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nuggets of financial self-defence
Financial blog on news and global macroeconomic themes regarding the world economy. The blog's primary focus pertains to inflation, deflation, and hyperinflation, especially currencies, gold, silver, crude, oil, energy and precious metals. Other macro discussion topics include interest rates, China, commodities, the US dollar, Euro, Yuan, Yen, stagflation, emerging markets, politics, Congressional and statewide policy decisions that affect the US and global markets.
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Challenge to Keynesians "Prove Rising Prices Provide an Overall Economic Benefit"

4 godziny 31 min. temu
The ECB has been concerned about falling consumer prices. I propose that's 100% stupid, yet that's the concern.

When the euro declined vs. the US dollar, the ECB was happy that inflation would inch back up. The fear now is that falling oil prices will take away the alleged gain of a falling euro.

With that backdrop, credit the Financial Times for the absurd headline of the week: Eurozone Fails to Benefit from Weak Currency as Oil Price Slides.
Pity the policy makers given the job of rescuing the eurozone from deflation.

The unorthodox steps the European Central Bank has taken since June – including a programme of private-sector asset purchases – have caused a steep fall in the euro. The single currency is down 8.4 per cent against the dollar and 4.75 per cent on a trade-weighted basis from its peaks this year.

The weaker exchange rate will ease pressure on the ECB in its fight to raise inflation back to its target of just below 2 per cent. Mario Draghi, the central bank’s president, has said the currency’s earlier strength explains 0.4 percentage points of the fall in inflation since 2012. In that year, prices were growing 2.7 per cent a year.

But just as this depreciation is starting to fuel inflation, the ECB must contend with a fall in oil prices that all but wipes out the effect of a sliding currency. A weaker euro should swiftly raise the cost of imported energy. Instead, Brent crude has fallen 9 per cent in euro terms this month alone. This is the main reason why eurozone inflation fell again in September to 0.3 per cent, a five-year low – a figure confirmed by data on Thursday.

“The drop in oil prices is a problem for the ECB,” says Marco Valli, an economist at UniCredit, adding, however, that the situation would have been far worse without the single currency’s fall.

“The impact on inflation is already visible and significant – if you still had the euro at 1.40 to the dollar, eurozone inflation would probably be zero.” Pity the Keynesian Fools

Financial Times writers Delphine Strauss and Claire Jones say "pity the policy makers." I say pity the fools who believe the thesis of their article.

There is absolutely no benefit to rising consumer prices. Things are even worse if prices rise but wages don't.

The very essence of rising standard of living is more goods at lower prices thanks to innovation and rising productivity. And there is no reason to believe wages will rise (or keep up with prices) if prices do rise.

Challenge to Keynesians
 
I challenge Strauss and Jones (or anyone else but especially Keynesians and Monetarists) to prove rising prices provide an overall economic benefit.

Sure, those with first access to money benefit (the banks, the already wealthy, and government bodies via taxation). But that is at the expense of everyone else.

The absurd underlying notion behind the battle cry for inflation is that if prices fall people will stop buying things and the economy will collapse.

Reality Check Questions

  1. If price of food drops will people stop eating?
  2. If the price of gasoline drops will people stop driving?
  3. If price of airline tickets drop will people stop flying?
  4. If the handle on your frying pan falls off or your blow-dryer breaks, will you delay making another purchase because you can get it cheaper next month?
  5. If computers, printers, TVs, and other electronic devices will be cheaper next year, then cheaper again the following year, will people delay purchasing electronic devices as long as prices decline?
  6. If your coat is worn out, are you inclined to wait another year if there are discounts now, but you expect even bigger discounts a year from now?
  7. Will people delay medical procedures in expectation of falling prices?
  8. If deflation theory is accurate, why are there huge lines at stores when prices drop the most?

Bonus Question

If falling prices stop people from buying things, how are any computers, flat screen TVs, monitors, etc., ever sold, in light of the fact that quality improves and prices decline every year?

Deflationary Spiral Nonsense

I have discussed this many times before, most recently in Deflationary Spiral Nonsense; Keynesian Theory vs. Practice; Eurozone Policymakers Concerned About Falling Prices
The idea that falling prices are bad for the economy is ridiculous. Taking out insurance against falling prices is even more absurd.

Ask any consumer if he wants lower gas prices, lower food prices, lower hotel prices, lower computer prices, or lower prices on any consumer items and the answer will be yes.

Keynesian Theory vs. Practice

Keynesian theory says consumers will delay purchases if prices are falling. In practice, all things being equal, it's precisely the opposite.

If consumers think prices are too high, they will wait for bargains. It happens every year at Christmas and all year long on discretionary items not in immediate need.Asset Deflation vs. Consumer Price Deflation

What central bankers should fear is falling asset prices, more specifically, loans made on assets in an asset bubble.

The irony is central banks create asset inflation by fighting something everyone on the planet should welcome.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Nonperforming Spanish Loans Near All-Time High as Overall Credit Shrinks

nie., 19/10/2014 - 18:25
Huky Guru posted a couple of interesting charts on his blog today about shrinking credit but rising percentage of nonperforming Spanish bank loans: NPLs of banks rebounded to 16.59%. Seven points higher than in the 1994 crisis.

Spanish Bank Shrinking Credit



Nonperforming Loans



The "real" numbers are normalized to account for a change in methodology.  Today's number is just off the all-Time high of 16.73 percent in January of 2014. The "official" high was 13.62% in December of 2013.

Both sets of numbers are "far above the crisis in 1994, when nonperforming loans peaked at 9.15%."

The above charts provide further evidence the recovery in Spain is imaginary.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

FBI Director Warns Google and Apple "If You Don't Decrypt Phones, We'll Do It For You"

sob., 18/10/2014 - 19:45
The Fourth Amendment to the US Constitution is crystal clear in meaning.

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

FBI Director, James Comey, an Obama appointment, does not give a damn what the Constitution says.

In a recent speech, Comey warns If Apple and Google Won't Decrypt Phones, We'll Force Them ToEveryone is stoked that the latest versions of iOS and Android will (finally) encrypt all the information on your smartphone by default. Except, of course, the FBI: Today, its director spent an hour attacking the companies and the very idea of encryption, even suggesting that Congress should pass a law banning the practice of default encryption.

It's of course no secret that James Comey and the FBI hate the prospect of "going dark," the idea that law enforcement simply doesn't have the technical capability to track criminals (and the average person) because of all those goddamn apps, encryption, wifi network switching, and different carriers.

"Encryption isn’t just a technical feature; it’s a marketing pitch … it’s the equivalent of a closet that can’t be opened. A safe that can’t be cracked. And my question is, at what cost?" Comey said. "Both companies [Apple and Google] are run by good people, responding to what they perceive is a market demand. But the place they are leading us is one we shouldn’t go to without careful thought and debate."Safe That Cannot be Cracked

A safe that cannot be cracked and a door that cannot be opened except by the rightful owner is precisely what everyone should want. It's what the Constitution explicitly states. Instead, Comey wants the right to read your papers and search your effects.

Perhaps it’s time to suggest that the post-Snowden pendulum has swung too far in one direction—in a direction of fear and mistrust," claims Comey.

Excuse me, but what pendulum is Comey talking about?

The privacy pendulum has not budged an inch in the right direction. Not one new privacy law has been passed or even discussed.

To prove how much above the law these law-enforcement jackasses are, one Pentagon official stated "I would love to put a bullet in Snowden's head".

No one threatening to kill Snowden has been censured.

For blatant disrespect of the US Constitution, Comey ought to be fired, but there's nary a peep from Obama.

I suggest we need a cultural change from the top down starting with a president who understands and respects the Constitution.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Free Market Response to Ebola

pt., 17/10/2014 - 23:52
In response to Obama's Lame Response to Ebola; No Protocols but Lots of Fearmongering one person responded that I was "over-cooking the Ebola crisis".

Amusingly, another reader accused me of "underplaying the crisis".

A third reader asked "what is the free market response?" A similar question arose in a comment to Acting Man's post The Ebola Outbreak – A Black Swan.

Before tackling the free market issue, let's first review the government's response to date.

  • Airport restrictions but only at 5 airport, not all of them
  • Temperature taking procedures initiated
  • In spite temperature worries, a nurse self-reported to the center for disease control that she had an elevated temperature and ebola patient contact, but was told go ahead and fly

Think about the act of temperature taking. Whoever administered the test would have been in close contact with everyone on or entering the plane. Is that a good idea? Do sneezes and coughs happen?

Enough said.

Free Market Response

It's 100% certain the free market response would not have been the government's response to date.

And what about my proposal of flight bans from epidemic countries?

Government mandated is not free market by definition. But, it's entirely possible my solution is what the free market would have arrived at!

Three Questions I Asked Previously

  1. Is there a chance of spreading the disease by coughing or sneezing? Yes.
  2. Would I want to sit on a plane next to someone who was in contact with an ebola patient? No, and neither would anyone else.
  3. Would I want to sit on a plane next to someone from a country where ebola is viral? No, and neither would anyone else.

