U.S. signals, Gen. John Hyten, head of the Air Force Space Command replied, “I don’t really know. My guess is zero.”

This piece was reprinted from Foreign Policy In Focus by RINF Alternative News with permission.

Chinese Shipyards "Vanish" As Baltic Dry Collapses To New Record Low

Another day, another plunge in The Baltic Dry Index, which just dropped a further 3.1% to 402 today - a new record low. While the index is driving headlines, under the surface, reality in the shipping (and shipbuilding) industry is a disaster. Total orders at Chinese shipyards tumbled 59% in the first 11 months of 2015, and as Bloomberg reports, with bulk ships accounting for 41.6% of Chinese shipyards’ $26.6 billion orderbook as of December, there is notably more pain to come, as one analyst warns "Chinese shipbuilders won’t be able to revive even if you try breathing some life into them."

Baltic Dry Bloodbath...

About 140 yards in the world’s second-biggest shipbuilding nation have gone out of business since 2010, and more are expected to close in the next two years after only 69 won orders for vessels last year, JPMorgan Chase & Co. analysts Sokje Lee and Minsung Lee wrote in a Jan. 6 report. That compares with 126 shipyards that fielded orders in 2014 and 147 in 2013.
As Bloomberg reports, the weakening yuan and China’s waning appetite for raw materials have come around to bite the country’s shipbuilders, raising the odds that more shipyards will soon be shuttered.
“The chance of orders being canceled at Chinese yards is becoming greater and greater,” said Park Moo Hyun, an analyst at Hana Daetoo Securities Co. in Seoul.

“While a weaker yuan could mean cheaper ship prices for customers, it still won’t be enough to lure back any buyers. Chinese shipbuilders won’t be able to revive even if you try breathing some life into them.”
And it is not going to get better anytime soon...
Bulk ships accounted for 41.6 percent of Chinese shipyards’ $26.6 billion orderbook as of Dec. 1, according to Clarkson Plc, the world’s largest shipbroker.

That compares with a 3.5 percent share at South Korean shipyards, which have more exposure to the tankers and gas carriers that are among the few bright spots in a beleaguered shipping industry.
Builders have sought government support as excess vessel capacity drives down shipping rates and prompts customers to cancel contracts. Zhoushan Wuzhou Ship Repairing & Building Co. last month became the first state-owned shipbuilder to go bankrupt in a decade.

