Category Archives: Other Views

Turkey’s President Gets His Majority – at a Terrible Price, by Conn Hallinan

Posted on November 5, 2015 | Leave a comment

From Conn Hallinan at antiwar.com:

To reverse his fortune at the polls, Erdogan reignited Turkey’s war with the Kurds, stood silent while mobs attacked his opponents, and unilaterally altered the constitutional role of his office

If there’s a lesson to be drawn from the November 1 Turkish elections, it’s that fear works, and there are few people better at engendering it than Turkish President Recep Tayyip Erdogan. Only five months after his Justice and Development Party (AKP) lost its majority in the Turkish parliament, a snap election put it back in the driver’s seat.

The cost of the victory, however, may be dear.

To achieve it, Erdogan reignited Turkey’s long and bloody war with the Kurds, stood silent while nationalist mobs attacked his opponents, and unilaterally altered the constitutional role of his office.

Observers from the Council of Europe and the Organization for Security and Cooperation in Europe said that violence and attacks on the media had a significant impact on the election. “Unfortunately we come to the conclusion that this campaign was unfair, and was characterized by too much violence and fear,” said Andreas Gross, a Swiss parliamentarian and head of the Parliamentary Assembly of the Council of Europe delegation.

At the same time the European Union itself seemed to favor an AKP victory. The EU Commission held off a report critical of Turkish democracy until after the vote. And two weeks before the election, German Chancellor Angela Merkel visited Turkey bearing $3.3 billion in aid for Syrian refugees and an offer for Turkey to revive its efforts to get into the EU. Previously, Merkel had been opposed to Turkish membership in the EU.

The finally tally is almost everything Erdogan wanted, although he fell short of his dream of a supermajority that would let him change the nature of the Turkish political system from a parliamentary government to one ruled by a powerful and centralized executive – himself.

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This Is the Worst U.S. Earnings Season Since 2009, by Blaise Robinson

Posted on November 5, 2015 | Leave a comment

From Blaise Robinson at bloomberg.com:

This U.S. earnings season is on track to be the worst since 2009 as profits from oil & gas and commodity-related companies plummet.

So far, about three-quarters of the S&P 500 have reported results, with profits down 3.1 percent on a share-weighted basis, data compiled by Bloomberg shows. This would be the biggest quarterly drop in earnings since the third quarter 2009, and the second straight quarter of profit declines. Earnings growth turned negative for the first time in six years in the second quarter this year.

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The Fed Desperately Tries to Maintain the Status Quo, by Ronald-Peter Stöferle

Posted on November 5, 2015 | Leave a comment

From Ronald-Peter Stöferle at mises.org:

During the press conferences of recent FOMC meetings, millions of well-educated investment professionals have been sitting in front of their screens, chewing their fingernails, listening as if spellbound to what Janet Yellen has to tell them. Will she finally raise the federal funds rate that has been zero bound for over six years?

Obviously, each decision is accompanied by nervousness on the markets. Investors are fixated by a fidgety curiosity ahead of each Fed decision and never fail to meticulously observe Janet Yellen and the FOMC, and engage in monetary ornithology on doves (growth- and employment-oriented FOMC members) and hawks (inflation-oriented FOMC members).

Fed watchers also hope for some enlightening information from Ben Bernanke. According to Reuters, some market participants paid some $250,000 just to join one of several dinners, where the ex-chairman spilled the beans. Apparently, he does not expect the federal funds rate to return to its long-term average of about 4 percent during his lifetime.

In a conversation with Jim Rickards, Bernanke stated that a rate hike would only be possible in an environment in which “the U.S. economy is growing strongly enough to bear the costs of higher rates.” Moreover, a rate increase would have to be clearly communicated and anticipated by the markets — not to protect individual investors from losses, Bernanke assures us, but rather to prevent jeopardizing the stability of the “system as a whole.”