Those are common sense questions that airlines may have asked themselves. Airports may have asked similar questions. But airlines do not initiate travel bans in this over-regulated society. Neither do airports.

I read a comment that airlines are being greedy. How so? Airlines are not in position to ban flights from specific countries for medical reasons. 

And the last thing airlines need is plane decontamination efforts to fill an extremely tiny number of seats from those arriving from select African countries.

I pinged Pater Tenebrarum at Acting Man with this comment "I believe the free market response is that airlines would have banned travel from certain African countries."

He responded "Absolutely, but there are many other ways in which we could expect an unhampered market economy to respond to such a situation. In fact, I intend to take up the challenge and write a post about it."

Was I correct? We will never know.

I simply proposed what I thought the free market solution would be in absence of protocols from the center for disease control. I look forward to reading Pater's response.

In the meantime, we know with absolute certainty the government's response was pathetic. We also know McCain's Proposal for an Ebola Czar is equally, if not more pathetic.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Irony of the Day: Yellen Moans About Income Inequality; Seven Things That Cause Inequality

pt., 17/10/2014 - 19:30
Those seeking the irony of the day will find it comes straight from the mouth of the Fed Chair. Please consider Janet Yellen Bemoans Rising US Inequality.
Janet Yellen decried rising inequality on Friday in an unusual speech that may lead to accusations of politicising the US Federal Reserve.

Speaking at a conference in Boston, the Fed chairwoman said she was “greatly concerned” by rising income and wealth inequality, and asked whether it is compatible with American values.

Her remarks will delight the Democrats who championed her as Fed chair, but risk a backlash from Republicans, who may feel she is using the platform of the central bank to promote the causes of their political rivals.

It marks a big step in defining Ms Yellen’s term at the Fed. She has tried to popularise the role, meeting with unemployed people, and now speaking out on issues beyond monetary policy. Despite recent turmoil in financial markets, Ms Yellen made no reference to economic conditions or Fed policy in her speech.

“The extent of and continuing increase in inequality in the United States greatly concern me,” said Ms Yellen. “The past several decades have seen the most sustained rise in inequality since the 19th century after more than 40 years of narrowing inequality following the Great Depression.”Look Inward Janet!

Instead of bemoaning income inequality as "incompatible with American values", the Chair ought to look at the cause of it.

Seven Things That Cause Inequality

  1. Fed-sponsored bank bailouts
  2. Fed interest rate suppression that punishes savers and those on fixed income
  3. Fed QE to goose financial assets (primarily held by the wealthy)
  4. Fed-sponsored inflation that benefits those with first access to money: banks, the already wealthy, and government (via property and other taxes)
  5. Government deficit spending, war-mongering, and other inflationary policies
  6. Government interference in the free markets, especially housing, health care, and education

Is Inequality Always a Bad Thing?

Notice, I said seven but only listed 6. Here's the bonus 7th: Innovation.

Those who invent better ways of doing things (or simply do things better than anyone else) often succeed wildly.

But the 7th is the way it should be. It is the essence of free-market-capitalism. Looked at properly, income inequality is actually a necessity!

It's the way income inequality is achieved that makes it good or bad.

Of seven major things that cause income inequality, four are Fed-sponsored, two are government-sponsored, and one is as it should be.

Which one does Yellen bitch about? The 7th of course.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Greece 10-Year Bond Yield Soars to 9% as Prime Minister's Gambit Explodes; Snap Elections Likely, and Opposition Syriza Would Win

pt., 17/10/2014 - 05:50
In the last three days, yield on the Greek 10-year government bond soared from 6.6% to over 9% before settling at 8.917%.



Prime Minister Antonis Samaras' Gambit Explodes

Greek bonds yields had already been climbing with the rise of the radical left Syriza party in recent polls. Icing on the yield-cake was a seriously misguided election ploy by prime minister, Antonis Samaras that blew up in his face.
Greece’s beleaguered prime minister, Antonis Samaras, used a bold gambit last week to win a confidence vote and preserve a coalition government with sagging support: he promised lawmakers that the country would evict its bailout lenders by the end of the year.

Yet Mr Samaras’s plan to make a clean exit from an EU rescue programme and cut short a companion lifeline from the International Monetary Fund appears to be backfiring in dramatic fashion.

Yields on Greece’s long term bonds pushed above 9 per cent on Thursday to their highest level this year as investors doubted that the government had the ability to finance itself without help – let alone press ahead with economic reforms.

Adding to the premier’s woes, Syriza, the radical left opposition party, has increased its lead in opinion polls and threatens to come to power within a few months – an outcome even some members of Mr Samaras’s centre-right New Democracy party now consider probable.

The trigger would be February’s presidential election, where the coalition will have to corral 25 extra votes to secure victory for its candidate. If it cannot, snap elections will be called in March. SYRIZA Widens Lead Over Samaras' New Democracy

Recent polls shows SYRIZA Has Clear Lead Over New Democracy.
A new GPO poll conducted for Mega TV gives SYRIZA a 6.5 percentage point lead over New Democracy.

The survey, whose results were shown on the Anatropi program late on Monday, also places centrist To Potami in third place.

According to the poll, SYRIZA gathers 26.7 percent, New Democracy 20.2, To Potami 6, Golden Dawn 5.7, the Communist Party 5.7, PASOK 4 percent, Independent Greeks 3 percent, LAOS 2.1, ANTARSYA 1.6.

Other parties gained a combined 4.7 percent, while 18.2 percent of respondents said they have not decided yet.

The poll also suggests that the majority of Greeks do not want the presidential election in February to lead to early national polls. The results showed that 55.7 percent are against early elections, while 40.3 percent are in favor.Snap Elections Likely

Even though Greek voters do not want early elections, polls show that outcome is highly likely unless Antonis Samaras somehow hijacks the election or picks up a huge percentage of the undecided electorate.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

WalMart Margins Set to Plunge? Will Rest of Retail Follow? What About Jobs?

czw., 16/10/2014 - 17:21
Retail sales reports on Wednesday have me thinking about the strength of the economy, commercial construction, jobs, and profit margins.

Let's start with a look at retail sales.

The Wall Street Journal reports U.S. Retail Sales Falter Amid Signs of Global Slowdown.

Similarly, Bloomberg reports Weaker Retail Sales Signal Smaller Spending Boost.
Retail sales dropped more than forecast in September on a broad pullback in spending that indicates American consumers provided less of a boost for the economy in the third quarter.

The 0.3 percent decrease followed a 0.6 percent August gain that was the biggest in four months, Commerce Department figures showed today in Washington. Sales fell at auto dealers, furniture stores, building-supply outlets and clothing merchants. The median forecast in a Bloomberg survey of economists called for a 0.1 percent drop.

“The fact that real wages and salaries haven’t picked up that dramatically, it puts a ceiling on how much spending can accelerate,” said Omair Sharif, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut. “It seems like relatively widespread softness in spending. The pickup in consumption that we’re all waiting for hasn’t quite taken off yet.” Slower Store Openings

Reuters reports Wal-Mart to Slow Store Openings, Invest More in Ecommerce
Wal-Mart Stores, the world's largest retailer, said on Wednesday it would open fewer stores in the U.S. in the next fiscal year and ramp up spending on e-commerce.

The retailer will open 180-200 of its small format stores, called Neighborhood Markets, in the next fiscal year through January 2016, Greg Foran, head of the U.S. business, told a meeting of investors and analysts. That compares with its plan to open 270-300 of the small format stores in the current fiscal year.

Foran said Wal-Mart would open 60-70 Supercenters, its large format store, in the next fiscal year, compared with a plan for 115 openings, including conversions, this year.Fewer Stores, Less Hiring

Fewer stores means less construction and less hiring. The former is transitory, the latter more lasting. If this is the trend at Wal-Mart, can Target and other retailers be that far behind?

If so, what does that say about trucking growth to stock the stores, and truckers eating at restaurants along the way? Of course, one also needs to consider the long-term growth aspects of trucking in general.

With trucking in mind, please consider RoboTrucks from Mercedes-Benz to Hit US Highways Within 10 Years; Mish Supply Chain Proposal.

Bleak Outlook for Sales and Profit

Here's a story that really caught my eye: Wal-Mart offers bleaker outlook for sales and profit growth.
Wal-Mart Stores Inc., facing a retail slump and a decline in traffic to big-box chains, cut its annual sales forecast and predicted slower profit growth over the next three years.

Sales will rise 2% to 3% this fiscal year, the Bentonville, Ark., company said Wednesday at its annual meeting with analysts. Wal-Mart had previously projected growth of 3% to 5%, though it indicated in February that it expected to come in at the low end of that forecast.

Chief Executive Doug McMillon is trying to reignite growth at a company hampered by shaky retail spending and slow shopper foot traffic. Wal-Mart's same-store sales — an industry benchmark of health — haven't risen in six quarters. To bounce back, the company is opening fewer big-box locations, focusing instead on smaller neighborhood stores and its e-commerce site.