Mounting U.S. Household Debt and Bank Overdraft Fees

We have all been shafted by overdraft fees from our bank at some time or another. It’s an annoyance and frustration, especially to those of us who already don’t have much money as well as a constant puzzle: If one doesn’t have $5, how are they going to pay an extra $35?  Yet banks continue to do this and rake in money, as can be seen by them having made $35 billion[1] in overdraft fees in 2014. In order to get a better handle on the problem of overdrafts, we need to understand the history of such fees as well as reframe how we look at the situation, changing our perspective to see overdraft fees as a sort of loan rather than a fee.
After World War 2, society as a whole began to change, included how people borrowed money. Credit itself began to change with things such as pawning and open-book credit (in which goods are shipped with the recipient promising to make payments) declined in usage and were replaced with other forms of loans such as payday loans, credit cards, and overdraft protection. However, it wasn’t as if everyone had access to overdraft protection, it was generally reserved for those high-income customers who were having short-term problems. Yet, as time wore on more and more people gained access to overdraft protections, with “banks and credit unions [offering] ‘courtesy pay’ or overdraft features” starting in the mid-1990s “so that consumers could overdraw their checking or debit accounts, for a fee.”[2] What was important, though, was that people were accruing these fees on their own, however this would change in the new millennium.
In 2003, it was reported that around 1,000 banks were “encouraging customers with low balances to overdraw their checking accounts, allowing the banks to skirt credit laws and collect billions of dollars in new fees.”[3] Banks were now actively encouraging people with little money to spend beyond their limit as to have to pay massive amounts in fees. From the banks’ perspective, this made since as USA Today noted in 2005 that overdraft fees “provide a more stable source of income to banks than products tied to fluctuating interest rates.”[4]
According to an FDIC 2006 survey, it was reported that “overdraft fees on average represent 6% of total net operating revenues of FDIC-insured banks.”[5] It seems that only a small group of banks are making money off of overdraft fees. Data from the company SNL Financial showed that during the first quarter of 2015, the three largest banks (JP Morgan Chase, Bank of America, and Wells Fargo) “collectively generated $1.14 billion from overdraft fees and related service charges”[6] and that those very same banks were also the ones that collected the highest ATM fees of the first quarter. So, not only have banks been actively encouraging people to get overdraft fees, but they were making a killing from it.
There are a number of other problems with overdraft fees, such as their similarity to payday loans and how they act like credit cards, but are worse. A 2005 report from the Consumer Federation of America found that overdraft fees were similar to payday loans in that those without enough money to make ends meet until the next payday were effectively given a cash advance by being able to overdraw their account, however, overdrawing one’s account was similar credit card usage.[7] Yet, with credit cards, banks aren’t allowed to take funds directly from a person’s bank account to pay off a credit card debt, but those who overdraw their account with a debit card “lack this protection. A bank can use the right of setoff when a customer creates an overdraft with a debit card to repay itself immediately when the customer deposits funds into the account.”[8] Of course, this doesn’t just cover the general costs, but also the overdraft fees that are applied to the account.
The report also found that in many cases, banks allow people to overdraw on purpose when they pay checks that result in overdrawn accounts, “knowingly permit consumers to electronically withdraw funds at the ATM or to make purchases at point of sale,” or “pay pre-authorized debits despite the lack of funds in the consumer’s account.”[9]
In addition to this, banks don’t tell consumers of better alternatives, from that same report:
For example, Citizens Bank’s overdraft protection language on its website sells its line of credit or savings account transfer overdraft protection product as offering ‘convenience and peace of mind.’ On the other hand, Citizens Bank sent an addendum to its deposit disclosure in late 2004 describing the account’s ‘courtesy’ overdraft provisions and informing consumers that overdrawing a check, ATM or debit card transaction would incur a fee of between $25 and $33 each, depending on the number of days the account remains overdrawn. This disclosure did not inform consumers that they could purchase optional savings account overdraft transfer coverage for $3 per month or apply for an overdraft protection line of credit which costs $20 annually, both of which could be more affordable for consumers.[10] (emphasis added)
It seemed that things would change for the better in 2010 as the rules regarding overdraft fees changed. Starting in July, banks were now “required to allow debit card customers to opt-in to overdraft fees rather than automatically enrolling card users in programs that charge $20 to $30 whenever there are insufficient funds to cover purchases,”[11] meaning that if one didn’t have the necessary funds to complete a transaction, their debit cards would be declined at the register. Unfortunately, banks found a way around this by engaging in bank fee manipulation. Information came out in August 2010 when a federal judge ordered Wells Fargo “to pay California customers $203 million in restitution for claims that it had manipulated transactions to maximize the overdraft fees it charged.”[12]
What occurred was that, rather than dealing with each transaction in the order it was received, Wells Fargo put through the largest to smallest transactions, resulting in people paying increased overdraft fees. The very next year, Bank of America paid out $410 million for the same reasons.[13] But the bank fee manipulation continued, with Forbes reporting on the findings of a 2012 Consumer Financial Protection Bureau (CFPB) report which showed that it was still ongoing.[14]
The situation can get much, much worse though. The Center for Responsible Lending complied a report in July 2013 which found that while the average banks charges an overdraft fee of $35, some banks “also add a ‘sustained overdraft fee’ once the account has remained overdrawn for several days. At some banks, this is a one-time additional fee in the $35 range; at others, it is a fee in the $6-$8 range charged daily until the account balance is returned to positive” and that while a few banks have put limits on such sustained fees, it “still [allows] for daily fees in the hundreds of dollars.”[15] So not only are people’s bank fees being manipulated so that they pay more money in overdraft fees, but unless they can come up with the money quickly, the problems worsen.
For all this talk that’s been going on, though, we still have yet to discuss exactly who suffers from overdraft fees.
In 2008, the FDIC found that “9 percent of checking account customers bear about 84 percent of overdraft fees” and that evidence pointed to overdraft fees disproportionately impacting low-income and young customers.[16] A CFPB 2014 report reinforced this information as one of the key findings was that “eight percent of customers incur nearly 75 percent of all overdraft fees” and that “10.7 percent of the 18-25 age group [have] more than 10 overdrafts per year.”[17]
What effectively occurs with overdraft fees is that the poor subsidize the rich. In an article for The Economist, it was reported that “according to the FDIC low income (people who earn less than $30,000) earners are nearly twice as likely to have paid an overdraft fee”[18] and that it wasn’t uncommon for many of these low-income people to rack up fees to the point where they can’t pay them all.
When this occurs, banks close the indebted accounts and it is extremely difficult for people to open accounts at other banks. They are effectively shut off from formal banking, thus forcing them to turn to services such as pre-paid cards which “charge for all kinds of things checking account customers are used to getting for free: loading funds on to the card, point-of-sale purchases, talking to a customer service representative, cutting a check”[19] or check cashing which “can incur an average of 3-5% of the check amount in fees, regardless of the nature of the check.”[20] The costs of both of these can easily add up to more than what it would cost to have a regular checking account.
Alternatives to overdraft fees are asking one’s bank about a linked line of credit[21] or an affordable small-dollar loan.[22] However, the best solution would be to get rid of overdraft fees entirely. By combating overdraft fees, we will be able to free millions of people from the worry of debt and its potential long-term effects.
1: Statistic Brain Research Institute, Overdraft Fee Statistics,
2: Andrea Ryan, Gunnar Trumbull, Peter Tufano, A Brief Postwar History of US Consumer Finance, Harvard Business School, (2010)
3: Alex Berenson, Banks Are Reaping Billions From Stealth Overdraft Charges, Citizen Review Online, (January 23, 2003)
4: Kathy Chu, “Rising Bank Fees  Hit Consumers,” USA Today, October 4, 2005 (
5: Todd J. Zywicki, “The Economics and Regulation of Bank Overdraft Protection,” Washington and Lee Law Review 69:2 (2012), pg 1153
6: Jon C. Ogg, Banks Making The Most From Overdraft and ATM Fees, 24/7 Wall Street, (June 17, 2015)
7: Jean Ann Fox, Patrick Woodall, Overdrawn: Consumers Face Hidden Overdraft Charges From Nation’s Largest Banks, (June 9, 2005)
8: Ibid, pg 5
9: Ibid, pg 7
10: Ibid, pgs 7-8
11: Connie Prater, Fed: Consumers Must Opt In To Debit Card Overdraft Fees, (September 13, 2010)
12: Ron Lieber, Andrew Martin, “Wells Fargo Loses Ruling on Overdraft Fees,” New York Times, (August 10, 2010)
13: Ben Popken, Bank of America Paying Out $410 Million For Reordering Your Transactions To Maximize Overdraft Fees, The Consumerist, (July 14, 2011)
14: Halah Touryalai, “Yes, Banks Are Reordering Your Transactions And Charging Overdraft Fees, “ Forbes, June 11, 2013 (
15: Rebecca Borne, Peter Smith, The State of Lending in America and its Impact On U.S. Households, Center for Responsible Lending, (July 2013), pg 3
16: Consumer Financial Protection Bureau, CFPB Launches Inquiry Into Overdraft Practices, (February 22, 2012)
17: Trevor Bakker, Nicole Kelly, Jesse Leary, Éva Nagypál, Data Point: Checking Account Overdraft, Consumer Financial Protection Bureau, (July 2014). pg 5
18: A.S., “How The Poor Subsidize The Rich,” The Economist, (August 2, 2010)
19: Claes Bell, Check Cashing: Still Not A Good Deal, Bankrate, (November 18, 2011
20: Account Now, Check Cashing Centers: Pros and Cons,
21: Jax Federal Credit Union, Overdraft Protection: Overdraft Line of Credit & Courtesy Pay,
22: Federal Deposit Insurance Corporation, FIL-50-2007,