It is axiomatic that zero-interest-rate-policy (ZIRP) cannot be a permanent fixture. Indeed, Janet Yellen has been going on about increasing rates for almost two years now. But, how much more lead time will it require to “prepare” the markets? In both September and October the FOMC chickened out, even though we are not talking about hiking the rate back to “monetary normalcy” in one blow. The decision on the table is whether or not to increase the rate by a trifling quarter point!

The Fed’s quandary can be understood a little better by examining what “monetary normalcy,” or a “normal interest rate,” is supposed to be. Or, even more fundamentally: what is an interest rate?

We “Austrians” understand an interest rate as an expression of market participants’ time preference. The underlying assumption is that people are inclined to consume a certain product sooner rather than later. Hence, if savers restrict their current consumption and provide the resources for investment instead, they do so only on condition that they will be compensated by increased opportunities for consumption in the future. In free markets, the interest rate can be regarded as a measure of the compensation payment, where people are willing to trade present goods for future goods. Such an interest rate is commonly referred to as the “natural interest rate.” Consequently, the FOMC bureaucrats would ideally set as a goal a “normal interest rate” that equals the “natural” one.

This, however, remains unlikely.

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Global Trade In Freefall: China Container Freight At Record Low; Rail Traffic Tumbles, Trucking Slows Down, by Tyler Durden

Posted on November 5, 2015 | Leave a comment

The signs are everywhere: the global economy is getting weaker. Stock markets to follow? Not if the central bankers can help it. From Tyler Durden at zerohedge.com:

Over the past year we have regularly contended that a far greater threat to the global economy than either corporate earnings, currency devaluations, rate cuts (or hikes), reserve outflow, or even the stock market, is the sudden, global trade crunch which has been deteriorating rapidly since late 2014 and has seen an even more dramatic drop off as 2015 is winding down. Actually, that is incorrect: global trade is merely a manifestation of the true state of the above listed items.

First, there was ships.

Back in March, we reported that “Global Trade Volume Tumbles Most Since 2011; Biggest Value Plunge Since Lehman.”

Then in August when we first pointed out a dramatic slowdown in the Baltic Dry index which had peaked just a few weeks earlier and we said that “should the dead cat bounce in shipping rates indeed be over, and if the accelerate slide continues at the current pace, not only will shippers mothball key transit lanes, but the biggest concern for global economy, the unprecedented slowdown in world trade volumes, which we flagged a week ago, will be not only confirmed but is likely to unleash yet another global recession.”

Three weeks later, we we got confirmation that the BDIY has indeed become a lagging indicator to actual demand, when Reuters reported in its latest weekly update using data from the Shanghai Containerized Freight Index, that key shipping freight rates for transporting containers from ports in Asia to Northern Europe fell by 26.7 percent to $469 per 20-foot container (TEU) in the week ended on Friday.The collapse in rates is nothing short of a bloodbath: “it was the third consecutive week of falling freight rates on the world’s busiest route and rates are now nearly 60 percent lower than three weeks ago.

Fast forward to the latest update from the China Containerized Freight Index which as of October 30 has fallen about as far as it ever has in history: at 744.44 it was the lowest on record which suggests that beyond the headline propaganda of some nascent recovery, global trade has literally fallen of a cliff.

And while one could try the usual excuse and blame an excess supply of ships, while ignoring the fact that a third of all containers shipped out of the ports of LA and Long Beach port are now empty…

Then there was trains.

According to Reuters, “freight carried by major U.S. railroads fell by 7 percent in the second quarter of 2015 compared with the same period in 2014, confirming that large parts of the industrial economy are in recession.”

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How Beijing and the West Work Together to Manipulate the Global Currency War, by Brendan Brown

Posted on November 4, 2015 | Leave a comment

From Brendan Brown at mises.org:

From reading the commentaries you might have imagined that the process of a currency winning international reserve status depends on getting the IMF seal of approval. At least that seems to be the story with China.