The 47-year-old executive, who took charge of the company in February, said he sees plenty of room for improvement when visiting Wal-Mart stores on surprise visits. McMillon said stores need to boost in-stock levels — a measure of the merchandise available on shelves for customers to buy. They also should address long checkout lines and improve staffing by increasing the number of worker hours. Margins Set to Plunge

If CEO Doug McMillon is indeed concerned about stock levels and long checkout lines, then he has to commit to more inventory in spite of missed sales targets. More importantly, he will have to hire more employees if he wants to shrink checkout lines.

The latter is good news for hiring, but horrid news for profit margins. Moreover, extra hiring news is balanced by a cutback in store growth.

It is easy to spin the hiring news however one wants. However, stock market levels are more than a bit inflated vs. overall earnings and margin projections.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Pain Trade, Treasury Bears, Margin Calls

czw., 16/10/2014 - 07:38
I have been warning US treasury bears for quite some time, but I now wonder if we have seen a bit of short-term capitulation.

Before discussing further, let's first look at a Mish Mailbag.

Reader Rob writes ...
Hi Mish

I was thinking that margin calls would be made after today and could pull the market down further by Friday. Do you think margin calls would be made to any degree yet?

Also your article Stock Buybacks Peaked With Stock Market in 2007: History About to Repeat? would be a great post on Business Insider.

Thanks, RobBond Market vs. Equities

Generally I stay away from short-term prognosis. As for equities, all I can offer is general advice: Huge plunges do not happen in overbought conditions, but rather oversold conditions.

Even so, the tendency is to bounce not plunge. Are equity dip buyers about to give up? I don't know, but nor does anyone else (but when it happens the plunge is likely to be spectacular).

To me the bond market is far more interesting. I am on record as a treasury bull in belief the US economy is far weaker than most think. My position changes from time to time, and perhaps yields are at a short-term bottom.

A few charts may help explain.

$TYX 30-Year Treasuries



From top to bottom yield on the 30-year treasury went from 2.935% to 2.677%, a swing of 25.8 basis points. That's an enormous move.

$TNX 10-Year Treasuries



From top to bottom yield on the 10-year treasury went from 2.169% to 1.868%, a swing of 30.1 basis points. That's an even bigger move.

In both cases, yields traded well off the lows.

While the same can be said in equities, I have a lot more faith in the bond market (despite Fed manipulations).

Simply put, the bond market does not believe the recovery story and neither do I.

Pain Trade

Bloomberg reports Biggest Pain Trade Gives 37% Loss to Bond Bears Getting It Wrong.
What a dismal time for bond traders who were optimistic about growth.

Investors who poured more than $1 billion this year into a $3.8 billion leveraged exchange-traded fund that bets against long-dated U.S. Treasuries are suffering a 10.7 percent loss this month alone, Bloomberg data show. The fund is down 36.5 percent this year, a small window into the magnitude of pain in a market where many traders have been wagering debt prices would fall.

Treasuries have defied predictions across Wall Street for higher yields all year, and yesterday’s move is sending bond bears into a tailspin. Yields on 10-year Treasuries fell the most since March 2009, trading below 2 percent for the first time since June 2013 as a decline in retail sales prompted traders to reduce wagers the Federal Reserve will start raising interest rates next year.

The move is in part driven by traders covering their short bets, according to Jack Flaherty, an investment manager at GAM USA Inc. in New York.

Primary dealers had the biggest short position on benchmark government notes at the beginning of the month since June 2013. They had a net $20.7 billion wager against notes maturing in the seven-to-eleven year range in the week ended Oct. 1, Fed data show.

We keep thinking we’re getting capitulation trades, but clearly there’s a lot more skeletons in the closet than we thought,” Ira Jersey, an interest-rate strategist at Credit Suisse Group AG (CSGN) in New York, wrote in an e-mail. “We’re also seeing more flight to quality buyers out of global asset classes that are considered ‘riskier.’”  Economic News, Not Ebola

Bloomberg has the story right: There's a lot of hidden skeletons.

In contrast, CNN blamed the stock market decline on ebola. (See Obama's Lame Response to Ebola; No Protocols but Lots of Fearmongering; Where's the Common Sense?)

Where to Now

Where to from here? I found treasuries attractive at the beginning of the year, and I also mentioned them at a Casey Conference presentation I made in September.

Long-term treasuries are no longer the value they were then, but that does not make them a short. Convince me a recovery is coming and the Fed will hike and I will change my tune.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Obama's Lame Response to Ebola; No Protocols but Lots of Fearmongering; Where's the Common Sense?

czw., 16/10/2014 - 04:44
Ebola Fearmongering

I seldom watch TV. But today I am on the road and watched CNN from a restaurant. I did not have sound, but I did see captions.

CNN's headline story was ridiculous. CNN placed the blame for the intraday DOW plunge of 460 point on ebola.

There was no mention of the 21-Point Plunge in Empire State manufacturing Index. Nor was there any mention of weak consumer spending.

What about PEs in the stratosphere? No mention of course. (For discussion, please see Stock Buybacks Peaked With Stock Market in 2007: History About to Repeat?)

Instead, CNN assumed the DOW plunge was based on ebola.

Obama's Lame Response

Fear is in the air, and it's easy to assign blame. A few simple questions will help explain.

  1. Is there a chance of spreading the disease by coughing or sneezing? Yes.
  2. Would I want to sit on a plane next to someone who was in contact with an ebola patient? No, and neither would anyone else.
  3. Would I want to sit on a plane next to someone from a country where ebola is viral? No, and neither would anyone else.

To stop the spread of the disease and the accompanying panic, I have a fourth question:

Why isn't there a flight ban on those from Guinea, Liberia, and Sierra Leone (and every other country where there is a major outbreak)?

Instead, we take temperatures even though the incubation period is as long as three weeks.

To top it off, today we learn 2nd Texas Worker with Ebola Took Flight With Elevated Temperature, and the Center for Disease Control OK'd the flight.
New shortcomings emerged Wednesday in the nation’s response to the Ebola virus after it was revealed that a second nurse was infected with Ebola at a hospital here and that she had traveled on a commercial flight the day before she showed symptoms of the disease.

The nurse, Amber Joy Vinson, 29, was on the medical team that cared for the Ebola victim Thomas Eric Duncan after he was admitted to the hospital on Sept. 28 and put in isolation. Vinson should not have traveled on a commercial flight, federal health officials said, when she boarded Frontier Airlines Flight 1143 on Monday, en route from Cleveland to Dallas-Fort Worth.

One official said Vinson had called federal health officials before boarding the plane to report having a slightly elevated temperature but was allowed to fly.Second Texas Nurse with Ebola Transferred to Special Facility

The Guardian reports Second Texas Nurse with Ebola Transferred to Special Facility.
Concerns over US response intensify after reports say the nurse told the CDC that she had a fever but was still allowed to fly.The second nurse diagnosed with Ebola in Texas is to be transferred from Dallas to a special bio-containment unit in Atlanta, officials announced on Wednesday, as they acknowledged failings in the response to the arrival of the virus in the US.

The Centers for Disease Control and Prevention (CDC) also said that the 29-year-old nurse, Amber Vinson, flew on a commercial flight from Cleveland, Ohio to Dallas with a low-grade temperature a day before she was diagnosed. While in Ohio, she also reportedly travelled from Cleveland to Akron.

Concerns about the US response to the crisis intensified on Wednesday night when it was reported that Vinson told the CDC that she had a slight fever before she boarded the flight but was not told to stay put.

Vinson is the second healthcare worker to have contracted Ebola at Texas Health Presbyterian hospital in Dallas, which treated Thomas Eric Duncan, a Liberian who was the first patient in the US to be diagnosed with Ebola. Another nurse, 26-year-old Nina Pham, was diagnosed at the weekend. Both had cared for Duncan, who died in an isolation ward on 8 October.

The second infection called into question the Dallas hospital’s ability to protect staff treating Ebola patients, and raised concerns about the quality of the initial response to Duncan’s diagnosis by state and federal agencies.

Dr Tom Frieden, the CDC director, conceded on Wednesday that Vinson should not have been allowed to take the flights to Ohio. “We will, from this moment forward, ensure that no other individual who is being monitored for exposure undergoes travel in any way other than controlled movement,” Frieden said.

According to Frieden, the two nurses who contracted Ebola in Dallas had “extensive” contact with Duncan in the days before he was diagnosed, when he was extremely ill, excreting large quantities of highly contagious body fluids. Protocols? What Protocols?

“Were protocols breached? The nurses say there were no protocols,” said National Nurses United Co-President Deborah Burger in a call with reporters Wednesday.

Is the US attempting to contain the disease or not?

In typical US fashion, no one can come up with proper protocols until after panic sets in.

Texas governor Rick Perry cut short a trip to Europe to deal with the ebola crisis in Texas, and President Obama cancelled a campaign trip to deal with the outbreak.