RBS is telling traders to 'sell everything'

RBS has advised traders to "sell everything" in an alarming research note that warns of a global deflationary crisis.

That would mean prices start to decline, creating a vicious cycle where people hang onto their money rather than invest it in the economy.
“Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small,” RBS said in a note to clients.
RBS said that major stock markets could fall by a fifth and that oil may plummet to $16 a barrel.
Oil flirted with $30 a barrel on Tuesday in lows not seen for over a decade. Morgan Stanley, the American investment bank, said that Brent would slide further to $20 a barrel on currency alone, because the dollar is gaining in value, and oil is valued in dollars.
Oil has already lost 11 per cent of its value so far this year.
A surge in supermarket shares, powered by better than expected Christmas trading results at Morrisons, helped the FTSE 100 index of the 100 biggest companies listed on the London Stock Exchange to make gains on Tuesday morning.
But the FTSE 100 is still suffering its worse start to the year in four decades.
Sharon Bell, a Goldman Sachs European equities strategist, told the BBC that European stocks were so cheap that they were an attractive buy for medium term investors, proving it's not all sell, sell, sell.
"You're looking at a dividend yield on the FTSE 100 of 4 per cent. I think some of that yield is vulnerable, particularly because of a lot of it is paid for by commodities companies but even on the FTSE 250, being a mid-cap index with more UK exposure, there's a dividend yield of 2.5-3 per cent. I think it's looking reasonable," Bell said.
Chinese deflationary fears are weighing on investor sentiment. Trading of Chinese shares was halted twice last week when an automatic circuit breaker kicked in following losses of 7 per cent. China then removed the circuit breaker over fears it was making the situation worse.
China shares suffered another brutal start to the week on Monday, dropping a further 5 per cent.
RBS said that China was at the centre of global stress. “As China slows, as it now is doing now that the credit binge comes home to roost, it is taking the world with it. This is your number one theme for 2016, without any question in my mind,” Andrew Roberts, part of the interest rate team at RBS, said in the note.
Roberts' team first warned about another slowdown in November. It said the US Federal Reserve's decision to raise interest rates had hastened the decline.
Paras Anand, head of European equities at Fidelity International, told the BBC that the RBS note was worrying but symptomatic of a broader shift to pessimism.
"It's probably an extreme version of a view that's starting to form around the idea that we're in an environment of secular stagnation, so low growth, low prices, deflationary environment and I feel that's where consensus is moving to. My perspective would be that risks being far too pessimistic," Anand said.