So, strange to tell, the great international monies of the past evolved either before the IMF was created or without its help. Think of the Deutsche mark and Swiss franc — the two upstarts of the 1970s and 1980s — or briefly the Japanese yen when it enjoyed great popularity. Their emergence was due to the path of monetary stability chosen by their issuing authorities together with complete freedom from restrictions.

So why is the world of currency diplomacy now playing along with the nonsense of the IMF examining whether the Chinese yuan has met the criterion to become a reserve currency?

Incidentally, the last time that Washington body bestowed “reserve currency status” it was with respect to the Australian dollar and Canadian dollar, on the eve of the bust for the respective commodity and carry trade bubbles which sent them to their respective skies.

Beijing and DC Pick the Winners and Losers

The question as to why the Western world is playing along with the official Chinese currency charade is part of a more general point. Why do Western governments pursue non-market trade diplomacy so enthusiastically with Beijing?

Think of the repeated times that Chinese communist party dictators traveled to a particular Western capital to hand out their list of chosen beneficiaries of Chinese corporate (mostly state) spending. These dictators were welcomed by fawning officials and bureaucrats who assured us that they also brought up, with muted whispers and inaudible comments, the problem of human rights to their guest.

And, by the same token, why are there high profile visits of Western leaders to China, presenting their own list of chosen industrialists selected to pick up the new business deals? This is not the way free markets, and global free trade, in particular, is meant to work.

If it smells like a rat it probably is a rat, and so it is with respect to these deals by collusion between China and Western governments, and their chosen corporate protégés, whether on currency or trade or investment matters. This is all an exercise in some combination of crony capitalism (with cronies on both sides!) and diplomacy by stealth. The gains and gainers are deliberately kept opaque. The losers are much less evident than the gainers, on whichever side of the fence, but principle and practice tells us that the total losses are much larger than the gains.

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The Most Important Chart You’ve Never Seen: Tax Receipts Top-Tick the Stock Market, by Charles Hugh Smith

Posted on November 4, 2015 | Leave a comment

From Charles Hugh Smith at oftwominds.com:

This time is always different just before a bone-crushing decline.

This may well be the most important chart you’ve never seen. Courtesy of longtime analyst-correspondent B.C., this chart reveals that real per capita tax receipts have reliably top-ticked the stock market since 1973.

Note that this is specifically real (i.e. adjusted for inflation) state and local income tax and sales tax receipts–not federal tax receipts–and that the chart show annualized changes smoothed over three different time frames: seven quarters, 6 years and 9 years.

Anyone who sold stocks once the 6-year annualized change in real local/state tax receipts started declining would have been spared the horrendous, bone-crushing losses of the Bear markets that subsequently shredded stocks.

This indicator even worked reliably to identify Bear market rallies that briefly boosted tax receipts before rolling over: the stock market rally of 1975 to 1977 reversed the annualized decline in tax receipts but when tax receipts rolled over in 1977, that was a reliable top-tick of a market that subsequently fell 25%.

The annualized 6-year change nailed the top of the market in 1989, 2000, 2008–and now, in 2015. This leaves current bulls with the task of explaining why an indicator that has reliably top-ticked every previous market top for over 40 years is suddenly and magically wrong in 2015.

This time is always different just before a bone-crushing decline.

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When a 127-Year-Old U.S. Industry Collapses Under China’s Weight, by Joe Deaux

Posted on November 4, 2015 | Leave a comment

The global economy is just peachy, honest. From Joe Deaux at bloomberg.com:

Alcoa cutting back on aluminum making is sign of regime change

Prices for metal tumbled 27 percent in past year on LME

Alcoa Inc.’s latest aluminum-making cutback is signaling the end of the iconic American industry.

For 127 years, the New York-based company has been churning out the lightweight metal used in everything from beverage cans to airplanes, once making it a symbol of U.S. industrial might. Now, with prices languishing near six-year lows, it’s wiping out almost a third of domestic operating capacity, Harbor Intelligence estimates. If prices don’t recover, the researcher predicts almost all U.S. smelting plants will close by next year.