Where's the Common Sense?

In response to McCain Calls for Ground Troops in Syria and an Ebola Czar; Secret Friends a couple of people claimed I was overly downplaying the risk of ebola.

I plead not guilty. Before these latest incidents, I emailed there should be flight bans and procedures to stop the risk of spreading (and that was always my expectation).

What I did not see (but easily could have) was the totally inept response from this administration.

However, even Obama now realizes the situation is serious. He must, because he cancelled a campaign fundraiser. What can possibly be more serious than that?

So, rest assured, unless ebola quickly mutates, the odds of a massive outbreak in the US is extremely unlikely (provided of course common-sense protocols are finally adopted).

Will Common Sense Finally Prevail?

Well, not quite. I actually expect the underwhelming response so far will go overboard in the other direction by orders of magnitude.

Here's an easy prediction: This will culminate with a claim from Obama that he saved us all from ebola.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

21-Point Plunge in Empire State manufacturing Index, New Orders Contract; Future Expectations Remain in Stratosphere

śr., 15/10/2014 - 17:38
The Empire State Manufacturing Survey (a diffusion index) hit a multiyear high last month, then promptly crashed this month.

Diffusion Index Problems

The first problem with diffusion indices is they do not distinguish between big companies and small companies.

The second problem is they record expansion or contraction in companies surveyed, but all expansions (and all contractions) are treated equally. Barely growing and wild growth are treated alike.

Nonetheless, let's take a peek inside the survey.

Survey Details

  • General business conditions (the overall index) fell twenty-one points to 6.2
  • New orders dropped nineteen points to -1.7
  • Shipments fell twenty-six points to 1.1
  • Unfilled orders rose 6 points but remains in negative territory at -4.55
  • Employment rose seven points to 10.2
  • The average workweek fell 4 points to -1.11
  • Prices paid fell thirteen points to 11.4, its lowest level in more than two years
  • Prices received fell eleven points to 6.8
  • Inventories rose 10 points to 2.27

General Business Conditions



Future Expectations Remain in Stratosphere

Curiously, and in spite of this month's swan dive, the index for future general business conditions remains in the stratosphere.

Future Index Components

  • Future general business conditions is a lofty 41.7 (down 5 points).
  • The future new orders index fell three points to 42.3
  • The future shipments index declined five points to 42.5.
  • The capital expenditures index climbed nine points to 21.6, its highest level in several months
  • The technology spending index rose to 15.9. 

Are future expectations too lofty? I think so. Everyone is a believer at the top.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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Post-Foreclosure Hell: Garnished Wages, Seized Assets, Deficiency Judgments

śr., 15/10/2014 - 08:18
In 2009 and 2010 "Walking Away" was the rage. (skip the adds and scroll down to my list of articles).

Back then, I frequently cautioned Before Walking Away Consult An Attorney, advice repeated in nearly every reference to the practice.

Walking away without declaring bankruptcy, especially with a recourse mortgage was always a dangerous practice.

Moreover, law is complicated because rules vary from state to state, and non-recourse loans often became recourse loans if refinanced.

Post-Foreclosure Hell

Unfortunately, Post-Foreclosure Hell is the sorry result for those who did not consult an attorney. Many thousands of Americans who lost their homes in the housing bust, but have since begun to rebuild their finances, are suddenly facing a new foreclosure nightmare: debt collectors are chasing them down for the money they still owe by freezing their bank accounts, garnishing their wages and seizing their assets.

By now, banks have usually sold the houses. But the proceeds of those sales were often not enough to cover the amount of the loan, plus penalties, legal bills and fees. The two big government-controlled housing finance companies, Fannie Mae and Freddie Mac, as well as other mortgage players, are increasingly pressing borrowers to pay whatever they still owe on mortgages they defaulted on years ago.

Using a legal tool known as a "deficiency judgment," lenders can ensure that borrowers are haunted by these zombie-like debts for years, and sometimes decades, to come.

The most aggressive among the debt pursuers is Fannie Mae. Of the 595,128 foreclosures Fannie Mae was involved in – either through owning or guaranteeing the loans - from January 2010 through June 2012, it referred 293,134 to debt collectors for possible pursuit of deficiency judgments, according to a 2013 report by the Inspector General for the agency’s regulator, the Federal Housing Finance Agency.

It is unclear how many of the loans that get sent to debt collectors actually get deficiency judgments, but the IG urged the FHFA to direct Fannie Mae, along with Freddie Mac, to pursue more of them from the people who could repay them. The article notes that Florida is one of the more aggressive states in pursuing "deficiency judgments". For example ... Bank teller Danell Huthsing broke up with her boyfriend and moved out of the concrete bungalow they shared in Jacksonville, Florida. Her name was on the mortgage even after she moved out, and when her boyfriend defaulted on the loan, her name was on the foreclosure papers, too.

On July 5, a process server showed up on her doorstep with a lawsuit demanding $91,000 for the portion of her mortgage that was still unpaid after the home was foreclosed and sold. If she loses, the debt collector that filed the suit can freeze her bank account, garnish up to 25 percent of her wages, and seize her paid-off 2005 Honda Accord.I specifically spotlighted Florida in Before Walking Away Consult An Attorney.

But it's not just Florida.

Reuters reports "Once financial institutions secure a judgment, they can sometimes have years to collect on the claim. In Maryland, for example, they have as long as 36 years to chase people down for the debt. Financial institutions can charge post-judgment interest of an estimated 4.75 percent a year on the remaining balance until the statute of limitation runs out, which can drive people deeper into debt."

Hundreds of thousands of people will soon be in extremely hot water because they failed to seek advice from an attorney, advice which may have cost only a couple hundred dollars in 2009.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Top Secret Spacecraft Returns to Earth This Week After Two Years in Space; Rods From God

śr., 15/10/2014 - 03:16
A US Air Force X-37B Orbital Test Vehicle has been in space for two years conducting top secret research.
Mission

The X-37B Orbital Test Vehicle, or OTV, is an experimental test program to demonstrate technologies for a reliable, reusable, unmanned space test platform for the U.S. Air Force. The primary objectives of the X-37B are twofold: reusable spacecraft technologies for America's future in space and operating experiments which can be returned to, and examined, on Earth.

Features


The X-37B Orbital Test Vehicle is the newest and most advanced re-entry spacecraft. Based on NASA's X-37 design, the unmanned OTV is designed for vertical launch to low Earth orbit altitudes where it can perform long duration space technology experimentation and testing. Upon command from the ground, the OTV autonomously re-enters the atmosphere, descends and lands horizontally on a runway. The X-37B is the first vehicle since NASA's Shuttle Orbiter with the ability to return experiments to Earth for further inspection and analysis, but with an on-orbit time of 270 days, the X-37B can stay in space for much longer.

Technologies being tested in the program include advanced guidance, navigation and control, thermal protection systems, avionics, high temperature structures and seals, conformal reusable insulation, lightweight electromechanical flight systems, and autonomous orbital flight, reentry and landing.X-37B Returns to Earth

Bloomberg reports Supersecret Spacecraft Comes Back to Earth After Two Years
The U.S. Air Force has kept an unmanned space shuttle in orbit for the past two years, and it seems no one without security clearance knows what it’s been doing up there.

The X-37B Orbital Test Vehicle, which can enter orbit and land without human intervention, is scheduled to touch down this week—the best guess is sometime on Tuesday—at Vandenberg Air Force Base, northwest of Santa Barbara, Calif. The landing will mark completion of the program’s third and longest mission, which was launched on Dec. 11, 2012. The Air Force has two such spacecraft for these low-earth orbit missions, all of which are classified, as are the precise launch and landing times.

“The mission is basically top secret,” says Captain Chris Hoyler, an Air Force spokesman.

The spacecraft measures 29 feet long and 9.5 feet high, about one-fifth the size of the retired NASA space shuttles that seem to have inspired its appearance. It has a payload bay that opens in space, just like the larger space shuttles.

The X-37B “is clearly a military program that no one has necessarily felt the need to justify politically,” says Laura Grego, a senior scientist in the global security program at the Union of Concerned Scientists. She says the spacecraft’s likely missions could probably be handled by satellites and other platforms at lower cost to taxpayers.

Marco Caceres, a space analyst with Teal Group, says the Air Force is most likely interested in having a surveillance platform that can “maneuver in orbit faster” than satellites. Darpa is also working on a new hypersonic “spaceplane” called the XS-1 that could offer quick access to space and launch payloads into orbit for less than $5 million per flight. “Quick, affordable, and routine access to space is increasingly critical for U.S. Defense Department operations,” the agency said in its call for proposals for the spacecraft late last year.

As with many top-secret Pentagon programs, speculation has flourished online about what the government is doing with the spacecraft. Theories range from surveillance to, well, more surveillance involving satellites that are so secretive they can only be released in space. Others have suggested the craft is the platform for a new generation of kinetic weapons that can be used from space. XB-37 Image



Rods From God

Bloomberg linked to a Popular Science article Rods from God depicting "Space-launched darts that strike like meteors".