Central Bankers Converted The US Into A Corporation To Control The People: Anita Whitney

Lottery winners in Illinois get IOUs for prizes over $600

chicago lottery
Back in the good old days when this photo was taken (Feb. 11,) Chicagoans who won the lottery jackpot could actually cash in. But Illinois has capped winnings at $600 because of a budget impass. Bigger winners get an IOU.

You can play the lottery in Illinois these days, but you just can't win much.

The cash-strapped state said on Thursday that it can't pay out anything over $600 for the time being. For a ticket worth more than that, winners get an IOU that won't be paid off until the state government resolves its long-running budget crisis.
Illinois Lottery spokesman Steve Rossi blamed the hold-up on "the ongoing budget stalemate in Springfield," the state capital. "Once a budget is passed, all outstanding claims will be paid."
The administration of Republican Gov. Bruce Rauner has been tussling over the state's finances with the Democratic-controlled legislature for months.
Things have been going downhill for Illinois lottery winners for a while. Back in July the state capped its payouts at $25,000.
Related: How to win the lottery ... and lose it all
Up until Oct. 15, winnings between $600 and $25,000 could only be cashed in at the state's lottery claims centers. But now Illinois' ability to make payments over $600 has been "exhausted," said Rossi.
Winners can still cash in up to $600 at any store selling lottery tickets.
The state is still advertising a big fat jackpot, regardless of its ability to pay it. Illinois Mega Millions jackpot is currently $84 million and Powerball is $80 million.

The US in 2016: No Money for Social Programs, Cash to Burn for the Military

The US Navy’s “goals and objectives” outline for 2016, released last week, does not mince words: the first goal listed in the second subhead reads: “Buy more ships.”
And that is exactly what the world’s most powerful navy is doing. On Wednesday, the Defense Department announced it was moving forward with plans to replace its Ohio-class ballistic missile submarines, the most lethal killing machines in the history of mankind, with a completely new design beginning in 2021.
Each Ohio-class ballistic submarine is, by itself, the fifth most powerful military in the world. The Navy operates 14 of them. Each submarine carries 24 Trident II missiles, with each missile carrying eight warheads with a yield six times greater than the “little boy” bomb that killed over a hundred thousand people in the US bombing of Nagasaki, Japan, in 1945.

Image: The Navy’s Goals and Objectives outline for 2016
With an effective range of more than 7,456 miles, a single Ohio-class submarine in the waters outside of San Diego could obliterate 192 cities in western China, with a combined population of 400 million people, if the commander-in-chief were so inclined.
Image: A comparison of the world’s aircraft and helicopter carriers
But the Ohio class is apparently in need of an upgrade, and the White House gave the Pentagon the go-ahead last Monday to send a “Request for Proposal” to the ship’s contractor, General Dynamics Electric Boat, approving funds for the building of a prototype. Each submarine, of which there will be 12, will cost an estimated $6-8 billion—not including research and development costs, the price of each submarine’s nearly 200 nuclear warheads, and associated operating costs—up from $2 billion for the Ohio class.
The day after the White House gave the go-ahead for replacing the Ohio-class submarines, the Center on Budget and Policy Priorities (CBPP) reported Monday that up to a million people will lose food stamp benefits in 2016.
Twenty-three states are expected this year to lift a moratorium on one of the harshest austerity measures imposed by the Clinton administration’s “welfare reform” program, which caps the amount of time many people are eligible for food stamps at three months. The time limits were halted during the recession, but under the pretense that there is “no money,” to pay for food stamps, states all over the country are re-imposing the time limits.
“The loss of this food assistance, which averages approximately $150 to $170 per person per month for this group, will cause serious hardship among many,” reported the organization. The CBPP notes, “USDA data show that the individuals likely to be cut off by the three-month limit have average monthly income of approximately 17 percent of the poverty line, and they typically qualify for no other income support.”
In announcing the food stamp cuts, Clinton pledged to “spend the taxpayers’ money wisely and with discipline, that we can spend more money on the future.” If he had been telling the truth, he would have declared that he was proposing the cuts so that the Navy could “Buy more ships.”
After all, the money has to come from somewhere. And it’s easiest to take from those who are the least capable of defending themselves. In addition to the poor people who depend on food stamps to survive, working class children have been targeted.
The same day that the White House gave the go-ahead for the design of the new submarines, the CBPP released a report showing that funding for schools has been slashed in most states since 2008, and in 15 states by more than 10 percent. Arizona has cut education spending by 23.3 percent, Alabama by 21.4 percent, Idaho by 16.9 percent, and Georgia by 16.5 percent.
Image: States have slashed education spending since 2008
While there is, of course, no money for children and the poor, defense contractors are licking their chops over the expected uptick in global military spending resulting from the wars flaring out of control in the Middle East and the growing standoff in Eastern Europe and the Pacific.
Defense industry analyst Deloitte gleefully declared earlier this month that military spending is “poised for a rebound” as a result of “heightened tensions” around the world.
It notes,
“2015 was a pivotal year that saw heightened tensions between China, its neighbors and the US over ‘island building’ in the South and East China Seas, and the related claims of sovereign ocean territory rights by China. In addition, Russia and the Ukraine are at odds related to Russia’s takeover of Crimea and their military actions in Eastern Ukraine,”
while “The recent tragic bombings in Paris, Beirut, Mali, the Sinai Peninsula, and other places have emboldened nations to join in the fight against terrorism.”
Image: The US spends more on its military than the next seven countries combined
The report notes that “improved profitability” will result from “renewed interest from buyers” in acquiring “armored ground vehicles, ground attack munitions, light air support aircraft” and “maritime patrol ships and aircraft,” as “the military operations tempo is likely to increase and more missions are executed.”
The global uptick in military spending coincides with a major new shopping spree by the United States, which spends as much money on its military as the next seven countries—China, Russia, Saudi Arabia, France, the UK, India and Germany—combined. The US expends $609.9 billion out of the $1.7 trillion spent worldwide by all countries each year on war.
But this figure is slated to surge as “Many large, mainly US [Department of Defense] programs representing billions of US dollars, are likely to start soon, enter the engineering manufacturing design phase, and reach low-rate or full-scale production over the next few years. These programs include Ohio Class Submarine replacement, F-35 fighter jet, KC-46A aerial refueling tanker, and Long Range Strike Bomber.”
Just one of these programs, the F-35 “Lightning II,” plagued with delays and cost-overruns, will cost $1.45 trillion over its lifecycle, more than twice the amount that state, federal, and local governments spend educating 50 million children each year.