While that’s a big deal for the U.S. industry and the people it employs, it doesn’t mean much for global supplies. Alcoa’s decision to eliminate 503,000 metric tons of smelting capacity accounts for about 31 percent of the U.S. total for primary aluminum, but less than one percent of the global total, according to Harbor. For more than a decade, output has been moving to where it’s cheaper to produce: Russia, the Middle East and China. A global glut has driven prices down by 27 percent in the past year, rendering American operations unprofitable and accelerating the pace of the industry’s demise.

To continue reading: US Aluminum Industry Collapses Under China’s Weight

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US Gross National Debt Jumps $340 Billion in One Day, by Wolf Richter

Posted on November 4, 2015 | Leave a comment

From Wolf Richter at wolfstreet.com:

The US Gross National Debt, that monster that keeps ballooning so much faster than our infamously slo-mo economy, just jumped by $340 billion in one day.

The debt ceiling was hit in March, and from that point forward, the Gross National Debt was stuck at about $18.15 trillion, give or take a couple of billion. But the government continued spending the money that Congress had told it to spend, though Congress also told the government not to issue more debt to pay for this spending. If this sort of debt-ceiling fight looks like a Congressional charade to the world outside the Beltway, it’s because it is a charade.

So instead of issuing new debt, the Treasury relied on “extraordinary measures,” taking the money it needed from other government accounts, robbing Peter to pay Paul so to speak, and ended Fiscal 2015, on September 30, with a total Treasury debt outstanding of, well, the same $18.15 trillion.

That remained the Gross National Debt until just now. In late October, Congress agreed to raise the debt ceiling and end the charade, days before the out-of-money date, as everyone knew it would. The Treasury then embarked on a flurry of activity, undoing these “extraordinary measures” and going on a debt-sales binge. Now it made the accounting entry – adding $340 billion in one day to the Gross National Debt, bringing it to the new phenomenal level of $18.492 trillion.

Over fiscal 2015 plus October, the Gross National Debt rose by $668 billion, up 3.7% over the period, growing nearly twice as fast as GDP, which edged up from Q3 2014 to Q3 2015 a measly 1.95%.

This leaves the Gross National Debt at 107% of 2014 GDP and 105% of estimated 2015 GDP.

This chart shows the peculiar fiscal condition of America over the years: Since 2002, the government has borrowed $12.7 trillion, or two-thirds of the total debt! Since 2008, it has borrowed $9.5 trillion, or about half of the total debt, the biggest “stimulus” package of all times:

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US Is Still Stonewalling an Independent Review of Why It Bombed a Hospital, by Nazish Kolsy

Posted on November 4, 2015 | Leave a comment

In this country the Afghanistan hospital bombing is already down the memory hole. In Afghanistan, the victims are still dead, the hospital is still destroyed, and the US government has still not explained itself. From Nazish Kolsy at antiwar.com:

“Even war has rules,” said Doctors Without Borders head Dr. Joanne Liu as part of her response to the devastating US bombing of the organization’s hospital in Kunduz, Afghanistan earlier this October.

After a series of different explanations and excuses – four separate accounts of the incident over the first four days, by The Guardian’s count – the United States still hasn’t provided a concrete explanation as to why and how the hospital was targeted, killing 22 doctors and patients. The attack was the worst on any Doctors Without Borders hospital in its 44 years of operating.

But it wasn’t all that different from other recent US attacks on civilian infrastructure. Since as far back as 1991, the US has been “accidentally” blowing up medical and humanitarian facilities in a range of places, resulting in high civilian casualties and other “collateral damage.”

To name but a few, in 1991 the US targeted an air raid shelter in Baghdad, killing 408 Iraqi civilians. (A US general claimed the shelter was “an active command-and-control center.”) In 1998 the Clinton administration attacked the Al Shifa pharmaceutical factory in Sudan, which the US claimed was associated with the bin Laden network and was “involved in the production of materials for chemical weapons.” As a result, according to The Intercept, “tens of thousands of people have suffered and died” from “treatable diseases” in the country since then. In 2001, the US attacked the complex that housed the International Committee of the Red Cross in Kabul – not once but twice, destroying storage warehouses that held food and supplies for refugees.