Clearly we need more ways to kill each other from space because we are too inefficient here. Besides, government spending adds directly to GDP. So after we complete the mission on earth, we can bomb the heck out of Mars.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Stock Buybacks Peaked With Stock Market in 2007: History About to Repeat?

wt., 14/10/2014 - 19:41
Variant Perception has an interesting post out today on stock market buybacks: Pillars of Equity Rally Fall Away.
Stock buybacks have been an important feature of the equity rally. Companies have used low rates and easy credit to borrow money and used it to buy their own shares back. An identity for a company’s share price is: S = (revenues * margins * P/E) / # of shares. Buying back shares reduces the denominator in this equation, thus (all other things equal) boosting the stock price. But buybacks are waning; the chart below shows a 27% decline in buybacks between 1Q14 and 2Q14.  YoY it is down 1.6%. (Interestingly, the peak in buybacks was also the peak in the US stock market in 2007.) -



Revenues are closely linked to nominal GDP, and our US leading indicator sees this as lacklustre at best going forward.  Margins we have discussed in previous reports.  Our leading indicator for wages has turned up, and this tends to lead to lower profit margins.  Finally, multiple expansion has been a big driver of equity returns in 2012 and 2013, accounting for about 75% of returns.  However, already in 2014 it is slipping, down from 67% in May to under 50% today (chart below).  In short, the pillars of equity performance are crumbling, making it difficult to see how equities can remain supported between now and into early next year.

Conventional Wisdom vs. Reality

Conventional wisdom says earnings growth is the primary driver for stock performance. It's not. The price investors are willing to pay for stocks is the key driver.

In 2012 nearly 70% of share price increases were due to willingness of investors to accept higher PEs. In 2013, nearly 80% of the stock market rally is attributable to higher PEs.

Shiller 10-Year PE



Following the massive rally over the past several years, stocks are at one of the highest 10-year smoothed PEs in history exceeded only by the bubbles in 2000, 2007, and 1929. For a description of the methodology, please see 'P/E 10 Ratio'

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com   Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Australian Dollar Too High, Markets Face 'Violent' Crash, says RBA Official

wt., 14/10/2014 - 18:37
In June of 2011 it took about $1.10 to buy an Australian dollar. Today it takes about 87 cents.

In the game of competitive currency debasement that's not low enough for Guy Debelle, a Reserve Bank of Australia official. Debelle says Markets Face 'Violent' Crash, Australian Dollar Too High
Reserve Bank assistant governor Guy Debelle has warned against a 'violent' market crash while reiterating the Australian dollar is overvalued.

Speaking at the Citi Annual Australian and New Zealand investment conference in Sydney, Dr Debelle said the Australian dollar was still too high despite falling by about six per cent against the US dollar in September.

"The Australian dollar has depreciated in recent weeks, but on a tradeweighted basis is only back to levels of earlier in the year," he said.

Citing the 1994 global bond market crash as a "good example," Dr Debelle said there were several reasons to suspect that the next sell-off, particularly in fixed income, "could be relatively violent when it comes".

Dr Debelle said heightened tensions in the Middle East and Eastern Europe, uncertainty about US monetary policy and about the direction of Europe and Japan, and concern about the strength of the Chinese economy would normally be sufficient to push volatility measures much higher.

Mr Debelle said he struggled to explain investor complacency."One thing which is certain is that the low volatility will not persist." Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

UKIP Support Hits Record High 25% of Voters; Let's Be Clear: Cameron Clearly a Fake Conservative Liar

wt., 14/10/2014 - 07:53
Support for UKIP (United Kingdom Independence Party) hit a record high 25% following recent elections that gave UKIP its first ever seat in the British parliament.

Still that's one seat out of 650. Is UKIP anything Cameron's Tory party or Labour need fear?

In case you don't already know, the answer can be found in Poll: Support for UKIP Hits Record High.
Support for the anti-EU UK Independence Party hit a record high of 25%, an opinion poll showed yesterday (12 October), days after it won its first elected seat in Britain's parliament at the expense of Prime Minister David Cameron's party.

The survey suggested that UKIP, which favours a British exit from the European Union and tighter immigration controls, could pick up more seats than previously thought in a national election next year.

UKIP's rise threatens Cameron's re-election drive by splitting the right-wing vote, increases the likelihood of another coalition government, and poses a challenge to the left-leaning opposition Labour party in northern England too.

UKIP won its first elected seat in parliament by a landslide in a by-election on Thursday, after a parliamentarian from Cameron's centre-right Conservatives defected and took almost 60 percent of the vote.

Before Sunday, most polling experts had forecast it could win only a handful of the 650 seats in parliament in 2015.

But based on the result of the Survation poll for The Mail on Sunday, the party could win more than 100 seats in 2015, the newspaper quoted a pollster as saying.

Support for the Conservatives and Labour was tied at 31%, according to the poll, which was based on interviews with 1,003 people nationwide.

Labour leader Ed Miliband, whose party came within a whisker of losing a seat in northern England to UKIP on Friday, wrote in The Observer newspaper that he recognised that UKIP was "tapping into a seam of discontent and despair that Labour cannot - and will not - ignore."

Miliband signalled his party would not respond with a knee-jerk policy change, but would stick to its re-election plan to promise a higher minimum wage and more money for the country's health service. Interesting Labour Response

Miliband responds to voter sentiment shifting to the right, with an even stronger shift to the left.  He seeks to splinter UKIP from the Cameron's Tory party, hoping to win the next election.

Indeed, Cameron now warns British citizens that a vote for UKIP is a vote for Labour. 

Who's Bluffing Whom?

The Daily Mail reports 'Go to bed with Farage, wake up with Miliband,' Cameron jokes in warning that a vote for UKIP will hand power to Labour.
Mr Cameron insisted that a vote for UKIP would only make a Labour government more likely.

He told the Conservative conference: "Let's be clear. This is a straight fight. It doesn't matter whether Parliament is hung, drawn or quartered, there is only one real choice. The Conservatives or Labour. Me in Downing Street, or Ed Miliband in Downing Street. If you vote UKIP – that's really a vote for Labour."Cameron Clearly a Liar

"Here's a thought: On 7th May you could go to bed with Nigel Farage, and wake up with Ed Miliband. I don't know about you but not one bit of that works for me," said Cameron.

Here's the equally valid alternative thought: If you vote for Cameron, you will wind up in bed with Ed Miliband and Labour.

So by all means, "let's be clear". Cameron is clearly a liar.

Who Do You Trust?

Cameron asks, "When it comes to Britain's future, who do you trust? Labour – the party of something-for-nothing, and human wrongs under the banner of human rights, or the Conservatives – who believe in something for something, and reward for hard work?"

That is not only a false choice, but a blatantly obvious one at that. Is there not a third party with 25% popular support?

Cameron could easily win reelection if he would put the EU referendum on the ballot right now. But he won't.

Why?

Because Cameron is a fake conservative, clueless about the real meaning of the word.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

End of U.S. Dollar Hegemony - Not

pon., 13/10/2014 - 20:38
Is the end of US dollar hegemony at hand?

Inquiring minds may be asking that question given China’s Zhou Says Some Countries Using Yuan in Reserves.
Some countries are already using the Chinese yuan in their foreign-currency reserves without announcing it publicly, central bank governor Zhou Xiaochuan said.

While China’s yuan has begun to be used as a reserve currency for several years, some countries “may not be willing to say so,” Zhou told Bloomberg on the sidelines of the International Monetary Fund meetings in Washington.

China has stepped up efforts to promote the yuan’s use overseas since the global financial crisis, as expansion in the world’s second-largest economy provides more clout while Europe has yet to fully recover. The European Central Bank will discuss next week whether to begin laying the groundwork to add the Chinese yuan to its foreign-currency reserves, Bloomberg reported yesterday. Over the course of the past decade there has been countless articles on the end of US dollar supremacy, the crash of the dollar, and the rise of the Yuan and Ruble.

Recent Examples


Prime Petrodollar Nonsense

The most ludicrous of the above articles is by Clive Maund on Kitco. It's a perfect example of misguided, overblown, petrodollar hype.

The central thesis of these articles is

  1. It takes dollars to buy oil
  2. Oil is starting to trade in yuan and rubles
  3. Oil will start trading in other currencies
  4. Collapse of the dollar is at hand
  5. Yuan will soon supplant the Dollar as world's reserve currency

The starting thesis that it takes dollars to buy oil is wrong.

As I have pointed out for at least a decade, it does not take dollars to buy oil any more than it takes dollars to buy gold.

Gold is priced in dollars. But you can walk into any coin store in the UK and buy gold with British Pounds; You can walk into any coin store in China and buy gold in Renminbi (yuan); And you can walk into any coin store in France and buy gold with euros.