Nigerian Currency Collapses After Central Bank Halts Dollar Sales To Stall "Hyperinflation Monster"

Having told banks and investors "don't panic" in September, amid spiking interbank lending rates and surging default/devaluation risks, it appears the massive shortage of dollars that we warned about in December has washed tsunami-like ashore in oil-producing Nigeria. Following the Central bank's decision this week to halt dollar sales to non-bank FX market operators, black market exchange rates spiked to 282/USD (vs 199 official) and CDS spiked to record highs implying drastic devaluations loom.
As Reuters reports, Nigeria's central bank is halting dollar sales to non-bank foreign exchange operators and letting commercial banks accept dollar deposits with immediate effect, its governor said on Monday, in an effort to shore up dwindling foreign reserves.
Africa's biggest economy, an OPEC member state that depends on oil sales for about 95 percent of its foreign reserves, has been hammered by a collapse in global oil prices, which has triggered a slide in its naira currency.

Godwin Emefiele said the sale of foreign exchange to bureaux de change would be discontinued because they were using up the country's foreign reserves for illegal transactions and selling the dollar at 250 naira compared to the official central bank rate of 197 naira.

The currency hit a record low of 282 per dollar on the unofficial market on Monday after the central bank's announcement.

Emefiele said foreign reserves stood at around $28 billion compared with $37 billion in June 2014, and that the bureaux were depleting them at a rate of $28.4 million per week.

"This is a huge haemorrhage on our scarce foreign exchange reserves, and cannot continue," Emefiele told a news conference in the capital Abuja.
To avoid devaluing the currency, a stance so far supported by President Muhammadu Buhari, the central bank adopted increasingly stringent foreign exchange rules last year and effectively banned dollar access for the purchase of 41 items, which has also been criticised at the World Trade Organisation by the United States and the European Union.
The CDS market gives the clearest picture of what traded levels for the Naira may be like...

Implying at least a 20-25% devaluation of the Naira is already priced in to capital markets and any efforts to stall the outflows will inevitably leak (just as they do in China).
As we concluded previously, of course, defending one's currency is a losing game as not only Argentina most recently, but the Swiss National Bank most infamously, will admit.
"As African central banks place restrictions on access to their dollars, while burning through these reserves to support their currencies, they are also storing up longer-term troubles.
“Few investors will want to put money into a country at an official exchange rate that is not set by the market and which is not seen as sustainable in the long run,“ said Charles Robertson, global chief economist at investment bank Renaissance Capital."
For now Africa has avoided the "hyperinflation monster", the result of an all too predictable scarcity of dollars, however the countdown is on and with every passing day that oil prices do not rebound, the inevitability of a full-on continental currency collapse, with hyperinflation and social unrest to follow, becomes increasingly more likely.
Worse, Africa is just the start: while the manifestations will differ, the mechanics of the dollar shortage, which we recently quantified in the trillions of dollars, are universal, and should the Fed's rate divergence path with the rest of the world continue pushing the USD ever higher, soon this USD-shortage will escape the confines of the world's poorest continent and make landfall somewhere where it will be far more difficult to ignore the adverse consequences of the global commodity collapse and the Fed's monetary policy.
*  *  *
Finally, Nigeria has resorted to desperation, apparently lying about upcomgh emergency OPEC meetings (the same M.O. Venezuela used multiple times last year)...
OPEC will soon make efforts to convene before the next scheduled meeting in June as the slump in oil prices is hurting producers, including the world’s biggest exporter, Saudi Arabia, said Emmanuel Kachikwu, Nigeria’s minister of state for petroleum resources.