The incident in Kunduz, unfortunately, just adds to the list.

While past incidents have often failed to elicit serious calls for accountability, Doctors Without Borders – also known by its French name, Médecins Sans Frontières, or MSF – responded with an outraged press release demanding an independent, impartial investigation of the incident. Appalled by the lack of responsibility taken by either the Afghan or US government, MSF characterized the strike as an attack on the Geneva Conventions. “This cannot be tolerated,” the statement explained. “These Conventions govern the rules of war and were established to protect civilians in conflicts – including patients, medical workers, and facilities. They bring some humanity into what is otherwise an inhumane situation.”

So far, the United States is refusing to comply with MSF’s request for an independent, impartial investigation and instead is carrying out three investigations of its own conducted by the Department of Defense.

To continue reading: US Is Still Stonewallingan Independent Review

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QE’s Creeping Communism, by Peter Schiff

Posted on November 4, 2015 | Leave a comment

Want to know how endless quantative easing turns out? You need look no farther than Japan. From Peter Schiff at europac.com:

Most economists and investors readily acknowledge that the current period of central bank activism, characterized by extended bouts of quantitative easing and zero percent interest rates, is a newly-blazed trail in economic history. And while these policies strike some as counterintuitive, open-ended, and unimaginably expensive, most express comfort that our extremely educated, data-dependent, central bankers have a pretty good idea as to where the trail is going and how to keep the wagons together during the journey.

But as it turns out, there really isn’t much need for guesswork. As the United States enters its eighth year of zero percent interest rates, we should all be looking at a conveniently available tour guide along the path of perpetual easing. Japan has been doing what we are doing now for at least 15 years longer. Unfortunately, no one seems to care, or be surprised, that they are just as incapable as we have been in finding a workable exit. When Virgil guided Dante through Hell, he at least knew how to get out. Japan doesn’t have a clue.

Despite its much longer experience with monetary stimulus, Japan’s economy remains listless and has continuously flirted with recession. In spite of this failure, Japanese leaders, especially Prime Minister Shinzo Abe (and his ally at the Bank of Japan (BoJ), Haruhiko Kuroda), have recently doubled down on all prior bets. This has meant that the Japanese stimulus is now taking on some ominous dimensions that have yet to be seen here in the U.S. In particular, the Bank of Japan is considering using its Quantitative Easing budget to buy large quantities of shares of publicly traded Japanese corporations.

So for those who remain in doubt, Japan is telling us where this giant monetary experiment leads to: Debt, stagnation and nationalization of industry. This is not a destination that any of us, with the possible exception of Bernie Sanders, should be happy about.

The gospel that unites central bankers around the world is that the cure for economic contraction is the creation of demand. Traditionally, they believed that this could be accomplished by simply lowering interest rates, which would then spur borrowing, spending and investment. But when that proved insufficient to pull Japan out of its recession in the early 1990s, the concept of Quantitative Easing (QE) was born. By actively entering the bond market through purchases of longer-dated securities, QE was able to lower interest rates across the entire duration spectrum, an outcome that conventional monetary policy could not do.

But since that time, the QE in Japan has been virtually permanent. Unfortunately, Japan’s economy has been unable to recover anything resembling its former economic health. The experiment has been going on so long that the BoJ already owns more than 30% of outstanding government debt securities. It has also increased its monthly QE expenditures to the point where it now exceeds the Japanese government’s new issuance of debt. (Like most artificial stimulants, QE programs need to get continually larger in order to produce any desirable effects). This has left the BoJ in dire need of something else to buy. Inevitably, it cast its eyes on the Japanese stock market.

To continue reading: QE’s Creeping Communism

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