Oil is priced in dollars. So what? Currencies are fungible. Even if one did need dollars to buy oil (they don't), the pound, Swiss francs, euros, and every other major currency on the planet can instantaneously be exchanged for any other currency at will.

That holds true at both the front and back end. Thus, there is no need for Saudi Arabia (or any other oil exporter) to demand euros, or francs, or whatever, when the exporters can instantaneously convert to whatever freely traded currency they want.

Regardless of the pricing unit, one does not need to stockpile dollars to buy oil. If oil was priced in euros across the board right now, it would not make a damn bit of difference.

Questions for Yuan Lovers

Please note that in spite of all the yuan reserve currency hype, one currency that is not freely convertible is the Yuan.

When will China have the biggest, most open bond market in the world? Next year? A decade? three decades?

I ask these questions because until China has the biggest, most open bond market, a freely floating currency, and it eliminates currency controls, there is no chance the Yuan will supplant the dollar.

And what about political freedoms and global trust? Will a centrally planned undemocratic economy like China ever get that trust?

Petrodollar Silliness Way Back

I talked about the silliness of the petrodollar thesis as early as 2005. (See Oil Priced in Euros. Would it matter?)

In 2009, we saw Ridiculous Hype Over Secret Oil Meetings.

For discussion of another truly ridiculous idea, please consider Countdown To Dollar Implosion Madness in which the dollar was supposed to collapse in favor of a "Super Sovereign Currency" demanded by China. 

Such stories have continued at an endless pace for over a decade.

I bring this all up because of an interesting email from Michael Pettis at China Financial Markets.

Pettis on Chinese Reform, Currency, and Interest Rate Deregulation

In his email, Pettis writes about China's reform, China's banking solvency, currency controls, and other topics related to possibility the yuan will become the next reserve currency.

From Michael Pettis (emphasis mine)... 
Recent rumors that Zhou Xiaochuan will retire as governor of the PBoC should not be interpreted as an indication that Beijing has changed its mind about the urgency of reform. Given Zhou’s age, it was unlikely that he would remain in his seat for very long, and in fact if these rumors are true, they may simply reflect recognition by Beijing that as the reforms are implemented, conditions are likely to become tougher. Replacing Zhou at a later date would then be more damaging then replacing him now.

Contrary to some of the speculation, if Zhou retires soon I don’t think it would imply that there has been a change in policy or policy objectives. Zhou has always been considered as one of the most determined and articulate of the reformers, warning about the perils of excess credit expansion as long ago as 2006-07.

The kinds of reforms that Zhou is believed consistently to have championed are pretty much the liberalizing reforms that will open the Chinese economy up to a far more efficient and productive use of domestic resources.

Currency and Interest Rate Deregulation

Zhou is also considered to be one of the main supporters of systematic efforts to speed up the internationalization of the RMB, the political implications of which are a little murkier. A relaxation of currency controls of course makes it easier for capital to flow into and out of the country, which benefits wealthy individuals eager either to stash money abroad or to bring in outside money quickly to take advantage of domestic profit opportunities, but I am not sure how aware people outside of monetary circles are that removing capital controls is an extremely risky strategy.

China has a rigid, unsophisticated, and largely insolvent financial system with vague delineations between what is and what isn’t implicitly guaranteed by local governments or by Beijing. Managers have little experience of risk management. An elimination of capital controls and a significant increase in the use of the RMB in international trade and capital flows (currently it is a little more actively traded than the Mexican peso, and its use over the past two years has grown slightly faster) could subject the banking system, especially given the uncertainty that surrounds the Chinese economy, to shifts in capital flows.

I don’t think China’s banking system can handle the risk, especially of large inflows followed by sudden massive outflows. These could easily destabilize the Chinese economy at a time when it is most vulnerable. I have heard some analysts, both Chinese and foreign, argue that this kind of risk can be managed by the simple expedient of restoring capital controls as soon as there is a problem, as Malaysia did in response to the 1997 crisis, but it isn’t quite as easy as all that. Regulators are always eager to try to calm markets down whenever a rise in uncertainty threatens to become destabilizing, and to impose capital controls during a period of uncertainty is almost guaranteed to increase the uncertainty substantially. At any rate, during the nearly thirteen years I have lived in China, the elimination of capital controls was always something to be expected within the next five years, and I personally never believed then, nor do I believe now, that we were or are likely to see significant relaxation of capital controls anytime in the foreseeable future.

There have been rumors that Governor Zhou understands this risk, but had nonetheless pressed forward on the issue of currency deregulation largely because, frustrated by the slow pace of financial sector liberalization, he saw this as a way of exerting pressure on the pace of domestic reform. In that case if he were indeed to retire very soon, the timetable for RMB internationalization, such as it is, would probably be pushed back.

Because he had also personally committed very strongly to interest rate liberalization within two years, which, unlike currency deregulation, I believe is an important goal and a plausible timetable, there is a chance that if he does indeed retire soon, the next governor might not feel the same commitment to maintain the schedule. In that case over the next two years, during which time I expect nominal GDP growth to drop by at least 2-3%, pressure by powerful vested interests for whom access to cheap capital was their primary economic advantage might cause the PBoC postpone interest rate deregulation and perhaps even to lower interest rates.

If Zhou leaves, the goal of weaning SOEs and local governments off their addiction to credit would remain, but the cries of pain would be heard a little more sympathetically. Policy objectives, in other words, are unlikely to be changed if Governor Zhou were to retire, but the timing of the reforms might be extended, especially of those reforms to which Zhou had a personal commitment. Zhou had a prestige both domestically and internationally that will be hard to match, and he probably would have found it easier than his replacement to press his views on the president and the premier.

China is slowly moving in the right direction and inevitably the long delay it allowed before rebalancing the economy means that the process will be very difficult and bumpy. There will be steps forward followed by steps backward, as Beijing balances one group against another, but I don’t think we should read too much into events yet. It will take at least another six months to one year before we can say for sure whether or not Beijing has consolidated power enough to rebalance the economy successfully. Until then, we need to be patient. Each step backwards does not mean the end of the reform process.Hype vs. Reality

For all the hype, the Yuan trades as actively as the Mexican Peso. Yes, this will change, s.l.o.w.l.y.

Right now, the US Has ...

  • The largest, freest capital market in the world. 
  • The largest bond market in the world. 
  • A freely floating currency.
  • Political freedom.
  • Strong property laws.
  • Democratic form of government.

Trade Math

By the way, it's important to note that foreign governments accumulate US dollars as a function of math.

For example, the US runs a trade deficit with China. China must accumulate US dollars (or US dollar assets such as US treasuries). Those who argue otherwise, do not understand the trade mechanics.

Sure, there will be more trading in currencies other than the dollar over time. But the idea that the yuan will soon rein supreme is complete silliness.

All Things End

All things come to an end, including US dollar supremacy. Yet, don't expect a miraculous rise of the yuan or anything related to the seriously misguided petrodollar and petroyuan theories.

As Pettis points out "China has a rigid, unsophisticated, and largely insolvent financial system with vague delineations between what is and what isn’t implicitly guaranteed by local governments or by Beijing."

Currency Crisis Awaits

China is indeed "largely insolvent" to phrase things politely. But, it's not just China. The entire global financial system is insolvent.

A global currency crisis can start anywhere, at any time. Three likely places to look are the euro, the yen, and the yuan.

In baseball parlance, Euroland is the batter's box and Japan is on deck.

If a global currency crisis does start soon, then gold, the much maligned US dollar, and US treasuries will likely be the beneficiaries, not the illiquid yuan.

Precisely what the next currency system will look like is unknown. But if the system changes in a major way, neither the yuan nor the US dollar will be at the heart of it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

McCain Calls for Ground Troops in Syria and an Ebola Czar; Secret Friends

pon., 13/10/2014 - 05:32
I am seriously starting to wonder if Senator John McCain has lost his mind.

In 2009, the Senator complained "Obama has more czars than the Romanovs." Today, John McCain, Czar Hater, Calls For Ebola Czar.
Sen. John McCain (R-Ariz.) believes President Barack Obama should appoint a "czar" to lead America's response to Ebola.

"From spending time here in Arizona, my constituents are not comforted. There has to be more reassurance given to them. I would say that we don't know exactly who's in charge. There has to be some kind of czar," McCain said Sunday on CNN's "State of the Union."

Other Republicans have also seemingly changed their minds on the issue. Rep. Jack Kingston (R-Ga.), who once introduced the "Czar Accountability and Reform Act" to cut off funding for czars, said earlier this month that Obama needed to appoint such an official to help unify the government's response to Ebola.Why Don't We Have an Ebola Czar?

The correct answer should be "We don't have an ebola czar because we do not need one. If created, the position would never go away once created, and we have too many czars already".

Instead, let's assume ebola control belongs in the hands of the surgeon general. With that assumption, we do not have an ebola czar because the NRA put the kibosh on Obama's Surgeon Gen. nominee, Regina Benjamin.