Even so, there’s been no formal request for an OPEC meeting, according to three delegates who asked not to be identified. And the U.A.E.’s energy minister said OPEC can’t change its policy because of low prices.
“I certainly hope that it doesn’t go below $30 for the sake and survival of everybody” Kachikwu said. “My perception is that we will see it get worse before it gets better.” Oil is seen ending the year at $40 to $50 a barrel, he said.
And then there is this...
Well if Aramco can do it!!??

Forget $20 Oil: StanChart Says "Prices Could Fall As Low As $10 A Barrel"

A little over a year ago, Paul Hodges was roundly mocked when in December 2014 he made a drastic call that "Oil May Drop To $25 On Chinese Demand Plunge, Supply Glut, Ageing Boomers." After oil got as close as 40 cents away from the dreaded 2-handle, Paul had the last laugh.
But the bigger point is that not only is $20 oil not a shocker any more, it is largely expected and could be indeed welcomed, as first Goldman, then practically everyone else has now admitted it is just a matter of time before oil trades to levels not seen since the 20th century.
So, perhaps to make a name for himself, the head of commodity research at Standard Chartered, Paul Horsnell decided to lower the bar into even more dramatic territory, and overnight suggested that oil prices could drop as low as $10 a barrel.
"Given that no fundamental relationship is currently driving the oil market towards any equilibrium, prices are being moved almost entirely by financial flows caused by fluctuations in other asset prices, including the USD and equity markets,” Horsnell said. "We think prices could fall as low as $10/bbl before most of the money managers in the market conceded that matters had gone too far."
When does he see oil bottoming? "in extreme case, price floor may be set when entire market believes oil has undershot."
So with a new, and even lower bogey, that means that an upper, or even lower $20-print in oil will be the shocker so many bottom hunters are looking for, but instead after this expectations reset, oil may have to indeed drop another $10 before the BTFD algos can finally make some money.
So with a $10 oil bogey now in the books, here is what others are predicting, courtesy of Bloomberg. Spoiler alert: everyone is bearish.
Energy Aspects
  • Even oil in $20s won’t speed market rebalancing
  • Cost of halting and then restarting production makes output curbs unlikely, even at prices below $30/bbl
  • Risk of further price declines “still on the cards”
ADIA head of research Christof Ruhl
  • Conventional oil producers “can’t win” in battle to drive U.S. shale producers out of market
  • U.S. oil shale showing relentless efficiency gains
  • Natixis cuts 2016 Brent forecast by $8.30 to $39.50/bbl
  • “We expect a very slow recovery in oil prices, thanks to the continued resilience of U.S. oil output”
  • Strong demand may lead to gasoline shortage in summer
  • Cites new refinery additions less tailored toward light products, increasing demand for petrol in Asia
  • Cut Brent, WTI 2016 fcasts to $37/bbl on “marked deterioration” of mkt fundamentals
  • Represents $23 cut to Brent fcast, $19 reduction on WTI
In short, peak pessimism is here. The only missing link is one major high-cost oil producer (like Venezuela for example) blowing up. It shouldn't be too long.

Record Numbers Of Retired Americans Are Working Part-Time Jobs

Every other aspect of the US economy may be going to hell in a handbasket, with an acute manufacturing recession starting to spill over into the services sector, but at least the US jobs number is "stellar", right?
We showed one way how the BLS fudges the number higher, when we reported on Friday that of the surge in December jobholders, a whopping 324,000 of these new "jobs" were by multiple jobholders, as in 1 person = 2 (or more) jobs, effectively cutting the job gain in half (or worse). Worse, the total number of jobholders surged to 7.738 million, just shy of an all time high, and the highest since August 2008.

And then there is this.
According to a Bloomberg report, a record number Americans who are retired (or are collecting Social Security) worked part-time last month.
In December, a record 2.6 million workers had either reached full retirement or restricted themselves to work-weeks of 34 hours or less due to Social Security income limitations. Individuals can collect Social Security and work with no limit on earnings once they reach full retirement age. However, if they receive Social Security before full retirement age they will lose some of their benefit if they exceed the annual earnings limit. For 2016, this cap is $15,720. The penalty is a $1 deduction in Social Security for every $2 earned above the limit.

What is most disturbing, is that this is the "data" the Fed uses to justify to the world that its decision to hike rates was the right one. Meanwhile, anyone who is not an economist will take on look at the above charts and realize why 7 years ino the "recovery" there has been no wage growth, and why the Fed is shooting itself both in the leg and in the head by hiking at this point.

U.K. Industrial Output Plunges Most in Almost Three Years

U.K. industrial production fell the most in almost three years in November as warmer-than-usual weather reduced energy demand.
Output dropped 0.7 percent from the previous month, with electricity, gas and steam dropping 2.1 percent, the Office for National Statistics said in London on Tuesday. Economists had forecast no growth on the month.
The data highlight the uncertain nature of U.K. growth, which remains dependent on domestic demand and services. After stagnating in October and falling in November, industrial production will have to rise 0.5 percent to avoid a contraction in the fourth quarter. Hindering that by curtailing export sales is the level of sterling, which, despite falling since mid-November on a trade-weighted basis, is still about 15 percent higher than March 2013.
“It seems likely that manufacturing output will do little better than flatline in the final quarter as a whole,” said Ruth Miller, an economist at Capital Economics Ltd. in London. “Given the strong pound and the continued weakness of demand in the neighboring euro zone, we doubt that the recovery in the export-orientated manufacturing sector will get back on track soon.”
The British currency fell as low as $1.4441 after the data, its weakest level since June 2010. It was trading at $1.4445 as of 10:55 a.m. London time, down 0.7 percent from Monday.

Factory Woes

Manufacturing also delivered a worse-than-forecast performance in November, with output dropping 0.4 percent on the month and by 1.2 percent from a year earlier, the biggest annual decline since July. Factories reduced output in each of the past two quarters.
The data follow other reports of weakness in the manufacturing sector. A survey published by Markit this month showed growth cooled in December, suggesting it made little contribution to the economy in the fourth quarter.
According to manufacturers’ organization EEF, companies are feeling increasingly pressured by issues such as the strength of the pound. It said on Monday that only 56 percent of manufacturers say the U.K. is a competitive location, compared with 70 percent a year ago.
Bank of England officials will probably keep their key interest rate at a record-low 0.5 percent this week. Minutes of the meeting released Thursday may reveal their thinking on the fall in oil prices and worries about China’s economy.

Silver, Silliness, Gold, and Risk

The movie “The Big Short” features Michael Burry.  His statement from Zerohedge:
“It seems the world is headed toward negative real interest rates on a global scale.  This is toxic.  Interest rates are used to price risk, and so in the current environment, the risk pricing mechanism is broken.” 
What risks could be mispriced?  A few come to mind.
  • The world is saturated in debt – over $200 Trillion. Does anyone expect that debt to be repaid?  What are the risks when over $200 Trillion in debt can be counted as an asset ONLY if that massive and increasing debt can be rolled over and replaced with say $300 Trillion in debt?  What are the risks this exponentially increasing debt nonsense will be acknowledged for what it is – a train wreck in progress?
  • The US stock market looks like it is rolling over, just as it did 7+ years ago in 2008, and 15 years ago in 2000, and 1994, and 1987. What are the risks that the S&P 500 is overvalued, that the P/E and a dozen other measures are overvalued, and the stock market will correct/crash?  Think back to 2008, 2000, 1994, and 1987.  Read:  Tread Lightly – 2016 Technical Outlook.
  • People and countries in the Middle East are not playing nice with each other. Regardless of whether the problems are religious, a 2,000 year feud, outside interference, control over gas and oil pipelines, or foreign policy stupidity, the region appears ripe for turmoil and more violence.  Have risks been properly assessed?  What happens if WWIII is born out of the fires of Middle East hatred, energy markets, and political posturing?  Has that risk been properly priced into bond markets with negative yields, or stock markets with historically high P/E ratios, or crude oil prices at multi-year lows?
  • Silver (paper) prices have been crushed by nearly five years of paper selling, derivatives, central bank manipulations, support for stock and bond markets, and more. Have the risks of financial turmoil, economic catastrophe, and escalating war been properly priced into paper COMEX silver prices?
  • Actual physical gold has left the vaults in the western world and moved east into private and public vaults in Russia, India, and China. Have the risks of paper gold defaults (cash settlement) been priced into the COMEX paper price of gold?  What if much of the gold supposedly vaulted in London, New York, and Fort Knox has mysteriously been replaced by “IOU gold” paper promises?  Have the risks of missing gold and increasing demand for real physical gold been properly priced into the paper gold market?
  • What is the risk of nuclear confrontation between Russia and the US? If we believe the bond markets, the risk is exceptionally low, since the prices of money (interest rates), are at multi-decade or perhaps multi-century lows.  Have the risks of major war, or nuclear war, been mispriced in the bond market?
But looking on the silly side of a broken risk pricing mechanism …  (SARCASM ALERT)
  1. Wall Street financial firms are doing “God’s Work” here on earth and will take care of the rest of us.
  2. Social Security recipients will receive no cost of living increase in 2016 because, per the Social Security Administration, “The law does not permit an increase in benefits when there is no increase in the cost of living.” Good to know there has been no increase in the cost of living during 2015!  Apparently the Obamacare price INCREASES in premiums and deductibles compensated for other price increases…. (reminder – sarcasm alert).
  3. The Presidential race is heating up, but good things might happen in a single party political system masquerading as a two party process. Vote for the least offensive candidate and tell yourself there is a difference, not in the candidates, but in the policies that will be implemented.
  4. But don’t worry, be happy, trust debt based fiat currencies with no intrinsic value, and spend, spend, spend, because “deficits don’t matter.” Frankly, what could go wrong?  Remember – sarcasm alert!
Silver thrives, paper dies!  That mantra will serve us well in 2016 and 2017 since paper silver prices are currently very low compared to ratios to the US national debt, the S&P 500 Index, total global debt, fiscal and monetary silliness, and political stupidity (graphs not shown).  If risk has been mispriced because the “risk pricing mechanism is broken” as Michael Burry says, then we should expect a volatile and traumatic year in 2016 as risk pricing adjusts. 
Rig for stormy weather, expect surprises, markets regressing to the mean, pricing mechanisms failing, political systems collapsing, and Middle-East politics exploding.  There will be blood and trauma.  Do not trust the supposed value of paper assets and find security in real assets such as silver and gold bars and coins stored outside the financial system.