I am not here to debate the merits or lack thereof of Regina Benjamin. I do not know her medical qualifications. I will say that her 2012 tweet calling guns "a health care issue" seems quite reasonable. And for that tweet, her appointment has been blocked.

Ebola vs. Firearm Homicides

The Center for Disease Control reports there were 11,068 firearm homicides in 2011. In 2014 there has been 1 ebola death.

Regardless of one's position on handgun control, here's a simple question: what's the bigger health-care issue?

Yet, instead of a Surgeon General, McCain wants an ebola Czar, even though he whined Obama has too many czars.

If you were looking for proof McCain has lost his marbles, you now have it. 

McCain Calls for Ground Troops in Syria

Looking for more proof McCain has lost his marbles? If so, please consider McCain urges ground troops to defeat Isis: 'They're winning, and we're not'
Senator John McCain has warned that the Islamic State (Isis) is winning in Iraq and Syria, and that the United States needs to deploy ground troops if it is to stave off defeat.

Senator John McCain has warned that the Islamic State (Isis) is winning in Iraq and Syria, and that the United States needs to deploy ground troops if it is to stave off defeat.

The Arizona Republican urged a “fundamental re-evaluation” of US strategy on Sunday, as the extremist group, which is the target of US-led international air strikes, continued to advance into the Kurdish town of Kobani in Syria, near the border with Turkey, and towards the Iraqi capital, Baghdad.

“They’re winning, and we’re not,” McCain told CNN. “The Iraqis are not winning. The Peshmerga, the Kurds are not winning.”Secret Friends

Here's an interesting snip from the same article...
James Baker, a secretary of state under the first President Bush, told NBC he would not be surprised if Iran was secretly helping the US against Isis, a common foe. Henry Kissinger, another former secretary of state, told the same programme Iran was a potential US ally.

Rice, however, said Iran remained outside the US-led coalition against Isis. “We’re not in coordination or direct consultation with the Iranians,” she said.Fundamental Reevaluation

I agree with McCain that the US needs a fundamental reevaluation of US foreign policy.

But instead of ground troops, this is what I propose ...

  1. First, let's scrap the failed idea of "nation building".
  2. Second, we need an assessment of who our friends and enemies really are.
  3. Third, we should think three times before we send US troops in harm's way.
  4. Fourth, if we do send US troops in harm's way we should have an honest discussion of  how much it will cost, how we will pay for it, and why it's necessary.
  5. Fifth, we should defend our borders, not every border in the world (typically based on whether the region has oil or not).

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Snowden Film "Citizen Four" Reveals How He Did It; Second Leaker Involved; Files on 1.2 Million People; Snowden Vindicated

nie., 12/10/2014 - 04:26
Once again I salute Edward Snowden as an all-American hero. On second thought, make that an all-world hero.

A movie on how and why Snowden revealed NSA wiretaps is about to be released.

Showbiz reports Edward Snowden Doc Premieres: Shocking Inside Look at How He Did It.
Citizen Four is the shocking doc about Edward Snowden made by Glenn Greenwald and Laura Poitras. Just screened tonight was the two hour film which will be released by the Weinstein Company this month. It doesn’t paint the Obama administration in a very good light as Snowden explains how the government has violated privacy rights on a massive scale.

Also the filmmakers clearly indicate that all roads lead to POTUS, a fairly serious accusation. There may be serious repercussions.

Then there’s the Hollywoodization of Snowden. The detail of how and why Snowden went about this is pretty surprising considering how the 29 year old former NSA employee says he wants his own privacy and not to be a celebrity. It’s instructive to see his evolution from eyeglass wearing nerd to contact lenses and moussed up hair sporting hero of his own thriller. It’s all very Tom Cruise. Even the beautiful girlfriend sets up housekeeping with him in Moscow. Nevertheless as the details of the NSA’s programs are revealed Snowden says, “This isn’t science fiction. It’s really happening.”Snowden Vindicated

Let's turn to where it all started: The Guardian. Snowden made his revelations to Guardian reporter Glen Greenwald.

Please consider The Guardian article Citizenfour Review – Poitras' Victorious Film Shows Snowden Vindicated.
Citizenfour must have been a maddening documentary to film. Its subject is pervasive global surveillance, an enveloping digital act that spreads without visibility, so its scenes unfold in courtrooms, hearing chambers and hotels. Yet the virtuosity of Laura Poitras, its director and architect, makes its 114 minutes crackle with the nervous energy of revelation.

At its heart, Citizenfour is the story of how Snowden’s disclosures unfolded through Poitras’ eyes, from the first communications Snowden sends Poitras, hinting at what is to come, until Snowden sees himself vindicated through emulation. (The film is named for a pseudonym Snowden used with Poitras.) The time before Poitras meets Snowden is symbolized by a car travelling through a pitch-black tunnel, barely illuminated by the glowing red lights on the ceiling, until sunlight bursts in when she and her colleagues Glenn Greenwald and the Guardian’s Ewen MacAskill arrive in Hong Kong for their fateful encounter.

Accessibly explaining how surveillance works, and why it matters, only gets more challenging the deeper you dig into the NSA trove. At the Guardian, it consumed exhausting months’ worth of background reporting, verification and endless revisions.

Since June 2013, Snowden has been a cipher to the world, often yielding paranoid reactions (Russian spy! Chinese dupe!) from people understandably curious about his motives. It may be too late to change people’s minds about Snowden, at least so soon after his leaks. But the Snowden who Poitras shows – hair tousled, resisting his attempts at styling it – is determined, sincere and human.

While often portrayed as arrogant, especially by self-interested surveillance bureaucrats, Snowden tells Poitras, Greenwald and MacAskill that he wants journalists and not himself to decide what ought to be public. He is possessed with an uncanny calm as he is about to become forever targeted. Yet Snowden’s eyes redden and his shoulders stoop when he grasps the burden he is placing on his family and girlfriend – with whom he is now reunited in Russia, a place in which he never intended to live.

Given the passions that the NSA disclosures have generated, it’s remarkable how tempered Citizenfour comes across. Reflecting a style Poitras seems to share with Snowden, it’s a quiet movie, its soundtrack a sinister digital throb, packed tight with questions about how we live freely in an unseen dragnet. One of its only boisterous moments comes when Snowden and Greenwald discuss the spirit animating both the reporting and Snowden’s decision to reveal himself. Greenwald describes it as “the fearlessness and the f*ck-you”.

That fearlessness attracted Snowden to Poitras, and it shows through her camera.

Citizenfour opens in US cinemas on 24 October. Second Leaker Involved

Please note Second leaker in US intelligence, says Glenn Greenwald
The investigative journalist Glenn Greenwald has found a second leaker inside the US intelligence agencies, according to a new documentary about Edward Snowden that premiered in New York on Friday night.

Towards the end of filmmaker Laura Poitras’s portrait of Snowden – titled Citizenfour, the label he used when he first contacted her – Greenwald is seen telling Snowden about a second source.

Snowden, at a meeting with Greenwald in Moscow, expresses surprise at the level of information apparently coming from this new source. Greenwald, fearing he will be overheard, writes the details on scraps of paper.

The specific information relates to the number of the people on the US government’s watchlist of people under surveillance as a potential threat or as a suspect. The figure is an astonishing 1.2 million. Edward Snowden's Girlfriend Living with Him in Moscow

The Guardian reports Edward Snowden's Girlfriend Living with Him in Moscow.
Lindsay Mills, thought to have been deserted by Snowden before NSA revelations, appears beside whistleblower in Citizenfour.

The mystery of the whereabouts of Edward Snowden’s long-time girlfriend is solved in a documentary that premiered in New York on Friday night: she has been living with the national security whistleblower in Russia since July.

The surprise revelation in the documentary, filmed by Laura Poitras, upends the widespread assumption that Snowden had deserted Lindsay Mills and that she, in a fit of pique, fled Hawaii where they had been living to stay with her parents in mainland US.

Since Snowden, a former NSA contractor, outed himself last year as being behind the biggest leak in US intelligence history, Mills has remained silent, giving no interviews or any hints of her feelings on the subject of her boyfriend or his actions.

The two-hour long documentary, Citizenfour, shows Mills living in Russia with Snowden. Greenwald and Snowden are Heroes

The NSA has 1.2 million files on "suspects". Are there any files on president Obama for flagrant violations of the US Constitution?  If not, I suggest the NSA is targeting the wrong people.

I am proud to have been on the right side of this debate from day one.

I repeat my assertion Greenwald and Snowden are Heroes. Greenwald is well deserving of the Pulitzer Prize he won for breaking this story.
 
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Indianapolis Airport Unveils Roaming Customer Service Robot on Wheels; Next Big Thing in Airport Customer Relations

sob., 11/10/2014 - 00:09
The ongoing effort to replace human workers with robots took an interesting turn today as Indianapolis Airport Unveils Roaming Customer Service Robot on Wheels.
A new customer service robot is now roaming around the passenger terminal of Indianapolis International Airport.