Silver thrives, paper dies!

Gary Christenson
The Deviant Investor

CRASH2: Lalalalalah on the business channels, but one bank says “Sell everything”


“Sell everything except high quality bonds. This is about return of capital, not return on capital.”RBS yesterday

Tom Orlik of Bloomberg has a piece up this morning pointing out that the Shanghai sieve doesn’t say anything about the Chinese economy, so what’s all the fuss about?
It’s insouciant pieces like this one that make me despair as to where Page One has gone. Surely, if the Shanghai has nothing to do with ‘real’ business, then the whole bourse form of capitalism is shot full of holes?
The TV version of Big B had a British asset manager – obviously a bloke with an illustrious past, so he ought to have something worth listening to – opining at the same level as Orlik….that is, ‘business as usual’. The euro, he said, was 20% undervalued against the Dollar. He didn’t interrogate why the Dollar is so ridiculously high. Nor did he venture a view as to whether the euro is worth anything – let aone 80% of the buck. But he was happy about today’s UK retail results, because the word was that the companies involved had beaten analysts’ expectations. I almost never rate such expectations, because most of the idiots involved don’t know what they’re talking about. In turn, I rarely trust ‘results’ because they are always full of massage and obfuscation. But he didn’t venture anything about why Sterling has weakened against the euro – so I will: Osborne’s scooter has lost a wheel, and has a puncture in the other one.
Finally, the Brit asset expert said eurozone equities – especially the banks – looked like “a good entry point for investors”. I’m so glad. Mainly, I’m glad he isn’t my wealth manager.
As well as chucking Yuan at the Shanghai, the PBOC, it now emerges, is upping spend on the currency to balance the onshore and offshore rates. It also intervened several times during last night’s session. But not to worry, because Tom Orlik says it’s nothing to do with business. And capital flight is nothing to do with business, and the price of the Yuan has nothing to do with exports, and the collapsing price of a Top Ten Company has nothing to do with investment in business and sexual intercourse is totally unrelated to population growth.
One of the UK retailers reporting today is Morrisons. Lots of people are jumping for joy because its like-for-like sales are positive. Put out more flags: people should look more closely at its ROI per square foot in general, and its margins in particular. You can’t have the cheapo sector storming ahead without the middle fatties suffering somewhere along the line. Only Sainsbury has given out the right message – watch the pennies but don’t compromise on quality – and it’s paid off. Tesco and M&S, by contrast, are all over the place.
The overall point I’m making here is that no major television 24/7 channel is paying any heed to the underlying causes of what’s going on: the growing dominance by, and dysfunction of, bourse globalism, the atrocious lending history of banks, the runaway nature of the UK national debt, the inexperience of the Beijing politburo, the global slump being disguised with QE, the inability of Britain’s poorest 50% to drive a consumption recovery, the overdependence of the London City on commodity trading, the planetary dependence on debt for growth, and the hare-brained geopolitics of oil overladen on an already plunging commodities sector.
The price of oil is now $30.35, and RBS thinks it could drop to $18. Rubbish Bank of Shakey is, without question, one of the most doubtful investments in Europe; but on the other hand, when it comes to being in the mire, there is the old adage that it takes one to know one. On a landscape full of people looking the other way as a mushroom cloud sprouts on the horizon, at the moment RBS is a notable exception.
“Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small,” said its latest client note. The investment arm expects stock market corrections of around 20%, while having the nous to note that both investment lending and world trade are way, way down. What, indeed, is the point of rising liquidity if nobody has the confidence to borrow it?
RBS has been ultra-bearish for six weeks now, and it’s hard to argue that they’ve been wrong: the markets are down roughly 6%, and as far as I’m concerned the argument that China doesn’t matter is codswallop: the economy bone is connected to the Shanghai bone, and the China bone is connected to the global bone. Any other view is just idiocy or PR.