The robot was rolled out Thursday, with a staffer guiding it remotely around the baggage claim area greeting travelers and looking for anyone who needed assistance. The robot looks like a miniature Segway, but with a blue customer service shirt and an interactive iPod on top showing the employee piloting it.


Next Big Thing in Airport Customer Relations

USA Today has a video of the Friendly Indianapolis Airport Robot answering questions.

Don't worry, the robot is not out to take your customer service job. Airport officials say the robot will complement, not replace, human workers.  

They forgot to add ... until we get the kinks worked out.

Of course, the higher the minimum wage, the faster they will get the kinks out.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Defense Dept. to Request $30-40 Billion a Year to Fight ISIS; History Lessons

pt., 10/10/2014 - 20:22
Anyone recall how the war in Iraq would pay for itself? That was the US Defense Department estimate in 2003.

Now some $3 trillion later (add in veterans’ benefits, depreciation of equipment, humanitarian aid, covert action, and paying for the military efforts of our coalition ‘partners' and the Total Cost of Iraq, Afghan Wars is $4-6 Trillion.

Come Hell or High Water

That $4 to $6 trillion Iraq, Afghan cost projection was made in 2013. That estimate assumed the costs would be winding down now. They won't.

On September 30, 2014 Vice President Joe Biden's pledge to get out of Afghanistan "come hell or high water by 2014" came to an abrupt halt when President Obama agreed to a deal to leave US troops in the country until 2024 "at least".

For details and an assessment of that announcement, please see "Come Hell or High Water" Promise Morphs Into "Infinity and Beyond".

How Much Will Fighting ISIS Cost?

Boston Globe writer Linda J. Bilmes asks Fighting the Islamic State — how much will it cost?.
President Obama and his military top brass have pronounced that the effort to defeat the Islamic State will be “long” — translation: expensive. The Pentagon has admitted to spending over $1 billion so far, with the current pace running at some $10 million per day. Todd Harrison of the Center for Strategic and Budgetary Assessments believes the annual bill for military operations will range from $4 billion to $22 billion, depending on duration, scope, and the extent to which ground forces get involved — which is becoming increasingly likely. Obama has ruled out sending troops, but it is clear the Pentagon has not given up on boots on the ground — they just may not be worn entirely by Americans.

Twelve months ago, the wartime culture of “endless money,” as former Defense Secretary Robert Gates dubbed it, with its endless “emergency” funding from Congress (nearly $2 trillion in more than 30 special funding bills) — was finally coming to an end. The Beltway was filled with talk of belt-tightening at the Department of Defense, including a 10-year $497-billion cut imposed by the so-called sequester. The Pentagon was proposing to shrink the size of the armed forces, trim military compensation and benefits, and mothball expensive weapons and military installations left over from the Cold War.

But now that’s all so-last-fiscal-year. The new trend is ramping up Pentagon spending. At their press conference last week, Defense Secretary Chuck Hagel and Martin Dempsey, the Chairman of the Joint Chiefs of Staff, declared that they don’t have enough funding to conduct the operation against the Islamic State.

In addition, Congress is refusing to let the Pentagon make even modest changes to its current base benefit plan. This will surely encourage the department to ask for another blank check to pay for new operations. Requests are already mounting.

The combined cost of abandoning planned cutbacks at the Defense Department, new spending to combat the Islamic State, and extra foreign military assistance means that America will wind up spending up to $100 billion more on military activities than we had expected this year alone.

Washington assumes that we will simply borrow whatever is needed — and continue to pass the cost of today’s wars onto future generations. This feckless approach has already led to much higher national debt, as well as rampant waste and corruption in our military appropriations.

Financing the Iraq and Afghanistan conflicts with debt has hidden the true costs from public view. President Obama has just asked Americans to embark on another decade-long military engagement. He needs to propose a strategy for how it should be paid for, and what sacrifices will be required.$100 Billion More Than Expected Already This Year Alone

Todd Harrison of the Center for Strategic and Budgetary Assessments believes the bill will "range from $4 billion to $22 billion" annually, even though we are going to spend $100 billion more this year on defense than expected.

How's that work? I'll tell you how: Money is pooled into an “Overseas Contingency Operation” slush fund and spent as the department wants. Moreover, veterans' benefits, medical treatment and numerous other war costs don't show up in any war-related buckets.

New U.S. Price Tag for the War Against ISIS: $40 Billion a Year

In a 100% guaranteed to be underestimated cost analysis, the Fiscal Times reports New U.S. Price Tag for the War Against ISIS: $40 Billion a Year.
With the war against ISIS off to a rocky start, there are signs that the Obama administration is getting ready to up the ante substantially on weaponry, manpower and aid to allies – at a cost of an additional $3o billion to $40 billion a year.

Earlier, Gordon Adams, a military analyst at American University, told The Fiscal Times that the mission to stop ISIS will cost $15 billion to $20 billion annually, based on his “back of the envelope” calculations. Other analysts have made similar forecasts. But based on soundings of the defense establishment, Adams said Thursday that the Defense Department would almost certainly request funding of twice that level later this year.

“I have consummate faith that they can get to $30 billion to $40 billion a year without breaking a sweat,” he added. 

The estimated $30 billion to $40 billion of new spending would come on top of the Pentagon’s $496 billion fiscal 2015 operating budget for personnel and contractors and the roughly $58.6 billion in an “Overseas Contingency Operation” fund that is used to finance U.S. war operations in the Middle East.

The OCO, as it is known, has paid for the protracted U.S. military engagement in the Middle East with borrowing that adds to the long-term U.S. debt. If Adams’ projections are correct, then the OCO would total as much as $80 billion to $90 billion in the coming year.

However, House Speaker John Boehner and other congressional Republican leaders are skeptical that Obama’s strategy can work without substantially more resources – including more ground troops. Iraq War: Predictions Made, and Results

Let's take a look at previous predictions, when they were made, and how accurate they were, starting with a Christian Science Monitor report Iraq War: Predictions Made, and Results.
Ahead of and shortly after the US invasion of Iraq in 2003, a number of officials, including former Defense Secretary Donald Rumsfeld and his deputy Paul Wolfowitz suggested the war could be done on the cheap and that it would largely pay for itself. In October 2003, Rumsfeld told a press conference about President Bush's request for $21 billion for Iraq and Afghan reconstruction that "the $20 billion the president requested is not intended to cover all of Iraq's needs. The bulk of the funds for Iraq's reconstruction will come from Iraqis -- from oil revenues, recovered assets, international trade, direct foreign investment, as well as some contributions we've already received and hope to receive from the international community."

In March 2003, Mr. Wolfowitz told Congress that "we're really dealing with a country that could finance its own reconstruction." In April 2003, the Pentagon said the war would cost about $2 billion a month, and in July of that year Rumsfeld increased that estimate to $4 billion.I believe we all know how that turned out.

Lost Cause

On July 24, 2010 I wrote Afghanistan is a "Lost Cause"; Leaked Documents Show Futility of Afghanistan War
The questions on my mind are: How many trillions of dollars do we have to spend, how many lives need to be wasted, and how much longer are we going to be involved in the boondoggle known as Afghanistan?The total amount of the waste and lives lost is unknown, but we now have an answer to my 2010 question: "how much longer are we going to be involved in the boondoggle known as Afghanistan?".

The unfortunate answer is "until 2024 at least".

How much will fighting ISIS it really cost? No one can answer that now, but a safe starting point for discussion is somewhere between 10 and 100 times initial projections.

Time for Self Assessment

In Iraq Splinters Into Pieces, Al Qaeda in Control of Several Cities, Kurds Take Oil City Kirkuk; Thank George Bush and the Neocons; Iraq Before and After I held the Bush Administration largely responsible for this mess.

Sure, president Obama made many mistakes but the initial, most damning mistake was the Iraq invasion and the overthrow of Saddam Hussein.

In a follow-up post, Assessing the Blame for Iraq: Bush, Obama, McCain, Others; Iraq Sunken Costs I asked for self-assessment.

Time for Self Assessment

I can and do blame Obama for countless things. But Republicans would be very wise to self-assess on Iraq, on nation building, and on warmongering in general.

Instead of self-assessment, warmongers want more war.

Deficit-Hawk Hypocrites

As is always the case, John McCain leads the war rally cry in the Senate.  In the House, Speaker John Boehner Says U.S. may have 'no choice' on combat troops.

Not once have these Republican deficit-hawk hypocrites said how they propose to pay for this. Not once has McCain ever placed the blame for ISIS where it belongs.

ISIS a U.S. Creation

ISIS is 100% a US creation. ISIS arose following inane US nation-building policies starting with the absurd belief the "Iraq war would pay for itself.

This self-made mess produced Strange Bedfellows: To Fight ISIS, US Now Supports Iranian Revolutionary Guard, Other Terror Groups.

I concluded "Strange Bedfellows" with a warning "Just remember ... To make matters worse, you have to begin somewhere."

History Lesson

I conclude this post with another history lesson: "No mess is ever so big that it cannot be made worse by throwing more money at it."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

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